Financial Performance and Key Metrics - Net income for 2023 was $10.8 million, a 44% decrease compared to $19.3 million in 2022, primarily due to higher interest expenses and increased credit loss expenses[165] - Earnings per share for 2023 were $1.20, down from $2.14 in 2022[165] - Return on average equity for 2023 was 7.05%, compared to 11.43% in 2022[165] - Return on average assets for 2023 was 0.51%, compared to 0.90% in 2022[165] - Net interest income for 2023 was $44.6 million, down from $53.2 million in 2022[160] - Total assets for 2023 were $2.16 billion, slightly up from $2.13 billion in 2022[160] - Net loans for 2023 were $1.28 billion, up from $1.23 billion in 2022[160] - Deposits for 2023 were $1.81 billion, down from $1.90 billion in 2022[160] - Equity to assets ratio for 2023 was 7.69%, up from 6.98% in 2022[160] - Net interest income (FTE) decreased to $45,234 million in 2023 from $53,934 million in 2022, with a net interest margin (FTE) of 2.20% compared to 2.62% in 2022[193] - Net interest income decreased by 15.9% to $44.6 million in 2023 compared to $53.2 million in 2022, primarily due to higher market interest rates on deposits[198] - Noninterest income decreased to $9.2 million in 2023 from $9.7 million in 2022, mainly due to fewer gains on residential loan sales and lower wealth management income[199] - Noninterest expense increased to $40.2 million in 2023 from $38.6 million in 2022, driven by a $523 thousand wire fraud loss, higher FDIC assessments, and salary increases[200] - Total assets grew by 1.0% to $2.16 billion in 2023, primarily due to interest-bearing deposit and loan growth[201] - Net loans increased by 4.2% to $1.28 billion in 2023, driven by growth in commercial, construction, and multi-family loan portfolios[202] - Gross loans totaled $1.29 billion in 2023, representing 71.4% of total deposits and 60.0% of total assets[203] - Total investments decreased by 6.4% to $736.4 million in 2023, primarily due to maturities exceeding purchases[215] - Loans held for sale decreased to $124 thousand in 2023 from $154 thousand in 2022, with no significant impact expected on total assets[214] - The investment portfolio comprised 34% of total assets in 2023, down from 37% in 2022[215] - Total deposits decreased by $86.1 million to $1.81 billion as of December 31, 2023, primarily due to decreases in savings and money market accounts[223] - Total borrowed funds increased to $164.6 million in 2023, up 106.2% from $79.8 million in 2022, with an average rate of 4.04%[233] - The loan portfolio grew by 4.2% to $1.28 billion in 2023, representing 59% of total assets[237] - Non-performing assets decreased by 5% to $13.9 million in 2023, with non-performing loans representing 1.08% of total loans[237] - The allowance for credit losses increased to $118 thousand in 2023, up 24.2% from $95 thousand in 2022[241] - Net charge-offs to average loans ratio increased to 0.02% in 2023 from 0.00% in 2022, with total net charge-offs of $213 thousand[246] - The ratio of allowance for credit losses to nonaccrual loans improved to 121.47% in 2023 from 106.62% in 2022[240] - Interest income on nonaccrual loans under original terms was $768 thousand in 2023, up 4.8% from $733 thousand in 2022[241] - The average balance of impaired loans decreased to $12.7 million in 2023 from $13.0 million in 2022[241] - Specific reserve on loans individually evaluated for credit losses increased by 24% to $118 million in 2023 compared to $95 million in 2022[249] - Loans individually evaluated for credit losses decreased by 4% to $13,794 million in 2023 from $14,386 million in 2022[249] - The allowance for credit losses allocated to 1-4 family residential loans increased to 22% ($3,333 million) in 2023 from 21% ($2,752 million) in 2021[250] - Liquid assets increased to $55.1 million in 2023 from $27.9 million in 2022, primarily due to increased deposits at the Federal Reserve Bank[252] - Total investments decreased to $736.4 million in 2023 from $786.4 million in 2022, with pretax net unrealized losses of $62.3 million in 2023[253] - Net cash provided by operating activities decreased to $19.5 million in 2023 from $21.2 million in 2022, primarily due to higher interest expense on deposits[254] - The company's total stockholders' equity increased to $165.8 million in 2023 from $149.1 million in 2022, representing 7.7% of total assets[259] - Commitments to extend credit totaled $262.7 million as of December 31, 2023, compared to $262.9 million at the end of 2022[258] - The company's investment portfolio has pretax net unrealized losses of $62.3 million as of December 31, 2023, compared to $83.6 million in 2022[253] - Dividends from the banks amounted to $10.0 million in 2023, slightly down from $10.2 million in 2022[256] - The company's allowance for credit losses on loans (ACL) was $16.78 million as of December 31, 2023[280] - Total assets increased to $2,155.481 million in 2023 from $2,134.926 million in 2022[287] - Net interest income decreased to $44.625 million in 2023 from $53.244 million in 2022[290] - Net income declined to $10.817 million in 2023 compared to $19.293 million in 2022[290] - Total deposits decreased to $1,811.831 million in 2023 from $1,897.957 million in 2022[287] - Interest expense on deposits rose significantly to $24.471 million in 2023 from $7.316 million in 2022[290] - Noninterest income slightly