UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[Mark One]

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

For the quarterly period ended ~~June~~September 30, 2019

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

	For the transition period from ____________ to ____________

Commission File Number 0-32637

AMES NATIONAL CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

IOWA		42-1039071
(State of Incorporation)		(I. R. S. Employer
		Identification Number)

405 FIFTH STREET

AMES, IOWA 50010

(Address of Principal Executive Offices) (Zip Code)

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

~~Not Applicable~~Securities registered pursuant to Section 12(b) of the Act:

~~(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)~~

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X 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 __X_ 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__X__~~filer X Non-accelerated filer____ Smaller reporting ~~company_~~company X__ Emerging growth ~~company____~~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 ~~___X_~~ X

~~Securities registered pursuant to Section 12(b)~~As of ~~the Act:~~October 29, 2019, there were 9,222,747 shares of common stock, par value $2, outstanding.

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

Table of Contents

AMES NATIONAL CORPORATION

INDEX

		Page

Part I.	Financial Information

Item 1.	Consolidated Financial Statements (Unaudited)		3

	Consolidated Balance Sheets at ~~June~~September 30, 2019 and December 31, 2018		3

	Consolidated Statements of Income for the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018		4

	Consolidated Statements of Comprehensive Income for the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018		5

	Consolidated Statements of Stockholders’ Equity for the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018		6

	Consolidated Statements of Cash Flows for the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018		7

	Notes to Consolidated Financial Statements		9

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	31	32

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	51	52

Item 4. 4	Controls and Procedures	51	52

Part II.	Other Information			51

Item 1.	Legal Proceedings	51	53

Item 1.A.	Risk Factors	51	53

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51	53

Item 3.	Defaults Upon Senior Securities	52	53

Item 4.	Mine Safety Disclosures	52	53

Item 5.	Other Information	52	54

Item 6.	Exhibits	52	54

	Signatures	53	55

Table of Contents

AMES NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(unaudited)

	June 30,		December 31,			September 30,		December 31,
	2019		2018			2019		2018
ASSETS

Cash and due from banks	$	22,615,322	$	30,384,066		$	33,485,066	$	30,384,066
Interest bearing deposits in financial institutions		67,435,442		26,057,513			78,930,485		26,057,513
Securities available-for-sale		458,763,315		458,971,162			457,994,898		458,971,162
Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) stock, at cost		2,655,700		3,191,200			2,655,200		3,191,200
Loans receivable, net		873,639,020		890,461,479			882,130,277		890,461,479
Loans held for sale		766,945		401,287			1,637,225		401,287
Bank premises and equipment, net		15,733,212		15,813,196			15,558,457		15,813,196
Accrued income receivable		8,998,009		9,415,570			9,736,328		9,415,570
Other real estate owned		217,856		829,603			217,856		829,603
Bank-owned life insurance		2,806,029		2,773,729			2,823,861		2,773,729
Deferred income taxes, net		1,213,746		3,848,713			820,400		3,848,713
Intangible assets, net		2,374,906		2,677,884			2,250,663		2,677,884
Goodwill		9,744,472		9,744,472			9,744,472		9,744,472
Other assets		1,631,159		1,117,477			1,990,450		1,117,477

Total assets	$	1,468,595,133	$	1,455,687,351		$	1,499,975,638	$	1,455,687,351

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
Deposits
Demand, noninterest bearing	$	220,241,881	$	230,113,170		$	226,521,237	$	230,113,170
NOW accounts		386,894,248		366,178,715			391,739,201		366,178,715
Savings and money market		413,412,483		418,384,284			402,665,343		418,384,284
Time, $250,000 and over		50,144,650		40,014,550			52,068,331		40,014,550
Other time		173,763,838		166,393,120			176,138,860		166,393,120
Total deposits		1,244,457,100		1,221,083,839			1,249,132,972		1,221,083,839

Securities sold under agreements to repurchase		31,693,100		40,674,486			52,196,061		40,674,486
Federal Home Loan Bank (FHLB) advances		2,000,000		14,600,000			5,000,000		14,600,000
Dividends payable		2,215,709		2,137,460			2,213,459		2,137,460
Accrued expenses and other liabilities		4,977,688		4,326,502			5,269,746		4,326,502
Total liabilities		1,285,343,597		1,282,822,287			1,313,812,238		1,282,822,287

STOCKHOLDERS' EQUITY
Common stock, $2 par value, authorized 18,000,000 shares; issued and outstanding 9,232,122 and 9,293,305 shares as of June 30, 2019 and December 31, 2018, respectively		18,464,244		18,586,610
Common stock, $2 par value, authorized 18,000,000 shares; issued and outstanding 9,222,747 and 9,293,305 shares as of September 30, 2019 and December 31, 2018, respectively							18,445,494		18,586,610
Additional paid-in capital		19,019,767		20,461,724			18,794,141		20,461,724
Retained earnings		142,312,863		137,891,821			144,140,565		137,891,821
Accumulated other comprehensive income (loss) - net unrealized income (loss) on securities available-for-sale		3,454,662		(4,075,091	)		4,783,200		(4,075,091	)
Total stockholders' equity		183,251,536		172,865,064			186,163,400		172,865,064

Total liabilities and stockholders' equity	$	1,468,595,133	$	1,455,687,351		$	1,499,975,638	$	1,455,687,351

See Notes to Consolidated Financial Statements.

Table of Contents

AMES NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

	Three Months Ended				Six Months Ended				Three Months Ended				Nine Months Ended
	June 30,				June 30,				September 30,				September 30,
	2019		2018		2019		2018		2019		2018		2019		2018

Interest income:
Loans, including fees	$	10,808,142	$	8,996,222	$	21,509,571	$	17,885,077	$	10,513,426	$	9,557,527	$	32,022,997	$	27,442,604
Securities:
Taxable		1,554,713		1,563,840		3,043,565		3,092,962		1,671,572		1,545,541		4,715,137		4,638,503
Tax-exempt		1,067,955		1,179,607		2,168,529		2,365,953		945,769		1,085,131		3,114,298		3,451,084
Interest bearing deposits and federal funds sold		290,465		256,024		528,033		449,059		400,963		272,358		928,996		721,417
Total interest income		13,721,275		11,995,693		27,249,698		23,793,051		13,531,730		12,460,557		40,781,428		36,253,608

Interest expense:
Deposits		2,606,384		1,633,395		4,965,216		2,995,876		2,547,763		1,740,579		7,512,979		4,736,455
Other borrowed funds		184,634		151,463		383,848		399,853		170,082		134,017		553,930		533,870
Total interest expense		2,791,018		1,784,858		5,349,064		3,395,729		2,717,845		1,874,596		8,066,909		5,270,325

Net interest income		10,930,257		10,210,835		21,900,634		20,397,322		10,813,885		10,585,961		32,714,519		30,983,283

Provision for loan losses		68,320		63,978		166,414		92,978		378,789		100,000		545,203		192,978

Net interest income after provision for loan losses		10,861,937		10,146,857		21,734,220		20,304,344		10,435,096		10,485,961		32,169,316		30,790,305

Noninterest income:
Wealth management income		1,019,143		906,364		1,803,757		1,657,364		857,664		877,146		2,661,421		2,534,510
Service fees		387,133		334,606		757,429		672,848		400,919		363,993		1,158,348		1,036,841
Securities gains, net		1,890		-		1,890		-		15,141		-		17,031		-
Gain on sale of loans held for sale		224,031		191,385		396,757		368,585		289,033		207,856		685,790		576,441
Merchant and card fees		386,384		366,863		747,525		676,522		372,073		358,816		1,119,598		1,035,338
Gain on foreclosure of other real estate owned										-		162,862		-		162,862
Other noninterest income		194,358		191,654		431,289		379,555		184,399		191,130		615,688		570,685
Total noninterest income		2,212,939		1,990,872		4,138,647		3,754,874		2,119,229		2,161,803		6,257,876		5,916,677

Noninterest expense:
Salaries and employee benefits		4,797,497		4,316,823		9,513,325		8,884,868		4,780,894		4,331,976		14,294,219		13,216,844
Data processing		872,064		887,358		1,763,445		1,668,390		1,085,951		838,414		2,849,396		2,506,804
Occupancy expenses, net		518,559		459,445		1,117,564		954,391		526,360		536,004		1,643,924		1,490,395
FDIC insurance assessments		91,666		102,073		191,895		208,068		1,698		99,934		193,593		308,002
Professional fees		382,983		354,998		771,829		700,405		386,339		423,172		1,158,168		1,123,577
Business development		248,178		238,811		516,775		493,359		310,786		327,985		827,561		821,344
Intangible asset amortization		139,314		83,919		302,978		171,454		124,243		94,883		427,221		266,337
Data conversion costs										-		167,815		-		167,815
Other operating expenses, net		167,717		269,636		496,923		497,265		259,048		167,649		755,971		664,914
Total noninterest expense		7,217,978		6,713,063		14,674,734		13,578,200		7,475,319		6,987,832		22,150,053		20,566,032

Income before income taxes		5,856,898		5,424,666		11,198,133		10,481,018		5,079,006		5,659,932		16,277,139		16,140,950

Provision for income taxes		1,239,305		1,107,400		2,343,105		2,127,000		1,037,845		1,201,100		3,380,950		3,328,100

Net income	$	4,617,593	$	4,317,266	$	8,855,028	$	8,354,018	$	4,041,161	$	4,458,832	$	12,896,189	$	12,812,850

Basic and diluted earnings per share	$	0.50	$	0.46	$	0.96	$	0.90	$	0.44	$	0.48	$	1.40	$	1.38

Dividends declared per share	$	0.24	$	0.23	$	0.48	$	0.71	$	0.24	$	0.23	$	0.72	$	0.94

See Notes to Consolidated Financial Statements.

Table of Contents

AMES NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	June 30,						June 30,						September 30,						September 30,
	2019			2018			2019			2018			2019			2018			2019			2018


Net income	$	4,617,593		$	4,317,266		$	8,855,028		$	8,354,018		$	4,041,161		$	4,458,832		$	12,896,189		$	12,812,850
Other comprehensive income (loss), before tax:
Unrealized gains (losses) on securities before tax:
Unrealized holding gains (losses) arising during the period		4,469,777			(1,041,258	)		10,041,561			(6,074,301	)		1,786,525			(2,171,391	)		11,828,086			(8,245,692	)
Less: reclassification adjustment for gains realized in net income		1,890			-			1,890			-			15,141			-			17,031			-
Other comprehensive income (loss), before tax		4,467,887			(1,041,258	)		10,039,671			(6,074,301	)		1,771,384			(2,171,391	)		11,811,055			(8,245,692	)
Tax effect related to other comprehensive income (loss)		(1,116,972	)		260,314			(2,509,918	)		1,518,919			(442,846	)		542,848			(2,952,764	)		2,061,767
Other comprehensive income (loss), net of tax		3,350,915			(780,944	)		7,529,753			(4,555,382	)		1,328,538			(1,628,543	)		8,858,291			(6,183,925	)
Comprehensive income	$	7,968,508		$	3,536,322		$	16,384,781		$	3,798,636		$	5,369,699		$	2,830,289		$	21,754,480		$	6,628,925

See Notes to Consolidated Financial Statements.

Table of Contents

AMES NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)

Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2019 and 2018

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

Balance, March 31, 2018	$	18,621,826		$	20,878,728		$	131,335,175		$	(4,289,511	)	$	166,546,218
Balance, June 30, 2018																$	18,621,826		$	20,878,728		$	133,510,931		$	(5,070,455	)	$	167,941,030
Net income		-			-			4,317,266			-			4,317,266			-			-			4,458,832			-			4,458,832
Other comprehensive (loss)		-			-			-			(780,944	)		(780,944	)		-			-			-			(1,628,543	)		(1,628,543	)
Cash dividends declared, $0.23 per share		-			-			(2,141,510	)		-			(2,141,510	)		-			-			(2,141,510	)		-			(2,141,510	)
Balance, June 30, 2018	$	18,621,826		$	20,878,728		$	133,510,931		$	(5,070,455	)	$	167,941,030
Balance, September 30, 2018																$	18,621,826		$	20,878,728		$	135,828,253		$	(6,698,998	)	$	168,629,809

Balance, March 31, 2019	$	18,485,644		$	19,276,388		$	139,910,979		$	103,747		$	177,776,758
Balance, June 30, 2019																$	18,464,244		$	19,019,767		$	142,312,863		$	3,454,662		$	183,251,536
Net income		-			-			4,617,593			-			4,617,593			-			-			4,041,161			-			4,041,161
Other comprehensive income		-			-			-			3,350,915			3,350,915			-			-			-			1,328,538			1,328,538
Retirement of 10,700 shares of stock		(21,400	)		(256,621	)		-			-			(278,021	)
Retirement of 9,375 shares of stock																	(18,750	)		(225,626	)		-			-			(244,376	)
Cash dividends declared, $0.24 per share		-			-			(2,215,709	)		-			(2,215,709	)		-			-			(2,213,459	)		-			(2,213,459	)
Balance, June 30, 2019	$	18,464,244		$	19,019,767		$	142,312,863		$	3,454,662		$	183,251,536
Balance, September 30, 2019																$	18,445,494		$	18,794,141		$	144,140,565		$	4,783,200		$	186,163,400

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

Balance, December 31, 2017	$	18,621,826		$	20,878,728		$	131,684,961		$	(432,373	)	$	170,753,142		$	18,621,826		$	20,878,728		$	131,684,961		$	(432,373	)	$	170,753,142
Net income		-			-			8,354,018			-			8,354,018			-			-			12,812,850			-			12,812,850
Other comprehensive (loss)		-			-			-			(4,555,382	)		(4,555,382	)		-			-			-			(6,183,925	)		(6,183,925	)
The cumulative effect from change in accounting policy (1)		-			-			82,700			(82,700	)		-			-			-			82,700			(82,700	)		-
Cash dividends declared, $0.71 per share		-			-			(6,610,748	)		-			(6,610,748	)
Balance, June 30, 2018	$	18,621,826		$	20,878,728		$	133,510,931		$	(5,070,455	)	$	167,941,030
Cash dividends declared, $0.94 per share																	-			-			(8,752,258	)		-			(8,752,258	)
Balance, September 30, 2018																$	18,621,826		$	20,878,728		$	135,828,253		$	(6,698,998	)	$	168,629,809

Balance, December 31, 2018	$	18,586,610		$	20,461,724		$	137,891,821		$	(4,075,091	)	$	172,865,064		$	18,586,610		$	20,461,724		$	137,891,821		$	(4,075,091	)	$	172,865,064
Net income		-			-			8,855,028			-			8,855,028			-			-			12,896,189			-			12,896,189
Other comprehensive income		-			-			-			7,529,753			7,529,753			-			-			-			8,858,291			8,858,291
Retirement of 61,183 shares of stock		(122,366	)		(1,441,957	)		-			-			(1,564,323	)
Cash dividends declared, $0.48 per share		-			-			(4,433,986	)		-			(4,433,986	)
Balance, June 30, 2019	$	18,464,244		$	19,019,767		$	142,312,863		$	3,454,662		$	183,251,536
Retirement of 70,558 shares of stock																	(141,116	)		(1,667,583	)		-			-			(1,808,699	)
Cash dividends declared, $0.72 per share																	-			-			(6,647,445	)		-			(6,647,445	)
Balance, September 30, 2019																$	18,445,494		$	18,794,141		$	144,140,565		$	4,783,200		$	186,163,400

(1) The cumulative effect for the ~~six~~nine months ended ~~June~~September 30, 2018, reflects adoption in first quarter 2018 of ASU 2018-02.

See Notes to Consolidated Financial Statements.

Table of Contents

AMES NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

~~Six~~Nine Months Ended ~~June~~September 30, 2019 and 2018

	2019			2018			2019			2018

CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	8,855,028		$	8,354,018		$	12,896,189		$	12,812,850
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		166,414			92,978			545,203			192,978
Provision for off-balance sheet commitments		-			12,000			-			9,000
Amortization, net		739,633			1,088,865			1,048,818			1,583,534
Amortization of intangible asset		302,978			171,454			427,221			266,337
Depreciation		576,757			548,173			903,070			845,163
Deferred income taxes		125,049			(74,100	)		75,549			(24,000	)
Securities gains, net		(1,890	)		-			(17,031	)		-
(Gain) on sales of loans held for sale		(396,757	)		(368,586	)		(685,790	)		(576,441	)
Proceeds from loans held for sale		17,485,451			14,853,787			34,023,953			23,480,924
Originations of loans held for sale		(17,454,352	)		(15,965,849	)		(34,574,101	)		(23,184,423	)
Loss on sale of premises and equipment, net		500			5,563
(Gain) on sale of other real estate owned, net		(43,414	)		-
Loss on sale and disposal of bank equipment, net								9,360			11,479
(Gain) on sale and foreclosure of other real estate owned, net								(43,414	)		(226,054	)
Change in assets and liabilities:
Decrease in accrued income receivable		417,561			627,214
(Increase) in other assets		(523,361	)		(282,739	)
(Increase) in accrued income receivable								(320,758	)		(239,749	)
(Increase) decrease in other assets								(892,594	)		133,639
Increase in accrued expenses and other liabilities		651,186			94,674			943,244			385,983
Net cash provided by operating activities		10,900,783			9,157,452			14,338,919			15,471,220

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities available-for-sale		(35,113,621	)		(21,743,179	)		(61,502,161	)		(24,209,779	)
Proceeds from sale of securities available-for-sale		5,973,154			-			8,211,157			-
Proceeds from maturities and calls of securities available-for-sale		38,381,532			30,931,429			64,641,695			52,143,244
Purchase of FHLB stock		(3,912,500	)		(874,400	)		(3,912,600	)		(3,070,400	)
Proceeds from the redemption of FHLB stock		4,448,000			1,334,400			4,448,600			3,275,100
Net (increase) decrease in interest bearing deposits in financial institutions		(41,377,929	)		1,190,930			(52,872,972	)		6,448,428
Net (increase) decrease in loans		16,896,403			(8,566,196	)		8,159,497			(12,239,005	)
Net proceeds from the sale of other real estate owned		655,161			-			655,161			117,905
Purchase of bank premises and equipment, net		(492,149	)		(347,878	)
Purchase of bank premises and equipment								(648,005	)		(591,165	)
Proceeds from the sale of bank equipment								4,000			-
Cash paid, net of cash acquired, for bank acquired								-			(13,443,219	)
Other		(28,300	)		(14,960	)		(50,132	)		1,139,029
Net cash provided by (used in) investing activities		(14,570,249	)		1,910,146			(32,865,760	)		9,570,138

