Ames National (ATLO) - 2023 Q3 - Quarterly Report

Financial Performance - Net income for the nine months ended September 30, 2023, was $8.7 million, a decrease from$14.9 million in the same period in 2022[6] - Net income for the nine months ended September 30, 2023, was $8,678 thousand, compared to$14,881 thousand for the same period in 2022[8] - Net income for the three months ended September 30, 2023, was $2,924 thousand, compared to$5,543 thousand for the same period in 2022[14] - Net income for 2023 was $8,678 thousand, a decrease from$14,881 thousand in 2022[18] - Net income for Q3 2023 was $2.9 million, or$0.33 per share, compared to $5.5 million, or$0.62 per share, in Q3 2022, primarily due to higher interest expenses on deposits and other borrowings[160] Assets and Liabilities - Total assets increased to $2,154.1 million as of September 30, 2023, compared to$2,134.9 million as of December 31, 2022[4] - Total deposits decreased to $1,828.7 million as of September 30, 2023, from$1,898.0 million as of December 31, 2022[4] - Loans receivable, net, increased to $1,231.9 million as of September 30, 2023, from$1,226.0 million as of December 31, 2022[4] - Total stockholders' equity decreased to $146.6 million as of September 30, 2023, from$149.1 million as of December 31, 2022[4] - Stockholders' equity as of September 30, 2023, was $146,640 thousand, compared to$137,271 thousand as of September 30, 2022[14] - Cash and cash equivalents increased significantly from $27.884 million in 2022 to$90.063 million in 2023, reflecting strong liquidity growth[75] - Loans receivable, net, remained stable at $1.231 billion in 2023 compared to$1.226 billion in 2022, with a slight decrease in fair value from $1.170 billion to$1.173 billion[75] - Deposits decreased from $1.897 billion in 2022 to$1.828 billion in 2023, with a minor change in fair value from $1.895 billion to$1.828 billion[75] Interest Income and Expense - Net interest income for the nine months ended September 30, 2023, was $33.7 million, down from$40.5 million in the same period in 2022[6] - Interest expense on deposits for the nine months ended September 30, 2023, was $17.2 million, a significant increase from$3.9 million in the same period in 2022[6] - Net interest income on an FTE basis (non-GAAP) for the three months ended September 30, 2023, was $10,835 thousand, compared to$13,833 thousand for the same period in 2022[192] - The average yield on total loans (including fees) for the three months ended September 30, 2023, was 4.67%, compared to 3.99% for the same period in 2022[197] - The average yield on total investment securities for the three months ended September 30, 2023, was 2.03%, compared to 1.94% for the same period in 2022[197] - The average rate paid on total interest-bearing liabilities for the three months ended September 30, 2023, was 2.02%, compared to 0.55% for the same period in 2022[200] - The net interest margin (FTE) for the three months ended September 30, 2023, was 2.11%, compared to 2.71% for the same period in 2022[200] - Net interest margin adjusted for tax-exempt income was 2.11% for Q3 2023, compared to 2.71% for Q3 2022[201] - Net interest income before tax-exempt adjustment was $10.7 million for Q3 2023, down from$13.7 million in Q3 2022[201] Credit Losses and Allowances - The company recorded a net decrease to retained earnings of $603 thousand due to the adoption of ASC 326[27] - Allowance for credit losses on loans increased by$518 thousand under ASC 326[28] - Allowance for credit losses on off-balance sheet credit exposures increased by $273 thousand under ASC 326[28] - The allowance for credit losses as of September 30, 2023, was$16.1 million, compared to $15.7 million as of December 31, 2022[90] - The credit loss expense for the three months ended September 30, 2023, was a benefit of$205 thousand, primarily driven by recoveries and adjustments across various loan categories[94] - The impact of adopting ASC 326 resulted in a credit loss expense benefit of $518 thousand for the nine months ended September 30, 2023[95] - Loans individually assessed for credit losses as of September 30, 2023, were collateral dependent and in the process of foreclosure, differing from the collectively evaluated loans[99] - The allowance for credit losses is determined through a two-component process: asset-specific allowances and pooled allowances based on loan risk characteristics[176] - Factors influencing credit loss estimates include economic conditions, loan portfolio characteristics, collateral values, and regulatory requirements[181] - The allowance for credit losses is established through a credit loss expense, which is charged against earnings, and is reviewed quarterly incorporating both quantitative and qualitative factors[185] Comprehensive Income and Loss - Unrealized holding