AMES NATIONAL CORP (Form: 10-Q, Received: 08/07/2019 16:33:50)

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 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)

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

Not Applicable

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

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__ Non-accelerated filer____ Smaller reporting company_ X __ Emerging growth company____

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

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

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

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

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AMES NATIONAL CORPORATION

INDEX

		Page

Part I.	Financial Information

Item 1.	Consolidated Financial Statements (Unaudited)	3

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

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

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

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

	Consolidated Statements of Cash Flows for the three and six months ended June 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

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	51

Item 4.	Controls and Procedures	51

Part II.	Other Information	51

Item 1.	Legal Proceedings	51

Item 1.A.	Risk Factors	51

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

Item 3.	Defaults Upon Senior Securities	52

Item 4.	Mine Safety Disclosures	52

Item 5.	Other Information	52

Item 6.	Exhibits	52

Signatures		53

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AMES NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(unaudited)

	June 30,		December 31,
	2019		2018
ASSETS

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

Total assets	$	1,468,595,133	$	1,455,687,351

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
Deposits
Demand, noninterest bearing	$	220,241,881	$	230,113,170
NOW accounts		386,894,248		366,178,715
Savings and money market		413,412,483		418,384,284
Time, $250,000 and over		50,144,650		40,014,550
Other time		173,763,838		166,393,120
Total deposits		1,244,457,100		1,221,083,839

Securities sold under agreements to repurchase		31,693,100		40,674,486
Federal Home Loan Bank (FHLB) advances		2,000,000		14,600,000
Dividends payable		2,215,709		2,137,460
Accrued expenses and other liabilities		4,977,688		4,326,502
Total liabilities		1,285,343,597		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
Additional paid-in capital		19,019,767		20,461,724
Retained earnings		142,312,863		137,891,821
Accumulated other comprehensive income (loss) - net unrealized income (loss) on securities available-for-sale		3,454,662		(4,075,091	)
Total stockholders' equity		183,251,536		172,865,064

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

See Notes to Consolidated Financial Statements.

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AMES NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

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

Interest income:
Loans, including fees	$	10,808,142	$	8,996,222	$	21,509,571	$	17,885,077
Securities:
Taxable		1,554,713		1,563,840		3,043,565		3,092,962
Tax-exempt		1,067,955		1,179,607		2,168,529		2,365,953
Interest bearing deposits and federal funds sold		290,465		256,024		528,033		449,059
Total interest income		13,721,275		11,995,693		27,249,698		23,793,051

Interest expense:
Deposits		2,606,384		1,633,395		4,965,216		2,995,876
Other borrowed funds		184,634		151,463		383,848		399,853
Total interest expense		2,791,018		1,784,858		5,349,064		3,395,729

Net interest income		10,930,257		10,210,835		21,900,634		20,397,322

Provision for loan losses		68,320		63,978		166,414		92,978

Net interest income after provision for loan losses		10,861,937		10,146,857		21,734,220		20,304,344

Noninterest income:
Wealth management income		1,019,143		906,364		1,803,757		1,657,364
Service fees		387,133		334,606		757,429		672,848
Securities gains, net		1,890		-		1,890		-
Gain on sale of loans held for sale		224,031		191,385		396,757		368,585
Merchant and card fees		386,384		366,863		747,525		676,522
Other noninterest income		194,358		191,654		431,289		379,555
Total noninterest income		2,212,939		1,990,872		4,138,647		3,754,874

Noninterest expense:
Salaries and employee benefits		4,797,497		4,316,823		9,513,325		8,884,868
Data processing		872,064		887,358		1,763,445		1,668,390
Occupancy expenses, net		518,559		459,445		1,117,564		954,391
FDIC insurance assessments		91,666		102,073		191,895		208,068
Professional fees		382,983		354,998		771,829		700,405
Business development		248,178		238,811		516,775		493,359
Intangible asset amortization		139,314		83,919		302,978		171,454
Other operating expenses, net		167,717		269,636		496,923		497,265
Total noninterest expense		7,217,978		6,713,063		14,674,734		13,578,200

Income before income taxes		5,856,898		5,424,666		11,198,133		10,481,018

Provision for income taxes		1,239,305		1,107,400		2,343,105		2,127,000

Net income	$	4,617,593	$	4,317,266	$	8,855,028	$	8,354,018

Basic and diluted earnings per share	$	0.50	$	0.46	$	0.96	$	0.90

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

See Notes to Consolidated Financial Statements.

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AMES NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

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


Net income	$	4,617,593		$	4,317,266		$	8,855,028		$	8,354,018
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	)
Less: reclassification adjustment for gains realized in net income		1,890			-			1,890			-
Other comprehensive income (loss), before tax		4,467,887			(1,041,258	)		10,039,671			(6,074,301	)
Tax effect related to other comprehensive income (loss)		(1,116,972	)		260,314			(2,509,918	)		1,518,919
Other comprehensive income (loss), net of tax		3,350,915			(780,944	)		7,529,753			(4,555,382	)
Comprehensive income	$	7,968,508		$	3,536,322		$	16,384,781		$	3,798,636

See Notes to Consolidated Financial Statements.

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AMES NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)

Three and Six Months Ended June 30, 2019 and 2018

	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
Net income		-			-			4,317,266			-			4,317,266
Other comprehensive (loss)		-			-			-			(780,944	)		(780,944	)
Cash dividends declared, $0.23 per share		-			-			(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, March 31, 2019	$	18,485,644		$	19,276,388		$	139,910,979		$	103,747		$	177,776,758
Net income		-			-			4,617,593			-			4,617,593
Other comprehensive income		-			-			-			3,350,915			3,350,915
Retirement of 10,700 shares of stock		(21,400	)		(256,621	)		-			-			(278,021	)
Cash dividends declared, $0.24 per share		-			-			(2,215,709	)		-			(2,215,709	)
Balance, June 30, 2019	$	18,464,244		$	19,019,767		$	142,312,863		$	3,454,662		$	183,251,536

	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
Net income		-			-			8,354,018			-			8,354,018
Other comprehensive (loss)		-			-			-			(4,555,382	)		(4,555,382	)
The cumulative effect from change in accounting policy (1)		-			-			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

Balance, December 31, 2018	$	18,586,610		$	20,461,724		$	137,891,821		$	(4,075,091	)	$	172,865,064
Net income		-			-			8,855,028			-			8,855,028
Other comprehensive income		-			-			-			7,529,753			7,529,753
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

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

See Notes to Consolidated Financial Statements.

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AMES NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

Six Months Ended June 30, 2019 and 2018

	2019			2018

CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	8,855,028		$	8,354,018
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		166,414			92,978
Provision for off-balance sheet commitments		-			12,000
Amortization, net		739,633			1,088,865
Amortization of intangible asset		302,978			171,454
Depreciation		576,757			548,173
Deferred income taxes		125,049			(74,100	)
Securities gains, net		(1,890	)		-
(Gain) on sales of loans held for sale		(396,757	)		(368,586	)
Proceeds from loans held for sale		17,485,451			14,853,787
Originations of loans held for sale		(17,454,352	)		(15,965,849	)
Loss on sale of premises and equipment, net		500			5,563
(Gain) on sale of other real estate owned, net		(43,414	)		-
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 expenses and other liabilities		651,186			94,674
Net cash provided by operating activities		10,900,783			9,157,452

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities available-for-sale		(35,113,621	)		(21,743,179	)
Proceeds from sale of securities available-for-sale		5,973,154			-
Proceeds from maturities and calls of securities available-for-sale		38,381,532			30,931,429
Purchase of FHLB stock		(3,912,500	)		(874,400	)
Proceeds from the redemption of FHLB stock		4,448,000			1,334,400
Net (increase) decrease in interest bearing deposits in financial institutions		(41,377,929	)		1,190,930
Net (increase) decrease in loans		16,896,403			(8,566,196	)
Net proceeds from the sale of other real estate owned		655,161			-
Purchase of bank premises and equipment, net		(492,149	)		(347,878	)
Other		(28,300	)		(14,960	)
Net cash provided by (used in) investing activities		(14,570,249	)		1,910,146

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	)
Payments on FHLB borrowings and other borrowings		(12,600,000	)		(24,500,000	)
Dividends paid		(4,355,737	)		(6,517,639	)
Stock repurchases		(1,564,323	)		-
Net cash (used in) financing activities		(4,099,278	)		(16,910,246	)

Net (decrease) in cash and due from banks		(7,768,744	)		(5,842,648	)

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

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AMES NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(unaudited)

Six Months Ended June 30, 2019 and 2018

	2019		2018

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for:
Interest	$	5,148,519	$	3,318,116
Income taxes		2,248,474		2,346,406

See Notes to Consolidated Financial Statements.

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AMES NATIONAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements ( u naudited)

1. Significant Accounting Policies

The consolidated financial statements for the three and six months ended June 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 30, 2019, Company management has performed a goodwill impairment assessment and determined goodwill was not impaired.

New and Pending Accounting 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 companies, this update will be effective for interim and annual periods beginning after December 15, 2019. FASB has issued a proposed change to this ASU that would delay the implementation date until January 1, 2023 for the Company. 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.

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.

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, 2019, the Company declared a cash dividend on its common stock, payable on August 15, 2019 to stockholders of record as of August 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 30, 2019 and 2018 was 9,239,969 and 9,310,913, respectively. The weighted average outstanding shares for the six months ended June 30, 2019 and 2018 were 9,246,576 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.

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

Description	Total		Level 1		Level 2		Level 3

2019

U.S. government treasuries	$	7,509	$	7,509	$	-	$	-
U.S. government agencies		123,007		-		123,007		-
U.S. government mortgage-backed securities		62,960		-		62,960		-
State and political subdivisions		197,027		-		197,027		-
Corporate bonds		68,260		-		68,260		-

	$	458,763	$	7,509	$	451,254	$	-

2018

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

	$	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 months ended June 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 30, 2019 and December 31, 2018. (in thousands)

Description	Total		Level 1		Level 2		Level 3

2019

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

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

2018

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

Total	$	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 30, 2019 and December 31, 2018 are as follows: (in thousands)

2019

Estimated

Valuation

Range

Fair Value

Techniques

Unobservable Inputs

(Average)

Impaired Loans

2,247

Evaluation of collateral

Estimation of value

NM*

Other real estate owned

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	6%	-	8%	(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 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 30, 2019 and December 31, 2018 are as follows: (in thousands)

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

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

The methodologies used to determine fair value as of June 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 30, 2019 and December 31, 2018 are summarized below: (in thousands)

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

U.S. government treasuries	$	7,445	$	65	$	(1	)	$	7,509
U.S. government agencies		121,328		1,749		(70	)		123,007
U.S. government mortgage-backed securities		62,364		650		(54	)		62,960
State and political subdivisions		195,739		1,575		(287	)		197,027
Corporate bonds		67,280		1,023		(43	)		68,260
	$	454,156	$	5,062	$	(455	)	$	458,763

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 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
	Cost		Fair Value

Due in one year or less	$	82,832	$	82,832
Due after one year through five years		230,550		232,741
Due after five years through ten years		122,856		124,975
Due after ten years		17,918		18,215
Total	$	454,156	$	458,763

Securities with a carrying value of $136.0 million and $145.7 million at June 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.

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

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2019			2018		2019			2018
Proceeds from sales of securities available-for-sale	$	5,973		$	-	$	5,973		$	-
Gross realized gains on securities available-for-sale		21			-		21			-
Gross realized losses on securities available-for-sale		(19	)		-		(19	)		-
Tax provision applicable to net realized gains on securities available-for-sale		-			-		-			-

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

	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

Securities available-for-sale:
U.S. government treasuries	$	-	$	-		$	1,492	$	(1	)	$	1,492	$	(1	)
U.S. government agencies		-		-			34,346		(70	)		34,346		(70	)
U.S. government mortgage-backed securities		2,234		(10	)		7,575		(44	)		9,809		(54	)
State and political subdivisions		896		-			28,346		(287	)		29,242		(287	)
Corporate bonds		1,008		(3	)		11,809		(40	)		12,817		(43	)
	$	4,138	$	(13	)	$	83,568	$	(442	)	$	87,706	$	(455	)

	Less than 12 Months					12 Months or More					Total
2018:	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	)
U.S. government agencies		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	)
State and political subdivisions		60,600		(302	)		83,494		(1,455	)		144,094		(1,757	)
Corporate bonds		19,239		(256	)		34,254		(1,057	)		53,493		(1,313	)
	$	133,937	$	(1,064	)	$	233,410	$	(4,997	)	$	367,347	$	(6,061	)

Gross unrealized losses on debt securities totaled $455,000 as of June 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 30, 2019 and December 31, 2018 is as follows ( in thousands ):

	2019			2018

Real estate - construction	$	50,031		$	51,364
Real estate - 1 to 4 family residential		165,487			169,722
Real estate - commercial		386,558			389,532
Real estate - agricultural		107,985			103,652
Commercial		81,578			86,194
Agricultural		78,250			85,202
Consumer and other		15,691			16,566
		885,580			902,232
Less:
Allowance for loan losses		(11,869	)		(11,684	)
Deferred loan fees		(72	)		(87	)
Loans receivable, net	$	873,639		$	890,461

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

	Three 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, March 31, 2019	$	736		$	1,850		$	4,770	$	1,258	$	1,610		$	1,392		$	196		$	11,812
Provision (credit) for loan losses		(15	)		(1	)		136		43		(21	)		(61	)		(13	)		68
Recoveries of loans charged-off		-			1			-		-		1			1			4			7
Loans charged-off		-			(3	)		-		-		-			-			(15	)		(18	)
Balance, June 30, 2019	$	721		$	1,847		$	4,906	$	1,301	$	1,590		$	1,332		$	172		$	11,869

	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
			1-4 Family
	Construction		Residential			Commercial		Agricultural							Consumer
	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
Provision (credit) for loan losses		42		(13	)		79		-		(53	)		10		(1	)		64
Recoveries of loans charged-off		-		1			-		-		3			-		6			10
Loans charged-off		-		-			-		-		(12	)		-		(2	)		(14	)
Balance, June 30, 2018	$	846	$	1,732		$	4,842	$	977	$	1,688		$	1,178	$	120		$	11,383

	Six Months Ended June 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		50		13		108		(20	)		(59	)		7		(6	)		93
Recoveries of loans charged-off		-		3		-		-			21			-		14			38
Loans charged-off		-		-		-		-			(13	)		-		(56	)		(69	)
Balance, June 30, 2018	$	846	$	1,732	$	4,842	$	977		$	1,688		$	1,178	$	120		$	11,383

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

2019			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	$	-	$	36	$	-	$	-	$	320	$	-	$	-	$	356
Collectively evaluated for impairment		721		1,811		4,906		1,301		1,270		1,332		172		11,513
Balance June 30, 2019	$	721	$	1,847	$	4,906	$	1,301	$	1,590	$	1,332	$	172	$	11,869

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 30, 2019 and December 31, 2018 is as follows (in thousands) :

2019			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	$	-	$	246	$	137	$	84	$	2,766	$	1,886	$	-	$	5,119
Collectively evaluated for impairment		50,031		165,241		386,421		107,901		78,812		76,364		15,691		880,461

Balance June 30, 2019	$	50,031	$	165,487	$	386,558	$	107,985	$	81,578	$	78,250	$	15,691	$	885,580

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.

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

	2019						2018
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
	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		-
Real estate - commercial		137		569		-		128		601		-
Real estate - agricultural		84		96		-		74		88		-
Commercial		232		249		-		248		258		-
Agricultural		1,886		1,886		-		-		-		-
Consumer and other		-		-		-		1		2		-
Total loans with no specific reserve:		2,516		2,985		-		703		1,226		-

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

Total
Real estate - construction		-		-		-		-		-		-
Real estate - 1 to 4 family residential		246		282		36		365		416		53
Real estate - commercial		137		569		-		128		601		-
Real estate - agricultural		84		96		-		74		88		-
Commercial		2,766		2,786		320		2,648		2,764		430
Agricultural		1,886		1,886		-		-		-		-
Consumer and other		-		-		-		19		24		18

	$	5,119	$	5,619	$	356	$	3,234	$	3,893	$	501

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

	Three Months Ended June 30,
	2019				2018
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
With no specific reserve recorded:
Real estate - construction	$	-	$	-	$	-	$	-
Real estate - 1 to 4 family residential		209		6		474		22
Real estate - commercial		135		29		135		-
Real estate - agricultural		78		-		-		-
Commercial		235		-		64		5
Agricultural		943		-		-		-
Consumer and other		-		-		-		-
Total loans with no specific reserve:		1,600		35		673		27

With an allowance recorded:
Real estate - construction		-		-		-		-
Real estate - 1 to 4 family residential		89		-		229		-
Real estate - commercial		-		-		177		-
Real estate - agricultural		-		-		-		-
Commercial		2,535		-		2,903		-
Agricultural		-		-		29		-
Consumer and other		7		-		32		-
Total loans with specific reserve:		2,631		-		3,370		-

Total
Real estate - construction		-		-		-		-
Real estate - 1 to 4 family residential		298		6		703		22
Real estate - commercial		135		29		312		-
Real estate - agricultural		78		-		-		-
Commercial		2,770		-		2,967		5
Agricultural		943		-		29		-
Consumer and other		7		-		32		-

	$	4,231	$	35	$	4,043	$	27

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	Six Months Ended June 30,
	2019				2018
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
With no specific reserve recorded:
Real estate - construction	$	-	$	-	$	-	$	-
Real estate - 1 to 4 family residential		223		26		506		45
Real estate - commercial		133		60		314		258
Real estate - agricultural		76		-		-		-
Commercial		239		-		84		5
Agricultural		629		-		-		-
Consumer and other		-		-		8		-
Total loans with no specific reserve:		1,300		86		912		308

With an allowance recorded:
Real estate - construction		-		-		-		-
Real estate - 1 to 4 family residential		97		-		192		-
Real estate - commercial		-		-		194		-
Real estate - agricultural		-		-		-		-
Commercial		2,490		-		2,940		-
Agricultural		-		-		19		-
Consumer and other		10		1		39		1
Total loans with specific reserve:		2,597		1		3,384		1

Total
Real estate - construction		-		-		-		-
Real estate - 1 to 4 family residential		320		26		698		45
Real estate - commercial		133		60		508		258
Real estate - agricultural		76		-		-		-
Commercial		2,729		-		3,024		5
Agricultural		629		-		19		-
Consumer and other		10		1		47		1

	$	3,897	$	87	$	4,296	$	309

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

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

The Company had loans meeting the definition of a troubled debt restructuring (TDR) of $2,645,000 as of June 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.

During the three and six months ended June 30, 2019, the Company did not grant concessions to any borrowers. During the three and six months ended June 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 TDR modified during the twelve months ended March 31, 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. A specific reserve was increased $25,000 for the three months ended June 30, 2019. An $80,000 specific reserve was established in the three months ended June 30, 2018.

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

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

Real estate - construction	$	1,339	$	-	$	1,339	$	48,692	$	50,031	$	-
Real estate - 1 to 4 family residential		1,377		251		1,628		163,859		165,487		109
Real estate - commercial		1,231		-		1,231		385,327		386,558		-
Real estate - agricultural		1,112		144		1,256		106,729		107,985		111
Commercial		217		11		228		81,350		81,578		-
Agricultural		418		2,783		3,201		75,049		78,250		897
Consumer and other		110		1		111		15,580		15,691		1

	$	5,804	$	3,190	$	8,994	$	876,586	$	885,580	$	1,118

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 30, 2019.

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

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

Pass	$	42,342	$	336,514	$	75,931	$	58,380	$	52,951	$	566,118
Watch		7,689		30,744		26,531		17,063		22,577		104,604
Special Mention		-		4,679		-		-		-		4,679
Substandard		-		14,484		5,439		3,369		836		24,128
Substandard-Impaired		-		137		84		2,766		1,886		4,873

	$	50,031	$	386,558	$	107,985	$	81,578	$	78,250	$	704,402

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 30, 2019 and December 31, 2018 is as follows:

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

Performing	$	165,133	$	15,690	$	180,823
Non-performing		354		1		355

	$	165,487	$	15,691	$	181,178

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 30, 2019 and December 31, 2018: (in thousands)

	2019				2018
	Gross		Accumulated		Gross		Accumulated
	Amount		Amortization		Amount		Amortization

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

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

The weighted average life of the intangible assets is 3.4 years as of June 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 months ended June 30, 2019 and 2018: (in thousands)

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

Beginning intangible asset, net	$	2,514		$	1,019		$	2,678		$	1,091
Adjustment to intangible asset		-			-			-			15
Amortization		(139	)		(84	)		(303	)		(171	)

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

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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
2020		440
2021		402
2022		368
2023		315
2024		166
After		447

Intangible asset, net	$	2,375

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 30, 2019 and December 31, 2018: (in thousands)

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

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

Total pledged collateral	$	59,111	$	-	$	59,111	$	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.

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12.

Regulatory Matters

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

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

As of June 30, 2019:
Total capital (to risk-weighted assets):
Consolidated	$	180,052		16.5	%	$	114,867		10.50	%		N/A		N/A
Boone Bank & Trust		15,646		16.0			10,252		10.50		$	9,764		10.0	%
First National Bank		84,450		13.8			64,158		10.50			61,103		10.0
Reliance State Bank		28,124		16.0			18,500		10.50			17,620		10.0
State Bank & Trust		20,396		15.9			13,480		10.50			12,838		10.0
United Bank & Trust		14,798		18.8			8,256		10.50			7,863		10.0

Tier 1 capital (to risk-weighted assets):
Consolidated	$	167,643		15.3	%	$	92,988		8.50	%		N/A		N/A
Boone Bank & Trust		14,707		15.1			8,299		8.50		$	7,811		8.0	%
First National Bank		77,871		12.7			51,938		8.50			48,882		8.0
Reliance State Bank		25,921		14.7			14,977		8.50			14,096		8.0
State Bank & Trust		18,789		14.6			10,912		8.50			10,271		8.0
United Bank & Trust		13,979		17.8			6,683		8.50			6,293		8.0

Tier 1 capital (to average-weighted assets):
Consolidated	$	167,643		11.7	%	$	57,537		4.00	%		N/A		N/A
Boone Bank & Trust		14,707		11.1			5,289		4.00		$	6,611		5.0	%
First National Bank		77,871		9.4			33,418		4.00			41,462		5.0
Reliance State Bank		25,921		12.1			8,790		4.00			10,987		5.0
State Bank & Trust		18,789		11.5			6,543		4.00			8,179		5.0
United Bank & Trust		13,979		12.8			4,359		4.00			5,448		5.0

Common equity tier 1 capital (to risk-weighted assets):
Consolidated	$	167,643		15.3	%	$	76,578		7.00	%		N/A		N/A
Boone Bank & Trust		14,707		15.1			6,835		7.00		$	6,347		6.5	%
First National Bank		77,871		12.7			42,772		7.00			39,717		6.5
Reliance State Bank		25,921		14.7			12,334		7.00			11,453		6.5
State Bank & Trust		18,789		14.6			8,987		7.00			8,345		6.5
United Bank & Trust		13,979		17.8			5,504		7.00			5,111		6.5

* These ratios for June 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
											Capitalized Under
						For Capital					Prompt Corrective
	Actual					Adequacy Purposes *					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio

As of December 31, 2018:
Total capital (to risk-weighted assets):
Consolidated	$	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	%
First National Bank		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
State Bank & Trust		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

Tier 1 capital (to risk-weighted assets):
Consolidated	$	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	%
First National Bank		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
State Bank & Trust		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

Tier 1 capital (to average-weighted assets):
Consolidated	$	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	%
First National Bank		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
State Bank & Trust		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

Common equity tier 1 capital (to risk-weighted assets):
Consolidated	$	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	%
First National Bank		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
State Bank & Trust		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

* 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 and the FDIC issued final rules implementing the Basel III regulatory capital framework and related Dodd-Frank Wall Street Reform and Consumer Protection Act changes in July 2013. The rules revise minimum capital requirements and adjust prompt corrective action thresholds. The final rules revise the regulatory capital elements, added 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 added to the minimum requirements for capital adequacy purposes, subject to a three year phase-in period. The capital conservation buffer 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 subject to limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers. At the present time, the ratios for the Company and the Banks are sufficient to meet the fully phased-in conservation buffer.

13. Subsequent Events

Management evaluated subsequent events through the date the financial statements were issued. On July 29, 2019, Ames National Corporation (the “Company”) entered into a Stock Purchase Agreement (the “Agreement”) with Iowa Community Bancorp, Inc. (“Iowa Community”) and 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 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 Iowa Community cash of approximately $22.0 million, subject to certain adjustments based on the financial condition of the Bank (including total equity capital and loan loss reserve) on the closing date. Closing of the transaction is expected to occur during the fourth quarter of 2019, subject to regulatory approval and other customary closing conditions. There were no other significant events or transactions that provided evidence about conditions that did not exist at June 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 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 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.

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, or $0.50 per share, for the three months ended June 30, 2019, compared to net income of $4,317,000, or $0.46 per share, for the three months ended June 30, 2018.

The increase in quarterly earnings can be primarily attributed to 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 and $4,000 for the three months ended June 30, 2019 and 2018, respectively. The provision for loan losses totaled $68,000 and $64,000 for the three 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 June 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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K ey 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 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
	Ended			Ended			3 Months Ended						Years Ended December 31,
	June 30, 2019						March 31, 2019						2018						2017
	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	%

Return on equity		10.32	%		10.03	%		9.73	%		11.93	%		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	%

Efficiency ratio		54.92	%		56.36	%		57.82	%		55.85	%		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	%

*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% and 1.26% for the three months ended June 30, 2019 and 2018, respectively. This ratio remained consistent when comparing 2019 to 2018, as net income increased in proportion to the increase in average assets.

● 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% and 10.35% for the three months ended June 30, 2019 and 2018, respectively. This ratio remained consistent when comparing 2019 to 2018, as net income increased in proportion to the increase in average equity.

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● Net Interest Margin

The net interest margin for the three months ended June 30, 2019 and 2018 was 3.20% and 3.16%, 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.

● 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% and 55.02% for the three months ended June 30, 2019 and 2018, respectively. The efficiency ratio remained consistent with the 2018 efficiency ratio.

● 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% as of June 30, 2019 is significantly higher than the industry average of 9.70% as of December 31, 2018.

Industry Results:

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

Net Income Increases 8.7% From First Quarter 2018 to $60.7 Billion

The aggregate net income for the 5,362 FDIC-insured commercial banks and savings institutions totaled $60.7 billion in first quarter 2019, an increase of $4.9 billion (8.7%) from a year ago. The improvement in net income was led by higher net interest income, which reflected a modest growth in interest-earning assets and wider net interest margins (NIM). Almost two out of every three banks (62.3%) reported year-over-year increases in net income, and less than 4% of banks reported net losses for the quarter. The average return on assets rose to 1.35%, an improvement from the 1.28% a year earlier.

Net Interest Income Expands 6% From a Year Ago

Net interest income of $139.3 billion rose by $7.9 billion (6%) from 12 months ago, as more than three out of every four banks (79.2%) reported year-over-year increases. NIM for the banking industry increased by 10 basis points from a year ago to 3.42%, as average asset yields (up 49 basis points) increased by more than average funding costs (up 39 basis points). The largest institutions (banks with assets greater than $250 billion) reported the largest annual increase 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 billion in loan-loss provisions in 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.

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Noninterest Income Declines 2.9% 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 Quarter 2018

Noninterest expense fell by $427.1 million (0.4%) from a year earlier. The increase in salary and employee benefits (up $1.1 billion, or 2%) was offset by a decline in all other noninterest expense (down $1.4 billion, or 3%). The average assets per employee increased from $8.4 million in first quarter 2018 to $8.8 million.