CASH FLOWS FROM FINANCING ACTIVITIES
Increase in deposits		23,402,168			17,424,482
(Decrease) in securities sold under agreements to repurchase		(8,981,386	)		(3,317,089	)
Increase (decrease) in deposits								28,086,411			(1,795,096	)
Increase in securities sold under agreements to repurchase								11,521,575			2,434,281
Payments on FHLB borrowings and other borrowings		(12,600,000	)		(24,500,000	)		(12,600,000	)		(24,500,000	)
Proceeds from FHLB borrowings								3,000,000			-
Proceeds from short-term borrowings and other borrowings								-			6,400,000
Dividends paid		(4,355,737	)		(6,517,639	)		(6,571,446	)		(8,659,149	)
Stock repurchases		(1,564,323	)		-			(1,808,699	)		-
Net cash (used in) financing activities		(4,099,278	)		(16,910,246	)
Net cash provided by (used in) financing activities								21,627,841			(26,119,964	)

Net (decrease) in cash and due from banks		(7,768,744	)		(5,842,648	)
Net increase (decrease) in cash and due from banks								3,101,000			(1,078,606	)

CASH AND DUE FROM BANKS
Beginning		30,384,066			26,397,550			30,384,066			26,397,550
Ending	$	22,615,322		$	20,554,902		$	33,485,066		$	25,318,944

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AMES NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(unaudited)

~~Six~~Nine Months Ended ~~June~~September 30, 2019 and 2018

	2019		2018		2019		2018

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for:
Interest	$	5,148,519	$	3,318,116	$	7,852,381	$	5,039,767
Income taxes		2,248,474		2,346,406		3,360,844		3,484,746

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES
Transfer of loans receivable to other real estate owned					$	-	$	116,137

Business Combination:
Fair value of interest bearing deposits in financial institutions acquired					$	-	$	1,475,000
Fair value of federal funds sold acquired						-		1,154,000
Fair value of securities available-for-sale acquired						-		17,196,715
Fair value of loans receivable acquired						-		76,041,470
Fair value of bank premises and equipment acquired						-		924,400
Fair value of accrued interst receivable acquired						-		862,895
Fair value of other real estate owned acquired						-		120,000
Fair value of other tangible assets acquired						-		318,596
Fair value of bank owned life insurance						-		2,754,798
Goodwill						-		3,012,255
Core deposit intangible						-		2,002,000
Deposits assumed						-		83,169,311
Federal funds purchased assumed						-		9,000,000
Other liabilities assumed						-		123,749

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 consolidated financial statements for the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 ~~months~~ are unaudited. In the opinion of the management of Ames National Corporation (the "Company"), these financial statements reflect all adjustments, consisting only of normal recurring accruals, necessary to present fairly these consolidated financial statements. The results of operations for the interim periods are not necessarily indicative of results which may be expected for an entire year. Certain information and footnote disclosures normally included in complete financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted in accordance with the requirements for interim financial statements. The interim financial statements and notes thereto should be read in conjunction with the year-end audited financial statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 (the “Annual Report”). The consolidated financial statements include the accounts of the Company and its wholly-owned banking subsidiaries (the “Banks”). All significant intercompany balances and transactions have been eliminated in consolidation.

Goodwill: Goodwill represents the excess of cost over the fair value of net assets acquired. Goodwill resulting from acquisitions is not amortized, but is tested for impairment annually or whenever events change and circumstances indicate that it is more likely than not that an impairment loss has occurred. Goodwill is tested for impairment using a two-step process that begins with an estimation of the fair value of a reporting unit. The second step, if necessary, measures the amount of impairment, if any.

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. At ~~June~~September 30, 2019, Company management has performed a goodwill impairment assessment and determined goodwill was not impaired.

New and Pending Accounting ~~Pronouncements:~~Pronouncements: In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The ASU requires a lessee to recognize on the balance sheet assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. Unlike current GAAP, which requires that only capital leases be recognized on the balance sheet, the ASC requires that both types of leases by recognized on the balance sheet. In July 2018, the FASB issued ASU No. 2018-11, Targeted Improvements, which amends ASC 842, Leases. This update provides for an adoption option that does not require earlier periods to be restated at the adoption date. For public companies, this update was effective for interim and annual periods beginning after December 15, 2018. Early application was permitted. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

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In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ~~For public~~FASB voted to delay the implementation date for smaller reporting companies, so for the Company, should FASB finalize this ~~update will be~~pronouncement, the effective would for interim and annual periods beginning after December 15, ~~2019. FASB has issued a proposed change~~2022. The Company does not plan to early adopt this ~~ASU that would delay the implementation date until January 1, 2023 for the Company.~~ASU. The Company is currently planning for the implementation of this accounting standard and has chosen a vendor for a software solution. The Company continues to refine the implementation of the software and its approach for determining the expected credit losses under the new guidance. The Company’s preliminary evaluation indicates the provisions of ASU No. 2016-13 are expected to impact the Company’s financial statements. The Company is continuing to evaluate the extent of the potential impact.

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

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

~~Reclassifications: Certain amounts in prior year financial statements have been reclassified, with no effect on net income, comprehensive income or stockholder’s equity, to conform to current period presentation.~~

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2. Bank Acquisition

On September 14, 2018, First National Bank (FNB) completed the purchase and merger of Clarke County State Bank (CCSB) located in Osceola and Murray, Iowa (the “Acquisition”). The Acquisition was consistent with the Bank’s strategy to strengthen and expand its Iowa market share. The acquired assets and liabilities are recorded at fair value at the date of acquisition and were reflected in the September 30, 2018 financial statements as such. 100% of the stock of CCSB was purchased for cash consideration of $14.8 million. As a result of this acquisition, the Company recorded a core deposit intangible asset of $2.0 million and goodwill of $3.0 million. The results of operations for this acquisition have been included since the transaction date of September 14, 2018. The fair value of purchased credit deteriorated loans related to the Acquisition was $386,000. These purchased loans are included in the impaired loan category in the financial statements.

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The following table summarizes the fair value of the total consideration transferred as a part of the Acquisition as well as the fair value of identifiable assets acquired and liabilities assumed as of the effective date of the transaction.

Cash consideration transferred	$	14,806,981

Recognized amounts of identifiable assets acquired and liabilities assumed:

Cash and due from banks	$	1,363,762
Federal funds sold		1,154,000
Interest bearing deposits in financial institutions		1,475,000
Securities available-for-sale		17,196,715
Federal Home Loan Bank stock		129,600
Loans receivable		76,041,470
Accrued interest receivable		862,895
Bank premises and equipment		924,400
Other real estate owned		120,000
Deferred income taxes		49,150
Bank owned life insurance		2,754,798
Core deposit intangible asset		2,002,000
Other assets		13,996
Deposits		(83,169,311	)
Federal funds purchased		(9,000,000	)
Accrued interest payable and other liabilities		(123,749	)

Total identifiable net assets		11,794,726

Goodwill	$	3,012,255

On September 14, 2018, the contractual balance of loans receivable acquired was $77.2 million and the contractual balance of deposits assumed was $83.1 million. Loans receivable acquired include commercial real estate, 1-4 family real estate agricultural real estate, commercial operating, agricultural operating and consumer loans.

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The acquired loans at contractual values as of September 14, 2018 were determined to be risk rated as follows:

Pass	$	63,220,130
Watch		9,430,540
Special Mention		2,733,940
Substandard		1,426,137
Deteriorated credit		385,884

Total loans acquired at book value	$	77,196,631

Loans acquired as deteriorated credit loans will be included with impaired loans.

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

3. Dividends

On ~~May 8,~~August 14, 2019, the Company declared a cash dividend on its common stock, payable on ~~August~~November 15, 2019 to stockholders of record as of ~~August~~November 1, 2019, equal to $0.24 per share

4. Earnings Per Share

Earnings per share amounts were calculated using the weighted average shares outstanding during the periods presented. The weighted average outstanding shares for the three months ended ~~June~~September 30, 2019 and 2018 was ~~9,239,969~~9,227,685 and 9,310,913, respectively. The weighted average outstanding shares for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 were ~~9,246,576~~9,236,989 and 9,310,913, respectively. The Company had no potentially dilutive securities outstanding during the periods presented.

5. 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, 2018.

6. 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. A quoted price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available.

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.

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

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The following table presents the balances of assets measured at fair value on a recurring basis by level as of ~~June~~September 30, 2019 and December 31, 2018. (in thousands)

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

2019

U.S. government treasuries	$	7,509	$	7,509	$	-	$	-	$	7,528	$	7,528	$	-	$	-
U.S. government agencies		123,007		-		123,007		-		128,882		-		128,882		-
U.S. government mortgage-backed securities		62,960		-		62,960		-		64,146		-		64,146		-
State and political subdivisions		197,027		-		197,027		-		187,940		-		187,940		-
Corporate bonds		68,260		-		68,260		-		69,499		-		69,499		-

	$	458,763	$	7,509	$	451,254	$	-	$	457,995	$	7,528	$	450,467	$	-

2018

U.S. government treasuries	$	7,800	$	7,800	$	-	$	-	$	7,800	$	7,800	$	-	$	-
U.S. government agencies		110,268		-		110,268		-		110,268		-		110,268		-
U.S. government mortgage-backed securities		70,382		-		70,382		-		70,382		-		70,382		-
State and political subdivisions		215,955		-		215,955		-		215,955		-		215,955		-
Corporate bonds		54,566		-		54,566		-		54,566		-		54,566		-

	$	458,971	$	7,800	$	451,171	$	-	$	458,971	$	7,800	$	451,171	$	-

Level 1 securities include U.S. Treasury securities and other equity 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.

The Company's policy is to recognize transfers between levels at the end of each reporting period, if applicable. There were no transfers between levels of the fair value hierarchy during the ~~six~~nine months ended ~~June~~September 30, 2019.

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Certain assets are measured at fair value on a nonrecurring basis; that is, they are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The following table presents the assets carried on the balance sheet (after specific reserves) by caption and by level within the valuation hierarchy as of ~~June~~September 30, 2019 and December 31, 2018. (in thousands)

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

2019

Loans receivable	$	2,247	$	-	$	-	$	2,247	$	377	$	-	$	-	$	377
Other real estate owned		218		-		-		218		218		-		-		218

Total	$	2,465	$	-	$	-	$	2,465	$	595	$	-	$	-	$	595

2018

Loans receivable	$	2,030	$	-	$	-	$	2,030	$	2,030	$	-	$	-	$	2,030
Other real estate owned		830		-		-		830		830		-		-		830

Total	$	2,860	$	-	$	-	$	2,860	$	2,860	$	-	$	-	$	2,860

Loans Receivable: Loans in the tables above consist of impaired credits held for investment. In accordance with the loan impairment guidance, impairment was measured based on the fair value of collateral less estimated selling costs for collateral dependent loans. Fair value for impaired loans is based upon appraised values of collateral adjusted for trends observed in the market. A valuation allowance was recorded for the excess of the loan’s recorded investment over the amounts determined by the collateral value method. This valuation allowance is a component of the allowance for loan losses. The Company considers these fair value measurements as level 3.

Other Real Estate Owned: Other real estate owned in the table above consists of real estate obtained through foreclosure. Other real estate owned is recorded at fair value less estimated selling costs, at the date of transfer, with any impairment amount charged to the allowance for loan losses. Subsequent to the transfer, other real estate owned is carried at the lower of cost or fair value, less estimated selling costs, with any impairment amount recorded as a noninterest expense. The carrying value of other real estate owned is not re-measured to fair value on a recurring basis but is subject to fair value adjustments when the carrying value exceeds the fair value less estimated selling costs. Management uses appraised values and adjusts for trends observed in the market and for disposition costs in determining the value of other real estate owned. A valuation allowance was recorded for the excess of the asset’s recorded investment over the amount determined by the fair value, less estimated selling costs. This valuation allowance is a component of the allowance for other real estate owned. The Company considers these fair value measurements as level 3.

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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 ~~June~~September 30, 2019 and December 31, 2018 are as follows: (in thousands)

2019

Estimated

Valuation

Range

Estimated

Valuation

Range

Fair Value

Techniques

Unobservable Inputs

(Average)

Fair Value

Techniques

Unobservable Inputs

(Average)

Impaired Loans

2,247

Evaluation of collateral

Estimation of value

NM*

377

Evaluation of collateral

Estimation of value

NM*

Other real estate owned

218

Appraisal

Appraisal adjustment

(7%)

218

Appraisal

Appraisal adjustment

(7%)

2018

Estimated

Valuation

Range

Fair Value

Techniques

Unobservable Inputs

(Average)

Impaired Loans

2,030

Evaluation of collateral

Estimation of value

NM*

Other real estate owned

830

Appraisal

Appraisal adjustment

(7%)

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

GAAP requires disclosure of the fair value of financial assets and financial liabilities, including those that are not measured and reported at fair value on a recurring basis or nonrecurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring or nonrecurring basis are discussed above. The methodologies for other financial assets and financial liabilities are discussed below.

Fair value of financial instruments:

Disclosure of fair value information about financial instruments, for which it is practicable to estimate that value, is required whether or not recognized in the consolidated balance sheets. In cases in which quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimate of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases could not be realized in immediate settlement of the instruments. Certain financial instruments with a fair value that is not practicable to estimate and all non-financial instruments are excluded from the disclosure requirements. Accordingly, the aggregate fair value amounts presented do not necessarily represent the underlying value of the Company.

The following disclosures represent financial instruments in which the ending balances at ~~June~~September 30, 2019 and December 31, 2018 are not carried at fair value in their entirety on the consolidated balance sheets.

Securities available-for-sale: Fair value measurement for Level 1 securities is based upon quoted prices. Fair value measurement for Level 2 securities are based upon quoted prices, if available. If quoted prices are not available, 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. Level 1 securities include U.S. Treasury and other equity securities that are traded by dealers or brokers in active over-the-counter markets. U.S government mortgage-backed securities, state and political subdivisions, and some corporate bonds are reported at fair value utilizing Level 2 inputs.

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Loans held for sale: The fair value of loans held for sale is based on prevailing market prices.

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.

The estimated fair values of the Company’s financial instruments as described above as of ~~June~~September 30, 2019 and December 31, 2018 are as follows: (in thousands)

		2019				2018					2019				2018
	Fair Value			Estimated				Estimated		Fair Value			Estimated				Estimated
	Hierarchy	Carrying		Fair		Carrying		Fair		Hierarchy	Carrying		Fair		Carrying		Fair
	Level	Amount		Value		Amount		Value		Level	Amount		Value		Amount		Value

Financial assets:
Cash and due from banks	Level 1	$	22,615	$	22,615	$	30,384	$	30,384	Level 1	$	33,485	$	33,485	$	30,384	$	30,384
Interest bearing deposits	Level 1		67,435		67,435		26,058		26,058	Level 1		78,930		78,930		26,058		26,058
Securities available-for-sale	See previous table		458,763		458,763		458,971		458,971	See previous table		457,995		457,995		458,971		458,971
FHLB and FRB stock	Level 2		2,656		2,656		3,191		3,191	Level 2		2,655		2,655		3,191		3,191
Loans receivable, net	Level 2		873,639		856,694		890,461		864,417	Level 2		882,130		863,585		890,461		864,417
Loans held for sale	Level 2		767		767		401		401	Level 2		1,637		1,637		401		401
Accrued income receivable	Level 1		8,998		8,998		9,416		9,416	Level 1		9,736		9,736		9,416		9,416
Financial liabilities:
Deposits	Level 2	$	1,244,457	$	1,244,235	$	1,221,084	$	1,219,643	Level 2	$	1,249,133	$	1,250,478	$	1,221,084	$	1,219,643
Securities sold under agreements to repurchase	Level 1		31,693		31,693		40,674		40,674	Level 1		52,196		52,196		40,674		40,674
FHLB advances	Level 2		2,000		1,990		14,600		14,559	Level 2		5,000		4,940		14,600		14,559
Accrued interest payable	Level 1		878		878		649		649	Level 1		901		901		649		649

The methodologies used to determine fair value as of ~~June~~September 30, 2019 did not change from the methodologies described in the December 31, 2018 Annual Financial Statements.

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7. Debt and Equity Securities

The amortized cost of securities available-for-sale and their fair values as of ~~June~~September 30, 2019 and December 31, 2018 are summarized below: (in thousands)

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

U.S. government treasuries	$	7,445	$	65	$	(1	)	$	7,509	$	7,454	$	74	$	-		$	7,528
U.S. government agencies		121,328		1,749		(70	)		123,007		126,716		2,199		(33	)		128,882
U.S. government mortgage-backed securities		62,364		650		(54	)		62,960		63,410		753		(17	)		64,146
State and political subdivisions		195,739		1,575		(287	)		197,027		186,295		1,898		(253	)		187,940
Corporate bonds		67,280		1,023		(43	)		68,260		67,743		1,773		(17	)		69,499
	$	454,156	$	5,062	$	(455	)	$	458,763	$	451,618	$	6,697	$	(320	)	$	457,995

2018:			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
	Cost		Gains		Losses			Fair Value

U.S. government treasuries	$	7,925	$	-	$	(125	)	$	7,800
U.S. government agencies		111,759		73		(1,564	)		110,268
U.S. government mortgage-backed securities		71,596		88		(1,302	)		70,382
State and political subdivisions		217,247		465		(1,757	)		215,955
Corporate bonds		55,877		2		(1,313	)		54,566
	$	464,404	$	628	$	(6,061	)	$	458,971

The amortized cost and fair value of debt securities available-for-sale as of ~~June~~September 30, 2019, are shown below by expected maturity. Expected maturity will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. (in thousands)

	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value

Due in one year or less	$	82,832	$	82,832	$	79,205	$	79,247
Due after one year through five years		230,550		232,741		227,409		230,137
Due after five years through ten years		122,856		124,975		132,816		136,197
Due after ten years		17,918		18,215		12,188		12,414
Total	$	454,156	$	458,763	$	451,618	$	457,995

Securities with a carrying value of ~~$136.0~~$152.3 million and $145.7 million at ~~June~~September 30, 2019 and December 31, 2018, respectively, were pledged on public deposits, securities sold under agreements to repurchase and for other purposes as required or permitted by law.

