Ames National Corporation
Annual Report 2022

Plain-text annual report

2022 SUMMARY ANNUAL REPORT AMES NATIONAL CORPORATION AT A GLANCE Background Affi liate Bank Structure Ames National Corporation (ANC) is an Iowa-based bank holding company. ANC 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. Each affi liate 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. In 1983, ANC acquired the stock of State Bank & Trust Co. located in Nevada, Iowa; in 1991, ANC acquired Boone Bank & Trust Co., located in Boone, Iowa; in 1995, ANC acquired the stock of Reliance State Bank located in Story City, Iowa; and in 2002, ANC chartered and commenced operations of United Bank & Trust NA, located in Marshalltown, Iowa. In 2012, Reliance State Bank acquired an offi ce located in Garner, Iowa. In 2014, First National Bank acquired two offi ces in West Des Moines and two in Osceola, Iowa, in 2018. In 2019, ANC acquired Iowa State Savings Bank headquartered in Creston, Iowa. The affi liate 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. Affi liate banks also offer a variety of checking, savings, money market, and time deposits accounts; cash management services; wealth management and trust 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, mobile wallet, online statements, and debit cards. Ames National Corporation’s Services ANC provides various services to the affi liate banks, which include: management assistance, payroll, internal auditing, human resources, compliance management, marketing assistance, loan review, technology support, and employee training and development. ANC employees seek to incorporate effi ciencies across the affi liate banks’ operational functions so the affi liate bank management teams can focus on what they do best... banking and taking care of customers’ fi nancial needs. NOTABLE COMMUNITY GIVING Creston, Iowa, has been experiencing a major daycare shortage. Daycare is essential to the economic vitality of all communities. To help fi ll this need, Iowa State Savings Bank (ISSB) donated $50,000 toward the building of the Greater Connections Childhood Development Center, scheduled to open mid-2023. ISSB is trustee for the W. D. and Shirley Schafer-Ray Educational Trust. In 2022, the Trust awarded more than $95,000 to 19 local scholarship recipients. As trustee, ISSB’s Trust Department collected, reviewed, and selected the recipients on behalf of the Trust. MISSION STATEMENT Ames National Corporation is a results-oriented fi nancial services holding company providing leadership, counsel, and support to its community affi liate banks and superior performance for its shareholders. CORE VALUES Ames National Corporation’s foundation is built on these values which guide our actions. E XC E L L E N C E • I N T E G R I T Y • L E A D E R S H I P S TA B I L I T Y • T R U S T • C O M M U N I T Y STRATEGIC DIRECTION The Ames National Corporation’s fi ve-year strategic plan is focused on three driving initiatives: Employee Engagement. Enhance systems and activities to acquire, develop, and retain employees. Customer Engagement. Develop a customer experience that supports relationship growth and customer acquisition. Continuous Improvement. Continually improve key processes to increase customer engagement, employee engagement, and shareholder value. Mary Nedved received their awards during the IBA Annual Convention in September 2022. “Each year, it’s amazing to hear these bankers’ stories of dedication to their communities and the many relationships they have formed throughout their 50-plus years of service. We’re honored to be able to celebrate their exemplary commitment and experience,” said IBA President and CEO John Sorensen. “This event allows us the opportunity to recognize these legendary bankers among their family and friends, and in an environment that sets an example for our younger generation of bankers.” Bill Paulus, Market President for Reliance State Bank in Garner, commended the award winners. “Wow, what an accomplishment. It is a great achievement to provide great customer service in banking for 50 years, but