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 30,2004
[_] 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
- --------------------------------------------------------------------------------
(Class) (Shares Outstanding at November 1, 2004)
1
AMES NATIONAL CORPORATION
INDEX
Page
Part I. Financial Information
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets at September 30,
2004 and December 31, 2003 3
Consolidated Statements of Income for the
three and nine months ended September 30, 2004
and 2003 4
Consolidated Statements of Cash Flows for the
nine months ended September 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 6-19
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 19
Item 4 Evaluation of Disclosure Controls and Procedures 19
Part II. Other Information
Items 1 through 6 19-20
Signatures 21
2
AMES NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
September 30, December 31,
Assets 2004 2003
--------------------------------------
Cash and due from banks $ 30,392,905 $ 31,982,144
Federal funds sold 335,000 20,380,000
Interest bearing deposits in financial institutions 9,214,595 6,363,538
Securities available-for-sale 356,253,991 323,115,914
Loans receivable, net 387,402,492 355,533,119
Loans held for sale 340,150 859,139
Bank premises and equipment, net 8,783,819 8,377,807
Accrued income receivable 6,716,873 5,842,247
Other assets 908,172 332,556
-------------------------------------
Total assets $ 800,347,997 $ 752,786,464
======================================
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Demand $ 65,855,704 $ 71,372,534
NOW accounts 173,726,694 138,308,140
Savings and money market 171,534,487 166,387,319
Time, $100,000 and over 66,861,191 69,486,570
Other time 170,939,177 173,993,964
--------------------------------------
Total deposits 648,917,253 619,548,527
Federal funds purchased and securities
sold under agreements to repurchase 32,992,304 18,198,403
Dividends payable 3,074,325 1,441,204
Deferred taxes 2,553,015 3,238,665
Accrued interest and other liabilities 3,166,620 3,034,670
-------------------------------------
Total liabilities 690,703,517 645,461,469
-------------------------------------
Stockholders' Equity:
Common stock, $5 par value; authorized 6,000,000 shares;
issued 3,153,230 shares at September 30, 2004 and
December 31, 2003; outstanding 3,137,066 shares at
September 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 61,546,936 58,400,660
Treasury stock, at cost; 16,164 shares at September 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 7,841,668 8,915,941
-------------------------------------
Total stockholders' equity 109,644,480 107,324,995
-------------------------------------
Total liabilities and stockholders' equity $ 800,347,997 $ 752,786,464
=====================================
See Notes to Consolidated Financial Statements.
3
AMES NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
Interest and dividend income: -------------------------- -----------------------------
Loans $ 5,721,244 $ 5,576,844 $ 16,545,006 $ 16,784,078
Securities
Taxable 2,157,631 1,841,920 6,385,422 5,518,204
Tax-exempt 1,061,069 940,760 3,206,725 2,553,150
Federal funds sold 3,065 121,263 81,161 534,865
Dividends 380,838 337,259 1,129,368 1,018,103
-------------------------- -----------------------------
Total Interest Income 9,323,847 8,818,046 27,347,682 26,408,400
-------------------------- -----------------------------
Interest expense:
Deposits 2,470,179 2,392,420 7,144,678 7,664,617
Other borrowed funds 192,070 74,735 360,697 216,069
-------------------------- -----------------------------
Total Interest Expense 2,662,249 2,467,155 7,505,375 7,880,686
-------------------------- -----------------------------
Net interest income 6,661,598 6,350,891 19,842,307 18,527,714
Provision for loan losses (63,820) 87,000 204,888 512,740
-------------------------- -----------------------------
Net interest income after provision for loan
losses 6,725,418 6,263,891 19,637,419 18,014,974
-------------------------- -----------------------------
Non-interest income:
Trust department income 266,539 279,157 875,697 881,259
Service fees 503,027 395,491 1,320,895 1,137,490
Securities gains, net 19,821 539,623 51,363 1,186,230
Gain on sale of loans held for sale 125,764 366,978 473,505 937,974
Merchant and ATM fees 137,384 164,179 406,789 412,213
Other 365,236 186,193 680,362 484,002
-------------------------- -----------------------------
Total non-interest income 1,417,771 1,931,621 3,808,611 5,039,168
-------------------------- -----------------------------
Non-interest expense:
Salaries and employee benefits 2,240,214 2,204,712 6,768,289 6,699,133
Occupancy expenses 250,782 341,562 755,734 841,908
Data processing 482,341 504,643 1,590,621 1,589,780
Other operating expenses 730,908 594,914 1,918,551 1,793,681
-------------------------- -----------------------------
Total non-interest expense 3,704,245 3,645,831 11,033,195 10,924,502
-------------------------- -----------------------------
Income before income taxes 4,438,944 4,549,681 12,412,835 12,129,640
Income tax expense 1,066,557 1,309,039 3,213,867 3,369,445
-------------------------- -----------------------------
Net income $ 3,372,387 $ 3,240,642 $ 9,198,968 $ 8,760,195
========================== =============================
Basic and diluted earnings per share $ 1.08 $ 1.03 $ 2.93 $ 2.80
========================== =============================
Declared dividends per share $ 0.49 $ 0.46 $ 1.93 $ 1.82
========================== =============================
Comprehensive Income (Loss) $ 6,946,426 $ 117,585 $ 8,124,695 $ 8,791,195
=========================== =============================
See Notes to Consolidated Financial Statements.
