Ames National (ATLO) 10-Q 2024 Q3 Quarterly report

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 September 30, 2024

☐	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)

323 Sixth 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	The NASDAQ Capital Market

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 November 1, 2024, there were 8,992,167 shares of common stock, par value $2, outstanding.

AMES NATIONAL CORPORATION

INDEX

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements (Unaudited)	3
	Consolidated Balance Sheets at September 30, 2024 and December 31, 2023	3
	Consolidated Statements of Income for the three and nine months ended September 30, 2024 and 2023	4
	Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2024 and 2023	5
	Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2024 and 2023	6
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023	7
	Notes to Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	52
Item 4.	Controls and Procedures	52
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	52
Item 1.A.	Risk Factors	52
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53
Item 3.	Defaults Upon Senior Securities	53
Item 4.	Mine Safety Disclosures	53
Item 5.	Other Information	53
Item 6.	Exhibits	54
	Signatures	55

2

AMES NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

	September 30,			December 31,
	2024			2023
	(unaudited)			(audited)
ASSETS
Cash and due from banks	$	22,660		$	24,105
Interest-bearing deposits in financial institutions and federal funds sold		36,309			30,996
Total cash and cash equivalents		58,969			55,101
Interest-bearing time deposits		6,167			8,904
Securities available-for-sale		688,595			736,389
Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) stock, at cost		5,186			3,086
Loans receivable, net		1,295,773			1,277,812
Loans held for sale		338			124
Bank premises and equipment, net		21,858			22,549
Accrued income receivable		15,261			12,953
Bank-owned life insurance		3,193			3,131
Deferred income taxes, net		11,138			16,496
Intangible assets, net		1,170			1,429
Goodwill		12,424			12,424
Other assets		3,101			5,083
Total assets	$	2,123,173		$	2,155,481
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Noninterest-bearing checking	$	335,469		$	370,942
Interest-bearing checking		612,017			611,891
Savings and money market		535,096			552,275
Time, $250 and over		79,538			67,733
Other time		239,601			208,990
Total deposits		1,801,721			1,811,831
Securities sold under agreements to repurchase		42,756			53,994
Other borrowings		83,101			110,588
Dividends payable		1,798			2,428
Accrued interest payable		3,045			4,710
Accrued expenses and other liabilities		7,358			6,142
Total liabilities		1,939,779			1,989,693
STOCKHOLDERS' EQUITY
Common stock, $2 par value, authorized 18,000,000 shares; issued and outstanding 8,992,167 shares as of September 30, 2024 and December 31, 2023		17,984			17,984
Additional paid-in capital		14,253			14,253
Retained earnings		180,505			180,438
Accumulated other comprehensive (loss)		(29,348	)		(46,887	)
Total stockholders' equity		183,394			165,788
Total liabilities and stockholders' equity	$	2,123,173		$	2,155,481

See Notes to Consolidated Financial Statements.

3

AMES NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

(in thousands, except per share data)

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2024		2023			2024			2023
Interest and dividend income:
Loans, including fees	$	16,751	$	14,585		$	48,793		$	41,657
Securities:
Taxable		2,985		3,152			9,104			9,556
Tax-exempt		481		549			1,524			1,748
Other interest and dividend income		495		476			1,937			1,484
Total interest and dividend income		20,712		18,762			61,358			54,445
Interest expense:
Deposits		8,278		6,518			24,037			17,214
Other borrowed funds		1,357		1,555			4,466			3,571
Total interest expense		9,635		8,073			28,503			20,785
Net interest income		11,077		10,689			32,855			33,660
Credit loss expense (benefit)		371		(274	)		722			34
Net interest income after credit loss expense (benefit)		10,706		10,963			32,133			33,626
Noninterest income:
Wealth management income		1,242		1,157			3,913			3,507
Service fees		399		343			1,062			1,000
Securities gains (losses), net		-		28			(165	)		35
Gain on sale of loans held for sale		112		95			361			254
Merchant and card fees		426		404			1,211			1,249
Other noninterest income		234		333			827			884
Total noninterest income		2,413		2,360			7,209			6,929
Noninterest expense:
Salaries and employee benefits		6,291		5,902			18,965			17,751
Data processing		1,475		1,497			4,478			4,395
Occupancy expenses, net		745		671			2,238			2,273
FDIC insurance assessments		281		284			878			803
Professional fees		867		545			2,190			1,540
Business development		318		311			983			975
Intangible asset amortization		86		130			259			388
New market tax credit projects amortization		174		192			523			575
Other operating expenses, net		268		270			925			1,445
Total noninterest expense		10,505		9,802			31,439			30,145
Income before income taxes		2,614		3,521			7,903			10,410
Provision for income taxes		397		597			1,198			1,732
Net income	$	2,217	$	2,924		$	6,705		$	8,678
Basic and diluted earnings per share	$	0.25	$	0.33		$	0.75		$	0.97
Dividends declared per share	$	0.20	$	0.27		$	0.74		$	0.81

See Notes to Consolidated Financial Statements.

4

AMES NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)

(in thousands)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2024			2023			2024			2023
Net income	$	2,217		$	2,924		$	6,705		$	8,678
Unrealized gains (losses) on securities before tax:
Unrealized holding gains (losses) arising during the period		20,896			(12,158	)		22,873			(4,230	)
Plus: reclassification adjustment for (gains) losses realized in net income		-			(28	)		165			(35	)
Other comprehensive income (loss), before tax		20,896			(12,186	)		23,038			(4,265	)
Tax benefit (expense) related to other comprehensive income (loss)		(4,974	)		2,901			(5,483	)		1,016
Other income tax effects from tax reform		(4	)		-			(16	)		(2	)
Other comprehensive income (loss), net of tax		15,918			(9,285	)		17,539			(3,251	)
Comprehensive income (loss)	$	18,135		$	(6,361	)	$	24,244		$	5,427

See Notes to Consolidated Financial Statements.

5

AMES NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)

(in thousands, except share and per share data)

										Accumulated
										Other
Three Months Ended September 30, 2024 and 2023										Comprehensive			Total
	Common Stock				Additional Paid-in		Retained			Income (Loss),			Stockholders'
	Shares		Amount		Capital		Earnings			Net of Taxes			Equity
Balance, June 30, 2023		8,992,167	$	17,984	$	14,253	$	180,228		$	(57,036	)	$	155,429
Net income		-		-		-		2,924			-			2,924
Other comprehensive (loss)		-		-		-		-			(9,285	)		(9,285	)
Cash dividends declared, $0.27 per share		-		-		-		(2,428	)		-			(2,428	)
Balance, September 30, 2023		8,992,167	$	17,984	$	14,253	$	180,724		$	(66,321	)	$	146,640
Balance, June 30, 2024		8,992,167	$	17,984	$	14,253	$	180,082		$	(45,266	)	$	167,053
Net income		-		-		-		2,217			-			2,217
Other income tax effects from tax reform		-		-		-		4			-			4
Other comprehensive income		-		-		-		-			15,918			15,918
Cash dividends declared, $0.20 per share		-		-		-		(1,798	)		-			(1,798	)
Balance, September 30, 2024		8,992,167	$	17,984	$	14,253	$	180,505		$	(29,348	)	$	183,394

										Accumulated
										Other
Nine Months Ended September 30, 2024 and 2023										Comprehensive			Total
	Common Stock				Additional Paid-in		Retained			Income (Loss),			Stockholders'
	Shares		Amount		Capital		Earnings			Net of Taxes			Equity
Balance, December 31, 2022		8,992,167	$	17,984	$	14,253	$	179,931		$	(63,070	)	$	149,098
Cumulative change in accounting principle		-		-		-		(603	)		-			(603	)
Net income		-		-		-		8,678			-			8,678
Other income tax effects from tax reform		-		-		-		2			-			2
Other comprehensive (loss)		-		-		-		-			(3,251	)		(3,251	)
Cash dividends declared, $0.81 per share		-		-		-		(7,284	)		-			(7,284	)
Balance, September 30, 2023		8,992,167	$	17,984	$	14,253	$	180,724		$	(66,321	)	$	146,640
Balance, December 31, 2023		8,992,167	$	17,984	$	14,253	$	180,438		$	(46,887	)	$	165,788
Net income		-		-		-		6,705			-			6,705
Other income tax effects from tax reform		-		-		-		16			-			16
Other comprehensive income		-		-		-		-			17,539			17,539
Cash dividends declared, $0.74 per share		-		-		-		(6,654	)		-			(6,654	)
Balance, September 30, 2024		8,992,167	$	17,984	$	14,253	$	180,505		$	(29,348	)	$	183,394

See Notes to Consolidated Financial Statements.

6

AMES NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)

Nine Months Ended September 30, 2024 and 2023

	2024			2023
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	6,705		$	8,678
Adjustments to reconcile net income to net cash provided by operating activities:
Credit loss expense for loans		792			80
Credit loss benefit for off-balance sheet credit exposures		(70	)		(46	)
Amortization of securities available-for-sale and loans, net		703			1,189
Amortization of intangible assets		259			388
Depreciation		997			918
Provision for deferred income taxes		(125	)		127
Securities (gains) losses, net		165			(35	)
Increase in cash value of bank-owned life insurance		(62	)		(57	)
Gain on sales of loans held for sale		(361	)		(254	)
Proceeds from loans held for sale		17,471			13,463
Originations of loans held for sale		(17,324	)		(13,483	)
Amortization of investment in New Markets Tax Credit projects		523			575
Gain on other real estate owned, net		(11	)		-
Change in assets and liabilities:
(Increase) in accrued income receivable		(2,308	)		(2,519	)
Decrease (increase) in other assets		1,384			(28	)
Increase (decrease) in accrued interest payable		(1,665	)		2,895
Increase in accrued expenses and other liabilities		1,286			923
Net cash provided by operating activities		8,359			12,814
CASH FLOWS FROM INVESTING ACTIVITIES
Change in interest-bearing time deposits		2,737			4,780
Purchase of securities available-for-sale		(11,629	)		(3,779	)
Proceeds from sale of securities available-for-sale		2,049			2,069
Proceeds from maturities and calls of securities available-for-sale		79,426			45,616
Purchase of FHLB stock		(8,867	)		(14,941	)
Proceeds from the redemption of FHLB and FRB stock		6,767			15,554
Net (increase) in loans		(18,706	)		(6,617	)
Net proceeds from the sale of other real estate owned		82			-
Purchase of premises and equipment		(231	)		(3,844	)
Net cash provided by investing activities		51,628			38,838
CASH FLOWS FROM FINANCING ACTIVITIES
(Decrease) in deposits		(10,110	)		(69,276	)
Increase (decrease) in securities sold under agreements to repurchase		(11,238	)		20,265
Payments on other borrowings		(144,987	)		(88,758	)
Proceeds from other borrowings		129,000			191,000
Net (payments on) FHLB short-term borrowings		(11,500	)		(35,420	)
Dividends paid		(7,284	)		(7,284	)
Net cash provided by (used in) financing activities		(56,119	)		10,527
Net increase in cash and cash equivalents		3,868			62,179
CASH AND CASH EQUIVALENTS
Beginning		55,101			27,884
Ending	$	58,969		$	90,063

7

AMES NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (unaudited)

(in thousands)

Nine Months Ended September 30, 2024 and 2023

	2024		2023
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for:
Interest	$	30,168	$	17,890
Income taxes		246		1,485
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES
Transfer of loans receivable to other real estate owned	$	71	$	-
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES
Dividends declared, not paid	$	1,798	$	2,428

See Notes to Consolidated Financial Statements.

8

AMES NATIONAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

1. Significant Accounting Policies

The accompanying unaudited consolidated financial statements have been prepared by Ames National Corporation (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the company believes that the disclosures made are adequate to make the information not misleading. It is suggested that these interim financial statements 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, 2023 (the “Annual Report”). The consolidated balance sheet of the Company as of December 31, 2023 has been derived from the audited consolidated balance sheet of the Company as of that date. In the opinion of management, the accompanying consolidated financial statements of the Company contain all adjustments necessary to fairly present the financial results for the interim periods reported. Those adjustments consist only of normal recurring adjustments. The results of operations for the interim periods are not necessarily indicative of results which may be expected for an entire year. 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.

