PART I. FINANCIAL INFORMATION [Item 1. Consolidated Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Consolidated%20Financial%20Statements%20(Unaudited)) Presents unaudited consolidated financial statements for Q1 2023 and 2022, including balance sheets, income, equity, cash flows, and notes [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) - Total assets increased by **$54.7 million** from December 31, 2022, to March 31, 2023, primarily driven by an increase in interest-bearing deposits and federal funds sold, funded by an increase in other borrowings[5](index=5&type=chunk)[207](index=207&type=chunk) - Total cash and cash equivalents significantly increased from **$27.88 million** at December 31, 2022, to **$87.19 million** at March 31, 2023[5](index=5&type=chunk) Consolidated Balance Sheet Highlights (in thousands) | Item | March 31, 2023 (Unaudited) | December 31, 2022 (Audited) | | :--------------------------------------- | :-------------------------- | :-------------------------- | | **ASSETS** | | | | Total cash and cash equivalents | $87,186 | $27,884 | | Securities available-for-sale | $788,910 | $786,438 | | Loans receivable, net | $1,224,045 | $1,226,011 | | Total assets | $2,189,651 | $2,134,926 | | **LIABILITIES** | | | | Total deposits | $1,896,793 | $1,897,957 | | Securities sold under agreements to repurchase | $46,202 | $40,676 | | Other borrowings | $78,550 | $39,120 | | Total liabilities | $2,030,569 | $1,985,828 | | **STOCKHOLDERS' EQUITY** | | | | Total stockholders' equity | $159,082 | $149,098 | | Total liabilities and stockholders' equity | $2,189,651 | $2,134,926 | [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) - Net income decreased by **37.8%** from **$5.145 million** in Q1 2022 to **$3.197 million** in Q1 2023, primarily due to a significant increase in interest expense[8](index=8&type=chunk)[156](index=156&type=chunk) - Total interest expense surged by **500%** from **$920 thousand** in Q1 2022 to **$5.527 million** in Q1 2023, driven by higher market rates on deposits[8](index=8&type=chunk)[202](index=202&type=chunk) Consolidated Statements of Income Highlights (in thousands, except per share data) | Item | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--------------------------------------- | :-------------------------------- | :-------------------------------- | | Total interest income | $17,196 | $14,072 | | Total interest expense | $5,527 | $920 | | Net interest income | $11,669 | $13,152 | | Credit loss expense (benefit) | $275 | ($127) | | Net interest income after credit loss expense (benefit) | $11,394 | $13,279 | | Total noninterest income | $2,254 | $2,553 | | Total noninterest expense | $9,780 | $9,379 | | Income before income taxes | $3,868 | $6,453 | | Provision for income taxes | $671 | $1,308 | | Net income | $3,197 | $5,145 | | Basic and diluted earnings per share | $0.36 | $0.57 | | Dividends declared per share | $0.27 | $0.27 | [Consolidated Statements of Comprehensive Income (Loss)](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) - The Company reported comprehensive income of **$13.015 million** in Q1 2023, a significant improvement from a comprehensive loss of **$28.658 million** in Q1 2022, primarily due to unrealized gains on securities before tax[10](index=10&type=chunk) Consolidated Statements of Comprehensive Income (Loss) (in thousands) | Item | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--------------------------------------- | :-------------------------------- | :-------------------------------- | | Net income | $3,197 | $5,145 | | Other comprehensive income (loss), net of tax | $9,818 | ($33,803) | | Comprehensive income (loss) | $13,015 | ($28,658) | [Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) - Total stockholders' equity increased by **$9.984 million** from **$149.098 million** at December 31, 2022, to **$159.082 million** at March 31, 2023, driven by net income and a decrease in accumulated other comprehensive loss[14](index=14&type=chunk)[236](index=236&type=chunk) Consolidated Statements of Stockholders' Equity (in thousands) | Item | March 31, 2023 | December 31, 2022 | | :--------------------------------------- | :-------------------------- | :-------------------------- | | Common stock | $17,984 | $17,984 | | Additional paid-in capital | $14,253 | $14,253 | | Retained earnings | $180,097 | $179,931 | | Accumulated other comprehensive (loss) | ($53,252) | ($63,070) | | Total stockholders' equity | $159,082 | $149,098 | [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) - Net cash provided by investing activities significantly improved from a net outflow of **$24.342 million** in Q1 2022 to a net inflow of **$11.443 million** in Q1 2023, primarily due to fewer purchases of investments[16](index=16&type=chunk)[231](index=231&type=chunk) - Net cash provided by financing activities decreased by **$35.2 million**, from **$76.561 million** in Q1 2022 to **$41.364 million** in Q1 2023, mainly due to a decrease in the change in deposits[16](index=16&type=chunk)[232](index=232&type=chunk) Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--------------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $6,495 | $6,984 | | Net cash provided by (used in) investing activities | $11,443 | ($24,342) | | Net cash provided by financing activities | $41,364 | $76,561 | | Net increase in cash and cash equivalents | $59,302 | $59,203 | | Cash and cash equivalents, Ending | $87,186 | $148,332 | [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) [Note 1. Significant Accounting Policies](index=10&type=section&id=Note%201.%20Significant%20Accounting%20Policies) - The Company adopted ASU 2016-13 (CECL) on January 1, 2023, resulting in a net decrease to retained earnings of **$603 thousand**, including a **$518 thousand** increase to the Allowance for Credit Losses on loans and a **$273 thousand** increase for off-balance sheet credit exposures[24](index=24&type=chunk)[25](index=25&type=chunk) - Goodwill was assessed for impairment as of October 1, 2022, and again at March 31, 2023, with no impairment identified[22](index=22&type=chunk) - The Company utilizes a one-year initial forecast period for credit loss estimation, followed by a historical loss forecast covering the remaining contractual life, with a one-year reversion period[36](index=36&type=chunk)[37](index=37&type=chunk) Impact of ASC 326 (CECL) Adoption (in thousands) | Item | As Reported Under ASC 326 | Pre-ASC 326 Adoption | Impact of ASC 326 Adoption | | :--------------------------------------- | :-------------------------- | :------------------- | :------------------------- | | Allowance for credit losses on loans | $16,215 | $15,697 | $518 | | Allowance for credit losses on off-balance sheet credit exposures | $1,071 | $798 | $273 | [Note 2. Dividends](index=17&type=section&id=Note%202.%20Dividends) - A cash dividend of **$0.27 per share** was declared on February 8, 2023, payable on May 15, 2023[55](index=55&type=chunk) [Note 3. Earnings Per Share](index=17&type=section&id=Note%203.%20Earnings%20Per%20Share) - The Company had no potentially dilutive securities outstanding during the periods presented[56](index=56&type=chunk) Earnings Per Share Data | Period | Weighted Average Shares Outstanding | | :--------------------------------------- | :-------------------------------- | | Three months ended March 31, 2023 | 8,992,167 | | Three months ended March 31, 2022 | 9,092,167 | [Note 4. Off-Balance Sheet Arrangements](index=17&type=section&id=Note%204.%20Off-Balance%20Sheet%20Arrangements) - The Company is party to financial instruments with off-balance sheet risk, including commitments to extend credit and standby letters of credit, with no material changes since December 31, 2022[57](index=57&type=chunk) [Note 5. Fair Value Measurements](index=18&type=section&id=Note%205.%20Fair%20Value%20Measurements) - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable inputs)[58](index=58&type=chunk)[59](index=59&type=chunk) - Securities available-for-sale are primarily valued using Level 1 (U.S. Treasury securities) and Level 2 inputs (U.S. government agencies, mortgage-backed securities, state and political subdivisions, corporate bonds)[60](index=60&type=chunk) Assets Measured at Fair Value on a Recurring Basis (in thousands) | Description | March 31, 2023 Total | Level 1 | Level 2 | Level 3 | | :--------------------------------------- | :------------------- | :------ | :------ | :------ | | U.S. government treasuries | $205,513 | $205,513 | $- | $- | | U.S. government agencies | $102,649 | $- | $102,649 | $- | | U.S. government mortgage-backed securities | $114,126 | $- | $114,126 | $- | | State and political subdivisions | $291,860 | $- | $291,860 | $- | | Corporate bonds | $74,762 | $- | $74,762 | $- | | Loans receivable | $8,596 | $- | $8,596 | $- | | Derivative financial instruments | $901 | $- | $901 | $- | | Description | December 31, 2022 Total | Level 1 | Level 2 | Level 3 | | :--------------------------------------- | :------------------- | :------ | :------ | :------ | | U.S. government treasuries | $207,597 | $207,597 | $- | $- | | U.S. government agencies | $100,933 | $- | $100,933 | $- | | U.S. government mortgage-backed securities | $116,741 | $- | $116,741 | $- | | State and political subdivisions | $286,003 | $- | $286,003 | $- | | Corporate bonds | $75,164 | $- | $75,164 | $- | | Loans receivable | $8,494 | $- | $8,494 | $- | | Derivative financial instruments | $1,096 | $- | $1,096 | $- | Assets Measured at Fair Value on a Nonrecurring Basis (in thousands) | Description | March 31, 2023 Total | Level 1 | Level 2 | Level 3 | | :--------------------------------------- | :------------------- | :------ | :------ | :------ | | Loans receivable | $323 | $- | $- | $323 | | Description | December 31, 2022 Total | Level 1 | Level 2 | Level 3 | | :--------------------------------------- | :------------------- | :------ | :------ | :------ | | Loans receivable | $304 | $- | $- | $304 | [Note 6. Debt Securities](index=22&type=section&id=Note%206.