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 7, ~~2020,~~2021, the registrant had ~~6,317,890~~6,078,216 shares of common stock, $0.01 par value per share, outstanding.

	June 30, 2020			December 31, 2019			March 31, 2021			December 31, 2020
	(unaudited)						(unaudited)
	(dollars in thousands except per share data)						(dollars in thousands except per share data)
ASSETS
Cash and cash equivalents	$	127,016		$	108,457		$	17,404		$	19,084
Interest earning cash at other financial institutions		416			20,554			416			416
Securities available-for-sale, at fair value		226,971			158,733			385,240			352,854
FHLB Stock		5,758			1,628			5,875			5,758
Loans held for sale		11,847			2,151			5,788			35,976
Loans, net of allowance for loan losses of $18,569 as of June 30, 2020; $15,267 as of December 31, 2019		1,068,955			1,020,506
Loans, net of allowance for loan losses of $15,082 as of March 31, 2021; $14,808 as of December 31, 2020								996,582			981,477
Premises and equipment, net		14,314			13,603			17,177			14,898
Loan servicing rights		16,486			12,509			18,864			18,396
Other real estate owned, net		2,629			5,521			739			1,077
Cash surrender value of bank owned life insurance		28,646			18,302			31,475			31,275
Deferred tax asset, net		—			1,453
Goodwill		—			5,038
Core deposit intangible, net		125			225
Core deposit intangible, net of accumulated amortization of $1,772 as of March 31, 2021; $1,747 as of December 31, 2020								29			54
Accrued interest receivable and other assets		10,754			10,099			11,739			11,093
Total assets	$	1,513,917		$	1,378,779		$	1,491,328		$	1,472,358

LIABILITIES
Deposits:
Noninterest-bearing	$	149,963		$	138,489		$	139,838		$	163,202
Interest-bearing		923,090			962,953			958,690			877,624
Total deposits		1,073,053			1,101,442			1,098,528			1,040,826
Other borrowings		101,847			794			48,674			49,006
Advances from FHLB		93,400			44,400			100,000			129,000
Subordinated debentures		61,910			44,858			67,179			67,111
Deferred tax liability, net		384			—			324			2,302
Accrued interest payable and other liabilities		14,798			15,256			10,286			12,337
Total liabilities		1,345,392			1,206,750			1,324,991			1,300,582

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; 7,202,000 shares issued and 6,375,150 shares outstanding as of June 30, 2020; 7,178,052 shares issued and 6,734,132 shares outstanding as of December 31, 2019		28			28
Common stock - $0.01 par value; 50,000,000 authorized; 7,226,232 shares issued and 6,094,450 shares outstanding as of March 31, 2021; 7,212,727 shares issued and 6,197,965 shares outstanding as of December 31, 2020								29			29
Surplus		54,813			54,122			55,691			55,346
Retained earnings		112,012			113,111			121,939			118,712
Treasury stock, at cost; 826,850 shares at June 30, 2020; 443,920 shares at December 31, 2019		(13,443	)		(5,030	)
Treasury stock, at cost; 1,131,782 shares at March 31, 2021; 1,014,762 shares at December 31, 2020								(20,119	)		(17,606	)
Accumulated other comprehensive income		7,115			1,798			797			7,295
Total shareholders' equity		168,525			172,029			166,337			171,776
Total liabilities and shareholders' equity	$	1,513,917		$	1,378,779		$	1,491,328		$	1,472,358

For the Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~

	For the Three Months Ended June 30,				For the Six Months Ended June 30,					For the Three Months Ended March 31,
	2020		2019		2020			2019		2021			2020*
	(dollars in thousands except per share data)									(dollars in thousands except per share data)
INTEREST AND DIVIDEND INCOME
Loans, including fees	$	12,130	$	15,484	$	24,712		$	30,985	$	11,523		$	12,582
Taxable securities		1,283		1,177		2,565			2,363		1,887			1,282
Tax-exempt securities		162		82		168			257		246			6
Federal funds sold and other		111		465		336			729		59			225
Total interest and dividend income		13,686		17,208		27,781			34,334		13,715			14,095

INTEREST EXPENSE
Deposits		3,721		5,678		8,068			11,102		2,070			4,347
FHLB advances and other borrowed funds		343		415		587			879		321			244
Subordinated debentures		736		683		1,442			1,361		1,106			706
Total interest expense		4,800		6,776		10,097			13,342		3,497			5,297
Net interest income		8,886		10,432		17,684			20,992		10,218			8,798
Provision for loan losses		1,142		876		3,360			1,628		242			2,218
Net interest income after provision for loan losses		7,744		9,556		14,324			19,364		9,976			6,580
NON-INTEREST INCOME
Services charges		368		407		710			760		119			113
Gain on sale of loans, net		4		26		42			25
Loan servicing fees		2,197		1,909		4,317			3,656
Crop insurance commission											301			229
Gain on sale of loans											1,680			543
Loan servicing fees, net											1,039			1,615
Other		811		545		1,014			1,196		573			203
Total non-interest income		3,380		2,887		6,083			5,637		3,712			2,703
NON-INTEREST EXPENSE
Employee compensation and benefits		4,594		4,199		9,854			8,681		5,582			5,260
Occupancy		305		283		659			672		279			354
Information processing		663		591		1,333			1,154		661			670
Professional fees		480		417		881			816		802			401
Writedown of other real estate owned		—		250		1,360			250		—			1,360
Goodwill impairment		—		—		5,038			—		—			5,038
Other		1,423		1,706		3,357			3,178		1,440			1,935
Total non-interest expense		7,465		7,446		22,482			14,751		8,764			15,018
Income (loss) before income taxes		3,659		4,997		(2,075	)		10,250		4,924			(5,735	)
Income tax expense		926		1,293		379			2,784
Income tax expense (benefit)											996			(547	)
NET INCOME (LOSS)	$	2,733	$	3,704	$	(2,454	)	$	7,466	$	3,928		$	(5,188	)
Less: Cash dividends declared on preferred stock											(81	)		(108	)
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS										$	3,847		$	(5,296	)

NET INCOME (LOSS) PER SHARE:
Basic	$	0.40	$	0.53	$	(0.40	)	$	1.07	$	0.62		$	(0.79	)
Diluted	$	0.40	$	0.53	$	(0.40	)	$	1.07	$	0.62		$	(0.78	)
Dividends paid per share	$	0.07	$	0.05	$	0.14		$	0.10	$	0.10		$	0.07

For the Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~

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, 2018

$
8,000

$
28

$
53,162

$
98,475

$
(5,030
)

$
(2,351
)

$
152,284

   Net income

—

—

—

3,762

—

—

3,762

   Other comprehensive income

—

—

—

—

—

2,305

2,305

   Stock compensation expense

—

—

118

—

—

—

118

   Cash dividends declared on common stock

—

—

—

(335
)

—

—

(335
)
   Cash dividends declared on preferred stock

—

—

—

(117
)

—

—

(117
)
Balance at March 31, 2019

$
8,000

$
28

$
53,280

$
101,785

$
(5,030
)

$
(46
)

$
158,017

   Net income

—

—

—

3,704

—

—

3,704

   Other comprehensive loss

—

—

—

—

—

1,253

1,253

   Stock compensation expense

—

—

144

—

—

—

144

   Cash dividends declared on common stock

—

—

—

(336
)

—

—

(336
)
   Cash dividends declared on preferred stock

—

—

—

(118
)

—

—

(118
)
   Reclassification of par value from surplus

—

—

—

—

—

—

—

   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

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

—

—

—

—

—

1,639

1,639

   Stock compensation expense

—

—

314

—

—

—

314

   Cash dividends declared on common stock

—

—

—

(466
)

—

—

(466
)
   Cash dividends declared on preferred stock

—

—

—

(108
)

—

—

(108
)
   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

   Net income

—

—

—

2,733

—

—

2,733

   Other comprehensive income

—

—

—

—

—

3,678

3,678

   Stock compensation expense

—

—

182

—

—

—

182

   Cash dividends declared on common stock

—

—

—

(455
)

—

—

(455
)
   Cash dividends declared on preferred stock

—

—

—

(99
)

—

—

(99
)
   Treasury stock purchases (127,280 shares)

(2,560
)

(2,560
)
Balance at June 30, 2020

$
8,000

$
28

$
54,813

$
112,012

$
(13,443
)

$
7,115

$
168,525

~~(1)~~

~~Related to the change in accounting principle for the value of loan servicing rights, net of tax effects. See Note 1 for additional discussion.~~

	Preferred Stock		Common Stock		Surplus		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income			Total Shareholders' Equity
	(dollars in thousands except share data)
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		—		—		—		—			—			1,639			1,639
Stock compensation expense		—		—		314		—			—			—			314
Cash dividends declared on common stock		—		—		—		(466	)		—			—			(466	)
Cash dividends declared on preferred stock		—		—		—		(108	)		—			—			(108	)
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

Balance at December 31, 2020	$	8,000	$	29	$	55,346	$	118,712		$	(17,606	)	$	7,295		$	171,776
Net Income		—		—		—		3,928			—			—			3,928
Other comprehensive loss		—		—		—		—			—			(6,498	)		(6,498	)
Stock compensation expense		—		—		273		—			—			—			273
Cash dividends declared on common stock		—		—		—		(620	)		—			—			(620	)
Cash dividends declared on preferred stock		—		—		—		(81	)		—			—			(81	)
Treasury stock purchases (117,020 shares)		—		—		—		—			(2,513	)		—			(2,513	)
Proceeds from exercise of common stock options (6,206 shares)		—		—		72		—			—			—			72
Balance at March 31, 2021	$	8,000	$	29	$	55,691	$	121,939		$	(20,119	)	$	797		$	166,337

For the ~~Six~~Three Months Ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~

	For the Six Months Ended
	June 30, 2020			June 30, 2019			March 31, 2021			March 31, 2020
	(dollars in thousands)						(dollars in thousands)
Cash flows from operating activities
Net income (loss)	$	(2,454	)	$	7,466		$	3,928		$	(5,188	)
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization of premises and equipment		676			687			309			345
Amortization of core deposit intangible		100			159			25			54
Amortization of subordinated debentures discount		76			78			68			38
Impairment of goodwill		5,038			—			—			5,038
Provision for loan losses		3,360			1,628			242			2,218
Realized gain on sales of securities available-for-sale		(570	)		(341	)
Realized loss (gain) on sales of premises and equipment		236			(2	)		(5	)		350
Realized loss (gain) on sales of other real estate owned		4			(127	)
Realized loss on sales of other real estate owned								17			4
Writedown of other real estate owned		1,360			250			—			1,360
Increase in cash surrender value of bank owned life insurance		(344	)		(225	)		(200	)		(156	)
Deferred income tax expense (benefit)		(240	)		762			656			(253	)
Stock compensation expense		496			262			273			314
Net amortization of securities		443			243			488			171
Net change in:
Accrued interest receivable and other assets		(655	)		(1,357	)		(646	)		(1,103	)
Loans held for sale		(9,696	)		(4,499	)		30,188			(12,237	)
Loan servicing rights		(1,493	)		(574	)		(468	)		(1,218	)
Accrued interest payable and other liabilities		(1,628	)		462			(1,514	)		(2,314	)
Net cash provided by (used in) operating activities		(5,291	)		4,872			33,361			(12,577	)
Cash flows from investing activities		��
Proceeds from maturities, principal repayments, and call of securities available-for-sale		13,000			14,149			7,961			5,315
Purchases of securities available-for-sale		(100,339	)		—			(50,504	)		(89,455	)
Proceeds from sales of securities available-for-sale		27,790			29,361
Purchase (redemption) of FHLB stock		(4,130	)		800
Purchase of FHLB stock								(117	)		(3,275	)
Purchase of bank owned life insurance		(10,000	)		—			—			(10,000	)
Loan originations and principal collections, net		(51,809	)		52,295			(15,347	)		23,399
Proceeds from sales of premises and equipment		2,199			4			18			1,381
Purchases of premises and equipment		(3,822	)		(327	)		(2,601	)		(1,849	)
Proceeds from sales of other real estate owned		1,528			3,044			321			910
Net cash provided by (used in) investing activities		(125,583	)		99,326
Net cash used in investing activities								(60,269	)		(73,574	)
Cash flows from financing activities
Net increase in demand and savings deposits		86,554			13,319
Net increase (decrease) in demand and savings deposits								83,691			(33,756	)
Net decrease in certificates of deposits		(114,943	)		(31,489	)		(25,989	)		(47,726	)
Net change in other borrowings		101,054			(18	)		(332	)		1,399
Proceeds from FHLB advances		516,000			115,000			162,000			255,000
Repayment of FHLB advances		(467,000	)		(145,000	)		(191,000	)		(190,000	)
Payments to acquire treasury stock		(8,413	)		—			(2,513	)		(5,853	)
Proceeds from issuance of subordinated debt		16,976			—
Proceeds from issuance of common stock		195			60			72			195
Dividends paid on common stock		(921	)		(671	)		(620	)		(466	)
Dividends paid on preferred stock		(207	)		(235	)		(81	)		(108	)
Net cash provided by (used in) financing activities		129,295			(49,034	)		25,228			(21,315	)
Net change in cash and cash equivalents		(1,579	)		55,164			(1,680	)		(107,466	)
Cash and cash equivalents, beginning of period		129,011			61,087			19,500			129,011
Cash and cash equivalents, end of period	$	127,432		$	116,251		$	17,820		$	21,545

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	12,729		$	12,346		$	3,458		$	3,774
Income taxes	$	350		$	—		$	—		$	—
Noncash operating activities:
Change in accounting principle	$	2,484		$	—
Noncash investing activities:
Transfer from loans to other real estate owned	$	—		$	5,292		$	—		$	—
Loans charged off	$	144		$	3,584		$	—		$	—

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 ~~period~~three and three months ended ~~June 30, 2020~~.March 31, 2021. The results of operations for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 may not necessarily be indicative of the results to be expected for the year ending December 31, ~~2020,~~2021, 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, ~~2019~~2020 filed with the SEC on March ~~13, 2020.~~12, 2021.

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~~December 27, 2020, the Consolidated Appropriations Act (“CAA”), 2021, was signed into law which extended the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) ~~was~~which expired on December 31, 2020. The CAA included a $900.0 billion COVID-19 relief package that included an additional $284.5 billion in PPP funding. In March 2021, President Biden signed ~~into law.~~the American Rescue Plan Act of 2021, a $1.9 trillion economic stimulus package that includes cash payments to individuals, supplemental unemployment insurance, and modifications and expansion of the PPP. In March 2021, President Biden also signed the PPP Extension Act of 2021, which extended the PPP application deadline to May 31, 2021. 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 Coronavirus Disease 2019 (COVID-19) pandemic. The Company has elected to implement Section 4013, and ~~for the three months and six months ended June 30, 2020, the Company has processed 184 requests with~~at March 31, 2021, loan balances totaling ~~$200.7 million.~~ $6.1 million were still participating in the payment deferral program.

In March 2020, the ~~FASB~~Financial Accounting Standards Board (the “FASB”) issued ASU No. 2020-04, Reference Rate Reform (Topic 848). The ASU provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendment only applies to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The ASU iswas effective ~~as of~~upon issuance on March 12, 2020 and can be applied through December 31, 2022. The Company is in the process of evaluating the impact of this standard but does not expect this standard to have a material impact on its results of operations, financial position, and liquidity.

In June 2016, the ~~Financial Accounting Standards Board (the “FASB”)~~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. 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. In October 2019, the FASB voted to delay the effective date for the credit losses standard to January 2023 for certain entities, including SEC filers that qualify as smaller reporting companies and private companies. As a smaller reporting company, the Company is eligible for the delay and will be deferring adoption. Management will continue to progress on its implementation project plan and improve the Company’s approach throughout the deferral period.

~~In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement~~ ~~(Topic 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 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 amendment became effective on January 1, 2020, and the adoption did not have a material effect on the Company’s financial statements.

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.

