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These basis adjustments would be allocated to the amortized cost of specific loans within the pool if the hedge was de-designated. 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Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

FORM 10-Q

[Mark One]

☒

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

 

For the quarterly period ended September 30, 2025

 

☐

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

 

 

 For the transition period from ____________ to ____________

 

Commission File Number 0-32637

 

AMES NATIONAL CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

Iowa42-1039071
(State of Incorporation)

(I. R. S. Employer

Identification Number)

 

323 Sixth Street

Ames, Iowa 50010

(Address of Principal Executive Offices) (Zip Code)

 

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

 

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

 

Title of each class

Trading Symbol

Name of each exchange on which registered

Common stock

ATLO

The NASDAQ Capital Market

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

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

 

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

 

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

 

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

 

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

 

As of October 31, 2025, there were 8,892,167 shares of common stock, par value $2, outstanding.

 

 
Table of Contents

 

 

AMES NATIONAL CORPORATION

 

INDEX

 

    Page
PART I. FINANCIAL INFORMATION  
     
Item 1. Consolidated Financial Statements (Unaudited) 3
     
 

Consolidated Balance Sheets at September 30, 2025 and December 31, 2024

 3
     
 

Consolidated Statements of Income for the three and nine months ended September 30, 2025 and 2024

 4
     
 

Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2025 and 2024

 5
     
 

Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2025 and 2024

 6
     
 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2025 and 2024

 7
     
  Notes to Consolidated Financial Statements 9
     
Item 2.

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

 35
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 49
     
Item 4. Controls and Procedures 49
     
PART II.  OTHER INFORMATION  
     
Item 1. Legal Proceedings 49
     
Item 1.A. Risk Factors 49
     
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds 50
     
Item 3. Defaults Upon Senior Securities 50
     
Item 4. Mine Safety Disclosures 50
     
Item 5. Other Information 50
     
Item 6. Exhibits 51
     
  Signatures 52
 

 

2
Table of Contents

 

 

AMES NATIONAL CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 

  

September 30,

  

December 31,

 
  

2025

  

2024

 
  

(unaudited)

  

(audited)

 

ASSETS

        

Cash and due from banks

 $22,706  $19,525 

Interest-bearing deposits in financial institutions and federal funds sold

  85,455   81,702 

Total cash and cash equivalents

  108,161   101,227 

Interest-bearing time deposits

  5,678   6,166 

Securities available-for-sale

  650,660   648,513 

Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) stock, at cost

  2,891   3,883 

Loans receivable, net

  1,275,794   1,303,917 

Loans held for sale

  888   342 

Bank premises and equipment, net

  21,008   21,567 

Accrued income receivable

  15,001   13,864 

Bank-owned life insurance

  3,279   3,214 

Deferred income taxes, net

  8,606   14,056 

Intangible assets, net

  861   1,092 

Goodwill

  12,424   12,424 

Other assets

  2,748   2,915 
         

Total assets

 $2,107,999  $2,133,180 
         

LIABILITIES AND STOCKHOLDERS' EQUITY

        
         

LIABILITIES

        

Deposits

        

Noninterest-bearing checking

 $310,155  $358,386 

Interest-bearing checking

  658,686   619,951 

Savings and money market

  526,935   540,491 

Time, $250 and over

  92,330   84,996 

Other time

  244,713   242,858 

Total deposits

  1,832,819   1,846,682 
         

Securities sold under agreements to repurchase

  40,623   52,412 

Other borrowings

  23,502   46,952 

Dividends payable

  -   1,790 

Accrued interest payable

  2,485   3,208 

Accrued expenses and other liabilities

  7,978   7,430 

Total liabilities

  1,907,407   1,958,474 
         

STOCKHOLDERS' EQUITY

        

Common stock, $2 par value, authorized 18,000,000 shares; issued and outstanding 8,892,167 and 8,949,110 shares as of September 30, 2025 and December 31, 2024, respectively

  17,784   17,898 

Additional paid-in capital

  12,798   13,635 

Retained earnings

  191,235   182,236 

Accumulated other comprehensive (loss)

  (21,225)  (39,063)

Total stockholders' equity

  200,592   174,706 
         

Total liabilities and stockholders' equity

 $2,107,999  $2,133,180 

 

See Notes to Consolidated Financial Statements.

 

3
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AMES NATIONAL CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

(in thousands, except per share data)

 

   

Three Months Ended

    

Nine Months Ended

  
   

September 30,

    

September 30,

  
   

2025

    

2024

    

2025

    

2024

  
                                 

Interest and dividend income:

                                

Loans, including fees

   $ 17,409     $ 16,751     $ 50,750     $ 48,793  

Securities:

                                

Taxable

     3,344       2,985       9,300       9,104  

Tax-exempt

     411       481       1,314       1,524  

Other interest and dividend income

     689       495       3,092       1,937  

Total interest and dividend income

     21,853       20,712       64,456       61,358  
                                 

Interest expense:

                                

Deposits

     7,173       8,278       21,979       24,037  

Other borrowed funds

     631       1,357       2,047       4,466  

Total interest expense

     7,804       9,635       24,026       28,503  
                                 

Net interest income

     14,049       11,077       40,430       32,855  
                                 

Credit loss expense

     627       371       1,697       722  
                                 

Net interest income after credit loss expense

     13,422       10,706       38,733       32,133  
                                 

Noninterest income:

                                

Wealth management income

     1,374       1,242       4,336       3,913  

Service fees

     402       399       1,150       1,062  

Securities (losses)

     -       -       -       (165 )

Gain on sale of loans held for sale

     170       112       395       361  

Merchant and card fees

     342       426       1,082       1,211  

Other noninterest income

     246       234       759       827  

Total noninterest income

     2,534       2,413       7,722       7,209  
                                 

Noninterest expense:

                                

Salaries and employee benefits

     6,374       6,291       19,226       18,965  

Data processing

     1,497       1,475       4,305       4,478  

Occupancy expenses, net

     754       745       2,254       2,238  

FDIC insurance assessments

     253       281       788       878  

Professional fees

     412       867       1,437       2,190  

Business development

     335       318       1,018       983  

Intangible asset amortization

     77       86       231       259  

New market tax credit projects amortization

     192       174       575       523  

Other operating expenses, net

     347       268       1,033       925  

Total noninterest expense

     10,241       10,505       30,867       31,439  
                                 

Income before income taxes

     5,715       2,614       15,588       7,903  
                                 

Provision for income taxes

     1,156       397       3,075       1,198  
                                 

Net income

   $ 4,559     $ 2,217     $ 12,513     $ 6,705  
                                 

Basic and diluted earnings per share

   $ 0.51     $ 0.25     $ 1.41     $ 0.75  
                                 

Dividends declared per share

   $ 0.20     $ 0.20     $ 0.40     $ 0.74  

 

See Notes to Consolidated Financial Statements.

 

4
Table of Contents
 

 

AMES NATIONAL CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

(in thousands)

 

   

Three Months Ended

    

Nine Months Ended

  
   

September 30,

    

September 30,

  
   

2025

    

2024

    

2025

    

2024

  
                                 
                                 

Net income

   $ 4,559     $ 2,217     $ 12,513     $ 6,705  

Unrealized gains on securities before tax:

                                

Unrealized holding gains arising during the period

     6,436       20,896       23,457       22,873  

Plus: reclassification adjustment for losses realized in net income

     -       -       -       165  

Other comprehensive income, before tax

     6,436       20,896       23,457       23,038  

Tax (expense) related to other comprehensive income

     (1,531 )     (4,974 )     (5,582 )     (5,483 )

Other income tax effects from tax reform

     (13 )     (4 )     (37 )     (16 )

Other comprehensive income, net of tax

     4,892       15,918       17,838       17,539  

Comprehensive income

   $ 9,451     $ 18,135     $ 30,351     $ 24,244  

 

See Notes to Consolidated Financial Statements.

 

5
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AMES NATIONAL CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)

(in thousands, except share and per share data)

 

                  

Accumulated

     
                  

Other

     

Three Months Ended September 30, 2025 and 2024

                 

Comprehensive

  

Total

 
  

Common Stock

  

Additional Paid-in

  

Retained

  

Income (Loss),

  

Stockholders'

 
  

Shares

  

Amount

  

Capital

  

Earnings

  

Net of Taxes

  

Equity

 
                         

Balance, June 30, 2024

  8,992,167  $17,984  $14,253  $180,082  $(45,266) $167,053 

Net income

  -   -   -   2,217   -   2,217 

Other income tax effects from tax reform

  -   -   -   4   -   4 

Other comprehensive income

  -   -   -   -   15,918   15,918 

Cash dividends declared, $0.20 per share

  -   -   -   (1,798)  -   (1,798)

Balance, September 30, 2024

  8,992,167  $17,984  $14,253  $180,505  $(29,348) $183,394 
                         
                         

Balance, June 30, 2025

  8,898,689  $17,797  $12,907  $188,442  $(26,117) $193,029 

Net income

  -   -   -   4,559   -   4,559 

Other income tax effects from tax reform

  -   -   -   13   -   13 

Other comprehensive income

  -   -   -   -   4,892   4,892 

Repurchase and retirement of stock

  (6,522)  (13)  (109)  -   -   (122)

Cash dividends declared, $0.20 per share

  -   -   -   (1,779)  -   (1,779)

Balance, September 30, 2025

  8,892,167  $17,784  $12,798  $191,235  $(21,225) $200,592 

 

                  

Accumulated

     
                  

Other

     

Nine Months Ended September 30, 2025 and 2024

                 

Comprehensive

  

Total

 
  

Common Stock

  

Additional Paid-in

  

Retained

  

Income (Loss),

  

Stockholders'

 
  

Shares

  

Amount

  

Capital

  

Earnings

  

Net of Taxes

  

Equity

 
                         

Balance, December 31, 2023

  8,992,167  $17,984  $14,253  $180,438  $(46,887) $165,788 

Net income

  -   -   -   6,705   -   6,705 

Other income tax effects from tax reform

  -   -   -   16   -   16 

Other comprehensive income

  -   -   -   -   17,539   17,539 

Cash dividends declared, $0.74 per share

  -   -   -   (6,654)  -   (6,654)

Balance, September 30, 2024

  8,992,167  $17,984  $14,253  $180,505  $(29,348) $183,394 
                         
                         

Balance, December 31, 2024

  8,949,110  $17,898  $13,635  $182,236  $(39,063) $174,706 

Net income

  -   -   -   12,513   -   12,513 

Other income tax effects from tax reform

  -   -   -   37   -   37 

Other comprehensive income

  -   -   -   -   17,838   17,838 

Repurchase and retirement of stock

  (56,943)  (114)  (837)  -   -   (951)

Cash dividends declared, $0.40 per share

  -   -   -   (3,551)  -   (3,551)

Balance, September 30, 2025

  8,892,167  $17,784  $12,798  $191,235  $(21,225) $200,592 

 

See Notes to Consolidated Financial Statements.

 

6
Table of Contents

 

 

 

AMES NATIONAL CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)

Nine Months Ended September 30, 2025 and 2024

 

   

2025

    

2024

  
                 

CASH FLOWS FROM OPERATING ACTIVITIES

                

Net income

   $ 12,513     $ 6,705  

Adjustments to reconcile net income to net cash provided by operating activities:

                

Credit loss expense for loans

    

1,704

       792  

Credit loss benefit for off-balance sheet credit exposures

     (7 )     (70 )

Amortization of securities available-for-sale and loans, net

     149       703  

Amortization of intangible assets

     231       259  

Depreciation

     970       997  

Provision for deferred income taxes

     (133 )     (125 )

Securities losses, net

     -       165  

Increase in cash value of bank-owned life insurance

     (65 )     (62 )

Gain on sales of loans held for sale

     (395 )     (361 )

Proceeds from loans held for sale

     18,957       17,471  

Originations of loans held for sale

     (19,108 )     (17,324 )

Amortization of investment in New Markets Tax Credit projects

     575       523  

Gain on other real estate owned, net

     -       (11 )

Change in assets and liabilities:

                

(Increase) in accrued income receivable

     (1,137 )     (2,308 )

(Increase) decrease in other assets

     (204 )     1,384  

(Decrease) in accrued interest payable

     (723 )     (1,665 )

Increase in accrued expenses and other liabilities

     555       1,286  

Net cash provided by operating activities

     13,882       8,359  
                 

CASH FLOWS FROM INVESTING ACTIVITIES

                

Change in interest-bearing time deposits

     488       2,737  

Purchase of securities available-for-sale

     (84,572 )     (11,629 )

Proceeds from sale of securities available-for-sale

     -       2,049  

Proceeds from maturities and calls of securities available-for-sale

     105,638       79,426  

Purchase of FHLB stock

     (4,397 )     (8,867 )

Proceeds from the redemption of FHLB and FRB stock

     5,389       6,767  

Net (increase) decrease in loans

     26,222       (18,706 )

Net proceeds from the sale of other real estate owned

     89       82  

Purchase of premises and equipment

     (411 )     (231 )

Net cash provided by investing activities

     48,446       51,628  
                 

CASH FLOWS FROM FINANCING ACTIVITIES

                

(Decrease) in deposits

     (13,863 )     (10,110 )

(Decrease) in securities sold under agreements to repurchase

     (11,789 )     (11,238 )

Payments on other borrowings

     (20,250 )     (144,987 )

Proceeds from other borrowings

     2,800       129,000  

Net (payments on) FHLB short-term borrowings

     (6,000 )     (11,500 )

Dividends paid

     (5,341 )     (7,284 )

Stock repurchases

     (951 )     -  

Net cash used in financing activities

     (55,394 )     (56,119 )
                 

Net increase in cash and cash equivalents

     6,934       3,868  
                 

CASH AND CASH EQUIVALENTS

                

Beginning

     101,227       55,101  

Ending

   $ 108,161     $ 58,969  

 

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AMES NATIONAL CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (unaudited)

(in thousands)

Nine Months Ended September 30, 2025 and 2024

 

   

2025

    

2024

  
                 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

                

Cash payments for:

                

Interest

   $ 24,749     $ 30,168  

Income taxes

     3,066       246  
                 

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES

                

Transfer of loans receivable to other real estate owned

   $ 293     $ 71  
                 

SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES

                

Dividends declared, not paid

   $ -     $ 1,798  

 

See Notes to Consolidated Financial Statements.

