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 ☒ 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 (§ 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 ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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 ☒

As of ~~August~~May 8, ~~2019,~~2020, the registrant had ~~6,727,908~~6,452,559 shares of common stock, $0.01 par value per share, outstanding.

	June 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
	(unaudited)						(unaudited)
	(dollars in thousands except per share data)						(dollars in thousands except per share data)
ASSETS
Cash and cash equivalents	$	116,251		$	61,087		$	20,934		$	108,457
Interest earning cash at other financial institutions								611			20,554
Securities available-for-sale, at fair value		158,561			195,945			246,148			158,733
FHLB Stock		2,178			2,978			4,903			1,628
Loans held for sale		7,448			2,949			14,388			2,151
Loans, net of allowance for loan losses of $16,258 as of June 30, 2019; $16,505 as of December 31, 2018		1,131,574			1,190,790
Loans, net of allowance for loan losses of $17,547 as of March 31, 2020; $15,267 as of December 31, 2019								994,889			1,020,506
Premises and equipment, net		15,713			16,075			15,115			13,603
Loan servicing rights		9,621			9,047			16,211			12,509
Other real estate owned, net		8,693			6,568			3,247			5,521
Cash surrender value of bank owned life insurance		18,067			17,842			28,458			18,302
Deferred tax asset, net		1,942			4,346			439			1,453
Goodwill		5,038			5,038			—			5,038
Core deposit intangible, net of accumulated amortization of $1,447 as of June 30, 2019; $1,288 as of December 31, 2018		354			513
Core deposit intangible, net								171			225
Accrued interest receivable and other assets		9,206			7,849			9,460			10,099
Total assets	$	1,484,646		$	1,521,027		$	1,354,974		$	1,378,779

LIABILITIES
Deposits:
Noninterest-bearing	$	111,022		$	121,436		$	117,434		$	138,489
Interest-bearing		1,094,155			1,101,911			902,526			962,953
Total deposits		1,205,177			1,223,347			1,019,960			1,101,442
Other borrowings		809			827			2,193			794
Advances from FHLB		59,400			89,400			109,400			44,400
Subordinated debentures		44,781			44,703			44,896			44,858
Accrued interest payable and other liabilities		11,755			10,466			13,479			15,256
Total liabilities		1,321,922			1,368,743			1,189,928			1,206,750

SHAREHOLDERS' EQUITY
Preferred stock- $1,000 stated value; 15,000 shares authorized; 8,000 shares issued		8,000			8,000			8,000			8,000
Common stock - $0.01 par value; 50,000,000 authorized; 7,161,828 shares issued and 6,717,908 shares outstanding at June 30, 2019; 7,153,174 shares issued and 6,709,480 shares outstanding as of December 31, 2018		28			28
Common stock - $0.01 par value; 50,000,000 authorized; 7,196,360 shares issued and 6,496,790 shares outstanding at March 31, 2020; 7,178,052 shares issued and 6,734,132 shares outstanding as of December 31, 2019								28			28
Surplus		53,484			53,162			54,631			54,122
Retained earnings		105,035			98,475			109,833			113,111
Treasury stock, at cost; 443,920 shares at June 30, 2019; 443,694 shares at December 31, 2018		(5,030	)		(5,030	)
Accumulated other comprehensive gain (loss)		1,207			(2,351	)
Treasury stock, at cost; 699,570 shares at March 31, 2020; 443,920 shares at December 31, 2019								(10,883	)		(5,030	)
Accumulated other comprehensive income								3,437			1,798
Total shareholders' equity		162,724			152,284			165,046			172,029
Total liabilities and shareholders' equity	$	1,484,646		$	1,521,027		$	1,354,974		$	1,378,779

For the Three Ended March 31, 2020 and ~~Six Months Ended June 30,~~ 2019 ~~and 2018~~

	For the Three Months Ended June 30,				For the Six Months Ended June 30,				For the Three Months Ended March 31,
	2019		2018		2019		2018		2020			2019
	(dollars in thousands except per share data)								(dollars in thousands except per share data)
INTEREST AND DIVIDEND INCOME
Loans, including fees	$	15,484	$	14,366	$	30,985	$	28,057	$	12,582		$	15,501
Taxable securities		1,177		982		2,363		1,614		1,282			1,186
Tax-exempt securities		82		14		257		171		6			175
Federal funds sold and other		465		401		729		614		225			264
Total interest and dividend income		17,208		15,763		34,334		30,456		14,095			17,126

INTEREST EXPENSE
Deposits		5,678		4,600		11,102		8,396		4,347			5,424
FHLB advances and other borrowed funds		415		487		879		971		244			464
Subordinated debentures		683		338		1,361		481		706			678
Total interest expense		6,776		5,425		13,342		9,848		5,297			6,566
Net interest income		10,432		10,338		20,992		20,608		8,798			10,560
Provision for loan losses		876		533		1,628		630		2,218			752
Net interest income after provision for loan losses		9,556		9,805		19,364		19,978		6,580			9,808
NON-INTEREST INCOME
Services charges		407		445		760		810		342			353
Gain on sale of loans, net		26		45		25		77
Gain (loss) on sale of loans, net										38			(1	)
Loan servicing fees		1,909		1,613		3,656		3,075		2,120			1,747
Other		545		213		1,196		394		203			651
Total non-interest income		2,887		2,316		5,637		4,356		2,703			2,750
NON-INTEREST EXPENSE
Employee compensation and benefits		4,199		4,114		8,681		8,332		5,260			4,482
Occupancy		283		278		672		482		354			389
Information processing		591		529		1,154		994		670			563
Write-down of other real estate owned		250		104		250		104
Professional fees										401			399
Writedown of other real estate owned										1,360			—
Goodwill impairment										5,038			—
Other		2,123		1,912		3,994		3,810		1,935			1,472
Total non-interest expense		7,446		6,937		14,751		13,722		15,018			7,305
Income before income taxes		4,997		5,184		10,250		10,612
Income tax expense		1,293		1,334		2,784		2,708
NET INCOME	$	3,704	$	3,850	$	7,466	$	7,904
Income (loss) before income taxes										(5,735	)		5,253
Income tax expense (benefit)										(547	)		1,491
NET INCOME (LOSS)									$	(5,188	)	$	3,762

NET INCOME PER SHARE:
NET INCOME (LOSS) PER SHARE:
Basic	$	0.53	$	0.56	$	1.07	$	1.15	$	(0.79	)	$	0.54
Diluted	$	0.53	$	0.55	$	1.07	$	1.14	$	(0.78	)	$	0.54
Dividends paid per share	$	0.05	$	0.07	$	0.10	$	0.14	$	0.07		$	0.05

For the Three Ended March 31, 2020 and ~~Six Months Ended June 30,~~ 2019 ~~and 2018~~

For the ~~Six~~Three Months Ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~

	Preferred Stock		Common Stock			Surplus			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Shareholders' Equity			Preferred Stock		Common Stock		Surplus		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Shareholders' Equity
	(dollars in thousands except share data)
Balance at December 31, 2017	$	8,000	$	28		$	52,230		$	86,385		$	(5,030	)	$	(627	)	$	140,986
Net income		—		—			—			4,054			—			—			4,054
Other comprehensive loss		—		—			—			—			—			(1,885	)		(1,885	)
Stock compensation expense		—		—			117			—			—			—			117
Cash dividends declared on common stock		—		—			—			(468	)		—			—			(468	)
Cash dividends declared on preferred stock		—		—			—			(97	)		—			—			(97	)
Reclassification of par value to surplus		—		(21	)		21			—			—			—			—
Reclassification of stranded tax effects of rate change		—		—			—			126			—			(126	)		—
Proceeds from exercise of common stock options (2,952 shares)		—		—			107			—			—			—			107
Balance at March 31, 2018	$	8,000	$	7		$	52,475		$	90,000		$	(5,030	)	$	(2,638	)	$	142,814
Net income		—		—			—			3,850			—			—			3,850
Other comprehensive loss		—		—			—			—			—			(256	)		(256	)
Stock compensation expense		—		—			142			—			—			—			142
Cash dividends declared on common stock		—		—			—			(469	)		—			—			(469	)
Cash dividends declared on preferred stock		—		—			—			(99	)		—			—			(99	)
Reclassification of par value from surplus		—		21			(21	)		—			—			—			—
Proceeds from exercise of common stock options (9,640 shares)		—		—			100			—			—			—			100
Balance at June 30, 2018	$	8,000	$	28		$	52,696		$	93,282		$	(5,030	)	$	(2,894	)		146,082
																					(dollars in thousands except share data)
Balance at December 31, 2018	$	8,000	$	28		$	53,162		$	98,475		$	(5,030	)	$	(2,351	)	$	152,284		$	8,000	$	28	$	53,162	$	98,475		$	(5,030	)	$	(2,351	)	$	152,284
Net income		—		—			—			3,762			—			—			3,762			—		—		—		3,762			—			—			3,762
Other comprehensive income		—		—			—			—			—			2,305			2,305			—		—		—		—			—			2,305			2,305
Stock compensation expense		—		—			118			—			—			—			118			—		—		118		—			—			—			118
Cash dividends declared on common stock		—		—			—			(335	)		—			—			(335	)		—		—		—		(335	)		—			—			(335	)
Cash dividends declared on preferred stock		—		—			—			(117	)		—			—			(117	)		—		—		—		(117	)		—			—			(117	)
Balance at March 31, 2019	$	8,000	$	28		$	53,280		$	101,785		$	(5,030	)	$	(46	)	$	158,017		$	8,000	$	28	$	53,280	$	101,785		$	(5,030	)	$	(46	)	$	158,017
Net income		—		—			—			3,704			—			—			3,704

Balance at December 31, 2019																					$	8,000	$	28	$	54,122	$	113,111		$	(5,030	)	$	1,798		$	172,029
Impact of cumulative effect of change in accounting principle⁽¹⁾																						—		—		—		2,484			—			—			2,484
Balance at January 1, 2020																					$	8,000	$	28	$	54,122	$	115,595		$	(5,030	)	$	1,798		$	174,513
Net loss																						—		—		—		(5,188	)		—			—			(5,188	)
Other comprehensive income		—		—			—			—			—			1,253			1,253			—		—		—		—			—			1,639			1,639
Stock compensation expense		—		—			144			—			—			—			144			—		—		314		—			—			—			314
Cash dividends declared on common stock		—		—			—			(336	)		—			—			(336	)		—		—		—		(466	)		—			—			(466	)
Cash dividends declared on preferred stock		—		—			—			(118	)		—			—			(118	)		—		—		—		(108	)		—			—			(108	)
Proceeds from exercise of common stock options (5,000 shares)		—		—			60			—			—			—			60
Balance at June 30, 2019	$	8,000	$	28		$	53,484		$	105,035		$	(5,030	)	$	1,207		$	162,724
Treasury stock purchases (255,650 shares)																						—		—		—		—			(5,853	)		—			(5,853	)
Proceeds from exercise of common stock options (14,590 shares)																						—		—		195		—			—			—			195
Balance at March 31, 2020																					$	8,000	$	28	$	54,631	$	109,833		$	(10,883	)	$	3,437		$	165,046

For the ~~Six~~Three Months Ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~

	For the Six Months Ended
	June 30, 2019			June 30, 2018			March 31, 2020			March 31, 2019
	(dollars in thousands)						(dollars in thousands)
Cash flows from operating activities
Net income	$	7,466		$	7,904		$	(5,188	)	$	3,762
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization of premises and equipment		687			560			345			342
Amortization of core deposit intangible		159			218			54			83
Amortization of subordinated debentures discount		78			34			38			39
Impairment of goodwill								5,038			—
Provision for loan losses		1,628			630			2,218			752
Realized gain on sales of securities available-for-sale		(341	)		—			—			(136	)
Realized gain on sales of other real estate owned		(127	)		(149	)
Write-down of other real estate owned		250			104
Realized gain on sales of premises and equipment		(2	)		(1	)
Realized loss on sales of premises and equipment								350			—
Realized loss on sales of other real estate owned								4			—
Writedown of other real estate owned								1,360			—
Increase in cash surrender value of bank owned life insurance		(225	)		(225	)		(156	)		(111	)
Deferred income tax expense (benefit)		762			(373	)		(253	)		398
Stock compensation expense, net		262			259
Stock compensation expense								314			118
Net amortization of securities		243			445			171			153
Net change in:
Accrued interest receivable and other assets		(1,357	)		(1,057	)		(1,103	)		(1,250	)
Loans held for sale		(4,499	)		(4,893	)		(12,237	)		199
Loan servicing rights		(574	)		(137	)		(1,218	)		(228	)
Accrued interest payable and other liabilities		462			839			(2,314	)		(228	)
Net cash provided by operating activities		4,872			4,158
Net cash provided by (used in) operating activities								(12,577	)		3,893
Cash flows from investing activities
Proceeds from maturities, principal repayments, and call of securities available-for-sale		14,149			11,958			5,315			7,234
Purchases of securities available-for-sale		—			(76,684	)		(89,455	)		—
Proceeds from sales of securities available-for-sale		29,361			—
Redemption of FHLB stock		800			784
Purchase of FHLB stock								(3,275	)		(20	)
Purchases of bank owned life insurance								(10,000	)		—
Loan originations and principal collections, net		52,295			(37,425	)		23,399			23,421
Proceeds from sales of premises and equipment		4			—			1,381			—
Purchases of premises and equipment		(327	)		(5,464	)		(1,849	)		(84	)
Proceeds from sales of other real estate owned		3,044			2,107			910			2,832
Net cash provided by (used in) investing activities		99,326			(104,724	)		(73,574	)		33,383
Cash flows from financing activities
Net increase (decrease) in demand and savings deposits		13,319			(27,247	)
Net increase (decrease) in certificates of deposits		(31,489	)		127,602
Net decrease in demand and savings deposits								(33,756	)		(14,388	)
Net decrease in certificates of deposits								(47,726	)		(32,682	)
Net change in other borrowings		(18	)		(458	)		1,399			585
Proceeds from FHLB advances		115,000			63,000			255,000			94,000
Repayment of FHLB advances		(145,000	)		(76,300	)		(190,000	)		(83,000	)
Proceeds from issuance of subordinated debt		—			29,168
Payments to acquire treasury stock								(5,853	)		—
Proceeds from issuance of common stock		60			207			195			—
Dividends paid on common stock		(671	)		(937	)		(466	)		(335	)
Dividends paid on preferred stock		(235	)		(196	)		(108	)		(117	)
Net cash provided by (used for) financing activities		(49,034	)		114,839
Net cash used in financing activities								(21,315	)		(35,937	)
Net change in cash and cash equivalents		55,164			14,273			(107,466	)		1,339
Cash and cash equivalents, beginning of period		61,087			66,771			129,011			61,087
Cash and cash equivalents, end of period	$	116,251		$	81,044		$	21,545		$	62,426

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	12,346		$	9,538		$	3,774		$	5,135
Income taxes	$	—		$	1,975		$	—		$	—
Noncash operating activities:
Change in accounting principle							$	2,484		$	—
Noncash investing activities:
Transfer from loans to other real estate owned	$	5,292		$	6,104		$	—		$	1,147
Loans charged off	$	3,584		$	42		$	—		$	390

The unaudited consolidated financial statements of County Bancorp, Inc. (“we,” “us,” ”our,” or the “Company”) and its subsidiaries, including Investors Community Bank (the “Bank”), have been prepared, in the opinion of management, to reflect all adjustments necessary for a fair presentation of the financial position, results of operations, and cash flows as of and for the three ~~and six~~ months ended ~~June 30, 2019.~~March 31, 2020. The results of operations for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 may not necessarily be indicative of the results to be expected for the year ending December 31, ~~2019,~~2020, or for any other period.

Management of the Company is required to make estimates and assumptions which affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of income and expenses during the reported periods. Actual results could differ significantly from those estimates.

These unaudited interim financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”). Certain information in footnote disclosure normally included in financial statements prepared in accordance with GAAP has been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019 filed with the SEC on March 13, 2020.

The Company qualifies as an “emerging growth company” under the Jumpstart Our Business Startups Act (the “JOBS Act”). Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”), for complying with new or revised accounting standards. As an emerging growth company, the Company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company elected to take advantage of the benefits of this extended transition period.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law. Section 4013 of the CARES Act allows financial institutions to elect to suspend troubled debt restructuring accounting under certain circumstances when the temporary restructuring is related to the COVID-19 pandemic. The Company has elected to implement Section 4013, however for the three months ended March 31, 2020, the effect on the financial statements is not material.

In June 2016, the ~~FASB~~Financial Accounting Standards Board (the “FASB”) issued ASU No. 2016-13, Financial Instruments – Credit Losses, to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendment replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This amendment is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years with early adoption permitted for the fiscal year beginning after December 15, 2018, including interim periods within those fiscal years. Entities should apply this amendment by a modified-retrospective approach, through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company has engaged a third-party software consultant and is currently testing the model’s methodology in parallel to current loss model calculations. At this time, the effect this ASU will have on its consolidated financial statements is still being quantified as the Company ensures data, assumptions, and methods all comply with the requirements of ASU 2016-13. This amendment is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years with early adoption permitted for the fiscal year beginning after December 15, 2018, including interim periods within those fiscal years. In ~~July~~October 2019, the FASB ~~made a tentative decision~~voted to delay the effective date for the credit losses standard to January 2023 for certain entities, including ~~certain Securities and Exchange Commission~~SEC filers ~~public business entities,~~that qualify as smaller reporting companies and private companies. As a smaller reporting company, the Company ~~would be~~is eligible for the ~~proposed delay. The Company is currently evaluating the impact of the proposed~~ delay and will be deferring adoption. Management will continue to progress on its implementation project ~~plan.~~

~~In August 2017, the FASB issued ASU No. 2017-12,~~ ~~Derivatives~~plan and ~~Hedging (Topic 815)~~, to permit entities to better portray the economic results of their hedging strategies in their financial statements. In addition, the amendments make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. The amendment is effective for fiscal years beginning after December 15, 2018, with early adoption permitted, including adoption in an interim period. The Company has chosen to early adopt this amendment in connection with the interest rate swap that commenced on June 15, 2018, and it had no material impact onimprove the Company’s ~~results of operation, financial position, or liquidity.~~approach throughout the deferral period.