it is even more impressive that you’ve been serving all those years at the same location. Thank you, Gloria, Barbara, and Mary, for everything you do. We appreciate you.” SPECIAL RECOGNITION Three staff members with Reliance State Bank of Garner, Iowa, were honored by the Iowa Bankers Association (IBA) for 50 years of service in banking. Recipients Gloria Halverson, Barbara Blumer, and LETTER TO SHAREHOLDERS Ames National Corporation (the “Company”) and our affi liate banks continued to deliver on our mission to our customers, employees, and shareholders, and we are pleased to share our 2022 accomplishments. Financial Results For the year ended December 31, 2022, net income for the Company totaled $19.3 million or $2.14 per share, compared to $23.9 million or $2.62 per share earned in 2021. The decrease in earnings for the year is mainly due to higher interest expense on deposits and fewer Paycheck Protection Program (“PPP”) fees recognized into income, offset in part by an increase in interest income on loans and taxable securities. PPP fees for the year ended December 31, 2022, totaled $218,000 compared to $4.3 million for the previous year. The higher expense on deposits is due to an increase in market interest rates. In 2022, the Federal Open Market Committee has increased its target for the federal funds interest rate by 4.25%. This increase in interest rates caused a signifi cant unrealized loss on our investment portfolio, which was the main driver for the $58.7 million decrease in our stockholders’ equity. These unrealized losses on the investment portfolio should recover as the investments mature or sooner if interest rates decline. Highlights & Accomplishments Banking is constantly evolving, new technology is continuously being introduced into banking systems, and our banks are implementing improved fi nancial products and services. Here are four examples highlighting the developments within the Company’s affi liate banks in 2022:  Relationship Checking. All of our affi liate banks rolled out three new Relationship Checking products to reward our customers for banking with us...The way they prefer to bank.  Clover®. Through a partnership with Clover® our affi liate banks have been able to offer our retail business customers a unifi ed merchant card service and point of sales solutions.  Deposit Director Flex. Our affi liates have fully automated the process of opening checking and savings accounts online, providing convenience for consumers 4 2022 Annual Report | Ames National Corporation and freeing up staff to spend time meeting customers’ needs.  nCino. First National Bank launched nCino’s cloud- based bank operating system streamlining retail loan applications. As a result of this new online application process, customers will fi nd it easier and quicker to apply for loans. Boards of Directors During 2022, Patrick G. Hagan was elected Chairman of the Company’s Board of Directors. Hagan has served as Director of the Company since 2017. He retired in 2019 as Senior Vice President and Treasurer of Fareway Stores, Inc., a large privately owned grocery store chain headquartered in Iowa. Prior to joining Fareway, he was Executive Vice President and Director of Citizens National Bank in Boone, Iowa, for fi ve years. Mr. Hagan has also served on Boone Bank & Trust Co.’s Board of Directors since 2015. Thomas H. Pohlman will be retiring from the Company’s and First National Bank’s Board of Directors when his present board terms expire in April of 2023. He has served as a Director of the Company since 2007, and as President and Chief Executive Offi cer of the Company from 2007 to June 2018. From 2000 to 2008, Pohlman served as President of First National Bank. We extend our sincere thanks to Tom for his dedication and service to our Company and affi liate banks. In December 2022, Dr. Mike Roof was named to First National Bank’s Board of Directors. Mike serves as the Chief Technology Offi cer for the Vaccines and Immunotherapeutic research and innovation platform, which supports the State of Iowa’s biosciences-based economic