%20Debt%20Securities) - Gross unrealized losses on debt securities totaled **$70.8 million** as of March 31, 2023, primarily due to changes in interest rates, but management concluded these losses were temporary[83](index=83&type=chunk) Amortized Cost and Fair Value of Securities Available-for-Sale (in thousands) | Category | March 31, 2023 Amortized Cost | March 31, 2023 Estimated Fair Value | December 31, 2022 Amortized Cost | December 31, 2022 Estimated Fair Value | | :--------------------------------------- | :-------------------------- | :-------------------------------- | :-------------------------- | :-------------------------------- | | U.S. government treasuries | $222,059 | $205,513 | $227,065 | $207,597 | | U.S. government agencies | $110,426 | $102,649 | $110,370 | $100,933 | | U.S. government mortgage-backed securities | $128,941 | $114,126 | $133,205 | $116,741 | | State and political subdivisions | $317,306 | $291,860 | $317,179 | $286,003 | | Corporate bonds | $80,851 | $74,762 | $82,177 | $75,164 | | Total | $859,583 | $788,910 | $869,996 | $786,438 | Gross Unrealized Losses on Debt Securities (in thousands) | Category | March 31, 2023 Unrealized Losses | December 31, 2022 Unrealized Losses | | :--------------------------------------- | :-------------------------- | :-------------------------- | | U.S. government treasuries | ($16,546) | ($19,468) | | U.S. government agencies | ($7,780) | ($9,441) | | U.S. government mortgage-backed securities | ($14,817) | ($16,468) | | State and political subdivisions | ($25,587) | ($31,203) | | Corporate bonds | ($6,092) | ($7,020) | | Total | ($70,822) | ($83,600) | [Note 7. Loans Receivable and Credit Disclosures](index=24&type=section&id=Note%207.%20Loans%20Receivable%20and%20Credit%20Disclosures) - The allowance for credit losses increased to **$16.269 million** at March 31, 2023, from **$15.697 million** at December 31, 2022, primarily due to the adoption of ASC 326[88](index=88&type=chunk)[224](index=224&type=chunk) - Nonaccrual loans decreased from **$14.7 million** at December 31, 2022, to **$11.4 million** at March 31, 2023, primarily due to payments received[99](index=99&type=chunk)[221](index=221&type=chunk) - The Company made three loan modifications to borrowers experiencing financial difficulty in Q1 2023, specifically for agricultural loans, extending their terms by a weighted-average of **7.7 years**[99](index=99&type=chunk)[101](index=101&type=chunk)[103](index=103&type=chunk) Composition of Loans Receivable (in thousands) | Loan Type | March 31, 2023 | December 31, 2022 | | :--------------------------------------- | :-------------------------- | :-------------------------- | | Real estate - construction | $59,756 | $51,253 | | Real estate - 1 to 4 family residential | $286,418 | $285,107 | | Real estate - multi-family | $193,566 | $185,784 | | Real estate - commercial | $350,999 | $353,285 | | Real estate - agricultural | $158,337 | $159,448 | | Commercial | $82,345 | $77,265 | | Agricultural | $92,402 | $113,355 | | Consumer and other | $16,491 | $16,211 | | Less allowance for credit losses | ($16,269) | ($15,697) | | Loans receivable, net | $1,224,045 | $1,226,011 | Allowance for Credit Losses Activity (in thousands) | Item | Three Months Ended March 31, 2023 | | :--------------------------------------- | :-------------------------------- | | Balance, December 31, 2022 | $15,697 | | Impact of adopting ASC 326 | $518 | | Credit loss expense (benefit) | $212 | | Recoveries of loans charged-off | $10 | | Loans charged-off | ($168) | | Balance, March 31, 2023 | $16,269 | [Note 8. Intangible assets](index=36&type=section&id=Note%208.%20Intangible%20assets) - Net intangible assets decreased from **$1.931 million** at December 31, 2022, to **$1.801 million** at March 31, 2023, due to amortization expense of **$130 thousand**[132](index=132&type=chunk) - The weighted average remaining life of intangible assets is approximately **3 years**[130](index=130&type=chunk) Intangible Assets (in thousands) | Item | March 31, 2023 Gross Amount | March 31, 2023 Accumulated Amortization | December 31, 2022 Gross Amount | December 31, 2022 Accumulated Amortization | | :--------------------------------------- | :-------------------------- | :-------------------------------------- | :-------------------------- | :-------------------------------------- | | Core deposit intangible asset | $6,411 | $4,654 | $6,411 | $4,539 | | Customer list | $535 | $491 | $535 | $476 | | Total | $6,946 | $5,145 | $6,946 | $5,015 | [Note 9. Pledged Collateral Related to Securities Sold Under Repurchase Agreements](index=37&type=section&id=Note%209.%20Pledged%20Collateral%20Related%20to%20Securities%20Sold%20Under%20Repurchase%20Agreements) - Total pledged collateral increased to **$62.536 million** at March 31, 2023, from **$60.914 million** at December 31, 2022[135](index=135&type=chunk) Pledged Collateral for Repurchase Agreements (in thousands) | Security Type | March 31, 2023 | December 31, 2022 | | :--------------------------------------- | :-------------------------- | :-------------------------- | | U.S. government treasuries | $14,506 | $12,555 | | U.S. government agencies | $39,229 | $39,226 | | U.S. government mortgage-backed securities | $8,801 | $9,133 | | Total pledged collateral | $62,536 | $60,914 | [Note 10. Borrowings](index=37&type=section&id=Note%2010.%20Borrowings) - The Company had no short-term FHLB advances as of March 31, 2023, compared to **$35.4 million** at December 31, 2022[136](index=136&type=chunk) - The Company borrowed **$75 million** under the new Bank Term Funding Program (BTFP) as of March 31, 2023, utilizing it due to favorable lending terms[137](index=137&type=chunk)[229](index=229&type=chunk) [Note 11. Derivative Financial Instruments](index=38&type=section&id=Note%2011.%20Derivative%20Financial%20Instruments) - The Company uses interest rate swaps as fair value hedges to convert long-term fixed-rate loans to floating rates, mitigating interest rate risk[139](index=139&type=chunk) Interest Rate Swaps (in thousands) | Item | Notional Amount | Fair Value | Balance Sheet Category | | :--------------------------------------- | :---------------- | :--------- | :--------------------- | | March 31, 2023 Interest rate swaps | $9,218 | $901 | Other assets | | December 31, 2022 Interest rate swaps | $9,314 | $1,096 | Other assets | [Note 12. Income Taxes](index=38&type=section&id=Note%2012.%20Income%20Taxes) - The change in deferred income taxes since December 31, 2022, is primarily due to a decrease in unrealized losses on investment securities[142](index=142&type=chunk) [Note 13. Commitments, Contingencies and Concentrations of Credit Risk](index=38&type=section&id=Note%2013.%20Commitments,%20Contingencies%20and%20Concentrations%20of%20Credit%20Risk) - The Company has **$1.7 million** remaining on a **$4.0 million** commitment for a branch remodel in Ames, Iowa, as of March 31, 2023[143](index=143&type=chunk) [Note 14. Regulatory Matters](index=38&type=section&id=Note%2014.%20Regulatory%20Matters) - The Company and its Banks met all capital adequacy requirements and were considered 'well capitalized' as of March 31, 2023[144](index=144&type=chunk)[169](index=169&type=chunk)[236](index=236&type=chunk) - The Company's capital ratios were sufficient to meet the Basel III capital conservation buffer requirements as of March 31, 2023[149](index=149&type=chunk) Consolidated Capital Ratios (as of March 31, 2023, in thousands) | Capital Ratio | Actual Amount | Actual Ratio | For Capital Adequacy Purposes Amount | For Capital Adequacy Purposes Ratio | | :--------------------------------------- | :-------------------------- | :----------- | :----------------------------------- | :---------------------------------- | | Total capital (to risk-weighted assets) | $216,793 | 14.2% | $159,936 | 10.50% | | Tier 1 capital (to risk-weighted assets) | $199,391 | 13.1% | $129,472 | 8.50% | | Tier 1 capital (to average assets) | $199,391 | 9.1% | $87,463 | 4.00% | | Common equity tier 1 capital (to risk-weighted assets) | $199,391 | 13.1% | $106,624 | 7.00% | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=42&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2023 financial condition and operational results, covering KPIs, accounting policies, and key financial statements [Overview](index=42&type=section&id=Overview) - Ames National Corporation is a bank holding company operating six bank subsidiaries in Iowa, offering commercial