SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[Mark One]
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 0-32637
AMES NATIONAL CORPORATION
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
IOWA 42-1039071
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of (I. R. S. Employer
Incorporation or Organization) Identification Number)
405 FIFTH STREET
AMES, IOWA 50010
----------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (515) 232-6251
Not Applicable
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
COMMON STOCK, $5.00 PAR VALUE 3,128,982
- --------------------------------------------------------------------------------
(Class) (Shares Outstanding at August 9, 2002)
1
AMES NATIONAL CORPORATION
INDEX
Page
Part I. Financial Information
Item 1. Consolidated Financial
Statements (Unaudited)
Consolidated Statements of
Financial Condition at June 30, 2002
(Unaudited) and December 31, 2001 3
Consolidated Statements of
Income for the three and six months ended
June 30, 2002 and 2001 (Unaudited) 4
Consolidated Statements of
Cash Flows for the six months ended
June 30, 2002 and 2001 (Unaudited) 5
Notes to Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 6 - 12
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 13
Part II. Other Information
Items 1 through 6 14
Signatures 15
2
PART 1. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
AMES NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
June 30, December 31,
2002 2001
------------------------------
Assets
Cash and due from banks ....................................................... $ 35,832,841 $ 42,459,156
Federal funds sold ............................................................ 42,370,000 29,350,000
Interest bearing deposits in financial institutions ........................... 600,000 250,000
Securities available-for-sale ................................................. 229,223,802 213,778,175
Loans receivable, net ......................................................... 307,575,129 323,043,166
Bank premises and equipment, net .............................................. 7,894,748 7,183,655
Accrued income receivable ..................................................... 5,297,369 5,977,353
Other assets .................................................................. 489,338 238,477
------------------------------
Total assets ....................................................... $ 629,283,227 $622,279,982
==============================
Liabilities and Stockholders' Equity
Deposits:
Demand ..................................................................... $ 52,293,228 $ 62,796,265
NOW accounts ............................................................... 112,399,121 108,509,319
Savings and money market ................................................... 145,496,094 138,342,052
Time, $100,000 and over .................................................... 52,422,160 47,716,458
Other time ................................................................. 148,383,361 154,145,161
------------------------------
Total deposits ..................................................... 510,993,964 511,509,255
FHLB advances ................................................................. -- 1,000,000
Federal funds purchased and securities sold under agreements to repurchase .... 12,037,383 10,596,174
Dividends payable ............................................................. 2,753,504 1,312,596
Deferred taxes ................................................................ 2,749,561 1,188,670
Accrued interest and other liabilities ........................................ 2,655,714 3,051,289
------------------------------
Total liabilities .................................................. 531,190,126 528,657,984
------------------------------
Stockholders' Equity:
Common stock, $5 par value; authorized 6,000,000 shares;
issued 3,153,230 shares at June 30, 2002 and December 31, 2001 ........... 15,766,150 15,766,150
Treasury stock, at cost; 24,248 and 28,001 shares at
June 30, 2002 and December 31, 2001 ..................................... (1,333,640) (1,530,805)
Surplus .................................................................... 25,354,014 25,393,028
Retained earnings .......................................................... 51,012,776 49,397,011
Accumulated other comprehensive income - net unrealized gain
on securities available-for-sale ......................................... 7,293,801 4,596,614
------------------------------
Total stockholders' equity ......................................... 98,093,101 93,621,998
------------------------------
$ 629,283,227 622,279,982
==============================
3
AMES NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-----------------------------------------------------
2002 2001 2002 2001
-----------------------------------------------------
Interest and dividend income:
Loans ............................ $ 5,766,039 $ 7,109,567 $11,631,211 $14,378,349
Securities ....................... 2,778,464 2,958,595 5,477,549 6,059,233
Federal funds sold ............... 251,243 256,731 452,027 345,801
Dividends ........................ 374,867 269,391 705,670 500,379
-----------------------------------------------------
9,170,613 10,594,284 18,266,457 21,283,762
-----------------------------------------------------
Interest expense:
Deposits ......................... 2,971,413 4,840,597 5,959,373 9,969,974
Other borrowed funds ............. 59,765 299,188 133,899 696,350
-----------------------------------------------------
3,031,178 5,139,785 6,093,272 10,666,324
-----------------------------------------------------
Net interest income ........ 6,139,435 5,454,499 12,173,185 10,617,438
Provision for loan losses ............ 111,265 196,230 215,484 273,908
-----------------------------------------------------
Net interest income after
provision for loan losses 6,028,170 5,258,269 11,957,701 10,343,530
-----------------------------------------------------
Noninterest income:
Trust department income .......... 276,425 257,054 527,155 487,802
Service fees ..................... 361,518 415,665 719,193 784,712
Securities gains, net ............ 133,941 662,682 322,673 1,151,531
Other ............................ 295,947 322,850 621,947 629,719
-----------------------------------------------------
Total noninterest income ... 1,067,831 1,658,251 2,190,968 3,053,764
-----------------------------------------------------
Noninterest expense:
Salaries and employee benefits ... 2,075,667 1,707,197 3,858,002 3,400,311
Occupancy expenses ............... 226,202 155,348 429,564 368,949
Data processing .................. 436,629 455,918 841,040 888,863
Other operating expenses ......... 572,207 544,617 1,114,355 1,073,711
-----------------------------------------------------
Total noninterest expense .. 3,310,705 2,863,080 6,242,961 5,731,834
-----------------------------------------------------
Income before income taxes . 3,785,296 4,053,440 7,905,708 7,665,460
Income tax expense ................... 1,044,361 1,336,042 2,223,843 2,368,004
-----------------------------------------------------
Net income ................. $ 2,740,935 $ 2,717,398 $ 5,681,865 $ 5,297,456
=====================================================
Basic and diluted earnings per share . $ 0.88 $ 0.87 $ 1.82 $ 1.70
=====================================================
Declared dividends per share ......... $ 0.88 $ 0.40 $ 1.30 $ 0.80
=====================================================
Comprehensive Income ................. $ 5,375,978 $ 2,059,011 $ 8,379,052 $ 6,762,486
=====================================================
4
AMES NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
Six Months Ended
June 30,
--------------------------
2002 2001
--------------------------
Cash flows from operating activities:
Net income ...................................................................... $ 5,681,865 $ 5,297,456
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses ..................................................... 215,484 273,908
Amortization and accretion, net ............................................... (2,095) (28,110)
Depreciation .................................................................. 449,235 353,583
Provision for deferred taxes .................................................. (24,475) (111,000)
Gain on sale of securities available-for-sale ................................. (322,673) (1,151,531)
Decrease in accrued income receivable ......................................... 679,984 1,347,455
Decrease (increase) in other assets ........................................... (250,861) 450,872
(Decrease) increase in accrued interest and other liabilities ................. (395,575) 463,614
--------------------------
Net cash provided by operating activities ............................... 6,030,889 6,896,247
--------------------------
Cash flow from investing activities:
Purchase of securities available-for-sale ....................................... (51,183,753) (24,417,996)
Proceeds from sale of securities available-for-sale ............................. 23,852,113 11,501,993
Proceeds from maturities of securities available-for-sale ....................... 16,493,334 25,720,309
Net decrease (increase) in interest bearing deposits in financial institutions .. (350,000) 98,174
Net increase in federal funds sold .............................................. (13,020,000) (18,740,000)
Net decrease in loans ........................................................... 15,252,553 11,538,907
Purchase of bank premises and equipment ......................................... (1,160,328) (786,256)
---------------------------
Net cash used in investing activities ................................... (10,116,081) 4,915,131
---------------------------
Cash flows from financing activities:
Decrease in deposits ............................................................ (515,291) (2,768,421)
Decrease in Federal Home Loan Bank advances ..................................... (1,000,000) (6,000,000)
Increase (decrease) in federal funds purchased and securities sold
under agreements to repurchase ................................................ 1,441,209 (4,026,316)
Dividends paid .................................................................. (2,625,192) (2,497,834)
Proceeds from issuance of treasury stock ........................................ 158,151 110,834
---------------------------
Net cash provided by (used in) financing activities ..................... (2,541,123) (15,181,737)
---------------------------
Net increase in cash and cash equivalents ............................... (6,626,315) (3,370,359)