Net Charge-Offs Increase 5.5% From 12 Months Ago

During the first quarter, banks charged off $12.7 billion in uncollectable loans, an increase of $667.9 million (5.5%) from first quarter 2018. Credit card balances reported the largest year-over-year dollar increase in net charge-offs, increasing by $543.4 million (6.6%). The average net charge-off rate remained unchanged from a year ago (0.50%). For eight out of the past ten quarters, the net charge-off rate for credit cards increased, reaching 3.97% for the current quarter.

Noncurrent Loan Rate Remains Below 1%

Noncurrent loan balances (90 days or more past due or in nonaccrual status) increased by $461.6 million (0.5%) from the previous quarter. Less than half of all banks (41.2%) reported increases in noncurrent loan balances. The quarterly increase was 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 declined by $2.2 billion (5%) from the previous quarter. The average noncurrent rate remained unchanged from the previous quarter at 0.99%.

Loan-Loss Reserves Increase From the Previous Quarter

At the end of first quarter, loan-loss reserves increased by $432.3 billion (0.3%) from the previous quarter. Almost two-thirds of all banks (64.9%) reported increases in loan-loss reserves during the quarter. At banks that itemize their loan-loss reserves, which represent 91% of total industry loan-loss reserves, the quarterly growth was attributable to commercial loans (up $761.4 million, or 2.4%) and other consumer (up $308.3 million, or 3.1%), which excludes credit cards. For the past 11 consecutive quarters, growth in total itemized loan-loss reserves was attributable to credit cards; however, credit card losses remained stable during the first quarter, increasing by only $54.2 million (0.1%).

Equity Capital Increases From the Fourth Quarter

During the three months ended March 31, 2019 equity capital of $2.1 trillion rose by $36.9 billion (1.8%). Retained earnings in first quarter 2019 totaled $22.1 billion and dividends paid rose to $38.6 billion, an increase of $7.9 billion (25.9%). Accumulated other comprehensive income increased by $20.6 billion, as the fair value of securities improved. At the end of first quarter, 99.6% of all insured institutions, which account for 99.87% of total industry assets, met or exceeded the requirements for the well-capitalized category, as defined for Prompt Corrective Action.

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Total Assets Increase From the Previous Quarter

Total assets increased by $147 billion (0.8%) during the first quarter. Assets 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 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.

The Number of Banks on the FDIC’s “Problem Bank List” Declines to 59

The FDIC’s “Problem Bank List” declined from 60 at year end to 59 at the end of first quarter, the lowest since first quarter 2007. Total assets of problem banks declined from $48.5 billion to $46.7 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 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,
	2019			2018			2019			2018
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
Tax-equivalent adjustment ⁽¹⁾		284			313			576			629
Net interest income on an FTE basis (non-GAAP)		11,214			10,524			22,477			21,026
Average interest-earning assets	$	1,400,685		$	1,330,909		$	1,397,269		$	1,324,875
Net interest margin on an FTE basis (non-GAAP)		3.20	%		3.16	%		3.22	%		3.17	%

(1) Computed on a tax-equivalent basis using an incremental federal income tax rate of 21 percent for the three and six months ended June 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 3 0 , 20 1 9 and 201 8

The following highlights a comparative discussion of the major components of net income and their impact for the three months ended June 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

	Three Months Ended June 30,

	2019							2018

	Average		Revenue/		Yield/			Average		Revenue/		Yield/
	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	%
Agricultural		81,803		1,304		6.37	%		68,992		945		5.48	%
Real estate		712,534		8,174		4.59	%		637,835		7,008		4.40	%
Consumer and other		16,694		211		5.06	%		8,240		116		5.62	%

Total loans (including fees)		893,164		10,808		4.84	%		788,005		8,996		4.57	%

Investment securities
Taxable		255,671		1,555		2.43	%		271,835		1,564		2.30	%
Tax-exempt 2		202,232		1,352		2.67	%		223,979		1,493		2.67	%
Total investment securities		457,903		2,907		2.54	%		495,814		3,057		2.47	%

Interest bearing deposits with banks and federal funds sold		49,618		290		2.34	%		47,089		256		2.17	%

Total interest-earning assets		1,400,685	$	14,005		4.00	%		1,330,909	$	12,309		3.70	%

Noninterest-earning assets		53,992							38,895

TOTAL ASSETS	$	1,454,677						$	1,369,804

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

	Three Months Ended June 30,

	2019								2018

	Average		Revenue/			Yield/			Average		Revenue/			Yield/
	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	%
Time deposits		222,740		990			1.78	%		193,897		564			1.16	%
Total deposits		1,013,612		2,606			1.03	%		938,833		1,634			0.70	%
Other borrowed funds		40,930		185			1.80	%		44,124		151			1.37	%

Total Interest-bearing liabilities		1,054,542		2,791			1.06	%		982,957		1,785			0.73	%

Noninterest-bearing liabilities
Demand deposits		212,929								211,586
Other liabilities		8,315								8,487

Stockholders' equity		178,890								166,774

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,454,676							$	1,369,804


Net interest income			$	11,214			3.20	%			$	10,524			3.16	%

Spread Analysis
Interest income/average assets	$	14,005		3.85	%				$	12,309		3.59	%
Interest expense/average assets	$	2,791		0.77	%				$	1,785		0.52	%
Net interest income/average assets	$	11,214		3.08	%				$	10,524		3.07	%

Net Interest Income

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

For the three months ended June 30, 2019, interest income increased $1,726,000, or 14%, when compared to the same period in 2018. The increase from 2019 was primarily attributable to increased loan volume and to a lesser extent improved interest rates. The increase in loan volume was primarily 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.

Interest expense increased $1,006,000, or 56%, for the three months ended June 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 provision for loan losses was $68,000 and $64,000 for the three months ended June 30, 2019 and 2018, respectively. Net loan charge-offs were $11,000 and $4,000 for the three months ended June 30, 2019 and 2018, respectively. 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 prices rebounded in the second quarter of 2019 as a result of delayed planting caused by excessive rain in much of the Midwest. An early frost could be problematic for the Company’s ag loan customers that were impacted by the delayed planting season.

Noninterest Income and Expense

Noninterest income increased $222,000 for the three months ended June 30, 2019 compared to the same period in 2018. The increase in noninterest income is primarily due to the Acquisition and higher wealth management income. 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 to the same period in 2018 primarily as a result of the Acquisition. Salaries and benefits was the largest component of the increase in noninterest expense, this increase was due primarily to the Acquisition and normal salary and employee benefit increases. The efficiency ratio was 54.9% for the second quarter of 2019 as compared to 55.0% in 2018.

Income Taxes

The provision for income taxes expense for the three months ended June 30, 2019 and 2018 was $1,239,000 and $1,107,000, 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.

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Income Statement Review for the Six Months ended June 30, 2019 and 201 8

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

AVERAGE BALANCES AND INTEREST RATES

AVERAGE BALANCE SHEETS AND INTEREST RATES

	Six Months Ended June 30,

	2019							2018

	Average		Revenue/		Yield/			Average		Revenue/		Yield/
	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	%
Agricultural		81,511		2,587		6.35	%		68,776		1,913		5.56	%
Real estate		713,274		16,267		4.56	%		634,953		13,949		4.39	%
Consumer and other		16,678		416		4.99	%		8,532		228		5.34	%

Total loans (including fees)		894,627		21,509		4.81	%		785,440		17,884		4.55	%

Investment securities
Taxable		253,421		3,044		2.40	%		271,924		3,093		2.27	%
Tax-exempt 2		205,633		2,745		2.67	%		225,197		2,995		2.66	%
Total investment securities		459,054		5,789		2.52	%		497,122		6,088		2.45	%

Interest bearing deposits with banks and federal funds sold		43,588		528		2.42	%		42,313		449		2.12	%

Total interest-earning assets		1,397,269	$	27,826		3.98	%		1,324,875	$	24,421		3.69	%

Noninterest-earning assets		53,300							40,125

TOTAL ASSETS	$	1,450,569						$	1,365,000

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

	Six Months Ended June 30,

	2019								2018

	Average		Revenue/			Yield/			Average		Revenue/			Yield/
	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	%
Time deposits		218,380		1,832			1.68	%		194,481		1,095			1.13	%
Total deposits		1,007,166		4,965			0.99	%		927,638		2,996			0.65	%
Other borrowed funds		42,188		384			1.82	%		51,832		400			1.54	%

Total Interest-bearing liabilities		1,049,354		5,349			1.02	%		979,471		3,396			0.69	%

Noninterest-bearing liabilities
Demand deposits		216,522								209,169
Other liabilities		8,090								8,456

Stockholders' equity		176,603								167,905

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


Net interest income			$	22,477			3.22	%			$	21,025			3.17	%

Spread Analysis
Interest income/average assets	$	27,826		3.84	%				$	24,421		3.58	%
Interest expense/average assets	$	5,349		0.74	%				$	3,396		0.50	%
Net interest income/average assets	$	22,477		3.10	%				$	21,025		3.08	%

Net Interest Income

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

For the six months ended June 30, 2019, interest income increased $3,457,000, or 15%, 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, or 58%, for the six months ended June 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 provision for loan losses was $166,000 and $93,000 for the six months ended June 30, 2019 and 2018, respectively. Net loan recoveries were $19,000 and net charge-offs were $31,000 for the six months ended June 30, 2019 and 2018, respectively. 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 prices rebounded in the second quarter of 2019 as a result of delayed planting caused by excessive rain in much of the Midwest. An early frost could be problematic for our ag loan customers that were impacted by the delayed planting season.

Noninterest Income and Expense

Noninterest income increased $384,000 for the six months ended June 30, 2019 compared to the same period in 2018. The increase in noninterest income is primarily due to the Acquisition and higher wealth management income. 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 $1,097,000 or 8% for the six months ended June 30, 2019 compared to the same period in 2018 primarily as a result of the Acquisition. Salaries and benefits was the largest component of the increase in noninterest expense, this increase was due primarily to the Acquisition and normal salary and employee benefit increases, offset in part by a one-time $1,000 bonus paid to full-time employees in 2018. The efficiency ratio was 56.4 % for the six months ended June 30, 2019 as compared to 56.2% in 2018.

Income Taxes

The provision for income taxes expense for the six months ended June 30, 2019 and 2018 was $2,343,000 and $2,127,000, 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 30, 2019, total assets were $1,468,595,000, a $12,908,000 increase compared to December 31, 2018. The increase in assets, primarily interest bearing deposits, was funded primarily by deposits.

Investment Portfolio

The investment portfolio totaled $458,763,000 as of June 30, 2019, a decrease of $208,000 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, 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.

On a quarterly basis, the investment portfolio is reviewed for other-than-temporary impairment. As of June 30, 2019, gross unrealized losses of $455,000, 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.

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At June 30, 2019, the Company’s investment securities portfolio included securities issued by 227 government municipalities and agencies located within 17 states with a fair value of $197.0 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 30, 2019 was $3.9 million (approximately 2.0% 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.

The following table summarizes the total general obligation and revenue bonds in the Company’s investment securities portfolios as of June 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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As of June 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 th ousands)

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

Revenue bonds by revenue source
Sales tax	$	57,326	$	57,591	$	60,422	$	60,322
Water		13,445		13,458		13,863		13,644
College and universities, primarily dormitory revenues		5,645		5,658		8,183		8,139
Leases		7,193		7,221		8,958		8,861
Electric power & light revenues		5,053		5,080		5,223		5,185
Other		11,914		11,876		15,631		15,416

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

Loan Portfolio

The loan portfolio, net of the allowance for loan losses, totaled $873,639,000, $890,461,000 and $780,260,000 as of June 30, 2019, 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.

Deposits

Deposits totaled $1,244,457,000, $1,221,084,000 and $1,151,815,000 as of June 30, 2019, December 31, 2018 and June 30, 2018, respectively. The increase in deposits since December 31, 2018 was primarily due to public fund balances in NOW accounts. The increase in deposits since June 30, 2018 is primarily due to the Acquisition.

Securities Sold Under Agreements to Repurchase

Securities sold under agreements to repurchase totaled $31,693,000 as of June 30, 2019, a decrease of $8,981,000, or 22%, from the December 31, 2018 balance of $40,674,000. The decrease was due primarily to a decrease 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 30, 2019 totaled $873,639,000 compared to $890,461,000 as of December 31, 2018. Net loans comprise 59% of total assets as of June 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% at June 30, 2019, as compared to 0.38% at December 31, 2018 and 0.49% at June 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 30, 2019 of 0.70% is comparable to the Iowa State Average peer group of FDIC insured institutions as of March 31, 2019, of 0.67%.

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Impaired loans, net of specific reserves, totaled $4,763,000 as of June 30, 2019 and have increased $2,030,000 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 as of June 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.

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 in the three and six months ended June 30, 2019. An $80,000 specific reserve was established in the three and six months ended June 30, 2018 on a TDR loan, respectively. The Company did not have any charge-offs for TDR’s for the three and six months ended June 30, 2019. The Company had $12,000 of charge-offs related to TDRs for the three and six months ended June 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 30, 2019, non-accrual loans totaled $5,119,000 and there were $1,118,000 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 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 as of June 30, 2019 as compared to $47,808,000 as of December 31, 2018. The substandard loans in these categories totaled $8,245,000 as of June 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, current low grain prices and tariff concerns on Iowa exports.

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The watch and special mention loans classified as commercial real estate totaled $35,423,000 as of June 30, 2019 as compared to $30,952,000 as of December 31, 2018. The substandard loans in this category totaled $14,621,000 as of June 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 30, 2019 was 1.34%, as compared to 1.30% at December 31, 2018. The allowance for loan losses totaled $11,869,000 and $11,684,000 as of June 30, 2019 and December 31, 2018, respectively. Net recoveries of loans totaled $19,000 and net charge-offs of loans totaled $31,000 for the six months ended June 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.

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 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

●

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 30, 2019 and December 31, 2018 totaled $90,051,000 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 30, 2019 include outstanding lines of credit with the FHLB of Des Moines, Iowa of $190,583,000, with $2,000,000 of outstanding FHLB advances. Federal funds borrowing capacity at correspondent banks was $93,269,000, with no outstanding federal fund purchase balances as of June 30, 2019. The Company had securities sold under agreements to repurchase totaling $31,693,000 as of June 30, 2019.

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Total investments as of June 30, 2019 were $458,763,000 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 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 months ended June 30, 2019 totaled $10,901,000 compared to $9,157,000 for the six months ended June 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 months ended June 30, 2019 was $(14,570,000) compared to $1,910,000 for the six months ended June 30, 2018. The increase of $16,480,000 in cash used in investing activities was primarily due to an increase in interest bearing deposits and a higher level of purchases of investments, offset in part by greater maturities and calls of investments; an increase in the proceeds from the sale of investments; and a decrease in loan balances.

Net cash used in financing activities for the six months ended June 30, 2019 totaled $4,099,000 compared to $16,910,000 for the six months ended June 30, 2018. The decrease in cash used in financing activities was $12,811,000. The decrease was primarily due to a greater amount of repayments of FHLB advances and other borrowings in 2018 as compared to 2019 and an increase in deposits, offset in part by a decrease in the securities sold under agreements to repurchase. As of June 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 and $5,690,000 for the six months ended June 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 as of June 30, 2019 that are presently available to provide additional liquidity to the Banks.

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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 million of the purchase price for the Company’s recently-announced stock acquisition of Iowa State Savings Bank. The purchase will be funded 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 30, 2019 that are of concern to management.

Capital Resources

The Company’s total stockholders’ equity as of June 30, 2019 totaled $183,252,000 and was $10,386,000 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 30, 2019 and December 31, 2018, stockholders’ equity as a percentage of total assets was 12.5% and 11.9%, respectively. The capital levels of the Company exceed applicable regulatory guidelines as of June 30, 2019.

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.

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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.

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.

	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 30, 2019, there were 21,209 shares remaining to be purchased under the plan.

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The following table provides information with respect to purchase 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 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

	Item 3.	Defaults Upon Senior Securities

		Not applicable

	Item 4.	Mine Safety Disclosures

		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.

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.

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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, 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

Exhibit 2.1

STOCK PURCHASE AGREEMENT

by and among

Ames National Corporation,

Iowa State Savings Bank ,

Iowa Community Bancorp, Inc. and

Karl W. and Janet R. Knock

Dated as of July 29 , 2019

STOCK PURCHASE AGREEMENT

THIS STOCK PURCHASE AGREEMENT (this “ Agreement ”) is made and entered into as of the 29th day of July, 2019, by and between Ames National Corporation, an Iowa corporation (“ ANC ”); Iowa State Savings Bank, an Iowa state chartered bank whose main office is located in Creston, Iowa (“ Bank ”); Iowa Community Bancorp, Inc., an Iowa corporation (“ ICB ”); and Karl W. and Janet R. Knock, the majority shareholders of ICB (the “ Knocks ”).

W I T N E S S E T H :

WHEREAS, Bank is an Iowa state chartered bank with a total of five thousand (5,000) shares of common stock, par value $100 per share, validly issued and outstanding (the “ Bank Stock ”);

WHEREAS, ICB is the sole stockholder of Bank and owns of record all of the Bank Stock;

WHEREAS, ANC intends to purchase from ICB, and ICB intends to sell to ANC, the Bank Stock upon the terms and subject to the conditions set forth herein; and

WHEREAS, Knocks are the majority shareholders of ICB and are parties to this Agreement for certain purposes under Article VIII hereof.

NOW, THEREFORE, in consideration of the premises, representations, warranties and agreements contained herein, ANC, Bank and ICB hereby agree as follows:

ARTICLE I
PURCHASE AND SALE OF Bank STOCK

Section 1.1 Purchase and Sale . On the terms and subject to the conditions set forth in this Agreement, at the Closing (as defined in Section 1. 5 ), ICB shall sell, convey, transfer and deliver to ANC, free and clear of all Encumbrances, and ANC shall purchase, acquire and accept from ICB, all of ICB's right, title and interest in and to the Bank Stock.

Section 1.2 Purchase Price . The purchase price payable by ANC to ICB for the Bank Stock shall be an amount determined in accordance with the calculation set forth in Schedule 1 .2 , which amount shall initially be based on the financial condition of Bank as of the end of the month immediately preceding the Closing Date as determined in accordance with Section 1.3 (such amount, the “ Closing Date Payment ”) and which amount shall be subject to adjustment based on the financial condition of Bank as of the Closing Date as determined in accordance with Section 1.6 (such amount, as adjusted, the “ Purchase Price ”). ANC and ICB agree that the financial statements of Bank used to calculate the Closing Date Payment and the Purchase Price shall be prepared in accordance with GAAP consistently applied in accordance with Bank’s past accounting methods, policies and practices. ICB and ANC further agree to allocate the Purchase Price for tax purposes in accordance with the Allocation Schedule (as defined in Section 5.5 ).

Section 1.3 Determination of Closing Date Payment . Not less than three (3) Business Days before the Closing Date, ICB shall prepare and deliver to ANC a statement setting forth the calculation of the Closing Date Payment as determined in accordance with Schedule 1.2 using numbers from the financial statements of Bank prepared as of the end of the month immediately preceding the Closing Date. Such statement shall be accompanied by the financial statements of Bank used in calculating the Closing Date Payment and a certificate of the principal financial officer of ICB and/or Bank that the financial statements were prepared in accordance with GAAP consistently applied in accordance with Bank’s past accounting methods, policies and practices.

Section 1.4 Payment of Closing Date Payment . The Closing Date Payment shall be paid by ANC on the Closing Date as follows:

(a) an amount equal to the Indemnity Escrow Fund (as defined in Section 8. 7 ( b ) shall be deposited by wire transfer of immediately available funds into the escrow account established pursuant to the Indemnity Escrow Agreement (as defined in Section 8. 7 (b));

(b) an amount equal to the Indenture Satisfaction Amount (as defined and determined in accordance with Section 6.15 ) shall be deposited by wire transfer of immediately available funds with the Indenture Trustee, in trust, for use in redeeming the ICB Debenture and ultimately the Trust Securities following the Closing as contemplated by Section 6.15 ; and

(c) the balance of the Closing Date Payment shall be paid by ANC to ICB by wire transfer of immediately available funds to an account designated in writing by ICB to ANC at least two (2) Business Days prior to the Closing Date.

Section 1.5 Closing; Closing Deliveries .

(a) The closing of the transactions contemplated by this Agreement (the “ Closing ”) and all actions specified in this Agreement to occur at the Closing shall take place at the offices of Nyemaster Goode, P.C., 700 Walnut, Suite 1600, Des Moines, Iowa at 10:00 a.m., local time, no later than the first Friday that is a Business Day following the second Business Day on which the last of the conditions set forth in Article VII (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the fulfillment or waiver of those conditions) shall have been fulfilled or waived (if permissible) in accordance with this Agreement or at such other time and place as ANC and ICB shall agree (the date and time on which the Closing actually occurs is referred to herein as the “ Closing Date ”); provided, however, that the Closing Date shall not occur prior to October 11, 2019.

(b) Subject to fulfillment or waiver of the conditions set forth in Article VII , at the Closing ANC shall deliver to ICB all of the following:

(i) a certificate of existence of ANC issued as of a recent date by the Iowa Secretary of State;

(ii) a certificate of the Secretary of ANC, dated the Closing Date, in form and substance reasonably satisfactory to ICB, as to (A) the Articles of Incorporation of ANC (the " ANC Articles "), (B) the Bylaws of ANC (the " ANC Bylaws "), (C) the resolutions of the Board of Directors of ANC (the " ANC Board ") authorizing the execution and performance of this Agreement and the transactions contemplated herein, and (D) the incumbency and signatures of the officers of ANC executing this Agreement and any other agreement, certificate or instrument executed by ANC hereunder;

(iii) evidence of all Requisite Regulatory Approvals obtained by ANC with respect to the consummation of the transactions contemplated by this Agreement;

(iv) the officers certificate of ANC contemplated by Section 7.2( c ) ;

(v) payment of the Closing Date Payment in accordance with Section 1.4 ;

(vi) the Indemnity Escrow Agreement executed by ANC;

(vii) the ESOP Escrow Agreement (as defined in Section 8.7(c)) executed by ANC;

(viii) the Non-Compete Agreement (as defined in Section 7.3(g) ) executed by ANC; and

(ix) such other agreements, documents, instruments or certificates as may be reasonably required to effectuate the transactions contemplated by this Agreement to be executed and delivered by ANC.

(c) Subject to fulfillment or waiver of the conditions set forth in Article VII , at the Closing ICB shall deliver to ANC all of the following:

(i) a certificate of existence of ICB issued as of a recent date by the Iowa Secretary of State;

(ii) a copy of the Renewed, Amended and Substituted Articles of Incorporation of Bank, as amended (the “ Bank Articles ”) certified as of a recent date by the Iowa Secretary of State;

(iii) a certificate of good standing of Bank issued as of a recent date by the Iowa Division of Banking (the “ Iowa Banking Division ”);

(iv) a certificate of the Secretary or an Assistant Secretary of Bank, dated the Closing Date, in form and substance reasonably satisfactory to ANC, as to (A) the Bank Articles, (B) the Bylaws of Bank (the “ Bank Bylaws ”), (C) the resolutions of the Board of Directors of Bank (the “ Bank Board ”) authorizing the execution and performance of this Agreement and the transactions contemplated herein, (D) the incumbency and signatures of the officers of Bank executing this Agreement and any other agreement, certificate or instrument executed by Bank hereunder, (E) the resignations of each director of Bank and (F) the resignation of such executive officers of Bank as ANC may request prior to Closing;

(v) a certificate of the Secretary or an Assistant Secretary of ICB, dated the Closing Date, in form and substance reasonably satisfactory to ANC, as to (A) the Articles of Incorporation of ICB (the " ICB Articles "), (B) the Bylaws of ICB (the " ICB Bylaws "), (C) the resolutions of the shareholders of ICB and the resolutions of the Board of Directors of ICB (the " ICB Board ") authorizing the execution and performance of this Agreement and the transactions contemplated therein, and (D) the incumbency and signatures of the officers of ICB executing this Agreement and any other agreement, certificate or instrument executed by ICB thereunder;

(vi) evidence of all Required Third-Party Consents and all Requisite Regulatory Approvals obtained by ICB or Bank with respect to the consummation of the transactions contemplated by this Agreement;

(vii) the ESOP Escrow Agreement executed by Knocks;

(viii) the officers certificate of ICB and Bank contemplated by Section 7.3(c) ;

(ix) the stock certificate(s) representing the Bank Stock duly endorsed for transfer by ICB or accompanied by instruments of transfer duly executed by ICB;

(x) the Indemnity Escrow Agreement executed by ICB;

(xi) the Non-Compete Agreement executed by ICB and Karl W. Knock;

(xii) a certification of the Indenture Trustee setting forth the Indenture Satisfaction Amount to be deposited with the Indenture Trustee at Closing, together with such other documentation as may reasonably be requested by ANC related to the redemption of the ICB Debenture and the Trust Securities; and

(xiii) such other agreements, documents, instruments or certificates as may be reasonably required to effectuate the transactions contemplated by this Agreement to be executed by ICB or Bank.

(d) At or prior to Closing, Bank shall execute and deliver to ICB such documents, instruments and agreements necessary to transfer to ICB such assets of Bank, not shown on the books and records of Bank, as are listed in Schedule 1.5(d) of the ICB Letter, which may be updated by ICB in its sole discretion prior to Closing with respect to loans charged-off prior to Closing. Bank will cooperate in processing any payments of non-ledger assets.

Section 1.6 Post-Closing Adjustment and Payment .

(a) Calculation of Purchase Price . Within forty-five (45) after the Closing Date, ANC shall prepare and deliver to ICB a statement setting forth the calculation of the Purchase Price as determined in accordance with Schedule 1 .2 using numbers from the financial statements of Bank prepared as of the Closing Date, without giving effect to the transactions contemplated by this Agreement (the “ Purchase Price Calculation ”). The Purchase Price Calculation shall be accompanied by the financial statements prepared by ANC as of the Closing Date (the “ Closing Date Financial Statements ”) and a certificate of an executive officer of ANC that the Closing Date Financial Statements were prepared in accordance with GAAP consistently applied in accordance with Bank’s past accounting methods, policies and practices.

(b) Post- Closing Adjustment . The post-closing adjustment shall be an amount (either positive or negative) equal to the difference between the Closing Date Payment and the Purchase Price (the “ Post-Closing Adjustment ”). If the Purchase Price is greater than the Closing Date Payment resulting in the Post-Closing Adjustment being positive, then ANC shall pay the amount of the Post-Closing Adjustment (without interest) to ICB in accordance with Section 1.6(d) . If the Purchase Price is less than the Closing Date Price resulting in the Post-Closing Adjustment being negative, then ICB shall pay the amount of the Post-Closing Adjustment (without interest) to ANC in accordance with Section 1.6(d) .

(i) Examination . After receipt of the Purchase Price Calculation, ICB shall have thirty (30) days (the “ Review Period ”) in which to review the Purchase Price Calculation and the Closing Date Financial Statements. During the Review Period, ICB shall have full access to the books and records of Bank and work papers prepared by ANC as ICB may reasonably request for the purpose of reviewing the Purchase Price Calculation and the Closing Date Financial Statements and, if applicable, to prepare a Statement of Objection (as defined below), provided that such access shall be in a manner that does not interfere with the normal business operations of ANC or Bank. Following such review, ICB may accept the Purchase Price Calculation by written notice to ANC, in which event the Purchase Price Calculation and the Post-Closing Adjustment based thereon shall be deemed final and binding for purposes of this Agreement.