and consumer loans, deposits, and wealth management services[152](index=152&type=chunk)[153](index=153&type=chunk) - The Company's primary strategy focuses on local decision-making and operational efficiency to gain a competitive advantage and maximize profitability[154](index=154&type=chunk) - Net income for Q1 2023 was **$3.2 million** (**$0.36 per share**), down from **$5.1 million** (**$0.57 per share**) in Q1 2022, primarily due to higher interest expense on deposits and other borrowed funds[156](index=156&type=chunk) [Challenges](index=43&type=section&id=Challenges) - Management has identified potential future negative impacts from events or circumstances, which are detailed in the Company's most recent Annual Report on Form 10-K[159](index=159&type=chunk) [Key Performance Indicators and Industry Results](index=43&type=section&id=Key%20Performance%20Indicators%20and%20Industry%20Results) - Return on assets decreased to **0.60%** in Q1 2023 from **0.96%** in Q1 2022, and return on equity decreased to **8.36%** from **10.28%**, both primarily due to lower net income[164](index=164&type=chunk)[165](index=165&type=chunk) - The net interest margin declined to **2.23%** in Q1 2023 from **2.55%** in Q1 2022, and the efficiency ratio increased to **70.70%** from **59.72%**, indicating reduced profitability and operational efficiency[166](index=166&type=chunk)[167](index=167&type=chunk) Selected Key Performance Indicators (Company vs. Industry) | Indicator | 3 Months Ended March 31, 2023 (Company) | 3 Months Ended March 31, 2022 (Company) | Years Ended December 31, 2022 (Industry*) | | :--------------------------------------- | :-------------------------------------- | :-------------------------------------- | :---------------------------------------- | | Return on assets | 0.60% | 0.90% | 1.15% | | Return on equity | 8.36% | 11.43% | 12.01% | | Net interest margin | 2.23% | 2.55% | 3.45% | | Efficiency ratio | 70.70% | 61.41% | 61.36% | | Capital ratio | 7.21% | 7.90% | 10.51% | *Latest available data [Critical Accounting Policies](index=45&type=section&id=Critical%20Accounting%20Policies) - The Company's critical accounting policies include the allowance for credit losses (now under CECL methodology), fair value assessment for investment securities, and goodwill impairment[171](index=171&type=chunk) - Under CECL, the allowance for credit losses is an estimate of all expected credit losses over the contractual life of the loan portfolio, determined through asset-specific and pooled components[172](index=172&type=chunk)[176](index=176&type=chunk) - Fair value declines in available-for-sale securities are evaluated for credit losses, with management assessing intent and likelihood of selling before recovery[184](index=184&type=chunk) - Goodwill impairment is tested annually, with no impairment found as of March 31, 2023, but future economic conditions could impact this assessment[186](index=186&type=chunk) [Non-GAAP Financial Measures](index=49&type=section&id=Non-GAAP%20Financial%20Measures) - The report includes non-GAAP financial measures, such as net interest income and net interest margin on a fully taxable equivalent (FTE) basis, to provide additional insights into financial performance[188](index=188&type=chunk) Reconciliation of Net Interest Income and Annualized Net Interest Margin on an FTE Basis (in thousands) | Item | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--------------------------------------- | :-------------------------------- | :-------------------------------- | | Net interest income (GAAP) | $11,669 | $13,152 | | Tax-equivalent adjustment | $163 | $180 | | Net interest income on an FTE basis (non-GAAP) | $11,832 | $13,332 | | Average interest-earning assets | $2,120,520 | $2,090,628 | | Net interest margin (FTE) | 2.23% | 2.55% | [Income Statement Review](index=50&type=section&id=Income%20Statement%20Review) - Net interest income (FTE) decreased to **$11.832 million** in Q1 2023 from **$13.332 million** in Q1 2022, with the net interest margin declining from **2.55%** to **2.23%**[199](index=199&type=chunk)[200](index=200&type=chunk) - Interest income increased by **22%** (**$3.1 million**) in Q1 2023 compared to Q1 2022, driven by higher average rates and growth in loan and investment portfolios[202](index=202&type=chunk) - Interest expense surged by **500%** (**$4.6 million**) in Q1 2023 compared to Q1 2022, primarily due to increased market rates on deposits following Federal Open Market Committee rate hikes[202](index=202&type=chunk) - A credit loss expense of **$212 thousand** was recognized in Q1 2023 (vs. a **$127 thousand** benefit in Q1 2022), mainly due to a charge-off in the agriculture loan portfolio[203](index=203&type=chunk) - Noninterest income decreased by **12%** to **$2.3 million** in Q1 2023, while noninterest expense increased by **5%** to **$9.8 million**, leading to an increased efficiency ratio of **70.7%**[204](index=204&type=chunk) [Balance Sheet Review](index=53&type=section&id=Balance%20Sheet%20Review) - Total assets increased by **$54.7 million** to **$2.19 billion** as of March 31, 2023, primarily due to an increase in interest-bearing deposits in financial institutions and federal funds sold, funded by an increase in other borrowings[207](index=207&type=chunk) - The investment portfolio increased by **$2.5 million** to **$788.9 million**, mainly due to a decline in unrealized losses, partially offset by maturities[207](index=207&type=chunk) - The loan portfolio, net of allowance for credit losses, slightly decreased to **$1.22 billion** at March 31, 2023, from **$1.23 billion** at December 31, 2022, driven by a decrease in agricultural operating loans[216](index=216&type=chunk) - Total deposits remained stable at **$1.90 billion**, with a shift from noninterest-bearing and savings accounts to higher-yielding interest-bearing checking and time deposits[217](index=217&type=chunk) - Uninsured deposits represented approximately **18%** of total deposits as of March 31, 2023[217](index=217&type=chunk) [Asset Quality Review and Credit Risk Management](index=55&type=section&id=Asset%20Quality%20Review%20and%20Credit%20Risk%20Management) - The Company's problem loans (nonaccrual and 90+ days past due) as a percentage of total loans decreased to **0.95%** at March 31, 2023, from **1.19%** at December 31, 2022[219](index=219&type=chunk) - Substandard-Impaired loans decreased by **$3.6 million** to **$10.8 million** at March 31, 2023, primarily due to payments received[220](index=220&type=chunk) - Nonaccrual loans decreased to **$11.4 million** at March 31, 2023, from **$14.7 million** at December 31, 2022, also due to payments received[221](index=221&type=chunk) - The allowance for credit losses as a percentage of outstanding loans increased to **1.31%** at March 31, 2023, from **1.26%** at December 31, 2022, mainly due to ASC 326 implementation[224](index=224&type=chunk) [Liquidity and Capital Resources](index=56&type=section&id=Liquidity%20and%20Capital%20Resources) - The Company maintains a satisfactory level of liquidity, with liquid assets totaling **$87.2 million** at March 31, 2023, up from **$27.9 million** at December 31, 2022[228](index=228&type=chunk) - Available liquidity sources include **$314.4 million** in FHLB lines of credit (no outstanding advances), **$102.2 million** in federal funds borrowing capacity, and **$439.1 million** in unpledged available-for-sale securities and interest-bearing deposits[228](index=228&type=chunk)[230](index=230&type=chunk) - The Company utilized **$75 million** from the Bank Term Funding Program (BTFP) as of March 31, 2023, due to favorable lending terms[229](index=229&type=chunk) - Total stockholders' equity increased to **$159.1 million** at March 31, 2023, from **$149.1 million** at December 31, 2022, primarily due to decreased unrealized losses on the investment portfolio and retained net income[236](index=236&type=chunk) [Forward-Looking Statements and Business Risks](index=59&type=section&id=Forward-Looking%20Statements%20and%20Business%20Risks) - The report contains forward-looking statements subject to numerous risks and uncertainties, including the impact of inflation, rising interest rates, competitive pressures, changes in credit risks, governmental regulations, and market conditions[237](index=237&type=chunk) - Investors are cautioned not to place undue reliance on forward-looking statements, which are qualified by inherent business risks and speak only as of their making date[237](index=237&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=60&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section states that quantitative and qualitative disclosures about market risk are not applicable for this quarterly report - The Company states that quantitative and qualitative disclosures about market risk are not applicable for this reporting period[239](index=239&type=chunk) [Item 4. Controls and Procedures](index=60&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the Company's disclosure controls and procedures were effective as of March 31, 2023, with no material changes in internal control over financial reporting - The Company's management concluded that disclosure controls and procedures were effective as of March 31, 2023[239](index=239&type=chunk) - No material changes in internal control over financial reporting occurred during the last fiscal quarter[240](index=240&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=60&type=section&id=Item%201.