0001367859czwi:CommercialAgriculturalRealEstatePortfolioSegmentMemberczwi:ConstructionandLandDevelopmentMemberus-gaap:FinancialAssetPastDueMember2020-12-31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March 31,~~June 30, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-33003

CITIZENS COMMUNITY BANCORP, INC.

(Exact name of registrant as specified in its charter)


Maryland						20-5120010
(State or other jurisdiction of incorporation or organization)						(IRS Employer Identification Number)

2174 EastRidge Center

Eau Claire, WI 54701

(Address and Zip Code of principal executive offices)

715-836-9994

(Registrant’s telephone number, including area code)

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.01 par value per share	CZWI	NASDAQ Global Market

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, 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:

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☐

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

At ~~May 6,~~August 5, 2021 there were ~~10,888,553~~10,682,507 shares of the registrant’s common stock, par value $0.01 per share, outstanding.

CITIZENS COMMUNITY BANCORP, INC.

FORM 10-Q

~~March 31,~~June 30, 2021

INDEX


			Page Number
Part I – FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Consolidated Balance Sheets as of ~~March 31,~~June 30 , 2021 (Unaudited) and December 31, 2020	5
		Consolidated Statements of Operations (Unaudited) for the three and six months ended ~~March 31,~~June 30, 2021 and 2020	6
		Consolidated Statements of Comprehensive Income (Unaudited) for the three and six months ended ~~March 31,~~June 30, 2021 and 2020	7
		Consolidated Statement of Changes in Stockholders’ Equity (Unaudited) for the ~~three~~six months ended ~~March 31,~~June 30, 2021 and the year ended December 31, 2020	8
		Consolidated Statements of Cash Flows (Unaudited) for the ~~three~~six months ended ~~March 31,~~June 30, 2021 and 2020	10
		Condensed Notes to Consolidated Financial Statements (Unaudited)	12
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	5052
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	7175
	Item 4.	Controls and Procedures	7376
Part II – OTHER INFORMATION			7377
	Item 1.	Legal Proceedings	7377
	Item 1A.	Risk Factors	7478
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7478
	Item 3.	Defaults Upon Senior Securities	7478
	Item 4.	Mine Safety Disclosures	7478
	Item 5.	Other Information	7478
	Item 6.	Exhibits	7579
SIGNATURES			7680

PART 1 – FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

CITIZENS COMMUNITY BANCORP, INC.

Consolidated Balance Sheets

~~March 31,~~June 30, 2021 (unaudited) and December 31, 2020

(derived from audited financial statements)

(in thousands, except share and per share data)


		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
Assets	Assets					Assets
Cash and cash equivalents	Cash and cash equivalents	$	196,039	$	119,440	Cash and cash equivalents	$	128,440	$	119,440
Other interest bearing deposits	Other interest bearing deposits	2,016		3,752		Other interest bearing deposits	1,512		3,752
Securities available for sale "AFS"	Securities available for sale "AFS"	185,160		144,233		Securities available for sale "AFS"	243,746		144,233
Securities held to maturity "HTM"	Securities held to maturity "HTM"	57,419		43,551		Securities held to maturity "HTM"	59,582		43,551
Equity securities with readily determinable fair value	Equity securities with readily determinable fair value	297		200		Equity securities with readily determinable fair value	297		200
Other investments	Other investments	15,069		14,948		Other investments	14,966		14,948
Loans receivable	Loans receivable	1,192,126		1,237,581		Loans receivable	1,181,558		1,237,581
Allowance for loan losses	Allowance for loan losses	(16,860)		(17,043)		Allowance for loan losses	(16,845)		(17,043)
Loans receivable, net	Loans receivable, net	1,175,266		1,220,538		Loans receivable, net	1,164,713		1,220,538
Loans held for sale	Loans held for sale	2,267		3,075		Loans held for sale	3,109		3,075
Mortgage servicing rights, net	Mortgage servicing rights, net	3,999		3,252		Mortgage servicing rights, net	3,862		3,252
Office properties and equipment, net	Office properties and equipment, net	21,081		21,165		Office properties and equipment, net	21,121		21,165
Accrued interest receivable	Accrued interest receivable	5,464		5,652		Accrued interest receivable	4,898		5,652
Intangible assets	Intangible assets	5,095		5,494		Intangible assets	4,696		5,494
Goodwill	Goodwill	31,498		31,498		Goodwill	31,498		31,498
Foreclosed and repossessed assets, net	Foreclosed and repossessed assets, net	85		197		Foreclosed and repossessed assets, net	145		197
Bank owned life insurance ("BOLI")	Bank owned life insurance ("BOLI")	23,837		23,684		Bank owned life insurance ("BOLI")	23,991		23,684

Other assets	Other assets	7,702		8,416		Other assets	7,896		8,416
TOTAL ASSETS	TOTAL ASSETS	$	1,732,294	$	1,649,095	TOTAL ASSETS	$	1,714,472	$	1,649,095

Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity					Liabilities and Stockholders’ Equity
Liabilities:	Liabilities:					Liabilities:
Deposits	Deposits	$	1,380,202	$	1,295,256	Deposits	$	1,371,226	$	1,295,256
Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) advances	Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) advances	115,481		123,498		Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) advances	111,496		123,498
Other borrowings	Other borrowings	58,354		58,328		Other borrowings	58,380		58,328
Other liabilities	Other liabilities	17,595		11,449		Other liabilities	9,354		11,449
Total liabilities	Total liabilities	1,571,632		1,488,531		Total liabilities	1,550,456		1,488,531

Stockholders’ Equity:	Stockholders’ Equity:					Stockholders’ Equity:

Common stock—$0.01 par value, authorized 30,000,000; 10,893,872 and 11,056,349 shares issued and outstanding, respectively		109		111
Common stock—$0.01 par value, authorized 30,000,000; 10,696,075 and 11,056,349 shares issued and outstanding, respectively						Common stock—$0.01 par value, authorized 30,000,000; 10,696,075 and 11,056,349 shares issued and outstanding, respectively	107		111
Additional paid-in capital	Additional paid-in capital	125,005		126,704		Additional paid-in capital	121,732		126,154
Retained earnings	Retained earnings	35,783		32,809		Retained earnings	40,117		32,809
Unearned deferred compensation		(1,239)		(550)

Accumulated other comprehensive income	Accumulated other comprehensive income	1,004		1,490		Accumulated other comprehensive income	2,060		1,490
Total stockholders’ equity	Total stockholders’ equity	160,662		160,564		Total stockholders’ equity	164,016		160,564
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,732,294	$	1,649,095	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,714,472	$	1,649,095

See accompanying condensed notes to unaudited consolidated financial statements.

CITIZENS COMMUNITY BANCORP, INC.

Consolidated Statements of Operations (unaudited)

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

(in thousands, except per share data)


		Three Months Ended				Three Months Ended				Six Months Ended
		March 31, 2021		March 31, 2020				June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Interest and dividend income:	Interest and dividend income:						Interest and dividend income:
Interest and fees on loans	Interest and fees on loans	$	14,517	$	15,459		Interest and fees on loans	$	13,960	$	14,687	$	28,477	$	30,146
Interest on investments	Interest on investments	1,103		1,449			Interest on investments	1,518		1,199		2,621		2,648
Total interest and dividend income	Total interest and dividend income	15,620		16,908			Total interest and dividend income	15,478		15,886		31,098		32,794
Interest expense:	Interest expense:						Interest expense:
Interest on deposits	Interest on deposits	1,714		3,180			Interest on deposits	1,521		2,607		3,235		5,787
Interest on FHLB and FRB borrowed funds	Interest on FHLB and FRB borrowed funds	411		508			Interest on FHLB and FRB borrowed funds	384		448		795		956
Interest on other borrowed funds	Interest on other borrowed funds	731		549			Interest on other borrowed funds	742		528		1,473		1,077
Total interest expense	Total interest expense	2,856		4,237			Total interest expense	2,647		3,583		5,503		7,820
Net interest income before provision for loan losses	Net interest income before provision for loan losses	12,764		12,671			Net interest income before provision for loan losses	12,831		12,303		25,595		24,974
Provision for loan losses	Provision for loan losses	0		2,000			Provision for loan losses	0		1,750		0		3,750
Net interest income after provision for loan losses	Net interest income after provision for loan losses	12,764		10,671			Net interest income after provision for loan losses	12,831		10,553		25,595		21,224
Non-interest income:	Non-interest income:						Non-interest income:
Service charges on deposit accounts	Service charges on deposit accounts	398		560			Service charges on deposit accounts	395		345		793		905
Interchange income	Interchange income	530		464			Interchange income	647		489		1,177		953
Loan servicing income	Loan servicing income	893		685			Loan servicing income	825		1,315		1,718		2,000
Gain on sale of loans	Gain on sale of loans	1,595		780			Gain on sale of loans	1,522		1,818		3,117		2,598
Loan fees and service charges	Loan fees and service charges	278		477			Loan fees and service charges	151		244		429		721
Insurance commission income	Insurance commission income	0		279			Insurance commission income	0		195		0		474
Net gains on investment securities	Net gains on investment securities	235		73			Net gains on investment securities	37		25		272		98

Net gain on sale of acquired business lines							Net gain on sale of acquired business lines	0		252		0		252
Settlement proceeds							Settlement proceeds	0		131		0		131
Other	Other	247		285			Other	216		199		463		484
Total non-interest income	Total non-interest income	4,176		3,603			Total non-interest income	3,793		5,013		7,969		8,616
Non-interest expense:	Non-interest expense:						Non-interest expense:
Compensation and related benefits	Compensation and related benefits	5,596		5,435			Compensation and related benefits	5,473		5,908		11,069		11,343
Occupancy	Occupancy	1,316		1,374			Occupancy	1,314		1,336		2,630		2,710

Data processing	Data processing	1,342		1,192			Data processing	1,396		1,212		2,738		2,404
Amortization of intangible assets	Amortization of intangible assets	399		412			Amortization of intangible assets	399		412		798		824
Mortgage servicing rights expense, net	Mortgage servicing rights expense, net	(450)		736			Mortgage servicing rights expense, net	441		991		(9)		1,727
Advertising, marketing and public relations	Advertising, marketing and public relations	163		239			Advertising, marketing and public relations	194		303		357		542
FDIC premium assessment	FDIC premium assessment	165		68			FDIC premium assessment	82		180		247		248
Professional services	Professional services	521		604			Professional services	381		353		902		957
Gain on repossessed assets, net	Gain on repossessed assets, net	(117)		(68)			Gain on repossessed assets, net	(29)		(22)		(146)		(90)
Other	Other	554		739			Other	547		719		1,101		1,458
Total non-interest expense	Total non-interest expense	9,489		10,731			Total non-interest expense	10,198		11,392		19,687		22,123
Income before provision for income tax	Income before provision for income tax	7,451		3,543			Income before provision for income tax	6,426		4,174		13,877		7,717
Provision for income taxes	Provision for income taxes	1,945		937			Provision for income taxes	1,720		1,105		3,665		2,042
Net income attributable to common stockholders	Net income attributable to common stockholders	$	5,506	$	2,606		Net income attributable to common stockholders	$	4,706	$	3,069	$	10,212	$	5,675
Per share information:	Per share information:						Per share information:
Basic earnings	Basic earnings	$	0.50	$	0.23		Basic earnings	$	0.44	$	0.28	$	0.94	$	0.51
Diluted earnings	Diluted earnings	$	0.50	$	0.23		Diluted earnings	$	0.44	$	0.28	$	0.94	$	0.51
Cash dividends paid	Cash dividends paid	$	0.23	$	0.21		Cash dividends paid	$	0	$	0	$	0.23	$	0.21

See accompanying condensed notes to unaudited consolidated financial statements.

CITIZENS COMMUNITY BANCORP, INC.

Consolidated Statements of Comprehensive Income (unaudited)

Three and Six months ended ~~March 31,~~June 30, 2021 and 2020

(in thousands)


		Three Months Ended				Three Months Ended				Six Months Ended
		March 31, 2021		March 31, 2020				June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Net income attributable to common stockholders	Net income attributable to common stockholders	$	5,506	$	2,606		Net income attributable to common stockholders	$	4,706	$	3,069	$	10,212	$	5,675
Other comprehensive loss, net of tax:
Other comprehensive income, net of tax:							Other comprehensive income, net of tax:
Securities available for sale	Securities available for sale						Securities available for sale
Net unrealized losses arising during period		(486)		(1,191)
Net unrealized gains arising during period							Net unrealized gains arising during period	1,082		1,628		596		603
Reclassification adjustment for net gains included in net income, net of tax	Reclassification adjustment for net gains included in net income, net of tax	0		53			Reclassification adjustment for net gains included in net income, net of tax	(26)		0		(26)		(113)

Other comprehensive loss		(486)		(1,138)
Other comprehensive income, net of tax							Other comprehensive income, net of tax	1,056		1,628		570		490

Comprehensive income	Comprehensive income	$	5,020	$	1,468		Comprehensive income	$	5,762	$	4,697	$	10,782	$	6,165

See accompanying condensed notes to unaudited consolidated financial statements.

CITIZENS COMMUNITY BANCORP, INC.

Consolidated Statement of Changes in Stockholders’ Equity (unaudited)

~~Three~~Six Months Ended ~~March 31,~~June 30, 2021

(in thousands, except shares and per share data)


					Additional Paid-In Capital		Retained Earnings				Unearned Deferred Compensation			Accumulated Other Comprehensive Income (loss)					Total Stockholders’ Equity														Additional Paid-In Capital			Retained Earnings						Accumulated Other Comprehensive Income (loss)				Total Stockholders’ Equity
		Common Stock											Common Stock																						Total Stockholders’ Equity
		Shares	Amount										Shares									Amount
Balance, January 1, 2021	Balance, January 1, 2021	11,056,349	$	111	$	126,704			$	32,809							$	(550)					$	1,490		$	160,564		Balance, January 1, 2021	11,056,349		$		111						$	126,154			$	32,809					$	1,490	$	160,564
Net income	Net income	—	—		—				5,506							—					—				5,506	Net income		—			—							—	5,506									—	5,506
Other comprehensive loss, net of tax	Other comprehensive loss, net of tax	—	—		—		—				—			(486)					(486)			Other comprehensive loss, net of tax	—			—								—			—						(486)				(486)
Forfeiture of unvested shares	Forfeiture of unvested shares	(1,500)	—		(16)		—				16			—					0			Forfeiture of unvested shares	(1,500)			—							—			—						—				0
Surrender of restricted shares of common stock	Surrender of restricted shares of common stock	(895)	—		(10)		—				—			—					(10)			Surrender of restricted shares of common stock	(895)			—							(10)			—						—				(10)
Restricted common stock awarded under the equity incentive plan	Restricted common stock awarded under the equity incentive plan	64,399	—		876		—				(876)			—					0			Restricted common stock awarded under the equity incentive plan	64,399			—							—			—						—				0

Common stock repurchased - canceled/retired		(224,481)	(2)		(2,552)		(21)				—			—					(2,575)
Common stock repurchased																						Common stock repurchased	(224,481)			(2)							(2,552)			(21)						—				(2,575)
Stock option expense	Stock option expense	—	—		3		—				—			—					3			Stock option expense	—			—							3			—						—				3
Amortization of restricted stock	Amortization of restricted stock	—	—		—		—				171			—					171			Amortization of restricted stock	—			—							171			—						—				171

Cash dividends ($0.23 per share)	Cash dividends ($0.23 per share)	—	—		—		(2,511)				—			—					(2,511)			Cash dividends ($0.23 per share)	—			—							—			(2,511)						—				(2,511)
Balance at March 31, 2021	Balance at March 31, 2021	10,893,872	$	109	$	125,005	$	35,783			$	(1,239)		$	1,004				$	160,662		Balance at March 31, 2021	10,893,872			109							123,766			35,783						1,004				160,662
Net income																						Net income	—			—							—			4,706						—				4,706
Other comprehensive income, net of tax																						Other comprehensive income, net of tax	—			—							—			—						1,056				1,056

Surrender of restricted shares of common stock																						Surrender of restricted shares of common stock	(1,149)			—							(15)			—						—				(15)

Common stock options exercised																						Common stock options exercised	2,000			—							17			—						—				17
Common stock repurchased																						Common stock repurchased	(198,648)			(2)							(2,260)			(372)						—				(2,634)
Stock option expense																						Stock option expense	—			—							2			—						—				2
Amortization of restricted stock																						Amortization of restricted stock	—			—							222			—						—				222

Balance at June 30, 2021																						Balance at June 30, 2021	10,696,075			$	107						$	121,732		$	40,117					$	2,060			$	164,016

See accompanying condensed notes to unaudited consolidated financial statements.

CITIZENS COMMUNITY BANCORP, INC.