	For the Three Months Ended				For the Six Months Ended					For the Three Months Ended
	June 30,				June 30,					March 31,
	2020		2019		2020			2019		2021		2020
	(dollars in thousands)									(dollars in thousands)
Net income (loss) from continuing operations	$	2,733	$	3,704	$	(2,454	)	$	7,466	$	3,928	$	(5,188	)
Less: preferred stock dividends		99		118		207			235		81		108
Income (loss) available to common shareholders for basic earnings per common share	$	2,634	$	3,586	$	(2,661	)	$	7,231	$	3,847	$	(5,296	)

Weighted average number of common shares issued		7,198,901		7,159,072		7,190,923			7,156,139		7,218,358		7,182,945
Less: weighted average treasury shares		759,294		443,920		639,017			443,825		1,080,089		518,740
Plus: weighted average of participating restricted stock units		65,291		30,483		52,281			23,411		63,991		39,785
Weighted average number of common shares and participating securities outstanding		6,504,898		6,745,635		6,604,187			6,735,725		6,202,260		6,703,990
Effect of dilutive options		28,511		20,731		39,548			21,170		34,465		49,072
Weighted average number of common shares outstanding used to calculate diluted earnings per common share		6,533,409		6,766,366		6,643,735			6,756,895		6,236,725		6,753,062
Weighted average of anti-dilutive options		62,313		133,147		55,764			131,729		54,831		55,764

The amortized cost and fair value of securities available-for-sale as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 were as follows:

The amortized cost and fair value of securities at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, 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.

	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(dollars in thousands)				(dollars in thousands)
June 30, 2020
March 31, 2021
Due in one year or less	$	—	$	—	$	—	$	—
Due from one to five years		—		—		—		—
Due from five to ten years		17,847		17,760		62,187		61,758
Due after ten years		46,430		49,483		155,905		153,466
Asset-backed securities		17,082		16,566		16,456		16,616
Mortgage-backed securities		133,608		143,162		148,422		153,400
	$	214,967	$	226,971	$	382,970	$	385,240
December 31, 2019
December 31, 2020
Due in one year or less	$	2,499	$	2,506	$	—	$	—
Due from one to five years		—		—		—		—
Due from five to ten years		3,490		3,458		55,024		55,120
Due after ten years		—		—		141,424		145,638
Asset-backed securities						16,664		16,718
Mortgage-backed securities		149,302		152,769		127,804		135,378
	$	155,291	$	158,733	$	340,916	$	352,854

~~Proceeds from the sale of available-for-sale securities~~There were ~~$27.8 million and $29.4 million~~0 security sales for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019, respectively which resulted in gains of $0.6 million and $0.3 million,~~ respectively.

At ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, there were ~~$43.0~~$41.4 million and ~~$63.0~~$23.0 million, respectively, of securities pledged at the Federal Reserve Bank to secure ~~municipial~~municipal customer deposits.

Federal Home Loan Bank (FHLB) advances were secured by ~~$5.8~~$5.9 million and ~~$1.6~~$5.8 million FHLB stock at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, 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, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:

	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, 2020
March 31, 2021
U.S. government and agency securities	$	13,035	$	(184	)	$	2,568	$	(30	)	$	15,603	$	(214	)	$	—	$	—		$	13,315	$	(138	)	$	13,315	$	(138	)
Municipal securities																	118,771		(5,145	)		—		—			118,771		(5,145	)
Mortgage-backed securities																	34,945		(1,266	)		—		—			34,945		(1,266	)
Corporate bonds																	28,060		(440	)		—		—			28,060		(440	)
Asset-backed securities		16,566		(516	)		—		—			16,566		(516	)		1,576		(5	)		—		—			1,576		(5	)
																$	183,352	$	(6,856	)	$	13,315	$	(138	)	$	196,667	$	(6,994	)
December 31, 2020
U.S. government and agency securities																$	12,217	$	(134	)	$	2,376	$	(18	)	$	14,593	$	(152	)
Municipal securities																	30,849		(285	)		—		—			30,849		(285	)
Mortgage-backed securities		—		—			5,956		(16	)		5,956		(16	)		7,781		(298	)		—		—			7,781		(298	)
Corporate bonds																	7,990		(10	)		—		—			7,990		(10	)
Asset-backed securities																	3,817		(1	)		—		—			3,817		(1	)
	$	29,601	$	(700	)	$	8,524	$	(46	)	$	38,125	$	(746	)	$	62,654	$	(728	)	$	2,376	$	(18	)	$	65,030	$	(746	)
December 31, 2019
U.S. government and agency securities	$	—	$	—		$	3,458	$	(32	)	$	3,458	$	(32	)
Mortgage-backed securities		9,873		(41	)		11,867		(125	)		21,740		(166	)
	$	9,873	$	(41	)	$	15,325	$	(157	)	$	25,198	$	(198	)

The unrealized losses on the investments at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 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, 2020~~March 31, 2021 and December 31, ~~2019.~~2020.

	June 30,			December 31,			March 31,			December 31,
	2020			2019			2021			2020
	(dollars in thousands)						(dollars in thousands)
Agricultural loans	$	624,339		$	659,725		$	609,482		$	606,881
Commercial real estate loans		247,149			235,936			244,791			235,969
Commercial loans		184,537			95,787			119,083			115,087
Residential real estate loans		31,414			43,958			38,063			38,084
Installment and consumer other		85			367			245			264
Total gross loans		1,087,524			1,035,773			1,011,664			996,285
Allowance for loan losses		(18,569	)		(15,267	)		(15,082	)		(14,808	)
Net loans	$	1,068,955		$	1,020,506		$	996,582		$	981,477

Net unamortized deferred costs totalling $0.5 million and $0.3 million as of March 31, 2021 and December 31, 2020, respectivley, are included in the total gross loans above.

Changes in the allowance for loan losses by portfolio segment for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 and ~~2019~~2020 were as follows:

Agricultural

Commercial
Real Estate

Commercial

Residential
Real Estate

Installment and
Consumer Other

Total

(dollars in thousands)

For the Three Months Ended June 30, 2020

Balance, beginning of period

$
12,685

$
2,577

$
2,173

$
112

$
—

$
17,547

Provision for loan losses

(38
)

1,281

(75
)

(27
)

1

1,142

Loans charged off

—

—

(144
)

—

—

(144
)
Recoveries

23

1

—

—

—

24

Balance, end of period

$
12,670

$
3,859

$
1,954

$
85

$
1

$
18,569

For the Six Months Ended June 30, 2020

Balance, beginning of year

$
11,737

$
1,913

$
1,599

$
15

$
3

$
15,267

Provision for loan losses

910

1,884

498

70

(2
)

3,360

Loans charged off

—

—

(144
)

—

—

(144
)
Recoveries

23

62

1

—

—

86

Balance, end of period

$
12,670

$
3,859

$
1,954

$
85

$
1

$
18,569

For the Three Months Ended June 30, 2019

Balance, beginning of period

$
12,123

$
4,152

$
1,201

$
16

$
1

$
17,493

Provision for loan losses

1,509

(1,003
)

367

3

—

876

Loans charged off

—

(2,234
)

(960
)

—

—

(3,194
)
Recoveries

15

967

101

—

—

1,083

Balance, end of period

$
13,647

$
1,882

$
709

$
19

$
1

$
16,258

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 March 31, 2021
	Beginning Balance		Provision for Loan Losses			Loans Charged Off		Loan Recoveries		Ending Balance
	(dollars in thousands)
Agricultural loans	$	10,859	$	668		$	—	$	—	$	11,527
Commercial real estate loans		3,139		(282	)		—		1		2,858
Commercial loans		805		(145	)		—		31		691
Residential real estate loans		5		—			—		—		5
Installment and consumer other		—		1			—		—		1
Total	$	14,808	$	242		$	—	$	32	$	15,082

	For the Three Months Ended March 31, 2020
	Beginning Balance		Provision for Loan Losses			Loans Charged Off		Loan Recoveries		Ending Balance
	(dollars in thousands)
Agricultural loans	$	11,737	$	948		$	—	$	—	$	12,685
Commercial real estate loans		1,913		603			—		61		2,577
Commercial loans		1,599		573			—		1		2,173
Residential real estate loans		15		97			—		—		112
Installment and consumer other		3		(3	)		—		—		—
Total	$	15,267	$	2,218		$	—	$	62	$	17,547

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, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:

	June 30, 2020						March 31, 2021
	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	$	3,826	$	8,844	$	12,670	$	4,340	$	7,187	$	11,527
Commercial real estate loans		2,471		1,388		3,859		192		2,666		2,858
Commercial loans		1,226		728		1,954		88		603		691
Residential real estate loans		—		85		85		—		5		5
Installment and consumer other		—		1		1		—		1		1
Total ending allowance for loan losses		7,523		11,046		18,569		4,620		10,462		15,082
Loans:
Agricultural loans		58,895		565,444		624,339		54,495		554,987		609,482
Commercial real estate loans		9,351		237,798		247,149		7,074		237,717		244,791
Commercial loans		2,882		181,655		184,537		2,786		116,297		119,083
Residential real estate loans		60		31,354		31,414		58		38,005		38,063
Installment and consumer other		—		85		85		—		245		245
Total loans		71,188		1,016,336		1,087,524		64,413		947,251		1,011,664
Net loans	$	63,665	$	1,005,290	$	1,068,955	$	59,793	$	936,789	$	996,582

	December 31, 2019						December 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	$	3,515	$	8,222	$	11,737	$	3,504	$	7,355	$	10,859
Commercial real estate loans		836		1,077		1,913		672		2,467		3,139
Commercial loans		1,238		361		1,599		86		719		805
Residential real estate loans		—		15		15		—		5		5
Installment and consumer other		—		3		3		—		—		—
Total ending allowance for loan losses		5,589		9,678		15,267		4,262		10,546		14,808
Loans:
Agricultural loans		58,833		600,892		659,725		63,777		543,104		606,881
Commercial real estate loans		3,682		232,254		235,936		7,077		228,892		235,969
Commercial loans		1,862		93,925		95,787		2,818		112,269		115,087
Residential real estate loans		62		43,896		43,958		59		38,025		38,084
Installment and consumer other		—		367		367		—		264		264
Total loans		64,439		971,334		1,035,773		73,731		922,554		996,285
Net loans	$	58,850	$	961,656	$	1,020,506	$	69,469	$	912,008	$	981,477

The following tables present loans individually evaluated for impairment by class of loans at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:

	June 30, 2020						March 31, 2021
	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	$	15,059	$	14,977	$	—	$	7,599	$	7,219	$	0
Commercial real estate loans		288		288		—		5,209		4,328		0
Commercial loans		1,229		1,202		—		2,244		2,237		0
Residential real estate loans		—		60		—		61		58		0
	$	16,576	$	16,527	$	—	$	15,113	$	13,842	$	0

With an allowance recorded:
Agricultural loans	$	47,209	$	43,918	$	3,826	$	51,856	$	47,276	$	4,340
Commercial real estate loans		9,132		9,063		2,471		4,582		2,746		192
Commercial loans		1,733		1,680		1,226		580		549		88
Residential real estate loans		—		—		—		0		0		0
	$	58,074	$	54,661	$	7,523	$	57,018	$	50,571	$	4,620
Total	$	74,650	$	71,188	$	7,523	$	72,131	$	64,413	$	4,620

	December 31, 2019						December 31, 2020
	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	$	14,151	$	14,131	$	—	$	20,245	$	20,120	$	0
Commercial real estate loans		—		—		—		288		288		0
Commercial loans		—		—		—		2,504		2,481		0
Residential real estate loans		62		62		—		61		59		0
	$	14,213	$	14,193	$	—	$	23,098	$	22,948	$	0

With an allowance recorded:
Agricultural loans	$	47,225	$	44,702	$	3,515	$	47,971	$	43,657	$	3,504
Commercial real estate loans		3,681		3,682		836		8,245		6,790		672
Commercial loans		2,155		1,862		1,238		357		336		86
Residential real estate loans		—		—		—		0		0		0
	$	53,061	$	50,246	$	5,589	$	56,573	$	50,783	$	4,262
Total	$	67,274	$	64,439	$	5,589	$	79,671	$	73,731	$	4,262

The following table presents the aging of the recorded investment in past due loans at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:

	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, 2020
March 31, 2021
Agricultural loans	$	2,736	$	—	$	6,633	$	9,369	$	614,970	$	624,339	$	1,658	$	—	$	4,745	$	6,403	$	603,079	$	609,482
Commercial real estate loans		—		—		361		361		246,788		247,149		—		—		4,328		4,328		240,463		244,791
Commercial loans		43		—		107		150		184,387		184,537		—		—		56		56		119,027		119,083
Residential real estate loans		—		—		60		60		31,354		31,414		—		—		—		—		38,063		38,063
Installment and consumer other		—		—		—		—		85		85		—		—		—		—		245		245
Total	$	2,779	$	—	$	7,161	$	9,940	$	1,077,584	$	1,087,524	$	1,658	$	—	$	9,129	$	10,787	$	1,000,877	$	1,011,664

December 31, 2019
December 31, 2020
Agricultural loans	$	1,489	$	71	$	4,974	$	6,534	$	653,191	$	659,725	$	47	$	—	$	5,041	$	5,088	$	601,793	$	606,881
Commercial real estate loans		—		288		-		288		235,648		235,936		82		—		4,283		4,365		231,604		235,969
Commercial loans		—		28		228		256		95,531		95,787		—		—		96		96		114,991		115,087
Residential real estate loans		—		—		62		62		43,896		43,958		4		—		—		4		38,080		38,084
Installment and consumer other		—		—		—		—		367		367		—		—		—		—		264		264
Total	$	1,489	$	387	$	5,264	$	7,140	$	1,028,633	$	1,035,773	$	133	$	—	$	9,420	$	9,553	$	986,732	$	996,285

The following table presents the recorded investment in nonaccrual loans by class of loan:

	June 30,		December 31,		March 31,		December 31,
	2020		2019		2021		2020
	(dollars in thousands)				(dollars in thousands)
Agricultural loans	$	25,398	$	26,415	$	37,416	$	35,067
Commercial real estate loans		8,348		2,673		6,099		6,093
Commercial loans		1,650		1,818		400		405
Residential real estate loans		60		62		58		59
Total	$	35,456	$	30,968	$	43,973	$	41,624

The following tables present the average recorded investment and interest income recognized on impaired loans by portfolio segment for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 and ~~2019:~~2020:

	As of and for the Three Months Ended June 30, 2020										As of and for the Three Months Ended March 31, 2021
	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	$	62,268	$	58,895	$	3,826	$	59,565	$	1,060	$	59,455	$	54,495	$	4,340	$	59,136	$	926
Commercial real estate loans		9,420		9,351		2,471		6,496		115		9,791		7,074		192		7,076		37
Commercial loans		2,962		2,882		1,226		2,360		21		2,824		2,786		88		2,802		40
Residential real estate loans		—		60		—		60		—		61		58		—		58		1
Total	$	74,650	$	71,188	$	7,523	$	68,480	$	1,196	$	72,131	$	64,413	$	4,620	$	69,072	$	1,004

	As of and for the Six Months Ended June 30, 2020										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	$	62,268	$	58,895	$	3,826	$	58,864	$	2,370	$	63,876	$	60,234	$	3,678	$	59,533	$	1,310
Commercial real estate loans		9,420		9,351		2,471		6,517		140		3,674		3,640		802		3,661		25
Commercial loans		2,962		2,882		1,226		2,372		69		2,154		1,837		1,310		1,850		48
Residential real estate loans		—		60		—		61		1		61		60		—		61		1
Total	$	74,650	$	71,188	$	7,523	$	67,814	$	2,580	$	69,765	$	65,771	$	5,790	$	65,105	$	1,384

	As of and for the Three Months Ended June 30, 2019
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized
	(dollars in thousands)
Agricultural loans	$	62,271	$	59,876	$	3,415	$	57,064	$	1,531
Commercial real estate loans		539		1,022		5		3,527		7
Commercial loans		1,022		532		290		834		1
Total	$	63,832	$	61,430	$	3,710	$	61,425	$	1,539

	As of and for the Six Months Ended June 30, 2019
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized
	(dollars in thousands)
Agricultural loans	$	62,271	$	59,876	$	3,415	$	56,412	$	2,704
Commercial real estate loans		539		1,022		5		1,530		31
Commercial loans		1,022		532		290		1,153		3
Total	$	63,832	$	61,430	$	3,710	$	59,095	$	2,738

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 ~~$2.1~~$0.6 million and ~~$0.4~~$0.7 million for the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and $2.8 million and $1.0 million for the six months ended June 30, 2020 and 2019,~~ respectively.

