AMES NATIONAL CORP

Previous wording

In particular, the national economy is facing challenges due to inflationary pressures that began building during late 2021 and has persisted through 2024, resulting in significant upward pressure on consumer and wholesale prices. In response, the FOMC has initiated a series of increases in the short-term federal funds interest rate in an effort to dampen economic activity and bring the rate of inflation back to the FOMC’s target range of two to three percent. These rate increases have the potential to overly reduce economic activity and tip the domestic economy into a recessionary period of slower or negative growth. As noted above, a period of depressed economic activity could adversely affect our business, financial condition and results of operation by, among other things, increasing the likelihood of borrower defaults on loan obligations, reducing collateral values and weakening demand for the Banks’ loan and deposit services.

Current wording

In particular, the national economy continues to face challenges due to inflationary pressures that begin building during late 2021 and, although improved, have persisted through 2025, resulting in continuing upward pressure on consumer and wholesale prices. In response, the FOMC initiated a series of increases in the short-term federal funds interest rate, beginning in 2022 and continuing through 2023, in an effort to dampen economic activity and bring the rate of inflation back to the FOMC’s target range of two to three percent. Although the FOMC began reducing the federal funds rate in late 2024 and during 2025, interest rates continue to remain at relatively high levels on a historic basis, as the FOMC has now paused its reductions and adopted a “data-driven” approach under which future cuts will be dependent on favorable data regarding inflation and labor market conditions. The continuation of elevated interest rates has the potential to overly reduce economic activity and, potentially, tip the domestic economy into a recessionary period of slower or negative growth. As noted above, a period of depressed economic activity could adversely affect our business, financial condition and results of operations by, among other things, increasing the likelihood of borrower defaults on loan obligations, reducing collateral values and weakening the demand for the Banks’ loan and deposit products.

Previous wording

Higher inflation may affect the Company’s interest rates, credit loss expenses and general operating expenses.

Current wording

Continuing inflationary pressures may affect the Company’s interest rates, credit loss expenses and general operating expenses.

Previous wording

Consumer inflation, as measured by the Consumer Price Index for All Urban Consumers (“CPI”) has increased 2.9% and 3.4% for the years ended December 31, 2024 and 2023, respectively. Elevated levels of inflation create upward pressure on the cost of hiring, training, and retaining employees, other general operating expense and interest rates. Our challenge will be keeping wages competitive and maintaining general operating expenses at their current levels, while balancing a potential decrease in our net interest income due to the greater sensitivity to the repricing of our interest-bearing liabilities than our interest-earning assets in the short-term. Our credit loss expenses may be negatively impacted by our borrowers' ability to service their debt if inflation is prolonged.

Current wording

Consumer inflation as measured by the Consumer Price Index for All Urban Consumers (“CPI”) has increased 2.7% and 2.9% for the years ended December 31, 2025 and 2024, respectively. Although inflationary pressures in the economy have now moderated from the higher rates of inflation experienced during 2021 through 2023, elevated levels of inflation can create upward pressure on the cost of hiring, training and retaining employees, other general operating expenses and interest rates. If higher rates of inflation persist, our challenge will be keeping wages competitive and maintaining general operating expenses at their current levels, while also managing our credit loss expense which may be negatively impacted by our customers’ ability to service their debt obligations.

Previous wording

A significant portion of our loan portfolio consists of loans to borrowers who are directly or indirectly affected by the health of the Iowa agricultural economy, which has recently been under stress due to low commodity and livestock prices and higher input costs caused by inflation. These conditions, together with other risks to which our agricultural borrowers are subject, including poor weather conditions, changes in governmental support programs, tariffs and uncertainty regarding governmental mandates affecting ethanol production, could result in reduced cash flows and profit margins, negatively affecting these borrowers and making it more difficult for them to repay their loan obligations to us. Moreover, uncertainty as to the status of tariffs on products that our agricultural borrowers export to foreign markets could result in further volatility and deterioration of the price of agricultural products, providing further challenges and risk to our portfolio of agricultural loans. A general decline in the agricultural economy could also negatively affect us by reducing the value of agricultural real estate which secures some of our agricultural loans, creating the potential for greater losses if these borrowers are unable to repay their loans and we are forced to rely on this collateral. Moreover, a general decline in the agricultural economy could also negatively impact some of our commercial borrowers whose businesses are directly or indirectly dependent on the health of the agricultural economy. All of these risks, which are beyond our control, could produce losses in our loan portfolio and adversely affect our financial condition or results of operations.