4
AMES NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
Nine Months Ended
September 30,
-------------------------------
2004 2003
-------------------------------
Cash flows from operating activities:
Net income $ 9,198,968 $ 8,760,195
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 204,888 512,740
Amortization and accretion, net 512,740 457,624
Depreciation 673,275 759,812
Provision for deferred taxes (54,728) (147,602)
Securities gains, net (51,363) (1,186,230)
Change in assets and liabilities:
(Increase) decrease loans held for sale 518,989 384,618
(Increase) decrease in accrued income receivable (874,626) (465,891)
(Increase) decrease in other assets (575,616) 224,651
Increase in accrued interest and other liabilities 131,950 820,622
--------------------------------
Net cash provided by operating activities 9,684,477 10,120,539
--------------------------------
Cash flows from investing activities:
Purchase of securities available-for-sale (111,799,588) (114,406,276)
Proceeds from sale of securities available-for-sale 1,746,803 4,916,172
Proceeds from maturities of securities available-for-sale 74,748,136 54,076,441
Net (increase) in interest bearing deposits in financial institutions (2,851,057) (5,000,000)
Net (increase) decrease in federal funds sold 20,045,000 (15,483,000)
Net (increase) in loans (32,074,261) (13,593,988)
Purchase of bank premises and equipment (1,079,287) (585,209)
--------------------------------
Net cash used in investing activities (51,264,254) (90,075,860)
--------------------------------
Cash flows from financing activities:
Increase in deposits 29,368,726 51,899,665
Increase (decrease) in federal funds purchased
and securities sold under agreements to repurchase 14,793,901 4,126,654
Dividends paid (4,419,571) (4,194,707)
Proceeds from issuance of treasury stock 247,482 221,870
--------------------------------
Net cash provided by financing activities 39,990,538 52,053,482
--------------------------------
Net decrease in cash and cash equivalents (1,589,239) (27,901,839)
--------------------------------
Cash and cash equivalents at beginning of quarter 31,982,144 51,688,784
--------------------------------
Cash and cash equivalents at end of quarter $ 30,392,905 $ 23,786,945
================================
Supplemental disclosures of cash flow information:
Cash paid for interest $ 7,761,791 $ 7,905,197
Cash paid for taxes 3,314,024 3,383,157
See Notes to Consolidated Financial Statements.
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, 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 August 11, 2004, the Company declared a cash dividend on its common
stock, payable on November 15, 2004 to stockholders of record as of November 1,
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 September 30, 2004 and 2003 were
3,137,066 and 3,133,053, respectively. The weighted average outstanding shares
for the nine months ended September 30, 2004 and 2003 were 3,134,620 and
3,130,607, 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.
5. Impact of New Financial Accounting Standards
At the March 17-18, 2004 Emerging Issues Task Force ("EITF") meeting, the
Task Force reached a consensus on Issue No. 03-1, The Meaning of
Other-Than-Temporary Impairment and its Application to Certain Investments. EITF
03-1 provides guidance for determining the meaning of "other-than-temporarily
impaired" and its application to certain debt and equity securities within the
scope of Statement of Financial Accounting Standards No. 115, Accounting for
Certain Investments in Debt and Equity Securities ("SFAS 115") and investments
accounted for under the cost method. The guidance set forth in the Statement was
originally effective for the Company in the September 30, 2004 consolidated
financial statements. However, in September 2004, the effective dates of certain
parts of the Statement were delayed. Management is currently assessing the
impact of Issue 03-1 on the consolidated financial statements.