Table of Contents

The proceeds, gains and losses for securities available-for-sale for the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 are summarized below (in thousands):

	Three Months Ended					Six Months Ended					Three Months Ended					Nine Months Ended
	June 30,					June 30,					September 30,					September 30,
	2019			2018		2019			2018		2019			2018		2019			2018
Proceeds from sales of securities available-for-sale	$	5,973		$	-	$	5,973		$	-	$	2,238		$	-	$	8,211		$	-
Gross realized gains on securities available-for-sale		21			-		21			-		16			-		37			-
Gross realized losses on securities available-for-sale		(19	)		-		(19	)		-		(1	)		-		(20	)		-
Tax provision applicable to net realized gains on securities available-for-sale		-			-		-			-		4			-		4			-

Unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position are summarized as of ~~June~~September 30, 2019 and December 31, 2018 are as follows: (in thousands)

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

Securities available-for-sale:
U.S. government treasuries	$	-	$	-		$	1,492	$	(1	)	$	1,492	$	(1	)	$	-	$	-		$	998	$	-		$	998	$	-
U.S. government agencies		-		-			34,346		(70	)		34,346		(70	)		10,347		(8	)		15,531		(25	)		25,878		(33	)
U.S. government mortgage-backed securities		2,234		(10	)		7,575		(44	)		9,809		(54	)		3,292		(9	)		1,987		(8	)		5,279		(17	)
State and political subdivisions		896		-			28,346		(287	)		29,242		(287	)		15,787		(55	)		6,023		(198	)		21,810		(253	)
Corporate bonds		1,008		(3	)		11,809		(40	)		12,817		(43	)		3,072		(14	)		3,539		(3	)		6,611		(17	)
	$	4,138	$	(13	)	$	83,568	$	(442	)	$	87,706	$	(455	)	$	32,498	$	(86	)	$	28,078	$	(234	)	$	60,576	$	(320	)

	Less than 12 Months					12 Months or More					Total					Less than 12 Months					12 Months or More					Total
2018:	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses

Securities available-for-sale:
U.S. government treasuries	$	2,962	$	(11	)	$	4,838	$	(114	)	$	7,800	$	(125	)	$	2,962	$	(11	)	$	4,838	$	(114	)	$	7,800	$	(125	)
U.S. government agencies		26,099		(218	)		73,192		(1,346	)		99,291		(1,564	)		26,099		(218	)		73,192		(1,346	)		99,291		(1,564	)
U.S. government mortgage-backed securities		25,037		(277	)		37,632		(1,025	)		62,669		(1,302	)		25,037		(277	)		37,632		(1,025	)		62,669		(1,302	)
State and political subdivisions		60,600		(302	)		83,494		(1,455	)		144,094		(1,757	)		60,600		(302	)		83,494		(1,455	)		144,094		(1,757	)
Corporate bonds		19,239		(256	)		34,254		(1,057	)		53,493		(1,313	)		19,239		(256	)		34,254		(1,057	)		53,493		(1,313	)
	$	133,937	$	(1,064	)	$	233,410	$	(4,997	)	$	367,347	$	(6,061	)	$	133,937	$	(1,064	)	$	233,410	$	(4,997	)	$	367,347	$	(6,061	)

Gross unrealized losses on debt securities totaled ~~$455,000~~$320,000 as of ~~June~~September 30, 2019. These unrealized losses are generally due to changes in interest rates or general market conditions. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, state or political subdivision, or corporations. Management then determines whether downgrades by bond rating agencies have occurred, and reviews industry analysts’ reports. The Company’s procedures for evaluating investments in states, municipalities and political subdivisions include but are not limited to reviewing the offering statement and the most current available financial information, comparing yields to yields of bonds of similar credit quality, confirming capacity to repay, assessing operating and financial performance, evaluating the stability of tax revenues, considering debt profiles and local demographics, and for revenue bonds, assessing the source and strength of revenue structures for municipal authorities. These procedures, as applicable, are utilized for all municipal purchases and are utilized in whole or in part for monitoring the portfolio of municipal holdings. The Company does not utilize third party credit rating agencies as a primary component of determining if the municipal issuer has an adequate capacity to meet the financial commitments under the security for the projected life of the investment, and, therefore, does not compare internal assessments to those of the credit rating agencies. Credit rating downgrades are utilized as an additional indicator of credit weakness and as a reference point for historical default rates. Management concluded that the gross unrealized losses on debt securities were temporary. Due to potential changes in conditions, it is at least reasonably possible that changes in fair values and management’s assessments will occur in the near term and that such changes could materially affect the amounts reported in the Company’s financial statements.

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Loans Receivable and Credit Disclosures

The composition of loans receivable as of ~~June~~September 30, 2019 and December 31, 2018 is as follows (in thousands):

	2019			2018			2019			2018

Real estate - construction	$	50,031		$	51,364		$	52,486		$	51,364
Real estate - 1 to 4 family residential		165,487			169,722			167,698			169,722
Real estate - commercial		386,558			389,532			396,651			389,532
Real estate - agricultural		107,985			103,652			108,387			103,652
Commercial		81,578			86,194			73,457			86,194
Agricultural		78,250			85,202			79,900			85,202
Consumer and other		15,691			16,566			15,553			16,566
		885,580			902,232			894,132			902,232
Less:
Allowance for loan losses		(11,869	)		(11,684	)		(11,934	)		(11,684	)
Deferred loan fees		(72	)		(87	)		(68	)		(87	)
Loans receivable, net	$	873,639		$	890,461		$	882,130		$	890,461

Table of Contents

Activity in the allowance for loan losses, on a disaggregated basis, for the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 is as follows: (in thousands)

	Three Months Ended June 30, 2019																						Three Months Ended September 30, 2019
				1-4 Family																					1-4 Family
	Construction			Residential			Commercial		Agricultural								Consumer						Construction		Residential		Commercial		Agricultural							Consumer
	Real Estate			Real Estate			Real Estate		Real Estate		Commercial			Agricultural			and Other			Total			Real Estate		Real Estate		Real Estate		Real Estate		Commercial			Agricultural		and Other		Total
Balance, March 31, 2019	$	736		$	1,850		$	4,770	$	1,258	$	1,610		$	1,392		$	196		$	11,812
Balance, June 30, 2019																							$	721	$	1,847	$	4,906	$	1,301	$	1,590		$	1,332	$	172	$	11,869
Provision (credit) for loan losses		(15	)		(1	)		136		43		(21	)		(61	)		(13	)		68			41		237		158		9		(112	)		10		36		379
Recoveries of loans charged-off		-			1			-		-		1			1			4			7			-		2		3		-		5			-		2		12
Loans charged-off		-			(3	)		-		-		-			-			(15	)		(18	)		-		-		-		-		(326	)		-		-		(326	)
Balance, June 30, 2019	$	721		$	1,847		$	4,906	$	1,301	$	1,590		$	1,332		$	172		$	11,869
Balance, September 30, 2019																							$	762	$	2,086	$	5,067	$	1,310	$	1,157		$	1,342	$	210	$	11,934

Six Months Ended June 30, 2019

1-4 Family

Construction

Residential

Commercial

Agricultural

Consumer

Real Estate

Real Estate

Real Estate

Real Estate

Commercial

Agricultural

and Other

Total

Balance, December 31, 2018
$ 699 $ 1,820 $ 4,615 $ 1,198 $ 1,777 $ 1,384 $ 191 $ 11,684
Provision (credit) for loan losses
11 27 291 103 (211 ) (53 ) (2 ) 166
Recoveries of loans charged-off
11 3 - - 29 1 4 48
Loans charged-off
- (3 ) - - (5 ) - (21 ) (29 )
Balance, June 30, 2019
$ 721 $ 1,847 $ 4,906 $ 1,301 $ 1,590 $ 1,332 $ 172 $ 11,869

	Three Months Ended June 30, 2018																				Nine Months Ended September 30, 2019
			1-4 Family																				1-4 Family
	Construction		Residential			Commercial		Agricultural							Consumer						Construction		Residential			Commercial		Agricultural								Consumer
	Real Estate		Real Estate			Real Estate		Real Estate		Commercial			Agricultural		and Other			Total			Real Estate		Real Estate			Real Estate		Real Estate		Commercial			Agricultural			and Other			Total
Balance, March 31, 2018	$	804	$	1,744		$	4,763	$	977	$	1,750		$	1,168	$	117		$	11,323
Balance, December 31, 2018																					$	699	$	1,820		$	4,615	$	1,198	$	1,777		$	1,384		$	191		$	11,684
Provision (credit) for loan losses		42		(13	)		79		-		(53	)		10		(1	)		64			63		265			437		112		(324	)		(42	)		34			545
Recoveries of loans charged-off		-		1			-		-		3			-		6			10			-		4			15		-		34			-			6			59
Loans charged-off		-		-			-		-		(12	)		-		(2	)		(14	)		-		(3	)		-		-		(330	)		-			(21	)		(354	)
Balance, June 30, 2018	$	846	$	1,732		$	4,842	$	977	$	1,688		$	1,178	$	120		$	11,383
Balance, September 30, 2019																					$	762	$	2,086		$	5,067	$	1,310	$	1,157		$	1,342		$	210		$	11,934

	Six Months Ended June 30, 2018																				Three Months Ended September 30, 2018
			1-4 Family																					1-4 Family
	Construction		Residential		Commercial		Agricultural								Consumer						Construction			Residential			Commercial			Agricultural								Consumer
	Real Estate		Real Estate		Real Estate		Real Estate			Commercial			Agricultural		and Other			Total			Real Estate			Real Estate			Real Estate			Real Estate		Commercial			Agricultural			and Other			Total
Balance, December 31, 2017	$	796	$	1,716	$	4,734	$	997		$	1,739		$	1,171	$	168		$	11,321
Balance, June 30, 2018																					$	846		$	1,732		$	4,842		$	977	$	1,688		$	1,178		$	120		$	11,383
Provision (credit) for loan losses		50		13		108		(20	)		(59	)		7		(6	)		93			(209	)		131			(372	)		218		92			168			72			100
Recoveries of loans charged-off		-		3		-		-			21			-		14			38			-			2			-			-		1			-			5			8
Loans charged-off		-		-		-		-			(13	)		-		(56	)		(69	)		-			(23	)		(107	)		-		(10	)		(58	)		(5	)		(203	)
Balance, June 30, 2018	$	846	$	1,732	$	4,842	$	977		$	1,688		$	1,178	$	120		$	11,383
Balance, September 30, 2018																					$	637		$	1,842		$	4,363		$	1,195	$	1,771		$	1,288		$	192		$	11,288

	Nine Months Ended September 30, 2018
				1-4 Family
	Construction			Residential			Commercial			Agricultural								Consumer
	Real Estate			Real Estate			Real Estate			Real Estate		Commercial			Agricultural			and Other			Total
Balance, December 31, 2017	$	796		$	1,716		$	4,734		$	997	$	1,739		$	1,171		$	168		$	11,321
Provision (credit) for loan losses		(159	)		144			(264	)		198		33			175			66			193
Recoveries of loans charged-off		-			5			-			-		22			-			19			46
Loans charged-off		-			(23	)		(107	)		-		(23	)		(58	)		(61	)		(272	)
Balance, September 30, 2018	$	637		$	1,842		$	4,363		$	1,195	$	1,771		$	1,288		$	192		$	11,288

Table of Contents

Allowance for loan losses disaggregated on the basis of impairment analysis method as of ~~June~~September 30, 2019 and December 31, 2018 is as follows: (in thousands)

2019			1-4 Family																1-4 Family
	Construction		Residential		Commercial		Agricultural						Consumer				Construction		Residential		Commercial		Agricultural						Consumer
	Real Estate		Real Estate		Real Estate		Real Estate		Commercial		Agricultural		and Other		Total		Real Estate		Real Estate		Real Estate		Real Estate		Commercial		Agricultural		and Other		Total
Individually evaluated for impairment	$	-	$	36	$	-	$	-	$	320	$	-	$	-	$	356	$	-	$	235	$	-	$	-	$	-	$	-	$	9	$	244
Collectively evaluated for impairment		721		1,811		4,906		1,301		1,270		1,332		172		11,513		762		1,851		5,067		1,310		1,157		1,342		201		11,690
Balance June 30, 2019	$	721	$	1,847	$	4,906	$	1,301	$	1,590	$	1,332	$	172	$	11,869
Balance September 30, 2019																	$	762	$	2,086	$	5,067	$	1,310	$	1,157	$	1,342	$	210	$	11,934

2018			1-4 Family
	Construction		Residential		Commercial		Agricultural						Consumer
	Real Estate		Real Estate		Real Estate		Real Estate		Commercial		Agricultural		and Other		Total
Individually evaluated for impairment	$	-	$	53	$	-	$	-	$	430	$	-	$	18	$	501
Collectively evaluated for impairment		699		1,767		4,615		1,198		1,347		1,384		173		11,183
Balance December 31, 2018	$	699	$	1,820	$	4,615	$	1,198	$	1,777	$	1,384	$	191	$	11,684

Loans receivable disaggregated on the basis of impairment analysis method as of ~~June~~September 30, 2019 and December 31, 2018 is as follows (in thousands):

2019			1-4 Family																1-4 Family
	Construction		Residential		Commercial		Agricultural						Consumer				Construction		Residential			Commercial		Agricultural						Consumer
	Real Estate		Real Estate		Real Estate		Real Estate		Commercial		Agricultural		and Other		Total		Real Estate		Real Estate			Real Estate		Real Estate		Commercial		Agricultural		and Other		Total
Individually evaluated for impairment	$	-	$	246	$	137	$	84	$	2,766	$	1,886	$	-	$	5,119	$	-	$	1,163		$	1,136	$	87	$	247	$	2,525	$	9	$	5,167
Collectively evaluated for impairment		50,031		165,241		386,421		107,901		78,812		76,364		15,691		880,461		52,486		166,535			395,515		108,300		73,210		77,375		15,544		888,965

Balance June 30, 2019	$	50,031	$	165,487	$	386,558	$	107,985	$	81,578	$	78,250	$	15,691	$	885,580
Balance September 30, 2019																	$	52,486	$	167,698	��	$	396,651	$	108,387	$	73,457	$	79,900	$	15,553	$	894,132

2018			1-4 Family
	Construction		Residential		Commercial		Agricultural						Consumer
	Real Estate		Real Estate		Real Estate		Real Estate		Commercial		Agricultural		and Other		Total
Individually evaluated for impairment	$	-	$	365	$	128	$	74	$	2,648	$	-	$	19	$	3,234
Collectively evaluated for impairment		51,364		169,357		389,404		103,578		83,546		85,202		16,547		898,998

Balance December 31, 2018	$	51,364	$	169,722	$	389,532	$	103,652	$	86,194	$	85,202	$	16,566	$	902,232

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

Table of Contents

Impaired loans, on a disaggregated basis, as of ~~June~~September 30, 2019 and December 31, 2018: (in thousands)

	2019						2018						2019						2018
			Unpaid						Unpaid						Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related		Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance		Investment		Balance		Allowance		Investment		Balance		Allowance
With no specific reserve recorded:
Real estate - construction	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Real estate - 1 to 4 family residential		177		185		-		252		277		-		551		840		-		252		277		-
Real estate - commercial		137		569		-		128		601		-		1,136		1,610		-		128		601		-
Real estate - agricultural		84		96		-		74		88		-		87		100		-		74		88		-
Commercial		232		249		-		248		258		-		247		298		-		248		258		-
Agricultural		1,886		1,886		-		-		-		-		2,525		2,525		-		-		-		-
Consumer and other		-		-		-		1		2		-		-		-		-		1		2		-
Total loans with no specific reserve:		2,516		2,985		-		703		1,226		-		4,546		5,373		-		703		1,226		-

With an allowance recorded:
Real estate - construction		-		-		-		-		-		-		-		-		-		-		-		-
Real estate - 1 to 4 family residential		69		97		36		113		139		53		612		645		235		113		139		53
Real estate - commercial		-		-		-		-		-		-		-		-		-		-		-		-
Real estate - agricultural		-		-		-		-		-		-		-		-		-		-		-		-
Commercial		2,534		2,537		320		2,400		2,506		430		-		-		-		2,400		2,506		430
Agricultural		-		-		-		-		-		-		-		-		-		-		-		-
Consumer and other		-		-		-		18		22		18		9		9		9		18		22		18
Total loans with specific reserve:		2,603		2,634		356		2,531		2,667		501		621		654		244		2,531		2,667		501

Total
Real estate - construction		-		-		-		-		-		-		-		-		-		-		-		-
Real estate - 1 to 4 family residential		246		282		36		365		416		53		1,163		1,485		235		365		416		53
Real estate - commercial		137		569		-		128		601		-		1,136		1,610		-		128		601		-
Real estate - agricultural		84		96		-		74		88		-		87		100		-		74		88		-
Commercial		2,766		2,786		320		2,648		2,764		430		247		298		-		2,648		2,764		430
Agricultural		1,886		1,886		-		-		-		-		2,525		2,525		-		-		-		-
Consumer and other		-		-		-		19		24		18		9		9		9		19		24		18

	$	5,119	$	5,619	$	356	$	3,234	$	3,893	$	501	$	5,167	$	6,027	$	244	$	3,234	$	3,893	$	501

Table of Contents

Average recorded investment and interest income recognized on impaired loans for the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018: (in thousands)

	Three Months Ended June 30,								Three Months Ended September 30,
	2019				2018				2019				2018
	Average		Interest		Average		Interest		Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income		Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized		Investment		Recognized		Investment		Recognized
With no specific reserve recorded:
Real estate - construction	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Real estate - 1 to 4 family residential		209		6		474		22		364		4		315		135
Real estate - commercial		135		29		135		-		637		45		123		-
Real estate - agricultural		78		-		-		-		86		-		38		-
Commercial		235		-		64		5		240		-		160		-
Agricultural		943		-		-		-		2,206		-		-		-
Consumer and other		-		-		-		-		-		-		-		-
Total loans with no specific reserve:		1,600		35		673		27		3,533		49		636		135

