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 September 30, 2002
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 0-32637
AMES NATIONAL CORPORATION
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
IOWA 42-1039071
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of (I. R. S. Employer
Incorporation or Organization) Identification Number)
405 FIFTH STREET
AMES, IOWA 50010
----------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (515) 232-6251
Not Applicable
----------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes[ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
COMMON STOCK, $5.00 PAR VALUE 3,128,982
- --------------------------------------------------------------------------------
(Class) (Shares Outstanding at November 8, 2002)
1
AMES NATIONAL CORPORATION
INDEX
Page
Part I. Financial Information
Item 1. Consolidated Financial
Statements (Unaudited) 3
Consolidated Statements of
Financial Condition at September 30, 2002
(Unaudited) and December 31, 2001 3
Consolidated Statements of
Income for the three and nine months ended
September 30, 2002 and 2001 (Unaudited) 4
Consolidated Statements of
Cash Flows for the nine months ended
September 30, 2002 and 2001 (Unaudited) 5
Notes to Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 6
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
Certifications 16
2
PART 1. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
AMES NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
September 30, December 31,
----------------------------
Assets 2002 2001
----------------------------
Cash and due from banks .................................. $ 44,259,802 $ 42,459,156
Federal funds sold ....................................... 51,970,000 29,350,000
Interest bearing deposits in financial institutions ...... 500,000 250,000
Securities available-for-sale ............................ 237,956,813 213,778,175
Loans receivable, net .................................... 310,278,405 323,043,166
Bank premises and equipment, net ......................... 8,136,170 7,183,655
Accrued income receivable ................................ 6,067,313 5,977,353
Other assets ............................................. 590,583 238,477
----------------------------
Total assets .................................. $659,759,086 $622,279,982
============================
Liabilities and Stockholders' Equity
Deposits:
Demand ................................................ $ 60,268,609 $ 62,796,265
NOW accounts .......................................... 129,636,309 108,509,319
Savings and money market .............................. 139,436,493 138,342,052
Time, $100,000 and over ............................... 53,729,760 47,716,458
Other time ............................................ 153,864,537 154,145,161
----------------------------
Total deposits ................................ 536,935,708 511,509,255
FHLB advances ............................................ -- 1,000,000
Federal funds purchased and securities sold under
agreements to repurchase ............................... 14,855,341 10,596,174
Dividends payable ........................................ 1,376,752 1,312,596
Deferred taxes ........................................... 2,645,231 1,188,670
Accrued interest and other liabilities ................... 3,020,023 3,051,289
----------------------------
Total liabilities ............................. 558,833,055 528,657,984
-----------------------------
Stockholders' Equity:
Common stock, $5 par value; authorized 6,000,000
shares; issued 3,153,230 shares at September 30,
2002 and December 31, 2001 .......................... 15,766,150 15,766,150
Treasury stock, at cost; 24,248 and 28,001 shares at
September 30, 2002 and December 31, 2001,
respectively ........................................ (1,333,640) (1,530,805)
Surplus ............................................... 25,354,014 25,393,028
Retained earnings ..................................... 52,588,307 49,397,011
Accumulated other comprehensive income - net
unrealized gain on securities available-for-sale .... 8,551,200 4,596,614
----------------------------
Total stockholders' equity .................... 100,926,031 93,621,998
----------------------------
$659,759,086 $622,279,982
============================
3
AMES NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-----------------------------------------------------
2002 2001 2002 2001
-----------------------------------------------------
Interest and dividend income:
Loans ............................ $ 5,830,765 $ 6,797,377 $17,461,976 $21,175,726
Securities ....................... 2,693,049 2,883,736 8,170,597 8,936,035
Federal funds sold ............... 186,630 206,529 638,657 552,050
Dividends ........................ 341,174 319,251 1,046,845 826,844
-----------------------------------------------------
Total interest income ...... 9,051,618 10,206,893 27,318,075 31,490,655
-----------------------------------------------------
Interest expense:
