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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, 2003
[_] 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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). 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 3,133,053
- --------------------------------------------------------------------------------
(Class) (Shares Outstanding at August 8, 2003)
1
AMES NATIONAL CORPORATION
INDEX
Page
Part I. Financial Information
Item 1. Consolidated Financial Statements (Unaudited) 3
Consolidated Balance Sheets at June 30, 2003
and December 31, 2002 3
Consolidated Statements of
Income for the three and six months ended
June 30, 2003 and 2002 4
Consolidated Statements of
Cash Flows for the six months ended
June 30, 2003 and 2002 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 6
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 14
Item 4. Controls and Procedures 14
Part II. Other Information
Items 1 through 6 14
Signatures 15
2
PART 1. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets (Unaudited)
AMES NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
June 30, December 31,
Assets 2003 2002
----------------------------
Cash and due from banks ............................................................. $ 28,600,917 $ 51,688,784
Federal funds sold .................................................................. 79,075,000 32,500,000
Interest bearing deposits in financial institutions ................................. 6,000,000 1,000,000
Securities available-for-sale ....................................................... 268,029,547 244,575,026
Loans receivable, net ............................................................... 345,748,025 332,306,497
Bank premises and equipment, net .................................................... 8,710,669 8,726,397
Accrued income receivable ........................................................... 5,161,355 5,849,017
Other assets ........................................................................ 177,583 582,849
----------------------------
Total assets ............................................................. $741,503,096 $677,228,570
============================
Liabilities and Stockholders' Equity
Deposits:
Demand ........................................................................... $ 61,024,546 $ 62,557,937
NOW accounts ..................................................................... 128,917,809 121,325,104
Savings and money market ......................................................... 171,903,731 153,296,259
Time, $100,000 and over .......................................................... 70,155,513 54,564,283
Other time ....................................................................... 172,158,482 158,878,796
----------------------------
Total deposits ........................................................... 604,160,081 550,622,379
Federal funds purchased and securities sold under agreements to repurchase .......... 20,783,016 18,325,574
Dividends payable ................................................................... 2,878,663 1,376,752
Deferred taxes ...................................................................... 4,616,388 2,879,057
Accrued interest and other liabilities .............................................. 2,902,027 2,501,952
----------------------------
Total liabilities ........................................................ 635,340,175 575,705,714
----------------------------
Stockholders' Equity:
Common stock, $5 par value; authorized 6,000,000 shares; issued 3,153,230
shares at June 30, 2003 and December 31, 2002; outstanding 3,133,053 shares
at June 30, 2003 and 3,128,982 shares at December 31, 2002 ..................... 15,766,150 15,766,150
Surplus .......................................................................... 25,351,979 25,354,014
Retained earnings ................................................................ 55,181,682 53,917,544
Treasury stock, at cost; 20,177 shares at June 30, 2003
and 24,248 shares at December 31, 2002 ......................................... (1,109,735) (1,333,640)
Accumulated other comprehensive income - net unrealized gain
on securities available-for-sale ............................................... 10,972,845 7,818,788
----------------------------
Total stockholders' equity ............................................... 106,162,921 101,522,856
----------------------------
Total liabilities and stockholders' equity ............................... $741,503,096 $677,228,570
============================
3
AMES NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
` -----------------------------------------------------
2003 2002 2003 2002
-----------------------------------------------------
Interest and dividend income:
Loans ............................ $ 5,651,200 $ 5,766,039 $11,207,235 $11,631,211
Securities
Taxable ........................ 1,792,746 2,058,776 3,676,285 4,038,907
Tax-exempt ..................... 842,090 719,688 1,612,390 1,438,642
Federal funds sold ............... 249,908 251,243 413,602 452,027
Dividends ........................ 340,180 374,867 680,845 705,670
-----------------------------------------------------
Total interest income ...... 8,876,124 9,170,613 17,590,357 18,266,457
-----------------------------------------------------
Interest expense:
Deposits......................... 2,646,208 2,971,413 5,272,198 5,959,373
Other borrowed funds............. 77,115 59,765 141,334 133,899
-----------------------------------------------------
Total interest expense 2,723,323 3,031,178 5,413,532 6,093,272
-----------------------------------------------------
Net interest income ........ 6,152,801 6,139,435 12,176,825 12,173,185
Provision for loan losses ............ 305,995 111,265 425,740 215,484
-----------------------------------------------------
Net interest income after
provision for loan losses 5,846,806 6,028,170 11,751,085 11,957,701
-----------------------------------------------------
Noninterest income:
Trust department income .......... 274,773 276,425 602,102 527,155
Service fees ..................... 383,076 361,518 742,000 719,193
Securities gains, net ............ 280,782 133,941 646,607 322,673