Consolidated Statement of Changes in Stockholders’ Equity (unaudited)

Twelve Months Ended December 31, 2020

(in thousands, except shares and per share data)


					Additional Paid-In Capital		Retained Earnings				Unearned Deferred Compensation			Accumulated Other Comprehensive Income (Loss)					Total Stockholders’ Equity														Additional Paid-In Capital			Retained Earnings						Accumulated Other Comprehensive Income (Loss)				Total Stockholders’ Equity
		Common Stock											Common Stock																						Total Stockholders’ Equity
		Shares	Amount										Shares									Amount
Balance, January 1, 2020	Balance, January 1, 2020	11,266,954	$	113	$	128,856			$	22,517							$	(462)					$	(471)		$	150,553		Balance, January 1, 2020	11,266,954		$		113						$	128,394			$	22,517					$	(471)	$	150,553
Net income	Net income	—	—		—				2,606							—					—				2,606	Net income		—			—							—	2,606									—	2,606
Other comprehensive income, net of tax		—	—		—		—				—			(1,138)					(1,138)
Other comprehensive loss, net of tax																						Other comprehensive loss, net of tax	—			—								—			—						(1,138)				(1,138)
Surrender of restricted shares of common stock	Surrender of restricted shares of common stock	(1,746)	—		(21)		—							—					(21)			Surrender of restricted shares of common stock	(1,746)			—							(21)			—						—				(21)

Restricted common stock awarded under the equity incentive plan	Restricted common stock awarded under the equity incentive plan	41,507	—		669		—				(669)			—					0			Restricted common stock awarded under the equity incentive plan	41,507			—							—			—						—				0
Common stock fractional share audit adjustment	Common stock fractional share audit adjustment	(40)	—		—		—				—			—					—			Common stock fractional share audit adjustment	(40)			—							—			—						—				—

Common stock repurchased	Common stock repurchased	(155,666)	(1)		(1,776)		(61)				—			—					(1,838)			Common stock repurchased	(155,666)			(1)							(1,776)			(61)						—				(1,838)
Stock option expense	Stock option expense	—	—		4		—				—			—					4			Stock option expense	—			—							4			—						—				4
Amortization of restricted stock	Amortization of restricted stock	—	—		—		—				139			—					139			Amortization of restricted stock	—			—							139			—						—				139

Cash dividends ($0.21 per share)	Cash dividends ($0.21 per share)	—	—		—		(2,372)				—			—					(2,372)			Cash dividends ($0.21 per share)	—			—							—			(2,372)						—				(2,372)
Balance at March 31, 2020	Balance at March 31, 2020	11,151,009	$	112	$	127,732	$	22,690			$	(992)		$	(1,609)				$	147,933		Balance at March 31, 2020	11,151,009			112							126,740			22,690						(1,609)				147,933
Net income	Net income	—	—		—		3,069				—			—					3,069			Net income	—			—							—			3,069						—				3,069
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—	—		—		—				—			1,628					1,628			Other comprehensive income, net of tax	—			—							—			—						1,628				1,628

Surrender of restricted shares of common stock	Surrender of restricted shares of common stock	(314)	—		(2)		—				—			—					(2)			Surrender of restricted shares of common stock	(314)			—							(2)			—						—				(2)

Stock option expense	Stock option expense	—	—		4		—				—			—					4			Stock option expense	—			—							4			—						—				4
Amortization of restricted stock	Amortization of restricted stock	—	—		—		—				158			—					158			Amortization of restricted stock	—			—							158			—						—				158

Balance at June 30, 2020	Balance at June 30, 2020	11,150,695	$	112	$	127,734	$	25,759			$	(834)		$	19				$	152,790		Balance at June 30, 2020	11,150,695			112							126,900			25,759						19				152,790
Net income	Net income	—	—		—		3,480				—			—					3,480			Net income	—			—							—			3,480						—				3,480
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—	—		—		—				—			885					885			Other comprehensive income, net of tax	—			—							—			—						885				885

Surrender of restricted shares of common stock	Surrender of restricted shares of common stock	(50)	—		—		—				—			—					0			Surrender of restricted shares of common stock	(50)			—							—			—						—				0
Restricted common stock awarded under the equity incentive plan	Restricted common stock awarded under the equity incentive plan	4,000	—		41		—				(41)			—					0			Restricted common stock awarded under the equity incentive plan	4,000			—							—			—						—				0

Stock option expense	Stock option expense	—	—		3		—				—			—					3			Stock option expense	—			—							3			—						—				3
Amortization of restricted stock	Amortization of restricted stock	—	—		—		—				165			—					165			Amortization of restricted stock	—			—							165			—						—				165

Balance, September 30, 2020	Balance, September 30, 2020	11,154,645	$	112	$	127,778	$	29,239			$	(710)		$	904				$	157,323		Balance, September 30, 2020	11,154,645			112							127,068			29,239						904				157,323
Net income	Net income	—	—		—		3,570				—			—					3,570			Net income	—			—							—			3,570						—				3,570
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—	—		—		—				—			586					586			Other comprehensive income, net of tax	—			—							—			—						586				586

Unrealized performance-based restricted common stock awards		—	—		(92)		—				92			—					0

Surrender of restricted shares of common stock	Surrender of restricted shares of common stock	(531)	—		(4)		—				—			—					(4)			Surrender of restricted shares of common stock	(531)			—							(4)			—						—				(4)

Common stock repurchased	Common stock repurchased	(97,765)	(1)		(981)		—				—			—					(982)			Common stock repurchased	(97,765)			(1)							(981)			—						—				(982)

Stock option expense	Stock option expense	—	—		3		—				—			—					3			Stock option expense	—			—							3			—						—				3
Amortization of restricted stock	Amortization of restricted stock	—	—		—		—				68			—					68			Amortization of restricted stock	—			—							68			—						—				68
Balance, December 31, 2020	Balance, December 31, 2020	11,056,349	$	111	$	126,704	$	32,809			$	(550)		$	1,490				$	160,564		Balance, December 31, 2020	11,056,349			$	111						$	126,154		$	32,809					$	1,490			$	160,564

See accompanying condensed notes to unaudited consolidated financial statements.

CITIZENS COMMUNITY BANCORP, INC.

Consolidated Statements of Cash Flows (unaudited)

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

(in thousands)


		Three Months Ended					Six Months Ended
		March 31, 2021		March 31, 2020			June 30, 2021		June 30, 2020
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income attributable to common stockholders	Net income attributable to common stockholders	$	5,506	$	2,606	Net income attributable to common stockholders	$	10,212	$	5,675
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Premium amortization, net of discount accretion on investment securities	Premium amortization, net of discount accretion on investment securities	23		111		Premium amortization, net of discount accretion on investment securities	32		148
Depreciation expense	Depreciation expense	530		463		Depreciation expense	1,092		943
Provision for loan losses	Provision for loan losses	0		2,000		Provision for loan losses	0		3,750
Net realized (gain) loss on equity securities	Net realized (gain) loss on equity securities	(235)		83		Net realized (gain) loss on equity securities	(236)		58
Net realized gain on debt securities	Net realized gain on debt securities	0		(156)		Net realized gain on debt securities	(36)		(156)
Increase in MSR assets resulting from transfers of financial assets	Increase in MSR assets resulting from transfers of financial assets	(297)		(182)		Increase in MSR assets resulting from transfers of financial assets	(601)		(954)
Mortgage servicing rights expense, net	Mortgage servicing rights expense, net	(450)		736		Mortgage servicing rights expense, net	(9)		1,727
Amortization of intangible assets	Amortization of intangible assets	399		412		Amortization of intangible assets	798		824
Amortization of restricted stock	Amortization of restricted stock	171		139		Amortization of restricted stock	393		297
Net stock based compensation expense	Net stock based compensation expense	3		4		Net stock based compensation expense	5		8
Loss on sale of office properties and equipment	Loss on sale of office properties and equipment	6		0		Loss on sale of office properties and equipment	26		21
Deferred income taxes	Deferred income taxes	765		(150)		Deferred income taxes	420		(799)
Increase in cash surrender value of life insurance	Increase in cash surrender value of life insurance	(153)		(142)		Increase in cash surrender value of life insurance	(307)		(294)
Net gain from disposals of foreclosed and repossessed assets	Net gain from disposals of foreclosed and repossessed assets	(117)		(68)		Net gain from disposals of foreclosed and repossessed assets	(146)		(90)

Gain on sale of loans held for sale, net	Gain on sale of loans held for sale, net	(1,595)		(780)		Gain on sale of loans held for sale, net	(3,117)		(2,598)
Net change in loans held for sale	Net change in loans held for sale	2,403		3,392		Net change in loans held for sale	3,083		(385)
Decrease in accrued interest receivable and other assets		322		1,131
Increase (decrease) in other liabilities		6,248		(340)

Decrease (increase) in accrued interest receivable and other assets						Decrease (increase) in accrued interest receivable and other assets	662		(1,048)
(Decrease) increase in other liabilities						(Decrease) increase in other liabilities	(1,998)		3,580
Net gain on sale of insurance agency						Net gain on sale of insurance agency	0		(252)
Total adjustments	Total adjustments	8,023		6,653		Total adjustments	61		4,780
Net cash provided by operating activities	Net cash provided by operating activities	13,529		9,259		Net cash provided by operating activities	10,273		10,455
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:

Net decrease in other interest-bearing deposits	Net decrease in other interest-bearing deposits	1,736		738		Net decrease in other interest-bearing deposits	2,240		992
Purchase of available for sale securities	Purchase of available for sale securities	(50,956)		(9,985)		Purchase of available for sale securities	(117,256)		(13,855)
Purchase of held to maturity securities	Purchase of held to maturity securities	(16,530)		(8,063)		Purchase of held to maturity securities	(20,543)		(8,062)
Proceeds from principal payments and sale of available for sale securities	Proceeds from principal payments and sale of available for sale securities	9,368		25,149		Proceeds from principal payments and sale of available for sale securities	18,589		31,952
Proceeds from principal payments and maturities of held to maturity securities	Proceeds from principal payments and maturities of held to maturity securities	2,629		142		Proceeds from principal payments and maturities of held to maturity securities	4,455		362
Net purchases (sales) of other investments	Net purchases (sales) of other investments	17		6		Net purchases (sales) of other investments	121		(188)
Proceeds from sales of foreclosed and repossessed assets	Proceeds from sales of foreclosed and repossessed assets	312		997		Proceeds from sales of foreclosed and repossessed assets	360		1,767
Net decrease (increase) in loans	Net decrease (increase) in loans	45,189		(4,957)		Net decrease (increase) in loans	55,742		(105,443)
Net capital expenditures	Net capital expenditures	(462)		(423)		Net capital expenditures	(1,181)		(1,184)

Proceeds from disposal of office properties and equipment	Proceeds from disposal of office properties and equipment	10		0		Proceeds from disposal of office properties and equipment	10		8

Net cash (used in) provided by investing activities		(8,687)		3,604
Net proceeds from sale of insurance agency						Net proceeds from sale of insurance agency	0		1,127
Net cash used in investing activities						Net cash used in investing activities	(57,463)		(92,524)


Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:

Net decrease in short-term Federal Home Loan Bank advances	Net decrease in short-term Federal Home Loan Bank advances	0		(64,994)		Net decrease in short-term Federal Home Loan Bank advances	(2)		(40,987)
Long-term Federal Home Loan Bank advances	Long-term Federal Home Loan Bank advances	0		57,500		Long-term Federal Home Loan Bank advances	0		66,500
Federal Home Loan Bank advance termination payments	Federal Home Loan Bank advance termination payments	(8,119)		0		Federal Home Loan Bank advance termination payments	(8,102)		0
Federal Home Loan Bank maturities						Federal Home Loan Bank maturities	(4,000)		(32,000)
Amortization of debt issuance costs	Amortization of debt issuance costs	26		16		Amortization of debt issuance costs	52		35

Net increase (decrease) in deposits	Net increase (decrease) in deposits	84,946		(15,647)		Net increase (decrease) in deposits	75,970		76,495

Repurchase shares of common stock	Repurchase shares of common stock	(2,575)		(1,838)		Repurchase shares of common stock	(5,209)		(1,838)
Surrender of restricted shares of common stock	Surrender of restricted shares of common stock	(10)		(21)		Surrender of restricted shares of common stock	(25)		(23)

Common stock options exercised						Common stock options exercised	17		0
Cash dividends paid	Cash dividends paid	(2,511)		(2,372)		Cash dividends paid	(2,511)		(2,372)
Net cash provided by (used in) financing activities		71,757		(27,356)
Net cash provided by financing activities						Net cash provided by financing activities	56,190		65,810
Net increase (decrease) in cash and cash equivalents	Net increase (decrease) in cash and cash equivalents	76,599		(14,493)		Net increase (decrease) in cash and cash equivalents	9,000		(16,259)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	119,440		55,840		Cash and cash equivalents at beginning of period	119,440		55,840
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	196,039	$	41,347	Cash and cash equivalents at end of period	$	128,440	$	39,581


Supplemental cash flow information:	Supplemental cash flow information:					Supplemental cash flow information:
Cash paid during the period for:	Cash paid during the period for:					Cash paid during the period for:
Interest on deposits	Interest on deposits	$	1,658	$	3,238	Interest on deposits	$	3,309	$	5,854
Interest on borrowings	Interest on borrowings	$	1,391	$	1,029	Interest on borrowings	$	2,307	$	2,032
Income taxes	Income taxes	$	0	$	0	Income taxes	$	3,340	$	115
Supplemental noncash disclosure:	Supplemental noncash disclosure:					Supplemental noncash disclosure:
Transfers from loans receivable to other real estate owned ("OREO")	Transfers from loans receivable to other real estate owned ("OREO")	$	45	$	879	Transfers from loans receivable to other real estate owned ("OREO")	$	45	$	879

See accompanying condensed notes to unaudited consolidated financial statements.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

(UNAUDITED)

NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements of Citizens Community Federal N.A. (the “Bank”) included herein have been included by its parent company, Citizens Community Bancorp, Inc. (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. As used in this quarterly report, the terms “we”, “us”, “our”, and “Citizens Community Bancorp, Inc.” mean the Company and its wholly owned subsidiary, the Bank, unless the context indicates other meaning.

The Bank is a national banking association (a “National Bank”) and operates under the title of Citizens Community Federal National Association (“Citizens Community Federal N.A.” or “Bank” or “CCFBank”). The Company is a bank holding company, supervised by the Federal Reserve Bank of Minneapolis (the “FRB”), and operates under the title of Citizens Community Bancorp, Inc. Wells Insurance Agency (“WIA”) was a wholly owned subsidiary of the Bank, providing insurance products to the Bank’s customers and was sold on June 30, 2020. F&M Investment Corp. of Tomah was a wholly owned subsidiary of the Bank that was formerly utilized by F. & M. Bancorp. of Tomah, Inc. (“F & M”) to manage its municipal bond portfolio, and was dissolved in February 2020. The U.S. Office of the Comptroller of the Currency (the “OCC”), is the primary federal regulator for the Bank.

The consolidated income of the Company is principally derived from the income of the Bank, the Company’s wholly owned subsidiary, serving customers in Wisconsin and Minnesota through 25 branch locations. Its primary markets include the Chippewa Valley Region in Wisconsin, the Mankato and Twin Cities markets in Minnesota, and various rural communities around these areas. The Bank offers traditional community banking services to businesses, agricultural operators and consumers, including one-to-four family residential mortgages.

The Bank is subject to competition from other financial institutions and non-financial institutions providing financial products. Additionally, the Bank is subject to the regulations of certain regulatory agencies and undergoes periodic examination by those regulatory agencies.

In preparing these consolidated financial statements, we evaluated the events and transactions that occurred subsequent to the ~~March 31,~~June 30, 2021 balance sheet date and through the date the financial statements were available to be issued for items that should potentially be recognized or disclosed in these consolidated financial statements.

The accompanying consolidated interim financial statements are unaudited. However, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

Unless otherwise stated herein, and except for shares and per share amounts, all amounts are in thousands.

Principles of Consolidation – The accompanying consolidated financial statements include the accounts of the Company and the Bank. All significant intercompany accounts and transactions have been eliminated.

Use of Estimates –Preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future. Estimates are used in accounting for, among other items, fair value of financial instruments, the allowance for loan losses, mortgage servicing rights, foreclosed and repossessed assets, valuation of intangible assets arising from acquisitions, useful lives for depreciation and amortization, valuation of goodwill and long-lived assets, stock based compensation, deferred tax assets, uncertain income tax positions and contingencies. Management does not anticipate any material changes to estimates made herein in the near term. Factors that may cause sensitivity to the aforementioned estimates include but are not limited to: those items described under the caption “Risk Factors” in Item 1A of the annual report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 8, 2021; the matters described in “Risk Factors” in Item 1A of this Form 10-Q; external market factors such as market interest rates and unemployment rates; changes to operating policies and procedures and changes in applicable banking regulations. Actual results may ultimately differ from estimates, although management does not generally believe such differences would materially affect the consolidated financial statements in any individual reporting period.

Investment Securities; Held to Maturity and Available for Sale – Management determines the appropriate classification of investment securities at the time of purchase and reevaluates such designation as of the date of each balance sheet. Securities are classified as held to maturity when the Company has the positive intent and ability to hold the securities to maturity. Held to maturity securities are stated at amortized cost. Investment securities not classified as held to maturity are classified as available for sale. Available for sale securities are stated at fair value, with unrealized holding gains and losses being reported in other comprehensive income (loss), net of tax. Unrealized losses deemed other-than-temporary due to credit issues are reported in the Company’s net income in the period in which the losses arise. Realized gains or losses on sales of available for sale securities are calculated with the specific identification method and are included in the consolidated statements of operations under net gains on investment securities. Interest income includes amortization of purchase premium or accretion of purchase discount. Amortization of premiums and accretion of discounts are recognized in interest income using the interest method over the estimated lives of the securities.

The Company evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. As part of such monitoring, the credit quality of individual securities and their issuer is assessed. Significant inputs used to measure the amount of other-than-temporary impairment related to credit loss include, but are not limited to: the Company’s intent and ability to sell the debt security prior to recovery, that it is more likely than not that the Company will not sell the security prior to recovery, default and delinquency rates of the underlying collateral, remaining credit support, and historical loss severities. Adjustments to market value of available for sale securities that are considered temporary are recorded in other comprehensive income or loss as separate components of stockholders’ equity, net of tax. If the unrealized loss of a security is identified as other-than-temporary based on information available, such as the decline in the creditworthiness of the issuer, external market ratings, or the anticipated or realized elimination of associated dividends, such impairments are further analyzed to determine if credit loss exists. If there is a credit loss, it will be recorded in the Company’s consolidated statement of operations. Non-credit components of the unrealized losses on available for sale securities will continue to be recognized in other comprehensive income (loss), net of tax.

Equity securities with readily determinable fair value - The Company is required to maintain an investment in Federal Agricultural Mortgage Corporation (“Farmer Mac”) equity securities. Farmer Mac equity securities are carried at their fair market value, which is readily determinable. Changes in fair value are recognized as net gains (losses) on investment securities in the consolidated ~~Statement~~statement of ~~Operations.~~operations.

Other Investments - As a member of the Federal Reserve Bank (“FRB”) System and the Federal Home Loan Bank (“FHLB”) System, the Bank is required to maintain an investment in the capital stock of these entities. These securities are “restricted” in that they can only be sold back to the respective institutions or another member institution at par. Therefore, they are less liquid than other exchange traded equity securities. As no ready market exists for these stocks, and they have no quoted market value, these investments are carried at cost and periodically evaluated for impairment based on the ultimate recovery of par value. Cash dividends are reported as other income in the consolidated statement of operations.

Also included in other investments is stock of our correspondent bank, Bankers’ Bank, without readily determinable fair value. This stock is carried at cost plus or minus changes resulting from observable price changes in orderly transactions for this stock, less other-than-temporary impairment charges, if any.

Management’s evaluation for impairment of these other investments, includes consideration of the financial condition and other available relevant information of the issuer. Based on management’s quarterly evaluation, no impairment has been recorded on these securities. Other investments totaling ~~$15,069~~$14,966 at ~~March 31,~~June 30, 2021 consisted of ~~$8,041~~$7,938 of FHLB stock, $5,181 of Federal Reserve Bank stock and $1,847 of Bankers’ Bank stock. Other investments totaling $14,948 at December 31, 2020 consisted of $8,103 of FHLB stock and $5,170 of Federal Reserve Bank stock and $1,675 of Bankers’ Bank stock.

Loans – Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of: deferred loan fees and costs, accretable yield on acquired loans and non-accretable discount on purchased credit impaired (PCI) loans. Interest income is accrued on the unpaid principal balance of these loans. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the interest method over the contractual life of the loan with no ~~prepayment assumptions.~~prepayments assumed. If the loan is prepaid, any unamortized net fee is recognized at this time. Late charge fees are recognized into income when collected.

Interest income on commercial, mortgage and consumer loans is discontinued according to the following schedules:

•Commercial/agricultural real estate loans past due 90 days or more;

•Commercial and industrial/agricultural operating loans past due 90 days or more;

•Closed end consumer installment loans past due 120 days or more; and

•Residential mortgage loans and open ended consumer installment loans past due 180 days or more.

Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual status or charged off at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not received for a loan placed on nonaccrual status is reversed against interest income. Interest received on such loans is accounted for on the cash basis or cost recovery method until qualifying for return to accrual status. Loans are returned to accrual status when payments are made that bring the loan account current with the contractual term of the loan and a six month payment history has been established. Interest on accruing troubled debt restructured (“TDR”), less than 90 days delinquent, is recognized as income as it accrues, based on the revised terms of the loan over an established period of continued payment.

Residential mortgage loans and open ended consumer installment loans are charged off to estimated net realizable value less estimated selling costs at the earlier of when (a) the loan is deemed by management to be uncollectible, or (b) the loan becomes past due 180 days or more. Closed ended consumer installment loans are charged off to net realizable value at the earlier of when (a) the loan is deemed by management to be uncollectible, or (b) the loan becomes past due 120 days or more. Commercial/agricultural real estate, commercial and industrial and agricultural operating loans are charged off to net realizable value at the earlier of when (a) the loan is deemed by management to be uncollectible, or (b) the loan becomes past due 90 days or more.

Allowance for Loan Losses – The allowance for loan losses (“ALL”) is a valuation allowance for probable and inherent credit losses in our loan portfolio. Loan losses are charged against the ALL when management believes that the collectability of a loan balance is unlikely. Subsequent recoveries, if any, are credited to the ALL. Management estimates the required ALL balance taking into account the following factors: past loan loss experience; the nature, volume and composition of our loan portfolio; known and inherent risks in our portfolio; information about specific borrowers’ ability to repay; estimated collateral values; current economic conditions; and other relevant factors determined by management. The ALL consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-impaired loans and is based on historical loss experience adjusted for certain qualitative factors. The entire ALL balance is available for any loan that, in management’s judgment, should be charged off.

A loan is impaired when full payment under the loan terms is not expected. Impaired loans consist of all TDRs, as well as individual loans not considered a TDR, that are either (1) rated substandard or worse, (2) on nonaccrual status or (3) PCI loans which are impaired at the time of acquisition. Substandard loans, as defined by the OCC, our primary banking regulator, are loans that are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. All TDRs are individually evaluated for impairment. See Note 3, “Loans, Allowance for Loan Losses and Impaired Loans” for more information on what we consider to be a TDR. For TDR’s or substandard loans deemed to be impaired, a specific ALL allocation may be established so that the loan is reported, net, at the lower of (a) its outstanding principal balance; (b) the present value of the loan’s estimated future cash flows using the loan’s existing rate; or (c) at the fair value of any loan collateral, less estimated disposal costs, if repayment is expected solely from the underlying collateral of the loan. For TDRs less than 90+ days past due, and certain substandard loans that are less than 90+ days delinquent, the likelihood of the loan migrating to over 90 days past due is also taken into account when determining the specific ALL allocation for these particular loans. Large groups of smaller balance homogeneous loans, such as non-TDR commercial, consumer and residential real estate loans, are collectively evaluated for ALL purposes, and accordingly, are not separately identified for ALL disclosures.

Acquired Loans— Loans acquired in connection with acquisitions are recorded at their acquisition-date fair value with no carryover of related allowance for loan losses. Any allowance for loan loss on these pools reflect only losses incurred after the acquisition (meaning the present value of all cash flows expected at acquisition that no longer are expected to be received). Determining the fair value of the acquired loans involves estimating the principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest. Management considers a number of factors in evaluating the acquisition-date fair value including: the remaining life of the acquired loans, delinquency status, estimated prepayments, payment options and other loan features, internal risk grade, estimated value of the underlying collateral and interest rate environment.

Acquired loans that met the criteria for nonaccrual of interest prior to the acquisition may be considered performing upon acquisition, regardless of whether the customer is contractually delinquent, if we can reasonably estimate the timing and amount of the expected cash flows on such loans and if we expect to fully collect the new carrying value of the loans. As such, we may no longer consider the loan to be nonaccrual or nonperforming and may accrue interest on these loans, including the impact of any accretable yield.

Loans acquired with deteriorated credit quality are accounted for in accordance with Accounting Standards Codification (“ASC”) 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (ASC 310-30) if, at acquisition, the loans have evidence of credit quality deterioration since origination and it is probable that all contractually required payments

will not be collected. At acquisition, the Company considers several factors as indicators that an acquired loan has evidence of deterioration in credit quality. These factors include, but are not limited to: loans 90 days or more past due, loans with an

internal risk grade of substandard or below, loans classified as non-accrual by the acquired institution, and loans that have been previously modified in a troubled debt restructuring.

Under the ASC 310-30 model, the excess of cash flows expected to be collected at acquisition over recorded fair value is referred to as the accretable yield and is the interest component of expected cash flow. The accretable discount is recognized into income over the remaining life of the loan if the timing and/or amount of cash flows expected to be collected can be reasonably estimated (the accretion method). If the timing or amount of cash flows expected to be collected cannot be reasonably estimated, the cost recovery method of income recognition is used. The difference between the loan’s total scheduled principal and interest payments over all cash flows expected to be collected at acquisition, considering the impact of prepayments, is referred to as the non-accretable difference. The non-accretable difference represents contractually required principal and interest payments which the Company does not expect to collect.

Over the life of the loan, management continues to estimate cash flows expected to be collected. Decreases in expected cash flows are recognized as impairments through a charge to the provision for loan losses resulting in an increase in the allowance for loan losses. Subsequent improvements in cash flows result in first, reversal of existing valuation allowances recognized subsequent to acquisition, if any, and next, an increase in the amount of accretable discount to be subsequently recognized in interest income on a prospective basis over the loan’s remaining life.

Acquired loans that were not individually determined to be purchased with deteriorated credit quality are accounted for in accordance with ASC 310-20, Nonrefundable Fees and Other Costs (ASC 310-20), whereby the premium or discount derived from the fair market value adjustment, on a loan-by-loan or pooled basis, is recognized into interest income on a level yield basis over the remaining expected life of the loan or pool.

For all acquired loans, the outstanding loan balances less any related accretable discount and/or non-accretable difference is referred to as the loans’ carrying amount.

Loans Held for Sale — Loans held for sale are those loans the Company has the intent to sell in the foreseeable future. They are carried at the lower of aggregate cost or fair value. Gains and losses on sales of loans are recognized at settlement dates, and are determined by the difference between the sales proceeds and the carrying value of the loans after allocating costs to servicing rights retained. Such gains and losses are included in non-interest income in the consolidated statements of operations. All sales are made without recourse. Interest rate lock commitments on mortgage loans to be funded and sold are valued at fair value, and are included in other assets or liabilities, if material.

Transfers of financial assets—Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the entity, (2) the transferee obtains the right, free of conditions that constrain it from taking advantage of that right, to pledge or exchange the transferred assets, and (3) the entity does not maintain effective control over the transferred assets through an agreement to repurchase them before maturity.

Mortgage Servicing Rights— Mortgage servicing rights (“MSR”) assets result as the Company sells loans to investors in the secondary market and retains the rights to service mortgage loans sold to others. MSR assets are initially measured at fair value; assessed for impairment at least annually; carried at the lower of the initial capitalized amount, net of accumulated amortization, or estimated fair value. MSR assets are amortized in proportion to and over the period of estimated net servicing income, with the amortization recorded in non-interest expense in the consolidated statement of operations.

The valuation of MSRs and related amortization, included in mortgage servicing rights expense in the consolidated statements of operations, thereon are based on numerous factors, assumptions and judgments, such as those for: changes in the mix of loans, interest rates, prepayment speeds, and default rates. Changes in these factors, assumptions and judgments may have a material effect on the valuation and amortization of MSRs. Although management believes that the assumptions used to evaluate the MSRs for impairment are reasonable, future adjustment may be necessary if future economic conditions differ substantially from the economic assumptions used to determine the value of MSRs.

Servicing fee income, which is reported on the consolidated statements of operations in non-interest income as ~~Loan~~loan servicing fee income, is recorded for fees earned for servicing loans. The ~~fee~~fees are based on a contractual percentage of outstanding principal; or a fixed amount per loan and are recorded as income when earned. The amortization of mortgage servicing rights is netted against loan servicing fee income.

Goodwill and other intangible assets—The Company accounts for goodwill and other intangible assets in accordance with ASC Topic 350, “Intangibles - Goodwill and Other.” The Company records the excess of the cost of acquired entities over

the fair value of identifiable tangible and intangible assets acquired, less liabilities assumed, as goodwill. On a periodic basis, management assesses whether events or changes in circumstances indicate that the carrying amounts of the intangible assets

may be impaired. Goodwill is not amortized but, instead, is subject to impairment tests on at least an annual basis, and more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. A reporting unit is defined as any distinct, separately identifiable component of the Company’s 1 operating segment for which complete, discrete financial information is available and reviewed regularly by the segment’s management. The Company has 1 reporting unit as of ~~March 31,~~June 30, 2021 which is related to its banking activities. The impairment testing process is conducted by assigning net assets and goodwill to the Company’s reporting unit. An initial qualitative evaluation is made to assess the likelihood of impairment and determine whether further quantitative testing to calculate the fair value is necessary. When the qualitative evaluation indicates that impairment is more likely than not, quantitative testing is required whereby the fair value of the Company’s reporting unit is calculated and compared to the recorded book value, “step one.” If the calculated fair value of the Company’s reporting unit exceeds its carrying value, goodwill is not considered impaired and “step two” is not considered necessary. If the carrying value of the company’s reporting unit exceeds its calculated fair value, the impairment test continues (“step two”) by comparing the carrying value of the Company’s reporting unit’s goodwill to the implied fair value of goodwill. An impairment charge is recognized if the carrying value of goodwill exceeds the implied fair value of goodwill. The Company has performed the required goodwill impairment test and has determined that goodwill was not impaired as of December 31, 2020. ~~The Company performed a goodwill impairment analysis as of March 31, 2021 and determined that goodwill was not impaired.~~

Foreclosed and Repossessed Assets, net – Assets acquired through foreclosure or repossession are initially recorded at fair value, less estimated costs to sell, which establishes a new cost basis. If the fair value declines subsequent to foreclosure or repossession, a write-down is recorded through expense. Costs incurred after acquisition are expensed and are included in non-interest expense, other in the consolidated statements of operations.

Leases - We determine if an arrangement is a lease at inception. All of our existing leases have been determined to be operating leases under ASC 842. Right-of-use (“ROU”) assets are included in other assets in our consolidated balance sheets. Operating lease liabilities are included in other liabilities in our consolidated balance sheets. Lease expense is included in non-interest expense, occupancy in the consolidated statements of operations.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date, based on the present value of lease payments over the lease term. As none of our existing leases provide an implicit rate, we use our incremental borrowing rate, based on information available at commencement date, in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease, when it is reasonably certain that we will exercise that option. Lease expense is recognized based on the total contractually required lease payments, over the term of the lease, on a straight-line basis.

Debt and equity issuance costs—Debt issuance costs, which consist primarily of fees paid to note lenders, are deferred and included in other borrowings in the consolidated balance sheet. Debt issuance costs are amortized over the contractual term of the corresponding debt, as a component of interest expense on other borrowed funds in the consolidated statement of operations. Specific costs associated with the issuance of shares of the Company’s common or preferred stock are netted against proceeds and recorded in stockholders’ equity, as additional paid in capital, on the consolidated balance sheet, in the period of the share issuance.

Advertising, Marketing and Public Relations Expense—The Company expenses all advertising, marketing and public relations costs as they are incurred.

Income Taxes – The Company accounts for income taxes in accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Codification (“ASC”) Topic 740, “Income Taxes.” Under this guidance, deferred taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax ~~bases.~~basis. Deferred tax assets and liabilities are measured using enacted tax rates that will apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date.

The Company regularly reviews the carrying amount of its net deferred tax assets to determine if the establishment of a valuation allowance is necessary. If based on the available evidence, it is more likely than not that all or a portion of the Company’s net deferred tax assets will not be realized in future periods, a deferred tax valuation allowance would be established. Consideration is given to various positive and negative factors that could affect the realization of the deferred tax assets. In evaluating this available evidence, management considers, among other things, historical performance, expectations

of future earnings, the ability to carry back losses to recoup taxes previously paid, the length of statutory carry forward periods,

any experience with utilization of operating loss and tax credit carry forwards not expiring, tax planning strategies and timing of reversals of temporary differences. Significant judgment is required in assessing future earnings trends and the timing of reversals of temporary differences. Accordingly, the Company’s evaluation is based on current tax laws as well as management’s expectations of future performance.

Revenue Recognition - The Company recognizes revenue in the consolidated statements of operations as it is earned and when collectability is reasonably assured. The primary source of revenue is interest income from interest earning assets, which is recognized on the accrual basis of accounting using the effective interest method. The recognition of revenues from interest earning assets is based upon formulas from underlying loan agreements, securities contracts or other similar contracts. Non-interest income is recognized on the accrual basis of accounting as services are provided or as transactions occur. Non-interest income includes fees from deposit accounts, ATM and debit card fees, mortgage banking activities, and other miscellaneous services and transactions. Commission revenue is recognized as of the effective date of the insurance policy or the date the customer is billed, whichever is later. The Company also receives contingent commissions from insurance companies which are based on the overall profitability of their relationship based primarily on the loss experience of the insurance placed by the Company. Contingent commissions from insurance companies are recognized when determinable. Commission revenue is included in other non-interest income in the consolidated statement of operations.

Earnings Per Share – Basic earnings per common share is net income or loss divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable during the period, consisting of stock options outstanding under the Company’s stock incentive plans that have an exercise price that is less than the Company’s stock price on the reporting date.

Loss Contingencies—Loss contingencies, including claims and legal actions arising in the normal course of business, are recorded as liabilities when the likelihood of loss is probable and an amount of loss can be reasonably estimated.

Other Comprehensive Income —Accumulated and other comprehensive income or loss is comprised of the unrealized and realized gains and losses on securities available for sale and pension liability adjustments, net of tax, and is shown on the accompanying consolidated statements of ~~other~~ comprehensive income.

Operating Segments—While our executive officers monitor the revenue streams of the various banking products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Accordingly, all of the Company’s banking operations are considered by management to be aggregated in 1 reportable operating segment.

Reclassifications – Certain items previously reported were reclassified for consistency with the current presentation.

Recent Accounting Pronouncements—The Financial Accounting Standards Board (FASB) issues Accounting Standards Updates (ASUs) to the FASB Accounting Standards Codification (ASC). This section provides a summary description of recent ASUs that have potentially significant implications (elected or required) within the consolidated financial statements, or that management expects may have a significant impact on financial statements issued in the near future.

Recent Accounting Pronouncements—Adopted

ASU 2018-13, Fair Value Measurement (Topic 820)—The ASU modifies disclosure requirements on fair value measurements. This ASU removes requirements to disclose, (1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, and (2) the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements. ASU 2018-13 clarifies that, disclosure regarding measurement uncertainty, is intended to communicate information about the uncertainty in measurement, as of the reporting date. ASU 2018-13 adds certain disclosure requirements, including (1) disclosure of changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements, and (2) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The Company adopted this ASU, in the first quarter of 2020. The amendments on (1) changes in unrealized gains and losses, (2) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and (3) the narrative description of measurement uncertainty, are being applied prospectively. All other amendments have been applied retrospectively for all periods presented. Adoption of this ASU had no material impact on its consolidated financial position or results of operations.

ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40)—The ASU was issued to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement), by providing guidance for determining when the arrangement includes a software license. The amendments align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract, with similar costs to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the

service element of a hosting arrangement that is a service contract is not affected by the amendments. This guidance became

effective for the Company beginning in the first quarter of 2020. Adoption of this ASU had no material impact on its consolidated financial statements.

ASU 2020-04 and ASU 2021-01, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting--These ASUs provide optional and temporary relief, in the form of optional expedients and exceptions, for applying GAAP to modifications of contacts, hedging relationships and other transactions affected by reference rate (e.g. LIBOR) reforms. ASU 2020-04 and ASU 2021-01 are effective for the Company immediately and through December 31, 2022. The Company utilizes LIBOR, among other indexes, as a reference rate for underwriting variable rate loans. Reference rate reform has not had, nor does the Company expect it to have, a material effect on the Company’s consolidated balance sheet, operations or cash flows.

Recently Issued, But Not Yet Effective Accounting Pronouncements

ASU 2016-13; Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments--The ASU changes accounting for credit losses on loans receivable and debt securities from an incurred loss methodology to an expected credit loss methodology. Among other things, ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Accordingly, ASU 2016-13 requires the use of forward-looking information to form credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, though the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, ASU 2016-13 amends the accounting for credit losses on debt securities and purchased financial assets with credit deterioration. In November, 2019, the FASB issued ~~ASU-2019-10,~~ASU 2019-10, which delayed the effective date for ASU 2016-13 for smaller reporting companies, resulting in ASU 2016-13 becoming effective in the first quarter of 2023 for the Company. Earlier adoption is permitted; however, the Company does not currently plan to adopt the ASU early. Management is assessing alternative loss estimation methodologies and the Company’s data and system needs in order to evaluate the impact that adoption of this standard will have on the Company’s financial condition and results of operations. The Company anticipates recording the effect of implementing this ASU through a cumulative-effect adjustment through retained earnings as of the beginning of the reporting period in which the ASU is effective, which will be January 1, 2023.

