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, 2004
[_] 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 3,137,066
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(Class) (Shares Outstanding at July 30, 2004)
1
AMES NATIONAL CORPORATION
INDEX
Page
Part I. Financial Information
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets at June 30, 2004
and December 31, 2003 3
Consolidated Statements of Income for the three
and six months ended June 30, 2004 and 2003 4
Consolidated Statements of Cash Flows for the six
months ended June 30, 2004 and 2003 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 6-18
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 18
Item 4 Evaluation of Disclosure Controls and Procedures 18
Part II. Other Information
Items 1 through 6 19
Signatures 20
2
Part 1. FINANCIAL INFORMATION
ITEM 1.
AMES NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
June 30, December 31,
Assets 2004 2003
------------- --------------
Cash and due from banks $ 22,365,358 $ 31,982,144
Federal funds sold 1,400,000 20,380,000
Interest bearing deposits in financial institutions 9,053,035 6,363,538
Securities available-for-sale 358,055,848 323,115,914
Loans receivable, net 382,602,275 355,533,119
Loans held for sale 1,266,300 859,139
Bank premises and equipment, net 8,312,472 8,377,807
Accrued income receivable 5,696,966 5,842,247
Other assets 579,629 332,556
-------------- --------------
Total assets $ 789,331,883 $ 752,786,464
============== ==============
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Demand $ 64,153,372 $ 71,372,534
NOW accounts 150,610,085 138,308,140
Savings and money market 177,314,085 166,387,319
Time, $100,000 and over 67,585,809 69,486,570
Other time 174,206,039 173,993,964
-------------- --------------
Total deposits 633,869,390 619,548,527
Federal funds purchased and securities
sold under agreements to repurchase 44,575,719 18,198,403
Dividends payable 3,070,392 1,441,204
Deferred taxes 445,010 3,238,665
Accrued interest and other liabilities 3,132,223 3,034,670
-------------- --------------
Total liabilities 685,092,734 645,461,469
-------------- --------------
Stockholders' Equity:
Common stock, $5 par value; authorized
6,000,000 shares; issued 3,153,230
shares at June 30, 2004 and December 31, 2003;
outstanding 3,137,066 shares at
June 30, 2004 and 3,133,053 shares
at December 31, 2003 15,766,150 15,766,150
Additional paid-in-capital 25,378,746 25,351,979
Retained earnings 59,715,644 58,400,660
Treasury stock, at cost; 16,164 shares at June 30, 2004
and 20,177 shares at December 31, 2003 (889,020) (1,109,735)
Accumulated other comprehensive income - net unrealized gain
on securities available-for-sale 4,267,629 8,915,941
-------------- --------------
Total stockholders' equity 104,239,149 107,324,995
-------------- --------------
Total liabilities and stockholders' equity $ 789,331,883 $ 752,786,464
============== ==============
3
AMES NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- ---------------------------
2004 2003 2004 2003
----------- ----------- ------------ ------------
Interest and dividend income:
Loans $ 5,471,094 $ 5,651,200 $ 10,823,762 $ 11,207,235
Securities
Taxable 2,151,710 1,792,746 4,227,791 3,676,285
Tax-exempt 1,093,670 842,090 2,145,656 1,612,390
Federal funds sold 21,223 249,908 78,096 413,602
Dividends 371,334 340,180 748,530 680,845
----------- ----------- ------------ ------------
9,109,031 8,876,124 18,023,835 17,590,357
----------- ----------- ------------ ------------
Interest expense:
Deposits 2,357,853 2,646,208 4,674,499 5,272,198
Other borrowed funds 94,099 77,115 168,627 141,334
----------- ----------- ------------ ------------
2,451,952 2,723,323 4,843,126 5,413,532
----------- ----------- ------------ ------------
Net interest income 6,657,079 6,152,801 13,180,709 12,176,825
Provision for loan losses 210,353 305,995 268,708 425,740
----------- ----------- ------------ ------------
Net interest income after provision
for loan losses 6,446,726 5,846,806 12,912,001 11,751,085
----------- ----------- ------------ ------------
Non-interest income:
Trust department income 325,287 274,773 609,158 602,102
Service fees 460,937 383,076 817,868 742,000
Securities gains, net 0 280,782 31,542 646,607
Gain on sale of loans held for sale 183,553 322,876 347,741 570,996
Merchant and ATM fees 120,325 108,136 269,405 248,034
Other 159,805 142,490 315,126 297,807
----------- ----------- ------------ ------------
Total non-interest income 1,249,907 1,512,133 2,390,840 3,107,546
----------- ----------- ------------ ------------
Non-interest expense:
Salaries and employee benefits 2,269,156 2,324,737 4,528,075 4,494,421
Occupancy expenses 236,975 231,737 504,952 500,345
Data processing 623,256 617,875 1,217,761 1,085,675
Other operating expenses 546,809 606,720 1,078,162 1,198,230
----------- ----------- ------------ ------------
Total non-interest expense 3,676,196 3,781,069 7,328,950 7,278,671
----------- ----------- ------------ ------------
Income before income taxes 4,020,437 3,577,870 7,973,891 7,579,960
Income tax expense 1,158,398 928,641 2,147,310 2,060,406
----------- ----------- ------------ ------------
Net income $ 2,862,039 $ 2,649,229 $ 5,826,581 $ 5,519,554
=========== =========== ============ ============
Basic and diluted earnings per share $ 0.91 $ 0.85 $ 1.86 $ 1.76
=========== =========== ============ ============
Declared dividends per share $ 0.98 $ 0.92 $ 1.44 $ 1.36
=========== =========== ============ ============
Comprehensive Income (Loss) $(3,693,418) $ 6,186,196 $ 1,178,269 $ 8,673,611
=========== =========== ============ ============
4
AMES NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
Six Months Ended
June 30,
----------------------------
2004 2003
----------- ------------
Cash flows from operating activities:
Net income $ 5,826,581 $ 5,519,554
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 268,708 425,740
Amortization and accretion, net 317,223 261,752
Depreciation 443,560 497,536
Provision for deferred taxes (63,694) (115,052)
Securities gains, net (31,542) (646,607)
Change in assets and liabilities:
(Increase) decrease loans held for sale (407,161) (4,235,864)
