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, 2001 [_] 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 3,125,229 - ----------------------------- ---------------------------------------- (Class) (Shares Outstanding at November 9, 2001)
AMES NATIONAL CORPORATION INDEX Page Part I. Financial Information Item 1. Consolidated Financial Statements (Unaudited) Consolidated Statements of Financial Condition at September 30, 2001 (Unaudited) and December 31, 2000 Consolidated Statements of Income for the three and nine months ended September 30, 2001 and 2000 (Unaudited) Consolidated Statements of Cash Flows for the nine months ended September 30, 2001 and 2000 (Unaudited) Notes to Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Part II. Other Information Items 1 through 6 Signatures
PART 1. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements (Unaudited) AMES NATIONAL CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (unaudited) <TABLE> September 30, December 31, 2001 2000 ------------------------------ <S> <C> <C> Assets Cash and due from banks .................................................. $ 20,531,354 $ 28,775,032 Federal funds sold ....................................................... 43,850,000 245,000 Interest bearing deposits in financial institutions ...................... 250,000 348,174 Securities available-for-sale ............................................ 220,578,969 232,706,157 Loans receivable, net .................................................... 326,561,537 344,014,727 Bank premises and equipment, net ......................................... 6,385,697 5,216,301 Accrued income receivable ................................................ 6,903,620 7,020,614 Other assets ............................................................. 403,814 1,058,762 ------------------------------ Total assets .................................................. $ 625,464,991 619,384,767 ============================== Liabilities and Stockholders' Equity Deposits: Demand ................................................................ $ 49,474,677 54,597,366 NOW accounts .......................................................... 118,025,760 96,328,264 Savings and money market .............................................. 125,573,633 122,321,564 Time, $100,000 and over ............................................... 53,908,140 63,894,549 Other time ............................................................ 156,936,539 156,287,112 ------------------------------ Total deposits ................................................ 503,918,749 493,428,855 ------------------------------ FHLB advances ........................................................... 4,500,000 16,000,000 Federal funds purchased and securities sold under agreements to repurchase 17,001,322 19,007,419 Dividends payable ........................................................ 1,312,596 1,248,917 Deferred taxes ........................................................... 1,826,396 158,450 Accrued interest and other liabilities ................................... 3,466,930 3,363,665 ------------------------------ Total liabilities ............................................. 532,025,993 533,207,306 ------------------------------ Stockholders' Equity: Common stock, $5 par value; authorized 6,000,000 shares; issued 3,153,230 shares at September 30, 2001 and December 31, 2000 . 15,766,150 15,766,150 Treasury stock, at cost; 28,001 and 30,937 shares at September 30, 2001 and December 31, 2000, respectively .............. (1,530,805) (1,677,605) Surplus ............................................................... 25,393,028 25,428,994 Retained earnings ..................................................... 48,142,044 44,036,378 Accumulated other comprehensive income - net unrealized gain on securities available-for-sale .................................... 5,668,581 2,623,544 ------------------------------ Total stockholders' equity .................................... 93,438,998 86,177,461 ------------------------------ Total liabilities and stockholders' equity .................... $ 625,464,991 619,384,767 ============================== </TABLE>
AMES NATIONAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Income (unaudited) <TABLE> Three Months Ended Nine Months Ended September 30, September 30, ----------------------------------------------------- 2001 2000 2001 2000 ----------------------------------------------------- <S> <C> <C> <C> <C> Interest and dividend income: Loans ............................ $ 6,797,377 $ 7,303,362 $21,175,726 $20,812,602 Securities ....................... 2,883,736 3,612,696 8,936,035 10,977,002 Federal funds sold ............... 206,529 112,390 552,050 327,899 Dividends ........................ 319,251 249,530 826,844 762,760 ----------------------------------------------------- 10,206,893 11,277,978 31,490,655 32,880,263 ----------------------------------------------------- Interest expense: Deposits ......................... 4,258,811 5,137,423 14,228,785 15,476,522 Other borrowed funds ............. 