The Company allocated approximately ~~$3.8~~$4.6 million and ~~$3.5~~$3.8 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings (“TDR”) at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively. The Company had 0 additional lending commitments at ~~June 30, 2020~~March 31, 2021 or December 31, ~~2019~~2020 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 returned to accrual status. The following table presents the TDRs and related allowance for loan losses by loan class at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:

	Non-Accrual		Restructured and Accruing		Total		Allowance for Loan Losses Allocated		Non-Accrual		Restructured and Accruing		Total		Allowance for Loan Losses Allocated
	(dollars in thousands)								(dollars in thousands)
June 30, 2020
March 31, 2021
Agricultural loans	$	18,672	$	20,940	$	39,612	$	3,807	$	26,382	$	10,630	$	37,012	$	4,273
Commercial real estate loans		—		1,002		1,002		31		1,772		975		2,747		192
Commercial loans		79		43		122		4		66		1,890		1,956		88
Total	$	18,751	$	21,985	$	40,736	$	3,842	$	28,220	$	13,495	$	41,715	$	4,553

December 31, 2019
December 31, 2020
Agricultural loans	$	19,033	$	20,731	$	39,764	$	3,436	$	27,223	$	15,690	$	42,913	$	3,494
Commercial real estate loans		—		1,009	$	1,009	$	32		1,810		984		2,794		315
Commercial loans		228		44		272		60		68		1,918		1,986		4
Total	$	19,261	$	21,784	$	41,045	$	3,528	$	29,101	$	18,592	$	47,693	$	3,813

The following table~~s provide~~ provides the number of loans modified in a troubled debt restructuring investment by class for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 and ~~2019:~~2020:

	For the Three Months Ended								For the Three Months Ended
	June 30, 2020				June 30, 2019				March 31, 2021				March 31, 2020
	Number of Loans		Recorded Investment		Number of Loans		Recorded Investment		Number of Loans		Recorded Investment		Number of Loans		Recorded Investment
	(dollars in thousands)								(dollars in thousands)
Troubled debt restructurings:
Agricultural loans		6	$	2,640		25	$	12,125		1	$	299		2	$	232
Commercial real estate loans		—		—		—		—
Commercial loans		—		—		—		—
Total		6	$	2,640		25	$	12,125		1	$	299		2	$	232

The following ~~tables provide~~table provides the troubled debt restructurings for the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ grouped by type of concession:

	For the Three Months Ended								For the Three Months Ended
	June 30, 2020				June 30, 2019				March 31, 2021				March 31, 2020
	Number of Loans		Recorded Investment		Number of Loans		Recorded Investment		Number of Loans		Recorded Investment		Number of Loans		Recorded Investment
	(dollars in thousands)								(dollars in thousands)
Agricultural loans
Payment concessions		1	$	231		4	$	441
Term concessions		—		435		2		453		—	$	—		1	$	49
Rate concessions		—		—		1		85
Extension of interest-only payments		2		75		17		10,994		1		299		—		—
Capitalized interest		1		153		1		152
Combination of extension of term and interest rate concessions		2		1,746		—		—		—		—		1		183
Total		6	$	2,640		25	$	12,125		1	$	299		2	$	232

No troubled debt restructurings defaulted within twelve months of the restructure date during the three ended March 31, 2021 and ~~six months ended June 30, 2020 and June 30, 2019, respectively.~~March 31, 2020.

The CAA extended Section 4013 of the CARES Act which allows financial institutions to elect to suspend troubled debt restructuring accounting under certain circumstances when the temporary restructuring is related to the ~~Coronavirus Disease 2019 (COVID-19)~~COVID-19 pandemic. The Company has elected to implement Section 4013, ~~and for~~ the ~~three months and six months ended June 30, 2020, the Company has processed 184 requests with loan balances totaling $200.7 million.~~balance of those loans modified under Section 4103 was $6.1 million at March 31, 2021.

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.

The ~~bank~~Bank will not accrue interest on any loan past due 90-days or more. Furthermore, the ~~bank~~Bank will place any loan on non-accrual status for which payment in full of principal and interest is not expected. A loan shall be placed on non-accrual as soon as it is determined that payment in full of interest and/or principal is unlikely. The ~~CCO~~Bank’s chief credit officer may approve the placement of a loan on non-accrual prior to 90-days past due.

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, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:

	As of June 30, 2020												As of March 31, 2021
	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	$	372,030	$	175,072	$	1,856	$	44,502	$	30,879	$	624,339	$	402,735	$	129,840	$	—	$	34,310	$	42,597	$	609,482
Commercial real estate loans		221,979		14,560		—		2,261		8,349		247,149		210,260		26,113		—		2,319		6,099		244,791
Commercial loans		173,901		8,175		—		811		1,650		184,537		106,172		9,614		605		2,331		361		119,083
Residential real estate loans		30,950		237		—		167		60		31,414		37,749		256		—		—		58		38,063
Installment and consumer other		85		—		—		—		—		85		245		—		—		—		—		245
Total	$	798,945	$	198,044	$	1,856	$	47,741	$	40,938	$	1,087,524	$	757,161	$	165,823	$	605	$	38,960	$	49,115	$	1,011,664

	As of December 31, 2019⁽¹⁾												As of December 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	$	388,184	$	184,050	$	9,239	$	46,587	$	31,665	$	659,725	$	374,595	$	155,546	$	1,854	$	34,452	$	40,434	$	606,881
Commercial real estate loans		209,279		21,703		—		2,281		2,673		235,936		200,208		26,266		—		3,402		6,093		235,969
Commercial loans		83,141		10,091		—		737		1,818		95,787		103,488		8,022		647		2,566		364		115,087
Residential real estate loans		43,473		254		—		169		62		43,958		37,758		267		—		—		59		38,084
Installment and consumer other		367		—		—		—		—		367		264		—		—		—		—		264
Total	$	724,444	$	216,098	$	9,239	$	49,774	$	36,218	$	1,035,773	$	716,313	$	190,101	$	2,501	$	40,420	$	46,950	$	996,285

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 loans serviced for others were approximately ~~$762.1~~$841.9 million and ~~$751.7~~$812.6 million at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively. The fair value of these rights were approximately ~~$16.5~~$18.9 million and ~~$15.9~~$18.4 million at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020.

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 were applied at a different time.

The fair value of servicing rights at ~~December~~March 31, ~~2019~~2021 was determined using an assumed discount rate of 1414.7% percent and a weighted average ~~prepayment speed~~run-off rate of ~~7.33%~~16.24%, ranging from ~~5.00%~~15.67% to ~~10.00%~~24.42%, depending upon loan type, the stratification of the specific right, and nominal credit losses. The fair value of servicing rights at ~~June 30,~~December 31, 2020 was determined using an assumed discount rate of ~~14 percent~~14.3% and a weighted average ~~prepayment speed~~run-off rate of ~~9.77%~~16.59%, ~~primarily~~ ranging from ~~9.70%~~16.02% to ~~9.78%~~24.72%, 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 tables summarize servicing rights capitalized, along with the aggregate activity in related valuation ~~allowances. The six months ended June 30, 2020 is presented at fair value, and the six months ended June 30, 2019 is presented using the amortized cost method.~~allowances for periods indicated.

	For the Three Months Ended			For the Three Months Ended
	June 30, 2020			March 31, 2021
	(dollars in thousands)			(dollars in thousands)
Balance at March 31, 2020	$	16,211
Balance at December 31, 2020				$	18,396
Additions, net		1,041			1,587
Fair value changes:
Decay due to increases in principal paydowns or runoff		(727	)		(271	)
Due to changes in valuation inputs or assumptions		(39	)		(848	)
Balance, June 30, 2020	$	16,486
Balance, March 31, 2021				$	18,864

	For the Six Months Ended			For the Three Months Ended
	June 30, 2020			March 31, 2020
	(dollars in thousands)			(dollars in thousands)
Balance at December 31, 2019	$	12,509
Impact of cumulative effect of change in accounting principle		3,412
Balance at January 1, 2020	$	15,921		$	15,921
Additions, net		1,546			505
Fair value changes:
Decay due to increases in principal paydowns or runoff		(992	)		(265	)
Due to changes in valuation inputs or assumptions		11			50
Balance, June 30, 2020	$	16,486
Balance, March 31, 2020				$	16,211

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.

During the first quarter of 2020, goodwill was evaluated for impairment due to economic disruption and unknown growth and credit risk related to the COVID-19 pandemic. Management provided to a third party its updated income projections. Three valuation models were weighted and evaluated: discounted cash flow model (60%), guideline public company method (30%) and transaction method (10%). The transaction method was weighted the lowest as most, if not all, of 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 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 full amount of goodwill was 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 Bancorp, Inc. (“Fox River Valley”) acquisition in 2016 had a gross carrying amount of $1.8 million. There was 0 impairment charge to core deposit intangible for the three or six months ended June 30, 2020.

Deposits are summarized as follows at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:

	June 30,		December 31,		March 31,		December 31,
	2020		2019		2021		2020
	(dollars in thousands)				(dollars in thousands)
Demand deposits	$	149,963	$	138,489	$	139,838	$	163,202
NOW and interest checking		81,656		67,805		95,591		96,624
Savings		8,369		6,395		8,430		7,367
Money market accounts		307,083		247,828		390,742		344,250
Certificates of deposit		346,482		375,100		278,591		304,580
National time deposits		57,997		99,485		26,302		44,347
Brokered deposits		121,503		166,340		159,034		80,456
Total deposits	$	1,073,053	$	1,101,442	$	1,098,528	$	1,040,826

The Bank had advances outstanding from the FHLB in the amount of ~~$93.4~~$100.0 million and ~~$44.4~~$129.0 million on ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively. These advances, rates, and maturities were as follows:

					June 30,		December 31,						March 31,		December 31,
	Maturity	Rate			2020		2019		Maturity	Rate			2021		2020
					(dollars in thousands)								(dollars in thousands)
Fixed rate, fixed term	02/20/2020		1.71	%	$	—	$	5,000	01/04/2021		0.23	%	$	—	$	29,000
Fixed rate, fixed term	07/16/2020		1.85	%		800		800	04/12/2021		1.92	%		8,000		8,000
Fixed rate, fixed term	08/25/2020		1.84	%		3,000		3,000	05/03/2021		0.00	%		4,000		4,000
Fixed rate, fixed term	08/27/2020		1.88	%		5,000		5,000	06/15/2021		1.39	%		5,000		5,000
Fixed rate, fixed term	12/30/2020		2.09	%		4,000		4,000	08/16/2021		2.29	%		3,000		3,000
Fixed rate, fixed term	12/31/2020		1.94	%		600		600	12/30/2021		2.29	%		2,000		2,000
Fixed rate, fixed term	04/12/2021		1.92	%		8,000		8,000	03/18/2022		1.03	%		15,000		15,000
Fixed rate, fixed term	05/03/2021		0.00	%		4,000		—	03/25/2022		0.75	%		10,000		10,000
Fixed rate, fixed term	06/15/2021		1.39	%		5,000		5,000	11/16/2022		0.38	%		20,000		20,000
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, fixed term	03/18/2022		1.03	%		15,000		—
Fixed rate, fixed term	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, putable, 2 years no call									01/12/2023		2.03	%		8,000		8,000
Fixed rate, fixed term	03/23/2023		1.26	%		10,000		—	03/23/2023		1.26	%		10,000		10,000
Fixed rate, fixed term	03/27/2023		0.82	%		15,000		—	03/27/2023		0.82	%		15,000		15,000
					$	93,400	$	44,400					$	100,000	$	129,000

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, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the Bank had pledged qualifying mortgage loans of ~~$368.6~~$390.6 million and ~~$393.7~~$367.6 million, respectively.

As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the Bank also had a 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 ~~$111.3~~$109.3 million and ~~$127.3~~$111.5 million in loans at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively. The borrowings available to the Company were $82.0 million and $83.3 million, as of March 31, 2021 and December 31, 2020, respectively. There were 0 outstanding advances included in other borrowings at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020.

As of June 30, 2020 and December 31, 2019, the Company had an unsecured credit agreement with U.S. Bank National Association for a $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, 2020 and December 31, 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, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the amounts of these borrowings ~~was $0.8 million.~~were $0.1 million and $0.2 million, respectively.

Also included in other borrowings is the financing lease for our ~~full service~~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~~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 2 renewal options of five years each. As of ~~June 30,~~March 31, 2021 and December 31, 2020, the liability remaining under the financing lease was ~~$1.4~~$1.3 million. ~~There was 0 financing lease obligation as of December 31, 2019.~~

~~During the second quarter of 2020, the~~ Company largely funded the Small Business Administration’s Paycheck Protection Program (“PPP”) loans through the Federal Reserve’s PPP Liquidity Facility, which allowed for 12-month advances collateralized by PPP loans at an interest rate of 0.35%. The balance of these advances was ~~$99.7~~$47.3 million and $47.5 million at ~~June 30, 2020.~~March 31, 2021 and December 31, 2020, respectively, and were secured by PPP loans of the same amount.

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


	June 30,			December 31,			March 31,			December 31,
	2020			2019			2021			2020
	(dollars in thousands)						(dollars in thousands)
Balance outstanding at end of period	$	101,847		$	794		$	48,674		$	49,006
Average amount outstanding during the period		66,910			800			51,220			61,483
Maximum amount outstanding at any month end		101,860			1,412
Maximum amount outstanding at any month-end								56,299			93,709
Weighted average interest rate during the period		0.42	%		4.60	%		0.38	%		0.42	%
Weighted average interest rate at end of period		2.65	%		4.51	%		0.39	%		0.39	%

In September 2005 and June 2006, the Company formed wholly owned subsidiary business trusts, County Bancorp Statutory Trust II (“Trust II”) and County Bancorp Statutory Trust III (“Trust III”) (together, the “Trusts”), which are both Delaware statutory trusts, for the purpose of issuing capital securities which qualify as Tier 1 capital

The following is a summary of the Company. Trust II issued at par $6.0 million of floating rate capital securities in an exempt offering. The capital securities are nonvoting, mandatorily redeemable in 2035, and guaranteed by the Company. Trust III issued at par $6.0 million of floating rate capital securities in an exempt offering. The capital securities are nonvoting, mandatorily redeemable in 2036, and guaranteed by the Company.

The capital securities carry an interest rate identical to that of the related debentures. For Trust II, holders of capital securities are entitled to receive cumulative cash distributions at a rate based on the three month LIBOR plus 1.53% thereafter through maturity, which was 1.84% and 3.44% as of June 30, 2020 and December 31, 2019, respectively. For Trust III, holders of capital securities are entitled to receive cumulative cash distributions at a rate based on the three month LIBOR plus 1.69% through maturity, which was 2.00% and 3.60% as of June 30, 2020 and December 31, 2019, respectively. Interest was current through the most recent interest payment date of June 15, 2020. The distribution rate payable on the capital securities is cumulative and payable quarterly in arrears.

~~The Company owns all of the outstanding common securities of Trust II and Trust III. The Trusts used the proceeds from the~~carrying values, including unamortized issuance of their capital securities to buy floating rate junior subordinated deferrable interest debentures (“debentures”) issued by the Company. These debentures are the Trusts’ only assets, and interest payments from these debentures finance the distributions paid on

~~the capital securities. These debentures are unsecured, rank junior, and are subordinate in the right of payment to all senior debt of the Company.~~

The Company has the right, subject to events of default, to defer payments of interest on the debentures at any time by extending the interest payment period for a period not exceeding 20 consecutive quarters with respect to each deferral period, provided that no extension period may extend beyond the redemption or maturity dates of the debentures. The capital securities are subject to mandatory redemption upon payment of the debentures. The debentures issued to Trust II and Trust III mature on September 15, 2035 and June 15, 2036, respectively, and may be redeemed if certain conditions are met or at any time within 180 days following the occurrence and continuation of certain changes in either tax treatment or the capital treatment of Trust II and Trust III, the debentures, or the capital securities. If the debentures are redeemed before they mature, the redemption price will be the principal amount plus any accrued but unpaid interest.

~~The capital securities of Trust II and Trust III have been structured to qualify as Tier 1 capital for regulatory purposes. However, the securities cannot be used to constitute more than 25 percent~~costs, of the Company’s ~~“core” Tier 1 capital according to regulatory requirements. The Company utilized the proceeds~~subordinated debt as of the ~~Trust II issuances for general corporate purposes and Trust III issuances to redeem the securities of County Bancorp Statutory Trust I.~~dates indicated:

In connection with the merger with Fox River Valley, the Company also acquired all of the common securities of Fox River Valley’s wholly-owned subsidiary, Fox River Valley Capital Trust I, a Delaware statutory trust (the “FRV Trust I”), which issued capital securities that qualify for Tier I capital of the Company. The Company assumed the $3.6 million ~~of floating rate, junior subordinated debentures, of which the Company owns $0.1 million. The capital securities are non-voting, mandatorily redeemable in 2033 and guaranteed by the Company.~~

The distribution rate payable on the debentures is cumulative and payable quarterly in arrears. The Company has the right, subject to events of default, to defer payments of interest on the debentures at any time by extending the interest payment period not exceeding 20 consecutive quarters with respect to each deferral period, provided that no extension period may extend beyond the redemption or maturity date of the debentures. Interest was current through the most recent interest payment date of May 28, 2020.