With an allowance recorded:
Real estate - construction		-		-		-		-		-		-		-		-
Real estate - 1 to 4 family residential		89		-		229		-		341		-		120		6
Real estate - commercial		-		-		177		-		-		-		74		-
Real estate - agricultural		-		-		-		-		-		-		-		-
Commercial		2,535		-		2,903		-		1,267		-		2,838		2
Agricultural		-		-		29		-		-		-		29		-
Consumer and other		7		-		32		-		5		-		26		-
Total loans with specific reserve:		2,631		-		3,370		-		1,613		-		3,087		8

Total
Real estate - construction		-		-		-		-		-		-		-		-
Real estate - 1 to 4 family residential		298		6		703		22		705		4		435		141
Real estate - commercial		135		29		312		-		637		45		197		-
Real estate - agricultural		78		-		-		-		86		-		38		-
Commercial		2,770		-		2,967		5		1,507		-		2,998		2
Agricultural		943		-		29		-		2,206		-		29		-
Consumer and other		7		-		32		-		5		-		26		-

	$	4,231	$	35	$	4,043	$	27	$	5,146	$	49	$	3,723	$	143

Table of Contents

	Six Months Ended June 30,								Nine Months Ended September 30,
	2019				2018				2019				2018
	Average		Interest		Average		Interest		Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income		Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized		Investment		Recognized		Investment		Recognized
With no specific reserve recorded:
Real estate - construction	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Real estate - 1 to 4 family residential		223		26		506		45		305		30		442		180
Real estate - commercial		133		60		314		258		384		105		266		258
Real estate - agricultural		76		-		-		-		79		-		19		-
Commercial		239		-		84		5		241		-		127		5
Agricultural		629		-		-		-		1,103		-		-		-
Consumer and other		-		-		8		-		-		-		6		-
Total loans with no specific reserve:		1,300		86		912		308		2,112		135		860		443

With an allowance recorded:
Real estate - construction		-		-		-		-		-		-		-		-
Real estate - 1 to 4 family residential		97		-		192		-		226		-		173		6
Real estate - commercial		-		-		194		-		-		-		149		-
Real estate - agricultural		-		-		-		-		-		-		-		-
Commercial		2,490		-		2,940		-		1,867		-		2,901		2
Agricultural		-		-		19		-		-		-		15		-
Consumer and other		10		1		39		1		10		1		35		1
Total loans with specific reserve:		2,597		1		3,384		1		2,103		1		3,273		9

Total
Real estate - construction		-		-		-		-		-		-		-		-
Real estate - 1 to 4 family residential		320		26		698		45		531		30		615		186
Real estate - commercial		133		60		508		258		384		105		415		258
Real estate - agricultural		76		-		-		-		79		-		19		-
Commercial		2,729		-		3,024		5		2,108		-		3,028		7
Agricultural		629		-		19		-		1,103		-		15		-
Consumer and other		10		1		47		1		10		1		41		1

	$	3,897	$	87	$	4,296	$	309	$	4,215	$	136	$	4,133	$	452

The interest foregone on nonaccrual loans for the three months ended ~~June~~September 30, 2019 and 2018 was approximately ~~$59,000~~$272,000 and ~~$120,000,~~$80,000, respectively. The interest foregone on nonaccrual loans for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 was approximately ~~$117,000~~$389,000 and ~~$203,000,~~$283,000, respectively.

Nonaccrual loans at ~~June~~September 30, 2019 and December 31, 2018 were ~~$5,119,000~~$5,167,000 and $3,234,000 respectively.

The Company had loans meeting the definition of a troubled debt restructuring (TDR) of ~~$2,645,000~~$1,171,000 as of ~~June~~September 30, 2019, all of which were included in impaired and nonaccrual loans. The Company had TDRs of $2,350,000 as of December 31, 2018, all of which were included in impaired and nonaccrual loans.

Table of Contents

The Company’s TDR, on a disaggregated basis, occurring in the three and nine months ended September 30, 2019 and 2018, is as follows: (dollars in thousands)

	Three Months Ended September 30,
	2019						2018
			Pre-Modification		Post-Modification				Pre-Modification		Post-Modification
			Outstanding		Outstanding				Outstanding		Outstanding
	Number of		Recorded		Recorded		Number of		Recorded		Recorded
	Contracts		Investment		Investment		Contracts		Investment		Investment

Real estate - construction		-	$	-	$	-		-	$	-	$	-
Real estate - 1 to 4 family residential		3		1,035		1,035		-		-		-
Real estate - commercial		-		-		-		-		-		-
Real estate - agricultural		-		-		-		-		-		-
Commercial		-		-		-		-		-		-
Agricultural		-		-		-		-		-		-
Consumer and other		-		-		-		-		-		-

		3	$	1,035	$	1,035		-	$	-	$	-

	Nine Months Ended September 30,
	2019						2018
			Pre-Modification		Post-Modification				Pre-Modification		Post-Modification
			Outstanding		Outstanding				Outstanding		Outstanding
	Number of		Recorded		Recorded		Number of		Recorded		Recorded
	Contracts		Investment		Investment		Contracts		Investment		Investment

Real estate - construction		-	$	-	$	-		-	$	-	$	-
Real estate - 1 to 4 family residential		3		1,035		1,035		-		-		-
Real estate - commercial		-		-		-		-		-		-
Real estate - agricultural		-		-		-		-		-		-
Commercial		-		-		-		3		80		80
Agricultural		-		-		-		-		-		-
Consumer and other		-		-		-		-		-		-

		3	$	1,035	$	1,035		3	$	80	$	80

During the three and ~~six~~nine months ended ~~June~~September 30, 2019, the Company ~~did not grant~~granted concessions to ~~any borrowers.~~one borrower with three 1-4 family residential contracts facing financial difficulties. The loans were originated with terms less than normal related to collateral. During the three and ~~six~~nine months ended ~~June~~September 30, 2018, the Company granted concessions to one borrower with three commercial operating contracts facing financial difficulties. The loan was extended beyond its normal terms and the interest was capitalized.

The Company considers TDR loans to have payment default when it is past due 60 days or more.

~~One~~No TDR ~~modified~~modifications during the twelve months ended ~~March 31,~~September 30, 2019 and 2018 had a payment ~~default. There were no charge-offs related to TDR’s for the three and six month ended June 30, 2018 and a $12,000 charge-offs related to TDRs for the three and six months ended June 30, 2018.~~defaults. A $200,000 specific reserve was ~~increased $25,000 for~~established in the ~~three~~nine months ended ~~June~~September 30, 2019. An $80,000 specific reserve was established in the ~~three~~nine months ended ~~June~~September 30, 2018. There were $275,000 and $12,000 of net charge-offs related to TDRs for the nine months ended September 30, 2019 and 2018, respectively.

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An aging analysis of the recorded investments in loans, on a disaggregated basis, as of ~~June~~September 30, 2019 and December 31, 2018, is as follows: (in thousands)

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

Real estate - construction	$	1,339	$	-	$	1,339	$	48,692	$	50,031	$	-	$	849	$	-	$	849	$	51,637	$	52,486	$	-
Real estate - 1 to 4 family residential		1,377		251		1,628		163,859		165,487		109		1,359		1		1,360		166,338		167,698		-
Real estate - commercial		1,231		-		1,231		385,327		386,558		-		-		1,057		1,057		395,594		396,651		-
Real estate - agricultural		1,112		144		1,256		106,729		107,985		111		1,936		-		1,936		106,451		108,387		-
Commercial		217		11		228		81,350		81,578		-		456		16		472		72,985		73,457		-
Agricultural		418		2,783		3,201		75,049		78,250		897		314		2,533		2,847		77,053		79,900		8
Consumer and other		110		1		111		15,580		15,691		1		124		10		134		15,419		15,553		1

	$	5,804	$	3,190	$	8,994	$	876,586	$	885,580	$	1,118	$	5,038	$	3,617	$	8,655	$	885,477	$	894,132	$	9

2018			90 Days								90 Days
	30-89		or Greater		Total						or Greater
	Past Due		Past Due		Past Due		Current		Total		Accruing

Real estate - construction	$	376	$	-	$	376	$	50,988	$	51,364	$	-
Real estate - 1 to 4 family residential		1,032		302		1,334		168,388		169,722		150
Real estate - commercial		-		-		-		389,532		389,532		-
Real estate - agricultural		-		-		-		103,652		103,652		-
Commercial		595		248		843		85,351		86,194		-
Agricultural		89		-		89		85,113		85,202		-
Consumer and other		76		-		76		16,490		16,566		-

	$	2,168	$	550	$	2,718	$	899,514	$	902,232	$	150

The increase in the 90 days or greater loans ~~still accruing~~ from December 31, 2018 is primarily due to agricultural loans that are well secured ~~and in the process of collection~~ as of ~~June~~September 30, 2019.

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The credit risk profile by internally assigned grade, on a disaggregated basis, as of ~~June~~September 30, 2019 and December 31, 2018 is as follows: (in thousands)

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

Pass	$	42,342	$	336,514	$	75,931	$	58,380	$	52,951	$	566,118	$	43,527	$	344,649	$	78,514	$	52,671	$	57,072	$	576,433
Watch		7,689		30,744		26,531		17,063		22,577		104,604		8,959		31,319		23,800		15,723		19,436		99,237
Special Mention		-		4,679		-		-		-		4,679		-		4,630		-		-		-		4,630
Substandard		-		14,484		5,439		3,369		836		24,128		-		14,917		5,986		4,816		867		26,586
Substandard-Impaired		-		137		84		2,766		1,886		4,873		-		1,136		87		247		2,525		3,995

	$	50,031	$	386,558	$	107,985	$	81,578	$	78,250	$	704,402	$	52,486	$	396,651	$	108,387	$	73,457	$	79,900	$	710,881

2018	Construction		Commercial		Agricultural
	Real Estate		Real Estate		Real Estate		Commercial		Agricultural		Total

Pass	$	45,991	$	345,262	$	72,562	$	64,850	$	58,818	$	587,483
Watch		5,373		26,177		22,758		13,998		22,628		90,934
Special Mention		-		4,775		1,675		264		747		7,461
Substandard		-		13,221		6,583		4,434		3,009		27,247
Substandard-Impaired		-		97		74		2,648		-		2,819

	$	51,364	$	389,532	$	103,652	$	86,194	$	85,202	$	715,944

The credit risk profile based on payment activity, on a disaggregated basis, as of ~~June~~September 30, 2019 and December 31, 2018 is as follows:

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

Performing	$	165,133	$	15,690	$	180,823	$	166,533	$	15,544	$	182,077
Non-performing		354		1		355		1,165		9		1,174

	$	165,487	$	15,691	$	181,178	$	167,698	$	15,553	$	183,251

2018	1-4 Family
	Residential		Consumer
	Real Estate		and Other		Total

Performing	$	169,206	$	16,547	$	185,753
Non-performing		516		19		535

	$	169,722	$	16,566	$	186,288

Goodwill

As of September 14, 2018, as a result of the acquisition of CCSB, FNB recognized $3.0 million of goodwill. Goodwill recognized in the Acquisition was primarily attributable to an expanded market share and economies of scale expected from combining the operations of CCSB branches with FNB. Goodwill is not amortized but is evaluated for impairment at least annually. For income tax purposes, goodwill associated with CCSB is not amortized and goodwill associated with previous acquisition is amortized over fifteen years.

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10.

Intangible assets

In conjunction with the acquisition of CCSB in 2018, the Company recorded $2.0 million in core deposit intangible assets. The following sets forth the carrying amounts and accumulated amortization of the intangible assets at ~~June~~September 30, 2019 and December 31, 2018: (in thousands)

	2019				2018				2019				2018
	Gross		Accumulated		Gross		Accumulated		Gross		Accumulated		Gross		Accumulated
	Amount		Amortization		Amount		Amortization		Amount		Amortization		Amount		Amortization

Core deposit intangible asset	$	4,520	$	2,477	$	4,520	$	2,212	$	4,520	$	2,582	$	4,520	$	2,212
Customer list		535		203		535		165		535		222		535		165

Total	$	5,055	$	2,680	$	5,055	$	2,377	$	5,055	$	2,804	$	5,055	$	2,377

The weighted average life of the intangible assets is ~~3.4~~3.2 years as of ~~June~~September 30, 2019 and 3.5 years as of December 31, 2018.

The following sets forth the activity related to the intangible assets for the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018: (in thousands)

	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	June 30,						June 30,						September 30,						September 30,
	2019			2018			2019			2018			2019			2018			2019			2018

Beginning intangible asset, net	$	2,514		$	1,019		$	2,678		$	1,091		$	2,375		$	935		$	2,678		$	1,091
Purchase														-			2,002			-			2,002
Adjustment to intangible asset		-			-			-			15			-			-			-			15
Amortization		(139	)		(84	)		(303	)		(171	)		(124	)		(95	)		(427	)		(266	)

Ending intangible asset, net	$	2,375		$	935		$	2,375		$	935		$	2,251		$	2,842		$	2,251		$	2,842

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

2019	$	237	$	113
2020		440		440
2021		402		402
2022		368		368
2023		315		315
2024		166		166
After		447		447

Intangible asset, net	$	2,375	$	2,251

11.

Pledged Collateral Related to Securities Sold Under Repurchase Agreements

The repurchase agreements mature daily and the following sets forth the pledged collateral at estimated fair value related to securities sold under repurchase agreements as of ~~June~~September 30, 2019 and December 31, 2018: (in thousands)

		2019						2018							2019						2018
		Remaining Contractual Maturity of the Agreements													Remaining Contractual Maturity of the Agreements
		Overnight		Greater than		Total		Overnight		Greater than		Total			Overnight		Greater than		Total		Overnight		Greater than		Total
				90 days						90 days							90 days						90 days

Securities sold under agreements to repurchase:	Securities sold under agreements to repurchase:													Securities sold under agreements to repurchase:
U.S. government treasuries		$	4,520	$	-	$	4,520	$	4,406	$	-	$	4,406		$	4,529	$	-	$	4,529	$	4,406	$	-	$	4,406
U.S. government agencies			39,484		-		39,484		41,375		-		41,375			38,562		-		38,562		41,375		-		41,375
U.S. government mortgage-backed securities			15,107		-		15,107		19,893		-		19,893			17,375		-		17,375		19,893		-		19,893


Total pledged collateral		$	59,111	$	-	$	59,111	$	65,674	$	-	$	65,674		$	60,466	$	-	$	60,466	$	65,674	$	-	$	65,674

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

12.	Income Taxes

The tax effects of temporary differences related to income taxes are included in deferred income taxes. The change in the deferred income taxes asset is due primarily to the increase in fair value of the available for sale investment portfolio.

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~~12.~~13.

Regulatory Matters

The Company and the Banks capital amounts and ratios are as follows: (dollars in thousands)

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

As of June 30, 2019:
Total capital (to risk-weighted assets):
As of September 30, 2019:
Total capital (to risk- weighted assets):
Consolidated	$	180,052		16.5	%	$	114,867		10.50	%		N/A		N/A		$	182,951		16.6	%	$	115,854		10.50	%		N/A		N/A
Boone Bank & Trust		15,646		16.0			10,252		10.50		$	9,764		10.0	%		15,730		16.2			10,195		10.50		$	9,710		10.0	%
First National Bank		84,450		13.8			64,158		10.50			61,103		10.0			86,143		13.9			65,270		10.50			62,162		10.0
Reliance State Bank		28,124		16.0			18,500		10.50			17,620		10.0			28,113		15.7			18,813		10.50			17,917		10.0
State Bank & Trust		20,396		15.9			13,480		10.50			12,838		10.0			20,112		15.9			13,250		10.50			12,619		10.0
United Bank & Trust		14,798		18.8			8,256		10.50			7,863		10.0			14,777		18.9			8,231		10.50			7,839		10.0

Tier 1 capital (to risk-weighted assets):
Tier 1 capital (to risk- weighted assets):
Consolidated	$	167,643		15.3	%	$	92,988		8.50	%		N/A		N/A		$	170,478		15.5	%	$	93,787		8.50	%		N/A		N/A
Boone Bank & Trust		14,707		15.1			8,299		8.50		$	7,811		8.0	%		14,801		15.2			8,253		8.50		$	7,768		8.0	%
First National Bank		77,871		12.7			51,938		8.50			48,882		8.0			79,496		12.8			52,838		8.50			49,730		8.0
Reliance State Bank		25,921		14.7			14,977		8.50			14,096		8.0			25,873		14.4			15,229		8.50			14,333		8.0
State Bank & Trust		18,789		14.6			10,912		8.50			10,271		8.0			18,532		14.7			10,726		8.50			10,095		8.0
United Bank & Trust		13,979		17.8			6,683		8.50			6,293		8.0			13,956		17.8			6,663		8.50			6,271		8.0

Tier 1 capital (to average-weighted assets):
Tier 1 capital (to average- weighted assets):
Consolidated	$	167,643		11.7	%	$	57,537		4.00	%		N/A		N/A		$	170,478		11.8	%	$	57,849		4.00	%		N/A		N/A
Boone Bank & Trust		14,707		11.1			5,289		4.00		$	6,611		5.0	%		14,801		11.1			5,334		4.00		$	6,668		5.0	%
First National Bank		77,871		9.4			33,418		4.00			41,462		5.0			79,496		9.5			33,576		4.00			41,970		5.0
Reliance State Bank		25,921		12.1			8,790		4.00			10,987		5.0			25,873		12.0			8,589		4.00			10,736		5.0
State Bank & Trust		18,789		11.5			6,543		4.00			8,179		5.0			18,532		11.4			6,481		4.00			8,101		5.0
United Bank & Trust		13,979		12.8			4,359		4.00			5,448		5.0			13,956		13.3			4,186		4.00			5,232		5.0

Common equity tier 1 capital (to risk-weighted assets):
Consolidated	$	167,643		15.3	%	$	76,578		7.00	%		N/A		N/A		$	170,478		15.5	%	$	77,236		7.00	%		N/A		N/A
Boone Bank & Trust		14,707		15.1			6,835		7.00		$	6,347		6.5	%		14,801		15.2			6,797		7.00		$	6,311		6.5	%
First National Bank		77,871		12.7			42,772		7.00			39,717		6.5			79,496		12.8			43,513		7.00			40,405		6.5
Reliance State Bank		25,921		14.7			12,334		7.00			11,453		6.5			25,873		14.4			12,542		7.00			11,646		6.5
State Bank & Trust		18,789		14.6			8,987		7.00			8,345		6.5			18,532		14.7			8,834		7.00			8,203		6.5
United Bank & Trust		13,979		17.8			5,504		7.00			5,111		6.5			13,956		17.8			5,487		7.00			5,095		6.5

* These ratios for ~~June~~September 30, 2019 include a capital conservation buffer of 2.5%, except for the Tier 1 capital to average weighted assets ratios.