Subsequent Events: The Company has evaluated subsequent events through the filing date of this Quarterly Report on Form 10-Q with the SEC.

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. The Company completed a quantitative assessment of goodwill as of October 1, 2023 which indicated that goodwill was not impaired. Subsequently, the Company determined there were no adverse changes in criteria and key considerations to the previous assessment. Accordingly, the Company concluded there is no impairment of goodwill as of September 30, 2024.

9

 

New and Pending Accounting Pronouncements:

In March 2023, the FASB issued ASU No. 2023-02, Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using Proportional Amortization Method. The ASU is intended to improve the accounting and disclosures for investments in tax credit structures. It allows reporting entities to elect to adopt for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The ASU did not have a material impact on the Company’s financial statements.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The ASU is intended to improve the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the rate reconciliation table and income taxes paid to be disaggregated by jurisdiction. It also includes certain amendments to improve the effectiveness of income tax disclosures. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact of the ASU on the Company’s consolidated financial statements.

In November 2024, the FASB issued ASU No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The ASU is intended to improve disclosures about a public business entity's expenses and provide more detailed information regarding types of expenses in commonly presented expense captions. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2026. The Company is currently evaluating the impact of the ASU on the Company’s consolidated financial statements.

2. Dividends

On August 14, 2024, the Company declared a cash dividend on its common stock, payable on November 15, 2024 to stockholders of record as of November 1, 2024, equal to $0.20 per share.

3. Earnings Per Share

Earnings per share amounts were calculated using the weighted average shares outstanding during the periods presented. The weighted average outstanding shares for the three and nine months ended September 30, 2024 and 2023 was 8,992,167. The Company had no potentially dilutive securities outstanding during the periods presented.

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, 2023.

10

 

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.

The following is a description of valuation methodologies used for assets and liabilities recorded at fair value on a recurring basis.

Securities available-for-sale: 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.

Derivative financial instruments and loans receivable: The Company’s derivative financial instruments and loans receivable consist of interest rate swaps on loans accounted for as fair value hedges. The Company’s derivative financial instruments also include back-to-back loan swaps to assist customers in managing their interest rate risk while executing offsetting interest rate swaps with dealer counterparties. The Company's derivative positions and related loans are classified within Level 2 of the fair value hierarchy and are valued using models generally accepted in the financial services industry and that use actively quoted or observable market input values from external market data providers and/or non-binding broker-dealer quotations. The fair value of the derivatives and loans are determined using discounted cash flow models. These models’ key assumptions include the contractual terms of the respective contract along with significant observable inputs, including interest rates, yield curves, nonperformance risk and volatility.

11

 

The following table presents the balances of assets measured at fair value on a recurring basis by level as of September 30, 2024 and December 31, 2023 (in thousands):

Description	Total		Level 1		Level 2		Level 3
2024
Assets
Securities available-for-sale
U.S. government treasuries	$	178,783	$	178,783	$	-	$	-
U.S. government agencies		93,751		-		93,751		-
U.S. government mortgage-backed securities		93,906		-		93,906		-
State and political subdivisions		256,382		-		256,382		-
Corporate bonds		65,773		-		65,773		-
Loans receivable		8,252		-		8,252		-
Derivative financial instruments		1,097		-		1,097		-
Liabilities
Derivative financial instruments	$	878	$	-	$	878	$	-
2023
Assets
Securities available-for-sale
U.S. government treasuries	$	200,088	$	200,088	$	-	$	-
U.S. government agencies		92,615		-		92,615		-
U.S. government mortgage-backed securities		101,864		-		101,864		-
State and political subdivisions		269,891		-		269,891		-
Corporate bonds		71,931		-		71,931		-
Loans receivable		8,327		-		8,327		-
Derivative financial instruments		1,225		-		1,225		-
Liabilities
Derivative financial instruments	$	745	$	-	$	745	$	-

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 September 30, 2024 and December 31, 2023 (in thousands):

Description	Total		Level 1		Level 2		Level 3
2024
Collateral dependent loans	$	404	$	-	$	-	$	404
2023
Collateral dependent loans	$	105	$	-	$	-	$	105

12

 

The significant inputs used in the fair value measurements for Level 3 assets measured at fair value on a nonrecurring basis as of September 30, 2024 and December 31, 2023 are as follows (in thousands):

	2024
	Estimated		Valuation	Unobservable
	Fair Value		Techniques	Inputs	Range
Collateral dependent loans	$	404	Fair value of collateral	Valuation adjustments		0% - 25%

	2023
	Estimated		Valuation	Unobservable
	Fair Value		Techniques	Inputs	Range
Collateral dependent loans	$	105	Fair value of collateral	Valuation adjustments		0% - 15%

Evaluations of the underlying assets are completed for each collateral dependent 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 and could include cost approach, sales comparison approach, or income approach. 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.

13

 

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. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The following table includes the carrying amounts and estimated fair values of the Company’s financial assets and liabilities as of September 30, 2024 and December 31, 2023 (in thousands):

		2024				2023
	Fair Value			Estimated				Estimated
	Hierarchy	Carrying		Fair		Carrying		Fair
	Level	Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	Level 1	$	58,969	$	58,969	$	55,101	$	55,101
Interest-bearing time deposits	Level 1		6,167		5,924		8,904		8,444
Securities available-for-sale	See previous table		688,595		688,595		736,389		736,389
FHLB and FRB stock	Level 2		5,186		5,186		3,086		3,086
Loans receivable, net	Level 3		1,295,773		1,257,876		1,277,812		1,224,446
Loans held for sale	Level 2		338		338		124		124
Accrued income receivable	Level 1		15,261		15,261		12,953		12,953
Derivative financial instruments	Level 2		1,097		1,097		1,225		1,225
Financial liabilities:
Deposits	Level 2	$	1,801,721	$	1,804,339	$	1,811,831	$	1,812,718
Securities sold under agreements to repurchase	Level 1		42,756		42,756		53,994		53,994
Other borrowings	Level 2		83,101		83,177		110,588		110,376
Accrued interest payable	Level 1		3,045		3,045		4,710		4,710
Derivative financial instruments	Level 2		878		878		745		745

The methodologies used to determine fair value as of September 30, 2024 did not change from the methodologies described in the December 31, 2023 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.

14

 

6. Debt Securities

The amortized cost of securities available-for-sale and their approximate fair values as of September 30, 2024 and December 31, 2023 are summarized below (in thousands):

2024:			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
	Cost		Gains		Losses			Fair Value
U.S. government treasuries	$	186,405	$	218	$	(7,840	)	$	178,783
U.S. government agencies		97,673		142		(4,064	)		93,751
U.S. government mortgage-backed securities		104,041		7		(10,142	)		93,906
State and political subdivisions		270,717		135		(14,470	)		256,382
Corporate bonds		69,035		57		(3,319	)		65,773
	$	727,871	$	559	$	(39,835	)	$	688,595

2023:			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
	Cost		Gains		Losses			Fair Value
U.S. government treasuries	$	213,646	$	29	$	(13,587	)	$	200,088
U.S. government agencies		99,455		2		(6,842	)		92,615
U.S. government mortgage-backed securities		115,988		-		(14,124	)		101,864
State and political subdivisions		292,475		93		(22,677	)		269,891
Corporate bonds		77,139		11		(5,219	)		71,931
	$	798,703	$	135	$	(62,449	)	$	736,389

The amortized cost and fair value of debt securities available-for-sale as of September 30, 2024, 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
	Cost		Fair Value
Due in one year or less	$	106,029	$	104,557
Due after one year through five years		380,712		364,244
Due after five years through ten years		128,989		118,358
Due after ten years		8,100		7,530
	$	623,830	$	594,689
U.S. government mortgage-backed securities		104,041		93,906
Total	$	727,871	$	688,595

The Company's investment portfolio had an expected duration of 3.16 years as of September 30, 2024.

Securities with a carrying value of $296.4 million and $374.4 million at September 30, 2024 and December 31, 2023, respectively, were pledged on public deposits, securities sold under agreements to repurchase, other borrowings and for other purposes as required or permitted by law.

15

 

The proceeds and gains on securities available-for-sale for the three and nine months ended September 30, 2024 and 2023 are summarized below (in thousands):

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2024		2023			2024			2023
Proceeds from sales of securities available-for-sale	$	-	$	716		$	2,049		$	2,069
Gross realized gains on securities available-for-sale		-		62			-			73
Gross realized losses on securities available-for-sale		-		(34	)		(165	)		(38	)

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 as of September 30, 2024 and December 31, 2023 are summarized as follows (in thousands):

	Less than 12 Months							12 Months or More							Total
	Estimated		Unrealized			No. of		Estimated		Unrealized			No. of		Estimated		Unrealized
2024:	Fair Value		Losses			Securities		Fair Value		Losses			Securities		Fair Value		Losses
Securities available-for-sale:
U.S. government treasuries	$	-	$	-			-	$	170,184	$	(7,840	)		102	$	170,184	$	(7,840	)
U.S. government agencies		-		-			-		85,317		(4,064	)		73		85,317		(4,064	)
U.S. government mortgage-backed securities		-		-			-		93,339		(10,142	)		154		93,339		(10,142	)
State and political subdivisions		2,810		(14	)		8		236,197		(14,456	)		447		239,007		(14,470	)
Corporate bonds		-		-			-		61,554		(3,319	)		78		61,554		(3,319	)
	$	2,810	$	(14	)		8	$	646,591	$	(39,821	)		854	$	649,401	$	(39,835	)

	Less than 12 Months							12 Months or More							Total
	Estimated		Unrealized			No. of		Estimated		Unrealized			No. of		Estimated		Unrealized
2023:	Fair Value		Losses			Securities		Fair Value		Losses			Securities		Fair Value		Losses
Securities available-for-sale:
U.S. government treasuries	$	-	$	-			-	$	196,432	$	(13,587	)		121	$	196,432	$	(13,587	)
U.S. government agencies		1,986		(11	)		2		90,137		(6,831	)		78		92,123		(6,842	)
U.S. government mortgage-backed securities		467		(12	)		4		101,265		(14,112	)		155		101,732		(14,124	)
State and political subdivisions		9,054		(73	)		18		251,286		(22,604	)		474		260,340		(22,677	)
Corporate bonds		3,117		(108	)		4		67,816		(5,111	)		84		70,933		(5,219	)
	$	14,624	$	(204	)		28	$	706,936	$	(62,245	)		912	$	721,560	$	(62,449	)

Gross unrealized losses on debt securities totaled $39.8 million as of September 30, 2024. 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. As of September 30, 2024 and December 31, 2023, the Company determined that no individual securities in an unrealized loss position represented credit losses that would require an allowance for credit losses. The Company concluded that the unrealized losses were primarily attributable to increases in market interest rates since these securities were purchased and other market conditions. Accrued interest receivable on AFS debt securities totaled $3.6 million and $3.5 million as of September 30, 2024 and December 31, 2023, respectively, and is excluded from the estimate of credit losses.