The FRV Trust I may redeem some or all of the capital securities, at par, with 30 days advance notice, on or after November 30, 2008, but only on May 30 or November 30 of any given year, and only in a minimum amount of $500,000 and in increments of $10,000 thereafter, or the full amount of the capital securities. The FRV Trust I may redeem all of the capital securities at any time upon the occurrence and during the continuation of a Tax Event, an Investment Company Event or a Capital Treatment Event (each as defined in the trust agreement for the FRV Trust I), at any time within 90 days following such event.

The FRV Trust I debentures carry an interest rate equal to 5-year LIBOR plus 3.40%, which resets every five years. The current rate is equal to 6.40% through November 30, 2023. Interest payments are due quarterly.

On May 30, 2018, the Company entered into a Subordinated Note Purchase Agreement with certain institutional investors pursuant to which the Company sold and issued $30.0 million in aggregate principal amount of its 5.875% fixed-to-floating rate subordinated notes due 2028 (the “Notes”). The Notes were issued by the Company to the purchasers at a price equal to 100% of their face amount. The Notes have a stated maturity of June 1, 2028, are redeemable, in whole or in part, on or after June 1, 2023, and at any time upon the occurrences of certain events. The Notes will bear interest at a fixed rate of 5.875% per year, from and including May 30, 2018 to, but excluding, June 1, 2023. From and including June 1, 2023 to, but excluding, the maturity date or early redemption date, the interest rate will reset quarterly at a variable rate equal to the then current 3-month LIBOR plus 2.88%. The notes qualify as Tier II capital of the Company. The Company incurred $0.9 million of costs related to the issuance of the Notes. These costs have been capitalized are being amortized over the life of the Notes.

On June 30, 2020, the Company entered into a Subordinated Note Purchase Agreement with certain institutional or accredited investors pursuant to which the Company sold and issued $17.4 million in aggregate principal amount of its 7.00% fixed-to-floating rate subordinated notes due 2030 (the “2030 Notes”). The 2030 Notes were issued by the Company to the purchasers at a price equal to 100% of their face amount. The 2030 Notes have a stated maturity of June 30, 2030, are redeemable, in whole or in part, on or after June 30, 2025, and at any time upon the occurrences of certain events. The 2030 Notes will bear interest at a fixed rate of 7.00% per year, from and including June 30, 2020 to, but excluding, June 30, 2025. From and including June 30, 2025 to, but excluding, the maturity date or early redemption date, the interest rate will reset quarterly at a variable rate equal to the then current three-month term secured overnight financing rate (SOFR) plus 687.5 basis points. The 2030 Notes qualify as Tier II capital of the Company. The Company incurred $0.5 million of costs related to the issuance of the 2030 Notes. These costs have been capitalized and are being amortized over the call date of the 2030 Notes.

~~On July 21, 2020, the Company entered into a~~ Subordinated Note Purchase Agreement with an accredited investor (the “Purchaser”) pursuant to which the Company sold and issued $5.0 million in principal amount of a 7.00% fixed-to-floating rate subordinated note due June 30, 2030 (the “Note”). The Note was issued by the Company to the Purchaser at a price equal to 100% of its face amount. The Note has a stated maturity of June 30, 2030, is redeemable by the Company at its option, in whole or in part,

after July 21, 2025, and at any time upon the occurrences of certain events. The Note will bear interest at a fixed rate of 7.00% per year, from and including July 21, 2020 to, but excluding, June 30, 2025. From and including June 30, 2025 to, but excluding the maturity date or early redemption date, the interest rate will reset quarterly at a variable rate equal to the then current three-month term SOFR plus 687.5 basis points.

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, 2020, 60,974~~March 31, 2021, 25,406 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, 2020~~March 31, 2021 and changes in the Plan during the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 were as follows:

	June 30, 2020							March 31, 2021
	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		214,904		$	18.94				249,667		$	19.75
Granted		54,746			19.51				—			—
Exercised		(14,590	)		13.38				(6,206	)		13.18
Forfeited/expired		—			—				(7,797	)		19.77
Outstanding, end of period		255,060		$	19.38	$	677		235,664		$	19.92	$	1,601
Options exercisable at period-end		162,623		$	18.82	$	493		174,691		$	19.87	$	801
Weighted-average fair value of options granted during the period ⁽²⁾				$	6.01						$	—

Activity in restricted stock awards and restricted stock units for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 was as follows:

	June 30, 2020					March 31, 2021
	Restricted Stock Awards⁽¹⁾			Weighted Average Grant Price		Restricted Stock Awards			Weighted Average Grant Price
Outstanding, beginning of year		20,668		$	21.86		6,299		$	24.80
Granted		—			—		—			—
Vested		(14,369	)		20.57		(3,500	)		22.90
Forfeited/expired		—			—		(493	)		27.15
Outstanding, end of period		6,299		$	24.80		2,306		$	27.19

For the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ share-based compensation expense, including options and restricted stock awards and units, applicable to the Plan was $0.3 million and $0.2 million, respectively. For the six months ended June 30, 2020 and 2019, share-based compensation expense, including options and restricted stock awards and units, applicable to the Plan was $0.5 million and $0.3 million, respectively.million.

As of ~~June 30, 2020,~~March 31, 2021, unrecognized share-based compensation expense related to nonvested share-based compensation instruments amounted to ~~$1.1~~$1.2 million and is expected to be recognized over a weighted average period of ~~2.05~~1.95 years.

The Company (on a consolidated basis) and Bank are each subject to various regulatory capital requirements administered by the federal and state banking agencies. The Basel III rules, a comprehensive capital framework for U.S. banking organizations, includes quantitative measures designed to ensure capital adequacy. The Basel III rules designed the capital conservation buffer to absorb losses during periods of economic stress and effectively increase the minimum required risk-weighted capital ratios. The Basel III rules require the Company and the Bank to maintain:

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 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 (as defined in the regulations) to risk-weighted assets. Management believed, as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, that the Company and ~~the~~ Bank met all capital adequacy requirements to which they were subject.

As of ~~June 30, 2020,~~March 31, 2021, the ~~Bank’s capital ratios met those required to be considered~~most recent notification from the banking regulators categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. ~~To be categorized as well capitalized,~~There were no conditions or events since 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~~notification that management believes have changed the ~~following table.~~Bank’s category

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

	Actual					Minimum For Capital Adequacy Purposes:					Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions:					Actual					Minimum For Capital Adequacy Purposes (including the capital conservation buffer):					Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions:
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
	(dollars in thousands)															(dollars in thousands)
June 30, 2020
March 31, 2021
Total Capital (to risk weighted assets):
Consolidated	$	237,743		20.42	%	$	122,222		10.50	%	Not applicable			10.00	%	$	247,772		19.11	%	$	136,164		10.50	%	Not applicable
Bank		207,319		17.88	%		121,773		10.50	%	$	115,974		10.00	%		215,631		16.68	%		135,755		10.50	%	$	129,291		10.00	%
Tier 1 Capital (to risk weighted assets):
Consolidated		176,966		15.20	%	$	98,942		8.50	%	Not applicable			8.00	%		181,231		13.98	%	$	110,228		8.50	%	Not applicable
Bank		192,772		16.62	%		98,578		8.50	%		92,779		8.00	%		200,549		15.51	%		109,897		8.50	%		103,433		8.00	%
Tier 1 Capital (to average assets):
Consolidated		176,966		12.69	%		55,795		4.00	%	Not applicable			5.00	%		181,231		12.69	%		57,125		4.00	%	Not applicable
Bank		192,772		13.88	%		55,538		4.00	%		69,423		5.00	%		200,549		13.88	%		57,790		4.00	%		72,237		5.00	%
Tier 1 Common Equity Ratio (to risk weighted assets):
Consolidated		176,966		15.20	%	$	81,482		7.00	%	Not applicable			6.50	%		157,511		12.15	%	$	90,776		7.00	%	Not applicable
Bank		192,772		16.62	%		81,182		7.00	%		75,383		6.50	%		200,549		15.51	%		90,504		7.00	%		84,039		6.50	%

December 31, 2019
December 31, 2020
Total Capital (to risk weighted assets):
Consolidated	$	225,094		19.41	%	$	121,746		10.500	%	Not applicable					$	246,275		19.50	%	$	132,603		10.50	%	Not applicable
Bank		216,198		18.70	%		121,396		10.500	%	$	115,615		10.00	%		211,864		16.83	%		132,174		10.50	%	$	125,880		10.00	%
Tier 1 Capital (to risk weighted assets):
Consolidated		180,620		15.58	%		98,557		8.500	%	Not applicable						180,135		14.26	%		107,345		8.50	%	Not applicable
Bank		201,735		17.45	%		98,273		8.500	%		92,492		8.00	%		197,056		15.65	%		106,998		8.50	%		100,704		8.00	%
Tier 1 Capital (to average assets):
Consolidated		180,620		12.42	%		58,182		4.00	%	Not applicable						180,135		13.01	%		55,403		4.00	%	Not applicable
Bank		201,735		14.68	%		54,962		4.00	%		68,702		5.00	%		197,056		14.06	%		56,047		4.00	%		70,059		5.00	%
Tier 1 Common Equity Ratio (to risk weighted assets):
Consolidated		156,969		13.54	%		81,164		7.000	%	Not applicable						156,427		12.39	%		88,402		7.00	%	Not applicable
Bank		201,735		17.45	%		80,930		7.000	%		75,150		6.50	%		197,056		15.65	%		88,116		7.00	%		81,822		6.50	%

The Basel III Rule implemented a capital conservation buffer, equal to 2.5% of Tier 1 Common Equity, which is added to the minimum requirements for capital adequacy purposes. As of June 30, 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 would result in limitations on certain capital distributions, including dividend payments, and certain discretionary bonus payment to 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, 2020
March 31, 2021
Securities available for sale:
U.S. government and agency securities	$	—	$	15,603	$	—	$	15,603	$	—	$	13,315	$	—	$	13,315
Asset backed securities		—		16,566		—		16,566
Municipal securities		—		51,640		—		51,640		—		160,096		—		160,096
Mortgage-backed securities		—		143,162		—		143,162		—		153,400		—		153,400
Corporate bonds										—		41,813		—		41,813
Asset-backed securities										—		16,616		—		16,616
Loan servicing rights⁽¹⁾		—		—		16,486		16,486		—		—		18,864		18,864
Total assets at fair value	$	—	$	226,971	$	16,486	$	243,457	$	—	$	385,240	$	18,864	$	404,104
Derivative instruments, interest rate swaps		—		2,226		—		2,226		—		1,176		—		1,176
Total liabilities at fair value	$	—	$	2,226	$	—	$	2,226	$	—	$	1,176	$	—	$	1,176
December 31, 2019
December 31, 2020
Securities available for sale:
U.S. government and agency securities	$	—	$	3,458	$	—	$	3,458	$	—	$	14,593	$	—	$	14,593
U.S. treasury Securities		—		2,506		—		2,506
Municipal securities										—		153,654		—		153,654
Mortgage-backed securities		—		152,769		—		152,769		—		135,378		—		135,378
Corporate bonds										—		32,511		—		32,511
Asset-backed securities										—		16,718		—		16,718
Loan servicing rights ⁽¹⁾										—		—		18,396		18,396
Total assets at fair value	$	—	$	158,733	$	—	$	158,733	$	—	$	352,854	$	18,396	$	371,250
Derivative instruments, interest rate swaps		—		972		—		972		—		1,914		—		1,914
Total liabilities at fair value	$	—	$	972	$	—	$	972	$	—	$	1,914	$	—	$	1,914

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:

	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
	(dollars in thousands)						(dollars in thousands)
June 30, 2020
March 31, 2021
Impaired loans	$	—	$	—	$	47,138	$	—	$	—	$	45,951
Other real estate owned		—		—		2,629		—		—		739
Total assets at fair value	$	—	$	—	$	49,767	$	—	$	—	$	46,690
December 31, 2019
December 31, 2020
Impaired loans	$	—	$	—	$	44,657	$	—	$	—	$	46,521
Other real estate owned		—		—		5,521		—		—		1,077
Total assets at fair value	$	—	$	—	$	50,178	$	—	$	—	$	47,598

The significant inputs used in the fair value measurements for Level 3 assets measured at fair value on a nonrecurring basis 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,
	2020				2019					2021				2020
	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	$	127,016	$	127,016	$	108,457	$	108,457	1	$	17,404	$	17,404	$	19,084	$	19,084	1
Interest earning cash at other financial institutions		416		416		20,554		20,554	1		416		416		416		416	1
FHLB Stock		5,758		5,758		1,628		1,628	2		5,875		5,875		5,758		5,758	2
Securities available for sale		226,971		226,971		158,733		158,733	2		385,240		385,240		352,854		352,854	2
Loans, net of allowance for loan losses		1,068,955		1,080,610		1,020,506		1,024,062	3		996,582		1,004,518		981,477		991,342	3
Loans held for sale		11,847		11,847		2,151		2,151	3		5,788		5,788		35,976		35,976	3
Accrued interest receivable		3,222		3,222		2,571		2,571	2		4,060		4,060		3,240		3,240	2
Loan servicing rights		16,486		16,486		12,509		15,921	3		18,864		18,864		18,396		18,396	3
Financial liabilities:
Deposits:
Time		525,982		526,560		640,925		635,558	2		463,927		457,095		419,542		426,092	2
Other deposits		547,071		547,071		460,517		460,517	1		634,601		634,601		621,284		621,284	1
Other borrowings		101,847		101,847		794		794	3		48,674		48,674		49,006		49,006	3
Advances from FHLB		93,400		94,926		44,400		44,578	2		100,000		101,068		129,000		130,361	2
Subordinated debentures		61,910		61,910		44,858		44,858	3		67,179		66,179		67,111		67,111	3
Accrued interest payable		3,101		3,101		4,769		4,769	2		2,536		2,536		2,496		2,496	2
Derivative instruments, interest rate swaps		2,226		2,226		972		972	2		1,176		1,176		1,914		1,914	2

	For the Three Months Ended						For the Six Months Ended						For the Three Months Ended
	June 30,						June 30,						March 31,
		2020			2019			2020			2019			2021			2020
	(dollars in thousands)												(dollars in thousands)
Balance, beginning of period	$	3,247		$	5,019		$	5,521		$	6,568		$	1,077		$	5,521
Assets foreclosed		—			4,145			—			5,292			—			—
Write-down of other real estate owned		—			(250	)		(1,360	)		(250	)		—			(1,360	)
Net gain (loss) on sales of other real estate owned		—			(9	)		(4	)		127
Net loss on sales of other real estate owned														(17	)		(4	)
Proceeds from sale of other real estate owned		(618	)		(212	)		(1,528	)		(3,044	)		(321	)		(910	)
Balance, end of period	$	2,629		$	8,693		$	2,629		$	8,693		$	739		$	3,247

Expenses applicable to other real estate owned included in non-interest expense included the following:

	For the Three Months Ended						For the Six Months Ended						For the Three Months Ended
	June 30,						June 30,						March 31,
		2020			2019			2020			2019			2021			2020
	(dollars in thousands)												(dollars in thousands)
Net gain (loss) on sales of other real estate owned	$	—		$	(9	)	$	(4	)	$	127
Net loss on sales of other real estate owned													$	(17	)	$	(4	)
Write-down of other real estate owned		—			(250	)		(1,360	)		(250	)		—			(1,360	)
Operating expenses, net of rental income		(50	)		(85	)		(166	)		(110	)		(19	)		(116	)
	$	(50	)	$	(344	)	$	(1,530	)	$	(233	)	$	(36	)	$	(1,480	)

On June 15, 2018, the Company executed an interest rate swap to manage interest rate risk on 2 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~~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 2 outstanding interest rate swaps designated as a cash flow hedge each with an aggregate notional value of $6.0 million at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020. Both interest rate swaps mature on June 15, 2028. A pre-tax unrealized ~~loss~~gain of ~~$1.3 and $1.1~~$0.7 million was recognized in accumulated other comprehensive income for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021, and ~~2019, respectively and there~~a pre-tax loss of $1.2 million was recognized in accumulated other comprehensive income for the three months ended March 31, 2020. There was 0 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 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 $2.4 million of cash as collateral to the counterparty as of ~~June 30, 2020.~~March 31, 2021.

Management evaluated subsequent events through the date the financial statements were issued.

~~On July 21, 2020, the Company sold an additional $5.0 million of subordinated notes. See Note 9 —Subordinated Debentures for additional information.~~

There were no other no significant events or transactions occurring after ~~June 30, 2020,~~March 31, 2021, but prior to ~~August~~May 7, ~~2020,~~2021, that provided additional evidence about conditions that existed at ~~June 30, 2020.~~March 31, 2021.