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

As of December 31, 2018:
Total capital (to risk-weighted assets):
Total capital (to risk- weighted assets):
Consolidated	$	177,405		16.1	%	$	109,082		9.875	%		N/A			N/A		$	177,405		16.1	%	$	109,082		9.875	%		N/A		N/A
Boone Bank & Trust		15,632		17.0			9,092		9.875		$	9,207			10.0	%		15,632		17.0			9,092		9.875		$	9,207		10.0	%
First National Bank		81,419		13.1			61,312		9.875			62,088			10.0			81,419		13.1			61,312		9.875			62,088		10.0
Reliance State Bank		27,880		14.8			18,576		9.875			18,811			10.0			27,880		14.8			18,576		9.875			18,811		10.0
State Bank & Trust		20,358		16.2			12,427		9.875			12,585			10.0			20,358		16.2			12,427		9.875			12,585		10.0
United Bank & Trust		14,790		19.5			7,489		9.875			7,583			10.0			14,790		19.5			7,489		9.875			7,583		10.0

Tier 1 capital (to risk-weighted assets):
Tier 1 capital (to risk- weighted assets):
Consolidated	$	165,181		15.0	%	$	86,989		7.875	%		N/A			N/A		$	165,181		15.0	%	$	86,989		7.875	%		N/A		N/A
Boone Bank & Trust		14,722		16.0			7,251		7.875		$	7,366			8.0	%		14,722		16.0			7,251		7.875		$	7,366		8.0	%
First National Bank		74,995		12.1			48,894		7.875			49,671			8.0			74,995		12.1			48,894		7.875			49,671		8.0
Reliance State Bank		25,622		13.6			14,813		7.875			15,049			8.0			25,622		13.6			14,813		7.875			15,049		8.0
State Bank & Trust		18,783		14.9			9,910		7.875			10,068			8.0			18,783		14.9			9,910		7.875			10,068		8.0
United Bank & Trust		13,974		18.4			5,972		7.875			6,067			8.0			13,974		18.4			5,972		7.875			6,067		8.0

Tier 1 capital (to average-weighted assets):
Tier 1 capital (to average- weighted assets):
Consolidated	$	165,181		11.3	%	$	58,635		4.000	%		N/A			N/A		$	165,181		11.3	%	$	58,635		4.000	%		N/A		N/A
Boone Bank & Trust		14,722		11.2			5,277		4.000		$	6,596			5.0	%		14,722		11.2			5,277		4.000		$	6,596		5.0	%
First National Bank		74,995		9.1			33,034		4.000			41,292			5.0			74,995		9.1			33,034		4.000			41,292		5.0
Reliance State Bank		25,622		11.7			8,730		4.000			10,913			5.0			25,622		11.7			8,730		4.000			10,913		5.0
State Bank & Trust		18,783		11.8			6,384		4.000			7,980			5.0			18,783		11.8			6,384		4.000			7,980		5.0
United Bank & Trust		13,974		12.7			4,402		4.000			5,503			5.0			13,974		12.7			4,402		4.000			5,503		5.0

Common equity tier 1 capital (to risk-weighted assets):
Consolidated	$	165,181		15.0	%	$	70,420		6.375	%		N/A	��		N/A		$	165,181		15.0	%	$	70,420		6.375	%		N/A		N/A
Boone Bank & Trust		14,722		16.0			5,870		6.375		$	5,985			6.5	%		14,722		16.0			5,870		6.375		$	5,985		6.5	%
First National Bank		74,995		12.1			39,581		6.375			40,357			6.5			74,995		12.1			39,581		6.375			40,357		6.5
Reliance State Bank		25,622		13.6			11,992		6.375			12,227			6.5			25,622		13.6			11,992		6.375			12,227		6.5
State Bank & Trust		18,783		14.9			8,023		6.375			8,180			6.5			18,783		14.9			8,023		6.375			8,180		6.5
United Bank & Trust		13,974		18.4			4,834		6.375			4,929			6.5			13,974		18.4			4,834		6.375			4,929		6.5

* These ratios for December 31, 2018 include a capital conservation buffer of 1.875%, except for the Tier 1 capital to average weighted assets ratios.

~~The Federal Reserve Board~~On January 1, 2015, the Company and Banks became subject to the ~~FDIC issued final~~ rules ~~implementing~~of the Basel III regulatory capital framework and related Dodd-Frank Wall Street Reform and Consumer Protection Act ~~changes in July 2013.~~changes. The rules ~~revise minimum capital requirements and adjust prompt corrective action thresholds. The final rules revise~~included the ~~regulatory capital elements, added~~implementation of a new common equity Tier I capital ratio, increase the minimum Tier 1 capital ratio requirements and implemented a new capital conservation buffer. The rules also permit certain banking organizations to retain, through a one-time election, the existing treatment for accumulated other comprehensive income (loss). The Company and the Banks made the election to retain the prior treatment for accumulated other comprehensive income (loss). The final rules took effect for the Company and the Banks on January 1, 2015, subject to a transition period for certain parts of the rules.

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~~Beginning in 2016, an additional~~ capital conservation buffer ~~was~~that is added to the minimum requirements for capital adequacy ~~purposes,~~purposes. The capital conservation buffer was subject to a three year phase-in ~~period. The capital conservation buffer~~period that began on January 1, 2016 and was fully phased-in on January 1, 2019 at 2.5 percent. A banking organization with a conservation buffer of less than ~~2.5 percent (or~~ the required ~~phase-in~~ amount ~~in years prior to 2019) is~~will be subject to limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers. At ~~the present time,~~September 30, 2019, the ratios for the Company and ~~the~~ Banks ~~are~~were sufficient to meet the ~~fully phased-in~~ conservation buffer.

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~~13.~~14. Subsequent Events

Management evaluated subsequent events through the date the financial statements were issued. On ~~July 29,~~October 25, 2019, Ames National Corporation (the “Company”) ~~entered into a Stock Purchase Agreement (the “Agreement”~~completed the acquisition of all the outstanding stock of Iowa State Savings Bank (“Iowa State”) ~~with~~, an Iowa state chartered bank, from Iowa Community Bancorp, Inc. (“Iowa Community”) in accordance with the terms of the Stock Purchase Agreement dated July 29, 2019 (the “Purchase Agreement”) by and among Iowa State, ~~Savings Bank (the “Bank”), an Iowa state chartered bank and 100% owned subsidiary of~~ Iowa Community and the ~~majority shareholder of Iowa Community. The~~Company (the “Stock Acquisition”). Pursuant to the Purchase Agreement, ~~provides for the purchase by~~ the Company ~~from Iowa Community of 100% of the outstanding stock of the Bank. At closing, the Company will pay~~paid Iowa Community cash of approximately ~~$22.0~~$22.3 million ~~subject~~ to ~~certain adjustments based on~~complete the ~~financial condition~~Stock Acquisition. Iowa State, located in Creston, Iowa, has assets of approximately $210 million, loans of approximately $138 million and deposits of approximately $187 million. Iowa State, with five offices located in Creston, Corning, Diagonal and Lenox, Iowa became a 100% owned subsidiary of the ~~Bank (including total equity capital and loan loss reserve) on~~Company following the ~~closing date. Closing~~closing. The banks paid dividends to the Company in October, 2019 in the amount of ~~the transaction is expected to occur during the fourth quarter of 2019, subject to regulatory approval and other customary closing conditions.~~$15,500,000. There were no other significant events or transactions that provided evidence about conditions that did not exist at ~~June~~September 30, 2019.

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 five bank subsidiaries in central Iowa (the “Banks”). The following discussion is provided for the consolidated operations of the Company and its Banks, First National Bank, Ames, Iowa (First National), State Bank & Trust Co. (State Bank), Boone Bank & Trust Co. (Boone Bank), Reliance State Bank (Reliance Bank), and United Bank & Trust NA (United 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 ~~fifteen~~thirteen individuals to assist with financial reporting, human resources, audit, compliance, marketing, technology systems, training, real estate valuation services and the coordination of management activities, in addition to ~~233~~230 full-time equivalent individuals employed by the Banks, including employees from the Acquisition.

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.

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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 and (v) merchant and card fees. The Company’s principal expenses are: (i) interest expense on deposit accounts and other borrowings; (ii) provision for loan losses; (iii) salaries and employee benefits; (iv) data processing costs associated with maintaining the Banks’ loan and deposit functions; (v) occupancy expenses for maintaining the Bank’s facilities; and (vi) professional fees. The largest component contributing to the Company’s net income is net interest income, which is the difference between interest earned on earning assets (primarily loans and investments) and interest paid on interest bearing 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.

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On September 14, 2018, FNB purchased the stock of CCSB for approximately $14.8 million. First National operates all three bank offices previously owned by Clarke County as branches of First National.

The Company had net income of ~~$4,618,000,~~$4,041,000, or ~~$0.50~~$0.44 per share, for the three months ended ~~June~~September 30, 2019, compared to net income of ~~$4,317,000,~~$4,459,000, or ~~$0.46~~$0.48 per share, for the three months ended ~~June~~September 30, 2018.

The decrease in earnings is primarily the result of higher deposit interest expense, salaries and employee benefits and provision for loan losses, offset in part by improved loan interest income.

Net loan charge-offs totaled $314,000 and $195,000 for the three months ended September 30, 2019 and 2018, respectively. The provision for loan losses totaled $379,000 and $100,000 for the three months ended September 30, 2019 and 2018, respectively.

The Company had net income of $12,896,000, or $1.40 per share, for the nine months ended September 30, 2019, compared to net income of $12,813,000, or $1.38 per share, for the nine months ended September 30, 2018.

The increase in ~~quarterly~~ earnings ~~can be~~is primarily ~~attributed to~~the result of improved loan interest income, offset in part by elevated deposit interest expense and higher salary and employee benefits.

Net loan charge-offs totaled ~~$11,000~~$295,000 and ~~$4,000~~$226,000 for the ~~three~~nine months ended ~~June~~September 30, 2019 and 2018, respectively. The provision for loan losses totaled ~~$68,000~~$545,000 and ~~$64,000~~$193,000 for the ~~three~~nine months ended ~~June 30, 2019 and 2018, respectively.~~

~~The Company had net income of $8,855,000, or $0.96 per share, for the six months ended June 30, 2019, compared to net income of $8,354,000, or $0.90 per share, for the six months ended June 30, 2018.~~

~~The increase in six month earnings can be primarily attributed to an increase in loan interest income, offset in part by higher deposit interest expense and an increase in salaries and benefits.~~

Net loan recoveries totaled $19,000 and net loan charge offs of $31,000 for the six months ended June 30, 2019 and 2018, respectively. The provision for loan losses totaled $166,000 and $93,000 for the six months ended JuneSeptember 30, 2019 and 2018, respectively.

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

● Challenges

● Key Performance Indicators and Industry Results

● Critical Accounting Policies

● Income Statement Review

● Balance Sheet Review

● Asset Quality Review and Credit Risk Management

● Liquidity and Capital Resources

● Forward-Looking Statements and Business Risks

● Non-GAAP Financial Measures

Challenges

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, 2019.

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Key Performance Indicators and Industry Results

Certain key performance indicators for the Company and the industry are presented in the following chart. The industry figures are compiled by the Federal Deposit Insurance Corporation (the “FDIC”) and are derived from ~~5,406~~5,303 commercial banks and savings institutions insured by the FDIC. Management reviews these indicators on a quarterly basis for purposes of comparing the Company’s performance from quarter-to-quarter against the industry as a whole.

Selected Indicators for the Company and the Industry

	3 Months			6 Months																					3 Months			9 Months
	Ended			Ended			3 Months Ended						Years Ended December 31,												Ended			Ended			3 Months Ended						Years Ended December 31,
	June 30, 2019						March 31, 2019						2018						2017						September 30, 2019						June 30, 2019						2018						2017
	Company						Company			Industry*			Company			Industry*			Company			Industry*			Company						Company			Industry*			Company			Industry*			Company			Industry*

Return on assets		1.27	%		1.22	%		1.17	%		1.35	%		1.23	%		1.35	%		1.00	%		0.97	%		1.10	%		1.18	%		1.27	%		1.36	%		1.23	%		1.35	%		1.00	%		0.97	%

Return on equity		10.32	%		10.03	%		9.73	%		11.93	%		10.09	%		11.98	%		8.02	%		8.64	%		8.74	%		9.58	%		10.32	%		12.01	%		10.09	%		11.98	%		8.02	%		8.64	%

Net interest margin		3.20	%		3.22	%		3.23	%		3.42	%		3.23	%		3.40	%		3.25	%		3.25	%		3.15	%		3.20	%		3.20	%		3.40	%		3.23	%		3.40	%		3.25	%		3.25	%

Efficiency ratio		54.92	%		56.36	%		57.82	%		55.85	%		55.90	%		56.27	%		52.70	%		57.94	%		57.80	%		56.84	%		54.92	%		55.58	%		55.90	%		56.27	%		52.70	%		57.94	%

Capital ratio		12.30	%		12.17	%		12.05	%		9.76	%		12.18	%		9.70	%		12.48	%		9.62	%		12.64	%		12.33	%		12.30	%		9.81	%		12.18	%		9.70	%		12.48	%		9.62	%

*Latest available data

Key performances indicators include:

● Return on Assets

This ratio is calculated by dividing net income by average assets. It is used to measure how effectively the assets of the Company are being utilized in generating income. The Company's annualized return on average assets was ~~1.27%~~1.10% and ~~1.26%~~1.31% for the three months ended ~~June~~September 30, 2019 and 2018, respectively. This ratio ~~remained consistent when comparing 2019~~declined primarily due to ~~2018, as~~lower net income ~~increased in proportion~~for the three months ended September 30, 2019 as compared to ~~the increase in average assets.~~2018.

● Return on Equity

This ratio is calculated by dividing net income by average equity. It is used to measure the net income or return the Company generated for the shareholders’ equity investment in the Company. The Company's return on average equity was at ~~10.32%~~8.74% and ~~10.35%~~10.54% for the three months ended ~~June~~September 30, 2019 and 2018, respectively. This ratio ~~remained consistent when comparing 2019~~declined primarily due to ~~2018, as~~lower net income ~~increased in proportion~~and higher average stockholders’ equity for the three months ended September 30, 2019 as compared to ~~the increase in average equity.~~2018.

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● Net Interest Margin

The net interest margin for the three months ended ~~June~~September 30, 2019 and 2018 was ~~3.20%~~3.15% and ~~3.16%~~3.28%, respectively. The ratio is calculated by dividing net interest income by average earning assets. Earning assets are primarily made up of loans and investments that earn interest. This ratio is used to measure how well the Company is able to maintain interest rates on earning assets above those of interest-bearing liabilities, which is the interest expense paid on deposits and other borrowings.

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● Efficiency Ratio

This ratio is calculated by dividing noninterest expense by net interest income and noninterest income. The ratio is a measure of the Company’s ability to manage noninterest expenses. The Company’s efficiency ratio was ~~54.92%~~57.80% and ~~55.02%~~54.82% for the three months ended ~~June~~September 30, 2019 and 2018, respectively. The efficiency ratio ~~remained consistent with~~increased primarily due to higher noninterest expenses, which was mainly due to the ~~2018 efficiency ratio.~~Acquisition.

● Capital Ratio

The average capital ratio is calculated by dividing average total equity capital by average total assets. It measures the level of average assets that are funded by shareholders’ equity. Given an equal level of risk in the financial condition of two companies, the higher the capital ratio, generally the more financially sound the company. The Company’s capital ratio of ~~12.30%~~12.64% as of ~~June~~September 30, 2019 is significantly higher than the industry average of ~~9.70%~~9.81% as of ~~December 31, 2018.~~June 30, 2019.

Industry Results:

The FDIC Quarterly Banking Profile reported the following results for the ~~first~~second quarter of 2019:

Net Income ~~Increases 8.7% From First Quarter 2018~~Rises 4.1% to ~~$60.7~~$62.6 Billion on Higher Net Interest Income

~~The aggregate~~During the three months ended June 30, quarterly net income for the ~~5,362~~5,303 FDIC-insured commercial banks and savings institutions totaled ~~$60.7~~$62.6 billion, ~~in first quarter 2019,~~ an increase of ~~$4.9~~$2.5 billion ~~(8.7%~~(4.1%) from a year ago. ~~The improvement~~Improvement in quarterly net income was ~~led by~~attributable to higher net interest income ~~which reflected a modest growth~~and an increase in ~~interest-earning assets and wider net interest margins (NIM).~~realized securities gains. Almost ~~two out~~60% of ~~every three~~all banks ~~(62.3%)~~ reported ~~year-over-year~~annual increases in net income ~~and~~from the year-ago quarter, while less than 4% of banks ~~reported net losses for~~were unprofitable during the second quarter. The average return on assets ~~rose~~increased to ~~1.35%, an improvement~~1.38% from ~~the 1.28% a year earlier.~~1.37% in second quarter 2018.

Net Interest Income Expands 6%3.7% From a Year ~~Ago~~Earlier

Net interest income of ~~$139.3~~$139 billion increased by $4.9 billion (3.7%) from a year earlier, the slowest year over-year growth rate since fourth quarter 2015. Slightly more than three-quarters of all banks (75.1%) reported an increase in net interest income from second quarter 2018. Net interest margin for the banking industry was 3.39% during the quarter, up slightly from 3.38% a year ago but below a recent high of 3.48% in fourth quarter 2018. Since year-end 2018, the average yield on earning assets rose by ~~$7.9~~1 basis point, while the average cost of funding increased by 11 basis points. During this period, the largest increase in the average cost of funding was among banks with assets from $1 billion ~~(6%~~to $10 billion.

Loan-Loss Provisions Increase More Than 9% From Second Quarter 2018

Banks set aside $12.8 billion in loan-loss provisions during the second quarter, an increase of $1.1 billion (9.3%) from a year earlier. More than one-third of all banks (36.1%) reported year-over-year increases in loan-loss provisions. Loan-loss provisions as a percentage of net operating revenue increased from 5.80% in second quarter 2018 to 6.25%.