%20Legal%20Proceedings) This section indicates that there are no legal proceedings applicable to the Company for the reporting period - Legal proceedings are not applicable for this reporting period[241](index=241&type=chunk) [Item 1.A. Risk Factors](index=60&type=section&id=Item%201.A.%20Risk%20Factors) Management believes there have been no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K - No material changes in risk factors have occurred since the Company's Form 10-K filing on March 10, 2023[241](index=241&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=61&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the Company's stock repurchase plan, indicating no shares were repurchased during Q1 2023, with 100,000 shares remaining - The Company approved a Stock Repurchase Plan in November 2022 for up to **100,000 shares**[242](index=242&type=chunk) - No shares were purchased under the plan during the three months ended March 31, 2023[243](index=243&type=chunk) - As of March 31, 2023, **100,000 shares** remained available for purchase under the plan[242](index=242&type=chunk)[243](index=243&type=chunk) [Item 3. Defaults Upon Senior Securities](index=61&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section states that there are no defaults upon senior securities applicable to the Company for the reporting period - Defaults upon senior securities are not applicable for this reporting period[242](index=242&type=chunk) [Item 4. Mine Safety Disclosures](index=61&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section indicates that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable for this reporting period[242](index=242&type=chunk) [Item 5. Other Information](index=61&type=section&id=Item%205.%20Other%20Information) This section states that there is no other information applicable to the Company for the reporting period - No other information is applicable for this reporting period[242](index=242&type=chunk) [Item 6. Exhibits](index=62&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including certifications of executive officers and Inline XBRL documents - Exhibits include certifications of Principal Executive Officer and Principal Financial Officer (31.1, 31.2, 32.1, 32.2)[244](index=244&type=chunk) - Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbase Documents) are also filed as exhibits[245](index=245&type=chunk) [Signatures](index=63&type=section&id=Signatures) The report is duly signed on behalf of Ames National Corporation by its Chief Executive Officer and President, John P. Nelson, and Chief Financial Officer, John L. Pierschbacher - The report is signed by John P. Nelson, Chief Executive Officer and President, and John L. Pierschbacher, Chief Financial Officer[248](index=248&type=chunk)

Stock Repurchase - The Company approved a Stock Repurchase Plan on November 14, 2022, allowing for the repurchase of up to 100,000 shares of common stock[153] - The Company purchased 100,000 shares in 2022 and 30,580 shares in 2021 under the Stock Repurchase Plans[153] Financial Performance - Net income for 2022 was $19,293,000, a decrease of 19.5% from $23,913,000 in 2021[292] - Basic and diluted earnings per share decreased to $2.14 in 2022 from $2.62 in 2021, a decline of 18.3%[290] - Other comprehensive loss before tax was $87,376,000 in 2022, significantly higher than $17,545,000 in 2021[292] - The Company reported a net cash provided by operating activities of $21,231,000 in 2022, down from $30,470,000 in 2021[297] - The Company reported cash payments for interest income taxes of $8,560,000 in 2022, compared to $4,969,000 in 2021, indicating a significant increase of 72%[299] - Total interest and dividend income increased to $61,553,000 in 2022, up 1.8% from $60,482,000 in 2021[290] - Net interest income after provision for loan losses was $54,118,000, down from $56,754,000 in 2021, reflecting a decrease of 4.6%[290] - Noninterest income decreased to $9,687,000 in 2022, down 8.1% from $10,537,000 in 2021[290] - Total noninterest expense rose to $38,644,000, an increase of 5.5% from $36,618,000 in 2021[290] - The provision for income taxes was $5,868,000 in 2022, compared to $6,760,000 in 2021, indicating a decrease of 13.2%[290] Assets and Liabilities - Total assets decreased slightly to $2,134,926 thousand in 2022 from $2,137,041 thousand in 2021[287] - Total liabilities decreased to $1,985,828 thousand in 2022 from $1,929,263 thousand in 2021[287] - Total deposits increased to $1,897,957 thousand in 2022 from $1,878,019 thousand in 2021[287] - Retained earnings increased to $179,931 thousand in 2022 from $170,377 thousand in 2021[287] - The Company reported a decline in securities available-for-sale to $786,438 thousand in 2022 from $831,003 thousand in 2021[287] Loan Losses and Provisions - The allowance for loan losses was $15.7 million as of December 31, 2022, consisting of $0.1 million in specific reserves and $15.6 million in general reserves[283] - The allowance for loan losses decreased to $15,697 thousand in 2022 from $16,621 thousand in 2021, indicating a reduction of about 5.5%[346] - The provision for loan losses was a credit of $874 thousand in 2022 compared to a credit of $757 thousand in 2021, showing an increase in recoveries[346] - The provision for loan losses in 2022 was $874,000,000, compared to $757,000,000 in 2021, indicating a rise of approximately 15.5%[347] Loans and Credit Quality - Total loans receivable increased to $1,226,011 thousand in 2022 from $1,144,108 thousand in 2021, representing a growth of approximately 7.2%[341] - The commercial real estate loan portfolio includes $539,053 thousand in 2022, up from $515,367 thousand in 2021, reflecting an increase of approximately 4.6%[341] - The company's real estate loans for 1 to 4 family residential properties rose to $285,045 thousand in 2022 from $246,745 thousand in 2021, a growth of about 15.5%[341] - The company's agricultural real estate loans increased to $159,419 thousand in 2022 from $153,457 thousand in 2021, marking a growth of approximately 3.9%[341] - The commercial loan portfolio includes $77,140 thousand in 2022, slightly up from $75,482 thousand in 2021, reflecting a modest increase of about 2.2%[341] - The total performing loans for 2022 amounted to $301,215 thousand, up from $261,842 thousand in 2021, representing an increase of around 15%[357] - Non-performing loans decreased to $826 thousand in 2022 from $1,177 thousand in 2021, indicating a reduction of approximately 29.8%[357] - The company tracks credit quality indicators, including trends in risk ratings, classified loans, net charge-offs, and nonperforming loans[351] Capital and Reserves - The Company has total deferred tax assets of $25.129 million as of December 31, 2022, compared to $5.677 million in 2021[401] - The Company has established liabilities of approximately $798 thousand for estimated credit losses related to off-balance-sheet commitments as of December 31, 2022[406] - The consolidated total capital to risk-weighted assets was $215,799 million, with a ratio of 14.1%[411] - The Tier 1 capital to risk-weighted assets for the consolidated entity was $199,069 million, representing a ratio of 13.0%[411] - The common equity tier 1 capital to risk-weighted assets was $199,069 million, with a ratio of 13.0%[411] Securities and Investments - The amortized cost of debt securities available-for-sale as of December 31, 2022, was $869.996 million, with an estimated fair value of $786.438 million, reflecting unrealized losses of $83.600 million[334] - Proceeds from sales of securities available-for-sale in 2022 amounted to $10.548 million, a significant increase from $622 thousand in 2021[337] - The total gross unrealized losses on securities available for sale amounted to $83,600 million in 2022, compared to $52,117 million in 2021, indicating a significant increase in unrealized losses[339] - The fair value of U.S. government mortgage-backed securities was $116,741,000 in 2022, down from $149,601,000 in 2021[421] Miscellaneous - The Company has no equity compensation plans for directors, executives, or employees[152] - The Company disclaims any responsibility to update forward-looking statements provided in the document[276] - The Company has determined that its business comprises one operating segment: banking, which generates revenues through various lending and wealth management services[301] - The Company completed a quantitative assessment of goodwill as of October 1, 2022, indicating no impairment, with further evaluations necessary if circumstances change[317] - The Company does not use derivatives for trading or speculative purposes, focusing instead on hedging relationships[324]