 

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AMES NATIONAL CORPORATION AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements (unaudited)

 

 

1.

Significant Accounting Policies

 

The accompanying unaudited consolidated financial statements have been prepared by Ames National Corporation (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the company believes that the disclosures made are adequate to make the information not misleading. It is suggested that these interim financial statements be read in conjunction with the year-end audited financial statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2024 (the “Annual Report”). The consolidated balance sheet of the Company as of December 31, 2024 has been derived from the audited consolidated balance sheet of the Company as of that date. In the opinion of management, the accompanying consolidated financial statements of the Company contain all adjustments necessary to fairly present the financial results for the interim periods reported. Those adjustments consist only of normal recurring adjustments. The results of operations for the interim periods are not necessarily indicative of results which may be expected for an entire year. The consolidated financial statements include the accounts of the Company and its wholly-owned banking subsidiaries (the “Banks”). All significant intercompany balances and transactions have been eliminated in consolidation.

 

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

 

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

 

The fair value of a reporting unit is the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date. As none of the Company’s reporting units are publicly traded, individual reporting unit fair value determinations cannot be directly correlated to the Company’s stock price. Significant judgment is applied when goodwill is assessed for impairment. This judgment includes developing cash flow projections, selecting appropriate discount rates, identifying relevant market comparables, incorporating general economic and market conditions and selecting an appropriate control premium. The Company completed a quantitative assessment of goodwill as of October 1, 2024 which indicated that goodwill was not impaired. Subsequently, the Company determined there were no adverse changes in criteria and key considerations to the previous assessment. Accordingly, the Company concluded there is no impairment of goodwill as of September 30, 2025.

 

New and Pending Accounting Pronouncements:

 

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU expands segment disclosure requirements for public entities to include disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss. The updated guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within the fiscal years beginning after December 15, 2024, and did not have a material impact on the consolidated financial statements. See Note 13 for the new interim segment disclosures.

 

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

 

In November 2024, the FASB issued ASU No. 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The amendments in this ASU require public companies to disclose, in the notes to the financial statements, specified information about certain costs and expenses at each interim and annual reporting period. Additionally, in January 2025, the FASB issued ASU No. 2025-01, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date. This ASU amends the effective date of ASU No. 2024-03 to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption of ASU No. 2024-03 is permitted. The Company is currently evaluating the impact of the ASU on the Company's consolidated financial statements.

 

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2.

Earnings Per Share

 

Earnings per share amounts were calculated using the weighted average shares outstanding during the periods presented. The weighted average outstanding shares for the three months ended  September 30, 2025 and 2024 was 8,894,152 and 8,992,167, respectively. The weighted average outstanding shares for the nine months ended  September 30, 2025 and 2024 was 8,903,933 and 8,992,167, respectively. The Company had no potentially dilutive securities outstanding during the periods presented.

 

 

3.

Off-Balance Sheet Arrangements

 

The Company is party to financial instruments with off-balance sheet risk in the normal course of business. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheet. No material changes in the Company’s off-balance sheet arrangements have occurred since December 31, 2024.

 
 

4.

Fair Value Measurements

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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The following table presents the balances of assets measured at fair value on a recurring basis by level as of  September 30, 2025 and  December 31, 2024 (in thousands):

 

Description

  

Total

    

Level 1

    

Level 2

    

Level 3

  
                                 

2025

                                

Assets

                                

Securities available-for-sale

                                

U.S. government treasuries

   $ 152,869     $ 152,869     $ -     $ -  

U.S. government agencies

     89,933       -       89,933       -  

U.S. government mortgage-backed securities

     110,482       -       110,482       -  

State and political subdivisions

     236,285       -       236,285       -  

Corporate bonds

     61,091       -       61,091       -  

Loans receivable

     7,950       -       7,950       -  

Derivative financial instruments

     815       -       815       -  
                                 

Liabilities

                                

Derivative financial instruments

   $ 409     $ -     $ 409     $ -  
                                 

2024

                                

Assets

                                

Securities available-for-sale

                                

U.S. government treasuries

   $ 167,715     $ 167,715     $ -     $ -  

U.S. government agencies

     83,433       -       83,433       -  

U.S. government mortgage-backed securities

     91,050       -       91,050       -  

State and political subdivisions

     245,562       -       245,562       -  

Corporate bonds

     60,753       -       60,753       -  

Loans receivable

     7,923       -       7,923       -  

Derivative financial instruments

     996       -       996       -  
                                 

Liabilities

                                

Derivative financial instruments

   $ 248     $ -     $ 248     $ -  

 

Certain assets are measured at fair value on a nonrecurring basis; that is, they are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment or a change in previously recognized impairment).  The following table presents the assets carried on the balance sheet (after specific reserves) by caption and by level within the valuation hierarchy as of September 30, 2025 and  December 31, 2024 (in thousands):

 

Description

  

Total

    

Level 1

    

Level 2

    

Level 3

  
                                 

2025

                                
                                 

Collateral dependent loans

   $ 2,530     $ -     $ -     $ 2,530  
Other real estate owned     204       -       -       204  
                                 
Total   $ 2,734     $ -     $ -     $ 2,734  
                                 

2024

                                
                                 
Collateral dependent loans   $ 385     $ -     $ -     $ 385  

 

As of September 30, 2025, individually analyzed collateral dependent loans with a carrying value of $3.9 million were reduced by a specific reserve of $1.4 million, resulting in a reporting fair value of $2.5 million. As of December 31, 2024, individually analyzed collateral dependent loans with a carrying value of $475 thousand were reduced by a specific reserve of $90 thousand resulting in a reporting fair value of $385 thousand.

 

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The significant inputs used in the fair value measurements for Level 3 assets measured at fair value on a nonrecurring basis as of September 30, 2025 and  December 31, 2024 are as follows (in thousands):

 

   

2025

  
   

Estimated

  

Valuation

Unobservable

      
   

Fair Value

  

Techniques

Inputs

  

Range

  
                     

Collateral dependent loans

   $ 2,530  

Fair value of collateral

Valuation adjustments

     0% - 25%  
                     
Other real estate owned   $ 204   Fair value of collateral Valuation adjustments     6% - 8%  

 

   

2024

  
   

Estimated

  

Valuation

Unobservable

      
   

Fair Value

  

Techniques

Inputs

  

Range

  
                     

Collateral dependent loans

   $ 385   Fair value of collateral

Valuation adjustments

     0% - 25%  

 

Evaluations of the underlying assets are completed for each collateral dependent loan with a specific reserve. The types of collateral vary widely and could include accounts receivables, inventory, a variety of equipment and real estate. Collateral evaluations are reviewed and discounted as appropriate based on knowledge of the specific type of collateral and could include cost approach, sales comparison approach, or income approach. In the case of real estate, an independent appraisal may be obtained. Types of discounts considered included aging of receivables, condition of the collateral, potential market for the collateral and estimated disposal costs. These discounts will vary from loan to loan.

 

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GAAP requires disclosure of the fair value of financial assets and financial liabilities, including those that are not measured and reported at fair value on a recurring basis or nonrecurring basis. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The following table includes the carrying amounts and estimated fair values of the Company’s financial assets and liabilities as of September 30, 2025 and  December 31, 2024 (in thousands):

 

     

2025

    

2024

  
 

Fair Value

          

Estimated

            

Estimated

  
 

Hierarchy

  

Carrying

    

Fair

    

Carrying

    

Fair

  
 

Level

  

Amount

    

Value

    

Amount

    

Value

  
                                   

Financial assets:

                                  

Cash and cash equivalents

Level 1

   $ 108,161     $ 108,161     $ 101,227     $ 101,227  

Interest-bearing time deposits

Level 1

     5,678       5,627       6,166       5,938  

Securities available-for-sale

See previous table

     650,660       650,660       648,513       648,513  

FHLB and FRB stock

Level 2

     2,891       2,891       3,883       3,883  

Loans receivable, net

Level 3

     1,275,794       1,242,375       1,303,917       1,261,703  

Loans held for sale

Level 2

     888       888       342       342  

Accrued income receivable

Level 1

     15,001       15,001       13,864       13,864  

Derivative financial instruments

Level 2

     815       815       996       996  

Financial liabilities:

                                  

Deposits

Level 2

   $ 1,832,819     $ 1,833,160     $ 1,846,682     $ 1,848,472  

Securities sold under agreements to repurchase

Level 1

     40,623       40,623       52,412       52,412  

Other borrowings

Level 2

     23,502       23,351       46,952       46,543  

Accrued interest payable

Level 1

     2,485       2,485       3,208       3,208  

Derivative financial instruments

Level 2

     409       409       248       248  

 

The methodologies used to determine fair value as of  September 30, 2025 did not change from the methodologies described in the December 31, 2024 Annual Financial Statements.

 

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

 

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

 

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5.

Debt Securities

 

The amortized cost of securities available-for-sale and their approximate fair values as of September 30, 2025 and  December 31, 2024 are summarized below (in thousands):

 

2025:

          

Gross

    

Gross

          
   

Amortized

    

Unrealized

    

Unrealized

    

Estimated

  
   

Cost

    

Gains

    

Losses

    

Fair Value

  
                                 

U.S. government treasuries

   $ 156,916     $ 363     $ (4,410 )   $ 152,869  

U.S. government agencies

     92,688       117       (2,872 )     89,933  

U.S. government mortgage-backed securities

     118,927       191       (8,636 )     110,482  

State and political subdivisions

     247,081       258       (11,054 )     236,285  

Corporate bonds

     63,606       114       (2,629 )     61,091  
    $ 679,218     $ 1,043     $ (29,601 )   $ 650,660  

 

2024:

          

Gross

    

Gross

          
   

Amortized

    

Unrealized

    

Unrealized

    

Estimated

  
   

Cost

    

Gains

    

Losses

    

Fair Value

  
                                 

U.S. government treasuries

   $ 176,483     $ 8     $ (8,776 )   $ 167,715  

U.S. government agencies

     88,625       2       (5,194 )     83,433  

U.S. government mortgage-backed securities

     103,964       6       (12,920 )     91,050  

State and political subdivisions

     266,118       35       (20,591 )     245,562  

Corporate bonds

     65,338       7       (4,592 )     60,753  
    $ 700,528     $ 58     $ (52,073 )   $ 648,513  

 

The amortized cost and fair value of debt securities available-for-sale as of September 30, 2025, are shown below by expected maturity. Expected maturity will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties (in thousands).

 

   

Amortized

    

Estimated

  
   

Cost

    

Fair Value

  
                 

Due in one year or less

   $ 92,716     $ 91,586  

Due after one year through five years

     370,875       357,222  

Due after five years through ten years

     94,597       89,267  

Due after ten years

     2,103       2,103  
    $ 560,291     $ 540,178  

U.S. government mortgage-backed securities

     118,927       110,482  

Total

   $ 679,218     $ 650,660  

 

The Company's investment portfolio had an expected duration of 3.0 years as of September 30, 2025.

 

Securities with a carrying value of $296.2 million and $292.8 million at September 30, 2025 and  December 31, 2024, respectively, were pledged on public deposits, securities sold under agreements to repurchase, other borrowings and for other purposes as required or permitted by law.