16

 

7. Loans Receivable and Credit Disclosures

The composition of loans receivable as of September 30, 2024 and December 31, 2023 is as follows (in thousands):

	2024			2023
Real estate - construction	$	65,812		$	63,050
Real estate - 1 to 4 family residential		297,331			289,404
Real estate - multi-family		201,888			195,536
Real estate - commercial		355,073			359,266
Real estate - agricultural		157,914			161,517
Commercial		93,534			89,729
Agricultural		124,207			119,136
Consumer and other		17,114			16,540
		1,312,873			1,294,178
Unallocated portfolio layer basis adjustments1		462			410
Less allowance for credit losses		(17,562	)		(16,776	)
Loans receivable, net	$	1,295,773		$	1,277,812

¹ This amount represents portfolio layer method basis adjustments related to loans hedged in a closed portfolio. Under the portfolio layer method basis adjustments are not allocated to individual loans, however, the amounts impact the net loan balance. These basis adjustments would be allocated to the amortized cost of specific loans within the pool if the hedge was de-designated. See Note 11 (“Derivative Financial Instruments”) for additional information.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost net of the allowance for credit losses (ACL) and other basis adjustments. Amortized cost is the principal balance outstanding, net of deferred loan fees and costs. Interest income is accrued on the unpaid principal balance. In the event that collection of principal becomes uncertain, the Company has policies in place to reverse accrued interest in a timely manner. Accrued interest receivable on loans held for investment totaled $11.6 million and $9.4 million as of September 30, 2024 and December 31, 2023, respectively, and is excluded from the estimate of credit losses. Nonrefundable loan fees and origination costs are deferred and recognized as a yield adjustment over the life of the related loan.

The policy for charging off loans is consistent throughout all loan categories. A loan is charged off based on criteria that includes but is not limited to: delinquency status, financial condition of the entire customer credit line and underlying collateral coverage, economic or external conditions that might impact full repayment of the loan, legal issues, overdrafts, and the customer’s willingness to work with the Company.

17

 

Allowance for Credit Losses for Loans. The allowance for credit losses is an estimate of expected losses inherent within the Company's existing loans held for investment portfolio. Expected credit loss inherent in non-cancelable off-balance-sheet (“OBS”) credit exposures is accounted for as a separate liability on the balance sheet. The Company's allowance for credit losses for OBS credit exposures was $1.0 million and $1.1 million as of September 30, 2024 and December 31, 2023, respectively. The allowance for credit losses for loans held for investment, as reported in our consolidated balance sheet, is adjusted by a credit loss expense, which is reported in earnings, and reduced by the charge-off of loan amounts, net of recoveries.

The credit loss estimation process involves procedures to appropriately consider the unique characteristics of loan portfolio segments which consist of construction real estate, 1 to 4 family residential real estate, multi-family real estate, commercial real estate, agricultural real estate, commercial, agricultural and consumer and other lending. When computing allowance levels, credit loss assumptions are estimated using a model that categorizes loan pools based on loss history, delinquency status and other credit trends and risk characteristics, including current conditions and reasonable and supportable forecasts about the future. The key components in this estimation process include the following:

● An initial forecast period of one year for all portfolio segments and OBS credit exposures. This period reflects management's expectation of losses based on forward-looking economic scenarios over that time.

● A historical loss forecast period covering the remaining contractual life, adjusted for prepayments, by portfolio segment based on the change in key historical economic variables.

● A reversion period of 1 year connecting the initial loss forecast to the historical loss forecast based on economic conditions at the measurement date.

The Company primarily utilizes loss rate based undiscounted cash flow (UDCF) methods to estimate credit losses by portfolio segment. The UDCF methods obtain estimated life-time credit losses using the conceptual components described above.

Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. In future periods evaluations of the overall loan portfolio, in light of the factors and forecasts then prevailing, may result in significant changes in the allowance and credit loss expense in those future periods.

Credit quality is assessed and monitored by evaluating various attributes and the results of those evaluations are utilized in underwriting new loans and in our process for estimation of expected credit losses. The following provides the credit quality indicators and risk elements that are most relevant and most carefully considered and monitored for each loan portfolio segment.

Construction loans are underwritten utilizing independent appraisals, sensitivity analysis of absorption, vacancy and lease rates and financial analysis of the developers and property owners. Construction loans are generally based upon estimates of costs and value associated with the completed project. These estimates may prove to be inaccurate primarily due to unforeseen circumstances beyond the control of the borrower or lender. Construction loans often involve the disbursement of funds with repayment substantially dependent on the success of the ultimate project. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, general economic conditions and the availability of long-term financing. The Company may require guarantees on these loans. The Company’s construction loans are secured primarily by properties located in its primary market area. National unemployment rate was a key economic forecast used in estimating expected credit losses for this segment as of December 31, 2023. National unemployment rate and national real gross domestic product (GDP) are key economic forecasts used in estimating expected credit losses for this segment as of September 30, 2024.

18

 

The Company originates 1-4 family real estate loans utilizing credit reports to supplement the underwriting process. The Company’s underwriting standards for 1-4 family loans are generally in accordance with FHLMC and FNMA manual underwriting guidelines. Properties securing 1-4 family real estate loans are appraised by either staff appraisers or fee appraisers, both of which are independent of the loan origination function and have been approved by the Board of Directors. The loan-to-value ratios normally do not exceed 90% without credit enhancements such as mortgage insurance. The Company will lend up to 100% of the lesser of the appraised value or purchase price for conventional 1-4 family real estate loans, provided private mortgage insurance is obtained. The Company’s 1-4 family real estate loans are secured primarily by properties located in its primary market area. The national unemployment rate is a key economic forecast used in estimating expected credit losses for this segment.

Multi-family, commercial and agricultural real estate loans are subject to underwriting standards and processes similar to commercial and agricultural operating loans, in addition to those unique to real estate loans. These loans are viewed primarily as cash flow loans and, secondarily, as loans secured by real estate. Multi-family, commercial and agricultural real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Loan-to-value generally does not exceed 80% of the cost or value of the assets. Loans are typically subject to interest rate adjustments between five and seven years from origination. Fully amortized monthly repayment terms normally do not exceed twenty-five years. Projections and cash flows that show ability to service debt within the amortization period are required. Property and casualty insurance is required to protect the Banks’ collateral interests. Appraisals on properties securing these loans are generally performed by fee appraisers approved by the Board of Directors. Because payments on multi-family, commercial and agricultural real estate loans are often dependent on the successful operation or management of the properties, repayment of such loans may be subject to adverse conditions in the real estate market or the economy. Management monitors and evaluates commercial and agricultural real estate loans based on collateral and risk rating criteria. The Company may require guarantees on these loans. The Company’s multi-family, commercial and agricultural real estate loans are secured primarily by properties located in its primary market areas. The national unemployment rate and the national real GDP were key economic forecasts used in estimating expected credit losses for the multi-family and commercial real estate segments as of December 31, 2023. The national unemployment rate is a key economic forecast used in estimate credit losses for the multi-family and commercial real estate segments as of September 30, 2024. The national real GDP was a key economic forecast used in estimating expected credit losses for the agricultural real estate segment as of December 31, 2023. The national unemployment rate and national real GDP are key economic forecasts used in estimating expected credit losses for the agricultural real estate segment as of September 30, 2024.

Commercial and agricultural operating loans are underwritten based on the Company’s examination of current and projected cash flows to determine the ability of the borrower to repay their obligations as agreed. This underwriting includes the evaluation of cash flows of the borrower, underlying collateral, if applicable, and the borrower’s ability to manage its business activities. The cash flows of borrowers and the collateral securing these loans may fluctuate in value after the initial evaluation. A first priority lien on the general assets of the business normally secures these types of loans. Loan-to-value limits vary and are dependent upon the nature and type of the underlying collateral and the financial strength of the borrower. Crop and hail insurance is required for most agricultural borrowers. Loans are generally guaranteed by the principal(s). The Company’s commercial and agricultural operating lending is primarily in its primary market area. The national unemployment rate and the national real GDP were key economic forecasts used in estimating expected credit losses for the commercial operating segment as of December 31, 2023. The national unemployment rate is a key economic forecast used in estimating expected credit losses for the commercial operating segment as of September 30, 2024. The national real GDP was a key economic forecast used in estimating expected credit losses for the agricultural operating segment as of December 31, 2023. The national unemployment rate and national real GDP are key economic forecasts used in estimating expected credit losses for the agricultural operating segment as of September 30, 2024.

Consumer and other loans utilize credit reports to supplement the underwriting process. The underwriting standards include a determination of the applicant’s payment history on other debts and an assessment of their ability to meet existing obligations and payments on the proposed loan. To monitor and manage loan risk, policies and procedures are developed and modified, as needed by management. This activity, coupled with smaller loan amounts that are spread across many individual borrowers, minimizes risk. Additionally, market conditions are reviewed by management on a regular basis. The Iowa real GDP and Iowa retail trade earnings were key economic forecasts used in estimating expected credit losses for this segment as of December 31, 2023. The national unemployment rate is a key economic forecast used in estimating expected credit losses for this segment as of September 30, 2024.

19

 

Activity in the allowance for credit losses, on a disaggregated basis, for the three and nine months ended September 30, 2024 and 2023 is as follows (in thousands):

	Three Months Ended September 30, 2024
			1-4 Family
	Construction		Residential		Multi-family			Commercial			Agricultural							Consumer
	Real Estate		Real Estate		Real Estate			Real Estate			Real Estate		Commercial			Agricultural		and Other			Total
Balance, June 30, 2024	$	413	$	3,349	$	2,584		$	5,530		$	1,226	$	1,912		$	1,710	$	479		$	17,203
Credit loss expense (benefit) 1		151		400		(373	)		(521	)		333		413			5		(39	)		369
Recoveries of loans charged-off		-		1		-			-			-		2			-		-			3
Loans charged-off		-		-		-			-			-		(4	)		-		(9	)		(13	)
Balance, September 30, 2024	$	564	$	3,750	$	2,211		$	5,009		$	1,559	$	2,323		$	1,715	$	431		$	17,562

 (1) The difference in the credit loss expense reported herein as compared to the Consolidated Statements of Income is associated with the credit loss expense of $2 thousand related to off-balance sheet credit exposures.

	Nine Months Ended September 30, 2024
			1-4 Family
	Construction		Residential		Multi-family			Commercial			Agricultural							Consumer
	Real Estate		Real Estate		Real Estate			Real Estate			Real Estate		Commercial			Agricultural		and Other			Total
Balance, December 31, 2023	$	408	$	3,333	$	2,542		$	5,236		$	1,238	$	1,955		$	1,607	$	457		$	16,776
Credit loss expense (benefit) 1		156		414		(331	)		(227	)		321		371			108		(20	)		792
Recoveries of loans charged-off		-		3		-			-			-		4			-		3			10
Loans charged-off		-		-		-			-			-		(7	)		-		(9	)		(16	)
Balance, September 30, 2024	$	564	$	3,750	$	2,211		$	5,009		$	1,559	$	2,323		$	1,715	$	431		$	17,562

 

 (1) The difference in the credit loss expense reported herein as compared to the Consolidated Statements of Income is associated with the credit loss benefit of $70 thousand related to off-balance sheet credit exposures.

	Three Months Ended September 30, 2023
			1-4 Family
	Construction		Residential			Multi-family			Commercial			Agricultural							Consumer
	Real Estate		Real Estate			Real Estate			Real Estate			Real Estate		Commercial			Agricultural		and Other		Total
Balance, June 30, 2023	$	412	$	3,357		$	2,524		$	5,033		$	1,214	$	2,014		$	1,358	$	407	$	16,319
Credit loss expense (benefit) 1		4		(100	)		(29	)		(35	)		15		(142	)		40		42		(205	)
Recoveries of loans charged-off		-		1			-			-			-		2			-		1		4
Loans charged-off		-		-			-			-			-		-			-		-		-
Balance, September 30, 2023	$	416	$	3,258		$	2,495		$	4,998		$	1,229	$	1,874		$	1,398	$	450	$	16,118

 (1) The difference in the credit loss expense reported herein as compared to the Consolidated Statements of Income is associated with the credit loss benefit of $69 thousand related to off-balance sheet credit exposures.