237,721 1,286,289 934,071 2,624,937 ----------------------------------------------------- 4,496,532 6,423,712 15,162,856 18,101,459 ----------------------------------------------------- Net interest income ........ 5,710,361 4,854,266 16,327,799 14,778,804 Provision for loan losses ............ 283,229 84,174 557,137 346,133 ----------------------------------------------------- Net interest income after provision for loan losses 5,427,132 4,770,092 15,770,662 14,432,671 ----------------------------------------------------- Noninterest income: Trust department income .......... 240,018 229,933 727,820 685,658 Service fees ..................... 395,323 408,181 1,180,035 1,194,311 Securities gains, net ............ 2,472 358,945 1,154,003 547,724 Other ............................ 337,103 259,278 966,822 802,435 ----------------------------------------------------- Total noninterest income ... 974,916 1,256,337 4,028,680 3,230,128 ----------------------------------------------------- Noninterest expense: Salaries and employee benefits ... 1,659,592 1,574,925 5,059,903 4,751,200 Occupancy expenses ............... 173,179 188,039 542,128 530,622 Data processing .................. 380,094 355,284 1,268,956 1,181,768 Other operating expenses ......... 534,436 525,613 1,608,148 1,660,522 ----------------------------------------------------- Total noninterest expense .. 2,747,301 2,643,861 8,479,135 8,124,112 ----------------------------------------------------- Income before income taxes . 3,654,747 3,382,568 11,320,207 9,538,687 Income tax expense ................... 972,427 952,195 3,340,431 2,710,814 ----------------------------------------------------- Net income ................. $ 2,682,320 $ 2,430,373 $ 7,979,776 $ 6,827,873 ===================================================== Basic and diluted earnings per share . $ 0.86 $ 0.78 $ 2.55 $ 2.19 ===================================================== Dividends per share .................. $ 0.42 $ 0.40 $ 1.22 $ 1.16 ===================================================== Comprehensive Income ................. $ 4,262,327 $ 5,091,939 $11,024,813 $ 8,343,924 ===================================================== </TABLE>
AMES NATIONAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (unaudited) <TABLE> Nine Months Ended September 30, ---------------------------- 2001 2000 ---------------------------- <S> <C> <C> Cash flows from operating activities: Net income ................................................................... $ 7,979,776 $ 6,827,873 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses .................................................. 557,137 346,133 Amortization and accretion, net ............................................ (52,646) 5,359 Depreciation ............................................................... 530,022 569,282 Provision for deferred taxes ............................................... (122,616) (112,464) (Gain) Loss on sale of securities available-for-sale ....................... (1,154,003) (547,724) (Gain) on sale of property and equipment ................................... -- (94,137) (Increase) decrease in accrued income receivable ........................... 116,994 (1,010,976) Decrease (increase) in other assets ........................................ 654,948 (363,721) (Decrease) increase in accrued interest and other liabilities .............. 103,265 16,508 ---------------------------- Net cash provided by operating activities ............................ 8,612,877 5,636,133 ---------------------------- Cash flow from investing activities: Purchase of securities available-for-sale .................................... (33,882,961) (24,110,324) Proceeds from sale of securities available-for-sale .......................... 34,230,309 18,172,200 Proceeds from maturities of securities available-for-sale .................... 17,822,087 14,232,540 Proceeds from sale of property and equipment ................................. -- 145,518 Net decrease (increase) in interest bearing deposits in financial institutions 98,174 (1,439,757) Net decrease (increase) in federal funds sold ................................ (43,605,000) 40,000 Net decrease (increase) in loans ............................................. 16,896,053 (36,748,448) Purchase of bank premises and equipment ...................................... (1,699,418) (396,071) ---------------------------- Net cash (used in) investing activities .............................. (10,140,756) (30,104,342) ---------------------------- Cash flows from financing activities: Increase (decrease) in deposits .............................................. 10,489,894 8,181,852 Increase (decrease) in Federal Home Loan Bank advances ....................... (11,500,000) 29,675,000 Increase (decrease) in federal funds purchased and securities sold under agreements to repurchase ............................................. (2,006,097) (18,371,978) Dividends paid ............................................................... (3,810,430) (3,619,091) Proceeds from issuance of common stock and treasury stock .................... 110,834 1,268,493 ---------------------------- Net cash provided by (used in) financing activities .................. (6,715,799) 17,134,276 ---------------------------- Net decrease in cash and cash equivalents ............................ (8,243,678) (7,333,933) ---------------------------- Cash and cash equivalents at beginning of year .................................. 28,775,032 26,142,396 ---------------------------- Cash and cash equivalents at end of the period .................................. $ 20,531,354 18,808,463 ============================ Supplemental disclosures of cash flow information: Cash paid for interest ....................................................... $ 14,900,989 15,898,217 Cash paid for taxes .......................................................... 3,193,099 2,796,944 </TABLE>