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 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 adjusted diluted earnings per share, 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.

There have been no material changes to the critical accounting policies included in the 2020 Form 10-K filed on March 12, 2021.

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 ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020, and has had a complex and ~~significant~~ adverse impact on the economy and the banking industry and is expected to continue to adversely impact 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. ~~The Wisconsin Governor issued a series of orders, including an~~A stay-at-home order ~~that, subject to limited exceptions, all individuals stay at home and non‑essential businesses cease all activities, which order became effective on~~was imposed in March ~~25,~~ 2020, and ~~was rescinded by the Wisconsin Supreme Court~~ on ~~May 13, 2020. Since~~ May 13, 2020, businesses and social gatherings ~~have been~~began reopening based on local ordinances in a phased-in ~~approach.~~ approach, subject to public health reopening guidelines, including social distancing and limitations on capacity.

The Bank and its branches remained open during these orders because banks were deemed essential ~~businesses. The Bank served its customers through its drive through~~businesses although lobbies were initially closed from March 18, 2020, to June 22, 2020 and ~~night deposit services and digital banking platforms.~~again from October 13, 2020 to March 1, 2021. Based on the current environment, it is unclear how communities in Wisconsin will change, relax, or impose new stay-at-home and social distancing ~~policies.~~policies, including as a result of the availability of vaccines, and how that will impact the economy and our customers.

Across the United States, as a result of ~~stay-at-home orders,~~the curtailment of business activities since March 2020, many states have experienced a dramatic increase in unemployment ~~levels as a result of the curtailment of business activities.~~levels. According to the U.S. Bureau of Labor Statistics, the unemployment rate in Wisconsin (on a seasonally adjusted basis) increased from 3.1% in March 2020 to 13.6% in April 2020, and ~~has~~ subsequently decreased to ~~12.1%~~3.8% in ~~May 2020 and 8.5% in June 2020~~March 2021 (based on preliminary numbers).

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:

Effects on Our Business. The COVID-19 pandemic and the specific developments referred to above ~~has~~have had and ~~may~~will continue to have an impact on our business. In particular, we anticipate that a significant portion of the Bank’s borrowers in retail shopping centers, limited service restaurants, hotels, assisted living and nursing homes and residential rental industries may continue to endure significant economic distress, which may cause them to draw on their existing lines of credit and adversely affect their ability and willingness to repay existing indebtedness, and may adversely impact the value of collateral. These developments, together with economic conditions generally, may 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 ~~may~~will be ~~significantly~~ adversely affected, as described in further detail below.

In addition to the policy responses described above, the federal bank regulatory agencies, along with their state counterparts, have issued a stream of guidance in response to the COVID-19 pandemic and have taken a number of unprecedented steps to help banks navigate the pandemic and mitigate its impact. These include, without limitation: requiring banks to focus on business continuity and pandemic planning; adding pandemic scenarios to stress testing; encouraging bank use of capital buffers and reserves in lending programs; permitting certain regulatory reporting extensions; reducing margin requirements on swaps; permitting certain otherwise prohibited investments in investment funds; issuing guidance to encourage banks to work with customers affected by the pandemic and encourage loan workouts; and providing credit under the Community Reinvestment Act (“CRA”) for certain pandemic-

related loans, investments and public service. Moreover, because of the need for social distancing measures, the agencies revamped the manner in which they conducted periodic examinations of their regulated institutions, including making greater use of off-site reviews. The Federal Reserve also issued guidance encouraging banking institutions to utilize its discount window for loans and intraday credit extended by its Reserve Banks to help households and businesses impacted by the pandemic and announced numerous funding facilities. The FDIC has also acted to mitigate the deposit insurance assessment effects of participating in the PPP and the Federal Reserve’s PPP Liquidity Facility and Money Market Mutual Fund Liquidity Facility.

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

	As of and for the						As of and for the						As of and for the			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, 2020			June 30, 2019			June 30, 2020			June 30, 2019			December 31, 2019			March 31, 2021			March 31, 2020			December 31, 2020
	(unaudited)						(unaudited)									(unaudited)
	(Dollars in thousands, except per share data)															(Dollars in thousands, except per share data)
Selected Income Statement Data:
Interest income	$	13,686		$	17,208		$	27,781		$	34,334		$	66,332		$	13,715		$	14,095		$	55,475
Interest expense		4,800			6,776			10,097			13,342			25,550			3,497			5,297			18,499
Net interest income		8,886			10,432			17,684			20,992			40,782			10,218			8,798			36,976
Provision for loan losses		1,142			876			3,360			1,628			423			242			2,218			2,984
Net interest income after provision for loan losses		7,744			9,556			14,324			19,364			40,359			9,976			6,580			33,992
Non-interest income		3,380			2,887			6,083			5,637			13,393			3,712			2,703			14,250
Non-interest expense		7,465			7,446			22,482			14,751			32,684			8,764			15,018			39,645
Income tax expense		926			1,293			379			2,784			4,616
Net income (loss)	$	2,733		$	3,704		$	(2,454	)	$	7,466		$	16,452
Income tax expense (benefit)																	996			(547	)		3,118
Net income																$	3,928		$	(5,188	)	$	5,479

Per Common Share Data:
Basic earnings (loss) per common share	$	0.40		$	0.53		$	(0.40	)	$	1.07		$	2.37		$	0.62		$	(0.79	)	$	0.79
Diluted earnings (loss) per common share	$	0.40		$	0.53		$	(0.40	)	$	1.07		$	2.36		$	0.62		$	(0.78	)	$	0.79
Adjusted diluted earnings per common share⁽¹⁾	$	0.40		$	0.53		$	0.36		$	1.07		$	2.36
Adjusted diluted earnings (loss) per common share ⁽¹⁾																$	0.62		$	(0.04	)	$	1.56
Cash dividends per common share	$	0.07		$	0.05		$	0.14		$	0.10		$	0.20		$	0.10		$	0.07		$	0.31
Book value per share, end of period	$	25.18		$	23.03		$	25.18		$	23.03		$	24.32		$	25.99		$	24.17		$	26.42
Tangible book value per share, end of period ⁽¹⁾	$	25.16		$	22.23		$	25.16		$	22.23		$	23.54		$	25.98		$	24.15		$	26.42
Weighted average common shares - basic		6,504,898			6,745,635			6,604,187			6,735,725			6,747,581			6,202,260			6,700,329			6,477,173
Weighted average common shares - diluted		6,533,409			6,766,366			6,643,735			6,756,895			6,768,925			6,236,725			6,749,401			6,505,198
Common shares outstanding, end of period		6,375,150			6,717,908			6,375,150			6,717,908			6,734,132			6,094,450			6,496,790			6,197,965

Selected Balance Sheet Data:
Total assets	$	1,513,917		$	1,484,646		$	1,513,917		$	1,484,646		$	1,378,779		$	1,491,328		$	1,354,974		$	1,472,358
Securities available-for-sale		226,971			158,561			226,971			158,561			158,733			385,240			246,148			352,854
Total loans		1,087,524			1,147,832			1,087,524			1,147,832			1,035,773			1,011,664			1,012,436			996,285
Allowance for loan losses		(18,569	)		(16,258	)		(18,569	)		(16,258	)		(15,267	)		(15,082	)		(17,547	)		(14,808	)
Total deposits		1,073,053			1,205,177			1,073,053			1,205,177			1,101,442			1,098,528			1,019,960			1,040,826
Other borrowings and FHLB advances		195,247			60,209			195,247			60,209			45,194			148,674			111,593			178,006
Subordinated debentures		61,910			44,781			61,910			44,781			44,858			67,179			44,896			67,111
Total shareholders' equity		168,525			162,724			168,525			162,724			172,029			166,337			165,046			171,776

Performance Ratios:
Return on average assets (annualized)		0.74	%		1.00	%		(0.23	)%		1.00	%		1.13	%		1.06	%		(1.53	)%		0.38	%
Return on average shareholders' equity (annualized)		6.55	%		9.24	%		(2.88	)%		9.48	%		10.10	%		9.11	%		(11.97	)%		3.22	%
Return on average common shareholders' equity ⁽¹⁾		6.63	%		9.41	%		(3.28	)%		9.68	%		10.31	%		9.29	%		(12.81	)%		3.15	%
Equity to assets ratio		11.13	%		10.96	%		11.13	%		10.96	%		12.46	%		11.15	%		12.18	%		11.67	%
Net interest margin		2.54	%		2.92	%		2.63	%		2.93	%		2.93	%		2.95	%		2.74	%		2.68	%
Interest rate spread		2.24	%		2.59	%		2.30	%		2.61	%		2.58	%		2.73	%		2.37	%		2.37	%
Non-interest income to average assets (annualized)		0.92	%		0.78	%		0.86	%		0.76	%		0.92	%		1.00	%		0.80	%		1.19	%
Non-interest expense to average assets (annualized)		2.03	%		2.01	%		3.19	%		1.99	%		2.25	%		2.37	%		4.43	%		2.58	%
Net overhead ratio (annualized) ⁽²⁾		1.11	%		1.23	%		2.32	%		1.22	%		1.33	%		1.36	%		3.64	%		1.40	%
Efficiency ratio ⁽¹⁾		63.83	%		55.38	%		69.32	%		55.65	%		59.92	%		62.79	%		74.92	%		66.09	%
Dividend payout ratio		17.50	%		9.43	%		(35.00	)%		9.35	%		8.47	%		16.13	%		(8.97	)%		39.24	%

Asset Quality Ratios:
Adverse classified asset ratio ⁽¹⁾		41.73	%		53.21	%		41.73	%		53.21	%		39.85	%		39.61	%		32.35	%		39.43	%
Non-performing loans to total loans ⁽³⁾		3.26	%		1.75	%		3.26	%		1.75	%		2.99	%		4.35	%		3.17	%		4.18	%
Allowance for loan losses to:
Total loans		1.71	%		1.42	%		1.71	%		1.42	%		1.47	%		1.49	%		1.73	%		1.49	%
Non-performing loans		52.37	%		80.90	%		52.37	%		80.90	%		49.30	%		34.30	%		54.75	%		35.58	%
Net charge-offs to average loans		0.01	%		0.18	%		0.01	%		0.16	%		0.15	%		0.00	%		(0.01	)%		0.32	%
Non-performing assets to total assets ⁽³⁾		2.52	%		1.94	%		2.52	%		1.94	%		2.65	%		3.00	%		2.61	%		2.90	%

“Efficiency ratio” is defined as non-interest expense, excluding goodwill impairment, historical tax credit investment 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 and non-interest income 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.

	Three Months Ended						Six Months Ended						Year Ended			Three Months Ended						Year Ended
	June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019			December 31, 2019			March 31, 2021			March 31, 2020			December 31, 2020
	(dollars in thousands)															(dollars in thousands)
Efficiency Ratio GAAP to Non-GAAP reconciliation:
Non-interest expense	$	7,465		$	7,446		$	22,482		$	14,751		$	32,684		$	8,764		$	15,018		$	39,645
Less: goodwill impairment		—			—			(5,038	)		—			—			—			(5,038	)		(5,038	)
Less: historical tax credit investment impairment																	—			(1,364	)		—
Less: net loss on sales and write-downs of OREO		—			(259	)		(1,364	)		(123	)		(586	)		(17	)		—			(1,195	)
Adjusted non-interest expense (non-GAAP)	$	7,465		$	7,187		$	16,080		$	14,628		$	32,098		$	8,747		$	8,616		$	33,412

Net interest income	$	8,886		$	10,432		$	17,684		$	20,992		$	40,782		$	10,218		$	8,798		$	36,976
Non-interest income		3,380			2,887			6,083			5,637			13,393			3,712			2,703			14,250
Less: net gain on sales of securities		(570	)		(341	)		(570	)		(341	)		(341	)		—			—			(671	)
Operating revenue	$	11,696		$	12,978		$	23,197		$	26,288		$	53,834		$	13,930		$	11,501		$	50,555
Efficiency ratio		63.83	%		55.38	%		69.32	%		55.65	%		59.62	%		62.79	%		74.92	%		66.09	%

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.

	Three Months Ended						Six Months Ended						Year Ended			Three Months Ended						Year Ended
	June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019			December 31, 2019			March 31, 2021			March 31, 2020			December 31, 2020
Return on Average Common Shareholders' Equity GAAP to Non-GAAP reconciliation:
Return on average shareholders' equity		6.55	%		9.24	%		(2.88	)%		9.48	%		10.10	%		9.11	%		(11.97	)%		3.22	%
Effect of excluding average preferred shareholders' equity		0.08	%		0.17	%		(0.40	)%		0.20	%		0.21	%		0.18	%		(0.84	)%		(0.07	)%
Return on average common shareholders' equity		6.63	%		9.41	%		(3.28	)%		9.68	%		10.31	%		9.29	%		(12.81	)%		3.15	%

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.

	June 30, 2020			June 30, 2019			December 31, 2019			March 31, 2021			March 31, 2020			December 31, 2020
	(dollars in thousands, except per share data)									(dollars in thousands, except per share data)
Tangible book value per share and tangible common equity to tangible assets reconciliation:
Common equity	$	160,525		$	154,724		$	163,763		$	158,338		$	157,046		$	163,776
Less: Goodwill		—			5,038			5,038
Less: Core deposit intangible, net of amortization		125			354			225			29			171			54
Tangible common equity	$	160,400		$	149,332		$	158,500		$	158,309		$	156,875		$	163,722
Common shares outstanding		6,375,150			6,717,908			6,734,132			6,094,450			6,496,790			6,197,965
Tangible book value per share	$	25.16		$	22.23		$	23.54		$	25.98		$	24.15		$	26.42

Total assets	$	1,513,917		$	1,484,646		$	1,378,514		$	1,491,328		$	1,354,974		$	1,472,358
Less: Goodwill		—			5,038			5,038
Less: Core deposit intangible, net of amortization		125			354			225			29			171			54
Tangible assets	$	1,513,792		$	1,479,254		$	1,373,251		$	1,491,299		$	1,354,803		$	1,472,304
Tangible common equity to tangible assets		10.60	%		10.10	%		11.54	%		10.62	%		11.58	%		11.12	%

Adjusted diluted earnings per share is a non-GAAP measure based on GAAP amounts. In our judgment, the adjustments made to diluted earnings per share ~~allows~~allow investors to better assess our income related to core operations by removing the volatility associated with the goodwill impairment, which was a one-time, non-cash expense.

	Three Months Ended						Six Months Ended						Year Ended			Three Months Ended						Year Ended
	June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019			December 31, 2019			March 31, 2021			March 31, 2020			December 31, 2020
	(dollars in thousands, except per share data)															(dollars in thousands, except per share data)
Adjusted diluted earnings per share:
Net income (loss) from continuing operations	$	2,733		$	3,704		$	(2,454	)	$	7,466		$	16,452
Net income from continuing operations																$	3,928		$	(5,188	)	$	5,479
Less: preferred stock dividends		(99	)		(118	)		(207	)		(235	)		(472	)		(81	)		(108	)		(367	)
Plus: goodwill impairment		—			—			5,038			—			—			—			5,038			5,038
Adjusted income available to common shareholders for basic earnings per common share	$	2,634		$	3,586		$	2,377		$	7,231		$	15,980		$	3,847		$	(258	)	$	10,150

Weighted average number of common shares outstanding		6,504,898			6,745,635			6,604,187			6,735,725			6,747,581			6,202,260			6,703,990			6,477,173
Effect of dilutive options		28,511			20,731			39,548			21,170			21,344			34,465			49,072			28,025
Weighted average number of common shares outstanding used to calculate diluted earnings per common share		6,533,409			6,766,366			6,643,735			6,756,895			6,768,925			6,236,725			6,753,062			6,505,198

Adjusted diluted earnings per share	$	0.40		$	0.53		$	0.36		$	1.07		$	2.36		$	0.62		$	(0.04	)	$	1.56

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.