Deposits ......................... 2,747,913 4,258,811 8,707,285 14,228,785
Other borrowed funds ............. 61,884 237,721 195,784 934,071
-----------------------------------------------------
Total interest expense ..... 2,809,797 4,496,532 8,903,069 15,162,856
-----------------------------------------------------
Net interest income ........ 6,241,821 5,710,361 18,415,006 16,327,799
Provision for loan losses ............ 80,640 283,229 296,124 557,137
-----------------------------------------------------
Net interest income after
provision for loan losses 6,161,181 5,427,132 18,118,882 15,770,662
-----------------------------------------------------
Noninterest income:
Trust department income .......... 270,214 240,018 797,369 727,820
Service fees ..................... 381,772 395,323 1,100,965 1,180,035
Securities gains, net ............ 239,748 2,472 562,422 1,154,003
Other ............................ 421,621 337,103 1,043,567 966,822
-----------------------------------------------------
Total noninterest income ... 1,313,355 974,916 3,504,323 4,028,680
-----------------------------------------------------
Noninterest expense:
Salaries and employee benefits ... 2,087,159 1,659,592 5,945,161 5,059,903
Occupancy expenses ............... 225,634 173,179 655,198 542,128
Data processing .................. 440,660 380,094 1,282,700 1,268,956
Other operating expenses ......... 597,064 534,436 1,710,419 1,608,148
-----------------------------------------------------
Total noninterest expense .. 3,350,517 2,747,301 9,593,478 8,479,135
-----------------------------------------------------
Income before income taxes . 4,124,019 3,654,747 12,029,727 11,320,207
Income tax expense ................... 1,171,736 972,427 3,395,579 3,340,431
-----------------------------------------------------
Net income ................. $ 2,952,283 $ 2,682,320 $ 8,634,148 $ 7,979,776
=====================================================
Basic and diluted earnings per share . $ 0.94 $ 0.86 $ 2.76 $ 2.55
=====================================================
Declared dividends per share ......... $ 0.44 $ 0.42 $ 1.74 $ 1.22
=====================================================
Comprehensive Income ................. $ 4,209,682 $ 4,262,327 $12,588,734 $11,024,813
=====================================================
4
AMES NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
Nine Months Ended
September 30,
---------------------------
2002 2001
---------------------------
Cash flows from operating activities:
Net income ...................................................................... $ 8,634,148 $ 7,979,776
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses ..................................................... 296,124 557,137
Amortization and accretion, net ............................................... 8,451 (52,646)
Depreciation .................................................................. 686,169 530,022
Provision for deferred taxes .................................................. (24,475) (122,616)
Gain on sale of securities available-for-sale ................................. (562,422) (1,154,003)
Decrease (increase) in accrued income receivable .............................. (89,960) 116,994
Decrease (increase) in other assets ........................................... (352,106) 654,948
(Decrease) increase in accrued interest and other liabilities ................. (31,266) 103,265
--------------------------
Net cash provided by operating activities ............................... 8,564,663 8,612,877
--------------------------
Cash flow from investing activities:
Purchase of securities available-for-sale ....................................... (69,481,343) (33,882,961)
Proceeds from sale of securities available-for-sale ............................. 19,399,628 34,230,309
Proceeds from maturities of securities available-for-sale ....................... 31,892,668 17,822,087
Net decrease (increase) in interest bearing deposits in financial institutions .. (250,000) 98,174
Net increase in federal funds sold .............................................. (22,620,000) (43,605,000)
Net decrease in loans ........................................................... 12,468,637 16,896,053
Purchase of bank premises and equipment ......................................... (1,638,684) (1,699,418)
--------------------------
Net cash used in investing activities ................................... (30,229,094) (10,140,756)
--------------------------
Cash flows from financing activities:
Increase in deposits ............................................................ 25,426,453 10,489,894
Decrease in Federal Home Loan Bank advances ..................................... (1,000,000) (11,500,000)
Increase (decrease) in federal funds purchased and securities sold
under agreements to repurchase ................................................ 4,259,167 (2,006,097)
Dividends paid .................................................................. (5,378,694) (3,810,430)