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.
6
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.
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 $3,372,000, or $1.08 per share for the
three months ended September 30, 2004, compared to net income of $3,241,000, or
$1.03 per share, for the three months ended September 30, 2003, an increase of
4%. Net interest income increased $311,000 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 nine month period ending September 30, 2004, the Company earned net
income of $9,199,000, or $2.93 per share, a 5% increase over net income of
$8,760,000, or $2.80 per share, earned a year ago. A stable net interest margin
and a higher volume of earning assets resulted in an additional $1,315,000 in
net interest income for the first nine months of 2004 compared to the same
period one year ago. Similar to the quarterly results, the improved net interest
income was offset with lower security gains and declining income relating to the
sale of secondary market residential mortgage loans.
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
7
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 $473,000 for the nine months ended
September 30, 2004 compared to $938,000 for the same period in 2003. This
slowdown has had 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, and
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.
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 $25 million as of September 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 9,079
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.
8
Selected Indicators for the Company and the Industry
September 30, 2004 June 30, 2004 Years Ended December 31,
3 Months 9 Months 6 Months -------------------------------------------------
Ended Ended Ended 2003 2002
---------------------- ------------------ --------------------- ---------------------
Company Company Company Industry* Company Industry Company Industry
Return on assets 1.70% 1.57% 1.51% 1.33% 1.60% 1.38% 1.78% 1.30%
Return on equity 12.66% 11.44% 10.84% 14.21% 11.16% 15.04% 11.54% 14.14%
Net interest margin 3.95% 4.00% 4.02% 3.61% 4.02% 3.73% 4.51% 3.96%
Efficiency ratio 45.85% 46.65% 47.07% 57.97% 47.18% 56.59% 44.64% 56.00%
Capital/Ave. Assets 13.83% 14.06% 13.21% 8.05% 14.33% 7.88% 15.46% 7.87%
<FN>
*Latest available data
</FN>
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 1.57% and 1.63%, respectively, for the nine month periods ending
September 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 11.44% and 11.28%,
respectively for the nine month periods ending September 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.
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 46.65% and 46.36% for
the nine months ended September 30, 2004 and 2003, respectively.
o Capital Ratio
The average capital ratio is calculated by dividing total equity capital by
average 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.
9
Industry Results
The FDIC Quarterly Banking Profile reported the following results for the
second quarter of 2004:
Strengthening loan demand boosted earnings at a majority of institutions during
the second quarter, but higher expenses at a few large banks caused total
industry income to register a slight decline. Insured commercial banks and
savings institutions earned $31.2 billion in the second quarter of 2004, up $986
million (3.3%) from a year earlier. This was $656 million (2.1%) less than they
earned in the first quarter, but it still represented the second-highest
quarterly earnings total ever for the industry. A decline of $954 million (36.7
%) in gains on sales of securities and other assets, and a $3.2-billion (4.3%)
increase in noninterest expenses were the main reasons that earnings failed to
set a new record. The average return on assets (ROA) was 1.31%, compared to 1.38
% in the first quarter. Almost 60 % of the 9,079 institutions reported higher
net income, while 55% had higher ROAs. More than half of all institutions - 53%
- - had ROAs of 1% or higher for the quarter.
Income Statement Review for Three Months Ended September 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.
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.