Loan and secondary market fees ... 322,876 93,250 570,996 228,877
Other ............................ 250,626 202,697 545,841 393,070
-----------------------------------------------------
Total noninterest income ... 1,512,133 1,067,831 3,107,546 2,190,968
-----------------------------------------------------
Noninterest expense:
Salaries and employee benefits ... 2,324,737 2,075,667 4,494,421 3,858,002
Occupancy expenses ............... 231,737 226,202 500,345 429,564
Data processing .................. 617,875 436,629 1,085,675 841,040
Other operating expenses ......... 606,720 572,207 1,198,230 1,114,355
-----------------------------------------------------
Total noninterest expense .. 3,781,069 3,310,705 7,278,671 6,242,961
-----------------------------------------------------
Income before income taxes . 3,577,870 3,785,296 7,579,960 7,905,708
Income tax expense ................... 928,641 1,044,361 2,060,406 2,223,843
-----------------------------------------------------
Net income ................. $ 2,649,229 $ 2,740,935 $ 5,519,554 $ 5,681,865
=====================================================
Basic and diluted earnings per share . $ 0.85 $ 0.88 $ 1.76 $ 1.82
=====================================================
Declared dividends per share ......... $ 0.92 $ 0.88 $ 1.36 $ 1.30
=====================================================
Comprehensive Income ................. $ 6,186,196 $ 5,375,978 $ 8,673,611 $ 8,379,052
=====================================================
4
AMES NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
Six Months Ended
June 30,
--------------------------
2003 2002
--------------------------
Cash flows from operating activities:
Net income ............................................................................... $ 5,519,554 $ 5,681,865
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses .............................................................. 425,740 215,484
Amortization and accretion, net ........................................................ 261,752 (2,095)
Depreciation ........................................................................... 497,536 449,235
Provision for deferred taxes ........................................................... (115,052) (24,475)
Securities gains, net .................................................................. (646,607) (322,673)
Decrease in accrued income receivable .................................................. 687,662 679,984
Decrease (increase) in other assets .................................................... 405,266 (250,861)
(Decrease) increase in accrued interest and other liabilities .......................... 400,075 (395,575)
--------------------------
Net cash provided by operating activities ........................................ 7,435,926 6,030,889
-------------------------
Cash flow from investing activities:
Purchase of securities available-for-sale ................................................ (56,962,306) (51,183,753)
Proceeds from sale of securities available-for-sale ...................................... 3,735,979 23,852,113
Proceeds from maturities of securities available-for-sale ................................ 35,163,100 16,493,334
Net decrease (increase) in interest bearing deposits in financial institutions ........... (5,000,000) (350,000)
Net increase in federal funds sold ....................................................... (46,575,000) (13,020,000)
Net decrease (increase) in loans ......................................................... (13,867,268) 15,252,553
Purchase of bank premises and equipment .................................................. (481,808) (1,160,328)
--------------------------
Net cash used in investing activities ............................................ (83,987,304) (10,116,081)
--------------------------
Cash flows from financing activities:
Increase (decrease) in deposits .......................................................... 53,537,702 (515,291)
Increase (decrease) in federal funds purchased
and securities sold under agreements to repurchase ..................................... 2,457,442 441,209
Dividends paid ........................................................................... (2,753,504) (2,625,192)
Proceeds from issuance of treasury stock ................................................. 221,870 158,151
--------------------------
Net cash provided by (used in) financing activities .............................. 53,463,510 (2,541,123)
--------------------------
Net decrease in cash and cash equivalents ........................................ (23,087,867) (6,626,315)
-------------------------
Cash and cash equivalents at beginning of year .............................................. 51,688,784 42,459,156
--------------------------
Cash and cash equivalents at end of the period .............................................. $28,600,917 $35,832,841
==========================
Supplemental disclosures of cash flow information:
Cash paid for interest ................................................................... $ 5,438,043 $ 6,531,731
Cash paid for taxes ...................................................................... 2,074,118 2,405,502
==========================
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, 2003 and 2002 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 13, 2003, the Company declared a cash dividend on its common stock,
payable on November 17, 2003 to stockholders of record as of November 3, 2003,
equal to $0.46 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, 2003 and 2002 were 3,129,743 and
3,125,889, respectively. The weighted average outstanding shares for the six
months ended June 30, 2003 and 2002 were 3,129,364 and 3,125,163, 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, 2003 and June 30, 2002
General
The Company earned net income of $2,649,000, or $0.85 per share for the three
months ended June 30, 2003, compared to net income of $2,741,000, or $0.88 per
share, for the three months ended June 30, 2002, a decrease of 3.4%. The lower
net income is attributable to higher provision expense for loan losses and
increased non-interest expense partially offset by higher non-interest income.
