Ames National (ATLO) - 2020 Q2 - Quarterly Report

PART I. Financial Information Consolidated Financial Statements (Unaudited) This section presents Ames National Corporation's unaudited consolidated financial statements, highlighting asset growth and decreased net income from higher loan loss provisions Consolidated Balance Sheets Total assets increased to $1.90 billion by June 30, 2020, driven by loan and deposit growth, with stockholders' equity also rising Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2020 | Dec 31, 2019 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $1,896,972 | $1,737,183 | +$159,789 | | Loans receivable, net | $1,146,046 | $1,048,147 | +$97,899 | | Securities available-for-sale | $513,616 | $479,843 | +$33,773 | | Total Liabilities | $1,695,823 | $1,549,603 | +$146,220 | | Total deposits | $1,643,543 | $1,493,175 | +$150,368 | | Total Stockholders' Equity | $201,150 | $187,579 | +$13,571 | Consolidated Statements of Income Net income decreased for Q2 and six months 2020 due to a substantial increase in the provision for loan losses Key Income Statement Data (in thousands, except per share data) | Metric | Q2 2020 | Q2 2019 | Six Months 2020 | Six Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $13,680 | $10,930 | $26,726 | $21,901 | | Provision for Loan Losses | $1,566 | $68 | $3,883 | $166 | | Noninterest Income | $2,428 | $2,213 | $5,059 | $4,139 | | Noninterest Expense | $9,100 | $7,218 | $18,150 | $14,675 | | Net Income | $4,428 | $4,618 | $7,982 | $8,855 | | EPS (Basic and Diluted) | $0.49 | $0.50 | $0.87 | $0.96 | Consolidated Statements of Comprehensive Income Comprehensive income significantly increased for Q2 and six months 2020, driven by higher unrealized gains on securities Comprehensive Income (in thousands) | Metric | Q2 2020 | Q2 2019 | Six Months 2020 | Six Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $4,428 | $4,618 | $7,982 | $8,855 | | Other Comprehensive Income, net of tax | $9,514 | $3,351 | $9,878 | $7,530 | | Comprehensive Income | $13,942 | $7,969 | $17,860 | $16,385 | Consolidated Statements of Stockholders' Equity Stockholders' equity increased due to net income and other comprehensive income, partially offset by dividends and stock repurchases - For the six months ended June 30, 2020, stockholders' equity increased by $13.6 million, driven by net income of $8.0 million and other comprehensive income of $9.9 million, while being reduced by dividends of $2.3 million and stock retirement of $2.0 million[10] Consolidated Statements of Cash Flows Operating activities provided cash, investing activities used cash for loans and securities, and financing activities provided cash from deposits Six-Month Cash Flow Summary (in thousands) | Activity | Six Months 2020 | Six Months 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $17,925 | $10,901 | | Net cash (used in) investing activities | ($156,984) | ($14,570) | | Net cash provided by (used in) financing activities | $136,970 | ($4,099) | | Net (decrease) in cash and due from banks | ($2,089) | ($7,769) | Notes to Consolidated Financial Statements Notes detail accounting policies, the ISSB acquisition, loan portfolio, and COVID-19 related loan modifications - The company has delayed the effective date for adopting the new credit loss standard (ASU No. 2016-13, CECL) until interim and annual periods beginning after December 15, 2022[19] - On October 25, 2019, the Company acquired Iowa State Savings Bank (ISSB) for $22.6 million in cash, recording goodwill of approximately $2.7 million and a core deposit intangible of $1.9 million[23][24] - In response to COVID-19, the company modified loans totaling $122.8 million as of June 30, 2020; these are not considered Troubled Debt Restructurings (TDRs) per regulatory guidance[64] Loan Portfolio Composition (in thousands) | Loan Type | June 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Real estate - commercial | $463,077 | $435,850 | | Real estate - 1 to 4 family | $205,254 | $201,510 | | Real estate - agricultural | $160,286 | $160,771 | | Commercial | $158,217 | $84,084 | | Agricultural | $109,066 | $111,945 | | Total Loans | $1,164,649 | $1,060,846 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses decreased earnings due to higher loan loss provisions from COVID-19, noting asset quality deterioration and PPP loan impact - Net income for Q2 2020 was $4.4 million, down from $4.6 million in Q2 2019, primarily due to an increased provision for loan losses attributed to the economic impact of COVID-19[87][88] - The COVID-19 pandemic has heightened risks, with approximately 8.3% of the loan portfolio associated with the hard-hit hospitality and entertainment industries; loan modifications totaled approximately $122.8 million as of June 30, 2020[88][93] - The loan portfolio grew to $1.15 billion, largely due to $78.3 million in Paycheck Protection Program (PPP) loans originated during the period[154] - Asset quality deteriorated, with problem loans increasing to 1.63% of total loans at June 30, 2020, up from 0.48% at year-end 2019, mainly due to one large hospitality loan relationship[159][160] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, with COVID-19 introducing uncertainty to future rate movements - The company's main market risk is interest rate risk; while management's approach has not significantly changed, the COVID-19 pandemic introduces uncertainty to future interest rate movements[187] Controls and Procedures Management concluded disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures are effective as of June 30, 2020[188] - No material changes to the company's internal control over financial reporting occurred during the second quarter of 2020[189] PART II. Other Information Legal Proceedings The company reports no material legal proceedings - Not applicable[189] Risk Factors The COVID-19 pandemic is a primary risk factor, expected to adversely impact the economy, financial markets, and company operations - The COVID-19 pandemic is identified as a major risk factor, expected to continue adversely impacting business and financial results through its effects on the economy, customers, and financial markets[189] - Potential impacts include elevated credit losses, impairment of investment securities, and goodwill impairment, particularly from recent acquisitions, if the economic slowdown persists[190] - Business operations may be disrupted, and the company could take actions to preserve capital, such as lowering or suspending dividends, in response to the pandemic's effects[191] Unregistered Sales of Equity Securities and Use of Proceeds The company completed its stock repurchase plan in April 2020, repurchasing 65,847 shares in Q2 - The company completed its November 2019 stock repurchase plan in April 2020; no shares remain to be purchased under the plan[193] Share Repurchases in Q2 2020 | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 1-30, 2020 | 65,847 | $19.52 | | May 1-31, 2020 | - | - | | June 1-30, 2020 | - | - | | Total | 65,847 | $19.52 | Defaults Upon Senior Securities The company reports no defaults upon senior securities - Not applicable[196] Mine Safety Disclosures The company reports no mine safety disclosures - Not applicable[196] Other Information The company reports no other information - Not applicable[196] Exhibits This section lists exhibits filed, including CEO and CFO certifications and Inline XBRL documents - Exhibits filed include CEO and CFO certifications under Sarbanes-Oxley Sections 302 and 906 (18 U.S.C. Section 1350), and Inline XBRL data files[196] Signatures - The report was duly signed on August 6, 2020, by John P. Nelson, Chief Executive Officer and President, and John L. Pierschbacher, Chief Financial Officer[197]