 

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The proceeds and losses on securities available-for-sale for the three and nine months ended September 30, 2025 and 2024 are summarized below (in thousands):

 

   

Three Months Ended

    

Nine Months Ended

  
   

September 30,

    

September 30,

  
   

2025

    

2024

    

2025

    

2024

  

Proceeds from sales of securities available-for-sale

   $ -     $ -     $ -     $ 2,049  

Gross realized gains on securities available-for-sale

     -       -       -       -  

Gross realized losses on securities available-for-sale

     -       -       -       (165 )

 

Gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of September 30, 2025 and  December 31, 2024 are summarized as follows (in thousands):

 

   

Less than 12 Months

    

12 Months or More

    

Total

  
   

Estimated

    

Unrealized

    

No. of

    

Estimated

    

Unrealized

    

No. of

    

Estimated

    

Unrealized

  

2025:

  

Fair Value

    

Losses

    

Securities

    

Fair Value

    

Losses

    

Securities

    

Fair Value

    

Losses

  
                                                                 

Securities available-for-sale:

                                                                

U.S. government treasuries

   $ -     $ -       -     $ 117,197     $ (4,410 )     68     $ 117,197     $ (4,410 )

U.S. government agencies

     13,331       (90 )     8       65,022       (2,782 )     56       78,353       (2,872 )

U.S. government mortgage-backed securities

     10,919       (59 )     9       79,653       (8,577 )     147       90,572       (8,636 )

State and political subdivisions

     2,274       (117 )     6       204,049       (10,937 )     389       206,323       (11,054 )

Corporate bonds

     1,500       (7 )     2       52,036       (2,622 )     63       53,536       (2,629 )
    $ 28,024     $ (273 )     25     $ 517,957     $ (29,328 )     723     $ 545,981     $ (29,601 )

 

   

Less than 12 Months

    

12 Months or More

    

Total

  
   

Estimated

    

Unrealized

    

No. of

    

Estimated

    

Unrealized

    

No. of

    

Estimated

    

Unrealized

  

2024:

  

Fair Value

    

Losses

    

Securities

    

Fair Value

    

Losses

    

Securities

    

Fair Value

    

Losses

  
                                                                 

Securities available-for-sale:

                                                                

U.S. government treasuries

   $ 5,466     $ (43 )     2     $ 159,321     $ (8,733 )     94     $ 164,787     $ (8,776 )

U.S. government agencies

     3,953       (34 )     2       77,166       (5,160 )     70       81,119       (5,194 )

U.S. government mortgage-backed securities

     3,740       (64 )     5       86,870       (12,856 )     154       90,610       (12,920 )

State and political subdivisions

     13,944       (253 )     25       226,201       (20,338 )     440       240,145       (20,591 )

Corporate bonds

     3,153       (27 )     4       56,604       (4,565 )     74       59,757       (4,592 )
    $ 30,256     $ (421 )     38     $ 606,162     $ (51,652 )     832     $ 636,418     $ (52,073 )

 

Gross unrealized losses on debt securities totaled $29.6 million as of September 30, 2025. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, state or political subdivision, or corporations. Management then determines whether downgrades by bond rating agencies have occurred, and reviews industry analysts’ reports. The Company’s procedures for evaluating investments in states, municipalities and political subdivisions include but are not limited to reviewing the offering statement and the most current available financial information, comparing yields to yields of bonds of similar credit quality, confirming capacity to repay, assessing operating and financial performance, evaluating the stability of tax revenues, considering debt profiles and local demographics, and for revenue bonds, assessing the source and strength of revenue structures for municipal authorities. These procedures, as applicable, are utilized for all municipal purchases and are utilized in whole or in part for monitoring the portfolio of municipal holdings. The Company does not utilize third party credit rating agencies as a primary component of determining if the municipal issuer has an adequate capacity to meet the financial commitments under the security for the projected life of the investment, and, therefore, does not compare internal assessments to those of the credit rating agencies. Credit rating downgrades are utilized as an additional indicator of credit weakness and as a reference point for historical default rates. As of September 30, 2025 and  December 31, 2024, the Company determined that no individual securities in an unrealized loss position represented credit losses that would require an allowance for credit losses. The Company concluded that the unrealized losses were primarily attributable to increases in market interest rates since these securities were purchased and other market conditions. Furthermore, the Company does not have the intent to sell any of these AFS debt securities and believes that it is more likely than not that we will not have to sell any such securities before a recovery of cost. Accrued interest receivable on AFS debt securities totaled $3.6 million and $2.9 million as of September 30, 2025 and  December 31, 2024, respectively, and is excluded from the estimate of credit losses.

 

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6.

Loans Receivable and Credit Disclosures

 

The composition of loans receivable as of September 30, 2025 and  December 31, 2024 is as follows (in thousands):

 

   

2025

    

2024

  
                 

Real estate - construction

   $ 57,966     $ 59,281  

Real estate - 1 to 4 family residential

     315,827       309,704  

Real estate - multi-family

     209,099       200,209  

Real estate - commercial

     315,952       350,493  

Real estate - agricultural

     158,075       159,880  

Commercial

     94,777       90,023  

Agricultural

     126,051       134,157  

Consumer and other

     15,821       17,066  
      1,293,568       1,320,813  

Unallocated portfolio layer basis adjustments1

     176       162  

Less allowance for credit losses

     (17,950 )     (17,058 )

Loans receivable, net

   $ 1,275,794     $ 1,303,917  

 

1 This amount represents portfolio layer method basis adjustments related to loans hedged in a closed portfolio. Under the portfolio layer method basis adjustments are not allocated to individual loans, however, the amounts impact the net loan balance. These basis adjustments would be allocated to the amortized cost of specific loans within the pool if the hedge was de-designated. See Note 10 (“Derivative Financial Instruments”) for additional information.

 

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost net of the allowance for credit losses (ACL) and other basis adjustments. Amortized cost is the principal balance outstanding, net of deferred loan fees and costs. Interest income is accrued on the unpaid principal balance. In the event that collection of principal becomes uncertain, the Company has policies in place to reverse accrued interest in a timely manner. Accrued interest receivable on loans held for investment totaled $11.4 million and $10.9 million as of September 30, 2025 and December 31, 2024, respectively, and is excluded from the estimate of credit losses. Nonrefundable loan fees and origination costs are deferred and recognized as a yield adjustment over the life of the related loan.

 

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

 

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Allowance for Credit Losses for Loans. The allowance for credit losses is an estimate of expected losses inherent within the Company's existing loans held for investment portfolio. Expected credit loss inherent in non-cancelable off-balance-sheet (“OBS”) credit exposures is accounted for as a separate liability on the consolidated balance sheet. The Company's allowance for credit losses for OBS credit exposures was $937 thousand and $943 thousand as of September 30, 2025 and  December 31, 2024, respectively. The allowance for credit losses for loans held for investment, as reported in our consolidated balance sheet, is adjusted by a credit loss expense, which is reported in earnings, and reduced by the charge-off of loan amounts, net of recoveries.

 

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

 

 

●

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

 

 

●

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

 

 

●

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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Activity in the allowance for credit losses, on a disaggregated basis, for the three and nine months ended September 30, 2025 and 2024 is as follows (in thousands):

 

   

Three Months Ended September 30, 2025

  
           

1-4 Family

                                                          
   

Construction

    

Residential

    

Multi-family

    

Commercial

    

Agricultural

                    

Consumer

          
   

Real Estate

    

Real Estate

    

Real Estate

    

Real Estate

    

Real Estate

    

Commercial

    

Agricultural

    

and Other

    

Total

  

Balance, June 30, 2025

   $ 481     $ 3,880     $ 2,221     $ 4,508     $ 1,573     $ 1,888     $ 1,991     $ 429     $ 16,971  

Credit loss expense (benefit) 1

     11       226       45       747       (10 )     (147 )     (182 )     (55 )     635  

Recoveries of loans charged-off

     -       -       -       -       -       351       -       -       351  

Loans charged-off

     -       -       -       -       -       (7 )     -       -       (7 )

Balance, September 30, 2025

   $ 492     $ 4,106     $ 2,266     $ 5,255     $ 1,563     $ 2,085     $ 1,809     $ 374     $ 17,950  

 

 (1)

The difference in the credit loss expense reported herein as compared to the Consolidated Statements of Income is associated with the credit loss benefit of $8 thousand related to off-balance sheet credit exposures.

 

   

Nine Months Ended September 30, 2025

  
           

1-4 Family

                                                          
   

Construction

    

Residential

    

Multi-family

    

Commercial

    

Agricultural

                    

Consumer

          
   

Real Estate

    

Real Estate

    

Real Estate

    

Real Estate

    

Real Estate

    

Commercial

    

Agricultural

    

and Other

    

Total

  

Balance, December 31, 2024

   $ 482     $ 3,890     $ 2,188     $ 4,932     $ 1,584     $ 1,759     $ 1,805     $ 418     $ 17,058  

Credit loss expense (benefit) 1

     53       218       78       323       (21 )     1,093       4       (44 )     1,704  

Recoveries of loans charged-off

     1       -       -       -       -       354       -       1       356  

Loans charged-off

     (44 )     (2 )     -       -       -       (1,121 )     -       (1 )     (1,168 )

Balance, September 30, 2025

   $ 492     $ 4,106     $ 2,266     $ 5,255     $ 1,563     $ 2,085     $ 1,809     $ 374     $ 17,950  

 

 (1)

The difference in the credit loss expense reported herein as compared to the Consolidated Statements of Income is associated with the credit loss benefit of $7 thousand related to off-balance sheet credit exposures.

 

   

Three Months Ended September 30, 2024

  
           

1-4 Family

                                                          
   

Construction

    

Residential

    

Multi-family

    

Commercial

    

Agricultural

                    

Consumer

          
   

Real Estate

    

Real Estate

    

Real Estate

    

Real Estate

    

Real Estate

    

Commercial

    

Agricultural

    

and Other

    

Total

  

Balance, June 30, 2024

   $ 413     $ 3,349     $ 2,584     $ 5,530     $ 1,226     $ 1,912     $ 1,710     $ 479     $ 17,203  

Credit loss expense (benefit) 1

     151       400       (373 )     (521 )     333       413       5       (39 )     369  

Recoveries of loans charged-off

     -       1       -       -       -       2       -       -       3  

Loans charged-off

     -       -       -       -       -       (4 )     -       (9 )     (13 )

Balance, September 30, 2024

   $ 564     $ 3,750     $ 2,211     $ 5,009     $ 1,559     $ 2,323     $ 1,715     $ 431     $ 17,562  

 

 (1)

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

 

   

Nine Months Ended September 30, 2024

  
           

1-4 Family

                                                          
   

Construction

    

Residential

    

Multi-family

    

Commercial

    

Agricultural

                    

Consumer

          
   

Real Estate

    

Real Estate

    

Real Estate

    

Real Estate

    

Real Estate

    

Commercial

    

Agricultural

    

and Other

    

Total

  

Balance, December 31, 2023

   $ 408     $ 3,333     $ 2,542     $ 5,236     $ 1,238     $ 1,955     $ 1,607     $ 457     $ 16,776  

Credit loss expense (benefit) 1

     156       414       (331 )     (227 )     321       371       108       (20 )     792  

Recoveries of loans charged-off

     -       3       -       -       -       4       -       3       10  

Loans charged-off

     -       -       -       -       -       (7 )     -       (9 )     (16 )

Balance, September 30, 2024

   $ 564     $ 3,750     $ 2,211     $ 5,009     $ 1,559     $ 2,323     $ 1,715     $ 431     $ 17,562  

 

 (1)

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

 

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

 

   

Primary Type of Collateral

  

September 30, 2025

  

Real Estate

    

Equipment

    

Other

    

Total

    

ACL Allocation

  
                                         

Real estate - construction

   $ -     $ -     $ -     $ -     $ -  

Real estate - 1 to 4 family residential

     1,267       -       -       1,267       197  

Real estate - multi-family

     900       -       -       900       -  

Real estate - commercial

     13,555       -       -       13,555       870  

Real estate - agricultural

     538       -       -       538       -  

Commercial

     413       403       642       1,458       318  

Agricultural

     1,314       -       296       1,610       -  

Consumer and other

     -       -       -       -       -  
                                         
    $ 17,987     $ 403     $ 938     $ 19,328     $ 1,385  

 

   

Primary Type of Collateral

  

December 31, 2024

  

Real Estate

    

Equipment

    

Other

    

Total

    

ACL Allocation

  
                                         

Real estate - construction

   $ 62     $ -     $ -     $ 62     $ -  

Real estate - 1 to 4 family residential

     696       -       -       696       40  

Real estate - multi-family

     947       -       -       947       -  

Real estate - commercial

     10,785       -       -       10,785       -  

Real estate - agricultural

     420       -       -       420       -  

Commercial

     460       398       405       1,263       50  

Agricultural

     213       -       357       570       -  

Consumer and other

     -       -       3       3       -  
                                         
    $ 13,583     $ 398     $ 765     $ 14,746     $ 90  

 

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

 

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

 

   

Total Nonaccrual

    

Nonaccrual with no ACL

  
   

September 30, 2025

    

December 31, 2024

    

September 30, 2025

    

December 31, 2024

  
                                 

Real estate - construction

   $ -     $ 62     $ -     $ 62  

Real estate - 1 to 4 family residential

     1,267       696       478       626  

Real estate - multi-family

     900       947       900       947  

Real estate - commercial

     13,538       10,768       11,071       10,768  

Real estate - agricultural

     538       420       538       420  

Commercial

     1,484       1,298       898       893  

Agricultural

     1,610       570       1,610       570  

Consumer and other

     5       11       -       3  
                                 
    $ 19,342     $ 14,772     $ 15,495     $ 14,289  

 

The interest income recognized on nonaccrual loans for the three months ended  September 30, 2025 and 2024 was approximately $54 thousand and $8 thousand, respectively. The interest income recognized on nonaccrual loans for the nine months ended  September 30, 2025 and 2024 was approximately $56 thousand and $46 thousand, respectively.