The Company's return on average assets was 1.44% and 1.73%, respectively, for
the three-month periods ending June 30, 2003 and 2002. The Company's return on
average equity was 10.18% and 11.32%, respectively for the three month periods
ending June 30, 2003 and 2002.
6
AVERAGE BALANCE SHEETS AND INTEREST RATES
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, 2003 and June 30,
2002, respectively.
ASSETS
(dollars in thousands)
AVERAGE BALANCE SHEETS AND INTEREST RATES
Three Months Ended June 30,
-------------------------------------------------------------
2003 2002
---------------------------- -------------------------------
Average Revenue/ Yield/ Average Revenue/ Yield/
Balance Expense Rate Balance Expense Rate
-------------------------------------------------------------
Loans
Commercial ....................... $ 40,116 $ 561 5.59% $ 46,208 $ 828 7.17%
Agricultural ..................... 26,035 451 6.93% 25,250 469 7.43%
Real estate ...................... 263,757 4,293 6.51% 223,589 4,120 7.37%
Installment and other ............ 20,055 346 6.90% 19,041 349 7.33%
------------------------------------------------------------
Total loans (including fees) ....... $349,963 $ 5,651 6.46% $314,088 $ 5,766 7.34%
Investment securities
Taxable .......................... $155,141 $ 1,904 4.91% $149,189 $ 2,306 6.18%
Tax-exempt ....................... 90,884 1,607 7.07% 70,090 1,278 7.29%
------------------------------------------------------------
Total investment securities ........ $246,025 $ 3,511 5.71% $219,279 $ 3,584 6.54%
Interest bearing deposits with banks $ 4,974 $ 10 0.80%$ 600 $ 5 3.33%
Federal funds sold ................. 89,464 250 1.12% 59,639 251 1.68%
------------------------------------------------------------
Total interest-earning assets ...... $690,426 $ 9,422 5.46% $593,606 $ 9,606 6.47%
Noninterest-earning assets ......... 46,660 41,830
-------- --------
TOTAL ASSETS ....................... $737,086 $635,436
======== ========
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%.
7
LIABILITIES AND STOCKHOLDERS' EQUITY
(dollars in thousands)
AVERAGE BALANCE SHEETS AND INTEREST RATES
Three Months Ended June 30,
-------------------------------------------------------------
2003 2002
---------------------------- -----------------------------
Average Revenue/ Yield/ Average Revenue/ Yield/
Balance Expense Rate Balance Expense Rate
-------------------------------------------------------------
Interest-bearing liabilities
Deposits
Savings, NOW accounts, and money markets . $310,295 $ 767 0.99% $270,611 $ 967 1.43%
Time deposits < $100,000 ................. 171,734 1,410 3.28% 149,509 1,518 4.06%
Time deposits > $100,000 ................. 65,571 469 2.86% 52,523 486 3.70%
------------------------------------------------------------
Total deposits ............................. $547,600 $ 2,646 1.93% $472,643 $ 2,971 2.51%
Other borrowed funds ....................... 19,612 77 1.57% 11,589 60 2.07%
------------------------------------------------------------
Total Interest-bearing ..................... $567,212 $ 2,723 1.92% $484,232 $ 3,031 2.50%
liabilities
Noninterest-bearing liabilities
Demand deposits ............................ $ 56,711 $ 49,496
Other liabilities .......................... 9,115 4,862
-------- --------
Stockholders' equity ....................... $104,048 $ 96,846
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ....................... $737,086 $635,436
======== ========
Net interest income ........................ $ 6,699 3.88% $ 6,575 4.43%
================= =================
Spread Analysis
Interest income/average assets ............. $ 9,422 5.11% $ 9,606 6.05%
Interest expense/average assets ............ 2,723 1.48% 3,031 1.91%
Net interest income/average assets ......... 6,699 3.63% 6,575 4.14%
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, 2003, the Company's net interest margin was
3.88% compared to 4.43% for the three months ended June 30, 2002. Net interest
income, prior to the adjustment for tax-exempt income, for the quarters ended
June 30, 2003 and 2002 totaled $6,153,000 and $6,139,000, respectively. Net
interest income was relatively flat compared to the three-month period one-year
ago despite the lower net interest margin. A higher volume of interest-earning
assets, primarily associated with the growth of United Bank & Trust (United
Bank), Marshalltown, Iowa, combined with a lower cost of funds served to offset
the loss of income resulting from assets repricing to lower market rates.