(Increase) decrease in accrued income receivable 145,281 687,662
(Increase) decrease in other assets (247,073) 405,266
Increase in accrued interest and other liabilities 97,553 400,075
----------- ------------
Net cash provided by operating activities 6,349,436 3,200,062
----------- ------------
Cash flow from investing activities:
Purchase of securities available-for-sale (108,371,375) (56,962,306)
Proceeds from sale of securities available-for-sale 1,576,886 3,735,979
Proceeds from maturities of securities available-for-sale 64,190,601 35,163,099
Net (increase) in interest bearing deposits in financial institutions (2,689,497) (5,000,000)
Net (increase) decrease in federal funds sold 18,980,000 (46,575,000)
Net (increase) in loans (27,337,864) (9,631,404)
Purchase of bank premises and equipment (378,225) (481,808)
----------- ------------
Net cash used in investing activities (54,029,474) (79,751,439)
------------ ------------
Cash flows from financing activities:
Increase in deposits 14,320,863 53,537,702
Increase (decrease) in federal funds purchased
and securities sold under agreements to repurchase 26,377,316 2,457,442
Dividends paid (2,882,409) (2,753,504)
Proceeds from issuance of treasury stock 247,482 221,870
------------ -------------
Net cash provided by financing activities 38,063,252 53,463,510
------------ -------------
Net decrease in cash and cash equivalents (9,616,786) (23,087,867)
------------ -------------
Cash and cash equivalents at beginning of quarter 31,982,144 51,688,784
------------ ------------
Cash and cash equivalents at end of quarter $ 22,365,358 $ 28,600,917
============ ============
Supplemental disclosures of cash flow information:
Cash paid for interest $ 4,942,532 $ 5,438,043
Cash paid for taxes 2,095,222 2,074,118
5
AMES NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
1. Significant Accounting Policies
The consolidated financial statements for the six month periods ended June 30,
2004 and 2003 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 disclosures 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 May 12, 2004, the Company declared a cash dividend on its common stock,
payable on August 16, 2004 to stockholders of record as of August 2, 2004, equal
to $0.49 per share. Also on May 12, 2004, the Company declared an additional
special cash dividend on its common stock, payable October 1, 2004 to
stockholders of record as of September 16, 2004, equal to $0.49 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, 2004 and 2003 were 3,133,714 and
3,129,743, respectively. The weighted average outstanding shares for the six
months ended June 30, 2004 and 2003 were 3,133,384 and 3,129,364, respectively.
4. Off-Balance Sheet Arrangements
The Company is party to financial instruments with off-balance-sheet risk in the
normal course of business. These financial instruments include commitments to
extend credit and standby letters of credit. These instruments involve, to
varying degrees, elements of credit risk in excess of the amount recognized in
the balance sheet. No material changes in the Company's off-balance sheet
arrangements have occurred since December 31, 2003.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Ames National Corporation is a bank holding company established in 1975 that
owns and operates five bank subsidiaries in central Iowa. The following
discussion is provided for the consolidated operations of the Company and its
Banks, First National Bank, Ames, Iowa (First National), State Bank & Trust Co.
(State Bank), Boone Bank & Trust Co. (Boone Bank), Randall-Story State Bank
(Randall-Story Bank) and United Bank & Trust NA (United Bank). The purpose of
this discussion is to focus on significant factors affecting the Company's
financial condition and results of operations.
The Company does not engage in any material business activities apart from its
ownership of the Banks. Products and services offered by the Banks are for
commercial and consumer purposes including loans, deposits and trust services.
The Banks also offer investment services through a third-party broker dealer.
The Company employs nine individuals to assist with financial reporting, human
resources, audit, compliance, technology systems and the coordination of
management activities, in addition to 178 full-time equivalent individuals
employed by the Banks.
The Company's primary competitive strategy is to utilize seasoned and competent
Bank management and local decision making authority to provide customers with
faster response times and more flexibility in the products and services offered.
This strategy is viewed as providing an opportunity to increase revenues through
creating a competitive advantage over other financial institutions. The Company
also strives to remain operationally efficient to provide better profitability
while enabling the Company to offer more competitive loan and deposit rates.
6
The principal sources of Company revenues and cashflow are: (i) interest and
fees earned on loans made by the Banks; (ii) service charges on deposit accounts
maintained at the Banks; (iii) interest on fixed income investments held by the
Banks; (iv) fees on trust services provided by those Banks exercising trust
powers; and (v) securities gains and dividends on equity investments held by the
Company and the Banks. The Company's principal expenses are: (i) interest
expense on deposit accounts and other borrowings; (ii) salaries and employee
benefits; (iii) data processing costs associated with maintaining the Bank's
loan and deposit functions; and (iv) occupancy expenses for maintaining the
Banks' facilities. The largest component contributing to the Company's net
income is net interest income, which is the difference between interest earned
on earning assets (primarily loans and investments) and interest paid on
interest bearing liabilities (primarily deposits and other borrowings). One of
management's principal functions is to manage the spread between interest earned
on earning assets and interest paid on interest bearing liabilities in an effort
to maximize net interest income while maintaining an appropriate level of
interest rate risk.
