Ames National (ATLO) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Consolidated Financial Statements (Unaudited) This section presents Ames National Corporation's unaudited consolidated financial statements, including balance sheets, income, comprehensive income, equity, and cash flows, along with notes and details on CECL adoption Consolidated Balance Sheets Total assets increased to $2.17 billion, liabilities grew due to borrowings, and stockholders' equity improved to $155.4 million by June 30, 2023 | Balance Sheet Highlights (in thousands) | June 30, 2023 (unaudited) | December 31, 2022 (audited) | | :--- | :--- | :--- | | Total Assets | $2,174,261 | $2,134,926 | | Total Loans Receivable, net | $1,232,772 | $1,226,011 | | Securities Available-for-sale | $758,520 | $786,438 | | Total Deposits | $1,863,277 | $1,897,957 | | Total Liabilities | $2,018,832 | $1,985,828 | | Total Stockholders' Equity | $155,429 | $149,098 | Consolidated Statements of Income Net income for Q2 2023 decreased to $2.6 million due to lower net interest income, with six-month net income at $5.8 million | Income Statement Highlights (in thousands, except per share data) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $11,302 | $13,636 | $22,971 | $26,788 | | Credit Loss Expense (Benefit) | $33 | $(59) | $308 | $(186) | | Net Income | $2,557 | $4,193 | $5,754 | $9,338 | | Basic and Diluted EPS | $0.28 | $0.46 | $0.64 | $1.03 | | Dividends Declared per Share | $0.27 | $0.27 | $0.54 | $0.54 | Consolidated Statements of Comprehensive Income (Loss) Q2 2023 comprehensive loss improved to $1.2 million, while six-month comprehensive income was $11.8 million, driven by changes in unrealized securities losses | Comprehensive Income (Loss) (in thousands) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $2,557 | $4,193 | $5,754 | $9,338 | | Other Comprehensive Income (Loss), net of tax | $(3,784) | $(18,779) | $6,034 | $(52,582) | | Comprehensive Income (Loss) | $(1,227) | $(14,586) | $11,788 | $(43,244) | Consolidated Statements of Stockholders' Equity Stockholders' equity increased to $155.4 million by June 30, 2023, driven by net income and other comprehensive income, partially offset by dividends - For the six months ended June 30, 2023, stockholders' equity increased by $6.3 million. Key drivers were net income of $5.8 million and other comprehensive income of $6.0 million, offset by cash dividends of $4.9 million and a $0.6 million adjustment for a change in accounting principle (CECL adoption)[16] Consolidated Statements of Cash Flows Cash and cash equivalents increased by $65.4 million for the first six months of 2023, driven by reduced investing activities and new borrowings | Cash Flow Summary (in thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $10,473 | $11,260 | | Net cash provided by (used in) investing activities | $28,793 | $(63,528) | | Net cash provided by financing activities | $26,149 | $37,817 | | Net increase (decrease) in cash and cash equivalents | $65,415 | $(14,451) | Notes to Consolidated Financial Statements Notes detail accounting policies, CECL adoption impact on retained earnings, debt and loan portfolios, fair value, borrowings including a new $75 million BTFP loan, and regulatory capital compliance - The company adopted ASC 326 (CECL) on January 1, 2023, using the modified retrospective method, resulting in a $518 thousand increase to the Allowance for Credit Losses on loans and a $273 thousand increase to the Allowance for Credit Losses on off-balance sheet exposures, leading to a net decrease in retained earnings of $603 thousand[26][27] - As of June 30, 2023, the debt securities portfolio had gross unrealized losses of $75.7 million, attributed to interest rate changes, with management expecting to recover amortized cost[83][84] - The company borrowed $75 million under the Federal Reserve's Bank Term Funding Program (BTFP) as of June 30, 2023, enhancing its liquidity position[130] - As of June 30, 2023, the company and its subsidiary banks met all 'well capitalized' regulatory capital requirements, with a consolidated Total Capital to risk-weighted assets ratio of 14.3%[140][143] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 2023 net income decline due to higher interest expense, asset growth funded by borrowings, deposit shifts, improved asset quality, and satisfactory liquidity and capital Overview Q2 2023 net income decreased to $2.6 million ($0.28/share) primarily due to higher interest expense on deposits and borrowed funds - The primary cause for the decrease in earnings was higher interest expense on deposits and other borrowed funds, partially offset by increased interest income on loans[151] - The company's main revenue sources are