Proceeds from issuance of treasury stock ........................................ 158,151 110,834
--------------------------
Net cash provided by (used in) financing activities ..................... 23,465,077 (6,715,799)
--------------------------
Net increase (decrease) in cash and cash equivalents .................... 1,800,646 (8,243,678)
Cash and cash equivalents at beginning of year ..................................... 42,459,156 28,775,032
--------------------------
Cash and cash equivalents at end of the period ..................................... $44,259,802 $20,531,354
==========================
Supplemental disclosures of cash flow information:
Cash paid for interest .......................................................... $ 9,476,728 $14,900,989
Cash paid for taxes ............................................................. 3,413,299 3,193,099
==========================
5
AMES NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
1. Significant Accounting Policies
The consolidated financial statements for the three and nine-month periods ended
September 30, 2002 and 2001 are unaudited. In the opinion of the management of
Ames National Corporation (the "Company"), these financial statements reflect
all adjustments, consisting only of normal recurring accruals, necessary to
present fairly these consolidated financial statements. The results of
operations for the interim periods are not necessarily indicative of results
which may be expected for an entire year. Certain information and footnote
disclosure normally included in complete financial statements prepared in
accordance with generally accepted accounting principles have been omitted in
accordance with the requirements for interim financial statements. The interim
financial statements and notes thereto should be read in conjunction with the
year-end audited financial statements contained in the Company's 10-K. The
consolidated condensed financial statements include the accounts of the Company
and its wholly-owned banking subsidiaries (the "Banks"). All significant
intercompany balances and transactions have been eliminated in consolidation.
2. Dividends
On November 13, 2002, the Company declared a cash dividend on its common stock,
payable on February 17, 2003 to stockholders of record as of February 3, 2003,
equal to $0.44 per share.
3. Earnings Per Share
Earnings per share amounts were calculated using the weighted average shares
outstanding during the periods presented. The weighted average outstanding
shares for the three months ended September 30, 2002 and 2001 were 3,128,982 and
3,125,229, respectively. The weighted average outstanding shares for the nine
months ended September 30, 2002 and 2001 were 3,126,714 and 3,123,437,
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 September 30, 2002 and September
30, 2001
General
In June 2002, the Company opened its fifth wholly owned bank subsidiary, United
Bank & Trust N.A. in Marshalltown, Iowa. The consolidated financial statements
include the accounts of this new organization as well as the four established
wholly owned subsidiaries; First National Bank, Ames, Iowa; Boone Bank & Trust,
Boone, Iowa; Randall-Story State Bank, Story City, Iowa; and State Bank & Trust
Co., Nevada, Iowa.
6
The Company earned net income of $2,952,000, or $0.94 per share for the three
months ended September 30, 2002, compared to net income of $2,682,000, or $0.86
per share, for the three months ended September 30, 2001, an increase of 10.06%.
The Company's return on average assets was 1.87% and 1.76%, respectively, for
the three-month periods ending September 30, 2002 and 2001. The Company's return
on average equity was 11.80% and 11.65%, respectively for the three month
periods ending September 30, 2002 and 2001.
The increase in income for three-month period ending September 30, 2002 compared
to the same period in 2001 is primarily attributable to higher net interest
income. Deposit interest expense declined significantly in spite of a higher
volume of deposits. A higher level of security gains and lower provision expense
also contributed to the increase in earnings for the quarter ended September 30,
2002. These improvements in income were partially offset by higher salary and
employee benefits and by lower interest income on loans as both the volume of
loans and related interest rates declined. Lower interest rates on alternative
fixed rate investments and shaken investor confidence in the equities market has
contributed to a higher level of deposits in spite of historically low rates on
deposits. Loan demand has been soft and competitive pricing in the Company's
local markets has contributed to lower loan interest income.
The following table sets forth certain information relating to the Company's
average balance sheets and reflects the average yield on assets and average cost
of liabilities for the three month periods ended September 30, 2002 and
September 30, 2001, respectively.