The Company earned net income of $2,862,000, or $0.91 per share for the three
months ended June 30, 2004, compared to net income of $2,649,000, or $0.85 per
share, for the three months ended June 30, 2003, an increase of 8%. Net interest
income increased $504,000 and was the largest contributor to the higher level of
quarterly earnings. The improved net interest income was partially offset by the
lack of realized securities gains and lower gains on the sale of secondary
market residential mortgage loans.
For the six month period ending June 30, 2004, the Company earned net income of
$5,827,000, or $1.86 per share, a 6% increase over net income of $5,520,000, or
$1.76 per share, earned a year ago. An improved net interest margin resulted in
an additional $1,040,000 in net interest income for the first six months of 2004
compared to the same period one year ago.
The following management discussion and analysis will provide a summary review
of important items relating to:
o Challenges
o Key Performance Indicators and Industry Results
o Income Statement Review
o Balance Sheet Review
o Asset Quality and Credit Risk Management
o Liquidity and Capital Resources
o Forward-Looking Statements and Business Risks
Challenges
Management has identified certain challenges that may negatively impact the
Company's revenues in the future and is attempting to position the Company to
best respond to those challenges.
o Interest rates have moved above their historic lows; however, additional
rapid increases in interest rates may present a challenge to the Company.
Such an increase may negatively impact the Company's net interest margin if
interest expense increases more quickly than interest income. The Company's
earning assets (primarily its loan and investment portfolio) have longer
maturities than its interest bearing liabilities (primarily deposits and
other borrowings); therefore, in a rising interest rate environment, interest
expense will increase more quickly than interest income as the interest
bearing liabilities reprice more quickly than earning assets. In response to
this challenge, the Banks model quarterly the changes in income that would
result from various changes in interest rates. Management believes Bank
assets have the appropriate maturity and repricing characteristics to
optimize earnings and the Banks' interest rate risk positions.
o The volume of mortgage loan refinancing has declined in 2004 and this trend
is expected to continue for the remainder of the year. Income from the sale
of secondary market loans totaled $348,000 for the six months ended June 30,
2004 compared to $571,000 for the same period in 2003. This slowdown will
have a negative impact on the Company's noninterest income as the refinancing
activity generated record fee income of $1,155,000 in 2003. The Banks are
focusing more attention on relationships with local real estate agents in an
effort to expand the mortgage loan fees derived from home purchases as
refinancing activity begins to diminish.
o The Company's market in central Iowa has numerous banks, credit unions,
investment and insurance companies competing for similar business
opportunities. This competitive environment will continue to put downward
pressure on the Banks' net interest margins and thus affect profitability.
Activities the Company is undertaking to address this challenge include
additional focus on improving customer service, packaging products to provide
more convenience for customers, and remaining operationally efficient to
maintain profitability with lower net interest margins.
7
o A potential challenge to the Company's earnings would be poor performance in
the Company's equity portfolio, thereby reducing the historical level of
realized security gains. The Company invests capital that may be utilized for
future expansion in a portfolio of primarily financial and utility stocks
totaling $24 million as of June 30, 2004. The Company focuses on stocks that
have historically paid dividends that may lessen the negative effects of a
bear market.
Key Performance Indicators and Industry Results
Certain key performance indicators for the Company and the industry are
presented in the following chart. The industry figures are compiled by the
Federal Deposit Insurance Corporation (FDIC) and are derived from 9,116
commercial banks and savings institutions insured by the FDIC. Management
reviews these indicators on a quarterly basis for purposes of comparing the
Company's performance from quarter to quarter and to determine how the Company's
operations compare to the industry as a whole.
Selected Indicators for the Company and the Industry
June 30, 2004 March 31, 2004
------------------ ------------------ Years Ended December 31,
3 Months 6 Months 3 Months --------------------------------------
Ended Ended Ended 2003 2002
------------------ ------------------ ------------------ ------------------
Company Company Company Industry* Company Industry Company Industry
------- ------- ------- --------- ------- -------- ------- --------
Return on assets 1.45% 1.51% 1.56% 1.38% 1.60% 1.38% 1.78% 1.30%
Return on equity 10.76% 10.84% 10.91% 14.86% 11.16% 15.04% 11.54% 14.14%
Net interest margin 3.99% 4.02% 4.09% 3.68% 4.02% 3.73% 4.51% 3.96%
Efficiency ratio 46.49% 47.07% 48.02% 57.44% 47.18% 56.59% 44.64% 56.00%
Capital ratio 13.23% 13.21% 13.87% 8.17% 14.33% 7.88% 15.46% 7.87%
* Latest available data
Key performances indicators include:
o Return on Assets
This ratio is calculated by dividing net income by average assets. It is used
to measure how effectively the assets of the Company are being utilized in
generating income. The Company's annualized return on average assets was
1.51% and 1.55%, respectively, for the six month periods ending June 30, 2004
and 2003. Although the Company's return on assets ratio compares favorably to
that of the industry, this ratio declined in 2004 as assets grew more quickly
than income.
o Return on Equity
This ratio is calculated by dividing net income by average equity. It is used
to measure the net income or return the Company generated for the
shareholders' equity investment in the Company. The Company's annualized
return on equity ratio is below that of the industry primarily as a result of
the higher level of capital the Company maintains for future growth and
acquisitions. The Company's return on average equity was 10.84% and 10.70%,
respectively for the six month periods ending June 30, 2004 and 2003. A
higher average level of retained earnings and net unrealized gains on
securities available for sale led to the lower return on equity in 2004.