NOTE 2 – INVESTMENT SECURITIES

The amortized cost, estimated fair value and related unrealized gains and losses on securities available for sale and held to maturity as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively, were as follows:


Available for sale securities	Available for sale securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Available for sale securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
March 31, 2021
June 30, 2021										June 30, 2021
U.S. government agency obligations	U.S. government agency obligations	$	31,474	$	303	$	65	$	31,712	U.S. government agency obligations	$	30,126	$	612	$	10	$	30,728
Obligations of states and political subdivisions	Obligations of states and political subdivisions	140		0		0		140		Obligations of states and political subdivisions	140		0		0		140
Mortgage-backed securities	Mortgage-backed securities	71,448		1,009		401		72,056		Mortgage-backed securities	125,439		1,194		97		126,536

Corporate debt securities	Corporate debt securities	27,752		446		285		27,913		Corporate debt securities	34,689		703		97		35,295
Corporate asset-based securities	Corporate asset-based securities	35,664		159		114		35,709		Corporate asset-based securities	35,096		225		49		35,272
Trust preferred securities	Trust preferred securities	17,298		342		10		17,630		Trust preferred securities	15,416		363		4		15,775
Total available for sale securities	Total available for sale securities	$	183,776	$	2,259	$	875	$	185,160	Total available for sale securities	$	240,906	$	3,097	$	257	$	243,746

December 31, 2020	December 31, 2020									December 31, 2020
U.S. government agency obligations	U.S. government agency obligations	$	33,048	$	387	$	70	$	33,365	U.S. government agency obligations	$	33,048	$	387	$	70	$	33,365
Obligations of states and political subdivisions	Obligations of states and political subdivisions	140		0		0		140		Obligations of states and political subdivisions	140		0		0		140
Mortgage-backed securities	Mortgage-backed securities	39,454		1,537		0		40,991		Mortgage-backed securities	39,454		1,537		0		40,991

Corporate debt securities	Corporate debt securities	17,199		372		109		17,462		Corporate debt securities	17,199		372		109		17,462
Corporate asset-based securities	Corporate asset-based securities	36,039		104		316		35,827		Corporate asset-based securities	36,039		104		316		35,827
Trust preferred securities	Trust preferred securities	16,297		189		38		16,448		Trust preferred securities	16,297		189		38		16,448
Total available for sale securities	Total available for sale securities	$	142,177	$	2,589	$	533	$	144,233	Total available for sale securities	$	142,177	$	2,589	$	533	$	144,233


Held to maturity securities	Held to maturity securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Held to maturity securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
March 31, 2021
June 30, 2021										June 30, 2021
U.S. government agency obligations	U.S. government agency obligations	$	3,500	$	0	$	17	$	3,483	U.S. government agency obligations	$	3,500	$	1	$	0	$	3,501
Obligations of states and political subdivisions	Obligations of states and political subdivisions	4,600		2		9		4,593		Obligations of states and political subdivisions	4,600		1		6		4,595
Mortgage-backed securities	Mortgage-backed securities	49,319		200		1,809		47,710		Mortgage-backed securities	51,482		175		1,391		50,266
Total held to maturity securities	Total held to maturity securities	$	57,419	$	202	$	1,835	$	55,786	Total held to maturity securities	$	59,582	$	176	$	1,397	$	58,362

December 31, 2020	December 31, 2020									December 31, 2020
Obligations of states and political subdivisions	Obligations of states and political subdivisions	$	600	$	2	$	0	$	602	Obligations of states and political subdivisions	$	600	$	2	$	0	$	602
Mortgage-backed securities	Mortgage-backed securities	42,951		265		34		43,182		Mortgage-backed securities	42,951		265		34		43,182
Total held to maturity securities	Total held to maturity securities	$	43,551	$	267	$	34	$	43,784	Total held to maturity securities	$	43,551	$	267	$	34	$	43,784

As of ~~March 31,~~June 30, 2021, the Bank has pledged U.S. Government Agency securities with a carrying value of ~~$548~~$539 and mortgage-backed securities with a carrying value of ~~$2,655~~$3,739 as collateral against specific municipal deposits. At ~~March 31,~~

June 30, 2021, the Bank has pledged mortgage-backed securities with a carrying value of ~~$1,121~~$1,209 as collateral against a borrowing line of credit with the Federal Reserve Bank. However, as of ~~March 31,~~June 30, 2021, there were 0 borrowings outstanding on this Federal Reserve Bank line of credit. As of ~~March 31,~~June 30, 2021, the Bank also has mortgage-backed securities with a carrying value of ~~$402~~$358 pledged as collateral to the Federal Home Loan Bank of Des Moines.

At December 31, 2020, the Bank has pledged certain of its mortgage-backed securities with a carrying value of $1,209 as collateral to secure a line of credit with the Federal Reserve Bank. As of December 31, 2020, there were 0 borrowings outstanding on this Federal Reserve Bank line of credit. As of December 31, 2020, the Bank has pledged certain of its U.S. Government Agency securities with a carrying value of $576 and mortgage-backed securities with a carrying value of $3,028 as

collateral against specific municipal deposits. As of December 31, 2020, the Bank also has mortgage-backed securities with a carrying value of $468 pledged as collateral to the Federal Home Loan Bank of Des Moines.

For the three and six month ~~period~~periods ended ~~March 31, 2020~~June 30, 2021 gross sales of available for sale securities were ~~$10,841. There were 0 sales of available for sale securities for the three month period ended March 31, 2021.~~$1,965 and $1,965, respectively. Gross gains on sale of available for sale securities for the three and six months ended ~~March 31, 2020~~June 30, 2021 were ~~$157.~~$36 and $36, respectively. Gross losses on sale of available for sale securities for the three and six months ended ~~March 31,~~June 30, 2021were $0 and $0, respectively. Gross sales of available for sale securities were $0 and $10,841 for the three and six month periods ended June 30, 2020, respectively. Gross gains on sale of available for sale securities for the three and six months ended June 30, 2020 were ~~$1.~~

$0 and $156, respectively. Gross losses on sale of available for sale securities for the three and six months ended June 30, 2020 were $0 and $0, respectively.

The estimated fair value of securities at ~~March 31,~~June 30, 2021 and December 31, 2020, by contractual maturity, is shown below. Expected maturities will differ from contractual maturities on mortgage-backed securities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Expected maturities may differ from contractual maturities on certain agency and municipal securities due to the call feature.


		March 31, 2021				December 31, 2020					June 30, 2021				December 31, 2020
Available for sale securities	Available for sale securities	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Available for sale securities	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	Due in one year or less	$	140	$	140	$	0	$	0	Due in one year or less	$	140	$	140	$	0	$	0
Due after one year through five years	Due after one year through five years	4,949		5,207		3,833		4,095		Due after one year through five years	6,788		7,131		3,833		4,095
Due after five years through ten years	Due after five years through ten years	47,962		48,488		44,405		44,880		Due after five years through ten years	51,509		52,423		44,405		44,880
Due after ten years	Due after ten years	59,277		59,269		54,485		54,267		Due after ten years	57,030		57,516		54,485		54,267
Total securities with contractual maturities	Total securities with contractual maturities	$	112,328	$	113,104	$	102,723	$	103,242	Total securities with contractual maturities	$	115,467	$	117,210	$	102,723	$	103,242
Mortgage backed securities	Mortgage backed securities	71,448		72,056		39,454		40,991		Mortgage backed securities	125,439		126,536		39,454		40,991

Total available for sale securities	Total available for sale securities	$	183,776	$	185,160	$	142,177	$	144,233	Total available for sale securities	$	240,906	$	243,746	$	142,177	$	144,233


		March 31, 2021				December 31, 2020					June 30, 2021				December 31, 2020
Held to maturity securities	Held to maturity securities	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Held to maturity securities	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	Due in one year or less	$	0	$	0	$	0	$	0	Due in one year or less	$	0	0		$	0	$	0
Due after one year through five years	Due after one year through five years	4,300		4,300		200		200		Due after one year through five years	4,300		4,299		200		200
Due after five years through ten years	Due after five years through ten years	3,800		3,776		400		402		Due after five years through ten years	3,800		3,797		400		402

Total securities with contractual maturities	Total securities with contractual maturities	8,100		8,076		600		602		Total securities with contractual maturities	8,100		8,096		600		602
Mortgage backed securities	Mortgage backed securities	49,319		47,710		42,951		43,182		Mortgage backed securities	51,482		50,266		42,951		43,182
Total held to maturity securities	Total held to maturity securities	$	57,419	$	55,786	$	43,551	$	43,784	Total held to maturity securities	$	59,582	$	58,362	$	43,551	$	43,784

Securities with unrealized losses at ~~March 31,~~June 30, 2021 and December 31, 2020, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows:


		Less than 12 Months				12 Months or More				Total					Less than 12 Months				12 Months or More				Total
Available for sale securities	Available for sale securities	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Available for sale securities	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
March 31, 2021
June 30, 2021														June 30, 2021
U.S. government agency obligations	U.S. government agency obligations	$	0	$	0	$	13,088	$	65	$	13,088	$	65	U.S. government agency obligations	$	0	$	0	$	1,503	$	10	$	1,503	$	10

Mortgage backed securities	Mortgage backed securities	39,035		401		0		0		39,035		401		Mortgage backed securities	41,120		97		0		0		41,120		97

Corporate debt securities	Corporate debt securities	9,335		203		1,418		82		10,753		285		Corporate debt securities	5,298		15		1,418		82		6,716		97
Corporate asset-based securities	Corporate asset-based securities	5,947		19		11,829		95		17,776		114		Corporate asset-based securities	7,542		13		8,511		36		16,053		49
Trust preferred securities	Trust preferred securities	945		10		0		0		945		10		Trust preferred securities	953		4		0		0		953		4
Total	Total	$	55,262	$	633	$	26,335	$	242	$	81,597	$	875	Total	$	54,913	$	129	$	11,432	$	128	$	66,345	$	257
December 31, 2020	December 31, 2020													December 31, 2020
U.S. government agency obligations	U.S. government agency obligations	$	7,654	$	17	$	6,834	$	53	$	14,488	$	70	U.S. government agency obligations	$	7,654	$	17	$	6,834	$	53	$	14,488	$	70

Corporate debt securities	Corporate debt securities	3,447		27		1,418		82		4,865		109		Corporate debt securities	3,447		27		1,418		82		4,865		109
Corporate asset-based securities	Corporate asset-based securities	0		0		24,310		316		24,310		316		Corporate asset-based securities	0		0		24,310		316		24,310		316
Trust preferred securities	Trust preferred securities	5,612		38		0		0		5,612		38		Trust preferred securities	5,612		38		0		0		5,612		38
Total	Total	$	16,713	$	82	$	32,562	$	451	$	49,275	$	533	Total	$	16,713	$	82	$	32,562	$	451	$	49,275	$	533


		Less than 12 Months				12 Months or More				Total					Less than 12 Months				12 Months or More				Total
Held to maturity securities	Held to maturity securities	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Held to maturity securities	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
March 31, 2021
U.S. government agency obligations		$	3,483	$	17	$	0	$	0	$	3,483	$	17
June 30, 2021														June 30, 2021

Obligations of states and political subdivisions	Obligations of states and political subdivisions	500		9		0		0		500		9		Obligations of states and political subdivisions	$	594	$	6	$	0	$	0	$	594	$	6
Mortgage-backed securities	Mortgage-backed securities	42,342		1,809		0		0		42,342		1,809		Mortgage-backed securities	44,071		1,391		0		0		44,071		1,391
Total	Total	$	46,325	$	1,835	$	0	$	0	$	46,325	$	1,835	Total	$	44,665	$	1,397	$	0	$	0	$	44,665	$	1,397
December 31, 2020	December 31, 2020													December 31, 2020

Mortgage-backed securities	Mortgage-backed securities	$	16,538	$	34	$	0	$	0	$	16,538	$	34	Mortgage-backed securities	$	16,538	$	34	$	0	$	0	$	16,538	$	34
Total	Total	$	16,538	$	34	$	0	$	0	$	16,538	$	34	Total	$	16,538	$	34	$	0	$	0	$	16,538	$	34

The Company evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. As part of such monitoring, the credit quality of individual securities and their issuer is assessed. Significant inputs used to measure the amount of other-than-temporary impairment related to credit loss include, but are not limited to; the Company’s intent and ability to sell the debt security prior to recovery, that it is more likely than not that the Company will not sell the security prior to recovery, default and delinquency rates of the underlying collateral, remaining credit support, and historical loss severities. Adjustments to market value of available for sale securities that are considered temporary are recorded as separate components of ~~shareholders’~~stockholders’ equity, net of tax. If the unrealized loss of a security is identified as other-than-temporary based on information available, such as the decline in the creditworthiness of the issuer, external market ratings, or the anticipated or realized elimination of associated dividends, such impairments are further analyzed to determine if credit loss exists. If there is a credit loss, it will be recorded in the Company’s consolidated statement of operations. Non-credit components of the unrealized losses on available for sale securities will continue to be recognized in other comprehensive income (loss), net of tax. Unrealized losses reflected in the preceding tables have not been included in results of operations because the unrealized loss was not deemed other-than-temporary. Management has determined that more likely than not, the Company neither intends to sell, nor will it be required to sell each debt security before its anticipated recovery, and therefore recovery of cost will occur.

NOTE 3 – LOANS, ALLOWANCE FOR LOAN LOSSES AND IMPAIRED LOANS

Portfolio Segments:

Commercial and agricultural real estate loans are underwritten after evaluating and understanding the borrower's ability to operate profitably and prudently expand its business. Management examines current and projected cash flows to determine the ability of the borrower to repay its obligations as agreed. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally largely dependent on the successful operation of the property or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The level of owner-occupied property versus non-owner-occupied property are tracked and monitored on a regular basis. Agricultural real estate loans are primarily comprised of loans for the purchase of farmland. Loan-to-value ratios on loans secured by farmland generally do not exceed 75%.

Commercial and industrial (“C&I”) loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. These cash flows, however, may not be as expected and the value of collateral securing the loans may fluctuate. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee. Agricultural operating loans are generally comprised of term loans to fund the purchase of equipment, livestock and seasonal operating lines. Operating lines are typically written for one year and secured by the crop and other farm assets or other business assets, as considered necessary. Agricultural loans carry significant credit risks as they may involve larger balances concentrated with single borrowers or groups of related borrowers. In addition, repayment of such loans depends on the successful operation or management of the farm property securing the loan or for which an operating loan is utilized. Farming operations may be

affected by adverse weather conditions such as drought, hail or floods that can severely limit crop yields. SBA PPP loan balances are 100% guaranteed under the Small Business Association’s Paycheck Protection Program and may be forgiven in full, depending on use of funds and eligibility. These SBA-backed loans helped businesses keep their workforce employed during the COVID-19 crisis. Eligible borrowers, who qualify for full loan forgiveness during the eight to twenty four week period following loan disbursement, can apply for forgiveness, once all proceeds for which the borrower requested forgiveness has been used. Borrowers can apply for forgiveness any time up to the maturity date of the loan.

Residential mortgage loans are collateralized by primary and secondary positions on real estate and are underwritten primarily based on borrower’s documented income, credit scores, and collateral values. Under consumer home equity loan guidelines, the borrower will be approved for a loan based on a percentage of their home’s appraised value less the balance owed on the existing first mortgage. Credit risk is minimized within the residential mortgage portfolio due to relatively small loan account balances spread across many individual borrowers. Management evaluates trends in past due loans and current economic factors such as the housing price index on a regular basis.

Consumer installment loans are comprised of originated indirect paper loans secured primarily by boats and recreational vehicles and other consumer loans secured primarily by automobiles and other personal assets. The Bank ceased new originations of indirect paper loans in early fiscal 2017. Consumer loan underwriting terms often depend on the collateral type, debt to income ratio and the borrower’s creditworthiness as evidenced by their credit score. In the event of a consumer installment loan default, collateral value alone may not provide an adequate source of repayment of the outstanding loan balance. This shortage is a result of the greater likelihood of damage, loss and depreciation for consumer based collateral.

2322

Credit Quality/Risk Ratings:

Management utilizes a numeric risk rating system to identify and quantify the Bank’s risk of loss within its loan portfolio. Ratings are initially assigned prior to funding the loan, and may be changed at any time as circumstances warrant.

Ratings range from the highest to lowest quality based on factors that include measurements of ability to pay, collateral type and value, borrower stability and management experience. The Bank’s loan portfolio ratings are presented below in accordance with the risk rating framework that has been commonly adopted by the federal banking agencies. The definitions of the various risk rating categories are as follows:

1 through 4 - Pass. A “Pass” loan means that the condition of the borrower and the performance of the loan is satisfactory or better.

5 - Watch. A “Watch” loan has clearly identifiable developing weaknesses that deserve additional attention from management. Weaknesses that are not corrected or mitigated, may jeopardize the ability of the borrower to repay the loan in the future.

6 - Special Mention. A “Special Mention” loan has one or more potential weakness that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the institution’s credit position in the future.

7 - Substandard. A “Substandard” loan is inadequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any. Assets classified as substandard must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

8 - Doubtful. A “Doubtful” loan has all the weaknesses inherent in a Substandard loan 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 and improbable.

9 - Loss. Loans classified as “Loss” are considered uncollectible, and their continuance as bankable assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, and a partial recovery may occur in the future.

2423

Below is a summary of originated and acquired loans by type and risk rating as of ~~March 31,~~June 30, 2021:


		1 to 5		6		7		8		9		TOTAL			1 to 5		6		7		8		9		TOTAL
Originated Loans:	Originated Loans:													Originated Loans:
Commercial/Agricultural real estate:	Commercial/Agricultural real estate:													Commercial/Agricultural real estate:
Commercial real estate	Commercial real estate	$	363,758	$	764	$	1,081	$	0	$	0	$	365,603	Commercial real estate	$	419,278	$	506	$	781	$	0	$	0	$	420,565
Agricultural real estate	Agricultural real estate	36,439		522		1,179		0		0		38,140		Agricultural real estate	41,425		378		1,122		0		0		42,925
Multi-family real estate	Multi-family real estate	111,199		304		0		0		0		111,503		Multi-family real estate	113,491		299		0		0		0		113,790
Construction and land development	Construction and land development	80,458		0		3,478		0		0		83,936		Construction and land development	86,108		0		3,478		0		0		89,586
C&I/Agricultural operating:	C&I/Agricultural operating:													C&I/Agricultural operating:
Commercial and industrial	Commercial and industrial	72,355		317		4,021		0		0		76,693		Commercial and industrial	77,758		16		3,009		0		0		80,783
Agricultural operating	Agricultural operating	20,003		1,045		101		0		0		21,149		Agricultural operating	21,261		22		1,731		0		0		23,014
Residential mortgage:	Residential mortgage:													Residential mortgage:
Residential mortgage	Residential mortgage	78,764		0		3,521		0		0		82,285		Residential mortgage	69,549		0		3,416		0		0		72,965
Purchased HELOC loans	Purchased HELOC loans	5,057		0		234		0		0		5,291		Purchased HELOC loans	4,715		0		234		0		0		4,949
Consumer installment:	Consumer installment:													Consumer installment:
Originated indirect paper	Originated indirect paper	23,024		0		162		0		0		23,186		Originated indirect paper	20,196		0		181		0		0		20,377

