AMES NATIONAL CORP (ATLO) stock intrinsic value fair value estimate & owner earnings analysis

Ames National Corporation is the holding company for six community banks in central, north-central and south-central Iowa: First National Bank (Ames), State Bank & Trust (Nevada), Boone Bank & Trust (Boone), Reliance State Bank (Story City), United Bank & Trust (Marshalltown) and Iowa State Savings Bank (Creston), the last acquired in 2019. Together they hold about $2.1 billion of assets and $1.85 billion of deposits, lending to farmers, small businesses, commercial and multi-family property owners and households, and earning trust, wealth-management and mortgage-sale fees on the side. How it makes money: the banks pay depositors one rate and lend and invest at a higher one. A large share of their loans and bonds carry fixed rates that reset slowly, while deposit costs move quickly. That is why earnings fell hard when interest rates jumped in 2022-2023: the margin on earning assets dropped to about 2.2%, and owner earnings (cash earnings after the upkeep spending needed to stay in business) fell from $3.14 a share in 2021 to $1.30 in 2023. As older low-yielding bonds and loans have matured and been replaced at today's rates, the margin recovered to 2.75% in 2025 and owner earnings to $2.38 a share. The recovery has held for four straight quarters: net income averaged about $5.5 million a quarter in the second half of 2025 and about $5.9 million a quarter in the first half of 2026, and first-half 2026 net income of $11.9 million was 50% above the same period of 2025. Starting point. We measure the business from 2020, after the Creston acquisition, because earlier years describe a smaller bank. That six-year window runs through a full interest-rate cycle, from near-zero rates (2020-2021) through the rate shock (2022-2024) to the recovery (2025), and its middle value is $2.38 a share. Recent quarters point higher: first-half 2026 cash earnings annualise, by our estimate, to about $3.10 a share, helped slightly by a small release of loan-loss reserves. Accounting judgements. The company pays no stock-based compensation. Loan-loss provisions are added back as non-cash, which is reasonable here because actual net charge-offs have been tiny ($357 thousand in 2025, $453 thousand in 2024). In 2020-2021 the cash figures were flattered by about 13-18 cents a share from selling down mortgages held for sale during the refinancing boom; this does not move the midpoint we use. The bond portfolio carried $24.2 million of pre-tax unrealised losses at the end of 2025; those are already deducted from book value and shrink as the bonds mature, so we make no further charge for them. Debt. For a bank, deposits and short-term funding (Federal Home Loan Bank advances and other borrowings of $21.4 million and repurchase agreements of $38.8 million at the end of 2025) are the raw material it lends out, and their interest cost is already deducted from the earnings we value, so we do not subtract them a second time. The holding company itself owes only $1.9 million, against $3.0 million of its own cash, so nothing meaningful ranks ahead of shareholders. In every case below, what the business is worth is therefore what the shares are worth. Growth. We credit no ongoing growth. Deposits have been flat at about $1.85 billion since 2024, past expansion came from occasional acquisitions rather than a steady repeatable process, and share buybacks are a use of the earnings rather than extra earnings. The only step-up credited is the margin recovery that four quarters of results already show, plus, in the bull case, further repricing of the $92.6 million of bonds maturing within a year and $358 million maturing within one to five years. Our first-year base assumption of $2.95 a share is a 24% rise on 2025, below the 54% rise actually achieved in 2025 and below the current half-year run rate. After that, the earnings are carried forward flat, supported by the banks' long-standing local deposit franchises (Iowa State Savings Bank, for one, was organized in the 1800s), which have come through many rate cycles. Bear case: the margin squeeze of 2022-2024 repeats because the same fixed-rate asset base is still in place, and problem loans turn into losses. Loans graded substandard rose $7.2 million in 2025 to $56.8 million, driven by falling occupancy in some multi-family properties and one troubled agricultural relationship, against $213 million of equity. Owner earnings of $2.50 next year fall to $1.60 a share for two years, then settle at $2.00, close to the average of 2022-2025. The business is worth about $293 million, it owes nothing beyond the funding already charged, and the shares are worth about $33.11. Base case: the recovered margin holds for a year at about $2.95 a share, then settles at a through-the-cycle level of $2.85, between the six-year midpoint and today's run rate, recognising that rate cycles will squeeze the margin again from time to time. The business is worth about $422 million, with nothing further owed, or about $47.59 a share. Bull case: bonds and loans keep repricing as they mature, taking owner earnings to $3.10 and then $3.20, and settling at $3.25 a share, roughly the $28.6 million of cash earnings the bank produced in 2021 spread over today's smaller share count. The business is worth about $478 million, with nothing further owed, or about $53.98 a share. What changed since our previous estimate: we previously valued the shares at about $34, $82 and $136. The earlier base and bull cases assumed earnings would grow about 3% a year forever and, in the bull case, that another acquisition would add value. Neither is backed by anything the bank has already secured, so both are removed, which is the main reason the base and bull values fall. Working the other way, four consecutive stronger quarters now confirm a higher level of earning power than the ten-year average we used before, which lifts the starting point. We also correct the earlier description: the company owns six banks, not five. Treating deposits and borrowings as operating funding rather than debt is unchanged. What would make this wrong: a renewed and lasting rise in deposit costs without matching asset repricing, or losses on multi-family or farm loans much larger than the current problem-loan list suggests. The banks face heavy local competition (in Ames alone, fifteen banks and five credit unions). On the upside, a steady record of deposit growth or accretive acquisitions would justify crediting growth we have left out. Margin-of-safety price. This is a steady but rate-sensitive community bank with meaningful farm and commercial-property exposure. The margin-of-safety price is about $30 a share, below even the bear value and about 37% under the base value; from that price the base case implies a strong return if the value is recognised.