	Nine Months Ended September 30, 2023
				1-4 Family
	Construction			Residential			Multi-family			Commercial			Agricultural									Consumer
	Real Estate			Real Estate			Real Estate			Real Estate			Real Estate			Commercial			Agricultural			and Other		Total
Balance, December 31, 2022	$	730		$	3,028		$	2,493		$	4,742		$	1,625		$	1,153		$	1,705		$	221	$	15,697
Impact of adopting ASC 326		(395	)		242			(24	)		513			(398	)		449			(61	)		192		518
Credit loss expense (benefit) 1		81			(15	)		26			(262	)		2			301			(82	)		29		80
Recoveries of loans charged-off		-			3			-			5			-			8			-			8		24
Loans charged-off		-			-			-			-			-			(37	)		(164	)		-		(201	)
Balance, September 30, 2023	$	416		$	3,258		$	2,495		$	4,998		$	1,229		$	1,874		$	1,398		$	450	$	16,118

 (1) The difference in the credit loss expense reported herein as compared to the Consolidated Statements of Income is associated with the credit loss benefit of $46 thousand related to off-balance sheet credit exposures.

20

 

Collateral Dependent Loans. The following table presents the amortized cost basis of collateral dependent loans, by the primary collateral type, which are individually evaluated to determine expected credit losses, and the related ACL allocated to these loans (in thousands):

	Primary Type of Collateral
September 30, 2024	Real Estate		Equipment		Other		Total		ACL Allocation
Real estate - construction	$	62	$	-	$	-	$	62	$	-
Real estate - 1 to 4 family residential		500		-		-		500		40
Real estate - multi-family		2,020		-		-		2,020		-
Real estate - commercial		11,360		-		-		11,360		-
Real estate - agricultural		1,087		-		-		1,087		-
Commercial		108		763		934		1,805		559
Agricultural		218		9		396		623		36
Consumer and other		-		-		5		5		-
	$	15,355	$	772	$	1,335	$	17,462	$	635

	Primary Type of Collateral
December 31, 2023	Real Estate		Equipment		Other		Total		ACL Allocation
Real estate - construction	$	66	$	-	$	-	$	66	$	-
Real estate - 1 to 4 family residential		678		-		-		678		10
Real estate - multi-family		2,034		-		-		2,034		-
Real estate - commercial		8,993		-		-		8,993		-
Real estate - agricultural		449		-		-		449		-
Commercial		118		-		101		219		96
Agricultural		239		669		402		1,310		-
Consumer and other		-		-		-		-		-
	$	12,577	$	669	$	503	$	13,749	$	106

Nonaccrual Loans. The accrual of interest income on loans is discontinued when, in the opinion of management, there is reasonable doubt as to the borrower's ability to meet payments of interest or principal when they become due, which is generally when a loan is 90 days or more past due unless the loan is well secured and in the process of collection. When a loan is placed on nonaccrual status, all previously accrued and unpaid interest is reversed against interest income. Loans are returned to an accrual status when all of the principal and interest amounts contractually due are brought current and repayment of the remaining contractual principal and interest is expected. A loan may also return to accrual status if additional collateral is received from the borrower and, in the opinion of management, the financial position of the borrower indicates that there is no longer any reasonable doubt as to the collection of the amount contractually due. Payment received on nonaccrual loans are applied first to principal. Once principal is recovered, any remaining payments received are applied to interest income.

21

 

The following table presents the amortized cost basis of loans on nonaccrual status and loans on nonaccrual status with no allowance for credit losses recorded by loan segment (in thousands):

	Total Nonaccrual				Nonaccrual with no ACL
	September 30, 2024		December 31, 2023		September 30, 2024		December 31, 2023
Real estate - construction	$	62	$	66	$	62	$	66
Real estate - 1 to 4 family residential		500		678		431		563
Real estate - multi-family		2,020		2,034		2,020		2,034
Real estate - commercial		11,343		8,976		11,343		8,976
Real estate - agricultural		1,087		449		1,087		449
Commercial		1,842		268		908		172
Agricultural		634		1,310		598		1,310
Consumer and other		14		13		5		-
	$	17,502	$	13,794	$	16,454	$	13,570

The interest foregone on nonaccrual loans for the three months ended September 30, 2024 and 2023 was approximately $354 thousand and $224 thousand, respectively.  The interest foregone on nonaccrual loans for the nine months ended September 30, 2024 and 2023 was approximately $810 thousand and $569 thousand, respectively.

Loan Modifications to Borrowers Experiencing Financial Difficulty. Loan modifications may include interest rate reductions or below market interest rates, extension of payments terms beyond the original maturity date, principal forgiveness, restructuring amortization schedules and other actions intended to minimize potential losses.

The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon asset origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Company uses a loss rate model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification. Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses, a change to the allowance for credit losses is generally not recorded upon modification.

The Company made no loan modifications and three loan modifications to borrowers experiencing financial difficulty for the nine months ended September 30, 2024 and 2023, respectively.

The following table shows the amortized cost basis at the end of the reporting period of the loans modified to borrowers experiencing financial difficulty, disaggregated by segment of financing receivable and type of concession granted (in thousands):

Loan Modifications Made to Borrowers Experiencing Financial Difficulty
	Term Extension
	Amortized Cost Basis at		% of Total Segment of
	September 30, 2023		Financing Receivable
Loan Type
Agricultural	$	415		0.4	%

22

 

The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulty for the nine months ended September 30, 2023:

Term Extension
Loan Type	Financial Effect
Agricultural	Added a weighted-average 7.7 years to the life of loans, which reduced monthly payment amounts for the borrowers

Upon the Company’s determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is charged-off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount. The Company had no net charge-offs for the three and nine months ended September 30, 2024 and 2023 related to loan modifications to borrowers experiencing financial difficulties.

There were two loan modifications with an amortized cost basis of $42 thousand that had a payment default and were modified in the twelve months before default as of September 30, 2024. A loan is considered to be in payment default once it is 60 days contractually past due under the modified terms.

Aging Analysis. An aging analysis of the recorded investments in loans, on a disaggregated basis, as of September 30, 2024 and December 31, 2023, is as follows (in thousands):

2024			90 Days								90 Days
	30-89		or Greater		Total						or Greater
	Past Due		Past Due		Past Due		Current		Total		Accruing
Real estate - construction	$	-	$	63	$	63	$	65,749	$	65,812	$	-
Real estate - 1 to 4 family residential		1,803		69		1,872		295,459		297,331		-
Real estate - multi-family		-		1,232		1,232		200,656		201,888		-
Real estate - commercial		1,322		2,872		4,194		350,879		355,073		-
Real estate - agricultural		40		658		698		157,216		157,914		-
Commercial		1,107		440		1,547		91,987		93,534		-
Agricultural		103		56		159		124,048		124,207		-
Consumer and other		9		5		14		17,100		17,114		-
	$	4,384	$	5,395	$	9,779	$	1,303,094	$	1,312,873	$	-

2023			90 Days								90 Days
	30-89		or Greater		Total						or Greater
	Past Due		Past Due		Past Due		Current		Total		Accruing
Real estate - construction	$	359	$	66	$	425	$	62,625	$	63,050	$	-
Real estate - 1 to 4 family residential		1,020		302		1,322		288,082		289,404		3
Real estate - multi-family		-		983		983		194,553		195,536		-
Real estate - commercial		119		106		225		359,041		359,266		106
Real estate - agricultural		-		-		-		161,517		161,517		-
Commercial		559		98		657		89,072		89,729		-
Agricultural		169		529		698		118,438		119,136		-
Consumer and other		16		-		16		16,524		16,540		-
	$	2,242	$	2,084	$	4,326	$	1,289,852	$	1,294,178	$	109

23

 

Credit Quality Indicators. As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to (i) the risk ratings of loans, (ii) the level of classified loans, (iii) net charge-offs, (iv) non-performing loans and (v) the general economic conditions in our market areas.

The Company utilizes a risk rating matrix to assign risk ratings to each of its loans. Loans are rated on a scale of 1 to 7. A description of the general characteristics of the risk ratings is as follows:

Ratings 1, 2 and 3 - These ratings include “Pass” loans of average to excellent credit quality borrowers. These borrowers generally have significant capital strength, moderate leverage and stable earnings and growth commensurate to their relative risk rating. These ratings are reviewed at least annually. These ratings also include performing loans of less than $100,000.

Rating 4 - This rating includes loans on management’s “watch list” and is intended to be utilized for pass rated borrowers where credit quality has begun to show signs of financial weakness that now requires management’s heightened attention. This rating is reviewed at least quarterly.

Rating 5 - This rating is for “Special Mention” loans in accordance with regulatory guidelines. This rating is intended to be temporary and includes loans to borrowers whose credit quality has clearly deteriorated and are at risk of further decline unless active measures are taken to correct the situation. This rating is reviewed at least quarterly.

Rating 6 - This rating includes “Substandard” loans in accordance with regulatory guidelines, for which the accrual of interest has not been stopped. Under regulatory guideline definitions, a “Substandard” loan has defined weaknesses which make payment default or principal exposure likely, but not yet certain. Such loans are apt to be dependent upon collateral liquidation, a secondary source of repayment or an event outside of the normal course of business. This rating is reviewed at least quarterly.

Rating 7 - This rating includes “Substandard-Impaired” loans in accordance with regulatory guidelines, for which the accrual of interest has generally been stopped. This rating includes loans: (i) where interest is more than 90 days past due, (ii) not fully secured, (iii) where a specific valuation allowance may be necessary, or (iv) where the borrower is unable to make contractual principal and interest payments. This rating is reviewed at least quarterly.

24

 

The following tables show the risk category of loans by loan segment and year of origination as of September 30, 2024 and December 31, 2023 (in thousands):

September 30, 2024	Amortized Cost Basis of Term Loans by Year of Origination
	2024		2023		2022		2021		2020		Prior		Revolving		Total
Real estate - construction
Pass	$	24,540	$	26,115	$	12,647	$	234	$	11	$	200	$	1,261	$	65,008
Watch		-		742		-		-		-		-		-		742
Special Mention		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Substandard-Impaired		62		-		-		-		-		-		-		62
Total	$	24,602	$	26,857	$	12,647	$	234	$	11	$	200	$	1,261	$	65,812
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Real estate - 1-4 family residential
Pass	$	36,288	$	45,667	$	60,482	$	54,509	$	43,266	$	20,461	$	20,241	$	280,914
Watch		745		1,223		-		9,962		756		314		96		13,096
Special Mention		-		-		640		-		292		-		-		932
Substandard		-		442		-		1,310		46		91		-		1,889
Substandard-Impaired		373		-		-		69		-		58		-		500
Total	$	37,406	$	47,332	$	61,122	$	65,850	$	44,360	$	20,924	$	20,337	$	297,331
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Real estate - multi-family
Pass	$	12,386	$	19,421	$	50,701	$	32,524	$	37,426	$	12,783	$	5,700	$	170,941
Watch		6,568		-		-		20,135		-		-		-		26,703
Special Mention		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		2,225		-		-		2,225
Substandard-Impaired		787		983		-		-		-		249		-		2,019
Total	$	19,741	$	20,404	$	50,701	$	52,659	$	39,651	$	13,032	$	5,700	$	201,888
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Real estate - commercial
Pass	$	26,710	$	29,687	$	74,840	$	51,977	$	66,679	$	30,193	$	4,689	$	284,775
Watch		3,106		8,149		14,286		5,622		5,351		630		917		38,061
Special Mention		-		-		-		-		2,921		-		-		2,921
Substandard		-		835		-		16,119		-		1,018		-		17,972
Substandard-Impaired		-		7,944		2,518		-		527		355		-		11,344
Total	$	29,816	$	46,615	$	91,644	$	73,718	$	75,478	$	32,196	$	5,606	$	355,073
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Real estate - agricultural
Pass	$	16,168	$	17,718	$	28,422	$	30,027	$	22,734	$	23,396	$	2,355	$	140,820
Watch		343		4,204		375		1,551		2,482		3,554		-		12,509
Special Mention		-		-		-		-		-		-		-		-
Substandard		1,414		2,276		-		92		-		-		-		3,782
Substandard-Impaired		-		-		-		803		-		-		-		803
Total	$	17,925	$	24,198	$	28,797	$	32,473	$	25,216	$	26,950	$	2,355	$	157,914
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

25

 

