UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[Mark One]

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, ~~2020~~2021

☐	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 of Incorporation)		(I. R. S. Employer
	Identification Number)

405 Fifth Street

Ames, Iowa 50010

(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Including Area Code: (515) 232-6251

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common stock	ATLO	NASDAQ

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer ☐ Accelerated filer ☒☐ Non-accelerated filer ☐☒ Smaller reporting company ☒ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July ~~31, 2020,~~30, 2021, there were 9,122,747 shares of common stock, par value $2, outstanding.

Table of Contents

AMES NATIONAL CORPORATION

INDEX

Page

		~~Page~~
~~Part I.~~	~~Financial Information~~

PART I.	FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements (Unaudited)	3

	Consolidated Balance Sheets at June 30, ~~2020~~2021 and December 31, ~~2019~~2020	3

	Consolidated Statements of Income for the three and six months ended June 30, ~~2020~~2021 and ~~2019~~2020	4

	Consolidated Statements of Comprehensive Income for the three and six months ended June 30, ~~2020~~2021 and ~~2019~~2020	5

	Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, ~~2020~~2021 and ~~2019~~2020	6

	Consolidated Statements of Cash Flows for the six months ended June 30, ~~2020~~2021 and ~~2019~~2020	7

	Notes to Consolidated Financial Statements	9

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2629

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4751

Item 4.	Controls and Procedures	4852

~~Part~~PART II.	~~Other Information~~OTHER INFORMATION

Item 1.	Legal Proceedings	4852

Item 1.A.	Risk Factors	4852

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4953

Item 3.	Defaults Upon Senior Securities	4953

Item 4.	Mine Safety Disclosures	4953

Item 5.	Other Information	4953

Item 6.	Exhibits	4954

	~~Signatures~~	50Signatures	55

~~Table of Contents~~

~~AMES NATIONAL CORPORATION AND SUBSIDIARIES~~

~~CONSOLIDATED BALANCE SHEETS~~

~~(unaudited)~~

June 30,

December 31,

ASSETS

2020

2019

Cash and due from banks
$ 32,528,234 $ 34,616,880
Interest-bearing deposits in financial institutions and federal funds sold
145,990,834 108,947,624
Securities available-for-sale
513,615,814 479,843,448
Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) stock, at cost
3,154,800 3,138,900
Loans receivable, net
1,146,046,388 1,048,147,496
Loans held for sale
2,033,360 2,776,785
Bank premises and equipment, net
17,628,860 17,810,605
Accrued income receivable
10,801,448 11,788,409
Other real estate owned
631,647 4,003,684
Bank-owned life insurance
2,878,838 2,842,713
Deferred income taxes, net
- 1,151,016
Intangible assets, net
3,524,814 3,959,260
Goodwill
12,424,434 12,114,559
Other assets
5,712,963 6,041,126

Total assets
$ 1,896,972,434 $ 1,737,182,505

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES

Deposits

Noninterest-bearing checking
$ 332,285,659 $ 267,441,988
Interest-bearing checking
483,065,694 461,857,728
Savings and money market
553,546,573 481,642,221
Time, $250,000 and over
69,189,546 74,206,421
Other time
205,455,750 208,026,740
Total deposits
1,643,543,222 1,493,175,098

Securities sold under agreements to repurchase
36,892,657 42,033,570
FHLB advances
3,000,000 5,000,000
Dividends payable
- 2,213,459
Deferred income taxes, net
1,194,894 -
Accrued expenses and other liabilities
11,191,759 7,180,906
Total liabilities
1,695,822,532 1,549,603,033

STOCKHOLDERS' EQUITY

Common stock, $2 par value, authorized 18,000,000 shares; issued and outstanding 9,122,747 and 9,222,747 as of June 30, 2020 and December 31, 2019, respectively
18,245,494 18,445,494
Additional paid-in capital
17,001,736 18,794,141
Retained earnings
151,910,115 146,225,085
Accumulated other comprehensive income
13,992,557 4,114,752
Total stockholders' equity
201,149,902 187,579,472

Total liabilities and stockholders' equity
$ 1,896,972,434 $ 1,737,182,505

~~See Notes to Consolidated Financial Statements.~~

Table of Contents

AMES NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

~~CONSOLIDATED STATEMENTS OF INCOME~~

~~(unaudited)~~

Three Months Ended

Six Months Ended

June 30,

June 30,

2020

2019

2020

2019

Interest and dividend income:

Loans, including fees
$ 12,569,869 $ 10,808,142 $ 25,156,883 $ 21,509,571
Securities:

Taxable
1,917,332 1,554,713 3,738,572 3,043,565
Tax-exempt
954,525 1,067,955 1,864,422 2,168,529
Other interest and dividend income
195,703 290,465 713,015 528,033
Total interest income
15,637,429 13,721,275 31,472,892 27,249,698

Interest expense:

Deposits
1,898,046 2,606,384 4,548,412 4,965,216
Other borrowed funds
59,355 184,634 198,527 383,848
Total interest expense
1,957,401 2,791,018 4,746,939 5,349,064

Net interest income
13,680,028 10,930,257 26,725,953 21,900,634

Provision for loan losses
1,566,476 68,320 3,882,631 166,414

Net interest income after provision for loan losses
12,113,552 10,861,937 22,843,322 21,734,220

Noninterest income:

Wealth management income
909,728 1,019,143 1,771,461 1,803,757
Service fees
305,544 387,133 746,237 757,429
Securities gains, net
43,910 1,890 429,925 1,890
Gain on sale of loans held for sale
572,718 224,031 839,458 396,757
Merchant and card fees
410,414 386,384 836,254 747,525
Other noninterest income
185,910 194,358 436,081 431,289
Total noninterest income
2,428,224 2,212,939 5,059,416 4,138,647

Noninterest expense:

Salaries and employee benefits
5,812,449 4,797,497 11,587,645 9,513,325
Data processing
1,336,401 872,064 2,527,453 1,763,445
Occupancy expenses, net
656,752 518,559 1,347,938 1,117,564
FDIC insurance assessments
49,857 91,666 49,857 191,895
Professional fees
397,755 382,983 741,479 771,829
Business development
181,546 248,178 445,689 516,775
Intangible asset amortization
217,223 139,314 434,446 302,978
New market tax credit projects amortization
145,390 - 290,771 -
Other operating expenses, net
302,138 167,717 724,282 496,923
Total noninterest expense
9,099,511 7,217,978 18,149,560 14,674,734

Income before income taxes
5,442,265 5,856,898 9,753,178 11,198,133

Provision for income taxes
1,014,600 1,239,305 1,771,000 2,343,105

Net income
$ 4,427,665 $ 4,617,593 $ 7,982,178 $ 8,855,028

Basic and diluted earnings per share
$ 0.49 $ 0.50 $ 0.87 $ 0.96

Dividends declared per share
$ - $ 0.24 $ 0.25 $ 0.48

	June 30,		December 31,
ASSETS	2021		2020
	(unaudited)		(audited)
Cash and due from banks	$	24,890	$	24,819
Interest-bearing deposits in financial institutions and federal funds sold		141,282		166,704
Securities available-for-sale		740,102		596,999
Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) stock, at cost		3,427		3,148
Loans receivable, net		1,124,435		1,129,505
Loans held for sale		311		1,621
Bank premises and equipment, net		16,925		17,340
Accrued income receivable		9,596		11,143
Bank-owned life insurance		2,950		2,916
Deferred income taxes, net		323		0
Intangible assets, net		2,813		3,133
Goodwill		12,424		12,424
Other assets		5,982		5,896

Total assets	$	2,085,460	$	1,975,648

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
Deposits
Noninterest-bearing checking	$	375,735	$	349,500
Interest-bearing checking		564,268		528,796
Savings and money market		658,482		581,224
Time, $250 and over		49,430		60,019
Other time		183,484		196,907
Total deposits		1,831,399		1,716,446

Securities sold under agreements to repurchase		33,268		37,293
FHLB advances		3,000		3,000
Deferred income taxes, net		0		1,731
Accrued expenses and other liabilities		7,671		7,691
Total liabilities		1,875,338		1,766,161

STOCKHOLDERS' EQUITY
Common stock, $2 par value, authorized 18,000,000 shares; issued and outstanding 9,122,747 as of June 30, 2021 and December 31, 2020		18,245		18,245
Additional paid-in capital		17,002		17,002
Retained earnings		165,466		158,217
Accumulated other comprehensive income		9,409		16,023
Total stockholders' equity		210,122		209,487

Total liabilities and stockholders' equity	$	2,085,460	$	1,975,648

See Notes to Consolidated Financial Statements.

Table of Contents

AMES NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

(in thousands, except per share data)

~~CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME~~

~~(unaudited)~~

Three Months Ended

Six Months Ended

June 30,

June 30,

2020

2019

2020

2019

Net income
$ 4,427,665 $ 4,617,593 $ 7,982,178 $ 8,855,028
Unrealized gains on securities before tax:

Unrealized holding gains arising during the period
12,729,731 4,469,777 13,600,333 10,041,561
Less: reclassification adjustment for gains realized in net income
43,910 1,890 429,925 1,890
Other comprehensive income, before tax
12,685,821 4,467,887 13,170,408 10,039,671
Tax effect related to other comprehensive income
(3,171,456 ) (1,116,972 ) (3,292,603 ) (2,509,918 )
Other comprehensive income, net of tax
9,514,365 3,350,915 9,877,805 7,529,753
Comprehensive income
$ 13,942,030 $ 7,968,508 $ 17,859,983 $ 16,384,781

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2021			2020		2021			2020

Interest and dividend income:
Loans, including fees	$	12,127		$	12,570	$	24,111		$	25,157
Securities:
Taxable		2,212			1,918		4,201			3,739
Tax-exempt		823			954		1,667			1,864
Other interest and dividend income		169			196		347			713
Total interest income		15,331			15,638		30,326			31,473

Interest expense:
Deposits		1,124			1,898		2,418			4,548
Other borrowed funds		35			60		72			199
Total interest expense		1,159			1,958		2,490			4,747

Net interest income		14,172			13,680		27,836			26,726

Provision (credit) for loan losses		(20	)		1,567		(446	)		3,883

Net interest income after provision (credit) for loan losses		14,192			12,113		28,282			22,843

Noninterest income:
Wealth management income		1,145			909		2,077			1,771
Service fees		347			305		680			746
Securities gains, net		0			44		0			430
Gain on sale of loans held for sale		380			572		884			839
Merchant and card fees		556			410		1,020			836
Other noninterest income		208			188		481			437
Total noninterest income		2,636			2,428		5,142			5,059

Noninterest expense:
Salaries and employee benefits		5,772			5,813		11,279			11,588
Data processing		1,310			1,336		2,682			2,527
Occupancy expenses, net		639			657		1,367			1,348
FDIC insurance assessments		148			50		287			50
Professional fees		515			397		911			741
Business development		254			182		491			446
Intangible asset amortization		160			217		320			434
New market tax credit projects amortization		159			146		319			291
Other operating expenses, net		457			301		764			724
Total noninterest expense		9,414			9,099		18,420			18,149

Income before income taxes		7,414			5,442		15,004			9,753

Provision for income taxes		1,535			1,015		3,102			1,771

Net income	$	5,879		$	4,427	$	11,902		$	7,982

Basic and diluted earnings per share	$	0.64		$	0.49	$	1.30		$	0.87

Dividends declared per share	$	0.26		$	0	$	0.51		$	0.25

See Notes to Consolidated Financial Statements.

Table of Contents

AMES NATIONAL CORPORATION AND SUBSIDIARIES

~~CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY~~

~~(unaudited)~~

~~Three and Six Months Ended June 30, 2020 and 2019~~

Common Stock

Additional
Paid-in

Retained

Accumulated
Other
Comprehensive
Income, Net of

Total
Stockholders'

Shares

Amount

Capital

Earnings

Taxes

Equity

Balance, March 31, 2019
9,242,822 $ 18,485,644 $ 19,276,388 $ 139,910,979 $ 103,747 $ 177,776,758
Net income
- - - 4,617,593 - 4,617,593
Other comprehensive income
- - - - 3,350,915 3,350,915
Retirement of stock
(10,700 ) (21,400 ) (256,621 ) - - (278,021 )
Cash dividends declared, $0.24 per share
- - - (2,215,709 ) - (2,215,709 )
Balance, June 30, 2019
9,232,122 $ 18,464,244 $ 19,019,767 $ 142,312,863 $ 3,454,662 $ 183,251,536

Balance, March 31, 2020
9,188,594 $ 18,377,188 $ 18,155,547 $ 147,482,450 $ 4,478,192 $ 188,493,377
Net income
- - - 4,427,665 - 4,427,665
Other comprehensive income
- - - - 9,514,365 9,514,365
Retirement of stock
(65,847 ) (131,694 ) (1,153,811 ) - - (1,285,505 )
Balance, June 30, 2020
9,122,747 $ 18,245,494 $ 17,001,736 $ 151,910,115 $ 13,992,557 $ 201,149,902

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

(in thousands)

Common Stock

Additional
Paid-in

Retained

Accumulated
Other
Comprehensive
Income (Loss),

Total
Stockholders'

Shares

Amount

Capital

Earnings

Net of Taxes

Equity

Balance, December 31, 2018
9,293,305 $ 18,586,610 $ 20,461,724 $ 137,891,821 $ (4,075,091 ) $ 172,865,064
Net income
- - - 8,855,028 - 8,855,028
Other comprehensive income
- - - - 7,529,753 7,529,753
Retirement of stock
(61,183 ) (122,366 ) (1,441,957 ) - - (1,564,323 )
Cash dividends declared, $0.48 per share
- - - (4,433,986 ) - (4,433,986 )
Balance, June 30, 2019
9,232,122 $ 18,464,244 $ 19,019,767 $ 142,312,863 $ 3,454,662 $ 183,251,536

Balance, December 31, 2019
9,222,747 $ 18,445,494 $ 18,794,141 $ 146,225,085 $ 4,114,752 $ 187,579,472
Net income
- - - 7,982,178 - 7,982,178
Other comprehensive income
- - - - 9,877,805 9,877,805
Retirement of stock
(100,000 ) (200,000 ) (1,792,405 ) (1,992,405 )
Cash dividends declared, $0.25 per share
- - - (2,297,148 ) - (2,297,148 )
Balance, June 30, 2020
9,122,747 $ 18,245,494 $ 17,001,736 $ 151,910,115 $ 13,992,557 �� $ 201,149,902

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2021			2020			2021			2020


Net income	$	5,879		$	4,427		$	11,902		$	7,982
Unrealized gains (losses) on securities before tax:
Unrealized holding gains (losses) arising during the period		3,015			12,730			(8,818	)		13,600
Less: reclassification adjustment for gains realized in net income		0			44			0			430
Other comprehensive income (loss), before tax		3,015			12,686			(8,818	)		13,170
Tax effect related to other comprehensive income (loss)		(753	)		(3,171	)		2,204			(3,292	)
Other comprehensive income (loss), net of tax		2,262			9,515			(6,614	)		9,878
Comprehensive income	$	8,141		$	13,942		$	5,288		$	17,860

See Notes to Consolidated Financial Statements.

Table of Contents

AMES NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)

(in thousands, except share and per share data)

Three and Six Months Ended June 30, 2021 and 2020

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(unaudited)~~

~~Six Months Ended June 30, 2020 and 2019~~

2020

2019

CASH FLOWS FROM OPERATING ACTIVITIES

Net income
$ 7,982,178 $ 8,855,028
Adjustments to reconcile net income to net cash provided by operating activities:

Provision for loan losses
3,882,631 166,414
Provision for off-balance sheet commitments
41,000 -
Amortization of securities, available-for-sale, loans and deposits, net
252,269 739,633
Amortization of intangible asset
434,446 302,978
Depreciation
711,942 576,757
Deferred income taxes
(946,692 ) 125,049
Securities (gains), net
(429,925 ) (1,890 )
(Gain) on sales of loans held for sale
(839,458 ) (396,757 )
Proceeds from loans held for sale
41,226,181 17,485,451
Originations of loans held for sale
(39,643,298 ) (17,454,352 )
Loss on sale of premises and equipment, net
- 500
Amortization of investment in new market tax credit projects
290,771 -
(Gain) on sale of other real estate owned, net
(21,958 ) (43,414 )
Change in assets and liabilities:

Decrease in accrued income receivable
986,961 417,561
(Increase) decrease in other assets
28,462 (523,361 )
Increase in accrued expenses and other liabilities
3,969,853 651,186
Net cash provided by operating activities
17,925,363 10,900,783

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of securities available-for-sale
(102,224,803 ) (35,113,621 )
Proceeds from sale of securities available-for-sale
5,462,657 5,973,154
Proceeds from maturities and calls of securities available-for-sale
75,571,989 38,381,532
Purchase of FHLB stock
(116,500 ) (3,912,500 )
Proceeds from the redemption of FHLB stock
100,600 4,448,000
Net (increase) in interest bearing deposits in financial institutions and federal funds sold
(37,043,210 ) (41,377,929 )
Net (increase) decrease in loans
(101,265,019 ) 16,896,403
Net proceeds from the sale of other real estate owned
3,404,733 655,161
Purchase of bank premises and equipment
(528,647 ) (492,149 )
Cash paid for bank acquired
(309,875 ) -
Other
(36,125 ) (28,300 )
Net cash (used in) investing activities
(156,984,200 ) (14,570,249 )

CASH FLOWS FROM FINANCING ACTIVITIES

Increase in deposits
150,614,117 23,402,168
Decrease in securities sold under agreements to repurchase
(5,140,913 ) (8,981,386 )
Payments on FHLB borrowings
(2,000,000 ) (12,600,000 )
Dividends paid
(4,510,608 ) (4,355,737 )
Stock repurchases
(1,992,405 ) (1,564,323 )
Net cash provided by (used in) financing activities
136,970,191 (4,099,278 )

Net (decrease) in cash and due from banks
(2,088,646 ) (7,768,744 )

CASH AND DUE FROM BANKS

Beginning
34,616,880 30,384,066
Ending
$ 32,528,234 $ 22,615,322

													Accumulated
													Other
													Comprehensive		Total
	Common Stock						Additional Paid-			Retained			Income, Net of		Stockholders'
	Shares			Amount			in Capital			Earnings			Taxes		Equity

Balance, March 31, 2020		9,188,594		$	18,377		$	18,156		$	147,483		$	4,478	$	188,494
Net income		-			0			0			4,427			0		4,427
Other comprehensive income		-			0			0			0			9,515		9,515
Repurchase and retirement of stock		(65,847	)		(132	)		(1,154	)		0			0		(1,286	)
Balance, June 30, 2020		9,122,747		$	18,245		$	17,002		$	151,910		$	13,993	$	201,150


Balance, March 31, 2021		9,122,747		$	18,245		$	17,002		$	161,959		$	7,147	$	204,353
Net income		-			0			0			5,879			0		5,879
Other comprehensive income		-			0			0			0			2,262		2,262
Cash dividends declared, $0.26 per share		-			0			0			(2,372	)		0		(2,372	)
Balance, June 30, 2021		9,122,747		$	18,245		$	17,002		$	165,466		$	9,409	$	210,122

													Accumulated Other Comprehensive			Total
	Common Stock						Additional Paid-			Retained			Income (Loss),			Stockholders'
	Shares			Amount			in Capital			Earnings			Net of Taxes			Equity

Balance, December 31, 2019		9,222,747		$	18,445		$	18,794		$	146,225		$	4,115		$	187,579
Net income		-			0			0			7,982			0			7,982
Other comprehensive income		-			0			0			0			9,878			9,878
Repurchase and retirement of stock		(100,000	)		(200	)		(1,792	)		0			0			(1,992	)
Cash dividends declared, $0.25 per share		-			0			0			(2,297	)		0			(2,297	)
Balance, June 30, 2020		9,122,747		$	18,245		$	17,002		$	151,910		$	13,993		$	201,150


Balance, December 31, 2020		9,122,747		$	18,245		$	17,002		$	158,217		$	16,023		$	209,487
Net income		-			0			0			11,902			0			11,902
Other comprehensive (loss)		-			0			0			0			(6,614	)		(6,614	)
Cash dividends declared, $0.51 per share		-			0			0			(4,653	)		0			(4,653	)
Balance, June 30, 2021		9,122,747		$	18,245		$	17,002		$	165,466		$	9,409		$	210,122

See Notes to Consolidated Financial Statements.

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~~AMES NATIONAL CORPORATION AND SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)~~

~~(unaudited)~~

~~Six Months Ended June 30, 2020 and 2019~~

2020

2019

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash payments for:

Interest
$ 5,259,558 $ 5,148,519
Income taxes
675,614 2,248,474

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES

Transfer of loans receivable to other real estate owned
$ 10,738 $ -

AMES NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)

Six Months Ended June 30, 2021 and 2020

	2021			2020

CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	11,902		$	7,982
Adjustments to reconcile net income to net cash provided by operating activities:
Provision (credit) for loan losses		(446	)		3,883
Provision (credit) for off-balance sheet commitments		(3	)		41
Amortization of securities, available-for-sale, loans and deposits, net		1,167			252
Amortization of intangible assets		320			434
Depreciation		688			712
Deferred income taxes		151			(947	)
Securities (gains), net		0			(430	)
(Gain) on sales of loans held for sale		(884	)		(839	)
Proceeds from loans held for sale		39,161			41,226
Originations of loans held for sale		(36,967	)		(39,643	)
Loss on sale and disposal of premises and equipment, net		13			0
Amortization of investment in New Markets Tax Credit projects		319			291
Impairment of other real estate owned		81			0
(Gain) on sale of other real estate owned, net		0			(22	)
Change in assets and liabilities:
Decrease in accrued income receivable		1,547			987
Decrease in other assets		401			28
Increase (decrease) in accrued expenses and other liabilities		(18	)		3,970
Net cash provided by operating activities		17,432			17,925

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities available-for-sale		(217,484	)		(102,225	)
Proceeds from sale of securities available-for-sale		0			5,463
Proceeds from maturities and calls of securities available-for-sale		63,971			75,572
Purchase of FHLB stock		(286	)		(117	)
Proceeds from the redemption of FHLB stock		7			101
Net (increase) decrease in interest-bearing deposits in financial institutions and federal funds sold		25,422			(37,043	)
Net (increase) decrease in loans		5,262			(101,265	)
Net proceeds from the sale of other real estate owned		0			3,405
Purchase of bank premises and equipment		(578	)		(529	)
Cash paid for bank acquired		0			(310	)
Other		(35	)		(36	)
Net cash (used in) investing activities		(123,721	)		(156,984	)

CASH FLOWS FROM FINANCING ACTIVITIES
Increase in deposits		115,038			150,614
(Decrease) in securities sold under agreements to repurchase		(4,025	)		(5,141	)
Payments on FHLB borrowings		0			(2,000	)
Dividends paid		(4,653	)		(4,511	)
Stock repurchases		0			(1,992	)
Net cash provided by financing activities		106,360			136,970

Net increase (decrease) in cash and due from banks		71			(2,089	)

CASH AND DUE FROM BANKS
Beginning		24,819			34,617
Ending	$	24,890		$	32,528

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AMES NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (unaudited)

(in thousands)

Six Months Ended June 30, 2021 and 2020

	2021		2020

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash payments for:
Interest	$	2,873	$	5,260
Income taxes		2,823		676

SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING ACTIVITIES
Transfer of loans receivable to other real estate owned	$	560	$	11

See Notes to Consolidated Financial Statements.