Cash and cash equivalents at beginning of year ..................................... 42,459,156 28,775,032
---------------------------
Cash and cash equivalents at end of the period ..................................... $ 35,832,841 $ 25,404,673
===========================
Supplemental disclosures of cash flow information:
Cash paid for interest .......................................................... $ 6,531,731 $ 10,917,324
Cash paid for taxes ............................................................. 2,405,502 1,810,100
===========================
5
AMES NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
1. Significant Accounting Policies
The consolidated financial statements for the three and six-month periods ended
June 30, 2002 and 2001 are unaudited. In the opinion of the management of Ames
National Corporation (the "Company"), these financial statements reflect all
adjustments, consisting only of normal recurring accruals, necessary to present
fairly these consolidated financial statements. The results of operations for
the interim periods are not necessarily indicative of results which may be
expected for an entire year. Certain information and footnote disclosure
normally included in complete financial statements prepared in accordance with
generally accepted accounting principles have been omitted in accordance with
the requirements for interim financial statements. The interim financial
statements and notes thereto should be read in conjunction with the year-end
audited financial statements contained in the Company's 10-K. The consolidated
condensed financial statements include the accounts of the Company and its
wholly-owned banking subsidiaries (the "Banks"). All significant intercompany
balances and transactions have been eliminated in consolidation.
2. Dividends
On August 14, 2002, the Company declared a cash dividend on its common stock,
payable on November 15, 2002 to stockholders of record as of November 1, 2002,
equal to $0.44 per share.
3. Earnings Per Share
Earnings per share amounts were calculated using the weighted average shares
outstanding during the periods presented. The weighted average outstanding
shares for the three months ended June 30, 2002 and 2001 were 3,125,889 and
3,122,743, respectively. The weighted average outstanding shares for the six
months ended June 30, 2002 and 2001 were 3,125,163 and 3,122,521, respectively.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements about the
Company, its business and its prospects. Forward-looking statements can be
identified by the fact that they do not relate strictly to historical or current
facts. They often include use of the words "believe", "expect", "anticipate",
"intend", "plan", "estimate" or words of similar meaning, or future or
conditional verbs such as "will", "would", "should", "could" or "may".
Forward-looking statements, by their nature, are subject to risks and
uncertainties. A number of factors, many of which are beyond the Company's
control, could cause actual conditions, events or results to differ
significantly from those described in the forward-looking statements. Such risks
and uncertainties with respect to the Company include those related to the
economic environment, particularly in the areas in which the Company and the
Banks operate, competitive products and pricing, fiscal and monetary policies of
the U.S. government, changes in governmental regulations affecting financial
institutions, including regulatory fees and capital requirements, changes in
prevailing interest rates, credit risk management and asset/liability
management, the financial and securities markets and the availability of and
costs associated with sources of liquidity.
Results of Operations for Three Months Ending June 30, 2002 and June 30, 2001
General
In June 2002, the Company opened its fifth wholly owned bank subsidiary, United
Bank & Trust N.A. in Marshalltown, Iowa. The consolidated financial statements
include the accounts of this new organization as well as the four established
wholly owned subsidiaries; First National Bank, Ames, Iowa; Boone Bank & Trust,
Boone, Iowa; Randall-Story State Bank, Story City, Iowa; and State Bank & Trust
Co., Nevada, Iowa..
The Company earned net income of $2,741,000, or $0.88 per share for the three
months ended June 30, 2002, compared to net income of $2,717,000, or $0.87 per
share, for the three months ended June 30, 2001, an increase of 0.87%. The
Company's return on average assets was 1.73% and 1.75%, respectively, for the
three-month periods ending June 30, 2002 and 2001.
6
While net income was very comparable for three-month periods ending June 30,
2002 and 2001, the composition of the earnings had some differences worth
noting. Interest expense on deposit declined significantly in spite of a higher
volume of deposits. This lower interest expense was offset by lower security
gains, higher salary and employee benefits and by lower interest income on loans
as both the volume of loans and related interest rates declined. Lower interest
rates on alternative fixed rate investments and shaken investor confidence in
the equities market has contributed to higher level of deposits in spite of
historically low rates on deposits. Loan demand has been soft and competitive
pricing in the Company's local markets has contributed to lower loan interest
income.