ASSETS
(dollars in thousands)
AVERAGE BALANCE SHEET AND INTEREST RATES
Three Months Ended September 30,
-----------------------------------------------------------------
2002 2001
------------------------------- -------------------------------
Average Revenue/ Yield/ Average Revenue/ Yield/
balance expense rate balance expense rate
-----------------------------------------------------------------
Interest-earning assets
Loans
Commercial ....................... $ 43,844 $ 793 7.23% $ 45,641 $ 937 8.21%
Agricultural ..................... 25,252 469 7.43% 27,691 605 8.74%
Real estate ...................... 225,541 4,236 7.51% 239,432 4,818 8.05%
Installment and other ............ 19,225 333 6.93% 23,141 437 7.55%
----------------------------------------------------------------
Total loans (including fees) ....... $313,862 $ 5,831 7.43% $335,905 $ 6,797 8.09%
Investment securities
Taxable .......................... $144,426 $ 2,057 5.70% $145,611 $ 2,324 6.38%
Tax-exempt ....................... 76,658 1,477 7.71% 68,721 1,326 7.72%
----------------------------------------------------------------
Total investment securities ........ $221,084 $ 3,534 6.39% $214,332 $ 3,650 6.81%
Interest bearing deposits with banks $ 524 $ 2 1.53% $ 250 $ 4 6.40%
Federal funds sold ................. 46,412 187 1.61% 23,788 207 3.48%
----------------------------------------------------------------
Total interest-earning assets ...... $581,882 $ 9,554 6.57% $574,275 $ 10,658 7.42%
Noninterest-earning assets ......... 50,337 36,032
----------------------------------------------------------------
TOTAL ASSETS ....................... $632,219 $610,307
================================================================
<FN>
1 Average loan balance include nonaccrual loans, if any. Interest income
collected on nonaccrual loans has been included. 2 Tax-exempt income has
been adjusted to a tax-equivalent basis using an incremental rate of 34%.
</FN>
7
LIABILITIES AND STOCKHOLDERS' EQUITY
(dollars in thousands)
AVERAGE BALANCE SHEET AND INTEREST RATES
Three Months Ended September 30,
------------------------------------------------------------------
2002 2001
------------------------------- -------------------------------
Average Revenue/ Yield/ Average Revenue/ Yield/
balance expense rate balance expense rate
------------------------------- -------------------------------
Interest-bearing liabilities
Deposits
Savings, NOW accounts, and money markets . $253,148 $ 808 1.28% $223,356 $ 1,368 2.45%
Time deposits < $100,000 ................. 150,933 1,465 3.88% 158,314 2,150 5.43%
Time deposits > $100,000 ................. 53,526 475 3.55% 54,006 741 5.49%
------------------------------------------------------------------
Total deposits ............................. $457,607 $ 2,748 2.40%$ 435,676 $ 4,259 3.91%
Other borrowed funds ....................... 12,978 62 1.91% 22,460 238 4.24%
------------------------------------------------------------------
Total Interest-bearing ..................... $470,585 $ 2,810 2.39% $458,136 $ 4,497 3.93%
liabilities
Noninterest-bearing liabilities
Demand deposits ............................ $ 54,616 $ 54,844
Other liabilities .......................... 6,977 5,204
------------------------------------------------------------------
Stockholders' equity ....................... $100,041 $ 92,123
------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ....................... $632,219 $610,307
==================================================================
Net interest income ........................ $ 6,744 4.64% $ 6,161 4.29%
==================================================================
Spread Analysis
Interest income/average assets ............. $ 9,554 6.04% $ 10,658 6.99%
Interest expense/average assets ............ 2,810 1.78% 4,497 2.95%
Net interest income/average assets ......... 6,744 4.27% 6,161 4.04%
<FN>
1 Tax-exempt income has been adjusted to a tax-equivalent basis using an
incremental rate of 34%.
</FN>
Net Interest Income
For the three months ended September 30, 2002, the Company's net interest margin
was 4.64% compared to 4.29% for the three months ended September 30, 2001. Net
interest income, prior to the adjustment for tax-exempt income, for the quarter
ended September 30, 2002 and 2001 totaled $6,161,000 and $5,427,000,
respectively. This 13.5% increase resulted primarily from lower interest expense
attributable to lower interest rates on deposits partially offset by lower
interest income on loans and investment securities.
For the three months ended September 30, 2002, interest income decreased
$1,155,000 or 11.3% when compared to the same period in 2001. This decrease was
primarily attributable to lower loan volume and yields.