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AMES NATIONAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (u~~naudited)~~(unaudited)

1.	Significant Accounting Policies

The consolidated financial statements for the three and six months ended June 30, ~~2020~~2021 and ~~2019~~2020 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 adjustments, necessary to present fairly these consolidated financial statements. The results of operations for the interim periods are not necessarily indicative of results which may be expected for an entire year. Certain information and footnote disclosures normally included in complete financial statements prepared in accordance with accounting principles generally accepted in the United States of America 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 Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 (the “Annual Report”). The consolidated 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.

Goodwill: Goodwill represents the excess of cost over the fair value of net assets acquired. Goodwill resulting from acquisitions is not amortized, but is tested for impairment annually or whenever events change and circumstances indicate that it is more likely than not that an impairment loss has occurred. Goodwill is tested for impairment with an estimation of the fair value of a reporting unit.

The fair value of a reporting unit is the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date. As none of the Company’s reporting units are publicly traded, individual reporting unit fair value determinations cannot be directly correlated to the Company’s stock price. Significant judgment is applied when goodwill is assessed for impairment. This judgment includes developing cash flow projections, selecting appropriate discount rates, identifying relevant market comparables, incorporating general economic and market conditions and selecting an appropriate control premium. AtThe Company completed a quantitative assessment of goodwill as of ~~June 30,~~May 31, 2020 ~~Company management has performed a goodwill impairment assessment and determined~~which indicated that goodwill was not impaired.

~~Reclassifications:~~ ~~Certain reclassifications have been made~~ Subsequently, the Company determined there were no adverse changes in criteria and key considerations to the ~~prior consolidated financial statements to conform to~~previous assessment. Accordingly, the ~~current period presentation. These reclassifications had~~Company concluded there is 0 impairment of goodwill as of noJune 30, 2021. ~~effect on stockholders’ equity and net income of the prior periods.~~

New and Pending Accounting Pronouncements: In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. In October 2019, the FASB voted to approve amendments to the effective date of ASU No. 2016-13 for smaller reporting companies, as defined by the SEC, and other non-SEC reporting entities. The amendment delays the effective date for our Company until interim and annual periods beginning after December 15, 2022. The Company continues collecting and retaining loan and credit data and evaluating various loss estimation models, along with refining the implementation of the software and its approach for determining the expected credit losses under the new guidance. The Company’s preliminary evaluation indicates the provisions of ASU No. 2016-13 are expected to impact the Company’s financial statements. The Company is continuing to evaluate the extent of the potential impact.

In ~~January 2017,~~ ~~the FASB issued ASU~~ ~~2017~~-~~04,~~ ~~Intangibles-Goodwill and Other (Topic~~ ~~350~~): ~~Simplifying the Test for Goodwill Impairment~~~~. The guidance in this update eliminates Step~~ 2 ~~from the goodwill impairment test. For public companies, this update became effective for interim and annual periods beginning after~~ ~~December 15, 2019,~~ ~~with early adoption permitted for interim and annual goodwill impairment tests with a measurement date after~~ ~~January 1, 2017.~~ ~~ASU~~ ~~2017~~-04 ~~was adopted on~~ ~~January 1, 2020~~ ~~and the adoption of this guidance did~~ ~~not~~ ~~have a material impact on the Company’s consolidated financial statements.~~

In ~~August 2018,~~ ~~the FASB issued ASU~~ ~~No.~~~~2018~~-~~13,~~ ~~Fair Value Measurement (Topic~~ ~~820~~): ~~Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.~~The amendments in this update modify the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The update became effective for interim and annual periods in fiscal years beginning after ~~December 15, 2019,~~ ~~with early adoption permitted for the removed disclosures and delayed adoption until fiscal year~~ ~~2020~~ ~~permitted for the new disclosures. The removed and modified disclosures were adopted on a retrospective basis, and the new disclosures were adopted on a prospective basis. The adoption did~~ ~~not~~ ~~have a material effect on the Company’s consolidated financial statements.~~

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2.	~~Bank Acquisition~~

On ~~October 25, 2019,~~ the Company completed the purchase of Iowa State Savings Bank (“ISSB”), including its’ 4 branches in Creston, Diagonal, Lennox and Corning, Iowa (the “Acquisition”). The Acquisition was consistent with the Bank’s strategy to strengthen and expand its Iowa market share. ISSB’s acquired assets and liabilities were recorded at fair value at the date of acquisition. This bank was purchased for cash consideration of $22.6 million. As a result of the acquisition, the Company recorded a core deposit intangible asset of $1,891,000 and goodwill of approximately $2,680,000. The results of operations for this acquisition have been included since the transaction date of ~~October 25, 2019.~~ ~~Since the acquisition date, there has been~~ no ~~significant credit deterioration of the acquired loans.~~

The following table summarizes the fair value of the total consideration transferred as a part of the ISSB Acquisition as well as the fair value of identifiable assets acquired and liabilities assumed as of the effective date of the transaction (~~in thousands~~):

Cash consideration transferred
$ 22,643

Recognized amounts of identifiable assets acquired and liabilities assumed:

Cash and due from banks
$ 3,188
Federal funds sold
2,792
Interest bearing deposits in financial institutions
21,035
Securities available-for-sale
33,615
Federal Home Loan Bank stock at cost
365
Loans receivable
137,776
Accrued interest receivable
2,888
Bank premises and equipment
2,452
Other real estate owned
3,582
Bank owned life insurance
2,499
Core deposit intangible asset
1,891
Other assets
204
Deposits
(188,631 )
Securities sold under repurchase agreements
(1,747 )
Accrued interest payable and other liabilities
(1,946 )

Total identifiable net assets
19,963

Goodwill
$ 2,680

On ~~October 25, 2019,~~ associated with the ISSB Acquisition, the contractual balance of loans receivable acquired was $139,703,000 and the contractual balance of the deposits assumed was $188,068,000. Loans receivable acquired include commercial real estate, 1-4 ~~family real estate, agricultural real estate, commercial operating, agricultural operating and consumer loans. During the~~ ~~first~~ ~~quarter of~~ ~~2020,~~ ~~an additional $310,000 of goodwill was recorded due to an adjustment to the initial purchase price.~~

~~The acquired loans associated with the ISSB Acquisition at contractual values as of~~ ~~October 25, 2019~~ ~~were determined to be risk rated as follows (~~~~in thousands~~):

Pass
$ 121,346
Watch
12,333
Special Mention
-
Substandard
6,024

Total loans acquired at book value
$ 139,703

~~The core deposit intangible asset is amortized to expense on a declining basis over a period of~~ ~~ten~~ ~~years. The loan market valuation is accreted to income on the effective yield method over a~~ ~~ten~~ ~~year period. The time deposits market valuation is amortized to expense on a declining basis over a~~ ~~two~~ ~~year period.~~

~~Table of Contents~~

Dividends

On July ~~8, 2020,~~14, 2021, the Company declared a cash dividend on its common stock, payable on August ~~14, 2020~~13, 2021 to stockholders of record as of July ~~31, 2020~~,30, 2021, equal to ~~$0.25~~$0.26 per share.

4.3.

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 June 30, ~~2020~~2021 and ~~2019~~2020 was ~~9,128,848~~9,122,747 and ~~9,239,969,~~9,128,848, respectively. The weighted average outstanding shares for the six months ended June 30, ~~2020~~2021 and ~~2019~~2020 were ~~9,174,021~~9,122,747 and ~~9,250,392,~~9,174,021, respectively. The Company had 0 potentially dilutive securities outstanding during the periods presented.

5.4.

Off-Balance Sheet Arrangements

The Company is party to financial instruments with off-balance sheet risk in the normal course of business. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. No material changes in the Company’s off-balance sheet arrangements have occurred since December 31, ~~2019.~~2020.

6.5.

Fair Value Measurements

Assets and liabilities carried at fair value are required to be classified and disclosed according to the process for determining fair value. There are three levels of determining fair value.

Level 1: Inputs to the valuation methodology are quoted prices, unadjusted, for identical assets or liabilities in active markets.

Level 2: Inputs to the valuation methodology include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatility, prepayment speeds, credit risk); or inputs derived principally from or can be corroborated by observable market data by correlation or other means.

Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement. Level 3 assets and liabilities include financial instruments whose value is determined using discounted cash flow methodologies, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

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The following table presents the balances of assets measured at fair value on a recurring basis by level as of June 30, ~~2020~~2021 and December 31, ~~2019~~2020 (in thousands):

Description	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3

2021

U.S. government treasuries									$	100,547	$	100,547	$	0	$	0
U.S. government agencies										116,358		0		116,358		0
U.S. government mortgage-backed securities										168,737		0		168,737		0
State and political subdivisions										275,205		0		275,205		0
Corporate bonds										79,255		0		79,255		0

									$	740,102	$	100,547	$	639,555	$	0

2020

U.S. government treasuries	$	9,280	$	9,280	$	-	$	-	$	12,053	$	12,053	$	0	$	0
U.S. government agencies		104,288		-		104,288		-		111,199		0		111,199		0
U.S. government mortgage-backed securities		107,150		-		107,150		-		150,195		0		150,195		0
State and political subdivisions		216,797		-		216,797		-		251,584		0		251,584		0
Corporate bonds		76,101		-		76,101		-		71,968		0		71,968		0

	$	513,616	$	9,280	$	504,336	$	-	$	596,999	$	12,053	$	584,946	$	0

2019

U.S. government treasuries	$	9,452	$	9,452	$	-	$	-
U.S. government agencies		126,433		-		126,433		-
U.S. government mortgage-backed securities		81,128		-		81,128		-
State and political subdivisions		195,302		-		195,302		-
Corporate bonds		67,528		-		67,528		-

	$	479,843	$	9,452	$	470,391	$	-

Level 1 securities include U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets. U.S. government agencies, mortgage-backed securities, state and political subdivisions, and most corporate bonds are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the security’s terms and conditions, among other things.

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Certain assets are measured at fair value on a nonrecurring basis; that is, they are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment or a change in previously recognized impairment). The following table presents the assets carried on the balance sheet (after specific reserves) by caption and by level within the valuation hierarchy as of June 30, ~~2020~~2021 and December 31, ~~2019~~2020 (in thousands):

Description	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3

2021

Loans receivable									$	8,751	$	0	$	0	$	8,751
Other real estate owned										778		0		0		778

Total									$	9,529	$	0	$	0	$	9,529

2020

Loans receivable	$	2,017	$	-	$	-	$	2,017	$	10,306	$	0	$	0	$	10,306
Other real estate owned		632		-		-		632		218		0		0		218

Total	$	2,649	$	-	$	-	$	2,649	$	10,524	$	0	$	0	$	10,524

2019

Loans receivable	$	535	$	-	$	-	$	535
Other real estate owned		4,004		-		-		4,004

Total	$	4,539	$	-	$	-	$	4,539

The significant inputs used in the fair value measurements for Level 3 assets measured at fair value on a nonrecurring basis as of June 30, ~~2020~~2021 and December 31, ~~2019~~2020 are as follows (in thousands):

2020

2021

Estimated

Valuation

Range

Estimated

Valuation

Range

Fair Value

Techniques

Unobservable Inputs

(Average)

Fair Value

Techniques

Unobservable Inputs

(Average)

Impaired Loans

2,017

Evaluation of collateral

Estimation of value

NM*

Loans receivable

8,751

Evaluation of collateral

Estimation of value

NM*

Other real estate owned

632

Appraisal

Appraisal adjustment

(7%)

778

Appraisal

Appraisal adjustment

(7%)

2019

2020

Estimated

Valuation

Range

Estimated

Valuation

Unobservable Inputs

Range

Fair Value

Techniques

Unobservable Inputs

(Average)

Fair Value

Techniques

(Average)

Impaired Loans

535

Evaluation of collateral

Estimation of value

NM*

Loans receivable

10,306

Evaluation of collateral

Estimation of value

NM*

Other real estate owned

4,004

Appraisal

Appraisal adjustment

(7%)

218

Appraisal

Appraisal adjustment

(7%)

* Evaluations of the underlying assets are completed for each collateral dependent impaired loan with a specific reserve. The types of collateral vary widely and could include accounts receivables, inventory, a variety of equipment and real estate. Collateral evaluations are reviewed and discounted as appropriate based on knowledge of the specific type of collateral. In the case of real estate, an independent appraisal may be obtained. Types of discounts considered included aging of receivables, condition of the collateral, potential market for the collateral and estimated disposal costs. These discounts will vary from loan to loan, thus providing a range would not be meaningful.

GAAP requires disclosure of the fair value of financial assets and financial liabilities, including those that are not measured and reported at fair value on a recurring basis or nonrecurring basis.

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The following table includes the carrying amounts and estimated fair values of the Company’s financial assets and liabilities as of June 30, ~~2020~~2021 and December 31, ~~2019~~2020 (in thousands):

		2020				2019					2021				2020
	Fair Value			Estimated				Estimated		Fair Value			Estimated				Estimated
	Hierarchy	Carrying		Fair		Carrying		Fair		Hierarchy	Carrying		Fair		Carrying		Fair
	Level	Amount		Value		Amount		Value		Level	Amount		Value		Amount		Value

Financial assets:
Cash and due from banks	Level 1	$	32,528	$	32,528	$	34,617	$	34,617	Level 1	$	24,890	$	24,890	$	24,819	$	24,819
Interest-bearing deposits	Level 1		145,991		145,991		108,948		108,948
Interest-bearing deposits in financial institutions and federal funds sold										Level 1		141,282		141,282		166,704		166,704
Securities available-for-sale	See previous table		513,616		513,616		479,843		479,843	See previous table		740,102		740,102		596,999		596,999
FHLB and FRB stock	Level 2		3,155		3,155		3,139		3,139	Level 2		3,427		3,427		3,148		3,148
Loans receivable, net	Level 2		1,146,046		1,106,246		1,048,147		1,025,032	Level 2		1,124,435		1,102,745		1,129,505		1,116,352
Loans held for sale	Level 2		2,033		2,033		2,777		2,777	Level 2		311		311		1,621		1,621
Accrued income receivable	Level 1		10,801		10,801		11,788		11,788	Level 1		9,596		9,596		11,143		11,143
Financial liabilities:
Deposits	Level 2	$	1,643,543	$	1,646,977	$	1,493,175	$	1,495,155	Level 2	$	1,831,399	$	1,833,779	$	1,716,446	$	1,720,023
Securities sold under agreements to repurchase	Level 1		36,893		36,893		42,034		42,034	Level 1		33,268		33,268		37,293		37,293
FHLB advances	Level 2		3,000		3,110		5,000		4,935	Level 2		3,000		3,069		3,000		3,111
Accrued interest payable	Level 1		966		966		1,163		1,163	Level 1		532		532		829		829

The methodologies used to determine fair value as of June 30, ~~2020~~2021 did not change from the methodologies described in the December 31, ~~2019~~2020 Annual Financial Statements.

Commitments to extend credit and standby letters of credit: The fair values of commitments to extend credit and standby letters of credit are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreement and credit worthiness of the counterparties. The carrying value and fair value of the commitments to extend credit and standby letters of credit are not considered significant.

Limitations: Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

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7.6.

Debt Securities

The amortized cost of securities available-for-sale and their approximate fair values as of June 30, ~~2020~~2021 and December 31, ~~2019~~2020 are summarized below (in thousands):

2020:			Gross		Gross
2021:												Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated		Amortized		Unrealized		Unrealized			Estimated
	Cost		Gains		Losses			Fair Value		Cost		Gains		Losses			Fair Value

U.S. government treasuries	$	8,893	$	387	$	-		$	9,280	$	100,543	$	382	$	(378	)	$	100,547
U.S. government agencies		99,091		5,203		(6	)		104,288		113,012		3,703		(357	)		116,358
U.S. government mortgage-backed securities		104,063		3,114		(27	)		107,150		168,068		2,013		(1,344	)		168,737
State and political subdivisions		211,593		5,322		(118	)		216,797		270,241		5,692		(728	)		275,205
Corporate bonds		71,319		4,793		(11	)		76,101		75,693		3,619		(57	)		79,255
	$	494,959	$	18,819	$	(162	)	$	513,616	$	727,557	$	15,409	$	(2,864	)	$	740,102

2019:			Gross		Gross
2020:												Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated		Amortized		Unrealized		Unrealized			Estimated
	Cost		Gains		Losses			Fair Value		Cost		Gains		Losses			Fair Value

U.S. government treasuries	$	9,392	$	64	$	(4	)	$	9,452	$	11,725	$	328	$	0		$	12,053
U.S. government agencies		124,913		1,609		(89	)		126,433		106,337		4,875		(13	)		111,199
U.S. government mortgage-backed securities		80,295		867		(34	)		81,128		146,889		3,337		(31	)		150,195
State and political subdivisions		193,745		1,852		(295	)		195,302		243,438		8,182		(36	)		251,584
Corporate bonds		66,012		1,542		(26	)		67,528		67,247		4,722		(1	)		71,968
	$	474,357	$	5,934	$	(448	)	$	479,843	$	575,636	$	21,444	$	(81	)	$	596,999

The amortized cost and fair value of debt securities available-for-sale as of June 30, ~~2020,~~2021, are shown below by expected maturity. Expected maturity will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties (in thousands).

	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value

Due in one year or less	$	48,856	$	49,216	$	57,814	$	58,258
Due after one year through five years		234,542		243,595		295,926		302,378
Due after five years through ten years		181,220		189,531		337,265		342,042
Due after ten years		30,341		31,274		36,552		37,424
Total	$	494,959	$	513,616	$	727,557	$	740,102

Securities with a carrying value of ~~$197.1~~$199.1 million and ~~$180.0~~$202.0 million at June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, were pledged on public deposits, securities sold under agreements to repurchase and for other purposes as required or permitted by law.

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The proceeds and gains ~~and losses for~~on securities available-for-sale for the three and six months ended June 30, ~~2020~~2021 and ~~2019~~2020 are summarized below (in thousands):

	Three Months Ended					Six Months Ended					Three Months Ended				Six Months Ended
	June 30,					June 30,					June 30,				June 30,
	2020		2019			2020		2019			2021		2020		2021		2020
Proceeds from sales of securities available-for-sale	$	2,078	$	5,973		$	5,463	$	5,973		$	0	$	2,078	$	0	$	5,463
Gross realized gains on securities available-for-sale		44		21			430		21			0		44		0		430
Gross realized losses on securities available-for-sale		-		(19	)		-		(19	)		0		0		0		0
Tax provision applicable to net realized gains on securities available-for-sale		11		-			108		-

Gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position ~~are summarized~~ as of June 30, ~~2020~~2021 and December 31, ~~2019~~2020 are summarized as follows (in thousands):

	Less than 12 Months					12 Months or More					Total					Less than 12 Months					12 Months or More					Total
2020:	Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses
2021:																Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses

Securities available-for-sale:
U.S. government treasuries	$	-	$	-		$	-	$	-		$	-	$	-		$	56,269	$	(378	)	$	0	$	0		$	56,269	$	(378	)
U.S. government agencies		938		(6	)		-		-			938		(6	)		24,179		(357	)		0		0			24,179		(357	)
U.S. government mortgage-backed securities		11,784		(25	)		1,712		(2	)		13,496		(27	)		105,041		(1,344	)		0		0			105,041		(1,344	)
State and political subdivisions		6,697		(114	)		180		(4	)		6,877		(118	)		57,806		(727	)		181		(1	)		57,987		(728	)
Corporate bonds		493		(11	)		-		-			493		(11	)		4,320		(57	)		0		0			4,320		(57	)
	$	19,912	$	(156	)	$	1,892	$	(6	)	$	21,804	$	(162	)	$	247,615	$	(2,863	)	$	181	$	(1	)	$	247,796	$	(2,864	)

	Less than 12 Months					12 Months or More					Total					Less than 12 Months					12 Months or More					Total
2019:	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
2020:																Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses

Securities available-for-sale:
U.S. government treasuries	$	3,023	$	(4	)	$	-	$	-		$	3,023	$	(4	)
U.S. government agencies		23,827		(85	)		2,520		(4	)		26,347		(89	)	$	6,016	$	(7	)	$	896	$	(6	)	$	6,912	$	(13	)
U.S. government mortgage-backed securities		14,885		(28	)		1,934		(6	)		16,819		(34	)		5,097		(31	)		0		0			5,097		(31	)
State and political subdivisions		17,512		(125	)		5,954		(170	)		23,466		(295	)		7,875		(34	)		180		(2	)		8,055		(36	)
Corporate bonds		4,129		(26	)		-		-			4,129		(26	)		534		(1	)		0		0			534		(1	)
	$	63,376	$	(268	)	$	10,408	$	(180	)	$	73,784	$	(448	)	$	19,522	$	(73	)	$	1,076	$	(8	)	$	20,598	$	(81	)

Gross unrealized losses on debt securities totaled ~~$162,000~~$2.9 million as of June 30, ~~2020.~~2021. These unrealized losses are generally due to changes in interest rates or general market conditions. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, state or political subdivision, or corporations. Management then determines whether downgrades by bond rating agencies have occurred, and reviews industry analysts’ reports. The Company’s procedures for evaluating investments in states, municipalities and political subdivisions include but are not limited to reviewing the offering statement and the most current available financial information, comparing yields to yields of bonds of similar credit quality, confirming capacity to repay, assessing operating and financial performance, evaluating the stability of tax revenues, considering debt profiles and local demographics, and for revenue bonds, assessing the source and strength of revenue structures for municipal authorities. These procedures, as applicable, are utilized for all municipal purchases and are utilized in whole or in part for monitoring the portfolio of municipal holdings. The Company does not utilize third party credit rating agencies as a primary component of determining if the municipal issuer has an adequate capacity to meet the financial commitments under the security for the projected life of the investment, and, therefore, does not compare internal assessments to those of the credit rating agencies. Credit rating downgrades are utilized as an additional indicator of credit weakness and as a reference point for historical default rates. Management concluded that the gross unrealized losses on debt securities were temporary. Due to potential changes in conditions, it is at least reasonably possible that changes in fair values and management’s assessments will occur in the near term and that such changes could materially affect the amounts reported in the Company’s financial statements.

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8.7.

Loans Receivable and Credit Disclosures

The composition of loans receivable as of June 30, ~~2020~~2021 and December 31, ~~2019~~2020 is as follows (inthousands):

	2020			2019			2021			2020

Real estate - construction	$	51,045		$	47,895		$	46,164		$	45,497
Real estate - 1 to 4 family residential		205,254			201,510			226,683			213,562
Real estate - commercial		463,077			435,850			498,561			496,357
Real estate - agricultural		160,286			160,771			152,157			151,992
Commercial ¹		158,217			84,084			106,016			122,535
Agricultural		109,066			111,945			98,233			102,586
Consumer and other		17,704			18,791			15,622			15,048
		1,164,649			1,060,846			1,143,436			1,147,577
Less:
Allowance for loan losses		(16,005	)		(12,619	)		(16,893	)		(17,215	)
Deferred loan fees²		(2,598	)		(80	)
Deferred loan fees and costs, net²								(2,108	)		(857	)
Loans receivable, net	$	1,146,046		$	1,048,147		$	1,124,435		$	1,129,505

¹	Commercial loan portfolio includes $37.6 million and $50.9 million of Paycheck Protection Program ("PPP") loans as of June 30, 2021 and December 31, 2020, ~~includes $78.3 million Payroll Protection Program ("PPP") loans~~respectively.