The following table sets forth certain information relating to the Company's
average balance sheets and reflects the average yield on assets and average cost
of liabilities for the three month periods ended June 30, 2002 and June 30,
2001, respectively.
ASSETS
(dollars in thousands)
AVERAGE BALANCE SHEET AND INTEREST RATES
Three Months Ended June 30,
-----------------------------------------------------------
2002 2001
--------------------------- ---------------------------
Average Revenue/ Yield/ Average Revenue/ Yield/
Balance Expense Rate Balance Expense Rate
-----------------------------------------------------------
Loans
Commercial ....................... $ 46,208 $ 828 7.17% $ 53,044 $ 1,117 8.42%
Agricultural ..................... 25,250 469 7.43% 29,645 658 8.88%
Real estate ...................... 223,589 4,120 7.37% 240,207 4,853 8.08%
Installment and other ............ 19,041 349 7.33% 24,189 482 7.97%
---------------------------------------------------------
Total loans (including fees) ....... $314,088 $ 5,766 7.34% $347,085 $ 7,110 8.19%
Investment securities
Taxable .......................... $149,189 $ 2,306 6.18% $149,356 $ 2,379 6.37%
Tax-exempt ....................... 70,090 1,278 7.29% 66,912 1,281 7.66%
---------------------------------------------------------
Total investment securities ........ $219,279 $ 3,584 6.54% $216,268 $ 3,660 6.77%
Interest bearing deposits with banks $ 600 $ 5 3.33% $ 250 $ 3 4.80%
Federal funds sold ................. 59,639 251 1.68% 23,988 257 4.29%
---------------------------------------------------------
Total interest-earning assets ...... $593,606 $ 9,606 6.47% $587,591 $11,030 7.51%
Noninterest-earning assets ......... 41,830 33,211
-------- --------
TOTAL ASSETS ....................... $635,436 $620,802
======== ========
1 Average loan balance include nonaccrual loans, if any. Interest income
collected on nonaccrual loans has been included.
2 Tax-exempt income has been adjusted to a tax-equivalent basis using an
incremental rate of 34%.
7
LIABILITIES AND STOCKHOLDERS' EQUITY
(dollars in thousands)
AVERAGE BALANCE SHEET AND INTEREST RATES
Three Months Ended June 30,
-----------------------------------------------------------------
2002 2001
----------------------------- --------------------------------
Average Revenue/ Yield/ Average Revenue/ Yield/
Balance Expense Rate Balance Expense rate
-----------------------------------------------------------------
Interest-bearing liabilities
Deposits
Savings, NOW accounts, and money markets . $270,611 $ 967 1.43% $225,130 $ 1,563 2.78%
Time deposits < $100,000 ................. 149,509 1,518 4.06% 161,146 2,319 5.76%
Time deposits > $100,000 ................. 52,523 486 3.70% 63,351 959 6.06%
----------------------------------------------------------------
Total deposits ............................. $472,643 $ 2,971 2.51% $449,627 $ 4,841 4.31%
Other borrowed funds ....................... 11,589 60 2.07% 24,497 299 4.88%
----------------------------------------------------------------
Total Interest-bearing ..................... $484,232 $ 3,031 2.50% $474,124 $ 5,140 4.34%
liabilities
Noninterest-bearing liabilities
Demand deposits ............................ $ 49,496 $ 50,482
Other liabilities .......................... 4,862 5,781
-------- --------
Stockholders' equity ....................... $ 96,846 $ 90,415
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ....................... $635,436 $620,802
======== ========
Net interest income ........................ $ 6,575 4.43% $ 5,890 4.01%
======== ========
Spread Analysis
Interest income/average assets ............. $ 9,606 6.05% $ 11,030 7.11%
Interest expense/average assets ............ 3,031 1.91% 5,140 3.31%
Net interest income/average assets ......... 6,575 4.14% 5,890 3.80%
1 Tax-exempt income has been adjusted to a tax-equivalent basis using an
incremental rate of 34%.