September 30, 2024	Amortized Cost Basis of Term Loans by Year of Origination
	2024		2023		2022		2021		2020		Prior		Revolving		Total
Commercial
Pass	$	13,542	$	11,659	$	11,093	$	8,225	$	1,611	$	3,331	$	30,061	$	79,522
Watch		746		6,961		233		14		272		157		2,560		10,943
Special Mention		-		-		-		-		-		-		-		-
Substandard		1,199		-		28		-		-		-		-		1,227
Substandard-Impaired		387		47		-		1		500		67		840		1,842
Total	$	15,874	$	18,667	$	11,354	$	8,240	$	2,383	$	3,555	$	33,461	$	93,534
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	7	$	-	$	7
Agricultural
Pass	$	9,520	$	6,967	$	5,657	$	4,129	$	1,783	$	733	$	78,923	$	107,712
Watch		2,080		567		348		322		363		186		11,079		14,945
Special Mention		-		-		-		-		-		-		-		-
Substandard		1,159		23		-		-		37		-		-		1,219
Substandard-Impaired		-		89		-		222		-		-		20		331
Total	$	12,759	$	7,646	$	6,005	$	4,673	$	2,183	$	919	$	90,022	$	124,207
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Consumer and other
Pass	$	4,915	$	4,857	$	2,667	$	2,090	$	1,711	$	779	$	69	$	17,088
Watch		14		-		-		-		-		-		-		14
Special Mention		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Substandard-Impaired		-		1		2		-		9		-		-		12
Total	$	4,929	$	4,858	$	2,669	$	2,090	$	1,720	$	779	$	69	$	17,114
Current-period gross charge-offs	$	6	$	-	$	-	$	-	$	-	$	3	$	-	$	9
Total loans
Pass	$	144,069	$	162,091	$	246,509	$	183,715	$	175,221	$	91,876	$	143,299	$	1,146,780
Watch		13,602		21,846		15,242		37,606		9,224		4,841		14,652		117,013
Special Mention		-		-		640		-		3,213		-		-		3,853
Substandard		3,772		3,576		28		17,521		2,308		1,109		-		28,314
Substandard-Impaired		1,609		9,064		2,520		1,095		1,036		729		860		16,913
Total	$	163,052	$	196,577	$	264,939	$	239,937	$	191,002	$	98,555	$	158,811	$	1,312,873
Current-period gross charge-offs	$	6	$	-	$	-	$	-	$	-	$	10	$	-	$	16

26

 

December 31, 2023	Amortized Cost Basis of Term Loans by Year of Origination
	2023		2022		2021		2020		2019		Prior		Revolving		Total
Real estate - construction
Pass	$	45,404	$	14,501	$	746	$	11	$	-	$	325	$	1,917	$	62,904
Watch		80		-		-		-		-		-		-		80
Special Mention		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Substandard-Impaired		-		66		-		-		-		-		-		66
Total	$	45,484	$	14,567	$	746	$	11	$	-	$	325	$	1,917	$	63,050
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Real estate - 1-4 family residential
Pass	$	55,051	$	66,190	$	59,250	$	47,865	$	8,607	$	17,154	$	18,649	$	272,766
Watch		1,608		298		10,483		1,226		-		358		27		14,000
Special Mention		-		-		-		-		-		-		-		-
Substandard		448		18		1,350		47		33		64		-		1,960
Substandard-Impaired		115		-		140		-		199		144		80		678
Total	$	57,222	$	66,506	$	71,223	$	49,138	$	8,839	$	17,720	$	18,756	$	289,404
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Real estate - multi-family
Pass	$	18,436	$	51,928	$	47,161	$	40,201	$	13,542	$	694	$	5,020	$	176,982
Watch		4,603		1,427		8,192		-		-		-		-		14,222
Special Mention		-		-		-		-		-		-		-		-
Substandard		-		-		-		2,298		-		-		-		2,298
Substandard-Impaired		983		-		-		-		1,051		-		-		2,034
Total	$	24,022	$	53,355	$	55,353	$	42,499	$	14,593	$	694	$	5,020	$	195,536
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Real estate - commercial
Pass	$	35,133	$	81,342	$	51,598	$	66,467	$	20,006	$	13,122	$	2,929	$	270,597
Watch		8,379		13,580		14,669		14,607		78		583		2,988		54,884
Special Mention		-		2,531		11,853		3,006		1,043		-		-		18,433
Substandard		897		-		4,822		551		-		106		-		6,376
Substandard-Impaired		8,517		-		99		-		360		-		-		8,976
Total	$	52,926	$	97,453	$	83,041	$	84,631	$	21,487	$	13,811	$	5,917	$	359,266
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Real estate - agricultural
Pass	$	22,469	$	30,738	$	32,893	$	27,733	$	6,039	$	22,850	$	2,073	$	144,795
Watch		4,163		379		2,263		1,760		333		3,601		-		12,499
Special Mention		-		-		-		-		-		-		-		-
Substandard		2,302		1,439		114		-		-		214		-		4,069
Substandard-Impaired		-		-		154		-		-		-		-		154
Total	$	28,934	$	32,556	$	35,424	$	29,493	$	6,372	$	26,665	$	2,073	$	161,517
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

27

 

December 31, 2023	Amortized Cost Basis of Term Loans by Year of Origination
	2023		2022		2021		2020		2019		Prior		Revolving		Total
Commercial
Pass	$	23,904	$	12,645	$	10,378	$	2,087	$	2,434	$	1,578	$	29,752	$	82,778
Watch		860		295		119		423		93		137		1,996		3,923
Special Mention		-		-		-		-		-		-		-		-
Substandard		600		256		-		421		-		-		1,484		2,761
Substandard-Impaired		94		-		5		96		-		72		-		267
Total	$	25,458	$	13,196	$	10,502	$	3,027	$	2,527	$	1,787	$	33,232	$	89,729
Current-period gross charge-offs	$	-	$	-	$	-	$	33	$	-	$	4	$	-	$	37
Agricultural
Pass	$	14,614	$	8,395	$	5,459	$	2,858	$	400	$	608	$	77,448	$	109,782
Watch		1,107		340		288		18		18		194		5,419		7,384
Special Mention		-		-		-		-		-		-		-		-
Substandard		866		14		25		58		-		-		-		963
Substandard-Impaired		95		140		383		-		-		-		389		1,007
Total	$	16,682	$	8,889	$	6,155	$	2,934	$	418	$	802	$	83,256	$	119,136
Current-period gross charge-offs	$	39	$	74	$	90	$	-	$	-	$	-	$	-	$	203
Consumer and other
Pass	$	6,801	$	3,719	$	2,701	$	2,071	$	352	$	731	$	15	$	16,390
Watch		127		-		-		-		-		-		-		127
Special Mention		-		-		-		-		-		-		-		-
Substandard		10		-		-		-		-		-		-		10
Substandard-Impaired		-		-		-		13		-		-		-		13
Total	$	6,938	$	3,719	$	2,701	$	2,084	$	352	$	731	$	15	$	16,540
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	5	$	-	$	5
Total loans
Pass	$	221,812	$	269,458	$	210,186	$	189,293	$	51,380	$	57,062	$	137,803	$	1,136,994
Watch		20,927		16,319		36,014		18,034		522		4,873		10,430		107,119
Special Mention		-		2,531		11,853		3,006		1,043		-		-		18,433
Substandard		5,123		1,727		6,311		3,375		33		384		1,484		18,437
Substandard-Impaired		9,804		206		781		109		1,610		216		469		13,195
Total	$	257,666	$	290,241	$	265,145	$	213,817	$	54,588	$	62,535	$	150,186	$	1,294,178
Current-period gross charge-offs	$	39	$	74	$	90	$	33	$	-	$	9	$	-	$	245

28

 

8. Intangible assets

The following sets forth the carrying amounts and accumulated amortization of the intangible assets at September 30, 2024 and December 31, 2023 (in thousands):

	2024				2023
	Gross		Accumulated		Gross		Accumulated
	Amount		Amortization		Amount		Amortization
Core deposit intangible asset	$	6,411	$	5,241	$	6,411	$	4,982
Customer list		-		-		535		535
Total	$	6,411	$	5,241	$	6,946	$	5,517

The weighted average remaining life of the intangible assets is approximately 2.5 years as of September 30, 2024 and December 31, 2023.

The following sets forth the activity related to the intangible assets for the three and nine months ended September 30, 2024 and 2023 (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2024			2023			2024			2023
Beginning intangible assets, net	$	1,256		$	1,673		$	1,429		$	1,931
Amortization		(86	)		(130	)		(259	)		(388	)
Ending intangible assets, net	$	1,170		$	1,543		$	1,170		$	1,543

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

2024	$	78
2025		301
2026		268
2027		240
2028		190
2029		93
Total	$	1,170

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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 September 30, 2024 and December 31, 2023 (in thousands):

	2024		2023
Securities sold under agreements to repurchase:
U.S. government treasuries	$	22,489	$	22,877
U.S. government agencies		46,027		44,960
U.S. government mortgage-backed securities		7,052		7,369
Total pledged collateral	$	75,568	$	75,206

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.

10. Borrowings

On April 25, 2024, the Company entered into a promissory note and line of credit agreement with an unaffiliated bank, providing for a two-year five million dollar line of credit facility.  The Company has secured its obligations under the Credit Agreement by pledging to the Lender all outstanding shares of common stock of its subsidiary bank, Reliance State Bank. The Company had no outstanding borrowings on the line of credit as of September 30, 2024. The Company did not comply with one covenant requiring the modified Texas Ratio not exceed 20% at the end of each calendar quarter. The modified Texas Ratio is defined as substandard, substandard-impaired loans and other real estate owned, divided by the sum of Tier 1 capital plus the Allowance for Credit Losses – Loans. The modified Texas Ratio was 20.73% as of September 30, 2024. The lender waived the noncompliance as of September 30, 2024.

The Federal Reserve Board created the Bank Term Funding Program (BTFP) in 2023, offering loans of up to one year in length to banks pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral.  The BTFP allows for borrowing from the Federal Reserve Bank up to the par value of the pledged collateral.  As of September 30, 2024, the Company had $7.6 million borrowed under the BTFP with a weighted average interest rate of 4.76%.  As of December 31, 2023, the Company had $83.1 million borrowed under the BTFP with a weighted average interest rate of 4.41%.

FHLB advances are collateralized by FHLB stock, certain 1-4 family residential real estate loans, multifamily real estate loans, commercial real estate loans and agricultural real estate loans. The Banks had available borrowing capacity with the FHLB of Des Moines, Iowa of $201.0 million and $280.9 million at September 30, 2024 and December 31, 2023, respectively.  As of September 30, 2024, the Company had $72.5 million of FHLB advances with a weighted average interest rate of 5.06%. As of December 31, 2023, the Company had $24 million of FHLB advances with a weighted average interest rate of 5.51%.

On August 15, 2023, the Company borrowed $400 thousand on a credit agreement with a commercial bank. Principal and interest is payable quarterly over 15 years and the agreement matures in June 2038. The interest rate is fixed at 6.5% for five years and variable beginning September 15, 2028. The outstanding balance was $376 thousand and $388 thousand as of September 30, 2024 and December 31, 2023, respectively. The note is secured by property in Ames, Iowa.

On June 6, 2022, the Company borrowed $4.0 million on a credit agreement with a commercial bank. The borrowings were used for general corporate purposes. Interest under the note is payable quarterly over four years. Required quarterly principal payments of $150 thousand began in September 2022, with the remaining balance due June 2026. The interest rate is fixed at 3.35% and the outstanding balance was $2.65 million and $3.1 million as of September 30, 2024 and December 31, 2023, respectively. The note is secured by property in West Des Moines, Iowa.

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11. Derivative Financial Instruments

Fair Value Hedges

The Company uses interest rate swaps to convert certain long term fixed rate loans to floating rates to hedge interest rate risk exposure. The Company uses hedge accounting in accordance with ASC 815, with the unrealized gains and losses, representing the change in fair value of the derivative and the change in fair value of the risk being hedged on the related loan, being recorded in the consolidated statements of income. The ineffective portions of the unrealized gains or losses, if any, are recorded in interest income and interest expense in the consolidated statements of income.