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases: Amendments to the FASB Accounting Standards Codification~~ which requires companies to recognize all leases as assets and liabilities on the consolidated balance sheet. This ASU retains a distinction between finance leases and operating leases, and the classification criteria for distinguishing between finance leases and

operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the current accounting literature. The result of retaining a distinction between finance leases and operating leases is that under the lessee accounting model, the effect of leases in a consolidated statement of comprehensive income and a consolidated statement of cash flows is largely unchanged from previous GAAP. ~~In July 2018, the FASB issued ASU 2018-11,~~ ~~Leases (Topic 842) – Targeted Improvements~~, which provided an additional and optional transition method with which to adopt the new leases standard. The updated ASU allows entities to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The amendment became effective January 1, 2019, and was adopted by the Company retrospectively to the beginning of the adoption period. Since all of the Company’s leases are operating leases, there was no impact to the consolidated statements of operations; however, a right-of-use asset of $0.2 million and a corresponding liability were recorded on the Company’s balance sheet as of the effective date of the amendment.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic ~~842)~~820) – Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which focuses on improving the effectiveness of disclosures in the notes to the financial statements. The ~~amendment is effective for the fiscal years beginning after December 15, 2019. The~~ amendments on changes in unrealized gains and losses, the range and weighted average of significant

unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The ~~Company is currently evaluating~~amendment became effective on January 1, 2020, and the adoption did not have a material effect ~~this standard will have~~ on the Company’s financial statements.

As of January 1, 2020, the Company elected to make an accounting principle change for the valuation of the loan servicing assets from amortized cost to fair market value. Under the amortized cost method, servicing rights were amortized in proportion to and over the period of estimated net servicing income. The amortized cost of these assets was assessed for impairment at each reporting date. Under the fair market value method, the value of the asset is based on market prices for comparable servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the discount rate, the custodial earnings rate, prepayment speeds and default rates and losses.

We believe that the fair value method is the preferred method of presenting these assets and is more widely recognized by current and potential investors. These assets represent the value of future net revenue streams. Updating the estimate of these cash flow streams based on both observable and unobservable trends and inputs at each reporting period provides meaningful changes to the economic value to shareholders. The amortized cost approach requires a periodic impairment test; however, it does not provide any transparency if the portfolio, or certain tranches within the portfolio, have significant increases in value. Therefore, the fair value method provides a balanced, measurement policy for the benefit of the investing public. As a result of this accounting principle change, servicing assets increased by $3.4 million and deferred tax assets decreased by $0.9 million. The adoption of the change was recorded through a cumulative effect adjustment to retained earnings as of January 1, 2020, of $2.5 million. All future adjustments to fair value will be reflected in the income statement.

Earnings per common share is computed using the two-class method. Basic earnings per common share is computed by dividing net income by the weighted-average number of common shares outstanding during the applicable period. Diluted earnings per share is computed using the weighted-average number of shares determined for the basic earnings per common share plus the dilutive effect of share-based compensation using the treasury stock method.

The amortized cost and fair value of securities available-for-sale as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 were as follows:

The amortized cost and fair value of securities at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

~~Proceeds from the sale of available-for-sale securities were $29.4 million which resulted in a gain of $0.3 million for the six months ended June 30, 2019.~~ There were no security sales for the ~~six~~three months ended ~~June 30, 2018.~~ March 31, 2020 and 2019.

At ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018, no~~2019, there were $47.6 million and $63.0 million, respectively, of securities ~~were~~ pledged at the Federal Reserve Bank to secure ~~the~~ municipial customer deposts.

Federal Home Loan Bank (~~“FHLB”~~)(FHLB) advances ~~besides~~were secured by $4.9 million and $1.6 million FHLB stock ~~of $2.2 million and $3.0 million, respectively. There were no securities pledged to secure the Federal Reserve Bank line of credit~~ at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018; however, there were $45.5 million and $53.4 million of securities pledged to secure municipial customer deposts at June 30,~~ 2019, ~~and December 31, 2018,~~ respectively.

The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to be other-than-temorarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018:~~2019:

	Less Than 12 Months					12 Months or Greater					Total					Less Than 12 Months					12 Months or Greater					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses			Value		Losses			Value		Losses			Value		Losses
	(dollars in thousands)															(dollars in thousands)
June 30, 2019
March 31, 2020
U.S. government and agency securities	$	—	$	—		$	3,699	$	(32	)		3,699		(32	)	$	13,374	$	(184	)	$	2,680	$	(29	)	$	16,054	$	(213	)
U.S. treasury securities																	—		—			—		—			—		—
Asset-backed securities																	16,490		(838	)		—		—			16,490		(838	)
Municipal securities																	18,430		(621	)		—		—			18,430		(621	)
Mortgage-backed securities		—		—			29,945		(264	)		29,945		(264	)		5,005		(37	)		4,616		(108	)		9,621		(145	)
	$	—	$	—		$	33,644	$	(296	)	$	33,644	$	(296	)	$	53,299	$	(1,680	)	$	7,296	$	(137	)	$	60,595	$	(1,817	)
December 31, 2018
December 31, 2019
U.S. government and agency securities	$	—	$	—		$	4,331	$	(37	)		4,331		(37	)	$	—	$	—		$	3,458	$	(32	)	$	3,458	$	(32	)
U.S. treasury securities		2,491		(6	)		—		—			2,491		(6	)		—		—			—		—			—		—
Municipal securities		4,291		(15	)		25,377		(483	)		29,668		(498	)		—		—			—		—			—		—
Mortgage-backed securities		41,925		(208	)		83,319		(2,539	)		125,244		(2,747	)		9,873		(41	)		11,867		(125	)		21,740		(166	)
	$	48,707	$	(229	)	$	113,027	$	(3,059	)	$	161,734	$	(3,288	)	$	9,873	$	(41	)	$	15,325	$	(157	)	$	25,198	$	(198	)

The unrealized losses on the investments at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 were due to market conditions as well as normal fluctuations and pricing inefficiencies. The contractual terms of the investments do not permit the issuers to settle the securities at a price less than the amortized cost basis of the investment. Because the Company does not intend to sell the investments and it is not more-likely-than-not that the Company will be required to sell the investments before recovery of the amortized cost basis, which may be maturity, the Company did not consider these investments to be other-than-temporarily impaired at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019.

Changes in the allowance for loan losses by portfolio segment for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 and ~~2018~~2019 were as follows:

	Agricultural		Commercial Real Estate			Commercial			Residential Real Estate			Installment and Consumer Other			Total			Agricultural			Commercial Real Estate			Commercial			Residential Real Estate			Installment and Consumer Other			Total
	(dollars in thousands)																	(dollars in thousands)
For the Three Months Ended June 30, 2019
For the Three Months Ended March 31, 2020
Balance, beginning of period	$	12,123	$	4,152		$	1,201		$	16		$	1		$	17,493		$	11,737		$	1,913		$	1,599		$	15		$	3		$	15,267
Provision for loan losses		1,509		(1,003	)		367			3			—			876			948			603			573			97			(3	)		2,218
Loans charged off		—		(2,234	)		(960	)		—			—			(3,194	)		—			—			—			—			—			—
Recoveries		15		967			101			—			—			1,083			—			61			1			—			—			62
Balance, end of period	$	13,647	$	1,882		$	709		$	19		$	1		$	16,258		$	12,685		$	2,577		$	2,173		$	112			—		$	17,547
For the Six Months Ended June 30,2019
Balance, beginning of year	$	12,258	$	2,779		$	1,414		$	53		$	1		$	16,505
Provision for loan losses		1,374		135			153			(34	)		—			1,628
Loans charged off		—		(2,624	)		(960	)		—			—			(3,584	)
Recoveries		15		1,592			102			—			—			1,709
Balance, end of period	$	13,647	$	1,882		$	709		$	19		$	1		$	16,258

For the Three Months Ended June 30, 2018
For the Three Months Ended March 31, 2019
Balance, beginning of period	$	11,250	$	2,058		$	1,257		$	45		$	2		$	14,612		$	12,258		$	2,779		$	1,414		$	53		$	1		$	16,505
Provision for loan losses		378		(166	)		322			(1	)		—			533			(135	)		1,138			(214	)		(37	)		—			752
Loans charged off		—		—			—			—			—			—			—			(390	)		—			—			—			(390	)
Recoveries		—		11			(27	)		—			—			(16	)		—			625			1			—			—			626
Balance, end of period	$	11,628	$	1,903		$	1,552		$	44		$	2		$	15,129		$	12,123		$	4,152		$	1,201		$	16		$	1		$	17,493
For the Six Months Ended June 30,2018
Balance, beginning of year	$	9,712	$	1,978		$	1,508		$	47		$	2		$	13,247
Provision for loan losses		1,915		(1,284	)		3			(3	)		(1	)		630
Loans charged off		—		(42	)		—			—			—			(42	)
Recoveries		1		1,251			41			—			1			1,294
Balance, end of period	$	11,628	$	1,903		$	1,552		$	44		$	2		$	15,129

The following tables present the balances in the allowance for loan losses and the recorded balance in loans by portfolio segment and based on impairment method as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018:~~2019:

	June 30, 2019							March 31, 2020
	Individually Evaluated for Impairment			Collectively Evaluated for Impairment		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total
	(dollars in thousands)							(dollars in thousands)
Allowance for loan losses:
Agricultural loans	$	3,415		$	10,232	$	13,647	$	3,678	$	9,007	$	12,685
Commercial real estate loans		5			1,877		1,882		802		1,775		2,577
Commercial loans		290			419		709		1,310		863		2,173
Residential real estate loans		—			19		19		—		112		112
Installment and consumer other		—	��		1		1		—		—		—
Total ending allowance for loan losses		3,710			12,548		16,258		5,790		11,757		17,547
Loans:
Agricultural loans		59,876			653,726		713,602		60,234		581,832		642,066
Commercial real estate loans		1,022			267,522		268,544		3,640		229,653		233,293
Commercial loans		532			114,466		114,998		1,837		90,180		92,017
Residential real estate loans		—			50,436		50,436		60		44,891		44,951
Installment and consumer other		—			252		252		—		109		109
Total loans		61,430			1,086,402		1,147,832		65,771		946,665		1,012,436
Net loans	$	57,720		$	1,073,854	$	1,131,574	$	59,981	$	934,908	$	994,889

	December 31, 2018							December 31, 2019
	Individually Evaluated for Impairment			Collectively Evaluated for Impairment		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total
	(dollars in thousands)							(dollars in thousands)
Allowance for loan losses:
Agricultural loans	$	2,325		$	9,933	$	12,258	$	3,515	$	8,222	$	11,737
Commercial real estate loans		583			2,196		2,779		836		1,077		1,913
Commercial loans		745			669		1,414		1,238		361		1,599
Residential real estate loans		—			53		53		—		15		15
Installment and consumer other		—			1		1		—		3		3
Total ending allowance for loan losses		3,653			12,852		16,505		5,589		9,678		15,267
Loans:
Agricultural loans		52,947			671,561		724,508		58,833		600,892		659,725
Commercial real estate loans		2,037			297,175		299,212		3,682		232,254		235,936
Commercial loans		1,773			114,687		116,460		1,862		93,925		95,787
Residential real estate loans		—			66,843		66,843		62		43,896		43,958
Installment and consumer other		—			272		272		—		367		367
Total loans		56,757			1,150,538		1,207,295		64,439		971,334		1,035,773
Net loans	$	53,104		$	1,137,686	$	1,190,790	$	58,850	$	961,656	$	1,020,506

The following ~~table presents~~tables present loans individually evaluated for impairment by class of loans at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018:~~2019:

	June 30, 2019
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		March 31, 2020
	(dollars in thousands)						Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
							(dollars in thousands)
With no related allowance:
Agricultural loans	$	20,020	$	19,986	$	—	$	15,194	$	14,424	$	—
Commercial real estate loans		—		—		—		—		—		—
Commercial loans		—		—		—		44		43		—
Residential real estate loans		—		—		—		61		60		—
	$	20,020	$	19,986	$	—	$	15,299	$	14,527	$	—

With an allowance recorded
With an allowance recorded:
Agricultural loans	$	42,251	$	39,890	$	3,415	$	48,682	$	45,810	$	3,678
Commercial real estate loans		1,022		1,022		5		3,674		3,640		802
Commercial loans		539		532		290		2,110		1,794		1,310
Residential real estate loans		—		—		—		—		—		—
		43,812		41,444		—	$	54,466	$	51,244	$	5,790
Total	$	63,832	$	61,430	$	3,710	$	69,765	$	65,771	$	5,790

	December 31, 2018						December 31, 2019
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
	(dollars in thousands)						(dollars in thousands)
With no related allowance:
Agricultural loans	$	22,218	$	21,654	$	—	$	14,151	$	14,131	$	—
Commercial real estate loans		—		—		—		—		—		—
Commercial loans		455		455		—		—		-		—
Residential real estate loans		—		—		—		62		62		—
	$	22,673	$	22,109	$	—	$	14,213	$	14,193	$	—

With an allowance recorded
With an allowance recorded:
Agricultural loans	$	33,090	$	31,293	$	2,325	$	47,225	$	44,702	$	3,515
Commercial real estate loans		2,037		2,037		583		3,681		3,682		836
Commercial loans		1,326		1,318		745		2,155		1,862		1,238
Residential real estate loans		—		—		—		—		—		—
		36,453		34,648		3,653	$	53,061	$	50,246	$	5,589
Total	$	59,126	$	56,757	$	3,653	$	67,274	$	64,439	$	5,589

The following table presents the aging of the recorded investment in past due loans at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018:~~2019:

	30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Total Past Due		Loans Not Past Due		Total Loans		30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Total Past Due		Loans Not Past Due		Total Loans
	(dollars in thousands)												(dollars in thousands)
June 30, 2019
March 31, 2020
Agricultural loans	$	1,221	$	580	$	5,959	$	7,760	$	705,842	$	713,602	$	2,456	$	92	$	6,152	$	8,700	$	633,366	$	642,066
Commercial real estate loans		2,823		—		—		2,823		265,721		268,544		—		—		288		288		233,005		233,293
Commercial loans		28		155		446		629		114,369		114,998		—		28		254		282		91,735		92,017
Residential real estate loans		63		—		—		63		50,373		50,436		27		—		60		87		44,864		44,951
Installment and consumer other		—		—		—		—		252		252		—		—		—		—		109		109
Total	$	4,135	$	735	$	6,405	$	11,275	$	1,136,557	$	1,147,832	$	2,483	$	120	$	6,754	$	9,357	$	1,003,079	$	1,012,436

December 31, 2018
December 31, 2019
Agricultural loans	$	460	$	969	$	7,968	$	9,397	$	715,111	$	724,508	$	1,489	$	71	$	4,974	$	6,534	$	653,191	$	659,725
Commercial real estate loans		—		—		2,037		2,037		297,175		299,212		—		288		-		288		235,648		235,936
Commercial loans		—		—		600		600		115,860		116,460		—		28		228		256		95,531		95,787
Residential real estate loans		—		—		—		—		66,843		66,843		—		—		62		62		43,896		43,958
Installment and consumer other		—		—		—		—		272		272		—		—		—		—		367		367
Total	$	460	$	969	$	10,605	$	12,034	$	1,195,261	$	1,207,295	$	1,489	$	387	$	5,264	$	7,140	$	1,028,633	$	1,035,773

~~The following table lists information on nonaccrual, troubled debt restructured, and loans 90 days or more past due and still accruing at June 30, 2019 and December 31, 2018:~~

The following table presents the recorded investment in nonaccrual loans ~~and loans 90 days or more past due and still accruing~~ by class of loan:

The following ~~table presents~~tables present the average recorded investment and interest income recognized on impaired loans by portfolio segment for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 and ~~2018:~~2019:

	As of and for the Three Months Ended June 30, 2019										As of and for the Three Months Ended March 31, 2020
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized
	(dollars in thousands)										(dollars in thousands)
Agricultural loans	$	62,271	$	59,876	$	3,415	$	57,064	$	1,531	$	63,876	$	60,234	$	3,678	$	59,534	$	1,310
Commercial real estate loans		539		1,022		5		3,527		7		3,674		3,640		802		3,661		25
Commercial loans		1,022		532		290		834		1		2,154		1,837		1,310		1,850		48
Residential real estate loans												61		60		—		61		1
Total	$	63,832	$	61,430	$	3,710	$	61,425	$	1,539	$	69,765	$	65,771	$	5,790	$	65,105	$	1,384

	As of and for the Six Months Ended June 30, 2019										As of and for the Three Months Ended March 31, 2019
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized
	(dollars in thousands)										(dollars in thousands)
Agricultural loans	$	62,271	$	59,876	$	3,415	$	56,412	$	2,704	$	56,844	$	54,251	$	2,691	$	53,599	$	1,173
Commercial real estate loans		539		1,022		5		1,530		31		6,031		6,031		2,472		4,034		24
Commercial loans		1,022		532		290		1,153		3		1,142		1,135		648		1,454		2
Total	$	63,832	$	61,430	$	3,710	$	59,095	$	2,738	$	64,017	$	61,417	$	5,811	$	59,087	$	1,199

	As of and for the Three Months Ended June 30, 2018
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized
	(dollars in thousands)
Agricultural loans	$	43,374	$	42,838	$	2,855	$	39,192	$	771
Commercial real estate loans		2,372		2,366		10		1,470		6
Commercial loans		1,883		1,878		781		1,516		24
Total	$	47,629	$	47,082	$	3,646	$	42,178	$	801

	As of and for the Six Months Ended June 30, 2018
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized
	(dollars in thousands)
Agricultural loans	$	43,374	$	42,838	$	2,855	$	35,791	$	1,416
Commercial real estate loans		2,372		2,366		10		2,416		6
Commercial loans		1,883		1,878		781		1,836		25
Residential real estate loans		—		—		—		—		1
Total	$	47,629	$	47,082	$	3,646	$	40,043	$	1,448

Impaired loans include nonaccrual loans, troubled debt restructured loans, and loans that are 90 days or more past due and still accruing. For nonaccrual loans included in impaired loans, the interest income that would have been recognized had those loans

been performing in accordance with their original terms would have been approximately ~~$1.0~~$0.7 million and $0.6 million for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018.~~respectively.

The Company allocated approximately ~~$3.0~~$3.6 million and ~~$2.0~~$3.5 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings (“TDR”) at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. The Company had no additional lending commitments at ~~June 30, 2019~~March 31, 2020 or December 31, ~~2018~~2019 to customers with outstanding loans that were classified as TDRs.