	June 30, 2020			June 30, 2019			December 31, 2019			March 31, 2021			March 31, 2020
	(dollars in thousands, except per share data)									(dollars in thousands, except per share data)
Adverse classified asset ratio:
Substandard loans		88,679			109,489			85,992			88,075			71,694
Other real estate owned		2,629			8,693			5,521			739			3,247
Substandard unused commitments		3,230			1,458			2,849			5,091			2,840
Less: Substandard government guarantees		(6,336	)		(7,821	)		(7,892	)		(8,485	)		(7,699	)
�� Total adverse classified assets (non-GAAP)	$	88,202		$	111,819		$	86,470
Total adverse classified assets (non-GAAP)										$	85,420		$	70,082

Total equity (Bank)	$	201,507		$	196,036		$	204,240		$	202,200		$	204,089
Accumulated other comprehensive loss (gain) on available-for-sale securities		(8,734	)		(2,166	)		(2,505	)
Accumulated other comprehensive gain on available-for-sale securities											(1,651	)		(5,012	)
Allowance for loan losses		18,569			16,258			15,267			15,082			17,547
Adjusted total equity (non-GAAP)	$	211,342		$	210,128		$	217,002		$	215,631		$	216,624
Adverse classified asset ratio		41.73	%		53.21	%		39.85	%		39.61	%		32.35	%

Our operating revenue is comprised of interest income and non-interest income. Net interest income ~~decreased~~increased by ~~14.8%~~16.1% to ~~$8.9~~$10.2 million for the three months ended ~~June 30, 2020~~March 31, 2021 compared to the three months ended ~~June 30, 2019,~~March 31, 2020, primarily attributable to a ~~$78.7 million, or 6.7%,~~92 basis point decrease in ~~average loan balance and an 84~~rates paid on interest bearing deposits that contributed to the decrease in interest expense by $2.3 million. The decrease in cost of funds was coupled with a $1.1 million decrease in interest income on loans which was primarily attributable to a 28 basis point decrease in loan yield ~~between~~on an average balance that was $15.1 million lower than the two periods. The decrease in average loan balance is primarily the result of the $69.4 million increase in average loans sold and serviced, and the decrease in loan yield is primarily the result of the $106.0 million of PPP loans that were closed during the second quarter of 2020 with a 1.0% loan yield, in addition to the overall drop in interest rate environment.comparable quarter.

Interest income decreased $0.4 million to $13.7 million for the ~~second~~first quarter of 2021 compared to $14.1 million for the first quarter of 2020, ~~compared to $17.2 million for the second quarter of 2019,~~ which resulted mainly from a decrease in average loan balance and a decline in loan yields from ~~5.26%~~4.89% for the ~~second~~first quarter of ~~2019~~2020 to ~~4.42%~~4.61% for the ~~second~~first quarter of ~~2020. In addition, average yields on~~2021, which was only partially offset by a net increase of $0.7 million in interest income from investment securities and ~~interest bearing~~interest-bearing deposits due from other banks ~~declined~~ from the first quarter of ~~2019~~2020.

PPP loans contributed $1.0 million in interest and related SBA fee income for the three months ended March 31, 2021. There was no PPP income for the three months ended March 31, 2020. The following table shows the accretive effect the SBA PPP loans had on net interest margin for the three months ended March 31, 2021:

Interest expense decreased from $5.3 million for the first quarter of 2020 ~~by 42~~to $3.5 million for the first quarter of 2021, which was primarily the result of a 79 basis ~~points and 183 basis points, respectively.~~point decrease in the rate paid on interest-bearing liabilities. The ~~decreases~~decline in ~~yields on all interest-earning assets~~average rate was primarily the result of the Federal Reserve’s ~~decreases~~decrease to the 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 ~~in addition~~and our focused efforts to ~~the low yield on PPP loans discussed above.~~

~~Interest expense decreased from $6.8 million for the second quarter of 2019 to $4.8 million for the second quarter of 2020,~~increase customer transactional deposits which ~~was primarily the result of~~have a ~~14.1% decrease in the average balance of interest-bearing deposits and a decrease in rates~~lower rate than time deposits. Rates paid on savings, NOW, money market, and interest checking accounts ~~of 112 basis points. This was partially offset~~decreased from 0.92% for the quarter ended March 31, 2020 to 0.32% for the quarter ended March 31, 2021, and the average balance increased by ~~a five basis point increase in~~$0.1 million between the ~~rate~~two periods. Rates paid on time ~~deposits.~~

~~For the six months ended June 30, 2020, net interest income was $17.7 million, a decrease of $3.3 million, or 15.8%,~~deposits decreased from ~~the six months ended June 30, 2019. Interest income decreased $6.5 million, or 19.1%, to $27.8 million~~2.33% for the ~~first two quarters of~~quarter ended March 31, 2020 ~~compared~~ to ~~$34.3 million~~1.55% for the ~~first two quarters of 2019, primarily due to the $106.0 million of PPP loans that were funded during the second~~ quarter ~~of 2020 with a yield of 1.0%~~ended March 31, 2021, and the ~~repricing of loans in a declining rate environment. In addition, due to~~average balance decreased by $0.2 million between the federal funds rate cuts during the first quarter of 2020, yields on investment securities and interest bearing deposits at other banks declined 30 basis points and 158 basis points, respectively, for the six months ended June 30, 2020 compared to the six months ended June 30, 2019. Interest expense decreased to $10.1 million for the six months ended June 30, 2020 from $13.3 million for the six months ended June 30, 2019. The $3.2 million, or 24.3%, decrease is primarily due to a 33 basis points reduction in the rate paid on interest-bearing deposits, and the 59 basis point reduction in the rate of our FHLB borrowings, which was slightly offset by the 33 basis point increase on the rate paid on our subordinated debt.same periods.

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 that we expect to incur, we expect that our net interest income and net interest margin could ~~continue to~~ decrease in future periods.

The following tables reflect the components of net interest income for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 and ~~2019:~~2020:

	Three Months Ended																Three Months Ended
	June 30, 2020								June 30, 2019								March 31, 2021								March 31, 2020
	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	$	237,082		$	1,445		2.44	%	$	176,237		$	1,259		2.86	%	$	372,235		$	2,187		2.38	%	$	196,353		$	1,289		2.63	%
Loans ⁽²⁾		1,098,327			12,130		4.42	%		1,177,071			15,484		5.26	%
Loans excluding PPP loans⁽²⁾																		969,429			10,479		4.38	%		1,028,637			12,582		4.89	%
PPP loans - round 1 ⁽²⁾																		27,252			961		14.30	%		—			—		—
PPP loans - round 2 ⁽²⁾																		16,857			83		2.01	%		—			—		—
Total loans ⁽²⁾																		1,013,538			11,523		4.61	%		1,028,637			12,582		4.89	%
Interest bearing deposits due from other banks		64,142			111		0.69	%		73,769			465		2.52	%		19,949			5		0.10	%		60,825			225		1.48	%
Total interest-earning assets	$	1,399,551		$	13,686		3.91	%	$	1,427,077		$	17,208		4.82	%	$	1,405,722		$	13,715		3.96	%	$	1,285,815		$	14,096		4.39	%

Allowance for loan losses		(17,844	)							(17,782	)							(14,932	)							(15,330	)
Other assets		85,716								76,806								90,109								84,461
Total assets	$	1,467,423							$	1,486,101							$	1,480,899							$	1,354,946

Liabilities
Savings, NOW, money market, interest checking	$	379,991		$	525		0.55	%	$	315,940		$	1,316		1.67	%	$	477,159		$	380		0.32	%	$	334,740		$	774		0.92	%
Time deposits		553,616			3,196		2.31	%		770,554			4,362		2.26	%		442,626			1,690		1.55	%		613,753			3,574		2.33	%
Total interest-bearing deposits	$	933,607		$	3,721		1.59	%	$	1,086,494		$	5,678		2.09	%	$	919,785		$	2,070		0.91	%	$	948,493		$	4,348		1.83	%
Other borrowings		66,910			15		0.09	%		1,204			13		4.47	%		51,220			48		0.38	%		1,259			11		3.49	%
FHLB advances		103,916			328		1.26	%		78,653			402		2.04	%		116,311			273		0.95	%		56,708			233		1.65	%
Junior subordinated debentures		45,090			736		6.52	%		44,762			683		6.10	%		67,123			1,106		6.68	%		44,871			706		6.29	%
Total interest-bearing liabilities	$	1,149,523		$	4,800		1.67	%	$	1,211,113		$	6,776		2.24	%	$	1,154,439		$	3,497		1.23	%	$	1,051,331		$	5,298		2.02	%

Non-interest bearing deposits		134,271								102,432
Non-interest-bearing deposits																		138,814								113,351
Other liabilities		16,749								12,154								15,190								16,877
Total liabilities	$	1,300,543							$	1,325,699							$	1,308,443							$	1,181,559

Shareholders' equity		166,880								160,402								172,456								173,387
Total liabilities and equity	$	1,467,423							$	1,486,101							$	1,480,899							$	1,354,946

Net interest income				$	8,886							$	10,432							$	10,218							$	8,798
Interest rate spread ⁽³⁾							2.24	%							2.58	%							2.73	%							2.37	%
Net interest margin ⁽⁴⁾							2.54	%							2.92	%							2.95	%							2.74	%
Ratio of interest-earning assets to interest-bearing liabilities		1.22								1.18								1.22								1.22

Six Months Ended

June 30, 2020

June 30, 2019

Average
Balance⁽¹⁾

Income/
Expense

Yields/
Rates

Average
Balance⁽¹⁾

Income/
Expense

Yields/
Rates

(dollars in thousands)

Assets

Investment securities

$
216,718

$
2,733

2.52
%

$
186,076

$
2,620

2.82
%
Loans ⁽²⁾

1,063,482

24,712

4.65
%

1,192,073

30,985

5.20
%
Interest bearing deposits due from other banks

62,483

336

1.08
%

55,102

729

2.65
%
Total interest-earning assets

$
1,342,683

$
27,781

4.14
%

$
1,433,251

$
34,334

4.79
%

Allowance for loan losses

(16,593
)

(17,396
)

Other assets

85,092

76,613

Total assets

$
1,411,182

$
1,492,468

Liabilities

Savings, NOW, money market, interest checking

$
357,599

$
1,299

0.73
%

$
307,903

$
2,500

1.62
%
Time deposits

583,451

6,769

2.32
%

781,672

8,602

2.20
%
Total interest-bearing deposits

$
941,050

$
8,068

1.71
%

$
1,089,575

$
11,102

2.04
%
Other borrowings

34,084

25

0.15
%

1,025

25

4.80
%
FHLB advances

80,312

562

1.40
%

85,737

854

1.99
%
Junior subordinated debentures

44,981

1,442

6.42
%

44,742

1,361

6.09
%
Total interest-bearing liabilities

$
1,100,427

$
10,097

1.84
%

$
1,221,079

$
13,342

2.19
%

Non-interest bearing deposits

123,811

102,050

Other liabilities

16,813

11,797

Total liabilities

$
1,241,051

$
1,334,926

Shareholders' equity

170,131

157,542

Total liabilities and equity

$
1,411,182

$
1,492,468

Net interest income

$
17,684

$
20,992

Interest rate spread ⁽³⁾

2.30
%

2.60
%
Net interest margin ⁽⁴⁾

2.63
%

2.93
%
Ratio of interest-earning assets to interest -bearing
liabilities

1.22

1.17

The following ~~tables present~~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 between the changes due to rate and the changes due to volume.

	Three Months Ended June 30, 2020 v. 2019									Three Months Ended March 31, 2021 v. 2020
	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	$	(138	)	$	323		$	185		$	(105	)	$	1,003		$	898
Loans		(2,366	)		(987	)		(3,353	)
Loans (excluding PPP)											(1,351	)		(752	)		(2,103	)
PPP loans - round 1											1,639			(678	)		961
PPP loans - round 2											(1,130	)		1,213			83
Total loans											(842	)		(217	)		(1,059	)
Federal funds sold and interest-bearing deposits with banks		(299	)		(54	)		(353	)		(128	)		(92	)		(220	)
Total interest income		(2,803	)		(718	)		(3,521	)		(1,075	)		694			(381	)
Interest Expense:
Savings, NOW, money market and interest checking		(1,135	)		344			(791	)		(1,144	)		750			(394	)
Time deposits		88			(1,254	)		(1,166	)		(1,030	)		(854	)		(1,884	)
Other borrowings		—			2			2			(1	)		38			37
FHLB advances		(466	)		392			(74	)		(28	)		68			40
Junior subordinated debentures		48			6			54			45			355			400
Total interest expense		(1,465	)		(510	)		(1,975	)		(2,158	)		357			(1,801	)
Net interest income	$	(1,338	)	$	(208	)	$	(1,546	)	$	1,083		$	337		$	1,420

	Six Months Ended June 30, 2020 v. 2019
	Increase (Decrease) Due to Change in Average
	Rate			Volume			Net
	(dollars in thousands)
Interest Income:
Investment securities	$	(196	)	$	309		$	113
Loans		(3,109	)		(3,164	)		(6,273	)
Federal funds sold and interest-bearing deposits with banks		(508	)		114			(394	)
Total interest income		(3,813	)		(2,741	)		(6,554	)
Interest Expense:
Savings, NOW, money market and interest checking		(1,697	)		496			(1,201	)
Time deposits		500			(2,332	)		(1,832	)
Other borrowings		—			—			—
FHLB advances		(242	)		(51	)		(293	)
Junior subordinated debentures		74			7			81
Total interest expense		(1,365	)		(1,880	)		(3,245	)
Net interest income	$	(2,448	)	$	(861	)	$	(3,309	)

Based on our analysis of the components of the allowance for loan losses, management recorded a provision expense for loan losses of ~~$1.1~~$0.2 million for the three months ended ~~June 30, 2020~~March 31, 2021, compared to ~~of $0.8~~$2.2 million for the three months ended ~~June 30, 2019.~~March 31, 2020. The ~~increase~~decrease in provision was primarily the result of a ~~$15.4~~$2.0 million ~~increase in substandard impaired loans, which was offset by a $36.3 million improvement in substandard performing loans, primarily~~qualitative factor for industries that were deemed to ~~a watch rating.~~

For the six months ended June 30, 2020, the provision for loan losses was $3.4 million compared to $1.6 million for the six months ended June 30, 2019. The $1.7 million increase in provision expense wasbe high-risk due to the ~~additional~~COVID-19 pandemic for the three months ended March 31, 2020, and the economic uncertainty at that time. As of March 31, 2021, only $0.5 million of this qualitative factor ~~of $2.0 million related to customers that are at a higher risk of being impacted by the COVID-19 pandemic.~~remained.

The specific reserve related to impaired loans was ~~$7.5~~$4.6 million at ~~June 30, 2020,~~March 31, 2021, which was an increase of ~~$1.9~~$0.4 million, or ~~34.6%~~8.4%, from December 31, ~~2019. Substandard impaired loans increased $4.7 million, or 13.0%, from $36.2 million at December 31, 2019 to $40.9 million at June 30, 2020. The increased specific reserve~~2020, which was the result of ~~one commercial customer~~an additional impairment on an agricultural relationship that was ~~downgraded~~already impaired. During the first quarter of 2021, watch and worse rated loans decreased by $25.5 million, or 9.3%, compared to December 31, 2020, primarily as itthe result of eight dairy customers upgraded to a low satisfactory rating. This improvement in asset quality is ~~affected by the COVID-19 pandemic. Four agricultural customers were downgraded~~expected to ~~substandard impaired, but these loans had sufficient collateral so that no specific reserve was required. The Chicago Mercantile Exchange Class III futures milk price began to rebound during~~continue in the second quarter of ~~2020 from~~2021 as we complete the ~~$12 to $13 cwt range to $16 to $21 cwt range~~annual review process.

As of March 31, 2021, there were five customer relationships with loans in payment deferral associated with COVID-19 customer support programs totaling $6.1 million, or 0.6% of total loans, which is a decrease of $16.8 million, or 63.5%, since December 31, 2020

Other than the qualitative factor for ~~June and the remainder of 2020. We are optimistic that milk prices at this level for a sustained period of time will help our agricultural customers recover from the effects of the~~ COVID-19 ~~pandemic.~~

~~There~~discussed above, 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, ~~2019 other than the qualitative factor for COVID-19 discussed above.~~2020. 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 $~~18.6~~15.1 million, or ~~1.71%~~1.49% of total loans, was appropriate as of ~~June 30, 2020.~~March 31, 2021. This is compared to an allowance for loan losses of ~~$16.3~~$17.5 million, or ~~1.42%~~1.73% of total loans, at ~~June 30, 2019,~~March 31, 2020, and ~~$15.3~~$14.8 million, or ~~1.47%~~1.49% of total loans, at December 31, ~~2019.~~2020.