decreased to $9.215 million in 2023 from $9.687 million in 2022[290] - Total noninterest expense increased to $40.162 million in 2023 from $38.644 million in 2022[290] - Comprehensive income improved to $27.000 million in 2023 from a loss of $46.641 million in 2022[292] - Loans receivable, net increased to $1,277.812 million in 2023 from $1,226.011 million in 2022[287] - Securities available-for-sale decreased to $736.389 million in 2023 from $786.438 million in 2022[287] Interest Rates and Inflation Impact - Consumer inflation increased by 3.4% and 6.5% for the years ended December 31, 2023, and 2022, respectively, creating upward pressure on operating expenses and interest rates[98] - The FOMC raised the federal funds rate to a target range of 5.25% to 5.5% in 2022 and 2023 to curb inflation, which may decrease the company's net interest income[108] - Approximately 12% of deposits are tied to external indexes, with deposit interest expense increasing more quickly in a rising interest rate environment[223] - Net interest margin on an FTE basis (non-GAAP) decreased to 2.20% in 2023 from 2.62% in 2022[188] - The company's average interest-earning assets in 2023 were $2,059,506 thousand, slightly lower than $2,060,959 thousand in 2022[188] - Real estate loan interest income increased by $7.4 million in 2023, driven by a $2.4 million increase due to volume and a $5.0 million increase due to higher interest rates[194] - Total deposits decreased to $1,468,064 million in 2023 from $1,503,904 million in 2022, with a yield increase from 0.49% to 1.67%[193] - Other borrowed funds increased to $132,918 million in 2023 from $55,874 million in 2022, with a yield increase from 1.78% to 3.92%[193] - Total interest-bearing liabilities increased to $1,600,982 million in 2023 from $1,559,778 million in 2022, with a yield increase from 0.53% to 1.85%[193] - Net interest income-earning assets decreased by $8,700 million in 2023, with a $839 million decrease due to volume and a $7,861 million decrease due to yield/rate[195] - The company's non-GAAP net interest margin was 2.20% in 2023, down from 2.62% in 2022[197] - Credit loss expense was $789 thousand in 2023, compared to a credit loss benefit of ($874) thousand in 2022, driven by loan portfolio growth and agricultural loan charge-offs[198] - The company's securities portfolio had a fair value of $736.4 million as of December 31, 2023, with an unrealized loss of $62.3 million primarily due to increased interest rates[106] Loan Portfolio and Credit Risk - Commercial real estate loans constituted a significant portion of the company's total loan portfolio as of December 31, 2023, with risks tied to fluctuating collateral values[100] - The company's agricultural loan portfolio is exposed to risks from low commodity and livestock prices, poor weather conditions, and changes in government trade policies[105] - The company's allowance for credit losses reflects management's estimate of expected credit losses over the contractual life of the loan portfolio, subject to economic and regulatory conditions[102] - The company adopted the CECL methodology for credit loss estimation starting January 1, 2023, which requires estimating expected credit losses over the life of the loan portfolio[174] - The allowance for credit losses is adjusted by a credit loss expense recognized in earnings and reduced by charge-offs, net of recoveries[180] - The company uses a model to estimate credit loss assumptions for loan pools based on loan type and purpose, calculating an expected life-of-loan loss percentage for each category[177] - The allowance for credit losses considers factors such as economic conditions, lending policies, and collateral value to adjust historical loss rates[178] - The company employs a two-component methodology for establishing the allowance for credit losses: asset-specific and pooled components[175] - Total loans increased to $1,243,239 million in 2023, up from $1,169,157 million in 2022, with a yield of 4.57% compared to 3.93% in 2022[191] - Real estate loans contributed $44,792 million in revenue in 2023, up from $37,342 million in 2022, with a yield increase from 3.79% to 4.28%[191] - Total interest-earning assets generated $74,910 million in revenue in 2023, up from $62,243 million in 2022, with a yield increase from 3.02% to 3.64%[191] - Commercial real estate loans have the largest pooled reserve at 1.50% of outstanding balances as of December 31, 2023[246] - The company's ACL estimation process involves qualitative factor adjustments based on management's expectation of future conditions[280] - The company's ACL estimation process includes evaluating loans that do not share similar risk characteristics on an individual basis[280] - The company's ACL estimation process considers historical loss rates of similar peers for loans that share similar risk characteristics[280] - The company's ACL estimation process reduces adjustments on a straight-line basis over one year for loans extending beyond the forecast period[280] - The company's ACL estimation process involves significant judgment and subjectivity in identifying and measuring qualitative factor adjustments[281] Cybersecurity and Operational Risks - The company faces operational risks, including data processing system failures, data security breaches, and employee or customer fraud[112] - Cybersecurity risks