 

The interest foregone on nonaccrual loans for the three months ended  September 30, 2025 and 2024 was approximately $449 thousand and $354 thousand, respectively. The interest foregone on nonaccrual loans for the nine months ended  September 30, 2025 and 2024 was approximately $1.4 million and $810 thousand, respectively.

 

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

 

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

 

The Company made no loan modifications to borrowers experiencing financial difficulty for the nine months ended September 30, 2025 and 2024.

 

Upon the Company’s determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is charged-off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount. The Company had no net charge-offs for the three and nine months ended September 30, 2025 and 2024 related to loan modifications to borrowers experiencing financial difficulties.

 

There were no loan modifications that had a payment default and were modified in the twelve months before default as of September 30, 2025. A loan is considered to be in payment default once it is 60 days contractually past due under the modified terms.

 

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Aging Analysis. An aging analysis of the recorded investments in loans, on a disaggregated basis, as of September 30, 2025 and  December 31, 2024, is as follows (in thousands):

 

2025

          

90 Days

                            

90 Days

  
   

30-89

    

or Greater

    

Total

                    

or Greater

  
   

Past Due

    

Past Due

    

Past Due

    

Current

    

Total

    

Accruing

  
                                                 

Real estate - construction

   $ 1,346     $ -     $ 1,346     $ 56,620     $ 57,966     $ -  

Real estate - 1 to 4 family residential

     3,309       148       3,457       312,370       315,827       148  

Real estate - multi-family

     -       -       -       209,099       209,099       -  

Real estate - commercial

     619       2,620       3,239       312,713       315,952       -  

Real estate - agricultural

     25       -       25       158,050       158,075       -  

Commercial

     499       476       975       93,802       94,777       26  

Agricultural

     132       1,091       1,223       124,828       126,051       -  

Consumer and other

     1       -       1       15,820       15,821       -  
                                                 
    $ 5,931     $ 4,335     $ 10,266     $ 1,283,302     $ 1,293,568     $ 174  

 

2024

          

90 Days

                            

90 Days

  
   

30-89

    

or Greater

    

Total

                    

or Greater

  
   

Past Due

    

Past Due

    

Past Due

    

Current

    

Total

    

Accruing

  
                                                 

Real estate - construction

   $ -     $ 63     $ 63     $ 59,218     $ 59,281     $ -  

Real estate - 1 to 4 family residential

     1,744       204       1,948       307,756       309,704       23  

Real estate - multi-family

     -       -       -       200,209       200,209       -  

Real estate - commercial

     332       2,501       2,833       347,660       350,493       -  

Real estate - agricultural

     651       660       1,311       158,569       159,880       660  

Commercial

     288       356       644       89,379       90,023       -  

Agricultural

     68       53       121       134,036       134,157       53  

Consumer and other

     5       -       5       17,061       17,066       -  
                                                 
    $ 3,088     $ 3,837     $ 6,925     $ 1,313,888     $ 1,320,813     $ 736  

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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The following tables show the risk category of loans by loan segment and year of origination as of September 30, 2025 and  December 31, 2024 (in thousands):

 

September 30, 2025

  

Amortized Cost Basis of Term Loans by Year of Origination

                  
   

2025

    

2024

    

2023

    

2022

    

2021

    

Prior

    

Revolving

    

Total

  

Real estate - construction

                                                                

Pass

   $ 30,478     $ 9,581     $ 15,791     $ -     $ 205     $ 17     $ 1,894     $ 57,966  

Watch

     -       -       -       -       -       -       -       -  

Special Mention

     -       -       -       -       -       -       -       -  

Substandard

     -       -       -       -       -       -       -       -  

Substandard-Impaired

     -       -       -       -       -       -       -       -  

Total

   $ 30,478     $ 9,581     $ 15,791     $ -     $ 205     $ 17     $ 1,894     $ 57,966  
                                                                 

Current-period gross charge-offs

   $ -     $ 44     $ -     $ -     $ -     $ -     $ -     $ 44  
                                                                 

Real estate - 1-4 family residential

                                                                

Pass

   $ 42,869     $ 37,821     $ 39,962     $ 63,018     $ 46,328     $ 45,908     $ 23,089     $ 298,995  

Watch

     262       882       1,413       88       8,829       1,230       317       13,021  

Special Mention

     199       -       94       -       730       -       -       1,023  

Substandard

     -       65       421       -       1,009       29       -       1,524  

Substandard-Impaired

     360       81       74       642       -       107       -       1,264  

Total

   $ 43,690     $ 38,849     $ 41,964     $ 63,748     $ 56,896     $ 47,274     $ 23,406     $ 315,827  
                                                                 

Current-period gross charge-offs

   $ -     $ -     $ -     $ -     $ -     $ 2     $ -     $ 2  
                                                                 

Real estate - multi-family

                                                                

Pass

   $ 36,902     $ 12,078     $ 6,711     $ 45,758     $ 27,148     $ 39,437     $ 6,235     $ 174,269  

Watch

     849       6,984       1,062       -       14,448       2,124       -       25,467  

Special Mention

     -       -       -       -       -       -       -       -  

Substandard

     -       -       8,462       -       -       -       -       8,462  

Substandard-Impaired

     901       -       -       -       -       -       -       901  

Total

   $ 38,652     $ 19,062     $ 16,235     $ 45,758     $ 41,596     $ 41,561     $ 6,235     $ 209,099  
                                                                 

Current-period gross charge-offs

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  
                                                                 

Real estate - commercial

                                                                

Pass

   $ 36,166     $ 25,597     $ 21,496     $ 59,582     $ 42,909     $ 60,598     $ 1,747     $ 248,095  

Watch

     3,746       4,737       830       18,758       5,477       4,087       152       37,787  

Special Mention

     -       -       -       -       -       -       -       -  

Substandard

     -       -       -       -       15,549       982       -       16,531  

Substandard-Impaired

     2,484       784       7,180       2,563       -       471       57       13,539  

Total

   $ 42,396     $ 31,118     $ 29,506     $ 80,903     $ 63,935     $ 66,138     $ 1,956     $ 315,952  
                                                                 

Current-period gross charge-offs

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  
                                                                 

Real estate - agricultural

                                                                

Pass

   $ 19,894     $ 15,601     $ 16,404     $ 24,895     $ 26,410     $ 35,355     $ 2,821     $ 141,380  

Watch

     6,812       1,848       1,019       1,101       263       3,515       -       14,558  

Special Mention

     -       -       -       -       -       -       -       -  

Substandard

     450       -       1,257       -       62       91       -       1,860  

Substandard-Impaired

     142       -       -       -       135       -       -       277  

Total

   $ 27,298     $ 17,449     $ 18,680     $ 25,996     $ 26,870     $ 38,961     $ 2,821     $ 158,075  
                                                                 

Current-period gross charge-offs

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  

 

24
Table of Contents
 

September 30, 2025

  

Amortized Cost Basis of Term Loans by Year of Origination

                  
   

2025

    

2024

    

2023

    

2022

    

2021

    

Prior

    

Revolving

    

Total

  

Commercial

                                                                

Pass

   $ 13,016     $ 6,486     $ 6,674     $ 7,903     $ 4,581     $ 3,619     $ 37,741     $ 80,020  

Watch

     799       737       7,226       632       983       166       2,729       13,272  

Special Mention

     -       -       -       -       -       -       -       -  

Substandard

     -       -       -       -       -       -       -       -  

Substandard-Impaired

     153       370       26       -       -       427       509       1,485  

Total

   $ 13,968     $ 7,593     $ 13,926     $ 8,535     $ 5,564     $ 4,212     $ 40,979     $ 94,777  
                                                                 

Current-period gross charge-offs

   $ 1,104     $ -     $ -     $ -     $ -     $ 17     $ -     $ 1,121  
                                                                 

Agricultural

                                                                

Pass

   $ 12,572     $ 5,857     $ 3,179     $ 3,922     $ 2,192     $ 1,378     $ 72,534     $ 101,634  

Watch

     5,363       932       650       287       261       186       14,054       21,733  

Special Mention

     -       -       -       -       -       -       -       -  

Substandard

     951       -       -       28       -       20       340       1,339  

Substandard-Impaired

     -       600       30       -       209       15       491       1,345  

Total

   $ 18,886     $ 7,389     $ 3,859     $ 4,237     $ 2,662     $ 1,599     $ 87,419     $ 126,051  
                                                                 

Current-period gross charge-offs

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  
                                                                 

Consumer and other

                                                                

Pass

   $ 4,594     $ 2,156     $ 3,307     $ 1,735     $ 1,581     $ 1,911     $ 508     $ 15,792  

Watch

     11       -       -       -       -       -       -       11  

Special Mention

     -       -       -       -       -       -       -       -  

Substandard

     7       -       3       -       -       -       -       10  

Substandard-Impaired

     -       2       2       -       -       4       -       8  

Total

   $ 4,612     $ 2,158     $ 3,312     $ 1,735     $ 1,581     $ 1,915     $ 508     $ 15,821  
                                                                 

Current-period gross charge-offs

   $ -     $ 1     $ -     $ -     $ -     $ -     $ -     $ 1  
                                                                 

Total loans

                                                                

Pass

   $ 196,491     $ 115,177     $ 113,524     $ 206,813     $ 151,354     $ 188,223     $ 146,569     $ 1,118,151  

Watch

     17,842       16,120       12,200       20,866       30,261       11,308       17,252       125,849  

Special Mention

     199       -       94       -       730       -       -       1,023  

Substandard

     1,408       65       10,143       28       16,620       1,122       340       29,726  

Substandard-Impaired

     4,040       1,837       7,312       3,205       344       1,024       1,057       18,819  

Total

   $ 219,980     $ 133,199     $ 143,273     $ 230,912     $ 199,309     $ 201,677     $ 165,218     $ 1,293,568  
                                                                 

Current-period gross charge-offs

   $ 1,104     $ 45     $ -     $ -     $ -     $ 19     $ -     $ 1,168  

 

25
Table of Contents
 

December 31, 2024

  

Amortized Cost Basis of Term Loans by Year of Origination

                  
   

2024

    

2023

    

2022

    

2021

    

2020

    

Prior

    

Revolving

    

Total

  

Real estate - construction

                                                                

Pass

   $ 37,743     $ 16,689     $ 1,640     $ 228     $ 11     $ 161     $ 1,991     $ 58,463  

Watch

     756       -       -       -       -       -       -       756  

Special Mention

     -       -       -       -       -       -       -       -  

Substandard

     -       -       -       -       -       -       -       -  

Substandard-Impaired

     62       -       -       -       -       -       -       62  

Total

   $ 38,561     $ 16,689     $ 1,640     $ 228     $ 11     $ 161     $ 1,991     $ 59,281  
                                                                 

Current-period gross charge-offs

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  
                                                                 

Real estate - 1-4 family residential

                                                                

Pass

   $ 46,850     $ 44,736     $ 66,864     $ 52,746     $ 41,574     $ 18,767     $ 21,325     $ 292,862  

Watch

     1,233       1,212       91       9,535       1,003       303       95       13,472  

Special Mention

     -       -       639       -       289       -       -       928  

Substandard

     -       424       -       1,230       -       90       -       1,744  

Substandard-Impaired

     568       -       -       70       -       60       -       698  

Total

   $ 48,651     $ 46,372     $ 67,594     $ 63,581     $ 42,866     $ 19,220     $ 21,420     $ 309,704  
                                                                 

Current-period gross charge-offs

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  
                                                                 

Real estate - multi-family

                                                                

Pass

   $ 15,316     $ 20,441     $ 49,932     $ 31,822     $ 36,556     $ 10,771     $ 5,735     $ 170,573  

Watch

     6,517       -       -       19,971       -       -       -       26,488  

Special Mention

     -       -       -       -       -       -       -       -  

Substandard

     -       -       -       -       2,200       -       -       2,200  

Substandard-Impaired

     948       -       -       -       -       -       -       948  

Total

   $ 22,781     $ 20,441     $ 49,932     $ 51,793     $ 38,756     $ 10,771     $ 5,735     $ 200,209  
                                                                 

Current-period gross charge-offs

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  
                                                                 

Real estate - commercial

                                                                

Pass

   $ 37,014     $ 30,228     $ 71,779     $ 51,164     $ 53,722     $ 26,685     $ 3,995     $ 274,587  