²	Deferred loan fees and costs, net includes $2.3 million and $0.9 million of fees, net of costs, related to the PPP loans as of June 30, 2021 and December 31, 2020, ~~includes $2.5 million of fees related to the PPP loans.~~respectively.

The Paycheck Protection Program (PPP) was established by the Coronavirus Aid, Relief and Economic Security Act (CARES Act), enacted on March 27, 2020, and expanded by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, enacted December 27, 2020 and the American Rescue Plan Act, enacted March 11, 2021, in response to the Coronavirus Disease 2019 (COVID-19) pandemic. The PPP is administered by the Small Business Administration (SBA). PPP loans may be forgiven by the SBA and are 100 percent guaranteed by the SBA.

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Activity in the allowance for loan losses, on a disaggregated basis, for the three ~~and~~ ~~six~~months ended June 30, ~~2020~~2021 and ~~2019~~2020 is as follows (in thousands):

	Three Months Ended June 30, 2020																					Three Months Ended June 30, 2021
			1-4 Family																						1-4 Family
	Construction		Residential			Commercial			Agricultural							Consumer						Construction			Residential		Commercial			Agricultural							Consumer
	Real Estate		Real Estate			Real Estate			Real Estate		Commercial			Agricultural		and Other			Total			Real Estate			Real Estate		Real Estate			Real Estate		Commercial			Agricultural		and Other			Total
Balance, March 31, 2020	$	753	$	2,336		$	6,552		$	1,563	$	1,672		$	1,815	$	218		$	14,909
Balance, March 31, 2021																						$	868		$	2,383	$	9,049		$	1,498	$	1,262		$	1,614	$	233		$	16,907
Provision (credit) for loan losses		96		183			724			150		366			15		32			1,566			(130	)		217		(161	)		116		(123	)		56		5			(20	)
Recoveries of loans charged-off		-		3			1			-		2			-		2			8			0			3		1			0		1			5		3			13
Loans charged-off		-		(17	)		(413	)		-		(46	)		-		(2	)		(478	)		0			0		0			0		0			0		(7	)		(7	)
Balance, June 30, 2020	$	849	$	2,505		$	6,864		$	1,713	$	1,994		$	1,830	$	250		$	16,005
Balance, June 30, 2021																						$	738		$	2,603	$	8,889		$	1,614	$	1,140		$	1,675	$	234		$	16,893

	Six Months Ended June 30, 2020																					Six Months Ended June 30, 2021
			1-4 Family																					1-4 Family
	Construction		Residential			Commercial			Agricultural							Consumer						Construction		Residential			Commercial			Agricultural								Consumer
	Real Estate		Real Estate			Real Estate			Real Estate		Commercial			Agricultural		and Other			Total			Real Estate		Real Estate			Real Estate			Real Estate		Commercial			Agricultural			and Other			Total
Balance, December 31, 2019	$	672	$	2,122		$	5,362		$	1,326	$	1,458		$	1,478	$	201		$	12,619
Balance, December 31, 2020																						$	725	$	2,581		$	8,930		$	1,595	$	1,453		$	1,696		$	235		$	17,215
Provision (credit) for loan losses		176		397			1,944			387		578			352		49			3,883			13		(214	)		(43	)		19		(202	)		(26	)		7			(446	)
Recoveries of loans charged-off		1		3			2			-		4			-		4			14			0		266			2			0		2			5			7			282
Loans charged-off		-		(17	)		(444	)		-		(46	)		-		(4	)		(511	)		0		(30	)		0			0		(113	)		0			(15	)		(158	)
Balance, June 30, 2020	$	849	$	2,505		$	6,864		$	1,713	$	1,994		$	1,830	$	250		$	16,005
Balance, June 30, 2021																						$	738	$	2,603		$	8,889		$	1,614	$	1,140		$	1,675		$	234		$	16,893

Three Months Ended June 30, 2019

1-4 Family

Construction

Residential

Commercial

Agricultural

Consumer

Real Estate

Real Estate

Real Estate

Real Estate

Commercial

Agricultural

and Other

Total

Balance, March 31, 2019
$ 736 $ 1,850 $ 4,770 $ 1,258 $ 1,610 $ 1,392 $ 196 $ 11,812
Provision (credit) for loan losses
(15 ) (1 ) 136 43 (21 ) (61 ) (13 ) 68
Recoveries of loans charged-off
- 1 - - 1 1 4 7
Loans charged-off
- (3 ) - - - - (15 ) (18 )
Balance, June 30, 2019
$ 721 $ 1,847 $ 4,906 $ 1,301 $ 1,590 $ 1,332 $ 172 $ 11,869

	Three Months Ended June 30, 2020
			1-4 Family
	Construction		Residential			Commercial			Agricultural							Consumer
	Real Estate		Real Estate			Real Estate			Real Estate		Commercial			Agricultural		and Other			Total
Balance, March 31, 2020	$	753	$	2,336		$	6,552		$	1,563	$	1,672		$	1,815	$	218		$	14,909
Provision for loan losses		96		183			724			150		366			15		33			1,567
Recoveries of loans charged-off		0		3			1			0		2			0		1			7
Loans charged-off		0		(17	)		(413	)		0		(46	)		0		(2	)		(478	)
Balance, June 30, 2020	$	849	$	2,505		$	6,864		$	1,713	$	1,994		$	1,830	$	250		$	16,005

	Six Months Ended June 30, 2019																					Six Months Ended June 30, 2020
			1-4 Family																					1-4 Family
	Construction		Residential			Commercial		Agricultural								Consumer						Construction		Residential			Commercial			Agricultural							Consumer
	Real Estate		Real Estate			Real Estate		Real Estate		Commercial			Agricultural			and Other			Total			Real Estate		Real Estate			Real Estate			Real Estate		Commercial			Agricultural		and Other			Total
Balance, December 31, 2018	$	699	$	1,820		$	4,615	$	1,198	$	1,777		$	1,384		$	191		$	11,684
Balance, December 31, 2019																						$	672	$	2,122		$	5,362		$	1,326	$	1,458		$	1,478	$	201		$	12,619
Provision (credit) for loan losses		11		27			291		103		(211	)		(53	)		(2	)		166			176		397			1,944			387		578			352		49			3,883
Recoveries of loans charged-off		11		3			-		-		29			1			4			48			1		3			2			0		4			0		4			14
Loans charged-off		-		(3	)		-		-		(5	)		-			(21	)		(29	)		0		(17	)		(444	)		0		(46	)		0		(4	)		(511	)
Balance, June 30, 2019	$	721	$	1,847		$	4,906	$	1,301	$	1,590		$	1,332		$	172		$	11,869
Balance, June 30, 2020																						$	849	$	2,505		$	6,864		$	1,713	$	1,994		$	1,830	$	250		$	16,005

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Allowance for loan losses disaggregated on the basis of impairment analysis method as of June 30, ~~2020~~2021 and December 31, ~~2019~~2020 is as follows (in ~~thousands~~)thousands):

2020			1-4 Family
2021																			1-4 Family
	Construction		Residential		Commercial		Agricultural						Consumer				Construction		Residential		Commercial		Agricultural						Consumer
	Real Estate		Real Estate		Real Estate		Real Estate		Commercial		Agricultural		and Other		Total		Real Estate		Real Estate		Real Estate		Real Estate		Commercial		Agricultural		and Other		Total
Individually evaluated for impairment	$	-	$	150	$	-	$	-	$	558	$	40	$	6	$	754	$	0	$	15	$	1,486	$	0	$	0	$	132	$	28	$	1,661
Collectively evaluated for impairment		849		2,355		6,864		1,713		1,436		1,790		244		15,251		738		2,588		7,403		1,614		1,140		1,543		206		15,232
Balance June 30, 2020	$	849	$	2,505	$	6,864	$	1,713	$	1,994	$	1,830	$	250	$	16,005
Balance June 30, 2021																	$	738	$	2,603	$	8,889	$	1,614	$	1,140	$	1,675	$	234	$	16,893

2019			1-4 Family
2020																			1-4 Family
	Construction		Residential		Commercial		Agricultural						Consumer				Construction		Residential		Commercial		Agricultural						Consumer
	Real Estate		Real Estate		Real Estate		Real Estate		Commercial		Agricultural		and Other		Total		Real Estate		Real Estate		Real Estate		Real Estate		Commercial		Agricultural		and Other		Total
Individually evaluated for impairment	$	-	$	209	$	-	$	-	$	-	$	-	$	-	$	209	$	0	$	150	$	1,486	$	0	$	115	$	40	$	28	$	1,819
Collectively evaluated for impairment		672		1,913		5,362		1,326		1,458		1,478		201		12,410		725		2,431		7,444		1,595		1,338		1,656		207		15,396
Balance December 31, 2019	$	672	$	2,122	$	5,362	$	1,326	$	1,458	$	1,478	$	201	$	12,619
Balance December 31, 2020																	$	725	$	2,581	$	8,930	$	1,595	$	1,453	$	1,696	$	235	$	17,215

Loans receivable disaggregated on the basis of impairment analysis method as of June 30, ~~2020~~2021 and December 31, ~~2019~~2020 is as follows (in thousands):

2020			1-4 Family
2021																			1-4 Family
	Construction		Residential		Commercial		Agricultural						Consumer				Construction		Residential		Commercial		Agricultural						Consumer
	Real Estate		Real Estate		Real Estate		Real Estate		Commercial		Agricultural		and Other		Total		Real Estate		Real Estate		Real Estate		Real Estate		Commercial		Agricultural		and Other		Total
Individually evaluated for impairment	$	-	$	1,192	$	11,136	$	2,063	$	1,775	$	1,711	$	24	$	17,901	$	0	$	953	$	10,153	$	628	$	271	$	650	$	41	$	12,696
Collectively evaluated for impairment		51,045		204,062		451,941		158,223		156,442		107,355		17,680		1,146,748		46,164		225,730		488,408		151,529		105,745		97,583		15,581		1,130,740

Balance June 30, 2020	$	51,045	$	205,254	$	463,077	$	160,286	$	158,217	$	109,066	$	17,704	$	1,164,649
Balance June 30, 2021																	$	46,164	$	226,683	$	498,561	$	152,157	$	106,016	$	98,233	$	15,622	$	1,143,436

2019			1-4 Family
2020																			1-4 Family
	Construction		Residential		Commercial		Agricultural						Consumer				Construction		Residential		Commercial		Agricultural						Consumer
	Real Estate		Real Estate		Real Estate		Real Estate		Commercial		Agricultural		and Other		Total		Real Estate		Real Estate		Real Estate		Real Estate		Commercial		Agricultural		and Other		Total
Individually evaluated for impairment	$	-	$	1,204	$	83	$	84	$	462	$	2,951	$	4	$	4,788	$	167	$	1,340	$	10,258	$	1,664	$	940	$	859	$	45	$	15,273
Collectively evaluated for impairment		47,895		200,306		435,767		160,687		83,622		108,994		18,787		1,056,058		45,330		212,222		486,099		150,328		121,595		101,727		15,003		1,132,304

Balance December 31, 2019	$	47,895	$	201,510	$	435,850	$	160,771	$	84,084	$	111,945	$	18,791	$	1,060,846
Balance December 31, 2020																	$	45,497	$	213,562	$	496,357	$	151,992	$	122,535	$	102,586	$	15,048	$	1,147,577

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payment of principal and interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. The Company applies its normal loan review procedures to identify loans that should be evaluated for impairment.

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Impaired loans, on a disaggregated basis, as of June 30, ~~2020~~2021 and December 31, ~~2019~~2020 (in thousands):

	2020						2019						2021						2020
			Unpaid						Unpaid						Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related		Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance		Investment		Balance		Allowance		Investment		Balance		Allowance
With no specific reserve recorded:
Real estate - construction	$	-	$	-	$	-	$	-	$	-	$	-	$	0	$	0	$	-	$	167	$	167	$	-
Real estate - 1 to 4 family residential		224		269		-		460		796		-		932		995		-		416		475		-
Real estate - commercial		11,136		11,907		-		83		435		-		137		167		-		242		578		-
Real estate - agricultural		2,063		2,079		-		84		97		-		628		684		-		1,664		1,698		-
Commercial		523		568		-		462		517		-		271		302		-		274		318		-
Agricultural		1,178		1,335		-		2,951		3,071		-		312		504		-		377		542		-
Consumer and other		6		6		-		4		4		-		4		4		-		8		10		-
Total loans with no specific reserve:		15,130		16,164		-		4,044		4,920		-		2,284		2,656		-		3,148		3,788		-

With an allowance recorded:
Real estate - construction		-		-		-		-		-		-		0		0		0		0		0		0
Real estate - 1 to 4 family residential		968		1,293		150		744		755		209		21		21		15		924		1,278		150
Real estate - commercial		-		-		-		-		-		-		10,016		10,157		1,486		10,016		10,157		1,486
Real estate - agricultural		-		-		-		-		-		-		0		0		0		0		0		0
Commercial		1,252		1,252		558		-		-		-		0		0		0		666		1,247		115
Agricultural		533		535		40		-		-		-		338		342		132		482		484		40
Consumer and other		18		18		6		-		-		-		37		39		28		37		39		28
Total loans with specific reserve:		2,771		3,098		754		744		755		209		10,412		10,559		1,661		12,125		13,205		1,819

Total
Real estate - construction		-		-		-		-		-		-		0		0		0		167		167		0
Real estate - 1 to 4 family residential		1,192		1,562		150		1,204		1,551		209		953		1,016		15		1,340		1,753		150
Real estate - commercial		11,136		11,907		-		83		435		-		10,153		10,324		1,486		10,258		10,735		1,486
Real estate - agricultural		2,063		2,079		-		84		97		-		628		684		0		1,664		1,698		0
Commercial		1,775		1,820		558		462		517		-		271		302		0		940		1,565		115
Agricultural		1,711		1,870		40		2,951		3,071		-		650		846		132		859		1,026		40
Consumer and other		24		24		6		4		4		-		41		43		28		45		49		28

	$	17,901	$	19,262	$	754	$	4,788	$	5,675	$	209	$	12,696	$	13,215	$	1,661	$	15,273	$	16,993	$	1,819

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Average recorded investment and interest income recognized on impaired loans for the three and six months ended June 30, ~~2020~~2021 and ~~2019~~2020 (in thousands):

	Three Months Ended June 30,								Three Months Ended June 30,
	*2020*				*2019*				2021				2020
	Average		Interest		Average		Interest		Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income		Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized		Investment		Recognized		Investment		Recognized
With no specific reserve recorded:
Real estate - construction	$	-	$	-	$	-	$	-	$	84	$	0	$	0	$	0
Real estate - 1 to 4 family residential		164		-		209		6		619		11		164		0
Real estate - commercial		10,877		-		135		29		139		0		10,877		0
Real estate - agricultural		1,429		-		78		-		860		0		1,429		0
Commercial		468		2		235		-		544		0		468		2
Agricultural		2,092		-		943		-		328		1		2,092		0
Consumer and other		45		-		-		-		4		0		45		0
Total loans with no specific reserve:		15,075		2		1,600		35		2,578		12		15,075		2

With an allowance recorded:
Real estate - construction		-		-		-		-		0		0		0		0
Real estate - 1 to 4 family residential		1,031		-		89		-		57		0		1,031		0
Real estate - commercial		488		-		-		-		10,016		0		488		0
Real estate - agricultural		-		-		-		-		0		0		0		0
Commercial		710		-		2,535		-		0		0		710		0
Agricultural		495		-		-		-		371		0		495		0
Consumer and other		9		-		7		-		40		0		9		0
Total loans with specific reserve:		2,733		-		2,631		-		10,484		0		2,733		-

Total
Real estate - construction		-		-		-		-		84		0		0		0
Real estate - 1 to 4 family residential		1,195		-		298		6		676		11		1,195		0
Real estate - commercial		11,365		-		135		29		10,155		0		11,365		0
Real estate - agricultural		1,429		-		78		-		860		0		1,429		0
Commercial		1,178		2		2,770		-		544		0		1,178		2
Agricultural		2,587		-		943		-		699		1		2,587		0
Consumer and other		54		-		7		-		44		0		54		0

	$	17,808	$	2	$	4,231	$	35	$	13,062	$	12	$	17,808	$	2

1920

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Six Months Ended June 30,

2020

2019

Average

Interest

Average

Interest

Recorded

Income

Recorded

Income

Investment

Recognized

Investment

Recognized

With no specific reserve recorded:

Real estate - construction
$ - $ - $ - $ -
Real estate - 1 to 4 family residential
263 - 223 26
Real estate - commercial
7,279 - 133 60
Real estate - agricultural
980 6 76 -
Commercial
466 2 239 -
Agricultural
2,378 - 629 -
Consumer and other
31 - - -
Total loans with no specific reserve:
11,397 8 1,300 86

With an allowance recorded:

Real estate - construction
- - - -
Real estate - 1 to 4 family residential
935 - 97 -
Real estate - commercial
325 - - -
Real estate - agricultural
- - - -
Commercial
473 - 2,490 -
Agricultural
330 - - -
Consumer and other
6 - 10 1
Total loans with specific reserve:
2,069 - 2,597 1

Total

Real estate - construction
- - - -
Real estate - 1 to 4 family residential
1,198 - 320 26
Real estate - commercial
7,604 - 133 60
Real estate - agricultural
980 6 76 -
Commercial
939 2 2,729 -
Agricultural
2,708 - 629 -
Consumer and other
37 - 10 1

$ 13,466 $ 8 $ 3,897 $ 87

	Six Months Ended June 30,
	2021				2020
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
With no specific reserve recorded:
Real estate - construction	$	111	$	0	$	0	$	0
Real estate - 1 to 4 family residential		551		11		263		0
Real estate - commercial		173		297		7,279		0
Real estate - agricultural		1,128		25		980		6
Commercial		454		0		466		2
Agricultural		344		14		2,378		0
Consumer and other		5		0		31		0
Total loans with no specific reserve:		2,766		347		11,397		8

With an allowance recorded:
Real estate - construction		0		0		0		0
Real estate - 1 to 4 family residential		346		0		935		0
Real estate - commercial		10,016		0		325		0
Real estate - agricultural		0		0		0		0
Commercial		222		0		473		0
Agricultural		408		0		330		0
Consumer and other		39		0		6		0
Total loans with specific reserve:		11,031		0		2,069		0

Total
Real estate - construction		111		0		0		0
Real estate - 1 to 4 family residential		897		11		1,198		0
Real estate - commercial		10,189		297		7,604		0
Real estate - agricultural		1,128		25		980		6
Commercial		676		0		939		2
Agricultural		752		14		2,708		0
Consumer and other		44		0		37		0

	$	13,797	$	347	$	13,466	$	8

The interest foregone on nonaccrual loans for the three months ended June 30, ~~2020~~2021 and ~~2019~~2020 was approximately ~~$312,000~~$170 thousand and ~~$59,000,~~$312 thousand, respectively. The interest foregone on nonaccrual loans for the six months ended June 30, ~~2020~~2021 and ~~2019~~2020 was approximately ~~$501,000~~$369 thousand and ~~$117,000,~~$501 thousand, respectively.

Nonaccrual loans at June 30, ~~2020~~2021 and December 31, ~~2019~~2020 were ~~$17,901,000~~$12.7 million and ~~$4,788,000~~$15.3 million, respectively.

The Company had loans meeting the definition of a troubled debt restructuring (TDR) of ~~$1,276,000~~$10.8 million as of June 30, ~~2020,~~2021, all of which were included in impaired and nonaccrual loans. The Company had TDRs of ~~$1,171,000~~$11.3 million as of December 31, ~~2019,~~2020, all of which were included in impaired and nonaccrual loans.

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The Company’s TDRs, on a disaggregated basis, occurring in the three and six months ended June 30, 2021 and 2020, were as follows (dollars in thousands):

	Three Months Ended June 30,
	2021						2020
			Pre-Modification		Post-Modification				Pre-Modification		Post-Modification
			Outstanding		Outstanding				Outstanding		Outstanding
	Number of		Recorded		Recorded		Number of		Recorded		Recorded
	Contracts		Investment		Investment		Contracts		Investment		Investment

Real estate - construction		0	$	0	$	0		0	$	0	$	0
Real estate - 1 to 4 family residential		1		425		425		0		0		0
Real estate - commercial		0		0		0		0		0		0
Real estate - agricultural		0		0		0		0		0		0
Commercial		0		0		0		0		0		0
Agricultural		0		0		0		0		0		0
Consumer and other		0		0		0		0		0		0

		1	$	425	$	425		0	$	0	$	0

	Six Months Ended June 30,
	2021						2020
			Pre-Modification		Post-Modification				Pre-Modification		Post-Modification
			Outstanding		Outstanding				Outstanding		Outstanding
	Number of		Recorded		Recorded		Number of		Recorded		Recorded
	Contracts		Investment		Investment		Contracts		Investment		Investment

Real estate - construction		0	$	0	$	0		0	$	0	$	0
Real estate - 1 to 4 family residential		3		578		578		0		0		0
Real estate - commercial		0		0		0		1		184		184
Real estate - agricultural		0		0		0		0		0		0
Commercial		1		58		58		1		61		61
Agricultural		0		0		0		0		0		0
Consumer and other		0		0		0		0		0		0

		4	$	636	$	636		2	$	245	$	245

During the three months ended June 30, 2021, the Company granted concessions to one borrower facing financial difficulties which was unrelated to COVID-19. The loan was restructured with a lower interest rate and the amortization period was extended longer than a typical loan. During the three months ended June 30, 2020, ~~and~~ ~~2019,~~the Company did not grant any concessions to borrowers that are facing financial difficulties. During the six months ended June 30, 2021, the Company granted concessions to three borrowers facing financial difficulties. The loans were restructured with a lower interest rate or amortization periods longer than a typical loan. During the six months ended June 30, 2020, the Company granted concessions to two borrowers facing financial difficulties. One loan was secured by commercial real estate and the second loan was secured by a commercial operating note. Payments on these loans were deferred for six months and the interest rate was reduced below the market interest rate. ~~During the~~ ~~six~~ ~~months ended~~ ~~June 30, 2019,~~ ~~the Company did~~ ~~not~~ ~~grant concessions to any borrowers facing financial difficulty. COVID-~~19 ~~related loan modifications are~~ ~~not~~ ~~reported as TDR’s.~~

There were 0 TDR loans that were modified during the six months ended June 30, ~~2020~~2021 and twelve months ended June 30, ~~2019~~2021 that had payment defaults. The Company considers TDR loans to have payment default when it is past due 60 days or more.