Noninterest Income Falls 2.7% From a Year Earlier

Noninterest income fell by $1.8 billion (2.7%) from 12 months ago, ~~as more~~although less than ~~three out~~half of ~~every four~~all banks ~~(79.2%~~(41%) reported ~~year-over-year increases. NIM for the banking industry increased~~declines. The overall decline in noninterest income was driven primarily by ~~10 basis points~~servicing fees, which fell by $3.1 billion from a year ago to ~~3.42%, as average asset yields (up 49 basis points) increased~~$332.7 million, and investment banking fees, which declined by ~~more than average funding costs (up 39 basis points)~~$533.5 million (16.1%). ~~The largest institutions (banks with assets greater than $250 billion) reported the largest annual increase~~Increases in ~~NIM (up 11 basis points), almost twice the rate of~~ all other ~~institution size groups.~~

~~Loan-Loss Provisions Rise Almost 12% From First Quarter 2018~~

~~Banks allocated $13.9~~noninterest income (up $1.2 billion, or 3.8%) and trading revenue (up $742.5 million, or 9.8%) helped offset the decline in ~~loan-loss provisions in~~noninterest income during the first quarter, an increase of $1.5 billion (11.8%) from a year earlier. Slightly more than one-third of all banks (35.2%) reported annual increases in loan loss provisions. A large portion of the annual increase was concentrated among the largest banks.year.

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Noninterest ~~Income Declines 2.9%~~Expense Increases From ~~a Year Ago~~

Noninterest income declined by $2 billion (2.9%) from a year ago, due to lower servicing fees, which fell by $2.1 billion (58.3%), and all other noninterest income, which declined by $1.1 billion (3.6%). Despite the overall decline in noninterest income, trading revenue rose by $2.5 billion (32.8%). Slightly more than half of all banks (52.6%) reported annual declines in noninterest income.

~~Noninterest Expense Declines From First~~Second Quarter 2018

Noninterest expense ~~fell~~rose by ~~$427.1 million (0.4%~~$1.6 billion (1.4%) from a year ~~earlier.~~ago. The increase ~~in salary~~was widespread with 75.3% of all banks contributing to the growth. Salary and employee benefits ~~(up $1.1~~rose by $1.8 billion ~~or 2%~~(3.2%) ~~was offset by~~from a ~~decline in all other noninterest expense (down $1.4 billion, or 3%). The~~year ago, as average assets per employee increased from $8.4 million ~~in first quarter 2018~~ to $8.8 million.

Net Charge-Offs ~~Increase 5.5%~~Rise 9.3% From ~~12 Months~~a Year Ago

~~During the first quarter, banks~~Banks charged off ~~$12.7~~$12.8 billion in uncollectable loans ~~an increase of $667.9 million (5.5%~~during the second quarter, up $1.1 billion (9.3%) from ~~first quarter 2018. Credit card balances reported the largest year-over-year dollar~~a year ago. The overall increase in net charge-offs ~~increasing~~was led by ~~$543.4~~credit card balances (up $669.4 million, ~~(6.6%~~or 8.3%) and commercial and industrial loans (up $368.9 million, or 25.2%). The average net charge-off rate ~~remained unchanged~~increased modestly from 0.48% in second quarter 2018 to 0.50%. The net charge-off rate for commercial and industrial loans rose 5 basis points from a year ago ~~(0.50%). For eight out of the past ten quarters,~~to 0.33%, while the net charge-off rate for credit cards ~~increased, reaching 3.97%~~rose by 12 basis points from a year ago to 4.03%, surpassing the 4% level for the ~~current quarter.~~first time since second quarter 2012.

Noncurrent Loan Rate ~~Remains Below 1%~~Improves to 0.93%

Noncurrent loan balances (90 days or more past due or in nonaccrual status) ~~increased~~declined by ~~$461.6 million (0.5%~~$4.9 billion (4.8%) from ~~the previous quarter. Less~~first quarter 2019. Slightly more than half of all banks ~~(41.2%~~(50.6%) reported ~~increases~~declines in noncurrent loan balances. The ~~quarterly increase~~quarter-over-quarter improvement was reflected in commercial and industrial loan balances, which rose by $3.3 billion (22.8%), the largest quarterly dollar increase since first quarter 2016. The banking industry continued to reduce noncurrent loans for residential mortgages, which fell by $2.1 billion (5%), and credit card balances, which declined by ~~$2.2~~$1.1 billion ~~(5%~~(8.7%) ~~from the previous quarter.~~. The average noncurrent rate ~~remained unchanged~~declined by 6 basis points from the previous quarter ~~at 0.99%~~to 0.93%.

Loan-Loss Reserves ~~Increase~~Decline Modestly From the Previous Quarter

AtLoan-loss reserves totaled $124.9 billion at the end of ~~first~~second quarter, ~~loan-loss reserves increased by $432.3 billion (0.3%~~down $292.5 million (0.2%) from the ~~previous~~first quarter. ~~Almost two-thirds~~Just over one-quarter of all banks ~~(64.9%~~(26.3%) reported ~~increases~~quarterly declines in loan-loss ~~reserves during the quarter.~~reserves. At banks that itemize their loan-loss reserves, which are banks with total assets of $1 billion or more and represent 91% of total industry loan-loss reserves, the quarterly ~~growth~~decline was attributable to residential real estate (down $762.7 million, or 6.5%) and credit cards (down $59.3 million, or 0.1%). Loan-loss reserves for commercial loans ~~(up $761.4~~increased by $445.2 million ~~or 2.4%~~(1.4%) from the previous quarter.

Total Assets Increase From First Quarter 2019

Total assets rose by $177.3 billion (1%) from the previous quarter. Cash and balances due from depository institutions declined by $81.5 billion (4.8%). Banks increased their investment securities by $54.8 billion (1.5%), as mortgage-backed securities rose by $65 billion (2.9%) and ~~other~~state and municipal securities declined by $14.5 billion (4.5%). After reaching an all-time high of 35.8% in second quarter 2018, the percentage of industry assets maturing or repricing in more than three years continued to decline, falling to 35.1% in the second quarter.

Loan Balances Increase From the Previous Quarter and a Year Ago

Total loan and lease balances rose by $152.3 billion (1.5%) from first quarter 2019. Almost three-quarters of all banks (72.7%) reported quarterly increases in their loan and lease balances. All major loan categories reported quarter-over-quarter increases, led by consumer ~~(up $308.3 million, or 3.1%~~loans, which rose by $42.2 billion (2.5%), and residential mortgage loans, which ~~excludes credit cards. For~~increased by $38.3 billion (1.8%). Over the past ~~11 consecutive quarters,~~year, total loan and lease balances rose by $443 billion (4.5%), a modest increase from the 4.1% annual growth ~~in total itemized loan-loss reserves was attributable to credit cards; however, credit card losses remained stable during~~rate reported last quarter. Commercial and industrial loans had the ~~first quarter,~~largest dollar increase from a year ago, increasing by ~~only $54.2 million (0.1%~~$142.8 billion (6.9%).

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Deposits Increase From First Quarter 2019

Total deposit balances increased by $114 billion (0.8%) from the previous quarter, as deposits in foreign offices increased by $51.3 billion (4.1%) and domestic office deposits rose by $62.7 billion (0.5%). Domestic deposits in noninterest-bearing accounts rose by $37.2 billion (1.2%), while interest-bearing deposits increased by $25.5 billion (0.3%). Nondeposit liabilities increased by $25.1 billion (1.2%) from the previous quarter, as other liabilities rose by $25.2 billion (6.2%).

Equity Capital ~~Increases~~Rises From the ~~Fourth~~Previous Quarter

~~During the three months ended March 31, 2019 equity~~Equity capital ofrose to $2.1 trillion ~~rose~~in the second quarter, up $38.6 billion (1.9%) from the previous quarter, led by ~~$36.9 billion (1.8%). Retained earnings in first quarter 2019~~accumulated other comprehensive income. Declared dividends totaled ~~$22.1 billion and dividends paid rose to $38.6~~$48.6 billion, an increase of ~~$7.9~~$10.8 billion ~~(25.9%~~(28.6%)~~. Accumulated other comprehensive income increased by $20.6 billion, as the fair value of securities improved.~~ from second quarter 2018. At ~~the~~ end of ~~first~~second quarter, ~~99.6% of all~~16 insured institutions ~~which account for 99.87% of~~with $2.2 billion in total ~~industry~~ assets ~~met or exceeded~~were below the requirements for the well-capitalized category as defined for Prompt Corrective ~~Action.~~

~~Table of Contents~~

~~Total Assets Increase From the Previous Quarter~~Action purposes.

~~Total assets increased by $147 billion (0.8%) during the first quarter. Assets~~Five New Banks Are Added in trading accounts increased by $94.2 billion (16.5%), the largest quarterly dollar increase since first quarter 2008. Securities holdings among the banking industry remained stable (up $1.3 billion, or .003%) from the previous quarter. Mortgage-backed securities rose by $30.6 billion (1.4%), but were offset in part by lower U.S. Treasury securities (down $11.4 billion, or 2.1%) and state and municipal securities (down $7.6 billion, or 2.3%).

~~Loan Balances Drop Slightly From the Previous~~Second Quarter ~~but Increase 4.1% From a Year Ago~~

Total loan and lease balances fell by $4.8 billion (0.05%) compared with the previous quarter. More than half of all banks (57.5%) reported quarterly increases in loan and lease balances. Commercial and industrial loans increased by $37.7 billion (1.7%), while consumer loans, including credit card balances, fell by $37 billion (2.1%). Over the past 12 months, total loan and lease balances increased by $395 billion (4.1%), a slight decline from the 4.4% annual growth rate reported last quarter. All major loan categories reported year-over-year increases, led by commercial and industrial loans (up $155.6 billion, or 7.6%) and consumer loans, which includes credit card balances (up $71.3 billion, or 4.4%).

~~Noninterest-Bearing Deposits Decline 3.2% From the Previous Quarter~~

Total deposits rose by $59.5 billion (0.4%) from the previous quarter, as interest-bearing deposits increased by $172.4 billion (1.8%). Noninterest-bearing deposits declined by $100.4 billion (3.2%), the largest quarterly dollar decline since reporting the Quarterly Banking Profile, and deposits in foreign offices fell by $12.5 billion (1%). Nondeposit liabilities rose by $50.6 billion (2.5%) from the previous quarter, with the increase led by other secured borrowings (up $35.8 billion, or 18.7%) and other liabilities (up $28 billion, or 7.3%). Federal Home Loan Bank advances fell by $50.3 billion (8.8%) from the previous quarter, the largest quarterly dollar decline since first quarter 2010.2019

The ~~Number~~number of ~~Banks~~FDIC-insured commercial banks and savings institutions declined from 5,362 to 5,303 during the three months ended June 30. Five new banks were added during the second quarter, 60 institutions were absorbed by mergers, and one bank failed. The number of institutions on the FDIC’s “Problem Bank List” ~~Declines to 59~~

~~The FDIC’s “Problem Bank List”~~ declined from ~~60 at year end~~59 to 5956 at the end of ~~first~~second quarter, the lowest number since first quarter 2007. Total assets of problem banks ~~declined~~increased from ~~$48.5~~$46.7 billion to ~~$46.7~~$48.5 billion. ~~During the first quarter, one new bank was chartered, 43 institutions were absorbed by mergers, and no banks failed.~~

Critical Accounting Policies

The discussion contained in this Item 2 and other disclosures included within this report are based, in part, on the Company’s audited December 31, 2018 consolidated financial statements. These statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The financial information contained in these statements is, for the most part, based on the financial effects of transactions and events that have already occurred. However, the preparation of these statements requires management to make certain estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses.

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

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Allowance for Loan Losses

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

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

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

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

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

Goodwill

Goodwill arose in connection with three acquisitions consummated in previous periods. Goodwill is tested annually for impairment or more often if conditions indicate a possible impairment. For the purposes of goodwill impairment testing, determination of the fair value of a reporting unit involves the use of significant estimates and assumptions. Impairment would arise if the fair value of a reporting unit is less than its carrying value. At ~~June~~September 30, 2019, Company’s management has completed the goodwill impairment assessment and determined goodwill was not impaired. Actual future test results may differ from the present evaluation of impairment due to changes in the conditions used in the current evaluation.

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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 provide useful information to both management and investors to analyze and evaluate the Company’s financial performance. Limitations associated with non-GAAP financial measures include the risks that persons might disagree as to the appropriateness of items included in these measures and that different companies might calculate these measures differently. These non-GAAP disclosures should not be considered an alternative to the Company’s GAAP results. The following table reconciles the non-GAAP financial measures of net interest income and net interest margin on an FTE basis to GAAP. (dollars in thousands)

		Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
		2019			2018			2019			2018			2019			2018			2019			2018
Reconciliation of net interest income and annualized net interest margin on an FTE basis to GAAP:	Reconciliation of net interest income and annualized net interest margin on an FTE basis to GAAP:
Net interest income (GAAP)		$	10,930		$	10,211		$	21,901		$	20,397		$	10,814		$	10,586		$	32,715		$	30,983
Tax-equivalent adjustment ⁽¹⁾			284			313			576			629			251			288			827			917
Net interest income on an FTE basis (non-GAAP)			11,214			10,524			22,477			21,026			11,065			10,874			33,542			31,900
Average interest-earning assets		$	1,400,685		$	1,330,909		$	1,397,269		$	1,324,875		$	1,403,303		$	1,324,697		$	1,399,302		$	1,324,817
Net interest margin on an FTE basis (non-GAAP)			3.20	%		3.16	%		3.22	%		3.17	%		3.15	%		3.28	%		3.20	%		3.21	%

(1) Computed on a tax-equivalent basis using an incremental federal income tax rate of 21 percent for the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, adjusted to reflect the effect of the tax-exempt interest income associated with owning tax-exempt securities and loans.

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Income Statement Review for the Three Months ended ~~June~~September 30, 2019 and 2018

The following highlights a comparative discussion of the major components of net income and their impact for the three months ended ~~June~~September 30, 2019 and 2018:

AVERAGE BALANCES AND INTEREST RATES

The following two tables are used to calculate the Company’s net interest margin. 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 the interest income less the interest expense divided by average earning assets.

AVERAGE BALANCE SHEETS AND INTEREST RATES	AVERAGE BALANCE SHEETS AND INTEREST RATES															AVERAGE BALANCE SHEETS AND INTEREST RATES

		Three Months Ended June 30,															Three Months Ended September 30,

		2019							2018								2019							2018

		Average		Revenue/		Yield/			Average		Revenue/		Yield/				Average		Revenue/		Yield/			Average		Revenue/		Yield/
		balance		expense		rate			balance		expense		rate				balance		expense		rate			balance		expense		rate
ASSETS
(dollars in thousands)
Interest-earning assets
Loans 1
Commercial		$	82,133	$	1,119		5.45	%	$	72,939	$	927		5.08	%		$	76,808	$	1,062		5.53	%	$	75,533	$	972		5.15	%
Agricultural			81,803		1,304		6.37	%		68,992		945		5.48	%			78,286		989		5.05	%		70,925		1,075		6.06	%
Real estate			712,534		8,174		4.59	%		637,835		7,008		4.40	%			713,796		8,255		4.63	%		648,628		7,375		4.55	%
Consumer and other			16,694		211		5.06	%		8,240		116		5.62	%			15,861		207		5.22	%		10,206		136		5.34	%

Total loans (including fees)			893,164		10,808		4.84	%		788,005		8,996		4.57	%			884,751		10,513		4.75	%		805,292		9,558		4.75	%

Investment securities
Taxable			255,671		1,555		2.43	%		271,835		1,564		2.30	%			277,264		1,672		2.41	%		266,510		1,545		2.32	%
Tax-exempt 2			202,232		1,352		2.67	%		223,979		1,493		2.67	%			177,431		1,197		2.70	%		205,003		1,374		2.68	%
Total investment securities			457,903		2,907		2.54	%		495,814		3,057		2.47	%			454,695		2,869		2.52	%		471,513		2,919		2.48	%

Interest bearing deposits with banks and federal funds sold			49,618		290		2.34	%		47,089		256		2.17	%			63,857		401		2.51	%		47,892		272		2.27	%

Total interest-earning assets			1,400,685	$	14,005		4.00	%		1,330,909	$	12,309		3.70	%			1,403,303	$	13,783		3.93	%		1,324,697	$	12,749		3.85	%

Noninterest-earning assets			53,992							38,895								59,894							41,596

TOTAL ASSETS		$	1,454,677						$	1,369,804							$	1,463,197						$	1,366,293

1 Average loan balance includes 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	AVERAGE BALANCE SHEETS AND INTEREST RATES																	AVERAGE BALANCE SHEETS AND INTEREST RATES

		Three Months Ended June 30,																	Three Months Ended September 30,

		2019								2018									2019								2018

		Average		Revenue/			Yield/			Average		Revenue/			Yield/				Average		Revenue/			Yield/			Average		Revenue/			Yield/
		balance		expense			rate			balance		expense			rate				balance		expense			rate			balance		expense			rate
LIABILITIES AND STOCKHOLDERS' EQUITY
(dollars in thousands)
Interest-bearing liabilities
Deposits
NOW, savings accounts and money markets		$	790,872	$	1,616			0.82	%	$	744,936	$	1,070			0.57	%		$	777,506	$	1,451			0.75	%	$	732,905	$	1,109			0.61	%
Time deposits			222,740		990			1.78	%		193,897		564			1.16	%			226,972		1,097			1.93	%		196,664		632			1.29	%
Total deposits			1,013,612		2,606			1.03	%		938,833		1,634			0.70	%			1,004,478		2,548			1.01	%		929,569		1,741			0.75	%
Other borrowed funds			40,930		185			1.80	%		44,124		151			1.37	%			43,204		170			1.57	%		45,100		134			1.19	%

Total Interest-bearing liabilities			1,054,542		2,791			1.06	%		982,957		1,785			0.73	%			1,047,682		2,718			1.04	%		974,669		1,875			0.77	%

Noninterest-bearing liabilities
Demand deposits			212,929								211,586									221,586								214,956
Other liabilities			8,315								8,487									8,975								7,523

Stockholders' equity			178,890								166,774									184,954								169,145

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	1,454,676							$	1,369,804								$	1,463,197							$	1,366,293


Net interest income				$	11,214			3.20	%			$	10,524			3.16	%				$	11,065			3.15	%			$	10,874			3.28	%

Spread Analysis
Interest income/average assets		$	14,005		3.85	%				$	12,309		3.59	%					$	13,783		3.77	%				$	12,749		3.73	%
Interest expense/average assets		$	2,791		0.77	%				$	1,785		0.52	%					$	2,718		0.74	%				$	1,875		0.55	%
Net interest income/average assets		$	11,214		3.08	%				$	10,524		3.07	%					$	11,065		3.02	%				$	10,874		3.18	%

Net Interest Income

For the three months ended ~~June~~September 30, 2019 and 2018, the Company's net interest margin adjusted for tax exempt income was ~~3.20%~~3.15% and ~~3.16%~~3.28%, respectively. Net interest income, prior to the adjustment for tax-exempt income, for the three months ended ~~June~~September 30, 2019 totaled ~~$10,930,000~~$10,814,000 compared to ~~$10,211,000~~$10,586,000 for the three months ended ~~June~~September 30, 2018.