(ii) Statement of Objection . On or prior to the last day of the Review Period, ICB may object to the Purchase Price Calculation and/or the Closing Date Financial Statements by delivering to ANC a written statement setting forth ICB’s objections in reasonable detail, indicating each disputed item or amount and the basis for ICB’s disagreement therewith (the “ Statement of Objection ”). If ICB has not previously accepted the Purchase Price Calculation in accordance with Section 6.1(c)(i) , and if ICB fails to deliver the Statement of Objection before the expiration of the Review Period, then the Purchase Price Calculation and the Post-Closing Adjustment based thereon shall be deemed to have been accepted by ICB and shall become final and binding for purposes of this Agreement. If ICB delivers the Statement of Objection before expiration of the Review Period, ANC and ICB shall negotiate in good faith to resolve such objections within thirty (30) days after the delivery of the Statement of Objection (the “ Resolution Period ”) and, if such disputes are so resolved within the Resolution Period, then the Purchase Price Calculation and the Post-Closing Adjustment based thereon, including such changes as may have been agreed in writing by ANC and ICB as part of the resolution process, shall become final and binding for purposes of this Agreement.

(iii) Resolution of Disputes . If ANC and ICB fail to reach agreement with respect to all of the matters set forth in the Statement of Objection before expiration of the Resolution Period, then any amounts remaining in dispute (“ Disputed Amounts ”) shall be submitted for resolution to the accounting firm of RSM US, LLP (the “ Independent Accountant ”) who, acting as an expert and not as an arbitrator, shall resolve the Disputed Amounts only and make any adjustments to the Purchase Price Calculation and/or the Closing Date Financial Statements consistent with such resolution. ANC and ICB agree that all adjustments shall be made without regard to materiality. The Independent Accountant shall only decide the specific items under dispute by the parties and the decision of the Independent Accountant for each Disputed Amount must be within the range of values assigned to each such item by ANC in the Purchase Price Calculation and/or the Closing Date Financial Statements and by ICB the Statement of Objection. The Independent Accountant shall make a determination as soon as practicable within thirty (30) days (or such other time as the parties shall agree in writing) after its engagement, and the resolution of the Disputed Amounts by the Independent Accountant and any adjustments made by the Independent Accountant to the Purchase Price Calculation and/or the Closing Date Financial Statements and the Post-Closing Adjustment based thereon made by the Independent Accountant shall be conclusive and binding upon the parties for purposes of this Agreement.

(iv) Fees of Independent Accountant . The fees and expenses of the Independent Accountant shall be paid by the party whose calculation amount of the Disputed Amounts in the aggregate is farther away from the Independent Accountant’s determination of the Disputed Amounts in the aggregate.

(d) Payment of Post-Closing Adjustment . Payment of Post-Closing Adjustment shall (i) be due within five (5) Business Days of acceptance of the Purchase Price Calculation or, if there are Disputed Amounts, then within five (5) Business Days of the resolution of such Disputed Amounts in accordance with Section 1.6(c)(iii) above, and (ii) be paid by wire transfer of immediately available funds to such account as is directed in writing by ANC or ICB, as the case may be.

ARTICLE II
REPRESENTATIONS AND WARRANTIES OF ANC

Except as set forth in the letter dated the date hereof and delivered on the date hereof by ANC to ICB (the “ ANC Letter ”), each section of which qualifies the correspondingly numbered representation and warranty in this Article II to the extent specified therein and such other representations and warranties in this Article II to the extent a matter in such section is disclosed in such a way as to make its relevance to such other representation and warranty reasonably apparent, ANC represents and warrants to ICB as follows:

Section 2.1 Organization, Existence and Power . ANC is a corporation duly organized and validly existing under the Laws of the State of Iowa and has the requisite corporate power and authority to carry on its business as now being conducted.

Section 2.2 Authority . The ANC Board has determined that this Agreement and the transactions contemplated hereby are advisable and in the best interest of ANC and its stockholders, and has approved and adopted this Agreement and the transactions contemplated hereby in accordance with the ANC Articles and the ANC Bylaws. ANC has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by ANC, and the consummation by ANC of the transactions contemplated hereby, have been duly authorized by all necessary corporate action on the part of ANC. This Agreement has been duly executed and delivered by ANC and, assuming the valid authorization, execution and delivery of this Agreement by Bank and ICB and the validity and binding effect hereof on Bank and ICB, this Agreement constitutes the valid and binding obligation of ANC enforceable against it in accordance with its terms, except to the extent its enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or similar Laws affecting the enforcement of creditors’ rights generally and by the effect of general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at Law).

Section 2.3 Consents and Approvals; No Violation . Assuming that all consents, approvals, authorizations and other actions described in this Section 2.3 have been obtained and all filings and obligations described in this Section 2.3 have been made, the execution and delivery of this Agreement by ANC does not, and the consummation of the transactions contemplated hereby and compliance with the provisions hereof by ANC will not, result in any violation of, or default (with or without notice or lapse of time, or both) under, or give to others a right of termination, cancellation or acceleration of any obligation under, or result in the loss of a benefit under, or result in the creation of any Encumbrance upon any of the properties or assets of ANC under, any provision of (i) the ANC Articles or the ANC Bylaws, (ii) any Order or Law applicable to ANC or any of its properties or assets, other than, in the case of clause (ii), any such violations, defaults, rights or Encumbrances that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on ANC or materially impair the ability of ANC to perform its obligations hereunder or prevent or materially delay the consummation of any of the transactions contemplated hereby by ANC. No filing or registration with, or authorization, consent or approval of, any Governmental Entity is required by or with respect to ANC in connection with the execution and delivery of this Agreement by ANC or is necessary for the consummation by ANC of the transactions contemplated by this Agreement, except for (i) the Specified Regulatory Approvals, and (ii) such other consents, Orders, authorizations, registrations, declarations and filings the failure of which to be obtained or made would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on ANC or materially impair the ability of ANC to perform its obligations hereunder or prevent the consummation of any of the transactions contemplated hereby by ANC.

Section 2.4 Litigation .

(a) There are no Actions pending or, to the Knowledge of ANC, threatened against or affecting ANC or any of its Affiliates or, to the Knowledge of ANC, any of its or their present or former officers, directors, employees, consultants, agents or stockholders, as such, or any of its or their properties, assets or business, (i) that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on ANC or materially impair the ability of ANC to perform its obligations hereunder or prevent or materially delay the consummation of the transactions contemplated hereby or (ii) relating to the transactions contemplated by this Agreement.

(b) There are no outstanding Orders of any Governmental Entity against or involving ANC or its Affiliates or, to the Knowledge of ANC, against or involving any of the present or former directors, officers, employees or consultants, agents or stockholders of ANC or its Affiliates as such, or any of its or their properties, assets or business that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on ANC or materially impair the ability of ANC to perform its obligations hereunder or prevent or materially delay the consummation of the transactions contemplated hereby.

(c) None of ANC or any of its Affiliates is subject to, nor to the Knowledge of ANC will ANC or any of its Affiliates become subject to, any Order, agreement, memorandum of understanding, direction or similar arrangement with, or a commitment letter or similar submission to, or extraordinary supervisory letter from, or adopted any extraordinary board resolutions at the request of, any Governmental Entity charged with the supervision or regulation of financial institutions or engaged in the insurance of deposits or otherwise involved with the supervision or regulation of ANC or any of its Affiliates.

Section 2.5 Financial Ability . ANC has sufficient financial resources to consummate the transactions contemplated by this Agreement.

Section 2.6 Regulatory Approval . To the Knowledge of ANC, there is no reason relating to ANC to any of its Affiliates that the Specified Regulatory Approvals should not be obtained in a prompt and timely manner.

Section 2.7 Brokers . No broker, investment banker or other Person is entitled to any broker’s, finder’s or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of ANC or any of its Affiliates.

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ICB AND Bank

Except as set forth in the letter dated the date hereof and delivered on the date hereof by ICB to ANC (the “ ICB Letter ”), each section of which qualifies the correspondingly numbered representation and warranty in this Article III and such other representations and warranties in this Article III to the extent a matter in such section is disclosed in such a way as to make its relevance to such other representation and warranty reasonably apparent, ICB and Bank, jointly and severally, represent and warrant to ANC as follows:

Section 3.1 Organization, Existence and Power .

(a) ICB is a corporation duly organized and validly existing under the Laws of the State of Iowa and has the requisite corporate power and authority to carry on its business as now being conducted.

(b) Bank is a bank duly organized, validly existing and in good standing under the Laws of the State of Iowa and has the requisite corporate power and authority to carry on its business as now being conducted.

Section 3.2 Capital Structure .

(a) The authorized capital stock of Bank consists of twenty thousand (20,000) shares of common stock, par value $100 per share, of which five thousand (5,000) shares (designated herein as the “ Bank Stock ”) are issued and outstanding as of the date of this Agreement. All of the Bank Stock is validly issued, fully paid and nonassessable and free of preemptive rights. There are no stock option, equity, incentive or similar benefit plans of Bank or its Affiliates under which any capital stock or other securities of Bank are issuable. Except as set forth above, no shares of capital stock or other voting securities of Bank are issued, reserved for issuance or outstanding, and there are no options, warrants, calls, rights, puts or Contracts to which Bank or any of its Affiliates is a party or by which Bank or any of its Affiliates is bound obligating Bank or any of its Affiliates to issue, deliver, sell or redeem or otherwise acquire, or cause to be issued, delivered, sold or redeemed or otherwise acquired, any shares of capital stock (or other voting securities or equity equivalents) of Bank or obligating Bank to grant, extend or enter into any such option, warrant, call, right, put or Contract. Bank does not have any outstanding bonds, debentures, notes or other obligations the holders of which have the right to vote (or convertible into or exercisable for securities having the right to vote) with the stockholders of Bank on any matter. There are no Contracts to which Bank, any of its Affiliates or any of their respective officers or directors is a party concerning the voting of any capital stock of Bank.

(b) ICB is the record holder and beneficial owner of the Bank Stock free and clear of any Encumbrances.

(c) Bank does not own, directly or indirectly, any Subsidiary and Bank does not (i) own, of record or beneficially, more than two percent (2%) of the outstanding voting securities or other equity interests in any Person, (ii) have the power to direct or cause the direction of the management and policies of any Person, whether through the ownership of voting securities, by contract or otherwise, or (iii) have any right or obligation to acquire any equity interest in or to make a capital contribution to any Person.

Section 3.3 Authority .

(a) The Bank Board has (i) determined that this Agreement and the transactions contemplated hereby are advisable and in the best interests of Bank and ICB as its sole stockholder, and (ii) approved this Agreement and the transactions contemplated hereby in accordance with the Bank Articles and the Bank Bylaws. Bank has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by Bank and the consummation by Bank of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Bank.

(b) The ICB Board has (i) determined that this Agreement and the transactions contemplated thereby are advisable and in the best interests of ICB and its stockholders, and (ii) approved this Agreement and the transactions contemplated hereby in accordance with the ICB Articles and the ICB Bylaws. ICB has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated thereby. The execution and delivery of this Agreement by ICB and the consummation by ICB of the transactions contemplated thereby have been duly authorized by all necessary corporate action on the part of ICB, including approval by the shareholders of ICB at or prior to Closing in accordance with the ICB Articles, the ICB Bylaws and applicable Law. In connection with approval of this Agreement by the shareholders of ICB at or prior to Closing, Bank, as the sponsor of the Bank ESOP, has complied in all material respects with the Bank ESOP plan documents and applicable Law in presenting this Agreement for consideration and vote by the participants of the Bank ESOP in its capacity as a shareholder of ICB.

(c) This Agreement has been duly executed and delivered by Bank and ICB and, assuming the valid authorization, execution and delivery of this Agreement by ANC and the validity and binding effect of this Agreement on ANC, this Agreement constitutes the valid and binding obligations of Bank and ICB enforceable against Bank and ICB in accordance with its terms, except to the extent enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer, or similar laws affecting the enforcement of creditors’ rights generally and by the effect of general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at Law).

(d) ICB has delivered or made available to ANC complete and correct copies of the Bank Articles and the Bank Bylaws and the ICB Articles and the ICB Bylaws.

Section 3.4 Consents and Approvals; No Violation . Assuming that all consents, approvals, authorizations and other actions described in this Section 3.4 have been obtained and all filings and obligations described in this Section 3.4 have been made, except as set forth in Section 3.4 of the ICB Letter, the execution and delivery of this Agreement by ICB and Bank does not, and the consummation of the transactions contemplated hereby and compliance with the provisions hereof by ICB and Bank will not, result in any violation of, or default (with or without notice or lapse of time, or both) under, or give to others a right of termination, cancellation or acceleration of any obligation under, or result in the creation of any Encumbrance upon any of the properties or assets of ICB or Bank under, or result in the loss of a benefit under, any provision of (i) the Bank Articles or the Bank Bylaws, (ii) the ICB Articles or the ICB Bylaws, (iii) any Contract applicable to ICB or Bank or their respective properties or assets, or (iv) any Order or Law applicable to ICB or Bank or any of their properties or assets, other than, in the case of clause (iii) and (iv), any such violations, defaults, rights or Encumbrances that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on ICB or Bank or materially impair the ability of ICB or Bank to perform their obligations hereunder or prevent or materially delay the consummation of any of the transactions contemplated hereby by ICB or Bank. No filing or registration with, or authorization, consent or approval of, any Governmental Entity is required by or with respect to ICB or Bank in connection with the execution and delivery of this Agreement by ICB or Bank or is necessary for the consummation by ICB or Bank of the transactions contemplated by this Agreement, except for (i) the Specified Regulatory Approvals, and (ii) such other consents, Orders, authorizations, registrations, declarations and filings the failure of which to be obtained or made would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on ICB or Bank or materially impair the ability of ICB or Bank to perform their obligations hereunder or prevent or materially delay the consummation of any of the transactions contemplated hereby by ICB or Bank.

Section 3.5 Financial Statements .

(a) ICB has made available to ANC true, accurate and complete copies of (i) Bank’s call reports for each of the years ended December 31, 2018, 2017 and 2016, and (ii) Bank’s unaudited financial statements for each of the years ended December 31, 2018, 2017 and 2016 (collectively, the “ Bank Financial Statements ”). Except as disclosed in Section 3.5(a) of the ICB Letter, the Bank Financial Statements complied as to form in all material respects with applicable accounting requirements and were prepared in accordance with GAAP applied on a consistent basis during the periods involved. The Bank Financial Statements fairly present in all material respects the financial position of Bank as of the respective dates thereof and the results of its operations for the periods then ended and are complete, correct, represent bona fide transactions and have been prepared from the books and records of Bank. Since December 31, 2018, Bank has not incurred any material liability other than in the ordinary course of business consistent with past practice. Except as required by GAAP, Bank has not, between January 1, 2016 and the date hereof, made or adopted any change in its accounting methods, practices or policies in effect on January 1, 2016.

(b) Bank has established and maintains a system of internal control over financial reporting sufficient to provide reasonable assurance (i) that Bank maintains records that, in reasonable detail, accurately and fairly reflect the respective transactions and dispositions of assets of Bank, (ii) that transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP, (iii) that receipts and expenditures are being made only in accordance with authorizations of management and the Bank Board, and (iv) regarding prevention or timely detection of the unauthorized acquisition, use or disposition of Bank’s assets that could have a material effect on Bank’s financial statements.

Section 3.6 Certain Changes or Events; No Undisclosed Liabilities .

(a) Except as disclosed in Section 3.6(a) of the ICB Letter, since December 31, 2018 (i) Bank has conducted its business, in all material respects, in the ordinary course consistent with past practice, (ii) Bank has not sustained any material loss or interference with its business or properties from fire, flood, windstorm, accident or other calamity (whether or not covered by insurance), and (iii) there has been no event, occurrence, fact, condition, effect, change or development which, individually or in the aggregate, has had or would reasonably be expected to have, a Material Adverse Effect on Bank.

(b) Except as set forth in Section 3.6(b) of the ICB Letter, Bank does not have any debts, liabilities, commitments or obligations of any nature (whether accrued or fixed, absolute or contingent, matured or unmatured, direct or indirect, known or unknown, asserted or unasserted), except (i) liabilities, commitments and obligations reflected or reserved against in the balance sheet of Bank dated December 31, 2018 (or described in the notes thereto), (ii) liabilities, commitments and obligations incurred since December 31, 2018 in the ordinary course of business consistent with past practice, and (iii) liabilities, commitments and obligations incurred in connection with this Agreement or the transactions contemplated hereby.

Section 3.7 Permits and Compliance . Bank is in possession of all franchises, grants, authorizations, licenses, permits, charters, easements, variances, exceptions, consents, certificates, approvals and orders of any Governmental Entity necessary for Bank to own, lease and operate its properties or to carry on its business as it is now being conducted (the “ Bank Permits ”) and no suspension or cancellation of any of the Bank Permits is pending or, to the Knowledge of Bank, threatened. Since January 1, 2016, Bank has not been in material violation of (i) the Bank Articles or the Bank Bylaws, (ii) any applicable Law, (iii) any Bank Permit, (iv) any Order, (v) any bank regulatory Law or other material bank compliance Law or bank safety and soundness regulatory Law. Since January 1, 2016, no written notice of any such violation or non-compliance has been received by Bank or ICB.

Section 3.8 Tax Matters . Except as set forth in Section 3.8 of the ICB Letter:

(a) (i) all Tax Returns required to be filed by or on behalf of ICB and Bank have been duly and timely filed with the appropriate Taxing Authority in all jurisdictions in which such Tax Returns are required to be filed (after giving effect to any valid extensions of time in which to make such filings), and all such Tax Returns are true, complete and correct in all material respects, and (ii) all Taxes payable by or on behalf of ICB and Bank (whether or not shown on the Tax Returns) have been fully and timely paid. With respect to any period for which Tax Returns have not yet been filed or for which Taxes are not yet due or owing, ICB and Bank have made due and sufficient accruals in accordance with GAAP for such Taxes in their respective financial statements and their respective books and records. All required estimated Tax payments sufficient to avoid any underpayment penalties or interest have been made by or on behalf of ICB and Bank;

(b) ICB and Bank have complied in all material respects with all applicable Laws relating to the payment and withholding of Taxes and have duly and timely withheld and paid over to the appropriate Taxing Authority all amounts required to be so withheld and paid under all applicable Laws;

(c) ICB and Bank have made available to ANC true and complete copies of (i) all federal, state and local income or franchise Tax Returns of ICB and Bank relating to the immediately preceding three (3) taxable periods, (ii) any audit report issued within the last three (3) years relating to any Taxes due from or with respect to ICB and Bank, and (iii) all written communications with Taxing Authorities relating to any such Tax Returns or to any deficiency or claim proposed and/or asserted, irrespective of the outcome of such matter;

(d) Section 3.8(d) of the ICB letter sets forth a list of all of the jurisdictions that impose Taxes on ICB and Bank or with respect to which ICB and Bank have a duty to file any Tax Returns. No claim has been made by a Taxing Authority in a jurisdiction where ICB and Bank do not file Tax Returns that ICB or Bank is or may be subject to taxation by that jurisdiction;

(e) all deficiencies asserted or assessments made as a result of any examinations by any Taxing Authority of the Tax Returns of, or including, ICB and Bank have been fully paid, and there are no other audits or investigations by any Taxing Authority in progress, nor has ICB or Bank received any notice from any Taxing Authority that it intends to conduct such an audit or investigation. No issue has been raised by a Taxing Authority in any prior examination of ICB or Bank which, by application of the same or similar principles, could reasonably be expected to result in a proposed deficiency for any subsequent taxable period;

(f) within three (3) years prior to the date of this Agreement, neither ICB, Bank nor any other Person on behalf of ICB or Bank has (i) agreed to or is required to make any adjustments pursuant to Section 481(a) of the Code or any similar provision of Law, or has any Knowledge that any Taxing Authority has proposed any such adjustment, or has any application pending with any Taxing Authority requesting permission for any changes in accounting methods that relate to ICB and Bank, (ii) executed or entered into a closing agreement pursuant to Section 7121 of the Code or any similar provision of Law with respect to ICB and Bank, (iii) requested any extension of time within which to file any Tax Return, which Tax Return has since not been filed, (iv) granted any extension for the assessment or collection of Taxes, which Taxes have not since been paid, or (v) granted to any Person any power of attorney that is currently in force with respect to any Tax matter;

(g) ICB and Bank are not parties to any tax sharing, allocation, indemnity or similar agreement or arrangement (whether or not written) pursuant to which ICB or Bank will have any obligation to make any payments after the Closing;

(h) there is no contract, agreement, plan or arrangement covering any Person that, individually or collectively, could give rise to the payment of any amount that would not be deductible by ICB and Bank or any of their respective Affiliates by reason of Section 280G of the Code;

(i) neither ICB or Bank are subject to any private letter ruling of the IRS or comparable rulings of any Taxing Authority;

(j) there are no Encumbrances as a result of any unpaid Taxes upon any of the properties or assets of ICB or Bank;

(k) ICB and Bank have never been a member of any consolidated, combined, affiliated or unitary group of corporations for any Tax purposes;

(l) neither ICB, Bank nor any Affiliate has any liability for Taxes of another Person under Treasury Regulation § 1.1502-6 (or any similar provision of state, local or foreign Law), under any agreement or arrangement, as a transferee or successor, or otherwise (other than any financing agreement or arrangement not related primarily to Taxes);

(m) ICB and Bank have not constituted either a “distributing corporation” or a “controlled corporation” (within the meaning of Section 355(a)(1)(A) of the Code) in a distribution of stock qualifying for tax-free treatment under Section 355 of the Code (i) in the five (5) years prior to the date of this Agreement, or (ii) in a distribution which could otherwise constitute part of a “plan” or “series of related transactions” (within the meaning of Section 355(e) of the Code) in conjunction with the transactions contemplated by this Agreement;

(n) there is no taxable income of ICB and Bank that will be required under applicable Tax Law to be reported by ANC or any of its Affiliates, including Bank following the Closing, for a taxable period beginning after the Closing Date which taxable income was realized (and reflects economic income arising) prior to the Closing Date. ICB and Bank have not taken any positions on its federal income Tax Returns that could give rise to substantial understatement of federal income tax within the meaning of Section 6662 of the Code;

(o) neither ICB nor Bank (i) have been a shareholder of a “controlled foreign corporation” as defined in Section 957 of the Code (or any similar provision of state, local or foreign law), (ii) have been a shareholder of a “passive foreign investment company” within the meaning of Section 1297 of the Code, or (iii) have had a permanent establishment in any country other than the United States or engaged in a trade or business in any country other than the United States that subjected it to tax in such country;

(p) no transaction contemplated by this Agreement is subject to withholding under Section 1445 of the Code (relating to “ FIRPTA ”);

(q) ICB has duly elected to be taxed as an S corporation for U.S. federal income tax purposes and such election has continuously been in effect for all taxable years since 2014. ICB has made a valid qualified Subchapter S subsidiary election for Bank and such election has continuously been in effect for all taxable years since 2014. Section 3.8(q) of the ICB Letter sets forth (i) all jurisdictions in which ICB was treated as an S corporation and Bank treated as a qualified Subchapter S subsidiary for income tax purposes and the date from which such treatments have continuously been in effect, and (ii) all jurisdictions in which ICB and Bank were not treated as an S corporation and a qualified Subchapter S subsidiary, respectively, for income tax purposes. To the Knowledge of ICB and Bank, the IRS has never challenged or threatened to challenge the status of ICB and Bank as an S corporation and a qualified Subchapter S subsidiary, respectively, for federal income tax purposes under the Code. ICB and Bank have not, in the past five (5) years, acquired assets from another corporation in a transaction in which ICB and Bank’s Tax basis for the acquired assets was determined, in whole or in part, by reference to the Tax basis of the acquired assets (or any other property) in the hands of the transferor;

(r) ICB and Bank have properly collected and remitted sales and similar Taxes with respect to sales made or services provided to Bank customers or have properly received and retained any appropriate Tax exemption certificates and other documentation for all sales made or services provided without charging or remitting sales or similar Taxes that qualify such sales or services as exempt from sales and similar Taxes;

(s) ICB and Bank have not been party to a transaction that could give rise to (i) a reporting obligation under Section 6111 of the Code or the regulations thereunder, (ii) a list maintenance obligation under Section 6112 of the Code or the regulations thereunder, (iii) a disclosure obligation of a “reportable transaction” under Section 6011 of the Code and the regulations thereunder, or (iv) any similar obligation under any predecessor or successor Law or regulation or comparable provision of state or local Law;

(t) to the Knowledge of ICB, no real property transfer or gains Tax, sales Tax, use Tax, stamp Tax, stock transfer Tax, or other similar Tax will be imposed on the transactions contemplated by this Agreement;

(u) ICB and Bank will not be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any (i) change in method of accounting for a taxable period ending on or prior to the Closing Date, (ii) installment sale or open transaction disposition made on or prior to the Closing Date, (iii) prepaid amount received on or prior to the Closing Date, or (iv) income inclusion pursuant to Section 108(i) of the Code (or any corresponding or similar provision of state or local income Tax Law); and

(v) neither ICB nor Bank are parties to any joint venture, partnership or other written agreement or Contract that would be treated as a partnership for U.S. federal income tax purposes for any period for which the statute of limitations for any Tax on the income therefrom has not expired.

Section 3.9 Litigation .

(a) There are no outstanding Orders of any Governmental Entity against or involving Bank or any of its Affiliates or, to the Knowledge of Bank, against or involving any of the present or former directors, officers, employees, consultants, agents or stockholders of Bank or its Affiliates as such, or any of its or their properties, assets or business or any Bank Plan.

(b) None of Bank or any of its Affiliates is subject to, nor to the Knowledge of Bank will Bank or any of its Affiliates become subject to, any Order, agreement, memorandum of understanding, direction or similar arrangement with, or a commitment letter or similar submission to, or supervisory letter from, or adopted any board resolutions at the request of, any Governmental Entity charged with the supervision or regulation of financial institutions or engaged in the insurance of deposits or otherwise involved with the supervision or regulation of Bank or any of its Affiliates.

(c) Bank has complied in all materials respects with all Laws and Orders which are applicable to Bank or its assets, properties or business, including, without limitation, all consumer privacy laws, the Truth in Lending Act, the Home Owner’s Equity Protection Act, the Real Estate Settlement Procedures Act, the Equal Credit Opportunity Act, the National Flood Insurance Act of 1968, the Flood Disaster Protection Act of 1973, the Fair Credit Reporting Act, the Homeowners Protection Act, 12 U.S.C. Section 1831d(a), the USA PATRIOT Act, the Bank Secrecy Act and the Community Reinvestment Act (and, with respect to the Community Reinvestment Act, currently has rating of “Satisfactory” or better).

(d) There are no Actions pending or, to the Knowledge of Bank, threatened against or involving Bank or its Affiliates or, to the Knowledge of Bank, any of its or their present or former directors, officers, employees, consultants, agents or stockholders as such, or any of its or their properties, assets or business or any Bank Plan (i) that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Bank or materially impair the ability of Bank to perform its obligations hereunder or prevent or materially delay the consummation of the transactions contemplated hereby, or (ii) relating to the transactions contemplated by this Agreement.

(e) To the Knowledge of Bank, Bank is not the subject of any audit or investigation by any Government Entity other than routine bank examinations in the ordinary course of business.

Section 3.10 Certain Agreements .