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There were ~~$16,000~~0 net charge-offs and $16 thousand of net charge-offs related to TDRs for the three months ended June 30, ~~2020~~2021 and ~~$31,000~~2020, respectively. There were $262 thousand of net recoveries and $31 thousand of net charge-offs related to TDRs for the six months ended June 30, ~~2020.~~2021 ~~There were 0 charge-offs related to TDRs~~and 2020, respectively. No additional specific reserve was provided for the three and six months ended June 30, ~~2019.~~2021 and 2020.

Section 4013 of the CARES Act, “Temporary Relief From TDRs,” allows financial institutions the option to temporarily suspend certain requirements under U.S. GAAP related to TDRs for a limited period of time during the COVID-19 pandemic. This temporary suspension may only be applied to modifications of loans that were not more than 30 days past due as of December 31, 2019 and may not be applied to modifications that are not related to the COVID-19 pandemic. If elected, the temporary suspension may be applied to eligible modifications executed during the period beginning on March 1, 2020 and ending on the earlier of December 31, 2020, extended to January 1, 2022 under the Coronavirus Response and Relief Supplemental Appropriations Act, or 60 days after the termination of the COVID-19 national emergency. In March 2020, ~~various regulatory agencies, including~~federal banking regulators in consultation with the ~~Board of Governors of the Federal Reserve System and the FDIC, (the "agencies")~~FASB issued an interagency ~~statement~~statements that include similar guidance on loan modifications and reporting for financial institutions working with customers affected by COVID-19. The interagency statement ~~was effective immediately and impacted accounting for loan modifications. Under ASC~~ ~~310~~-~~40,~~ “Receivables – Troubled Debt Restructurings by Creditors,” a restructuring of debt constitutes a TDR if the creditor grants a concession and the debtor is experiencing financial difficulties. The agencies confirmed with the staff of the FASBprovided that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not to be considered TDRs. ~~This includes short-term (e.g.,~~

As of ~~six~~June 30, 2021, the Company had 4 COVID-19 ~~months)~~related loan modifications ~~such as payment deferrals, fee waivers, extensions~~still in the modification period with a total outstanding principal balance of ~~repayment terms, or other delays~~$15.3 million. As of December 31, 2020, the Company had 24 COVID-19 related loan modifications still in ~~payment that~~the modification period with a total outstanding principal balance of $45.9 million. Modified loans continue to accrue interest and are ~~insignificant. Borrowers considered current are those that are less than~~ 30 ~~days~~evaluated for past due status based on ~~their contractual payments at~~ the ~~time a modification program is implemented. The Company is applying this guidance to qualifying loan modifications. There were $122,778,000 of loans modified under these rules during the~~ ~~six~~ ~~months ended~~ ~~June 30, 2020.~~ ~~These loans did~~ ~~not~~ ~~have financial difficulty prior to the COVID-~~19 ~~pandemic and were generally modified for principal and interest~~revised payment ~~deferral or interest only payments for up to~~ ~~six~~ ~~months.~~terms.

2023

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An aging analysis of the recorded investments in loans, on a disaggregated basis, as of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, is as follows (in thousands):

2020			90 Days								90 Days
2021															90 Days								90 Days
	30-89		or Greater		Total						or Greater		30-89		or Greater		Total						or Greater
	Past Due		Past Due		Past Due		Current		Total		Accruing		Past Due		Past Due		Past Due		Current		Total		Accruing

Real estate - construction	$	429	$	-	$	429	$	50,616	$	51,045	$	-	$	0	$	0	$	0	$	46,164	$	46,164	$	0
Real estate - 1 to 4 family residential		749		233		982		204,272		205,254		109		791		103		894		225,789		226,683		4
Real estate - commercial		4,940		10,325		15,265		447,812		463,077		-		2,525		0		2,525		496,036		498,561		0
Real estate - agricultural		586		2,004		2,590		157,696		160,286		-		577		0		577		151,580		152,157		0
Commercial		268		1,572		1,840		156,377		158,217		-		828		6		834		105,182		106,016		0
Agricultural		149		1,747		1,896		107,170		109,066		532		67		294		361		97,872		98,233		0
Consumer and other		30		20		50		17,654		17,704		-		23		5		28		15,594		15,622		0

	$	7,151	$	15,901	$	23,052	$	1,141,597	$	1,164,649	$	641	$	4,811	$	408	$	5,219	$	1,138,217	$	1,143,436	$	4

2019			90 Days								90 Days
2020															90 Days								90 Days
	30-89		or Greater		Total						or Greater		30-89		or Greater		Total						or Greater
	Past Due		Past Due		Past Due		Current		Total		Accruing		Past Due		Past Due		Past Due		Current		Total		Accruing

Real estate - construction	$	1,796	$	-	$	1,796	$	46,099	$	47,895	$	-	$	169	$	167	$	336	$	45,161	$	45,497	$	0
Real estate - 1 to 4 family residential		811		290		1,101		200,409		201,510		188		1,523		176		1,699		211,863		213,562		6
Real estate - commercial		387		-		387		435,463		435,850		-		152		56		208		496,149		496,357		0
Real estate - agricultural		422		-		422		160,349		160,771		-		574		1,618		2,192		149,800		151,992		0
Commercial		518		237		755		83,329		84,084		-		283		3		286		122,249		122,535		3
Agricultural		666		2,587		3,253		108,692		111,945		62		79		458		537		102,049		102,586		30
Consumer and other		146		6		152		18,639		18,791		5		18		16		34		15,014		15,048		0

	$	4,746	$	3,120	$	7,866	$	1,052,980	$	1,060,846	$	255	$	2,798	$	2,494	$	5,292	$	1,142,285	$	1,147,577	$	39

~~The increase in the~~ 90 ~~days or greater loans from~~ ~~December 31, 2019~~ ~~is primarily due to~~ ~~one~~ ~~hospitality loan as of~~ ~~June 30, 2020.~~

2124

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The credit risk profile by internally assigned grade, on a disaggregated basis, as of June 30, ~~2020~~2021 and December 31, ~~2019~~2020 is as follows (in thousands):

2020	Construction		Commercial		Agricultural
2021													Construction		Commercial		Agricultural
	Real Estate		Real Estate		Real Estate		Commercial		Agricultural		Total		Real Estate		Real Estate		Real Estate		Commercial		Agricultural		Total

Pass	$	38,995	$	352,549	$	115,509	$	135,955	$	79,597	$	722,605	$	44,565	$	360,863	$	123,723	$	92,810	$	81,986	$	703,947
Watch		12,050		90,122		33,718		16,302		24,570		176,762		246		77,746		21,918		8,520		14,842		123,272
Special Mention		-		5,015		-		1,057		-		6,072		1,353		22,315		171		1,336		0		25,175
Substandard		-		4,255		8,996		3,128		3,188		19,567		0		27,484		5,717		3,079		755		37,035
Substandard-Impaired		-		11,136		2,063		1,775		1,711		16,685		0		10,153		628		271		650		11,702

	$	51,045	$	463,077	$	160,286	$	158,217	$	109,066	$	941,691	$	46,164	$	498,561	$	152,157	$	106,016	$	98,233	$	901,131

2019	Construction		Commercial		Agricultural
2020													Construction		Commercial		Agricultural
	Real Estate		Real Estate		Real Estate		Commercial		Agricultural		Total		Real Estate		Real Estate		Real Estate		Commercial		Agricultural		Total

Pass	$	41,073	$	387,274	$	118,692	$	62,655	$	90,083	$	699,777	$	39,980	$	346,591	$	110,925	$	101,858	$	80,075	$	679,429
Watch		6,822		29,209		32,780		16,147		15,248		100,206		5,350		88,113		33,144		15,897		20,793		163,297
Special Mention		-		4,581		-		-		-		4,581		0		23,753		175		52		0		23,980
Substandard		-		14,703		9,215		4,820		3,663		32,401		0		27,642		6,084		3,788		859		38,373
Substandard-Impaired		-		83		84		462		2,951		3,580		167		10,258		1,664		940		859		13,888

	$	47,895	$	435,850	$	160,771	$	84,084	$	111,945	$	840,545	$	45,497	$	496,357	$	151,992	$	122,535	$	102,586	$	918,967

The credit risk profile based on payment activity, on a disaggregated basis, as of June 30, ~~2020~~2021 and December 31, ~~2019~~2020 is as follows (in ~~thousands~~)thousands):

2020	1-4 Family
2021							1-4 Family
	Residential		Consumer				Residential		Consumer
	Real Estate		and Other		Total		Real Estate		and Other		Total

Performing	$	203,953	$	17,684	$	221,637	$	225,725	$	15,581	$	241,306
Non-performing		1,301		20		1,321		958		41		999

	$	205,254	$	17,704	$	222,958	$	226,683	$	15,622	$	242,305

2019	1-4 Family
2020							1-4 Family
	Residential		Consumer				Residential		Consumer
	Real Estate		and Other		Total		Real Estate		and Other		Total

Performing	$	200,117	$	18,782	$	218,899	$	212,282	$	15,003	$	227,285
Non-performing		1,393		9		1,402		1,280		45		1,325

	$	201,510	$	18,791	$	220,301	$	213,562	$	15,048	$	228,610

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9.	~~Goodwill~~

~~As a result of the acquisition of ISSB in~~ ~~2019,~~ goodwill of $2.7 million was recognized. Goodwill recognized in the Acquisition was primarily attributable to an expanded market share and economies of scale expected from combining the operations of ISSB. For income tax purposes, goodwill associated with ISSB is amortized over a ~~fifteen~~ ~~year period. Goodwill for this acquisition and previous acquisitions is~~ ~~not~~ ~~amortized but is evaluated for impairment at least annually.~~

~~10.~~8.

Intangible assets

~~In conjunction with the acquisition of ISSB in~~ ~~2019,~~ ~~the Company recorded $1.9 million in core deposit intangible assets.~~ The following sets forth the carrying amounts and accumulated amortization of the intangible assets at June 30, ~~2020~~2021 and December 31, ~~2019~~2020 (in thousands):

	2020				2019				2021				2020
	Gross		Accumulated		Gross		Accumulated		Gross		Accumulated		Gross		Accumulated
	Amount		Amortization		Amount		Amortization		Amount		Amortization		Amount		Amortization

Core deposit intangible asset	$	6,411	$	3,140	$	6,411	$	2,745	$	6,411	$	3,774	$	6,411	$	3,493
Customer list		535		281		535		242		535		359		535		320

Total	$	6,946	$	3,421	$	6,946	$	2,987	$	6,946	$	4,133	$	6,946	$	3,813

The weighted average remaining life of the intangible assets is ~~4.0~~approximately 4 years as of June 30, ~~2020~~2021 and ~~4.2 years as of~~ December 31, ~~2019.~~2020.

The following sets forth the activity related to the intangible assets for the three and six months ended June 30, ~~2020~~2021 and ~~2019~~2020 (in thousands):

	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
	June 30,						June 30,						June 30,						June 30,
	2020			2019			2020			2019			2021			2020			2021			2020

Beginning intangible assets, net	$	3,742		$	2,514		$	3,959		$	2,678		$	2,973		$	3,742		$	3,133		$	3,959
Amortization		(217	)		(139	)		(434	)		(303	)		(160	)		(217	)		(320	)		(434	)

Ending intangible assets, net	$	3,525		$	2,375		$	3,525		$	2,375		$	2,813		$	3,525		$	2,813		$	3,525

Estimated remaining amortization expense on intangible assets for the years ending December 31 is as follows (in thousands):

2020
$ 392
2021
628
2022
574
2023
502
2024
337
2025
301
After
791

Total
$ 3,525

2021	$	308
2022		574
2023		502
2024		337
2025		300
2026		268
After		524

Total	$	2,813

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~~11.~~9.

Pledged Collateral Related to Securities Sold Under Repurchase Agreements

The repurchase agreements mature daily and the following sets forth the pledged collateral at estimated fair value related to securities sold under repurchase agreements as of June 30, ~~2020~~2021 and December 31, ~~2019~~2020 (in thousands):

	2020		2019		2021		2020
Securities sold under agreements to repurchase:
U.S. government treasuries	$	2,486	$	3,528	$	2,049	$	2,069
U.S. government agencies		39,793		35,557		36,612		39,362
U.S. government mortgage-backed securities		14,495		19,614		12,686		14,320

Total pledged collateral	$	56,774	$	58,699	$	51,347	$	55,751

In the event the repurchase agreements exceed the estimated fair value of the pledged securities available-for-sale, the Company has unpledged securities available-for-sale that may be pledged on the repurchase agreements.

~~12.~~10.

Borrowings

On June 11, 2021, the Company entered into a promissory note and line of credit agreement with an unaffiliated bank, providing for a five-year 4000000 dollar line of credit facility. The Company had 0 outstanding borrowings on the line of credit as of June 30, 2021.

11.

Income Taxes

The tax effects of temporary differences related to income taxes are included in deferred income taxes. The change in deferred income taxes since December 31, ~~2019~~2020 is due primarily to the ~~increase~~decrease in the ~~net~~ unrealized gains on investment securities.

12.

Commitments, Contingencies and Concentrations of Credit Risk

On April 16, 2021, the Company entered into a $1.7 million commitment with a contractor to build a new branch in West Des Moines, Iowa. The full commitment was remaining at June 30, 2021.

13.

Regulatory Matters

On ~~June 30,~~March 31, 2020, the Banks qualified for and elected to use the community bank leverage ratio (CBLR) framework. In order to qualify for the CBLR framework, a community banking organization must have a tier 1 leverage ratio of greater than 8%, less than $10 billion in total consolidated assets, and limited amounts of off-balance-sheet exposures and trading assets and liabilities. ~~Beginning in~~On January 1, 2021the CBLR ~~will increase~~increased to 8.5% for the calendar ~~year. The CBLR~~year and will again increase to 9% beginning January 1, 2022. A qualifying community banking organization that opts into the CBLR framework and meets all requirements under the framework will be considered to have met the well-capitalized ratio requirements under the Prompt Corrective Action regulations and will not be required to report or calculate risk-based capital. If an electing banking organization fails to satisfy one or more of the qualifying criteria but maintains a leverage ratio of greater than 8%, that banking organization would have a “grace period” of up to two quarters during which it could continue to use the community bank leverage ratio framework and be deemed to meet the “well capitalized” capital ratio requirements. As long as the banking organization is able to return to compliance with all the qualifying criteria within two quarters, it continues to be deemed to meet the “well capitalized” ratio requirements and be in compliance with the generally applicable capital rule. State Bank & Trust was below 8.5% but greater than 8% as of June 30, 2021 and has until September 30, 2021 to return to compliance with all qualifying criteria of the CBLR. First National Bank was below 8.5% but greater than 8% as of June 30, 2021 and has until December 31, 2021 to return to compliance with all qualifying criteria of the CBLR.

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The Company and the Banks’ capital amounts and ratios as of June 30, ~~2020~~2021 and December 31, ~~2019~~2020 are as follows (dollars in thousands):

						To Be Well										To Be Well
						Capitalized Under										Capitalized Under
						Prompt Corrective										Prompt Corrective
	Actual					Action Provisions					Actual					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio

As of June 30, 2020:
As of June 30, 2021:
Community Bank Leverage Ratio:
(Tier 1 capital to average assets for leverage ratio):

Boone Bank & Trust	$	13,508		9.3	%	$	11,658		8.0	%	$	14,345		9.0	%	$	13,542		8.5	%
First National Bank		84,372		8.7			78,018		8.0			90,457		8.5			90,814		8.5
Iowa State Savings Bank		20,913		9.4			17,873		8.0			22,305		9.0			20,949		8.5
Reliance State Bank		22,330		9.8			18,283		8.0			24,146		9.0			22,885		8.5
State Bank & Trust		15,881		8.8			14,403		8.0			17,950		8.3			18,390		8.5
United Bank & Trust		10,204		9.6			8,537		8.0			10,720		8.8			10,355		8.5

~~Table of Contents~~

											To Be Well										To Be Well
											Capitalized Under										Capitalized Under
						For Capital					Prompt Corrective										Prompt Corrective
	Actual					Adequacy Purposes					Action Provisions					Actual					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio

As of December 31, 2019:
Total capital (to risk- weighted assets):
Consolidated	$	180,834		14.3	%	$	132,878		10.50	%		N/A		N/A
As of December 31, 2020:
Community Bank Leverage Ratio:
(Tier 1 capital to average assets for leverage ratio):

Boone Bank & Trust		14,205		14.1			10,610		10.50		$	10,105		10.0	%	$	13,967		9.2	%	$	12,170		8.0	%
First National Bank		87,375		13.9			66,180		10.50			63,028		10.0			86,071		8.6			80,393		8.0
Iowa State Savings Bank		20,610		14.2			15,208		10.50			14,483		10.0			21,610		9.4			18,321		8.0
Reliance State Bank		24,487		13.0			19,778		10.50			18,836		10.0			23,278		9.4			19,741		8.0
State Bank & Trust		16,800		13.5			13,115		10.50			12,490		10.0			16,564		8.5			15,657		8.0
United Bank & Trust		10,775		14.3			7,910		10.50			7,534		10.0			10,539		9.2			9,180		8.0

Tier 1 capital (to risk- weighted assets):
Consolidated	$	167,514		13.2	%	$	107,568		8.50	%		N/A		N/A
Boone Bank & Trust		13,274		13.1			8,589		8.50		$	8,084		8.0	%
First National Bank		80,665		12.8			53,574		8.50			50,423		8.0
Iowa State Savings Bank		20,151		13.9			12,311		8.50			11,587		8.0
Reliance State Bank		22,166		11.8			16,010		8.50			15,069		8.0
State Bank & Trust		15,233		12.2			10,617		8.50			9,992		8.0
United Bank & Trust		9,955		13.2			6,403		8.50			6,027		8.0

Tier 1 capital (to average- assets):
Consolidated	$	167,544		10.1	%	$	66,234		4.00	%		N/A		N/A
Boone Bank & Trust		13,274		9.5			5,604		4.00		$	7,005		5.0	%
First National Bank		80,665		9.3			34,702		4.00			43,378		5.0
Iowa State Savings Bank		20,151		9.5			8,453		4.00			10,567		5.0
Reliance State Bank		22,166		10.0			8,886		4.00			11,108		5.0
State Bank & Trust		15,233		9.5			6,384		4.00			7,980		5.0
United Bank & Trust		9,955		9.8			4,073		4.00			5,091		5.0

Common equity tier 1 capital (to risk-weighted assets):
Consolidated	$	167,544		13.2	%	$	88,585		7.00	%		N/A		N/A
Boone Bank & Trust		13,274		13.1			7,074		7.00		$	6,568		6.5	%
First National Bank		80,665		12.8			44,120		7.00			40,968		6.5
Iowa State Savings Bank		20,151		13.9			10,138		7.00			9,414		6.5
Reliance State Bank		22,166		11.8			13,185		7.00			12,243		6.5
State Bank & Trust		15,233		12.2			8,743		7.00			8,119		6.5
United Bank & Trust		9,955		13.2			5,273		7.00			4,897		6.5

14.

Subsequent Events

Management evaluated subsequent events through the date the financial statements were issued. There were no significant events or transactions occurring after June 30, ~~2020,~~2021, but prior to August ~~6, 2020,~~5, 2021, that provided additional evidence about conditions that existed at June 30, ~~2020.~~2021. Except for dividends declared on July ~~8, 2020,~~14, 2021, there were no other significant events or transactions that provided evidence about conditions that did not exist at June 30, ~~2020.~~2021.

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~~Item 2.~~

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Ames National Corporation (the “Company”) is a bank holding company established in 1975 that owns and operates six bank subsidiaries in central Iowa (the “Banks”). The following discussion is provided for the consolidated operations of the Company and its Banks, First National Bank, Ames, Iowa (First National), State Bank & Trust Co. (State Bank), Boone Bank & Trust Co. (Boone Bank), Reliance State Bank (Reliance Bank), United Bank & Trust NA (United Bank) and Iowa State Savings Bank (Iowa State Bank). The purpose of this discussion is to focus on significant factors affecting the Company's financial condition and results of operations.

The Company does not engage in any material business activities apart from its ownership of the Banks. Products and services offered by the Banks are for commercial and consumer purposes including loans, deposits and wealth management services. Wealth management services includes financial planning and managing trust, agencies, estates and investment brokerage accounts. The Company employs sixteen individuals to assist with financial reporting, human resources, audit, compliance, marketing, technology systems, training, real estate valuation services and the coordination of management activities, in addition to ~~269~~254 full-time equivalent individuals employed by the Banks.

The Company’s primary competitive strategy is to utilize seasoned and competent Bank management and local decision making authority to provide customers with faster response times and more flexibility in the products and services offered. This strategy is viewed as providing an opportunity to increase revenues through creating a competitive advantage over other financial institutions. The Company also strives to remain operationally efficient to provide better profitability while enabling the Company to offer more competitive loan and deposit rates.

The Company announced the closing of two branches of Iowa State Bank located in Diagonal and Corning, Iowa and the closing of one branch of First National located in Murray, Iowa as a result of limited customer activity. We expect to serve these customers at other branches.

~~The~~ principal sources of Company revenues and cash flow are: (i) interest and fees earned on loans made by the Company and Banks; (ii) interest on fixed income investments held by the Banks; (iii) fees on wealth management services provided by those Banks exercising trust powers; (iv) service fees on deposit accounts maintained at the ~~Banks~~Banks; (v) gain on sale of loans; and ~~(v)~~(vi) merchant and card fees. The Company’s principal expenses are: (i) interest expense on deposit accounts and other borrowings; (ii) provision for loan losses; (iii) salaries and employee benefits; (iv) data processing costs associated with maintaining the Banks’ loan and deposit functions; (v) occupancy expenses for maintaining the Bank’s facilities; and (vi) professional fees. The largest component contributing to the Company’s net income is net interest income, which is the difference between interest earned on earning assets (primarily loans and investments) and interest paid on ~~interest bearing~~interest-bearing liabilities (primarily deposits and other borrowings). One of management’s principal functions is to manage the spread between interest earned on earning assets and interest paid on interest bearing liabilities in an effort to maximize net interest income while maintaining an appropriate level of interest rate risk.

The Company had net income of ~~$4,428,000,~~$5.9 million, or $0.64 per share, for the three months ended June 30, 2021, compared to net income of $4.4 million, or $0.49 per share, for the three months ended June 30, 2020. The increase in earnings is primarily the result of a decrease in provision for loan losses due to a higher level of provision in 2020 ~~compared~~as a result of the onset of the COVID-19 pandemic and a reduction in interest expense due to ~~net income of $4,618,000, or $0.50 per share,~~declines in market interest rates.