Interest expense decreased $1,687,000 or 37.5% for the quarter ended September
30, 2002 when compared to the same period in 2001. Lower interest rates on
deposits and other borrowings resulted in decreased interest expense as the
Company's cost of funds declined with market interest rates.
Provision for Loan Losses
The Company provided $81,000 for loan losses for the three months ended
September 30, 2002 compared to $283,000 during the same period last year.
Provision expense for the three months ended September 30, 2002 were primarily
related to establishing reserves at United Bank & Trust while provision for the
same quarter in 2001 were utilized to increase specific reserves for impaired
loans.
8
Noninterest Income and Expense
Noninterest income increased $338,000, or 34.7% during the quarter ended
September 30, 2002 compared to the same period in 2001. The increase can be
attributed to higher securities gains in the Company's equity portfolio of
$240,000 in 2002 compared to $2,000 in third quarter of 2001.
Noninterest expense increased $603,000 or 22.0% for the third quarter of 2002
compared to the same period in 2001. Noninterest expense items that increased
include salary and benefits, data processing, and occupancy expense. Salaries
and benefits increased $428,000 as the result of additional staff at United Bank
& Trust and First National Bank, higher incentive compensation, and increased
profit sharing contributions to the Company's retirement plan. Occupancy
expenses reflect an increase of $52,000 primarily as the result of higher
depreciation associated with an addition to First National Bank's main office.
Data processing costs were higher as the result of additional costs associated
with opening United Bank & Trust. The Company's efficiency ratio, non-interest
expense divided by net interest income plus non-interest income, was 44.3% and
41.1% for the three months ended September 30, 2002 and 2001, respectively.
Income Taxes
The provision for income taxes for September 30, 2002 and 2001 was $1,172,000
and $972,000, respectively. This amount represents an effective tax rate of
28.4% for the third quarter of 2002, compared to 26.6% for the third quarter of
2001. The Company's marginal federal tax rate is currently 35%. The difference
between the Company's effective and marginal tax rate is primarily related to
investments made in tax exempt securities.
Results of Operations for Nine Months Ending September 30, 2002 and September
30, 2001
General
In June 2002, the Company opened its fifth wholly owned bank subsidiary, United
Bank & Trust N.A. in Marshalltown, Iowa. The consolidated financial statements
include the accounts of this new organization as well as the four established
wholly owned subsidiaries; First National Bank, Ames, Iowa; Boone Bank & Trust,
Boone, Iowa; Randall-Story State Bank, Story City, Iowa; and State Bank & Trust
Co., Nevada, Iowa.
The Company earned net income of $8,634,000 or $2.76 per share for the nine
months ended September 30, 2002, compared to net income of $7,980,000, or $2.55
per share, for the nine months ended September 30, 2001, an increase of 8.2%.
The Company's return on average assets was 1.83% and 1.73%, respectively for the
nine-month period ending September 30, 2002 and 2001. The Company's return on
average equity was 11.83% and 11.80%, respectively for the nine month periods
ending September 30, 2002 and 2001.
The improvement in net income can be primarily attributed to higher net interest
income. Deposit interest expense declined significantly in spite of a higher
volume of deposits. Lower provision expense in 2002 also contributed to the
higher level of earnings. These improvements in income were partially offset by
lower security gains, higher salary and employee benefits. Lower interest rates
on alternative fixed rate investments and shaken investor confidence in the
equities market has contributed to a higher level of deposits in spite of
historically low rates on deposits. Loan demand has been soft and competitive
pricing in the Company's local markets has contributed to lower loan interest
income.
9
The following table sets forth certain information relating to the Company's
average balance sheets and reflects the average yield on assets and average cost
of liabilities for the nine month periods ended September 30, 2002 and September
30, 2001, respectively.