Current wording

A significant portion of our loan portfolio consists of loans to borrowers who are directly or indirectly affected by the health of the Iowa agricultural economy, which has recently been under stress due to low commodity and livestock prices, higher input costs caused by inflation and potential losses of foreign markets due to disruptions in trade relationships. These conditions, together with other risks to which our agricultural borrowers are subject, including poor weather conditions, changes in governmental support programs, tariffs and uncertainty regarding governmental mandates affecting ethanol production, could result in reduced cash flows and profit margins, negatively affecting these borrowers and making it more difficult for them to repay their loan obligations to us. Moreover, uncertainty as to the status of tariffs on products that our agricultural borrowers export to foreign markets could result in further volatility and deterioration of the price of agricultural products, providing further challenges and risk to our portfolio of agricultural loans. A general decline in the agricultural economy could also negatively affect us by reducing the value of agricultural real estate which secures some of our agricultural loans, creating the potential for greater losses if these borrowers are unable to repay their loans and we are forced to rely on this collateral. Moreover, a general decline in the agricultural economy could also negatively impact some of our commercial borrowers whose businesses are directly or indirectly dependent on the health of the agricultural economy. All of these risks, which are beyond our control, could produce losses in our loan portfolio and adversely affect our financial condition or results of operations.

Previous wording

As of December 31, 2024, the fair value of our securities portfolio, consisting primarily of fixed income debt securities, was approximately $648.5 million. Factors beyond our control can significantly influence the fair value of securities in our portfolio and can cause potential adverse changes to the fair value of those securities. These factors include, but are not limited to, changes in interest rates, an unfavorable change in the liquidity of an investment, rating agency downgrades of the securities, reinvestment risk, liquidity risk, defaults by the issuer or individual mortgagors with respect to the underlying securities, and instability in the credit markets. Any of the foregoing factors could result in realized losses that negatively impact earnings. The success of any investment activity is affected by general economic conditions. Unexpected volatility or illiquidity in the markets in which we hold securities could further reduce our liquidity and stockholders' equity. The fair value of the securities portfolio has a net unrealized loss of $52.0 million as of December 31, 2024, resulting primarily from the negative impact of increased interest rates on the fair value of the portfolio. To mitigate the risk of selling securities in an unrealized loss position to fund cash flow needs, we have access to lines of credit that provide additional liquidity, if needed.

Current wording

As of December 31, 2025, the fair value of our securities portfolio, consisting primarily of fixed income debt securities, was approximately $656.0 million. Factors beyond our control can significantly influence the fair value of securities in our portfolio and can cause potential adverse changes to the fair value of those securities. These factors include, but are not limited to, changes in interest rates, an unfavorable change in the liquidity of an investment, rating agency downgrades of the securities, reinvestment risk, liquidity risk, defaults by the issuer or individual mortgagors with respect to the underlying securities, and instability in the credit markets. Any of the foregoing factors could result in realized losses that negatively impact earnings. The success of any investment activity is affected by general economic conditions. Unexpected volatility or illiquidity in the markets in which we hold securities could further reduce our liquidity and stockholders' equity. The fair value of the securities portfolio has a net unrealized loss of $24.2 million as of December 31, 2025, resulting primarily from the negative impact of increased interest rates on the fair value of the portfolio. To mitigate the risk of selling securities in an unrealized loss position to fund cash flow needs, we have access to lines of credit that provide additional liquidity, if needed.

Previous wording

Because we have grown in part through acquisitions, goodwill and intangible assets are included in the consolidated assets reflected in our financial statements. Goodwill and intangible assets were $13.5 million as of December 31, 2024. Under generally accepted accounting principles (“GAAP”), we are required to test the carrying value of goodwill and intangible assets at least annually or sooner if events occur that indicate impairment could exist. These events or circumstances could include a significant change in the business climate, including a sustained decline in a reporting unit’s fair value, legal and regulatory factors, operating performance indicators, competition and other factors. GAAP requires us to assign and then test goodwill at the reporting unit level. If over a sustained period of time we experience a decrease in our stock price and market capitalization, which may serve as an estimate of the fair value of our reporting unit, this may be an indication of impairment. If the fair value of our reporting unit is less than its net book value, we may be required to record goodwill impairment charges in the future. In addition, if the revenue and cash flows generated from any of our other intangible assets are not sufficient to support its net book value, we may be required to record an impairment charge. The amount of any impairment charge could be significant and could have a material adverse impact on our financial condition and results of operations for the period in which the charge is taken.

Current wording

Because we have grown in part through acquisitions, goodwill and intangible assets are included in the consolidated assets reflected in our financial statements. Goodwill and intangible assets were $13.2 million as of December 31, 2025. Under generally accepted accounting principles (“GAAP”), we are required to test the carrying value of goodwill and intangible assets at least annually or sooner if events occur that indicate impairment could exist. These events or circumstances could include a significant change in the business climate, including a sustained decline in a reporting unit’s fair value, legal and regulatory factors, operating performance indicators, competition and other factors. GAAP requires us to assign and then test goodwill at the reporting unit level. If over a sustained period of time we experience a decrease in our stock price and market capitalization, which may serve as an estimate of the fair value of our reporting unit, this may be an indication of impairment. If the fair value of our reporting unit is less than its net book value, we may be required to record goodwill impairment charges in the future. In addition, if the revenue and cash flows generated from any of our other intangible assets are not sufficient to support its net book value, we may be required to record an impairment charge. The amount of any impairment charge could be significant and could have a material adverse impact on our financial condition and results of operations for the period in which the charge is taken.