Net Interest Income
For the three months ended June 30, 2002, the Company's net interest margin was
4.43% compared to 4.01% for the three months ended June 30, 2001. Net interest
income, prior to the adjustment for tax-exempt income, for the quarter ended
June 30, 2002 and 2001 totaled $6,139,000 and $5,454,000, respectively. This
12.6% increase resulted primarily from lower interest expense attributable to
lower interest rates on deposits partially offset by lower interest income on
loans.
For the three months ended June 30, 2002, interest income decreased $1,424,000
or 13.4% when compared to the same period in 2001. This decrease was primarily
attributable to lower loan volume and yields.
Interest expense decreased $2,109,000 or 41.0% for the quarter ended June 30,
2002 when compared to the same period in 2001. Lower interest rates on deposits
and other borrowings resulted in decreased interest expense as the Company's
cost of funds declined with market interest rates.
Provision for Loan Losses
The Company provided $111,000 for loan losses for the three months ended June
30, 2002 compared to $196,000 during the same period last year. Provision
expense for both periods were utilized to increase specific reserves for
impaired loans.
8
Noninterest Income and Expense
Noninterest income decreased $590,000, or 35.6% during the quarter ended June
30, 2002 compared to the same period in 2001. The decrease can be attributed to
lower securities gains in the Company's equity portfolio of $134,000 in 2002
compared to $663,000 in second quarter of 2001, a difference of $529,000.
Noninterest expense increased $448,000 or 15.6% for the second quarter of 2002
compared to the same period in 2001. Noninterest expense items that increased
include salary and benefits and occupancy expense. Salaries and benefits
increased $368,000 as the result of additional staff at United Bank & Trust and
First National Bank, higher incentive compensation, and increased profit sharing
contributions to the Company's retirement plan. Occupancy expenses reflect an
increase of $71,000 primarily as the result of higher depreciation associated
with an addition to First National Bank's main office and occupancy costs
associated with the opening of United Bank & Trust.
Income Taxes
The provision for income taxes for June 30, 2002 and 2001 was $1,044,000 and
$1,336,000, respectively. This amount represents an effective tax rate of 27.6%
for the second quarter of 2002, compared to 33.0% for the second quarter of
2001. The Company's marginal federal tax rate is currently 35%. The difference
between the Company's effective and marginal tax rate is primarily related to
investments made in tax exempt securities.
Results of Operations for Six Months Ending June 30, 2002 and June 30, 2001
General
In June 2002, the Company opened its fifth wholly owned bank subsidiary, United
Bank & Trust N.A. in Marshalltown, Iowa. The consolidated financial statements
include the accounts of this new organization as well as the four established
wholly owned subsidiaries; First National Bank, Ames, Iowa; Boone Bank & Trust,
Boone, Iowa; Randall-Story State Bank, Story City, Iowa; and State Bank & Trust
Co., Nevada, Iowa.
The Company earned net income of $5,682,000 or $1.82 per share for the six
months ended June 30, 2002, compared to net income of $5,297,000, or $1.70 per
share, for the six months ended June 30, 2001, an increase of 7.3%. The
Company's return on average assets was 1.81% and 1.72%, respectively for the
six-month period ending June 30, 2002 and 2001.
The improvement in net income can be primarily attributed to higher net interest
income. This higher net interest income was offset by lower security gains,
higher salary and employee benefits. Lower interest rates on alternative fixed
rate investments and shaken investor confidence in the equities market has
contributed to higher level of deposits in spite of historically low rates on
deposits. Loan demand has been soft and competitive pricing in the Company's
local markets has contributed to lower loan interest income.
9
The following table sets forth certain information relating to the Company's
average balance sheets and reflects the average yield on assets and average cost
of liabilities for the six month periods ended June 30, 2002 and June 30, 2001,
respectively.
