Ames National Corporation — Form 10-Q Summary
Business context and reporting period
Ames National Corporation is an Iowa bank holding company operating six community banks in central, north-central and south-central Iowa. The banks provide commercial and consumer loans, deposits, wealth management, trust, mortgage, merchant and card services. This quarterly report covers the three months ended March 31, 2024; financial statements are unaudited except for the December 31, 2023 balance sheet.
Financial performance and condition
| Metric | Q1 2024 | Comparable period or date |
|---|---|---|
| Total interest and dividend income | $20.1 million | $17.2 million in Q1 2023 |
| Interest expense | $9.2 million | $5.5 million in Q1 2023 |
| Net interest income | $10.9 million | $11.7 million in Q1 2023 |
| Net interest margin, FTE | 2.13% | 2.32% in Q1 2023 |
| Credit loss expense | $169 thousand | $275 thousand in Q1 2023 |
| Noninterest income | $2.2 million | $2.3 million in Q1 2023 |
| Noninterest expense | $10.2 million | $9.8 million in Q1 2023 |
| Income before taxes | $2.7 million | $3.9 million in Q1 2023 |
| Net income | $2.3 million | $3.2 million in Q1 2023 |
| Basic and diluted EPS | $0.26 | $0.36 in Q1 2023 |
| Efficiency ratio | 77.9% | 70.2% in Q1 2023 |
| Dividends declared per share | $0.27 | $0.27 in Q1 2023 |
Interest income increased 17%, primarily from higher loan rates and loan growth, but interest expense increased 67% as depositors moved into higher-rate products and market rates rose. The resulting pressure on the net interest margin was the primary earnings headwind.
- Total assets were $2.19 billion at March 31, 2024, up $36.4 million from year-end 2023.
- Net loans were $1.273 billion, down from $1.278 billion at December 31, 2023, primarily due to lower commercial real estate demand.
- Available-for-sale securities were $723.2 million, down from $736.4 million.
- Deposits increased to $1.872 billion from $1.812 billion. Estimated uninsured deposits were approximately $637 million, of which approximately $153 million were collateralized.
- Cash and cash equivalents increased to $111.4 million from $55.1 million.
- Other borrowings decreased to $90.3 million from $110.6 million. $75 million of Bank Term Funding Program borrowings matured during the quarter and were partially replaced with $30 million of FHLB financing and $42 million of BTFP financing.
- Stockholders’ equity was $165.5 million, or 7.6% of assets, compared with $165.8 million, or 7.7%, at year-end.
- Gross unrealized losses on available-for-sale securities were $62.5 million. Management attributed the losses primarily to higher interest rates and reported no allowance for credit losses on the securities.
Cash flow, liquidity and capital
- Operating activities provided $1.4 million of cash, compared with $6.5 million in Q1 2023.
- Investing activities provided $18.3 million, primarily from securities maturities and a decrease in loans.
- Financing activities provided $36.6 million, principally reflecting a $60.3 million increase in deposits, partly offset by borrowing repayments and dividends.
- Available liquidity included $111.4 million of cash and cash equivalents, $260.8 million of FHLB borrowing capacity with $37.0 million outstanding, $102.6 million of federal funds borrowing capacity, and $342.6 million of unpledged securities and interest-bearing deposits.
- Management stated that liquidity sources were satisfactory and sufficient for foreseeable operations. The principal liquidity uncertainty identified was a sudden decline in deposits requiring securities liquidation.
- The consolidated total risk-based capital ratio was 14.1%, Tier 1 risk-based capital was 12.9%, common equity Tier 1 capital was 12.9%, and Tier 1 leverage was 9.0%. The company and all banks exceeded applicable well-capitalized requirements.
Material changes versus prior periods
- Net income declined 28% year over year to $2.3 million, and EPS declined to $0.26 from $0.36.
- Net interest income declined $763 thousand despite higher loan interest income because funding costs rose substantially.
- Noninterest income declined modestly because the company recognized a $165 thousand net loss on securities sales; proceeds of $2.0 million were used to reduce borrowings.
- Noninterest expense increased 4%, primarily due to higher FDIC insurance assessments and salaries and benefits.
- Net loan recoveries were $4 thousand, compared with $158 thousand of net loan charge-offs in Q1 2023.
- The allowance for credit losses increased to $17.0 million from $16.8 million, or 1.31% of loans versus 1.30% at year-end, largely because of increased commercial real estate collateral risk.
- Problem loans were 1.03% of total loans, down from 1.08% at year-end but above the Iowa State Average peer level of 0.39% as of December 31, 2023.
Outlook, risks and unusual items
- Management plans to reduce borrowings during 2024 as investment securities mature. No material capital expenditures or material changes in the capital resource mix were anticipated.
- Credit risk remains concentrated in the loan portfolio, particularly commercial real estate and agricultural lending. Commercial real estate substandard and impaired loans increased to $20.3 million from $15.4 million, while agricultural watch and special mention loans increased to $29.7 million from $19.9 million.
- Non-owner-occupied commercial office loans represented approximately 3% of total loans. Management cited lease expiration risk in a non-owner-occupied commercial real estate loan.
- Nonaccrual loans were $13.2 million, and loans at least 90 days past due and still accruing were $110 thousand. There was no other real estate owned.
- The company identified interest rates, deposit competition, liquidity availability and cost, commercial and residential real estate values, agricultural conditions, credit quality, regulation, capital requirements and economic conditions as key risks.
- On April 25, 2024, after quarter-end, the company entered into a revolving credit facility of up to $5 million maturing April 25, 2026. The facility is secured by all outstanding shares of Reliance State Bank.
- Goodwill was not impaired as of March 31, 2024. No material changes to off-balance-sheet arrangements or risk factors were reported.
Most important facts for investors to verify
- Whether deposit pricing and mix continue to pressure net interest margin and earnings.
- Trends in commercial real estate and agricultural watch, special mention, substandard and impaired loans.
- Whether the $62.5 million of unrealized securities losses remain recoverable without forced sales or additional capital pressure.
- Actual uninsured deposit movements and available borrowing capacity if deposits decline.
- Future allowance for credit losses, charge-offs and nonaccrual loan trends.
- Execution of management’s plan to reduce borrowings as securities mature.
- Terms, utilization and collateral implications of the post-quarter-end $5 million revolving credit facility.
- Continued compliance with well-capitalized regulatory requirements and dividend capacity.