Other consumer	Other consumer	10,906		0		45		0		0		10,951		Other consumer	10,250		0		46		0		0		10,296
Originated loans before SBA PPP loans	Originated loans before SBA PPP loans	801,963		2,952		13,822		0		0		818,737		Originated loans before SBA PPP loans	864,031		1,221		13,998		0		0		879,250
SBA PPP loans	SBA PPP loans	118,931		0		0		0		0		118,931		SBA PPP loans	74,925		0		0		0		0		74,925
Total originated loans	Total originated loans	$	920,894	$	2,952	$	13,822	$	0	$	0	$	937,668	Total originated loans	$	938,956	$	1,221	$	13,998	$	0	$	0	$	954,175
Acquired Loans:	Acquired Loans:													Acquired Loans:
Commercial/Agricultural real estate:	Commercial/Agricultural real estate:													Commercial/Agricultural real estate:
Commercial real estate	Commercial real estate	$	135,059	$	10,494	$	4,033	$	0	$	0	$	149,586	Commercial real estate	$	124,647	$	10,876	$	3,974	$	0	$	0	$	139,497
Agricultural real estate	Agricultural real estate	27,041		0		5,386		0		0		32,427		Agricultural real estate	24,576		0		5,164		0		0		29,740
Multi-family real estate	Multi-family real estate	7,485		0		0		0		0		7,485		Multi-family real estate	7,401		0		0		0		0		7,401
Construction and land development	Construction and land development	6,553		204		39		0		0		6,796		Construction and land development	961		202		39		0		0		1,202
C&I/Agricultural operating:	C&I/Agricultural operating:													C&I/Agricultural operating:
Commercial and industrial	Commercial and industrial	18,865		9		366		0		0		19,240		Commercial and industrial	19,391		9		301		0		0		19,701
Agricultural operating	Agricultural operating	6,754		0		347		0		0		7,101		Agricultural operating	4,482		0		411		0		0		4,893
Residential mortgage:	Residential mortgage:													Residential mortgage:
Residential mortgage	Residential mortgage	37,982		0		2,064		0		0		40,046		Residential mortgage	31,782		0		1,999		0		0		33,781
Consumer installment:	Consumer installment:													Consumer installment:
Other consumer	Other consumer	906		0		7		0		0		913		Other consumer	644		0		4		0		0		648
Total acquired loans	Total acquired loans	$	240,645	$	10,707	$	12,242	$	0	$	0	$	263,594	Total acquired loans	$	213,884	$	11,087	$	11,892	$	0	$	0	$	236,863
Total Loans:	Total Loans:													Total Loans:
Commercial/Agricultural real estate:	Commercial/Agricultural real estate:													Commercial/Agricultural real estate:
Commercial real estate	Commercial real estate	$	498,817	$	11,258	$	5,114	$	0	$	0	$	515,189	Commercial real estate	$	543,925	$	11,382	$	4,755	$	0	$	0	$	560,062
Agricultural real estate	Agricultural real estate	63,480		522		6,565		0		0		70,567		Agricultural real estate	66,001		378		6,286		0		0		72,665
Multi-family real estate	Multi-family real estate	118,684		304		0		0		0		118,988		Multi-family real estate	120,892		299		0		0		0		121,191
Construction and land development	Construction and land development	87,011		204		3,517		0		0		90,732		Construction and land development	87,069		202		3,517		0		0		90,788
Commercial/Agricultural non-real estate:	Commercial/Agricultural non-real estate:													Commercial/Agricultural non-real estate:
Commercial and industrial	Commercial and industrial	91,220		326		4,387		0		0		95,933		Commercial and industrial	97,149		25		3,310		0		0		100,484
Agricultural operating	Agricultural operating	26,757		1,045		448		0		0		28,250		Agricultural operating	25,743		22		2,142		0		0		27,907
Residential mortgage:	Residential mortgage:													Residential mortgage:
Residential mortgage	Residential mortgage	116,746		0		5,585		0		0		122,331		Residential mortgage	101,331		0		5,415		0		0		106,746
Purchased HELOC loans	Purchased HELOC loans	5,057		0		234		0		0		5,291		Purchased HELOC loans	4,715		0		234		0		0		4,949
Consumer installment:	Consumer installment:													Consumer installment:
Originated indirect paper	Originated indirect paper	23,024		0		162		0		0		23,186		Originated indirect paper	20,196		0		181		0		0		20,377

Other Consumer	Other Consumer	11,812		0		52		0		0		11,864		Other Consumer	10,894		0		50		0		0		10,944
Gross loans before SBA PPP Loans	Gross loans before SBA PPP Loans	1,042,608		13,659		26,064		0		0		1,082,331		Gross loans before SBA PPP Loans	1,077,915		12,308		25,890		0		0		1,116,113
SBA PPP loans	SBA PPP loans	118,931		0		0		0		0		$	118,931	SBA PPP loans	74,925		0		0		0		0		$	74,925
Gross loans	Gross loans	$	1,161,539	$	13,659	$	26,064	$	0	$	0	$	1,201,262	Gross loans	$	1,152,840	$	12,308	$	25,890	$	0	$	0	$	1,191,038
Less:	Less:													Less:
Unearned net deferred fees and costs and loans in process	Unearned net deferred fees and costs and loans in process											(4,487)		Unearned net deferred fees and costs and loans in process											(5,133)
Unamortized discount on acquired loans	Unamortized discount on acquired loans											(4,649)		Unamortized discount on acquired loans											(4,347)
Allowance for loan losses	Allowance for loan losses											(16,860)		Allowance for loan losses											(16,845)
Loans receivable, net	Loans receivable, net											$	1,175,266	Loans receivable, net											$	1,164,713

2524

Below is a summary of originated and acquired loans by type and risk rating as of December 31, 2020:


	1 to 5		6		7		8		9		TOTAL
Originated Loans:
Commercial/Agricultural real estate:
Commercial real estate	$	349,482	$	543	$	1,088	$	0	$	0	$	351,113
Agricultural real estate	30,041		446		1,254		0		0		31,741
Multi-family real estate	112,423		308		0		0		0		112,731
Construction and land development	87,763		0		3,478		0		0		91,241
C&I/Agricultural operating:
Commercial and industrial	91,474		20		3,796		0		0		95,290

Agricultural operating	22,462		934		1,061		0		0		24,457
Residential mortgage:
Residential mortgage	82,097		7		4,179		0		0		86,283
Purchased HELOC loans	5,959		0		301		0		0		6,260
Consumer installment:
Originated indirect paper	25,616		0		235		0		0		25,851

Other Consumer	11,986		0		70		0		0		12,056
Originated loans before SBA PPP loans	819,303		2,258		15,462		0		0		837,023
SBA PPP loans	123,702		0		0		0		0		123,702
Total originated loans	$	943,005	$	2,258	$	15,462	$	0	$	0	$	960,725
Acquired Loans:
Commercial/Agricultural real estate:
Commercial real estate	$	148,303	$	4,274	$	3,985	$	0	$	0	$	156,562
Agricultural real estate	31,147		0		5,907		0		0		37,054
Multi-family real estate	9,273		0		148		0		0		9,421
Construction and land development	7,237		0		39		0		0		7,276
C&I/Agricultural operating:
Commercial and industrial	20,918		9		336		0		0		21,263
Agricultural operating	7,838		0		490		0		0		8,328
Residential mortgage:
Residential mortgage	42,805		131		2,167		0		0		45,103
Consumer installment:
Other Consumer	1,150		0		7		0		0		1,157
Total acquired loans	$	268,671	$	4,414	$	13,079	$	0	$	0	$	286,164
Total Loans:
Commercial/Agricultural real estate:
Commercial real estate	$	497,785	$	4,817	$	5,073	$	0	$	0	507,675
Agricultural real estate	61,188		446		7,161		0		0		68,795
Multi-family real estate	121,696		308		148		0		0		122,152
Construction and land development	95,000		0		3,517		0		0		98,517
C&I/Agricultural operating:
Commercial and industrial	112,392		29		4,132		0		0		116,553
Agricultural operating	30,300		934		1,551		0		0		32,785
Residential mortgage:
Residential mortgage	124,902		138		6,346		0		0		131,386
Purchased HELOC loans	5,959		0		301		0		0		6,260
Consumer installment:
Originated indirect paper	25,616		0		235		0		0		25,851

Other Consumer	13,136		0		77		0		0		13,213
Gross loans before SBA PPP loans	1,087,974		6,672		28,541		0		0		1,123,187
SBA PPP loans	123,702		0		0		0		0		123,702
Gross loans	$	1,211,676	$	6,672	$	28,541	$	0	$	0	$	1,246,889
Less:
Unearned net deferred fees and costs and loans in process											(4,245)
Unamortized discount on acquired loans											(5,063)
Allowance for loan losses											(17,043)
Loans receivable, net											$	1,220,538

2625

The following table summarizes SBA PPP loans ~~by round~~ at ~~March 31,~~June 30, 2021 and December 31, ~~2020 and includes additional round 2 activity in April 2021:~~2020:

(Dollars in Millions)

Balance Net Deferred Fee Income
SBA PPP Loans - Round 1 $ 124 $ 3.0
SBA PPP Loans - Round 2 0 0
Total SBA PPP Loans, December 31, 2020 124 3.0
SBA PPP Loans - Round 1 $ 72 $ 1.3
SBA PPP Loans - Round 2 47 1.7
Total SBA PPP Loans, March 31, 2021 119 3.0
Net deferred fees collected after March 31, 2021 from Q1 SBA PPP loan originations — 0.9
119 3.9
SBA PPP Pipeline Round 2, April 2021 8 0.8
March 31, 2021 plus SBA PPP Pipeline - Round 2, April 2021 $ 127 $ 4.7


	2020 Originations				2021 Originations				Total
	Balance		Net Deferred Fee Income		Balance		Net Deferred Fee Income		Balance		Net Deferred Fee Income
SBA PPP Loans, December 31, 2020	$	123,702	$	2,991	$	0	$	0	$	123,702	$	2,991
2021 SBA PPP Loan Originations	0		0		55,790		3,485		55,790		3,485
Less: 2021 SBA PPP Loan Forgiveness and Fee Accretion	(102,295)		(2,683)		(2,272)		(376)		(104,567)		(3,059)
Balance, June 30, 2021	$	21,407	$	308	$	53,518	$	3,109	$	74,925	$	3,417

Allowance for Loan Losses - The ALL represents management’s estimate of probable and inherent credit losses in the Bank’s loan portfolio. Estimating the amount of the ALL requires the exercise of significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of other qualitative factors such as current economic trends and conditions, all of which may be susceptible to significant change.

There are many factors affecting the ALL; some are quantitative, while others require qualitative judgment. The process for determining the ALL (which management believes adequately considers potential factors which result in probable credit losses), includes subjective elements and, therefore, may be susceptible to significant change. To the extent actual outcomes differ from management estimates, additional provision for loan losses could be required that could adversely affect the Company’s earnings or financial position in future periods. Allocations of the ALL may be made for specific loans but the entire ALL is available for any loan that, in management’s judgment, should be charged-off or for which an actual loss is realized.

As an integral part of their examination process, various regulatory agencies also review the Bank’s ALL. Such agencies may require that changes in the ALL be recognized when such regulators’ credit evaluations differ from those of our management based on information available to the regulators at the time of their examinations.

2726

Changes in the ALL by loan type for the periods presented below were as follows:


	Commercial/Agriculture Real Estate		C&I/Agricultural operating		Residential Mortgage		Consumer Installment		Unallocated		Total
Three months ended June 30, 2021
Allowance for Loan Losses:
Beginning balance, April 1, 2021	$	11,109	$	1,633	$	941	$	450	$	895	$	15,028
Charge-offs	(51)		0		0		(12)		0		(63)
Recoveries	1		30		2		21		0		54
Provision	(169)		519		(172)		(97)		(40)		41
Allowance allocation adjustment	0		0		0		0		0		0
Total Allowance on originated loans	10,890		2,182		771		362		855		15,060
Purchased credit impaired loans	0		0		0		0		0		0
Other acquired loans:
Beginning balance, April 1, 2021	1,301		94		388		49		0		1,832
Charge-offs	0		(7)		0		(3)		0		(10)
Recoveries	0		3		1		0		0		4
Provision	167		(9)		(158)		(41)		0		(41)
Allowance allocation adjustment	0		0		0		0		0		0
Total Allowance on other acquired loans	1,468		81		231		5		0		1,785
Total Allowance on acquired loans	1,468		81		231		5		0		1,785
Ending balance, June 30, 2021	$	12,358	$	2,263	$	1,002	$	367	$	855	$	16,845

Commercial/Agriculture Real Estate C&I/Agricultural operating Residential Mortgage Consumer Installment Unallocated Total
Three months ended March 31, 2021
Allowance for Loan Losses:
Beginning balance, January 1, 2021 $ 10,271 $ 2,112 $ 1,041 $ 489 $ 906 $ 14,819
Charge-offs 0 0 0 (25) 0 (25)
Recoveries 5 8 7 10 0 30
Provision 833 (487) (107) (24) (11) 204
Total Allowance on originated loans 11,109 1,633 941 450 895 15,028
Purchased credit impaired loans 0 0 0 0 0 0
Other acquired loans:
Beginning balance, January 1, 2021 1,684 141 335 64 0 2,224
Charge-offs (200) 0 0 0 0 (200)
Recoveries 0 7 1 4 0 12
Provision (183) (54) 52 (19) 0 (204)
Total Allowance on other acquired loans 1,301 94 388 49 0 1,832
Total Allowance on acquired loans 1,301 94 388 49 0 1,832
Ending balance, March 31, 2021 $ 12,410 $ 1,727 $ 1,329 $ 499 $ 895 $ 16,860
Allowance for Loan Losses at March 31, 2021:
Amount of allowance for loan losses arising from loans individually evaluated for impairment $ 1,094 $ 10 $ 157 $ 0 $ 0 $ 1,261
Amount of allowance for loan losses arising from loans collectively evaluated for impairment $ 11,316 $ 1,717 $ 1,172 $ 499 $ 895 $ 15,599
Loans Receivable as of March 31, 2021 —
Ending balance of originated loans $ 599,182 $ 216,773 $ 87,576 $ 34,137 $ 0 $ 937,668
Ending balance of purchased credit-impaired loans 14,856 1,367 1,218 0 0 17,441
Ending balance of other acquired loans 181,438 24,974 38,828 913 0 246,153
Ending balance of loans $ 795,476 $ 243,114 $ 127,622 $ 35,050 $ 0 $ 1,201,262
Ending balance: individually evaluated for impairment $ 24,948 $ 6,197 $ 8,843 $ 255 $ 0 $ 40,243
Ending balance: collectively evaluated for impairment $ 770,528 $ 236,917 $ 118,779 $ 34,795 $ 0 $ 1,161,019


	Commercial/Agriculture Real Estate		C&I/Agricultural operating		Residential Mortgage		Consumer Installment		Unallocated		Total
Six months ended June 30, 2021
Allowance for Loan Losses:
Beginning balance, January 1, 2021	$	10,271	$	2,112	$	1,041	$	489	$	906	$	14,819
Charge-offs	(51)		0		0		(37)		0		(88)
Recoveries	6		38		9		31		0		84
Provision	664		32		(279)		(121)		(51)		245

Total Allowance on originated loans	10,890		2,182		771		362		855		15,060
Purchased credit impaired loans	0		0		0		0		0		0
Other acquired loans:
Beginning balance, January 1, 2021	1,684		141		335		64		0		2,224
Charge-offs	(200)		(7)		0		(3)		0		(210)
Recoveries	0		10		2		4		0		16
Provision	(16)		(63)		(106)		(60)		0		(245)

Total Allowance on other acquired loans	1,468		81		231		5		0		1,785
Total Allowance on acquired loans	1,468		81		231		5		0		1,785
Ending balance, June 30, 2021	$	12,358	$	2,263	$	1,002	$	367	$	855	$	16,845







Allowance for Loan Losses at June 30, 2021:
Amount of allowance for loan losses arising from loans individually evaluated for impairment	$	796	$	527	$	144	$	0	$	0	$	1,467
Amount of allowance for loan losses arising from loans collectively evaluated for impairment	$	11,562	$	1,736	$	858	$	367	$	855	$	15,378
Loans Receivable as of June 30, 2021											—
Ending balance of originated loans	$	666,866	$	178,722	$	77,914	$	30,673	$	0	$	954,175
Ending balance of purchased credit-impaired loans	14,069		1,252		1,115		0		0		16,436
Ending balance of other acquired loans	163,771		23,342		32,666		648		0		220,427
Ending balance of loans	$	844,706	$	203,316	$	111,695	$	31,321	$	0	$	1,191,038
Ending balance: individually evaluated for impairment	$	23,607	$	6,598	$	8,385	$	277	$	0	$	38,867
Ending balance: collectively evaluated for impairment	$	821,099	$	196,718	$	103,310	$	31,044	$	0	$	1,152,171

Commercial/Agriculture Real Estate C&I/Agricultural operating Residential Mortgage Consumer Installment Unallocated Total
Three months ended March 31, 2020
Allowance for Loan Losses:
Beginning balance, January 1, 2020 $ 6,205 $ 1,643 $ 879 $ 467 $ 357 $ 9,551
Charge-offs 0 (307) 0 (49) 0 (356)
Recoveries 0 0 5 20 0 25
Provision 1,072 323 40 92 103 1,630
Total Allowance on originated loans $ 7,277 $ 1,659 $ 924 $ 530 $ 460 $ 10,850
Purchased credit impaired loans 0 0 0 0 0 0
Other acquired loans
Beginning balance, January 1, 2020 526 27 163 53 0 769
Charge-offs 0 (135) (27) (2) 0 (164)
Recoveries 0 0 8 2 0 10
Provision 139 268 (29) (8) 0 370
Total Allowance on other acquired loans 665 160 115 45 0 985
Total Allowance on acquired loans 665 160 115 45 0 985
Ending balance, March 31, 2020 $ 7,942 $ 1,819 $ 1,039 $ 575 $ 460 $ 11,835
Allowance for Loan Losses at March 31, 2020:
Amount of allowance for loan losses arising from loans individually evaluated for impairment $ 733 $ 92 $ 181 $ 27 $ 0 $ 1,033
Amount of allowance for loan losses arising from loans collectively evaluated for impairment $ 7,209 $ 1,727 $ 858 $ 548 $ 460 $ 10,802
Loans Receivable as of March 31, 2020:
Ending balance of originated loans $ 519,958 $ 107,949 $ 110,455 $ 51,494 $ 0 $ 789,856
Ending balance of purchased credit-impaired loans 25,452 3,845 1,934 0 0 31,231
Ending balance of other acquired loans 257,059 48,152 61,023 2,104 0 368,338
Ending balance of loans $ 802,469 $ 159,946 $ 173,412 $ 53,598 $ 0 $ 1,189,425
Ending balance: individually evaluated for impairment $ 36,470 $ 8,759 $ 10,226 $ 496 $ 0 $ 55,951
Ending balance: collectively evaluated for impairment $ 765,999 $ 151,187 $ 163,186 $ 53,102 $ 0 $ 1,133,474


	Commercial/Agriculture Real Estate		C&I/Agricultural operating		Residential Mortgage		Consumer Installment		Unallocated		Total
Three months ended June 30, 2020
Allowance for Loan Losses:
Beginning balance, April 1, 2020	$	7,277	$	1,659	$	924	$	530	$	460	$	10,850
Charge-offs	0		(222)		0		(65)		0		(287)
Recoveries	0		0		0		17		0		17
Provision	1,020		341		56		(2)		114		1,529

Total Allowance on originated loans	8,297		1,778		980		480		574		12,109
Purchased credit impaired loans	0		0		0		0		0		0
Other acquired loans:
Beginning balance, April 1, 2020	665		160		115		45		0		985
Charge-offs	0		(24)		0		0		0		(24)
Recoveries	76		0		6		0		0		82
Provision	5		198		(9)		27		0		221

Total Allowance on other acquired loans	746		334		112		72		0		1,264
Total Allowance on acquired loans	746		334		112		72		0		1,264
Ending balance, June 30, 2020	$	9,043	$	2,112	$	1,092	$	552	$	574	$	13,373


		Commercial/Agriculture Real Estate			C&I/Agricultural operating		Residential Mortgage		Consumer Installment		Unallocated		Total			Commercial/Agriculture Real Estate		C&I/Agricultural operating		Residential Mortgage		Consumer Installment		Unallocated		Total
Allowance for Loan Losses at December 31, 2020:
Six months ended June 30, 2020															Six months ended June 30, 2020
Allowance for Loan Losses:															Allowance for Loan Losses:
Beginning balance, January 1, 2020															Beginning balance, January 1, 2020	$	6,205	$	1,643	$	879	$	467	$	357	$	9,551
Charge-offs															Charge-offs	0		(529)		0		(114)		0		(643)
Recoveries															Recoveries	0		0		5		37		0		42
Provision															Provision	2,092		664		96		90		217		3,159