For the three months ended ~~June~~September 30, 2019, interest income increased ~~$1,726,000,~~$1,071,000, or ~~14%~~9%, when compared to the same period in 2018. The increase from 2019 was primarily attributable to increased loan volume, ~~and~~related to ~~a lesser extent improved interest rates.~~the Acquisition. The increase in loan interest income due to loan volume was ~~primarily~~offset in part by foregone interest on nonaccrual loans which was $272,000 for the three months ended September 30, 2019, as compared to $80,000 for the three months ended September 30, 2018. The increase in loan interest income was also offset in part by a decrease in tax-exempt income due to ~~the Acquisition. Loan interest rates increased in conjunction with general market interest rates, as the Federal Reserve Bank increased short term interest rate targets by 1.00% in 2018.~~maturity of municipal bonds.

Interest expense increased ~~$1,006,000,~~$843,000, or ~~56%~~45%, for the three months ended ~~June~~September 30, 2019 when compared to the same period in 2018. The higher interest expense for the period is primarily attributable to higher rates on deposits due to market interest rates and competitive pressures.

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Provision for Loan Losses

~~The Company’s~~A provision for loan losses of $379,000 was ~~$68,000 and $64,000~~recognized in the third quarter of 2019 as compared to $100,000 in the third quarter of 2018. Net loan charge offs totaled $314,000 for the ~~three months~~quarter ended ~~June~~September 30, 2019 ~~and 2018, respectively. Net~~compared to net loan ~~charge-offs were $11,000 and $4,000~~charge offs of $195,000 for the ~~three months~~quarter ended ~~June~~September 30, ~~2019 and 2018, respectively.~~2018. The loan charge offs this quarter were primarily related to one commercial relationship that was restructured. While the current provision for loan losses are not related to agricultural loans, the Iowa agricultural economy remains challenged as the result of the low grain prices throughout much of 2018 and 2019 and tariff concerns on Iowa exports. ~~Corn~~Grain prices rebounded insince the second quarter of ~~2019 as a result of delayed planting caused by excessive rain~~2019; however, initial crop reports in ~~much~~our markets indicate significant variability in crop yields. Presently, it is too early to gauge the financial impact of the ~~Midwest. An early frost could be problematic for the Company’s ag loan customers that were impacted by the delayed planting season.~~2019 growing season on most of our agricultural borrowers.

Noninterest Income and Expense

Noninterest income ~~increased $222,000~~ for the ~~three months ended June 30,~~third quarter of 2019 totaled $2,119,000 as compared to $2,162,000 in the ~~same period~~third quarter of 2018, a decrease of 2%. The decrease in ~~2018.~~noninterest income was primarily due to the $162,000 gain on foreclosure of real estate in 2018, offset in part by increases due to the Acquisition and gain on the sale of loans. The increase in ~~noninterest income is~~the gain on sale of loans was due to higher loan volume driven by a healthy residential mortgage market in central Iowa.

Noninterest expense for the third quarter of 2019 totaled $7,475,000 compared to $6,988,000 recorded in the third quarter of 2018, an increase of 7%. Most of the increase was related to higher salaries and employee benefits and data processing costs, offset in part by one time data conversion costs incurred in 2018 related to the Acquisition and a decrease in FDIC insurance assessments. The increase in salaries and employee benefits were primarily due to the Acquisition and ~~higher wealth management income.~~normal salary increases. The increase in ~~wealth management income was primarily related to growth in the assets under management, fueled by a growing equity market and new account relationships.~~

~~Noninterest expense increased $505,000 or 8% for the three months ended June 30, 2019 compared~~data processing costs were due to the ~~same period in 2018 primarily as a result of~~cost associated with expanded services and the Acquisition. ~~Salaries and benefits was the largest component of the increase~~The decrease in ~~noninterest expense, this increase~~FDIC insurance assessments was due ~~primarily~~ to the ~~Acquisition and normal salary and employee benefit increases.~~receipt of a small bank credit as the deposit insurance reserve ratio exceeded 1.38%. The efficiency ratio was ~~54.9%~~57.8% for the ~~second~~third quarter of 2019 as compared to ~~55.0%~~54.8% in the third quarter of 2018.

Income Taxes

The provision for income taxes expense for the three months ended ~~June~~September 30, 2019 and 2018 was ~~$1,239,000~~$1,038,000 and ~~$1,107,000,~~$1,201,000, respectively, representing an effective tax rate of ~~21%~~20% and ~~20%~~21%, respectively. The lower than expected effective tax rate for both periods is primarily due to tax-exempt interest income.

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~~Income~~Income Statement Review for the ~~Six~~Nine Months ended ~~June~~September 30, 2019 and 2018

The following highlights a comparative discussion of the major components of net income and their impact for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018:

AVERAGE BALANCES AND INTEREST RATES

AVERAGE BALANCE SHEETS AND INTEREST RATES	AVERAGE BALANCE SHEETS AND INTEREST RATES															AVERAGE BALANCE SHEETS AND INTEREST RATES

		Six Months Ended June 30,															Nine Months Ended September 30,

		2019							2018								2019							2018

		Average		Revenue/		Yield/			Average		Revenue/		Yield/				Average		Revenue/		Yield/			Average		Revenue/		Yield/
		balance		expense		rate			balance		expense		rate				balance		expense		rate			balance		expense		rate
ASSETS
(dollars in thousands)
Interest-earning assets
Loans 1
Commercial		$	83,164	$	2,239		5.38	%	$	73,180	$	1,795		4.90	%		$	81,022	$	3,301		5.43	%	$	73,973	$	2,766		4.99	%
Agricultural			81,511		2,587		6.35	%		68,776		1,913		5.56	%			80,424		3,576		5.93	%		69,500		3,023		5.80	%
Real estate			713,274		16,267		4.56	%		634,953		13,949		4.39	%			713,449		24,523		4.58	%		639,563		21,290		4.44	%
Consumer and other			16,678		416		4.99	%		8,532		228		5.34	%			16,403		623		5.06	%		9,096		364		5.33	%

Total loans (including fees)			894,627		21,509		4.81	%		785,440		17,884		4.55	%			891,298		32,023		4.79	%		792,132		27,443		4.62	%

Investment securities
Taxable			253,421		3,044		2.40	%		271,924		3,093		2.27	%			261,456		4,715		2.40	%		268,284		4,639		2.31	%
Tax-exempt 2			205,633		2,745		2.67	%		225,197		2,995		2.66	%			196,129		3,942		2.68	%		218,392		4,368		2.67	%
Total investment securities			459,054		5,789		2.52	%		497,122		6,088		2.45	%			457,585		8,657		2.52	%		486,676		9,007		2.47	%

Interest bearing deposits with banks and federal funds sold			43,588		528		2.42	%		42,313		449		2.12	%			50,419		929		2.46	%		46,009		721		2.09	%

Total interest-earning assets			1,397,269	$	27,826		3.98	%		1,324,875	$	24,421		3.69	%			1,399,302	$	41,609		3.96	%		1,324,817	$	37,171		3.74	%

Noninterest-earning assets			53,300							40,125								55,522							40,619

TOTAL ASSETS		$	1,450,569						$	1,365,000							$	1,454,824						$	1,365,436

1 Average loan balance includes 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	AVERAGE BALANCE SHEETS AND INTEREST RATES																	AVERAGE BALANCE SHEETS AND INTEREST RATES

		Six Months Ended June 30,																	Nine Months Ended September 30,

		2019								2018									2019								2018

		Average		Revenue/			Yield/			Average		Revenue/			Yield/				Average		Revenue/			Yield/			Average		Revenue/			Yield/
		balance		expense			rate			balance		expense			rate				balance		expense			rate			balance		expense			rate
LIABILITIES AND STOCKHOLDERS' EQUITY
(dollars in thousands)
Interest-bearing liabilities
Deposits
NOW, savings accounts and money markets		$	788,786	$	3,133			0.79	%	$	733,157	$	1,901			0.52	%		$	784,985	$	4,584			0.78	%	$	733,072	$	3,009			0.55	%
Time deposits			218,380		1,832			1.68	%		194,481		1,095			1.13	%			221,275		2,929			1.76	%		195,217		1,727			1.18	%
Total deposits			1,007,166		4,965			0.99	%		927,638		2,996			0.65	%			1,006,260		7,513			1.00	%		928,289		4,736			0.68	%
Other borrowed funds			42,188		384			1.82	%		51,832		400			1.54	%			42,530		554			1.74	%		49,563		534			1.44	%

Total Interest-bearing liabilities			1,049,354		5,349			1.02	%		979,471		3,396			0.69	%			1,048,790		8,067			1.03	%		977,852		5,270			0.72	%

Noninterest-bearing liabilities
Demand deposits			216,522								209,169									218,229								211,120
Other liabilities			8,090								8,456									8,388								8,141

Stockholders' equity			176,603								167,905									179,417								168,323

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	1,450,569							$	1,365,000								$	1,454,824							$	1,365,436


Net interest income				$	22,477			3.22	%			$	21,025			3.17	%				$	33,542			3.20	%			$	31,900			3.21	%

Spread Analysis
Interest income/average assets		$	27,826		3.84	%				$	24,421		3.58	%					$	41,609		3.81	%				$	37,171		3.63	%
Interest expense/average assets		$	5,349		0.74	%				$	3,396		0.50	%					$	8,067		0.74	%				$	5,270		0.51	%
Net interest income/average assets		$	22,477		3.10	%				$	21,025		3.08	%					$	33,542		3.07	%				$	31,900		3.12	%

Net Interest Income

For the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, the Company's net interest margin adjusted for tax exempt income was ~~3.22%~~3.20% and ~~3.17%~~3.21%, respectively. Net interest income, prior to the adjustment for tax-exempt income, for the ~~six~~nine months ended ~~June~~September 30, 2019 totaled ~~$21,901,000~~$32,715,000 compared to ~~$20,397,000~~$30,983,000 for the ~~six~~nine months ended ~~June~~September 30, 2018.

For the ~~six~~nine months ended ~~June~~September 30, 2019, interest income increased ~~$3,457,000,~~$4,528,000, or ~~15%~~12%, when compared to the same period in 2018. The increase from 2019 was primarily attributable to increased loan volume and to a lesser extent rates. The increase in loan volume was due to the Acquisition and a favorable lending environment in the Company’s market areas. ~~Loan interest rates increased in conjunction with general market interest rates, as the Federal Reserve Bank increased short term interest rate targets by 1.00% in 2018.~~

Interest expense increased ~~$1,953,000,~~$2,797,000, or ~~58%~~53%, for the ~~six~~nine months ended ~~June~~September 30, 2019 when compared to the same period in 2018. The higher interest expense for the period is primarily attributable to higher rates on deposits due to market interest rates and competitive pressures.

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Provision for Loan Losses

~~The Company’s~~A provision for loan losses of $545,000 was ~~$166,000 and $93,000~~recognized in the nine months ended September 30, 2019 as compared to $193,000 for the ~~six~~nine months ended ~~June~~September 30, 2018. Net loan charge offs totaled $295,000 for the nine months ended September 30, 2019 ~~and 2018, respectively. Net loan recoveries were $19,000 and net charge-offs were $31,000~~compared to $226,000 for the ~~six~~nine months ended ~~June~~September 30, ~~2019 and 2018, respectively.~~2018. While the current provision for loan losses are not related to agricultural loans, the Iowa agricultural economy remains challenged as the result of the low grain prices throughout much of 2018 and 2019 and tariff concerns on Iowa exports. ~~Corn~~Grain prices rebounded insince the second quarter of ~~2019 as a result of delayed planting caused by excessive rain~~2019; however, initial crop reports in ~~much~~our markets indicate significant variability in crop yields. Presently, it is too early to gauge the financial impact of the ~~Midwest. An early frost could be problematic for~~2019 growing season on most of our ~~ag loan customers that were impacted by the delayed planting season.~~agricultural borrowers.

Noninterest Income and Expense

Noninterest income ~~increased $384,000~~ for the ~~six~~nine months ended ~~June~~September 30, 2019 totaled $6,258,000 as compared to $5,917,000 for the ~~same period in 2018.~~nine months ended September 30, 2018, an increase of 6%. The increase in noninterest income is primarily due to the Acquisition and higher wealth management ~~income.~~income, offset in part by a gain on foreclosure of other real estate owned in 2018. The increase in wealth management income was primarily related to growth in the assets under management, fueled by a ~~growing~~favorable equity market and new account relationships.

Noninterest expense ~~increased $1,097,000 or 8%~~ for the ~~six~~nine months ended ~~June~~September 30, 2019 totaled $22,150,000 compared to $20,566,000 for the ~~same period in~~nine months ended September 30, 2018, an increase of 8%, which was primarily ~~as a result of~~due to the Acquisition. Salaries and benefits was the largest component of the increase in noninterest expense ~~this increase was due primarily to the Acquisition and~~which also includes normal salary and employee benefit increases, offset in part by a one-time $1,000 bonus paid to full-time employees in 2018. Another component of the increase in noninterest expense was the increase in data processing costs which was due primarily to the cost associated with expanded services and the Acquisition. The efficiency ratio was ~~56.4 %~~56.8% and 55.7% for the ~~six~~nine months ended ~~June~~September 30, 2019 ~~as compared to 56.2% in 2018.~~and 2018, respectively.

Income Taxes

The provision for income taxes expense for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 was ~~$2,343,000~~$3,381,000 and ~~$2,127,000,~~$3,328,000, respectively, representing an effective tax rate of 21% ~~and 20%, respectively.~~. The lower than expected effective tax rate for both periods is primarily due to tax-exempt interest income.

Balance Sheet Review

As of ~~June~~September 30, 2019, total assets were ~~$1,468,595,000,~~$1,499,976,000, a ~~$12,908,000~~$44,288,000 increase compared to December 31, 2018. The increase in assets, primarily interest bearing deposits, was funded primarily by ~~deposits.~~deposits and repurchase agreements.

Investment Portfolio

The investment portfolio totaled ~~$458,763,000~~$457,995,000 as of ~~June~~September 30, 2019, a decrease of ~~$208,000~~$976,000 from the December 31, 2018 balance of $458,971,000. The decrease in securities available-for-sale is primarily due to maturities in the municipal investment portfolio and to a lesser extent payments on mortgage backed securities. This decrease in investments was offset in part by increases in the unrealized gain on the investment portfolio as market interest rates caused an increase in the fair value of the investment ~~portfolio.~~portfolio and purchases of U.S. Agencies and corporate bonds.

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On a quarterly basis, the investment portfolio is reviewed for other-than-temporary impairment. As of ~~June~~September 30, 2019, gross unrealized losses of ~~$455,000,~~$320,000, are considered to be temporary in nature due to the interest rate environment of 2019 and other general economic factors. As a result of the Company’s favorable liquidity position, the Company does not have the intent to sell securities with an unrealized loss at the present time. In addition, management believes it is more likely than not that the Company will hold these securities until recovery of their fair value to cost basis and avoid considering present unrealized loss positions to be other-than-temporary.

~~Table of Contents~~

At ~~June~~September 30, 2019, the Company’s investment securities portfolio included securities issued by ~~227~~222 government municipalities and agencies located within 17 states with a fair value of ~~$197.0~~$187.9 million. At December 31, 2018, the Company’s investment securities portfolio included securities issued by 263 government municipalities and agencies located within 16 states with a fair value of $216.0 million. No one municipality or agency represents a concentration within this segment of the investment portfolio. The largest exposure to any one municipality or agency as of ~~June~~September 30, 2019 was ~~$3.9~~$3.6 million (approximately ~~2.0%~~1.9% of the fair value of the governmental municipalities and agencies) represented by the West Des Moines, Iowa Community School District to be repaid by sales tax revenues and property taxes.