8
o Net Interest Margin
The ratio is calculated by dividing net interest income by average earning
assets. Earning assets are primarily made up of loans and investments that
earn interest. This ratio is used to measure how well the Company is able to
maintain interest rates on earning assets above those of interest-bearing
liabilities, which is the interest expense paid on deposits and other
borrowings. The Company's net interest margin compares favorably to the
industry; however, management expects the competitive nature of the Company's
market environment to put downward pressure on the Company's margin.
o Efficiency Ratio
This ratio is calculated by dividing noninterest expense by net interest
income and noninterest income. The ratio is a measure of the Company's
ability to manage noninterest expenses. The Company's efficiency ratio
compares favorably to the industry's average and was 47.07% and 47.62% for
the six months ended June 30, 2004 and 2003, respectively.
o Capital Ratio
The capital ratio is calculated by dividing total equity capital by total
assets. It measures the level of average assets that are funded by
shareholders' equity. Given an equal level of risk in the financial condition
of two companies, the higher the capital ratio, generally the more
financially sound the company. The Company's capital ratio is significantly
higher than the industry average. The capital ratio declined from December
31, 2003 as the result of higher interest rates causing the unrealized gains
in the Banks' bond portfolios to decline.
Industry Results
The FDIC Quarterly Banking Profile reported the following results for the first
quarter of 2004:
Strength in mortgage lending and lower expenses for loan losses helped bank and
thrift earnings reach a new record in the first quarter of 2004. Industry
earnings of $31.9 billion were $858 million (2.8%) higher than the previous
quarterly record, set in the fourth quarter of 2003. Lower interest rates helped
sustain mortgage refinancing activity and made it possible for institutions to
realize higher gains on sales of fixed-rate securities and other assets. The
industry's return on assets (ROA) was 1.38%, slightly below the all-time
quarterly record of 1.39% recorded in the first quarter of 2003. More than half
of all institutions (55%) reported higher earnings than in the first quarter of
2003, while half (50.3%) reported higher ROAs. The percentage of unprofitable
institutions fell to 5.5%, compared to 5.9% a year earlier. This is the lowest
percentage of unprofitable institutions the industry has had in almost six
years, since the second quarter of 1998.
Income Statement Review for Three Months Ended June 30, 2004
The following highlights a comparative discussion of the major components of net
income and their impact for the last two years:
Critical Accounting Policies
The discussion contained in this Item 2 and other disclosures included within
this report are based on the Company's audited consolidated financial
statements. These statements have been prepared in accordance with accounting
principles generally accepted in the United States of America. The financial
information contained in these statements is, for the most part, based on the
financial effects of transactions and events that have already occurred.
However, the preparation of these statements requires management to make certain
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses.
The Company's significant accounting policies are described in the "Notes to
Consolidated Financial Statements" contained in the Company's 10-K. Based on its
consideration of accounting policies that involve the most complex and
subjective estimates and judgments, management has identified its most critical
accounting policy to be that related to the allowance for loan losses.
The allowance for loan losses is established through a provision for loan losses
that is treated as an expense and charged against earnings. Loans are charged
against the allowance for loan losses when management believes that
collectibility of the principal is unlikely. The Company has policies and
procedures for evaluating the overall credit quality of its loan portfolio,
including timely identification of potential problem loans. On a quarterly
basis, management reviews the appropriate level for the allowance for loan
losses incorporating a variety of risk considerations, both quantitative and
qualitative. Quantitative factors include the Company's historical loss
experience, delinquency and charge-off trends, collateral values, known
information about individual loans and other factors. Qualitative factors
include the general economic environment in the Company's market area and the
expected trend of the economic conditions. To the extent actual results differ
from forecasts and management's judgment, the allowance for loan losses may be
greater or lesser than future charge-offs.
9
AVERAGE BALANCES AND INTEREST RATES
The following two tables are used to calculate the Company's net interest
margin. The first table includes the Company's average assets and the related
income to determine the average yield on earning assets. The second table
includes the average liabilities and related expense to determine the average
rate paid on interest bearing liabilities. The net interest margin is equal to
the interest income less the interest expense divided by average earning assets.
AVERAGE BALANCE SHEETS AND INTEREST RATES
Three Months Ended June 30,
------------------------------------------------------------------------
2004 2003
----------------------------------- ---------------------------------
ASSETS Average Revenue/ Yield/ Average Revenue/ Yield/
(dollars in thousands) balance expense rate balance expense rate
----------------------------------- ---------------------------------
Interest-earning assets
Loans
Commercial $50,810 $ 622 4.90% $40,116 $ 561 5.59%
Agricultural 28,542 449 6.29% 26,035 451 6.93%
Real estate 275,770 4,067 5.90% 263,757 4,293 6.51%
Installment and other 23,124 333 5.76% 20,055 346 6.90%
----------------------------------- ----------------------------------
Total loans (including fees) $378,246 $5,471 5.79% $349,963 $5,651 6.46%
Investment securities
Taxable $216,973 $2,231 4.11% $155,141 $1,904 4.91%
Tax-exempt 128,426 2,081 6.48% 90,884 1,607 7.07%
----------------------------------- ----------------------------------
Total investment securities $345,399 $4,312 4.99% $246,025 $3,511 5.71%
Interest bearing deposits with banks $8,574 $34 1.59% $4,974 $10 0.80%
Federal funds sold 9,127 21 0.92% 89,464 250 1.12%
----------------------------------- ----------------------------------
Total interest-earning assets $741,346 $9,838 5.31% $690,426 $9,422 5.46%
Non-interest-earning assets 46,521 46,660
-------- --------
TOTAL ASSETS $787,867 $737,086
======== ========
1 Average loan balances 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 tax rate of 35% and 34% in 2004 and 2003, respectively.