have increased due to greater reliance on remote working and are expected to remain high due to evolving threats[117] - A breach of information security or compliance by third-party vendors could negatively affect the company's reputation and business[130] - The company's information security program is designed to continuously adapt to emerging threats, with regular testing through internal and external audits, penetration tests, and disaster recovery tests[143][144] - The company's cybersecurity strategy is integrated within its overall risk management strategy, with regular oversight by the Board of Directors and executive officers[147][148] - The company maintains insurance coverage for cybersecurity risks, but there is no assurance that liabilities or losses will be fully covered[144] - The company's cybersecurity program is designed to be consistent with the FFIEC Information Security IT Examination Handbook and other regulatory frameworks[145] Regulatory and Compliance Risks - The company relies on dividends and payments from its banks for substantially all of its revenue, which could be limited by federal and state regulations[110] - Compliance with the Dodd-Frank Act and other regulations has resulted in additional costs, with potential future regulatory changes impacting earnings[138] - The company's ability to pay dividends is subject to federal regulatory considerations, including capital adequacy guidelines, and may be reduced or eliminated in the future[140] - The company adopted Topic 326 effective January 1, 2023, changing its method of accounting for the allowance for credit losses[276] - The company's financial statements for 2023 were audited and found to be in conformity with accounting principles generally accepted in the United States[275] - The company's financial statements for 2022 were audited and found to be in conformity with accounting principles generally accepted in the United States[283] Market and Economic Risks - The company's earnings are highly dependent on the business environment, including economic growth, low inflation, and strong business earnings[96] - The company's operations are concentrated in central, north-central, and south-central Iowa, making it vulnerable to local economic conditions[125] - The company faces competition from larger financial institutions and non-bank financial services providers with greater resources[133] - Federal government spending and increases in monetary supply could strain the company's capital ratios and contribute to inflation[134] - Severe weather, natural disasters, pandemics, or acts of terrorism could significantly impact the company's business and financial condition[139] - Acquisitions involve risks such as integration difficulties, unexpected liabilities, and potential loss of key employees or customers[136] Dividends and Shareholder Information - The company declared aggregate annual cash dividends of approximately $9.7 million or $1.08 per share in 2023 and 2022, with a quarterly cash dividend of approximately $2.4 million or $0.27 per share declared in February 2024[153] - The company's common stock closed at $18.46 on February 28, 2024, with approximately 249 shareholders of record and 3,298 beneficial owners[153] - The company approved a Stock Repurchase Plan in November 2023, authorizing the purchase of up to 100,000 shares, with no shares purchased under this plan during November or December 2023[155][156] - The company's stock trading volume on the NASDAQ Capital Market is relatively limited, making it more susceptible to price volatility compared to more actively traded companies[141] Investment Portfolio and Securities - The company's securities portfolio had a fair value of $736.4 million as of December 31, 2023, with an unrealized loss of $62.3 million primarily due to increased interest rates[106] - The company's securities available-for-sale portfolio is carried at fair value, with declines below cost evaluated for credit losses and reflected in earnings[183][184] - The company's total investment portfolio amounted to $736.4 million, with U.S. government treasuries making up $200.1 million, U.S. government agencies $92.6 million, and U.S. government mortgage-backed securities $101.9 million[217] - The weighted average yield for the total investment portfolio was 1.87%, with U.S. government treasuries yielding 1.15%, U.S. government agencies 1.95%, and U.S. government mortgage-backed securities 1.23%[217] - The company's investment portfolio had an expected duration of 3.55 years as of December 31, 2023, compared to 4.06 years in 2022[218] - The company's investment securities portfolio included securities issued by 272 government municipalities and agencies with a fair value of $269.9 million as of December 31, 2023[218] Liquidity and Funding - The company's liquidity is primarily maintained through customer deposits and short-term funding sources, with potential risks from changes in governmental programs or economic conditions[109] - The company had $6.9 million of brokered deposits and approximately $590 million of estimated uninsured deposits as of December 31, 2023[224] - The average balance for non-interest bearing checking deposits was $373.7 million with a 0.00% interest rate, while interest-bearing checking deposits averaged $610.0 million with a 1.61% interest rate in 2023[226] - Time certificates of deposit with balances exceeding the FDIC insurance limit of $250,000 totaled $68.2 million as of December 31, 2023, up from $42.9 million in 2022[228] - Uninsured time certificates of deposit totaled $59.2 million as of December 31, 2023, an increase of 93.4% from $30.6 million in 2022[230] Accounting Policies and Good