interest and fees on loans and investments, while principal expenses include interest on deposits, credit loss provisions, and operating costs[150] Key Performance Indicators and Industry Results Key performance indicators for Q2 2023 show declines in ROA, ROE, and net interest margin, with an increased efficiency ratio | Key Performance Indicator | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | Return on Assets (annualized) | 0.47% | 0.77% | | Return on Equity (annualized) | 6.45% | 9.78% | | Net Interest Margin | 2.20% | 2.63% | | Efficiency Ratio | 77.57% | 61.51% | Income Statement Review Q2 2023 net interest income decreased due to rising interest expense, noninterest expense increased due to a wire fraud loss, and the effective tax rate was 15% - Net interest income fell as interest expense increased by $5.9 million (479%) year-over-year for Q2 2023, outpacing the $3.6 million (24%) increase in interest income[192] - Noninterest expense for Q2 2023 increased by 7% year-over-year, primarily due to a wire fraud loss of $523 thousand[194] - The effective tax rate for Q2 2023 was 15%, compared to 33% in Q2 2022, with the higher 2022 rate due to a $780 thousand deferred tax adjustment[195] Balance Sheet Review Total assets grew to $2.17 billion, funded by borrowings, while the investment portfolio decreased with unrealized losses, and deposits shifted to higher-yielding accounts - Total assets increased by $39.3 million since December 31, 2022, primarily due to an increase in interest-bearing deposits in financial institutions, funded by an increase in other borrowings[210] - Deposits decreased to $1.86 billion from $1.90 billion at year-end 2022, with a shift from savings/money market accounts to time deposits; uninsured deposits were approximately 16% of total deposits[221] Asset Quality Review and Credit Risk Management Asset quality improved with problem loans decreasing to 0.93% of total loans, while the allowance for credit losses increased to 1.31% due to CECL adoption - Problem loans (nonaccrual and loans past due 90+ days) as a percentage of total loans decreased to 0.93% at June 30, 2023, from 1.19% at December 31, 2022[223] - Nonaccrual loans decreased to $11.3 million at June 30, 2023, from $14.7 million at December 31, 2022, primarily due to payments received[225] - The allowance for credit losses as a percentage of outstanding loans was 1.31% as of June 30, 2023, up from 1.26% at year-end 2022, mainly due to ASC 326 (CECL) implementation[228] Liquidity and Capital Resources The company maintains satisfactory liquidity with diverse sources, including a new $75 million BTFP loan, and remains 'well capitalized' with increased stockholders' equity - The company enhanced its liquidity by borrowing $75 million under the Federal Reserve's Bank Term Funding Program (BTFP) as of June 30, 2023, citing favorable lending terms[232] - Total stockholders' equity increased by $6.3 million to $155.4 million from year-end 2022, primarily due to a decrease in unrealized losses on the investment portfolio and retained earnings[239] - The company's capital levels exceed regulatory guidelines to be considered 'well capitalized' as of June 30, 2023[239] Quantitative and Qualitative Disclosures About Market Risk This section is not applicable for the current reporting period - Not applicable[242] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - Management concluded that the Company's disclosure controls and procedures are effective[242] - No material changes occurred in the Company's internal control over financial reporting during the last fiscal quarter[243] PART II. OTHER INFORMATION Legal Proceedings This section is not applicable as no material legal proceedings were reported - Not applicable[244] Risk Factors No material changes in risk factors were reported from those disclosed in the company's Form 10-K filed on March 10, 2023 - There have been no material changes in the risk factors from those disclosed in the Company's Form 10-K filed on March 10, 2023[244] Unregistered Sales of Equity Securities and Use of Proceeds A stock repurchase plan for up to 100,000 shares was approved in November 2022, with no shares repurchased during Q2 2023 - A stock repurchase plan for up to 100,000 shares was approved in November 2022[245] - No shares were purchased during the three months ended June 30, 2023, with 100,000 shares remaining available for repurchase under the plan[245][246] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and Inline XBRL data files - The report includes CEO and CFO certifications pursuant to Section 302 of the Sarbanes-Oxley Act and Section 1350 of U.S.C. Title 18[249] - Interactive Data Files (Inline XBRL) are included as exhibits[250]