10
AVERAGE BALANCE SHEETS AND INTEREST RATES
Three Months Ended June 30,
2004 2003
-------------------------------- --------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY Average Revenue/ Yield/ Average Revenue/ Yield/
(dollars in thousands) balance expense rate balance expense rate
-------------------------------- --------------------------------
Interest-bearing liabilities
Deposits
Savings, NOW accounts, and money markets $335,098 $ 682 0.81% $310,295 $ 767 0.99%
Time deposits < $100,000 175,350 1,244 2.84% 171,734 1,410 3.28%
Time deposits > $100,000 71,919 432 2.40% 65,571 469 2.86%
-------------------------------- --------------------------------
Total deposits $582,367 $2,358 1.62% $547,600 $2,646 1.93%
Other borrowed funds 27,538 94 1.37% 19,612 77 1.57%
-------------------------------- --------------------------------
Total Interest-bearing liabilities $609,905 $2,452 1.61% $567,212 $2,723 1.92%
------ ------
Non-interest-bearing liabilities
Demand deposits $ 64,161 $ 56,711
Other liabilities 7,454 9,115
-------- --------
Stockholders' equity $106,347 $104,048
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $787,867 $737,086
======== ========
Net interest: income / margin $7,386 3.99% $6,699 3.88%
====== ======
Spread Analysis
Interest income/average assets 9,838 4.99% $9,422 5.11%
Interest expense/average assets 2,452 1.24% 2,723 1.48%
Net interest income/average assets 7,386 3.75% 6,699 3.63%
1 Tax-exempt income has been adjusted to a tax-equivalent basis using an
incremental tax rate of 35% and 34% in 2004 and 2003, respectively.
11
Net Interest Income
For the three months ended June 30, 2004 and 2003, the Company's net interest
margin adjusted for tax exempt income was 3.99%. Net interest income, prior to
the adjustment for tax-exempt income, for the three months ended June 30, 2004
and June 30, 2003 totaled $6,657,000 and $6,153,000, respectively.
For the quarter ended June 30, 2004, net interest income increased $504,000 or
8.2% when compared to the same period in 2003. The increase was attributable to
higher volume of investments and lower interest expense on deposits.
Interest expense decreased $271,000 or 10.0% for the quarter ended June 30, 2004
when compared to the same period in 2003. The lower interest expense for the
quarter is attributable to declining interest rates paid on deposits and other
borrowed funds partially offset by a higher volume of deposits.
Provision for Loan Losses
The Company's provision for loan losses for the three months ended June 30, 2004
was $210,000 compared to $306,000 during the same period last year. Loan growth
at First National Bank was the most significant factor leading to the provision
expense recorded for quarter ended June 30, 2004 while much of 2003 provision
expense related to a problem commercial loan. Net charge-offs totaled $22,000
for the three months ended June 30, 2004 compared to net charge-offs of $350,000
for the three months ended June 30, 2003.
Non-interest Income and Expense
Non-interest income decreased $262,000, or 17.3% during the quarter ended June
30, 2004 compared to the same period in 2003. The decrease can be attributed to
the lack of realized gains on the sale of securities in the Company's equity
portfolio in the second quarter of 2004 compared to $281,000 in the second
quarter of 2003. Lower gains on the sale of secondary market residential
mortgage loans also contributed to lower non-interest income as the record level
of refinancing activity experienced in 2003 slowed down in 2004.
Non-interest expense decreased $105,000 or 2.8% for the second quarter of 2004
compared to the same period in 2003. The decrease in non-interest expense is
primarily related to lower salaries and employee benefits and lower data
processing costs relating to internet banking services.
Income Taxes
The provision for income taxes for June 30, 2004 and June 30, 2003 was
$1,158,000 and $929,000, respectively. This amount represents an effective tax
rate of 28.8% for the three months ended June 30, 2004 versus 26.0% for the same
quarter in 2003. 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.
Income Statement Review for Six Months Ended June 30, 2004
The following highlights a comparative discussion of the major components of net
income and their impact for the last two years:
12
AVERAGE BALANCES AND INTEREST RATES
The following two tables are used to calculate the Company's net interest
margin. The first table includes the Company's average assets and the related
income to determine the average yield on earning assets. The second table
includes the average liabilities and related expense to determine the average
rate paid on interest bearing liabilities. The net interest margin is equal to
the interest income less the interest expense divided by average earning assets.