growth initiative for technology transfer and commercialization in the vaccine and immunotherapeutic area. Also being named to First National Bank’s Board of Directors in December of 2022 was Everett Miles. Everett serves as Vice President, Capital Markets at the Principal Financial Group®, and has an extensive domestic and international background in long-term capital planning, acquisition, and strategy. We also want to thank Neil Fell who serves on Reliance State Bank’s Board of Directors for his service. Neil will be retiring from the Reliance Board in April 2023 and served the Company as the Market President of Reliance from 2012 to 2017. He has been an instrumental part of the success of adding the Garner market to Reliance State Bank. We appreciate Neil’s efforts and all of our Company and affi liate bank Board members for lending their expertise to further our mission, and for providing us with valuable insights into the communities we serve. Banking Economic Outlook One of the biggest questions we have as bankers as we look at 2023 is “How high will the Federal Reserve raise interest rates to bring the rate of infl ation down to a satisfactory level?,” said President & CEO John P. Nelson. Presently, the economic forecast we utilize to estimate future Federal Funds interest rates for 2023 indicates the rate will peak at 4.9% in June 2023. The latest Consumer Price Index All Urban Consumer (CPI) was up 6.5% during 2022. As short-term interest rate levels become more aligned with infl ation rates, we are hopeful interest rates will not be as volatile in 2023 as they were in 2022. The run-up in interest rates in 2022 is likely going to impact our 2023 earnings results; we are forecasting interest expense to increase faster than interest income, as deposit rates move higher more quickly than rates on loans and investments. Despite higher interest rates, we were able to grow loans to a record $1.2 billion, a 7% annual increase. In addition, loan quality indicators remain favorable for the Company. Fourth quarter Gross Domestic Product (GDP) came in at an improved 2.9% in the fourth quarter of 2022, which was a healthy improvement from the negative quarterly results posted earlier in 2022. In Summary The Company and our industry had to navigate a challenging economic environment in 2022 as we dealt with infl ation and interest rates increasing at their fastest pace in last 40 years. We feel fortunate that in spite of these challenges we were able to meet our budgeted earnings goal. In 2023, the Company Board and senior management will engage in a strategic planning retreat to reassess our strategic initiatives. Our current plan was centered on customer engagement, employee engagement, and continuous improvement initiatives. This plan proved to be very successful and since the start of 2019, total assets were up 46%, loans grew 38%, and deposits increased 55%, which contributed to record earnings of nearly $19 million for the year ended 2020 and another record earning year of $24 million for 2021. We are looking forward to bringing our leaders together to think strategically about the best ways to serve our customers, employees, and shareholders in the quickly changing fi nancial services industry. We thank all of our stakeholders for supporting our Company and we look forward to seeing you at the annual meeting on April 26, 2023. Annual Meeting We look forward to providing you additional fi nancial highlights at our Annual Meeting of Shareholders which will be held on April 26, 2023, at 4:30 p.m. More details are available on page 15 of this report. Patrick G. Hagan Chairman of the Board John P. Nelson President & CEO FINANCIAL HIGHLIGHTS As of and for the year ended December 31, 2022 Net Income $19.3 Million Assets $2.1 Billion Dividends Declared Per Share $1.08 Return on Average Assets 0.90% Return on Average Equity 11.43% ATLO Closing Price $23.61 Per Common Share Year Ended 2022 Loan Quality (as % of gross loans) Years Ended 2022 2021 Market Price Per Share Years Ended 2022 2021 Cash Dividends Declared $1.08 Dividend Payout* 