Net loan recoveries totaled $6 thousand for the three months ended June 30, ~~2019.~~

~~The decrease in earnings is primarily due~~2021 compared to net loan charge offs of $471 thousand for the ~~additional~~three months ended June 30, 2020. A (credit) for loan losses of ($20) thousand was recognized for the three months ended June 30, 2021 as compared to a $1.6 million provision for loan ~~losses in~~loss for the three months ended June 30, 2020. The ~~increase in the provision~~credit for loan losses was primarily due to ~~the~~improving economic ~~slowdown associated with COVID-19 and to a lesser extent the increase in net charge-offs.~~conditions. The economic slowdown associated with COVID-19 will adversely affect our loan portfolios, but will more quickly affect the loans associated with hospitality and entertainment industries. As of June 30, 2020 approximately 8.3% of our loan portfolio is associated with these industries. There have been requestsprovision for loan ~~payment modifications across all loan portfolios. These modifications were~~losses in 2020 was primarily ~~related~~due to payment deferrals or interest only payments for up to six months. The total loans modified was approximately $122,778,000 as of June 30, 2020. The federal government is providing numerous programs to lessen the ~~effects of COVID-19 on the economy and on our loan portfolio. The severity~~onset of the ~~effect of~~ COVID-19 on our operations is difficult to determine at this time. The State of Iowa has been easing restrictions on non-essential businesses. The longer these restrictions are in place the more severe the effects of the economic slowdown will be and the greater the negative consequences for our loan customers which, in turn, could adversely affect the Company’s financial condition, liquidity and results of operations.pandemic.

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Net loan charge-offs totaled $470,000 and $11,000 for the three months ended June 30, 2020 and 2019, respectively. The provision for loan losses totaled $1,566,000 and $68,000 for the three months ended June 30, 2020 and 2019, respectively.

~~The Company had net income of $7,982,000, or $0.87 per share, for the six months ended June 30, 2020, compared to net income of $8,855,000, or $0.96 per share, for the six months ended June 30, 2019.~~

The decrease in earnings is primarily the result of the additional provision for loan losses in 2020. The increase in the provision for loan losses was primarily due to the economic slowdown associated with COVID-19 and to a lesser extent loan growth and the increase in net charge-offs.

Net loan charge-offs (recoveries) totaled $497,000 and ($19,000) for the six months ended June 30, 2020 and 2019, respectively. The provision for loan losses totaled $3,883,000 and $166,000 for the six months ended June 30, 2020 and 2019, respectively.

The following management discussion and analysis will provide a review of important items relating to:

●	Challenges and COVID-19 Status, Risks and Uncertainties

●	Key Performance Indicators and Industry Results

●	Critical Accounting Policies

●	Non-GAAP Financial Measures

●	Income Statement Review

●	Balance Sheet Review

●	Asset Quality Review and Credit Risk Management

●	Liquidity and Capital Resources

●	Forward-Looking Statements and Business Risks

●	~~Non-GAAP Financial Measures~~

Challenges and COVID-19 Status, Risks and Uncertainties

~~Prior to the onset of the COVID-19 pandemic during the first quarter of 2020, management had~~

Management has identified certain events or circumstances that may negatively impact the Company’s financial condition and results of operations in the future and ~~detailed its efforts~~is attempting to position the Company to best respond to those challenges. These challenges are addressed in the Company’s most recent Annual Report on Form 10-K filed on March ~~10, 2020.~~12, 2021.

The Company conducts business in the State of Iowa and Iowa began to place significant restrictions on companies and individuals on March 9, 2020 as a result of the COVID-19 pandemic. The State of Iowa has eased many of the restrictions related to the COVID-19 pandemic. As an organization that focuses on community banking, we are concerned about the health of our customers, employees and local communities and keep that thought at the forefront of our decisions. The Company, as a financial institution, is considered an essential business and therefore continues to operate. The Company’s bank lobbies are generally open to the public, with business also being transacted through our drive up facilities, online, telephone or by appointment. Some of the mitigations in place at our offices related to COVID-19 include face coverings, social distancing, frequent hand washing, and protective shields. Although the Company anticipates moving toward normalized operations, changes in restrictions by governmental authorities may change these plans.

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~~The onset~~continuation of the COVID-19 pandemic has significantly heightened the level of challenges, risks and uncertainties facing ~~the Company~~our business and ~~its~~continuation of operations, including the following:

●

AsAlthough the economy continues to rebound from the depths of the economic slowdown ~~continues to evolve due to~~associated with the pandemic, some of the Company’s customers may continue to experience decreased revenues, which may correlate to an inability to make timely loan payments or maintain payrolls. This, in turn, could adversely impact the revenues and earnings of the Company by, among other things, requiring further increases in the allowance for loan losses and increases in the level of charge-offs in the loan portfolio. Although the economic slowdown will adversely affect the loan portfolio in general, it will more quickly affect loans associated with the hospitality and entertainment industries which comprise approximately 8.3% of the loan portfolio as of June 30, 2020. As detailed herein, the Company recognized a significantManagement may increase ~~in provision expense during the six months ended June 30, 2020. The increase was due in part to the economic slowdown, and management anticipates additional increases in~~ the allowance if the effects of the COVID-19 ~~restrictions continue to~~pandemic negatively impact the loan ~~portfolio.~~

●

Local and the State of Iowa’s elevated unemployment may continue to cause economic challenges to our consumer and commercial customers due to the economic effects of COVID-19 restrictions. Higher levels of unemployment may adversely impact the revenues and earnings of the Company.

●

~~The Company anticipates a slowdown in demand for its products and services, including in the demand for traditional loans, although the timing of the recovery is uncertain.~~

●

Goodwill is currently evaluated for impairment quarterly and goodwill has been determined to not be impaired as of June 30, 2020. In the future goodwill may be impaired if the effects of COVID-19 restrictions negatively impacts our net income and fair value, particularly of our most recent acquisition. An impairment of goodwill would decrease the Company’s earnings during the period in which the impairment is recorded.

●

The COVID-19 restrictions have created significant volatility and disruption in the financial markets, and these conditions may require the Company to recognize an elevated level of other than temporary impairments on securities held in the Company’s investment portfolio as issuers of these securities are negatively impacted by the economic slowdown. Declines in fair value of securities held in the portfolio could also reduce the unrealized gains reported as part of the Company’s other comprehensive income.portfolio;

●

Market interest rates ~~have declined significantly~~remain at historic lows and ~~these reductions, especially~~ if prolonged, could adversely affect ~~the Company’s~~our net interest income, net interest margin and ~~earnings.~~earnings;

●

~~Dividends~~We may experience a slowdown in demand for our products and services as the ~~future~~effects of the pandemic continue to linger, including the demand for traditional loans, although we believe any decline experienced to date has largely been offset by the new volume of PPP loans under the CARES Act and other governmental programs established in response to the pandemic. We had 897 PPP loans with an aggregate outstanding balance of $37.6 million as of June 30, 2021;

●

As evidenced by the level of loans classified as substandard and watch as of June 30, 2021, we continue to experience a higher risk of delinquencies, defaults and foreclosures, as well as declining collateral values and further impairment of the ability of our borrowers to repay their loans, all of which may ~~be reduced or eliminated if~~result in additional credit charges and other losses in our loan portfolio;

●

Throughout the COVID-19 ~~restrictions have an adverse effect on net income, an unanticipated increase~~pandemic we actively worked with loan customers to evaluate prudent loan modification terms. As of June 30, 2021, approximately $15.3 million, or 1.34%, of loans were in ~~deposits or other unidentified risks that may negatively affect the Company’s capital ratios.~~payment deferral status under COVID-19 related modifications; and

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●

In meeting our objective to maintain our capital levels and liquidity position through the COVID-19 pandemic, our Board of Directors may reduce or determine to altogether forego payment of future dividends in order to maintain and/or strengthen our capital and liquidity position.

Key

Key Performance Indicators and Industry Results

Certain key performance indicators for the Company and the industry are presented in the following chart. The industry figures are compiled by the Federal Deposit Insurance Corporation (the “FDIC”) and are derived from ~~5,116~~4,978 commercial banks and savings institutions insured by the FDIC. Management reviews these indicators on a quarterly basis for purposes of comparing the Company’s performance from quarter-to-quarter against the industry as a whole.

Selected Indicators for the Company and the Industry

	3 Months			6 Months									Years Ended December 31,												3 Months			6 Months									Years Ended December 31,
	Ended			Ended			3 Months Ended																		Ended			Ended			3 Months Ended
	June 30, 2020						March 31, 2020						2019						2018						June 30, 2021						March 31, 2021						2020						2019
	Company						Company			Industry*			Company			Industry*			Company			Industry*			Company						Company			Industry*			Company			Industry*			Company			Industry*

Return on assets		0.94	%		0.88	%		0.81	%		0.38	%		1.14	%		1.29	%		1.23	%		1.35	%		1.12	%		1.16	%		1.19	%		1.38	%		1.01	%		0.72	%		1.14	%		1.29	%

Return on equity		9.09	%		8.27	%		7.44	%		3.50	%		9.48	%		11.40	%		10.09	%		11.98	%		11.39	%		11.46	%		11.52	%		13.73	%		9.48	%		6.88	%		9.48	%		11.38	%

Net interest margin		3.10	%		3.14	%		3.18	%		3.13	%		3.21	%		3.36	%		3.23	%		3.40	%		2.84	%		2.85	%		2.86	%		2.56	%		3.13	%		2.82	%		3.21	%		3.36	%

Efficiency ratio		56.49	%		57.10	%		57.73	%		58.50	%		58.51	%		56.63	%		55.90	%		56.27	%		56.01	%		55.86	%		55.70	%		59.96	%		55.83	%		59.78	%		58.51	%		56.63	%

Capital ratio		10.35	%		10.63	%		10.92	%		10.44	%		12.05	%		9.66	%		12.18	%		9.70	%		9.84	%		10.08	%		10.33	%		9.97	%		10.66	%		8.81	%		12.05	%		9.66	%

*Latest available data

Key performances indicators include:

●	Return on Assets

This ratio is calculated by dividing net income by average assets. It is used to measure how effectively the assets of the Company are being utilized in generating income. The Company's annualized return on average assets was ~~0.94%~~1.12% and ~~1.27%~~0.94% for the three months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. This ratio ~~declined~~increase was primarily ~~due to an increase~~the result of a decrease in the provision for loan ~~losses for the three months ended June 30, 2020 as compared~~loss and a reduction in interest expense due to ~~2019.~~market rate decreases.

●	Return on Equity

This ratio is calculated by dividing net income by average equity. It is used to measure the net income or return the Company generated for the shareholders’ equity investment in the Company. The Company's return on average equity was at ~~9.09%~~11.39% and ~~10.32%~~9.09% for the three months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. This ratio ~~declined~~increase was primarily ~~due to an increase~~the result of a decrease in the provision for loan ~~losses for the three months ended June 30, 2020 as compared~~loss and a reduction in interest expense due to ~~2019.~~market rate decreases.

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●	Net Interest Margin

The net interest margin for the three months ended June 30, 2021 and 2020 was 2.84% and ~~2019 was~~ 3.10% ~~and 3.20%~~, respectively. The ratio is calculated by dividing tax equivalent net interest income by average earning assets. Earning assets are primarily made up of loans and investments that earn interest. This ratio is used to measure how well the Company is able to maintain interest rates on earning assets above those of interest-bearing liabilities, which is the interest expense paid on deposits and other borrowings.

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●	Efficiency Ratio

This ratio is calculated by dividing noninterest expense by the sum of net interest income and noninterest income. The ratio is a measure of the Company’s ability to manage noninterest expenses. The Company’s efficiency ratio was ~~56.49%~~56.01% and ~~54.92%~~56.49% for the three months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The efficiency ratio ~~remains comparable~~has slightly improved compared to the ~~prior~~same quarter last year.

●	Capital Ratio

The average capital ratio is calculated by dividing average total equity capital by average total assets. It measures the level of average assets that are funded by shareholders’ equity. Given an equal level of risk in the financial condition of two companies, the higher the capital ratio, generally the more financially sound the company. The Company’s capital ratio of ~~10.35%~~9.84% as of June 30, ~~2020~~2021 is ~~comparable~~similar to the industry average of ~~10.44%~~9.97% as of March 31, ~~2020.~~2021.

Industry Results:

The FDIC Quarterly Banking Profile reported the following results for the first quarter of ~~2020~~2021:

Quarterly Net Income ~~Falls by 69.6%~~More Than Tripled From ~~First~~the Year-Ago Quarter ~~2019~~

~~Aggregate net~~Net income ~~for the 5,116 FDIC-insured commercial banks and savings institutions~~ totaled ~~$18.5~~$76.8 billion ~~during~~in first quarter 2021, an increase of $17.3 billion (29.1%) from fourth quarter 2020 ~~a decline of $42.2~~and $58.3 billion ~~(69.6%~~(315.3%) from a year ago. ~~The decline~~Aggregate negative provision expense of $14.5 billion, which declined $17.7 billion from fourth quarter 2020, drove the improvement in net income ~~is a reflection of deteriorating economic activity, which resulted in an increase in provision expenses and goodwill impairment charges. The decline was broad-based, as slightly more than half (55.9%)~~from the previous quarter. Three-fourths of all banks (74.8%) reported ~~annual declines in~~higher quarterly net ~~income.~~income compared with the year-ago quarter. The share of unprofitable ~~banks increased~~institutions dropped from 7.4% a year ago to 3.9%. The banking industry reported an aggregate return on average assets ratio of 1.38%, up 1 percentage point from a year ago ~~to 7.3%. The average return on assets ratio declined~~and 28 basis points from ~~1.35% in first~~fourth quarter ~~2019 to 0.38% in the current quarter.~~2020.

Net Interest ~~Income Declines 1.4% From 12 Months Ago~~Margin Contracted Further to a New Record Low

On an annual basis, net interest income declined for the second consecutive quarter, falling by $2 billion (1.4%) from a year ago. Less than half (44.6%) of all banks reported annual declines in net interest income. The average net interest margin ~~(NIM) for the banking industry was down 29~~contracted 57 basis points from a year ago to ~~3.13%~~2.56%, the lowest level on record in the Quarterly Banking Profile (QBP). Net interest income declined $7.6 billion (5.6%) from first quarter 2020 as the ~~decline~~year-over-year reduction in ~~average earning asset yields~~interest income (down $29.8 billion, or 17.6%) outpaced the decline in ~~average funding costs. The year over-year compression of~~interest expense (down $22.2 billion, or 68.7%). Despite the ~~NIM was broad-based, as it declined for all five asset size groups featured~~aggregate decline in ~~the Quarterly Banking Profile.~~

~~Noninterest Income Increases 2.3% From a Year Ago~~

~~Noninterest~~net interest income, ~~of $66.9 billion increased by $1.5 billion (2.3%) from 12 months ago. The annual increase was broad-based, as almost two-thirds (64.7%)~~more than three-fifths of all banks (64.4%) reported higher ~~noninterest income.~~net interest income compared with a year ago. The ~~year-over-year increase in noninterest income was led by~~average yield on earning assets declined 1.1% points from the ~~all other noninterest income category,~~year-ago quarter to 2.76%, while the average cost of funding earning assets declined 54 basis points to 0.20%, both of which includes merchant credit card fees, annual credit card fees, and credit card interchange fees. This category of income rose by $6.6 billion (22.7%), but was partially offset by declines in trading revenue on equity contracts (down $3.9 billion, or 136%) and servicing fee income (down $3.3 billion, or 215.3%).are record lows.

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More Than Two-Thirds of Banks Reported Higher Noninterest ~~Expense Increases Almost 12% From First Quarter 2019~~Income Year Over Year

~~Noninterest expense increased~~More than two thirds of all banks (67.9%) reported an annual increase in noninterest income. Increased revenue from servicing fees, loan sales, and trading activities lifted noninterest income by ~~$13.6~~$9.9 billion ~~(11.8%~~(14.8%) to $76.8 billion from a year ago. ~~Goodwill impairment charges, driven by a few institutions, rose by $8.4~~Servicing fee revenue increased $5.2 billion, net gains on loan sales increased $4.5 billion, and trading revenue increased $3.8 billion. ~~Approximately three out~~A decline in “other noninterest income” of ~~every four banks (72.2%~~$4.3 billion (12.1%) ~~reported annual increases~~partially offset the improvement in noninterest ~~expense. All other~~income from the year-ago quarter.

Noninterest Expense Declined From the Year-Ago Quarter

A decline in amortization expense of intangible assets drove a $4.1 billion (3.2%) reduction in total noninterest expense ~~rose by $3.4~~year over year. Amortization expense declined $8.4 billion ~~(7.3%~~(88.8%)~~, and~~. An increase in salary and employee benefits ~~grew by $1.4~~(up $6.2 billion ~~(2.5%~~or 10.6%)~~. The average~~ offset the annual reduction in noninterest expense. Average assets per employee ~~increased~~rose $1.1 million from ~~$8.8 million~~a year ago to $10.9 million.

Nearly two-thirds of all banks (65.3%) reported higher noninterest expense year over year. However, the average efficiency ratio (noninterest expense as a percentage of net interest income plus noninterest income, which indicates the cost of generating bank income) during this period declined 2.7 percentage points to 60.5%. Banks in ~~first quarter 2019 to $9.8 million~~all QBP asset size groups reported improvements in ~~first quarter 2020.~~this ratio.

Provisions for Credit Losses ~~Increase From a Year Ago~~Were Negative for the First Time on Record

~~Due~~Provisions for credit losses (provisions) declined $17.7 billion (552.6%) from the previous quarter and $67.2 billion from the year-ago quarter to ~~deteriorating economic conditions and~~negative $14.5 billion, the ~~implementation~~lowest level on record. Less than one-fourth of all institutions (24.5%) reported higher provisions compared with the year-ago quarter. The number of banks that have adopted current expected credit ~~losses~~loss (CECL) accounting ~~methodology, which requires banks~~rose by 41 to ~~allocate for expected losses over the life~~320 from fourth quarter 2020. CECL adopters reported aggregate negative provisions of the loan, provisions for credit losses increased by $38.8 billion (279.9%) from a year ago to $52.7 billion. Two hundred forty three banks adopted the CECL accounting standards in the first quarter. These institutions reported an aggregate $47.6 billion in provisions for credit losses. Almost half (49.9%) of all banks reported year-over-year increases in provisions for credit losses.

~~Net Charge-Offs Rise Almost 15% From a Year Ago~~

~~Net charge-offs totaled $14.6~~$14.9 billion in the first quarter, ~~an increase~~a reduction of ~~$1.9~~$16.1 billion ~~(14.9%)~~from the previous quarter and a reduction of $63.0 billion from one year ago. Provisions for banks that have not adopted CECL accounting totaled $391.4 million (a reduction of $1.7 billion from a quarter ago and $4.0 billion from one year ago. Slightly more than two-thirds (68%) of the increase in total net charge-offs was in the commercial and industrial (C&I) loan portfolio. C&I loan portfolio net charge-offs increased by $1.3 billion (86.9%). Credit card portfolio net charge-offs increased by $387.3 million (4.4%). The average net charge-off rate rose by 5 basis points from a year ago to 0.55%. The C&I net charge-off rate rose by 20 basis points from a year ago to 0.47% but remains below a recent high of 0.50%ago).

~~Noncurrent Loan Rate Remains Stable at 0.93%~~The Coverage Ratio Remained Above the Financial Crisis Average

~~Noncurrent~~The allowance for loan ~~balances (90~~and lease losses as a percentage of loans that are 90 days or more past due or in nonaccrual ~~status) increased by $7~~status (coverage ratio) declined 9.4% points to 174.2% from fourth quarter 2020. This ratio remains above the financial crisis average of 79.1%. Coverage ratios for banks in the largest two QBP asset size groups (“$10 billion ~~(7.3%~~to $250 billion” and “greater than $250 billion”) declined the most from ~~the previous~~fourth quarter ~~the highest quarterly dollar increase since first~~2020.

The Noncurrent Rate Declined Modestly From Fourth Quarter 2020

Loans and leases that were 90 days or more past due or in nonaccrual status (noncurrent loans and leases) declined $5.9 billion (4.6%) to $122.9 billion from fourth quarter ~~2010. Slightly less than half (46%) of all banks reported quarterly increases in~~2020. The noncurrent ~~loan balances. Noncurrent loan balances in all major loan categories increased~~rate for total loans and leases improved 5 basis points to 1.14% from the previous quarter. ~~C&I~~However, the noncurrent ~~loan balances~~rate for construction and development loans increased ~~by $3.6 billion (20.7%) and nonfarm nonresidential noncurrent loan balances increased by $2 billion (25.3%). The average noncurrent loan rate rose just 2~~7 basis points from the previous quarter to ~~0.93%~~0.72%, ~~because of an increase in total loans~~ and ~~leases that also occurred in~~ the ~~quarter. The C&I~~ noncurrent rate for home equity credit lines increased ~~by 4~~5 basis points from the previous quarter to ~~0.83%~~2.17%.

~~Total Assets Rise 8.6%~~Net Charge-Off Volume Declined From ~~Fourth~~the Year-Ago Quarter ~~2019~~

~~Total assets rose by $1.6 trillion (8.6%) from~~During the ~~previous~~year ending first quarter ~~driven by increases~~2021, net charge-offs declined $5.4 billion (36.8%), and the net charge-off rate fell 20 basis points to 0.34%, slightly above the record low of 0.32%. Reductions in ~~cash and~~charged-off credit card balances ~~due from depository institutions (up $740.4~~(down $3.3 billion, or ~~44.4%~~36.4%) and ~~loan~~charged-off commercial and ~~lease balances (up $442.9~~industrial (C&I) loans (down $1.2 billion, or ~~4.2%). Banks increased their securities holdings by $226.9 billion (5.7%~~43.5%) ~~during~~contributed most to the first quarter, with most of the growth led by mortgage-backed securities (up $152.6 billion, or 6.4%). With recent short term rate reductions in the first quarter, unrealized gains on available-for-sale securities rose by $41.8 billion (151.7%) and unrealized gains on held-to-maturity securities grew by $18.4 billion (110.2%).decline.

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~~Loan Balances Register Strong Growth~~Total Assets Increased From the Previous Quarter

Total assets increased $680.9 billion (3.1%) from fourth quarter 2020 to $22.6 trillion. Cash and balances due from depository institutions expanded $440.1 billion (13.8%), and securities rose a ~~Year Ago~~record $366.9 billion (7.2%). Mortgage-backed securities led the quarterly growth, rising $220.4 billion (7.2%), followed by growth in U.S. Treasury securities, which rose $110.7 billion (11.5%). Total loan and lease volume declined by a modest 0.4% from the previous quarter. Together, the asset growth and loan volume contraction led to a decline in the net loans and leases to total assets ratio to 47.0%, a record low.

Loan Volume Continued to Decline, Driven by a Reduction in Credit Card Balances

Total loan and lease balances ~~expanded by $442.9~~contracted $38.7 billion ~~(4.2%~~(0.4%) from the previous quarter. Slightly more than half (58.7%) of all banks increased their loan and lease balances from fourth quarter 2019. Almost all of the major loan categories reported quarterly increases. The C&I loan portfolio increased by $339.4 billion (15.4%), with most of the growth concentrated at the largest banks. Unfunded C&I loan commitments declined by $269 billion (12.7%), the largest quarterly dollar decreaseA reduction in ~~the ten years for which data are available. Loans to nondepository institutions grew by $87.0 billion (17.8%), while~~ credit card balances (down $60.9 billion, or 7.4%) drove the quarterly decline in loan volume. Unused credit card commitments declined ~~by $68.6~~for a fourth consecutive quarter (down $364.6 billion, ~~(7.3%~~or 9.2%). ~~Over~~This was the ~~past 12 months,~~largest percentage reduction in credit card commitments since first quarter 2009. Growth in Paycheck Protection Program loans, guaranteed by the Small Business Administration, grew $61.2 billion from the previous quarter to $469.4 billion.

