Ames National (ATLO) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Consolidated Financial Statements (Unaudited) Ames National Corporation's unaudited consolidated financial statements show asset growth to $2.09 billion and increased net income for Q2 2021, driven by deposit increases and a credit for loan losses Consolidated Balance Sheets Total assets grew to $2.09 billion by June 30, 2021, primarily due to increased securities available-for-sale and deposits, while loans slightly decreased Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2021 (unaudited) | December 31, 2020 (audited) | | :--- | :--- | :--- | | Total Assets | $2,085,460 | $1,975,648 | | Cash and equivalents | $166,172 | $191,523 | | Securities available-for-sale | $740,102 | $596,999 | | Loans receivable, net | $1,124,435 | $1,129,505 | | Total Liabilities | $1,875,338 | $1,766,161 | | Total deposits | $1,831,399 | $1,716,446 | | Total Stockholders' Equity | $210,122 | $209,487 | Consolidated Statements of Income Net income significantly increased to $5.9 million for Q2 2021 and $11.9 million for the six-month period, driven by a credit for loan losses and reduced interest expense Key Performance Metrics (in thousands, except per share data) | Metric | Q2 2021 | Q2 2020 | Six Months 2021 | Six Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $14,172 | $13,680 | $27,836 | $26,726 | | Provision (credit) for loan losses | $(20) | $1,567 | $(446) | $3,883 | | Net Income | $5,879 | $4,427 | $11,902 | $7,982 | | Basic and diluted EPS | $0.64 | $0.49 | $1.30 | $0.87 | | Dividends declared per share | $0.26 | - | $0.51 | $0.25 | Consolidated Statements of Comprehensive Income Comprehensive income decreased to $8.1 million for Q2 2021 and $5.3 million for the six-month period, primarily due to changes in unrealized gains/losses on securities Comprehensive Income (in thousands) | Metric | Q2 2021 | Q2 2020 | Six Months 2021 | Six Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $5,879 | $4,427 | $11,902 | $7,982 | | Other comprehensive income (loss), net of tax | $2,262 | $9,515 | $(6,614) | $9,878 | | Comprehensive Income | $8,141 | $13,942 | $5,288 | $17,860 | Consolidated Statements of Stockholders' Equity Total stockholders' equity increased to $210.1 million by June 30, 2021, driven by net income but partially offset by dividends and unrealized losses on securities Reconciliation of Stockholders' Equity - Six Months Ended June 30, 2021 (in thousands) | Description | Amount | | :--- | :--- | | Balance, December 31, 2020 | $209,487 | | Net income | $11,902 | | Other comprehensive (loss) | $(6,614) | | Cash dividends declared ($0.51 per share) | $(4,653) | | Balance, June 30, 2021 | $210,122 | Consolidated Statements of Cash Flows Net cash from operating activities was $17.4 million for the first half of 2021, with investing activities using $123.7 million and financing providing $106.4 million Cash Flow Summary - Six Months Ended June 30 (in thousands) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $17,432 | $17,925 | | Net cash (used in) investing activities | $(123,721) | $(156,984) | | Net cash provided by financing activities | $106,360 | $136,970 | | Net increase (decrease) in cash | $71 | $(2,089) | Notes to Consolidated Financial Statements The notes detail accounting policies, fair value, loan and securities composition, credit quality, and regulatory capital, including CECL adoption and CBLR compliance - The Company is preparing for the adoption of ASU No. 2016-13 (CECL), which will become effective for interim and annual periods beginning after December 15, 2022[29] - As of June 30, 2021, the Company had four COVID-19 related loan modifications still in the modification period with a total outstanding principal balance of $15.3 million, down significantly from $45.9 million at year-end 2020[84] - Two subsidiary banks, State Bank & Trust and First National Bank, had Community Bank Leverage Ratios (CBLR) below the 8.5% requirement as of June 30, 2021, and are in a grace period to return to compliance[101] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 and H1 2021 financial results, highlighting increased net income, asset growth to $2.1 billion, improved asset quality, and the impact of COVID-19 Overview Net income for Q2 2021 increased to $5.9 million, primarily due to a lower provision for loan losses and reduced interest expense Q2 2021 vs Q2 2020 Performance | Metric | Q2 2021 | Q2 2020 | | :--- | :--- | :--- | | Net Income | $5.9 million | $4.4 million | | EPS | $0.64 | $0.49 | - The primary drivers for the earnings increase were a lower provision for loan losses and a reduction in interest expense[114] Challenges and COVID-19 Status, Risks and Uncertainties The company faces COVID-19 related risks including potential loan payment