Total Allowance on originated loans															Total Allowance on originated loans	$	8,297	$	1,778	$	980	$	480	$	574	$	12,109
Purchased credit impaired loans															Purchased credit impaired loans	0		0		0		0		0		0
Other acquired loans															Other acquired loans
Beginning balance, January 1, 2020															Beginning balance, January 1, 2020	526		27		163		53		0		769
Charge-offs															Charge-offs	0		(159)		(27)		(2)		0		(188)
Recoveries															Recoveries	76		0		14		2		0		92
Provision															Provision	144		466		(38)		19		0		591

Total Allowance on other acquired loans															Total Allowance on other acquired loans	746		334		112		72		0		1,264
Total Allowance on acquired loans															Total Allowance on acquired loans	746		334		112		72		0		1,264
Ending balance, June 30, 2020															Ending balance, June 30, 2020	$	9,043	$	2,112	$	1,092	$	552	$	574	$	13,373
Allowance for Loan Losses at June 30, 2020:															Allowance for Loan Losses at June 30, 2020:
Amount of allowance for loan losses arising from loans individually evaluated for impairment	Amount of allowance for loan losses arising from loans individually evaluated for impairment	$	698		$	190	$	226	$	1	$	0	$	1,115	Amount of allowance for loan losses arising from loans individually evaluated for impairment	$	815	$	181	$	101	$	1	$	0	$	1,098
Amount of allowance for loan losses arising from loans collectively evaluated for impairment	Amount of allowance for loan losses arising from loans collectively evaluated for impairment	$	11,257		$	2,063	$	1,150	$	552	$	906	$	15,928	Amount of allowance for loan losses arising from loans collectively evaluated for impairment	$	8,228	$	1,931	$	991	$	551	$	574	$	12,275
Loans Receivable as of December 31, 2020:
Loans Receivable as of June 30, 2020:															Loans Receivable as of June 30, 2020:
Ending balance of originated loans	Ending balance of originated loans	$	586,826		$	243,449	$	92,543	$	37,907	$	0	$	960,725	Ending balance of originated loans	$	535,001	$	243,512	$	102,525	$	46,206	$	0	$	927,244
Ending balance of purchased credit-impaired loans	Ending balance of purchased credit-impaired loans	15,100			1,534		1,312		0		0		17,946		Ending balance of purchased credit-impaired loans	22,452		2,559		1,788		0		0		26,799
Ending balance of other acquired loans	Ending balance of other acquired loans	195,213			28,057		43,791		1,157		0		268,218		Ending balance of other acquired loans	244,235		39,042		54,972		1,639		0		339,888
Ending balance of loans	Ending balance of loans	$	797,139	797139000	$	273,040	$	137,646	$	39,064	$	0	$	1,246,889	Ending balance of loans	$	801,688	$	285,113	$	159,285	$	47,845	$	0	$	1,293,931
Ending balance: individually evaluated for impairment	Ending balance: individually evaluated for impairment	$	26,303		$	7,115	$	9,621	$	358	$	0	$	43,397	Ending balance: individually evaluated for impairment	$	34,285	$	7,583	$	9,443	$	377	$	0	$	51,688
Ending balance: collectively evaluated for impairment	Ending balance: collectively evaluated for impairment	$	770,836		$	265,925	$	128,025	$	38,706	$	0	$	1,203,492	Ending balance: collectively evaluated for impairment	$	767,403	$	277,530	$	149,842	$	47,468	$	0	$	1,242,243


	Commercial/Agriculture Real Estate		C&I/Agricultural operating		Residential Mortgage		Consumer Installment		Unallocated		Total
Allowance for Loan Losses at December 31, 2020:
Amount of allowance for loan losses arising from loans individually evaluated for impairment	$	698	$	190	$	226	$	1	$	0	$	1,115
Amount of allowance for loan losses arising from loans collectively evaluated for impairment	$	11,257	$	2,063	$	1,150	$	552	$	906	$	15,928
Loans Receivable as of December 31, 2020:
Ending balance of originated loans	$	586,826	$	243,449	$	92,543	$	37,907	$	0	$	960,725
Ending balance of purchased credit-impaired loans	15,100		1,534		1,312		0		0		17,946
Ending balance of other acquired loans	195,213		28,057		43,791		1,157		0		268,218
Ending balance of loans	$	797,139	$	273,040	$	137,646	$	39,064	$	0	$	1,246,889
Ending balance: individually evaluated for impairment	$	26,303	$	7,115	$	9,621	$	358	$	0	$	43,397
Ending balance: collectively evaluated for impairment	$	770,836	$	265,925	$	128,025	$	38,706	$	0	$	1,203,492

Loans receivable by loan type as of the end of the periods shown below were as follows:


		Commercial/Agriculture Real Estate Loans				C&I/Agricultural Operating				Residential Mortgage				Consumer Installment				Totals					Commercial/Agriculture Real Estate Loans				C&I/Agricultural Operating				Residential Mortgage				Consumer Installment				Totals
		March 31, 2021		December 31, 2020		March 31, 2021		December 31, 2020		March 31, 2021		December 31, 2020		March 31, 2021		December 31, 2020		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020		June 30, 2021		December 31, 2020		June 30, 2021		December 31, 2020		June 30, 2021		December 31, 2020		June 30, 2021		December 31, 2020
Performing loans	Performing loans																					Performing loans
Performing TDR loans	Performing TDR loans	$	4,472	$	4,695	$	4,042	$	3,836	$	3,195	$	3,142	$	43	$	49	$	11,752	$	11,722	Performing TDR loans	$	4,841	$	4,695	$	3,803	$	3,836	$	2,912	$	3,142	$	47	$	49	$	11,603	$	11,722
Performing loans other	Performing loans other	785,733		786,533		237,917		266,975		121,746		131,470		34,899		38,856		1,180,295		1,223,834		Performing loans other	835,122		786,533		198,037		266,975		106,480		131,470		31,178		38,856		1,170,817		1,223,834
Total performing loans	Total performing loans	790,205		791,228		241,959		270,811		124,941		134,612		34,942		38,905		1,192,047		1,235,556		Total performing loans	839,963		791,228		201,840		270,811		109,392		134,612		31,225		38,905		1,182,420		1,235,556

Nonperforming loans (1)	Nonperforming loans (1)																					Nonperforming loans (1)
Nonperforming TDR loans	Nonperforming TDR loans	4,184		4,691		758		1,287		742		777		6		0		5,690		6,755		Nonperforming TDR loans	3,457		4,691		666		1,287		862		777		9		0		4,994		6,755
Nonperforming loans other	Nonperforming loans other	1,087		1,220		397		942		1,939		2,257		102		159		3,525		4,578		Nonperforming loans other	1,286		1,220		810		942		1,441		2,257		87		159		3,624		4,578
Total nonperforming loans	Total nonperforming loans	5,271		5,911		1,155		2,229		2,681		3,034		108		159		9,215		11,333		Total nonperforming loans	4,743		5,911		1,476		2,229		2,303		3,034		96		159		8,618		11,333
Total loans	Total loans	$	795,476	$	797,139	$	243,114	$	273,040	$	127,622	$	137,646	$	35,050	$	39,064	$	1,201,262	$	1,246,889	Total loans	$	844,706	$	797,139	$	203,316	$	273,040	$	111,695	$	137,646	$	31,321	$	39,064	$	1,191,038	$	1,246,889

(1)Nonperforming loans are either 90+ days past due or nonaccrual.

As of ~~March 31,~~June 30, 2021, the Company had ~~$209,511~~$238,306 in unused commitments, compared to $247,324 in unused commitments as of December 31, 2020.

3031

An aging analysis of the Company’s commercial/agricultural real estate, C&I, agricultural operating, residential mortgage, consumer installment and purchased third party loans as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively, was as follows:


		30-59 Days Past Due and Accruing		60-89 Days Past Due and Accruing		Greater Than 89 Days Past Due and Accruing		Total Past Due and Accruing		Nonaccrual Loans		Total Past Due Accruing and Nonaccrual Loans		Current		Total Loans			30-59 Days Past Due and Accruing		60-89 Days Past Due and Accruing		Greater Than 89 Days Past Due and Accruing		Total Past Due and Accruing		Nonaccrual Loans		Total Past Due Accruing and Nonaccrual Loans		Current		Total Loans
March 31, 2021
June 30, 2021																		June 30, 2021
Commercial/Agricultural real estate:	Commercial/Agricultural real estate:																	Commercial/Agricultural real estate:
Commercial real estate	Commercial real estate	$	1,788	$	1,430	$	0	$	3,218	$	760	$	3,978	$	511,211	$	515,189	Commercial real estate	$	480	$	0	$	0	$	480	$	1,027	$	1,507	$	558,555	$	560,062
Agricultural real estate	Agricultural real estate	361		0		0		361		4,511		4,872		65,695		70,567		Agricultural real estate	5		0		0		5		3,716		3,721		68,944		72,665
Multi-family real estate	Multi-family real estate	0		0		0		0		0		0		118,988		118,988		Multi-family real estate	0		0		0		0		0		0		121,191		121,191
Construction and land development	Construction and land development	0		204		0		204		0		204		90,528		90,732		Construction and land development	0		0		0		0		0		0		90,788		90,788
C&I/Agricultural operating:	C&I/Agricultural operating:																	C&I/Agricultural operating:
Commercial and industrial	Commercial and industrial	592		145		0		737		391		1,128		94,805		95,933		Commercial and industrial	175		0		0		175		313		488		99,996		100,484
C&I SBA PPP loans	C&I SBA PPP loans	0		0		0		0		0		0		118,931		118,931		C&I SBA PPP loans	0		0		0		0		0		0		74,925		74,925
Agricultural operating	Agricultural operating	2,506		379		0		2,885		764		3,649		24,601		28,250		Agricultural operating	287		0		0		287		1,163		1,450		26,457		27,907
Residential mortgage:	Residential mortgage:																	Residential mortgage:
Residential mortgage	Residential mortgage	1,974		246		514		2,734		1,933		4,667		117,664		122,331		Residential mortgage	979		673		536		2,188		1,534		3,722		103,024		106,746
Purchased HELOC loans	Purchased HELOC loans	0		0		0		0		234		234		5,057		5,291		Purchased HELOC loans	117		94		0		211		234		445		4,504		4,949
Consumer installment:	Consumer installment:																	Consumer installment:
Originated indirect paper	Originated indirect paper	20		33		0		53		64		117		23,069		23,186		Originated indirect paper	113		14		5		132		63		195		20,182		20,377

Other Consumer	Other Consumer	40		1		22		63		22		85		11,779		11,864		Other Consumer	41		33		2		76		25		101		10,843		10,944
Total	Total	$	7,281	$	2,438	$	536	$	10,255	$	8,679	$	18,934	$	1,182,328	$	1,201,262	Total	$	2,197	$	814	$	543	$	3,554	$	8,075	$	11,629	$	1,179,409	$	1,191,038
December 31, 2020	December 31, 2020																	December 31, 2020
Commercial/Agricultural real estate:	Commercial/Agricultural real estate:																	Commercial/Agricultural real estate:
Commercial real estate	Commercial real estate	$	9,568	$	467	$	0	$	10,035	$	679	$	10,714	$	496,961	$	507,675	Commercial real estate	$	9,568	$	467	$	0	$	10,035	$	679	$	10,714	$	496,961	$	507,675
Agricultural real estate	Agricultural real estate	411		48		0		459		5,084		5,543		63,252		68,795		Agricultural real estate	411		48		0		459		5,084		5,543		63,252		68,795
Multi-family real estate	Multi-family real estate	308		0		0		308		148		456		121,696		122,152		Multi-family real estate	308		0		0		308		148		456		121,696		122,152
Construction and land development	Construction and land development	3,898		0		0		3,898		0		3,898		94,619		98,517		Construction and land development	3,898		0		0		3,898		0		3,898		94,619		98,517
C&I/Agricultural operating:	C&I/Agricultural operating:																	C&I/Agricultural operating:
Commercial and industrial	Commercial and industrial	436		491		0		927		357		1,284		115,269		116,553		Commercial and industrial	436		491		0		927		357		1,284		115,269		116,553
SBA PPP loans	SBA PPP loans	0		0		0		0		0		0		123,702		123,702		SBA PPP loans	0		0		0		0		0		0		123,702		123,702
Agricultural operating	Agricultural operating	1,499		200		0		1,699		1,872		3,571		29,214		32,785		Agricultural operating	1,499		200		0		1,699		1,872		3,571		29,214		32,785
Residential mortgage:	Residential mortgage:																	Residential mortgage:
Residential mortgage	Residential mortgage	2,238		372		516		3,126		2,217		5,343		126,043		131,386		Residential mortgage	2,238		372		516		3,126		2,217		5,343		126,043		131,386
Purchased HELOC loans	Purchased HELOC loans	338		94		67		499		234		733		5,527		6,260		Purchased HELOC loans	338		94		67		499		234		733		5,527		6,260
Consumer installment:	Consumer installment:																	Consumer installment:
Originated indirect paper	Originated indirect paper	90		37		0		127		133		260		25,591		25,851		Originated indirect paper	90		37		0		127		133		260		25,591		25,851

Other Consumer	Other Consumer	100		14		3		117		23		140		13,073		13,213		Other Consumer	100		14		3		117		23		140		13,073		13,213
Total	Total	$	18,886	$	1,723	$	586	$	21,195	$	10,747	$	31,942	$	1,214,947	$	1,246,889	Total	$	18,886	$	1,723	$	586	$	21,195	$	10,747	$	31,942	$	1,214,947	$	1,246,889

3132

At ~~March 31,~~June 30, 2021, the Company has identified impaired loans of ~~$40,243,~~$38,867, consisting of ~~$17,442~~$16,597 TDR loans, the carrying amount of purchased credit impaired loans of ~~$16,475~~$15,613 and ~~$6,326~~$6,657 of substandard non-TDR loans. The ~~$40,243~~$38,867 total of impaired loans includes ~~$11,752~~$11,603 of performing TDR loans. At December 31, 2020, the Company has identified impaired loans of $43,397, consisting of $18,477 TDR loans, the carrying amount of purchased credit impaired loans of $16,859 and $8,061 of substandard non-TDR loans. The $43,397 total of impaired loans includes ~~$11,752~~$11,722 of performing TDR loans. A loan is identified as impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. Performing TDRs consist of loans that have been modified and are performing in accordance with the modified terms for a sufficient length of time, generally six months, or loans that were modified on a proactive basis.

A summary of the Company’s impaired loans as of ~~March 31,~~June 30, 2021, December 31, 2020 and ~~March 31,~~June 30, 2020 was as follows:


															Three Months Ended				Six Months Ended
		Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized			Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
March 31, 2021
June 30, 2021												June 30, 2021
With No Related Allowance Recorded:	With No Related Allowance Recorded:											With No Related Allowance Recorded:
Commercial/agriculture real estate	Commercial/agriculture real estate	$	19,714	$	19,714	$	—	$	21,864	$	239	Commercial/agriculture real estate	$	22,416	$	22,416	$	—	$	21,065	$	252	$	23,215	$	491
C&I/Agricultural operating	C&I/Agricultural operating	6,118		6,118		—		6,226		70		C&I/Agricultural operating	3,517		3,517		—		4,818		20		4,926		90
Residential mortgage	Residential mortgage	8,191		8,191		—		8,367		80		Residential mortgage	7,705		7,705		—		7,948		81		8,124		161
Consumer installment	Consumer installment	255		255		—		306		3		Consumer installment	277		277		—		266		3		317		6
Total	Total	$	34,278	$	34,278	$	—	$	36,763	$	392	Total	$	33,915	$	33,915	$	—	$	34,097	$	356	$	36,582	$	748
With An Allowance Recorded:	With An Allowance Recorded:											With An Allowance Recorded:
Commercial/agriculture real estate	Commercial/agriculture real estate	$	5,234	$	5,234	$	1,094	$	3,762	$	62	Commercial/agriculture real estate	$	1,191	$	1,191	$	796	$	3,213	$	0	$	1,741	$	62
C&I/Agricultural operating	C&I/Agricultural operating	79		79		10		430		0		C&I/Agricultural operating	3,081		3,081		527		1,580		41		1,931		41
Residential mortgage	Residential mortgage	652		652		157		866		8		Residential mortgage	680		680		144		666		7		880		15
Consumer installment	Consumer installment	0		0		0		1		0		Consumer installment	0		0		0		0		0		1		0
Total	Total	$	5,965	$	5,965	$	1,261	$	5,059	$	70	Total	$	4,952	$	4,952	$	1,467	$	5,459	$	48	$	4,553	$	118
March 31, 2021 Totals:
June 30, 2021 Totals:												June 30, 2021 Totals:
Commercial/agriculture real estate	Commercial/agriculture real estate	$	24,948	$	24,948	$	1,094	$	25,626	$	301	Commercial/agriculture real estate	$	23,607	$	23,607	$	796	$	24,278	$	252	$	24,956	$	553
C&I/Agricultural operating	C&I/Agricultural operating	6,197		6,197		10		6,656		70		C&I/Agricultural operating	6,598		6,598		527		6,398		61		6,857		131
Residential mortgage	Residential mortgage	8,843		8,843		157		9,233		88		Residential mortgage	8,385		8,385		144		8,614		88		9,004		176
Consumer installment	Consumer installment	255		255		0		307		3		Consumer installment	277		277		0		266		3		318		6
Total	Total	$	40,243	$	40,243	$	1,261	$	41,822	$	462	Total	$	38,867	$	38,867	$	1,467	$	39,556	$	404	$	41,135	$	866

3233


	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
December 31, 2020
With No Related Allowance Recorded:
Commercial/agriculture real estate	$	24,013	$	24,013	$	—	$	32,264	$	1,894
C&I/Agricultural operating	6,334		6,334		—		7,906		284
Residential mortgage	8,542		8,542		—		8,619		450
Consumer installment	356		356		—		368		30
Total	$	39,245	$	39,245	$	—	$	49,157	$	2,658
With An Allowance Recorded:
Commercial/agriculture real estate	$	2,290	$	2,290	$	698	$	2,217	$	100
C&I/Agricultural operating	781		781		190		636		22
Residential mortgage	1,079		1,079		226		1,255		54
Consumer installment	2		2		1		35		1
Total	$	4,152	$	4,152	$	1,115	$	4,143	$	177
December 31, 2020 Totals
Commercial/agriculture real estate	$	26,303	$	26,303	$	698	$	34,481	$	1,994
C&I/Agricultural operating	7,115		7,115		190		8,542		306
Residential mortgage	9,621		9,621		226		9,874		504
Consumer installment	358		358		1		403		31
Total	$	43,397	$	43,397	$	1,115	$	53,300	$	2,835