ASSETS
(dollars in thousands)
AVERAGE BALANCE SHEET AND INTEREST RATES
Six Months Ended June 30,
---------------------------------------------------------------
2002 2001
---------------------------- ------------------------------
Average Revenue/ Yield/ Average Revenue/ Yield/
Balance Expense Rate Balance Expense Rate
---------------------------------------------------------------
Loans
Commercial ....................... $ 45,114 $ 1,630 7.23% $ 52,935 $ 2,299 8.69%
Agricultural ..................... 24,929 938 7.53% 29,461 1,332 9.04%
Real estate ...................... 225,653 8,366 7.41% 241,726 9,765 8.08%
Installment and other ............ 19,546 697 7.13% 24,721 982 7.94%
---------------------------------------------------------------
Total loans (including fees) ....... $315,242 $ 11,631 7.38% $348,843 $ 14,378 8.24%
Investment securities
Taxable .......................... $145,042 $ 4,389 6.05% $152,612 $ 4,874 6.39%
Tax-exempt ....................... 70,263 2,710 7.71% $ 66,512 2,545 7.65%
---------------------------------------------------------------
Total investment securities ........ $215,305 $ 7,099 6.59% $219,124 $ 7,419 6.77%
Interest bearing deposits with banks $ 501 $ 7 2.79% $ 250 $ 6 4.80%
Federal funds sold ................. 54,899 452 1.65% 15,806 346 4.38%
---------------------------------------------------------------
Total interest-earning assets ...... $585,947 $ 19,189 6.55% $584,023 $ 22,149 7.59%
Total noninterest-earning assets ... $ 41,306 $ 32,712
-------- --------
TOTAL ASSETS ....................... $627,253 $616,735
======== ========
1 Average loan balance include nonaccrual loans, if any. Interest income on
nonaccrual loans has been included.
2 Tax-exempt income has been adjusted to a tax-equivalent basis using an
incremental rate of 34%.
10
LIABILITIES AND STOCKHOLDERS' EQUITY
(dollars in thousands)
AVERAGE BALANCE SHEET AND INTEREST RATES
Six Months Ended June 30,
----------------------------------------------------------------
2001 2000
------------------------------ -------------------------------
Average Revenue/ Yield/ Average Revenue/ Yield/
Balance Expense Rate Balance Expense Rate
----------------------------------------------------------------
Interest-bearing liabilities
Deposits
Savings, NOW accounts, and money markets . $260,293 $ 1,798 1.38% $220,960 $ 3,343 3.03%
Time deposits < $100,000 ................. 151,344 3,200 4.23% 160,140 4,646 5.80%
Time deposits > $100,000 ................. 49,474 961 3.88% 64,105 1,981 6.18%
----------------------------------------------------------------
Total deposits ............................. $461,111 $ 5,959 2.58% $445,205 $ 9,970 4.48%
Other borrowed funds ....................... 13,407 134 2.00% 26,681 696 5.22%
----------------------------------------------------------------
Total Interest-bearing ..................... $474,518 $ 6,093 2.57% $471,886 $ 10,666 4.52%
liabilities
Noninterest-bearing liabilities
Demand deposits ............................ $ 51,779 $ 49,592
Other liabilities .......................... 4,986 6,030
-------- --------
Stockholders' equity ....................... $ 95,970 $ 89,227
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ....................... $627,253 $616,735
======== ========
Net interest income ........................ $ 13,096 4.47% $ 11,483 3.93%
======== ========
Spread Analysis
Interest income/average assets ............. $ 19,189 6.12% $ 22,149 7.18%
Interest expense/average assets ............ 6,093 1.94% 10,666 3.46%
Net interest income/average assets ......... 13,096 4.18% 11,483 3.72%
1 Tax-exempt income has been adjusted to a tax-equivalent basis using an
incremental rate of 34%.
Net Interest Income
For the six months ended June 30, 2002, the Company's net interest margin was
4.47% compared to 3.93% for the six months ended June 30, 2001. Net interest
income, prior to the adjustment for tax-exempt income, for the first half of the
year ended June 30, 2002 and 2001 totaled $12,173,000 and $10,617,000,
respectively. This 14.7% increase resulted primarily from lower interest expense
attributable to lower interest rates on deposits and other borrowings partially
offset by lower interest income on loans.
For the six months ended June 30, 2002, interest income decreased $3,017,000 or
14.2% when compared to the same period in 2001. This decrease was primarily
attributable to lower loan volume and yields as a result of a general slow down
in the Company's local markets and significant competition for fewer lending
opportunities.
Interest expense decreased $4,573,000 or 42.9% for the six months ended June 30,
2002 when compared to the same period in 2001. Lower interest rates on deposits
and other borrowings resulted in decreased interest expense as the Company's
cost of funds declined with market interest rates.