(a) Except as set forth in Section 3.10(a) of the ICB Letter, Bank is not a party to or bound by:

(i) any Contract which would be considered a “material contract” (as such term is defined in Item 601(b)(10) of Regulation S-K under the Securities Exchange Act of 1934);

(ii) any Contract which purports to limit or restrict the manner or localities in which Bank may conduct business or the types or lines of business in which it may engage, or any Contract which obligates Bank to extend most-favored nation pricing or other rights to any Person, or any Contract imposing exclusivity obligations on Bank or imposing obligations on Bank with respect to non-solicitation provisions;

(iii) any Contract which requires any payment by Bank in excess of $50,000 in any year or which requires any payment to Bank in excess of $100,000 in any year, in each case other than extensions of credit made by Bank; and, with respect to each such Contract, Bank’s good faith estimate of the breakage costs, if any;

(iv) any Contract relating to the purchase, sale, lease, remodeling or refurbishing of real property;

(v) any Contract the primary purpose of which is to provide for the indemnification or guaranty of the obligations of any Person by Bank;

(vi) any Contract with any current or former employee of Bank or with any Related Person involving aggregate payments to or from Bank in excess of $50,000;

(vii) since January 1, 2016, any Contract relating to the acquisition or disposition of any business (whether by merger, sale or purchase of stock or assets or otherwise);

(viii) any settlement Contract which affects the current or future conduct of Bank’s business or under which future payments are required to be made by Bank;

(ix) any Contract which provides for, or relates to, the incurrence by Bank of indebtedness for or the guaranty of borrowed money (including any interest rate or non-U.S. currency swap, cap, collar, hedge or insurance agreements, commodity swaps or options, forwards, or futures or derivatives or futures on such agreements, or other similar agreements for the purpose of managing the interest rate and/or non-U.S. exchange risk associated with its financing), other than deposit account arrangements (other than deposit arrangements characterized as brokered deposits under applicable FDIC regulations) and ordinary course trade payables and accrued expenses;

(x) any joint venture, partnership, limited liability company or other similar agreements or arrangements relating to the formation, creation, operation, management or control of any partnership or joint venture material to Bank;

(xi) any Contract with a Governmental Entity;

(xii) any Contract pursuant to which Bank is obligated to repurchase any loan agreement, note or borrowing arrangement; or

(xiii) any other Contract that is material to the business, assets, liabilities, financial condition or results of operations of Bank.

(b) Bank has previously made available to ANC complete and correct copies of each Contract of the type described in this Section 3.10 which was entered into prior to the date hereof. All Contracts of the type described in this Section 3.10 shall be referred to as “ Bank Contracts ” regardless of whether they were entered into before or after the date hereof. Section 3.10(b) of the ICB Letter lists the consent or approval of each counterparty to a Bank Contract which is required in connection with the execution of this Agreement by Bank or the consummation of the transaction contemplated hereby.

(c) All of Bank Contracts are valid and in full force and effect (except those which are canceled, rescinded or terminated after the date hereof in accordance with their terms), except where the failure to be in full force and effect would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Bank. No Person is challenging the validity or enforceability of any Bank Contract. Bank and, to the Knowledge of Bank, none of the other parties thereto, is in breach of any provision of, or committed or failed to perform any act which (with or without notice or lapse of time or both) would constitute a default under the provisions of, any Bank Contract.

Section 3.11 ERISA .

(a) Section 3.11(a) of the ICB Letter sets forth an accurate and complete list of (i) all “employee benefit plans” (within the meaning of Section 3(3) of ERISA) and (ii) any other material employee benefit plan, program, payroll practice, policy, employment-related Contract, trust, understanding or arrangement of any kind, whether written or oral, including any pension, retirement, profit-sharing, thrift, deferred compensation, severance, change in control, retention, incentive, equity or equity-based compensation, performance, bonus, vacation or holiday pay, sick pay, sick leave, hospitalization or other medical, disability, life, accident or other program or insurance, or other welfare, retiree welfare or benefit plan, to which either ICB or Bank maintains, sponsors, contributes to, participates in or pursuant to which it may be required to make any payment at any time for the benefit of any current or former employee, officer or director (or their beneficiaries), or with respect to which ICB or Bank has any current or contingent liability or obligation (collectively, “ Bank Plans ”). For purposes of this Agreement, “ ERISA Affiliate ” means, with respect to any Person, any trade or business (whether or not incorporated) which is under common control or would be considered a single employer with such Person pursuant to Section 414(b), (c), (m) or (o) of the Code and the rules and regulations promulgated under those sections or pursuant to Section 4001(b) of ERISA and the rules and regulations promulgated thereunder.

(b) With respect to each Bank Plan, to the extent applicable, ICB has made available to ANC a true and correct copy of (i) the three (3) most recent annual reports (Form 5500) filed with the United States Department of Labor and audited financial statements and schedules, (ii) the three (3) most recent actuarial reports, (iii) each such Bank Plan that has been reduced to writing and all amendments thereto, (iv) each trust, insurance or administrative Contract relating to each such Bank Plan, (v) a written summary of each unwritten Bank Plan, (vi) the most recent summary plan description and summary of material modifications or other written explanation of each Bank Plan provided to participants or beneficiaries, (vii) the most recent determination letter or opinion letter issued by the IRS with respect to any Bank Plan intended to be qualified under Section 401(a) of the Code, and (viii) all correspondence with the IRS, the Department of Labor, the SEC or Pension Benefit Guaranty Corporation or any other Governmental Entity relating to any past or current controversy, investigation or audit. ICB and Bank represent and warrant that neither Bank nor any ERISA Affiliate sponsors or participates in, or in the past six (6) years has participated in, a “multiple employer plan” within the meaning of Section 413(c) of the Code or any plan that is subject to the minimum funding standards of Section 412 or 4971 of the Code or Section 302 of ERISA or to Title IV of ERISA. Each Bank Plan complies, and has been operated and administered to comply, in all material respects, with its terms and the Employee Retirement Income Security Act of 1974 (“ ERISA ”), the Code and any other applicable Law. There are no actions, suits or claims (other than routine claims for benefits) pending or, to Bank’s Knowledge, threatened involving any Bank Plan or the assets of any Bank Plan.

(c) All contributions or payments required to be made to each Bank Plan have been timely made in all material respects and all obligations in respect of each Bank Plan have been properly accrued and reflected on Bank’s financial statements.

(d) Neither Bank nor any of its ERISA Affiliates currently maintains, contributes to or has any liability under or, at any time in the past six (6) years has maintained, contributed to or had any liability under, a “multiemployer plan” (as defined in Section 3(37) of ERISA).

(e) With respect to the Bank Plans, no event or set of circumstances has occurred and, to Bank’s Knowledge, there exists no condition or set of circumstances in connection with which Bank or any Bank Plan fiduciary could be subject to any liability under the terms of such Bank Plans, ERISA, the Code or any other applicable Law. Each Bank Plan that is intended by its terms to be, or is otherwise treated by Bank as, qualified under Section 401(a) of the Code has been the subject of a favorable determination letter from the IRS or with respect to a prototype plan, can rely on an opinion letter from the IRS to the prototype sponsor, to the effect that such Bank Plan is so qualified, and that such Bank Plan and the trust related thereto are exempt from federal income Taxes under Section 401(a) and 501(a), respectively, of the Code. To Bank’s Knowledge, no event has occurred relating to any such Bank Plan that would adversely affect its qualification or materially increase its costs. Each of the Bank Plans is subject only to the Laws of the United States or a political subdivision thereof.

(f) Neither Bank nor any ERISA Affiliate has any liability or obligation under any Bank Plan or otherwise to provide post-employment or retiree benefits to or in respect of any former employee or any other Person other than as specifically required by Section 4980B of the Code, Part 6 of ERISA or other applicable Law (“ COBRA ”). Neither Bank nor any ERISA Affiliate has any liability of any kind whatsoever, whether known or unknown, direct, indirect, contingent or otherwise, on account of a violation of the health care requirements of Section 4980B or 4980D of the Code or Part 6 or 7 of Subtitle B of Title I of ERISA. With respect to any Bank Plan that is an employee welfare benefit plan, no such Bank Plan is unfunded or funded through a “welfare benefits fund” (as such term is defined in Section 419(e) of the Code).

(g) To Bank’s Knowledge, there are no nonexempt prohibited transactions within the meaning of Section 4975 of the Code or Section 406 of ERISA with respect to any Bank Plan that has occurred that would give rise to material liability on the part of Bank, any officer of Bank or any of the Bank Plans under Section 502(i) of ERISA or Section 4975 of the Code or otherwise and, to the Bank’s Knowledge, no breaches of fiduciary duty have occurred with respect to any Bank Plan which may give rise to material liability on the part of Bank under Sections 409 or 502(l) of ERISA or otherwise.

(h) With respect to each Bank Plan that is a “non-qualified deferred compensation plan” within the meaning of Section 409A(d)(1) of the Code and is subject to Section 409A of the Code, (i) the written terms of such Bank Plan is in compliance, in all material respects, with, and (ii) such Bank Plan has been operated in all material respects in compliance with Section 409A of the Code, the regulations promulgated thereunder and all applicable guidance thereunder. Neither Bank nor any of its Affiliates has any obligation to provide any gross-up payment to any individual with respect to any Tax obligation under Section 409A of the Code.

(i) No amount that could be received, whether in cash or property or the vesting of property, as a result of any transaction contemplated hereby by any employee, officer or director of Bank or any of its Affiliates who is a “disqualified individual,” as such term is defined in Treasury Regulation Section 1.280G-1, under any Bank Plan, either alone or together with any other event, could be characterized as an “excess parachute payment,” as defined in Section 280G of the Code, or would constitute an “excess parachute payment” if such amount were subject to the provisions of Section 280G of the Code. No Person is entitled to a gross-up payment from Bank as a result of the imposition of a Tax under Section 4999 of the Code.

(j) Except as set forth in Section 3.11(j) of the ICB Letter, the execution, delivery and performance by Bank of this Agreement do not, and the consummation of the transactions contemplated hereby and compliance with the terms hereof (whether alone or in connection with any subsequent other event(s)) will not, (i) entitle any employee, officer or director of Bank to any severance, transaction bonus, change in control, retention or other payment pursuant to any Bank Plan, (ii) accelerate the time of payment or vesting or trigger any payment or funding, through a grantor trust or otherwise, of compensation or benefits under, increase the amount payable or trigger any other material obligation pursuant to, any Bank Plan, or (iii) result in any breach or violation of, or a default under, any Bank Plan.

(k) Bank at all times has reserved the right and power to terminate, suspend, discontinue and amend all Bank Plans, and such right and power have been appropriately and satisfactorily communicated to all employees and participants.

(l) All Bank Plans sponsored by ICB or other ERISA Affiliate (a “ ICB Plan ”) in which Bank employees or directors participate shall remain with ICB or other ERISA Affiliate or be terminated prior to the Closing. In no event shall any Bank employee participate in a ICB Plan at or after the Closing, and ICB and any other applicable ERISA Affiliate shall retain sole responsibility and any liability for such ICB Plans.

Section 3.12 Compliance with Worker Safety and Environmental Laws . To the Knowledge of Bank, the properties (including, without limitation, OREO), assets and operations of Bank are in material compliance with all applicable federal, state, local and foreign Laws, rules and regulations, Orders, permits and licenses relating to public and worker health and safety (collectively, “ Worker Safety Laws ”) and the protection and clean-up of the environment and activities or conditions related thereto, including those relating to the generation, handling, disposal, transportation or release of hazardous materials (collectively, “ Environmental Laws ”). To the Knowledge of Bank, with respect to such properties, assets and operations, including any previously owned, leased or operated properties, assets or operations, there are no events, conditions, circumstances, activities, practices, incidents, actions or plans of Bank that may materially interfere with or prevent material compliance or continued compliance with applicable Worker Safety Laws and Environmental Laws. To the Knowledge of Bank, no real estate collateral securing any Bank Loan is in violation of any Worker Safety Laws or Environmental Laws.

Section 3.13 Labor Matters . Bank is not a party to, bound by, or subject to any collective bargaining agreement or any similar Contract, work rules or practices with any labor union or similar organization. There are no pending or, to the Knowledge of Bank, threatened, and there have not been at any time in the previous two (2) years, any labor strikes, disputes, slowdowns, stoppages or union organizing efforts. Bank is in material compliance with all applicable Laws pertaining to employment and employment practices, terms and conditions of employment, employment classification, wages and hours of work (including all state and federal requirements regarding compensation for time worked, maximum hours of work, child labor restrictions, overtime, meal and rest periods, proper payment of bonuses and commissions, compliant record-keeping practices and timely payment of wages), discrimination in employment, affirmative action obligations, equal employment opportunity, immigration and work authorization, leaves, reasonable accommodations, whistleblower, facility closures and layoffs (including the WARN Act), occupational safety and health, workers’ compensation, unemployment compensation, confidentiality, labor relations and collective bargaining, and is not liable for any arrears of wages or any Taxes or penalties for failure to comply with any of the foregoing. There are no Actions against Bank pending, or to the Knowledge of Bank, threatened to be brought or filed, by or with any Governmental Entity or arbitrator in connection with the employment of any current or former employee of Bank, including, without limitation, any claim relating to unfair labor practices, employment discrimination, harassment, retaliation, equal pay, employment classification or any other employment related matter arising under applicable Laws. To Bank’s Knowledge, the employment of any terminated former employee of Bank has been terminated in material compliance with any applicable Contract terms and Laws, and Bank has no liability under any such Contract or Laws toward any such terminated employee.

Section 3.14 Intellectual Property .

(a) Bank owns or has a valid right to use all trademarks, trade names, service marks, domain names, copyrights and any applications and registrations for any of the foregoing, trade secrets, know-how, technology, computer software and other tangible and intangible proprietary information and intellectual property rights (collectively, “ Intellectual Property Rights ”), as are necessary to conduct the business of Bank as currently conducted. To the Knowledge of Bank, Bank has not infringed, misappropriated or violated in any material respect any Intellectual Property Rights of any Person. To the Knowledge of Bank, no Person infringes, misappropriates or violates, in any material respect, any Intellectual Property Rights owned or exclusively licensed by or to Bank.

(b) As of the date of this Agreement, there are no Actions pending or, to the Knowledge of Bank, threatened that challenge or question the Intellectual Property Rights of Bank.

Section 3.15 Properties and Assets .

(a) Section 3.15(a) of the ICB Letter contains a description of each real property owned by Bank (including OREO), showing the record title holder, permanent index (tax) number and common address (the “ Owned Properties ”).

(b) The Owned Properties and the properties leased by Bank pursuant to the Contracts set forth in paragraph (iv) of Section 3.10(a) of the ICB Letter constitute all of the real estate on which Bank maintain its facilities or conduct its business or otherwise owns.

(c) Section 3.15(c) of the ICB Letter contains a description of all material tangible assets (other than real estate) owned by Bank and that were obtained, directly or indirectly, pursuant to any enforcement of any Encumbrances or the exercise of any other rights or remedies of Bank under any Bank Loan.

(d) Bank has good and marketable title to or, in the case of leased property and leased tangible assets, a valid leasehold interest in, all of Bank’s real properties and other material tangible assets, free and clear of all Encumbrances, except those Encumbrances for Taxes not yet due and payable and such other Encumbrances or minor imperfections of title, if any, that do not materially detract from the value or materially interfere with the present use of the affected property or asset. Such properties and assets, together with all properties and assets held by Bank under leases or licenses and all Intellectual Property Rights held by Bank include all tangible and intangible property, assets, Contracts and rights necessary or required for the operation of the business of Bank as presently conducted.

Section 3.16 Bank Loans .

(a) Section 3.16(a) of the ICB Letter sets forth a complete and accurate list of each loan or other commitment to make a loan and any other contingent exposures (such as letters of credit) on Bank’s books and records as of the date of this Agreement (collectively, the “ Bank Loans ”). Each Bank Loan (i) was made and has been serviced in the ordinary course of business in all material respects, unless specifically noted in Section 3.16(a) of the ICB Letter, (ii) is evidenced by appropriate and sufficient documentation, (iii) to the extent underwritten as secured, has been secured by valid Encumbrances which have been perfected and provide Bank with its anticipated priority as a secured lender, and (iv) constitutes, to the Knowledge of Bank, the legal, valid and binding obligation of the obligor named therein, enforceable in accordance with its terms in all material respects (except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar Laws of general applicability relating to or affecting creditors’ rights or by general equity principles) and is in full force and effect. Bank has previously made available to ANC complete and correct copies of its lending policies. The loan agreements and lending policies of Bank are in compliance in all material respects with all applicable Laws. Each Bank Loan has been solicited and originated, and is currently serviced, in accordance in all material respects with all applicable Laws. Notwithstanding the foregoing, no representation contained in this Section 3.16 shall be construed as a guarantee of the collectability of the Bank Loans, the sufficiency of the collateral securing any Bank Loan, or the realizable value of any of Bank’s assets.

(b) Section 3.16(b) of the ICB Letter discloses as of the end of the month immediately preceding the date of this Agreement (i) any Bank Loan under the terms of which the obligor is more than 30 days delinquent in payment of principal or interest, or to the Knowledge of Bank, in default of any other provision thereof (each a “ Delinquent Loan ”), (ii) each Bank Loan which has been classified as “other loans specially mentioned,” “classified,” “criticized,” “substandard,” “doubtful,” “credit risk assets,” “watch list assets” or “loss” (or words of similar import) by Bank or any Governmental Entity (the “ Classified Loans ”), (iii) a listing of the real estate owned, acquired by foreclosure or by deed-in-lieu thereof or in the process of being so acquired, including the book value thereof (the “ OREO ”), (iv) each item of personal property acquired from Bank Loan customers, and (v) each Bank Loan with any Related Person. All Bank Loans which are classified as loans to insiders under Regulation O have been made by Bank in an arms-length manner made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other Persons and do not involve more than normal risk of collectability or present other unfavorable features in comparison to Bank’s other loans, and are otherwise in compliance with the requirements of Regulation O.

(c) Bank shall promptly after the end of each month after the date hereof and immediately prior to Closing notify ANC in a written report of the amount of Delinquent Loans and Bank Loans subject to each type of classification of the Classified Loans as of the end of such month.

(d) Set forth on Section 3.16(d) of the ICB Letter is a complete and accurate list, as of December 31, 2018, of all Bank Loans which are subject to any purchased or sold participation or any similar Contract, including a description of each such participation or Contract, and all Contracts relating thereto have been made available to ANC (collectively, the “ Participation Contracts ”).

(e) Set forth on Section 3.16(e) of the ICB Letter is a complete and accurate list, as of December 31, 2018, of all Bank Loans which are not serviced by Bank, including a description of each Contract relating to such servicing (collectively, the “ Servicing Contracts ”).

(f) Bank has made available to ANC true and correct copies of the loan files related to Bank Loans. Such files contain, in all material respects, all of the documents and instruments relating to Bank Loans.

(g) All payments made on Bank Loans have been and will be properly credited to the respective Bank Loan.

(h) The allowance for loan losses reflected in the Bank Financial Statements was prepared in accordance with the requirements of GAAP, consistently applied with Bank’s past practices and, to the Knowledge of Bank, adequately provides, in all material respects, for possible losses on loans (including accrued interest receivable) and credit commitments (including stand-by letters of credit) outstanding as of the respective dates of such Bank Financial Statements. All charge-offs, write-downs and valuations of other real estate owned reflected in such Bank Financial Statements were established in accordance with the requirements of GAAP, consistently applied with Bank’s past practices and applicable regulatory requirements, and properly reflect the loss incurred on Bank Loans (including accrual interest receivable) outstanding as of the respective dates of such Bank Financial Statements. The representations made in this Section 3.16(h) do not constitute a guaranty of collectability of a Bank Loan or as to the sufficiency of collateral securing any Bank Loan.

(i) As to each Bank Loan that is secured, whether in whole or in part, by a guaranty of the United States Small Business Administration (“ USSBA ”) or any other Governmental Entity, to the Knowledge of Bank, such guaranty is in full force and effect, and the consummation of the transactions contemplated by this Agreement will not result in the occurrence of any breach, default or forfeiture of rights under such guaranty, or require the consent, approval, or act of, or the making of any filing with, any Governmental Entity. Section 3.16(i) of the ICB Letter sets forth any material exceptions to USSBA requirements of any such Bank Loan, and the most recent USSBA report with respect to Bank Loans in liquidation status.

Section 3.17 Deposits .

(a) Section 3.17(a) of the ICB letter sets forth a complete and accurate list, as of December 31, 2018 of all Bank deposits (the “ Bank Deposits ”).

(b) Bank Deposits were solicited, opened, extended or made and have been maintained and currently exist in compliance, in all material respects, with all applicable requirements of Laws.

(d) Bank Deposits are insured by the FDIC in accordance with the Federal Deposit Insurance Act to the fullest extent permitted by Law. To the Knowledge of Bank, there is no action by the FDIC to terminate Bank’s deposit insurance. Bank has paid all premiums and assessments and has duly, timely and accurately filed all reports required to be paid or filed by it with the FDIC or any other applicable bank regulatory authority.

(e) None of the Bank Deposits are subject to or were acquired through the Certificate of Deposit Account Registry Service (" CDARS Deposits ") or similar pass-through FDIC insured product.

(f) Except as set forth in Section 3.17(f) of the ICB Letter, Bank has posted debit card transactions, including point of sale and ATM transactions, checks and any other form of transfer to the accounts of its customers in chronological or "real time" order as the transactions were presented to Bank and such posting order has been used by Bank since no later than January 1, 2016.

Section 3.18 Investment Portfolio .

(a) Section 3.18(a) of the ICB letter sets forth a complete and accurate list, as of December 31, 2018, of all investments owned by Bank (the “ Investments ”), including (i) the fair market value of each such investment as passed upon by an independent third-party valuation agency, and (ii) the rating, if any, of each such investment as passed upon by the ratings agency of Standard & Poor’s or Moody’s Investor Service.

(b) Except as set forth in Section 3.18(b) of the ICB Letter, Bank owns the Investments free and clear of any Encumbrance.

(c) Bank shall promptly after the end of each month after the date hereof and immediately prior to Closing deliver to ANC a current report of securities and pledged securities.

Section 3.19 Interest Rate Risk Management Instruments . Except as set forth in Section 3.19 of the ICB Letter, Bank has not entered into or is subject to any interest rate swaps, caps, floors, option agreements or other interest rate risk management arrangements or any other derivative instruments, including without limitation, currency, commodity, futures and options (collectively, “ Interest Rate Instruments ”), whether entered into for the account of Bank or for the account of any customer of Bank. All such Interest Rate Instruments have been entered into in material compliance with applicable Law.

Section 3.20 Other Activities .

(a) Except as set forth in Section 3.20(a) of the ICB letter, after December 31, 2016, neither Bank, or to the Knowledge of Bank, any of its current or former directors, officers or employees serves or has served in a fiduciary capacity, including as a trustee, agent, custodian, personal representative, guardian, conservator or investment advisor, with respect to any account held by Bank.

(b) With respect to all agreements pursuant to which Bank has purchased securities subject to an agreement to repurchase by the seller, if any, Bank has a valid, perfected first lien or security interest in the government securities or other collateral securing the repurchase agreement and, as of the date hereof, the value of such collateral equals or exceeds the amount of the debt secured thereby.

(c) Bank is not a party to any agreement with any individual or group regarding the Community Reinvestment Act (12 U.S.C. 2901 et. seq.) and Bank is not aware of, and Bank has not been advised of, or has any reason to believe that any facts or circumstances exist, which would cause Bank (i) to be deemed not to be in satisfactory compliance with the Community Reinvestment Act, and the regulations promulgated thereunder, or to be assigned a rating for Community Reinvestment Act purposes by federal or state bank regulators of lower than “satisfactory”, or (ii) to be deemed to be operating in violation of the federal Bank Secrecy Act, as amended, and its implementing regulations (31 C.F.R. Part 103), the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56, and the regulations promulgated thereunder (the “ USA PATRIOT Act ”), any sanctions regimes administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“ OFAC ”), or any other applicable anti-money laundering statute, rule or regulation, or (iii) to be deemed not to be in satisfactory compliance with the applicable data privacy, safeguarding, and breach notice requirements for customer information requirements contained in any federal and state privacy laws and regulations, including in Title V of the Gramm-Leach-Bliley Act of 1999 and regulations promulgated thereunder, as well as the provisions of the information security program adopted by Bank pursuant to 12 C.F.R. Part 364. Furthermore, the Bank Board has adopted and Bank has implemented (i) an anti-money laundering program that contains adequate and appropriate customer identification verification procedures that has not been deemed ineffective by any Governmental Entity and that meets the requirements of Sections 352 and 326 of the USA PATRIOT Act, (ii) an OFAC sanctions compliance program, and (iii) a data privacy and safeguarding program under applicable federal requirements.

(d) Except as set forth in Section 3.20(d) of the ICB Letter, none of Bank nor any of its directors, officers or employees is required to be registered, licensed or authorized under any applicable Laws or industry requirements as an investment adviser, a broker or dealer, an insurance or mortgage agent, agency or company, a commodity trading adviser, a commodity pool operator, a futures commission merchant, an introducing broker, a registered representative or associated person, investment adviser, representative or solicitor, a counseling officer, a sales person, a real-estate agent or in any similar capacity with a Governmental Entity or industry regulator.

Section 3.21 Transactions with Affiliates . Except as set forth in Section 3.21 of the ICB Letter, there are no outstanding loan amounts payable to or receivable from, or advances by Bank to, and Bank is not otherwise a creditor or debtor to, any Related Person or employee of Bank, other than as part of the normal and customary terms of such persons’ employment or service as a director with Bank. All Contracts between Bank and any of its Affiliates, or any Related Persons or any employees, comply, to the extent applicable, with Regulation O.

Section 3.22 Regulatory Approvals . To the Knowledge of Bank, there is no reason relating to Bank or any of its Affiliates that the Specified Regulatory Approvals should not be obtained in a prompt and timely manner.

Section 3.23 Insurance . Bank has made available to ANC prior to the date of this Agreement copies of all insurance policies which are maintained by Bank which names Bank as an insured (or loss payee), including those which pertain to Bank’s assets, directors, employees or operations. All such insurance policies are in full force and effect and all premiums due thereunder have been paid. Bank has not received notice of cancellation or default under any such policy or notice of any pending or threatened termination or cancellation, coverage limitation or reduction or material premium increase with respect to any such policy. Bank is not in breach of, or default under, any such insurance policy. There is no material claim by Bank pending under any such insurance policy covering the assets, business, equipment, properties, operations, employees, officers or directors of Bank or any of its Affiliates as to which coverage has been questioned, denied or disputed by the underwriters of such policies. Bank has given all required notices under each such policy to the applicable underwriter (or underwriter’s representative).

Section 3.24 Brokers . No broker, investment banker or other Person is entitled to any broker’s, finder’s or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Bank or ICB or any of their Affiliates.

Section 3.25 Environmental Matters . Bank is in compliance in all material respects, and has been in compliance in all material respects since January 1, 2016, with any Law or Order relating to (i) the protection or restoration of the environment, health and safety as it relates to hazardous substance exposure or natural resource damages, (ii) the handling, use, presence, disposal, release or threatened release of, or exposure to, any hazardous substance, or (iii) noise, order, wetlands, indoor air, pollution, contamination or any injury to persons or property from exposure to any hazardous substance (collectively “ Environmental Laws ”). There are no legal, administrative, arbitral or other proceedings, claims or actions, any private environmental investigations or remediation activities or governmental investigations of any nature seeking to impose, or that could be reasonably expected to result in the imposition, on Bank of any liability or obligation arising under any environmental Law, pending or, or to the Knowledge of Bank, threatened against Bank, which liability or obligation would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on Bank. To the Knowledge of Bank, there is not reasonable basis for any such proceeding, claim, action or governmental investigation that would impose any liability or obligation that would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on Bank.