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, 2001 and 2000 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 Registration Statement on Form 10. 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 8, 2001, the Company declared a cash dividend on its common stock, payable on October 1, 2001 to stockholders of record as of September 17, 2001, equal to $0.42 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, 2001 and 2000 were 3,125,229 and 3,122,293, respectively. The weighted average outstanding shares for the nine months ended September 30, 2001 and 2000 were 3,123,437 and 3,119,800, respectively. 4. Financial Accounting Standards Board - Statement 141, Business Combinations, and Statement 142, Goodwill and Other Intangible Assets The Company does not anticipate that these new pronouncements will have any significant impact on its financial statements at the time of adoption. The standards generally are required to be implemented by the Company in its 2002 financial statements.
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, 2001 and September 30, 2000 General The Company earned net income of $2,682,000, or $0.86 per share for the three months ended September 30, 2001, compared to net income of $2,430,000, or $0.78 per share, for the three months ended September 30, 2000, an increase of 10%. The Company's return on average assets was 1.78% and 1.53%, respectively, for the three-month periods ending September 30, 2001 and 2000. The improvement in net income can be primarily attributed to lower interest expense partially offset by lower interest income and security gains. The lower interest expense for the quarter is attributable to declining interest rates on deposits and other borrowed funds in addition to a significantly lower volume of borrowed funds. Offsetting interest income factors include lower loan rates and volume as several large commercial customers refinanced loans with competing institutions for more favorable loan terms and a lower volume of investment securities as a result of using investment proceeds to lower the Company's levelof other borrowed funds. 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, 2001 and September 30, 2000, respectively.
Distribution of Assets, Liabilities and Stockholders' Equity (dollars in thousands) INTEREST RATES AND INTEREST DIFFERENTIAL <TABLE> Three Months Ended September 30, --------------------------------------------------------------- 2001 2000 Average Revenue/ Yield/ Average Revenue/ Yield/ Balance Expense Rate Balance Expense Rate --------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> ASSETS Loans Commercial ....................... $ 45,641 $ 937 8.21% $ 56,985 $ 1,316 9.24% Agricultural ..................... 27,691 605 8.74% 26,491 629 9.50% Real estate ...................... 239,432 4,818 8.05% 237,736 4,849 8.16% Installment and other ............ 23,141 437 7.55% 26,026 509 7.82% --------------------------------------------------------------- Total loans (including fees) ....... $335,905 $ 6,797 8.09% $347,238 $ 7,303 8.41% Investment securities Taxable .......................... $145,611 $ 2,324 6.38% $184,655 $ 2,947 6.38% Tax-exempt ....................... 68,721 1,326 7.72% 69,949 1,368 7.82% --------------------------------------------------------------- Total investment securities ........ $214,332 $ 3,650 6.81% $254,604 $ 4,315 6.78% Interest bearing deposits with banks $ 250 $ 4 6.40% $ 600 $ 10 6.67% Federal funds sold ................. 23,788 207 3.48% 7,013 112 6.39% --------------------------------------------------------------- Total interest-earning assets ...... $574,275 $ 10,658 7.42% $609,455 $ 11,740 7.71% Noninterest-earning assets ......... 29,059 25,867 -------- -------- TOTAL ASSETS ....................... $603,334 $635,322 ======== ======== <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 rate of 34%. 3 Interest income on loans includes amortization of loan fees, which is not material. </FN> </TABLE>