50% Dividend Yield** 4.57% Allowance 1.26% 1.43% Closing $23.61 $24.49 Net Charge-Off s 0.00% -0.01% Non-Performing 1.19% 1.11% High Low $25.55 $27.90 $20.16 $22.04 * Cash dividends declared divided by net income ** Based upon latest quarterly dividend of $0.27 and year-end ALTO closing price orporatioionnon 6 2022 Annual Report | Ames National Corporation 6 202022 Annunual Report || Ames Nat oiona al Corprporo at l Report | s Nationaonal PERFORMANCE RECORD THREE-YEAR FINANCIAL HIGHLIGHTS $25 $24 $23 $22 $21 $20 $19 $18 $17 $16 $15 $14 $13 $2,200 $2,100 $2,000 $1,900 $1,800 $1,700 $1,600 $1,500 $1,400 $1,300 $1,200 $1,100 $1,000 $900 . 3 9 1 $ 2 2 0 2 . 9 3 2 $ 1 2 0 2 Earnings Millions of Dollars 5 3 1 2 $ , 2 2 0 2 3 8 0 2 $ , 1 2 0 2 . 9 8 1 $ 0 2 0 2 6 6 8 1 $ , 0 2 0 2 $2.70 $2.60 $2.50 $2.40 $2.30 $2.20 $2.10 $2.00 $1.90 $1.80 $1.70 $1.60 $1.50 $2,000 $1,900 $1,800 $1,700 $1,600 $1,500 $1,400 $1,300 $1,200 $1,100 $1,000 $900 $800 $700 4 1 2 $ . 2 2 0 2 2 6 2 $ . 1 2 0 2 Earnings Per Share Dollars 1 0 9 1 $ , 2 2 0 2 3 2 8 1 $ , 1 2 0 2 6 0 2 $ . 0 2 0 2 1 1 6 1 $ , 0 2 0 2 Average Total Assets Millions of Dollars Average Deposits Millions of Dollars $230 $220 $210 $200 $190 $180 $170 $160 $150 $140 $130 $120 $110 $1,400 $1,300 $1,200 $1,100 $1,000 $900 $800 $700 $600 $500 $400 $300 $200 $100 8 0 2 $ 1 2 0 2 9 4 1 $ 2 2 0 2 Capital Millions of Dollars 9 6 1 1 $ , 2 4 1 1 $ , 2 2 0 2 1 2 0 2 Average Loans Millions of Dollars 9 0 2 $ 0 2 0 2 8 3 1 1 $ , 0 2 0 2 AFFILIATE BANKS 8 2022 Annual Report | Ames National Corporation CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) Unaudited ASSETS Cash and due from banks Interest-bearing deposits in fi nancial institutions and federal funds sold Total cash and cash equivalents Interest-bearing time deposits Securities available-for-sale Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) stock, at cost Loans receivable, net Loans held for sale Bank premises and equipment, net Accrued income receivable Bank-owned life insurance Deferred income taxes, net Other intangible assets, net Goodwill Other assets Total assets LIABILITIES AND STOCKHOLDERS’ EQUITY LIABILITIES Deposits Non-interest bearing checking Interest bearing checking Savings and money market Time, $250 and over Other time Total deposits Securities sold under agreements to repurchase FHLB advances and other borrowings Dividends payable Accrued expenses and other liabilities Total liabilities STOCKHOLDERS’ EQUITY Common stock, $2 par value, authorized 18,000,000 shares; issued and outstanding 8,992,167 and 9,092,167 shares as of December 31, 2022 and 2021, respectively Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Total stockholders’ equity December 31, 2022 December 31, 2021 $ 20,819 $ 7,065 27,884 14,669 786,438 4,613 1,226,011 154 18,895 11,275 3,054 22,130 1,931 12,424 5,448 19,590 69,539 89,129 16,922 831,003 3,422 1,144,108 - 17,512 10,124 2,985 1,922 2,505 12,424 4,985 $ 2,134,926 $ 2,137,041 $ 391,576 $ 617,379 675,031 42,886 171,085 1,897,957 40,676 39,120 2,428 5,647 411,585 575,997 674,975 40,793 174,699 1,878,019 39,851 3,000 2,364 6,029 1,985,828 1,929,263 17,984 18,184 14,253 179,931 (63,070) 149,098 16,353 170,377 2,864 207,778 Total liabilities and stockholders’ equity $ 2,134,926 $ 2,137,041 10 2022 Annual Report | Ames National Corporation CONSOLIDATED STATEMENTS OF INCOME (in thousands, except share and per share data) Unaudited INTEREST AND DIVIDEND INCOME Loans, including fees Securities Taxable Tax-exempt Other interest and dividend income Total interest and dividend income INTEREST EXPENSE Deposits Other borrowed funds Total interest expense Net interest income Provision (credit) for loan losses Net interest income after provision (credit) 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 benefi ts Data processing Occupancy expenses, net FDIC insurance assessments Professional fees Business development Intangible asset amortization New Market Tax Credit projects amortization Other operating expenses, net Total noninterest expense Income before income taxes Provision for income taxes Net Income