Ames National Corporation
Annual Report 2017

Plain-text annual report

2017 2017 1 MISSION STATEMENT MISSION Ames National Corporation is a result-oriented financial services holding company providing leadership, counsel and support to its community affiliate banks and superior performance for its shareholders. CORPORATE CULTURE Provide an environment where our affiliates and employees can be successful and provide products and services that enhance the financial well-being of customers and shareholders. CORE VALUES Excellence: Striving to exceed expectations Integrity: Demonstrating high moral and ethical conduct Leadership: Creating and developing opportunities that benefit our employees, customers, communities, and shareholders Stability: Maintaining financial strength and a dedicated staff to successfully serve the current and future needs of our employees, customers, communities, and shareholders Trust: Acting in the best interest of our employees, customers, and shareholders Community: Dedicated to serving our communities through local decision making, community involvement and active boards of directors TABLE OF CONTENTS Ames National Corporation at a Glance . . . . . . . . . . . . . 1 Letter to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . 2-3 Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Performance Record . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Shareholder Information . . . . . . . . . . . . . . . . . . . . . . . . . . 9 AMES NATIONAL CORPORATION AT A GLANCE Ames National Corporation (the Company) is an Iowa-based bank holding company. The Company was organized and incorporated on January 21, 1975, under the laws of the State of Iowa to serve as a holding company for its principal banking subsidiary, First National Bank, Ames, Iowa. In 1983, the Company acquired the stock of the State Bank & Trust Co. located in Nevada, Iowa; in 1991, the Company, through a newly-chartered state bank known as Boone Bank & Trust Co., acquired certain assets and assumed certain liabilities of the former Boone State Bank & Trust Company located in Boone, Iowa; in 1995, the Company acquired the stock of the Reliance State Bank located in Story City, Iowa; and in 2002, the Company chartered and commenced operations of United Bank & Trust NA, located in Marshalltown, Iowa. In 2012, Reliance State Bank acquired an office located in Garner, Iowa, and in 2014, First National Bank acquired three offices located in West Des Moines and Johnston, Iowa. Today, each Affiliate Bank is operated as a wholly-owned subsidiary of the Company. Each Affiliate Bank operates independently with a board of directors and a bank president. Decisions are made locally, which means customers receive quick responses to questions, and services are customized to meet customer needs in each community. The principal sources of Company revenue are: interest and fees earned on loans made and held by the Company and Affiliate Banks, interest on investments, fees on wealth management services, service charges on deposit accounts maintained by Affiliate Banks, merchant and card fees, gain on sale of loans and securities gains. The Affiliate Banks’ lending activities consist primarily of short-term and medium-term commercial, agricultural and residential real estate loans, agricultural and business operating loans, lines of credit, home improvement loans and the origination of mortgage loans for sale into the secondary market. Affiliate Banks also offer a variety of demand, savings and time deposits, cash management services, merchant credit card processing and safe deposit box services. Convenient access to funds and account information is also available through online banking, video banking, mobile banking, online bill pay, online statements and debit cards. The Company provides various services to the Affiliate Banks, which include: management assistance, payroll, internal auditing services, human resources services, compliance management, marketing assistance, loan review, technology support, training and staff development. Company staff handles the backroom operations that make the Company more efficient so the Affiliate Bank staff can focus on what they do best: banking and taking care of customers’ financial