Financial Performance - Net income for the nine months ended September 30, 2023, was $8.7 million, a decrease from $14.9 million in the same period in 2022[6] - Net income for the nine months ended September 30, 2023, was $8,678 thousand, compared to $14,881 thousand for the same period in 2022[8] - Net income for the three months ended September 30, 2023, was $2,924 thousand, compared to $5,543 thousand for the same period in 2022[14] - Net income for 2023 was $8,678 thousand, a decrease from $14,881 thousand in 2022[18] - Net income for Q3 2023 was $2.9 million, or $0.33 per share, compared to $5.5 million, or $0.62 per share, in Q3 2022, primarily due to higher interest expenses on deposits and other borrowings[160] Assets and Liabilities - Total assets increased to $2,154.1 million as of September 30, 2023, compared to $2,134.9 million as of December 31, 2022[4] - Total deposits decreased to $1,828.7 million as of September 30, 2023, from $1,898.0 million as of December 31, 2022[4] - Loans receivable, net, increased to $1,231.9 million as of September 30, 2023, from $1,226.0 million as of December 31, 2022[4] - Total stockholders' equity decreased to $146.6 million as of September 30, 2023, from $149.1 million as of December 31, 2022[4] - Stockholders' equity as of September 30, 2023, was $146,640 thousand, compared to $137,271 thousand as of September 30, 2022[14] - Cash and cash equivalents increased significantly from $27.884 million in 2022 to $90.063 million in 2023, reflecting strong liquidity growth[75] - Loans receivable, net, remained stable at $1.231 billion in 2023 compared to $1.226 billion in 2022, with a slight decrease in fair value from $1.170 billion to $1.173 billion[75] - Deposits decreased from $1.897 billion in 2022 to $1.828 billion in 2023, with a minor change in fair value from $1.895 billion to $1.828 billion[75] Interest Income and Expense - Net interest income for the nine months ended September 30, 2023, was $33.7 million, down from $40.5 million in the same period in 2022[6] - Interest expense on deposits for the nine months ended September 30, 2023, was $17.2 million, a significant increase from $3.9 million in the same period in 2022[6] - Net interest income on an FTE basis (non-GAAP) for the three months ended September 30, 2023, was $10,835 thousand, compared to $13,833 thousand for the same period in 2022[192] - The average yield on total loans (including fees) for the three months ended September 30, 2023, was 4.67%, compared to 3.99% for the same period in 2022[197] - The average yield on total investment securities for the three months ended September 30, 2023, was 2.03%, compared to 1.94% for the same period in 2022[197] - The average rate paid on total interest-bearing liabilities for the three months ended September 30, 2023, was 2.02%, compared to 0.55% for the same period in 2022[200] - The net interest margin (FTE) for the three months ended September 30, 2023, was 2.11%, compared to 2.71% for the same period in 2022[200] - Net interest margin adjusted for tax-exempt income was 2.11% for Q3 2023, compared to 2.71% for Q3 2022[201] - Net interest income before tax-exempt adjustment was $10.7 million for Q3 2023, down from $13.7 million in Q3 2022[201] Credit Losses and Allowances - The company recorded a net decrease to retained earnings of $603 thousand due to the adoption of ASC 326[27] - Allowance for credit losses on loans increased by $518 thousand under ASC 326[28] - Allowance for credit losses on off-balance sheet credit exposures increased by $273 thousand under ASC 326[28] - The allowance for credit losses as of September 30, 2023, was $16.1 million, compared to $15.7 million as of December 31, 2022[90] - The credit loss expense for the three months ended September 30, 2023, was a benefit of $205 thousand, primarily driven by recoveries and adjustments across various loan categories[94] - The impact of adopting ASC 326 resulted in a credit loss expense benefit of $518 thousand for the nine months ended September 30, 2023[95] - Loans individually assessed for credit losses as of September 30, 2023, were collateral dependent and in the process of foreclosure, differing from the collectively evaluated loans[99] - The allowance for credit losses is determined through a two-component process: asset-specific allowances and pooled allowances based on loan risk characteristics[176] - Factors influencing credit loss estimates include economic conditions, loan portfolio characteristics, collateral values, and regulatory requirements[181] - The allowance for credit losses is established through a credit loss expense, which is charged against earnings, and is reviewed quarterly incorporating both quantitative and qualitative factors[185] Comprehensive Income and Loss - Unrealized holding losses arising during the period were $(4,230) thousand for the nine months ended September 30, 2023, compared to $(100,257) thousand for the same period in 2022[8] - Other comprehensive loss, net of tax, was $(3,251) thousand for the nine months ended