Basic and diluted earnings per share Declared dividends per share Years Ended December 31 2022 2021 $ 45,956 $ 47,829 12,101 2,595 901 61,553 7,316 993 8,309 53,244 (874) 54,118 4,938 1,351 37 606 1,817 938 9,687 22,909 6,153 2,945 608 1,888 1,427 574 755 1,385 38,644 25,161 5,868 19,293 2.14 $ $ 1.08 $ 8,861 3,095 697 60,482 4,342 143 4,485 55,997 (757) 56,754 4,448 1,474 24 1,673 2,019 899 10,537 22,281 5,549 2,664 578 1,663 1,465 628 639 1,151 36,618 30,673 6,760 23,913 2.62 1.29 $ $ $ FIRST NATIONAL BANK Scott T. Bauer President First National Bank Community Focused | Innovative Responsive | Secure | Trustworthy We place tremendous signifi cance in these fi ve phrases that defi ne the values of First National Bank. We take great pride in our virtues, which have earned us a reputation as a bank that goes above and beyond for our customers, delivering What Banking Should Be... in a way that is meaningful for each customer. Our goal is to contribute just a little bit more than is expected to each of our relationships; this simple formula continues to allow us to be successful. We started in 1903 as Ames Savings Bank, located solely in Ames. Then we became Ames National Bank in 1913. In 1967, the name was changed to First National Bank under a national charter. In 1971, First National Bank opened its doors at its present Main Branch location at 405 5th Street in Ames, Iowa. Since then, the bank has fl ourished, with locations in Ames, Ankeny, West Des Moines, and Osceola. And, while we’ve made considerable technological advancements over the years, we’re still a community bank, providing superior commercial and retail services for our customers. You can fi nd our branches on main street, as well as in urban areas, but always supporting the fi nancial wellness of our customers, businesses, agricultural partners, and the communities we call home. Our employees are your friends and neighbors, working together to support each other and our local economies. Valley Junction Branch First National Bank’s new Valley Junction branch, which replaced a sorely outdated bank location, opened its doors in July 2022. Designers of the building took inspiration from the mid-century modern style of several surrounding buildings in this thriving commercial district. The combination of a rising metropolitan population, an attractive, walkable historic commercial district, a strong economic environment, and a fl ourishing tourist hub, makes Valley Junction one of the most desirable markets in the metro. Our fi scal responsibility and strength, local decision-making, hometown involvement, and community giving are what sets our community bank apart from the rest. We are committed to meeting the changing needs of our customers and provide exceptional customer service. And we will continue to have a vested interest in the overall prosperity of the communities we serve. Our mission is to help our customers achieve economic success and fi nancial security, thereby making the communities we serve better places to live, work, and raise a family. We will continue to focus on maintaining our fi nancial strength. Strong capital and expense controls will enable us to continue to take advantage of opportunities in the markets we serve. 12 2022 Annual Report | Ames National Corporation 3 Areas of Support 272 Employees Served . . . Financial Literacy Community & Economic Development Health & Human Services 225 organizations 18Locations 11Communities 9,971 volunteer hours DAN JOHNSON STATE BANK & TRUST CO. State Bank & Trust Co. President Steve McGill retired January 13, 2023. State Bank & Trust Co.’s Executive Vice President and Director Dan Johnson assumed the role as President January 16, 2023. Johnson started with State Bank & Trust Co. in July 2011, where he has managed the bank’s loan department, with primary duties focused on large agricultural and commercial lines, participations, and bank-wide regulatory compliance. Johnson is a graduate with honors of the Graduate School of Banking at the University of Colorado in Boulder Colorado. He also holds a bachelor’s