11
Provision for Loan Losses
The Company provided $215,000 for loan losses for the six months ended June 30,
2002 compared to $274,000 during the same period last year. Provision expense
for both periods were utilized to increase specific reserves for impaired loans.
Noninterest Income and Expense
Noninterest income decreased $863,000, or 28.3% during the six months ended June
30, 2002 compared to the same period in 2001. The decrease can be attributed to
a decline securities gains in the Company's equity portfolio of $323,000 in 2002
compared to $1,152,000 in the first half of 2001, a difference of $829,000.
Noninterest expense increased $511,000 or 8.9% for the first half of 2002
compared to the same period in 2001. Noninterest expense items that increased in
the first half of 2002 compared to same period in 2001 include salary and
benefits and occupancy expense. Salaries and benefits increased $458,000 as the
result of additional staff at United Bank & Trust and First National Bank,
higher incentive compensation, and increased profit sharing contributions to the
Company's retirement plan. Occupancy expenses reflect an increase of $61,000
primarily as the result of higher depreciation associated with an addition to
First National Bank's main office and occupancy costs associated with the
opening of United Bank & Trust.
Income Taxes
The provision for income taxes for the six months ending June 30, 2002 and 2001
was $2,224,000 and $2,368,000, respectively. This amount represents an effective
tax rate of 28.1% for the first half of 2002, compared to 30.9% for the same
period in 2001. The Company's marginal federal tax rate is currently 35%. The
difference between the Company's effective and marginal tax rate is primarily
related to investments made in tax exempt securities.
Financial Condition
Assets
For the quarter ended June 30, 2002, total assets are $629,283,000, a $7,003,000
increase in comparison to December 31, 2001 totals. The higher level of assets
are attributable to a higher volume of federal funds sold and investment
securities partially offset by a lower volume of loans.
Investment Portfolio
The increase in the volume of investment securities to $229,224,000 on June 30,
2002 from $213,778,000 on December 31, 2001 resulted from the purchase of U.S.
government agencies and corporate bonds.
Loan Portfolio
Net loans as of June 30, 2002 totaled $307,575,000, a decrease of $15,468,000
from outstanding balances as of December 31, 2001. The decreased level of loans
relates to lower loan demand and significant market competition for loans.
Impaired loans totaled $2,912,000 as of June 30, 2002 compared to $3,489,000 as
of December 31, 2001. A loan is considered impaired when, based on current
information and events, it is probable that the Company will be unable to
collect the scheduled payments of principal or interest when due according to
the contractual terms of the loan agreement. Impaired loans include loans
accounted for on a non-accrual basis; accruing loans which are contractually
past due 90 days or more as to principal or interest payments; and any
restructured loans. As of June 30, 2002, non-accrual loans totaled $2,205,000,
past due loans still accruing totaled $707,000 and there were no restructured
loans outstanding. Other real estate owned as of June 30, 2002 and December 31,
2001 totaled $404,000 and $159,000, respectively.
Net charge offs were $170,000 for the six months ended June 30, 2002 as compared
to net charge-offs $265,000 for the six months ended June 30, 2001. Losses
related primarily to previously identified impaired commercial loans for both
periods. The resulting allowance for loan losses as percentage of outstanding
loans as of June 30, 2002 and December 31, 2001 was 1.75% and 1.59%,
respectively.
12
The allowance for loan losses is management's best estimate of probable losses
inherent in the loan portfolio as of the balance sheet date. Factors considered
in establishing an appropriate allowance include: an assessment of the financial
condition of the borrower; a realistic determination of value and adequacy of
underlying collateral; the condition of the local economy and the condition of
the specific industry of the borrower; an analysis of the levels and trends of
loan categories; and a review of delinquent and classified loans.
Deposits declined $515,000 from year-end 2001. The Company's deposits are
typically at a seasonal low point at the end of the second quarter of each year
as First National Bank's deposit levels are impacted by Iowa State University
students departing in May and June and returning in August. Total deposits for
June 30, 2002 compared to June 30, 2001 are up $20,334,000 as the result of
customers maintaining larger balances and the growth in the number of deposit
accounts.