Compared with the year-ago quarter, total loan and lease balances ~~rose~~declined $136.3 billion (1.2%). This was the first annual contraction in loan and lease volume reported by ~~$813.7~~the banking industry since third quarter 2011. Reductions in credit card balances (down $111.9 billion, ~~(8%~~or 12.8%), and C&I loans (down $93.2 billion, or 3.7%) drove the ~~highest~~ annual decline in loan volume. Despite the aggregate decline in loan volume, more than two-thirds of all banks (71.9%) reported year-over-year growth ~~rate since first quarter 2008.~~in loan and lease volume.

Deposit Growth Remained Strong

Deposits ~~Increase $1.2 Trillion From the Previous Quarter~~

~~Total deposit balances~~ grew ~~by $1.2 trillion (8.5%~~$635.2 billion (3.6%) from fourth quarter ~~2019. Interest-bearing accounts increased by $639.6~~2020 to $18.5 trillion, continuing several quarters of unprecedented deposit growth. Among deposit categories, deposits above $250,000 (up $424.8 billion, ~~(6.4%~~or 4.7%) and noninterest-bearing ~~accounts expanded by $446.3~~deposits (up $371.1 billion, ~~(14.1%). Domestic deposits in accounts larger than $250,000 increased by $761.4 billion (10.8%~~or 8.1%) from fourth quarter 2019. Deposits held in foreign offices rose by $155.9 billion (11.8%). Nondeposit liabilities, which includes fed funds purchased, repurchase agreements, Federal Home Loan Bank (FHLB) advances, and secured and unsecured borrowings, increased by $147.1 billion (11.3%)grew most from the previous quarter. ~~The rise~~Deposits as a percentage of total assets reached a record high for the QBP of 81.8% in nondeposit liabilities was primarily attributable to FHLB advances, which increased by $130.2 billion (27%). On an annual basis, total deposits increased by $1.9 trillion (13.3%), the largest year-over-year growth rate ever reported by the Quarterly Banking Profile.first quarter 2021.

Equity Capital ~~Increases From the Previous Quarter~~Continued to Grow

Equity capital ~~increased~~rose $26.1 billion (1.2%) from fourth quarter 2020, supported by ~~$4.2~~an increase in retained earnings of $15.3 billion ~~(0.2%~~(40.5%). Cash dividends totaled $23.9 billion, up 9.4% from the previous quarter. ~~Declared dividends of $32.7 billion exceeded the quarterly net income of $18.5 billion, resulting in a $14.2 billion reduction of retained earnings. Twelve insured institutions~~Fewer institutions—six banks with ~~$2 billion in~~ total assets ~~were below the~~of $536.5 million— reported capital ratios that did not meet Prompt Corrective Action (PCA) requirements for the ~~well-capitalized~~well capitalized category, ~~as defined~~compared with eight banks that did not meet this requirement in fourth quarter 2020. The number of banks that are not “well capitalized” for ~~Prompt Corrective Action purposes.~~PCA purposes is the lowest on record.

~~Two~~Three New Banks ~~Open~~Opened in First Quarter ~~2020~~2021

~~The~~Three new banks opened and 25 institutions merged in first quarter 2021. No banks failed during the quarter. With these changes, the number of FDIC-insured commercial banks and savings institutions declined from ~~5,177~~5,002 to ~~5,116 during~~4,978 in first quarter ~~2020. Two new banks were added, 57 institutions were absorbed by mergers, and one bank failed.~~2021. The number of institutions on the FDIC’s “Problem Bank List” ~~increased~~declined by one to 55 from ~~51 in~~ fourth quarter ~~2019 to 54.~~2020. Total assets of problem banks declined $1.7 billion from ~~$46.2 billion~~the fourth quarter to ~~$44.5~~$54.2 billion.

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Critical Accounting Policies

The discussion contained in this Item 2 and other disclosures included within this report are based, in part, on the Company’s audited December 31, ~~2019~~2020 consolidated financial statements. These statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The financial information contained in these statements is, for the most part, based on the financial effects of transactions and events that have already occurred. However, the preparation of these statements requires management to make certain estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses.

The Company’s significant accounting policies are described in the “Notes to Consolidated Financial Statements” accompanying the Company’s audited financial statements. Based on its consideration of accounting policies that involve the most complex and subjective estimates and judgments, management has identified the allowance for loan losses, the assessment of other-than-temporary impairment for investment securities and the assessment of goodwill impairment to be the Company’s most critical accounting policies.

Allowance for Loan Losses

The allowance for loan losses is established through a provision for loan losses that is treated as an expense and charged against earnings. Loans are charged against the allowance for loan losses when management believes that collectability of the principal is unlikely. The Company has policies and procedures for evaluating the overall credit quality of its loan portfolio, including timely identification of potential problem loans. On a quarterly basis, management reviews the appropriate level for the allowance for loan losses, incorporating a variety of risk considerations, both quantitative and qualitative. Quantitative factors include the Company’s historical loss experience, delinquency and charge-off trends, collateral values, known information about individual loans and other factors. Qualitative factors include various considerations regarding the general economic environment in the Company’s market area. To the extent actual results differ from forecasts and management’s judgment, the allowance for loan losses may be greater or lesser than future charge-offs. Due to potential changes in conditions, including the ~~recent onset of~~economic disruption and uncertainties resulting from the COVID-19 pandemic, it is at least reasonably possible that changes in estimates will occur in the near term and that such changes could be material to the amounts reported in the Company’s financial statements.

For further discussion concerning the allowance for loan losses and the process of establishing specific reserves, see the section of the Annual Report on Form 10-K entitled “Asset Quality Review and Credit Risk Management” and “Analysis of the Allowance for Loan Losses”.

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Fair Value and Other-Than-Temporary Impairment of Investment Securities

The Company’s securities available-for-sale portfolio is carried at fair value with “fair value” being defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability is not adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact.

Declines in the fair value of available-for-sale securities below their cost that are deemed to be other-than-temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the intent to sell the investment securities and the more likely than not requirement that the Company will be required to sell the investment securities prior to recovery (2) the length of time and the extent to which the fair value has been less than cost and (3) the financial condition and near-term prospects of the issuer. Due to potential changes in conditions, including the ~~recent onset of~~economic disruption and uncertainties resulting from the COVID-19 pandemic, it is at least reasonably possible that changes in management’s assessment of other-than-temporary impairment will occur in the near term and that such changes could be material to the amounts reported in the Company’s financial statements.

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Goodwill

Goodwill arose in connection with four acquisitions consummated in previous periods. Goodwill is tested annually for impairment or more often if conditions indicate a possible impairment. For the purposes of goodwill impairment testing, determination of the fair value of a reporting unit involves the use of significant estimates and assumptions. Impairment would arise if the fair value of a reporting unit is less than its carrying value. At June 30, ~~2020,~~2021, Company’s management has completed the goodwill impairment assessment and determined goodwill was not impaired. Actual future test results may differ from the present evaluation of impairment due to changes in the conditions used in the current evaluation. Goodwill may be impaired in the future if the effects of the COVID-19 ~~restrictions~~pandemic negatively impacts our net income and fair ~~value, particularly of our most recent acquisition.~~value. An impairment of goodwill would decrease the Company’s earnings during the period in which the impairment is recorded.

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Non-GAAP Financial Measures

This report contains references to financial measures that are not defined in GAAP. Such non-GAAP financial measures include the Company’s presentation of net interest income and net interest margin on a fully taxable equivalent (FTE) basis. Management believes these non-GAAP financial measures are widely used in the financial institutions industry and provide useful information to both management and investors to analyze and evaluate the Company’s financial performance. Limitations associated with non-GAAP financial measures include the risks that persons might disagree as to the appropriateness of items included in these measures and that different companies might calculate these measures differently. These non-GAAP disclosures should not be considered an alternative to the Company’s GAAP results. The following table reconciles the non-GAAP financial measures of net interest income and net interest margin on an FTE basis to GAAP (dollars in thousands).

	Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2020			2019			2020			2019				2021			2020			2021			2020			2021			2020
Reconciliation of net interest income and annualized net interest margin on an FTE basis to GAAP:													Reconciliation of net interest income and annualized net interest margin on an FTE basis to GAAP:
Net interest income (GAAP)	$	13,680		$	10,930		$	26,726		$	21,901			$	14,172		$	13,680		$	27,836		$	26,726		$	13,664		$	13,046
Tax-equivalent adjustment ⁽¹⁾		255			284			496			576				218			255			443			496			225			241
Net interest income on an FTE basis (non-GAAP)		13,935			11,214			27,222			22,477				14,390			13,935			28,279			27,222			13,889			13,287
Average interest-earning assets	$	1,797,290		$	1,400,685		$	1,733,323		$	1,397,269			$	2,026,045		$	1,797,290		$	1,984,184		$	1,733,323		$	1,941,859		$	1,669,356
Net interest margin on an FTE basis (non-GAAP)		3.10	%		3.20	%		3.14	%		3.22	%	��		2.84	%		3.10	%		2.85	%		3.14	%		2.86	%		3.18	%

(1) Computed on a tax-equivalent basis using an incremental federal income tax rate of 21 percent, adjusted to reflect the effect of the tax-exempt interest income associated with owning tax-exempt securities and loans.

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Income Statement Review for the Three Months ended June 30,~~, 20~~20 2021 and ~~201~~92020

The following highlights a comparative discussion of the major components of net income and their impact for the three months ended June 30, ~~2020~~2021 and ~~2019:~~2020:

AVERAGE BALANCES AND INTEREST RATES

The following two tables are used to calculate the Company’s non-GAAP net interest ~~margin.~~margin on an FTE basis. The first table includes the Company’s average assets and the related income to determine the average yield on earning assets. The second table includes the average liabilities and related expense to determine the average rate paid on interest-bearing liabilities. The net interest margin is equal to interest income less interest expense divided by average earning assets. Refer to the net interest income discussion following the tables for additional detail.

AVERAGE BALANCE SHEETS AND INTEREST RATES

Three Months Ended June 30,

2020

2019

Average

Revenue/

Yield/

Average

Revenue/

Yield/

balance

expense

rate

balance

expense

rate

ASSETS

(dollars in thousands)

Interest-earning assets

Loans ⁽¹⁾

Commercial
$ 145,337 $ 1,642 4.52 % $ 82,133 $ 1,119 5.45 %
Agricultural
111,289 1,322 4.75 % 81,803 1,304 6.37 %
Real estate
881,437 9,371 4.25 % 712,534 8,174 4.59 %
Consumer and other
18,195 235 5.16 % 16,694 211 5.06 %

Total loans (including fees)
1,156,258 12,570 4.35 % 893,164 10,808 4.84 %

Investment securities

Taxable
317,447 1,948 2.45 % 255,671 1,555 2.43 %
Tax-exempt ⁽²⁾
176,812 1,208 2.73 % 202,232 1,352 2.67 %
Total investment securities
494,259 3,156 2.55 % 457,903 2,907 2.54 %

Interest-bearing deposits with banks and federal funds sold
146,773 166 0.45 % 49,618 290 2.34 %

Total interest-earning assets
1,797,290 $ 15,892 3.54 % 1,400,685 $ 14,005 4.00 %

Noninterest-earning assets
83,938 53,992

TOTAL ASSETS
$ 1,881,228 $ 1,454,677

AVERAGE BALANCE SHEETS AND INTEREST RATES

~~(1) Average loan balance includes~~

Three Months Ended June 30,

2021

2020

Average

Revenue/

Yield/

Average

Revenue/

Yield/

balance

expense

rate

balance

expense

rate

ASSETS

(dollars in thousands)

Interest-earning assets

Loans ⁽¹⁾

Commercial
$ 122,183 $ 2,159 7.07 % $ 145,337 $ 1,642 4.52 %
Agricultural
97,144 996 4.10 % 111,289 1,322 4.75 %
Real estate
912,226 8,798 3.86 % 881,437 9,371 4.25 %
Consumer and other
14,954 174 4.65 % 18,195 235 5.16 %

Total loans (including fees)
1,146,507 12,127 4.23 % 1,156,258 12,570 4.35 %

Investment securities

Taxable
545,319 2,212 1.62 % 317,447 1,948 2.45 %
Tax-exempt ⁽²⁾
161,780 1,041 2.57 % 176,812 1,208 2.73 %
Total investment securities
707,099 3,253 1.84 % 494,259 3,156 2.55 %

Interest-bearing deposits with banks and federal funds sold
172,439 169 0.39 % 146,773 166 0.45 %

Total interest-earning assets
2,026,045 $ 15,549 3.07 % 1,797,290 $ 15,892 3.54 %

Noninterest-earning assets
71,709 83,938

TOTAL ASSETS
$ 2,097,754 $ 1,881,228

(1) Average loan balances include nonaccrual loans, if any. Interest income collected on nonaccrual loans has been included.

(2) Tax-exempt income has been adjusted to a tax-equivalent basis using an incremental tax rate of 21%.

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AVERAGE BALANCE SHEETS AND INTEREST RATES

Three Months Ended June 30,

2020

2019

Average

Revenue/

Yield/

Average

Revenue/

Yield/

balance

expense

rate

balance

expense

rate

LIABILITIES AND STOCKHOLDERS' EQUITY

(dollars in thousands)

Interest-bearing liabilities

Deposits

Interest-bearing checking, savings accounts and money markets
$ 1,026,705 $ 699 0.27 % $ 790,872 $ 1,616 0.82 %
Time deposits
277,939 1,199 1.73 % 222,740 990 1.78 %
Total deposits
1,304,644 1,898 0.58 % 1,013,612 2,606 1.03 %
Other borrowed funds
50,800 59 0.47 % 40,930 185 1.80 %

Total interest-bearing liabilities
1,355,444 1,957 0.58 % 1,054,542 2,791 1.06 %

Noninterest-bearing liabilities

Noninterest-bearing checking
318,609 212,929
Other liabilities
12,412 8,315

Stockholders' equity
194,763 178,890

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$ 1,881,228 $ 1,454,676

Net interest income
$ 13,935 3.10 % $ 11,214 3.20 %

Spread Analysis

Interest income/average assets
$ 15,892 3.38 % $ 14,005 3.85 %
Interest expense/average assets
$ 1,957 0.42 % $ 2,791 0.77 %
Net interest income/average assets
$ 13,935 2.96 % $ 11,214 3.08 %

AVERAGE BALANCE SHEETS AND INTEREST RATES

	Three Months Ended June 30,

	2021								2020

	Average		Revenue/			Yield/			Average		Revenue/			Yield/
	balance		expense			rate			balance		expense			rate
LIABILITIES AND
STOCKHOLDERS' EQUITY
(dollars in thousands)
Interest-bearing liabilities
Deposits
Interest-bearing checking, savings accounts and money markets	$	1,227,954	$	489			0.16	%	$	1,026,705	$	699			0.27	%
Time deposits		239,546		635			1.06	%		277,939		1,199			1.73	%
Total deposits		1,467,500		1,124			0.31	%		1,304,644		1,898			0.58	%
Other borrowed funds		40,247		35			0.35	%		50,800		59			0.47	%

Total interest-bearing liabilities		1,507,747		1,159			0.31	%		1,355,444		1,957			0.58	%

Noninterest-bearing liabilities
Noninterest-bearing checking		374,312								318,609
Other liabilities		9,292								12,412

Stockholders' equity		206,403								194,763

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	2,097,754							$	1,881,228


Net interest income (FTE)⁽³⁾			$	14,390			2.84	%			$	13,935			3.10	%

Spread Analysis (FTE)
Interest income/average assets	$	15,549		2.96	%				$	15,892		3.38	%
Interest expense/average assets	$	1,159		0.22	%				$	1,957		0.42	%
Net interest income/average assets	$	14,390		2.74	%				$	13,935		2.96	%

(3) Net interest income (FTE) is a non-GAAP financial measure. For further information, refer to the Non-GAAP Financial Measures section of this report.

Net Interest Income

For the three months ended June 30, ~~2020~~2021 and ~~2019,~~2020, the Company's net interest margin adjusted for tax exempt income was ~~3.10%~~2.84% and ~~3.20%~~3.10%, respectively. Net interest income, prior to the adjustment for tax-exempt income, for the three months ended June 30, ~~2020~~2021 totaled ~~$13,680,000~~$14.2 million compared to ~~$10,930,000~~$13.7 million for the three months ended June 30, ~~2019.~~2020.

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For the three months ended June 30, ~~2020,~~2021, interest income ~~increased $1,916,000,~~declined $307 thousand, or ~~14%~~2%, when compared to the same period in ~~2019.~~2020. The ~~increase from 2019 was~~reduction is primarily ~~attributable to increased loan volume, related to the Acquisition. The increase in loan interest income~~ due to ~~loan volume was~~lower market interest rates, offset in part by an increase in ~~foregone interest on nonaccrual loans~~the average balance of ~~$253,000.~~interest-earning assets and $1.3 million of fees recognized from Paycheck Protection Program (PPP) loans. The increase in average balances of interest-earning assets was primarily driven by the deployment of increased deposits.

Interest expense ~~decreased $834,000,~~declined $799 thousand, or ~~30%~~41%, for the three months ended June 30, ~~2020~~2021 when compared to the same period in ~~2019.~~2020. The lower interest expense for the period is primarily attributable to a ~~decrease~~decline in ~~rates on deposits due to~~ market interest ~~rates.~~rates and was offset in part by increases in average deposit balances. The increase in deposit balances was due primarily to government stimulus programs.

~~Table of Contents~~

Provision (Credit) for Loan Losses

A ~~provision~~(credit) for loan losses of ~~$1,566,000~~($20) thousand was recognized for the three months ended June 30, ~~2020~~2021 as compared to ~~$68,000~~a provision for loan losses of $1.6 million for the three months ended June 30, ~~2019.~~2020. Net loan ~~charge offs~~recoveries totaled ~~$470,000~~$6 thousand for the three months ended June 30, ~~2020~~2021 compared to ~~$11,000~~net loan charge offs of $471 thousand for the three months ended June 30, ~~2019.~~2020. The ~~increase in the provision~~(credit) for loan losses was primarily due to ~~the~~improving economic ~~slowdown associated with COVID-19 and to a lesser extent the increase in net charge-offs.~~conditions. The economic slowdown associated with COVID-19 will adversely affect our loan portfolios, but will more quickly affect loans associated with the hospitality and entertainment industries. As of June 30, 2020 approximately 8.3% of our loan portfolio is associated with these industries. There have been requestsprovision for loan ~~payment modifications across all loan portfolios. These modifications were~~losses in 2020 was primarily ~~related~~due to payment deferrals or interest only payments for up to six months. The total loans modified was approximately $122,778,000 as of June 30, 2020. The federal government is providing numerous programs to lessen the ~~effects of COVID-19 on the economy and on our loan portfolio. The severity~~onset of the ~~effect of~~ COVID-19 on our operations is difficult to determine at this time. The State of Iowa has been easing restrictions on non-essential businesses. The longer these restrictions are in place the more severe the effects of the economic slowdown will be and the greater the negative consequences for our loan customers which, in turn, could adversely affect the Company’s financial condition, liquidity and results of operations.pandemic.

Noninterest Income and Expense

Noninterest income for the three months ended June 30, ~~2020~~2021 totaled ~~$2,428,000~~$2.6 million as compared to ~~$2,213,000~~$2.4 million for the three months ended June 30, ~~2019,~~2020, an increase of ~~10%~~9%. The increase in noninterest income was primarily due to ~~gain~~an increase in wealth management income and partially offset by a decrease in gains on sale of residential loans held for sale ~~from increased~~as refinancing has slowed. The increase in wealth management income was primarily related to growth in the assets under management, fueled by a ~~low interest rate environment~~favorable equity market and ~~to a lesser extent the Acquisition.~~new account relationships.

Noninterest expense for the three months ended June 30, ~~2020~~2021 totaled ~~$9,100,000~~$9.4 million compared to ~~$7,218,000~~$9.1 million recorded for the three months ended June 30, ~~2019,~~2020, an increase of ~~26%~~3%. ~~Most of the~~The increase was related to the Acquisition. Excluding the Acquisition, the increases were related to salaries and employee benefits, data processing and the amortization of the investment in Federal New Market Tax Credit projects, offset in part by a decrease in FDIC insurance assessments. Salaries and employee benefits, excluding the Acquisition, increased 6%is primarily due to normal increases in salaries, other employee benefits including health insurance costs and additional personnel. Data processing costs, excluding the Acquisition, increased primarily to facilitate remote access for customers and employees. The decreasean increase in FDIC insurance assessments, ~~was due to the receipt~~professional fees and impairment of ~~a small bank credit as the deposit insurance reserve ratio exceeded 1.35%. The remaining credit was fully utilized in the second quarter.~~other real estate owned. The efficiency ratio was ~~56.5%~~56.0% for the second quarter of ~~2020~~2021 as compared to ~~54.9%~~56.5% in the second quarter of ~~2019.~~2020.

Income Taxes

Income tax expense for the three months ended June 30, ~~2020~~2021 totaled ~~$1,015,000~~$1.5 million compared to ~~$1,239,000~~$1.0 million recorded for the three months ended June 30, ~~2019.~~2020. The effective tax rate was ~~19%~~21% and ~~21%~~19% for the three months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The lower than expected tax rate in ~~2020~~2021 and ~~2019~~2020 was due primarily to tax-exempt interest income and New ~~Market~~Markets Tax ~~Credits further lowered the tax rate in 2020.~~Credits.

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Income Statement Review for the Six Months ended June 30, ~~2020~~2021 and ~~2019~~2020

The following highlights a comparative discussion of the major components of net income and their impact for the six months ended June 30, ~~2020~~2021 and ~~2019:~~2020:

AVERAGE BALANCES AND INTEREST RATES

The following two tables are used to calculate the Company’s non-GAAP net interest ~~margin.~~margin on an FTE basis. The first table includes the Company’s average assets and the related income to determine the average yield on earning assets. The second table includes the average liabilities and related expense to determine the average rate paid on ~~interest bearing~~interest-bearing liabilities. The net interest margin is equal to interest income less interest expense divided by average earning assets. Refer to the net interest income discussion following the tables for additional detail.