For the three months ended June 30, 2003, interest income decreased $294,000 or
3.2% when compared to the same period in 2002. This decrease was primarily
attributable to significantly lower yields on earning assets as the result of a
decline in market interest rates. The competitive banking environment in central
Iowa continues to place significant downward pressure on loan yields.
Interest expense decreased $308,000 or 10.2% for the quarter ended June 30, 2003
when compared to the same period in 2002. 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 in spite of an increase in the average
volume of interest-bearing liabilities.
8
Provision for Loan Losses
The Company provided $306,000 for loan losses for the three months ended June
30, 2003 compared to $111,000 during the same period last year. Provision
expense for the second quarter of 2003 was higher than the prior year period
primarily as the result of increased specific allowance for impaired loans.
Noninterest Income and Expense
Noninterest income increased $444,000, or 41.6% during the quarter ended June
30, 2003 compared to the same period in 2002. The increase can be attributed to
increased fee income on the sale of residential loans in the secondary mortgage
market and gains on the sale of securities in the Company's equity portfolio.
Noninterest expense increased $470,000 or 14.2% for the second quarter of 2003
compared to the same period in 2002. Noninterest expense items that increased
include salary and benefits and data processing and equipment costs. The higher
costs in 2003 are primarily attributable to having a full quarter of overhead
expenses at United Bank for the second quarter of 2003 as the bank opened in
June of 2002.
Income Taxes
The provision for income taxes for June 30, 2003 and 2002 was $929,000 and
$1,044,000, respectively. This amount represents an effective tax rate of 26.0%
for the second quarter of 2003, compared to 27.6% for the second quarter of
2002. 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, 2003 and June 30, 2002
General
The Company earned net income of $5,520,000 or $1.76 per share for the six
months ended June 30, 2003, compared to net income of $5,682,000, or $1.82 per
share, for the six months ended June 30, 2002, a decrease of 2.9%. The lower net
income is attributable to higher provision expense for loan losses and increased
non-interest expense partially offset by higher non-interest income. The
Company's return on average assets was 1.55% and 1.81%, respectively for the
six-month periods ending June 30, 2003 and 2002. The Company's return on average
equity was 10.70% and 11.84%, respectively for the six month periods ending June
30, 2003 and 2002.
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, 2003 and June 30, 2002,
respectively.