needs. The principal executive office of Ames National Corporation is located at 405 5th Street, Ames, Iowa 50010. The Company’s phone number is (515) 232-6251. More information about the Company can also be found at www.amesnational.com. RECENT RECOGNITIONS • Recognized Ames National Corporation as a Winning Company by 2020 Women on Boards (4/17) • Ranked as an Optimal Performer by Seifried & Brew (5/17) • Ranked among the top most profitable 200 community banks based on a 3-year average on ROE by the American Banker Magazine (5/17) • Ranked as the 7th largest Iowa commercial bank holding company based on total deposits (6/17) • Featured in the Northwestern Financial Review (6/17) LETTER TO SHAREHOLDERS To Our Shareholders, 2017 was an interesting year, to say the least. With shifts in the economic, regulatory and political climate, it proved to be a challenging as well as exciting year to be navigating the financial services industry. We are pleased with the progress we have made toward building a culture where our affiliates and employees can be successful and providing products and services that enhance the financial well-being of customers and shareholders. This report will provide you with an overview of the 2017 financial results and challenges. We will also review how Ames National Corporation is providing leadership, counsel and support to our community affiliate banks and striving toward superior performance for our shareholders. “ Offering value-added services that help clients find financial peace of mind is a cornerstone of building strong, lifelong relationships.” Financial Results Net income for the Company totaled $13,697,000, a 13% decrease in earnings. The decline in earnings is primarily the result of an increased provision for loan losses, elevated deposit interest expense and, most notable, a higher income tax expense. The unexpected higher tax expense of $1.2 million, can be attributed to the landmark tax reform legislation, specifically relating to the re-valuation of tax deferred assets. The Company’s largest deferred tax asset is our loan loss reserve. The Tax Cut and Jobs Act of 2017 changed the United States corporate tax law in two especially crucial ways: 1. The Act required many companies, including Ames National Corporation, to re-valuate its net deferred tax assets. Deferred tax assets and liabilities are adjusted through income tax expense as changes in tax laws are enacted. 2. The U.S. corporate tax rate will also decrease from 35% to 21%. Although these two groundbreaking changes created an unexpected drop in net income for 2017, this Act will substantially reduce the Company’s tax burden moving forward. This decrease in the corporate tax rate will create additional opportunities to enhance your shareholder value in the future. A notable achievement for the year was the record level in net loans of $771 million compared to a year earlier. We are pleased to report that the higher loan balances generated an additional $1.7 million in loan interest income. With our presence in the Ames and Des Moines Metro, we continue to see strong growth in our loan portfolio. We have also seen an increase in all deposit categories, with the exception of time deposits, compared to 2016. Total deposits were up $25 million and ended the year at a record $1.13 billion. This growth in core deposit is not only an indication of customer confidence, but is also our most profitable funding source for our increased loan demand. Our growth in Wealth Management was another highlight for 2017. As mentioned in last year’s Summary Annual Report, the Company acquired a $20 million book of business at the end of 2016. We are pleased to report a smooth transition in onboarding these clients to the First Point Wealth Management group over the past year. The acquisition has been a great fit for both the Company and our new clients and contributed to the growth in Wealth Management assets under management to over $502 million as of December 31, 2017. We have also seen more interest from clients in the Financial Planning process. Offering value-added services that help clients find financial peace of mind is a cornerstone of building strong, lifelong relationships. As of December 31, 2017: Assets: $1.38 Billion