ASSETS
(dollars in thousands)
AVERAGE BALANCE SHEET AND INTEREST RATES
Nine Months Ended September 30,
2002 2001
------------------------------ ------------------------------
Average Revenue/ Yield/ Average Revenue/ Yield/
balance expense rate balance expense rate
------------------------------ ------------------------------
Interest-earning assets
Loans
Commercial ....................... $ 44,686 $ 2,423 7.23% $ 50,430 $ 3,237 8.56%
Agricultural ..................... 25,038 1,408 7.50% 28,864 1,936 8.94%
Real estate ...................... 225,615 12,622 7.46% 240,959 14,581 8.07%
Installment and other ............ 19,438 1,009 6.92% 24,238 1,422 7.82%
-----------------------------------------------------------------
Total loans (including fees) ....... $314,777 $ 17,462 7.40% $344,491 $ 21,176 8.20%
Investment securities
Taxable .......................... $142,150 $ 6,362 5.97% $150,266 $ 7,199 6.39%
Tax-exempt ....................... 75,102 4,312 7.66% $ 67,234 3,868 7.67%
----------------------------------------------------------------
Total investment securities ........ $217,252 $ 10,674 6.55% $217,500 $ 11,067 6.78%
Interest bearing deposits with banks $ 509 $ 9 2.36% $ 250 $ 11 5.87%
Federal funds sold ................. 51,322 639 1.66% 18,338 552 4.01%
----------------------------------------------------------------
Total interest-earning assets ...... $583,860 $ 28,784 6.57% $580,579 $ 32,806 7.53%
Total noninterest-earning assets ... $ 44,068 $ 33,280
----------------------------------------------------------------
TOTAL ASSETS ....................... $627,928 $613,859
================================================================
<FN>
1 Average loan balance include nonaccrual loans, if any. Interest income
collected on nonaccrual loans has been included. 2 Tax-exempt income has
been adjusted to a tax-equivalent basis using an incremental rate of 34%.
</FN>
10
LIABILITIES AND STOCKHOLDERS' EQUITY
(dollars in thousands)
AVERAGE BALANCE SHEET AND INTEREST RATES
Nine Months Ended September 30,
2002 2001
------------------------------ -------------------------------
Average Revenue/ Yield/ Average Revenue/ Yield/
balance expense rate balance expense rate
------------------------------ -------------------------------
Interest-bearing liabilities
Deposits
Savings, NOW accounts, and money markets . $257,895 $ 2,606 1.35% $221,771 $ 4,711 2.83%
Time deposits < $100,000 ................. 151,205 4,666 4.11% 159,525 6,796 5.68%
Time deposits > $100,000 ................. 50,840 1,435 3.76% 60,701 2,722 5.98%
------------------------------------------------------------------
Total deposits ............................. $459,940 $ 8,707 2.52% $441,997 $ 14,229 4.29%
Other borrowed funds ....................... 13,263 196 1.97% 25,100 935 4.97%
------------------------------------------------------------------
Total Interest-bearing liabilities ......... $473,203 $ 8,903 2.51% $467,097 $ 15,164 4.33%
Noninterest-bearing liabilities
Demand deposits ............................ $ 52,735 $ 50,811
Other liabilities .......................... 4,647 5,754
------------------------------------------------------------------
Stockholders' equity ....................... $ 97,343 $ 90,197
------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ....................... $627,928 $613,859
==================================================================
Net interest income ........................ $ 19,881 4.54% $ 17,642 4.05%
==================================================================
Spread Analysis
Interest income/average assets ............. $ 28,784 6.11% $ 32,806 7.13%
Interest expense/average assets ............ 8,903 1.89% 15,164 3.29%
Net interest income/average assets ......... 19,881 4.22% 17,642 3.84%
<FN>
1 Tax-exempt income has been adjusted to a tax-equivalent basis using an
incremental rate of 34%.
</FN>
Net Interest Income
For the nine months ended September 30, 2002, the Company's net interest margin
was 4.54% compared to 4.05% for the nine months ended September 30, 2001. Net
interest income, prior to the adjustment for tax-exempt income, for the nine
months ended September 30, 2002 and 2001 totaled $18,415,000 and $16,328,000,
respectively. This 12.8% increase resulted primarily from lower interest expense
attributable to lower interest rates on deposits and other borrowings partially
offset by lower interest income on loans and investment securities.
For the nine months ended September 30, 2002, interest income decreased
$4,173,000 or 13.3% when compared to the same period in 2001. This decrease was
primarily attributable to lower loan volume and yields as a result of a general
slow down in the Company's local markets and significant competition for fewer
lending opportunities.