ASSETS
(dollars in thousands)
AVERAGE BALANCE SHEETS AND INTEREST RATES
Six Months Ended June 30,
---------------------------------------------------------------------------
2004 2003
---------------------------------- -----------------------------------
Average Revenue/ Yield/ Average Revenue/ Yield/
balance expense rate balance expense rate
---------------------------------- -----------------------------------
Loans
Commercial $ 45,795 $ 1,154 5.04% $ 38,834 $ 1,112 5.73%
Agricultural 27,624 880 6.37% 26,017 912 7.01%
Real estate 273,805 8,113 5.93% 260,642 8,509 6.53%
Installment and other 22,988 677 5.89% 20,051 674 6.72%
---------------------------------- -----------------------------------
Total loans (including fees) $370,212 $10,824 5.85% $345,544 $11,207 6.49%
Investment securities
Taxable $206,165 $ 4,396 4.26% $155,074 $ 3,906 5.04%
Tax-exempt 124,630 4,046 6.49% 86,545 3,101 7.17%
---------------------------------- -----------------------------------
Total investment securities $330,795 $ 8,442 5.10% $241,619 $ 7,007 5.80%
Interest bearing deposits with banks $ 7,340 $ 56 1.53% $ 2,998 $ 17 1.13%
Federal funds sold 15,579 78 1.00% 74,274 414 1.11%
---------------------------------- -----------------------------------
Total interest-earning assets $723,926 $19,400 5.36% $664,435 $18,645 5.61%
Total noninterest-earning assets $ 49,564 $ 48,307
-------- --------
TOTAL ASSETS $773,490 $712,742
======== ========
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 tax rate of 35% and 34% in 2004 and 2003, respectively.
13
LIABILITIES AND STOCKHOLDERS' EQUITY
(dollars in thousands)
AVERAGE BALANCE SHEETS AND INTEREST RATES
Six Months Ended June 30,
---------------------------------------------------------------------------
2004 2003
--------------------------------- --------------------------------
Average Revenue/ Yield/ Average Revenue/ Yield/
balance expense rate balance expense rate
--------------------------------- --------------------------------
Interest-bearing liabilities
Deposits
Savings, NOW accounts, and
money markets $323,301 $ 1,297 0.80% $294,608 $ 1,519 1.03%
Time deposits < $100,000 175,432 2,521 2.87% 168,551 2,817 3.34%
Time deposits > $100,000 70,642 856 2.42% 63,505 936 2.95%
------------------------------- ---------------------------------
Total deposits $569,375 $ 4,674 1.64% $526,664 $ 5,272 2.00%
Other borrowed funds 24,424 169 1.38% 17,377 141 1.62%
------------------------------- ---------------------------------
Total Interest-bearing $593,799 $ 4,843 1.63% $544,041 $ 5,413 1.99%
liabilities ------- ------
Noninterest-bearing liabilities
Demand deposits $ 64,157 $ 57,319
Other liabilities 8,011 8,200
-------- --------
Stockholders' equity $107,523 $103,182
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $773,490 $712,742
======== ========
Net interest income / margin $14,557 4.02% $13,232 3.98%
======= =======
Spread Analysis
Interest income/average assets $19,400 5.02% $18,645 5.23%
Interest expense/average assets 4,843 1.25% 5,413 1.52%
Net interest income/average assets 14,557 3.76% 13,232 3.71%
1 Tax-exempt income has been adjusted to a tax-equivalent basis using an
incremental tax rate of 35% and 34% in 2004 and 2003, respectively.
14
Net Interest Income
For the six months ended June 30, 2004 and 2003, the Company's net interest
margin adjusted for tax exempt income was 4.02%. Net interest income, prior to
the adjustment for tax-exempt income, for the six months ended June 30, 2004 and
June 30, 2003 totaled $13,181,000 and $12,177,000, respectively.
For the six months ended June 30, 2004, interest income increased $433,000 or
2.5% when compared to the same period in 2003. The increase was attributable to
higher volume of investments and loans that offset a much lower yield on earning
assets.
Interest expense decreased $570,000 or 10.5% for the six months ended June 30,
2004 when compared to the same period in 2003. The lower interest expense for
the six month period is attributable to declining interest rates paid on
deposits and other borrowed funds partially offset by a higher volume of
deposits.
Provision for Loan Losses
The Company's provision for loan losses for the six months ended June 30, 2004
was $269,000 compared to $426,000 during the same period last year. Loan growth
at First National Bank was the most significant factor leading to the provision
expense recorded for six months ended June 30, 2004. A problem commercial loan
was the primary factor for higher provision expense in 2003. Net charge-offs
totaled $42,000 for the six months ended June 30, 2004 compared to net
charge-offs of $301,000 for the six months ended June 30, 2003.
Non-interest Income and Expense
Non-interest income decreased $717,000, or 23.1% during the six months ended
June 30, 2004 compared to the same period in 2003. The decrease can be
attributed to decreased realized gains on the sale of securities in the
Company's equity portfolio of $32,000 in 2004 compared to $647,000 in first six
months of 2003. Lower gains on the sale of secondary market residential mortgage
loans also contributed to lower non-interest income as the record level of
refinancing activity experienced in 2003 slowed down in 2004.
Non-interest expense increased $50,000 or 0.7% for the first six months of 2004
compared to the same period in 2003.
Income Taxes
The provision for income taxes for June 30, 2004 and June 30, 2003 was
$2,147,000 and $2,060,000, respectively. This amount represents an effective tax
rate of 26.9% for the six months ended June 30, 2004 versus 27.2% for the same
six months in 2003. 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.
Balance Sheet Review
As of June 30, 2004, total assets were $789,332,000, a $36,545,000 increase
compared to December 31, 2003. This higher level of assets is attributable to a
higher volume of securities and loans that were funded with other borrowed money
and deposits. United Bank's assets increased by $12,589,000 from December 31,
2003.