PART I. FINANCIAL INFORMATION [Consolidated Financial Statements (Unaudited)](index=3&type=section&id=Consolidated%20Financial%20Statements%20%28Unaudited%29) This section presents Ames National Corporation's unaudited consolidated financial statements for the three and six-month periods ended June 30, 2022, with comparative prior period data [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) As of June 30, 2022, total assets slightly decreased to $2.131 billion from $2.137 billion at December 31, 2021, primarily due to a significant reduction in accumulated other comprehensive income, while total deposits increased Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 (unaudited) | December 31, 2021 (audited) | | :--- | :--- | :--- | | **Total Assets** | **$2,130,973** | **$2,137,041** | | Total cash and cash equivalents | $74,678 | $89,129 | | Securities available-for-sale | $828,389 | $831,003 | | Loans receivable, net | $1,140,609 | $1,144,108 | | **Total Liabilities** | **$1,973,622** | **$1,929,263** | | Total deposits | $1,926,140 | $1,878,019 | | **Total Stockholders' Equity** | **$157,351** | **$207,778** | | Accumulated other comprehensive income (loss) | $(49,718) | $2,864 | [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) Net income for Q2 2022 decreased to $4.2 million ($0.46 per share) from $5.9 million ($0.64 per share) in Q2 2021, primarily due to lower interest income from reduced PPP loan fees and higher income tax expense Income Statement Summary (in thousands, except per share data) | Metric | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $13,636 | $14,172 | $26,788 | $27,836 | | Provision (credit) for loan losses | $(59) | $(20) | $(186) | $(446) | | Noninterest Income | $2,379 | $2,636 | $4,932 | $5,142 | | Noninterest Expense | $9,851 | $9,414 | $19,230 | $18,420 | | **Net Income** | **$4,193** | **$5,879** | **$9,338** | **$11,902** | | **Basic and diluted EPS** | **$0.46** | **$0.64** | **$1.03** | **$1.30** | | Dividends declared per share | $0.27 | $0.26 | $0.54 | $0.51 | [Consolidated Statements of Comprehensive Income (Loss)](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Loss%29) The company reported a comprehensive loss of $14.6 million for Q2 2022 and $43.2 million for the first six months of 2022, driven by significant unrealized losses on available-for-sale securities due to rising interest rates Comprehensive Income (Loss) (in thousands) | Metric | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $4,193 | $5,879 | $9,338 | $11,902 | | Other comprehensive income (loss), net of tax | $(18,779) | $2,262 | $(52,582) | $(6,614) | | **Comprehensive income (loss)** | **$(14,586)** | **$8,141** | **$(43,244)** | **$5,288** | [Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Equity) Total stockholders' equity decreased from $207.8 million at year-end 2021 to $157.4 million at June 30, 2022, primarily due to a $52.6 million other comprehensive loss from unrealized securities losses - Key changes in stockholders' equity for the six months ended June 30, 2022 include: net income of **$9.3 million**, other comprehensive loss of **$52.6 million**, cash dividends of **$4.9 million**, and stock repurchases of **$2.3 million**[19](index=19&type=chunk) - The company repurchased and retired **100,000 shares** of common stock for **$2.3 million** during the second quarter of 2022[18](index=18&type=chunk)[19](index=19&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2022, net cash provided by operating activities was $11.3 million, net cash used in investing activities was $63.5 million, and net cash provided by financing activities was $37.8 million, resulting in a net decrease in cash of $14.5 million Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $11,260 | $17,397 | | Net cash (used in) investing activities | $(63,528) | $(146,855) | | Net cash provided by financing activities | $37,817 | $106,360 | | **Net decrease in cash and cash equivalents** | **$(14,451)** | **$(23,098)** | | Cash and cash equivalents, beginning | $89,129 | $173,097 | | Cash and cash equivalents, ending | $74,678 | $149,999 | [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed disclosures supporting the consolidated financial statements, covering accounting policies, debt securities, loan portfolios, credit quality, regulatory capital, and commitments [Note 1: Significant Accounting Policies](index=10&type=section&id=Note%201%3A%20Significant%20Accounting%20Policies) The financial statements adhere to SEC rules and GAAP, with goodwill tested annually for impairment, and the company is preparing for the adoption of ASU No. 2016-13 (CECL) in December 2022 - The company will adopt ASU No. 2016-13 (CECL) for interim and annual periods beginning after December 15, 2022, with the impact on financial statements currently unknown[30](index=30&type=chunk) - A quantitative assessment of goodwill as of October 1, 2021, indicated no impairment, and no adverse changes were noted as of June 30, 2022[29](index=29&type=chunk) [Note 6: Debt Securities](index=16&type=section&id=Note%206%3A%20Debt%20Securities) As of June 30, 2022, the company held $828.4 million in available-for-sale debt securities with gross unrealized losses of $66.2 million, which management considers temporary due to rising interest rates Debt Securities Available-for-Sale (in thousands) | Category | Amortized Cost (June 30, 2022) | Estimated Fair Value (June 30, 2022) | Gross Unrealized Losses (June 30, 2022) | | :--- | :--- | :--- | :--- | | U.S. government treasuries | $224,177 | $208,130 | $(16,048) | | U.S. government agencies | $116,945 | $110,149 | $(6,809) | | U.S. government mortgage-backed | $144,619 | $130,907 | $(13,728) | | State and political subdivisions | $322,916 | $298,733 | $(24,303) | | Corporate bonds | $85,768 | $80,470 | $(5,322) | | **Total** | **$894,425** | **$828,389** | **$(66,210)** | - Securities with a carrying value of **$216.3 million** were pledged on public deposits and for other purposes as of June 30, 2022[55](index=55&type=chunk) [Note 7: Loans Receivable and Credit Disclosures](index=18&type=section&id=Note%207%3A%20Loans%20Receivable%20and%20Credit%20Disclosures) The net loan portfolio remained stable at $1.14 billion, with a slight decrease in the allowance for loan losses and an improvement in impaired and nonaccrual loans, indicating stable credit quality Loan Portfolio Composition (in thousands) | Loan Type | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Real estate - commercial | $515,250 | $515,367 | | Real estate - 1 to 4 family | $261,690 | $246,745 | | Real estate - agricultural | $158,897 | $153,457 | | Agricultural | $91,929 | $111,881 | | Commercial | $72,065 | $75,482 | | **Total Loans** | **$1,156,678** | **$1,160,667** | - The allowance for loan losses was **$16.42 million** as of June 30, 2022, compared to **$16.62 million** as of December 31, 2021[61](index=61&type=chunk)[66](index=66&type=chunk) - Total impaired loans decreased from **$12.3 million** at year-end 2021 to **$11.2 million** at June 30, 2022, while nonaccrual loans also decreased from **$12.3 million** to **$11.5 million**[74](index=74&type=chunk)[78](index=78&type=chunk) [Note 12: Income Taxes](index=31&type=section&id=Note%2012%3A%20Income%20Taxes) A change in Iowa state law reducing the bank franchise tax rate resulted in a one-time, non-recurring increase in income tax expense of $780,000 for the three and six months ended June 30, 2022 - A newly enacted reduction in the Iowa bank franchise tax rate caused a non-recurring increase in income tax expense of **$780,000** in Q2 2022 due to the revaluation of deferred tax assets[102](index=102&type=chunk) [Note 14: Regulatory Matters](index=31&type=section&id=Note%2014%3A%20Regulatory%20Matters) As of June 30, 2022, the Company and its subsidiary banks met all regulatory capital requirements and were classified as well-capitalized, with consolidated Tier 1 capital to risk-weighted assets ratio at 13.5% Consolidated Capital Ratios (as of June 30, 2022) | Capital Ratio | Actual Ratio | Minimum for Adequacy | | :--- | :--- | :--- | | Total capital (to risk-weighted assets) | 14.7% | 10.50% | | Tier 1 capital (to risk-weighted assets) | 13.5% | 8.50% | | Common equity tier 1 capital | 13.5% | 7.00% | | Tier 1 capital (to average assets) | 8.7% | 4.00% | - The Company and its subsidiary banks were considered **well-capitalized** under the regulatory framework for prompt corrective action as of June 30, 2022[104](index=104&type=chunk)[107](index=107&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=35&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial performance, highlighting a decrease in Q2 2022 net income due to lower PPP loan fees and a one-time tax expense, a reduction in stockholders' equity from unrealized securities losses, and stable asset quality [Income Statement Review](index=41&type=section&id=Income%20Statement%20Review) For the six months ended June 30, 2022, net interest income decreased due to reduced PPP loan fees, noninterest income slightly fell, noninterest expense increased from technology investments, and income tax expense rose due to a one-time adjustment - Net interest margin (FTE) decreased to **2.57%** in Q2 2022 from **2.84%** in Q2 2021[149](index=149&type=chunk) - Interest income for Q2 2022 declined, primarily because PPP loan fees recognized were only **$15 thousand**, compared to **$1.4 million** in Q2 2021[117](index=117&type=chunk)[151](index=151&type=chunk) - The effective tax rate for Q2 2022 was **33%**, up from **21%** in Q2 2021, due to a **$780,000** adjustment for a reduction in