September 30, 2023, compared to $(75,777) thousand for the same period in 2022[8] - Comprehensive income (loss) for the nine months ended September 30, 2023, was $5,427 thousand, compared to $(60,896) thousand for the same period in 2022[8] - Other comprehensive loss, net of tax, was $(9,285) thousand for the three months ended September 30, 2023, compared to $(23,195) thousand for the same period in 2022[14] - Comprehensive income (loss) for the three months ended September 30, 2023, was $(6,361) thousand, compared to $(17,652) thousand for the same period in 2022[14] Cash Flow - Net cash provided by operating activities in 2023 was $12,814 thousand, down from $15,000 thousand in 2022[18] - Net cash provided by investing activities in 2023 was $38,838 thousand, compared to a net cash used of $85,987 thousand in 2022[18] - Net cash provided by financing activities in 2023 was $10,527 thousand, slightly down from $11,113 thousand in 2022[18] - Net increase in cash and cash equivalents for 2023 was $62,179 thousand, compared to a net decrease of $59,874 thousand in 2022[18] - Cash payments for interest in 2023 were $17,890 thousand, significantly higher than $4,553 thousand in 2022[20] Loans and Credit Risk - Total loans receivable as of September 30, 2023, amounted to $1,248.1 million, with real estate - commercial loans being the largest category at $345.6 million[90] - Real estate - construction loans increased to $64.7 million as of September 30, 2023, from $51.3 million as of December 31, 2022[90] - Agricultural loans decreased to $98.8 million as of September 30, 2023, from $113.4 million as of December 31, 2022[90] - Total loans as of September 30, 2023, amounted to $1,248,108 thousand, with $1,094,187 thousand classified as "Pass" and $99,892 thousand as "Watch"[125] - Current-period gross writeoffs for total loans were $201 thousand, with $164 thousand from agricultural loans and $37 thousand from commercial loans[125] - The credit risk profile as of December 31, 2022, showed total loans of $940,390 thousand, with $794,529 thousand classified as "Pass" and $109,282 thousand as "Watch"[127] - Performing loans as of December 31, 2022, were $300,492 thousand, with $284,302 thousand in 1-4 Family Residential Real Estate and $16,190 thousand in Consumer and Other[128] Fair Value Measurements - The fair value of U.S. government treasuries as of September 30, 2023, was $202,522, classified under Level 1[67] - The fair value of U.S. government agencies as of September 30, 2023, was $98,049, classified under Level 2[67] - The fair value of U.S. government mortgage-backed securities as of September 30, 2023, was $101,552, classified under Level 2[67] - The fair value of state and political subdivisions as of September 30, 2023, was $265,299, classified under Level 2[67] - The fair value of corporate bonds as of September 30, 2023, was $69,522, classified under Level 2[67] - The fair value of loans receivable as of September 30, 2023, was $8,045, classified under Level 2[67] - The fair value of derivative financial instruments as of September 30, 2023, was $1,565 for assets and $199 for liabilities, classified under Level 2[67] - The fair value of loans receivable measured at fair value on a nonrecurring basis as of September 30, 2023, was $304, classified under Level 3[68] - The fair value of the company's available-for-sale securities portfolio is measured based on the price that would be received in an orderly transaction between market participants[187] - Declines in the fair value of available-for-sale securities below their cost are evaluated for credit losses and reflected in earnings as a credit loss expense[188] Capital and Risk Management - Consolidated total capital to risk-weighted assets as of September 30, 2023, was $217.47 billion, representing a ratio of 14.1%[152] - Boone Bank & Trust's Tier 1 capital to risk-weighted assets was $15.34 billion, with a ratio of 13.0% as of September 30, 2023[152] - First National Bank's common equity Tier 1 capital to risk-weighted assets was $102.72 billion, with a ratio of 12.9% as of September 30, 2023[152] - Iowa State Savings Bank's total capital to risk-weighted assets was $26.45 billion, with a ratio of 16.2% as of September 30, 2023[152] - Reliance State Bank's Tier 1 capital to average assets was $25.97 billion, with a ratio of 8.4% as of September 30, 2023[152] - State Bank & Trust's common equity Tier 1 capital to risk-weighted assets was $20.70 billion, with a ratio of 15.0% as of September 30, 2023[152] - United Bank & Trust's Tier 1 capital to risk-weighted assets was $12.00 billion, with a ratio of 14.8% as of September 30, 2023[152] - Consolidated total capital to risk-weighted assets as of December 31, 2022, was $215.80 billion, representing a ratio of 14.1%[153] - Boone Bank & Trust's Tier 1 capital to risk-weighted assets was $14.99 billion, with a ratio of 12.1% as of December 31, 2022[153] - First National Bank's common equity Tier 1 capital to risk-weighted assets was $101.98 billion, with a ratio of 13.0% as of December 31, 2022[153] - Capital ratio stood at 7.23% as of September 30, 2023, lower than the industry average of 10.68% as of June 30, 2023, though all six affiliate banks remain well-capitalized[173] Dividends and Share Repurchases - Cash dividends declared were $2,428 thousand for both the three months ended September 30, 