Section 3.26 Disclosure . To the Knowledge of Bank, no representation or warranty or other statement made by ICB or Bank in this Agreement, the ICB Letter, the certificates delivered pursuant to this Agreement contains, or will contain, any untrue statement of material fact or omits or will omit to state any material fact necessary to make the statements contained herein or therein, in light of the circumstances under which it was or will be made, not misleading.

ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS

Section 4.1 Conduct of Business .

(a) During the period from the date of this Agreement through the Closing Date, Bank shall, and ICB shall cause Bank to, conduct its business in the ordinary course of business consistent with past practice and use commercially reasonable efforts to preserve intact its current business organization, keep available the services of its current officers and employees and use commercially reasonable efforts to preserve its relationships with customers, suppliers and others having business dealings with it to the end that its goodwill and ongoing business shall be materially unimpaired at the Closing Date.

(b) Unless such action is taken in the ordinary course of business consistent with past practice, Bank shall not, and ICB shall cause Bank to not, without the prior written consent of ANC:

(i) (A) declare, set aside or pay any dividends on, or make any other actual, constructive or deemed distributions in respect of, any of its capital stock, or otherwise make any payments to its stockholders in their capacity as such, except that Bank may continue to pay ordinary dividends to ICB consistent with past practice, (B) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, or (C) purchase, redeem or otherwise acquire any shares of its capital stock or any other securities thereof or any rights, warrants or options to acquire, any such shares or other securities;

(ii) authorize for issuance, issue, deliver, sell, pledge, dispose of, grant, transfer or otherwise encumber any shares of its capital stock, any other voting securities or equity equivalent or any securities convertible into or exchangeable for, or any rights, warrants or options to acquire, any such shares, voting securities, equity equivalent or convertible or exchangeable securities, including granting or issuing any new or additional stock appreciation rights;

(iii) amend the Bank Articles or the Bank Bylaws or alter (through merger, liquidation, reorganization, restructuring or in any other fashion) the corporate structure or ownership of Bank;

(iv) materially change its interest rate or fee pricing policies with respect to Bank Deposits or Bank Loans except in situations where Bank determines doing so is reasonably necessary to help retain a customer relationship that, due to competitive market factors or the announcement of this Agreement, may not otherwise be retained subject to restrictions as outlined below in Sections 4.1( b )(v) and (vi) ;

(v) amend, terminate, waive or modify any of the terms of any Bank Deposit in excess of $250,000;

(vi) (A) enter into any new line of business or product marketing campaign which is inconsistent with past practices with regard to pricing, (B) amend, modify or waive its lending, mortgage servicing process, investment, underwriting, risk and asset liability management, loan, personnel, risk management or other banking and operating policies, (C) make any underwriting exceptions in making or renewing any consumer loans, except as required by applicable Laws and in compliance with existing Bank policies and procedures, (D) introduce any new loan or credit products or (E) make any of the Bank Deposits into new account CDARS Deposits;

(vii) subject to clauses (iv), (v) and (vi) above, fail to make additional extensions of credit in the ordinary course of business consistent with past practices (subject to Bank’s customary credit qualifications and underwriting practices);

(viii) close, sell, consolidate, or relocate any of Bank’s branches;

(ix) make any material change, except those required to maintain integrity of the systems or to protect against cyber-attacks (the aggregate cost of which is not to exceed $100,000) in any information technology system utilized by Bank;

(x) sell, transfer, lease, license (as licensor of Intellectual Property Rights of Bank) mortgage, encumber or otherwise dispose of any of its properties or assets, except those not material to Bank;

(xi) acquire, lease (as lessee) or sell or lease (as lessor) any real property other than the disposition of OREO;

(xii) (A) incur, assume or modify any indebtedness for borrowed money, guarantee, endorse or otherwise become liable or responsible for (whether directly, contingently or otherwise) any such indebtedness or other obligations of another Person or make any loans or advances (other than Bank Loans) or capital contributions to, any other Person, other than borrowings by Bank from the Federal Home Loan Bank of Des Moines with maturities not exceeding three months, (B) issue or sell any debt securities or warrants or other rights to acquire any debt securities of Bank, (C) enter into any “keep well” or other agreement to maintain any financial statement condition of another Person or (D) enter into any arrangement having the economic effect of any of the foregoing;

(xiii) terminate without cause the employment of or hire any employee whose annual compensation exceeded or is reasonably expected to exceed $60,000 annually;

(xiv) knowingly violate or knowingly fail to perform any material obligation or duty imposed upon Bank by any applicable Law;

(xv) make or adopt any material change to its (A) credit, loan or risk policies, (B) methodology for determining its allowance for loan and lease losses (except as may be required by any Law or any directive of any Governmental Entity), or (C) its accounting methods, practices, or policies (other than actions required to be taken by GAAP);

(xvi) make any material change in internal control over financial reporting;

(xvii) enter into or amend any Contract (A) that would, after the Closing Date, restrict ANC or any of its Affiliates (including Bank) with respect to engaging in any line of business or in any geographical area, or (B) that contains exclusivity, most favored nation pricing or other provisions or non-solicitation provisions;

(xviii) waive or release any material right or claim or pay, discharge or satisfy any material claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction, in the ordinary course of business consistent with past practice and applicable Bank policies or in accordance with their terms, of liabilities reflected or reserved against in the most recent Bank interim financial statement prior to the date hereof or incurred in the ordinary course of business consistent with past practice;

(xix) initiate, settle or compromise any Action; or

(xx) authorize, recommend, propose or announce an intention to do any of the foregoing or enter into any Contract to do any of the foregoing.

(c) Except as otherwise expressly contemplated by this Agreement or as set forth in Section 4.1(c) of the ICB Letter, Bank shall not, and ICB shall cause Bank to not, without the prior written consent of ANC which will not be unreasonably withheld:

(i) where the total credit exposure in the aggregate to any single borrower or group of related borrowers is in excess of $250,000 (A) enter into or approve any new Bank Loan, or (B) enter into or approve any renewal, modification, extension of maturity, alteration or waiver of any of the material terms;

(ii) enter into, purchase or sell any new loan participations (including, without limitation, any participations involving Affiliates of Bank), except Bank may sell participations as necessary to comply with its legal lending limitations;

(iii) purchase or invest in any securities or other Investments other than United States Treasury securities with a maturity of two (2) years or less;

(iv) (A) acquire or agree to acquire by merging or consolidating with, by purchasing a substantial portion of the assets of or equity in or by any other manner, any business or any corporation, limited liability company, partnership, association or other business organization or division thereof or otherwise acquire, or agree to acquire, any assets other than assets acquired in the ordinary course of business consistent with past practice and not material to Bank, or (B) make or agree to make any new capital expenditure or expenditures which, individually, is in excess of $25,000 or, in the aggregate, are in excess of $100,000;

(v) except as required to implement the transactions contemplated by this Agreement, pursuant to existing agreements with Bank officers or employees (A) grant, increase or accelerate the vesting or payment of, or announce or promise to grant, increase or accelerate the vesting or payment of, any compensation or benefits payable or to become payable to its directors, officers or employees, including any increase or change pursuant to any Bank Plan, except in a manner which is consistent with Bank’s normal and customary past practices and except to pay those bonuses to Bank employees as of the Closing Date (as noted in Section 6.11 ) or as required by Law, or (B) or establish, adopt, enter into, amend or take action to enhance or accelerate any rights or benefits under (or promise to take any such action(s)) any agreement, plan or arrangement that would constitute a Bank Plan if it were in existence on the date hereof, in either case except as required by Law or by any written Contract or any Bank Plan in existence on the date hereof;

(vi) fail to ensure that the charge-offs, write-downs and OREO and other Owned Property valuations established on Bank’s books and records between the date hereof and the Closing Date will be established in accordance with the requirements of GAAP consistently applied with Bank’s past practice and regulatory requirements, and will properly reflect the losses incurred on outstanding Bank Loans (including accrual interest receivable);

(vii) prepare or file any Tax Return inconsistent with past practice or, on any such Tax Return, take any position, make any election or adopt any method that is inconsistent with positions taken, elections made or methods used in preparing or filing similar Tax Returns in prior periods, except as required by Law, settle or compromise any claim relating to Taxes, enter into any closing agreement or similar agreement relating to Taxes, otherwise settle any dispute relating to Taxes, or request any ruling or similar guidance with respect to Taxes;

(viii) (A) enter into, amend, modify or terminate any Bank Contract, (B) waive, release or assign any rights under any Bank Contract, or (C) enter into, renew or become subject to any Interest Rate Instrument whether for the account of Bank or any of its customers;

(ix) except for agreements for the sale of Bank automobiles to Bank employees, enter into any material agreement or arrangement with any Related Person; or

(x) except for actions or omissions otherwise permitted by this Agreement, take any action that would reasonably be expected to, or omit to take any action where such omission would reasonably be expected to, prevent, materially delay or impede the consummation of the transactions contemplated by this Agreement.

Section 4.2 No Solicitation . From the date hereof until the earlier of the Closing Date or the date on which this Agreement is terminated in accordance with the terms hereof, ICB shall not, nor shall it permit any of its Affiliates to, nor shall it authorize or permit any Representative of ICB or any of its Affiliates to, directly or indirectly (i) solicit, initiate or knowingly facilitate, induce or encourage the submission of any Acquisition Proposal (as hereinafter defined) or any proposal that could reasonably be expected to lead to an Acquisition Proposal, (ii) enter into any letter of intent, agreement in principle or Contract providing for, relating to or in connection with, any Acquisition Proposal or any proposal that could reasonably be expected to lead to an Acquisition Proposal, (iii) enter into, continue or otherwise participate in any discussions or negotiations with any Third Party with respect to any Acquisition Proposal, or (iv) furnish to any Third Party any information regarding Bank or its Affiliates, or afford access to the properties, books and records of Bank or its Affiliates, to any Third Party in connection with or in response to any Acquisition Proposal. For purposes of this Agreement, “ Acquisition Proposal ” means any transaction or series of related transactions other than the transactions contemplated by this Agreement involving (i) any acquisition or purchase from ICB by any Third Party of any voting securities of Bank, (ii) any tender offer or exchange offer that if consummated would result in any Third Party beneficially owning any voting securities of Bank, (iii) any merger, consolidation, business combination, recapitalization or similar transaction involving Bank, (iv) any sale, lease, exchange, transfer, license, acquisition or disposition of more than 5% of the assets (based on the fair market value thereof) of Bank outside the ordinary course of Bank’s business, or (v) any liquidation or dissolution of Bank. For purposes of this Agreement, “ Third Party ” means any Person or group (as defined under Section 13(d) of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder) other than ANC and its Affiliates.

ARTICLE V
TAX MATTERS

Section 5.1 Tax Covenants.

(a) ICB (and, prior to the Closing, Bank, its Affiliates and their respective Representatives) shall not, to the extent it may affect, or relate to, Bank, make, change or rescind any Tax election, amend any Tax Return or take any position on any Tax Return, take any action or enter into any other transaction that would result in a material increase of the Tax liability or material reduction of any Tax asset of ANC or Bank in respect of any Post-Closing Tax Period. ICB agrees that ANC is to have no liability for any Tax resulting from any such action of ICB, Bank, its Affiliates or any of their respective Representatives, and agrees to indemnify and hold harmless ANC (and, after the Closing Date, Bank) against any such Tax or reduction of any Tax asset.

(b) All transfer, documentary, sales, use, stamp, registration, value added and other such Taxes and fees (including any penalties and interest) incurred in connection with this Agreement and the transactions contemplated hereby (including any real property transfer Tax and any other similar Tax) shall be borne and paid by ICB when due. ICB shall, at its own expense, timely file any Tax Return or other document with respect to such Taxes or fees (and ANC shall cooperate with respect thereto as necessary).

(c) ICB shall prepare or cause to be prepared all Tax Returns for ICB and Bank for all Pre-Closing Tax Periods other than the Straddle Periods (as defined in Section 5.1(e) ), and shall timely pay, or cause to be timely paid, all Taxes of ICB and Bank due on such Tax Returns. All such Tax Returns shall be correct and complete and shall be prepared on a basis consistent with the past practice of ICB and Bank. At least thirty (30) days prior to the due date of any such Tax Return (taking into account all applicable extensions), ICB shall cause any such Tax Return to be delivered to ANC for its review and such Tax Return shall not be filed without the written consent of ANC, which consent shall not be unreasonably withheld. The party responsible for filing any such Tax Return shall timely file such Tax Return.

(d) ANC shall prepare and file, or cause to be prepared and filed, any and all other Tax Returns required to be filed by Bank. ICB shall pay (or cause to be paid) to ANC, within thirty (30) days before the date on which Taxes are to be paid with respect to such Tax Returns for a Straddle Period, an amount equal to the portion of such Taxes which relates to the portion of such taxable year ending on the Closing Date owed by ICB pursuant to the provisions of Section 5.1(e) . Subject to the preceding sentence, ANC shall pay (or cause to be paid) all Taxes shown as due and owning on all such Tax Returns. No payment pursuant to this Section 5.1(d) shall excuse ICB from its indemnification obligations pursuant to Section 5.2 if the amount of Taxes as ultimately determined (on audit or otherwise) for the periods covered by such Tax Returns exceeds the amount of ICB’s payment under this Section 5.1(d) .

(e) ICB shall, unless prohibited by applicable Law, close the taxable period of Bank as of the close of business on the Closing Date. If applicable Law does not permit ICB to close Bank’s taxable year on the Closing Date or in any case in which a Tax is assessed with respect to a taxable period which includes the Closing Date (but does not begin or end on that day) (a “ Straddle Period ”), (i) real, personal and intangible property Taxes and similar Taxes (“ Property Taxes ”) shall be apportioned between (A) the period up to and including the close of business on the Closing Date, and (B) the period subsequent to the Closing Date on a daily pro-rata basis, and (ii) all Taxes other than Property Taxes shall be allocated (A) to ICB for the period up to and including the close of business on the Closing Date, and (B) to ANC for the period subsequent to the Closing Date. Any allocation of income or deductions required to determine any Taxes other than Property Taxes attributable to a Straddle Period shall be made by means of a closing of the books and records of Bank as of the close of the Closing Date; provided, that exemptions, allowances or deductions that are calculated on an annual basis (including depreciation and amortization deductions) shall be allocated between the period ending on the Closing Date and the period after the Closing Date in proportion to the number of days in each such period.

Section 5.2 Tax Indemnification . ICB shall be liable for and shall indemnify and hold the ANC Indemnitees (as defined in Section 8.2 ) harmless from and against, and pay to the ANC Indemnitees the amount of, any and all Losses in respect of (i) all Taxes that are imposed on, allocated or attributable to or incurred or payable by ICB or Bank (A) for any taxable period ending on or before the Closing Date, including those Taxes attributable to ICB or Bank under Section 5.1(c) and (d) , (B) that arise under Treasury Regulations Section 1.1502-6 or any similar provision of U.S. state, local or foreign Law with respect to affiliations prior to the Closing, (C) that arise under principles of transferee or successor liability or by contract with respect to transactions occurring prior to the Closing, (D) that are imposed on, allocated or attributable to or incurred or payable by ICB (including capital gains Taxes arising as a result of this Agreement) or any of its Affiliates (excluding Bank) for any taxable period, or (E) for the portion of any Straddle Period ending at the close of business on the Closing Date (determined as provided in Section 5.1(e)) , (ii) the failure to perform any covenant contained in this Article V with respect to Taxes, and (iii) any failure by ICB to timely pay any and all Taxes required to be borne by ICB pursuant to Section 5.1(b) .

Section 5.3 Tax Audits .

(a) If notice of any Action with respect to Taxes of ICB or Bank (a “ Tax Claim ”) shall be received by any party, the first notified party shall notify such other parties in writing of such Tax Claim; provided, however, that the failure of the notified party to give the other parties notice as provided herein shall not relieve such failing party of its benefits or obligations under this Article V except to the extent that the other parties are actually and materially prejudiced thereby.

(b) To the extent such Tax Claim is subject to indemnification by ICB pursuant to Section 5.2 or relates exclusively to taxable periods ending on or before the Closing Date, ICB shall have the right to control the handling and disposition of such Tax Claim (and to employ counsel of its choice at its expense) and ANC shall be entitled to participate in such Tax Claim (and to employ counsel of its choice at its expense). ANC’s right to participate in the handling and disposition of such Tax Claim shall include the right to receive copies of all correspondence from any Tax Authority relating to such Tax Claim, attend meetings and review and comment on submissions relating to any such Tax Claim, and ICB shall consider in good faith any comments provided by ANC with respect thereto. ICB may not settle or compromise any such Tax Claim without the prior written consent of ANC, not to be unreasonably withheld. If ICB does not assume the control of the handling and disposition of such Tax Claim, ANC may assume control of the handling and disposition of such Tax Claim as it may deem appropriate. ANC shall have the right to control, and ICB shall have the right to participate in, the handling and disposition of any other such Tax Claim (and to employ counsel of its choice at its expense) to the extent such Tax Claim might result in an increase in the Tax liabilities as to which ICB is required to indemnify the ANC Indemnified Parties.

Section 5.4 Cooperation and Exchange of Information . ICB and ANC shall provide each other with such cooperation and information as either of them may reasonably request of the other in filing any Tax Return pursuant to this Article V or in connection with any audit or other proceeding in respect of Taxes of Bank. Such cooperation and information shall include providing copies of relevant Tax Returns or portions thereof, together with accompanying schedules, related work papers and documents relating to rulings or other determinations by Tax Authorities. Each of ICB and ANC shall retain all Tax Returns, schedules and work papers, records and other documents in its possession relating to Tax matters of Bank for any taxable period beginning before the Closing Date until the expiration of the statute of limitations of the taxable periods to which such Tax Returns and other documents relate, without regard to extensions except to the extent notified by the other party in writing of such extensions for the respective Tax periods. Prior to transferring, destroying or discarding any Tax Returns, schedules and work papers, records and other documents in its possession relating to Tax matters of Bank for any taxable period beginning before the Closing Date, ICB and ANC (as the case may be) shall provide the other party with reasonable written notice and offer the other party the opportunity to take custody of such materials.

Section 5.5 Allocation of Purchase Price . ICB and ANC acknowledge that the sale of the Bank Stock will be treated as a sale of Bank’s assets by ICB to ANC under the Code. ICB and ANC agree that the Purchase Price (plus other relevant items) shall be allocated among the assets of Bank for income tax purposes as shown on the allocation schedule (the “ Allocation Schedule ”). Within sixty (60) days after the Closing Date, ANC shall prepare and provide the Allocation Schedule to ICB for review and approval. ICB shall be entitled to review, comment on and approve such Allocation Statement for thirty (30) days, and ICB and ANC shall negotiate in good faith with respect to any disagreement on the Allocation Statement. Neither ANC nor ICB shall take any position (whether in audits, Tax Returns or otherwise) that is inconsistent with such finally agreed upon allocation, unless otherwise required by Law. ANC and ICB shall allocate the Purchase Price in accordance with the Allocation Statement and all Tax Returns and reports filed by ANC, ICB and their respective Affiliates shall be prepared consistently with such allocation.

Section 5.6 Termination of Existing Tax Sharing Agreements . Any and all existing Tax sharing agreements (whether written or not) binding upon Bank shall be terminated as of the Closing Date and after such date Bank shall not have any further rights or liabilities thereunder.

Section 5.7 Disputes . Any dispute as to any matter covered in this Article V shall be resolved by the Independent Accountant designated in Section 1.6(c)(iii) . The fees and expenses of the Independent Accountant shall be shared equally between ANC, on the one hand, and ICB, on the other hand.

Section 5.8 Tax Treatment of Indemnification Payments . Any indemnification payments pursuant to this Article V shall be treated as an adjustment to the Purchase Price by the parties for Tax purposes, unless otherwise required by Law.

Section 5.9 Payments to ANC Indemnitees . Any Losses payable by ICB to the ANC Indemnitees pursuant to this Article V shall be satisfied from the Indemnity Escrow Fund established in accordance with Section 8.7(b) and shall not be subject to the Deductible established under Section 8.5(a) .

Section 5.10 Time Limits . Any claim for indemnification under this Article V may be made at any time prior to the date that is eighteen (18) months after the Closing Date.

Section 5.11 Exclusivity . The indemnification provided for in Section 5.2 shall be the sole remedy for any claim in respect of Taxes (excluding, however, any claim arising out of or relating to a breach of Section 3.8 which shall be subject to the general indemnification provisions of Article VIII). In the event of a conflict between the provisions of this Article V, on the one hand, and the provisions of Article VIII, on the other, the provisions of this Article V shall control.

ARTICLE VI
ADDITIONAL AGREEMENTS

Section 6.1 Access to Information .

(a) (i) Bank shall, and ICB shall cause Bank to, afford the officers, employees and authorized representatives of ANC and its Affiliates (including independent public accountants, attorneys and environmental consultants) access upon reasonable notice, during normal business hours, to the employees, vendors, service providers and properties of Bank and physical and electronic access to and copies of all the books, records, Contracts, documents, data reports, Tax Returns and other information in each case relating to Bank or the employees of Bank, and shall furnish to ANC and its Affiliates and their authorized agents and representatives such additional information and access relating to Bank and the employees of Bank as ANC may reasonably request. Bank shall cause its personnel to provide reasonable assistance to ANC in ANC’s investigation of matters relating to Bank and the employees of Bank; provided such assistance does not unreasonably interfere with such personnel’s job duties. Further, ANC, its Affiliates and their authorized agents and representatives (including its environmental consultants) shall be given access, at such reasonable times as agreed to by the parties, to the real property owned by Bank for all reasonable purposes, including, without limitation, conducting, at ANC’s option and sole expense, Phase I environmental site assessments of such real property. No investigation made by ANC or its Affiliates or their representatives hereunder shall affect the representations and warranties of ICB and Bank hereunder.

(b) ANC and Bank shall mutually agree on a weekly date and time to review and discuss applications for Bank Loans exceeding the thresholds set forth in Section 4.1( c )( i ) and any valuation adjustment to OREO in excess of $100,000.

(c) With respect to Bank Loans, between the date of this Agreement and the Closing Date, Bank shall provide to ANC on a monthly basis no later than seven (7) Business Days following the end of each month, a report describing in reasonable detail (i) any Bank Loans which become Delinquent Loans or Classified Loans or any changes in the status of any Delinquent Loans, Classified Loans, restructured loans and such other loans as ANC may identify, including accrual classification, performance status and any charge-offs or recoveries, (ii) any deficiency or shortfall in the escrow account for any Bank Loan, (iii) in the event of a change in the quarterly calculation of the loan and lease loss reserve, and in any event as of the end of the month preceding the month in which the Closing Date is scheduled to occur, an updated calculation of Bank’s allowance for loan and lease losses, together with such supporting documentation as is necessary for ANC to review the accuracy and adequacy of such allowance; (iv) details of any letters of credit issued by Bank, including any changes in amounts outstanding under such letters of credit during the immediately preceding month, (v) any credit reserves, charge-offs, activity (including additions, sales and revaluations) on Bank OREO and other personal property owned, and any Bank Loan that is reclassified; and (vi) a report setting forth any exceptions from Bank’s loan policies with respect to each Bank Loan where the total credit exposure in the aggregate to any single borrower or group of related borrowers is in excess of $250,000.

(d) With respect to the Investments, between the date of this Agreement and the Closing Date, Bank shall provide to ANC on a monthly basis consistent with receipt of third party reports a complete and accurate list of all Investments as of the last day of the immediately preceding month together with the fair market value thereof as of such date, in each case as determined by an independent qualified third party that is not a Related Person.

(e) ICB shall make its tax accountant available to discuss with ANC’s tax accountant, and provide ANC’s tax accountant with copies of ICB’s consolidated Tax Returns for 2017 and, when available, Tax Returns for 2018, together with information related to tax computations and deferred tax calculations utilized in preparing such Tax Returns.

(f) Following execution of this Agreement, ICB and Bank shall assist ANC in obtaining historical loan information that is reasonably available through Bank’s data processing vendor to assist ANC in complying with Accounting Standard Update 2016-13, issued by the Financial Accounting Standards Board in June 2015, Financial Instruments – Credit Losses (Topic 326). Any fees charged by Bank’s data processing vendor for purposes of responding to ANC’s requests shall be paid by ANC.

(g) All information obtained pursuant to this Section 6.1 shall be kept confidential in accordance with the Confidentiality Agreement, dated September 28, 2018, between ICB and ANC (the “ Confidentiality Agreement ”).

Section 6.2 Fees and Expenses . Whether or not the transactions contemplated by this Agreement are consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby, including the fees and disbursements of counsel, financial advisors and accountants, shall be paid by the party incurring such costs and expenses, with ICB being responsible for all such costs and expenses incurred by or on behalf of Bank if the Closing takes place. ICB shall also be solely responsible for payment of any retention arrangements with employees of Bank.

Section 6.3 Reasonable Best Efforts .

(a) Upon the terms and subject to the conditions set forth in this Agreement, each of ANC, Bank and ICB agrees to use reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement, including using reasonable best efforts to accomplish the following (i) the taking of all commercially reasonable acts necessary to cause the conditions precedent set forth in Article VII to be satisfied, (ii) the obtaining of all necessary actions or nonactions, waivers, consents, approvals, Orders and authorizations from Governmental Entities and the making of all necessary registrations, declarations and filings with Governmental Entities (the “ Requisite Regulatory Approvals ”), (iii) the obtaining of all necessary actions or nonactions, waivers, consents, approvals from Persons other than Governmental Entities, including the Required Third Party Consents, and the making of all necessary registrations, declarations and filings with such Persons, (iv) the taking of all commercially reasonable steps as may be necessary to avoid any Action by any Governmental Entity, and (v) obtaining approval of this Agreement and the transactions contemplated hereby by the shareholders of ICB at or prior to Closing.

(b) Notwithstanding anything in this Agreement to the contrary (i) neither ANC nor ICB shall be obligated to contest any final action or decision taken by any Governmental Entity challenging the consummation of the transactions contemplated by this Agreement, (ii) in no event shall ANC or any of its Affiliates be required to offer or pay any consideration or agree to any requirement, restriction, covenant, undertaking, limitation or divestiture of any kind whatsoever as a condition to obtaining the Requisite Regulatory Approvals or in order to avoid, prevent or terminate any action by any Governmental Entity which would restrain, enjoin or otherwise prevent consummation of the transactions contemplated by this Agreement, (iii) ICB shall not, without ANC’s prior written consent, take or agree to take any action described in clause (i) or (ii) immediately above, and (iv) the condition in Section 7.1( b ) shall not be deemed satisfied if any Requisite Regulatory Approval contains any conditions or restrictions other than conditions which impose an immaterial burden on ANC, Bank or any of their Affiliates or assets.

(c) ANC and Bank will, upon request, furnish the other party with all information concerning itself, its Affiliates, directors, officers and stockholders and such other matters as may be reasonably necessary or advisable in connection with any filing, notice or application made by or on behalf of any other party or any of its Affiliates with or to any third party or Governmental Entity in connection with the transactions contemplated hereby.

(d) Each party shall use its reasonable best efforts to not take any action, or enter into any transaction, which would cause any of its representations or warranties contained in this Agreement to be untrue or result in a material breach of any covenant made by it in this Agreement.

Section 6.4 Public Announcements . Neither ANC, Bank nor ICB will issue any press release or publish any notice with respect to the transactions contemplated by this Agreement or otherwise issue any written public statements with respect to such transactions without prior consultation with the other party, except as may be required by applicable Law or by obligations pursuant to any listing agreement with any national securities exchange or the rules thereof. For avoidance of doubt, the disclosure of this Agreement and the transactions contemplated hereby (including the material terms hereof) in connection with the public reporting obligations of ANC under the Securities Exchange Act of 1934 shall not constitute a breach of this Section 6.4 and, to that end, ICB acknowledges that this Agreement will be filed with the Securities and Exchange Commission and thereafter publically available.