During 2023, the Company executed an interest rate swap designated as a fair value hedge with an original notional amount of $25.0 million to convert certain long-term fixed rate 1-4 family loans to floating rates to hedge interest rate risk exposure using the portfolio layer method.

The portfolio layer method allows the Company to designate as the hedged item a stated amount of the assets that are not expected to be affected by prepayments, defaults and other factors that would affect the timing and amount of cash flow. The fair value portfolio level basis adjustment on the hedged loans has not been attributed to the individual loans on the consolidated balance sheet.

The table below identifies the notional amount, fair value and balance sheet category of the Company's interest rate swaps at September 30, 2024, and December 31, 2023 (in thousands):

	Notional Amount		Fair Value			Balance Sheet Category
September 30, 2024
Interest rate swaps	$	8,633	$	680		Other assets
Interest rate swaps		25,000		(461	)	Other liabilities
December 31, 2023
Interest rate swaps	$	8,930	$	891		Other assets
Interest rate swaps		25,000		(411	)	Other liabilities

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The table below identifies the carrying amount of the hedged assets and cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged assets that are designated as a fair value hedge accounting relationship at September 30, 2024, and December 31, 2023 (in thousands):

				Cumulative Amount of Fair Value
	Location in the consolidated	Carrying Amount of		Hedging Adjustment Included in
	balance sheet	the Hedged Assets		Carrying Amount of Hedged Assets
September 30, 2024
Interest rate swaps	Loans receivable, net	$	54,700	$	(219	)
December 31, 2023
Interest rate swaps	Loans receivable, net	$	58,588	$	(481	)

Back-to-Back Loan Swaps

The Company has interest rate swap loan relationships with customers to assist them in managing their interest rate risk. Upon entering into these loan swaps, the Company enters into offsetting positions with counterparties in order to minimize interest rate risk. These back-to-back loan swaps qualify as free standing financial derivatives with the fair values reported in other assets and other liabilities on the consolidated balance sheets. Any gains and losses on these back-to-back swaps are recorded in noninterest income on the consolidated statements of income, and for the three and nine months ended September 30, 2024, and September 30, 2023, no gain or loss was recognized. The table below identifies the balance sheet category and fair values of the derivative instruments designated as loan swaps at September 30, 2024, and December 31, 2023 (in thousands):

							Weighted Average			Weighted Average
	Notional Amount		Fair Value			Balance Sheet Category	Receive Rate			Pay Rate
September 30, 2024
Customer interest rate swaps	$	12,310	$	417		Other assets		7.11	%		5.81	%
Customer interest rate swaps		12,310		(417	)	Other liabilities		5.81	%		7.11	%
December 31, 2023
Customer interest rate swaps	$	11,353	$	334		Other assets		7.36	%		5.62	%
Customer interest rate swaps		11,353		(334	)	Other liabilities		5.62	%		7.36	%

The Company was required to pledge $1.4 million and $1.6 million of securities as collateral for these derivative financial instruments at September 30, 2024, and December 31, 2023, respectively. The Company's counterparties were not required to pledge collateral at September 30, 2024 and December 31, 2023.

12. 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, 2023 is due primarily to the decrease in unrealized losses on investment securities.

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13. Regulatory Matters

The Company and the Banks are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements (as shown in the following table) can result in certain mandatory and possibly additional discretionary actions by regulators, which, if undertaken, could have a direct material effect on the Company's consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Banks must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Company's and the Banks' capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Management believed the Company and the Banks met all capital adequacy requirements to which they were subject as of September 30, 2024.

33

 

The Company and the Banks’ capital amounts and ratios as of September 30, 2024 and December 31, 2023 are as follows (dollars in thousands):

											To Be Well
											Capitalized Under
						For Capital					Prompt Corrective
	Actual					Adequacy Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of September 30, 2024
Total capital (to risk-weighted assets):
Consolidated	$	219,188		14.2	%	$	162,579		10.50	%		N/A		N/A
Boone Bank & Trust		16,332		13.0			13,174		10.50			12,547		10.0	%
First National Bank		112,001		14.2			82,712		10.50			78,774		10.0
Iowa State Savings Bank		27,061		15.7			18,155		10.50			17,290		10.0
Reliance State Bank		28,874		12.3			24,589		10.50			23,419		10.0
State Bank & Trust		22,183		15.5			14,984		10.50			14,271		10.0
United Bank & Trust		13,155		15.7			8,820		10.50			8,400		10.0
Tier 1 capital (to risk-weighted assets):
Consolidated	$	200,610		13.0	%	$	131,611		8.50	%		N/A		N/A
Boone Bank & Trust		15,283		12.2			10,665		8.50			10,038		8.0	%
First National Bank		102,863		13.1			66,958		8.50			63,019		8.0
Iowa State Savings Bank		24,899		14.4			14,697		8.50			13,832		8.0
Reliance State Bank		25,946		11.1			19,906		8.50			18,735		8.0
State Bank & Trust		20,394		14.3			12,130		8.50			11,417		8.0
United Bank & Trust		12,105		14.4			7,140		8.50			6,720		8.0
Tier 1 capital (to average-assets):
Consolidated	$	200,610		9.3	%	$	86,434		4.00	%		N/A		N/A
Boone Bank & Trust		15,283		9.2			6,637		4.00			8,296		5.0	%
First National Bank		102,863		9.3			44,333		4.00			55,416		5.0
Iowa State Savings Bank		24,899		9.8			10,162		4.00			12,702		5.0
Reliance State Bank		25,946		8.7			11,987		4.00			14,984		5.0
State Bank & Trust		20,394		9.9			8,203		4.00			10,254		5.0
United Bank & Trust		12,105		9.9			4,903		4.00			6,129		5.0
Common equity tier 1 capital (to risk-weighted assets):
Consolidated	$	200,610		13.0	%	$	108,386		7.00	%		N/A		N/A
Boone Bank & Trust		15,283		12.2			8,783		7.00			8,156		6.5	%
First National Bank		102,863		13.1			55,142		7.00			51,203		6.5
Iowa State Savings Bank		24,899		14.4			12,103		7.00			11,239		6.5
Reliance State Bank		25,946		11.1			16,393		7.00			15,222		6.5
State Bank & Trust		20,394		14.3			9,990		7.00			9,276		6.5
United Bank & Trust		12,105		14.4			5,880		7.00			5,460		6.5

34

 

											To Be Well
											Capitalized Under
						For Capital					Prompt Corrective
	Actual					Adequacy Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2023
Total capital (to risk-weighted assets):
Consolidated	$	218,049		14.0	%	$	164,005		10.50	%		N/A		N/A
Boone Bank & Trust		16,232		13.6			12,510		10.50			11,914		10.0	%
First National Bank		112,057		13.9			84,863		10.50			80,822		10.0
Iowa State Savings Bank		26,691		15.7			17,854		10.50			17,004		10.0
Reliance State Bank		28,755		11.9			25,293		10.50			24,089		10.0
State Bank & Trust		22,283		16.0			14,597		10.50			13,902		10.0
United Bank & Trust		12,989		16.1			8,486		10.50			8,082		10.0
Tier 1 capital (to risk-weighted assets):
Consolidated	$	200,187		12.8	%	$	132,766		8.50	%		N/A		N/A
Boone Bank & Trust		15,309		12.8			10,127		8.50			9,532		8.0	%
First National Bank		102,634		12.7			68,699		8.50			64,658		8.0
Iowa State Savings Bank		24,619		14.5			14,453		8.50			13,603		8.0
Reliance State Bank		25,937		10.8			20,476		8.50			19,271		8.0
State Bank & Trust		20,676		14.9			11,817		8.50			11,122		8.0
United Bank & Trust		11,979		14.8			6,870		8.50			6,466		8.0
Tier 1 capital (to average-assets):
Consolidated	$	200,187		9.0	%	$	88,992		4.00	%		N/A		N/A
Boone Bank & Trust		15,309		9.6			6,393		4.00			7,991		5.0	%
First National Bank		102,634		8.8			46,878		4.00			58,597		5.0
Iowa State Savings Bank		24,619		9.6			10,234		4.00			12,792		5.0
Reliance State Bank		25,937		8.3			12,464		4.00			15,580		5.0
State Bank & Trust		20,676		9.6			8,573		4.00			10,717		5.0
United Bank & Trust		11,979		9.5			5,039		4.00			6,299		5.0
Common equity tier 1 capital (to risk-weighted assets):
Consolidated	$	200,187		12.8	%	$	109,337		7.00	%		N/A		N/A
Boone Bank & Trust		15,309		12.8			8,340		7.00			7,744		6.5	%
First National Bank		102,634		12.7			56,576		7.00			52,534		6.5
Iowa State Savings Bank		24,619		14.5			11,903		7.00			11,052		6.5
Reliance State Bank		25,937		10.8			16,862		7.00			15,658		6.5
State Bank & Trust		20,676		14.9			9,731		7.00			9,036		6.5
United Bank & Trust		11,979		14.8			5,657		7.00			5,253		6.5

The Company and the Banks are subject to the rules of the Basel III regulatory capital framework and related Dodd-Frank Wall Street Reform and Consumer Protection Act. The rules included the implementation of a 2.5 percent capital conservation buffer that is added to the minimum requirements for capital adequacy purposes for all capital ratios except tier 1 capital to average assets. A banking organization with a capital conservation buffer of less than the required amount is subject to limitations on capital distributions, including dividend payments, and certain discretionary bonus payments to executive officers. At September 30, 2024, the capital ratios for the Company and the Banks were sufficient to meet the conservation buffer.

35

 

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, north-central and south-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 Co. (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 twenty-three individuals to assist the Banks with its financial reporting, human resources, audit, compliance, marketing, technology systems, training, real estate valuation services and the coordination of management activities, in addition to 240 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 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; (v) gain on sale of loans; and (vi) merchant and card fees. The Company’s principal expenses are: (i) interest expense on deposit accounts and other borrowings; (ii) credit loss expense; (iii) salaries and employee benefits; (iv) data processing costs associated with maintaining the Banks’ loan and deposit functions; (v) occupancy expenses for maintaining the Banks’ 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 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 $2.2 million, or $0.25 per share, for the three months ended September 30, 2024, compared to net income of $2.9 million, or $0.33 per share, for the three months ended September 30, 2023. The decrease in earnings is primarily due to an increase in credit loss expense and consultant fees related to negotiating long-term vendor contracts. The increase in credit loss expense is primarily due to loan growth and a specific reserve placed on a commercial loan relationship. The consultant fees were paid as a percentage of the negotiated benefit to the Company. The consultant fees are recognized into expense during the contract negotiations while the benefits will be recognized throughout the related contractual agreements.

Net loan charge-offs for the three months ended September 30, 2024 totaled $10 thousand compared to net loan recoveries of $4 thousand for the three months ended September 30, 2023. A credit loss expense of $371 thousand was recognized for the three months ended September 30, 2024 as compared to a credit loss benefit of $274 thousand for the three months ended September 30, 2023.

36

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

● Challenges, Risks and Uncertainties

● 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

Challenges, Risks and Uncertainties

Management has identified certain events or circumstances that may negatively impact the Company’s financial condition and results of operations in the future and 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 8, 2024.

Critical Accounting Policies

The discussion and analysis of the Company's financial condition and results of operations are based upon the Company's consolidated financial statements that have been prepared in accordance with GAAP. The preparation of the Company's financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, income and expenses. These estimates are based upon historical experience and on various other assumptions that management believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The estimates and judgments that management believes involve the most complex and subjective estimates and judgments and have the most effect on the Company's reported financial position and results of operations are described as critical accounting policies in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on March 8, 2024. There have been no significant changes in the critical accounting policies or the assumptions and judgments utilized in applying these policies since December 31, 2023.