2023, and September 30, 2022[14] - The company declared a cash dividend of $0.27 per share, payable on November 15, 2023, to stockholders of record as of November 1, 2023[58] - Repurchase and retirement of stock for the nine months ended September 30, 2022, was $(2,300) thousand[15] Intangible Assets - Intangible assets as of September 30, 2023, had a gross amount of $6,946 thousand, with accumulated amortization of $5,403 thousand[130] - The weighted average remaining life of intangible assets is approximately 3 years as of September 30, 2023[130] - Amortization expense for intangible assets for the nine months ended September 30, 2023, was $388 thousand[133] - Ending net intangible assets as of September 30, 2023, were $1,543 thousand, down from $1,931 thousand at the beginning of the period[133] Borrowings and Collateral - Total pledged collateral related to securities sold under repurchase agreements was $73.3 million as of September 30, 2023, compared to $60.9 million as of December 31, 2022[136] - The company borrowed $400 thousand on August 15, 2023, with a fixed interest rate of 6.5% for five years, and the outstanding balance was $392 thousand as of September 30, 2023[138] - The company had $19.0 million of short-term FHLB advances as of September 30, 2023, down from $35.4 million as of December 31, 2022[139] - The company borrowed $83.3 million under the Bank Term Funding Program (BTFP) as of September 30, 2023[139] - The company executed an interest rate swap with a notional amount of $25.0 million in Q3 2023 to hedge interest rate risk on long-term fixed-rate loans[140] - The notional amount of interest rate swaps increased to $34.0 million as of September 30, 2023, from $9.3 million as of December 31, 2022[143] - The carrying amount of hedged assets was $58.9 million as of September 30, 2023, with a cumulative fair value hedging adjustment of $(1.4) million[144] - The company posted $415 thousand in collateral for back-to-back loan swaps as of September 30, 2023[144] Investments and Securities - U.S. government treasuries saw a decrease in amortized cost from $227.065 million in 2022 to $221.032 million in 2023, with fair value dropping from $207.597 million to $202.522 million[80] - Corporate bonds' amortized cost decreased from $82.177 million in 2022 to $77.177 million in 2023, with fair value declining from $75.164 million to $69.522 million[80] - Securities available-for-sale had an amortized cost of $824.767 million in 2023, down from $869.996 million in 2022, with fair value decreasing from $786.438 million to $736.944 million[80] - The company's investment portfolio had an expected duration of 3.64 years as of September 30, 2023[81] - Securities pledged increased from $256.7 million in 2022 to $367.6 million in 2023, indicating higher collateral usage[82] - Gross realized gains on securities available-for-sale were $62,000 for the three months ended September 30, 2023, compared to $25,000 in the same period in 2022[86] - Unrealized losses on U.S. government treasuries increased from $19.468 million in 2022 to $18.510 million in 2023, reflecting market volatility[87] - Gross unrealized losses on debt securities totaled $87.8 million as of September 30, 2023, primarily due to changes in interest rates or general market conditions[88] - The company does not rely on third-party credit rating agencies as a primary component for determining the capacity of municipal issuers to meet financial commitments[88] - The company's procedures for evaluating municipal investments include reviewing financial information, assessing tax revenue stability, and evaluating debt profiles[88] Loan Portfolio Composition - Total real estate - construction loans increased to $28,735 million in 2023 from $28,615 million in 2022[123] - Total 1-4 family residential loans decreased to $43,903 million in 2023 from $66,973 million in 2022[123] - Total multifamily loans decreased to $22,138 million in 2023 from $53,757 million in 2022[123] - Total commercial real estate loans decreased to $40,587 million in 2023 from $87,736 million in 2022[123] - Total agricultural real estate loans increased to $21,716 million in 2023 from $33,058 million in 2022[123] - Watch list loans for 1-4 family residential increased to $1,919 million in 2023 from $303 million in 2022[123] - Watch list loans for multifamily increased to $4,602 million in 2023 from $1,434 million in 2022[123] - Watch list loans for commercial real estate increased to $1,543 million in 2023 from $3,045 million in 2022[123] - Watch list loans for agricultural real estate increased to $1,168 million in 2023 from $381 million in 2022