Watch

     4,749       5,429       14,982       5,484       6,005       548       241       37,438  

Special Mention

     -       -       -       -       2,893       -       -       2,893  

Substandard

     828       2,637       -       15,978       4,355       1,009       -       24,807  

Substandard-Impaired

     513       7,753       2,502       -       -       -       -       10,768  

Total

   $ 43,104     $ 46,047     $ 89,263     $ 72,626     $ 66,975     $ 28,242     $ 4,236     $ 350,493  
                                                                 

Current-period gross charge-offs

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  
                                                                 

Real estate - agricultural

                                                                

Pass

   $ 20,951     $ 17,331     $ 28,074     $ 29,180     $ 21,796     $ 22,366     $ 2,562     $ 142,260  

Watch

     1,994       5,259       373       1,541       2,813       3,477       -       15,457  

Special Mention

     -       -       -       -       -       -       -       -  

Substandard

     -       1,275       -       746       -       -       -       2,021  

Substandard-Impaired

     -       -       -       142       -       -       -       142  

Total

   $ 22,945     $ 23,865     $ 28,447     $ 31,609     $ 24,609     $ 25,843     $ 2,562     $ 159,880  
                                                                 

Current-period gross charge-offs

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  

 

26
Table of Contents
 

December 31, 2024

  

Amortized Cost Basis of Term Loans by Year of Origination

                  
   

2024

    

2023

    

2022

    

2021

    

2020

    

Prior

    

Revolving

    

Total

  

Commercial

                                                                

Pass

   $ 14,729     $ 10,589     $ 10,677     $ 7,405     $ 1,475     $ 3,298     $ 28,192     $ 76,365  

Watch

     726       6,926       215       -       244       136       2,138       10,385  

Special Mention

     -       -       -       -       -       -       -       -  

Substandard

     1,150       -       24       -       -       -       800       1,974  

Substandard-Impaired

     782       45       -       1       -       65       406       1,299  

Total

   $ 17,387     $ 17,560     $ 10,916     $ 7,406     $ 1,719     $ 3,499     $ 31,536     $ 90,023  
                                                                 

Current-period gross charge-offs

   $ 465     $ -     $ -     $ -     $ -     $ 9     $ -     $ 474  
                                                                 

Agricultural

                                                                

Pass

   $ 14,463     $ 5,547     $ 5,057     $ 3,499     $ 1,429     $ 503     $ 85,222     $ 115,720  

Watch

     1,822       563       356       261       8       186       12,249       15,445  

Special Mention

     -       -       -       -       -       -       -       -  

Substandard

     1,159       -       -       72       380       -       1,113       2,724  

Substandard-Impaired

     -       54       -       214       -       -       -       268  

Total

   $ 17,444     $ 6,164     $ 5,413     $ 4,046     $ 1,817     $ 689     $ 98,584     $ 134,157  
                                                                 

Current-period gross charge-offs

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  
                                                                 

Consumer and other

                                                                

Pass

   $ 5,845     $ 4,451     $ 2,435     $ 1,931     $ 1,608     $ 758     $ 11     $ 17,039  

Watch

     15       -       -       -       -       -       -       15  

Special Mention

     -       -       -       -       -       -       -       -  

Substandard

     -       -       -       -       -       -       -       -  

Substandard-Impaired

     1       -       3       -       8       -       -       12  

Total

   $ 5,861     $ 4,451     $ 2,438     $ 1,931     $ 1,616     $ 758     $ 11     $ 17,066  
                                                                 

Current-period gross charge-offs

   $ 9     $ -     $ -     $ -     $ -     $ -     $ -     $ 9  
                                                                 

Total loans

                                                                

Pass

   $ 192,911     $ 150,012     $ 236,458     $ 177,975     $ 158,171     $ 83,309     $ 149,033     $ 1,147,869  

Watch

     17,812       19,389       16,017       36,792       10,073       4,650       14,723       119,456  

Special Mention

     -       -       639       -       3,182       -       -       3,821  

Substandard

     3,137       4,336       24       18,026       6,935       1,099       1,913       35,470  

Substandard-Impaired

     2,874       7,852       2,505       427       8       125       406       14,197  

Total

   $ 216,734     $ 181,589     $ 255,643     $ 233,220     $ 178,369     $ 89,183     $ 166,075     $ 1,320,813  
                                                                 

Current-period gross charge-offs

   $ 474     $ -     $ -     $ -     $ -     $ 9     $ -     $ 483  

 

27
Table of Contents
 
 

7.

Intangible assets

 

The following sets forth the carrying amounts and accumulated amortization of the intangible assets at September 30, 2025 and  December 31, 2024 (in thousands):

 

  

2025

  

2024

 
  

Gross

  

Accumulated

  

Gross

  

Accumulated

 
  

Amount

  

Amortization

  

Amount

  

Amortization

 
                 

Core deposit intangible asset

 $6,411  $5,550  $6,411  $5,319 
                 

 

The weighted average remaining life of the intangible assets is approximately 2.1 years as of September 30, 2025 and  December 31, 2024.

 

The following sets forth the activity related to the intangible assets for the three and nine months ended September 30, 2025 and 2024 (in thousands):

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 
  

2025

  

2024

  

2025

  

2024

 
                 

Beginning intangible assets, net

 $938  $1,256  $1,092  $1,429 

Amortization

  (77)  (86)  (231)  (259)
                 

Ending intangible assets, net

 $861  $1,170  $861  $1,170 

 

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

 

2025

 $69 

2026

  269 

2027

  240 

2028

  190 

2029

  93 
     

Total

 $861 

 

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8.

Pledged Collateral Related to Securities Sold Under Repurchase Agreements

 

The repurchase agreements mature daily and the following sets forth the pledged collateral at estimated fair value related to securities sold under repurchase agreements as of September 30, 2025 and  December 31, 2024 (in thousands):

 

   

2025

    

2024

  

Securities sold under agreements to repurchase:

                

U.S. government treasuries

   $ 20,905     $ 20,396  

U.S. government agencies

     39,232       43,852  

U.S. government mortgage-backed securities

     8,453       7,188  
                 

Total pledged collateral

   $ 68,590     $ 71,436  

 

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

 

 

9.

Borrowings

 

On April 25, 2024, the Company entered into a promissory note and line of credit agreement with an unaffiliated bank, providing for a two-year five million dollar line of credit facility.  The Company has secured its obligations under the Credit Agreement by pledging to the Lender all outstanding shares of common stock of its subsidiary bank, Reliance State Bank. This note was paid in full in September 2025 and there is no outstanding balance as of September 30, 2025. The Company had $1 million of outstanding borrowings on the line of credit as of December 31, 2024. The Company did not comply with one covenant as of September 30, 2025 and  December 31, 2024 requiring the modified Texas Ratio not exceed 20% at the end of each calendar quarter. The modified Texas Ratio is defined as substandard, substandard-impaired loans and other real estate owned, divided by the sum of Tier 1 capital plus the Allowance for Credit Losses – Loans. The modified Texas Ratio was 21.3% as of September 30, 2025 and 22.7% as of December 31, 2024.  The lender waived the noncompliance.

 

FHLB advances are collateralized by FHLB stock, certain 1-4 family residential real estate loans, multifamily real estate loans, commercial real estate loans and agricultural real estate loans. The Banks had available borrowing capacity with the FHLB of Des Moines, Iowa of $271.2 million and $245.3 million at  September 30, 2025 and December 31, 2024, respectively. As of September 30, 2025, the Company had $21.5 million of FHLB advances with a weighted average interest rate of 4.03%. As of December 31, 2024, the Company had $43.5 million of FHLB advances with a weighted average interest rate of 4.42%.

 

On June 6, 2022, the Company borrowed $4.0 million on a credit agreement with a commercial bank. The borrowings were used for general corporate purposes. Interest under the note is payable quarterly over four years. Required quarterly principal payments of $150 thousand began in September 2022, with the remaining balance due June 2026. The interest rate is fixed at 3.35% and the outstanding balance was $2.1 million and $2.5 million as of  September 30, 2025 and December 31, 2024, respectively. The note is secured by property in West Des Moines, Iowa.

 

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10.

Derivative Financial Instruments

 

Fair Value Hedges

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

 

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

 

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

 

The table below identifies the notional amount, fair value and balance sheet category of the Company's interest rate swaps at September 30, 2025, and  December 31, 2024 (in thousands):

 

   

Notional Amount

    

Fair Value

  

Balance Sheet Category

September 30, 2025

                  

Interest rate swaps

   $ 8,221     $ 581  

Other assets

Interest rate swaps

     25,000       (175 )

Other liabilities

December 31, 2024

                  

Interest rate swaps

   $ 8,531     $ 909  

Other assets

Interest rate swaps

     25,000       (161 )

Other liabilities

 

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The table below identifies the carrying amount of the hedged assets and cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged assets that are designated as a fair value hedge accounting relationship at September 30, 2025, and  December 31, 2024 (in thousands):

 

             

Cumulative Amount of Fair Value

  
 

Location in the consolidated

  

Carrying Amount of

    

Hedging Adjustment Included in

  
 

balance sheet

  

the Hedged Assets

    

Carrying Amount of Hedged Assets

  

September 30, 2025

                  

Interest rate swaps

Loans receivable, net

   $ 49,062     $ (405 )

December 31, 2024

                  

Interest rate swaps

Loans receivable, net

   $ 52,567     $ (748 )

 

Back-to-Back Loan Swaps

The Company has interest rate swap loan relationships with customers to assist them in managing their interest rate risk. Upon entering into these loan swaps, the Company enters into offsetting positions with counterparties in order to minimize interest rate risk. These back-to-back loan swaps qualify as free standing financial derivatives with the fair values reported in other assets and other liabilities on the consolidated balance sheets. Any gains and losses on these back-to-back swaps are recorded in noninterest income on the consolidated statements of income, and for the three and nine months ended September 30, 2025, and September 30, 2024, no gain or loss was recognized. The table below identifies the balance sheet category and fair values of the derivative instruments designated as loan swaps at September 30, 2025, and  December 31, 2024 (in thousands):

 

                     

Weighted Average

    

Weighted Average

  
   

Notional Amount

    

Fair Value

  

Balance Sheet Category

  

Receive Rate

    

Pay Rate

  

September 30, 2025

                                  

Customer interest rate swaps

   $ 8,811     $ 234  

Other assets

     6.19 %     5.98 %

Customer interest rate swaps

     8,811       (234 )

Other liabilities

     5.98 %     6.19 %

December 31, 2024

                                  

Customer interest rate swaps

   $ 12,258     $ 87  

Other assets

     6.48 %     5.81 %

Customer interest rate swaps

     12,258       (87 )

Other liabilities

     5.81 %     6.48 %

 

The Company was required to pledge $1.1 million and $1.3 million of securities as collateral for these derivative financial instruments at September 30, 2025, and December 31, 2024, respectively. The Company's counterparties were not required to pledge collateral at September 30, 2025 and  December 31, 2024.

 

 

11.

Income Taxes

 

The tax effects of temporary differences related to income taxes are included in deferred income taxes. The change in deferred income taxes since  December 31, 2024 is due primarily to the decrease in unrealized losses on investment securities.

 
 

12.

Regulatory Matters

 

The Company and the Banks are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements (as shown in the following table) can result in certain mandatory and possibly additional discretionary actions by regulators, which, if undertaken, could have a direct material effect on the Company's consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Banks must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Company's and the Banks' capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Management believed the Company and the Banks met all capital adequacy requirements to which they were subject as of September 30, 2025.