A TDR on nonaccrual status is classified as a nonaccrual loan until evaluation supports reasonable assurance of repayment and there has been a satisfactory period of performance according to the modified terms of the loan. Once this assurance is reached, the TDR is ~~classified as a restructured loan.~~returned to accrual status. The following table presents the TDRs and related allowance for loan losses by loan class at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018:~~2019:

The following table provides the number of loans modified in a troubled debt restructuring investment by class for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 and ~~2018:~~2019:

The following table provides the troubled debt restructurings for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ grouped by type of concession:

No troubled debt restructurings that were modified within the twelve months ended March 31, 2020 and March 31, 2019 defaulted during the three months ended March 31, 2020 or March 31, 2019, respectively.

The Company categorizes loans into risk categories based on relevant information about the ability of the borrowers to service their debt, such as current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. The Company analyzes agricultural, commercial, and commercial real estate loans individually by classifying the credits as to credit risk. The process of analyzing loans for changes in risk rating is ongoing through routine monitoring of the portfolio and annual internal credit reviews for credits with total exposure in excess of $300,000. The Company uses the following definitions for credit risk ratings:

Sound. Credits classified as sound show very good probability of ongoing ability to meet and/or exceed obligations.

Acceptable. Credits classified as acceptable show a good probability of ongoing ability to meet and/or exceed obligations.

Satisfactory. Credits classified as satisfactory show fair probability of ongoing ability to meet and/or exceed obligations.

Low Satisfactory. Credits classified as low satisfactory show fair probability of ongoing ability to meet and/or exceed obligations. Low satisfactory credits may be newer or have a less established track record of financial performance, inconsistent earnings, or may be going through an expansion.

Watch. Credits classified as watch show some questionable probability of ongoing ability to meet and/or exceed obligations.

Special Mention. Credits classified as special mention show potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loans or of the institution’s credit position at some future date.

Substandard – Performing. Credits classified as substandard – performing generally have well-defined weaknesses. Collateral coverage is adequate and the loans are not considered impaired. Payments are being made and the loans are on accrual status.

Substandard - Impaired. Credits classified as substandard generally have well-defined weaknesses that jeopardize the repayment of the debt. They have a distinct possibility that a loss will be sustained if the deficiencies are not corrected. Loans are considered impaired. Loans are either exhibiting signs of delinquency, are on non-accrual or are identified as a TDR.

Doubtful. Credits classified as doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable.

The Company categorizes residential real estate, installment and consumer other loans as satisfactory at the time of origination based on information obtained as to the ability of the borrower(s) to service their debt, such as current financial information, employment status and history, historical payment experience, credit scores and type and amount of collateral among other factors. The Company updates relevant information on these types of loans at the time of refinance, troubled debt restructuring or other indications of financial difficulty, downgrading as needed using the same category descriptions as for agricultural, commercial, and commercial real estate loans. In addition, the Company further considers current payment status as an indicator of which risk category to assign the borrower.

The greater the level of deteriorated risk as indicated by a loan’s assigned risk category, the greater the likelihood a loss will occur in the future. If the loan is substandard - impaired, then the loan loss reserves for the loan are recorded at the loss level of impairment. If the loan is not impaired, then its loan loss reserves are determined by the application of a loss rate that increases with risk in accordance with the allowance for loan loss analysis.

Based on the most recent analysis performed by management, the risk category of loans by class of loans was as follows as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018:~~ 2019:

	As of June 30, 2019												As of March 31, 2020
	Sound/ Acceptable/ Satisfactory/ Low Satisfactory		Watch		Special Mention		Substandard Performing		Substandard Impaired		Total Loans		Sound/ Acceptable/ Satisfactory/ Low Satisfactory		Watch		Special Mention		Substandard Performing		Substandard Impaired		Total Loans
	(dollars in thousands)												(dollars in thousands)
Agricultural loans	$	440,222	$	147,155	$	24,939	$	41,410	$	59,876	$	713,602	$	374,073	$	194,527	$	9,269	$	31,174	$	33,023	$	642,066
Commercial real estate loans		244,942		11,103		206		11,271		1,022		268,544		206,306		16,349		5,740		2,260		2,638		233,293
Commercial loans		101,626		9,309		110		3,421		532		114,998		81,273		8,346		27		577		1,794		92,017
Residential real estate loans		49,945		257		—		234		—		50,436		44,486		237		—		168		60		44,951
Installment and consumer other		252		—		—		—		—		252		109		—		—		—		—		109
Total	$	836,987	$	167,824	$	25,255	$	56,336	$	61,430	$	1,147,832	$	706,247	$	219,459	$	15,036	$	34,179	$	37,515	$	1,012,436

	As of December 31, 2018												As of December 31, 2019⁽¹⁾
	Sound/ Acceptable/ Satisfactory/ Low Satisfactory		Watch		Special Mention		Substandard Performing		Substandard Impaired		Total Loans		Sound/ Acceptable/ Satisfactory/ Low Satisfactory		Watch		Special Mention		Substandard Performing		Substandard Impaired		Total Loans
	(dollars in thousands)												(dollars in thousands)
Agricultural loans	$	495,418	$	133,582	$	564	$	41,997	$	52,947	$	724,508	$	388,184	$	184,050	$	9,239	$	46,587	$	31,665	$	659,725
Commercial real estate loans		253,853		18,968		4,642		19,712		2,037		299,212		209,279		21,703		—		2,281		2,673		235,936
Commercial loans		95,842		15,237		1,360		2,248		1,773		116,460		83,141		10,091		—		737		1,818		95,787
Residential real estate loans		62,787		3,883		—		173		—		66,843		43,473		254		—		169		62		43,958
Installment and consumer other		272		—		—		—		—		272		367		—		—		—		—		367
Total	$	908,172	$	171,670	$	6,566	$	64,130	$	56,757	$	1,207,295	$	724,444	$	216,098	$	9,239	$	49,774	$	36,218	$	1,035,773

Loans serviced for others are not included in the accompanying consolidated balance sheets. The risks inherent in servicing assets relate primarily to changes in prepayments that result from shifts in interest rates. The unpaid principal balances of mortgage and other loans serviced for others were approximately ~~$695.6~~$747.6 million and ~~$661.3~~$751.7 million at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. The fair value of these rights were approximately ~~$14.1~~$16.2 million and ~~$13.2~~$15.9 million at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018.~~ 2019.

The fair value of servicing rights is highly sensitive to changes in underlying assumptions. . The Company’s portfolio of loan serviced for others is mostly comprised of fixed rate loans. Generally, as market interest rates rise, prepayments on fixed rate loans decrease due to a decline in refinancing activity, which results in an increase in the fair value of servicing rights. However, due to the cross-collateralization of loans in the portfolio and the government guarantee programs under which many of the loans were originated, prepayments on the portfolio tend to be muted in comparison to those of other types of loans, such as mortgage loans. Measurement of fair value is limited to the conditions existing and the assumptions used as of a particular point in time, and those assumptions may not be appropriate if they applied at a different time.

The fair value of servicing rights at December 31, 2019 was determined using an assumed discount rate of 2014 percent and weighted average prepayment ~~speeds~~speed of 7.33%, ranging from 5.00% to 10.00%, depending upon the stratification of the specific right,

and nominal credit losses. The fair value of servicing rights at March 31, 2020 was determined using an assumed discount rate of 14 percent and a weighted average prepayment speed of 7.81%, primarily ranging from ~~4 percent~~6.22% to ~~9 percent,~~7.95%, depending upon loan type, the stratification of the specific right, and nominal credit losses.

Changes to the fair value are reported in loan servicing fees within the consolidated statements of operations.

The following ~~summarizes~~tables summarize servicing rights capitalized, ~~and amortized,~~ along with the aggregate activity in related valuation ~~allowances:~~allowances. The three months ended March 31, 2020 is presented at at fair value, and the three months ended March 31, 2019 is presented using the amortized cost method.

The excess of the purchase price in an acquisition over the fair value of net assets acquired consists primarily of goodwill and the core deposit intangible. Goodwill is not amortized but is instead subject to impairment tests on at least an annual basis. Core deposit intangible, which arose from value ascribed to the deposit base of a bank acquired, has an estimated finite life and is amortized on an accelerated basis to expense over a 66-month period.

Management will periodically review the carrying value of its long-lived and intangible assets to determine if any impairment has occurred, in which case an impairment charge would be recorded as an expense in the period of impairment, or whether changes in circumstances have occurred that would require a revision to the remaining useful life which would impact expense prospectively. In making such determination, management evaluates whether there are any adverse qualitative factors indicating that an impairment may exist, as well as the performance, on an undiscounted basis, of the underlying operations or assets which give rise to the intangible.

~~Goodwill~~ During the first quarter of 2020, goodwill was evaluated for impairment due to economic disruption and unknown growth and credit risk related to the Coronavirus Disease 2019 (COVID-19) pandemic. Management provided to a third party its updated income projections. Three valuation models were weighted and evaluated: ~~: Goodwill resulted from~~discounted cash flow model (60%), guideline public company method (30%) and transaction method (10%). The transaction method was weighted the ~~acquisition~~lowest as most, if not all, of ~~Fox River Valley Bancorp, Inc. (“Fox River Valley”)~~the identified transactions happened prior to the COVID-19 pandemic and could not be relied upon as comparable values as of March 31, 2020. More weighting was put toward cash flows as management believes the value of the Company is still tied to overall earnings. For the discounted cash flow method, the analysis discounted projected earnings by 14.5% based on ~~May 13, 2016. The~~an evaluation of required returns for similar public companies adjusted for an expected size and company-specific premium. Through this evaluation, it was determined that as of March 31, 2020, the fair value of the Company did not exceed the current carrying value by an amount in excess of the carrying amount of the goodwill; therefore, the goodwill was ~~$5.0 million at June 30, 2019 and December 31, 2018.~~deemed to be impaired.

Core deposit intangible: Core deposit intangible, primarily related to acquired customer relationships, is amortized over its estimated finite life. The core deposit intangible related to the Fox River Valley acquisition had a gross carrying amount of $1.8 million. There was no impairment charge to core deposit intangible for the three months ended March 31, 2020.

Deposits are summarized as follows at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018:~~2019:

The Bank had advances outstanding from the FHLB in the amount of ~~$59.4~~$109.4 million and ~~$89.4~~$44.4 million on ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. These advances, rates, and maturities were as follows:

					June 30,		December 31,						March 31,		December 31,
	Maturity	Rate			2019		2018		Maturity	Rate			2020		2019
					(dollars in thousands)								(dollars in thousands)
Fixed rate, fixed term	01/02/2019		2.54	%	$	—	$	3,000	02/20/2020		1.71	%	$	—	$	5,000
Fixed rate, fixed term	01/04/2019		2.55	%		—		12,000	04/14/2020		0.30	%		20,000		—
Fixed rate, fixed term	02/27/2019		1.47	%		—		5,000	07/16/2020		1.85	%		800		800
Fixed rate, fixed term	03/08/2019		1.54	%		—		10,000	08/25/2020		1.84	%		3,000		3,000
Fixed rate, fixed term	07/15/2019		1.11	%		8,000		8,000	08/27/2020		1.88	%		5,000		5,000
Fixed rate, fixed term	08/12/2019		2.24	%		5,000		5,000	12/30/2020		2.09	%		4,000		4,000
Fixed rate, fixed term	08/14/2019		1.77	%		2,000		2,000	12/31/2020		1.94	%		600		600
Fixed rate, fixed term	02/20/2020		1.71	%		5,000		5,000	04/12/2021		1.92	%		8,000		8,000
Fixed rate, fixed term	07/16/2020		1.85	%		800		800	06/15/2021		1.39	%		5,000		5,000
Fixed rate, fixed term	08/25/2020		1.84	%		3,000		3,000	08/16/2021		2.29	%		3,000		3,000
Fixed rate, fixed term	08/27/2020		1.88	%		5,000		5,000	12/30/2021		2.29	%		2,000		2,000
Fixed rate, fixed term	12/30/2020		2.09	%		4,000		4,000	03/18/2022		1.03	%		15,000		—
Fixed rate, fixed term	12/31/2020		1.94	%		600		600	03/25/2022		0.75	%		10,000		—
Fixed rate, putable, no call 2 years									01/12/2023		2.03	%		8,000		8,000
Fixed rate, fixed term	04/12/2021		1.92	%		8,000		8,000	03/23/2023		1.26	%		10,000		—
Fixed rate, fixed term	06/15/2021		1.39	%		5,000		5,000	03/27/2023		0.82	%		15,000		—
Fixed rate, fixed term	08/16/2021		2.29	%		3,000		3,000
Fixed rate, fixed term	12/30/2021		2.29	%		2,000		2,000
Fixed rate, putable, no call 2 years	01/12/2023		2.03	%		8,000		8,000
					$	59,400	$	89,400					$	109,400	$	44,400

The terms of security agreements with the FHLB require the Bank to pledge collateral for its borrowings. The collateral consists of qualifying first mortgage loans and stock of the FHLB. At ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the Bank had pledged qualifying mortgage loans of ~~$431.5~~$379.1 million and ~~$453.8~~$393.7 million, respectively.

The Bank had no irrevocable letters of credit with the FHLB as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019.

~~Future maturities~~As of ~~FHLB borrowings as of June 30, 2019~~ March 31, 2020 and December 31, ~~2018 were as follows:~~

~~As of~~ ~~June 30,~~ 2019, ~~and December 31, 2018,~~ the Bank also had a ~~line of credit~~line-of-credit available with the Federal Reserve Bank of Chicago. Borrowings under this line of credit are limited by the amount of collateral pledged by the Bank, which totaled ~~$145.7~~$128.4 million and ~~$143.4~~$127.3 million in loans at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. There were no outstanding advances included in other borrowings at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019.

As of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the Company had aan unsecured credit agreement with U.S. Bank National Association for a ~~$15.0~~$10.0 million revolving line of credit with an interest rate of the one-month LIBOR rate plus 2.25%. The line also bears a non-usage fee of 0.275% per annum. The line did not have an outstanding balance as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019.

Other borrowings are borrowings as a result of sold loans that do not qualify for sale accounting. These agreements are recorded as financing transactions as the Bank maintains effective control over the transferred loans. The dollar amount of the loans underlying the sale agreements continues to be carried in the Bank’s loan portfolio, and the transfer is reported as a secured borrowing with pledge of collateral. At ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the amounts of these borrowings was $0.8 million.

Also included in other borrowings is the financing lease for our full service banking location in Manitowoc, Wisconsin. This branch location was owned by the Bank, and was sold to a third party in March 2020. The Bank is leasing back a portion of the building for its full service branch. Under the terms of the current lease which began on March 2, 2020, the Company is obligated to pay monthly rent of $16 thousand with an initial lease term of ten years with two renewal options of five years each. As of March 31, 2020, the liability remaining under the financing lease was $1.4 million. There was no financing lease obligation as of December 31, 2019.

The following table sets forth information concerning balances and interest rates on other borrowings as of and for the periods indicated:

Under the Company’s 2016 Long Term Incentive Plan (the “Plan”), the Company may grant options to purchase shares of common stock and issue restricted stock to its directors, officers, and employees. Both qualified and non-qualified stock options and restricted stock may be granted and issued, respectively, under the Plan. As of ~~June 30, 2019, 175,703~~March 31, 2020, 67,272 options or shares of restricted stock remained available under the Plan.

The exercise price of each option equals the market price of the Company’s stock on the date of grant and an option’s maximum term is ten years. Vesting periods range from one to five years from the date of grant. The restricted stock vesting periods range from one to five years from the date of issuance.

The status of the Plan as of ~~June 30, 2019~~March 31, 2020 and changes in the Plan during the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 were as follows:

Activity in restricted stock awards and restricted stock units for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 was as follows:

For the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ share-based compensation expense, including options and restricted stock awards and units, applicable to the Plan was ~~$262 thousand~~$0.3 million and ~~$259 thousand,~~$0.1 million, respectively.

As of ~~June 30, 2019,~~March 31, 2020, unrecognized share-based compensation expense related to nonvested ~~options and restricted stock awards~~share-based compensation instruments amounted to ~~$0.7~~$1.1 million and is expected to be recognized over a weighted average period of ~~1.98~~1.94 years.

The Company (on a consolidated basis) and Bank isare each subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly

additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s and Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action (applicable only to the Bank), the Company and Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios (set forth in the following table) of ~~total,~~Total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined in the regulations), of Tier 1 capital (as defined in the regulations) to average assets (as defined in the regulations), and of Tier 1 Common Equity ~~capital to risk-weighted assets, and of Tier 1 capital to average assets, as such terms are~~(as defined in the ~~regulations.~~regulations) to risk-weighted assets. Management believed, as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, that the Company and the Bank met all capital adequacy requirements to which they were subject.

As ~~a result~~ of the recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies are required to develop a “Community Bank Leverage Ratio” (the ratio of a bank’s tangible equity capital to average total consolidated assets) for financial institutions with assets of less than $10 billion. A “qualifying community bank” that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered “well capitalized” under Prompt Corrective Action statutes. The federal banking agencies may consider a financial institution’s risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The federal banking agencies must set the minimum capital for the new Community Bank Leverage Ratio at not less than 8% and not more than 10%. The Bank has not elected to be subject to this new definition.

~~As of June 30, 2019,~~March 31, 2020, the Bank’s capital ratios met those required to be considered as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based, Tier 1 Common Equity risk-based, and Tier 1 leverage ratios as set forth in the following table.