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Consolidated Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents Ames National Corporation's unaudited consolidated financial statements, including balance sheets, income, comprehensive income, equity, and cash flows, along with notes and details on CECL adoption [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets%20at%20June%2030%2C%202023%20and%20December%2031%2C%202022) Total assets increased to $2.17 billion, liabilities grew due to borrowings, and stockholders' equity improved to $155.4 million by June 30, 2023 | Balance Sheet Highlights (in thousands) | June 30, 2023 (unaudited) | December 31, 2022 (audited) | | :--- | :--- | :--- | | **Total Assets** | **$2,174,261** | **$2,134,926** | | Total Loans Receivable, net | $1,232,772 | $1,226,011 | | Securities Available-for-sale | $758,520 | $786,438 | | Total Deposits | $1,863,277 | $1,897,957 | | **Total Liabilities** | **$2,018,832** | **$1,985,828** | | **Total Stockholders' Equity** | **$155,429** | **$149,098** | [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income%20for%20the%20three%20and%20six%20months%20ended%20June%2030%2C%202023%20and%202022) Net income for Q2 2023 decreased to $2.6 million due to lower net interest income, with six-month net income at $5.8 million | Income Statement Highlights (in thousands, except per share data) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $11,302 | $13,636 | $22,971 | $26,788 | | Credit Loss Expense (Benefit) | $33 | $(59) | $308 | $(186) | | **Net Income** | **$2,557** | **$4,193** | **$5,754** | **$9,338** | | **Basic and Diluted EPS** | **$0.28** | **$0.46** | **$0.64** | **$1.03** | | Dividends Declared per Share | $0.27 | $0.27 | $0.54 | $0.54 | [Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)%20for%20the%20three%20and%20six%20months%20ended%20June%2030%2C%202023%20and%202022) Q2 2023 comprehensive loss improved to $1.2 million, while six-month comprehensive income was $11.8 million, driven by changes in unrealized securities losses | Comprehensive Income (Loss) (in thousands) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $2,557 | $4,193 | $5,754 | $9,338 | | Other Comprehensive Income (Loss), net of tax | $(3,784) | $(18,779) | $6,034 | $(52,582) | | **Comprehensive Income (Loss)** | **$(1,227)** | **$(14,586)** | **$11,788** | **$(43,244)** | [Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Equity%20for%20the%20three%20and%20six%20months%20ended%20June%2030%2C%202023%20and%202022) Stockholders' equity increased to $155.4 million by June 30, 2023, driven by net income and other comprehensive income, partially offset by dividends - For the six months ended June 30, 2023, stockholders' equity increased by **$6.3 million**. Key drivers were net income of **$5.8 million** and other comprehensive income of **$6.0 million**, offset by cash dividends of **$4.9 million** and a **$0.6 million** adjustment for a change in accounting principle (CECL adoption)[16](index=16&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20six%20months%20ended%20June%2030%2C%202023%20and%202022) Cash and cash equivalents increased by $65.4 million for the first six months of 2023, driven by reduced investing activities and new borrowings | Cash Flow Summary (in thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $10,473 | $11,260 | | Net cash provided by (used in) investing activities | $28,793 | $(63,528) | | Net cash provided by financing activities | $26,149 | $37,817 | | **Net increase (decrease) in cash and cash equivalents** | **$65,415** | **$(14,451)** | [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail accounting policies, CECL adoption impact on retained earnings, debt and loan portfolios, fair value, borrowings including a new $75 million BTFP loan, and regulatory capital compliance - The company adopted ASC 326 (CECL) on January 1, 2023, using the modified retrospective method, resulting in a **$518 thousand** increase to the Allowance for Credit Losses on loans and a **$273 thousand** increase to the Allowance for Credit Losses on off-balance sheet exposures, leading to a net decrease in retained earnings of **$603 thousand**[26](index=26&type=chunk)[27](index=27&type=chunk) - As of June 30, 2023, the debt securities portfolio had gross unrealized losses of **$75.7 million**, attributed to interest rate changes, with management expecting to recover amortized cost[83](index=83&type=chunk)[84](index=84&type=chunk) - The company borrowed **$75 million** under the Federal Reserve's Bank Term Funding Program (BTFP) as of June 30, 2023, enhancing its liquidity position[130](index=130&type=chunk) - As of June 30, 2023, the company and its subsidiary banks met all 'well capitalized' regulatory capital requirements, with a consolidated Total Capital to risk-weighted assets ratio of **14.3%**[140](index=140&type=chunk)[143](index=143&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=43&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q2 2023 net income decline due to higher interest expense, asset growth funded by borrowings, deposit shifts, improved asset quality, and satisfactory liquidity and capital [Overview](index=43&type=section&id=Overview) Q2 2023 net income decreased to $2.6 million ($0.28/share) primarily due to higher interest expense on deposits and borrowed funds - The primary cause for the decrease in earnings was higher interest expense on deposits and other borrowed funds, partially offset by increased interest income on loans[151](index=151&type=chunk) - The company's main revenue sources are interest and fees on loans and investments, while principal expenses include interest on deposits, credit loss provisions, and operating costs[150](index=150&type=chunk) [Key Performance Indicators and Industry Results](index=44&type=section&id=Key%20Performance%20Indicators%20and%20Industry%20Results) Key performance indicators for Q2 2023 show declines in ROA, ROE, and net interest margin, with an increased efficiency ratio | Key Performance Indicator | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | Return on Assets (annualized) | 0.47% | 0.77% | | Return on Equity (annualized) | 6.45% | 9.78% | | Net Interest Margin | 2.20% | 2.63% | | Efficiency Ratio | 77.57% | 61.51% | [Income Statement Review](index=50&type=section&id=Income%20Statement%20Review) Q2 2023 net interest income decreased due to rising interest expense, noninterest expense increased due to a wire fraud loss, and the effective tax rate was 15% - Net interest income fell as interest expense increased by **$5.9 million (479%)** year-over-year for Q2 2023, outpacing the **$3.6 million (24%)** increase in interest income[192](index=192&type=chunk) - Noninterest expense for Q2 2023 increased by **7%** year-over-year, primarily due to a wire fraud loss of **$523 thousand**[194](index=194&type=chunk) - The effective tax rate for Q2 2023 was **15%**, compared to **33%** in Q2 2022, with the higher 2022 rate due to a **$780 thousand** deferred tax adjustment[195](index=195&type=chunk) [Balance Sheet Review](index=56&type=section&id=Balance%20Sheet%20Review) Total assets grew to $2.17 billion, funded by borrowings, while the investment portfolio decreased with unrealized losses, and deposits shifted to higher-yielding accounts - Total assets increased by **$39.3 million** since December 31, 2022, primarily due to an increase in interest-bearing deposits in financial institutions, funded by an increase in other borrowings[210](index=210&type=chunk) - Deposits decreased to **$1.86 billion** from **$1.90 billion** at year-end 2022, with a shift from savings/money market accounts to time deposits; uninsured deposits were approximately **16%** of total deposits[221](index=221&type=chunk) [Asset Quality Review and Credit Risk Management](index=58&type=section&id=Asset%20Quality%20Review%20and%20Credit%20Risk%20Management) Asset quality improved with problem loans decreasing to **0.93%** of total loans, while the allowance for credit losses increased to **1.31%** due to CECL adoption - Problem loans (nonaccrual and loans past due 90+ days) as a percentage of total loans decreased to **0.93%** at June 30, 2023, from **1.19%** at December 31, 2022[223](index=223&type=chunk) - Nonaccrual loans decreased to **$11.3 million** at June 30, 2023, from **$14.7 million** at December 31, 2022, primarily due to payments received[225](index=225&type=chunk) - The allowance for credit losses as a percentage of outstanding loans was **1.31%** as of June 30, 2023, up from **1.26%** at year-end 2022, mainly due to ASC 326 (CECL) implementation[228](index=228&type=chunk) [Liquidity and Capital Resources](index=59&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains satisfactory liquidity with diverse sources, including a new $75 million BTFP loan, and remains 'well capitalized' with increased stockholders' equity - The company enhanced its liquidity by borrowing **$75 million** under the Federal Reserve's Bank Term Funding Program (BTFP) as of June 30, 2023, citing favorable lending terms[232](index=232&type=chunk) - Total stockholders' equity increased by **$6.3 million** to **$155.4 million** from year-end 2022, primarily due to a decrease in unrealized losses on the investment portfolio and retained earnings[239](index=239&type=chunk) - The company's capital levels exceed regulatory guidelines to be considered 'well capitalized' as of June 30, 2023[239](index=239&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=63&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section is not applicable for the current reporting period - Not applicable[242](index=242&type=chunk) [Controls and Procedures](index=63&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - Management concluded that the Company's disclosure controls and procedures are effective[242](index=242&type=chunk) - No material changes occurred in the Company's internal control over financial reporting during the last fiscal quarter[243](index=243&type=chunk) [PART II. OTHER INFORMATION](index=63&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=63&type=section&id=Item%201.%20Legal%20Proceedings) This section is not applicable as no material legal proceedings were reported - Not applicable[244](index=244&type=chunk) [Risk Factors](index=63&type=section&id=Item%201.A.%20Risk%20Factors) No material changes in risk factors were reported from those disclosed in the company's Form 10-K filed on March 10, 2023 - There have been no material changes in the risk factors from those disclosed in the Company's Form 10-K filed on March 10, 2023[244](index=244&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=64&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 November 2022, with no shares repurchased during Q2 2023 - A stock repurchase plan for up to **100,000 shares** was approved in November 2022[245](index=245&type=chunk) - No shares were purchased during the three months ended June 30, 2023, with **100,000 shares** remaining available for repurchase under the plan[245](index=245&type=chunk)[246](index=246&type=chunk) [Exhibits](index=65&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and Inline XBRL data files - The report includes CEO and CFO certifications pursuant to Section 302 of the Sarbanes-Oxley Act and Section 1350 of U.S.C. Title 18[249](index=249&type=chunk) - Interactive Data Files (Inline XBRL) are included as exhibits[250](index=250&type=chunk)

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)