11
Interest expense decreased $6,260,000 or 41.3% for the nine months ended
September 30, 2002 when compared to the same period in 2001. Lower interest
rates on deposits and other borrowings resulted in decreased interest expense as
the Company's cost of funds declined with market interest rates.
Provision for Loan Losses
The Company provided $296,000 for loan losses for the nine months ended
September 30, 2002 compared to $557,000 during the same period last year.
Provision expense for the nine months ended September 30, 2002 were utilized to
increase specific reserves for impaired loans and to establish a reserve at
United Bank & Trust. Provision expense for the same period in 2001 was utilized
to increase specific reserves for impaired loans.
Noninterest Income and Expense
Noninterest income decreased $524,000, or 13.0% during the nine months ended
September 30, 2002 compared to the same period in 2001. The decrease can be
attributed to a decline securities gains from the Company's equity portfolio of
$562,000 through the first nine months of 2002 compared to $1,154,000 for the
same period in 2001, a difference of $592,000.
Noninterest expense increased $1,114,000 or 13.1% for nine months ended
September 30, 2002 compared to the same period in 2001. Higher noninterest
expense items include salary and benefits, occupancy expense, and marketing
expenses. Salaries and benefits increased $885,000 as the result of additional
staff at United Bank & Trust and First National Bank, higher incentive
compensation, and increased profit sharing contributions to the Company's
retirement plan. Occupancy expenses reflect an increase of $113,000 primarily as
the result of higher depreciation associated with an addition to First National
Bank's main office and occupancy costs associated with the opening of United
Bank & Trust. The Company's efficiency ratio, non-interest expense divided by
net interest income plus non-interest income, was 43.8% and 41.7% for the nine
months ended September 30, 2002 and 2001, respectively.
Income Taxes
The provision for income taxes for the nine months ended September 30, 2002 and
2001 was $3,396,000 and $3,340,000, respectively. This amount represents an
effective tax rate of 28.2% for the nine months ended September 30, 2002,
compared to 29.5% for the same period in 2001. The Company's marginal federal
tax rate is currently 35%. The difference between the Company's effective and
marginal tax rate is primarily related to investments made in tax exempt
securities.
Financial Condition
Assets
For the quarter ended September 30, 2002, total assets are $659,759,000, a
$37,479,000 increase in comparison to December 31, 2001 totals. The higher level
of assets is attributable to a higher volume of federal funds sold and
investment securities partially offset by a lower volume of loans.
Investment Portfolio
The increase in the volume of investment securities to $237,957,000 on September
30, 2002 from $213,778,000 on December 31, 2001 resulted from the purchase of
U.S. government agencies and corporate bonds.
Loan Portfolio
Net loans as of September 30, 2002 totaled $310,278,000, a decrease of
$12,765,000 from outstanding balances as of December 31, 2001. The decreased
level of loans relates to lower loan demand and significant market competition
for loans.
12
Impaired loans totaled $1,917,000 as of September 30, 2002 compared to
$3,489,000 as of December 31, 2001. A loan is considered impaired when, based on
current information and events, it is probable that the Company will be unable
to collect the scheduled payments of principal or interest when due according to
the contractual terms of the loan agreement. Impaired loans include loans
accounted for on a non-accrual basis; accruing loans which are contractually
past due 90 days or more as to principal or interest payments; and any
restructured loans. As of September 30, 2002, non-accrual loans totaled
$1,814,000, past due loans still accruing totaled $103,000 and there were no
restructured loans outstanding. Other real estate owned as of September 30, 2002
and December 31, 2001 totaled $494,000 and $159,000, respectively.