defaults and impacts from low interest rates, with $15.3 million in loans still in deferral - Management is concerned that some customers may continue to experience decreased revenues, potentially leading to higher loan losses and charge-offs[118] - As of June 30, 2021, the company held 897 PPP loans with an outstanding balance of $37.6 million[118] - Approximately $15.3 million, or 1.34% of loans, were in payment deferral status under COVID-19 related modifications as of June 30, 2021[118] Income Statement Review Net interest income increased to $27.8 million for H1 2021, driven by a 48% decline in interest expense and a $446 thousand credit for loan losses Net Interest Margin (FTE, non-GAAP) | Period | Q2 2021 | Q2 2020 | Six Months 2021 | Six Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Margin | 2.84% | 3.10% | 2.85% | 3.14% | - Interest expense for the first six months of 2021 declined by $2.3 million (48%) compared to 2020, primarily due to lower market interest rates[173] - A ($446 thousand) credit for loan losses was recognized for the first half of 2021, compared to a $3.9 million provision in H1 2020, attributed to loan recoveries, a reduction in a specific reserve, and improving economic conditions[174] Balance Sheet Review Total assets grew by $109.8 million to $2.1 billion, driven by deposit growth and a $143.1 million increase in the investment portfolio, while the loan portfolio slightly decreased - The investment portfolio grew by $143.1 million to $740.1 million, with purchases of treasuries, mortgage-backed securities, and municipals[178] - The loan portfolio decreased slightly, with PPP loans declining to $37.6 million from $50.9 million at year-end; the company has $2.3 million in unrecognized net PPP loan fees expected to be recognized as loans are forgiven[187] - Deposits increased by $115 million to $1.83 billion, driven by government stimulus programs and normal customer activity[188] Asset Quality Review and Credit Risk Management Asset quality improved in H1 2021, with problem loans decreasing to 1.11% and impaired loans falling to $12.7 million due to payoffs Asset Quality Indicators | Metric | June 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Problem Loans (% of total loans) | 1.11% | 1.33% | | Impaired Loans | $12.7 million | $15.3 million | | Troubled Debt Restructurings (TDRs) | $10.8 million | $11.3 million | | Allowance for Loan Losses (% of loans) | 1.48% | 1.50% | - The decrease in problem loans is primarily attributed to payoffs of nonaccrual loans[191] Liquidity and Capital Resources The company maintains strong liquidity with $166.2 million in liquid assets and $244.0 million in FHLB lines, and capital levels exceed regulatory guidelines - Liquid assets (cash and equivalents) totaled $166.2 million as of June 30, 2021[203] - The company has access to $244.0 million in FHLB lines of credit and a $4 million line with an unaffiliated bank[204] - Stockholders' equity as a percentage of total assets was 10.1% at June 30, 2021, and capital levels exceed regulatory guidelines[212] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, which management believes has not significantly changed from 2020, despite COVID-19 related uncertainties - The company's main market risk is interest rate risk from lending and deposit-taking activities[214] - Management does not believe the primary market risk exposure has not changed significantly in 2021 compared to 2020[214] Controls and Procedures Management concluded that disclosure controls and procedures are effective, with no material changes to internal control over financial reporting during the last quarter - Management concluded that the Company's disclosure controls and procedures are effective[215] - No material changes occurred in the Company's internal control over financial reporting during the last fiscal quarter[216] PART II. OTHER INFORMATION Legal Proceedings No applicable legal proceedings were disclosed for the reporting period - Not applicable[216] Risk Factors Management reported no material changes to risk factors previously disclosed in the Company's Form 10-K - No material changes in risk factors were reported since the last Form 10-K filing[216] Unregistered Sales of Equity Securities and Use of Proceeds A stock repurchase plan for up to 100,000 shares was approved in April 2021, with no shares repurchased as of June 30, 2021 - A stock repurchase plan for up to 100,000 shares was approved in April 2021[218] - No shares were purchased under the plan during the three months ended June 30, 2021[219] Exhibits This section lists exhibits filed with the report, including CEO and CFO certifications and Inline XBRL data files - Exhibits include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and XBRL data files (101, 104)[221][222]