 

 

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The Company and the Banks’ capital amounts and ratios as of September 30, 2025 and  December 31, 2024 are as follows (dollars in thousands):

 

                                   

To Be Well

  
                                   

Capitalized Under

  
                   

For Capital

    

Prompt Corrective

  
   

Actual

    

Adequacy Purposes

    

Action Provisions

  
   

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

  
                                                 

As of September 30, 2025

                                                

Total capital (to risk-weighted assets):

                                                

Consolidated

   $ 228,752       15.4 %   $ 156,433       10.50 %     N/A       N/A  

Boone Bank & Trust

     16,647       13.5       12,917       10.50       12,302       10.0 %

First National Bank

     115,343       15.2       79,781       10.50       75,982       10.0  

Iowa State Savings Bank

     27,713       16.6       17,483       10.50       16,650       10.0  

Reliance State Bank

     29,536       13.1       23,619       10.50       22,495       10.0  

State Bank & Trust

     22,860       16.9       14,205       10.50       13,529       10.0  

United Bank & Trust

     13,386       17.2       8,162       10.50       7,773       10.0  
                                                 

Tier 1 capital (to risk-weighted assets):

                                                

Consolidated

   $ 210,129       14.1 %   $ 126,636       8.50 %     N/A       N/A  

Boone Bank & Trust

     15,560       12.6       10,457       8.50       9,842       8.0 %

First National Bank

     105,844       13.9       64,585       8.50       60,786       8.0  

Iowa State Savings Bank

     25,629       15.4       14,153       8.50       13,320       8.0  

Reliance State Bank

     26,720       11.9       19,120       8.50       17,996       8.0  

State Bank & Trust

     21,182       15.7       11,499       8.50       10,823       8.0  

United Bank & Trust

     12,414       16.0       6,607       8.50       6,219       8.0  
                                                 

Tier 1 capital (to average-assets):

                                                

Consolidated

   $ 210,129       10.1 %   $ 83,528       4.00 %     N/A       N/A  

Boone Bank & Trust

     15,560       9.5       6,549       4.00       8,187       5.0 %

First National Bank

     105,844       10.0       42,171       4.00       52,713       5.0  

Iowa State Savings Bank

     25,629       9.2       11,181       4.00       13,976       5.0  

Reliance State Bank

     26,720       9.2       11,619       4.00       14,524       5.0  

State Bank & Trust

     21,182       10.9       7,773       4.00       9,717       5.0  

United Bank & Trust

     12,414       10.2       4,891       4.00       6,114       5.0  
                                                 

Common equity tier 1 capital (to risk-weighted assets):

                                                

Consolidated

   $ 210,129       14.1 %   $ 104,288       7.00 %     N/A       N/A  

Boone Bank & Trust

     15,560       12.6       8,612       7.00       7,996       6.5 %

First National Bank

     105,844       13.9       53,187       7.00       49,388       6.5  

Iowa State Savings Bank

     25,629       15.4       11,655       7.00       10,823       6.5  

Reliance State Bank

     26,720       11.9       15,746       7.00       14,621       6.5  

State Bank & Trust

     21,182       15.7       9,470       7.00       8,794       6.5  

United Bank & Trust

     12,414       16.0       5,441       7.00       5,053       6.5  

 

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To Be Well

  
                                   

Capitalized Under

  
                   

For Capital

    

Prompt Corrective

  
   

Actual

    

Adequacy Purposes

    

Action Provisions

  
   

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

  
                                                 

As of December 31, 2024

                                                

Total capital (to risk-weighted assets):

                                                

Consolidated

   $ 219,750       14.3 %   $ 161,155       10.50 %     N/A       N/A  

Boone Bank & Trust

     16,446       13.5       12,809       10.50       12,199       10.0 %

First National Bank

     112,663       14.6       81,211       10.50       77,344       10.0  

Iowa State Savings Bank

     27,161       15.1       18,866       10.50       17,967       10.0  

Reliance State Bank

     29,222       12.2       25,232       10.50       24,030       10.0  

State Bank & Trust

     22,435       16.0       14,719       10.50       14,018       10.0  

United Bank & Trust

     13,205       16.4       8,479       10.50       8,075       10.0  
                                                 

Tier 1 capital (to risk-weighted assets):

                                                

Consolidated

   $ 201,749       13.1 %   $ 130,459       8.50 %     N/A       N/A  

Boone Bank & Trust

     15,404       12.6       10,369       8.50       9,759       8.0 %

First National Bank

     103,707       13.4       65,742       8.50       61,875       8.0  

Iowa State Savings Bank

     24,915       13.9       15,272       8.50       14,374       8.0  

Reliance State Bank

     26,237       10.9       20,426       8.50       19,224       8.0  

State Bank & Trust

     20,734       14.8       11,915       8.50       11,214       8.0  

United Bank & Trust

     12,198       15.1       6,864       8.50       6,460       8.0  
                                                 

Tier 1 capital (to average-assets):

                                                

Consolidated

   $ 201,749       9.2 %   $ 87,421       4.00 %     N/A       N/A  

Boone Bank & Trust

     15,404       9.1       6,743       4.00       8,429       5.0 %

First National Bank

     103,707       9.3       44,595       4.00       55,744       5.0  

Iowa State Savings Bank

     24,915       9.5       10,541       4.00       13,176       5.0  

Reliance State Bank

     26,237       8.6       12,160       4.00       15,200       5.0  

State Bank & Trust

     20,734       10.2       8,096       4.00       10,120       5.0  

United Bank & Trust

     12,198       9.6       5,084       4.00       6,356       5.0  
                                                 

Common equity tier 1 capital (to risk-weighted assets):

                                                

Consolidated

   $ 201,749       13.1 %   $ 107,436       7.00 %     N/A       N/A  

Boone Bank & Trust

     15,404       12.6       8,540       7.00       7,930       6.5 %

First National Bank

     103,707       13.4       54,141       7.00       50,274       6.5  

Iowa State Savings Bank

     24,915       13.9       12,577       7.00       11,679       6.5  

Reliance State Bank

     26,237       10.9       16,821       7.00       15,620       6.5  

State Bank & Trust

     20,734       14.8       9,812       7.00       9,112       6.5  

United Bank & Trust

     12,198       15.1       5,653       7.00       5,249       6.5  

 

The Company and the Banks are subject to the rules of the Basel III regulatory capital framework and related Dodd-Frank Wall Street Reform and Consumer Protection Act. The rules included the implementation of a 2.5 percent capital conservation buffer that is added to the minimum requirements for capital adequacy purposes for all capital ratios except tier 1 capital to average assets. A banking organization with a capital conservation buffer of less than the required amount is subject to limitations on capital distributions, including dividend payments, and certain discretionary bonus payments to executive officers. At September 30, 2025, the capital ratios for the Company and the Banks were sufficient to meet the conservation buffer.

 

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13.   Segment Information

 

The Company adopted ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures on January 1, 2024. The Company has determined that its bank operating model is structured whereby all banking locations serve a similar base of customers utilizing a company-wide offering of similar products and services managed through similar processes and technology platforms that are collectively reviewed by the Company’s Chief Executive Officer, who has been designated as the chief operating decision maker (“CODM”). The CODM regularly assesses performance of the aggregated single banking segment in determining how to allocate resources.

 

The banking segment generates revenues through personal, business, agricultural and commercial lending, management of the investment securities portfolio, deposit account services and wealth management services.

 

Accounting policies for the banking segment are the same as those described in Note 1, Nature of Business and Significant Accounting Policies, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024. The CODM assesses performance of the banking segment and decides how to allocate resources based on net income as reported in the Company’s consolidated statements of income. All categories of interest expense, credit loss expense, and noninterest expense as disclosed in the Company’s consolidated statements of income are considered significant to the banking segment. For the nine months ended September 30, 2025 and 2024, respectively, there were no adjustments or reconciling items between the banking segment net income and consolidated net income as presented in the consolidated statements of income.

 

The measure of segment assets is based on total assets as reported on the consolidated balance sheets. For the nine months ended September 30, 2025, and the year ended December 31, 2024, respectively, there were no adjustments or reconciling items between the banking segment total assets and total assets as presented on the consolidated balance sheets.

 

 

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Item 2.

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

 

Overview

 

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

 

The Company does not engage in any material business activities apart from its ownership of the Banks. Products and services offered by the Banks are for commercial and consumer purposes including loans, deposits and wealth management services. Wealth management services includes financial planning and managing trust, agencies, estates and investment brokerage accounts. The Company employs twenty-seven individuals to assist the Banks with its financial reporting, human resources, audit, compliance, marketing, technology systems, training, real estate valuation services and the coordination of management activities, in addition to 231 full-time equivalent individuals employed by the Banks.

 

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

 

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

 

The Company had net income of $4.6 million, or $0.51 per share, for the three months ended September 30, 2025, compared to net income of $2.2 million, or $0.25 per share, for the three months ended September 30, 2024. For the nine months ended September 30, 2025, net income for the Company totaled $12.5 million, or $1.41 per share, compared to $6.7 million, or $0.75 per share earned in the nine months ended September 30, 2024. The increase in earnings is primarily due to an increase in net interest income. Net interest income increased due to higher yields on loans and investments, combined with a lower cost of funds driven by declining market rates and reduced borrowings.

 

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

 

●

Challenges, Risks and Uncertainties

●

Critical Accounting Policies

●

Non-GAAP Financial Measures

●

Income Statement Review

●

Balance Sheet Review

●

Asset Quality Review and Credit Risk Management

●

Liquidity and Capital Resources

●

Forward-Looking Statements and Business Risks

 

Challenges, Risks and Uncertainties

 

Management has identified certain events or circumstances that may negatively impact the Company’s financial condition and results of operations in the future and is attempting to position the Company to best respond to those challenges. These challenges are addressed in the Company’s most recent Annual Report on Form 10-K filed on March 12, 2025.

 

Critical Accounting Policies

 

The discussion and analysis of the Company's financial condition and results of operations are based upon the Company's consolidated financial statements that have been prepared in accordance with GAAP. The preparation of the Company's financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, income and expenses. These estimates are based upon historical experience and on various other assumptions that management believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The estimates and judgments that management believes involve the most complex and subjective estimates and judgments and have the most effect on the Company's reported financial position and results of operations are described as critical accounting policies in the Company's Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the SEC on March 12, 2025. There have been no significant changes in the critical accounting policies or the assumptions and judgments utilized in applying these policies since December 31, 2024.

 

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Non-GAAP Financial Measures

 

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

 

   

Three Months Ended September 30,

    

Nine Months Ended September 30,

  
   

2025

    

2024

    

2025

    

2024

  

Reconciliation of net interest income and annualized net interest margin on an FTE basis to GAAP:

                                

Net interest income (GAAP)

   $ 14,049     $ 11,077     $ 40,430     $ 32,855  

Tax-equivalent adjustment (1)

     109       128       349       405  

Net interest income on an FTE basis (non-GAAP)

     14,158       11,205       40,779       33,260  

Average interest-earning assets

   $ 2,001,002     $ 2,030,102     $ 2,036,289     $ 2,052,438  

Net interest margin on an FTE basis (non-GAAP)

     2.83 %     2.21 %     2.67 %     2.16 %

 

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

 

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Income Statement Review for the Three Months ended September 30, 2025 and 2024

 

The following highlights a comparative discussion of the major components of net income and their impact for the three months ended September 30, 2025 and 2024:

 

AVERAGE BALANCES AND INTEREST RATES

 

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

 

AVERAGE BALANCE SHEETS AND INTEREST RATES

  
                                                 
   

Three Months Ended September 30,

  
                                                 
   

2025

    

2024

  
                                                 
   

Average

    

Revenue/

    

Yield/

    

Average

    

Revenue/

    

Yield/

  
   

balance

    

expense

    

rate

    

balance

    

expense

    

rate

  

ASSETS

                                                

(dollars in thousands)

                                                

Interest-earning assets

                                                

Loans (1)

                                                

Commercial

   $ 95,115     $ 1,533       6.45 %   $ 89,633     $ 1,425       6.36 %

Agricultural

     125,778       2,218       7.05 %     122,642       2,356       7.68 %

Real estate

     1,054,016       13,430       5.10 %     1,073,945       12,750       4.75 %

Consumer and other

     16,769       228       5.44 %     17,064       220       5.16 %
                                                 

Total loans (including fees)

     1,291,678       17,409       5.39 %     1,303,284       16,751       5.14 %
                                                 

Investment securities

                                                

Taxable

     568,730       3,344       2.35 %     596,141       2,985       2.00 %

Tax-exempt (2)

     75,281       520       2.77 %     91,221       609       2.67 %

Total investment securities

     644,011       3,864       2.40 %     687,362       3,594       2.09 %
                                                 

Interest-bearing deposits with banks and federal funds sold

     65,313       689       4.22 %     39,456       495       5.02 %
                                                 

Total interest-earning assets

     2,001,002     $ 21,962       4.39 %     2,030,102     $ 20,840       4.11 %
                                                 

Noninterest-earning assets

     65,634                       72,650                  
                                                 

TOTAL ASSETS

   $ 2,066,636                     $ 2,102,752                  

 

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

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

 

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AVERAGE BALANCE SHEETS AND INTEREST RATES

  
                                                 
   

Three Months Ended September 30,

  
                                                 
   

2025

    

2024

  
                                                 
   

Average

    

Revenue/

    

Yield/

    

Average

    

Revenue/

    

Yield/

  
   

balance

    

expense

    

rate

    

balance

    

expense

    

rate

  

LIABILITIES AND STOCKHOLDERS' EQUITY

                                                

(dollars in thousands)

                                                

Interest-bearing liabilities

                                                

Deposits

                                                

Interest-bearing checking, savings accounts and money markets

   $ 1,140,317     $ 4,031       1.41 %   $ 1,146,461     $ 4,982       1.74 %

Time deposits

     336,692       3,142       3.73 %     312,034       3,296       4.23 %

Total deposits

     1,477,009       7,173       1.94 %     1,458,495       8,278       2.27 %

Other borrowed funds

     71,223       631       3.54 %     120,234       1,357       4.51 %
                                                 

Total interest-bearing liabilities

     1,548,232       7,804       2.02 %     1,578,729       9,635       2.44 %
                                                 

Noninterest-bearing liabilities

                                                

Noninterest-bearing checking

     310,424                       337,604                  

Other liabilities

     12,217                       13,244                  
                                                 

Stockholders' equity

     195,763                       173,175                  
                                                 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

   $ 2,066,636                     $ 2,102,752                  
                                                 
                                                 

Net interest income (FTE)(3)

           $ 14,158                     $ 11,205          

Net interest spread (FTE)

                     2.37 %                     1.67 %

Net interest margin (FTE)(3)

                     2.83 %                     2.21 %

 

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

 

Net Interest Income

 

For the three months ended September 30, 2025 and 2024, the Company's net interest margin adjusted for tax exempt income was 2.83% and 2.21%, respectively. Net interest income, prior to the adjustment for tax-exempt income, for the three months ended September 30, 2025 totaled $14.0 million compared to $11.1 million for the three months ended September 30, 2024.