Section 6.5 Notification of Certain Matters . ANC shall use its reasonable best efforts to give prompt notice to ICB, and ICB shall use its reasonable best efforts to give prompt notice to ANC, of (i) the occurrence, or nonoccurrence, of any event the occurrence, or nonoccurrence, of which it is aware and which would be reasonably likely to cause (A) any representation or warranty of either party contained in this Agreement to be untrue or inaccurate in any material respect, or (B) any covenant, condition or agreement of either party contained in this Agreement not to be complied with or satisfied in all material respects, (ii) any failure of ANC, ICB or Bank, as the case may be, to comply in a timely manner with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder, and (iii) any change, event or effect which individually or in the aggregate, would be reasonably expected to have a Material Adverse Effect on Bank or on ANC, as the case may be. The delivery of any notice pursuant to this Section 6.5 shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice.

Section 6.6 Employees and Benefit Plans .

(a) ICB and Bank acknowledge and agree that ANC shall be entitled to determine in its discretion which employees of Bank shall be continued as employees of Bank following the Closing Date and which employees may be terminated. Nothing in this Agreement shall be interpreted as limiting the power of ANC to cause Bank to offer to continue the employment of any employee or the engagement of any independent contractor of Bank. Nothing herein shall be deemed to be a guarantee of employment for any employee of Bank, or to restrict the right of Bank to terminate or cause to be terminated the employment of any such employee at any time for any or no reason with or without notice. ANC and Bank acknowledge and agree that all provisions contained in this Section 6.6 are included for the sole benefit of ANC and Bank, and that nothing in this Section 6.6 , whether express or implied, shall create any third party beneficiary or other rights (i) in any other Person, including any employees, former employees, any participant in any employee benefit plan, program or arrangement (or any dependent or beneficiary thereof) of Bank, or (ii) to continued employment with ANC or Bank or continued participation in any employee benefit plan, program or arrangement.

(b) Following the Closing Date, ANC shall cause employees of Bank that are retained as employees of Bank to be eligible to participate in any employee benefit plan, program or arrangement maintained by ANC or any of its Affiliates (each such plan, program or arrangement, a “ ANC Plan ”), and shall cause its Affiliates and the applicable ANC Plan to recognize prior service of such employees with Bank as service with ANC and its Affiliates to (i) credit each employee’s service with Bank or any predecessor employers thereto, to the extent credited under the analogous Bank Plan, as service with ANC and its Affiliates for purposes of eligibility and vesting under such ANC Plan, but not for any other purposes, including for purposes of determining benefit accruals or vacation benefits; provided, however, that in no event shall the employees be entitled to any credit to the extent that it would result in duplication of benefits with respect to the same period of service, and (ii) use commercially reasonable efforts to cause any and all pre-existing condition limitations, eligibility waiting periods, active employment requirements and requirements to show evidence of good health under such ANC Plan, to the extent that such conditions, exclusions and waiting periods would have been waived or satisfied under the analogous Bank Plan in which such employee participated immediately prior to the Closing Date, to be waived with respect to such employee and such individual’s spouse and eligible dependents who become participants in such ANC Plan, subject to the conditions, regulations, underwriting criteria or similar provisions imposed by any of ANC’s insurers. ICB acknowledges that ANC currently intends to satisfy the requirements of this Section 6.6(b) as to health, dental and vision insurance by enrolling the former Bank employees who are retained by Bank into ANC Plans as of the Closing Date and providing similar plan terms and options as the current Bank Plans until January 1, 2020, at which time such employees would become subject to the plan terms and entitled to select from the options then currently available to all ANC employees.

(c) Prior to Closing, ICB and Bank shall cooperate with ANC to make suitable arrangements whereby ANC may interview employees of Bank to enable ANC to make decisions regarding staffing levels following the Closing Date.

Section 6.7 Certain Litigation .

(a) ICB shall promptly advise ANC orally and in writing of any Action that could reasonably be expected to have a Material Adverse Effect on Bank, and shall keep ANC reasonably informed on a timely basis regarding any such Action. Each party shall promptly advise the other party orally and in writing of any actual or threatened Action against such party and/or the members of the Bank Board or the ICB Board related to this Agreement or the transactions contemplated by this Agreement.

(b) ICB shall promptly advise ANC orally and in writing of the commencement of any investigation or audit by any Governmental Entity with respect to Bank or any of its directors or employees and shall keep ANC reasonably informed on a timely basis regarding any such investigation or audit (regardless of whether commenced before or after the date of this Agreement), including by promptly delivering to ANC copies of any correspondence relating thereto. ICB shall give ANC the opportunity to consult with ICB regarding such investigation or audit and shall consider ANC’s views with respect to such investigation or audit. The delivery of any notice pursuant to this Section 6.7 shall not limit or otherwise affect the remedies available hereunder to ANC.

Section 6.8 Transition Matters . From and after the Closing Date, ANC and ICB agree to fully cooperate with and assist one another in connection with the transition and conversion of any necessary customer accounts, files (including data processing files) and other information relating to Bank. Each of ANC and ICB also agree to provide each other, upon reasonable prior notice, with such information and data as is necessary to allow ANC and ICB to comply with all accounting, tax, regulatory reporting, payroll, audit or other compliance obligations relating to the customers, employees and operations of Bank, and each of ANC and ICB agree to timely take any and all action required by law to comply with such accounting, tax, regulatory and/or reporting obligations. Additionally, after the Closing, ANC and Bank will provide Karl W. Knock with reasonable access to the historic archives of Bank for personal archive purposes and to such other books and records of Bank as may reasonably be necessary with respect to the assets transferred to ICB pursuant to Section 1.5(d) .

Section 6.9 Real Estate Title Matters . ICB and Bank shall (a) cooperate with ANC and provide such information as ANC may reasonably request from time to time, in connection with any application of ANC for title insurance with respect to any Bank owned real property, and (b) if requested by ANC, furnish abstracts of title for such owned real property, updated at the expense of ICB, that may be examined by ANC at its expense to confirm the status of title. If the examination discloses any Encumbrances or other defects of title objectionable to ANC (other than internal boundary issues related to Bank’s main office location), ANC will advise ICB of the same in writing promptly after receiving the title opinions with respect to such abstracts. As to any material matters to which ANC objects, ICB will take corrective action, at its expense, as is necessary to provide marketable title under Iowa title standards, and work with ANC to obtain an acceptable revised title opinion reflecting that such corrective action has been effective to address the title objection.

Section 6.10 Updates to ICB Letter . ICB and Bank shall promptly supplement, amend and update, as of five (5) Business Days prior to the Closing Date, the ICB Letter with respect to any matters or events hereafter arising which, if in existence or having occurred as of the date of this Agreement, would have been required to be set forth or described in the ICB Letter and including, without limitation, any fact which, if existing or known as of the date of this Agreement, would have made any of the representations or warranties of ICB and Bank contained herein incorrect, untrue or misleading. No such supplement, amendment or update shall become part of the ICB Letter unless ANC shall have first consented thereto in writing.

Section 6.11 Payment or Accrual of Employee Benefits . Prior to the Closing Date, Bank shall determine all deferred compensation, 401(k) contributions, payroll taxes, bonus or incentive payments, retention payments owing under the officer retention agreements identified on Schedule 3.11 of the ICB Disclosure Letter and any other benefits accrued up to and including the Closing Date and accrue all such amounts owing to its employees on or prior to the Closing Date, such that such accruals can be taken into account in determining the Purchase Price in accordance with Schedule 1 .2 . All accrued unused paid time off as of the Closing Date shall be determined and paid out by Bank prior to the Closing Date.

Section 6.12 ESOP Matters . ICB and Bank agree that sponsorship of the Bank ESOP shall be transferred from Bank to ICB prior to Closing in accordance with the plan documents and applicable Law and, as part of such transfer, ICB shall become the named fiduciary of the Bank ESOP under ERISA and shall assume all liabilities and obligations imposed on the sponsor of the Bank ESOP under the plan documents and applicable Law. In connection with transfer of such sponsorship, Bank shall also be released from any and all obligations, duties and responsibilities imposed or arising under any agreements or documentation relating to the Bank ESOP.

Section 6.13 Divestiture of Subsidiary . ICB and Bank agree to take all action that may be necessary to (a) fully divest Bank of its equity ownership interest in Iowa Community Financial Services, LLC (“ Iowa Community ”) prior to the Closing Date, (b) terminate any Contracts between Bank and Iowa Community, and (c) to obtain a release of any and all liabilities, claims, debts or other obligations that may be now or hereafter owing by Bank to Iowa Community. To the extent any amounts may be owing by Bank to Iowa Community on or prior to the Closing Date, such amounts shall be accrued on Bank’s financial statement such that those amounts can be taken into account in determining the Purchase Price in accordance with Schedule 1.2 . In the event ICB and Bank are unable to arrange for a sale of Iowa Community, then prior to Closing, ICB and Bank shall take such action as necessary to transfer to ICB the Bank’s equity ownership interest in Iowa Community.

Section 6.14 401(k) Plan and Deferred Compensation Matters. At or prior to Closing, Bank shall take all actions required, including any actions reasonably requested by ANC, to terminate its 401(k) plan (“ Bank’s 401(k) Plan ”) in accordance with the plan documents and applicable Law. After Closing, ANC shall assist any Bank employees hired to continue employment at Bank in participating in a 401(k) plan sponsored by ANC that will accept rollover contributions from Bank’s 401(k) Plan. All expenses associated with termination and wind up of Bank’s 401(k) Plan, including, without limitation, fees payable to the plan trustee, third party administrator or any other service provider for administrative services related to wind up activities, shall be payable directly by Bank and an estimate of such fees shall be accrued as an expense on the Closing Date Financial Statements. Post-Closing, ANC shall cause Bank to continue to fulfill the payment obligations of Bank’s outstanding deferred compensation arrangements, identified on Schedule 3.11 of the ICB Disclosure Letter (“ Bank’s Deferred Compensation Liabilities ”). Bank’s Deferred Compensation Liabilities shall be valued for purposes of the financial statements used in calculating the Closing Date Payment and for purposes of the Closing Date Financial Statements utilizing a discount rate of 5.5% and ICB and Bank agree to provide ANC with work papers reflecting the valuation of the Bank’s Deferred Compensation Liabilities in accordance with such discount rate prior to the Closing.

Section 6.15 Trust Preferred Securities . Prior to the Closing, ICB agrees to coordinate with the Indenture Trustee and take all actions necessary under Section 12.1 of the Indenture to provide for the satisfaction and discharge of the ICB Indenture at Closing and the eventual redemption of the ICB Debenture and the Trust Securities on the date determined by ICB and the Indenture Trustee. The amount so determined by the Indenture Trustee as required under Section 12.1(b) of the ICB Indenture to provide for satisfaction and discharge of the ICB Indenture as of the Closing Date shall be referred to herein as the “ Indenture Satisfaction Amount ” and the Indenture Satisfaction Amount shall be deposited with the Indenture Trustee at Closing in accordance with Section 12.2 of the ICB Indenture to be held in trust for redemption of the ICB Debenture and the Trust Securities. ICB agrees to provide ANC with copies of all correspondence and documents with the Indenture Trustee related to the satisfaction and discharge process.

Section 6.16 Bank-Owned Life Insurance . ICB and Bank agree to take all action that may be necessary to transfer prior to the Closing Date the split dollar bank-owned life insurance policies owned by Bank and identified on Schedule 6.16(a) of the ICB Disclosure Letter, together with the related rights and obligations, to either the individuals whose lives are covered by such policies or to ICB, including notifying the issuing insurance company of such transfer and taking all action as may be necessary to transfer ownership of such policies on the books and records of the issuing insurance company. As part of such transfer, the transferee shall expressly assume and agree to fully perform and discharge any liabilities or obligations arising under such policies. All other bank-owned life insurance, identified on Schedule 6.16(b) of the ICB Disclosure Letter, shall remain assets of Bank and may be terminated or retained as ANC deems appropriate. Such bank-owned life insurance policies are being carried on Bank’s financial statements at the cash surrender value of such policies as of the date of such financial statements.

ARTICLE VII
CONDITIONS PRECEDENT TO closing

Section 7.1 Conditions to Each Party’s Obligations . The respective obligations of ANC and ICB to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment or waiver by ANC and ICB, at or prior to the Closing Date, of the following conditions:

(a) No Order . No court or other Governmental Entity shall have enacted, issued, promulgated, enforced or entered any Law, regulation or Order (whether temporary, preliminary or permanent) which is then in effect prohibiting or having the effect of making illegal the consummation of the transactions contemplated by this Agreement, and no Governmental Entity shall have instituted any Action that is pending seeking such an Order.

(b) Approval of Governmental Entities . All Requisite Regulatory Approvals (including, without limitation, the Specified Regulatory Approvals) shall have been obtained upon terms and conditions acceptable to ANC, all conditions shall have been satisfied, and the Requisite Regulatory Approvals (including, without limitation, the Specified Regulatory Approvals) shall remain in full force and effect and all mandatory statutory waiting periods in respect thereof shall have expired.

(c) Governmental Entity Action . There shall not be instituted, pending or threatened any Action by a Governmental Entity (i) relating to this Agreement or any of the transactions contemplated herein, or (ii) which would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Bank or ANC.

(d) Shareholder Approval . The shareholders of IBC shall have approved this Agreement and the transactions contemplated hereby.

Section 7.2 Conditions to Obligation of ICB . The obligation of ICB to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment or waiver by ICB, at or prior to the Closing Date, of the following additional conditions:

(a) Performance of Obligations . ANC shall have performed in all material respects each of its agreements contained in this Agreement required to be performed on or prior to the Closing Date.

(b) Representations and Warranties . Each of the representations and warranties of ANC contained in this Agreement that is qualified by materiality (including a Material Adverse Effect) shall, except to the extent so qualified, be true and correct as of the date hereof and on and as of the Closing Date as if made on and as of such date (other than representations and warranties which address matters only as of a certain date which shall, except to the extent so qualified, be true and correct as of such certain date) and each of the representations and warranties of ANC contained in this Agreement that is not so qualified shall be true and correct as of the date hereof and true and correct in all material respects on and as of the Closing Date as if made on and as of such date (other than representations and warranties which address matters only as of a certain date which shall be true and correct in all material respects as of such certain date), in each case except as contemplated or permitted by this Agreement.

(c) Officer’s Certificate . ICB shall have received a certificate of an executive officer of ANC to the effect that each of the conditions set forth in this Section 7.2(a) and (b) has been satisfied.

(d) ANC Deliveries . ANC shall have delivered to ICB at or prior to Closing the deliveries specified in Section 1. 5 (b) .

Section 7.3 Conditions to Obligation of ANC . The obligation of ANC to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment or waiver by ANC, at or prior to the Closing Date, of the following additional conditions:

(a) Performance of Obligations . ICB and Bank shall have each performed in all material respects their respective agreements contained in this Agreement required to be performed on or prior to the Closing Date.

(b) Representations and Warranties; Material Adverse Effect .

(i) Representations and Warranties . Each of the representations and warranties of ICB and Bank contained in this Agreement that is qualified by materiality (including a Material Adverse Effect) shall, except to the extent so qualified, be true and correct as of the date hereof and on and as of the Closing Date as if made on and as of such date (other than representations and warranties which address matters only as of a certain date which shall, except to the extent so qualified, be true and correct as of such certain date) and each of the representations and warranties of ICB and Bank contained in this Agreement that is not so qualified shall be true and correct as of the date hereof and true and correct in all material respects on and as of the Closing Date as if made on and as of such date (other than representations and warranties which address matters only as of a certain date which shall be true and correct in all material respects as of such certain date), in each case except as contemplated or permitted by this Agreement.

(ii) Since the date of this Agreement, there shall not have been any event, occurrence, fact, condition, effect, change or development that, individually or in the aggregate, has had or would be reasonably expected to have a Material Adverse Effect on Bank.

(c) Officers’ Certificate . ANC shall have received a certificate of an executive officer of each of ICB and Bank to the effect that each of the conditions set forth in this Section 7.3(a) and (b) has been satisfied.

(d) ICB Deliveries . ICB shall have delivered to ANC at or prior to the Closing the deliveries specified in Section 1. 5 (c) .

(e) Consents . ICB and/or Bank shall have obtained the Required Third-Party Consents.

(f) Employment Agreements . The individuals identified in Section 7.3( f ) of the ANC Letter and ANC or Bank shall have executed employment agreements no later than the date of this Agreement and such employment agreements shall remain in full force and effect and scheduled to become effective as of the Closing Date.

(g) Non-Compete Agreement . ICB and Karl W. Knock shall have executed the Non-Compete and Non-Solicitation Agreement in substantially the form attached to Exhibit C hereto (the “ Non-Compete Agreement ”).

(h) Transfer of ESOP Sponsorship . Sponsorship of the Bank ESOP shall have been transferred from Bank to ICB, and Bank shall have been released from any obligations as sponsor arising under any agreements or documentation relating to the Bank ESOP, all as outlined in Section 6.12 .

(i) Discharge of Indenture . The Indenture Trustee shall have determined the Indenture Satisfaction Amount and provided a certification thereof to ICB and all other matters required to satisfy and discharge the ICB Indenture at Closing through deposit of the Indenture Satisfaction Amount with the Indenture Trustee shall have been completed.

(j) Real Estate Matters . The results of any title opinions for, and any Phase I environmental assessments of, the real property owned by Bank shall be acceptable to ANC in its discretion.

(k) Divestiture of Subsidiary . Bank shall have completed the matters outlined in Section 6.1 3 with respect to Iowa Community.

(l) Transfer of Policies . ICB and Bank shall have completed the termination or transfer of the split dollar insurance policies bank-owned life insurance policies as outlined in Section 6.16 .

(m) Bank’s 401(k) Plan Termination . Bank shall have terminated Bank’s 401(k) Plan as outlined in Section 6.14 .

ARTICLE VIII

INDEMNIFICATION

Section 8.1 Survival . The representations and warranties contained herein shall survive the Closing and shall remain in full force and effect until the date that is eighteen (18) months after the Closing Date. All covenants and agreements of the parties contained herein shall survive the Closing for a period of eighteen (18) months, other than the covenants and agreements contained in this Article VIII which shall survive for the period specified herein. Notwithstanding the foregoing, any claims for indemnification asserted in good faith with reasonable specificity (to the extent known at such time) and in writing by notice from the indemnified party to the indemnifying party prior to the expiration date of the survival period shall not thereafter be barred by the expiration of the relevant representation or warranty and such claims shall survive until finally resolved.

Section 8.2 Indemnification by ICB . Subject to the other terms and conditions of this Article VIII, and subject to limitations relating to materiality and Material Adverse Effect in determining whether a breach of any representation or warranty has occurred, ICB shall indemnify and defend each of ANC and its Affiliates (including Bank) and their respective Representatives (collectively, the “ ANC Indemnitees ”) against, and shall hold each of them harmless from and against, and shall pay and reimburse each of them for, any and all Losses incurred or sustained by, or imposed upon, the ANC Indemnitees based upon, arising out of, with respect to or by reason of:

(a) any inaccuracy in or breach of any of the representations or warranties of ICB or Bank contained in this Agreement or in any certificate or instrument delivered by or on behalf of ICB or Bank pursuant to this Agreement, as of the date such representation or warranty was made or as if such representation or warranty was made on and as of the Closing Date (except for representations and warranties that expressly relate to a specified date, the inaccuracy in or breach of which will be determined with reference to such specified date);

(b) any breach or non-fulfillment of any covenant, agreement or obligation to be performed by ICB or Bank pursuant to this Agreement (including any covenant, agreement or obligation contained in Article V);

(c) any claim based upon the rights as such of any shareholder or former shareholder of ICB or Bank, or of any employee or former employee of ICB or Bank, which claim or right arose as of or prior to the Closing Date;

(d) any claim brought by a Person not a party to this Agreement and which claim is based upon any action or inaction on or before the Closing Date by ICB, Bank or Iowa Community, or the Representatives of ICB, Bank or Iowa Community;

(e) any Losses with respect to Taxes under the indemnification provisions of Section 5.2 ; or

(f) any claim, liability or obligation arising from or in any manner related to the Bank ESOP or Bank’s sponsorship of the Bank ESOP (an “ ESOP Claim ”).

Section 8.3 Indemnification by ANC . Subject to the other terms and conditions of this Article VIII, and subject to limitations relating to materiality and Material Adverse Effect in determining whether a breach of any representation or warranty has occurred, ANC shall indemnify and defend each of ICB and its Affiliates and their respective Representatives (collectively, the “ ICB Indemnitees ”) against, and shall hold each of them harmless from and against, and shall pay and reimburse each of them for, any and all Losses incurred or sustained by, or imposed upon, the ICB Indemnitees based upon, arising out of, with respect to or by reason of:

(a) any inaccuracy in or breach of any of the representations or warranties of ANC contained in this Agreement or in any certificate or instrument delivered by or on behalf of ANC pursuant to this Agreement, as of the date such representation or warranty was made or as if such representation or warranty was made on and as of the Closing Date (except for representations and warranties that expressly relate to a specified date, the inaccuracy in or breach of which will be determined with reference to such specified date); or

(b) any breach or non-fulfillment of any covenant, agreement or obligation to be performed by ANC pursuant to this Agreement.

Section 8.4 Indemnification by Knocks. Subject to the other terms and conditions of this Article VIII, Knocks shall, jointly and severally, indemnify and defend the ANC Indemnitees against, and shall hold each of them harmless from and against, and shall pay and reimburse each of them for, any and all Losses up to the amount of the ESOP Escrow Fund, as defined in Section 8.7(c), incurred or sustained by, or imposed upon, the ANC Indemnitees based upon, arising out of, with respect to or by reason of an ESOP Claim, with the Knocks indemnification obligation for ESOP Claims to begin on the date that is eighteen (18) months following the Closing Date and to continue thereafter for a period of eighteen (18) months as provided in Section 8.5(e).

Section 8.5 Certain Limitations . The indemnification provided for in Section 8.2 , Section 8.3 and Section 8.4 shall be subject to the following limitations:

(a) ICB shall not be liable to the ANC Indemnitees for indemnification under Section 8.2 (a), (c) or (d) until the aggregate amount of all Losses in respect of indemnification under Section 8.2 (a), (c) or (d) exceeds Twenty-Five Thousand Dollars ($25,000) (the “ Deductible ”), in which event ICB shall be required to pay or be liable for all such Losses that exceed the Deductible. For avoidance of doubt, Losses related to claims for indemnification under Section 8.2 (b) , (e) or (f) shall not be subject to the Deductible and shall be paid from the first dollar of Losses.

(b) ANC shall not be liable to the ICB Indemnitees for indemnification under Section 8.3(a) until the aggregate amount of all Losses in respect of indemnification under Section 8.3(a) exceeds the Deductible, in which event ANC shall be required to pay or be liable for all such Losses in excess of the Deductible. For avoidance of doubt, Losses related to claims for indemnification under Section 8. 3 (b) shall not be subject to the Deductible and shall be paid from the first dollar of Losses.

(c) For purposes of this Article VIII, the calculation of the amount of any Losses hereunder shall be determined without regard to any materiality, Material Adverse Effect or other similar qualification contained in or otherwise applicable to such representation or warranty.

(d) Any claim for indemnification by the ANC Indemnitees under Section 8.2(a), (b), (c) , (d) , (e) or (f) , or any claim for indemnification by the ICB Indemnitees under Section 8.3(a) or (b) , shall be made prior to the end of the period that is eighteen (18) months after the Closing Date.

(e) Any claim for indemnification by the ANC Indemnitees under Section 8.4 shall be made only during the period commencing on the date that is eighteen (18) months after the Closing Date and prior to the end of the period that is thirty-six (36) months after the Closing Date. For avoidance of doubt, Losses related to claims for indemnification under Section 8.4 shall not be subject to the Deductible and shall be paid from the first dollar of Losses.

Section 8.6 Indemnification Procedures . The party making a claim under this Article VIII is referred to as the “ Indemnified Party ”, and the party against whom such claims are asserted under this Article VIII is referred to as the “ Indemnifying Party ”.

(a) Third Party Claims. If any Indemnified Party receives notice of the assertion or commencement of any Action made or brought by any Person who is not a party to this Agreement or an Affiliate of a party to this Agreement or a Representative of the foregoing (a “ Third Party Claim ”) against such Indemnified Party with respect to which the Indemnifying Party is obligated to provide indemnification under this Agreement, the Indemnified Party shall give the Indemnifying Party reasonably prompt written notice thereof, but in any event not later than sixty (60) days after receipt of such notice of such Third Party Claim. The failure to give such prompt written notice shall not, however, relieve the Indemnifying Party of its indemnification obligations, except and only to the extent that the Indemnifying Party forfeits rights or defenses by reason of such failure. Such notice by the Indemnified Party shall describe the Third Party Claim in reasonable detail, shall include copies of all material written evidence thereof and shall indicate the estimated amount, if reasonably practicable, of the Loss that has been or may be sustained by the Indemnified Party. The Indemnifying Party shall have the right to participate in, or by giving written notice to the Indemnified Party, to assume the defense of any Third Party Claim at the Indemnifying Party’s expense and by the Indemnifying Party’s own counsel, and the Indemnified Party shall cooperate in good faith in such defense; provided, that if the Indemnifying Party is ICB, such Indemnifying Party shall not have the right to defend or direct the defense of any such Third Party Claim that seeks an injunction or other equitable relief against the Indemnified Party. In the event that the Indemnifying Party assumes the defense of any Third Party Claim, subject to Section 8. 6 (b) , it shall have the right to take such action as it deems necessary to avoid, dispute, defend, appeal or make counterclaims pertaining to any such Third Party Claim in the name and on behalf of the Indemnified Party. The Indemnified Party shall have the right to participate in the defense of any Third Party Claim with counsel selected by it subject to the Indemnifying Party’s right to control the defense thereof. The fees and disbursements of such counsel shall be at the expense of the Indemnified Party, provided, that if in the reasonable opinion of counsel to the Indemnified Party, (A) there are legal defenses available to an Indemnified Party that are different from or additional to those available to the Indemnifying Party; or (B) there exists a conflict of interest between the Indemnifying Party and the Indemnified Party that cannot be waived, the Indemnifying Party shall be liable for the reasonable fees and expenses of counsel to the Indemnified Party in each jurisdiction for which the Indemnified Party determines counsel is required. If the Indemnifying Party elects not to compromise or defend such Third Party Claim, fails to promptly notify the Indemnified Party in writing of its election to defend as provided in this Agreement, or fails to diligently prosecute the defense of such Third Party Claim, the Indemnified Party may, subject to Section 8. 6 (b) , pay, compromise, defend such Third Party Claim and seek indemnification for any and all Losses based upon, arising from or relating to such Third Party Claim. The Indemnifying Party and the Indemnified Party shall cooperate with each other in all reasonable respects in connection with the defense of any Third Party Claim, including making available records relating to such Third Party Claim and furnishing, without expense (other than reimbursement of actual out-of-pocket expenses) to the defending party, management employees of the non-defending party as may be reasonably necessary for the preparation of the defense of such Third Party Claim.