future Iowa bank franchise tax rates[154](index=154&type=chunk) [Balance Sheet Review](index=47&type=section&id=Balance%20Sheet%20Review) Total assets decreased by $6.1 million to $2.13 billion at June 30, 2022, with the investment portfolio holding $66.2 million in temporary unrealized losses, while the loan portfolio remained stable and total deposits grew - The investment portfolio had gross unrealized losses of **$66.2 million** as of June 30, 2022, which are considered temporary and caused by the rising interest rate environment[171](index=171&type=chunk) - The largest exposure to any single municipality is **$6.0 million** in Storm Lake, Iowa general obligation bonds[172](index=172&type=chunk) - Total deposits increased by **$48.1 million** since December 31, 2021, reaching **$1.93 billion**[179](index=179&type=chunk) [Asset Quality Review and Credit Risk Management](index=49&type=section&id=Asset%20Quality%20Review%20and%20Credit%20Risk%20Management) Asset quality remained stable, with problem loans as a percentage of total loans improving to 1.00% at June 30, 2022, impaired loans decreasing, and the allowance for loan losses at 1.42% of outstanding loans - The level of problem loans as a percentage of total loans was **1.00%** at June 30, 2022, down from **1.11%** at December 31, 2021[180](index=180&type=chunk) - Impaired loans decreased to **$11.2 million** from **$12.3 million** at year-end 2021, primarily due to payments on nonaccrual loans[181](index=181&type=chunk) - The allowance for loan losses as a percentage of outstanding loans was **1.42%** as of June 30, 2022[186](index=186&type=chunk) [Liquidity and Capital Resources](index=51&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity and capital are satisfactory, supported by core deposits and available FHLB advances and federal funds lines, despite a $50.4 million decrease in stockholders' equity due to unrealized investment losses, which do not impact regulatory capital - As of June 30, 2022, available liquidity sources included **$302.1 million** in FHLB borrowing capacity and **$98.5 million** in federal funds lines, with no outstanding balances on either[191](index=191&type=chunk) - Total stockholders' equity decreased by **$50.4 million** since Dec 31, 2021, to **$157.4 million**, primarily due to an increase in unrealized losses on the investment portfolio[199](index=199&type=chunk) - The parent company's liquidity is dependent on dividends from its subsidiary banks, which amounted to **$5.1 million** for the first six months of 2022[196](index=196&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=54&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate risk, with management's mitigation strategies remaining consistent from 2021, though high inflation or governmental actions could cause market interest rates to deviate from historical norms - The Company's main market risk is interest rate risk, and management's approach to managing this risk has not significantly changed from 2021[202](index=202&type=chunk) [Controls and Procedures](index=54&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting during the last fiscal quarter - Management concluded that the Company's disclosure controls and procedures are **effective** as of June 30, 2022[203](index=203&type=chunk) - No changes in internal control over financial reporting occurred during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, these controls[204](index=204&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=54&type=section&id=Item%201.%20Legal%20Proceedings) Not applicable - There are no legal proceedings to report[204](index=204&type=chunk) [Risk Factors](index=54&type=section&id=Item%201.A.%20Risk%20Factors) Management does not believe there have been any material changes in the risk factors previously disclosed in the Company's Form 10-K filed on March 11, 2022 - No material changes in risk factors from the Annual Report on Form 10-K filed on March 11, 2022[204](index=204&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=55&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company completed its November 2021 stock repurchase plan during Q2 2022, repurchasing all 100,000 authorized shares by June 30, 2022 Common Stock Repurchases (Q2 2022) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 1-30, 2022 | - | $- | | May 1-31, 2022 | 43,247 | $23.16 | | June 1-30, 2022 | 56,753 | $22.88 | | **Total** | **100,000** | | - The stock repurchase plan approved in November 2021 for up to **100,000 shares** was completed as of June 30, 2022[206](index=206&type=chunk) [Exhibits](index=56&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the report, including CEO and CFO certifications and Inline XBRL data files - Exhibits filed include CEO and CFO certifications (**31.1, 31.2, 32.1, 32.2**) and Inline XBRL documents (**101, 104**)[210](index=210&type=chunk)[211](index=211&type=chunk)[212](index=212&type=chunk)

Financial Performance - Net income for 2021 was $23,913,000, an increase of 27.3% from $18,850,000 in 2020[304]. - Basic and diluted earnings per share rose to $2.62 in 2021, up from $2.06 in 2020, representing a growth of 27.2%[304]. - Comprehensive income for 2021 was $10,754,000, significantly lower than $30,758,000 in 2020, a decline of 65.0%[306]. - The provision for income taxes increased to $6,760,000 in 2021 from $4,381,000 in 2020, an increase of 54.1%[306]. - Net income for the year ended December 31, 2021, was $23.913 million, an increase of 27.3% from $18.850 million in 2020[343]. - Operating income after provision for loan losses rose to $27,686 million in 2021, compared to $22,133 million in 2020, marking a 25.1% increase[445]. Assets and Liabilities - Total assets increased to $2,137,041 thousand in 2021 from $1,975,648 thousand in 2020, representing an increase of approximately 8.2%[301]. - Total liabilities increased significantly to $3,110 million in 2021 from $499 million in 2020, indicating a substantial rise[443]. - The ending cash and cash equivalents decreased to $89,129,000 in 2021 from $173,097,000 in 2020, a decline of 48.5%[311]. - Total stockholders' equity decreased slightly to $207,778 thousand in 2021 from $209,487 thousand in 2020[301]. Deposits and Equity - Total deposits rose to $1,878,019 thousand in 2021, up from $1,716,446 thousand in 2020, reflecting a growth of about 9.4%[301]. - The Company reported retained earnings of $170,377 thousand as of December 31, 2021, compared to $158,217 thousand in 2020, indicating an increase of approximately 7.3%[301]. - The total pledged collateral related to securities sold under repurchase agreements was $54.1 million as of December 31, 2021[401]. Loan Performance - Total loans receivable, net increased to $1,144,108 million in 2021 from $1,129,505 million in 2020, representing a growth of approximately 1.3%[353]. - The allowance for loan losses decreased to $16,621 million in 2021 from $17,215 million in 2020, a reduction of about 3.5%[360]. - The total amount of non-performing loans was $1,177 million in 2021, a decrease from $1,325 million in 2020, reflecting a decline of about 11.2%[372]. - The ending balance for collectively evaluated loans for impairment in the commercial real estate category was $505,575 million in 2021, compared to $486,099 million in 2020, reflecting an increase of approximately 4%[364]. Stock Repurchase and Dividends - The Company repurchased 30,580 shares of common stock in 2021 under the Stock Repurchase Plan, which allowed for the repurchase of up to 100,000 shares[161]. - The Board of Directors has the discretion to declare future cash dividends based on earnings and financial condition[160]. - Dividends paid in 2021 amounted to $9,389 million, compared to $9,072 million in 2020, showing an increase of 3.5%[447]. Interest Income and Expense - Total interest and dividend income decreased to $60,482,000 in 2021 from $62,941,000 in 2020, a decline of 3.9%[304]. - Interest payments decreased from $8,799 thousand in 2020 to $5,063 thousand in 2021, representing a reduction of approximately 42.5%[313]. - Interest expense on deposits decreased from $7.8 million in 2020 to $4.3 million in 2021[399]. Credit Quality and Risk Management - The company maintains an internal audit department that periodically reviews and validates the credit risk program[359]. - The company plans to continue monitoring credit quality indicators closely, including trends in risk ratings and economic conditions in its market areas, to ensure proactive management of its loan portfolio[365]. - The credit quality indicators show that the total amount of classified loans was $132,772 million in 2021, compared to $163,297 million in 2020, indicating a significant reduction of approximately 18.6%[365]. Fair Value Measurements - Total assets at fair value on a recurring basis increased to $831,003 million in 2021 from $596,999 million in 2020, representing a growth of approximately 39.2%[432]. - The estimated fair value of loans receivable, net, was $1,112,684 million in 2021, down from $1,116,352 million in 2020, reflecting a slight decrease of about 0.3%[439]. - The fair value of securities available-for-sale rose to $831,003 million in 2021, up from $596,999 million in 2020, reflecting an increase of about 39.2%[439].