10
AVERAGE BALANCE SHEETS AND INTEREST RATES
-------------------------------------------------------------------------------
Three Months Ended September 30,
-------------------------------------------------------------------------------
2004 2003
---------------------------------- ----------------------------------
ASSETS Average Revenue/ Yield/ Average Revenue/ Yield/
(dollars in thousands) balance expense rate balance expense rate
---------------------------------- ----------------------------------
Interest-earning assets
Loans
Commercial $49,740 $646 5.20% $37,426 $ 533 5.70%
Agricultural 28,689 468 6.53% 25,788 439 6.81%
Real estate 289,358 4,291 5.93% 266,781 4,273 6.41%
Installment and other 22,299 316 5.67% 21,431 332 6.20%
----------------------------------- -----------------------------------
Total loans (including fees) $390,086 $5,721 5.87% $351,426 $5,577 6.35%
Investment securities
Taxable $218,252 $2,239 4.10% $162,453 $1,933 4.76%
Tax-exempt 129,555 2,043 6.31% 108,285 1,762 6.51%
----------------------------------- -----------------------------------
Total investment securities $347,807 $4,282 4.92% $270,738 $3,695 5.46%
Interest bearing deposits with banks $8,985 $33 1.47% $6,000 $24 1.60%
Federal funds sold 1,086 3 1.10% 49,991 121 0.97%
------------------------------------ ------------------------------------
Total interest-earning assets $747,964 $10,039 5.37% $678,155 $9,417 5.55%
Non-interest-earning assets 45,047 48,413
--------- ----------
TOTAL ASSETS $793,011 $ 726,568
======== ==========
<FN>
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.
</FN>
11
AVERAGE BALANCE SHEETS AND INTEREST RATES
---------------------------------------------------------------------------
Three Months Ended September 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 $ 324,818 $ 817 1.01% $293,207 $ 591 0.81%
Time deposits < $100,000 172,639 1,226 2.84% 171,865 1,357 3.16%
Time deposits > $100,000 67,127 427 2.54% 66,458 444 2.67%
---------------------------------- -----------------------------------
Total deposits $ 564,584 $ 2,470 1.75% $531,530 $2,392 1.80%
Other borrowed funds 47,387 192 1.62% 21,144 75 1.42%
---------------------------------- -----------------------------------
Total Interest-bearing $ 611,971 $ 2,662 1.74% $552,674 $2,467 1.79%
liabilities ------
Non-interest-bearing liabilities
Demand deposits $ 66,449 $ 60,434
Other liabilities 8,061 9,099
-------- ----------
Stockholders' equity $ 106,530 $104,361
--------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 793,011 $726,568
========= =========
Net interest: income / margin $ 7,377 3.95% $6,950 4.10%
======= ======
Spread Analysis
Interest income/average assets $10,039 5.06% $9,417 5.18%
Interest expense/average assets 2,662 1.34% 2,467 1.36%
Net interest income/average assets 7,377 3.72% 6,950 3.82%
<FN>
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.
</FN>
12
Net Interest Income
For the three months ended September 30, 2004 and 2003, the Company's net
interest margin adjusted for tax exempt income was 3.95% and 4.10%,
respectively. Net interest income, prior to the adjustment for tax-exempt
income, for the three months ended September 30, 2004 and September 30, 2003
totaled $6,662,000 and $6,351,000, respectively.
For the quarter ended September 30, 2004, net interest income increased
$506,000 or 5.7% when compared to the same period in 2003. The increase was
attributable to higher volume of loans and investments.
Interest expense increased $195,000 or 7.9% for the quarter ended September
30, 2004 when compared to the same period in 2003. The higher interest expense
for the quarter is attributable to a higher volume of deposits and other
borrowed funds and increasing interest rates paid on other borrowed funds.
Provision for Loan Losses
The Company's provision for loan losses for the three months ended
September 30, 2004 was a negative $64,000 compared to $87,000 during the same
period last year. A recovery at First National of $139,000 on a problem
commercial credit contributed to the negative provision for the quarter. Net
recoveries totaled $99,000 for the three months ended September 30, 2004
compared to net charge-offs of $19,000 for the three months ended September 30,
2003.
Non-interest Income and Expense
Non-interest income decreased $514,000, or 26.6% during the quarter ended
September 30, 2004 compared to the same period in 2003. The decrease can be
attributed to the $20,000 of realized gains on the sale of securities in the
Company's equity portfolio in the third quarter of 2004 compared to $540,000 in
the third 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 increased $58,000 or 1.6% for the third quarter of
2004 compared to the same period in 2003.
Income Taxes
The provision for income taxes for September 30, 2004 and September 30,
2003 was $1,067,000 and $1,309,000, respectively. This amount represents an
effective tax rate of 24.0% for the three months ended September 30, 2004 versus
28.8% 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 Nine Months Ended September 30, 2004
The following highlights a comparative discussion of the major components
of net income and their impact for the last two years:
13
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.