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

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The following table summarizes the total general obligation and revenue bonds in the Company’s investment securities portfolios as of ~~June~~September 30, 2019 and December 31, 2018 identifying the state in which the issuing government municipality or agency operates. (Dollars in thousands)

2019

2018

Estimated

Estimated

Amortized

Fair

Amortized

Fair

Cost

Value

Cost

Value

Obligations of states and political subdivisions:

General Obligation bonds:

Iowa
$ 51,258 $ 51,728 $ 59,935 $ 59,481
Texas
10,761 10,898 11,822 11,803
Pennsylvania
8,790 8,883 9,167 9,144
Washington
6,850 6,896 6,905 6,762
Other (2019: 12 states; 2018: 12 states)
17,504 17,738 17,138 17,198

Total general obligation bonds
$ 95,163 $ 96,143 $ 104,967 $ 104,388

Revenue bonds:

Iowa
$ 93,314 $ 93,525 $ 104,589 $ 103,925
Other (2019: 6 states; 2018: 7 states)
7,262 7,359 7,691 7,642

Total revenue bonds
$ 100,576 $ 100,884 $ 112,280 $ 111,567

Total obligations of states and political subdivisions
$ 195,739 $ 197,027 $ 217,247 $ 215,955

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	2019				2018
			Estimated				Estimated
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value

Obligations of states and political subdivisions:
General Obligation bonds:
Iowa	$	56,464	$	57,108	$	59,935	$	59,481
Texas		9,524		9,717		11,822		11,803
Pennsylvania		8,580		8,675		9,167		9,144
Washington		6,822		6,903		6,905		6,762
Other (2019: 12 states; 2018: 12 states)		17,924		18,176		17,138		17,198

Total general obligation bonds	$	99,314	$	100,579	$	104,967	$	104,388

Revenue bonds:
Iowa	$	78,971	$	79,230	$	104,589	$	103,925
Other (2019: 5 states; 2018: 7 states)		8,010		8,131		7,691		7,642

Total revenue bonds	$	86,981	$	87,361	$	112,280	$	111,567

Total obligations of states and political subdivisions	$	186,295	$	187,940	$	217,247	$	215,955

As of ~~June~~September 30, 2019 and December 31, 2018, the revenue bonds in the Company’s investment securities portfolios were issued by government municipalities and agencies to fund public services such as community school facilities, college and university dormitory facilities, water utilities and electrical utilities. The revenue bonds are to be paid from primarily 5 revenue sources. The revenue sources that represent 5% or more, individually, as a percent of the total revenue bonds are summarized in the following table. (in thousands)

	2019				2018				2019				2018
			Estimated				Estimated				Estimated				Estimated
	Amortized		Fair		Amortized		Fair		Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value		Cost		Value		Cost		Value

Revenue bonds by revenue source
Sales tax	$	57,326	$	57,591	$	60,422	$	60,322	$	44,153	$	44,412	$	60,422	$	60,322
Water		13,445		13,458		13,863		13,644		12,929		12,977		13,863		13,644
College and universities, primarily dormitory revenues		5,645		5,658		8,183		8,139		5,463		5,481		8,183		8,139
Leases		7,193		7,221		8,958		8,861		7,477		7,534		8,958		8,861
Electric power & light revenues		5,053		5,080		5,223		5,185		4,659		4,693		5,223		5,185
Other		11,914		11,876		15,631		15,416		12,300		12,264		15,631		15,416

Total revenue bonds by revenue source	$	100,576	$	100,884	$	112,280	$	111,567	$	86,981	$	87,361	$	112,280	$	111,567

Loan Portfolio

The loan portfolio, net of the allowance for loan losses, totaled ~~$873,639,000,~~$882,130,000 and $890,461,000 ~~and $780,260,000~~ as of ~~June~~September 30, 2019 and December 31, ~~2018 and June 30,~~ 2018, respectively. Loan demand has moderated since year end. ~~The increase in the loan portfolio since June 30, 2018 is primarily due to the Acquisition.~~

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Deposits

Deposits totaled ~~$1,244,457,000,~~$1,249,133,000 and $1,221,084,000 ~~and $1,151,815,000~~ as of ~~June~~September 30, 2019 and December 31, ~~2018 and June 30,~~ 2018, respectively. The increase in deposits since December 31, 2018 was primarily due to ~~public fund~~account balances in NOW ~~accounts. The increase~~account public funds and certificates of deposits, offset in ~~deposits since June 30, 2018 is primarily due to the Acquisition.~~part by a decline in retail demand deposit account balances.

Securities Sold Under Agreements to Repurchase

Securities sold under agreements to repurchase totaled ~~$31,693,000~~$52,196,000 as of ~~June~~September 30, 2019, ~~a decrease~~an increase of ~~$8,981,000,~~$11,522,000, or ~~22%~~28%, from the December 31, 2018 balance of $40,674,000. The ~~decrease~~increase was due primarily to ~~a decrease~~an increase in the balances of one existing customer.

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, 2018.

Asset Quality Review and Credit Risk Management

The Company’s credit risk is historically centered in the loan portfolio, which on ~~June~~September 30, 2019 totaled ~~$873,639,000~~$882,130,000 compared to $890,461,000 as of December 31, 2018. Net loans comprise 59% of total assets as of ~~June~~September 30, 2019. The object 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 ~~0.70%~~0.58% at ~~June~~September 30, 2019, as compared to 0.38% at December 31, 2018 and ~~0.49%~~0.42% at ~~June~~September 30, 2018. The increase in the level of problem loans is due primarily to two agricultural loan relationships. The Company’s level of problem loans as a percentage of total loans at ~~June~~September 30, 2019 of ~~0.70%~~0.58% is ~~comparable~~lower as compared to the Iowa State Average peer group of FDIC insured institutions as of ~~March 31,~~June 30, 2019, of ~~0.67%~~0.72%.

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Impaired loans, net of specific reserves, totaled ~~$4,763,000~~$4,923,000 as of ~~June~~September 30, 2019 and have increased ~~$2,030,000~~$2,190,000 as compared to the impaired loans of $2,733,000 as of December 31, 2018.

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

The Company had TDRs of ~~$2,645,000~~$1,171,000 as of ~~June~~September 30, 2019, all of which were included in impaired and nonaccrual loans. The Company had TDRs of $2,350,000 as of December 31, 2018, all of which were included in impaired and nonaccrual loans.

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

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For TDRs that were on nonaccrual status before the modification, a specific reserve may already be recorded. In periods subsequent to modification, the Company will continue to evaluate all TDRs for possible impairment and, as necessary, recognize impairment through the allowance. A specific reserve was ~~increased $25,000~~established in the ~~three and six~~amount of $200,000 in the nine months ended ~~June~~September 30, 2019. An $80,000 specific reserve was established in the ~~three and six~~nine months ended ~~June~~September 30, 2018 on a TDR loan, respectively. The Company ~~did not have any~~had $275,000 of charge-offs for TDR’s for the ~~three and six~~nine months ended ~~June~~September 30, 2019. The Company had $12,000 of charge-offs related to TDRs for the ~~three and six~~nine months ended ~~June~~September 30, 2018.

Loans past due 90 days or more that are still accruing interest are reviewed no less frequently than quarterly to determine if there continues to be a strong reason that the credit should not be placed on non-accrual. As of ~~June~~September 30, 2019, non-accrual loans totaled ~~$5,119,000~~$5,167,000 and there were ~~$1,118,000~~$9,000 of loans past due 90 days and still accruing. This compares to non-accrual loans of $3,234,000 and loans past due 90 days and still accruing totaled $150,000 as of December 31, 2018. The increases are due primarily to two agricultural loan relationships. Real estate owned totaled $218,000 and $830,000 as of ~~June~~September 30, 2019 and December 31, 2018, respectively.

The agricultural real estate and agricultural operating loan portfolio classifications remain elevated as a result of lower grain prices. The watch and special mention loans in these categories totaled ~~$49,108,000~~$43,236,000 as of ~~June~~September 30, 2019 as compared to $47,808,000 as of December 31, 2018. The substandard loans in these categories totaled ~~$8,245,000~~$9,465,000 as of ~~June~~September 30, 2019 as compared to $9,666,000 as of December 31, 2018. The Iowa agricultural economy remains challenged as the result of the delayed planting, late maturing crops, current ~~low~~ grain prices and tariff concerns on Iowa exports.

~~Table of Contents~~

The watch and special mention loans classified as commercial real estate totaled ~~$35,423,000~~$35,949,000 as of ~~June~~September 30, 2019 as compared to $30,952,000 as of December 31, 2018. The substandard loans in this category totaled ~~$14,621,000~~$16,053,000 as of ~~June~~September 30, 2019 as compared to $13,318,000 as of December 31, 2018.

The allowance for loan losses as a percentage of outstanding loans as of ~~June~~September 30, 2019 was ~~1.34%~~1.33%, as compared to 1.30% at December 31, 2018. The allowance for loan losses totaled ~~$11,869,000~~$11,934,000 and $11,684,000 as of ~~June~~September 30, 2019 and December 31, 2018, respectively. Net ~~recoveries of loans totaled $19,000 and net~~ charge-offs of loans totaled ~~$31,000~~$295,000 and $226,000 for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, respectively.

The allowance for loan losses is management’s best estimate of probable losses inherent in the loan portfolio as of the balance sheet date. Factors considered in establishing an appropriate allowance include: an assessment of the financial condition of the borrower, a realistic determination of value and adequacy of underlying collateral, the condition of the local economy and the condition of the specific industry of the borrower, an analysis of the levels and trends of loan categories and a review of delinquent and classified loans.

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.

Table of Contents

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

As of ~~June~~September 30, 2019, 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~~

●

● Review of the Company’s Current Liquidity Sources

● Review of Statements of Cash Flows

● Company Only Cash Flows

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

● Capital Resources

Review of the Company’s Current Liquidity Sources

Liquid assets of cash and due from banks and interest-bearing deposits in financial institutions as of ~~June~~September 30, 2019 and December 31, 2018 totaled ~~$90,051,000~~$112,416,000 and $56,442,000, respectively, and provide an adequate level of liquidity given current economic conditions.

Other sources of liquidity available to the Banks as of ~~June~~September 30, 2019 include outstanding lines of credit with the FHLB of Des Moines, Iowa of ~~$190,583,000,~~$182,063,000, with ~~$2,000,000~~$5,000,000 of outstanding FHLB advances. Federal funds borrowing capacity at correspondent banks was ~~$93,269,000,~~$93,531,000, with no outstanding federal fund purchase balances as of ~~June~~September 30, 2019. The Company had securities sold under agreements to repurchase totaling ~~$31,693,000~~$52,196,000 as of ~~June~~September 30, 2019.

~~Table of Contents~~

Total investments as of ~~June~~September 30, 2019 were ~~$458,763,000~~$457,995,000 compared to $458,971,000 as of December 31, 2018. These investments provide the Company with a significant amount of liquidity since all of the investments are classified as available-for-sale as of ~~June~~September 30, 2019.

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 Statements of Cash Flows

Net cash provided by operating activities for the ~~six~~nine months ended ~~June~~September 30, 2019 totaled ~~$10,901,000~~$14,339,000 compared to ~~$9,157,000~~$15,471,000 for the ~~six~~nine months ended ~~June~~September 30, 2018. The cash flow from operations in 2019 is comparable to the same period in 2018.

Net cash provided by (used in) investing activities for the ~~six~~nine months ended ~~June~~September 30, 2019 was ~~$(14,570,000)~~$(32,866,000) compared to ~~$1,910,000~~$9,570,000 for the ~~six~~nine months ended ~~June~~September 30, 2018. The increase of ~~$16,480,000~~$42,436,000 in cash used in investing activities was primarily due to ~~an increase in~~a higher level of interest bearing deposits in financial institutions and ~~a higher level of~~ purchases of investments, offset in part by ~~greater maturities~~a lower level of loans, interest bearing deposits and ~~calls~~purchases of ~~investments; an increase in~~investments contributed to the ~~proceeds from the sale~~increase.

Table of ~~investments; and a decrease in loan balances.~~

Contents

Net cash ~~used in~~provided by (used in) financing activities for the ~~six~~nine months ended ~~June~~September 30, 2019 totaled ~~$4,099,000~~$21,628,000 compared to ~~$16,910,000~~$(26,120,000) for the ~~six~~nine months ended ~~June~~September 30, 2018. The ~~decrease~~increase in cash ~~used in~~provided by financing activities was ~~$12,811,000.~~$47,748,000. The ~~decrease~~increase was primarily due to an increase in deposits and a ~~greater~~lower amount of repayments of FHLB advances and other borrowings in ~~2018~~2019 as compared to ~~2019 and an increase in deposits, offset in part by a decrease in the securities sold under agreements to repurchase.~~2018. As of ~~June~~September 30, 2019, the Company did not have any external debt financing, off-balance sheet financing arrangements, or derivative instruments linked to its stock.

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 ~~$6,368,000~~$9,568,000 and ~~$5,690,000~~$8,790,000 for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, 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 quarterly dividend declared by the Company increased to $0.24 per share in 2019 from $0.23 per share in 2018.

The Company, on an unconsolidated basis, has interest bearing deposits totaling ~~$15,298,000~~$16,143,000 as of ~~June~~September 30, 2019 that are presently available to provide additional liquidity to the Banks.

~~Table of Contents~~

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, with the exception of the ~~expected~~ need to finance approximately ~~$22~~$22.3 million of the purchase price for the Company’s recently-announced stock acquisition of Iowa State Savings Bank. The purchase ~~will be~~was funded on October 25, 2019 by current cash at the Company as well as dividends from affiliate banks to the Company. The banks ~~will~~ remain well-capitalized after these dividends are accrued. ~~This transaction is expected to close during the fourth quarter of 2019, subject to receipt of regulatory approval and other customary closing conditions.~~ The primary cash flow uncertainty would be a sudden decline in deposits causing the Banks to liquidate securities. Historically, the Banks have maintained an adequate level of short-term marketable investments to fund the temporary declines in deposit balances. There are no known trends in liquidity and cash flow needs as of ~~June~~September 30, 2019 that are of concern to management.

Capital Resources

The Company’s total stockholders’ equity as of ~~June~~September 30, 2019 totaled ~~$183,252,000~~$186,163,000 and was ~~$10,386,000~~$13,298,000 higher than the $172,865,000 recorded as of December 31, 2018. The increase in stockholders’ equity was primarily due to net income and an increase in other comprehensive income, offset in part by dividends declared. The increase in other comprehensive income is created by lower market interest rates compared to December 31, 2018, which resulted in higher fair values in the securities available-for-sale portfolio. At ~~June~~September 30, 2019 and December 31, 2018, stockholders’ equity as a percentage of total assets was ~~12.5%~~12.4% and 11.9%, respectively. The capital levels of the Company exceed applicable regulatory guidelines as of ~~June~~September 30, 2019.

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Forward-Looking Statements and Business Risks

The Private Securities Litigation Reform Act of 1995 provides the Company with the opportunity to make cautionary statements regarding forward-looking statements contained in this Quarterly Report, including forward-looking statements concerning the Company’s future financial performance and asset quality. Any forward-looking statement contained in this Quarterly Report is based on management’s current beliefs, assumptions and expectations of the Company’s future performance, taking into account all information currently available to management. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to management. If a change occurs, the Company’s business, financial condition, liquidity, results of operations, asset quality, plans and objectives may vary materially from those expressed in the forward-looking statements. The risks and uncertainties that may affect the actual results of the Company include, but are not limited to, the following: economic conditions, particularly in the concentrated geographic area in which the Company and its affiliate banks operate; competitive products and pricing available in the marketplace; changes in credit and other risks posed by the Company’s loan and investment portfolios, including declines in commercial or residential real estate values or changes in the allowance for loan losses dictated by new market conditions or regulatory requirements; fiscal and monetary policies of the U.S. government; changes in governmental regulations affecting financial institutions (including regulatory fees and capital requirements); changes in prevailing interest rates; credit risk management and asset/liability management; the financial and securities markets; the availability of and cost associated with sources of liquidity; and other risks and uncertainties inherent in the Company’s business, including those discussed under the headings “Risk Factors” and “Forward-Looking Statements and Business Risks” in the Company’s Annual Report. Management intends to identify forward-looking statements when using words such as “believe”, “expect”, “intend”, “anticipate”, “estimate”, “should” or similar expressions. Undue reliance should not be placed on these forward-looking statements. The Company undertakes no obligation to revise or update such forward-looking statements to reflect current events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

~~Table of Contents~~

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company's market risk is comprised primarily of interest rate risk arising from its core banking activities of lending and deposit taking. Interest rate risk results from the changes in market interest rates which may adversely affect the Company's net interest income. Management continually develops and applies strategies to mitigate this risk. Management does not believe that the Company's primary market risk exposure and how it has been managed year-to-date in 2019 changed significantly when compared to 2018.

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.

Table of Contents

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

None.

		~~None.~~

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

In November, 2018, the Company approved a Stock Repurchase Plan which provided for the repurchase of up to 100,000 shares of the Company’s common stock. As of ~~June~~September 30, 2019, there were ~~21,209~~11,834 shares remaining to be purchased under the plan.

~~Table of Contents~~

The following table provides information with respect to ~~purchase~~purchases made by or on behalf of the Company or any “affiliated purchases” (as defined in rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of the Company’s common stock during the three months ended ~~June~~September 30, 2019.

Total

Number

Maximum

of Shares

Number of

Purchased as

Shares that

Total

Part of

May Yet Be

Number

Average

Publicly

Purchased

of Shares

Price Paid

Announced

Under

Period

Purchased

Per Share

Plans

The Plan

April 1, 2019 to April 30, 2019
906 $ 25.93 906 31,003

May 1, 2019 to May 31, 2019
- $ - - 31,003

June 1, 2019 to June 30, 2019
9,794 $ 25.99 9,794 21,209

Total
10,700 10,700

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, 2019 to July 31, 2019

148

26.28

148

21,061

August 1, 2019 to August 31, 2019

9,227

26.06

9,227

11,834

September 1, 2019 to September 30, 2019

11,834

Total

9,375

Item 3.

Defaults Upon Senior Securities


		Not applicable

Item 4.

Mine Safety Disclosures

Not applicable

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Item 5.

Other information

Not applicable

Item 4.6.	~~Mine Safety Disclosures~~ Exhibits

		~~Not applicable~~

	~~Item 5.~~	~~Other information~~

		~~Not applicable~~

	~~Item 6.~~	~~Exhibits~~

	2.1	Stock purchase agreement ~~dated July 29, 2019, between Ames National Corporation and Iowa Community Bancorp, Inc. and Iowa State Savings Bank.~~(incorporated by reference to Exhibit 2.1 to the Form 10-Q filed on August 7, 2019).

31.1

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

	31.2	Certification of Principal Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
	32.1	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350.
	32.2	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350.

101.INS	XBRL Instance Document (1)
	101.SCH	XBRL Taxonomy Extension Schema Document (1)
	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document (1)
	101.LAB	XBRL Taxonomy Extension Label Linkbase Document (1)
	101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document (1)
	101.DEF	XBRL Taxonomy Extension Definition Linkbase Document (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.

5254

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SIGNATURES

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

AMES NATIONAL CORPORATION


DATE: ~~August 7,~~November 6, 2019	By: /s/ John P. Nelson

	John P. Nelson, Chief Executive Officer and President

	By: /s/ John L. Pierschbacher

	John L. Pierschbacher. Chief Financial Officer

5355

	Six Months Ended June 30, 2019
			1-4 Family
	Construction		Residential			Commercial		Agricultural								Consumer
	Real Estate		Real Estate			Real Estate		Real Estate		Commercial			Agricultural			and Other			Total
Balance, December 31, 2018	$	699	$	1,820		$	4,615	$	1,198	$	1,777		$	1,384		$	191		$	11,684
Provision (credit) for loan losses		11		27			291		103		(211	)		(53	)		(2	)		166
Recoveries of loans charged-off		11		3			-		-		29			1			4			48
Loans charged-off		-		(3	)		-		-		(5	)		-			(21	)		(29	)
Balance, June 30, 2019	$	721	$	1,847		$	4,906	$	1,301	$	1,590		$	1,332		$	172		$	11,869