Net charge offs were $177,000 for the nine months ended September 30, 2002 as
compared to net charge-offs $508,000 for the nine months ended September 30,
2001. Losses related primarily to previously identified impaired commercial
loans and leases for both periods. The resulting allowance for loan losses was
$5,565,000 as of September 30, 2002 compared to $5,446,000 as of December 31,
2001. The allowance for loan losses as percentage of outstanding loans as of
September 30, 2002 and December 31, 2001 was 1.76% and 1.66%, 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 by $25,426,000 from December 31, 2001 and are $33,017,000
higher than September 30, 2001 balances. The increase in deposits from year-end
and September 30, 2001 is attributable to consumers preferring more conservative
bank deposits, the opening of United Bank & Trust and a higher volume of public
funds. The Company's deposits typically increase significantly at the end of the
first and third quarters as local municipalities receive local property tax
payments. The funds are invested on a short-term basis until the funds are
withdrawn over the following 30 to 60 day period.
Other borrowed funds as of September 30, 2002, consisted primarily of securities
sold under agreements to repurchase totaling $14,855,000 compared to total other
borrowing as of December 31, 2001 of $11,596,000.
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 $8,565,000 and
$8,613,000 to liquidity for the nine months ended September 30, 2002 and 2001,
respectively. Liquid assets including cash on hand, balances due from other
banks, federal funds sold and interest-bearing deposits in financial
institutions increased to $96,730,000 as of September 30, 2002 compared to
year-end 2001 balance of $72,059,000. The increase in liquid assets is
attributable to deposit growth and decreased loan volume.
Securities available for sale increased to $237,957,000 as of September 30, 2002
from $213,778,000 as of December 31, 2001 and provide additional liquidity for
the Company.
To provide additional external liquidity, the Banks have outstanding lines of
credit with the Federal Home Loan Bank of Des Moines, Iowa of $33,732,000 and
federal funds borrowing capacity at correspondent banks of $46,000,000. As of
September 30, 2002, the Company had no outstanding borrowings of federal funds
purchased or Federal Home Loan Bank advances. Management believes that the
Company's liquidity sources will be sufficient to support existing operations
for the foreseeable future.
The Company's total stockholder's equity increased to $100,926,000 as of
September 30, 2002, from $93,622,000 as of December 31, 2001. Stockholders'
equity as of September 30, 2002 was 15.3% of total assets, compared to 15.0 % at
December 31, 2001. Total equity increased due to the retention of earnings and
from appreciation in the Company and Banks' stock and bond portfolios. No
material capital expenditures or material changes in the capital resource mix
are anticipated at this time. Management believes that, as of September 30,
2002, the Company and its Banks meet the capital requirements to which they are
subject. As of that date, all the Company's Banks were "well capitalized" under
regulatory prompt corrective action provisions.
13
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's market risk is comprised primarily of interest rate risk arising
from its core banking activities of lending and deposit taking. Interest rate
risk results from the changes in market interest rates which may adversely
affect the Company's net interest income. Management continually develops and
applies strategies to mitigate this risk. Management does not believe that the
Company's primary market risk exposure and how it has been managed to-date in
2002 changed significantly when compared to 2001.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company 's Principal Executive Officer and Principal Financial Officer have
evaluated the effectiveness of the Company's disclosure controls and procedures
(as such term is defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) as of a date within 90
days prior to the filing date of this quarterly 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
Since the Evaluation Date, there have not been any significant changes in
Company's internal controls or in other factors that could significantly affect
such controls.
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
Exhibit 99.1 - Certification pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
On July 19, 2002, the Company filed a Form 8-K
pursuant to Item 5, announcing net earnings for the
three and six months ended June 30, 2002.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMES NATIONAL CORPORATION
DATE: November 14, 2002 By: /s/ Daniel L. Krieger
------------------------------
Daniel L. Krieger, President
(Principal Executive Officer)
By: /s/ John P. Nelson
------------------------------
John P. Nelson, Vice President
(Principal Financial Officer)
15
CERTIFICATIONS PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Daniel L. Krieger, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ames National
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarrterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant , including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) have presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and to the audit
committee of the registrant's board of directors (or persons fulfilling the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002 /s/ Daniel L. Krieger
-----------------------------
Daniel L. Krieger, President
(Principal Executive Officer)
16
I, John P. Nelson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ames National
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarrterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant , including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) have presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and to the audit
committee of the registrant's board of directors (or persons fulfilling the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002 /s/ John P. Nelson
------------------------------
John P. Nelson, Vice President
(Principal Financial Officer)
17