Nine Months Ended September 30,
2004 2003
------------------------------------- -------------------------------------
ASSETS Average Revenue/ Yield/ Average Revenue/ Yield/
(dollars in thousands) balance expense rate balance expense rate
-------------------------------------- --------------------------------------
Interest-earnings assets
Loans
Commercial $ 47,120 $ 1,799 5.09% $ 38,360 $ 1,645 5.72%
Agricultural 27,981 1,348 6.42% 25,940 1,351 6.94%
Real estate 279,027 12,421 5.94% 262,710 12,751 6.47%
Installment and other 22,757 977 5.72% 20,516 1,037 6.74%
-------------------------------------- ------------------------------------
Total loans (including fees) $376,885 $16,545 5.85% $347,526 $16,784 6.44%
Investment securities
Taxable $210,224 $ 6,635 4.21% $155,779 $ 5,838 5.00%
Tax-exempt 126,283 6,151 6.49% 95,654 4,863 6.78%
-------------------------------------- ------------------------------------
Total investment securities $336,507 $12,786 5.07% $251,433 $10,701 5.67%
Interest bearing deposits with banks $ 8,501 $89 1.40% $ 4,010 $ 41 1.36%
Federal funds sold 10,663 81 1.01% 66,091 535 1.08%
-------------------------------------- ------------------------------------
Total interest-earning assets $732,556 $29,501 5.37% $669,060 $28,061 5.59%
Total noninterest-earning assets $ 47,440 $ 48,343
---------- ----------
TOTAL ASSETS $779,996 $717,403
========== ==========
<FN>
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.
</FN>
14
AVERAGE BALANCE SHEETS AND INTEREST RATES
Nine Months Ended September 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 $323,812 $ 2,113 0.87% $294,136 $ 2,110 0.96%
Time deposits < $100,000 174,494 3,748 2.86% 169,677 4,176 3.28%
Time deposits > $100,000 69,461 1,283 2.46% 64,509 1,379 2.85%
-------------------------------- -----------------------------------
Total deposits $567,767 $ 7,144 1.68% $528,322 $ 7,665 1.93%
Other borrowed funds 32,085 361 1.50% 18,646 216 1.54%
-------------------------------- -----------------------------------
Total Interest-bearing $599,852 $ 7,505 1.67% $546,968 $ 7,881 1.92%
liabilities ------
Noninterest-bearing liabilities
Demand deposits $ 64,927 $ 58,369
Other liabilities 8,028 8,486
----------- -----------
Stockholders' equity $107,189 $103,580
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $779,996 $717,403
=========== ==========
Net interest income / margin $21,996 4.00% $20,180 4.02%
======= =======
Spread Analysis
Interest income/average assets $29,501 5.04% $28,061 5.22%
Interest expense/average assets 7,505 1.28% 7,881 1.46%
Net interest income/average assets 21,996 3.76% 20,180 3.75%
<FN>
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.
</FN>
Net Interest Income
For the nine months ended September 30, 2004 and 2003, the Company's net
interest margin adjusted for tax exempt income was 4.00%. Net interest income,
prior to the adjustment for tax-exempt income, for the nine months ended
September 30, 2004 and September 30, 2003 totaled $19,842,000 and $18,528,000,
respectively.
For the nine months ended September 30, 2004, interest income increased
$939,000 or 3.6% when compared to the same period in 2003. The increase was
attributable to higher volume of investments and loans.
Interest expense decreased $375,000 or 4.8% for the nine months ended
September 30, 2004 when compared to the same period in 2003. The lower interest
expense for the nine month period is attributable to declining interest rates
paid on deposits and other borrowed funds partially offset by a higher volume of
deposit and other borrowed funds.
Provision for Loan Losses
The Company's provision for loan losses for the nine months ended September
30, 2004 was $205,000 compared to $513,000 during the same period last year.
Loan growth at First National and United Bank was the most significant factor
leading to the provision expense recorded for nine months ended September 30,
2004. A problem commercial loan was the primary factor for higher provision
expense in 2003. Net recoveries totaled $56,000 for the nine months ended
September 30, 2004 compared to net charge-offs of $321,000 for the nine months
ended September 30, 2003.