AVERAGE BALANCE SHEETS AND INTEREST RATES

Six Months Ended June 30,

2020

2019

Average

Revenue/

Yield/

Average

Revenue/

Yield/

balance

expense

rate

balance

expense

rate

ASSETS

(dollars in thousands)

Interest-earning assets

Loans ⁽¹⁾

Commercial
$ 115,369 $ 2,723 4.72 % $ 83,164 $ 2,239 5.38 %
Agricultural
110,792 3,021 5.45 % 81,511 2,587 6.35 %
Real estate
872,044 18,928 4.34 % 713,274 16,267 4.56 %
Consumer and other
18,339 485 5.29 % 16,678 416 4.99 %

Total loans (including fees)
1,116,544 25,157 4.51 % 894,627 21,509 4.81 %

Investment securities

Taxable
310,656 3,802 2.45 % 253,421 3,044 2.40 %
Tax-exempt ⁽²⁾
173,649 2,360 2.72 % 205,633 2,745 2.67 %
Total investment securities
484,305 6,162 2.54 % 459,054 5,789 2.52 %

Interest-bearing deposits with banks and federal funds sold
132,474 650 0.98 % 43,588 528 2.42 %

Total interest-earning assets
1,733,323 $ 31,969 3.69 % 1,397,269 $ 27,826 3.98 %

Noninterest-earning assets
82,742 53,300

TOTAL ASSETS
$ 1,816,065 $ 1,450,569

AVERAGE BALANCE SHEETS AND INTEREST RATES

~~(1) Average loan balance includes~~

Six Months Ended June 30,

2021

2020

Average

Revenue/

Yield/

Average

Revenue/

Yield/

balance

expense

rate

balance

expense

rate

ASSETS

(dollars in thousands)

Interest-earning assets

Loans ⁽¹⁾

Commercial
$ 122,095 $ 3,870 6.34 % $ 115,369 $ 2,723 4.72 %
Agricultural
94,766 1,985 4.19 % 110,792 3,021 5.45 %
Real estate
910,230 17,909 3.94 % 872,044 18,928 4.34 %
Consumer and other
14,565 347 4.76 % 18,339 485 5.29 %

Total loans (including fees)
1,141,656 24,111 4.22 % 1,116,544 25,157 4.51 %

Investment securities

Taxable
499,882 4,201 1.68 % 310,656 3,802 2.45 %
Tax-exempt ⁽²⁾
162,136 2,110 2.60 % 173,649 2,360 2.72 %
Total investment securities
662,018 6,311 1.91 % 484,305 6,162 2.54 %

Interest-bearing deposits with banks and federal funds sold
180,510 347 0.38 % 132,474 650 0.98 %

Total interest-earning assets
1,984,184 $ 30,769 3.10 % 1,733,323 $ 31,969 3.69 %

Noninterest-earning assets
76,406 82,742

TOTAL ASSETS
$ 2,060,590 $ 1,816,065

(1) Average loan balances include nonaccrual loans, if any. Interest income collected on nonaccrual loans has been included.

(2) Tax-exempt income has been adjusted to a tax-equivalent basis using an incremental tax rate of 21%.

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AVERAGE BALANCE SHEETS AND INTEREST RATES

Six Months Ended June 30,

2020

2019

Average

Revenue/

Yield/

Average

Revenue/

Yield/

balance

expense

rate

balance

expense

rate

LIABILITIES AND STOCKHOLDERS' EQUITY

(dollars in thousands)

Interest-bearing liabilities

Deposits

Interest-bearing checking, savings accounts and money markets
$ 991,298 $ 2,083 0.42 % $ 788,786 $ 3,133 0.79 %
Time deposits
280,386 2,465 1.76 % 218,380 1,832 1.68 %
Total deposits
1,271,684 4,548 0.72 % 1,007,166 4,965 0.99 %
Other borrowed funds
50,495 199 0.79 % 42,188 384 1.82 %

Total interest-bearing liabilities
1,322,179 4,747 0.72 % 1,049,354 5,349 1.02 %

Noninterest-bearing liabilities

Noninterest-bearing checking
289,350 216,522
Other liabilities
11,561 8,090

Stockholders' equity
192,975 176,603

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$ 1,816,065 $ 1,450,569

Net interest income
$ 27,222 3.14 % $ 22,477 3.22 %

Spread Analysis

Interest income/average assets
$ 31,969 3.52 % $ 27,826 3.84 %
Interest expense/average assets
$ 4,747 0.52 % $ 5,349 0.74 %
Net interest income/average assets
$ 27,222 3.00 % $ 22,477 3.10 %

AVERAGE BALANCE SHEETS AND INTEREST RATES

	Six Months Ended June 30,

	2021								2020

	Average		Revenue/			Yield/			Average		Revenue/			Yield/
	balance		expense			rate			balance		expense			rate
LIABILITIES AND
STOCKHOLDERS' EQUITY
(dollars in thousands)
Interest-bearing liabilities
Deposits
Interest-bearing checking, savings accounts and money markets	$	1,192,220	$	968			0.16	%	$	991,298	$	2,083			0.42	%
Time deposits		245,756		1,450			1.18	%		280,386		2,465			1.76	%
Total deposits		1,437,976		2,418			0.34	%		1,271,684		4,548			0.72	%
Other borrowed funds		40,468		72			0.36	%		50,495		199			0.79	%

Total interest-bearing liabilities		1,478,444		2,490			0.34	%		1,322,179		4,747			0.72	%

Noninterest-bearing liabilities
Noninterest-bearing checking		364,508								289,350
Other liabilities		9,928								11,561

Stockholders' equity		207,710								192,975

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	2,060,590							$	1,816,065


Net interest income (FTE)⁽³⁾			$	28,279			2.85	%			$	27,222			3.14	%

Spread Analysis (FTE)
Interest income/average assets	$	30,769		2.99	%				$	31,969		3.52	%
Interest expense/average assets	$	2,490		0.24	%				$	4,747		0.52	%
Net interest income/average assets	$	28,279		2.74	%				$	27,222		3.00	%

(3) Net interest income (FTE) is a non-GAAP financial measure. For further information, refer to the Non-GAAP Financial Measures section of this report.

Net Interest Income

For the six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, the Company's net interest margin adjusted for tax exempt income was ~~3.14%~~2.85% and ~~3.22%~~3.14%, respectively. Net interest income, prior to the adjustment for tax-exempt income, for the six months ended June 30, ~~2020~~2021 totaled ~~$26,726,000~~$27.8 million compared to ~~$21,901,000~~$26.7 million for the six months ended June 30, ~~2019.~~2020.

Table of Contents

For the six months ended June 30, ~~2020,~~2021, interest income ~~increased $4,223,000,~~declined $1.1 million, or ~~15%~~4%, when compared to the same period in ~~2019.~~2020. The ~~increase from 2019 was~~decrease is primarily ~~attributable to increased loan volume, related to the Acquisition. The increase in loan interest income~~ due to ~~loan volume was~~a reduction in interest rates, offset in part by $2.2 million of fees recognized from PPP loans, an increase in ~~foregone~~the average balance of interest-earning assets, and $347 thousand of recognized nonaccrual interest ~~on nonaccrual loans~~income. The increase in average balances of ~~$384,000.~~interest-earning assets was primarily driven by the deployment of increased deposits.

Interest expense ~~decreased $602,000,~~declined $2.3 million, or ~~11%~~48%, for the six months ended June 30, ~~2020~~2021 when compared to the same period in ~~2019.~~2020. The lower interest expense for the period is primarily attributable to a ~~decrease~~decline in ~~rates on deposits due to~~ market interest ~~rates.~~rates and offset in part by increases in average deposit balances.

Provision (credit) for Loan Losses

A ~~provision~~(credit) for loan losses of ~~$3,883,000~~($446) thousand was recognized for the six months ended June 30, ~~2020~~2021 as compared to ~~$166,000~~a provision for loan losses of $3.9 million for the six months ended June 30, ~~2019.~~2020. Net loan ~~charge offs~~recoveries totaled ~~$497,000~~$124 thousand for the six months ended June 30, ~~2020~~2021 compared to net loan ~~recoveries~~charge offs of ~~$19,000~~$497 thousand for the six months ended June 30, ~~2019.~~2020. The ~~increase in the provision~~(credit) for loan losses was primarily due to loan recoveries, a reduction in a specific reserve and improving economic conditions. The provision for loan losses in 2020 was primarily due to the ~~economic slowdown associated with~~onset of the COVID-19 ~~and to a lesser extent loan growth and the increase in net charge-offs.~~pandemic.

Noninterest Income and Expense

Noninterest income for the six months ended June 30, 2021 and 2020 totaled ~~$5,059,000 as compared to $4,139,000~~$5.1 million for ~~the six months ended June 30, 2019, an increase of 22%.~~both periods. Wealth management income increased, but was offset by a decrease in securities gains when comparing periods. The increase in ~~noninterest~~wealth management income was primarily ~~due~~related to ~~an increase~~growth in ~~security gains, gain on sale of loans held for sale due to increased refinancing in~~the assets under management, fueled by a ~~low interest rate environment,~~favorable equity market and ~~the Acquisition.~~new account relationships.

Noninterest expense for the six months ended June 30, ~~2020~~2021 totaled ~~$18,150,000~~$18.4 million compared to ~~$14,675,000~~$18.1 million recorded for the six months ended June 30, ~~2019,~~2020, an increase of ~~24%~~1%. Most of the increase was related to ~~the Acquisition. Excluding the Acquisition, the increases were related to~~an increase in FDIC insurance assessments and professional fees, offset by a decrease in salaries and employee benefits ~~data processing and~~which was primarily due to a reduction in the ~~amortization~~number of the investment in Federal New Market Tax Credit projects, offset in part by a decrease in FDIC insurance assessments. Salaries and benefits was the largest component of the increase in noninterest expense which includes normal increases in salaries, other employee benefits including health insurance costs and additional personnel. ~~Data processing costs, excluding the Acquisition, increased primarily to facilitate remote access for customers and employees.~~ The efficiency ratio was ~~57.1%~~55.9% and ~~56.4%~~57.1% for the six months ended June 30, 2021 and 2020, ~~and 2019,~~ respectively.

~~Table of Contents~~

Income Taxes

Income tax expense for the six months ended June 30, ~~2020 and 2019~~2021 totaled ~~$1,771,000 and $2,343,000, respectively. The effective tax rate was 18% and 21%~~$3.1 million compared to $1.8 million recorded for the six months ended June 30, ~~2020~~2020. The effective tax rate was 21% and ~~2019,~~18% for the six months ended June 30, 2021 and 2020, respectively. The lower than expected tax rate in ~~2020~~2021 and ~~2019~~2020 was due primarily to tax-exempt interest income and New ~~Market~~Markets Tax ~~Credits further lowered the tax rate in 2020.~~Credits.

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Balance Sheet Review

As of June 30, ~~2020,~~2021, total assets were ~~$1,896,972,000,~~$2.1 billion, a ~~$159,790,000~~$109.8 million increase compared to December 31, ~~2019. The~~2020. This increase in assets is primarily ~~interest bearing deposits~~due to investment securities and ~~loans,~~ was funded ~~primarily~~ by ~~deposits.~~growth in our deposits due in part to federal government stimulus programs and a lack of other desirable fixed income alternatives for our customers.

Investment Portfolio

The investment portfolio totaled ~~$513,616,000~~$740.1 million as of June 30, ~~2020,~~2021, an increase of ~~$33,773,000~~$143.1 million from the December 31, ~~2019~~2020 balance of ~~$479,843,000.~~$597.0 million. The increase in securities available-for-sale is primarily due to purchases of ~~municipal,~~treasuries, mortgage-backed securities, and ~~corporate bonds, offset in part by maturities in the U.S. Government Agency portfolio.~~municipals as deposit growth exceeded loan growth.

On a quarterly basis, the investment portfolio is reviewed for other-than-temporary impairment. As of June 30, ~~2020,~~2021, gross unrealized losses of ~~$162,000,~~$2.9 million, are considered to be temporary in nature due to the interest rate environment ~~of 2020~~ and other general economic factors. As a result of the economic slowdown resulting from the COVID-19 pandemic, certain bonds in the investment portfolio may become other-than-temporarily impaired and could negatively affect the Company’s net income. As a result of the Company’s favorable liquidity position, the Company does not have the intent to sell securities with an unrealized loss at the present time. In addition, management believes it is more likely than not that the Company will hold these securities until recovery of their fair value to cost basis and ~~avoid considering present unrealized loss positions~~expects full principal and interest to be ~~other-than-temporary.~~collected. Therefore, the Company does not consider these investments to have other-than-temporary impairment as of June 30, 2021.

At June 30, 2021, the Company’s investment securities portfolio included securities issued by 289 government municipalities and agencies located within 26 states with a fair value of $275.2 million. At December 31, 2020, the Company’s investment securities portfolio included securities issued by ~~267~~279 government municipalities and agencies located within 2224 states with a fair value of $216.8 million. At December 31, 2019, the Company’s investment securities portfolio included securities issued by 251 government municipalities and agencies located within 18 states with a fair value of $195.3$251.6 million. No one municipality or agency represents a concentration within this segment of the investment portfolio. ~~The~~Storm Lake, Iowa, general obligation bonds with a fair value of $8.0 million (approximately 2.9% of the fair value of the government municipalities and agencies) represent the largest exposure to any one municipality or agency for the Company as of June 30, ~~2020 was $3.1 million (approximately 1.4%~~2021; the bonds are repayable from the levy of continuing annual tax on all the taxable property within the territory of the ~~fair value~~city of ~~the governmental municipalities and agencies) represented by the West Des Moines, Iowa Community School District to be repaid by sales tax revenues and property taxes.~~Storm Lake.

The Company’s procedures for evaluating investments in states, municipalities and political subdivisions include but are not limited to reviewing the offering statement and the most current available financial information, comparing yields to yields of bonds of similar credit quality, confirming capacity to repay, assessing operating and financial performance, evaluating the stability of tax revenues, considering debt profiles and local demographics, and for revenue bonds, assessing the source and strength of revenue structures for municipal authorities. These procedures, as applicable, are utilized for all municipal purchases and are utilized in whole or in part for monitoring the portfolio of municipal holdings. The Company does not utilize third party credit rating agencies as a primary component of determining if the municipal issuer has an adequate capacity to meet the financial commitments under the security for the projected life of the investment, and, therefore, does not compare internal assessments to those of the credit rating agencies. Credit rating downgrades are utilized as an additional indicator of credit weakness and as a reference point for historical default rates.

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The following table summarizes the total general obligation and revenue bonds in the Company’s investment securities portfolios as of June 30, ~~2020~~2021 and December 31, ~~2019~~2020 identifying the state in which the issuing government municipality or agency operates (inin thousands):

	2020				2019				2021				2020
			Estimated				Estimated				Estimated				Estimated
	Amortized		Fair		Amortized		Fair		Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value		Cost		Value		Cost		Value

Obligations of states and political subdivisions:
General Obligation bonds:
Iowa	$	55,991	$	57,557	$	58,457	$	59,072	$	70,703	$	72,449	$	69,943	$	72,442
Nebraska										14,672		14,667		15,019		15,446
Texas		10,802		11,216		11,243		11,382		14,093		14,550		11,253		11,927
Washington		8,385		8,698		6,530		6,629		11,064		11,317		7,329		7,702
Pennsylvania		7,805		7,949		7,895		7,989
Oregon		6,269		6,492		3,441		3,505
Other (2020: 13 states; 2019: 12 states)		21,962		22,480		14,727		14,870
Other (2021: 15 states; 2020: 14 states)										40,491		41,015		32,014		32,989

Total general obligation bonds	$	111,214	$	114,392	$	102,293	$	103,447	$	151,023	$	153,998	$	135,558	$	140,506

Revenue bonds:
Iowa	$	71,086	$	72,040	$	78,281	$	78,624	$	68,812	$	69,851	$	65,461	$	67,048
Texas		8,634		9,094		480		476		11,922		12,291		8,625		9,189
Other (2020: 15 states; 2019: 12 states)		20,659		21,271		12,691		12,755
Nebraska										8,547		8,501		6,588		6,753
Other (2021: 19 states; 2020: 17 states)										29,937		30,564		27,206		28,088

Total revenue bonds	$	100,379	$	102,405	$	91,452	$	91,855	$	119,218	$	121,207	$	107,880	$	111,078

Total obligations of states and political subdivisions	$	211,593	$	216,797	$	193,745	$	195,302	$	270,241	$	275,205	$	243,438	$	251,584

Table of Contents

As of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the revenue bonds in the Company’s investment securities portfolios were issued by government municipalities and agencies to fund public services such as community school facilities, college and university dormitory facilities, water utilities and electrical utilities. The revenue bonds are to be paid from ~~primarily~~ 6 primary revenue sources. The revenue sources that represent 5% or more, individually, as a percent of the total revenue bonds are summarized in the following table (in th~~ousands)~~thousands):

2020

2019

Estimated

Estimated

Amortized

Fair

Amortized

Fair

Cost

Value

Cost

Value

Revenue bonds by revenue source

Sales tax
$ 37,679 $ 38,064 $ 37,928 $ 38,173
Water
19,411 19,969 7,271 7,272
College and universities, primarily dormitory revenues
12,207 12,621 14,016 14,103
Leases
7,493 7,680 7,291 7,351
Electric power & light revenues
6,133 6,283 4,370 4,405
Sewer
5,404 5,644 4,612 4,645
Other
12,052 12,144 15,964 15,906

Total revenue bonds by revenue source
$ 100,379 $ 102,405 $ 91,452 $ 91,855

~~Table of Contents~~

	2021				2020
			Estimated				Estimated
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value

Revenue bonds by revenue source
Sales tax	$	39,123	$	39,721	$	32,654	$	33,380
Water		20,708		21,173		21,934		22,660
College and universities, primarily dormitory revenues		13,082		13,430		11,332		11,810
Sewer		14,172		14,356		11,302		11,724
Leases		7,805		7,934		7,050		7,253
Electric power & light revenues		6,141		6,329		7,075		7,279
Other		18,187		18,264		16,533		16,972

Total revenue bonds by revenue source	$	119,218	$	121,207	$	107,880	$	111,078

Loan Portfolio

The loan portfolio, net of the allowance for loan losses, totaled ~~$1,146,046,000~~$1.12 billion and ~~$1,048,147,000~~$1.13 billion as of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. The ~~increase in loans~~decrease was primarily due to ~~government guaranteed~~a reduction in PPP and agricultural loans, ~~under~~offset in part by an increase in the ~~Paycheck Protection Program (“PPP”).~~1-4 family residential loan portfolio. The PPP loans totaled ~~$78.3~~$37.6 million and $50.9 million as of June 30, ~~2020.~~2021 and December 31, 2020, respectively. The PPP loans bear an interest rate of 1.0% and ~~primarily~~generally have a two to five year maturity. The Small Business Administration ~~is providing~~has provided fees to financial institutions to originate the PPP loans with recognition of the fees over the life of the loans. ~~Under certain conditions~~The Company has $2.3 million of unrecognized net PPP loan fees as of June 30, 2021. Management expects these loans ~~may~~to be forgiven and the net fees associated with these loans will be accelerated into interest income.

Deposits

Deposits totaled ~~$1,643,543,000~~$1.83 billion and ~~$1,493,175,000~~$1.72 billion as of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. The ~~increase~~change in deposits since December 31, ~~2019~~2020 was ~~primarily~~ due to ~~account balances in interest-bearing checking accounts, money market and certificate of deposit public funds and retail interest-bearing checking accounts, offset in part by a decline~~increases in account balances of retail, ~~money market~~commercial, and ~~certificate of deposits.~~public funds. Balance fluctuations were primarily due to government stimulus programs and normal customer activity, as ~~corporate~~ customers’ liquidity needs vary at any given time. ~~In addition, funds~~Funds disbursed under the PPP program were deposited into customer accounts and ~~will~~may impact overall deposit fluctuations as customers spend those funds according to the PPP ~~rules. We believe that deposit~~guidelines. Deposit levels ~~could decrease~~may be impacted in future periods ~~as a result of the~~by additional government stimulus or distressed economic ~~conditions in our market areas related to the COVID-19 pandemic and the low interest rates.~~conditions.

~~Securities Sold Under Agreements to Repurchase~~

~~Securities sold under agreements to repurchase totaled $36,893,000 as~~

Table of June 30, 2020, a decrease of $5,141,000, or 12%, from the December 31, 2019 balance of $42,034,000. The decrease was primarily due to account balances that transferred to interest bearing checking, offset in part by increased balances in existing accounts.

~~Dividends Payable~~

There was no dividends payable as of June 30, 2020 as compared to $2,213,000 as of December 31, 2019. In the past, dividends were declared in one quarter and then paid in the subsequent quarter. For the quarter ended June 30, 2020 the dividend was not declared until July 8, 2020 and will be paid in the third quarter of 2020.

~~Accrued Expense and Other Liabilities~~

Accrued expenses and other liabilities totaled $11,192,000 as of June 30, 2020, an increase of $4,010,000 or 56% from the December 31, 2019 balance of $7,181,000. The increase in mainly due to an increase in accrued federal income taxes due to the deferral of federal income tax estimates payments.

Contents

Off-Balance Sheet Arrangements

The Company is party to financial instruments with off-balance-sheet risk in the normal course of business. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. No material changes in the Company’s off-balance sheet arrangements have occurred since December 31, ~~2019.~~2020.

~~Table of Contents~~

Asset Quality Review and Credit Risk Management

The Company’s credit risk is historically centered in the loan portfolio, which on June 30, ~~2020~~2021 totaled ~~$1,146,046,000~~$1.12 billion compared to ~~$1,048,147,000~~$1.13 billion as of December 31, ~~2019.~~2020. Net loans comprise ~~60%~~54% of total assets as of June 30, ~~2020.~~2021. The objective in managing loan portfolio risk is to reduce the risk of loss resulting from a customer’s failure to perform according to the terms of an agreement and to quantify and manage credit risk on a portfolio basis. The Company’s level of problem loans (consisting of nonaccrual loans and loans past due 90 days or more) as a percentage of total loans was ~~1.63%~~1.11% at June 30, ~~2020,~~2021, as compared to ~~0.48%~~1.33% at December 31, ~~2019.~~2020. The ~~increase~~decrease in the level of problem loans is due primarily to ~~the deterioration~~payoffs of ~~one loan relationship in the hospitality portfolio.~~nonaccrual loans. The Company’s level of problem loans as a percentage of total loans at June 30, ~~2020~~2021 of ~~1.63%~~1.11% is higher as compared to the Iowa State Average peer group of FDIC insured institutions as of March 31, ~~2020,~~2021, of ~~0.82%~~0.59%, most recent available.

Impaired loans totaled ~~$17,901,000~~$12.7 million as of June 30, ~~2020~~2021 and have ~~increased $13,113,000~~decreased $2.6 million as compared to the impaired loans of ~~$4,788,000~~$15.3 million as of December 31, ~~2019.~~2020. The ~~increase~~decrease is primarily due to ~~one hospitality loan relationship.~~payoffs of nonaccrual loans.

The Company had TDRs of ~~$1,276,000~~$10.8 million as of June 30, ~~2020~~2021 and ~~$1,171,000~~$11.3 million as of December 31, ~~2019,~~2020, all of which were included in impaired and nonaccrual loans.

TDRs are monitored and reported on a quarterly basis. Certain TDRs are on nonaccrual status at the time of restructuring. These borrowings are typically returned to accrual status after the following: sustained repayment performance in accordance with the restructuring agreement for a reasonable period of at least ~~six~~nine months; and, management is reasonably assured of future performance. If the TDR meets these performance criteria and the interest rate granted at the modification is equal to or greater than the rate that the Company was willing to accept at the time of the restructuring for a new loan with comparable risk, then the loan will return to performing status.