Net Income: $13.7 Million Return on Assets (ROA): 1.00% Stockholders’ Equity to Total Assets: 12.4% ATLO Closing Price: $27.85 Challenges Two challenges that the Company faced during the year were preserving our net interest margin with a flattening yield curve and the weakening of the Iowa agricultural economy. Since a bank’s cost of funds is so closely tied to the rates set by the Federal Reserve, any increase in funding costs without an increase in loan yield will compress banks’ net interest margin. The flattening of the yield curve has hampered the Company’s net interest margin as the result of lower loan yields and higher deposit interest rates. Why is this important? Narrower margins mean we have fewer dollars available to return to the bottom line. As we look to 2018, any movement of deposit rates can have a major impact on earnings so we must be very strategic in the re-pricing of these liabilities. The current trend of low grain prices has created narrowed margins for our agricultural customers. Fortunately, favorable yields for 2017 have generally provided break-even cash flows for most of the Company’s agricultural borrowers, it is still a point of attention as we look toward the 2018 growing season. Positioned for Success Although 2017 provided a few challenges that added pressure to earnings, Ames National Corporation is positioned well for the future. Our dedication to service and continual improvement, grounded in our core values of excellence, integrity, leadership, stability, trust and community, is where we will find success. 2 Employee Engagement We know that to grow and thrive, we must continue to focus on building our team of knowledgeable banking experts and make employee engagement a top priority. During 2017, we launched several new initiatives to enhance employee engagement. Two examples include: • Leadership Development: We introduced our new, in-house educational series, “Leading the Way,” which is designed to provide our leaders with the tools they need to coach, mentor and guide their teams. To date, over 90 supervisors throughout the Company have participated in the program, and we look forward to the residual effects of investing in the professional development of our employees. • Personal Banker Model: As we continue to look for ways to meet evolving customer needs, we are redesigning the Personal Banking experience to expand customer service points of contact and create more consistency in service delivery. Through a stronger focus on training and professional development, we are confident we will provide more career pathing opportunities for our team and hopefully increase employee longevity. “ Employee engagement is the art and science of engaging people in authentic and recognized connections to strategy, roles, performance, organization, community, relationship, customers, development, energy, and happiness to leverage, sustain, and transform work into results.” – David Zinger, author and consultant These are just a few of the initiatives designed to meet our customers' evolving financial needs. We continue to develop products and services that help us build strong relationships and meet customers where they are. We challenge our employees to be innovative and find new ways to deliver banking in extraordinary ways. Company Stock The Company’s stock, which is listed on the NASDAQ Capital Market under the symbol ATLO, closed at $27.85 on December 31, 2017. During the fourth quarter of 2017, the price ranged from $27.55 to $31.90. In Summary On a personal note, I will be retiring as President and CEO of Ames National Corporation on June 29, 2018. John P. Nelson, Executive Vice President, CFO and COO, will assume the role of President and CEO at that time. As I conclude a 40-year career in banking, I reflect on so many individuals who have made an impact in my life. When you work a lifetime in the financial industry, you know that relationships are what make this career rewarding. The ever-changing landscape of banking has never provided a dull moment and has offered a challenging and motivating environment to work and grow. Ames National Corporation is a strong and stable organization focused on helping customers, employees and shareholders succeed. The quality