Other borrowed funds as of June 30, 2002, consisted primarily of securities sold
under agreements to repurchase totaling $12,037,000 compared to total other
borrowing as of December 31, 2001 of $11,596,000.
Stockholders equity increased to $98,093,000 as of June 30, 2002 as earnings and
unrealized gains on securities available for sale continued to augment the
company's strong capital base.
Liquidity and Capital Resources
The objective of liquidity management is to ensure the availability of
sufficient cash flows to meet all financial commitments and to capitalize on
opportunities for profitable business expansion. The Company's principal source
of funds is deposits including demand, money market, savings and certificates of
deposits. Other sources include principal repayments on loans, proceeds from the
maturity and sale of investment securities, federal fund purchased, repurchase
agreements, advances from the Federal Home Loan Bank and funds provided by
operations. Net cash from operating activities contributed $6,031,000 and
$6,896,000 to liquidity for the six months ended June 30, 2002 and 2001,
respectively. Liquid assets including cash on hand, balances due from other
banks, federal funds sold and interest-bearing deposits in financial
institutions increased to $78,803,000 as of June 30, 2002 compared to year-end
2001 balance of $72,059,000. The increase in fed funds sold is attributable to
decreased loan volume.
Securities available for sale increased to $229,224,000 as of June 30, 2002 from
$213,778,000 as of December 31, 2001 and provide additional liquidity for the
Company.
To provide additional external liquidity, the Banks have outstanding lines of
credit with the Federal Home Loan Bank of Des Moines, Iowa of $33,732,000 and
federal funds borrowing capacity at correspondent banks of $46,000,000. As of
June 30, 2002, the Company had no outstanding borrowings of federal funds
purchased or Federal Home Loan Bank advances. Management believes that the
Company's liquidity sources will be sufficient to support existing operations
for the foreseeable future.
The Company's total stockholder's equity increased to $98,093,000 as of June 30,
2002, from $93,622,000 as of December 31, 2001. Stockholders' equity as of June
30, 2002 was 15.6% of total assets, compared to 15.0 % at December 31, 2001.
Total equity increased due to the retention of earnings and from appreciation in
the Company and Banks' stock and bond portfolios. No material capital
expenditures or material changes in the capital resource mix are anticipated at
this time. Management believes that, as of June 30, 2002, the Company and its
Banks meet the capital requirements to which they are subject. As of that date,
all the Company's Banks were "well capitalized" under regulatory prompt
corrective action provisions.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's market risk is comprised primarily of interest rate risk arising
from its core banking activities of lending and deposit taking. Interest rate
risk results from the changes in market interest rates which may adversely
affect the Company's net interest income. Management continually develops and
applies strategies to mitigate this risk. Management does not believe that the
Company's primary market risk exposure and how it has been managed to-date in
2002 changed significantly when compared to 2001.
13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities and Use of Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's annual meeting of shareholders on April 24, 2002, stockholders
re-elected Douglas C. Gustafson and Charles D. Jons to the Company's Board of
Directors. Continuing directors include Betty A. Baudler, Dale F. Collings,
James R. Larson II, Robert W. Stafford, James R. Christy, Daniel L. Krieger, and
Marvin J. Walter.
There were 3,125,229 issued and outstanding shares of common stock entitled to
vote at the annual meeting. The voting results on the election of directors were
as follows:
Votes
-----------------------------
In Favor Withheld
-----------------------------
Douglas C. Gustafson ................... 2,603,268 521,961
Charles D. Jons ........................ 2,603,268 521,961
There were no broker non-votes or abstentions on this proposal.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 99.1 - Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
On April 22, 2002, the Company filed a Form 8-K pursuant to Item
5, announcing net earnings for the quarter ended March 31, 2002.
On April 24, 2002, the Company filed a Form 8-K pursuant to Item
5, announcing forecasted earnings for the year ending December
31, 2002.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMES NATIONAL CORPORATION
DATE: August 14, 2002 By: /s/ Daniel L. Krieger
-----------------------------
Daniel L. Krieger, President
(Principal Executive Officer)
By: /s/ John P. Nelson
------------------------------
John P. Nelson, Vice President
(Principal Financial Officer)
15