															Three Months Ended				Six Months Ended
		Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized			Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
March 31, 2020
June 30, 2020												June 30, 2020
With No Related Allowance Recorded:	With No Related Allowance Recorded:											With No Related Allowance Recorded:
Commercial/agriculture real estate	Commercial/agriculture real estate	$	33,959	$	33,959	$	—	$	37,237	$	563	Commercial/agriculture real estate	$	30,268	$	30,268	$	—	$	32,114	$	369	$	35,391	$	932
C&I/Agricultural operating	C&I/Agricultural operating	8,343		8,343		—		8,910		119		C&I/Agricultural operating	7,280		7,280		—		7,812		44		8,379		163
Residential mortgage	Residential mortgage	7,966		7,966		—		8,330		116		Residential mortgage	8,621		8,621		—		8,294		125		8,658		241
Consumer installment	Consumer installment	397		397		—		388		8		Consumer installment	363		363		—		380		8		371		16
Total	Total	$	50,665	$	50,665	$	—	$	54,865	$	806	Total	$	46,532	$	46,532	$	—	$	48,600	$	546	$	52,799	$	1,352
With An Allowance Recorded:	With An Allowance Recorded:											With An Allowance Recorded:
Commercial/agriculture real estate	Commercial/agriculture real estate	$	2,511	$	2,511	$	733	$	2,327	$	6	Commercial/agriculture real estate	$	4,017	$	4,017	$	815	$	3,264	$	12	$	3,080	$	18
C&I/Agricultural operating	C&I/Agricultural operating	416		416		92		453		5		C&I/Agricultural operating	303		303		181		360		1		397		6
Residential mortgage	Residential mortgage	2,260		2,260		181		1,846		30		Residential mortgage	822		822		101		1,541		4		1,127		34
Consumer installment	Consumer installment	99		99		27		83		1		Consumer installment	14		14		1		57		0		41		1
Total	Total	$	5,286	$	5,286	$	1,033	$	4,709	$	42	Total	$	5,156	$	5,156	$	1,098	$	5,222	$	17	$	4,645	$	59
March 31, 2020 Totals:
June 30, 2020 Totals:												June 30, 2020 Totals:
Commercial/agriculture real estate	Commercial/agriculture real estate	$	36,470	$	36,470	$	733	$	39,564	$	569	Commercial/agriculture real estate	$	34,285	$	34,285	$	815	$	35,378	$	381	$	38,471	$	950
C&I/Agricultural operating	C&I/Agricultural operating	8,759		8,759		92		9,363		124		C&I/Agricultural operating	7,583		7,583		181		8,172		45		8,776		169
Residential mortgage	Residential mortgage	10,226		10,226		181		10,176		146		Residential mortgage	9,443		9,443		101		9,835		129		9,785		275
Consumer installment	Consumer installment	496		496		27		471		9		Consumer installment	377		377		1		437		8		412		17
Total	Total	$	55,951	$	55,951	$	1,033	$	59,574	$	848	Total	$	51,688	$	51,688	$	1,098	$	53,822	$	563	$	57,444	$	1,411

3334

Troubled Debt Restructuring – A TDR includes a loan modification where a borrower is experiencing financial difficulty, and the Bank grants a concession to that borrower that the Bank would not otherwise consider, except for the borrower’s financial difficulties. Concessions may include: extension of the loan’s term, renewals of existing balloon loans, reductions in interest rates and consolidating existing Bank loans at modified terms. A TDR may be either on accrual or nonaccrual status based upon the performance of the borrower and management’s assessment of collectability. If a TDR is placed on nonaccrual status, it remains there until a sufficient period of performance under the restructured terms has occurred at which time it is returned to accrual status. There ~~was 1~~were 2 delinquent accruing TDR greater than 60 days past due with a recorded investment of ~~$17~~$133 at ~~March 31,~~June 30, 2021, compared to 1 such ~~loans~~loan with a recorded investment of $20 at December 31, 2020.

Following is a summary of TDR loans by accrual status as of ~~March 31,~~June 30, 2021 and December 31, 2020.


		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
Troubled debt restructure loans:	Troubled debt restructure loans:					Troubled debt restructure loans:
Accrual status	Accrual status	$	11,752	$	11,742	Accrual status	$	11,736	$	11,742
Non-accrual status	Non-accrual status	5,690		6,735		Non-accrual status	4,861		6,735
Total	Total	$	17,442	$	18,477	Total	$	16,597	$	18,477

There were 0 loan commitments meeting our TDR criteria as of ~~March 31,~~June 30, 2021 and December 31, 2020. There were unused lines of credit totaling ~~$42~~$29 and $15 meeting our TDR criteria as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.

The following provides detail, including specific reserve and reasons for modification, related to loans identified as TDRs during the three and six months ended ~~March 31,~~June 30, 2021 and ~~March 31,~~June 30, 2020:


	Number of Contracts	Maturity Extension		Modified Payment		Modified Under- writing		Other		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Specific Reserve
Three months ended June 30, 2021
TDRs:
Commercial/agriculture real estate	1	$	1	$	0	$	0	$	0	$	1	$	1	$	0
C&I/Agricultural operating	0	0		0		0		0		0		0		0
Residential mortgage	0	0		0		0		0		0		0		0
Consumer installment	1	0		0		18		0		18		18		0
Totals	2	$	1	$	0	$	18	$	0	$	19	$	19	$	0


		Number of Contracts	Maturity Extension		Modified Payment		Modified Under- writing		Other		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Specific Reserve			Number of Contracts	Maturity Extension		Modified Payment		Modified Under- writing		Other		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Specific Reserve
Three months ended March 31, 2021
Six months ended June 30, 2021																	Six months ended June 30, 2021
TDRs:	TDRs:																TDRs:
Commercial/agriculture real estate	Commercial/agriculture real estate	2	$	38	$	81	$	0	$	0	$	119	$	119	$	0	Commercial/agriculture real estate	3	$	39	$	81	$	0	$	0	$	120	$	120	$	0
C&I/Agricultural operating	C&I/Agricultural operating	1	0		0		240		0		240		240		0		C&I/Agricultural operating	1	0		0		240		0		240		240		0
Residential mortgage	Residential mortgage	2	66		0		14		0		80		80		0		Residential mortgage	2	66		0		14		0		80		80		0
Consumer installment	Consumer installment	1	6		0		0		0		6		6		0		Consumer installment	2	6		0		18		0		24		24		0
Totals	Totals	6	$	110	$	81	$	254	$	0	$	445	$	445	$	0	Totals	8	$	111	$	81	$	272	$	0	$	464	$	464	$	0


	Number of Contracts	Maturity Extension		Modified Payment		Modified Under- writing		Other		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Specific Reserve
Three months ended June 30, 2020
TDRs:
Commercial/agriculture real estate	6	$	644	$	198	$	0	$	0	$	842	$	842	$	0
C&I/Agricultural operating	3	295		78		0		0		373		373		0
Residential mortgage	4	89		358		0		0		447		447		0
Consumer installment	0	0		0		0		0		0		0		0
Totals	13	$	1,028	$	634	$	0	$	0	$	1,662	$	1,662	$	0


		Number of Contracts	Maturity Extension		Modified Payment		Modified Under- writing		Other		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Specific Reserve			Number of Contracts	Maturity Extension		Modified Payment		Modified Under- writing		Other		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Specific Reserve
Three months ended March 31, 2020
Six months ended June 30, 2020																	Six months ended June 30, 2020
TDRs:	TDRs:																TDRs:
Commercial/agriculture real estate	Commercial/agriculture real estate	3	$	248	$	0	$	17	$	0	$	265	$	265	$	0	Commercial/agriculture real estate	9	$	892	$	198	$	17	$	0	$	1,107	$	1,107	$	0
C&I/Agricultural operating	C&I/Agricultural operating	0	0		0		0		0		0		0		0		C&I/Agricultural operating	3	295		78		0		0		373		373		0
Residential mortgage	Residential mortgage	1	0		0		85		0		85		85		0		Residential mortgage	5	89		358		85		0		532		532		0
Consumer installment	Consumer installment	2	3		0		4		0		7		7		0		Consumer installment	2	3		0		4		0		7		7		0
Totals	Totals	6	$	251	$	0	$	106	$	0	$	357	$	357	$	0	Totals	19	$	1,279	$	634	$	106	$	0	$	2,019	$	2,019	$	0

A summary of loans by loan segment modified in a troubled debt restructuring as of ~~March 31,~~June 30, 2021 and ~~March 31,~~June 30, 2020, was as follows:


		March 31, 2021			March 31, 2020				June 30, 2021			June 30, 2020
		Number of Modifications	Recorded Investment		Number of Modifications	Recorded Investment			Number of Modifications	Recorded Investment		Number of Modifications	Recorded Investment
Troubled debt restructurings:	Troubled debt restructurings:							Troubled debt restructurings:
Commercial/agriculture real estate	Commercial/agriculture real estate	30	$	8,656	28	$	6,415	Commercial/agriculture real estate	25	$	8,298	34	$	7,140
C&I/Agricultural operating	C&I/Agricultural operating	14	4,800		14	2,065		C&I/Agricultural operating	10	4,469		17	2,580
Residential mortgage	Residential mortgage	52	3,937		42	3,539		Residential mortgage	48	3,774		43	3,336
Consumer installment	Consumer installment	9	49		8	69		Consumer installment	8	56		8	63
Total troubled debt restructurings	Total troubled debt restructurings	105	$	17,442	92	$	12,088	Total troubled debt restructurings	91	$	16,597	102	$	13,119

The following table provides the number of loans modified in a TDR during the previous twelve months which subsequently defaulted during the three and six months ended ~~March 31,~~June 30, 2021 and ~~March 31,~~June 30, 2020, as well as the recorded investment in these restructured loans as of ~~March 31,~~June 30, 2021 and ~~March 31,~~June 30, 2020:


									Three Months Ended
		March 31, 2021			March 31, 2020				June 30, 2021			June 30, 2020
		Number of Modifications	Recorded Investment		Number of Modifications	Recorded Investment			Number of Modifications	Recorded Investment		Number of Modifications	Recorded Investment
Troubled debt restructurings:	Troubled debt restructurings:							Troubled debt restructurings:
Commercial/agriculture real estate	Commercial/agriculture real estate	0	$	0	5	$	1,892	Commercial/agriculture real estate	0	$	0	0	$	0
C&I/Agricultural operating	C&I/Agricultural operating	0	0		0	0		C&I/Agricultural operating	0	0		0	0
Residential mortgage	Residential mortgage	1	19		0	0		Residential mortgage	0	0		0	0
Consumer installment	Consumer installment	0	0		0	0		Consumer installment	0	0		0	0
Total troubled debt restructurings	Total troubled debt restructurings	1	$	19	5	$	1,892	Total troubled debt restructurings	0	$	0	0	$	0


	Six Months Ended
	June 30, 2021			June 30, 2020
	Number of Modifications	Recorded Investment		Number of Modifications	Recorded Investment
Troubled debt restructurings:
Commercial/agriculture real estate	0	$	0	5	$	1,892
C&I/Agricultural operating	0	0		0	0
Residential mortgage	1	19		0	0
Consumer installment	0	0		0	0
Total troubled debt restructurings	1	$	19	5	$	1,892

3537

All acquired loans were initially recorded at fair value at the acquisition date. The outstanding balance and the carrying amount of acquired loans included in the consolidated balance sheet are as follows:


		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
Accountable for under ASC 310-30 (Purchased Credit Impaired “PCI” loans)	Accountable for under ASC 310-30 (Purchased Credit Impaired “PCI” loans)					Accountable for under ASC 310-30 (Purchased Credit Impaired “PCI” loans)
Outstanding balance	Outstanding balance	$	17,441	$	17,946	Outstanding balance	$	16,436	$	17,946
Carrying amount	Carrying amount	$	16,475	$	16,859	Carrying amount	$	15,613	$	16,859
Accountable for under ASC 310-20 (non-PCI loans)	Accountable for under ASC 310-20 (non-PCI loans)					Accountable for under ASC 310-20 (non-PCI loans)
Outstanding balance	Outstanding balance	$	246,153	$	268,218	Outstanding balance	$	220,427	$	268,218
Carrying amount	Carrying amount	$	242,470	$	264,242	Carrying amount	$	216,903	$	264,242
Total acquired loans	Total acquired loans					Total acquired loans
Outstanding balance	Outstanding balance	$	263,594	$	286,164	Outstanding balance	$	236,863	$	286,164
Carrying amount	Carrying amount	$	258,945	$	281,101	Carrying amount	$	232,516	$	281,101

The following table provides changes in accretable yield for all acquired loans from prior acquisitions with deteriorated credit quality:


		March 31, 2021		March 31, 2020			2021		2020
Balance at beginning of period		$	3,976	$	3,201
Balance at beginning of period, January 1						Balance at beginning of period, January 1	$	3,976	$	3,201
Acquisitions	Acquisitions	0		0		Acquisitions	0		0
Reduction due to unexpected early payoffs	Reduction due to unexpected early payoffs	(90)		0		Reduction due to unexpected early payoffs	(90)		(99)
Reclass from non-accretable difference	Reclass from non-accretable difference	63		669		Reclass from non-accretable difference	169		1,410
Accretion	Accretion	(266)		(233)		Accretion	(531)		(480)
Balance at end of period		$	3,683	$	3,637
Balance at end of period, June 30						Balance at end of period, June 30	$	3,524	$	4,032

The following table provides changes in non-accretable yield for all acquired loans from prior acquisitions with deteriorated credit quality:


		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
Balance at beginning of period	Balance at beginning of period	$	1,087	$	6,290	Balance at beginning of period	$	1,087	$	6,290
Additions to non-accretable difference for acquired purchased credit impaired loans	Additions to non-accretable difference for acquired purchased credit impaired loans	0		0		Additions to non-accretable difference for acquired purchased credit impaired loans	0		0
Non-accretable difference realized as interest from payoffs of purchased credit impaired loans	Non-accretable difference realized as interest from payoffs of purchased credit impaired loans	(58)		(1,693)		Non-accretable difference realized as interest from payoffs of purchased credit impaired loans	(95)		(1,693)
Transfers from non-accretable difference to accretable discount	Transfers from non-accretable difference to accretable discount	(63)		(2,754)		Transfers from non-accretable difference to accretable discount	(169)		(2,754)
Non-accretable difference used to reduce loan principal balance	Non-accretable difference used to reduce loan principal balance	0		(505)		Non-accretable difference used to reduce loan principal balance	0		(505)
Non-accretable difference transferred to OREO due to loan foreclosure	Non-accretable difference transferred to OREO due to loan foreclosure	0		(251)		Non-accretable difference transferred to OREO due to loan foreclosure	0		(251)
Balance at end of period	Balance at end of period	$	966	$	1,087	Balance at end of period	$	823	$	1,087

3638

NOTE 4 – MORTGAGE SERVICING RIGHTS

Mortgage servicing rights--Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid balances of these loans as of ~~March 31,~~June 30, 2021 and December 31, 2020 were ~~$551,622~~$554.5 million and ~~$553,655,~~$553.7 million, respectively, and consisted of one to four family residential real estate loans. These loans are serviced primarily for the Federal Home Loan Mortgage Corporation, Federal Home Loan Bank and the Federal National Mortgage Association. ~~The current period valuation allowance is included as amortization of mortgage servicing rights in non-interest expense on the consolidated statement of operations.~~

Custodial escrow balances maintained in connection with the foregoing loan servicing, and included in deposits were ~~$4,979~~$5.0 million and ~~$2,890,~~$2.9 million at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.

Mortgage servicing rights activity for the three and six month ~~period~~periods ended ~~March 31,~~June 30, 2021 and ~~twelve months ended December 31,~~June 30, 2020 were as follows:


		As of and for the Three Months Ended			As of and for the Twelve Months Ended				As of and for the Three Months Ended		As of and for the Three Months Ended		As of and for the Six Months Ended		As of and for the Six Months Ended
Mortgage servicing rights:	Mortgage servicing rights:	March 31, 2021			December 31, 2020			Mortgage servicing rights:	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Mortgage servicing rights, beginning of period	Mortgage servicing rights, beginning of period	$	5,266		$	4,541		Mortgage servicing rights, beginning of period	$	5,124	$	4,467	$	5,266	$	4,541

Increase in mortgage servicing rights resulting from transfers of financial assets	Increase in mortgage servicing rights resulting from transfers of financial assets	297			2,020			Increase in mortgage servicing rights resulting from transfers of financial assets	304		773		601		955
Amortization during the period	Amortization during the period	(439)			(1,295)			Amortization during the period	(464)		(300)		(903)		(556)
		5,124			5,266				4,964		4,940		4,964		4,940
Valuation allowance:	Valuation allowance:							Valuation allowance:
Valuation allowance, beginning of period	Valuation allowance, beginning of period	(2,014)			(259)			Valuation allowance, beginning of period	(1,125)		(739)		(2,014)		(259)
Additions	Additions	0			(1,755)			Additions	0		(692)		0		(1,172)
Recoveries	Recoveries	889			0			Recoveries	23		0		912		0

Valuation allowance, end of period	Valuation allowance, end of period	(1,125)			(2,014)			Valuation allowance, end of period	(1,102)		(1,431)		(1,102)		(1,431)
Mortgage servicing rights, net	Mortgage servicing rights, net	$	3,999		$	3,252		Mortgage servicing rights, net	$	3,862	$	3,509	$	3,862	$	3,509
Fair value of mortgage servicing rights; end of period	Fair value of mortgage servicing rights; end of period	$	4,005		$	3,285		Fair value of mortgage servicing rights; end of period	$	3,894	$	3,509	$	3,894	$	3,509
Residential mortgage loans serviced for others		$	551,622		$	553,655
Net book value of mortgage servicing rights to loans serviced for others		0.73		%	0.59		%

The current period change in valuation allowance is included in non-interest expense as mortgage servicing rights expense, net on the consolidated statement of operations. Servicing fees totaled $352 and ~~$339~~$341 for the three months ended ~~March, 31~~June 30, 2021 and ~~March 31,~~June 30, 2020, respectively. Servicing fees totaled $704 and $680 for the six months ended June 30, 2021 and June 30, 2020, respectively. Late fees and ancillary fees related to loan servicing are not material.

To estimate the fair value of the MSR asset, a valuation model is applied at the loan level to calculate the present value of the expected future cash flows. The valuation model incorporates various assumptions that would impact market participants’ estimations of future servicing income. Central to the valuation model is the discount rate. Fair value at ~~March 31,~~June 30, 2021 ~~was determined using discount rates ranging from 9% to 12%. Fair value at December 31, 2020~~ was determined using discount rates ranging from 9% to 12%. Other assumptions utilized in the valuation model include, but are not limited to, prepayment speed, servicing costs, delinquencies, costs of advances, foreclosure costs, ancillary income, and income earned on float and escrow.

3739

NOTE 5 – LEASES

We have operating leases for our corporate offices (1) and bank branch offices (5). Our leases have remaining lease terms ranging from approximately 21.75 to ~~7.08~~7.00 years, some of which include options to extend the leases for up to 5 additional years. As of ~~March 31,~~June 30, 2021, we have no additional lease commitments that have not yet commenced. The Company also leases a portion of some of its facilities and receives rental income from such lease agreements, all of which are considered operating leases.