Distribution of Assets, Liabilities and Stockholders' Equity (dollars in thousands) INTEREST RATES AND INTEREST DIFFERENTIAL <TABLE> Three Months Ended September 30, ---------------------------------------------------------------- 2001 2000 Average Revenue/ Yield/ Average Revenue/ Yield/ Balance Expense rate Balance Expense rate ---------------------------- -------------------------------- <S> <C> <C> <C> <C> <C> <C> LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing liabilities Deposits Savings, NOW accounts, and money markets . $223,356 $ 1,368 2.45% $205,802 $ 1,939 3.77% Time deposits greater than $100,000 ...... 158,314 2,150 5.43% 157,508 2,255 5.73% Time deposits less than $100,000 ......... 54,006 741 5.49% 59,655 944 6.33% --------------------------------------------------------------- Total deposits ............................. $435,676 $ 4,259 3.91% $422,965 $ 5,138 4.86% Other borrowed funds ....................... 22,460 238 4.24% 77,381 1,286 6.64% --------------------------------------------------------------- Total Interest-bearing liabilities ......... $458,136 $ 4,497 3.93% $500,346 $ 6,424 5.13% Noninterest-bearing liabilities Demand deposits ............................ $ 54,844 $ 49,341 Other liabilities .......................... 5,204 4,763 -------- -------- Stockholders' equity ....................... $ 92,123 $ 80,872 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ....................... $610,307 $635,322 ======== ======== Net interest income ........................ $ 6,161 4.29% $ 5,317 3.49% ======== ======== Margin Analysis Interest income/ earning assets ............ $ 10,658 7.42% $ 11,740 7.70% Interest expense/earning assets ............ 4,497 3.13% 6,424 4.21% Net interest income/earning assets ......... 6,161 4.29% 5,315 3.49% <FN> 1 Tax-exempt income has been adjusted to a tax-equivalent basis using an incremental rate of 34%. </FN> </TABLE>
Net Interest Income For the three months ended September 30, 2001, the Company's net interest margin was 4.29% compared to 3.49% for the three months ended September 30, 2000. Net interest income, prior to the adjustment for tax-exempt income, for the quarter ended September 30, 2001 and September 30, 2000 totaled $5,710,000 and $4,854,000, respectively. This 17.6% increase resulted primarily from declining interest rates on deposits and other borrowed funds in addition to a significantly lower volume of borrowed funds. For the three months ended September 30, 2001, interest income decreased $1,071,000 or 9.5% when compared to the same period in 2000. This decrease was primarily attributable to lower loan rates of 8.1% as of the quarter ended September 30, 2001 versus 8.4% for the quarter ended September 30, 2000. Also loan volume was lower as several large commercial customers refinanced loans with competing institutions for more favorable loan terms and a lower volume of investment securities as a result of using investment proceeds from sales and maturities to lower the Company's volume of other borrowed funds. Interest expense decreased $1,927,000 or 30.0% for the quarter ended September 30, 2001 when compared to the same period in 2000. The lower interest expense for the quarter is attributable to declining interest rates paid on deposits and other borrowed funds as well as a significantly lower volume of borrowed funds. Provision for Loan Losses The Company's provision for loan and lease losses for the three months ended September 30, 2001 was $283,000 compared to $84,000 during the same period last year. While general provisions for strong loan growth accounted for most of the additional provisions expense in the third quarter of 2000, the 2001 third quarter provisions are the result of a deterioration in credit quality in a pool of purchased leases with a September 30, 2001 outstanding balance of $2,786,000. Noninterest Income and Expense Noninterest income decreased $281,000, or 22.4% during the quarter ended September 30, 2001 compared to the same period in 2000. The decrease can be attributed to securities gains in the Company's equity portfolio of $2,000 in 2001 compared to $359,000 in third quarter 2000. Noninterest expense increased $103,000 or 3.9% for the third quarter of 2001 compared to the same period in 2000. The increase in noninterest expense is attributable to a 5.4% increase in salaries and benefits of $85,000 and 7.0% increase data processing costs of $25,000. Income Taxes The provision for income taxes for September 30, 2001 and September 30, 2000 was $972,000 and $952,000, respectively. This amount represents an effective tax rate of 26.6% for the third quarter of 2001, compared to 28.2% for the third quarter of 2000. 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, 2001 and September 30, 2000 General The Company earned net income of $7,980,000 or $2.55 per share for the nine months ended September 30, 2001, compared to net income of $6,828,000, or $2.19 per share, for the nine months ended September 30, 2000, an increase of 16.9%. The Company's return on average assets was 1.73% and 1.45%, respectively for the nine-month period ending September 30, 2001 and September 30, 2000. The improvement in net income can be primarily attributed to higher security gains and lower interest expense. Security gains totaled $1,154,000 for the first nine months of 2001 compared to gains of $548,000 for the same period in 2000. The lower interest expense for the nine month period ending September 30, 2001 is attributable to a lower volume and declining interest rates on other borrowed funds and lower interest rates on savings, NOW and money market accounts. The lower interest expense was partially offset by lower interest income as investment securities proceeds were used to lower the level of other borrowed funds.