Non-interest income for the three months ended ~~June 30, 2020~~March 31, 2021 increased by ~~17.1%~~36.5% to ~~$3.4~~$3.7 million from ~~$2.9~~$2.7 million for the three months ended ~~June 30, 2019.~~March 31, 2020. The ~~$0.5~~$1.0 million increase was primarily the result of ~~a $0.4~~$0.3 million ~~increase~~and $0.2 million increases in loan servicing fees and net loan servicing right income, respectively, which ~~resulted from~~was the ~~$69.4~~result of $94.3 million ~~increase in average~~additional loans

serviced ~~between the two periods. In addition, during~~for the three months ended ~~June 30, 2020, the Company sold $27.8 million of securities resulting in a gain of $0.6 million~~March 31, 2021 compared to the ~~gain of~~same period in the previous year. In addition, referral fee income increased $0.3 million ~~on $29.4 million of securities sold during~~for the three months ended ~~June 30, 2019.~~

~~For~~March 31, 2021 compared to the ~~six~~three months ended June 30, 2020, non-interest income increased $0.5 million, or 7.9%, to $6.1 million from $5.6 million for the six months ended June 30, 2019, primarily as a result of an increase of $0.6 million in loan servicing fees from the previously discussed increase in average loans serviced.March 31, 2020.

The following table reflects the components of non-interest income for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 and ~~2019:~~2020:

	Three Months Ended				Six Months Ended				Three Months Ended
	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019		March 31, 2021			March 31, 2020
	(dollars in thousands)								(dollars in thousands)
Service charges	$	368	$	407	$	710	$	760	$	119		$	113
Gain on sale of loans, net		4		26		42		25
Crop insurance commission										301			229
Gain on sale of residential loans										93			38
Gain on sale of service-retained loans										1,587			505
Total gain on sale of loans										1,680			543
Loan servicing fees		1,923		1,563		3,754		3,082		2,158			1,830
Loan servicing rights recognized from transfers of financial assets		274		346		564		574
Income on other real estate owned		3		40		3		66
Gain on sale of securities		570		341		570		341
Decay due to increases in principal paydowns or runoff										(271	)		(265	)
Changes in valuation inputs or assumptions										(848	)		50
Total loan servicing fees, net										1,039			1,615
Referral fees										319			17
Other		238		164		440		789		254			186
Total non-interest income	$	3,380	$	2,887	$	6,083	$	5,637	$	3,712		$	2,703

Non-interest expense ~~increased 0.3%~~ for the three months ended ~~June 30, 2020~~March 31, 2021 decreased $6.3 million, or 41.6%, to ~~$7.5~~$8.8 million compared to ~~$7.4~~the three months ended March 31, 2020, primarily due to the $5.0 million goodwill impairment and a $1.4 million OREO writedown that took place the first quarter of 2020. Small increases in employee compensation and benefits and professional fees for the three months ended ~~June 30, 2019. The $0.4 million increase in employee compensation and benefits related to a 7.1% increase in headcount and was partially~~March 31, 2021 were offset by ~~the one-time~~decreases in occupancy, OREO, and other ~~real estate owned writedown that took place during the second quarter of 2019.~~non-interest expenses.

For the six months ended June 30, 2020, non-interest expense increased by $7.7 million, or 52.4%, to $22.5 million from $14.8 million for the six months ended June 30, 2019. In addition to the items noted above, the year-over-year increase is primarily the result of a $5.0 million goodwill impairment during the first quarter of 2020 due to the anticipated reduction in future earnings and a decrease in the trading multiples of the Company’s stock in relation to COVID-19. In addition, in the first quarter of 2020 there was a $1.4 million write-down of a retail shopping center that is in other real estate owned and a $0.3 million loss recognized on the sale-leaseback of our Manitowoc branch. These increases in non-interest expense were partially offset by reduced travel and education expenses as the result of the COVID-19 pandemic.

The following table reflects the components of our non-interest expense for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 and ~~2019:~~2020:

	Three Months Ended				Six Months Ended					Three Months Ended
	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019			March 31, 2021		March 31, 2020
	(dollars in thousands)									(dollars in thousands)
Employee compensation and benefits	$	4,594	$	4,199	$	9,854	$	8,681		$	5,582	$	5,260
Occupancy		305		283		659		672			279		354
Information processing		663		591		1,333		1,154			661		670
Professional fees		480		417		881		816			802		401
Business development		333		347		699		672			307		366
Other real estate owned expenses		44		121		160		172			23		116
Write-down of other real estate owned		—		250		1,360		250			—		1,360
Net loss (gain) on other real estate owned		—		9		4		(127	)
Net loss on other real estate owned											17		4
Depreciation and amortization		303		328		603		665			257		301
Goodwill impairment		—		—		5,038		—			—		5,038
Other		743		901		1,891		1,796			836		1,148
Total non-interest expense	$	7,465	$	7,446	$	22,482	$	14,751		$	8,764	$	15,018

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 ~~2016.~~2017.

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, 2021 and 2020, ~~and 2019,~~ was ~~$0.9~~$1.0 million and ~~$1.3~~$(0.5) million, respectively, which represents an effective tax rate of ~~25.3%~~20.2% and ~~25.9%, respectively. Income tax expense for the six months ended June 30, 2020 and 2019, was $0.4 million and $2.8 million, respectively, which represents an effective tax rate of 18.3% and 27.2%~~9.5%, respectively. The ~~decrease~~increase in the effective tax rate for the ~~2020 periods~~2021 period compared to the ~~2019 periods~~2020 period was primarily the result of the non-deductible goodwill impairment that took place during the first quarter of 2020.

Total assets increased ~~$135.1~~$19.0 million, or ~~9.8%~~1.3%, from December 31, ~~2019~~2020 to $1.5 billion at ~~June 30, 2020.~~March 31, 2021. Total loans increased by ~~$51.8~~$15.4 million, or ~~5.0%~~1.5%, since December 31, ~~2019~~2020, primarily as the result of the ~~$106.0~~$32.6 million of second round PPP loans that were funded in the

~~second~~ first quarter of ~~2020,~~2021 which were partially offset by the forgiveness from the SBA of $24.1 million of first round PPP loans during the same period. In addition, commercial real estate loans increased $8.8 million as of March 31, 2021, which were partially offset by normal ~~pay-downs, an increase of $9.7 million in loans held for sale, and $10.3 million increase in loans sold on the secondary market.~~pay-downs.

Total liabilities increased ~~$138.6~~$24.4 million, or ~~11.5%~~1.9%, from December 31, ~~2019~~2020 to $1.3 billion at ~~June 30, 2020.~~March 31, 2021. This increase was primarily ~~attributed~~attributable to ~~$99.7~~a $60.5 million increase in wholesale deposits that was used to purchase securities as part of our long-term leverage strategy and to paydown FHLB borrowings. We funded the second round of PPP loans discussed above with advances received through the Federal Reserve Bank’s Paycheck Protection Program Liquidity Facility (“PPPLF”) ~~to fund PPP loans.~~. PPPLF borrowings bear an interest rate of 0.35%. ~~In addition, during~~The balance of the PPPLF was $47.3 million at March 31, 2021, compared to $47.5 million at December 31, 2020 due to payments made against the facility when forgiveness was received from the SBA for the first ~~six months~~round of 2020, the Company increased its FHLB borrowings by $49.0 million, or 11.5%, to take advantage of the low interest rates on FHLB borrowings as a result of the Federal Reserve’s decreases in the target federal funds interest rate. The FHLB borrowings bear an average interest rate of 0.89%. 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. The increases in PPPLF and FHLB borrowings were offset by an intentional decrease in brokered and national deposits of $86.3 million during the first two quarters of 2020.

Also during the second quarter of 2020, the Company entered into Subordinated Note Purchase Agreements and sold and issued $17.4 million in aggregate principal amount of its 7.0% fixed-to-floating rate subordinated notes that are due June 30, 2030. Management believes this capital raise provided additional capital to allow the Company to be take advantage of future market opportunities for its customers and communities. On July 21, 2020, the Company sold an additional $5.0 million of notes with similar terms.PPP loans.

Shareholders’ equity decreased ~~$3.5~~$5.5 million, or ~~2.0%~~3.2%, to ~~$168.5~~$166.3 million at ~~June 30, 2020~~March 31, 2021 from ~~$172.0~~$171.8 million at December 31, ~~2019.~~2020. This decrease was due primarily to $6.4 million of unrealized losses in our securities portfolio during the ~~net loss for the six months ended June 30, 2020~~first quarter of ~~$2.5 million and a $0.9 million tax-effected decrease in the fair market value of derivatives~~2021, which was partially offset by ~~a $6.2~~net income for the three months ended March 31, 2021 of $3.9 million. In addition, the Company repurchased 117,020 shares of its common stock, totaling $2.5 million, ~~tax-effected increase to~~during the ~~fair market value of the investment portfolio to increase accumulated other comprehensive income.~~three months ended March 31, 2021. Total shareholders’ equity was also reduced by ~~$8.4 million in purchases of the Company’s stock and~~ the payment of ~~$1.1~~$0.7 million of dividends on common and preferred stock during the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021.

Net loans increased by ~~$48.4~~$15.1 million, or ~~4.7%~~1.5%, to ~~$1.1~~$1.0 billion at ~~June 30, 2020~~March 31, 2021 from December 31, ~~2019.~~2020. This increase was primarily as the result of ~~the $106.0~~$32.6 million of second round PPP loans that were funded in the ~~second~~first quarter of ~~2020,~~2021, which were partially offset by the forgiveness from the SBA of $24.1 million of first round PPP loans during the same period. In addition, commercial real estate loans increased $8.8 million as of March 31, 2021, which were partially offset by normal ~~pay-downs and an increase of $9.7 million in loans held for sale and a $10.3 million increase in loans sold on the secondary market.~~pay-downs.

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

	June 30, 2020						December 31, 2019						March 31, 2021						December 31, 2020
	Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent
	(dollars in thousands)												(dollars in thousands)
Agriculture loans	$	624,339			57.4	%	$	659,725			63.7	%	$	609,482			60.2	%	$	606,881			60.9	%
Commercial real estate loans		247,149			22.7	%		235,936			22.8	%		244,791			24.2	%		235,969			23.7	%
Commercial loans		81,220			7.5	%		95,787			9.3	%		72,834			7.2	%		77,297			7.8	%
Paycheck Protection Plan loans		103,317			9.5	%		—			0.0	%
PPP loans														46,249			4.6	%		37,790			3.8	%
Residential real estate loans		31,414			2.9	%		43,958			4.2	%		38,063			3.8	%		38,084			3.8	%
Installment and consumer other		85			0.0	%		367			0.0	%		245			0.0	%		264			0.0	%
Total gross loans	$	1,087,524			100.0	%	$	1,035,773			100.0	%	$	1,011,664			100.0	%	$	996,285			100.0	%
Allowance for loan losses		(18,569	)					(15,267	)					(15,082	)					(14,808	)
Loans, net	$	1,068,955					$	1,020,506					$	996,582					$	981,477

The following table sets forth the composition of PPP loans in 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~~past loan ~~charge-offs for~~loss experience, the ~~various portfolio segments evaluated, the level~~nature of the ~~allowance in relation to total loans~~portfolio, economic conditions, information about specific borrower situations, 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.estimated collateral values. 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. ~~14.2%~~12.1% of our substandard loans are partially guaranteed by the U.S. Farm Services Agency (“FSA”) or the SBA. The amount of the guarantee can range from 80% to 95% of unpaid principal for FSA guaranteed loans and 50% to 100% for SBA guaranteed loans.

At ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the allowance for loan losses was ~~$18.6~~$15.1 million and ~~$15.3~~$14.8 million, respectively, which resulted in a ratio of the allowance to total loans of ~~1.71% and 1.47%, respectively.~~ ~~The overall increase in the allowance~~1.49% for loan losses as a percentage of total loans was primarily the result of the provision expense related to the additional qualitative factor of $2.0 million related to customers that are at a higher risk of being impacted by the COVID-19 pandemic. each period.

Charge-offs and recoveries by loan category for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ were as follows:

	Three Months Ended						Six Months Ended						Three Months Ended
	June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019			March 31, 2021			March 31, 2020
	(dollars in thousands)												(dollars in thousands)
Balance, beginning of period	$	17,547		$	17,493		$	15,267		$	16,505		$	14,808		$	15,267
Loans charged off:
Agriculture loans		—			—			—			—			—			—
Commercial real estate loans		—			2,234			—			2,624			—			—
Commercial loans		144			960			144			960			—			—
Residential real estate loans		—			—			—			—			—			—
Installment and consumer other		—			—			—			—			—			—
Total loans charged off	$	144		$	3,194		$	144		$	3,584		$	—		$	—
Recoveries:
Agriculture loans		23			15			23			15			—			—
Commercial real estate loans		1			967			62			1,592			1			61
Commercial loans		—			101			1			102			31			1
Residential real estate loans		—			—			—			—			—			—
Installment and consumer other		—			—			—			—			—			—
Total recoveries		24			1,083			86			1,709			32			62
Net loans charged off	$	120		$	2,111		$	58		$	1,875
Net loans recovered													$	(32	)	$	(62	)
Provision for loan losses		1,142			876			3,360			1,628			242			2,218
Allowance for loan losses, end of period	$	18,569		$	16,258		$	18,569		$	16,258		$	15,082		$	17,547

Selected loan quality ratios:
Net charge offs to average loans		0.01	%		0.18	%		0.01	%		0.16	%		0.00	%		(0.01	)%
Allowance for loan losses to total loans (end of period)		1.71	%		1.42	%		1.71	%		1.42	%		1.49	%		1.73	%
Allowance for loan losses to non-performing loans and performing troubled debt restructurings (end of period)		32.32	%		28.19	%		32.32	%		28.19	%		26.24	%		30.70	%

As provided in the interagency statement, the Company has been working with its borrowers impacted by COVID-19. As of ~~July~~March 31, ~~2020 we have processed 184 customer payment modification requests for customers who had loan balances of $200.7 million. We anticipate receiving additional requests for~~2021, loans with COVID-19 payment modifications ~~from our customers and~~were $6.1 million, or 0.6% of total loans. We will continue to evaluate the impacts of these payment modification requests on our allowance for loan losses.

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~~increasing 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~~Loan servicing rights 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.

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.~~discounted cash flow model. The ~~valuation~~discounted cash flow model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, ancillary income, and run-off rates. These variables change from quarter-to-quarter as market conditions and projected interest rates change and may have an adverse impact on the ~~custodial earnings rate, prepayment speeds and default rates and losses. See Note 1–Basis of Presentation~~ value of the ~~consolidated financial statements for additional information regarding the change~~servicing right and may result in ~~accounting principle.~~a reduction to non-interest income.

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, ~~U.S. treasury~~asset-backed securities, and ~~asset-backed securities.~~corporate bonds. 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 increased to ~~$227.0~~$385.2 million at ~~June 30, 2020~~March 31, 2021 from ~~$158.7~~$352.9 million at December 31, ~~2019,~~2020, in an effort to deploy excess cash and mitigate interest rate risk. During the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, we recognized unrealized holding ~~gains~~losses of ~~$9.1~~$9.7 million before income taxes through other comprehensive income.

During the six months ended June 30, 2020, $27.8 million of municipal securities were sold resulting in a pre-tax gain of $0.6 million. For 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.

The following table sets forth the amortized cost and fair values of our securities portfolio at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:

	June 30, 2020				December 31, 2019				March 31, 2021				December 31, 2020
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(dollars in thousands)								(dollars in thousands)
Securities available-for-sale:
U.S. government and agency securities	$	15,817	$	15,603	$	3,490	$	3,458		13,453		13,315		14,745		14,593
U.S. treasury securities		—		—		2,499		2,506
Asset-backed securities		17,082		16,566		—		—
Municipal securities		48,460		51,640		—		—		162,639		160,096		149,203		153,654
Mortgage-backed securities		133,608		143,162		149,302		152,769		148,422		153,400		127,804		135,378
Corporate bonds										42,000		41,813		32,500		32,511
Asset-backed securities										16,456		16,616		16,664		16,718
Total securities available-for-sale	$	214,967	$	226,971	$	155,291	$	158,733	$	382,970	$	385,240	$	340,916	$	352,854

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 $28.4~~Total deposits increased $57.7 million, or ~~2.6%~~5.5%, from December 31, ~~2019~~2020 to $1.1 billion at ~~June 30, 2020,~~March 31, 2021, due primarily to a ~~$86.3~~$60.5 million ~~decrease~~increase in ~~brokered~~wholesale deposits ~~and national time deposits, which~~in order to facilitate investment purchases. The increase in wholesale funding was partially offset by a ~~$57.9~~$2.8 million ~~increase~~decrease in client deposits (demand, NOW accounts and interest checking, savings, money market accounts, and certificates of ~~deposit which was primarily driven by customers who participated~~deposit). This decrease in ~~the SBA PPP program but had not deployed their funds at June 30, 2020.~~

~~The Company’s overall strategic focus 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 half of 2020 and borrowed an additional $49.0 million from the FHLB at an average rate of 0.89%. In addition, the Company funded $99.7 million of PPP loans with funds from the PPPLF at a rate of 0.35%. These borrowings help reduce interest rate risk and lower the cost of funds. Brokered deposits and national certificates of deposit at June 30, 2020 were $179.5 million, which was ~~a decrease of $86.3 million, or 32.5%, from December 31, 2019, and a decrease of $226.5 million, or 55.8%, from June 30, 2019.~~ expected due to seasonal attrition.