~~On March 22, 2020, federal banking regulators issued an interagency statement that included guidance on their approach for the accounting of loan modifications in light~~Section 4013 of the ~~economic impact of the Coronavirus Disease 2019 (COVID-19) pandemic. The guidance interprets current accounting standards and indicates that~~CARES Act, “Temporary Relief From TDRs,” allows financial institutions ~~may presume that borrowers are not experiencing financial difficulties at~~ the time of the modification for purposes of determining TDR status, and thus no further TDR analysis is required for each loan modification in the program. These modifications may include payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificantoption to temporarily suspend certain requirements under U.S. GAAP related to TDRs for a limited period of time during the COVID-19 pandemic. This temporary suspension may only be applied to modifications of loans ~~in which the borrower is less~~that were not more than 30 days past due as of December 31, 2019 and may not be applied to modifications that are not related to the COVID-19 pandemic. If elected, the temporary suspension may be applied to eligible modifications executed during the period beginning on ~~its contractual payments at~~March 1, 2020 and ending on the ~~time a modification program is implemented. The agencies confirmed~~earlier of December 31, 2020, extended to January 1, 2022 under the Coronavirus Response and Relief Supplemental Appropriations Act, or 60 days after the termination of the COVID-19 national emergency. In March 2020, federal banking regulators in consultation with the FASB issued interagency statements that include similar guidance on loan modifications and reporting for financial institutions working with ~~the staff of the FASB~~customers affected by COVID-19. The interagency statement provided that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not to be considered TDRs.

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For TDRs that were on nonaccrual status before the modification, a specific reserve may already be recorded. In periods subsequent to modification, the Company will continue to evaluate all TDRs for possible impairment and, as necessary, recognize impairment through the allowance. No additional specific ~~reserves were~~reserve was provided for the three and six months ended June 30, ~~2020~~2021 and ~~2019.~~2020. The Company had ~~$16,000~~no charge-offs and ~~$31,000~~$262 thousand of recoveries for TDR’s for the three and six months ended June 30, 2021, respectively. The Company had $16 thousand and $31 thousand of charge-offs for TDR’s for the three and six months ended June 30, 2020, respectively. ~~There were no charge-offs related to TDRs for the three and six months ended June 30, 2019.~~ The Company does not have material commitments to lend additional funds to borrowers with loans whose terms have been modified in troubled debt restructurings or whose loans are on nonaccrual.

Loans past due 90 days or more that are still accruing interest are reviewed no less frequently than quarterly to determine if there continues to be a strong reason that the credit should not be placed on ~~non-accrual.~~nonaccrual. As of June 30, ~~2020, non-accrual~~2021, nonaccrual loans totaled ~~$17,901,000~~$12.7 million and there were ~~$641,000~~$4 thousand of loans past due 90 days and still accruing. This compares to ~~non-accrual~~nonaccrual loans of ~~$4,788,000~~$15.3 million and loans past due 90 days and still accruing totaled ~~$255,000~~$39 thousand as of December 31, ~~2019.~~2020. The ~~increase~~decrease in ~~non-accrual~~nonaccrual loans is due primarily to ~~a hospitality loan.~~payoffs of nonaccrual loans. Real estate owned totaled ~~$632,000~~$778 thousand and ~~$4,004,000~~$218 thousand as of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

The agricultural real estate and agricultural operating loan portfolio classifications remain ~~elevated as a result of lower grain prices.~~elevated. The watch and special mention loans in these categories totaled ~~$58,288,000~~$36.9 million as of June 30, ~~2020~~2021 as compared to ~~$48,028,000~~$54.1 million as of December 31, ~~2019.~~2020. This ~~increase~~decrease is ~~primarily~~generally due to ~~one~~payments received from various agricultural ~~customer relationship.~~customers. The substandard and impaired loans in these categories totaled ~~$15,957,000~~$7.8 million and $9.5 million as of June 30, ~~2020 as compared to $15,913,000 as of~~2021 and December 31, 2019. The Iowa agricultural economy remains challenged as the result of the price of commodities, including corn, soybeans, cattle, hogs and ethanol, along with export concerns. The effects of the COVID-19 pandemic could exacerbate these challenges.2020, respectively.

The watch and special mention loans classified as commercial real estate totaled ~~$95,137,000~~$100.1 million as of June 30, ~~2020~~2021 as compared to ~~$33,790,000~~$111.9 million as of December 31, ~~2019. This increase in commercial real estate loans was due primarily to the hospitality loan portfolio.~~2020. The substandard and impaired commercial real estate loans totaled ~~$15,391,000~~$37.6 million and $37.9 million as of June 30, ~~2020 as compared to $14,786,000 as of~~2021 and December 31, ~~2019.~~2020, respectively.

The allowance for loan losses as a percentage of outstanding loans as of June 30, ~~2020~~2021 was ~~1.37%~~1.48%, as compared to ~~1.19%~~1.50% at December 31, ~~2019.~~2020. The allowance for loan losses totaled ~~$16,005,000~~$16.9 million and ~~$12,619,000~~$17.2 million as of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. PPP loans are government guaranteed and the impact on the allowance for loan loss was not significant.

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. The ~~increase~~decrease in the allowance for loan losses is mainly due to ~~increased risk associated with the~~net loan ~~portfolio due to the economic slowdown associated with COVID-19~~recoveries and to a ~~lesser extent organic growth~~reduction in ~~the~~a specific reserve, offset in part by higher loan ~~portfolio.~~balances from year-end excluding PPP loans. Additional increases in the allowance for loan losses are ~~anticipated~~possible if the effects of the COVID-19 conditions negatively impacts our loan portfolio. These increases may be due to increased charge-offs or an increase in the qualitative factors. The qualitative factors are considered as a part of our allowance for loan loss calculation and may deteriorate if the economic effects of COVID-19 ~~continue~~worsen in the State of Iowa and a resumption to typical social and economic activity is delayed.

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Liquidity and Capital Resources

Liquidity management is the process by which the Company, through its Banks’ Asset and Liability Committees (ALCO), ensures that adequate liquid funds are available to meet its financial commitments on a timely basis, at a reasonable cost and within acceptable risk tolerances. These commitments include funding credit obligations to borrowers, funding of mortgage originations pending delivery to the secondary market, withdrawals by depositors, maintaining adequate collateral for pledging for public funds, trust deposits and borrowings, paying dividends to shareholders, payment of operating expenses, funding capital expenditures and maintaining deposit reserve requirements.

Liquidity is derived primarily from core deposit growth and retention; principal and interest payments on loans; principal and interest payments, sale, maturity and prepayment of securities available-for-sale; net cash provided from operations; and access to other funding sources. Other funding sources include federal funds purchased lines, FHLB advances and other capital market sources.

As of June 30, ~~2020,~~2021, the level of liquidity and capital resources of the Company remain at a satisfactory level. Management believes that the Company's liquidity sources will be sufficient to support its existing operations for the foreseeable future.

The liquidity and capital resources discussion will cover the following topics:

●	Review of the Company’s Current Liquidity Sources

●	Review of Statements of Cash Flows

●	Company Only Cash Flows

●	Review of Commitments for Capital Expenditures, Cash Flow Uncertainties and Known Trends in Liquidity and Cash Flows Needs

●	Capital Resources

Review of the Company’s Current Liquidity Sources

Liquid assets of cash and due from banks and interest-bearing deposits in financial institutions and federal funds sold as of June 30, ~~2020~~2021 and December 31, ~~2019~~2020 totaled ~~$178,519,000~~$166.2 million and ~~$143,565,000,~~$191.5 million, respectively, and management believes these sources provide an adequate level of liquidity given current economic conditions.

Other sources of liquidity available to the Banks as of June 30, ~~2020~~2021 include outstanding lines of credit with the FHLB of Des Moines, Iowa of ~~$213,884,000,~~$244.0 million, with ~~$3,000,000~~$3.0 million of outstanding FHLB advances. The Company also has a $4 million line of credit with an unaffiliated bank, with no outstanding borrowings as of June 30, 2021. Federal funds borrowing capacity at correspondent banks was ~~$110,102,000,~~$107.9 million, with no outstanding federal fund purchase balances as of June 30, ~~2020.~~2021. The Company had securities sold under agreements to repurchase totaling ~~$36,893,000~~$33.3 million as of June 30, ~~2020.~~2021.

Total investments as of June 30, ~~2020~~2021 were ~~$513,616,000~~$740.1 million compared to ~~$479,843,000~~$597.0 million as of December 31, ~~2019.~~2020. These investments provide the Company with a significant amount of liquidity since all of the investments are classified as available-for-sale as of June 30, ~~2020.~~2021.

The investment portfolio serves an important role in the overall context of balance sheet management in terms of balancing capital utilization and liquidity. The decision to purchase or sell securities is based upon the current assessment of economic and financial conditions, including the interest rate environment, liquidity and credit considerations. The portfolio’s scheduled maturities and payments represent a significant source of liquidity.

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Review of the Consolidated Statements of Cash Flows

Net cash provided by operating activities for the six months ended June 30, ~~2020~~2021 totaled ~~$17,925,000~~$17.4 million compared to ~~$10,901,000~~$17.9 million for the six months ended June 30, ~~2019, an increase of $7,024,000. This increase was primarily due to the proceeds from loans held for sale,~~2020, a decrease ~~in the balance~~ of ~~accrued income receivable and an increase in accrued expenses and other liabilities, offset in part by the increase in originations from loans held for sale.~~$493 thousand.

Net cash used in investing activities for the six months ended June 30, ~~2020~~2021 was ~~$156,984,000~~$123.7 million compared to ~~$14,570,000~~$157.0 million for the six months ended June 30, ~~2019.~~2020. The ~~increase~~decrease of ~~$142,414,000~~$33.3 million in cash used in investing activities was primarily due to a ~~higher level of~~decrease in interest-bearing deposits in financial institutions and loans, ~~and purchases of investments,~~ offset in part by ~~proceeds from the maturities and calls~~an increase in purchases of investments.

Net cash provided by financing activities for the six months ended June 30, ~~2020~~2021 totaled ~~$136,970,000~~$106.4 million compared to ~~$4,099,000 used in financing activities~~$137.0 million for the six months ended June 30, ~~2019.~~2020. The ~~increase~~decrease in cash provided by financing activities of ~~$141,069,000~~$30.6 million was primarily due to ana lower increase in deposits ~~and a lower amount of repayments of FHLB advances in 2020 as compared to 2019.~~between periods. As of June 30, ~~2020,~~2021, the Company did not have any external debt financing, off-balance sheet financing arrangements, or derivative instruments linked to its stock.

Review of Company Only Cash Flows

The Company’s liquidity on an unconsolidated basis is heavily dependent upon dividends paid to the Company by the Banks. The Banks provide adequate liquidity to pay the Company’s expenses and stockholder dividends. Dividends paid by the Banks to the Company amounted to ~~$4,859,000~~$4.7 million and ~~$6,368,000~~$4.9 million for the six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. Various federal and state statutory provisions limit the amounts of dividends banking subsidiaries are permitted to pay to their holding companies without regulatory approval. Federal Reserve policy further limits the circumstances under which bank holding companies may declare dividends. For example, a bank holding company should not continue its existing rate of cash dividends on its common stock unless its net income is sufficient to fully fund each dividend and its prospective rate of earnings retention appears consistent with its capital needs, asset quality and overall financial condition. In addition, the Federal Reserve and the FDIC have issued policy statements, which provide that insured banks and bank holding companies should generally pay dividends only out of current operating earnings. Federal and state banking regulators may also restrict the payment of dividends by order.

The Company, on an unconsolidated basis, has interest-bearing deposits totaling ~~$2,867,000~~$2.7 million as of June 30, ~~2020 that are presently available to provide additional liquidity to the Banks.~~2021.

Review of Commitments for Capital Expenditures, Cash Flow Uncertainties and Known Trends in Liquidity and Cash Flows Needs

On April 16, 2021, the Company entered into a commitment with a contractor to build a new branch in West Des Moines, Iowa for $1.7 million. No other material capital expenditures or material changes in the capital resource mix are anticipated at this time. The primary cash flow uncertainty would be a sudden decline in deposits causing the Banks to liquidate securities. Historically, the Banks have maintained an adequate level of short-term marketable investments to fund the temporary declines in deposit balances. There are no known trends in liquidity and cash flow needs as of June 30, ~~2020~~2021 that are of concern to management.

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Capital Resources

The Company’s total stockholders’ equity as of June 30, ~~2020~~2021 totaled ~~$201,150,000~~$210.1 million and was ~~$13,571,000 higher~~$635 thousand more than the ~~$187,579,000~~$209.5 million recorded as of December 31, ~~2019.~~2020. The increase in stockholders’ equity was primarily ~~due to~~the result of the retention of net income ~~and an increase~~ in ~~other comprehensive income,~~excess of dividends, offset in part by ~~dividends declared and stock repurchases.~~a reduction in accumulated other comprehensive income. The ~~increase~~decrease in other comprehensive income is created by ~~lower~~higher market interest rates compared to December 31, ~~2019,~~2020, which resulted in ~~higher~~lower fair values in the securities available-for-sale portfolio. At June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, stockholders’ equity as a percentage of total assets was ~~10.6%~~10.1% and ~~10.8%~~10.6%, respectively. The capital levels of the Company exceed applicable regulatory guidelines as of June 30, ~~2020.~~2021.

Forward-Looking Statements and Business Risks

The Private Securities Litigation Reform Act of 1995 provides the Company with the opportunity to make cautionary statements regarding forward-looking statements contained in this Quarterly Report, including forward-looking statements concerning the Company’s future financial performance and asset quality. Any forward-looking statement contained in this Quarterly Report is based on management’s current beliefs, assumptions and expectations of the Company’s future performance, taking into account all information currently available to management. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to management. If a change occurs, the Company’s business, financial condition, liquidity, results of operations, asset quality, plans and objectives may vary materially from those expressed in the forward-looking statements. The risks and uncertainties that may affect the actual results of the Company include, but are not limited to, the following: the substantial negative impact of the COVID-19 ~~restrictions~~pandemic on national, regional and local economies in general and on our customers in particular; competitive products and pricing available in the marketplace; changes in credit and other risks posed by the Company’s loan and investment portfolios, including declines in commercial or residential real estate values or changes in the allowance for loan losses resulting from the COVID-19 ~~restrictions~~pandemic or as dictated by new market conditions or regulatory requirements; 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; the availability of and cost associated with sources of liquidity; and other risks and uncertainties inherent in the Company’s business, including those discussed under the heading “Risk Factors” in the Company’s annual report on Form 10-K. Management intends to identify forward-looking statements when using words such as “believe”, “expect”, “intend”, “anticipate”, “estimate”, “should”, “forecasting” or similar expressions. Undue reliance should not be placed on these forward-looking statements. The Company undertakes no obligation to revise or update such forward-looking statements to reflect current events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

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 year-to-date in ~~2020~~2021 changed significantly when compared to ~~2019.~~2020. Uncertainty due to the federal governmental actions stemming from reactions to the COVID-19 pandemic, may cause market interest rates to deviate from historical norms.

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Item 4.

Controls and Procedures

As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended). Based on that evaluation, the Company’s management, including the Principal Executive Officer and Principal Financial Officer, concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.

There was no change in the Company's internal control over financial reporting that occurred during the Company's last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

Not applicable

Item 1.A.

Risk Factors

~~The COVID-19 pandemic has adversely impacted~~~~, and is expected to continue adversely impacting,~~ ~~our business and financial results, and~~Management does not believe there have been any material changes in the ~~ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted~~ ~~at this time given~~risk factors that were disclosed in the ~~evolving nature of~~Company's Form 10-K filed with the ~~pandemic~~~~, including the scope and duration of the pandemic~~~~, the short and long term effects on national, state and local economies~~ ~~and actions taken by governmental authorities in response to the pandemic.~~

The COVID-19 pandemic has negatively impacted the national, Iowa and local economies in which the Company conducts business, created significant volatility and disruption in financial markets, and substantially increased unemployment levels. In addition, the pandemic has resulted in temporary closures of many businesses and significant restrictions on companies and individuals beginning in IowaSEC on March 9, 2020. The State of Iowa has eased many of these restrictions related to the COVID-19 pandemic. As a result, the demand for our products and services may be significantly impacted, including the demand for new loans and a decrease in deposits. Furthermore, the pandemic will likely result in the recognition of an elevated level of credit losses in our loan portfolios and continued increases in our allowance for loan losses, particularly if businesses remain closed or not fully operational, the impact on the Iowa and local economy worsens, or more customers draw on their lines of credit or seek additional loans to help finance their businesses. Similarly, because of changing economic and market conditions affecting issuers, we may be required to recognize impairments on the securities we hold in our investment portfolio, as well as reductions in the unrealized gains component of other comprehensive income. Additionally, goodwill arising from recent bank acquisitions could become impaired if our net income and the fair value of the acquired assets decline due to the economic slowdown. Each of the foregoing events could negatively impact our revenues, earnings or both, as well as our financial condition.

Our business operations may also be disrupted if significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, or other restrictions in connection with the pandemic. The Company, as a financial institution, is considered an essential business and, therefore, continues to operate and maintain our customer relationships. The Company’s bank lobbies are generally open to the public, with business also being transacted through our drive up facilities, online, telephone or by appointment. Some of the mitigations in place at our offices related to COVID-19 include face coverings, social distancing, frequent hand washing, and protective shields. Although the Company anticipates moving toward normalized operations, changes in restrictions by governmental authorities may change these plans. Current and future governmental actions may temporarily require the Company to conduct business related to foreclosures, repossessions, payments deferrals and other customer-related transactions differently. The Company could also take actions to preserve its capital levels, such as lowering or suspending dividends, in response to the COVID-19 pandemic.

The extent to which the COVID-19 pandemic impacts our business, prospects, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted at this time due to the evolving nature of the pandemic, including the scope and duration of the pandemic, the short and long term effects on national, state and local economies and actions taken by governmental authorities and other third parties in response to the pandemic.12, 2021.

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Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

In ~~November, 2019,~~April, 2021, the Company approved a Stock Repurchase Plan which provided for the repurchase of up to 100,000 shares of the Company’s common stock. As of June 30, ~~2020,~~2021, there were no100,000 shares remaining to be purchased under the plan. ~~Ames National Corporation completed the stock repurchase program in April, 2020 and the price per share averaged $19.92.~~

The following table provides information with respect to purchases made by or on behalf of the Company or any “affiliated purchases” (as defined in rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of the Company’s common stock during the three months ended June 30, ~~2020.~~2021.

Total

Number

Maximum

of Shares

Number of

Purchased as

Shares that

Total

Part of

May Yet Be

Number

Average

Publicly

Purchased

of Shares

Price Paid

Announced

Under

Period

Purchased

Per Share

Plans

The Plan

April 1, 2020 to April 30, 2020
65,847 $ 19.52 65,847 -

May 1, 2020 to May 31, 2020
- $ - - -

June 1, 2020 to June 30, 2020
- $ - - -

Total
65,847 65,847

Total

Number

Maximum

of Shares

Number of

Purchased as

Shares that

Total

Part of

May Yet Be

Number

Average

Publicly

Purchased

of Shares

Price Paid

Announced

Under

Period

Purchased

Per Share

Plans

The Plan

April 1, 2021 to April 30, 2021

100,000

May 1, 2021 to May 31, 2021

100,000

June 1, 2021 to June 30, 2021

100,000

Total

Item 3.

Defaults Upon Senior Securities

Not applicable

Item 4.

Mine Safety Disclosures

Not applicable

Item 5.

Other information

Not applicable

Table of Contents

Item 6.

Exhibits

~~2.1~~

~~Stock purchase agreement (incorporated by reference to Exhibit 2.1 to the Form 10-Q filed on August 7, 2019).~~

31.1

Certification of Principal Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.

31.2

Certification of Principal Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.

32.1

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350.

32.2

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350.

~~101.INS~~

101.INS		Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL (1)
101.SCH		Inline XBRL Taxonomy Extension Schema Document (1)
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document (1)
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document (1)
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document (1)
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document (1)

104		Cover ~~Page~~page Interactive Data File (formatted as Inline XBRL and ~~contained~~combined in Exhibit 101.1)

(1) These interactive date files shall not be deemed filed for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under those sections.

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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: August ~~6, 2020~~ 5, 2021	By:	/s/ John P. Nelson

	John P. Nelson, Chief Executive Officer and President


By:	/s/ John L. Pierschbacher

~~By:~~		~~/s/~~ John L. Pierschbacher,

~~John L. Pierschbacher.~~ Chief Financial Officer

	Common Stock						Additional Paid-in			Retained			Accumulated Other Comprehensive Income, Net of		Total Stockholders'
	Shares			Amount			Capital			Earnings			Taxes		Equity

Balance, March 31, 2019		9,242,822		$	18,485,644		$	19,276,388		$	139,910,979		$	103,747	$	177,776,758
Net income		-			-			-			4,617,593			-		4,617,593
Other comprehensive income		-			-			-			-			3,350,915		3,350,915
Retirement of stock		(10,700	)		(21,400	)		(256,621	)		-			-		(278,021	)
Cash dividends declared, $0.24 per share		-			-			-			(2,215,709	)		-		(2,215,709	)
Balance, June 30, 2019		9,232,122		$	18,464,244		$	19,019,767		$	142,312,863		$	3,454,662	$	183,251,536


Balance, March 31, 2020		9,188,594		$	18,377,188		$	18,155,547		$	147,482,450		$	4,478,192	$	188,493,377
Net income		-			-			-			4,427,665			-		4,427,665
Other comprehensive income		-			-			-			-			9,514,365		9,514,365
Retirement of stock		(65,847	)		(131,694	)		(1,153,811	)		-			-		(1,285,505	)
Balance, June 30, 2020		9,122,747		$	18,245,494		$	17,001,736		$	151,910,115		$	13,992,557	$	201,149,902

	2020		2019

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for:
Interest	$	5,259,558	$	5,148,519
Income taxes		675,614		2,248,474

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES
Transfer of loans receivable to other real estate owned	$	10,738	$	-

Cash consideration transferred	$	22,643

Recognized amounts of identifiable assets acquired and liabilities assumed:

Cash and due from banks	$	3,188
Federal funds sold		2,792
Interest bearing deposits in financial institutions		21,035
Securities available-for-sale		33,615
Federal Home Loan Bank stock at cost		365
Loans receivable		137,776
Accrued interest receivable		2,888
Bank premises and equipment		2,452
Other real estate owned		3,582
Bank owned life insurance		2,499
Core deposit intangible asset		1,891
Other assets		204
Deposits		(188,631	)
Securities sold under repurchase agreements		(1,747	)
Accrued interest payable and other liabilities		(1,946	)

Total identifiable net assets		19,963

Goodwill	$	2,680

Pass	$	121,346
Watch		12,333
Special Mention		-
Substandard		6,024

Total loans acquired at book value	$	139,703

	Three Months Ended June 30, 2019
				1-4 Family
	Construction			Residential			Commercial		Agricultural								Consumer
	Real Estate			Real Estate			Real Estate		Real Estate		Commercial			Agricultural			and Other			Total
Balance, March 31, 2019	$	736		$	1,850		$	4,770	$	1,258	$	1,610		$	1,392		$	196		$	11,812
Provision (credit) for loan losses		(15	)		(1	)		136		43		(21	)		(61	)		(13	)		68
Recoveries of loans charged-off		-			1			-		-		1			1			4			7
Loans charged-off		-			(3	)		-		-		-			-			(15	)		(18	)
Balance, June 30, 2019	$	721		$	1,847		$	4,906	$	1,301	$	1,590		$	1,332		$	172		$	11,869