The Company and Bank’s actual capital amounts and ratios are presented in the following table:

Actual

Minimum For
Capital Adequacy
Purposes ^(a):

Minimum To Be Well
Capitalized Under
Prompt Corrective
Action Provisions:

Amount

Ratio

Amount

Ratio

Amount

Ratio

(dollars in thousands)

June 30, 2019

Total Capital (to risk weighted assets)

$
209,648

16.62
%

$
132,462

10.50
%

$
126,154

10.00
%
Tier 1 Capital (to risk weighted assets)

193,871

15.37
%

107,231

8.50
%

100,923

8.00
%
Tier 1 Capital (to average assets)

193,871

13.12
%

59,124

4.00
%

73,905

5.00
%
Tier 1 Common Equity Ratio (to risk
   weighted assets)

193,871

15.37
%

88,308

7.00
%

82,000

6.50
%

December 31, 2018

Total Capital (to risk weighted assets):

     Consolidated

$
210,768

15.81
%

$
131,664

9.875
%

Not applicable

     Bank

204,327

15.35
%

131,488

9.875
%

$
133,153

10.00
%
Tier 1 Capital (to risk weighted assets):

     Consolidated

164,675

12.35
%

104,998

7.875
%

Not applicable

     Bank

187,679

14.09
%

104,858

7.875
%

106,522

8.00
%
Tier 1 Capital (to average assets):

     Consolidated

164,675

11.09
%

59,374

4.00
%

Not applicable

     Bank

187,679

12.44
%

60,330

4.00
%

75,413

5.00
%
Tier 1 Common Equity Ratio (to risk
   weighted assets):

     Consolidated

141,085

10.58
%

84,999

6.375
%

Not applicable

     Bank

187,679

14.09
%

84,885

6.375
%

86,549

6.50
%

~~(a)~~

~~The ratios for June 30, 2019 and December 31, 2018 include a capital conservation buffer of 2.5% and 1.875%, respectively.~~

	Actual					Minimum For Capital Adequacy Purposes:					Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions:
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(dollars in thousands)
March 31, 2020
Total Capital (to risk weighted assets):
Consolidated	$	218,784		18.29	%	$	125,599		10.50	%	Not applicable			10.00	%
Bank		214,010		17.95	%		125,160		10.50	%	$	119,200		10.00	%
Tier 1 Capital (to risk weighted assets):
Consolidated		174,621		14.60	%	$	101,675		8.50	%	Not applicable			8.00	%
Bank		199,077		16.70	%		101,320		8.50	%		95,360		8.00	%
Tier 1 Capital (to average assets):
Consolidated		174,621		12.89	%		54,198		4.00	%	Not applicable			5.00	%
Bank		199,077		14.85	%		53,613		4.00	%		67,016		5.00	%
Tier 1 Common Equity Ratio (to risk weighted assets):
Consolidated		174,621		14.60	%	$	83,732		7.00	%	Not applicable			6.50	%
Bank		199,077		16.70	%		83,440		7.00	%		77,480		6.50	%

December 31, 2019
Total Capital (to risk weighted assets):
Consolidated	$	225,094		19.41	%	$	121,746		10.500	%	Not applicable
Bank		216,198		18.70	%		121,396		10.500	%	$	115,615		10.00	%
Tier 1 Capital (to risk weighted assets):
Consolidated		180,620		15.58	%		98,557		8.500	%	Not applicable
Bank		201,735		17.45	%		98,273		8.500	%		92,492		8.00	%
Tier 1 Capital (to average assets):
Consolidated		180,620		12.42	%		58,182		4.00	%	Not applicable
Bank		201,735		14.68	%		54,962		4.00	%		68,702		5.00	%
Tier 1 Common Equity Ratio (to risk weighted assets):
Consolidated		156,969		13.54	%		81,164		7.000	%	Not applicable
Bank		201,735		17.45	%		80,930		7.000	%		75,150		6.50	%

The ~~rules of the~~ Basel III ~~regulatory capital framework~~Rule implemented a capital conservation buffer, equal to 2.5% of Tier 1 Common Equity, that is added to the minimum requirements for capital adequacy purposes. ~~The~~As of March 31, 2020 and December 31, 2019, the ratios for the Company and the Bank exceeded the 2.5% capital conservation buffer. Failure to exceed the capital conservation buffer ~~was subject~~would result in limitations on certain capital distributions, including dividend payments, and certain discretionary bonus payment to ~~a three year phase-in period that began on January 1, 2016 and was fully phased in on January 1, 2019 at 2.5%. The ratios for the Bank are sufficient to meet the conservation buffer.~~executive officers.

ASC 820-10 defines fair value 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 independent, knowledgeable, and both able and willing to transact.

ASC 820-10 requires the use of valuation techniques that are consistent with the market approach, the income approach, and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, ASC 820-10 establishes a fair value hierarchy for valuation inputs that gives

the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1—Valuation is based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2—Valuation is based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

Level 3—Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value requires significant management judgment or estimation.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The following methods and assumptions were used by the Company in estimating the fair value disclosures for financial instruments recorded at fair value on a recurring basis:

Where quoted prices are available in an active market, the Company classifies the securities within Level 1 of the valuation hierarchy. Securities are defined as both long and short positions. Level 1 securities include highly liquid government bonds and exchange-traded equities.

If quoted market prices are not available, the Company estimates fair values using pricing models and discounted cash flows that consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes and credit spreads.

Examples of such instruments, which would generally be classified within Level 2 of the valuation hierarchy, include U.S. government and agency securities, corporate bonds and other securities. Mortgage-backed securities are included in Level 2 if observable inputs are available. In certain cases where there is limited activity or less transparency around inputs to the valuation, the Company classifies those securities in Level 3.

The Company’s loan servicing rights do not trade in an active, open market with readily observable prices. Accordingly, fair value is estimated using discounted cash flow models having significant inputs of discount rate, prepayment speed, and default rate. Due to the nature of the valuation inputs, loan servicing rights are classified in Level 3 of the valuation hierarchy.

The Company's derivative instruments consist of interest rate swaps, which are accounted for as cash flow hedges. The Company's derivative positions are classified within Level 2 of the fair value hierarchy and are valued using models generally accepted in the financial services industry and that use actively quoted or observable market input values from external market data providers and/or non-binding broker-dealer quotations. The fair value of the derivatives is determined using discounted cash flow models. These models’ key assumptions include the contractual terms of the respective contract along with significant observable inputs, including interest rates, yield curves, nonperformance risk and volatility.

Assets and liabilities measured at fair value on a recurring basis are summarized below:

	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
	(dollars in thousands)								(dollars in thousands)
June 30, 2019
March 31, 2020
Securities available for sale:
U.S. government and agency securities	$	—	$	3,699	$	—	$	3,699	$	—	$	16,053	$	—	$	16,053
U.S. treasury securities		—		2,507		—		2,507		—		2,505		—		2,505
Asset backed securities										—		16,490		—		16,490
Municipal securities										—		38,527		—		38,527
Mortgage-backed securities										—		172,573		—		172,573
Loan servicing rights⁽¹⁾										—		—		16,211		16,211
Total assets at fair value									$	—	$	246,148	$	16,211	$	262,359
Derivative instruments, interest rate swaps										—		2,166		—		2,166
Total liabilities at fair value									$	—	$	2,166	$	32,422	$	2,166
December 31, 2019
Securities available for sale:
U.S. government and agency securities									$	—	$	3,458	$	—	$	3,458
U.S. treasury Securities										—		2,506		—		2,506
Mortgage-backed securities		—		152,355		—	$	152,355		—		152,769		—		152,769
Total assets at fair value	$	—	$	158,561	$	—	$	158,561	$	—	$	158,733	$	—	$	158,733
Derivative instruments, interest rate swaps		—		1,316		—	$	1,316		—		972		—		972
Total liabilities at fair value	$	—	$	1,316	$	—	$	1,316	$	—	$	972	$	—	$	972
December 31, 2018
Securities available for sale:
U.S. government and agency securities	$	—	$	4,331	$	—	$	4,331
U.S. treasury Securities		—		2,491		—		2,491
Municipal securities		—		34,520		—		34,520
Mortgage-backed securities		—		154,603		—	$	154,603
Total assets at fair value	$	—	$	195,945	$	—	$	195,945
Derivative instruments, interest rate swaps		—		179		—	$	179
Total liabilities at fair value	$	—	$	179	$	—	$	179

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 financial instruments carried on the consolidated balance sheet by caption and by level in the fair value hierarchy for which a nonrecurring change in fair value has been recorded:

The significant inputs used in the fair value measurements for Level 3 assets measured at fair value on a nonrecurring basis ~~are~~were as follows:

The estimated fair values, and related carrying or notional amounts, of the Company’s financial instruments were as follows:

	June 30,				December 31,					March 31,				December 31,
	2019				2018					2020				2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Input Level	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Input Level
	(dollars in thousands)									(dollars in thousands)
Financial assets:
Cash and cash equivalents	$	116,251	$	116,251	$	61,087	$	61,087	1	$	20,934	$	20,934	$	108,457	$	108,457	1
Interest earning cash at other financial institutions											611		611		20,554		20,554	1
FHLB Stock											4,903		4,903		1,628		1,628	2
Securities available for sale		158,561		158,561		195,945		195,945	2		246,148		246,148		158,733		158,733	2
FHLB Stock		2,178		2,178		2,978		2,978	2
Loans, net of allowance for loan losses		1,131,574		1,136,362		1,190,790		1,187,330	3		994,889		1,007,261		1,020,506		1,024,062	3
Loans held for sale		7,448		7,448		2,949		2,949	3		14,388		14,388		2,151		2,151	3
Accrued interest receivable		3,821		3,821		3,878		3,878	2		2,589		2,589		2,571		2,571	2
Loan servicing rights		9,621		14,057		9,047		13,198	3		16,211		16,211		12,509		15,921	3
Financial liabilities:
Deposits:
Time		773,843		778,769		805,240		801,267	2		593,198		594,535		640,925		635,558	2
Other deposits		431,334		431,334		418,107		418,107	1		426,762		426,762		460,517		460,517	1
Other borrowings		809		809		827		827	3		2,193		2,193		794		794	3
Advances from FHLB		59,400		59,537		89,400		88,725	2		109,400		110,723		44,400		44,578	2
Subordinated debentures		44,781		44,781		44,703		44,703	3		44,896		44,896		44,858		44,858	3
Accrued interest payable		5,026		5,026		4,013		4,013	2		5,093		5,093		4,769		4,769	2
Derivative instruments, interest rate swaps		1,316		1,316		179		179	2		2,166		2,166		972		972	2

Income (expenses) applicable to other real estate owned included in non-interest expense included the following:

On June 15, 2018, the Company executed an interest rate swap to manage interest rate risk on two sets of its trust preferred securities. This derivative contract involves the receipt of floating rate interest from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreement, without the exchange of the underlying notional value. This instrument is designated as a cash flow hedge as the receipt of floating rate interest from the counterparty is used to manage interest rate risk associated with three month LIBOR advances. The change in the fair value of this hedging instrument is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged transaction affects earnings.

The Company had two outstanding interest rate swaps designated as a cash flow hedge each with an aggregate notional value of $6.0 million at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019. Both interest rate swaps mature on June 15, 2028. A pre-tax unrealized loss ~~(gain)~~ of ~~$1.1~~$1.2 and ~~($0.1)~~$0.5 million was recognized in accumulated other comprehensive income for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively and there was no ineffective portion of this hedge.

The Company is exposed to credit risk in the event of nonperformance by the interest rate swaps counterparty. The Company minimizes this risk by entering into derivative contracts with only large, stable financial institutions, and the Company has not experienced, and does not expect, any losses from counterparty nonperformance on the interest rate swaps. The Company monitors counterparty risk in accordance with the provisions of FASB ASC 815. In addition, the interest rate swap agreements ~~contains~~contain language outlining collateral-pledging requirements for each counterparty. Collateral must be posted when the market value exceeds certain threshold limits. Derivative contracts are executed with a Credit Support Annex, which is a bilateral ratings-sensitive agreement that requires collateral postings at established credit threshold levels. These agreements protect the interests of the Company and its counterparties should either party suffer a credit rating deterioration. The Company was required to pledge ~~$1.0~~$2.4 million of cash as collateral to the counterparty as of ~~June 30, 2019.~~March 31, 2020.

Management evaluated subsequent events through the date the financial statements were issued. There were no significant events or transactions occurring after ~~June 30, 2019,~~March 31, 2020, but prior to ~~August 8, 2019,~~May 7, 2020, that provided additional evidence about conditions that existed at ~~June 30, 2019.~~March 31, 2020.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this Form 10-Q. This report contains statements that constitute forward-looking statements within the meaning of the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the use of words such as “estimate,” “project,” “predict,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “may,” “might,” “should,” “indicate,” “will,” “would,” “could,” “contemplate,” “continue,” “intend,” “target” and words of similar meaning. These forward-looking statements are not historical facts and include statements of our goals, intentions, expectations, business plans, and operating strategies.

Forward-looking statements are subject to significant risks and uncertainties, and our actual results may differ materially from the results discussed in such forward-looking statements. The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

These statements are only current predictions and are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from those anticipated by the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Forward-looking statements are made only as of the date of this report, and the Company undertakes no obligation to update any forward-looking statements contained in this report to reflect new information or events or conditions after the date hereof.

County Bancorp, Inc. is a Wisconsin corporation founded in May 1996 and is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended. Our primary activities consist of operating through our wholly owned subsidiary bank, Investors Community Bank, headquartered in Manitowoc, Wisconsin, and providing a wide range of banking and related business services through the Bank and our other subsidiaries.

In addition to the Bank, we have three ~~wholly-owned~~wholly owned subsidiaries, County Bancorp Statutory Trust II, County Bancorp Statutory Trust III, and Fox River Valley Capital Trust I, which are Delaware statutory trusts. The Bank is the sole member of Investors Insurance Services, LLC and ABS 1, LLC, which are both Wisconsin limited liability companies.

Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans, and the interest we pay on interest-bearing liabilities, such as deposits. We generate most of our revenue from interest on loans and investments and loan- and deposit-related fees. Our loan portfolio consists of a mix of agricultural, commercial real estate, commercial, and residential real estate loans. Our primary source of funding is deposits. Our largest expenses are interest on these deposits and salaries and related employee benefits. We measure our performance through various metrics, including our pre-tax net income, net interest margin, net overhead ratio, return on average assets, earnings per share, and ratio of non-performing assets to total assets. We also utilize non-GAAP metrics, such as efficiency ratio, return on average common shareholders’ equity, tangible book value per share, ratio of tangible common equity to tangible assets, and adverse classified asset ratio, to evaluate the Company’s performance. We are required to maintain appropriate regulatory leverage and risk-based capital ratios.

~~Net income~~The COVID-19 pandemic in the United States has had an adverse impact on our financial condition and results of operations as of and for the three months ended ~~June 30,~~March 31, 2020, and is expected to have a complex and significant adverse impact on the economy, the banking industry and the Company in future fiscal periods, all subject to a high degree of uncertainty.

Effects on Our Market Areas. Our commercial and consumer banking products and services are offered primarily in Wisconsin, where individual and governmental responses to the COVID-19 pandemic have led to a broad curtailment of economic activity beginning in March 2020. In Wisconsin, the Governor issued a series of orders, including an order that, subject to limited exceptions, all individuals stay at home and non‑essential businesses cease all activities, which order became effective on March 25, 2020, and was extended until May 26, 2020. The Bank and its branches have remained open during these orders because banks have been deemed essential businesses. The Bank has been serving its customers through its drive through and night deposit services and digital banking platforms.

Across the United States, as a result of stay-at-home orders, many states have experienced a dramatic increase in unemployment levels as a result of the curtailment of business activities. As of May 4, 2020, 502,256 unemployment claims have been filed in the state of Wisconsin.

To date, many of the public health and economic effects of COVID-19 have been concentrated in large cities, such as New York City, but we anticipate that similar effects will occur on a more delayed basis in smaller cities and communities, where our banking operations are primarily focused.

Policy and Regulatory Developments. Federal, state and local governments and regulatory authorities have enacted and issued a range of policy responses to the COVID-19 pandemic, including the following:

The Federal Reserve decreased the range for the federal funds target rate by 0.5% on March 3, 2020, and by another 1.0% on March 16, 2020, reaching a range of 0.0 – 0.25%.

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), which established a $2.0 trillion economic stimulus package, including cash payments to individuals, supplemental unemployment insurance benefits and a $349 billion loan program administered through the U.S. Small Business Administration (“SBA”), referred to as the paycheck protection program (“PPP”). Under the PPP, small businesses, sole proprietorships, independent contractors and self-employed individuals could apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility criteria. The Bank is participating as a lender in the PPP. On or about April 16, 2020, the SBA notified lenders that the $349 billion earmarked for the PPP was exhausted. On April 24, 2020, an additional $310 billion in funding for PPP loans was authorized, with such funds available for PPP loans beginning on April 27, 2020; which as of May 7, 2020, $125 billion was still available for allocation. In addition, the CARES Act provides financial institutions the option to temporarily suspend certain requirements under GAAP related to TDRs for a limited period of time to account for the effects of COVID-19.

•

On April 7, 2020, federal banking regulators issued a revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions, which, among other things, encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19, and stated that institutions generally do not need to categorize COVID-19-related modifications as TDRs and that the agencies will not direct supervised institutions to automatically categorize all COVID-19 related loan modifications as TDRs

•

On April 9, 2020, the Federal Reserve announced additional measures aimed at supporting small and midsized business, as well as state and local governments impacted by COVID-19. The Federal Reserve announced the Main Street Business Lending Program, which establishes two new loan facilities intended to facilitate lending to small and midsized businesses: (1) the Main Street New Loan Facility (“MSNLF”), and (2) the Main Street Expanded Loan Facility (“MSELF”). MSNLF loans are unsecured term loans originated on or after April 8, 2020, while MSELF loans are provided as upsized tranches of existing loans originated before April 8, 2020. The combined size of the program will be up to $600 billion. The program is designed for businesses with up to 10,000 employees or $2.5 billion in 2019 revenues. To obtain a loan, borrowers must confirm that they are seeking financial support because of COVID-19 and that they will not use proceeds from the loan to pay off debt. The Federal Reserve also stated that it would provide additional funding to banks offering PPP loans to struggling small businesses. Lenders participating in the PPP will be able to exclude loans financed by the facility from their leverage ratio. In addition, the Federal Reserve created a Municipal Liquidity Facility to support state and local governments with up to $500 billion in lending, with the Treasury Department backing $35 billion for the facility using funds appropriated by the CARES Act. The facility will make short-term financing available to cities with a population of more than one million or counties with a population of greater than two million. The Federal Reserve expanded both the size and scope its Primary and Secondary Market Corporate Credit Facilities to support up to $750 billion in credit to corporate debt issuers. This will allow companies that were investment grade before the onset of COVID-19 but then subsequently downgraded after March 22, 2020 to gain access to the facility. Finally, the Federal Reserve announced that its Term Asset-Backed Securities Loan Facility will be scaled up in scope to include the triple

A-rated tranche of commercial mortgage-backed securities and newly issued collateralized loan obligations. The size of the facility is $100 billion.

