Ames National’s Margin Expansion Quickened

The Tip Desk · October 16, 2026 · 3 min read

The Iowa banking group’s net interest margin reached 3.38% in the third quarter, extending a recovery supported by investment reinvestment and lower funding costs.

Ames National (ATLO), the Iowa banking group, widened its net interest margin at a faster pace in the third quarter, extending the improvement recorded earlier in the year. Its tax-equivalent margin expanded 20 bps sequentially to 3.38% from 3.18%, following a 17 bps expansion from 3.01% in the first quarter. The interest business remained the central source of its earnings improvement.

Third-quarter net interest income totaled $17.0 million, an increase of 20.7% YoY. Ames attributed the improvement to higher investment balances, securities maturities reinvested at higher rates, and lower funding costs. Lower market rates reduced deposit interest expense, while reduced borrowings lowered other interest expense. The combination extended a pattern already evident in the first and second quarters, when reinvestment and cheaper funding also supported interest earnings.

The recovery came without an expanding loan book on a year-over-year basis. Net loans ended September at $1.26 billion, down 1.2% YoY, which Ames attributed primarily to payoffs in multifamily and commercial real estate lending. Deposits totaled $1.831 billion. The company said public funds and time deposits declined, partly offset by higher retail and commercial checking and money market balances. The balance sheet therefore provided a different backdrop from the improving interest margin.

Fees supplied another source of quarterly revenue. Noninterest income rose 36.7% to $3.5 million, with wealth management contributing $2.09 million. Ames attributed the wealth management result to estate and trust fees from several estates that completed administration during the quarter, alongside growth in assets under management. Other noninterest income included $235 thousand of insurance proceeds for storm-related property damage, giving the quarter a contribution separate from its customer fee businesses.

Operating expenses totaled $11.2 million, including $600 thousand of consultant fees for contract negotiations. Ames attributed higher professional costs to those fees and higher compensation costs to anticipated bonus payouts as performance thresholds were met, alongside normal salary and benefit increases. The efficiency ratio was 54.97%. The company expects the consultant fees to continue throughout 2026 while negotiations remain in process, leaving an identified expense burden alongside the revenue improvement.

Net income reached $7.0 million, or $0.80 a share, and return on average assets was 1.35%. Taxes absorbed part of the operating earnings: the effective tax rate was 23%, with Ames attributing the tax increase partly to lower New Markets Tax Credits. The company said most of the projects had reached their final year of credits in 2025. That placed the tax result on a separate footing from the improvement in lending and investment income.

Credit remained a counterweight to the margin story. Substandard loans totaled $52.0 million at September’s end, against $34.8 million at March’s end. Ames attributed the deterioration to a large relationship secured by residential properties and weakness in multifamily loans experiencing lower occupancy. Nonaccrual loans stood at $17.0 million. Those balances kept attention on property-related exposures even while the bank’s interest earnings benefited from better yields and funding costs.

The quarterly credit loss expense was $66 thousand, while net charge-offs totaled $745 thousand. Ames said the charge-offs involved commercial real estate and operating loans with specific reserves already established. After quarter-end, a $3 million nonaccrual agricultural relationship was repaid in full, and approximately $300 thousand of nonaccrual interest was recognized in October. That recovery supplied a concrete subsequent development alongside the remaining problem-loan balances.

Available-for-sale securities totaled $671 million, and Ames said approximately $100 million of investments mature within one year at an average yield of about 1.9%.

*Source: Ames National quarterly earnings releases.*