15
Non-interest Income and Expense
Non-interest income decreased $1,231,000, or 24.4% during the nine months
ended September 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 $51,000 in 2004 compared to $1,186,000 in first
nine 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 $109,000 or 1.0% for the first nine months
of 2004 compared to the same period in 2003.
Income Taxes
The provision for income taxes for September 30, 2004 and September 30,
2003 was $3,214,000 and $3,369,000, respectively. This amount represents an
effective tax rate of 25.9% for the nine months ended September 30, 2004 versus
27.8% for the same nine 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 September 30, 2004, total assets were $800,348,000, a $47,562,000
increase compared to December 31, 2003. Deposit growth primarily at United Bank
and a higher volume of federal funds sold resulting from temporary large public
fund deposit balances associated with the collection of property taxes allowed
for the significant increase in earning assets.
Investment Portfolio
The increase in the volume of investment securities to $356,254,000 on
September 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 $387,402,000 as of September 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.
Deposits
Deposits totaled $648,917,000 as of September 30, 2004, an increase of
$29,369,000 from December 31, 2003. The increase in deposits is attributable to
growth in deposits at four of the five Banks. Much of the increase is related to
public fund deposits included in the interest bearing checking (NOW) accounts.
Other Borrowed Funds
Other borrowed funds as of September 30, 2004 totaled $32,992,000
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
September 30, 2004 totaled $387,402,000 compared to $355,533,000 as of December
31, 2003. Net loans comprise 48% of total assets as of September 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 Companys level of
problem loans consisting of non-accrual loans and loans past due 90 days or more
as a percentage of total loans of 0.66% is slightly above the average of the
Company's peer group of 348 bank holding companies with assets of $500 million
to $1 billion as of June 30, 2004 of 0.63%.
16
Impaired loans totaled $2,557,000 as of September 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 September 30, 2004, non-accrual loans totaled
$2,341,000, loans past due 90 days still accruing totaled $216,000 and there
were no restructured loans outstanding. Other real estate owned as of September
30, 2004 and December 31, 2003 totaled $767,000 and $159,000, respectively.
The allowance for loan losses as a percentage of outstanding loans as of
September 30, 2004 and December 31, 2003 was 1.60% and 1.71%, respectively. The
allowance for loan and lease losses totaled $6,312,000 and $6,051,000 as of
September 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 September 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.
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 September 30,
2004 and December 31, 2003 totaled $39,943,000 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 September 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 $57,500,000 with current outstanding federal fund
balances of $1,500,000. The Company had securities sold under agreements to
repurchase totaling $31,493,000 and did not have any outstanding FHLB advances
as of September 30, 2004. Total investments as of September 30, 2004 were
$356,254,000 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 September 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.
17
Review of Statements of Cash Flows
Operating cash flows for September 30, 2004 and 2003 totaled $9,684,000 and
$10,121,000, respectively. The primary variance in operating cash flows for the
first nine months of 2004 was net security gains of $51,000 compared to
$1,186,000 in net gains for the same period in 2003.
Net cash used in investing activities through September 30, 2004 and 2003
was $51,264,000 and $90,076,000, respectively. The largest investing activity in
the first nine months of 2004 was the purchase of U.S. government agency bonds.
Federal funds sold balances have been lowered significantly since December 31,
2003 to fund increased loan demand and additional bond purchases.
Net cash provided by financing activities for September 30, 2004 and 2003
totaled $39,991,000 and $52,053,000, respectively. A higher level of deposits is
the largest source of financing cash flows for the nine months ended September
30, 2004. As of September 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 2004, dividends
paid by the Banks to the Company amounted to $6,288,000 through September 30,
2004 compared to $5,772,000 for the same period in 2003. 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 $34,241,000 that are presently available to
provide additional liquidity to the Banks.
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 September 30, 2004
that is a concern to management.
Capital Resources
The Company's total stockholders' equity increased to $109,644,000 as of
September 30, 2004, from $107,325,000 at December 31, 2003. The increase in
equity is attributable to higher retained earnings. At September 30, 2004 and
December 31, 2003, stockholders' equity as a percentage of total assets was
13.70% and 14.26%, respectively. The capital levels of the Company currently
exceed applicable regulatory guidelines as of September 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.
18
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.
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
19
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 October 15, 2004, the Company filed a Form 8-K pursuant
to Item 5, announcing financial results for the three and nine
months ended September 30, 2004.
20
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 9, 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
21