ASSETS
(dollars in thousands)
AVERAGE BALANCE SHEETS AND INTEREST RATES
Six Months Ended June 30,
2003 2002
---------------------------- ---------------------------
Average Revenue/ Yield/ Average Revenue/ Yield/
Balance Expense Rate Balance Expense Rate
-----------------------------------------------------------
Loans
Commercial ....................... $ 38,834 $ 1,112 5.73% $ 45,114 $ 1,630 7.23%
Agricultural ..................... 26,017 912 7.01% 24,929 938 7.53%
Real estate ...................... 260,642 8,509 6.53% 225,653 8,366 7.41%
Installment and other ............ 20,051 674 6.72% 19,546 697 7.13%
-----------------------------------------------------------
Total loans (including fees) ....... $345,544 $ 11,207 6.49% $315,242 $ 11,631 7.38%
Investment securities
Taxable .......................... $155,074 $ 3,906 5.04% $145,042 $ 4,389 6.05%
Tax-exempt ....................... 86,545 3,101 7.17% 70,263 2,710 7.71%
-----------------------------------------------------------
Total investment securities ........ $241,619 $ 7,007 5.80% $215,305 $ 7,099 6.59%
Interest bearing deposits with banks $ 2,998 $ 17 1.13% $ 501 $ 7 2.79%
Federal funds sold ................. 74,274 414 1.11% 54,899 452 1.65%
-----------------------------------------------------------
Total interest-earning assets ...... $664,435 $ 18,645 5.61% $585,947 $ 19,189 6.55%
Total noninterest-earning assets ... $ 48,307 $ 41,306
-------- --------
TOTAL ASSETS ....................... $712,742 $627,253
======== ========
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 SHEETS AND INTEREST RATES
Six Months Ended June 30,
2003 2002
---------------------------- ----------------------------
Average Revenue/ Yield/ Average Revenue/ Yield/
Balance Expense Rate Balance Expense Rate
------------------------------------------------------------
Interest-bearing liabilities
Deposits
Savings, NOW accounts, and money markets . $294,608 $ 1,519 1.03% $260,293 $ 1,798 1.38%
Time deposits < $100,000 ................. 168,551 2,817 3.34% 151,344 3,200 4.23%
Time deposits > $100,000 ................. 63,505 936 2.95% 49,474 961 3.88%
------------------------------------------------------------
Total deposits ............................. $526,664 $ 5,272 2.00% $461,111 $ 5,959 2.58%
Other borrowed funds ....................... 17,377 141 1.62% 13,407 134 2.00%
------------------------------------------------------------
Total Interest-bearing liabilities ......... $544,041 $ 5,413 1.99% $474,518 $ 6,093 2.57%
Noninterest-bearing liabilities
Demand deposits ............................ $ 57,319 $ 51,779
Other liabilities .......................... 8,200 4,986
-------- --------
Stockholders' equity ....................... $103,182 $ 95,970
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ....................... $712,742 $627,253
======== ========
Net interest income ........................ $ 13,232 3.98% $ 13,096 4.47%
======== ========
Spread Analysis
Interest income/average assets ............. $ 18,645 5.23% $ 19,189 6.12%
Interest expense/average assets ............ 5,413 1.52% 6,093 1.94%
Net interest income/average assets ......... 13,232 3.71% 13,096 4.18%
1 Tax-exempt income has been adjusted to a tax-equivalent basis using an
incremental rate of 34%.
11
Net Interest Income
For the six months ended June 30, 2003, the Company's net interest margin was
3.98% compared to 4.47% for the six months ended June 30, 2002. Net interest
income, prior to the adjustment for tax-exempt income, for the six months ended
June 30, 2003 and 2002 totaled $12,177,000 and $12,173,000, respectively. Net
interest income was flat compared to the six-month period one-year ago despite
the lower net interest margin. A higher volume of interest-earning assets,
primarily associated with the growth of United Bank, combined with a lower cost
of funds served to offset the loss of income resulting from assets repricing to
lower market rates.
For the six months ended June 30, 2003, interest income decreased $676,000 or
3.7% when compared to the same period in 2002. This decrease was primarily
attributable to significantly lower yields on earning assets as the result of a
decline in market interest rates. The competitive banking environment in central
Iowa continues to place significant downward pressure on loan yields.
Interest expense decreased $680,000 or 11.2% for the six months ended June 30,
2003 when compared to the same period in 2002. 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 $426,000 for loan losses for the six months ended June 30,
2003 compared to $215,000 during the same period last year. Provision expense
for the first half of 2003 was higher than the prior year period primarily as
the result of increased specific allowance for impaired loans and establishing
the allowance for loan losses at United Bank.
Noninterest Income and Expense
Noninterest income increased $917,000, or 41.8% during the six months ended June
30, 2003 compared to the same period in 2002. The increase can be attributed to
increased fee income on the sale of residential loans in the secondary market,
gains on the sale of securities in the Company's equity portfolio, and higher
trust department income.
Noninterest expense increased $1,036,000 or 16.6% for the first half of 2003
compared to the same period in 2002. Noninterest expense increased as the result
of the opening of United Bank. Excluding overhead expenses of United Bank,
noninterest expense increased 7.6%, primarily as the result of higher salary and
benefit expenses at First National Bank.