of any organization is directly related to the caliber of its employees. I firmly believe that we are fortunate to have one of the best groups of employees of any company in the country. Our employees are talented, dedicated and truly care about our Company, our customers and our shareholders. It is fun to come to work every day when people are focused on making a difference in the lives of those we serve. Thank you for providing me the opportunity to serve you. Customer Engagement Doing what’s right for our customers has always been our guiding principal. If we place our customers’ best interests first, successful financial results will follow. We know that customers want banking solutions developed for their busy lives, but also want financial experts ready to consult with them at every point along the way. I will continue to serve as the Chairman of the Ames National Corporation Board of Directors and as a member of First National Bank's Board of Directors. I invite you to join us on Wednesday, April 25th for the 43rd Annual Meeting of Shareholders at Reiman Gardens as we celebrate a year of accomplishments. Thank you for the commitment and support that you provide to Ames National Corporation. We look forward to seeing you on April 25th. During 2017, our affiliate banks: • Launched new mobile friendly websites at our five affiliate banks, which makes banking online with us easier and more convenient. • Rolled out new services for medical professionals interested in consolidating student loan debt and building a relationship with a local financial partner. • Introduced DocuSign to our customers, providing them the opportunity to electronically sign documents on-the-go. • Expanded our Wealth Management Services to meet a growing niche in Private Banking. Thomas H. Pohlman Chairman, President & CEO 3 FINANCIAL HIGHLIGHTS FOR THE YEAR PERFORMANCE 2017 2016 2015 2014 2013 Net Income (in thousands) $13,697 $15,735 $15,015 $15,251 $13,954 Return on Average Assets Average Equity Efficiency Ratio PER COMMON SHARE DATA Basic and Diluted Earnings Cash Dividends Declared Dividend Payout Ratio Dividend Yield AT DECEMBER 31 BALANCE SHEET DATA (in thousands) Total Assets Net Loans Deposits 1.00% 8.02% 52.70% 1.18% 9.38% 51.95% 1.13% 9.44% 53.59% 1.21% 10.09% 53.37% 1.14% 9.76% 52.78% $1.47 $0.88 $1.69 $0.84 $1.61 $0.80 $1.64 $0.72 $1.50 $0.64 59.86% 49.70% 49.69% 43.90% 42.67% 3.2% 2.6% 3.3% 2.8% 2.9% $1,375,060 $1,366,453 $1,326,747 $1,301,031 $1,233,084 $771,550 $752,182 $701,328 $658,441 $564,502 $1,134,391 $1,109,409 $1,074,193 $1,052,123 $1,011,803 Stockholders' Equity $170,753 $165,105 $161,250 $154,674 $ 142,106 LOAN QUALITY Allowance for loan losses to total loans Net charge-offs (recoveries) to average outstanding loans Non performing loans to total loans CAPITAL Tier 1 Leverage Capital Ratio Total Equity/Total Assets Market Price per Share Closing High Low 4 1.45% 0.09% 0.62% 12.1% 12.4% $27.85 $37.45 $26.60 1.38% 0.00% 0.67% 12.0% 12.1% $33.00 $35.30 $22.54 1.40% (0.01)% 0.27% 11.3% 12.2% $24.29 $26.43 $22.01 1.32% 0.03% 0.37% 11.0% 11.9% $25.94 $26.87 $20.24 1.50% 0.00% 0.44% 11.0% 11.5% $22.39 $23.94 $18.50 $1,400 $1,300 $1,200 $1,100 $1,000 $900 $800 $700 $600 $500 $1.80 $1.60 $1.40 $1.20 $1.00 $.80 $.60 $.40 $.20 $.00 PERFORMANCE RECORD FIVE-YEAR FINANCIAL HIGHLIGHTS AVERAGE TOTAL ASSETS MILLIONS OF DOLLARS AVERAGE DEPOSITS MILLIONS OF DOLLARS AVERAGE LOANS MILLIONS OF DOLLARS $1,226 $1,263 $1,325 $1,331 $1,369 $1,004 $1,021 $1,073 $1,073 $1,118 $528 $584 $682 $727 $772 $1,200 $1,100 $1,000 $900 $800 $700 $600 $500 2013 2014 2015 2016 2017 $800 $700 $600 $500 $400 $300 $200 $100 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 EARNINGS PER SHARE DOLLARS BOOK VALUE PER SHARE DECLARED DIVIDENDS PER SHARE DOLLARS DOLLARS $1.50 $1.64 $1.61 $1.69 $1.47 $15.26 $16.61 $17.32 $17.73 $18.34 $0.64 $0.72 $0.80 $0.84 $0.88 $0.08* $0.13** $19.50 $19.00 $18.50 $18.00 $17.50 $17.00 $16.50 $16.00 $15.50 $15.00 $14.50 $14.00 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 $1.05 $.90 $.75 $.60 $.45 $.30 $.15 $.00 * Includes an after-tax, $0.08 per share increase in noninterest income as a result of a building sale. ** Includes an income tax expense related to the re-valuation of deferred tax assets related