Effects on Our Business. We currently expect that the COVID-19 pandemic and the specific developments referred to above will have a significant impact on our business. In particular, we anticipate that a significant portion of the Bank’s borrowers in the dairy agriculture, retail shopping centers, limited service restaurants, hotels, assisted living and nursing homes and residential rental industries will continue to endure significant economic distress, which has caused, and will continue to cause, them to draw on their existing lines of credit and adversely affect their ability and willingness to repay existing indebtedness, and is expected to adversely impact the value of collateral. These developments, together with economic conditions generally, are also expected to impact our commercial real estate portfolio, particularly with respect to real estate with exposure to these industries and the value of certain collateral securing our loans. As a result, we anticipate that our financial condition, capital levels and results of operations will be significantly adversely affected, as described in further detail below.

Our Response. We have taken numerous steps in response to the COVID-19 pandemic, including the following:

The FDIC, the Board of Governors of the Federal Reserve, in consultation with state financial regulators, issued a revision to the Interagency Statement on Loan Modifications by Financial Institutions Working with Customers Affected by the Coronavirus issued on March 22, 2020. The revised interagency statement encourages financial institutions to work constructively with borrowers impacted by the Coronavirus Disease 2019 (referred to as COVID-19), provides additional information regarding loan modifications, and clarifies the interaction between the interagency statement and related relief provided by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The Statement provides guidance on handling payment modification requests for impacted borrowers without triggering TDR classifications, by allowing up to 6-months of payment deferrals or interest only to assist our customers at this time. As of May 7, 2020 we have processed 185 customer payment modification requests for customers who had loan balances of $128.0 million.

Management had already made investments in its digital banking operations over the past several years. Management has expanded the use of digital signatures for documents as well as videoconferencing in response to COVID-19.

Management established a Pandemic Planning Task Force which meets daily. The Bank’s Executive Committee is also meeting daily in response to COVID-19.

As of May 7, 2020, the Bank has processed 847 applications totaling $104.9 million through the SBA. These loans are being funded through borrowings from the Federal Reserve PPP Liquidity Facility so as not to reduce the Bank’s available liquidity.

Approximately 90% of the Bank’s employees are now working remotely. Only the drive thrus are open in our branch network.

There are no current plans to suspend our common stock repurchase plan or common stock dividend. The Board and Management will continue to evaluate our capital plans as our credit metrics and capital levels change. In addition, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019, we will not be permitted to make capital distributions (including for dividends and repurchases of stock) or pay discretionary bonuses to executive officers without restriction if we do not maintain 2.5% in Common Equity Tier 1 Capital attributable to a capital conservation buffer.

Operational Overview

Net loss for the three months ended March 31, 2020 was ~~$3.7~~$5.2 million, primarily driven by a $5.0 million goodwill impairment, compared to ~~$3.9~~net income of $3.8 million for the three months ended ~~June 30, 2018, and $7.5 million for the six months ended June 30, 2019 compared to $7.9 million for the six months ended June 30, 2018.~~

~~Net interest income increased by $0.4 million from $20.6 million for the six months ended June 30, 2018, to $21.0 million for the six months ended June 30,~~March 31, 2019.

Total loans decreased ~~$59.5~~$23.3 million, or ~~4.9%~~2.3%, from December 31, ~~2018~~2019 to ~~$1.1 billion~~$994.9 million at ~~June 30, 2019,~~March 31, 2020, and decreased ~~$33.7~~$170.5 million, or ~~2.9%~~14.4%, from ~~June 30, 2018.~~March 31, 2019.

Participated loans that we continue to service totaled ~~$695.6~~$747.6 million at ~~June 30, 2019, an increase~~March 31, 2020, a decrease of ~~$34.3~~$4.2 million, or ~~5.2%~~0.6%, since December 31, ~~2018,~~2019, and an increase of ~~$67.2~~$72.3 million, or 10.7%, since ~~June 30, 2018.~~March 31, 2019.

Non-performing assets decreased ~~$0.8~~$1.5 million since December 31, ~~2018~~2019, to ~~$28.8~~$35.3 million at ~~June 30, 2019,~~March 31, 2020, a decrease of ~~2.6%~~3.3%, and ~~decreased $6.1~~increased $4.4 million, or ~~17.5%~~14.2%, since ~~June 30, 2018.~~March 31, 2019.

Client deposits (demand, NOW accounts and interest checking, savings, money market accounts, and certificates of deposit) ~~increased $44.7~~decreased $43.9 million, or ~~5.9%~~5.3%, since December 31, ~~2018~~2019, to ~~$799.1~~$791.7 million at ~~June 30, 2019,~~March 31, 2020, and increased ~~$96.2~~$32.1 million, or ~~13.7%~~4.2%, since ~~June 30, 2018.~~March 31, 2019.

Our reliance on ~~wholesale funding (brokered~~brokered deposits and national time deposits ~~and FHLB borrowings)~~ decreased ~~$92.9~~$37.6 million, or ~~16.6%~~14.1%, since December 31, ~~2018~~2019 to ~~$465.4~~$228.3 million at ~~June 30, 2019,~~March 31, 2020, and decreased ~~$150.3~~$188.5 million, or ~~24.4%~~45.2%, since ~~June 30, 2018.~~March 31, 2019.

Selected Financial Data

	As of and for						As of and for						As of and for			As of and for the						As of and for the
	Three Months Ended						Six Months Ended						Year Ended			Three Months Ended						Year Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018			December 31, 2018			March 31, 2020			March 31, 2019			December 31, 2019
	(unaudited)						(unaudited)									(unaudited)
	(Dollars in thousands, except per share data)															(Dollars in thousands, except per share data)
Selected Income Statement Data:
Interest income	$	17,208		$	15,763		$	34,334		$	30,456		$	64,217		$	14,095		$	17,126		$	66,332
Interest expense		6,776			5,425			13,342			9,848			22,262			5,297			6,566			25,550
Net interest income		10,432			10,338			20,992			20,608			41,955			8,798			10,560			40,782
Provision for loan losses		876			533			1,628			630			3,195			2,218			752			423
Net interest income after provision for loan losses		9,556			9,805			19,364			19,978			38,760			6,580			9,808			40,359
Non-interest income		2,887			2,316			5,637			4,356			8,833			2,703			2,750			13,393
Non-interest expense		7,446			6,937			14,751			13,722			28,283			15,018			7,305			32,684
Income tax expense		1,293			1,334			2,784			2,708			5,059
Net income	$	3,704		$	3,850		$	7,466		$	7,904		$	14,251
Income tax expense (benefit)																	(547	)		1,491			4,616
Net income (loss)																$	(5,188	)	$	3,762		$	16,452

Per Common Share Data:
Basic earnings per common share	$	0.53		$	0.56		$	1.07		$	1.15		$	2.06
Diluted earnings per common share	$	0.53		$	0.55		$	1.07		$	1.14		$	2.04
Basic earnings (loss) per common share																$	(0.79	)	$	0.54		$	2.37
Diluted earnings (loss) per common share																$	(0.78	)	$	0.54		$	2.36
Cash dividends per common share	$	0.05		$	0.07		$	0.10		$	0.14		$	0.28		$	0.07		$	0.05		$	0.20
Book value per share, end of period	$	23.03		$	20.63		$	23.03		$	20.63		$	21.50		$	24.17		$	22.36		$	24.32
Tangible book value per share, end of period ⁽¹⁾	$	22.23		$	19.77		$	22.23		$	19.77		$	20.65		$	24.15		$	21.54		$	23.54
Weighted average common shares - basic		6,745,635			6,690,568			6,735,725			6,684,399			6,712,551			6,700,329			6,725,705			6,747,581
Weighted average common shares - diluted		6,766,366			6,769,936			6,756,895			6,961,917			6,757,667			6,749,401			6,747,028			6,768,925
Common shares outstanding, end of period		6,717,908			6,693,447			6,717,908			6,693,447			6,709,480			6,496,790			6,709,254			6,734,132

Selected Balance Sheet Data:
Total assets	$	1,484,646		$	1,518,877		$	1,484,646		$	1,518,877		$	1,521,027		$	1,354,974		$	1,491,388		$	1,378,779
Securities available-for-sale		158,561			187,505			158,561			187,505			195,945			246,148			192,210			158,733
Total loans		1,147,832			1,181,524			1,147,832			1,181,524			1,207,295			1,012,436			1,182,963			1,035,773
Allowance for loan losses		(16,258	)		(15,129	)		(16,258	)		(15,129	)		(16,505	)		(17,547	)		(17,493	)		(15,267	)
Total deposits		1,205,177			1,210,431			1,205,177			1,210,431			1,223,347			1,019,960			1,176,277			1,101,442
Other borrowings and FHLB advances		60,209			109,041			60,209			109,041			90,227			111,593			101,812			45,194
Subordinated debentures		44,781			44,725			44,781			44,725			44,703			44,896			44,742			44,858
Total shareholders' equity		162,724			146,082			162,724			146,082			152,284			165,046			158,017			172,029

Performance Ratios:
Return on average assets (annualized)		1.00	%		1.04	%		1.00	%		1.09	%		0.96	%		(1.53	)%		1.00	%		1.13	%
Return on average shareholders' equity (annualized)		9.24	%		10.96	%		9.48	%		11.39	%		7.58	%		(11.97	)%		9.78	%		10.10	%
Return on average common shareholders' equity ⁽¹⁾		9.41	%		10.96	%		9.68	%		11.39	%		9.74	%		(12.81	)%		9.99	%		10.31	%
Equity to assets ratio		10.96	%		9.62	%		10.96	%		9.62	%		10.00	%		12.18	%		10.60	%		12.46	%
Net interest margin		2.92	%		2.87	%		2.93	%		2.91	%		2.91	%		2.74	%		2.94	%		2.93	%
Interest rate spread		2.59	%		2.61	%		2.61	%		2.67	%		2.62	%		2.37	%		2.64	%		2.58	%
Non-interest income to average assets (annualized)		0.78	%		0.62	%		0.76	%		0.60	%		0.58	%		0.80	%		0.73	%		0.92	%
Non-interest expense to average assets (annualized)		2.01	%		1.86	%		1.99	%		1.89	%		1.87	%		4.43	%		1.95	%		2.25	%
Net overhead ratio (annualized) ⁽²⁾		1.23	%		1.24	%		1.22	%		1.29	%		1.29	%		3.64	%		1.22	%		1.33	%
Efficiency ratio ⁽¹⁾		55.38	%		55.18	%		55.65	%		55.15	%		54.42	%		74.92	%		55.91	%		59.92	%
Dividend payout ratio		9.43	%		12.73	%		9.35	%		12.28	%		13.73	%		(8.97	)%		9.26	%		8.47	%

Asset Quality Ratios:
Adverse classified asset ratio ⁽¹⁾		53.21	%		47.34	%		53.21	%		47.34	%		57.12	%		32.35	%		48.59	%		39.85	%
Non-performing loans to total loans ⁽³⁾		1.75	%		2.23	%		1.75	%		2.23	%		1.90	%		3.17	%		2.19	%		2.99	%
Allowance for loan losses to:
Total loans		1.42	%		1.28	%		1.42	%		1.28	%		1.37	%		1.73	%		1.48	%		1.47	%
Non-performing loans		80.90	%		57.51	%		80.90	%		57.51	%		71.81	%		54.75	%		67.59	%		49.30	%
Net charge-offs (recoveries) to average loans		0.18	%		0.00	%		0.16	%		(0.11	)%		(0.01	)%		(0.01	)%		(0.11	)%		0.15	%
Non-performing assets to total assets ⁽³⁾		1.94	%		2.30	%		1.94	%		2.30	%		1.94	%		2.61	%		2.07	%		2.65	%

“Efficiency ratio” is defined as non-interest expense, excluding goodwill impairment and gains and losses on sales and write-downs of other real estate owned, divided by operating revenue, which is equal to net interest income plus non-interest income excluding gains and losses on sales of securities. In our judgment, the adjustments made to non-interest expense allow investors to better assess our operating expenses in relation to our core operating revenue by removing the volatility that is associated with certain one-time items and other discrete items that are unrelated to our core business.

Return on average common shareholders’ equity is a non-GAAP based financial measure calculated using non-GAAP based amounts. The most directly comparable GAAP based measure is return on average shareholders’ equity. We calculate return on average common shareholders’ equity by excluding the average preferred shareholders’ equity and the related dividends. Management uses the return on average common shareholders’ equity in order to review our core operating results and our performance.

Tangible book value per share and ratio of tangible common equity to tangible assets are non-GAAP financial measures based on GAAP amounts. In our judgment, the adjustments made to book value, equity and assets allow investors to better assess our capital adequacy and net worth by removing the effect of goodwill and intangible assets that are unrelated to our core business.

Adverse classified asset ratio is a non-GAAP financial measure based on GAAP amounts. In our judgment, the adjustments made to non-performing assets allow management to better assess asset quality and monitor the amount of capital coverage necessary for non-performing assets.

Our operating revenue is comprised of interest income and non-interest income. Net interest income ~~increased~~decreased by ~~0.9%~~16.7% to ~~$10.4~~$8.8 million for the three months ended ~~June 30, 2019~~March 31, 2020 compared to the three months ended ~~June 30, 2018,~~March 31, 2019, primarily attributable to a 34$178.6 million, or 14.8%, decrease in average loan balance and a 25 basis point ~~improvement~~decrease in ~~average~~loan yield ~~of securities available-for-sale. Year-over-year average loan yields improved by 42 basis points; however this~~between the two periods. This decrease was partially offset by a 4216 basis point ~~increase~~decrease in the average rate paid on interest-bearing deposits.

Interest income ~~increased~~decreased to $17.2 million for the second quarter of 2019 compared to $15.8 million for the second quarter of 2018. Despite a decline in average loan balance, the increase in interest income was primarily as the result of an increase in loan yield from 4.84% for the second quarter of 2018 to 5.26% for the second quarter of 2019. In addition, dividend income from the securities portfolio and interest income due from other banks increased $0.3 million year-over-year. The increase in interest income was partially offset by an increase in interest expense from $5.4 million for the second quarter of 2018 to $6.8 million for the second quarter of 2019, which was primarily the result of increases in rates paid on deposits and interest paid on the $30.0 million of subordinated notes that the Company entered into on May 30, 2018.

Non-interest income for the three months ended June 30, 2019 increased 24.7% to $2.9 million from $2.3 million for the three months ended June 30, 2018, primarily due to the gain realized on the sale of securities available-for-sale during the second quarter of 2019 (included in other non-interest income) and a $0.3 million increase in loan servicing fees and rights as the result of higher volumes of loans being serviced.

Non-interest expense increased 7.3% to $7.4 million for the three months ended June 30, 2019 compared to $6.9 million for the same period in 2018. This increase was primarily the result of a $0.3 million writedown of other real estate owned that took place during the second quarter of 2019 along with small increases in information processing, professional fees, and business development.

~~For the six months ended June 30, 2019, net interest income was $21.0 million, an increase of $0.4 million, or 1.9%, from the six months ended June 30, 2018. Interest income increased to $34.3~~$14.1 million for the first ~~two quarters~~quarter of ~~2019,~~2020 compared to ~~$30.5~~$17.1 million from the first two quarters of 2018, primarily due to improved yields on both loans and securities available-for-sale and increase average balances of investment securities. Interest expense increased to $13.3 million for the six month ended June 30, 2019 from $9.8 million for the six months ended June 30, 2018. The $3.5 million increase is primarily the result of increased rates paid on deposit balances and $0.9 million increase in interest paid on the subordinated debentures.

Non-interest income increased $1.2 million, or 29.4%, for the six months ended June 30, 2019 to $5.6 million compared to the six months ended June 30, 2018, primarily due to the previously discussed increase in secondary market loan sales, as well as a reduction to the allowance for unused commitments of $0.5 million that took place during the first quarter of 2019, which ~~increased other non-interest income. The Company evaluated the need for this allowance~~resulted from a decrease in average loan balance and ~~concluded that there was no sufficient evidence that represented credit loss inherent~~a decline in ~~these commitments to substantiate this reserve. The Company will continue to evaluate credit risk on these off-balance sheet commitments going forward.~~

~~Non-interest expense increased $1.0 million, or 7.5%,~~loan yields from 5.14% for the ~~six months ended June 30,~~first quarter of 2019 to ~~$14.8 million compared~~4.89% for the first quarter of 2020. In addition, average yields on investment securities and interest bearing deposits due from other banks declined from the first quarter of 2019 to the ~~six months ended June 30, 2018. In addition to previously discussed other real estate owned writedown, the year-over-year increase~~first quarter of 2020 by 19 basis points and 143 basis points, respectively. The decreases in yields on all interest-earning assets was primarily ~~due~~the result of the Federal Reserve’s decreases to the ~~increased occupancy costs related~~target federal funds rate by a total of 75 basis points in the second half of 2019 and by a total of 150 basis points in March 2020. .

Interest expense decreased from $6.6 million for the first quarter of 2019 to ~~our new headquarters that was purchased in in May 2018 and increased employee compensation and benefits,~~$5.3 million for the first quarter of 2020, which was primarily the result of a ~~24.1%~~13.2% decrease in the average balance of interest-bearing deposits and a decrease in rates paid on savings, NOW, money market, and interest checking accounts of 68 basis points. This was partially offset by a 20 basis point increase in the ~~premium cost of employee benefits.~~rate paid on time deposits.

Net interest income is the largest component of our income and is dependent on the volumes of and yields earned on interest-earning assets as compared to the volumes of and rates paid on interest-bearing liabilities.

As a result of the reductions in the target federal funds interest rate, as well as the impact of the COVID-19 pandemic and related provisions for loan losses that we expect to incur, we expect that our net interest income and net interest margin will decrease in future periods.