Investment Portfolio
The increase in the volume of investment securities to $358,056,000 on June 30,
2004 from $323,116,000 on December 31, 2003 resulted primarily from the purchase
of U.S. government agency bonds.
Loan Portfolio
Net loans totaled $382,602,000 as of June 30, 2004 compared to $355,533,000 as
of December 31, 2003. The increased level of loans relates primarily to new loan
originations at First National and Boone Bank.
Deposits
Deposits totaled $633,869,000 as of June 30, 2004, an increase of $14,321,000
from December 31, 2003 and are $29,709,000 higher than the June 30, 2003
balance. The increase in deposits is attributable to growth in deposits at Boone
Bank, First National, and United Bank primarily in the NOW and money market
accounts.
15
Other Borrowed Funds
Other borrowed funds as of June 30, 2004 totaled $44,576,000 consisting of
federal funds sold and securities sold under agreements to repurchase. Other
borrowings as of December 31, 2003 totaled $18,198,000. The increase is
attributable to higher volume of loan originations and investment purchases in
excess of the growth in deposits.
Off-Balance Sheet Arrangements
The Company is party to financial instruments with off-balance-sheet risk in the
normal course of business. These financial instruments include commitments to
extend credit and standby letters of credit. These instruments involve, to
varying degrees, elements of credit risk in excess of the amount recognized in
the balance sheet. No material changes in the Company's off-balance sheet
arrangements have occurred since December 31, 2003.
Asset Quality Review and Credit Risk Management
The Company's credit risk is centered in the loan portfolio, which on June 30,
2004 totaled $382,602,000 compared to $355,533,000 as of December 31, 2003. Net
loans comprise 48% of total assets as of June 30, 2004. The object in managing
loan portfolio risk is to reduce the risk of loss resulting from a customer's
failure to perform according to the terms of a transaction and to quantify and
manage credit risk on a portfolio basis. The Company's level of problem loans
consisting of non-accrual loans and loans past due 90 days or more as a
percentage of total loans of 0.62% compares favorably to the average of the
Company's peer group of 347 bank holding companies with assets of $500 million
to $1 billion as of March 31, 2004 of 0.68%.
Impaired loans totaled $2,428,000 as of June 30, 2004 compared to $2,187,000 as
of December 31, 2003. 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, 2004, non-accrual loans totaled $2,288,000,
loans past due 90 days still accruing totaled $140,000 and there were no
restructured loans outstanding. Other real estate owned as of June 30, 2004 and
December 31, 2003 totaled $354,000 and $159,000, respectively.
The allowance for loan losses as a percentage of outstanding loans as of June
30, 2004 and December 31, 2003 was 1.61% and 1.71%, respectively. The allowance
for loan and lease losses totaled $6,278,000 and $6,051,000 as of June 30, 2004
and December 31, 2003, 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.
Liquidity and Capital Resources
Liquidity management is the process by which the Company, through its Banks'
Asset and Liability Committees (ALCO), ensures that adequate liquid funds are
available to meet its financial commitments on a timely basis, at a reasonable
cost and within acceptable risk tolerances. These commitments include funding
credit obligations to borrowers, funding of mortgage originations pending
delivery to the secondary market, withdrawals by depositors, maintaining
adequate collateral for pledging for public funds, trust deposits and
borrowings, paying dividends to shareholders, payment of operating expenses,
funding capital expenditures and maintaining deposit reserve requirements.
Liquidity is derived primarily from core deposit growth and retention; principal
and interest payments on loans; principal and interest payments, sale, maturity
and prepayment of investment securities; net cash provided from operations; and
access to other funding sources. Other funding sources include federal funds
purchased lines, Federal Home Loan Bank (FHLB) advances and other capital market
sources.
As of June 30, 2004, the level of liquidity and capital resources of the Company
remain at a satisfactory level and compare favorably to that of other FDIC
insured institutions. Management believes that the Company's liquidity sources
will be sufficient to support its existing operations for the foreseeable
future.
16
The liquidity and capital resources discussion will cover the follows topics:
o Review the Company's Current Liquidity Sources
o Review of the Statements of Cash Flows
o Company Only Cash Flows
o Review of Commitments for Capital Expenditures, Cash Flow Uncertainties and
Known Trends in Liquidity and Cash Flows Needs
o Capital Resources
Review of the Company's Current Liquidity Sources
Liquid assets of cash on hand, balances due from other banks, federal funds sold
and interest-bearing deposits in financial institutions for June 30, 2004 and
December 31, 2003 totaled $32,818,000 and $58,726,000, respectively. Higher
levels of loans and securities available for sale resulted in the lower level of
liquid assets.
Other sources of liquidity available to the Banks as of June 30, 2004 include
outstanding lines of credit with the Federal Home Loan Bank of Des Moines, Iowa
of $27,000,000 and federal funds borrowing capacity at correspondent banks of
$37,500,000 with current outstanding federal fund balances of $22,500,000. The
Company had securities sold under agreements to repurchase totaling $22,076,000
and did not have any outstanding FHLB advances as of June 30, 2004.
Total investments as of June 30, 2004 were $358,056,000 compared to $323,116,000
as of year end 2003. These investments provide the Company with a significant
amount of liquidity since all of the investments are classified as available for
sale as of June 30, 2004.
The investment portfolio serves an important role in the overall context of
balance sheet management in terms of balancing capital utilization and
liquidity. The decision to purchase or sell securities is based upon the current
assessment of economic and financial conditions, including the interest rate
environment, liquidity and credit considerations. The portfolio's scheduled
maturities represent a significant source of liquidity.