 

For the three months ended September 30, 2025, interest income increased $1.1 million, or 5.5%, when compared to the same period in 2024. The increase is primarily due to improved yield on the loan and investment portfolios.

 

Interest expense decreased $1.8 million, or 19.0%, for the three months ended September 30, 2025 when compared to the same period in 2024. The lower interest expense for the period is primarily due to reduced borrowings and a decrease in market rates.

 

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Credit Loss Expense

 

A credit loss expense of $627 thousand was recognized for the three months ended September 30, 2025 as compared to $371 thousand for the three months ended September 30, 2024. Net loan recoveries for the three months ended September 30, 2025 totaled $344 thousand compared to net loan charge-offs totaled $10 thousand for the three months ended September 30, 2024. The credit loss expense in 2025 was primarily due to an increase in specific reserves in the commercial real estate and operating loan portfolios. The recovery in the third quarter 2025 was on a commercial loan relationship that was charged off in the second quarter of 2025.

 

Noninterest Income and Expense

 

Noninterest income for the three months ended September 30, 2025 totaled $2.5 million compared to $2.4 million for the three months ended September 30, 2024, an increase of 5.0%. The increase is primarily due to an increase in wealth management income due to growth in assets under management and new account relationships.

 

Noninterest expense for the three months ended September 30, 2025 totaled $10.2 million compared to $10.5 million recorded for the three months ended September 30, 2024, a decrease of 2.5%. The decrease in noninterest expense is primarily due to $449 thousand of consultant fees for certain contract negations completed in 2024. The efficiency ratio was 61.76% for the third quarter of 2025 as compared to 77.87% in the third quarter of 2024. The efficiency ratio continues to improve as net interest margin increases and noninterest expense is lower than the prior year.

 

Income Taxes

 

Income tax expense for the three months ended September 30, 2025 totaled $1.2 million compared to $397 thousand recorded for the three months ended September 30, 2024. The effective tax rate was 20% and 15% for the three months ended September 30, 2025 and 2024. The lower than expected tax rate in 2025 and 2024 was due primarily to tax-exempt interest income and New Markets Tax Credits.

 

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Income Statement Review for the Nine Months ended September 30, 2025 and 2024

 

The following highlights a comparative discussion of the major components of net income and their impact for the nine months ended September 30, 2025 and 2024:

 

AVERAGE BALANCES AND INTEREST RATES

 

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

 

AVERAGE BALANCE SHEETS AND INTEREST RATES

  
                                                 
   

Nine Months Ended September 30,

  
                                                 
   

2025

    

2024

  
                                                 
   

Average

    

Revenue/

    

Yield/

    

Average

    

Revenue/

    

Yield/

  
   

balance

    

expense

    

rate

    

balance

    

expense

    

rate

  

ASSETS

                                                

(dollars in thousands)

                                                

Interest-earning assets

                                                

Loans (1)

                                                

Commercial

   $ 93,219     $ 4,313       6.17 %   $ 88,236     $ 4,132       6.24 %

Agricultural

     125,211       6,423       6.84 %     118,875       6,734       7.55 %

Real estate

     1,062,195       39,345       4.94 %     1,069,681       37,302       4.65 %

Consumer and other

     16,648       669       5.36 %     16,676       625       5.00 %
                                                 

Total loans (including fees)

     1,297,273       50,750       5.22 %     1,293,468       48,793       5.03 %
                                                 

Investment securities

                                                

Taxable

     563,881       9,300       2.20 %     611,032       9,104       1.99 %

Tax-exempt (2)

     80,938       1,663       2.74 %     96,314       1,929       2.67 %

Total investment securities

     644,819       10,963       2.27 %     707,346       11,033       2.08 %
                                                 

Interest-bearing deposits with banks and federal funds sold

     94,197       3,092       4.38 %     51,624       1,937       5.00 %
                                                 

Total interest-earning assets

     2,036,289     $ 64,805       4.24 %     2,052,438     $ 61,763       4.01 %
                                                 

Noninterest-earning assets

     66,456                       74,608                  
                                                 

TOTAL ASSETS

   $ 2,102,745                     $ 2,127,046                  

 

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

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

 

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AVERAGE BALANCE SHEETS AND INTEREST RATES

  
                                                 
   

Nine Months Ended September 30,

  
                                                 
   

2025

    

2024

  
                                                 
   

Average

    

Revenue/

    

Yield/

    

Average

    

Revenue/

    

Yield/

  
   

balance

    

expense

    

rate

    

balance

    

expense

    

rate

  

LIABILITIES AND STOCKHOLDERS' EQUITY

                                                

(dollars in thousands)

                                                

Interest-bearing liabilities

                                                

Deposits

                                                

Interest-bearing checking, savings accounts and money markets

   $ 1,169,128     $ 12,430       1.42 %   $ 1,169,167     $ 14,768       1.68 %

Time deposits

     333,458       9,549       3.82 %     302,650       9,269       4.08 %

Total deposits

     1,502,586       21,979       1.95 %     1,471,817       24,037       2.18 %

Other borrowed funds

     76,513       2,047       3.57 %     135,331       4,466       4.40 %
                                                 

Total interest-bearing liabilities

     1,579,099       24,026       2.03 %     1,607,148       28,503       2.36 %
                                                 

Noninterest-bearing liabilities

                                                

Noninterest-bearing checking

     323,622                       340,466                  

Other liabilities

     13,037                       12,919                  
                                                 

Stockholders' equity

     186,987                       166,513                  
                                                 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

   $ 2,102,745                     $ 2,127,046                  
                                                 
                                                 

Net interest income (FTE)(3)

           $ 40,779                     $ 33,260          

Net interest spread (FTE)

                     2.21 %                     1.65 %

Net interest margin (FTE)(3)

                     2.67 %                     2.16 %

 

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

 

Net Interest Income

 

For the nine months ended September 30, 2025 and 2024, the Company's net interest margin adjusted for tax exempt income was 2.67% and 2.16%, respectively. Net interest income, prior to the adjustment for tax-exempt income, for the nine months ended September 30, 2025 totaled $40.4 million compared to $32.9 million for the nine months ended September 30, 2024.

 

For the nine months ended September 30, 2025, interest income increased $3.1 million, or 5.0%, when compared to the same period in 2024. The increase is primarily due to improved yield in the loan portfolio and higher average balances in interest-bearing deposits with banks and federal funds sold.

 

Interest expense decreased $4.5 million, or 15.7%, for the nine months ended September 30, 2025 when compared to the same period in 2024. The lower interest expense for the period is primarily due to reduced borrowings and a decrease in market rates.

 

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Table of Contents

 

Credit Loss Expense

 

A credit loss expense of $1.7 million was recognized for the nine months ended September 30, 2025 as compared to $722 thousand for the nine months ended September 30, 2024. Net loan charge-offs for the nine months ended September 30, 2025 totaled $812 thousand compared to net loan charge-offs of $6 thousand for the nine months ended September 30, 2024. The credit loss expense in 2025 was primarily due to an increase in specific reserves in the commercial real estate and operating loan portfolios. The charge-offs in 2025 were primarily related to one commercial loan relationship.

 

Noninterest Income and Expense

 

Noninterest income for the nine months ended September 30, 2025 totaled $7.7 million compared to $7.2 million for the nine months ended September 30, 2024, an increase of 7.1%. The increase in noninterest income is primarily due to an increase in wealth management income due to growth in assets under management and new account relationships.

 

Noninterest expense for the nine months ended September 30, 2025 totaled $30.9 million compared to $31.4 million recorded for the nine months ended September 30, 2024, a decrease of 1.8%. The decrease in noninterest expense is primarily due to $799 thousand of consultant fees for certain contract negotiations completed in 2024. The efficiency ratio was 64.10% for the nine months ended September 30, 2025, as compared to 78.47% for the nine months ended September 30, 2024. The efficiency ratio continues to improve as net interest margin increases and noninterest expense is lower than the prior year.

 

Income Taxes

 

Income tax expense for the nine months ended September 30, 2025 totaled $3.1 million compared to $1.2 million recorded for the nine months ended September 30, 2024. The effective tax rate was 20% and 15% for the nine months ended September 30, 2025 and 2024. The lower than expected tax rate in 2025 and 2024 was due primarily to tax-exempt interest income and New Markets Tax Credits.

 

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Table of Contents

 

Balance Sheet Review

 

As of September 30, 2025, total assets were $2.1 billion, a $25.2 million decrease compared to December 31, 2024. This decrease in assets is primarily due to a decrease in the loan portfolio.

 

Investment Portfolio

 

The investment portfolio totaled $650.7 million as of September 30, 2025, an increase of $2.2 million from the December 31, 2024 balance of $648.5 million. The increase in securities available-for-sale is primarily due to lower unrealized losses in the investment portfolio and partially offset by maturities in excess of purchases.

 

On a quarterly basis, the investment portfolio is reviewed for credit losses. As of September 30, 2025, gross unrealized losses of $29.6 million, are due to the interest rate environment and are not considered credit-related. Certain bonds in the investment portfolio may incur credit losses and could negatively affect the Company’s net income. As a result of the Company’s favorable liquidity position, the Company does not have the intent to sell securities with an unrealized loss at the present time. In addition, management believes it is more likely than not that the Company will hold these securities until recovery of their fair value to cost basis and expects full principal and interest to be collected. Therefore, the Company does not have an allowance for credit losses on these investments as of September 30, 2025.

 

Loan Portfolio

 

The loan portfolio, net of the allowance for credit losses, totaled $1.28 billion and $1.30 billion as of September 30, 2025 and December 31, 2024, respectively. The decrease is primarily due to payoffs in the commercial real estate loan portfolio.

 

Deposits

 

Deposits totaled $1.83 billion and $1.85 billion as of September 30, 2025 and December 31, 2024, respectively. The decrease is primarily due to a decrease in noninterest-bearing checking accounts and partially offset by increases in public funds and time deposits as customers seek higher interest rates. Securities sold under agreements to repurchase decreased to $40.6 million as of September 30, 2025 compared to $52.4 million as of December 31, 2024. Securities sold under agreements to repurchase and deposit balances fluctuate as customers’ liquidity needs vary and could be impacted by prevailing market interest rates, competition, and economic conditions. Approximately 16% of deposits are tied to external indexes as of September 30, 2025. Deposit interest expense related to these deposits can be more volatile than other deposit products in a changing interest rate environment.

 

Other Borrowings

 

Other borrowings decreased to $23.5 million as of September 30, 2025 compared to $47.0 million as of December 31, 2024. The Company has continued to reduce borrowings as debt has matured.

 

Off-Balance Sheet Arrangements

 

The Company is party to financial instruments with off-balance-sheet risk in the normal course of business. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. No material changes in the Company’s off-balance sheet arrangements have occurred since December 31, 2024.

 

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Table of Contents

 

Asset Quality Review and Credit Risk Management

 

The Company’s credit risk is historically centered in the loan portfolio, which totaled $1.28 billion and $1.30 billion as of September 30, 2025 and December 31, 2024, respectively. Net loans comprise 61% of total assets as of September 30, 2025. The objective in managing loan portfolio risk is to reduce the risk of loss resulting from a customer’s failure to perform according to the terms of an agreement and to quantify and manage credit risk on a portfolio basis. The Company’s level of problem loans (consisting of nonaccrual loans and loans past due 90 days or more) as a percentage of total loans was 1.51% at September 30, 2025, as compared to 1.17% at December 31, 2024. The Company’s level of problem loans as a percentage of total loans at September 30, 2025 of 1.51% is higher as compared to the Iowa State Average peer group of FDIC insured institutions as of June 30, 2025, of 0.66%, most recent available.

 

Substandard-Impaired loans totaled $18.8 million as of September 30, 2025 and have increased $4.6 million as compared to the substandard-impaired loans of $14.2 million as of December 31, 2024. The increase is primarily due to weakening in the commercial real estate and agricultural loan portfolios. Some commercial real estate loans are experiencing a decline in occupancy rates and collateral valuation, while the agricultural portfolio was primarily impacted by one agricultural loan relationship.