37

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 September 30,						Nine Months Ended September 30,
	2024			2023			2024			2023
Reconciliation of net interest income and annualized net interest margin on an FTE basis to GAAP:
Net interest income (GAAP)	$	11,077		$	10,689		$	32,855		$	33,660
Tax-equivalent adjustment (1)		128			146			405			464
Net interest income on an FTE basis (non-GAAP)		11,205			10,835			33,260			34,124
Average interest-earning assets	$	2,030,102		$	2,049,289		$	2,052,438		$	2,056,912
Net interest margin on an FTE basis (non-GAAP)		2.21	%		2.11	%		2.16	%		2.21	%

(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.

38

Income Statement Review for the Three Months ended September 30, 2024 and 2023

The following highlights a comparative discussion of the major components of net income and their impact for the three months ended September 30, 2024 and 2023:

AVERAGE BALANCES AND INTEREST RATES

The following two tables are used to calculate the Company’s non-GAAP net interest 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 September 30,
	2024							2023
	Average		Revenue/		Yield/			Average		Revenue/		Yield/
	balance		expense		rate			balance		expense		rate
ASSETS
(dollars in thousands)
Interest-earning assets
Loans (1)
Commercial	$	89,633	$	1,425		6.36	%	$	90,660	$	1,336		5.89	%
Agricultural		122,642		2,356		7.68	%		94,504		1,676		7.09	%
Real estate		1,073,945		12,750		4.75	%		1,049,185		11,384		4.34	%
Consumer and other		17,064		220		5.16	%		16,192		189		4.67	%
Total loans (including fees)		1,303,284		16,751		5.14	%		1,250,541		14,585		4.67	%
Investment securities
Taxable		596,141		2,985		2.00	%		652,939		3,152		1.93	%
Tax-exempt (2)		91,221		609		2.67	%		103,427		695		2.69	%
Total investment securities		687,362		3,594		2.09	%		756,366		3,847		2.03	%
Interest-bearing deposits with banks and federal funds sold		39,456		495		5.02	%		42,382		476		4.49	%
Total interest-earning assets		2,030,102	$	20,840		4.11	%		2,049,289	$	18,908		3.69	%
Noninterest-earning assets		72,650							81,230
TOTAL ASSETS	$	2,102,752						$	2,130,519

(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%.

39

AVERAGE BALANCE SHEETS AND INTEREST RATES
	Three Months Ended September 30,
	2024							2023
	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	$	1,146,461	$	4,982		1.74	%	$	1,175,939	$	4,301		1.46	%
Time deposits		312,034		3,296		4.23	%		266,066		2,217		3.33	%
Total deposits		1,458,495		8,278		2.27	%		1,442,005		6,518		1.81	%
Other borrowed funds		120,234		1,357		4.51	%		155,249		1,555		4.01	%
Total interest-bearing liabilities		1,578,729		9,635		2.44	%		1,597,254		8,073		2.02	%
Noninterest-bearing liabilities
Noninterest-bearing checking		337,604							367,139
Other liabilities		13,244							12,189
Stockholders' equity		173,175							153,937
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	2,102,752						$	2,130,519
Net interest income (FTE)(3)			$	11,205						$	10,835
Net interest spread (FTE)						1.67	%						1.67	%
Net interest margin (FTE)(3)						2.21	%						2.11	%

(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 September 30, 2024 and 2023, the Company's net interest margin adjusted for tax exempt income was 2.21% and 2.11%, respectively. Net interest income, prior to the adjustment for tax-exempt income, for the three months ended September 30, 2024 totaled $11.1 million compared to $10.7 million for the three months ended September 30, 2023.

For the three months ended September 30, 2024, interest income increased $2.0 million, or 10.4%, when compared to the same period in 2023. The increase is primarily due to higher average rates and growth in the loan portfolio.

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Interest expense increased $1.6 million, or 19.3%, for the three months ended September 30, 2024 when compared to the same period in 2023. The higher interest expense for the period is primarily due to customers shifting to higher rate deposit products.

Credit Loss Expense

A credit loss expense of $371 thousand was recognized for the three months ended September 30, 2024 as compared to a credit loss benefit of $274 thousand for the three months ended September 30, 2023. Net loan charge-offs for the three months ended September 30, 2024 totaled $10 thousand compared to net loan recoveries of $4 thousand for the three months ended September 30, 2023. The credit loss expense in 2024 was primarily due to an increase in specific reserves in the commercial loan portfolio.

Noninterest Income and Expense

Noninterest income for the three months ended September 30, 2024 totaled $2.41 million compared to $2.36 million for the three months ended September 30, 2023, an increase of 2.2%.

Noninterest expense for the three months ended September 30, 2024 totaled $10.5 million compared to $9.8 million recorded for the three months ended September 30, 2023, an increase of 7.2%. The increase is primarily due to increases in salaries and benefits and $449 thousand of consultant fees for certain contract negotiations included in professional fees in 2024. These types of consultant fees are infrequent as they normally relate to longer term contracts and no additional fees are anticipated for contracts for the remainder of the year.  The efficiency ratio was 77.87% for the third quarter of 2024 as compared to 75.12% in the third quarter of 2023.

Income Taxes

Income tax expense for the three months ended September 30, 2024 totaled $397 thousand compared to $597 thousand recorded for the three months ended September 30, 2023. The effective tax rate was 15% and 17% for the three months ended September 30, 2024 and 2023. The lower than expected tax rate in 2024 and 2023 was due primarily to tax-exempt interest income and New Markets Tax Credits.

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Income Statement Review for the Nine Months Ended September 30, 2024 and 2023

The following highlights a comparative discussion of the major components of net income and their impact for the nine months ended September 30, 2024 and 2023:

AVERAGE BALANCES AND INTEREST RATES

The following two tables are used to calculate the Company’s non-GAAP net interest 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
	Nine Months Ended September 30,
	2024							2023
	Average		Revenue/		Yield/			Average		Revenue/		Yield/
	balance		expense		rate			balance		expense		rate
ASSETS
(dollars in thousands)
Interest-earning assets
Loans (1)
Commercial	$	88,236	$	4,132		6.24	%	$	84,654	$	3,508		5.53	%
Agricultural		118,875		6,734		7.55	%		92,289		4,636		6.70	%
Real estate		1,069,681		37,302		4.65	%		1,044,394		32,978		4.21	%
Consumer and other		16,676		625		5.00	%		16,322		535		4.37	%
Total loans (including fees)		1,293,468		48,793		5.03	%		1,237,659		41,657		4.49	%
Investment securities
Taxable		611,032		9,104		1.99	%		664,661		9,556		1.92	%
Tax-exempt (2)		96,314		1,929		2.67	%		111,872		2,212		2.64	%
Total investment securities		707,346		11,033		2.08	%		776,533		11,768		2.02	%
Interest-bearing deposits with banks and federal funds sold		51,624		1,937		5.00	%		42,720		1,484		4.63	%
Total interest-earning assets		2,052,438	$	61,763		4.01	%		2,056,912	$	54,909		3.56	%
Noninterest-earning assets		74,608							78,761
TOTAL ASSETS	$	2,127,046						$	2,135,673

(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
	Nine Months Ended September 30,
	2024							2023
	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	$	1,169,167	$	14,768		1.68	%	$	1,224,172	$	12,043		1.31	%
Time deposits		302,650		9,269		4.08	%		248,775		5,171		2.77	%
Total deposits		1,471,817		24,037		2.18	%		1,472,947		17,214		1.56	%
Other borrowed funds		135,331		4,466		4.40	%		123,142		3,571		3.87	%
Total interest-bearing liabilities		1,607,148		28,503		2.36	%		1,596,089		20,785		1.74	%
Noninterest-bearing liabilities
Noninterest-bearing checking		340,466							373,412
Other liabilities		12,919							11,187
Stockholders' equity		166,513							154,985
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	2,127,046						$	2,135,673
Net interest income (FTE)(3)			$	33,260						$	34,124
Net interest spread (FTE)						1.65	%						1.82	%
Net interest margin (FTE)(3)						2.16	%						2.21	%

(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 nine months ended September 30, 2024 and 2023, the Company's net interest margin adjusted for tax exempt income was 2.16% and 2.21%, respectively. Net interest income, prior to the adjustment for tax-exempt income, for the nine months ended September 30, 2024 totaled $32.9 million compared to $33.7 million for the nine months ended September 30, 2023.

For the nine months ended September 30, 2024, interest income increased $6.9 million, or 12.7%, when compared to the same period in 2023. The increase is primarily due to higher average rates and growth in the loan portfolio.

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Interest expense increased $7.7 million, or 37.1%, for the nine months ended September 30, 2024 when compared to the same period in 2023. The higher interest expense for the period is primarily due to an increase in market interest rates, customers shifting to higher rate deposit products and an increase in other borrowings.

Credit Loss Expense

A credit loss expense of $722 thousand was recognized for the nine months ended September 30, 2024 as compared to a credit loss expense of $34 thousand for the nine months ended September 30, 2023. Net loan charge-offs totaled $6 thousand for the nine months ended September 30, 2024 compared to net loan charge-offs of $177 thousand for the nine months ended September 30, 2023. The credit loss expense in 2024 was primarily due to loan growth and an increase in specific reserves. The credit loss expense in 2023 was primarily due to charge-offs in the agriculture and commercial loan portfolios.

Noninterest Income and Expense

Noninterest income for the nine months ended September 30, 2024 totaled $7.2 million compared to $6.9 million for the nine months ended September 30, 2023, an increase of 4.0%. The increase is primarily due to an increase in wealth management income and partially offset by losses on the sale of securities in 2024.

Noninterest expense for the nine months ended September 30, 2024 totaled $31.4 million compared to $30.1 million recorded for the nine months ended September 30, 2023, an increase of 4.3%. The increase is primarily due to an increase in number of employees, normal increases in salaries and benefits and $799 thousand of consultant fees for certain contract negotiations included in professional fees. The efficiency ratio was 78.47% for the third quarter of 2024 as compared to 74.27% in the third quarter of 2023.

Income Taxes

Income tax expense for the nine months ended September 30, 2024 totaled $1.2 million compared to $1.7 million recorded for the nine months ended September 30, 2023. The effective tax rate was 15% and 17% for the nine months ended September 30, 2024 and 2023, respectively. The lower than expected tax rate in 2024 and 2023 was due primarily to tax-exempt interest income and New Markets Tax Credits.

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Balance Sheet Review

As of September 30, 2024, total assets were $2.1 billion, a $32.3 million decrease compared to December 31, 2023. This decrease in assets is primarily due to a decrease in securities available-for-sale and partially offset by an increase in loans.

Investment Portfolio

The investment portfolio totaled $688.6 million as of September 30, 2024, a decrease of $47.8 million from the December 31, 2023 balance of $736.4 million. The decrease in securities available-for-sale is primarily due to maturities in excess of purchases and partially offset by a decrease in unrealized losses.

On a quarterly basis, the investment portfolio is reviewed for credit losses. As of September 30, 2024, gross unrealized losses of $39.8 million, are due to the interest rate environment and are not considered credit-related. Certain bonds in the investment portfolio may incur credit losses 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 expects full principal and interest to be collected. Therefore, the Company does not have an allowance for credit losses on these investments as of September 30, 2024.

At September 30, 2024, the Company’s investment securities portfolio included securities issued by 261 government municipalities and agencies located within 30 states with a fair value of $256.4 million. At December 31, 2023, the Company’s investment securities portfolio included securities issued by 272 government municipalities and agencies located within 30 states with a fair value of $269.9 million. No one municipality or agency represents a concentration within this segment of the investment portfolio. Omaha, Nebraska, sewer revenue bonds with a fair value of $5.4 million (approximately 2.1% 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 September 30, 2024.