losses arising during the period were$(4,230) thousand for the nine months ended September 30, 2023, compared to $(100,257) thousand for the same period in 2022[8] - Other comprehensive loss, net of tax, was$(3,251) thousand for the nine months ended September 30, 2023, compared to $(75,777) thousand for the same period in 2022[8] - Comprehensive income (loss) for the nine months ended September 30, 2023, was$5,427 thousand, compared to $(60,896) thousand for the same period in 2022[8] - Other comprehensive loss, net of tax, was$(9,285) thousand for the three months ended September 30, 2023, compared to $(23,195) thousand for the same period in 2022[14] - Comprehensive income (loss) for the three months ended September 30, 2023, was$(6,361) thousand, compared to $(17,652) thousand for the same period in 2022[14] Cash Flow - Net cash provided by operating activities in 2023 was$12,814 thousand, down from $15,000 thousand in 2022[18] - Net cash provided by investing activities in 2023 was$38,838 thousand, compared to a net cash used of $85,987 thousand in 2022[18] - Net cash provided by financing activities in 2023 was$10,527 thousand, slightly down from $11,113 thousand in 2022[18] - Net increase in cash and cash equivalents for 2023 was$62,179 thousand, compared to a net decrease of $59,874 thousand in 2022[18] - Cash payments for interest in 2023 were$17,890 thousand, significantly higher than $4,553 thousand in 2022[20] Loans and Credit Risk - Total loans receivable as of September 30, 2023, amounted to$1,248.1 million, with real estate - commercial loans being the largest category at $345.6 million[90] - Real estate - construction loans increased to$64.7 million as of September 30, 2023, from $51.3 million as of December 31, 2022[90] - Agricultural loans decreased to$98.8 million as of September 30, 2023, from $113.4 million as of December 31, 2022[90] - Total loans as of September 30, 2023, amounted to$1,248,108 thousand, with $1,094,187 thousand classified as "Pass" and$99,892 thousand as "Watch"[125] - Current-period gross writeoffs for total loans were $201 thousand, with$164 thousand from agricultural loans and $37 thousand from commercial loans[125] - The credit risk profile as of December 31, 2022, showed total loans of$940,390 thousand, with $794,529 thousand classified as "Pass" and$109,282 thousand as "Watch"[127] - Performing loans as of December 31, 2022, were $300,492 thousand, with$284,302 thousand in 1-4 Family Residential Real Estate and $16,190 thousand in Consumer and Other[128] Fair Value Measurements - The fair value of U.S. government treasuries as of September 30, 2023, was$202,522, classified under Level 1[67] - The fair value of U.S. government agencies as of September 30, 2023, was $98,049, classified under Level 2[67] - The fair value of U.S. government mortgage-backed securities as of September 30, 2023, was$101,552, classified under Level 2[67] - The fair value of state and political subdivisions as of September 30, 2023, was $265,299, classified under Level 2[67] - The fair value of corporate bonds as of September 30, 2023, was$69,522, classified under Level 2[67] - The fair value of loans receivable as of September 30, 2023, was $8,045, classified under Level 2[67] - The fair value of derivative financial instruments as of September 30, 2023, was$1,565 for assets and $199 for liabilities, classified under Level 2[67] - The fair value of loans receivable measured at fair value on a nonrecurring basis as of September 30, 2023, was$304, classified under Level 3[68] - The fair value of the company's available-for-sale securities portfolio is measured based on the price that would be received in an orderly transaction between market participants[187] - Declines in the fair value of available-for-sale securities below their cost are evaluated for credit losses and reflected in earnings as a credit loss expense[188] Capital and Risk Management - Consolidated total capital to risk-weighted assets as of September 30, 2023, was $217.47 billion, representing a ratio of 14.1$15.34 billion, with a ratio of 13.0% as of September 30, 2023[152] - First National Bank's common equity Tier 1 capital to risk-weighted assets was $102.72 billion, with a ratio of 12.9$26.45 billion, with a ratio of 16.2% as of September 30, 2023[152] - Reliance State Bank's Tier 1 capital to average assets was $25.97 billion, with a ratio of 8.4$20.70 billion, with a ratio of 15.0% as of September 30, 2023[152] - United Bank & Trust's Tier 1 capital to risk-weighted assets was $12.00 billion, with a ratio of 14.8$215.80 billion, representing a ratio of 14.1%[153] - Boone Bank & Trust's Tier 1 capital to risk-weighted assets was $14.99 billion, with a ratio of 12.1$101.98 billion, with a ratio of 13.0% as of December 31, 2022[153] - Capital ratio stood at 7.23% as of