to enacted change in tax rates. SHARE PRICE 2016 MARKET PRICE 1st 2nd 3rd 4th $25.20 $27.02 $28.86 Low $22.54 $24.00 $25.78 $35.30 $26.60 Quarter High Declared Quarter High CASH DIVIDENDS 2017 MARKET PRICE $0.21 $0.21 $0.21 $0.21 1st 2nd 3rd 4th $37.45 $32.00 $31.15 Low $28.50 $29.45 $26.60 $31.90 $27.55 CLOSING PRICE $24.76 $26.82 $27.66 $33.00 2013 2014 2015 2016 2017 CLOSING PRICE $30.60 $30.80 $29.85 $27.85 CASH DIVIDENDS Declared $0.22 $0.22 $0.22 $0.22 5 CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) December 31, 2017 December 31, 2016 $ $ $ ASSETS Cash and due from banks Interest bearing deposits in financial institutions Securities available-for-sale Loans receivable, net Loans held for sale Bank premises and equipment, net Accrued income receivable Other real estate owned Deferred income taxes Other intangible assets, net Goodwill Other assets Total assets LIABILITIES AND STOCKHOLDERS’ EQUITY LIABILITIES Deposits Demand, noninterest bearing NOW accounts Savings and money market Time, $250,000 and over Other time Total deposits Securities sold under agreements to repurchase FHLB advances and other borrowings Dividend payable Accrued expenses and other liabilities Total liabilities STOCKHOLDERS’ EQUITY Common stock, $2 par value, authorized 18,000,000 shares; issued and outstanding 9,310,913 shares as of December 31, 2017 and 2016 Additional paid-in capital Retained earnings Accumulated other comprehensive (loss) Total stockholders’ equity Total liabilities and stockholders’ equity $ 6 26,397,550 43,021,953 498,342,864 771,549,655 - 15,399,146 8,382,391 385,509 2,542,533 1,091,462 6,732,216 1,214,371 1,375,059,650 227,332,347 322,392,945 389,630,180 38,838,782 156,196,433 1,134,390,687 37,424,619 26,500,000 2,048,401 3,942,801 1,204,306,508 18,621,826 20,878,728 131,684,961 (432,373) 170,753,142 1,375,059,650 $ $ $ $ 29,478,068 31,737,259 516,079,506 752,181,730 242,618 16,049,379 7,768,689 545,757 3,485,689 1,352,812 6,732,216 799,306 1,366,453,029 212,074,792 310,427,812 381,852,433 39,031,663 166,022,165 1,109,408,865 58,337,367 27,500,000 1,955,292 4,146,262 1,201,347,786 18,621,826 20,878,728 126,181,376 (576,687) 165,105,243 1,366,453,029 CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited) INTEREST INCOME: Loans, including fees Securities Taxable Tax-exempt Interest bearing deposits and federal funds sold Total interest income INTEREST EXPENSE: Deposits Other borrowed funds Total interest expense Net interest income Provision for loan losses Net interest income after provision for loan losses NONINTEREST INCOME: Wealth Management Income Service fees Securities gains, net Gain on sale of loans held for sale Merchant and card fees Other noninterest income Total noninterest income NONINTEREST EXPENSE: Salaries and employee benefits Data processing Occupancy expenses FDIC insurance assessments Professional fees Business development Other real estate owned (income) expense, net Intangible asset amortization Other operating expenses, net Total noninterest expense Income before income taxes INCOME TAX EXPENSE NET INCOME Basic and diluted earnings per share Declared dividends per share Years Ended December 31 2017 2016 2015 $ 34,048,310 $ 32,358,028 $ 30,780,496 6,219,030 5,015,696 511,399 45,794,435 4,439,305 1,141,774 5,581,079 40,213,356 1,519,596 38,693,760 3,060,599 1,515,998 505,139 783,776 1,375,402 751,853 7,992,767 15,994,036 3,298,080 2,018,553 427,781 1,231,778 1,033,026 (2,459) 369,580 1,034,162 25,404,537 21,281,990 7,584,801 13,697,189 1.47 0.88 $ $ $ 5,853,146 5,439,908 394,957 44,046,039 3,073,658 1,061,623 4,135,281 39,910,758 524,365 39,386,393 2,929,456 1,633,178 423,601 1,082,347 1,405,751 613,201 8,087,534 15,687,335 3,297,079 1,962,726 540,237 1,178,924 1,016,365 (172,628) 368,259 1,056,348 24,934,645 22,539,282 6,804,506 15,734,776 1.69 0.84 $ $ $ $ $ $ 6,179,492 5,808,011 382,346 43,150,345 3,019,273 1,165,866 4,185,139 38,965,206 1,099,183 37,866,023 2,724,451 1,740,740 888,179 907,875 1,378,218 627,730 8,267,193 15,231,369 3,027,203 1,889,793 680,563 1,274,298 1,064,362 613,812 421,500 1,109,121 25,312,021 20,821,195 5,806,544 15,014,651 1.61 0.80 7 BOARD OF DIRECTORS AFFILIATE BANKS Board of Directors: Back Row, Left to Right: Patrick J. McMullan, Patrick