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, 2001 and September 30, 2000, respectively. Distribution of Assets, Liabilities and Stockholders' Equity (dollars in thousands) INTEREST RATES AND INTEREST DIFFERENTIAL <TABLE> Nine Months Ended September 30, ------------------------------------------------------------- 2001 2000 ------------------------------------------------------------- Average Revenue/ Yield/ Average Revenue/ Yield/ Balance Expense Rate Balance Expense Rate ---------------------------- ----------------------------- <S> <C> <C> <C> <C> <C> <C> ASSETS Loans Commercial ....................... $ 50,430 $ 3,237 8.56% $ 52,160 $ 3,519 9.00% Agricultural ..................... 28,864 1,936 8.94% $ 26,107 1,803 9.21% Real estate ...................... 240,959 14,581 8.07% $229,482 13,942 8.10% Installment and other ............ 24,238 1,422 7.82% $ 27,165 1,549 7.60% ------------------------------------------------------------ Total loans (including fees) ....... $344,491 $ 21,176 8.20% $334,914 $ 20,813 8.29% Investment securities Taxable .......................... $150,266 $ 7,199 6.39% $186,767 $ 8,949 6.39% Tax-exempt ....................... 67,234 3,868 7.67% $ 71,414 4,137 7.72% ------------------------------------------------------------ Total investment securities ........ $217,500 $ 11,067 6.78% $258,181 $ 13,086 6.76% Interest bearing deposits with banks $ 250 $ 11 5.87% $ 1,824 $ 57 4.17% Federal funds sold ................. 18,338 552 4.01% $ 8,010 331 5.51% ------------------------------------------------------------ Total interest-earning assets ...... $580,579 $ 32,806 7.53% $602,929 $ 34,287 7.58% Total noninterest-earning assets ... $ 33,280 $ 25,068 -------- -------- TOTAL ASSETS ....................... $613,859 $627,997 ======== ======== <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 rate of 34%. 3 Interest income on loans includes amortization of loan fees, which is not material. </FN> </TABLE>
Distribution of Assets, Liabilities and Stockholders' Equity (dollars in thousands) INTEREST RATES AND INTEREST DIFFERENTIAL <TABLE> Nine Months Ended September 30, -------------------------------------------------------------- 2001 2000 Average Revenue/ Yield/ Average Revenue/ Yield/ Balance Expense Rate Balance Expense Rate -------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing liabilities Deposits Savings, NOW accounts, and money markets . $221,771 $ 4,711 2.83% $216,092 $ 5,955 3.67% Time deposits < $100,000 ................. 159,525 6,796 5.68% 160,105 6,662 5.55% Time deposits > $100,000 ................. 60,701 2,722 5.98% 62,626 2,859 6.09% ------------------------------------------------------------- Total deposits ............................. $441,997 $ 14,229 4.29% $438,823 $ 15,476 4.70% Other borrowed funds ....................... 25,100 934 4.97% 58,877 2,625 5.94% ------------------------------------------------------------- Total Interest-bearing liabilities ......... $467,097 $ 15,163 4.33% $497,700 $ 18,101 4.85% Noninterest-bearing liabilities Demand deposits ............................ $ 50,811 $ 47,014 Other liabilities .......................... 5,754 5,023 -------- -------- Stockholders' equity ....................... $ 90,197 $ 78,260 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . $613,859 $627,997 ======== ======== Net interest income ........................ $ 17,642 4.05% $ 16,186 3.58% ======== ======== Margin Analysis Interest income/ earning assets ............ $ 32,806 7.53% $ 34,287 7.58% Interest expense/earning assets ............ 15,163 3.48% 18,101 4.00% Net interest income/earning assets ......... 17,642 4.05% 16,186 3.58% <FN> 1 Tax-exempt income has been adjusted to a tax-equivalent basis using an incremental rate of 34%. </FN> </TABLE>