 

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

 

Loans past due 90 days or more that are still accruing interest are reviewed no less frequently than quarterly to determine if there continues to be a strong reason that the credit should not be placed on nonaccrual. As of September 30, 2025, nonaccrual loans totaled $19.3 million and $174 thousand of loans past due 90 days and still accruing. This compares to nonaccrual loans of $14.8 million and $736 thousand of loans past due 90 days and still accruing as of December 31, 2024. There was $204 thousand other real estate owned as of September 30, 2025 and no other real estate owned as of December 31, 2024.  

 

Loans past due 30 days or more totaled $10.3 million as of September 30, 2025, compared to $6.9 million as of December 31, 2024. The increase is primarily related to the 1-4 family real estate, construction real estate, and agriculture operating loan portfolios, partially offset by a decrease in the agriculture real estate loan portfolio.

 

The watch and special mention loans classified as agricultural real estate and operating totaled $36.3 million as of September 30, 2025 as compared to $30.9 million as of December 31, 2024. The substandard and substandard-impaired loans in these categories totaled $4.8 million and $5.2 million as of September 30, 2025 and December 31, 2024, respectively. The increase in watch and special mention loans is primarily due to variable yields, weather impacts and commodity prices affecting agricultural loans.

 

The watch and special mention loans classified as commercial real estate totaled $37.8 million as of September 30, 2025 as compared to $40.3 million as of December 31, 2024. The substandard and substandard-impaired commercial real estate loans totaled $30.1 million and $35.6 million as of September 30, 2025 and December 31, 2024, respectively. The decrease is primarily due to payoffs of substandard and substandard-impaired loans.

 

The allowance for credit losses as a percentage of outstanding loans as of September 30, 2025 was 1.39%, as compared to 1.29% at December 31, 2024. The allowance for credit losses totaled $18.0 million and $17.1 million as of September 30, 2025 and December 31, 2024, respectively. The increase in the allowance for credit losses is primarily due to an increase in specific reserves.

 

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

 

Commercial real estate and multi-family real estate represent approximately 41% of the loan portfolio as of September 30, 2025.  The following is an additional breakdown of the Company's commercial real estate and multi-family real estate portfolios (in thousands):

 

   

September 30, 2025

    

December 31, 2024

  
                                 
   

Total

    

Percent of Total Loans

    

Total

    

Percent of Total Loans

  
                                 

Real estate - multi-family

   $ 209,099       16.2 %   $ 200,209       15.2 %
                                 

Real estate - commercial

                                

Owner-Occupied All Purposes

     165,850       12.8 %     183,530       13.9 %

Non-Owner Occupied Retail or Other

     53,053       4.1 %     57,971       4.4 %

Non-Owner Occupied Hotel

     36,802       2.7 %     34,813       2.6 %

Non-Owner Occupied Warehouse

     31,310       2.4 %     39,567       3.0 %

Non-Owner Occupied Office

     28,937       2.2 %     34,612       2.6 %

Total real estate - commercial

     315,952       24.4 %     350,493       26.5 %
                                 

Total real estate - commercial and multi-family

   $ 525,051       40.6 %   $ 550,702       41.7 %

 

 

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Liquidity and Capital Resources

 

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

 

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

 

As of September 30, 2025, the level of liquidity and capital resources of the Company remain at a satisfactory level. Management believes that the Company’s liquidity sources will be sufficient to support its existing operations for the foreseeable future.

 

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

 

●

Review of the Company’s Current Liquidity Sources

●

Review of Statements of Cash Flows

●

Company Only Cash Flows

●

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

●

Capital Resources

 

Review of the Company’s Current Liquidity Sources

 

Liquid assets of cash on hand, balances due from other banks and interest-bearing deposits in financial institutions as of September 30, 2025 and December 31, 2024 totaled $108.2 million and $101.2 million, respectively, and management believes these sources provide an adequate level of liquidity given current economic conditions.

 

Other sources of liquidity available to the Banks as of September 30, 2025 include outstanding lines of credit with the FHLB of Des Moines, Iowa of $271.2 million, with $21.5 million of outstanding FHLB advances. Federal funds borrowing capacity at correspondent banks was $97.2 million, with no outstanding federal fund purchase balances as of September 30, 2025. The Company had securities sold under agreements to repurchase totaling $40.6 million as of September 30, 2025.

 

Total investments as of September 30, 2025 were $650.7 million compared to $648.5 million as of December 31, 2024. These investments provide the Company with liquidity since all of the investments are classified as available-for-sale as of September 30, 2025. The Company has $360.9 million of unpledged securities available-for-sale and interest-bearing deposits as of September 30, 2025. The investment portfolio serves an important role in the overall context of balance sheet management in terms of balancing capital utilization and liquidity. The decision to purchase or sell securities is based upon the current assessment of economic and financial conditions, including the interest rate environment, liquidity and credit considerations. The portfolio’s scheduled maturities and payments represent a significant source of liquidity.

 

Review of the Consolidated Statements of Cash Flows

 

Net cash provided by operating activities for the nine months ended September 30, 2025 totaled $13.9 million compared to $8.4 million for the nine months ended September 30, 2024. The increase of $5.5 million in cash provided by operating activities was primarily due to higher net interest income.

 

Net cash provided by investing activities for the nine months ended September 30, 2025 was $48.4 million compared to $51.6 million for the nine months ended September 30, 2024. The decrease of $3.2 million in cash provided by investing activities was primarily due to purchases of securities available-for-sale, partially offset by a decrease in loans and maturities of securities-available-for-sale.

 

Net cash (used in) financing activities for the nine months ended September 30, 2025 totaled ($55.4) million compared to ($56.1) million for the nine months ended September 30, 2024. The decrease of $725 thousand in cash used by financing activities was primarily due to a decrease in net payments on other borrowings between periods, partially offset by a larger decrease in deposits. As of September 30, 2025, the Company did not have any external debt financing, off-balance sheet financing arrangements, or derivative instruments linked to its stock.

 

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Review of Company Only Cash Flows

 

The Company’s liquidity on an unconsolidated basis is heavily dependent upon dividends paid to the Company by the Banks. The Banks provide adequate liquidity to pay the Company’s expenses and stockholder dividends. Dividends paid by the Banks to the Company amounted to $9.7 million and $7.9 million for the nine months ended September 30, 2025 and 2024, respectively. Various federal and state statutory provisions limit the amounts of dividends banking subsidiaries are permitted to pay to their holding companies without regulatory approval. Federal Reserve policy further limits the circumstances under which bank holding companies may declare dividends. For example, a bank holding company should not continue its existing rate of cash dividends on its common stock unless its net income is sufficient to fully fund each dividend and its prospective rate of earnings retention appears consistent with its capital needs, asset quality and overall financial condition. In addition, the Federal Reserve and the FDIC have issued policy statements, which provide that insured banks and bank holding companies should generally pay dividends only out of current operating earnings. Federal and state banking regulators may also restrict the payment of dividends by order.

 

The Company, on an unconsolidated basis, has interest-bearing deposits totaling $2.3 million as of September 30, 2025.

 

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

 

No other material capital expenditures or material changes in the capital resource mix are anticipated at this time. The primary cash flow uncertainty would be a sudden decline in deposits causing the Banks to liquidate securities. Historically, the Banks have maintained an adequate level of short-term marketable investments to fund the temporary declines in deposit balances. There are no known trends in liquidity and cash flow needs as of September 30, 2025 that are of concern to management.

 

Capital Resources

 

The Company’s total stockholders’ equity as of September 30, 2025 totaled $200.6 million and was $25.9 million higher than the $174.7 million recorded as of December 31, 2024. The increase in stockholders’ equity was primarily the result of a decrease in unrealized losses on the investment portfolio and the retention of net income in excess of dividends. At September 30, 2025 and December 31, 2024, stockholders’ equity as a percentage of total assets was 9.5% and 8.2%, respectively. The capital levels of the Company currently exceed applicable regulatory guidelines to be considered “well capitalized” as of September 30, 2025. Unrealized losses on the investment portfolio are excluded from regulatory capital.

 

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Forward-Looking Statements and Business Risks

 

The Private Securities Litigation Reform Act of 1995 provides the Company with the opportunity to make cautionary statements regarding forward-looking statements contained in this News Release, including forward-looking statements concerning the Company’s future performance and asset quality. Forward-looking statements contained in this News Release are not historical facts and are based on management’s current beliefs, assumptions, predictions and expectations of future events, including the Company’s future performance, taking into account all information currently available to management. These beliefs, assumptions, predictions and expectations are subject to numerous risks and uncertainties and can change as a result of many possible events or factors, not all of which are known to management and many of which are beyond management’s control. If a change occurs, the Company’s business, financial condition, liquidity, results of operations, asset quality, plans and objectives may vary materially from those expressed in the forward-looking statements. Accordingly, investors are cautioned not to place undue reliance on such forward-looking statements. These statements are often, but not always, made through the use of words or phrases such as “anticipates,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimate,” “plans,” “projects,” “forecasts”, “continuing,” “ongoing,” “expects,” “views,” “intends” and similar words or phrases. The risks and uncertainties that may affect the Company’s future performance and asset quality include, but are not limited to, the following: national, regional and local economic conditions and the impact they may have on the Company and its customers; competitive products and pricing available in the marketplace; changes in credit and other risks posed by the Company’s loan and investment portfolios, including declines in commercial or residential real estate values or changes in the allowance for credit losses as dictated by new market conditions or regulatory requirements; changes in local, national and international economic conditions, including rising inflation rates; fiscal and monetary policies of the U.S. government; the imposition of tariffs and retaliatory tariffs; changes in governmental regulations affecting financial institutions (including regulatory fees and capital requirements); changes in prevailing interest rates; credit risk management and asset/liability management; the financial and securities markets; the availability of and cost associated with sources of liquidity; and other risks and uncertainties inherent in the Company’s business, including those discussed under the headings “Forward-Looking Statements and Business Risks” and “Risk Factors” in the Company’s Annual Report on Form 10-K for the year-ended December 31, 2024. Any forward-looking statements are qualified in their entirety by the foregoing risks and uncertainties and speak only as of the date on which such statements are made. The Company undertakes no obligation to revise or update such forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events.

 

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Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable

 

Item 4.

Controls and Procedures

 

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

 

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

 

 

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

 

Not applicable

 

Item 1.A.

Risk Factors

 

Management does not believe there have been any material changes in the risk factors that were disclosed in the Company's Form 10-K filed with the SEC on March 12, 2025.

 

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Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

In November, 2024, the Company approved a Stock Repurchase Plan which provided for the repurchase of up to 100,000 shares of the Company’s common stock. As of September 30, 2025, there were no remaining shares to be purchased under the plan.

 

In August, 2025, the Company approved a Stock Repurchase Plan which provided for the repurchase of up to 200,000 shares of the Company's common stock.  As of September 30, 2025, there were 200,000 shares remaining to be purchased under the plan.

 

The following table provides information with respect to purchases made by or on behalf of the Company or any “affiliated purchases” (as defined in rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of the Company’s common stock during the three months ended September 30, 2025.

 

                   

Total

          
                   

Number

    

Maximum

  
                   

of Shares

    

Number of

  
                   

Purchased as

    

Shares that

  
   

Total

            

Part of

    

May Yet Be

  
   

Number

    

Average

    

Publicly

    

Purchased

  
   

of Shares

    

Price Paid

    

Announced

    

Under

  

Period

  

Purchased

    

Per Share

    

Plans

    

The Plan

  
                                 

July 1, 2025 to July 31, 2025 (1)

     6,522     $ 18.73       6,522       -  
                                 

August 1, 2025 to August 31, 2025 (2)

     -     $ -       -       200,000  
                                 

September 1, 2025 to September 30, 2025 (2)

     -     $ -       -       200,000  
                                 

Total

     6,522               6,522          

 

(1)  The Stock Repurchase Plan adopted in November 2024, authorizing the purchase of 100,000 shares of common stock, was completed in July 2025.  There are no remaining shares available for purchase under this plan.

(2)  A successor Stock Repurchase Plan was approved and became effective on August 13, 2025 and authorized the purchase of up to 200,000 shares of common stock. This plan is scheduled to expire on November 17, 2026.  No purchases have been made under this plan and 200,000 shares remain available for purchase.

 

Item 3.

Defaults Upon Senior Securities

 

Not applicable

 

Item 4.

Mine Safety Disclosures

 

Not applicable

 

 

Item 5.

Other information

 

Not applicable

 

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Item 6.

Exhibits

 

31.1

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

31.2

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

32.1

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

32.2

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

 
 

 

101.INS

Inline XBRL Instance Document - the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document (1)

101.SCH

Inline XBRL Taxonomy Extension Schema Document (1)

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document (1)

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document (1)

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document (1)

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document (1)
 

 

104

Cover page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101.1)

 

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

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

AMES NATIONAL CORPORATION
   

DATE:         November 7, 2025

By:  /s/ John P. Nelson
   

 

John P. Nelson, Chief Executive Officer and President

 

(Principal Executive Officer)
   

 

By:  /s/ Justin C. Clausen
   

 

Justin C. Clausen, Chief Financial Officer

 

(Principal Financial and Accounting Officer)

 

52