Income Taxes
The provision for income taxes for the six months ending June 30, 2003 and 2002
was $2,060,000 and $2,224,000, respectively. This amount represents an effective
tax rate of 27.2% for the first half of 2003, compared to 28.1% for the same
period in 2002. 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, 2003, total assets were $741,503,000, a
$64,275,000 increase in comparison to December 31, 2002 totals. Deposit growth
primarily at United Bank as well as the other Company's subsidiary banks allowed
for the significant increase in earning assets.
Investment Portfolio
The increase in the volume of investment securities to $268,030,000 on June 30,
2003 from $244,575,000 on December 31, 2002 resulted from the purchase of U.S.
government agencies and municipal bonds.
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Loan Portfolio
Net loans as of June 30, 2003 totaled $345,748,000, an increase of $13,442,000
from the outstanding balances as of December 31, 2002. The increase relates to
loans generated by United Bank.
Impaired loans totaled $1,906,000 as of June 30, 2003 compared to $2,409,000 as
of December 31, 2002. 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, 2003, non-accrual loans totaled $1,808,000,
past due loans still accruing totaled $98,000 and there were no restructured
loans outstanding. Other real estate owned as of June 30, 2003 and December 31,
2002 totaled $124,000 and $295,000, respectively.
Net charge offs were $301,000 for the six months ended June 30, 2003 as compared
to net charge-offs $170,000 for the six months ended June 30, 2002. Losses
related primarily to previously identified impaired commercial loans for both
periods. The resulting allowance for loan losses was $5,882,000 as of June 30,
2003 compared to $5,758,000 as of December 31, 2002. The allowance for loan
losses as a percentage of outstanding loans as of June 30, 2003 and December 31,
2002 was 1.67% and 1.70%, respectively.
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.
Liabilities
Deposits increased $53,538,000 from year-end 2002. The increase is primarily
attributable to deposits generated by United Bank.
Other borrowed funds as of June 30, 2003, consisted primarily of securities sold
under agreements to repurchase totaling $20,783,000 compared to total other
borrowing as of December 31, 2002 of $18,326,000.
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 funds purchased, repurchase
agreements, advances from the Federal Home Loan Bank and funds provided by
operations. Net cash from operating activities contributed $7,436,000 and
$6,031,000 to liquidity for the six months ended June 30, 2003 and 2002,
respectively. Liquid assets including cash on hand, balances due from other
banks, federal funds sold and interest-bearing deposits in financial
institutions increased to $113,676,000 as of June 30, 2003 compared to year-end
2002 balance of $85,189,000. The increase in federal funds sold is attributable
to decreased loan demand and significant deposit growth.
Securities available for sale increased to $268,030,000 as of June 30, 2003 from
$244,575,000 as of December 31, 2002 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 $30,732,000 and
federal funds borrowing capacity at correspondent banks of $46,000,000. As of
June 30, 2003, 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 $106,163,000 as of June
30, 2003, from $101,523,000 as of December 31, 2002. Stockholders' equity as of
June 30, 2003 was 14.3% of total assets, compared to 15.0% at December 31, 2002.
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, 2003, 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.
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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
2003 changed significantly when compared to 2002.
Item 4. Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company conducted an
evaluation, under the supervision and with the participation of the principal
executive officer and principal financial officer, of the Company's disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934 (the "Exchange Act")). Based on this evaluation,
the principal executive officer and principal financial officer concluded that
the Company's disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms. There was no change in the Company's internal control over financial
reporting during the Company's most recently completed fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
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 23 2003, stockholders
elected Robert L. Cramer and Warren R. Madden and re-elected Betty A. Baudler
and James R. Larson II to the Company's Board of Directors. Continuing directors
include, James R. Christy, Douglas C. Gustafson, Charles D. Jons, Daniel L.
Krieger, and Marvin J. Walter.
There were 3,128,982 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
-----------------------------
Robert L. Cramer ....................... 2,823,000 305,982
Warren R. Madden ....................... 2,823,000 305,982
Betty A. Baudler ....................... 2,823,000 305,982
James R. Larson II ..................... 2,823,000 305,982
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 31.1 - Certification of Principal Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2 - Certification of Principal Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32 - Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
On April 18, 2003, the Company filed a Form 8-K pursuant to Item
5, announcing financial results for the three months ended March
31, 2003 and forecasted earnings for the year ended December 31,
2003.
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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 13, 2003 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