The following ~~tables reflect~~table reflects the components of net interest income for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2018:~~

	Three Months Ended																Three Months Ended
	June 30, 2019								June 30, 2018								March 31, 2020								March 31, 2019
	Average Balance⁽¹⁾			Income/ Expense		Yields/ Rates			Average Balance⁽¹⁾			Income/ Expense		Yields/ Rates			Average Balance⁽¹⁾			Income/ Expense		Yields/ Rates			Average Balance⁽¹⁾			Income/ Expense		Yields/ Rates
	(dollars in thousands)																(dollars in thousands)
Assets
Investment securities	$	176,237		$	1,259		2.86	%	$	158,260		$	996		2.52	%	$	196,353		$	1,289		2.63	%	$	192,963		$	1,361		2.82	%
Loans ⁽²⁾		1,177,071			15,484		5.26	%		1,187,719			14,366		4.84	%		1,028,637			12,582		4.89	%		1,207,240			15,501		5.14	%
Interest bearing deposits due from other banks		73,769			465		2.52	%		100,646			401		1.59	%		60,825			225		1.48	%		36,227			264		2.91	%
Total interest-earning assets	$	1,427,077		$	17,208		4.82	%	$	1,446,625		$	15,763		4.36	%	$	1,285,815		$	14,096		4.39	%	$	1,436,430		$	17,126		4.77	%

Allowance for loan losses		(17,782	)							(14,918	)							(15,330	)							(17,005	)
Other assets		76,806								57,878								84,461								78,654
Total assets	$	1,486,101							$	1,489,585							$	1,354,946							$	1,498,079

Liabilities
Savings, NOW, money market, interest checking	$	315,940		$	1,316		1.67	%	$	279,958		$	789		1.13	%	$	334,740		$	774		0.92	%	$	295,418		$	1,184		1.60	%
Time deposits		770,554			4,362		2.26	%		819,037			3,811		1.86	%		613,753			3,574		2.33	%		797,476			4,240		2.13	%
Total interest-bearing deposits	$	1,086,494		$	5,678		2.09	%	$	1,098,995		$	4,600		1.67	%	$	948,493		$	4,348		1.83	%	$	1,092,894		$	5,424		1.99	%
Other borrowings		1,204			13		4.47	%		1,167			14		4.79	%		1,259			11		3.49	%		844			11		5.27	%
FHLB advances		78,653			402		2.04	%		117,327			473		1.61	%		56,708			233		1.65	%		92,900			453		1.95	%
Junior subordinated debentures		44,762			683		6.10	%		25,547			338		5.29	%		44,871			706		6.29	%		44,606			678		6.08	%
Total interest-bearing liabilities	$	1,211,113		$	6,776		2.24	%	$	1,243,036		$	5,425		1.75	%	$	1,051,331		$	5,298		2.02	%	$	1,231,244		$	6,566		2.13	%

Non-interest bearing deposits		102,432								93,876								113,351								101,532
Other liabilities		12,154								7,829								16,877								11,362
Total liabilities	$	1,325,699							$	1,344,741							$	1,181,559							$	1,344,138

Shareholders' equity		160,402								144,844								173,387								153,941
Total liabilities and equity	$	1,486,101							$	1,489,585							$	1,354,946							$	1,498,079

Net interest income				$	10,432							$	10,338							$	8,798							$	10,560
Interest rate spread ⁽³⁾							2.58	%							2.61	%							2.37	%							2.64	%
Net interest margin ⁽⁴⁾							2.92	%							2.87	%							2.74	%							2.94	%
Ratio of interest-earning assets to interest-bearing liabilities		1.18								1.16								1.22								1.17

Six Months Ended

June 30, 2019

June 30, 2018

Average
Balance⁽¹⁾

Income/
Expense

Yields/
Rates

Average
Balance⁽¹⁾

Income/
Expense

Yields/
Rates

(dollars in thousands)

Assets

Investment securities

$
186,076

$
2,620

2.82
%

$
147,553

$
1,785

2.42
%
Loans ⁽²⁾

1,192,073

30,985

5.20
%

1,180,294

28,057

4.75
%
Interest bearing deposits due from other banks

55,102

729

2.65
%

87,012

614

1.41
%
Total interest-earning assets

$
1,433,251

$
34,334

4.79
%

$
1,414,859

$
30,456

4.31
%

Allowance for loan losses

(17,396
)

(14,323
)

Other assets

76,613

52,395

Total assets

$
1,492,468

$
1,452,931

Liabilities

Savings, NOW, money market, interest checking

$
307,903

$
2,500

1.62
%

$
278,889

$
1,448

1.04
%
Time deposits

781,672

8,602

2.20
%

783,202

6,948

1.77
%
Total interest-bearing deposits

$
1,089,575

$
11,102

2.04
%

$
1,062,091

$
8,396

1.58
%
Other borrowings

1,025

25

4.80
%

1,226

30

4.94
%
FHLB advances

85,737

854

1.99
%

119,187

941

1.58
%
Junior subordinated debentures

44,742

1,361

6.09
%

20,566

481

4.68
%
Total interest-bearing liabilities

$
1,221,079

$
13,342

2.19
%

$
1,203,070

$
9,848

1.64
%

Non-interest bearing deposits

102,050

98,728

Other liabilities

11,797

7,698

Total liabilities

$
1,334,926

$
1,309,496

Shareholders' equity

157,542

143,435

Total liabilities and equity

$
1,492,468

$
1,452,931

Net interest income

$
20,992

$
20,608

Interest rate spread ⁽³⁾

2.60
%

2.67
%
Net interest margin ⁽⁴⁾

2.93
%

2.91
%
Ratio of interest-earning assets to interest -bearing
liabilities

1.17

1.18

The following table presents the effects of changing rates and volumes on our net interest income between the periods indicated. The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The net column represents the sum of the volume and rate columns. For purposes of this table, changes attributable to both rate and volume which cannot be segregated have been allocated proportionately based on the changes due to rate and the changes due to volume.

	Three Months Ended June 30, 2019 v. 2018									Three Months Ended March 31, 2020 v. 2019
	Increase (Decrease) Due to Change in Average									Increase (Decrease) Due to Change in Average
	Rate			Volume			Net			Rate			Volume			Net
	(dollars in thousands)									(dollars in thousands)
Interest Income:
Investment securities	$	143		$	120		$	263		$	(96	)	$	24		$	(72	)
Loans		1,246			(128	)		1,118			(708	)		(2,211	)		(2,919	)
Federal funds sold and interest-bearing deposits with banks		118			(54	)		64			104			(143	)		(39	)
Total interest income		1,507			(62	)		1,445			(700	)		(2,330	)		(3,030	)
Interest Expense:
Savings, NOW, money market and interest checking		415			112			527			(598	)		188			(410	)
Time deposits		757			(206	)		551			469			(1,135	)		(666	)
Other borrowings		(1	)		—			(1	)		1			(1	)		-
FHLB advances		292			(363	)		(71	)		(63	)		(157	)		(220	)
Junior subordinated debentures		59			286			345			24			4			28
Total interest expense		1,522			(171	)		1,351			(167	)		(1,101	)		(1,268	)
Net interest income	$	(15	)	$	109		$	94		$	(533	)	$	(1,229	)	$	(1,762	)

	Six Months Ended June 30, 2019 v. 2018
	Increase (Decrease) Due to Change in Average
	Rate			Volume			Net
	(dollars in thousands)
Interest Income:
Investment securities	$	322		$	513		$	835
Loans		2,645			283			2,928
Federal funds sold and interest-bearing deposits with banks		198			(83	)		115
Total interest income		3,165			713			3,878
Interest Expense:
Savings, NOW, money market and interest checking		888			164			1,052
Time deposits		1,668			(14	)		1,654
Other borrowings		(1	)		(4	)		(5	)
FHLB advances		1,253			(1,340	)		(87	)
Junior subordinated debentures		180			700			880
Total interest expense		3,988			(494	)		3,494
Net interest income	$	(823	)	$	1,207		$	384

Based on our analysis of the components of the allowance for loan losses, management recorded a provision expense for loan losses of ~~$0.9~~$2.2 million for the three months ended ~~June 30, 2019~~March 31, 2020 compared to ~~a provision~~ of ~~$0.5~~$0.8 million for the three months ended ~~June 30, 2018.~~March 31, 2019. The increased provision is directly related to the $2.1 million in net charge-offs that took place during the second quarter of 2019 which related to a commercial real estate relationship that lost its primary tenant, as well as an increase in ~~special mention and substandard loans during the second quarter of 2019.~~

~~For the six months ended June 30, 2019, the~~ provision ~~for loan losses~~ was ~~$1.6 million compared to $0.6 million for the six months ended June 30, 2018, as~~ the result of ~~$1.9~~the additional qualitative factor of $2.0 million ~~in net charge-offs during~~related to customers that are at a higher risk of being impacted by the ~~first six months of 2019 compared to $1.3 million in net recoveries during the first six months of 2018.~~COVID-19 pandemic.

The specific reserve related to impaired loans was ~~$3.7~~$5.8 million at ~~June 30, 2019,~~March 31, 2020, which was an increase of ~~$0.1~~$0.2 million, or ~~1.7%~~3.6%, from ~~June 30, 2018, due to a 30.5% increase in substandard~~December 31, 2019. Substandard impaired loans increased $1.3 million, or 3.6%, from ~~$47.1~~$36.2 million at ~~June 30, 2018~~December 31, 2019 to ~~$61.4~~$37.5 million at ~~June 30, 2019. Non-performing assets decreased $6.1 million since June 30, 2018 to $28.8 million at June 30, 2019.~~March 31, 2020. The ~~increase in substandard loans~~increased specific reserve was the result of decreased livestock and equipment values for one agricultural customer. It is unknown how the prolonged strain of Wisconsin’s agricultural economy; however, we are actively managing these credits, and we are optimistic about the industry’s outlook as there was a 6.5% increase in the 12-month future price of class III milk on the Chicago Mercantile Exchange during the second quarter of 2019. Despite the recent increase in class III milk prices, we anticipate some additional stress inCOVID-19 pandemic will affect our ~~agricultural portfolio will continue throughout 2019 due to the length of the depressed prices that our agricultural borrowers endured;~~loan portfolio; however, management believes this increased risk is adequately captured by the ~~existing agriculture~~additional qualitative ~~factors~~factor that was added during the first quarter of 2020 in our allowance for loan losses methodology.

There have been no substantive changes to our methodology for estimating the appropriate level of allowance for loan losses from what was previously disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019 other than the qualitative factor for COVID19 discussed above. Based upon this methodology, which includes actively monitoring the asset quality and inherent risks within the loan and lease portfolio, management concluded that an allowance for loan losses of $~~16.3~~17.5 million, or ~~1.42%~~1.73% of total loans, was appropriate as of ~~June 30, 2019.~~March 31, 2020. This is compared to an allowance for loan losses of ~~$15.1~~$17.5 million, or ~~1.28%~~1.48% of total loans, at ~~June 30, 2018,~~March 31, 2019, and ~~$16.5~~$15.3 million, or ~~1.37%~~1.47% of total loans, at December 31, ~~2018.~~2019.

Non-interest income for the three months ended ~~June 30, 2019 increased~~March 31, 2020 decreased by ~~24.7%~~1.7% to ~~$2.9~~$2.7 million from ~~$2.3~~$2.8 million for the three months ended ~~June 30, 2018.~~March 31, 2019. The ~~$0.6~~$0.1 million ~~increase~~decrease was primarily the result of ~~continued reduction in~~ the valuation allowance on its loan servicing rights portfolio which resulted in an increase of $0.1 million of loan servicing rights, which are included in loan servicing fees in our consolidated statement of operations. The reductionone-time elimination of the ~~valuation~~ allowance is expected to continue throughout the remaining quarters of 2019. In addition, loan servicing fees increased by $0.1 million in the second quarter of 2019 as a result of higher volumes of loans being serviced, and the sale of securities available-for-sale resulted in a $0.3 million gain during the second quarter of 2019.

~~For the six months ended June 30, 2019, non-interest income increased $1.2 million, or 29.4%, to $5.6 million from $4.4 million~~ for ~~the six months ended June 30, 2018, primarily to the result of the reduction to valuation allowance in the loan servicing rights portfolio discussed above. Also~~unused commitments during the first quarter of 2019 ~~the Company eliminated the allowance~~ for ~~unused commitments of~~ $0.5 million, ~~after concluding that there~~which was ~~no longer sufficient evidence of credit loss inherent in these commitments to substantiate the necessity of this reserve. The elimination of this reserve resulted in~~only partially offset by an increase in loan servicing fee and right origination of ~~other non-interest income. The Company will continue to evaluate credit risk on these off-balance sheet commitments going forward and make appropriate adjustments to an allowance as necessary.~~ $0.4 million during the first quarter of 2020.

The following table reflects the components of non-interest income for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2018:~~

Non-interest expense increased ~~7.3%~~105.6% for the three months ended ~~June 30, 2019~~March 31, 2020 to ~~$7.4~~$15.0 million compared to ~~$6.9~~$7.3 million for the three months ended ~~June 30, 2018.~~March 31, 2019. The increase is primarily the result of a ~~$0.3~~$5.0 goodwill impairment due to the anticipation reduction in future earnings and a decrease in the trading multiples of the Company’s stock in relation to COVID-19. In addition, there was a $1.4 million ~~writedown~~write-down in the first quarter of 2020 of a retail shopping center that is in other real estate owned, ~~that~~

~~occurred during the second quarter of 2019. In addition, 2018 benefited from sales of other real estate owned that resulted~~and a $0.8 million increase in ~~net gains, and 2019 was negatively impacted by a net loss on the sale of other real estate owned.~~

For the six months ended June 30, 2019, non-interest expense increased by $1.0 million, or 7.5% to $14.7 million from $13.7 million for the six months ended June 30, 2018. In addition to the items noted above, ~~the year-over-year increase is primarily due to increased occupancy costs related to our new headquarters that was purchased in May 2018 and increased~~ employee compensation and benefits ~~which is~~ primarily ~~the~~as a result of a ~~24.1%~~5.1% increase in headcount and increased payroll taxes and options expense related to 2019 incentive compensation that was paid during the ~~premium cost~~first quarter of ~~employee benefits.~~2020.

The following table reflects the components of our non-interest expense for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2018:~~2019:

The Company accounts for income taxes in accordance with income tax accounting guidance, which sets out a consistent framework to determine the appropriate level of tax reserves to maintain for uncertain tax positions.

The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.

Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term “more likely than not” means a likelihood of more than 50%; the terms “examined” and “upon examination” also include resolution of the related appeals or litigation processes, if any. A tax position that meets the “more likely than not” recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the “more likely than not” recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of the deferred tax asset will not be realized.

The Company files income tax returns in the U.S. federal jurisdiction and in the state of Wisconsin. The Company is no longer subject to U.S. federal or state income tax examinations by tax authorities for years before ~~2015.~~2016.

The Company recognizes interest and penalties on income taxes, if any, as a component of other non-interest expense.

Income tax expense (benefit) for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ was ~~$1.3 million, which represents an effective tax rate of 25.9% and 25.7%, respectively. Income tax expense for the six months ended June 30, 2019 and 2018, was $2.8~~$(0.6) million and ~~$2.7~~$1.5 million, respectively, which represents an effective tax rate of ~~27.2%~~9.5% and ~~25.5%~~28.4%, respectively. The ~~increase~~decrease in the effective tax rate ~~year-over-year is~~for the 2020 period compared to the 2019 period was primarily the result of the ~~exercise~~non-deductible goodwill impairment that took place during the first quarter of ~~stock options that resulted in additional tax deductions in 2018. There were no stock option exercises resulting in additional tax deductions during 2019.~~2020.

Total assets decreased ~~$36.3~~$23.8 million, or ~~2.4%~~1.7%, from December 31, ~~2018~~2019 to ~~$1.5~~$1.4 billion at ~~June 30, 2019.~~March 31, 2020. Total loans decreased by ~~$59.5~~$23.3 million, or ~~4.9%~~2.3%, since December 31, ~~2018~~2019 primarily as the result of normal pay-downs and an increase of ~~$34.3~~$12.2 million in ~~loan sales and participations.~~loans held for sale.

Total liabilities decreased ~~$46.8~~$16.8 million, or ~~3.4%~~1.4%, from ~~$1.4~~December 31, 2019 to $1.2 billion at ~~December~~March 31, ~~2018 to $1.3 billion at June 30, 2019.~~2020. This decrease iswas primarily attributed to an intentional decrease in brokered and national deposits of $37.6 million and a decrease in ~~brokered deposits and national certificates of~~client deposits of ~~$62.9~~$43.9 million ~~and a pay-down~~which were partially offset by $65.0 million of ~~$30.0 million in~~additional FHLB borrowings in the first ~~half~~quarter of 2020. The Company took advantage of the Federal Reserve’s decreases in the target federal funds interest rate to borrow from the FHLB at an average rate of 0.77%. The Company’s overall focus remains on funding loan growth with client deposits; however, these borrowings help reduce interest rate risk and lower the cost of funds.

Shareholders’ equity decreased $7.0 million, or 4.1%, to $165.0 million at March 31, 2020 from $172.0 million at December 31, 2019. This decrease was due primarily to the net loss for the three months ended March 31, 2020 of $5.2 million and a $0.9 million tax-effected decrease in ~~wholesale funding~~the fair market value of derivatives which was partially offset by ~~an increase of $44.7 million, or 5.9%, in client deposits, defined as~~ ~~demand, NOW accounts and interest checking, savings,~~ ~~money market accounts, and certificates of deposit since December 31, 2018.~~

Shareholders’ equity increased $10.4 million, or 6.9%, to $162.7 million at June 30, 2019 from $152.3 million at December 31, 2018. This increase was due primarily to net income for the six months ended June 30, 2019 of $7.5 million and a ~~$4.4~~$2.5 million tax-effected increase to the fair market value of the investment portfolio ~~which~~to increase accumulated other comprehensive income. Total shareholders’ equity was ~~partially offset~~also reduced by $5.8 million in purchases of the Company’s stock the payment of ~~$0.9~~$0.6 million of dividends on common and preferred stock during the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020.

Total net loans decreased by ~~$59.5~~$25.6 million, or ~~4.9%~~2.5%, to ~~$1.1 billion~~$994.9 million at ~~June 30, 2019~~March 31, 2020 from December 31, ~~2018.~~2019. This decrease was driven primarily by normal pay-downs and an increase of ~~$34.3~~$12.2 million of loans classified as held for sale and excluded from our loan sales and participations that took place during the first half of 2019. The proceeds from the loan sales and participations were used to pay-off some brokered and national time deposits and reduce our reliance on wholesale funding, which is a long-term strategy of the Company.portfolio.