PART I. FINANCIAL INFORMATION [Item 1. Consolidated Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Consolidated%20Financial%20Statements%20(Unaudited)) Unaudited statements show total assets grew to $2.10 billion, driven by deposit growth and higher net income [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | **Total Assets** | **$2,096,396** | **$1,975,648** | | Cash and equivalents | $148,393 | $191,523 | | Securities available-for-sale | $765,423 | $596,999 | | Loans receivable, net | $1,126,059 | $1,129,505 | | Goodwill | $12,424 | $12,424 | | **Total Liabilities** | **$1,886,016** | **$1,766,161** | | Total deposits | $1,836,708 | $1,716,446 | | **Total Stockholders' Equity** | **$210,380** | **$209,487** | - Total assets grew by **$120.7 million**, or 6.1%, from December 31, 2020 to September 30, 2021, primarily driven by a **$120.3 million increase in total deposits**[5](index=5&type=chunk) [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) Consolidated Income Statement Highlights (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net interest income | $14,652 | $14,160 | $42,488 | $40,886 | | Provision (credit) for loan losses | ($94) | $541 | ($540) | $4,424 | | **Net income** | **$6,714** | **$5,672** | **$18,616** | **$13,654** | | **Basic and diluted EPS** | **$0.74** | **$0.62** | **$2.04** | **$1.49** | | Dividends declared per share | $0.52 | $0.25 | $1.03 | $0.50 | - The significant increase in net income was heavily influenced by a **reversal of loan loss provisions in 2021** compared to substantial provisions in 2020[9](index=9&type=chunk) [Consolidated Statements of Comprehensive Income](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Comprehensive Income (in thousands) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net income | $6,714 | $5,672 | $18,616 | $13,654 | | Other comprehensive income (loss), net of tax | ($1,148) | $1,496 | ($7,762) | $11,374 | | **Comprehensive income** | **$5,566** | **$7,168** | **$10,854** | **$25,028** | - Comprehensive income for the first nine months of 2021 was significantly lower than net income due to a **$7.76 million after-tax unrealized loss on securities**[13](index=13&type=chunk) [Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) - For the nine months ended September 30, 2021, stockholders' equity increased slightly to **$210.4 million**, as net income was largely offset by dividends and unrealized losses[18](index=18&type=chunk) - The company repurchased and retired **24,603 shares** of its common stock for **$571 thousand** during the first nine months of 2021[17](index=17&type=chunk)[18](index=18&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Consolidated Cash Flows Highlights (in thousands) | Activity | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $23,738 | $21,322 | | Net cash (used in) investing activities | ($134,692) | ($178,202) | | Net cash provided by financing activities | $111,742 | $145,013 | | **Net increase (decrease) in cash** | **$788** | **($11,867)** | - Cash from financing activities decreased primarily due to a **smaller increase in deposits in 2021 ($120.4M)** compared to 2020 ($167.3M)[21](index=21&type=chunk) - Cash used in investing activities decreased, mainly because the **net increase in loans was significantly lower in 2021** compared to 2020[21](index=21&type=chunk) [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) - The company has delayed the adoption of the new credit loss standard (CECL) until **interim and annual periods beginning after December 15, 2022**[29](index=29&type=chunk) - Management concluded there was **no goodwill impairment** as of September 30, 2021[28](index=28&type=chunk) - As of September 30, 2021, **substantially all COVID-19 related loan modifications have returned to normal payment status**[88](index=88&type=chunk) Regulatory Capital Ratios (Consolidated) as of September 30, 2021 | Ratio | Actual | For Capital Adequacy | To Be Well Capitalized | | :--- | :--- | :--- | :--- | | Total capital (to risk- weighted assets) | 15.3% | 10.50% | N/A | | Tier 1 capital (to risk- weighted assets) | 14.0% | 8.50% | N/A | | Tier 1 capital (to average- assets) | 9.2% | 4.00% | N/A | | Common equity tier 1 capital | 14.0% | 7.00% | N/A | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Strong Q3 2021 performance was driven by lower interest expense and a credit for loan losses, though the net interest margin compressed [Overview and Performance](index=32&type=section&id=Overview%20and%20Performance) - Net income for Q3 2021 was **$6.7 million ($0.74 per share)**, up from $5.7 million ($0.62 per share) in Q3 2020[118](index=118&type=chunk) - The earnings increase was primarily driven by **lower interest expense and a reversal of the provision for loan losses**[118](index=118&type=chunk) [Challenges and COVID-19 Status, Risks and Uncertainties](index=33&type=section&id=Challenges%20and%20COVID-19%20Status%2C%20Risks%20and%20Uncertainties) - Management identifies ongoing risks from the COVID-19 pandemic and **prolonged low market interest rates**[122](index=122&type=chunk) - As of September 30, 2021, the company held 227 Paycheck Protection Program (PPP) loans with an outstanding balance of **$14.8 million**[122](index=122&type=chunk) - Substantially all **COVID-19 related loan modifications have returned to normal payment status** as of September 30, 2021[123](index=123&type=chunk) [Key Performance Indicators](index=34&type=section&id=Key%20Performance%20Indicators) Selected Performance Indicators (Q3 2021 vs Q3 2020) | Indicator | Q3 2021 | Q3 2020 | | :--- | :--- | :--- | | Return on assets (annualized) | 1.29% | 1.21% | | Return on equity (annualized) | 12.60% | 11.18% | | Net interest margin | 2.97% | 3.21% | | Efficiency ratio | 51.35% | 54.80% | [Income Statement Review](index=41&type=section&id=Income%20Statement%20Review) - For Q3 2021, net interest income increased to **$14.7 million** as a **42% decline in interest expense** more than offset lower interest income[161](index=161&type=chunk)[163](index=163&type=chunk) - A **credit for loan losses of ($94) thousand** was recorded in Q3 2021, compared to a provision of $541 thousand in Q3 2020[164](index=164&type=chunk) - Q3 2021 noninterest income decreased 4% to **$2.7 million**, primarily due to a slowdown in gains on sale of residential loans[164](index=164&type=chunk) - Q3 2021 noninterest expense decreased 4% to **$8.9 million**, mainly from lower salaries and benefits[165](index=165&type=chunk) [Balance Sheet Review](index=47&type=section&id=Balance%20Sheet%20Review) - Total assets increased by **$120.7 million** since year-end 2020 to **$2.1 billion**, funded by deposit growth from government stimulus[181](index=181&type=chunk) - The investment portfolio grew by **$168.4 million to $765.4 million** since year-end, as deposit growth outpaced loan growth[181](index=181&type=chunk) - The loan portfolio decreased slightly to **$1.126 billion**, primarily due to a reduction in PPP loans to **$14.8 million**[190](index=190&type=chunk) - Deposits increased to **$1.84 billion** from $1.72 billion at year-end 2020, with growth across all categories except CDs[191](index=191&type=chunk) [Asset Quality Review and Credit Risk Management](index=50&type=section&id=Asset%20Quality%20Review%20and%20Credit%20Risk%20Management) - The ratio of problem loans to total loans improved, decreasing to **1.11%** at September 30, 2021, from 1.33% at year-end 2020[195](index=195&type=chunk) - Impaired loans decreased by **$2.8 million to $12.5 million** as of September 30, 2021, due to payoffs of nonaccrual loans[196](index=196&type=chunk) - The allowance for loan losses as a percentage of outstanding loans was **1.47%** as of September 30, 2021[203](index=203&type=chunk) - Troubled Debt Restructurings (TDRs) totaled **$10.6 million** as of September 30, 2021, down from $11.3 million at year-end 2020[196](index=196&type=chunk) [Liquidity and Capital Resources](index=52&type=section&id=Liquidity%20and%20Capital%20Resources) - Management believes the company's **liquidity and capital resources remain at a satisfactory level** to support operations[207](index=207&type=chunk) - Primary liquidity sources include core deposit growth, loan payments, and access to **$306.6 million in FHLB advances**[207](index=207&type=chunk)[208](index=208&type=chunk) - Stockholders' equity increased by **$893 thousand** since year-end 2020 to **$210.4 million**[215](index=215&type=chunk) - The company's capital levels **exceed all applicable regulatory guidelines** as of September 30, 2021[215](index=215&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=54&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate risk, with no significant change in exposure from 2020 to 2021 - The Company's main market risk is **interest rate risk** from its lending and deposit-taking activities[217](index=217&type=chunk) - Management does not believe the primary market risk exposure or its management has **changed significantly in 2021** compared to 2020[217](index=217&type=chunk) [Item 4. Controls and Procedures](index=55&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures are effective with no material changes in the last quarter - Management, including the CEO and CFO, concluded that the Company's **disclosure controls and procedures were effective**[218](index=218&type=chunk) - **No material changes** in internal control over financial reporting occurred during the last fiscal quarter[219](index=219&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=55&type=section&id=Item%201.%20Legal%20Proceedings) The company reports that there are no applicable legal proceedings to disclose for the period - Not applicable[219](index=219&type=chunk) [Item 1.A. Risk Factors](index=55&type=section&id=Item%201.A.%20Risk%20Factors) There have been no material changes in risk factors from those disclosed in the company's Annual Report on Form 10-K - Management does not believe there have been any **material changes in the risk factors** disclosed in the Company's Form 10-K[219](index=219&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=56&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased 24,603 shares in Q3 2021 under its 100,000-share repurchase plan approved in April 2021 - In April 2021, the Company approved a Stock Repurchase Plan for up to **100,000 shares** of its common stock[221](index=221&type=chunk) Share Repurchases in Q3 2021 | Period | Total Shares Purchased | Average Price Paid Per Share | Shares Remaining Under Plan | | :--- | :--- | :--- | :--- | | July 2021 | 0 | $ - | 100,000 | | August 2021 | 0 | $ - | 100,000 | | September 2021 | 24,603 | $23.19 | 75,397 | | **Total** | **24,603** | | **75,397** | [Item 3. Defaults Upon Senior Securities](index=56&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reports that there are no applicable defaults upon senior securities to disclose for the period - Not applicable[222](index=222&type=chunk) [Item 4. Mine Safety Disclosures](index=56&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) The company reports that there are no applicable mine safety disclosures - Not applicable[223](index=223&type=chunk) [Item 5. Other Information](index=56&type=section&id=Item%205.%20Other%20Information) The company reports that there is no other information to disclose for the period - Not applicable[223](index=223&type=chunk) [Item 6. Exhibits](index=57&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the report, including Sarbanes-Oxley certifications and Inline XBRL data files - Exhibits filed include **CEO and CFO certifications** pursuant to Section 302 of the Sarbanes-Oxley Act and U.S.C. Section 1350[225](index=225&type=chunk) - The filing includes **Inline XBRL** Instance, Schema, Calculation, Definition, Label, and Presentation documents[225](index=225&type=chunk)