(b) Settlement of Third Party Claims. Notwithstanding any other provision of this Agreement, the Indemnifying Party shall not enter into settlement of any Third Party Claim without the prior written consent of the Indemnified Party, except as provided in this Section 8. 6 (b) . If a firm offer is made to settle a Third Party Claim without leading to liability or the creation of a financial or other obligation on the part of the Indemnified Party and provides, in customary form, for the release of each Indemnified Party from all liabilities and obligations in connection with such Third Party Claim and the Indemnifying Party desires to accept and agree to such offer, the Indemnifying Party shall give written notice to that effect to the Indemnified Party. If the Indemnified Party fails to consent to such firm offer within ten (10) days after its receipt of such notice, the Indemnified Party may continue to contest or defend such Third Party Claim and in such event, the maximum liability of the Indemnifying Party as to such Third Party Claim shall not exceed the amount of such settlement offer. If the Indemnified Party fails to consent to such firm offer and also fails to assume defense of such Third Party Claim, the Indemnifying Party may settle the Third Party Claim upon the terms set forth in such firm offer to settle such Third Party Claim. If the Indemnified Party has assumed the defense pursuant to Section 8. 6 (a) , it shall not agree to any settlement without the written consent of the Indemnifying Party (which consent shall not be unreasonably withheld or delayed).

(c) Direct Claims. Any claim by an Indemnified Party on account of a Loss which does not result from a Third Party Claim (a “ Direct Claim ”) shall be asserted by the Indemnified Party giving the Indemnifying Party reasonably prompt written notice thereof, but in any event not later than thirty (30) days after the Indemnified Party becomes aware of such Direct Claim. The failure to give such prompt written notice shall not, however, relieve the Indemnifying Party of its indemnification obligations, except and only to the extent that the Indemnifying Party forfeits rights or defenses by reason of such failure. Such notice by the Indemnified Party shall describe the Direct Claim in reasonable detail, shall include copies of all material written evidence thereof and shall indicate the estimated amount, if reasonably practicable, of the Loss that has been or may be sustained by the Indemnified Party. The Indemnifying Party shall have thirty (30) days after its receipt of such notice to respond in writing to such Direct Claim. The Indemnified Party shall allow the Indemnifying Party and its professional advisors to investigate the matter or circumstance alleged to give rise to the Direct Claim, and whether and to what extent any amount is payable in respect of the Direct Claim and the Indemnified Party shall assist the Indemnifying Party’s investigation by giving such information and assistance (including access to Bank’s personnel and the right to examine and copy any accounts, documents or records) as the Indemnifying Party or any of its professional advisors may reasonably request. If the Indemnifying Party does not so respond within such thirty (30) day period, the Indemnifying Party shall be deemed to have rejected such claim, in which case the Indemnified Party shall be free to pursue such remedies as may be available to the Indemnified Party on the terms and subject to the provisions of this Agreement.

(d) Tax Claims. The control of any claim, assertion, event or proceeding in respect of Taxes of ICB or Bank (including, but not limited to, any breach or violation of or failure to fully perform any covenant, agreement, undertaking or obligation in Article V) shall be governed exclusively by Article V hereof, except that any claim related to a breach of the representations and warranties contained in Section 3.8 shall be governed exclusively by this Article VIII.

Section 8.7 Payments; Indemnification Escrow Fund; and ESOP Escrow Fund .

(a) Once a Loss is agreed to by the Indemnifying Party or finally adjudicated to be payable pursuant to this Article VIII, the Indemnifying Party shall satisfy its obligations within ten (10) days of such agreement or such final, non-appealable adjudication by wire transfer of immediately available funds to the Indemnified Party; provided, however, any Losses payable to an ANC Indemnitee pursuant to Article V or Section 8.2 shall be satisfied (i) solely from the Indemnity Escrow Fund with respect to all Losses arising from Direct Claims, (ii) from the Indemnity Escrow Fund with respect to Losses arising from any Third Party Claims or ESOP Claims so long as funds remain in the Indemnity Escrow Fund, and (iii) to the extent that the amount of Losses with respect to any Third Party Claim or ESOP Claim exceeds the funds available in the Indemnity Escrow Fund, then Losses over and above the funds remaining in the Indemnity Escrow Fund shall be recoverable and paid for by ICB as provided above.

(b) To secure and facilitate the payment of Losses by ICB pursuant to Article V or Section 8.2 , on the Closing Date (i) ANC, ICB and an escrow agent mutually acceptable to ANC and ICB shall enter into an escrow agreement in the form of Exhibit A hereto (the “ Indemnity Escrow Agreement ”) under which an escrow account will be established as a source of payment for indemnification obligations of ICB , and (ii) ANC will deposit the sum of Two Million Two Hundred Thousand ($2,200,000) (the “ Indemnity Escrow Fund ”) into the escrow account to be held in accordance with the terms of the Indemnity Escrow Agreement.

(c) To secure and facilitate the payment of Losses by Knocks pursuant to Section 8.4, on the Closing Date (i) ANC, Knocks and an escrow agent mutually acceptable to ANC and Knocks shall enter into an escrow agreement in the form of Exhibit B hereto (the “ESOP Escrow Agreement ”) under which an escrow account will be established as the sole source of payment for indemnification obligations of Knocks under Section 8.4, and (ii) Knocks will deposit the sum of Five Hundred Thousand Dollars ($500,000) (the “ ESOP Escrow Fund ”) into the escrow account to be held in accordance with the terms of the ESOP Escrow Agreement, with such deposit of funds to occur no later than the date that is eighteen (18) months after the Closing Date. Any Losses payable to any ANC Indemnitee pursuant to Section 8.4 shall be satisfied solely from the ESOP Escrow Fund. If and to the extent that Knocks’ pro-rata portion of the Indemnity Escrow Fund equals or exceeds $500,000 as of the date that is eighteen (18) months from the Closing Date, the parties agree that that $500,000 may be held back and/or transferred, as determined by the parties, to establish the ESOP Escrow Fund in lieu of requiring a separate deposit by Knocks.

Section 8.8 Tax Treatment of Indemnification Payments . All indemnification payments made under this Agreement shall be treated by the parties as an adjustment to the Purchase Price for Tax purposes, unless otherwise required by Law.

Section 8.9 Effect of Investigation . The representations, warranties and covenants of the Indemnifying Party, and the Indemnified Party’s right to indemnification with respect thereto, shall not be affected or deemed waived by reason of any investigation made by or on behalf of the Indemnified Party (including by any of its Representatives) or by reason of the fact that the Indemnified Party or any of its Representatives knew or should have known that any such representation or warranty is, was or might be inaccurate, except to the extent knowledge of such inaccuracy is acknowledged in writing by the Indemnified Party prior to Closing, or by reason of the Indemnified Party’s waiver of any condition set forth in Section 7.2 or Section 7.3 , as the case may be.

Section 8.10 Exclusive Remedies . Subject to Section 6.1(g) and Section 10.8 , the parties acknowledge and agree that their sole and exclusive remedy with respect to any and all claims (other than claims arising from fraud, criminal activity or willful misconduct on the part of a party hereto in connection with the transactions contemplated by this Agreement) for any breach of any representation, warranty, covenant, agreement or obligation set forth herein or otherwise relating to the subject matter of this Agreement, shall be pursuant to the indemnification provisions set forth in Article V and this Article VIII. In furtherance of the foregoing, each party hereby waives, to the fullest extent permitted under Law, any and all rights, claims and causes of action for any breach of any representation, warranty, covenant, agreement or obligation set forth herein or otherwise relating to the subject matter of this Agreement it may have against the other parties hereto and their Affiliates and each of their respective Representatives arising under or based upon any Law, except pursuant to the indemnification provisions set forth in Article V and this Article VIII. Nothing in this Section 8.10 shall, however, limit any party’s right (a) to seek and obtain any equitable relief to which any party shall be entitled, (b) to seek any remedy on account of any party’s fraudulent, criminal or willful misconduct, or (c) to enforce the terms of the Non-Compete Agreement.

ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER

Section 9.1 Termination . This Agreement may be terminated at any time prior to the Closing Date:

(a) by mutual written consent of ANC and ICB;

(b) by ANC if there has been a material breach of any representation, warranty, covenant, undertaking or other agreement made by ICB or Bank in this Agreement, or any such representation or warranty shall have become untrue after the date of this Agreement, in each case such that the conditions set forth in Section 7.1 or Section 7.3 would not be satisfied and such breach or condition is not curable or, if curable, is not cured within thirty (30) days after written notice thereof is given by ANC to ICB; or

(c) by ICB if there has been a material breach of any representation, warranty, covenant or other agreement made by ANC in this Agreement, or any such representation and warranty shall have become untrue after the date of this Agreement, in each case such that the conditions set forth in Section 7.1 or 7.2 would not be satisfied and such breach or condition is not curable or, if curable, is not cured within thirty 30) days or after written notice thereof is given by ICB to ANC; or

(d) by either ANC or ICB if: (i) the Closing has not occurred on or prior to the close of business on May 31, 2020 (the “ Termination Date ”); provided , however , that in the event that the condition set forth in Section 7.1(c) has not been satisfied by the Termination Date, the Termination Date shall automatically be extended by sixty (60) days; provided , further , that the right to terminate this Agreement pursuant to this Section 9 .1(d) shall not be available to any party whose failure to fulfill any of its obligations contained in this Agreement has been the cause of, or resulted in, the failure of the Closing to have occurred on or prior to the Termination Date; or (ii) any court or other Governmental Entity having jurisdiction over a party hereto shall have issued or enacted an Order or Law or taken any other action permanently enjoining, restraining or otherwise prohibiting or having the effect of making illegal the consummation of the transactions contemplated by this Agreement and such Order, Law or other action shall have become final and nonappealable.

The right of any party hereto to terminate this Agreement pursuant to this Section 9 .1 shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any party hereto, any Person controlling any such party or any of their respective officers or directors, and whether prior to or after the execution of this Agreement.

Section 9.2 Effect of Termination . In the event of termination of this Agreement by either ANC or ICB, as provided in Section 9 .1 , this Agreement shall forthwith become void, and there shall be no liability hereunder on the part of ANC, ICB or Bank or their respective officers or directors (except that Section 6.1( f ) and Section 6.2 , shall survive the termination of this Agreement); provided , however , that nothing contained in this Section 9 .2 shall relieve any party hereto from any liability for any breach of a representation or warranty contained in this Agreement or the breach of any covenant contained in this Agreement.

Section 9.3 Amendment . This Agreement may be amended by the parties hereto, by or pursuant to action taken by their respective Boards of Directors, at any time before the Closing Date. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto.

Section 9.4 Waiver . At any time prior to the Closing Date, the parties hereto may (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto, or (c) waive compliance with any of the covenants, agreements or conditions contained herein which may legally be waived. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party.

ARTICLE X
GENERAL PROVISIONS

Section 10.1 Notices . All notices and other communications hereunder shall be in writing and shall be deemed given (a) when delivered personally (with written confirmation of receipt), (b) one Business Day after being delivered to a nationally recognized overnight courier, or (c) when sent via e-mail (with a confirmatory receipt) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):

(a) if to ANC, to:

Ames National Corporation

405 5th Street

P.O. Box 846

Ames, Iowa 50010

Attention: John P. Nelson

E-mail: John.Nelson@AmesNational.com

with a copy to:

Nyemaster Goode, P.C.

700 Walnut, Suite 1600

Des Moines, IA 50309-3899

Attention: Mark C. Dickinson

Willard L. Boyd III

E-mail: mcd@nyemaster.com
wlb@nyemaster.com

(b) if to ICB or Bank, to:

Iowa Community Bancorp, Inc.

120 SW 5th Street, Unit 901

Des Moines, IA 50309

Attention: Karl W. Knock

E-mail: knockfamily@gmail.com

with a copy to:

Davis Brown Law Firm

215 10 ^th Street, Suite 1300

Des Moines, Iowa 50309

Attention: Robert A. Gamble

E-mail: beaugamble@davisbrownlaw.com

Eide Bailly LLP

666 Walnut Street, Suite 1450

Des Moines, Iowa 50309

Attention: Tim Breitbach

E-mail: tbreitbach@eidebailly.com

Karl W. Knock

120 SW 5th Street, Unit 901

Des Moines, IA 50309

E-mail: knockfamily@gmail.com

with a copy to:

Davis Brown Law Firm

215 10 ^th Street, Suite 1300

Des Moines, Iowa 50309

Attention: Robert A. Gamble

E-mail: beaugamble@davisbrownlaw.com

Section 10.2 Interpretation . When a reference is made in this Agreement to a Section, Article, Exhibit or Schedule, such reference shall be to a Section or Article of, or an Exhibit or Schedule attached to, this Agreement unless otherwise indicated. The Exhibits, Schedules and the ICB Letter and ANC Letter referred to herein shall be construed with and as an integral part of this Agreement to the same extent as if they were set forth verbatim herein. The table of contents, table of defined terms and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. For purposes of this Agreement, (a) the words “include,” “includes” or “including” shall be deemed to be followed by the words “without limitation,” (b) the words “herein,” “hereof,” “hereby,” “hereto” and “hereunder” refer to this Agreement as a whole, and (c) the word “or” is not exclusive. The meaning assigned to each term defined herein shall be equally applicable to both the singular and plural forms of such term, and words denoting any gender shall include all genders. Any agreement, instrument or statute defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument or statute as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statutes and references to all attachments thereto and instruments incorporated therein. Each of the parties has participated in the drafting and negotiation of this Agreement. If an ambiguity or question of intent or interpretation arises, this Agreement must be construed as if it is drafted by all the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of authorship of any of the provisions of this Agreement.

Section 10.3 Counterparts . This Agreement may be executed in counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties.

Section 10.4 Entire Agreement; No Third-Party Beneficiaries . This Agreement and the Confidentiality Agreement constitute the entire agreement and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. This Agreement is not intended to confer upon any Person other than the parties hereto any rights or remedies hereunder.

Section 10.5 Governing Law; Waiver of Jury Trial .

(a) This Agreement shall be governed by and construed in accordance with the laws of the State of Iowa, without regard to the principles of conflict of laws thereof. All disputes between the parties relating to the subject matter of this Agreement shall be exclusively venued in a state or federal court located in Des Moines, Iowa.

(b) EACH OF ANC, ICB, BANK AND KNOCKS HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF ANC, ICB OR Bank IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.

Section 10.6 Assignment . Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of Law or otherwise) without the prior written consent of the other parties.

Section 10.7 Severability . If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of Law or public policy, all other terms, conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic and legal substance of the transactions contemplated hereby are not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated by this Agreement may be consummated as originally contemplated to the fullest extent possible.

Section 10.8 Enforcement of this Agreement . In addition to any remedy to which any party hereto is specifically entitled by the terms hereof, each party shall be entitled to pursue any other remedy available to it at Law or in equity in the event that any of the provisions of this Agreement were not performed in accordance with their terms or were otherwise breached. The parties hereto agree that irreparable damage would occur if any provisions of this Agreement were not performed in accordance with the terms hereof (and, more specifically, that irreparable damage would likewise occur if any of the transactions contemplated by this Agreement were not consummated), and, accordingly, that the parties hereto shall be entitled to an injunction or injunctions to prevent breaches of this Agreement or to enforce specifically the performance of the terms and provisions hereof (including the obligation of the parties hereto to consummate the transactions contemplated by this Agreement and the obligation of ANC to pay, and ICB to receive, the consideration payable to them pursuant to the transactions contemplated by this Agreement, in each case in accordance with the terms and subject to the conditions of this Agreement), this being in addition to any other remedy to which such party is entitled at Law or in equity. In the event that any action is brought in equity to enforce the provisions of this Agreement, no party hereto shall allege, and each party hereto hereby waives the defense or counterclaim, that there is an adequate remedy at law. Each party hereto further agrees that no other party hereto or any other Person shall be required to obtain, furnish or post any bond or similar instrument in connection with or as a condition to obtaining any remedy referred to in this Section 10 .8 , and each party hereto irrevocably waives any right it may have to require the obtaining, furnishing or posting of any such bond or similar instrument.

Section 10.9 Definitions . For purposes of this Agreement:

“ Action ” means any claim, action, cause of action, demand, lawsuit, arbitration, inquiry, audit, notice of violation, proceeding, litigation, citation, summons, subpoena or investigation of any nature, civil, criminal, administrative, regulatory or otherwise, whether at law or in equity.

“ Affiliate ” of a Person means any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. The term “control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

“ Bank ESOP ” means the Iowa State Savings Bank Employee Stock Ownership Plan.

“ Business Day ” means any day other than a Saturday or Sunday on which national banking associations are required to be open in Des Moines, Iowa.

“ Code ” means the Internal Revenue Code of 1986, as amended to date.

“ Contract ” means any contract, agreement, instrument, guarantee, indenture, note, deed, bond, mortgage, permit, franchise, concession, commitment, lease, indenture, license, legally binding arrangement, obligation or understanding, whether written or oral.

“ Encumbrance ” means any charge, claim, community property interest, pledge, condition, equitable interest, lien (statutory or other), option, security interest, mortgage, easement, encroachment, right of way, right of first refusal, or restriction of any kind, including any restriction on use, voting, transfer, receipt of income or exercise of any other attribute of ownership.

“ FDIC ” means the Federal Deposit Insurance Corporation.

“ GAAP ” means United States generally accepted accounting principles, consistently applied.

“ Governmental Entity ” means any federal, state, local or foreign government or political subdivision thereof, or any agency or instrumentality of such government or political subdivision, or any self-regulated organization or other non-governmental regulatory authority or quasi-governmental authority (to the extent that the rules, regulations or orders of such organization or authority have the force of Law), or any arbitrator, court or tribunal of competent jurisdiction.

“ ICB Debenture ” means the floating rate junior subordinated deferrable interest debenture, due 2034, in the principal amount of $5,155,000 issued by ICB under the terms of the ICB Indenture to Wilmington Trust Company, as institutional trustee for Iowa Community Statutory Trust I.

“ ICB Indenture ” means the Indenture, dated as of September 20, 2004, between ICB and the Indenture Trustee pursuant to which ICB has issued the ICB Debenture to the Wilmington Trust Company, as institutional trustee for Iowa Community Statutory Trust I.

“ Indenture Trustee ” means Wilmington Trust Company in its capacity as trustee under the ICB Indenture, or any successor trustee appointed in accordance with the terms of the ICB Indenture.

“ IRS ” means the Internal Revenue Service.

“ Knowledge of ANC ” means the actual knowledge of the individuals identified in Section 10.9 of the ANC Letter, after due investigation.

“ Knowledge of Bank ” or “ Knowledge of ICB ” means the actual knowledge of the individuals identified in Section 10.9 of the ICB Letter after due investigation.

“ Law ” means any treaty, constitution, statute, law, code, common law, ordinance, rule, regulation, judgment or decree of any Governmental Entity.

“ Losses ” means liabilities, obligations, deficiencies, demands, judgments, damages, interest, fines, penalties, assessments, losses arising out of claims or causes of action, awards, costs and expenses (including costs of investigation and defense and attorneys’ and other professionals’ fees) or any diminution in value, whether or not involving a third-party claim.

“ Material Adverse Effect ” means, when used with respect to ANC or Bank, as the case may be, any event, occurrence, fact, condition, change, development or effect that has an adverse economic effect of $50,000 or more, or that individually, or when taken together with all other events, occurrences, facts, conditions, changes, developments or effects, is or could reasonably be expected to be materially adverse to (a) the business, assets, reputation, results of operations, liabilities (contingent or otherwise), condition (financial or otherwise) or results of operations of ANC or Bank, as the case may be, or (b) the ability of ANC or Bank, as the case may be, to consummate the transactions contemplated hereby; but excluding any event, occurrence, fact, condition, change, development or effect to the extent caused by (i) any changes in the United States or global economy or capital, financial or securities markets generally, (ii) changes in Laws or GAAP, or authoritative interpretation thereof after the date of this Agreement that affect the banking industry in general, (iii) the engagement by the United States in military hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon the United States, or any of its territories, possessions, or diplomatic or consular offices or upon any military installation, equipment or personnel of the United States, (iv) changes in the industry in which ANC or Bank operates generally, (v) disclosure or consummation of the transactions contemplated hereby or actions expressly required by this Agreement in contemplation of the transactions contemplated hereby, or (vi) actions taken by Bank as required or authorized pursuant to this Agreement or at the direction or request of ANC including, but not limited, to the termination, suspension, modification or reduction of Bank’s relationship with any customer, vendor, supplier, distributor, landlord or employee, except in the case of each of clauses (i), (ii), (iii) and (iv) immediately above to the extent that any such event, occurrence, fact, condition, change, development or effect has a materially disproportionate impact on the business or the assets, reputation, liabilities, condition (financial or otherwise) or results of operations of ANC or Bank.

“ Order ” means judgment, order, writ, award, determination, stipulation, injunction (temporary or permanent) or decree entered by or with Governmental Entity.

“ Person ” means any individual, firm, corporation, partnership, limited liability company, trust, joint venture, Governmental Entity or other entity.

“ Post-Closing Tax Period ” means any Tax Period beginning after the Closing Date and the portion of any Straddle Period after the Closing Date.

“ Pre-Closing Tax Period ” means any Tax period ending on or before the Closing Date and the portion of any Straddle Period beginning before the Closing Date and ending on the Closing Date.

“ Regulation O ” means 12 C.F.R. Part 215, commonly known as Regulation O of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof.

“ Related Person(s) ” means (i) any Affiliate of ICB or Bank, or (ii) any current or director or officer of ICB or Bank.

“ Representative ” means, with respect to any Person, any and all directors, officers, employees, consultants, financial advisors, counsel, accountants and other agents of such Person.

“ Required Third-Party Consents ” means the consent or approval of each counterparty to the Bank Contracts listed on Section 3.10(b) of the ICB Letter required in connection with the execution, delivery, or performance by Bank of this Agreement or the consummation of the transactions contemplated hereby.

“ Specified Regulatory Approvals ” means in connection with this Agreement and the transactions contemplated hereby each of the following:

(i) the filing of a notice of acquisition with the Iowa Banking Division pursuant to Iowa Code section 524.1804;

(ii) the filing of a notification to acquire an additional bank with the Federal Reserve Bank of Chicago and the Federal Reserve Bank’s approval of such notice; and

(iii) if necessary, any approvals by the Federal Reserve Bank of the redemption of the ICB Debenture and the Trust Securities.

“ Subsidiary ” means any corporation, partnership, limited liability company, joint venture, trust, association or other entity of which Bank (either alone or through or together with any other Subsidiaries), owns, directly or indirectly, 50% or more of the stock or other equity interests the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation, partnership, limited liability company, joint venture, trust or other entity.

" Taxes " means (i) all federal, state, municipal or local taxes, charges, fees, imposts, levies or other assessments, including all income, gross receipts, alternative or add-on minimum, capital, goods and services sales, use, ad valorem, value added, transfer, franchise, profits, windfall profits, premium, environmental (including taxes under Section 59A of the Code), inventory, shares, license, withholding, payroll, employment, social security, unemployment, disability, excise, severance, stamp, occupation, property, unclaimed, escheatable property and estimated taxes, customs duties, registrations, fees, assessments and charges of any kind whatsoever; (ii) all interest, penalties, fines, additions to tax or additional amounts imposed by any Taxing Authority in connection with any item described in clause (i), and (iii) any transferee liability in respect of any items described in clauses (i) or (ii) payable by reason of Contract, assumption, transferee liability, operation of Law, Treasury Regulation Section 1.1502-6(a) (or any predecessor or successor thereof or any analogous or similar provision under Law, including but not limited to as a result of being a member of an affiliated, consolidated, combined, unitary, aggregate or similar group for any taxable period) or otherwise.

“ Taxing Authority ” means the IRS and/or any other Governmental Entity responsible for the administration of any Tax.

" Tax Return " means any return, report or statement required to be filed with respect to any Tax (including any elections, declarations, schedules or attachments thereto, and any amendment thereof) including any information return, claim for refund, amended return or declaration of estimated Tax, and including, where permitted or required, combined, consolidated or unitary returns for any group of entities that includes Bank or any of its Affiliates.

“ Trust Securities ” means the common securities and capital securities issued by Iowa Community Statutory Trust I under the terms of the Declaration of Trust of Iowa Community Statutory Trust I, dated September 20, 2004.

IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their respective officers thereunto duly authorized all as of the date first written above.

AMES NATIONAL CORPORATION

By: /s/ John P. Nelson

Name: John P. Nelson

Title: President

IOWA STATE SAVINGS BANK

By: /s/ Karl W. Knock

Name: Karl W. Knock

Title: Chairman

IOWA COMMUNITY BANCORP, INC.

By: /s/ Karl W. Knock

Name: Karl W. Knock

Title: President

KNOCKS

/s/ Karl W. Knock

Karl W. Knock

/s/ Janet R. Knock

Janet R. Knock

[Signature Page to Stock Purchase Agreement]

SCHEDULE 1.2

CALCULATION OF CLOSING DATE PAYMENT

AND PURCHASE PRICE

The parties acknowledge and agree that the Closing Date Payment and the Purchase Price shall be determined in accordance with the following calculation, including any adjustments required by the terms of this Agreement, utilizing numbers from Bank’s financial statements prepared (i) as of the end of the month immediately preceding the Closing Date with respect to the Closing Date Payment, and (ii) as of the Closing Date with respect to the Purchase Price.

The calculation set forth below utilizes numbers from Bank’s financial statements prepared as of June 30, 2019 for illustrative purposes only. ¹

1. Determine Purchase Price for Base Capital

Total assets from Call Report	$	207,125,000
Less intangible assets		(1,002,000	)
Less intangible assets of Iowa Comm. Financial		(59,000	)
Less Iowa Comm. Financial carrying amount		(306,000	)
Less unrealized gains on investment securities		(200,000	)
Adjusted assets		205,558,000
Times base capital percentage (fixed number)		8	%
Base capital		16,444,640
Times applicable multiple (fixed number)		1.25
Purchase price for base capital	$	20,555,800

2. Determine Excess Capital

Total bank capital from Financial Statement	$	19,546,000
Less intangible assets		(1,061,000	)
Less Iowa Comm. Financial		(306,000	)
Less unrealized gains on investment securities		(189,000	)
Adjusted capital		17,990,000
Subtract base capital (from above)		16,444,640
Excess capital	$	1,545,360

S-1

3. Determine Total Purchase Price by Adjusting for Excess Capital

Purchase price for base capital (from above)	$	20,555,800
Add excess capital (from above) at dollar for dollar		1,545,360
Total indicated purchase price	$	22,101,160
Iowa franchise tax payable account		4,000
Less Iowa franchise deferred tax asset		(14,006	)
Settlement for Bank transaction	$	22,091,154

4.	Funds to redeem ICB Debenture and Trust Securities	$	(TBD)
5.	Funds to Escrow Agent	$	2,200,000
6.	Funds to Seller	$	(TBD)

The above computation does not include all adjustments that may be required by the terms of the Agreement, including but not limited to:

Adjustment for deferred compensation to discount rate of 5.5%;

Adjustment for PTO liability; and

Adjustment for transfer of split dollar Bank-owned life insurance policies.

S-2

EXHIBIT A

Form of Indemnity Escrow Agreement

ESCROW AGREEMENT

THIS ESCROW AGREEMENT (the “ Agreement ”) is made on the date of execution hereof, by and among Iowa Community Bancorp, Inc. (“ ICB ”), Ames National Corporation (“ ANC ”), and _____________________ (“ Escrow Agent ”).

RECITALS:

A. ANC has agreed to acquire from ICB all of the issued and outstanding shares of common stock (the “ Bank Stock ”) of Iowa State Savings Bank (“ Bank ”) under the terms of the Stock Purchase Agreement by and among ANC, ICB, Bank and the majority shareholders of ICB dated July 29, 2019 (the “ Stock Purchase Agreement ”); and

B. Section 8.7(b) of the Stock Purchase Agreement requires that a portion of the purchase price for the Bank Stock be placed in escrow subject to the terms and conditions of this Agreement; and

C. The Escrow Agent intends to serve as escrow agent upon the terms and conditions herein set forth.

NOW, THEREFORE, in consideration of the Recitals, which are a part of this Agreement, and the mutual covenants and agreements herein contained, it is agreed by and among the parties hereto as follows:

1. Escrow Funds . In order to provide a source of funds to satisfy the indemnification obligations of ICB under Section 8.2 of the Stock Purchase Agreement ANC does hereby deposit with the Escrow Agent the sum of Two Million Two Hundred Thousand Dollars ($2,200,000) (the “ Escrow Funds ”) to be held, invested and disbursed by the Escrow Agent as herein set forth.