As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the distribution by type of deposit account was as follows:

	June 30, 2020					December 31, 2019					March 31, 2021					December 31, 2020
	Amount		% of Deposits			Amount		% of Deposits			Amount		% of Deposits			Amount		% of Deposits
	(dollars in thousands)										(dollars in thousands)
Demand, noninterest-bearing	$	149,963		14.0	%	$	138,489		12.5	%	$	139,838		12.7	%	$	163,202		15.6	%
NOW accounts and interest checking		81,656		7.6	%		67,805		6.2	%		95,591		8.7	%		96,624		9.3	%
Savings		8,369		0.8	%		6,395		0.6	%		8,430		0.8	%		7,367		0.7	%
Money market accounts		307,083		28.6	%		247,828		22.5	%		390,742		35.5	%		344,250		33.1	%
Certificates of deposit		346,482		32.3	%		375,100		34.1	%		278,591		25.4	%		304,580		29.3	%
Brokered deposits		57,997		5.4	%		166,340		15.1	%		26,302		2.4	%		44,347		4.3	%
National time deposits		121,503		11.3	%		99,485		9.0	%		159,034		14.5	%		80,456		7.7	%
Total deposits	$	1,073,053		100.0	%	$	1,101,442		100.0	%	$	1,098,528		100.0	%	$	1,040,826		100.0	%

As of ~~June 30, 2020,~~March 31, 2021, 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 of ~~$1.3~~$1.2 million and ~~$1.1~~$1.9 million was recognized ~~in accumulated other comprehensive income during the six months ended June 30,~~at March 31, 2021 and December 31, 2020, ~~and 2019,~~ 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, 2020,~~March 31, 2021, advances from the FHLB were ~~$93.4~~$100.0 million compared to ~~$44.4~~$129.0 million at December 31, ~~2019.~~2020. At ~~June 30, 2020,~~March 31, 2021, there were advances from the Federal Reserve Bank’s PPPLF program totaling ~~$99.7 million. There were no borrowings outstanding~~$47.3 million compared to $47.5 million at ~~the Federal Reserve Bank of Chicago on~~ December 31, 2019. The Company also has a credit agreement with U.S. Bank National Association for a $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, 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.

On June 30, 2020, the Company entered into a subordinated note purchase agreement to sell and issue $17.4 million of notes to certain institutional and individual accredited investors. The notes carry a fixed interest rate of 7.0% until June 30, 2025, and have a stated maturity of June 30, 2030. As of June 30, 2025, the notes are redeemable in whole or in part, and will bear an interest rate of 3-month SOFR plus 687.5 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. On July 21, 2020, the Company sold an additional $5.0 million of notes with similar terms.

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 ~~($5.3)~~$33.4 million and ~~$4.9~~($12.6) million for the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively. Net cash ~~provided by (used in)~~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 ~~($125.6)~~$60.3 million and ~~$99.3~~$73.6 million for the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively. Net cash provided by (used in) financing activities, consisting primarily of the activity in deposit accounts and FHLB advances, was ~~$129.3~~$25.2 million and ($~~49.0)~~21.3) million for the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively.

During the first half 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 $49.0 million with maturities ranging from two to three years. As of ~~June 30, 2020,~~March 31, 2021, the Bank had ~~$33.8~~$35.8 million and ~~$83.3~~$82.0 million in borrowing capacity with the FHLB and the Federal Reserve Bank of Chicago, respectively, to mitigate any liquidity needs. The Bank also had ~~$182.2~~$329.2 million in unpledged securities available for sale available for liquidity needs.

At ~~June 30, 2020,~~March 31, 2021, the Bank exceeded all of its regulatory capital requirements, with Tier 1 leverage capital of ~~$192.8~~$200.5 million, or 13.88% of adjusted average total assets, which is above the minimum level to be well-capitalized of ~~$69.4~~$72.2 million, or 5.0% of adjusted average total assets, and total risk-based capital of ~~$207.3~~$215.6 million, or ~~17.88%~~16.68% of risk-weighted assets, which is above the minimum level to be well-capitalized of ~~$116.0~~$129.3 million, or ~~10.0%~~10.5% of risk-weighted assets. In addition, the Company issued ~~$17.4~~$22.4 million of subordinated debt during ~~the second quarter of~~ 2020 that qualifies as Tier II2 capital that is available to support the Bank.

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, 2020,~~March 31, 2021, there were ~~$104.4~~$111.5 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, 2020.~~March 31, 2021.

At March 31, 2021, the holding company exceeded all of its regulatory capital requirements, with Tier 1 leverage capital of $181.2 million, or 12.69% of adjusted average assets, which is above the minimum level for capital adequacy of $57.1 million, or 4.0% of adjusted average assets, and total risk-based capital of $247.8 million, or 19.11% of risk-weighted assets, which is above the minimum level for capital adequacy of $136.2 million, or 10.0% of risk-weighted assets.

During the fourth quarter of 2020, the Company began construction on a new branch in Appleton, Wisconsin with an estimated completion of the fourth quarter of 2021. The remaining contractual obligation related to the construction was $4.8 million at March 31, 2021.

As of ~~June 30, 2020,~~March 31, 2021, there were no 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, ~~2019,~~2020, filed with the SEC on March ~~13, 2020.~~12, 2021. 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, 2020~~March 31, 2021 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.

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	$	48,300		34.92	%	$	47,100		33.05	%	$	46,700		17.34	%	$	43,500		16.00	%
+200 bps		42,100		17.60	%		41,700		17.80	%		43,300		8.79	%		41,200		9.87	%
+100 bps		38,800		8.38	%		38,700		9.32	%		41,400		4.02	%		39,500		5.33	%
Base		35,800		0.00	%		35,400		0.00	%		39,800		0.00	%		37,500		0.00	%
-100 bps		35,500		-0.84	%		34,500		-2.54	%		38,300		-3.77	%		36,500		-2.67	%
-200 bps		34,500		-3.63	%		33,700		-4.80	%		37,500		-5.78	%		35,800		-4.53	%

As of ~~June 30, 2020,~~March 31, 2021, 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~~one- and ~~two year~~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~~President 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, 2020.~~March 31, 2021. Based on such evaluation, our ~~Chief Executive Officer~~President and Chief Financial Officer have concluded that, as of ~~June 30, 2020,~~March 31, 2021, our disclosure controls and procedures 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, 2020~~March 31, 2021 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.

~~In addition~~There were no material changes to the risk factors set forth ~~under Part I, Item 1A~~in “Risk Factors” in ~~the Company’s~~Item 1A of Part I of our Annual Report on Form 10-K for the ~~fiscal~~ year ended December 31, ~~2019, the following risk factor applies to the Company:~~2020.

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 have seen 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 have experienced 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 were quarantined or under stay-at-home orders, and COVID-19 may also have an adverse effect on our commercial real estate loan portfolio. The imposition of additional quarantine or stay-at-home orders or a slowdown in the recovery of the economy 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 during the quarter ended ~~June 30, 2020.~~March 31, 2021.

The following table sets forth information regarding the Company’s repurchase of shares of its outstanding common stock during the ~~second~~first quarter of ~~2020.~~2021.

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)

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

		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	3027
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4843
Item 4.	Controls and Procedures	4945
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	5146
Item 1A.	Risk Factors	5146
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5246
Item 3.	Defaults Upon Senior Securities	5246
Item 4.	Mine Safety Disclosures	5246
Item 5.	Other Information	5246
Item 6.	Exhibits	5347
Signatures		5448

	For the Three Months Ended March 31,
	2021			2020
	(dollars in thousands)
Net income (loss)	$	3,928		$	(5,188	)
Other comprehensive income:
Unrealized gain (loss) on securities available-for-sale		(9,668	)		3,447
Income tax benefit (expense)		2,633			(939	)
Total other comprehensive income (loss) on securities available-for-sale		(7,035	)		2,508
Unrealized gain (loss) on derivatives arising during the period		738			(1,194	)
Income tax benefit (expense)		(201	)		325
Total other comprehensive income (loss) on derivatives		537			(869	)
Total other comprehensive income (loss)		(6,498	)		1,639
Comprehensive loss	$	(2,570	)	$	(3,549	)

	For the Three Months Ended			For the Six Months Ended
	June 30, 2019			June 30, 2019
	(dollars in thousands)
Balance, beginning of period	$	9,275		$	9,047
Additions related to new loans		1,320			1,941
Impairment due to prepayment		(190	)		(263	)
Amortization of existing asset		(1,014	)		(1,334	)
Reduction of valuation allowance		230			230
Balance, June 30, 2019	$	9,621		$	9,621

	Agricultural			Commercial Real Estate			Commercial			Residential Real Estate			Installment and Consumer Other			Total
	(dollars in thousands)
For the Three Months Ended June 30, 2020
Balance, beginning of period	$	12,685		$	2,577		$	2,173		$	112		$	—		$	17,547
Provision for loan losses		(38	)		1,281			(75	)		(27	)		1			1,142
Loans charged off		—			—			(144	)		—			—			(144	)
Recoveries		23			1			—			—			—			24
Balance, end of period	$	12,670		$	3,859		$	1,954		$	85		$	1		$	18,569

For the Six Months Ended June 30, 2020
Balance, beginning of year	$	11,737		$	1,913		$	1,599		$	15		$	3		$	15,267
Provision for loan losses		910			1,884			498			70			(2	)		3,360
Loans charged off		—			—			(144	)		—			—			(144	)
Recoveries		23			62			1			—			—			86
Balance, end of period	$	12,670		$	3,859		$	1,954		$	85		$	1		$	18,569

For the Three Months Ended June 30, 2019
Balance, beginning of period	$	12,123		$	4,152		$	1,201		$	16		$	1		$	17,493
Provision for loan losses		1,509			(1,003	)		367			3			—			876
Loans charged off		—			(2,234	)		(960	)		—			—			(3,194	)
Recoveries		15			967			101			—			—			1,083
Balance, end of period	$	13,647		$	1,882		$	709		$	19		$	1		$	16,258

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

	As of March 31, 2021								As of December 31, 2020
	Balance Outstanding		Interest Rate			Interest Reset Date	Call Date	Maturity Date	Balance Outstanding
	(dollars in thousands)
Junior subordinated notes issued to County Bancorp Statutory Trust II ⁽¹⁾⁽²⁾	$	6,186		1.71	%	06/15/2021	N/A	09/15/2035	$	6,186
Junior subordinated notes issued to County Bancorp Statutory Trust III ⁽¹⁾⁽³⁾		6,186		1.87	%	06/15/2021	N/A	06/15/2036		6,186
Junior subordinated notes issued to Fox River Valley Capital Trust I ⁽⁴⁾		3,348		6.40	%	11/30/2023	N/A	05/30/2033		3,336
5.875% Fixed-to-Floating rate subordinated notes ⁽⁵⁾		29,592		5.875	%	06/01/2023	06/01/2023	06/01/2028		29,545
7.00% Fixed-to-Floating rate subordinated notes ⁽⁶⁾		21,867		7.00	%	06/30/2025	06/30/2025	06/30/2030		21,858
Total subordinated debentures	$	67,179							$	67,111

	March 31, 2021
	Restricted Stock Units			Weighted Average Grant Price
Outstanding, beginning of year		66,856		$	19.38
Granted		32,853			22.53
Vested		(11,879	)		19.50
Forfeited/expired		(3,332	)		18.25
Outstanding, end of period		84,498		$	20.63
Restricted shares vested not yet issued, end of period		9,779		$	23.61

~~June 30,~~March 31, 2021
	Valuation Techniques	Unobservable Inputs	Range (Average)
Impaired loans	Evaluation of collateral	Estimation of value	NM*
Other real estate owned	Appraisal	Appraisal adjustment	6%-7% (7%)

December 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~~	~~5%-64% (29%~~6%-9% (7%)

	As of
	June 30, 2020			June 30, 2019			December 31, 2019
	(unaudited)
Capital Ratios:
Shareholders' common equity to assets		10.60	%		10.42	%		11.88	%
Total capital to risk-weighted assets (Bank)		20.42	%		15.35	%		18.70	%
Tangible common equity to tangible assets⁽¹⁾		10.60	%		10.10	%		11.54	%

	For the Three Months Ended
	March 31, 2021
Net interest margin excluding PPP loans		2.74	%
Accretion related to PPP loans:
Yield on PPP loans		(0.06	)%
Yield on PPP loan SBA fees		0.29	%
Interest expense on PPP Liquidity Facility programs		(0.02	)%
Total accretion related to PPP loans		0.21	%
Total net interest margin		2.95	%

	March 31, 2021							December 31, 2020
	# of Loans		Balance			Deferred Fee Income		# of Loans		Balance			Deferred Fee Income
	(dollars in thousands)
PPP 1oans - Round 1		127	$	13,674		$	301		456	$	37,790		$	1,191
PPP loans - Round 2		461		32,595			1,479		—		—			—
Total PPP loans		588	$	46,269		$	1,780		456	$	37,790		$	1,191
% of Total loans				4.57	%						3.79	%

	For the Three Months Ended
	March 31, 2021			December 31, 2020
	(dollars in thousands)
Loan servicing rights, end of period	$	18,864		$	18,396
Loans serviced, end of period		841,893			812,560
Loan servicing rights as a % of loans serviced		2.24	%		2.26	%

Total loan servicing fees	$	2,158		$	1,974
Average loans serviced		827,227			805,190
Annualized loan servicing fees as a % of average loans serviced		1.04	%		0.98	%

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽¹⁾		Maximum Number of Shares that may yet be Purchased under the Plans or Programs
April 1 - 30, 2020		34,126	$	18.65		34,126		383,224
May 1 - 31, 2020		43,781		20.43		43,791		339,433
June 1 - 30, 2020		49,373		22.05		49,373		290,060


Exhibit Number		Description

~~4.1~~3.1		~~Indenture, dated June 30, 2020, by~~Third Amended and ~~between~~Restated Articles of Incorporation of County Bancorp, Inc. ~~and U.S. Bank National Association, as trustee~~ (Incorporated by reference to Exhibit ~~4.1~~3.1 of County Bancorp, Inc.’s ~~current~~annual report on Form ~~8-K~~10-K filed on ~~June 30, 2020)~~March 15, 2018)

~~4.2~~3.2		~~Forms~~Third Amended and Restated Bylaws of ~~7.00% Fixed-to-Floating Rate Subordinated Note due 2030~~County Bancorp, Inc. as of November 20, 2018 (Incorporated by reference to Exhibit ~~4.2~~3.1 of County Bancorp, Inc.’s current report on Form 8-K filed on ~~June 30, 2020)~~

~~4.3~~		~~Form of 7.00% Fixed-to-Floating Rate Subordinated Note due June 30, 2030 (Incorporated by reference to Exhibit 4.1 of County Bancorp, Inc.’s current report on Form 8-K filed on July 23, 2020)~~November 27, 2018)

10.1		~~Form of Subordinated Note Purchase~~Employment Agreement ~~dated June 30, 2020, by and~~ among County Bancorp, Inc., Investors Community Bank, and ~~the Purchasers (Incorporated by reference to Exhibit 10.1 of County Bancorp, Inc.’s current report on Form 8-K filed on June 30, 2020)~~

~~10.2~~		Form of Registration Rights Agreement, dated June 30, 2020, by and among County Bancorp, Inc. and the Purchasers (Incorporated by reference to Exhibit 10.2 of County Bancorp, Inc.’s current report on Form 8-K filed on June 30, 2020)

~~10.3~~		~~Form of Subordinated Note Purchase Agreement, dated July 21, 2020, by and between County Bancorp, Inc. and the Purchaser~~Glen L. Stiteley (Incorporated by reference to Exhibit 10.1 of County Bancorp Inc.’s current report on Form 8-K filed on July ~~23, 2020)~~20, 2017)

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		The iXBRL Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document ⁽¹⁾

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) (1) Includes the following financial information included in the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~June 30, 2020,~~March 31, 2021, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) Notes to Unaudited Consolidated Financial Statements

	County Bancorp, Inc.

Date: ~~August~~May 7, ~~2020~~2021	By:	/s/ Timothy J. Schneider
		Timothy J. Schneider
		President (principal executive officer)

Date: ~~August~~May 7, ~~2020~~2021	By:	/s/ Glen L. Stiteley
		Glen L. Stiteley
		Chief Financial Officer (principal financial and accounting officer)