Net Interest Income For the nine months ended September 30, 2001, the Company's net interest margin was 4.05% compared to 3.58% for the nine months ended September 30, 2000. Net interest income, prior to the adjustment for tax-exempt income, for the first nine months of the year ended September 30, 2001 and September 30, 2000 totaled $16,328,000 and $14,779,000, respectively. This 10.5% increase resulted primarily from lower interest expense attributable to lower interest rates on savings, NOW and money market accounts and from a significant reduction in both the volume and interest rates on other borrowed funds. For the nine months ended September 30, 2001, interest income decreased $1,390,000 or 4.2% when compared to the same period in 2000. This decrease was primarily attributable to the lower volume of investment securities whose proceeds were utilized to lower the level of other borrowed funds. Interest expense decreased $2,939,000 or 16.2% for the nine months ended September 30, 2001 when compared to the same period in 2000. Interest expense on savings, NOW and money market accounts was significantly lower in 2001 while total interest expense on certificates of deposit did not change considerably. The lower volume and interest rates on other borrowed funds contributed to the lower level of interest expense. Provision for Loan Losses The Company provided $557,000 for loan losses for the nine months ended September 30, 2001 compared to $346,000 during the same period last year. While general provisions for strong loan growth accounted most of the provisions expense in the first three quarter of 2000, this year's current provisions are the result of a deterioration in credit quality in a pool of purchased leases with September 30, 2001 outstanding balances of $2,786,000. Noninterest Income and Expense Noninterest income increased $799,000, or 24.7% during the nine months ended September 30, 2001 compared to the same period in 2000. The increase can be attributed to significant securities gains in the Company's equity portfolio of $1,154,000 in 2001 compared to $548,000 in the first three quarter of 2000. Noninterest expense increased $355,000 or 4.4% for the first nine months of 2001 compared to the same period in 2000. Noninterest expense items that increased from the nine months ended September 30, 2001 compared to same period in 2000 included higher salaries and benefits of $309,000 which were 6.5% higher and legal and professional fees that reflect an increase of $98,000 or 32.4% primarily as the result of registering the Company's common stock with Securities and Exchange Commission. Income Taxes The provision for income taxes for the nine months ending September 30, 2001 and 2000 was $3,340,000 and $2,711,000, respectively. This amount represents an effective tax rate of 29.5% for the first nine months of 2001, compared to 28.4% for the same period in 2000. 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, 2001, total assets were $625,465,000, a $6,080,000 increase compared to December 31, 2000 totals. This higher level of assets is attributable to significant volume of federal funds sold resulting from temporary large public fund deposit balances associated with the collection of property taxes. A lower volume of loans and investment securities largely offsets the increase in federal funds sold. Investment Portfolio The decrease in the volume of investments securities to $220,579,000 on September 30, 2001 from $232,706,000 on December 31, 2000 resulted from the proceeds from maturing and called investment securities being utilized to lower the level of other borrowings. Loan Portfolio Net loans as of September 30, 2001 totaled $326,562,000, a decrease of $17,453,000 from outstanding balances as of December 31, 2000. Average loans outstanding for the nine months ending September 30, 2001 totaled $344,491,000 compared to a year-end 2000 average balance of $339,115,000. The decreased level of loans relates to significant market competition for loans.
