Ames National Corp (ATLO) Reports Decline in Year-End Earnings Amid Rising Interest Expenses
Net Income: Q4 net income fell to $2.1 million from $4.4 million in Q4 2022, while annual net income decreased to $10.8 million from $19.3 million.
Earnings Per Share (EPS): Q4 EPS dropped to $0.24 from $0.49, with annual EPS down to $1.20 from $2.14 year-over-year.
Net Interest Margin: Declined to 2.15% in Q4 2023 from 2.56% in Q4 2022, reflecting higher market interest rates on deposits.
Efficiency Ratio: Increased to 75.59% in Q4 2023, up from 65.04% in Q4 2022, indicating higher operating expenses relative to revenue.
Balance Sheet: Total assets slightly increased to $2.16 billion, with a notable rise in net loans to $1.28 billion.
Dividend: Declared a quarterly cash dividend of $0.27 per share, payable on February 15, 2024.
Forecast: ATLO forecasts an EPS range of $1.45 to $1.55 for the year ending December 31, 2024.
Ames National Corporation (NASDAQ:ATLO), a prominent bank holding company in the United States, released its 8-K filing on January 19, 2024, detailing its financial performance for the fourth quarter and full year of 2023. The company, which operates primarily in central and south-central Iowa, reported a significant decrease in net income and earnings per share (EPS) for both the quarter and the year, primarily due to higher interest expenses and an increase in credit loss expense.
Financial Performance Analysis
ATLO's net income for the fourth quarter of 2023 was $2.1 million, or $0.24 per share, a sharp decline from $4.4 million, or $0.49 per share, in the same period of the previous year. The annual net income also saw a downturn, totaling $10.8 million or $1.20 per share, compared to $19.3 million or $2.14 per share in 2022. The decrease in earnings is attributed to higher interest expenses on deposits and other borrowed funds, as well as an increase in credit loss expense, which was partially offset by an increase in interest income on loans.
The rise in interest expenses is a direct consequence of the Federal Open Market Committee's decision to raise the federal funds interest rate by 5.25% since March 1, 2022. This has led to an increase in market rates, impacting the cost of deposits for ATLO. The credit loss expense, which was primarily due to loan growth, also contributed to the reduced earnings.
Despite these challenges, ATLO's loan portfolio experienced growth, leading to an increase in interest income on loans, primarily due to higher rates. However, the net interest margin for the fourth quarter decreased to 2.15% from 2.56% in the previous year, reflecting the impact of higher market interest rates on deposits outpacing the rate increases on interest-earning assets.
Balance Sheet and Dividend Declaration
As of December 31, 2023, ATLO's total assets increased modestly to $2.16 billion, with loans receivable net growing to $1.28 billion from $1.23 billion in 2022. The company's stockholders' equity also improved to $165.8 million from $149.1 million, indicating a healthier financial position.
The company declared a quarterly cash dividend of $0.27 per share, maintaining its commitment to shareholder returns. This dividend is payable on February 15, 2024, to stockholders of record as of February 1, 2024.
Looking Ahead
For the upcoming year ending December 31, 2024, ATLO forecasts an EPS range of $1.45 to $1.55, anticipating an increase in earnings from the actual results of 2023. This optimistic outlook is based on the expectation that maturities of interest-earning assets will reprice at market rates, potentially improving the company's interest income.
ATLO's performance in a challenging economic environment underscores the impact of rising interest rates on the banking sector. While the company has managed to grow its loan portfolio, the increased cost of funds and credit loss expenses have weighed on its profitability. Investors and stakeholders will be closely monitoring ATLO's strategies to navigate the rising rate landscape and capitalize on potential market opportunities in 2024.
Explore the complete 8-K earnings release (here) from Ames National Corp for further details.
This article first appeared on GuruFocus.