PART I. FINANCIAL INFORMATION [Consolidated Financial Statements (Unaudited)](index=3&type=section&id=Consolidated%20Financial%20Statements%20(Unaudited)) Ames National Corporation's unaudited consolidated financial statements show asset growth to $2.09 billion and increased net income for Q2 2021, driven by deposit increases and a credit for loan losses [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Total assets grew to **$2.09 billion** by June 30, 2021, primarily due to increased securities available-for-sale and deposits, while loans slightly decreased Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2021 (unaudited) | December 31, 2020 (audited) | | :--- | :--- | :--- | | **Total Assets** | **$2,085,460** | **$1,975,648** | | Cash and equivalents | $166,172 | $191,523 | | Securities available-for-sale | $740,102 | $596,999 | | Loans receivable, net | $1,124,435 | $1,129,505 | | **Total Liabilities** | **$1,875,338** | **$1,766,161** | | Total deposits | $1,831,399 | $1,716,446 | | **Total Stockholders' Equity** | **$210,122** | **$209,487** | [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) Net income significantly increased to **$5.9 million** for Q2 2021 and **$11.9 million** for the six-month period, driven by a credit for loan losses and reduced interest expense Key Performance Metrics (in thousands, except per share data) | Metric | Q2 2021 | Q2 2020 | Six Months 2021 | Six Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $14,172 | $13,680 | $27,836 | $26,726 | | Provision (credit) for loan losses | $(20) | $1,567 | $(446) | $3,883 | | **Net Income** | **$5,879** | **$4,427** | **$11,902** | **$7,982** | | **Basic and diluted EPS** | **$0.64** | **$0.49** | **$1.30** | **$0.87** | | Dividends declared per share | $0.26 | - | $0.51 | $0.25 | [Consolidated Statements of Comprehensive Income](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Comprehensive income decreased to **$8.1 million** for Q2 2021 and **$5.3 million** for the six-month period, primarily due to changes in unrealized gains/losses on securities Comprehensive Income (in thousands) | Metric | Q2 2021 | Q2 2020 | Six Months 2021 | Six Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $5,879 | $4,427 | $11,902 | $7,982 | | Other comprehensive income (loss), net of tax | $2,262 | $9,515 | $(6,614) | $9,878 | | **Comprehensive Income** | **$8,141** | **$13,942** | **$5,288** | **$17,860** | [Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) Total stockholders' equity increased to **$210.1 million** by June 30, 2021, driven by net income but partially offset by dividends and unrealized losses on securities Reconciliation of Stockholders' Equity - Six Months Ended June 30, 2021 (in thousands) | Description | Amount | | :--- | :--- | | Balance, December 31, 2020 | $209,487 | | Net income | $11,902 | | Other comprehensive (loss) | $(6,614) | | Cash dividends declared ($0.51 per share) | $(4,653) | | **Balance, June 30, 2021** | **$210,122** | [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities was **$17.4 million** for the first half of 2021, with investing activities using **$123.7 million** and financing providing **$106.4 million** Cash Flow Summary - Six Months Ended June 30 (in thousands) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $17,432 | $17,925 | | Net cash (used in) investing activities | $(123,721) | $(156,984) | | Net cash provided by financing activities | $106,360 | $136,970 | | **Net increase (decrease) in cash** | **$71** | **$(2,089)** | [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies, fair value, loan and securities composition, credit quality, and regulatory capital, including CECL adoption and CBLR compliance - The Company is preparing for the adoption of **ASU No. 2016-13 (CECL)**, which will become effective for interim and annual periods beginning after **December 15, 2022**[29](index=29&type=chunk) - As of June 30, 2021, the Company had four COVID-19 related loan modifications still in the modification period with a total outstanding principal balance of **$15.3 million**, down significantly from **$45.9 million** at year-end 2020[84](index=84&type=chunk) - Two subsidiary banks, State Bank & Trust and First National Bank, had **Community Bank Leverage Ratios (CBLR)** below the **8.5%** requirement as of June 30, 2021, and are in a grace period to return to compliance[101](index=101&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q2 and H1 2021 financial results, highlighting increased net income, asset growth to **$2.1 billion**, improved asset quality, and the impact of COVID-19 [Overview](index=32&type=section&id=Overview) Net income for Q2 2021 increased to **$5.9 million**, primarily due to a lower provision for loan losses and reduced interest expense Q2 2021 vs Q2 2020 Performance | Metric | Q2 2021 | Q2 2020 | | :--- | :--- | :--- | | Net Income | $5.9 million | $4.4 million | | EPS | $0.64 | $0.49 | - The primary drivers for the earnings increase were a **lower provision for loan losses** and a **reduction in interest expense**[114](index=114&type=chunk) [Challenges and COVID-19 Status, Risks and Uncertainties](index=33&type=section&id=Challenges%20and%20COVID-19%20Status,%20Risks%20and%20Uncertainties) The company faces COVID-19 related risks including potential loan payment defaults and impacts from low interest rates, with **$15.3 million** in loans still in deferral - Management is concerned that some customers may continue to experience decreased revenues, potentially leading to **higher loan losses and charge-offs**[118](index=118&type=chunk) - As of June 30, 2021, the company held **897 PPP loans** with an outstanding balance of **$37.6 million**[118](index=118&type=chunk) - Approximately **$15.3 million**, or **1.34% of loans**, were in payment deferral status under COVID-19 related modifications as of June 30, 2021[118](index=118&type=chunk) [Income Statement Review](index=41&type=section&id=Income%20Statement%20Review) Net interest income increased to **$27.8 million** for H1 2021, driven by a **48% decline in interest expense** and a **$446 thousand credit for loan losses** Net Interest Margin (FTE, non-GAAP) | Period | Q2 2021 | Q2 2020 | Six Months 2021 | Six Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Margin | 2.84% | 3.10% | 2.85% | 3.14% | - Interest expense for the first six months of 2021 declined by **$2.3 million (48%)** compared to 2020, primarily due to lower market interest rates[173](index=173&type=chunk) - A **($446 thousand) credit for loan losses** was recognized for the first half of 2021, compared to a **$3.9 million provision** in H1 2020, attributed to loan recoveries, a reduction in a specific reserve, and improving economic conditions[174](index=174&type=chunk) [Balance Sheet Review](index=47&type=section&id=Balance%20Sheet%20Review) Total assets grew by **$109.8 million** to **$2.1 billion**, driven by deposit growth and a **$143.1 million** increase in the investment portfolio, while the loan portfolio slightly decreased - The investment portfolio grew by **$143.1 million** to **$740.1 million**, with purchases of treasuries, mortgage-backed securities, and municipals[178](index=178&type=chunk) - The loan portfolio decreased slightly, with PPP loans declining to **$37.6 million** from **$50.9 million** at year-end; the company has **$2.3 million** in unrecognized net PPP loan fees expected to be recognized as loans are forgiven[187](index=187&type=chunk) - Deposits increased by **$115 million** to **$1.83 billion**, driven by government stimulus programs and normal customer activity[188](index=188&type=chunk) [Asset Quality Review and Credit Risk Management](index=50&type=section&id=Asset%20Quality%20Review%20and%20Credit%20Risk%20Management) Asset quality improved in H1 2021, with problem loans decreasing to **1.11%** and impaired loans falling to **$12.7 million** due to payoffs Asset Quality Indicators | Metric | June 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Problem Loans (% of total loans) | 1.11% | 1.33% | | Impaired Loans | $12.7 million | $15.3 million | | Troubled Debt Restructurings (TDRs) | $10.8 million | $11.3 million | | Allowance for Loan Losses (% of loans) | 1.48% | 1.50% | - The decrease in problem loans is primarily attributed to **payoffs of nonaccrual loans**[191](index=191&type=chunk) [Liquidity and Capital Resources](index=52&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with **$166.2 million** in liquid assets and **$244.0 million** in FHLB lines, and capital levels exceed regulatory guidelines - Liquid assets (cash and equivalents) totaled **$166.2 million** as of June 30, 2021[203](index=203&type=chunk) - The company has access to **$244.0 million** in FHLB lines of credit and a **$4 million** line with an unaffiliated bank[204](index=204&type=chunk) - Stockholders' equity as a percentage of total assets was **10.1%** at June 30, 2021, and capital levels exceed regulatory guidelines[212](index=212&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=54&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate risk, which management believes has not significantly changed from 2020, despite COVID-19 related uncertainties - The company's main market risk is **interest rate risk** from lending and deposit-taking activities[214](index=214&type=chunk) - Management does not believe the primary market risk exposure has **not changed significantly** in 2021 compared to 2020[214](index=214&type=chunk) [Controls and Procedures](index=55&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures are effective, with no material changes to internal control over financial reporting during the last quarter - Management concluded that the Company's disclosure controls and procedures are **effective**[215](index=215&type=chunk) - **No material changes** occurred in the Company's internal control over financial reporting during the last fiscal quarter[216](index=216&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=55&type=section&id=Item%201.%20Legal%20Proceedings) No applicable legal proceedings were disclosed for the reporting period - **Not applicable**[216](index=216&type=chunk) [Risk Factors](index=55&type=section&id=Item%201.A.%20Risk%20Factors) Management reported no material changes to risk factors previously disclosed in the Company's Form 10-K - **No material changes** in risk factors were reported since the last Form 10-K filing[216](index=216&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=56&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) A stock repurchase plan for up to **100,000 shares** was approved in April 2021, with no shares repurchased as of June 30, 2021 - A stock repurchase plan for up to **100,000 shares** was approved in April 2021[218](index=218&type=chunk) - **No shares were purchased** under the plan during the three months ended June 30, 2021[219](index=219&type=chunk) [Exhibits](index=57&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the report, including CEO and CFO certifications and Inline XBRL data files - Exhibits include **CEO and CFO certifications** (31.1, 31.2, 32.1, 32.2) and **XBRL data files** (101, 104)[221](index=221&type=chunk)[222](index=222&type=chunk)