September 30, 2023, lower than the industry average of 10.68% as of June 30, 2023, though all six affiliate banks remain well-capitalized[173] Dividends and Share Repurchases - Cash dividends declared were $2,428 thousand for both the three months ended September 30, 2023, and September 30, 2022[14] - The company declared a cash dividend of$0.27 per share, payable on November 15, 2023, to stockholders of record as of November 1, 2023[58] - Repurchase and retirement of stock for the nine months ended September 30, 2022, was $(2,300) thousand[15] Intangible Assets - Intangible assets as of September 30, 2023, had a gross amount of$6,946 thousand, with accumulated amortization of $5,403 thousand[130] - The weighted average remaining life of intangible assets is approximately 3 years as of September 30, 2023[130] - Amortization expense for intangible assets for the nine months ended September 30, 2023, was$388 thousand[133] - Ending net intangible assets as of September 30, 2023, were $1,543 thousand, down from$1,931 thousand at the beginning of the period[133] Borrowings and Collateral - Total pledged collateral related to securities sold under repurchase agreements was $73.3 million as of September 30, 2023, compared to$60.9 million as of December 31, 2022[136] - The company borrowed $400 thousand on August 15, 2023, with a fixed interest rate of 6.5$392 thousand as of September 30, 2023[138] - The company had $19.0 million of short-term FHLB advances as of September 30, 2023, down from$35.4 million as of December 31, 2022[139] - The company borrowed $83.3 million under the Bank Term Funding Program (BTFP) as of September 30, 2023[139] - The company executed an interest rate swap with a notional amount of$25.0 million in Q3 2023 to hedge interest rate risk on long-term fixed-rate loans[140] - The notional amount of interest rate swaps increased to $34.0 million as of September 30, 2023, from$9.3 million as of December 31, 2022[143] - The carrying amount of hedged assets was $58.9 million as of September 30, 2023, with a cumulative fair value hedging adjustment of$(1.4) million[144] - The company posted $415 thousand in collateral for back-to-back loan swaps as of September 30, 2023[144] Investments and Securities - U.S. government treasuries saw a decrease in amortized cost from$227.065 million in 2022 to $221.032 million in 2023, with fair value dropping from$207.597 million to $202.522 million[80] - Corporate bonds' amortized cost decreased from$82.177 million in 2022 to $77.177 million in 2023, with fair value declining from$75.164 million to $69.522 million[80] - Securities available-for-sale had an amortized cost of$824.767 million in 2023, down from $869.996 million in 2022, with fair value decreasing from$786.438 million to $736.944 million[80] - The company's investment portfolio had an expected duration of 3.64 years as of September 30, 2023[81] - Securities pledged increased from$256.7 million in 2022 to $367.6 million in 2023, indicating higher collateral usage[82] - Gross realized gains on securities available-for-sale were$62,000 for the three months ended September 30, 2023, compared to $25,000 in the same period in 2022[86] - Unrealized losses on U.S. government treasuries increased from$19.468 million in 2022 to $18.510 million in 2023, reflecting market volatility[87] - Gross unrealized losses on debt securities totaled$87.8 million as of September 30, 2023, primarily due to changes in interest rates or general market conditions[88] - The company does not rely on third-party credit rating agencies as a primary component for determining the capacity of municipal issuers to meet financial commitments[88] - The company's procedures for evaluating municipal investments include reviewing financial information, assessing tax revenue stability, and evaluating debt profiles[88] Loan Portfolio Composition - Total real estate - construction loans increased to $28,735 million in 2023 from$28,615 million in 2022[123] - Total 1-4 family residential loans decreased to $43,903 million in 2023 from$66,973 million in 2022[123] - Total multifamily loans decreased to $22,138 million in 2023 from$53,757 million in 2022[123] - Total commercial real estate loans decreased to $40,587 million in 2023 from$87,736 million in 2022[123] - Total agricultural real estate loans increased to $21,716 million in 2023 from$33,058 million in 2022[123] - Watch list loans for 1-4 family residential increased to $1,919 million in 2023 from$303 million in 2022[123] - Watch list loans for multifamily increased to $4,602 million in 2023 from$1,434 million in 2022[123] - Watch list loans for commercial real estate increased to $1,543 million in 2023 from$3,045 million in 2022[123] - Watch list loans for agricultural real estate increased to $1,168 million in 2023 from$381 million in 2022