The following table sets forth the composition of our loan portfolio at the dates indicated:

The allowance for loan losses is established through a provision for loan losses charged to expense, which affects our earnings directly. Loans are charged against the allowance for loan losses when management believes that the collectability of all or some of the principal is unlikely. Subsequent recoveries are added to the allowance. The allowance is an amount that reflects management’s estimate of the level of probable incurred losses in the loan portfolio. Factors considered by management in determining the adequacy of the allowance include, but are not limited to, detailed reviews of individual loans, historical and current trends in loan charge-offs for the various portfolio segments evaluated, the level of the allowance in relation to total loans and to historical loss levels, levels and trends in non-performing and past due loans, volume and migratory direction of adversely graded loans, external factors including regulation, reputation, and competition, and management’s assessment of economic conditions. Our board of directors reviews the recommendations of management regarding the appropriate level for the allowance for loan losses based upon these factors.

The provision for loan losses is the charge to operating earnings necessary to maintain an adequate allowance for loan losses. We have developed policies and procedures for evaluating the overall quality of our loan portfolio and the timely identification of problem credits. Management continuously reviews these policies and procedures and makes further improvements as needed. The adequacy of our allowance for loan losses and the effectiveness of our internal policies and procedures are also reviewed periodically by our regulators, our auditors, and external loan review personnel. Our regulators may advise us to recognize additions to the allowance based upon their judgments about information available to them at the time of their examination. Such regulatory guidance is taken under consideration by management, and we may recognize additions to the allowance as a result.

We continually refine our methodology for determining the allowance for loan losses by comparing historical loss ratios utilized to actual experience and by classifying loans for analysis based on similar risk characteristics. Cash receipts for accruing loans are applied to principal and interest under the contractual terms of the loan agreements; however, cash receipts on impaired and nonaccrual loans for which the accrual of interest has been discontinued are applied to principal and interest income depending upon the overall risk of principal loss to us. We mitigate this risk by actively using government guarantee programs. ~~15.1%~~12.2% of our substandard loans are partially guaranteed by the U.S. Farm Services Agency (“FSA”) or the ~~U.S. Small Business Administration (“SBA”).~~SBA. The amount of the guarantee can range from 80% to 95% of unpaid principal for FSA guaranteed loans and 50% -to 85% for SBA guaranteed loans.

At ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the allowance for loan losses was ~~$16.3~~$17.5 million and ~~$16.5~~$15.3 million, respectively, which resulted in a ratio of the allowance to total loans of ~~1.42%~~1.73% and ~~1.37%~~1.47%, respectively. The overall increase in the allowance for loan losses as a percentage of total loans was ~~primarily~~the provision expense related to the additional qualitative factor of $2.0 million related to customers that are at a ~~result~~higher risk of ~~an $11.7 million increase in watch or lower rated loans since December 31, 2018. During~~being impacted by the first six months of 2019, the Company charged off $3.6 million in loans which was offset in part by $1.7 million in recoveries of previously charged off loans. Of the $3.6 million in charge-offs during the first half of 2019, $2.2 million was a charge-off to a single commercial real estate customer in rural Wisconsin that its anchor tenant when a regional department store filed bankruptcy discontinued operations.COVID-19 pandemic.

Charge-offs and recoveries by loan category for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ were as follows:

	Three Months Ended						Six Months Ended						Three Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018			March 31, 2020			March 31, 2019
	(dollars in thousands)												(dollars in thousands)
Balance, beginning of period	$	17,493		$	14,612		$	16,505		$	13,247		$	15,267		$	16,505
Loans charged off:
Agriculture loans		—			—			—			—			—			—
Commercial real estate loans		2,234			—			2,624			42			—			390
Commercial loans		960			—			960			—			—			—
Residential real estate loans		—			—			—			—			—			—
Installment and consumer other		—			—			—			—			—			—
Total loans charged off	$	3,194		$	—		$	3,584		$	42		$	—		$	390
Recoveries:
Agriculture loans		15			—			15			1			—			—
Commercial real estate loans		967			11			1,592			1,251			61			625
Commercial loans		101			(27	)		102			41			1			1
Residential real estate loans		—			—			—			—			—			—
Installment and consumer other		—			—			—			1			—			—
Total recoveries		1,083			(16	)		1,709			1,294			62			626
Net loans charged off (recovered)	$	2,111		$	16		$	1,875		$	(1,252	)	$	(62	)	$	(236	)
Provision for loan losses		876			533			1,628			630			2,218			752
Allowance for loan losses, end of period	$	16,258		$	15,129		$	16,258		$	15,129		$	17,547		$	17,493

Selected loan quality ratios:
Net charge offs (net recoveries) to average loans		0.18	%		(0.00	)%		0.16	%		(0.11	)%
Net charge offs (recoveries) to average loans														(0.01	)%	(0.11)%
Allowance for loan losses to total loans (end of period)		1.42	%		1.28	%		1.42	%		1.28	%		1.73	%		1.25	%
Allowance for loan losses to non-performing loans and performing troubled debt restructurings (end of period)		28.19	%		32.83	%		28.19	%		32.83	%		30.70	%		39.26	%

As part of our growth and risk management strategy, we have actively developed a loan participation and loan sales network. Our ability to sell loan participations and whole loans benefits us by freeing up capital and funding to lend to new customers as well as to increase non-interest income through the recognition of loan sale and servicing revenue. Because we continue to service these loans, we are able to maintain a relationship with the customer. Additionally, we receive a servicing fee that offsets some of the cost of administering the loan, while maintaining the customer relationship.

Servicing assets are recognized as separate assets when rights are acquired through the sale of financial assets. Servicing rights resulting from the sale or securitization of loans originated by the Company are initially measured at fair value at the date of transfer. The Company subsequently measures each class of servicing asset using the amortization method. Under the amortization method,

servicing rights are amortized in proportion to and over the period of estimated net servicing income. The amortized assets are assessed for impairment or increased obligation based on fair value at each reporting date.

~~Fair~~As of January 1, 2020, the Company elected to make an accounting principle change for the valuation of the loan servicing assets from amortized cost to fair market value. Under the amortized cost method, servicing rights were amortized in proportion to and over the period of estimated net servicing income. The amortized cost of these assets was assessed for impairment at each reporting date. Under the fair market value method, the value of the asset is based on market prices for comparable servicing contracts, when

available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the ~~cost to service, the~~ discount rate, the custodial earnings rate, ~~an inflation rate, ancillary income,~~ prepayment speeds and default rates and losses. ~~These variables may have an adverse impact on the value~~ See Note 1–Basis of Presentation of the ~~servicing right and may result~~consolidated financial statements for additional information regarding the change in ~~a reduction to non-interest income.~~

Servicing assets measured using the amortization method are evaluated and measured for impairment. Impairment is determined by stratifying rights into tranches based on predominant characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance for an individual tranche, to the extent that fair value is less than the carrying amount of the servicing assets for that tranche. The valuation allowance is adjusted to reflect changes in the measurement of impairment after the initial measure of the impairment.

Changes in the valuation allowances are reported with loan servicing fees on the Company’s consolidated statements of operations. Fair value in excess of the carrying amount of servicing assets for that stratum is not recognized.accounting principle.

Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned. The amortization of loan servicing rights is netted against loan servicing fee income.

Our securities portfolio is predominately composed of municipal securities, investment grade mortgage-backed securities, U.S. government and agency securities, ~~and~~ U.S. treasury securities, and asset-backed securities. We classify substantially all of our securities as available for sale. We do not engage in active securities trading in carrying out our investment strategies.

Securities ~~decreased~~increased to ~~$158.6~~$246.1 million at ~~June 30, 2019~~March 31, 2020 from ~~$195.9~~$158.7 million at December 31, ~~2018.~~2019. During the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, we recognized unrealized holding gains of ~~$4.4~~$3.4 million before income taxes through other comprehensive income.

During the six months ended June 30, 2019, $29.4 million of municipal securities were sold resulting in a pre-tax gain of $0.3 million. There were no security sales during the six months ended June 30, 2018.

The following table sets forth the amortized cost and fair values of our securities portfolio at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018:~~2019:

Deposits are the major source of our funds for lending and other investment purposes. Deposits are attracted principally from within our primary market area through the offering of a broad variety of deposit instruments including checking accounts, noninterest-bearing demand accounts, money market accounts, savings accounts, time deposit accounts (including “jumbo” certificates in denominations of $100,000 or more), and retirement savings plans.

Deposits decreased ~~$18.2~~$81.5 million, or ~~1.5%~~7.4%, from December 31, ~~2018~~2019 to ~~$1.2~~$1.0 billion at ~~June 30, 2019, primarily as~~March 31, 2020, due to a ~~result of a $62.9~~$37.6 million decrease in brokered deposits and national time deposits, ~~since December 31, 2018, partially offset by~~and a ~~$44.7~~$43.9 million ~~increase~~decrease in client ~~deposit~~deposits (demand, NOW accounts and interest checking, savings, money market accounts, and certificates of deposit) ~~generation.~~since December 31, 2019.

~~Reducing our reliance on wholesale funding is a key~~The Company’s overall strategic focus ~~for 2019.~~remains on funding loan growth with client deposits and reducing wholesale funding; however, the Company took advantage of the Federal Reserve’s interest rate decreases in the target federal funds during the first

quarter of 2020 and borrowed an additional $65.0 million from the FHLB at an average rate of 0.77%. These borrowings help reduce interest rate risk and lower the cost of funds. Brokered deposits and national certificates of deposit at ~~June 30, 2019~~March 31, 2020 were ~~$406.0~~$228.3 million, which was a decrease of ~~$62.9~~$37.6 million, or ~~13.4%~~14.1%, from December 31, ~~2018,~~2019, and a decrease of ~~$101.5~~$188.5 million, or ~~20.0%~~45.2%, from ~~June 30, 2018. In addition to the reduction in brokered deposits and national certificates of deposit in the first half of 2019, we also decreased FHLB borrowings by $30.0 million since December~~March 31, ~~2018.~~2019.

As of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the distribution by type of deposit account was as follows:

As of ~~June 30, 2019,~~March 31, 2020, the Company had two outstanding interest rate swaps designated as a cash flow hedge, each with an aggregate notional value of $6.0 million. Both interest rate swaps mature on June 15, 2028. A pre-tax unrealized loss ~~(gain)~~ of ~~$1.1~~$1.2 million and ~~($0.1)~~$0.5 million was recognized in accumulated other comprehensive income during the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively, with a corresponding increase reported in accrued interest payable and other liabilities on the consolidated balance sheets. There was no ineffective portion of this hedge.

Liquidity is the ability to meet current and future financial obligations of a short-term and long-term nature including, but not limited to, funding loans and depositor withdrawals. Our primary sources of funds consist of deposit inflows, loan repayments, maturities and sales of securities and borrowings from the FHLB. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows, calls of investment securities and borrowed funds and prepayments on loans are greatly influenced by general interest rates, economic conditions and competition.

At ~~June 30, 2019,~~March 31, 2020, advances from the FHLB were ~~$59.4~~$109.4 million compared to ~~$89.4~~$44.4 million at December 31, ~~2018.~~2019. There were no borrowings outstanding at the Federal Reserve Bank of ~~Chicago.~~Chicago on either date. The Company also has a credit agreement with U.S. Bank National Association for a ~~$15.0~~$10.0 million revolving line of credit with an interest rate equal to the one-month LIBOR rate plus 2.25%. The line of credit also bears a non-usage fee of 0.275% per annum. The line of credit did not have an outstanding balance as of ~~June 30, 2019.~~March 31, 2020.

On May 30, 2018, the Company entered into a subordinated note purchase agreement to sell and issue $30.0 million of notes to certain institutional investors. The notes carry a fixed interest rate of 5.875% until May 31, 2023, and have a stated maturity of June 1, 2028. As of June 1, 2023, the notes are redeemable in whole or in part, and bear an interest rate of 3-month LIBOR plus 288.4 basis points. The notes are unsecured, subordinated obligations of the Company and rate junior in right of payment to the Company’s current and future senior indebtedness.

Management adjusts our investments in liquid assets based upon an assessment of (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities, (4) the objectives of our interest-rate risk and investment policies and (5) the risk tolerance of management and our board of directors.

Our cash flows are composed of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by (used in) operating activities was ~~$4.9~~($12.6) million and ~~$4.2~~$3.9 million for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively. Net cash provided by (used in) investing activities, which consists primarily of purchases of and proceeds from the sale, maturities, calls, and principal repayments of securities available for sale, as well as loan originations, net of repayments, was ~~$99.3~~($73.6) million and ~~($104.7)~~$33.4 million for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively. Net cash ~~provided by (used in)~~used in financing activities, consisting primarily of the activity in deposit accounts and FHLB advances, was ~~($49.0)~~$21.3 million and ~~$114.8~~$35.9 million for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, respectively. During the first quarter of 2020, Management began to focus on lengthening a portion of the Bank’s maturing wholesale funding into longer maturities to mitigate liquidity risk. We placed advances with the FHLB totaling $50 million with maturities ranging from two to three years. We also placed $25 million in brokered certificates of deposit with maturities ranging from three to five years. As of March 31, 2020, the Bank had $24.1 million with the FHLB
and ~~2018, respectively.~~$98.5 million in borrowing capacity with the Federal Reserve Bank of Chicago to mitigate any liquidity needs. The Bank also had $198.5 million in unpledged securities available for sale available for liquidity needs.

At ~~June 30, 2019,~~March 31, 2020, the Bank exceeded all of its regulatory capital requirements, with Tier 1 leverage capital of ~~$193.9~~$199.1 million, or ~~13.12%~~14.85% of adjusted average total assets, which is above the minimum level to be well-capitalized of ~~$73.9~~$67.0 million, or 5.0% of adjusted average total assets, and total risk-based capital of ~~$209.6~~$214.0 million, or ~~16.62%~~17.95% of risk-weighted assets, which is above the minimum level to be well-capitalized of ~~$126.2~~$119.2 million, or 10.0% of risk-weighted assets.

At the holding company level, our primary sources of liquidity are dividends from the Bank, investment income and net proceeds from investment sales, borrowings and capital offerings. The main uses of liquidity are the payment of interest to holders of our junior subordinated debentures and subordinated notes and the payment of interest or dividends to common and preferred shareholders. The Bank is subject to certain regulatory limitations regarding its ability to pay dividends to the Company; however, we do not believe that the Company will be adversely affected by these dividend limitations. At ~~June 30, 2019,~~March 31, 2020, there were ~~$106.4~~$110.9 million of retained earnings available for the payment of dividends by the Bank to the Company, but would be limited to the Bank maintaining minimum regulatory capital ratios. Management believed liquidity to be sufficient as of ~~June 30, 2019.~~March 31, 2020.

As of ~~June 30, 2019,~~March 31, 2020, there were no ~~other~~ significant changes to our contractual obligations and off-balance sheet arrangements disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019, filed with the SEC on March 13, 2020. We continue to believe that we have adequate capital and liquidity available from various sources to fund projected obligations and commitments.

General. Market risk refers to potential losses arising from changes in interest rates, commodity prices, such as milk prices, and/or other relevant market rates or prices. We are exposed to market risk as a result of our banking activities. Our market risk is comprised primarily of interest rate risk. As a financial institution, the majority of our assets and liabilities are sensitive to changes in interest rates. Therefore, a principal part of our operations is to manage interest rate risk and limit our exposure to changes in market

interest rates. We manage the interest rate sensitivity of our interest-bearing liabilities and interest-earning assets in an effort to minimize the adverse effects of changes in the interest rate environment.

A major source of interest rate risk is a difference in the repricing of assets and liabilities. First, there are differences in the timing of rate changes reflecting the maturity and/or repricing of assets and liabilities. For example, the rate earned on a commercial real estate loan may be fixed for 10 years, while the rate paid on a certificate of deposit may be fixed only for a few months. Due to these timing differences, net interest income is sensitive to changes in the level and shape of the yield curve. Second, there are differences in the drivers of rate changes of various assets and liabilities known as basis risk. For example, commercial loans may reprice based on one-month LIBOR or prime, while the rate paid on retail money market demand accounts may be only loosely correlated with LIBOR and depend on competitive demand for funds. Due to these basis differences, net interest income is sensitive to changes in spreads between certain indices or repricing rates.

Another important source of interest rate risk relates to the potential exercise of explicit or embedded options for prepayment or withdrawal. For example, most residential real estate loans can be prepaid without penalty, and most consumer deposits can be withdrawn without penalty. The exercise of such options by customers can exacerbate the timing differences discussed above.

Deposit accounts typically react more quickly to changes in market interest rates than loans because of the shorter maturities of deposits. However, given the asset sensitive nature of our balance sheet, a decrease in interest rates may adversely affect our earnings

while increases in interest rates may beneficially affect our earnings. To reduce the potential volatility of our earnings, we have sought to improve the match between asset and liability maturities and rates, while maintaining an acceptable interest rate spread. Our strategy for managing interest rate risk emphasizes adjustable-rate loans for retention in our loan portfolio, promoting core deposit products and time deposits, adjusting the maturities of borrowings and adjusting the investment portfolio mix and duration.

We have an asset/liability committee, which includes members of management, to communicate, coordinate and control all aspects involving asset-liability management. The committee establishes and monitors the volume, maturities, pricing and mix of assets and funding sources with the objective of managing assets and funding sources to provide results that are consistent with liquidity, growth, risk limits and profitability goals.

Our goal is to manage asset and liability positions to moderate the effects of interest rate fluctuations on net interest income and net income and control exposure to interest rate risk within policy limits approved by our board of directors. These limits and guidelines reflect our tolerance for interest rate risk over both short-term and long-term horizons. We analyze our sensitivity to changes in interest rates through our net interest income simulation model. Exposures are reported on a monthly basis to the asset and liability committee and at meetings of our board of directors.

Net Interest Income Simulation Analysis. Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest we pay on our interest-bearing liabilities, such as deposits and borrowings.

Income simulation is the primary tool for measuring the interest rate risk inherent in our balance sheet at a given point in time by showing the effect on net interest income, over specified time horizons, under a range of interest rate shock scenarios. These simulations take into account repricing, maturity and prepayment characteristics of individual products. We estimate what our net interest income would be for a one- and two-year horizon based on current interest rates. We then calculate what the net interest income would be for the same period under different interest rate assumptions.

These estimates require us to make certain assumptions, including loan and mortgage-related investment prepayment speeds, reinvestment rates, and deposit maturities and decay rates. These assumptions are inherently uncertain, and, as a result, we cannot precisely predict the impact of changes in interest rates on our net interest income. Although the net interest income table below provides an indication of our interest rate risk exposure at a particular point in time, such estimates are not intended to, and do not, provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual results.