degree in Ag Business from Iowa State University. Johnson is a current instructor at the Iowa Bankers Association’s Commercial Lending School and Consumer Lending School, and is a former advisory board member. Dan Johnson BOARD OF DIRECTORS Jeffrey C. Baker Retired partner from RSM US LLP Betty A. Baudler Horras President, Baudler Enterprises, Inc. David W. Benson Retired attorney from Nyemaster Goode, P.C. Michelle R. Cassabaum Chief Operating & Financial Offi cer, 21st Century Rehab P.C. Patrick G. Hagan Chairman of the Board Retired Senior Vice President of Fareway Stores, Inc. James R. Larson II President, Larson Development Corporation John P. Nelson President & CEO John L. Pierschbacher Chief Financial Offi cer Lisa M. Eslinger Retired Chief Financial and Administrative Offi cer for the Iowa State University Foundation Thomas H. Pohlman Former Chairman of the Board and retired President of Ames National Corporation Steven D. Forth Farm Owner and Operator Kevin L. Swartz Retired Chief Executive Offi cer, Wolfe Clinic PC 14 2022 Annual Report | Ames National Corporation AMES NATIONAL TEAM John P. Nelson President & CEO John L. Pierschbacher Chief Financial Offi cer Michael A. Wilson Executive Vice President, Innovation & Corporate Services Timothy J. Lupardus Senior Vice President, Chief Information Offi cer Joel L. Regenwether Senior Vice President, Operations Project Manager Dena M. Gray-Fisher Vice President & Marketing Director Matthew R. Hackbart Vice President, Information Technology Jennifer J. Hanson Vice President & Human Resources Director Joel P. Jacobsen Vice President & Risk Management Offi cer Tracy W. Laws Vice President & Internal Auditor David A. Troe Vice President & Valuation Offi cer Justin C. Clausen Controller Paul M. Crowe Information Technology Systems Admin I Dan J. Giesinger Microsoft 365 Administrator Lori J. Hill Valuation Services Coordinator & Administrative Offi cer Melodee L. Kelley Payroll Offi cer Doug S.H. Kinsey Information Technology Systems Admin II Tyler D. Nablo Information Technology Support Analyst II Marie Roberts Accounting Specialist Erica Weeks-Burger Training & Development Manager 12/31/2022 SHAREHOLDER INFORMATION Annual Meeting Market Makers and Brokers The Board of Directors of Ames National Corporation has established Wednesday, April 26, 2023, at 4:30 p.m. as the date of its Annual Meeting of Shareholders. Ames National Corporation’s common stock is listed on the NASDAQ Capital Market under the symbol “ATLO.” To purchase stock, contact a Market Maker or Broker. The in-person meeting will be held at Reiman Gardens, 1407 University Blvd, Ames, Iowa 50011.  First Point Wealth Management, First National Bank, 405 5th Street, Ames, IA 50010 (515) 715-1942 Shareholders are encouraged to attend the Annual Meeting in person or virtually through a live broadcast.  D.A. Davidson | (800) 642-5082  Raymond James Financial Inc. | (800) 248-8863 To participate virtually, visit Ames National Corporation’s website at: amesnational.com to fi nd information on how to access and view the broadcast, as well as participate in the Question and Answer segment. Shareholders are encouraged to vote their shares in advance by proxy after the proxy materials have been mailed, as online voting will not be available through the broadcast. Stock Transfer Agent Continental Stock Transfer & Trust 1 State Street, 30th Floor New York, NY 10004 (212) 509-4000 continentalstock.com Professional Experts External Auditor CliftonLarsonAllen LLP, West Des Moines, IA Counsel Nyemaster Goode, P.C., Des Moines, IA 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 at amesnational.com, at Financial Information, SEC Filings on or about March 10, 2023. Additional information is also available by contacting John L. Pierschbacher, CFO at 515-232-6251 or info@amesnational.com. Ames National Corporation P.O. Box 846 | 405 5th Street Ames, IA 50010 (515) 232-6251 | Fax (515) 598-7871 info@amesnational.com | amesnational.com CUSIP: 031001 100 Job Number: P8659 February 2023 

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