G. Hagan, Richard D. Blomgren, Kevin N. Houston Front Row, Left to Right: Jeffrey K. Putzier, Thomas H. Pohlman, Michael P. Carr Board of Directors: Back Row, Left to Right: Gary K. Lorenz, Philip A. Hodgin, Thomas H. Pohlman, John P. Nelson, Scott T. Bauer Front Row, Left to Right: James R. Larson, II, John R. Linch, Betty A. Baudler Horras, David W. Benson, Lisa M. Eslinger Board of Directors: Back Row, Left to Right: Steven Forth, Bill Paulus Middle Row, Left to Right: Gary Vulgamott, Elaine Tekippe, Mike Hrubes Front Row, Left to Right: Harold Thompson, Richard Schreier, John Nelson, Neil Fell Board of Directors: Back Row, Left to Right: Dan E. Johnson, Stephen C. McGill, Richard O. Parker, James M. Kurtenbach Front Row, Left to Right: Laurie L. Henry, Thomas H. Pohlman, Michelle R. Cassabaum BACK ROW, LEFT TO RIGHT: John P. Nelson Executive Vice President, Chief Financial Officer & Chief Operating Officer of the Company Steven D. Forth Farmer Thomas H. Pohlman Chairman, President & CEO of the Company Richard O. Parker Attorney, Parker Law Firm Patrick G. Hagan Senior Vice President and Treasurer of Fareway Stores, Inc. FRONT ROW, LEFT TO RIGHT: David W. Benson Partner, Nyemaster Goode Attorneys at Law James R. Larson, II President, Larson Development Corporation (real estate development) Betty A. Baudler Horras President, Baudler Enterprises, Inc. (marketing) Kevin L. Swartz Chief Executive Officer, Wolfe Clinic PC Lisa M. Eslinger Chief Financial and Administrative Officer, Iowa State University Foundation 8 Board of Directors: Back Row, Left to Right: Robert Thomas, Thomas H. Pohlman, Kevin Swartz Middle Row, Left to Right: Keith Brown, John Wise Front Row, Left to Right: Kathy Baker, Curt Hoff, Larry Raymon SHAREHOLDER INFORMATION Company Contact Information Ames National Corporation P.O. Box 846 405 5th Street Ames, IA 50010 (515) 232-6251 | Fax (515) 663-3033 info@amesnational.com | www.amesnational.com Company Staff Thomas H. Pohlman Chairman, President & CEO John P. Nelson Executive Vice President, COO & CFO John L. Pierschbacher Controller Kevin G. Deardorff Vice President & Technology Director Nicole J. Rasmussen Vice President & Strategic Engagement Officer Matthew R. Hackbart Vice President & Information Systems Asst. Manager Jennifer J. Hanson Vice President & Human Resources Director Tracy W. Laws Vice President & Auditor Timothy J. Lupardus Vice President & Information Systems Manager Joel P. Jacobsen Vice President & Compliance Officer Wendy S. Current Training & Development Officer Lori J. Hill Asst. Corporate Secretary Penny J. Blackburn Information Systems Technician Doug S. H. Kinsey Information Systems Technician Independent Auditors CliftonLarsonAllen LLP West Des Moines, Iowa Counsel Nyemaster Goode, P.C. Des Moines, Iowa Annual Meeting The Board of Directors of Ames National Corporation has established Wednesday, April 25, 2018, at 4:30 p.m. as the date of the Annual Meeting of Shareholders. Registration will begin at 4:00 p.m. We invite all shareholders to attend the meeting, which will be held at Reiman Gardens, 1407 University Boulevard, Ames, Iowa. Market Makers Ames National Corporation’s common stock is listed on the NASDAQ Capital Market under the symbol “ATLO.” Market makers and brokers in the stock include: First Point Wealth Management , First National Bank, Ames (515) 663-3074 Stifel Nicolaus | (515) 233-4064 Raymond James | (800) 800-4693 Stock Transfer Agent Continental Stock Transfer & Trust 17 Battery Place New York, NY 10004 (212) 509-4000 www.continentalstock.com Form 10-K and Other Information A copy of the Company’s Annual Report to the Securities and Exchange Commission on Form 10-K will be available on the Securities and Exchange Commission’s website at http://www.sec.gov and through a link on the Company’s website, www.amesnational.com, at Financial Information, SEC Filings on or about March 12, 2018. Additional information is also available by contacting John Nelson, Executive Vice President, COO & CFO at 515-232-6251 or info@amesnational.com. 9 Ames National Corporation 405 5th Street, Box 846 | Ames, IA 50010 t (515) 232-6251 | f (515) 663-3033 www.amesnational.com info@amesnational.com 

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