Problem loans totaled $3,448,000 as of September 30, 2001 compared to $2,905,000 as of December 31, 2000. Problem loans includes 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, 2001, non-accrual loans totaled $2,995,000, past due loans still accruing totaled $453,000 and there were no restructured loans outstanding. Other real estate owned as of September 30, 2001 and December 31, 2000 totaled $101,000 and $76,000, respectively. As of September 30, 2001, potential problem loans and leases consisted of a pool of purchased leases with a September 30, 2001 balance of $2,786,000. Net charge offs were $508,000 for the nine months ended September 30, 2001 as compared to $4,000 in net recoveries for the nine months ended September 30, 2000. Losses related to purchased leases totaled $376,000 with the remaining losses coming from previously identified problem loans. The resulting allowance for loan losses as percentage of outstanding loans as of September 30, 2001 and December 31, 2000 was 1.63% and 1.54%, 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. Deposits increased by $10,490,000 from year-end 2000 and are $11,117,000 higher than September 30, 2000 balances. The increase in deposits from year end is attributable to a large influx of public funds invested on a short-term basis until the funds are withdrawn over the following 30 to 60 day period. The Company's deposits typically increase significantly at the end of the first and third quarters as local municipalities receive local property tax payments. Other borrowed funds as of September 30, 2001, consisted primarily of Federal Home Loan Bank advances and securities sold under agreements to repurchase totaling $21,501,000 compared to total other borrowing as of December 31, 2000 of $35,007,000. The combination of repaying other borrowings with proceeds from investment securities and a reduction in loan volume since December 31, 2000 contributed to the lower level of borrowings. Stockholders equity increased to $93,439,000 as of September 30, 2001 as earnings and unrealized gains on securities available for sale continued to augment the company's strong capital base. Liquidity and Capital Resources The objective of liquidity management is to ensure the availability of sufficient cash flows to meet all financial commitments and to capitalize on opportunities for profitable business expansion. The Company's principal source of funds is deposits including demand, money market, savings and certificates of deposits. Other sources include principal repayments on loans, proceeds from the maturity and sale of investment securities, federal fund purchased, repurchase agreements, advances from the Federal Home Loan Bank and funds provided by operations. Net cash from operating activities contributed $8,613,000 and $5,636,000 to liquidity for the nine months ended September 30, 2001 and 2000, respectively. Liquid assets including cash on hand, balances due from other banks, federal funds sold and interest-bearing deposits in financial institutions increased to $64,631,000 as of September 30, 2001 compared to year-end 2000 balance of $29,368,000. The increase in fed funds sold is attributable to public fund deposits and maturing and callable investment securities. Securities available for sale declined to $220,579,000 as of September 30, 2001 from $232,706,000 as of December 31, 2000. Proceeds from called and maturing investment securities have been utilized to decrease the Company's other borrowings and are also being invested in federal funds sold market in lieu of a more favorable investment environment. To provide additional external liquidity, the Banks have outstanding lines of credit with the Federal Home Loan Bank of Des Moines, Iowa of $51,400,000 and federal funds borrowing capacity at correspondent banks of $46,000,000. The FHLB advances for the Company totaled $4,500,000 and $16,000,000, respectively as of September 30, 2001 and December 31, 2000. The Company as of September 30, 2001 was not borrowing any federal funds but had outstanding securities sold under agreement to repurchase of $17,001,000. 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 $93,439,000, September 30, 2001, from $86,177,000, December 31, 2000. September 30, 2001 stockholders' equity was 14.9% of total assets, compared to 13.9 % at December 31, 2000. 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, 2001, the Company and its Banks meet the capital requirements to which they are subject. As of that date, all the Company's Banks were "well capitalized" under regulatory prompt corrective action provisions. Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company's market risk is comprised primarily of interest rate risk arising from its core banking activities of lending and deposit taking. Interest rate risk results from the changes in market interest rates which may adversely affect the Company's net interest income. Management continually develops and applies strategies to mitigate this risk. Management does not believe that the Company's primary market risk exposure and how it has been managed to-date in 2001 changed significantly when compared to 2000. PART II. OTHER INFORMATION Item 1. Legal Proceedings Not applicable Item 2. Changes in Securities and Use of Proceeds None 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 None (b) Reports on Form 8-K None
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, 2001 By: /s/ Daniel L. Krieger ----------------------------- Daniel L. Krieger, President By: /s/ John P. Nelson ----------------------------- John P. Nelson Principal Financial Officer