Review of Statements of Cash Flows
Operating cash flows for June 30, 2004 and 2003 totaled $6,349,000 and
$3,200,000, respectively. The primary variance in operating cash flows for the
first half of 2004 compared to the same period in 2003 was the cash used to fund
secondary market residential loans in the first half of 2003.
Net cash used in investing activities through June 30, 2004 and 2003 was
$54,029,000 and $79,751,000, respectively. The largest investing activity was
the purchase of U.S. government agency bonds in the first half of 2004.
Net cash provided by financing activities for June 30, 2004 and 2003 totaled
$38,063,000 and $53,464,000, respectively. A higher level of federal funds
purchased was the largest source of financing cash flows in 2004 and the growth
in deposits was the primary source of financing funds in 2003. As of June 30,
2004, the Company did not have any external debt financing, off balance sheet
financing arrangements, or derivative instruments linked to its stock.
Company Only Cash Flows
The Company's liquidity on an unconsolidated basis is heavily dependent upon
dividends paid to the Company by the Banks. The Company requires adequate
liquidity to pay its expenses and pay stockholder dividends. In 2003, dividends
from the Banks amounted to $7,868,000 compared to $5,978,000 in 2002. Various
federal and state statutory provisions limit the amount of dividends banking
subsidiaries are permitted to pay to their holding companies without regulatory
approval. Federal Reserve policy further limits the circumstances under which
bank holding companies may declare dividends. For example, a bank holding
company should not continue its existing rate of cash dividends on its common
stock unless its net income is sufficient to fully fund each dividend and its
prospective rate of earnings retention appears consistent with its capital
needs, asset quality and overall financial condition. In addition, the Federal
Reserve and the FDIC have issued policy statements which provide that insured
banks and bank holding companies should generally pay dividends only out of
current operating earnings. Federal and state banking regulators may also
restrict the payment of dividends by order.
The Company has unconsolidated interest bearing deposits and marketable
investment securities totaling $33,447,000 that are presently available to
provide additional liquidity to the Banks.
17
Review of Commitments for Capital Expenditures, Cash Flow Uncertainties and
Known Trends in Liquidity and Cash Flows Needs
No material capital expenditures or material changes in the capital resource mix
are anticipated at this time. The primary cash flow uncertainty would be a
sudden decline in deposits causing the Banks to liquidate securities.
Historically, the Banks have maintained an adequate level of short term
marketable investments to fund the temporary declines in deposit balances. There
are no known trends in liquidity and cash flows needs as of June 30, 2004 that
is a concern to management.
Capital Resources
The Company's total stockholders' equity decreased to $104,239,000 as of June
30, 2004, from $107,325,000 at December 31, 2003. The decrease in equity is
attributable to a lower level of net unrealized gains on securities available
for sale as result of a decline in the market value of the Banks' bond
portfolios. At June 30, 2004 and December 31, 2003, stockholders' equity as a
percentage of total assets was 13.2% and 14.26%, respectively. The capital
levels of the Company currently exceed applicable regulatory guidelines as of
June 30, 2004.
Forward-Looking Statements and Business Risks
The discussion in the foregoing Management Discussion and Analysis and elsewhere
in this Report 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,
but are not limited to, those related to the economic conditions, 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.
These factors may not constitute all factors that could cause actual results to
differ materially from those discussed in any forward-looking statement. The
Company operates in a continually changing business environment and new facts
emerge from time to time. It cannot predict such factors nor can it assess the
impact, if any, of such factors on its financial position or its results of
operations. Accordingly, forward-looking statements should not be relied upon as
a predictor of actual results. The Company disclaims any responsibility to
update any forward-looking statement provided in this document.
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
2004 changed significantly when compared to 2003.
Item 4. Evaluation of Disclosure Controls and Procedures
The principal executive officer and principal financial officer of the Company
have evaluated the effectiveness of the Company's disclosure controls and
procedures (as such terms are defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the
period covered by this annual report (the "Evaluation Date"). Based on such
evaluation, such officers have concluded that, as of the Evaluation Date, the
Company's disclosure controls and procedures are effective in bringing to their
attention on a timely basis material information relating to the Company
(including its consolidated subsidiaries) required to be included in the
Company's periodic filings under the Exchange Act.
Changes in Internal Controls
There was no change in the Company's internal control over financial reporting
identified in connection with the evaluation required by Rule 13a-15(d) of the
Exchange Act that occurred during the Company's last fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
18
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
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Certification of Principal Executive Officer Pursuant to
Section 302 of Sarbanes-Oxley Act of 2002.
31.2 Certification of Principal Financial Officer Pursuant to
Section 302 of Sarbanes-Oxley Act of 2002.
32.1 Certification of Principal Executive Officer Pursuant to
18 U.S.C. Section 1350.
32.2 Certification of Principal Financial Officer Pursuant to
18 U.S.C. Section 1350.
(b) Reports on Form 8-K
On May 14, 2004, the Company filed a Form 8-K pursuant to Item 5,
announcing an increase in the dividend from $.46 per share to $.49
per share payable August 16, 2004 to shareholders of record August
2, 2004. The board also declared an extra dividend of $.49 per
share payable October 1, 2004 to shareholders of record September
16, 2004.
On July 16, 2004, the Company filed a Form 8-K pursuant to Item 5,
announcing financial results for the three and six months ended
June 30, 2004.
19
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 5, 2004 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
20