2. Investment of Funds . The Escrow Funds shall be invested in the Escrow Agent’s trust money market at a variable rate, which is mutually agreed upon by ANC and ICB with the Escrow Agent. The Escrow Agent is authorized to liquidate in accordance with its customary procedures any portion of the Escrow Funds consisting of investments to provide for payments required to be made under this Agreement. All parties acknowledge that the Escrow Funds will exceed FDIC insurance limits and that some, or all, of the funds will be uninsured deposits.

3. Payment of Claims . In the event, prior to the Escrow Termination Date (as defined below), ANC determines that an event has occurred that would permit indemnity by ICB under Section 8.2 of the Stock Purchase Agreement, ANC may give notice in writing to the Escrow Agent (a “ Claim ”), that sets forth a description of the Claim and the amount to be paid to ANC by the Escrow Agent. A copy of the Claim shall also be given to ICB. ICB shall have thirty (30) days following the giving of the Claim to object to the Claim by giving written notice of such objection and the reasons therefor (an “ Objection ”) to the Escrow Agent with a copy to ANC. If such Objection is not timely given to the Escrow Agent and ANC, the Escrow Agent shall pay the amount of the Claim from the Escrow Funds to ANC.

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In the event the Escrow Agent receives a timely Objection to a Claim, the Escrow Agent shall retain the Escrow Funds until:

(a) the Escrow Agent receives a final judgment or directive from a court of competent jurisdiction directing that the amount of the Claim or any portion thereof be paid to ANC from the Escrow Funds; or

(b) the Escrow Agent receives written instructions executed by ANC and ICB directing that all or any portion of the Escrow Funds be paid to ANC.

Upon payment of such funds under Section 3(a) or 3(b) above, any remaining Escrow Funds shall be retained by the Escrow Agent until released in accordance with the terms of this Agreement.

4. Termination . In the event on or before ______________, 202___ (the “ Escrow Termination Date ”), no notice of a Claim has been received by the Escrow Agent, or the Escrow Agent has been notified in writing by ANC and ICB that all Claims have been resolved, the Escrow Agent shall pay all remaining Escrow Funds, plus any accrued interest thereon, to ICB. In the event on or before the Escrow Termination Date the Escrow Agent has received notice of one or more Claims and a timely Objection by ICB, the Escrow Agent shall retain the Escrow Funds, or such portion thereof as ANC and ICB may agree is required to satisfy the Claim(s), until such time as provided in Section 3(a) or 3(b) . Notwithstanding the foregoing, if and to the extent that Karl W. and Janet R. Knocks (“ Knocks ”) pro-rata portion of the Escrow Funds equals or exceeds $500,000 as of the Escrow Termination Date, the parties agree that that $500,000 may be held back and/or transferred, as mutually determined by the parties and Knocks, to establish the ESOP Escrow Fund, as defined in Section 8.7(c) of the Stock Purchase Agreement, in lieu of requiring a separate deposit by Knocks.

5. Duties of the Escrow Agent .

(a) The Escrow Agent shall not be under any duty to give the Escrow Funds held hereunder any greater degree of care than it gives its own similar property and shall not be required to invest any Escrow Funds held hereunder, except as directed in this Agreement. Uninvested Escrow Funds held hereunder shall not earn or accrue interest.

(b) The Escrow Agent shall not be liable for actions or omissions hereunder, except for its own gross negligence or willful misconduct and, except with respect to claims based upon such gross negligence or willful misconduct that are successfully asserted against the Escrow Agent, the other parties hereto shall jointly and severally indemnify and hold harmless the Escrow Agent (and any successor Escrow Agent) from and against any and all losses, liabilities, claims, actions, damages and expenses, including reasonable attorneys' fees and expenses, arising out of and in connection with this Agreement. Without limiting the foregoing, the Escrow Agent shall in no event be liable in connection with its investment or reinvestment of any Escrow Funds held by it hereunder in good faith, in accordance with the terms hereof, including, without limitation, any liability for any delays (not resulting from its gross negligence or willful misconduct) in the investment or reinvestment of the Escrow Funds or any loss of interest incident to any such delays. This Section 5(b) shall survive notwithstanding any termination of this Agreement or the resignation of the Escrow Agent.

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(c) The Escrow Agent shall be entitled to rely upon any order, judgment, certification, demand, notice, instrument or other writing delivered to it hereunder without being required to determine the authenticity or the correctness of any fact stated therein or the propriety or validity of the service thereof. The Escrow Agent may act in reliance upon any instrument or signature believed by it to be genuine and may assume that the person purporting to make any statement or execute any document in connection with the provisions hereof has been duly authorized to do so. The Escrow Agent may conclusively presume that the undersigned representative of any party hereto which is an entity other than a natural person has full power and authority to instruct the Escrow Agent on behalf of that party unless written notice to the contrary is delivered to the Escrow Agent.

(d) The Escrow Agent may act pursuant to the advice of counsel with respect to any matter relating to this Agreement and shall not be liable for any action taken or omitted by it in good faith in accordance with such advice.

(e) The Escrow Agent has no interest in the Escrow Funds deposited hereunder but is serving as escrow holder only and has only possession thereof. Any payments of income from the Escrow Funds shall be subject to withholding regulations then in force with respect to United States and Iowa state taxes. The parties hereto will provide the Escrow Agent with appropriate Internal Revenue Service Forms W-9 for tax identification number certification, or nonresident alien certifications. This Section 5(e) shall survive notwithstanding any termination of this Agreement or the resignation of the Escrow Agent.

(f) The Escrow Agent makes no representation as to the validity, value, genuineness or collectability of any security or other document or instrument held by or delivered to it.

(g) The Escrow Agent shall not be called upon to advise any party as to the sale, retention, or other action with respect to any securities or other property deposited hereunder.

(h) The Escrow Agent (and any successor Escrow Agent) may at any time resign as such by delivering the Escrow Funds to any successor Escrow Agent jointly designated by the other parties hereto in writing, or to any court of competent jurisdiction, whereupon the Escrow Agent shall be discharged of and from any and all further obligations arising in connection with this Agreement. The resignation of the Escrow Agent will take effect on the earlier of (i) the appointment of a successor (including a court of competent jurisdiction) or (ii) the day which is thirty (30) days after the date of delivery of its written notice of resignation to the other parties hereto. If, at that time, the Escrow Agent has not received a designation of a successor Escrow Agent, the Escrow Agent's sole responsibility after that time shall be to retain and safeguard the Escrow Funds until receipt of a designation of successor Escrow Agent or a joint written disposition instruction by the other parties hereto or a final, nonappealable order of a court of competent jurisdiction.

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(i) The Escrow Agent may at any time file an equitable action of interpleader in the Iowa District Court in Story County, Iowa, and deposit the Escrow Funds with the Court. Upon deposit of the Escrow Funds with the Court, the Escrow Agent shall be released of and from any further obligations arising in connection with this Agreement.

(j) ANC and ICB shall pay the Escrow Agent compensation (as payment in full) for the services to be rendered by the Escrow Agent hereunder in the amount of ______ dollars ($______) at the time of execution of this Agreement and agree to reimburse the Escrow Agent for all reasonable expenses incurred by the Escrow Agent in performance of its duties hereunder (including reasonable attorneys’ fees). Any such compensation and reimbursement to which the Escrow Agent is entitled shall be borne fifty percent (50%) by ANC and fifty percent (50%) by ICB. Any fees or expenses of the Escrow Agent or its attorneys that are not paid as provided for herein may be taken from the Escrow Funds.

6. Limited Responsibility . This Agreement expressly sets forth all the duties of the Escrow Agent with respect to any and all matters pertinent hereto. No implied duties or obligations shall be read into this Agreement against the Escrow Agent. The Escrow Agent shall not be bound by the provisions of any agreement among the other parties hereto except this Agreement.

7. Ownership for Tax Purposes . ICB agrees that, for purposes of federal, state and other taxes based on income, ICB will be treated as the owner of the Escrow Funds and that ICB will report all income, if any, that is earned on, or derived from, the Escrow Funds as income in the taxable year or years in which such income is properly includible and pay any taxes attributable thereto.

8. Notices .

All notices, consents, waivers and other communications required or permitted under this Agreement shall be in writing and shall be deemed given to a party when (a) delivered to the appropriate address by hand, (b) delivered by a nationally recognized overnight courier service (costs prepaid), (c) sent by facsimile or e-mail (with confirmation by the transmitting equipment), or (d) received by the addressee, if sent by certified mail, return receipt requested, in each case to the following addresses, facsimile numbers or email addresses and marked to the attention of the person (by name or title) designated below (or to such other address, facsimile, email address or person as a party may designate by notice to the other parties):

ICB: Iowa Community Bancorp, Inc.

120 SW 5th Street, Unit 901

Des Moines, IA 50309

Attention: Karl W. Knock

E-mail: knockfamily@gmail.com

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with a copy to: Davis Brown Law Firm

215 10 ^th Street, Suite 1300

Des Moines, Iowa 50309

Attention: Robert A. Gamble

Facsimile: 515-471-7946

E-mail: beaugamble@davisbrownlaw.com

ANC: Ames National Corporation

405 5th Street

P.O. Box 846

Ames, Iowa 50010

Attention: John P. Nelson

Facsimile: ____________________

E-mail: John.Nelson@AmesNational.com

with a copy to: Nyemaster Goode, P.C.

700 Walnut, Suite 1600

Des Moines, IA 50309-3899

Attention: Willard L. Boyd III

Facsimile: (515) 283-3108

E-mail: wlb@nyemaster.com

Escrow Agent: ________________________________

________________________________

Ph:_______________ Fax:_______________

E-mail:__________________________

9. Jurisdiction; Service of Process . Any proceeding arising out of or relating to this Agreement may be brought in the Iowa District Court for Story County, Iowa, or, if it has or can acquire jurisdiction, in the United States District Court for the Southern District of Iowa, and each of the parties irrevocably submits to the jurisdiction of such court in any such proceeding and waives any objection it may now or hereafter have to venue or to convenience of forum, agrees that all claims in respect of the proceeding shall be heard and determined only in such court and agrees not to bring any proceeding arising out of or relating to this Agreement in any other court. Process in any proceeding referred to in the preceding sentence may be served on any party anywhere in the world.

10. Execution of Agreement . This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. The exchange of copies of this Agreement and of signature pages by facsimile or email shall constitute effective execution and delivery of this Agreement as to the parties and may be used in lieu of the original Agreement for all purposes. Signatures of the parties transmitted by facsimile or email shall be deemed to be their original signatures for any purposes whatsoever.

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11. Section Headings, Construction . The headings of sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. The parties have each negotiated the terms hereof, reviewed this Agreement carefully, and discussed it with their respective counsel. It is the intent of the parties that each word, phrase, and sentence and other part hereof shall be given as plain meaning, and that rules of interpretation or construction of contracts that construe any ambiguity of any part hereof against the drafter, by virtue of being the drafter, shall not apply.

12. Waiver . The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by any party in exercising any right, power or privilege under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right, power or privilege, and no single or partial exercise of any such right, power or privilege will preclude any other or further exercise of such right, power or privilege or the exercise of any other right, power or privilege. To the maximum extent permitted by applicable law (a) no claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party, (b) no waiver that may be given by a party will be applicable except in the specific instance for which it is given, and (c) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement.

13. Entire Agreement and Modification . This Agreement supersedes all prior agreements among the parties with respect to its subject matter and constitutes a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter. This Agreement may not be amended except by a written agreement executed by ANC, ICB and the Escrow Agent.

14. Defined Terms . Terms defined in the Stock Purchase Agreement that are not otherwise defined herein shall have the same meaning as defined in the Stock Purchase Agreement.

15. Survival of Rights . The rights of the Escrow Agent and the obligations of indemnification provided herein by ANC and ICB shall survive the termination of this Agreement.

16. Applicable Law . This Agreement shall be governed in all respects by the laws of the State of Iowa.

17. Benefits . This Agreement shall inure to the benefit of and be binding upon the successors and assigns of the parties.

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18. WAIVER OF JURY TRIAL . EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed this ____ day of __________, 2019.

ESCROW AGENT:	ANC:

________________________	Ames National Corporation


By:_________________________________	By:_________________________________
Name:______________________________	Name:______________________________
Title:_______________________________	Title:_______________________________

	ICB: Iowa Community Bancorp, Inc. By:_________________________________ Name:______________________________ Title:_______________________________

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EXHIBIT B

Form of ESOP Escrow Agreement

ESCROW AGREEMENT

THIS ESCROW AGREEMENT (the “ Agreement ”) is made on the date of execution hereof, by and among Karl W. Knock and Janet R. Knock (“ Knocks ”), Ames National Corporation (“ ANC ”), and _____________________ (“ Escrow Agent ”).

RECITALS:

A. ANC has agreed to acquire from Iowa Community Bancorp, Inc. (“ ICB ”) all of the issued and outstanding shares of common stock (the “ Bank Stock ”) of Iowa State Savings Bank (“ Bank ”) under the terms of the Stock Purchase Agreement by and among ANC, ICB, Bank and Knocks dated July 29, 2019 (the “ Stock Purchase Agreement ”); and

B. Section 8.7(c) of the Stock Purchase Agreement requires that Knocks deposit funds in escrow subject to the terms and conditions of this Agreement; and

C. The Escrow Agent intends to serve as escrow agent upon the terms and conditions herein set forth.

1. Escrow Funds . In order to provide the sole source of funds to satisfy the indemnification obligations of Knocks under Section 8.4 of the Stock Purchase Agreement, Knocks agree, jointly and severally, to provide the Escrow Agent with a sum of Five Hundred Thousand Dollars ($500,000) (the “ Escrow Funds ”) no later than the date that is eighteen (18) months after the Closing Date, with the Escrow Funds to be held, invested and disbursed by the Escrow Agent as herein set forth.

2. Investment of Funds . The Escrow Funds shall be invested in the Escrow Agent’s trust money market at a variable rate, which is mutually agreed upon by ANC and Knocks with the Escrow Agent. The Escrow Agent is authorized to liquidate in accordance with its customary procedures any portion of the Escrow Funds consisting of investments to provide for payments required to be made under this Agreement. All parties acknowledge that the Escrow Funds will exceed FDIC insurance limits and that some, or all, of the funds will be uninsured deposits.

3. Payment of Claims . In the event, prior to the Escrow Termination Date (as defined below), ANC determines that an event has occurred that would permit indemnity by Knocks under Section 8.4 of the Stock Purchase Agreement, ANC may give notice in writing to the Escrow Agent (a “ Claim ”), that sets forth a description of the Claim and the amount to be paid to ANC by the Escrow Agent. A copy of the Claim shall also be given to Knocks. Knocks shall have thirty (30) days following the giving of the Claim to object to the Claim by giving written notice of such objection and the reasons therefor (an “ Objection ”) to the Escrow Agent with a copy to ANC. If such Objection is not timely given to the Escrow Agent and ANC, the Escrow Agent shall pay the amount of the Claim from the Escrow Funds to ANC.

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In the event the Escrow Agent receives a timely Objection to a Claim, the Escrow Agent shall retain the Escrow Funds until:

(b) the Escrow Agent receives written instructions executed by ANC and Knocks directing that all or any portion of the Escrow Funds be paid to ANC.

Upon payment of such funds under Section 3(a) or 3(b) above, any remaining Escrow Funds shall be retained by the Escrow Agent until released in accordance with the terms of this Agreement.

5. Duties of the Escrow Agent .

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(f) The Escrow Agent makes no representation as to the validity, value, genuineness or collectability of any security or other document or instrument held by or delivered to it.

(g) The Escrow Agent shall not be called upon to advise any party as to the sale, retention, or other action with respect to any securities or other property deposited hereunder.

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(j) ANC and Knocks shall pay the Escrow Agent compensation (as payment in full) for the services to be rendered by the Escrow Agent hereunder in the amount of ______ dollars ($______) at the time of deposit of the Escrow Funds and agree to reimburse the Escrow Agent for all reasonable expenses incurred by the Escrow Agent in performance of its duties hereunder (including reasonable attorneys’ fees). Any such compensation and reimbursement to which the Escrow Agent is entitled shall be borne fifty percent (50%) by ANC and fifty percent (50%) by Knocks. Any fees or expenses of the Escrow Agent or its attorneys that are not paid as provided for herein may be taken from the Escrow Funds.

7. Ownership for Tax Purposes . Knocks agree that, for purposes of federal, state and other taxes based on income, Knocks will be treated as the owner of the Escrow Funds and that Knocks will report all income, if any, that is earned on, or derived from, the Escrow Funds as income in the taxable year or years in which such income is properly includible and pay any taxes attributable thereto.

8. Notices .

Knocks: Karl W. Knock and Janet R. Knock

120 SW 5th Street, Unit 901

Des Moines, IA 50309

E-mail: knockfamily@gmail.com

with a copy to: Davis Brown Law Firm

215 10 ^th Street, Suite 1300

Des Moines, Iowa 50309

Attention: Robert A. Gamble

Facsimile: 515-471-7946

E-mail: beaugamble@davisbrownlaw.com

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ANC: Ames National Corporation

405 5th Street

P.O. Box 846

Ames, Iowa 50010

Attention: John P. Nelson

Facsimile: ____________________

E-mail: John.Nelson@AmesNational.com

with a copy to: Nyemaster Goode, P.C.

700 Walnut, Suite 1600

Des Moines, IA 50309-3899

Attention: Willard L. Boyd III

Facsimile: (515) 283-3108

E-mail: wlb@nyemaster.com

Escrow Agent: ________________________________

________________________________

Ph:_______________ Fax:_______________

E-mail:__________________________

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14. Defined Terms . Terms defined in the Stock Purchase Agreement that are not otherwise defined herein shall have the same meaning as defined in the Stock Purchase Agreement.

15. Survival of Rights . The rights of the Escrow Agent and the obligations of indemnification provided herein by ANC and Knocks shall survive the termination of this Agreement.

16. Applicable Law . This Agreement shall be governed in all respects by the laws of the State of Iowa.

17. Benefits . This Agreement shall inure to the benefit of and be binding upon the successors and assigns of the parties.

18. WAIVER OF JURY TRIAL . EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed this ____ day of __________, 2019.

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ESCROW AGENT:	ANC:

________________________	Ames National Corporation


By:_________________________________	By:_________________________________
Name:______________________________	Name:______________________________
Title:_______________________________	Title:_______________________________

KNOCKS:

____________________________________

Karl W. Knock

____________________________________

Janet R. Knock

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EXHIBIT C

Form of Non-Compete and Non-Solicitation Agreement

NON-COMPETE AND NON-SOLICITATION AGREEMENT

This Non-Compete and Non-Solicitation Agreement (“ Agreement ”) effective as of ____________________, 2019, is made and entered into by and between Ames National Corporation, an Iowa corporation (“ ANC ”), Iowa Community Bancorp, Inc., an Iowa corporation (“ ICB ”), and Karl W. Knock, the principal shareholder of ICB (“ Knock ”, and together with ICB, the “ ICB Parties ”).

RECITALS

WHEREAS, ANC, Iowa State Savings Bank, an Iowa state chartered bank (“ Bank ”), and ICB are parties to the Stock Purchase Agreement dated as of July 29, 2019 (the “ Purchase Agreement ”) providing for the purchase by ANC of the Bank Stock from ICB; and

WHEREAS, as a condition to closing of the transactions contemplated by the Purchase Agreement, the ICB Parties are required to enter into and deliver this Agreement for purposes of agreeing to certain non-competition and non-solicitation covenants in favor of ANC; and

WHEREAS, ANC and the ICB Parties intend to enter into this Agreement to establish the terms and conditions of such non-competition and non-solicitation covenants.

NOW, THEREFORE, in consideration of the mutual agreements contained herein, the parties hereto agree as follows:

1. Defined Terms . Any capitalized terms used but not defined herein shall have the meanings given to such terms in the Purchase Agreement.

2. Non-Competition . For a period of two (2) years commencing on the Closing Date (the “ Restricted Period ”), the ICB Parties shall not, and shall not permit any of their Affiliates to, directly or indirectly, (i) engage in or assist any Person in engaging in the business of commercial or retail banking (the “ Restricted Business ”) at any location within a one hundred (100) mile radius of Creston, Iowa (the “ Territory ”); (ii) have an interest in any Person that engages directly or indirectly in the Restricted Business in the Territory in any capacity, including as a partner, shareholder, member, employee, principal, agent, trustee or consultant; or (iii) intentionally interfere in any material respect with the business relationships (whether formed prior to or after the date of this Agreement) between Bank and customers or suppliers of Bank. Notwithstanding the foregoing the ICB Parties or their Affiliates may own, directly or indirectly, solely as an investment, securities of any Person traded on any national securities exchange if the ICB Parties or such Affiliate is not a controlling person of, or a member of a group which controls, such Person and does not, directly or indirectly, own five percent (5%) or more of any class of securities of such Person.

3. Non-Solicitation . During the Restricted Period, the ICB Parties shall not, and shall not permit any of their Affiliates to, directly or indirectly:

(a) hire or solicit any employee of Bank or encourage any such employee to leave such employment or hire any such employee who has left such employment, except pursuant to a general solicitation which is not directed specifically to any such employees; provided, that nothing in this Section 3(a) shall prevent the ICB Parties or any of their Affiliates from hiring (i) any employee whose employment has been terminated by Bank; or (ii) after 180 days from the date of termination of employment, any employee whose employment with Bank has been terminated by the employee; or

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(b) solicit or entice, or attempt to solicit or entice, any clients or customers of Bank or potential clients or customers of Bank for purposes of diverting their business or services from Bank.

4. Enforcement . The ICB Parties acknowledge that a breach or threatened breach of this Agreement would give rise to irreparable harm to ANC, for which monetary damages would not be an adequate remedy, and hereby agree that in the event of a breach or a threatened breach by the ICB Parties of any such obligations, ANC shall, in addition to any and all other rights and remedies that may be available to it in respect of such breach, be entitled to equitable relief, including a temporary restraining order, an injunction, specific performance and any other relief that may be available from a court of competent jurisdiction (without any requirement to post bond).

5. Modification . The ICB Parties acknowledge that the restrictions contained in this Agreement are reasonable and necessary to protect the legitimate interests of ANC and constitute a material inducement to ANC to enter into the Purchase Agreement and consummate the transactions contemplated by the Purchase Agreement. In the event that any covenant contained in this Agreement should ever be adjudicated to exceed the time, geographic, product or service, or other limitations permitted by applicable Law in any jurisdiction, then any court is expressly empowered to reform such covenant, and such covenant shall be deemed reformed, in such jurisdiction to the maximum time, geographic, product or service, or other limitations permitted by applicable Law. The covenants contained in this Agreement and each provision hereof are severable and distinct covenants and provisions. The invalidity or unenforceability of any such covenant or provision as written shall not invalidate or render unenforceable the remaining covenants or provisions hereof, and any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such covenant or provision in any other jurisdiction.

6. Applicable Law and Venue . This Agreement shall be governed by and construed under the laws of the State of Iowa. Each of the parties hereby irrevocably submits to the non-exclusive jurisdiction of the Iowa District court sitting in Des Moines, Iowa or the U.S. District Court for the Southern District of Iowa, Central Division, in any action or proceeding arising out of or relating to this Agreement, and each party hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in any such United States Federal or Iowa District court. Each of the parties irrevocably waives any objection, including, without limitation, any objection to the laying of venue or based on the grounds of forum non conveniens, which it may now or hereafter have to the bringing of any such action or proceedings in such respective jurisdictions. Each of the parties irrevocably consents to the service of any and all process in any such action or proceeding brought in any court in or of the State of Iowa by the delivery of copies of such process to each party at its address specified for notices to be given hereunder or by certified mail directed to such address.

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7. Entire Agreement; Modifications . This Agreement constitutes the entire agreement between the parties pertaining to the subject matter hereof. This Agreement may be modified or amended only by a writing signed by ANC and the ICB Parties.

8. Notice . All notices required or permitted under this Agreement must be given in writing, reference this Agreement and will be deemed delivered and given: (a) upon personal delivery to the party to be notified; (b) when sent by facsimile with confirmation of receipt; (c) on the date received if sent by registered or certified U.S. mail, return receipt requested, postage and charges prepaid; or (d) one business day after deposit with a nationally-recognized commercial overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the following addresses (or at such other address for a party as shall be specified by like notice):

If to ANC:	If to ICB:

Ames National Corporation	Iowa Community Bancorp, Inc.
405 5 ^th Street	401 W. Adams
P.O. Box 846	Creston, Iowa 50801
Ames, Iowa 50125	Attention:_____________________
Attention: President	Telephone:_____________________
Telephone: (515) 232-5561	Facsimile:_____________________
Facsimile: (515) 232-5778

	If to Knock:

	Karl W. Knock 120 SW 5th Street, Unit 901 Des Moines, IA 50309 E-mail: knockfamily@gmail.com

Each notice given shall be deemed delivered and effective on the date of actual delivery thereof. Each party may change its address for notice by giving notice thereof in the manner provided above.

9. Counterparts . This Agreement may be executed in one or more counterparts, and any party to this Agreement may execute and deliver this Agreement by executing and delivering any of such counterparts, each of which when executed and delivered shall be deemed to be an original and all of which taken together shall constitute one and the same instrument. The exchange of copies of this Agreement and of signature pages by facsimile or electronic mail transmission shall constitute effective execution and delivery of this Agreement as to the parties and may be used in lieu of the original Agreement for all purposes. Signatures of the parties transmitted by facsimile or electronic mail shall be deemed to be their original signatures for all purposes.

10. WAIVER OF JURY TRIAL. Each of the parties to this Agreement hereby irrevocably and unconditionally waives all right to trial by jury in any action, proceeding or counterclaim arising out of or relating to this Agreement.

[Remainder of page intentionally left blank - signature page follows]

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IN WITNESS WHEREOF, the parties have executed this Agreement on the date first set forth above.

AMES NATIONAL CORPORATION	IOWA COMMUNITY BANCORP, INC.

By:_________________________________	By:_________________________________

Name:______________________________	Name:______________________________

Title:_______________________________	Title:_______________________________


	____________________________________ Karl W. Knock, Individually

[Signature page to Non-Compete and Non-Solicitation Agreement]

#8575609

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Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John P. Nelson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Ames National Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 7, 2019	By: /s/ John P. Nelson

	John P. Nelson, Chief Executive Officer and President

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John L. Pierschbacher, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Ames National Corporation;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15I and 15d-15I) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 7, 2019	By: /s/ John L. Pierschbacher

	John L. Pierschbacher, Chief Financial Officer

EXHIBIT 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the filing of the Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 (the “Report”) by Ames National Corporation (the “Company”), the undersigned officer of the Company hereby certifies that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.

IN WITNESS WHEREOF, the undersigned has executed this Certification as of the 7th day of August, 2019.

	By: /s/ John P. Nelson

	John P. Nelson, Chief Executive Officer and President

EXHIBIT 32.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.

IN WITNESS WHEREOF, the undersigned has executed this Certification as of the 7th day of August, 2019.

	By: /s/ John L . Pierschbacher

	John L. Pierschbacher, Chief Financial Officer