The following table shows the estimated impact on net interest income for the one- and two-year periods beginning ~~June 30, 2019~~March 31, 2020 resulting from potential changes in interest rates. The net interest income simulation analyses assume a static balance sheet and do not include possible future actions that management might undertake to mitigate this risk.

As of ~~June 30, 2019,~~March 31, 2020, net interest income simulation indicated that our exposure to changing interest rates was within our internal policy guidelines. As the table illustrates, our balance sheet is asset-sensitive over a one and two year time horizon and net interest income would increase as interest rates increase. It should be noted that the magnitude of any possible increase in interest rates is constrained by the low absolute starting levels of rates. While immediate, proportional and severe shifts in interest rates upward were used as part of this analysis, we believe that any actual shift in interest rates would likely be more gradual and would therefore have a more modest impact.

Depending on the relationship between long-term and short-term interest rates, market conditions and consumer preference, we may place greater emphasis on maximizing our net interest margin than on strictly matching the interest rate sensitivity of our assets and liabilities. We believe that our level of interest rate risk is acceptable using this approach.

Economic Value of Equity Analysis. We also analyze the sensitivity of our financial condition to changes in interest rates through our economic value of equity model. This analysis measures the difference between predicted changes in the present value of

our assets and predicted changes in the present value of our liabilities assuming various changes in current interest rates. As with the net interest income simulation model, the estimates of changes in the economic value of our equity require certain assumptions to be made. These assumptions include loan and mortgage-related investment prepayment speeds, reinvestment rates, and deposit maturities and decay rates. These assumptions are inherently uncertain, and, as a result, we cannot precisely predict the impact of changes in interest rates on the economic value of our equity. Although our economic value of equity analysis provides an indication of our interest rate risk exposure at a particular point in time, such estimates are not intended to, and do not, provide a precise forecast of the effect of changes in market interest rates on the economic value of our equity and will differ from actual results.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of ~~June 30, 2019.~~March 31, 2020. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of ~~June 30, 2019,~~March 31, 2020, our disclosure controls and procedures ~~are~~were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act.

There are inherent limitations in the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and circumvention or overriding of controls. Accordingly, even an effective system of disclosure controls and procedures can provide only reasonable assurance with respect to financial statement preparation. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

There was no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended ~~June 30, 2019~~March 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

We and our subsidiaries may be involved from time to time in ordinary routine litigation incidental to our respective businesses. Neither we nor any of our subsidiaries are currently engaged in, nor is any of our property the subject of, any legal proceedings, other than ordinary routine litigation incidental to the business, that are expected to have a material adverse effect on our results of operations or financial position.

~~There are no material changes~~In addition to the risk factors set forth inunder Part I, Item 1A “Risk Factors” in ~~Item 1A to Part I of our Annual Report on~~the Company’s Form 10-K for the fiscal year ended December 31, ~~2018.~~ 2019, the following risk factor applies to the Company:

The outbreak of Coronavirus Disease 2019 (“COVID-19”) has adversely impacted, and an outbreak of other highly infectious or contagious diseases could adversely impact, certain industries in which the Company’s customers operate and impaired their ability to fulfill their obligations to the Company. Further, the spread of the outbreak is expected to lead to an economic recession and other severe disruptions in the U.S. economy and may disrupt banking and other financial activity in the areas in which the Company operates and could potentially create widespread business continuity issues for the Company.

The spread of highly infectious or contagious diseases could cause, and the spread of COVID-19 has caused, severe disruptions in the U.S. economy at large, and for small businesses in particular, which could disrupt the Company’s operations. We are starting to see the impact from COVID-19 on our business, and we believe that it could be significant, adverse and potentially material. Currently, COVID-19 is spreading through the United States and the world. The resulting concerns on the part of the U.S. and global populations have created the threat of a recession, reduced economic activity and caused a significant correction in the global stock markets. We expect that we will experience significant disruptions across our business due to these effects, leading to decreased earnings and significant slowdowns in our loan collections or loan defaults.

COVID-19 may impact businesses’ and consumers’ financial ability to borrow money, which would negatively impact loan volumes. In addition, certain of our borrowers are in or have exposure to the restaurant, hospitality, retail, and industrial service industries and/or are located in areas that are quarantined or under stay-at-home orders, and COVID-19 may also have an adverse effect on our commercial real estate loan portfolio. A prolonged quarantine or stay-at-home order could have a negative adverse impact on these borrowers and their revenue streams, which consequently impacts their ability to meet their financial obligations and could result in loan defaults.

The outbreak of COVID-19 or an outbreak of other highly infectious or contagious diseases may result in a decrease in our customers’ businesses, a decrease in consumer confidence and business generally, an increase in unemployment or a disruption in the services provided by the Company’s vendors. Disruptions to our customers could result in increased risk of delinquencies, defaults, foreclosures and losses on our loans, negatively impact regional economic conditions, result in declines in local loan demand, liquidity of loan guarantors, loan collateral (particularly in real estate), loan originations and deposit availability and negatively impact the implementation of our growth strategy.

The Company relies upon its third-party vendors to conduct business and to process, record, and monitor transactions. If any of these vendors are unable to continue to provide the Company with these services, it could negatively impact the Company’s ability to serve its customers. Furthermore, the outbreak could negatively impact the ability of the Company’s employees and customers to engage in banking and other financial transactions in the geographic areas in which the Company operates and could create widespread business continuity issues for the Company. The Company also could be adversely affected if key personnel or a significant number of employees were to become unavailable due to the effects and restrictions of a COVID-19 outbreak in our market areas. Although the Company has business continuity plans and other safeguards in place, there is no assurance that such plans and safeguards will be effective.

We believe that the economic impact from COVID-19 could be severe and could have a material and adverse impact on our business and that it could result in significant losses in our loan portfolio, all of which would adversely and materially impact our earnings and capital.

The Company did not issue any unregistered equity securities orduring the quarter ended March 31, 2020.

The following table sets forth information regarding the Company’s repurchase ~~any~~of shares of its outstanding common stock during the first quarter ~~ended June 30, 2019.~~of 2020.

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.

Wisconsin	39-1850431
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2400 South 44^th Street Manitowoc, WI	54221
(Address of principal executive offices)	(Zip Code)

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Consolidated Balance Sheets	1
	Consolidated Statements of Operations	2
	Consolidated Statements of Comprehensive Income	3
	Consolidated Statements of Shareholders’ Equity	4
	Consolidated Statements of Cash Flows	5
	Notes to Unaudited Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	44
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	45
Item 1A.	Risk Factors	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 3.	Defaults Upon Senior Securities	4546
Item 4.	Mine Safety Disclosures	4546
Item 5.	Other Information	4546
Item 6.	Exhibits	4647
Signatures		4748

	For the Three Months Ended March 31,
	2020			2019
	(dollars in thousands)
Net income (loss)	$	(5,188	)	$	3,762
Other comprehensive income:
Unrealized gain on securities available-for-sale		3,447			3,652
Income tax expense		(939	)		(995	)
Total other comprehensive income on securities available-for-sale		2,508			2,657
Unrealized loss on derivatives arising during the period		(1,194	)		(481	)
Income tax benefit		325			129
Total other comprehensive loss on derivatives		(869	)		(352	)
Total other comprehensive income		1,639			2,305
Comprehensive income (loss)	$	(3,549	)	$	6,067

	For the Three Months Ended				For the Six Months Ended				For the Three Months Ended
	June 30,				June 30,				March 31,
	2019		2018		2019		2018		2020			2019
	(dollars in thousands)								(dollars in thousands)
Net income from continuing operations	$	3,704	$	3,850	$	7,466	$	7,904
Net income (loss) from continuing operations									$	(5,188	)	$	3,762
Less: preferred stock dividends		118		99		235		196		108			117
Income available to common shareholders for basic earnings per common share	$	3,586	$	3,751	$	7,231	$	7,708
Income (loss) available to common shareholders for basic earnings per common share									$	(5,296	)	$	3,645

Weighted average number of common shares issued		7,159,072		7,351,985		7,156,139		7,349,923		7,182,945			7,153,174
Less: weighted average treasury shares		443,920		442,102		443,825		440,974		518,740			443,729
Plus: weighted average of participating restricted stock units		30,483		219,315		23,411		224,550		39,785			16,260
Weighted average number of common shares and participating securities outstanding		6,745,635		6,690,568		6,735,725		6,684,399		6,703,990			6,725,705
Effect of dilutive options		20,731		79,368		21,170		77,518		49,072			21,323
Weighted average number of common shares outstanding used to calculate diluted earnings per common share		6,766,366		6,769,936		6,756,895		6,761,917		6,753,062			6,747,028
Weighted average of anti-dilutive options		133,147		-		131,729		-		55,764			134,824

	June 30,		December 31,		March 31,		December 31,
	2019		2018		2020		2019
	(dollars in thousands)				(dollars in thousands)
Demand deposits	$	111,022	$	121,436	$	117,434	$	138,489
NOW and interest checking		54,253		51,779		64,872		67,805
Savings		6,621		5,770		6,566		6,395
Money market accounts		239,337		218,929		237,889		247,828
Certificates of deposit		387,899		356,484		364,931		375,100
National time deposits		149,570		160,445		66,386		99,485
Brokered deposits		256,475		308,504		161,882		166,340
Total deposits	$	1,205,177	$	1,223,347	$	1,019,960	$	1,101,442

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
Emerging growth company	☒

	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
	(dollars in thousands)									(dollars in thousands)
June 30, 2019
March 31, 2020
U.S. government and agency securities										$	16,266	$	—	$	(213	)	$	16,053
U.S. treasury securities											2,500		5		—			2,505
Asset-backed securities											17,328		—		(838	)		16,490
Municipal securities											37,673		1,475		(621	)		38,527
Mortgage-backed securities											165,492		7,226		(145	)		172,573
										$	239,259	$	8,706	$	(1,817	)	$	246,148
December 31, 2019
U.S. government and agency securities	$	3,731	$	—	$	(32	)	$	3,699	$	3,490	$	—	$	(32	)	$	3,458
U.S. treasury securities		2,498		9		—			2,507		2,499		7		—			2,506
Mortgage-backed securities		149,356		3,263		(264	)		152,355		149,302		3,633		(166	)		152,769
	$	155,585	$	3,272	$	(296	)	$	158,561	$	155,291	$	3,640	$	(198	)	$	158,733
December 31, 2018
U.S. government and agency securities	$	4,368	$	—	$	(37	)	$	4,331
U.S. treasury securities		2,497		—		(6	)		2,491
Municipal securities		34,985		33		(498	)		34,520
Mortgage-backed securities		157,147		203		(2,747	)		154,603
	$	198,997	$	236	$	(3,288	)	$	195,945

	Non-Accrual		Restructured and Accruing		Total		Non-Accrual		Restructured and Accruing		Total		Allowance for Loan Losses Allocated
	(dollars in thousands)						(dollars in thousands)
June 30, 2019
March 31, 2020
Agricultural loans	$	9,839	$	27,870	$	37,709	$	18,624	$	20,807	$	39,431	$	3,432
Commercial real estate loans		—		1,022		1,022		—		1,002		1,002		30
Commercial loans		532		—		532		226		44		270		127
Total	$	10,371	$	28,892	$	39,263	$	18,850	$	21,853	$	40,703	$	3,589

December 31, 2018
December 31, 2019
Agricultural loans	$	12,034	$	19,389	$	31,423	$	19,033	$	20,731	$	39,764	$	3,436
Commercial real estate loans								—		1,009	$	1,009	$	32
Commercial loans		92		—		92		228		44		272		60
Total	$	12,126	$	19,389	$	31,515	$	19,261	$	21,784	$	41,045	$	3,528

	June 30, 2019							March 31, 2020
	Number of Options			Weighted-Average Exercise Price		Aggregate Intrinsic Value ⁽¹⁾		Number of Options			Weighted-Average Exercise Price		Aggregate Intrinsic Value ⁽¹⁾
	(dollars in thousands except option and per share data)							(dollars in thousands except option and per share data)
Outstanding, beginning of year		208,988		$	18.15				214,904		$	18.94
Granted		14,237			18.06				53,596			19.47
Exercised		(5,000	)		12.00				(14,590	)		13.38
Forfeited/expired		(3,355	)		19.88				—			—
Outstanding, end of period		214,870		$	18.26	$	847		253,910		$	19.37	$	302
Options exercisable at period-end		173,836		$	17.27	$	713		160,655		$	18.74	$	266
Weighted-average fair value of options granted during the period ⁽²⁾				$	6.31						$	6.00

	June 30, 2019					March 31, 2020
	Restricted Stock Awards			Weighted Average Grant Price		Restricted Stock Awards⁽¹⁾			Weighted Average Grant Price
Outstanding, beginning of year		28,701		$	21.02		20,668		$	21.86
Granted		—			—		—			—
Vested		(11,552	)		19.19		(14,369	)		20.57
Forfeited/expired		(226	)		27.15		—			—
Outstanding, end of period		16,923		$	22.19		6,299		$	24.80

	March 31, 2020
	Restricted Stock Units			Weighted Average Grant Price
Outstanding, beginning of year		32,125		$	19.80
Granted		38,577			18.30
Vested		(13,517	)		19.81
Forfeited/expired		—			—
Outstanding, end of period		57,185		$	18.79
Restricted shares vested not yet issued, end of period		4,693		$	27.25

	Actual					Minimum For Capital Adequacy Purposes ^(a):					Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions:
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(dollars in thousands)
June 30, 2019
Total Capital (to risk weighted assets)	$	209,648		16.62	%	$	132,462		10.50	%	$	126,154		10.00	%
Tier 1 Capital (to risk weighted assets)		193,871		15.37	%		107,231		8.50	%		100,923		8.00	%
Tier 1 Capital (to average assets)		193,871		13.12	%		59,124		4.00	%		73,905		5.00	%
Tier 1 Common Equity Ratio (to risk weighted assets)		193,871		15.37	%		88,308		7.00	%		82,000		6.50	%

December 31, 2018
Total Capital (to risk weighted assets):
Consolidated	$	210,768		15.81	%	$	131,664		9.875	%	Not applicable
Bank		204,327		15.35	%		131,488		9.875	%	$	133,153		10.00	%
Tier 1 Capital (to risk weighted assets):
Consolidated		164,675		12.35	%		104,998		7.875	%	Not applicable
Bank		187,679		14.09	%		104,858		7.875	%		106,522		8.00	%
Tier 1 Capital (to average assets):
Consolidated		164,675		11.09	%		59,374		4.00	%	Not applicable
Bank		187,679		12.44	%		60,330		4.00	%		75,413		5.00	%
Tier 1 Common Equity Ratio (to risk weighted assets):
Consolidated		141,085		10.58	%		84,999		6.375	%	Not applicable
Bank		187,679		14.09	%		84,885		6.375	%		86,549		6.50	%

~~June 30,~~March 31, 2020
	Valuation Techniques	Unobservable Inputs	Range (Average)
Impaired loans	Evaluation of collateral	Estimation of value	NM*
Other real estate owned	Appraisal	Appraisal adjustment	5%-64% (24%)

December 31, 2019
	Valuation Techniques	Unobservable Inputs	Range (Average)
Impaired loans	Evaluation of collateral	Estimation of value	NM*
Other real estate owned	Appraisal	Appraisal adjustment	~~8%-61% (25%)~~

~~December 31, 2018~~
	~~Valuation~~ ~~Techniques~~	~~Unobservable~~ ~~Inputs~~	~~Range~~ ~~(Average)~~
~~Impaired loans~~	~~Evaluation of collateral~~	~~Estimation of value~~	NM*
~~Other real estate owned~~	~~Appraisal~~	~~Appraisal adjustment~~	~~16%-54% (32%~~5%-64% (29%)

										As of
	June 30, 2019			June 30, 2018			December 31, 2018			March 31, 2020			March 31, 2019			December 31, 2019
	(unaudited)									(unaudited)
Capital Ratios:
Shareholders' common equity to assets		10.42	%		9.09	%		9.49	%		11.59	%		10.06	%		11.88	%
Total capital to risk-weighted assets (Bank)		15.35	%		15.57	%		15.35	%		17.95	%		15.87	%		18.70	%
Tangible common equity to tangible assets⁽¹⁾		10.10	%		8.75	%		9.15	%		11.58	%		9.73	%		11.54	%

Rate Shift	Net Interest Income Year 1 Forecast		Year 1 Change from Base			Net Interest Income Year 2 Forecast		Year 2 Change from Base			Net Interest Income Year 1 Forecast		Year 1 Change from Base			Net Interest Income Year 2 Forecast		Year 2 Change from Base
	(dollars in thousands)					(dollars in thousands)					(dollars in thousands)					(dollars in thousands)
+400 bps	$	59,400		30.00	%	$	57,300		24.10	%	$	45,677		28.63	%	$	44,500		26.42	%
+200 bps		52,500		14.90	%		51,700		11.80	%		40,739		14.73	%		40,300		14.49	%
+100 bps		49,000		7.20	%		48,900		5.70	%		38,017		7.06	%		37,900		7.67	%
Base		45,700		0.00	%		46,300		0.00	%		35,509		0.00	%		35,200		0.00	%
-100 bps		42,000		(8.10	)%		42,900		(7.40	)%		34,560		(2.67	)%		34,000		(3.41	)%
-200 bps		37,600		(17.70	)%		37,300		(19.70	)%		33,739		(4.98	)%		33,500		(4.83	)%

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publically Announced Plans or Programs⁽¹⁾		Maximum Number of Shares that may yet be Purchased under the Plans or Programs
January 1 - 31, 2020		—	$	—		—		673,000
February 1 - 29, 2020		72,201		26.12		72,201		600,799
March 1 - 31, 2020		183,449		21.55		183,449		417,350

Exhibit Number		Description

18.1		Preferability letter related to Plante & Moran, PLLC regarding the change in accounting principle (Filed herewith)

31.1		Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

	County Bancorp, Inc.

Date: ~~August~~May 8, ~~2019~~2020	By:	/s/ Timothy J. Schneider
		Timothy J. Schneider
		President (principal executive officer)

Date: ~~August~~May 8, ~~2019~~2020	By:	/s/ Glen L. Stiteley
		Glen L. Stiteley
		Chief Financial Officer (principal financial and accounting officer)