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 September 30, 2024 and December 31, 2023 identifying the state in which the issuing government municipality or agency operates (in thousands):

	2024				2023
			Estimated				Estimated
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Obligations of states and political subdivisions:
General Obligation bonds:
Iowa	$	51,606	$	49,261	$	59,721	$	55,827
Texas		25,879		24,413		29,199		26,721
Nebraska		19,656		17,912		19,660		17,202
Washington		9,380		8,858		9,632		8,860
Oregon		9,183		8,860		9,885		9,299
Connecticut		8,699		8,367		8,700		8,183
Other (2024: 15 states; 2023: 15 states)		28,367		26,827		32,698		30,257
Total general obligation bonds	$	152,770	$	144,498	$	169,495	$	156,349
Revenue bonds:
Iowa	$	44,931	$	43,343	$	48,645	$	45,953
Texas		14,771		13,727		14,794		13,193
Nebraska		9,217		8,408		9,397		8,238
Other (2024: 24 states; 2023: 23 states)		49,028		46,406		50,144		46,158
Total revenue bonds	$	117,947	$	111,884	$	122,980	$	113,542
Total obligations of states and political subdivisions	$	270,717	$	256,382	$	292,475	$	269,891

As of September 30, 2024 and December 31, 2023, 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 5 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 thousands):

	2024				2023
			Estimated				Estimated
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Revenue bonds by revenue source
Sales tax	$	27,678	$	26,414	$	29,409	$	27,284
Water		19,783		18,763		20,394		18,968
College and universities, primarily dormitory revenues		16,766		15,686		16,944		15,340
Sewer		12,212		11,363		12,771		11,465
Leases		7,922		7,523		8,060		7,421
Other		33,586		32,135		35,402		33,064
Total revenue bonds by revenue source	$	117,947	$	111,884	$	122,980	$	113,542

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Loan Portfolio

The loan portfolio, net of the allowance for credit losses, totaled $1.296 billion and $1.278 billion as of September 30, 2024 and December 31, 2023, respectively. The increase was primarily due to an increase in the 1 to 4 family residential real estate, multi-family real estate and agricultural operating loan portfolios.

Deposits

Deposits totaled $1.80 billion and $1.81 billion as of September 30, 2024 and December 31, 2023, respectively. The decrease is primarily due to lower balances in retail and commercial noninterest-bearing checking, savings and money market accounts as customers seek higher interest rates. A portion of the decrease in retail and commercial noninterest-bearing checking, savings and money market accounts was offset by an increase in time deposits and public funds. Securities sold under agreements to repurchase decreased to $42.8 million as of September 30, 2024 compared to $54.0 million as of December 31, 2023. Securities sold under agreements to repurchase and deposit balances fluctuate as customers’ liquidity needs vary and could be impacted by prevailing market interest rates, competition, and economic conditions. Approximately 15% of deposits are tied to external indexes as of September 30, 2024. Deposit interest expense related to these deposits can be more volatile than other deposit products in a changing interest rate environment.

Other Borrowings

Other borrowings decreased to $83.1 million as of September 30, 2024 compared to $110.6 million as of December 31, 2023. The Company has reduced borrowings throughout 2024 as investments have matured.

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, 2023.

Asset Quality Review and Credit Risk Management

The Company’s credit risk is historically centered in the loan portfolio, which totaled $1.296 billion and $1.278 billion as of September 30, 2024 and December 31, 2023, respectively. Net loans comprise 61% of total assets as of September 30, 2024. 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 1.33% at September 30, 2024, as compared to 1.08% at December 31, 2023. The Company’s level of problem loans as a percentage of total loans at September 30, 2024 of 1.33% is higher as compared to the Iowa State Average peer group of FDIC insured institutions as of June 30, 2024, of 0.49%, most recent available.

Substandard-Impaired loans totaled $16.9 million as of September 30, 2024 and have increased $3.7 million as compared to the substandard-impaired loans of $13.2 million as of December 31, 2023. The increase is primarily due to downgrades in the commercial real estate and commercial operating loan portfolios.

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A loan is considered Substandard-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.

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 nonaccrual. As of September 30, 2024, nonaccrual loans totaled $17.5 million and there were no loans past due 90 days and still accruing. This compares to nonaccrual loans of $13.8 million and $109 thousand of loans past due 90 days and still accruing as of December 31, 2023. There was no other real estate owned as of September 30, 2024 and December 31, 2023.  

Loans past due 30 days or more totaled $9.8 million as of September 30, 2024, compared to $4.3 million as of December 31, 2023. The increase is primarily related to the commercial real estate portfolio.

The watch and special mention loans classified as agricultural real estate and operating totaled $27.5 million as of September 30, 2024 as compared to $19.9 million as of December 31, 2023. The increase is primarily due to agricultural operating loans that were moved to watch as the customers refinance and restructure assets. The substandard and substandard-impaired loans in these categories totaled $6.1 million and $6.2 million as of September 30, 2024 and December 31, 2023, respectively.

The watch and special mention loans classified as commercial real estate totaled $41.0 million as of September 30, 2024 as compared to $73.3 million as of December 31, 2023. The substandard and substandard-impaired commercial real estate loans totaled $29.3 million and $15.4 million as of September 30, 2024 and December 31, 2023, respectively. The changes between periods are primarily due to weaking in the commercial real estate loan portfolio as some commercial real estate loans are experiencing a decline in occupancy rate and collateral valuation.

The allowance for credit losses as a percentage of outstanding loans as of September 30, 2024 was 1.34%, as compared to 1.30% at December 31, 2023. The allowance for credit losses totaled $17.6 million and $16.8 million as of September 30, 2024 and December 31, 2023, respectively. The increase in the allowance for credit losses is mainly due to loan growth and an increase in specific reserves.

Due to recent trends in the banking industry, commercial real estate and multi-family real estate loans are facing heightened risk due to factors such as increased susceptibility to economic pressures caused by elevated interest rates and challenging market conditions. The Company maintains a rigorous approach to risk management through regular loan reviews, stress testing and sensitivity analyses to evaluate the risk level in the loan portfolio. Loan reviews include monitoring past due rates, non-performing trends, concentrations, loan-to-value ratios, and other qualitative factors. The Company's loan policies are robust and are updated as needed to align with strategic objectives and risk management priorities.

Commercial real estate and multi-family real estate represent approximately 42% of the loan portfolio as of September 30, 2024.  The following is an additional breakdown of the Company's commercial real estate and multi-family real estate portfolios (in thousands):

		September 30, 2024
		Total	Percent of Total Loans
Real estate - multi-family	$	201,888	15.4%
Real estate - commercial
Owner-Occupied All Purposes		185,281	14.1%
Non-Owner Occupied Retail or Other		59,103	4.5%
Non-Owner Occupied Hotel		40,264	3.1%
Non-Owner Occupied Warehouse		35,336	2.7%
Non-Owner Occupied Office		35,089	2.7%
Total real estate - commercial		355,073	27.0%
Total real estate - commercial and multi-family	$	556,961	42.4%

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, Federal Reserve BTFP, FHLB advances and other capital market sources.

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As of September 30, 2024, 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 on hand, balances due from other banks and interest-bearing deposits in financial institutions as of September 30, 2024 and December 31, 2023 totaled $59.0 million and $55.1 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 September 30, 2024 include outstanding lines of credit with the FHLB of Des Moines, Iowa of $201.0 million, with $72.5 million of outstanding FHLB advances. Federal funds borrowing capacity at correspondent banks was $97.5 million, with no outstanding federal fund purchase balances as of September 30, 2024. The Company had securities sold under agreements to repurchase totaling $42.8 million as of September 30, 2024.

Total investments as of September 30, 2024 were $688.6 million compared to $736.4 million as of December 31, 2023. These investments provide the Company with liquidity since all of the investments are classified as available-for-sale as of September 30, 2024. The Company has $398.9 million of unpledged securities available-for-sale and interest-bearing deposits as of September 30, 2024. 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.

Review of the Consolidated Statements of Cash Flows

Net cash provided by operating activities for the nine months ended September 30, 2024 totaled $8.4 million compared to $12.8 million for the nine months ended September 30, 2023. The decrease of $4.4 million in cash provided by operating activities was primarily due to payments of accrued interest on borrowings and lower net income.

Net cash provided by investing activities for the nine months ended September 30, 2024 was $51.6 million compared to $38.8 million for the nine months ended September 30, 2023. The increase of $12.8 million in cash provided by investing activities was primarily due to maturities of securities available-for-sale.

Net cash provided by (used in) financing activities for the nine months ended September 30, 2024 totaled ($56.1) million compared to $10.5 million for the nine months ended September 30, 2023. The decrease in cash provided by financing activities of $66.6 million was primarily due to payments on other borrowings, fewer proceeds from other borrowings between periods and a decrease in securities sold under agreements to repurchase.  The decrease in cash provided by financing activities was partially offset by a lower decrease in deposits. As of September 30, 2024, the Company did not have any external debt financing, off-balance sheet financing arrangements, or derivative instruments linked to its stock.

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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 $7.9 million and $7.2 million for the nine months ended September 30, 2024 and 2023, 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 $1.0 million as of September 30, 2024.

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

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 September 30, 2024 that are of concern to management.

Capital Resources

The Company’s total stockholders’ equity as of September 30, 2024 totaled $183.4 million and was $17.6 million higher than the $165.8 million recorded as of December 31, 2023. The increase in stockholders’ equity was primarily the result of a decrease in unrealized losses on the investment portfolio. At September 30, 2024 and December 31, 2023, stockholders’ equity as a percentage of total assets was 8.6% and 7.7%, respectively. The capital levels of the Company currently exceed applicable regulatory guidelines to be considered “well capitalized” as of September 30, 2024. Unrealized losses on the investment portfolio are excluded from regulatory capital.

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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 financial performance and asset quality.  Forward-looking statements contained in this Quarterly Report are not historical facts and are based on management’s current beliefs, assumptions, predictions and expectations of future events, including the Company’s future performance, taking into account all information currently available to management.  These beliefs, assumptions, predictions and expectations are subject to numerous risks and uncertainties and can change as a result of many possible events or factors, not all of which are known to management and many of which are beyond management’s control.  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.  Accordingly, investors are cautioned not to place undue reliance on such forward-looking statements. These statements are often, but not always, made through the use of words or phrases such as “anticipates,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimate,” “plans,” “projects,” “forecasts”, “continuing,” “ongoing,” “expects,” “views,” “intends” and similar words or phrases. The risks and uncertainties that may affect the Company’s future performance and asset quality include, but are not limited to, the following:  the impact of inflation and changing interest rates on national, regional and local economies in general and on the Company’s 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 credit losses resulting from 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 headings Forward-Looking Statements and Business Risks” and “Risk Factors” in the Company’s Annual Report on Form 10-K for the year-ended December 31, 2023.  Any forward-looking statements are qualified in their entirety by the foregoing risks and uncertainties and speak only as of the date on which such statements are made. The Company undertakes no obligation to revise or update such forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable

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

Management does not believe there have been any material changes in the risk factors that were disclosed in the Company's Form 10-K filed with the SEC on March 8, 2024.

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

In November, 2023, 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 September 30, 2024, there were 100,000 shares remaining to be purchased under the plan.

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 September 30, 2024.

					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
July 1, 2024 to July 31, 2024		-	$	-		-		100,000
August 1, 2024 to August 31, 2024		-	$	-		-		100,000
September 1, 2024 to September 30, 2024		-	$	-		-		100,000
Total		-				-

Item 3. Defaults Upon Senior Securities

Not applicable

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other information

Not applicable

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Item 6. Exhibits

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	Inline XBRL Instance Document - the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document (1)
101.SCH	Inline XBRL Taxonomy Extension Schema Document (1)
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document (1)
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document (1)
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document (1)
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document (1)
104	Cover page Interactive Data File (embedded within the Inline XBRL and contained 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:         November 8, 2024	By:  /s/ John P. Nelson
	John P. Nelson, Chief Executive Officer and President
	(Principal Executive Officer)
	By:  /s/ Justin C. Clausen
	Justin C. Clausen, Chief Financial Officer
	(Principal Financial and Accounting Officer)

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