		Three Months Ended							Six Months Ended
		March 31, 2021			March 31, 2020				June 30, 2021			June 30, 2020
The components of total lease cost were as follows:	The components of total lease cost were as follows:							The components of total lease cost were as follows:
Operating lease cost	Operating lease cost	$	139		$	161		Operating lease cost	$	279		$	313
Variable lease cost	Variable lease cost	7			2			Variable lease cost	17			6
Total lease cost	Total lease cost	$	146		$	163		Total lease cost	$	296		$	319

The components of total lease income were as follows:	The components of total lease income were as follows:							The components of total lease income were as follows:
Operating lease income	Operating lease income	$	7		$	3		Operating lease income	$	16		$	7

Supplemental cash flow information related to leases was as follows:	Supplemental cash flow information related to leases was as follows:							Supplemental cash flow information related to leases was as follows:

Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:							Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	Operating cash flows from operating leases	$	138		$	159		Operating cash flows from operating leases	$	276		$	318

		March 31, 2021			December 31, 2020				June 30, 2021			December 31, 2020
Supplemental balance sheet information related to leases was as follows:	Supplemental balance sheet information related to leases was as follows:							Supplemental balance sheet information related to leases was as follows:
Operating lease right-of-use assets	Operating lease right-of-use assets	$	2,539		$	2,657		Operating lease right-of-use assets	$	2,411		$	2,657
Operating lease liabilities	Operating lease liabilities	$	2,606		$	2,762		Operating lease liabilities	$	2,479		$	2,762

Weighted average remaining lease term in years; operating leases	Weighted average remaining lease term in years; operating leases	6.18			6.32			Weighted average remaining lease term in years; operating leases	5.97			6.32
Weighted average discount rate; operating leases	Weighted average discount rate; operating leases	2.7		%	2.7		%	Weighted average discount rate; operating leases	2.71		%	2.70		%

Cash obligations and receipts under lease contracts are as follows:


Fiscal years ending December 31,	Fiscal years ending December 31,	Payments		Receipts		Fiscal years ending December 31,	Payments		Receipts
2021	2021	$	415	$	25	2021	$	277	$	17
2022	2022	558		34		2022	558		34
2023	2023	505		27		2023	505		27
2024	2024	419				2024	419
2025	2025	403				2025	403
Thereafter	Thereafter	826				Thereafter	826
Total	Total	3,126		$	86	Total	2,988		$	78
Less: effects of discounting	Less: effects of discounting	(520)				Less: effects of discounting	(509)
Lease liability recognized	Lease liability recognized	$	2,606			Lease liability recognized	$	2,479

3840

NOTE 6 – DEPOSITS

The following is a summary of deposits by type at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively:


		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
Non-interest bearing demand deposits	Non-interest bearing demand deposits	$	257,042	$	238,348	Non-interest bearing demand deposits	$	253,097	$	238,348
Interest bearing demand deposits	Interest bearing demand deposits	352,302		301,764		Interest bearing demand deposits	375,005		301,764
Savings accounts	Savings accounts	222,448		196,348		Savings accounts	220,698		196,348
Money market accounts	Money market accounts	258,942		245,549		Money market accounts	263,390		245,549
Certificate accounts	Certificate accounts	289,468		313,247		Certificate accounts	259,036		313,247
Total deposits	Total deposits	$	1,380,202	$	1,295,256	Total deposits	$	1,371,226	$	1,295,256
Brokered deposits included above:	Brokered deposits included above:	$	2,516	$	2,516	Brokered deposits included above:	$	2,516	$	2,516

At ~~March 31,~~June 30, 2021, the scheduled maturities of time deposits were as ~~follows:~~follows for the year ended, except December 31, 2021 which is the six months ended:


~~March~~December 31, ~~2022~~2021	$	~~217,364~~110,476
~~March~~December 31, 2022	129,407
December 31, 2023	~~61,638~~12,510
~~March~~December 31, 2024	~~6,975~~4,481
~~March~~December 31, 2025	~~2,814~~
~~March 31, 2026~~	~~677~~1,411
After ~~March~~December 31, ~~2026~~2025	0751
Total	$	~~289,468~~259,036

Time deposits of $250 or more were ~~$42,992~~$34,245 and $46,660 at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.

3941

NOTE 7 – FEDERAL HOME LOAN BANK AND FEDERAL RESERVE BANK ADVANCES AND OTHER BORROWINGS

A summary of Federal Home Loan Bank advances and other borrowings at ~~March 31,~~June 30, 2021 and December 31, 2020 is as follows:


			March 31, 2021						December 31, 2020								June 30, 2021						December 31, 2020
		Stated Maturity	Amount		Range of Stated Rates				Amount		Range of Stated Rates					Stated Maturity	Amount		Range of Stated Rates				Amount		Range of Stated Rates
Federal Home Loan Bank advances (1), (2), (3), (4)	Federal Home Loan Bank advances (1), (2), (3), (4)	2021	$	4,000	0	%	0	%	$	8,000	0	%	2.16	%	Federal Home Loan Bank advances (1), (2), (3), (4)	2021	$	0	0	%	0	%	$	8,000	0.00	%	2.16	%
		2022	11,000		2.45	%	2.45	%	15,000		2.34	%	2.45	%		2022	11,000		2.45	%	2.45	%	15,000		2.34	%	2.45	%
		2023	20,000		1.43	%	1.44	%	20,000		1.43	%	1.44	%		2023	20,000		1.43	%	1.44	%	20,000		1.43	%	1.44	%
		2024	20,530		0	%	1.45	%	20,530		0	%	1.45	%		2024	20,530		0.00	%	1.45	%	20,530		0.00	%	1.45	%
		2025	5,000		1.45	%	1.45	%	5,000		1.45	%	1.45	%		2025	5,000		1.45	%	1.45	%	5,000		1.45	%	1.45	%
		2029	42,500		1.00	%	1.13	%	42,500		1.00	%	1.13	%		2029	42,500		1.00	%	1.13	%	42,500		1.00	%	1.13	%
		2030	12,500		0.52	%	0.86	%	12,500		0.52	%	0.86	%		2030	12,500		0.52	%	0.86	%	12,500		0.52	%	0.86	%

Subtotal	Subtotal		115,530						123,530						Subtotal		111,530						123,530
Unamortized discount on acquired notes	Unamortized discount on acquired notes		(49)						(32)						Unamortized discount on acquired notes		(34)						(32)
Federal Home Loan Bank advances, net	Federal Home Loan Bank advances, net		$	115,481					$	123,498					Federal Home Loan Bank advances, net		$	111,496					$	123,498

Senior Notes (5)	Senior Notes (5)	2031	$	28,856	3.50	%	3.50	%	$	28,856	3.25	%	3.50	%	Senior Notes (5)	2031	$	28,856	3.50	%	3.50	%	$	28,856	3.25	%	3.50	%

Subordinated Notes (6)	Subordinated Notes (6)	2027	$	15,000	6.75	%	6.75	%	$	15,000	6.75	%	6.75	%	Subordinated Notes (6)	2027	$	15,000	6.75	%	6.75	%	$	15,000	6.75	%	6.75	%
		2030	15,000		6.00	%	6.00	%	15,000		6.00	%	6.00	%		2030	15,000		6.00	%	6.00	%	15,000		6.00	%	6.00	%
			$	30,000					$	30,000							$	30,000					$	30,000

Unamortized debt issuance costs	Unamortized debt issuance costs		$	(502)					$	(528)					Unamortized debt issuance costs		$	(476)					$	(528)
Total other borrowings	Total other borrowings		$	58,354					$	58,328					Total other borrowings		$	58,380					$	58,328

Totals	Totals		$	173,835					$	181,826					Totals		$	169,876					$	181,826

(1) The FHLB advances bear fixed rates, require interest-only monthly payments, and are collateralized by a blanket lien on pre-qualifying first mortgages, home equity lines, multi-family loans and certain other loans which had a pledged balance of ~~$720,008~~$740,586 and $723,862 at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. At ~~March 31,~~June 30, 2021, the Bank’s available and unused portion under the FHLB borrowing arrangement was approximately ~~$122,791~~$144,714 compared to $118,391 as of December 31, 2020.

(2) Maximum month-end borrowed amounts outstanding under this borrowing agreement were $123,530 and $162,530, during the ~~three~~six months ended ~~March 31,~~June 30, 2021 and the twelve months ended December 31, 2020, respectively.

(3) The weighted-average interest rates on FHLB borrowings maturing within twelve months as of ~~March 31,~~June 30, 2021 and December 31, 2020 were ~~1.80%~~1.97% and ~~0.50%~~1.02%, respectively.

(4) FHLB term notes totaling $55,000, with various maturity dates in 2029 and 2030, can be called or replaced by the FHLB on a quarterly basis, beginning approximately three months after the initial advance.

(5) Senior notes, entered into by the Company in June 2019 consist of the following:

(a) A term note, which was subsequently refinanced in October 2020, requiring quarterly interest-only payments through June 2022, and quarterly principal and interest payments thereafter. Interest is variable, based on US Prime rate with a floor rate of 3.25%.

(b) A $5,000 line of credit, maturing in August 2021, that remains undrawn upon.

(6) Subordinated notes resulted from the following:

(a) The Company’s private sale in August 2017, which bears a fixed interest rate of 6.75% for five years. In August 2022, they convert to a three-month LIBOR plus 4.90% rate, and the interest rate will reset quarterly thereafter. Interest-only payments are due quarterly.

(b) The Company’s Subordinated Note Purchase Agreement entered into with certain purchasers in August 2020, which bears a fixed interest rate of 6.00% for five years. In September 2025, the fixed interest rate will be reset quarterly to equal the three-month term Secured Overnight Financing Rate plus 591 basis points. Interest-only payments are due semi-annually each year during the fixed interest period and quarterly during the floating interest period.

Federal Home Loan Bank Letters of Credit

The Bank has an irrevocable Standby Letter of Credit Master Reimbursement Agreement with the Federal Home Loan Bank. This irrevocable standby letter of credit (“LOC”) is supported by loan collateral as an alternative to directly pledging investment securities on behalf of a municipal customer as collateral for their interest bearing deposit balances. These balances were ~~$179,725~~$167,425 and $179,400 at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.

Federal Reserve Bank Paycheck Protection Program Liquidity Facility (“FRB PPPLF”) Program

The Bank has originated Small Business Association’s Paycheck Protection Program (“SBA PPP”) loans and has complied with the requirements to pledge these loans to the FRB PPPLF program which provides 100% funding for SBA PPP loans upon request. At ~~March 31,~~June 30, 2021 the Bank had ~~$118,931~~$74,925 of borrowing capacity under the Federal Reserve SBA PPP facility, which the Federal Reserve established in 2020. The Bank has 0 outstanding loan balances under this facility at ~~March 31,~~June 30, 2021 and December 31, 2020. Maximum month-end borrowed amounts outstanding under this agreement were $0 and $25,136, during the ~~three~~six months ended ~~March 31,~~June 30, 2021 and the twelve months ended December 31, 2020, respectively. This FRB PPPLF program is scheduled to expire on July 30, 2021. In July 2021, the Bank pledged these SBA PPP loans to the FHLB.

NOTE 8 - CAPITAL MATTERS

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. Although these terms are not used to represent overall financial condition, if adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At ~~March 31,~~June 30, 2021, the Bank was categorized as “Well Capitalized”, under Prompt Corrective Action Provisions.

The Bank’s Tier 1 (leverage) and risk-based capital ratios at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively, are presented below:

Actual For Capital Adequacy
Purposes To Be Well Capitalized
Under Prompt Corrective
Action Provisions
Amount Ratio Amount Ratio Amount Ratio
As of March 31, 2021
Total capital (to risk weighted assets) $ 174,424 15.5 % $ 89,877 > = 8.0 % $ 112,347 > = 10.0 %
Tier 1 capital (to risk weighted assets) 160,344 14.3 % $ 67,408 > = 6.0 % 89,877 > = 8.0 %
Common equity tier 1 capital (to risk weighted assets) 160,344 14.3 % $ 50,556 > = 4.5 % 73,025 > = 6.5 %
Tier 1 leverage ratio (to adjusted total assets) 160,344 9.8 % 65,595 > = 4.0 % 81,993 > = 5.0 %
As of December 31, 2020
Total capital (to risk weighted assets) $ 171,702 14.7 % $ 93,381 > = 8.0 % $ 116,726 > = 10.0 %
Tier 1 capital (to risk weighted assets) 157,081 13.5 % 70,035 > = 6.0 % 93,381 > = 8.0 %
Common equity tier 1 capital (to risk weighted assets) 157,081 13.5 % 52,527 > = 4.5 % 75,872 > = 6.5 %
Tier 1 leverage ratio (to adjusted total assets) 157,081 9.9 % 63,718 > = 4.0 % 79,647 > = 5.0 %


	Actual				For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount			Ratio		Amount			Ratio
As of June 30, 2021
Total capital (to risk weighted assets)	$	177,444	14.7	%	$	96,484	> =	8.0	%	$	120,606	> =	10.0	%
Tier 1 capital (to risk weighted assets)	162,346		13.5	%	$	72,363	> =	6.0	%	96,484		> =	8.0	%
Common equity tier 1 capital (to risk weighted assets)	162,346		13.5	%	$	54,272	> =	4.5	%	78,394		> =	6.5	%
Tier 1 leverage ratio (to adjusted total assets)	162,346		9.7	%	67,061		> =	4.0	%	83,826		> =	5.0	%
As of December 31, 2020
Total capital (to risk weighted assets)	$	171,702	14.7	%	$	93,381	> =	8.0	%	$	116,726	> =	10.0	%
Tier 1 capital (to risk weighted assets)	157,081		13.5	%	70,035		> =	6.0	%	93,381		> =	8.0	%
Common equity tier 1 capital (to risk weighted assets)	157,081		13.5	%	52,527		> =	4.5	%	75,872		> =	6.5	%
Tier 1 leverage ratio (to adjusted total assets)	157,081		9.9	%	63,718		> =	4.0	%	79,647		> =	5.0	%

The Company’s Tier 1 (leverage) and risk-based capital ratios at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively, are presented below:


		Actual				For Capital Adequacy Purposes					Actual		For Capital Adequacy Purposes
		Amount		Ratio		Amount			Ratio				Amount		Ratio		Amount			Ratio
As of March 31, 2021
As of June 30, 2021												As of June 30, 2021
Total capital (to risk weighted assets)	Total capital (to risk weighted assets)	$	167,145	14.9	%	89,877		> =	8.0	%		Total capital (to risk weighted assets)	$	170,860	14.2	%	96,484		> =	8.0	%
Tier 1 capital (to risk weighted assets)	Tier 1 capital (to risk weighted assets)	123,065		11.0	%	67,408		> =	6.0	%		Tier 1 capital (to risk weighted assets)	125,762		10.4	%	72,363		> =	6.0	%
Common equity tier 1 capital (to risk weighted assets)	Common equity tier 1 capital (to risk weighted assets)	123,065		11.0	%	50,556		> =	4.5	%		Common equity tier 1 capital (to risk weighted assets)	125,762		10.4	%	54,272		> =	4.5	%
Tier 1 leverage ratio (to adjusted total assets)	Tier 1 leverage ratio (to adjusted total assets)	123,065		7.5	%	65,595		> =	4.0	%		Tier 1 leverage ratio (to adjusted total assets)	125,762		7.5	%	67,061		> =	4.0	%
As of December 31, 2020	As of December 31, 2020											As of December 31, 2020
Total capital (to risk weighted assets)	Total capital (to risk weighted assets)	$	166,703	14.3	%	$	93,381	> =	8.0	%		Total capital (to risk weighted assets)	$	166,703	14.3	%	$	93,381	> =	8.0	%
Tier 1 capital (to risk weighted assets)	Tier 1 capital (to risk weighted assets)	122,082		10.5	%	70,035		> =	6.0	%		Tier 1 capital (to risk weighted assets)	122,082		10.5	%	70,035		> =	6.0	%
Common equity tier 1 capital (to risk weighted assets)	Common equity tier 1 capital (to risk weighted assets)	122,082		10.5	%	52,527		> =	4.5	%		Common equity tier 1 capital (to risk weighted assets)	122,082		10.5	%	52,527		> =	4.5	%
Tier 1 leverage ratio (to adjusted total assets)	Tier 1 leverage ratio (to adjusted total assets)	122,082		7.7	%	63,718		> =	4.0	%		Tier 1 leverage ratio (to adjusted total assets)	122,082		7.7	%	63,718		> =	4.0	%

NOTE 9 – STOCK-BASED COMPENSATION

On March 27, 2018, the stockholders of Citizens Community Bancorp, Inc. approved the 2018 Equity Incentive Plan. The aggregate number of shares of common stock reserved and available for issuance under the 2018 Equity Incentive Plan is 350,000 shares. As of ~~March 31,~~June 30, 2021, 163,974 restricted shares had been granted under this plan. As of ~~March 31,~~June 30, 2021, 0 stock options had been granted under this plan.

In February 2008, the Company’s stockholders approved the Company’s 2008 Equity Incentive Plan for a term of 10 years. Due to the plan’s expiration, no new awards can be granted under this plan. As of ~~March 31,~~June 30, 2021,there are ~~3,619 remaining~~1,800 awarded unvested restricted shares and ~~71,700~~69,700 awarded unexercised options. Restricted shares granted under the 2008 Equity Incentive Plan were awarded at no cost to the employee and vest pro rata over a two to ~~five-year~~five-year period from the grant date. Options granted to date under this plan vest pro rata over a ~~five-year~~five-year period from the grant date. Unexercised incentive stock options expire within 10 years of the grant date.

Net compensation expense related to restricted stock awards from these plans was ~~$171~~$222 and $393 for the three and six months ended ~~March 31,~~June 30, 2021, compared to ~~$139~~$158 and $297 for the three and six months ended ~~March 31,~~June 30, 2020.

Restricted Common Stock Award


		March 31, 2021			December 31, 2020				June 30, 2021			December 31, 2020
		Number of Shares	Weighted Average Grant Price		Number of Shares	Weighted Average Grant Price			Number of Shares	Weighted Average Grant Price		Number of Shares	Weighted Average Grant Price
Restricted Shares	Restricted Shares							Restricted Shares
Unvested and outstanding at beginning of year	Unvested and outstanding at beginning of year	57,242	$	12.23	43,457	$	12.76	Unvested and outstanding at beginning of year	57,242	$	12.23	43,457	$	12.76
Granted	Granted	64,399	10.78		45,507	11.79		Granted	64,399	10.78		45,507	11.79
Vested	Vested	(11,413)	12.40		(31,722)	12.32		Vested	(17,482)	12.53		(31,722)	12.32
Forfeited	Forfeited	(1,500)	10.78		0	0		Forfeited	(1,500)	10.78		0	0
Unvested and outstanding at end of year	Unvested and outstanding at end of year	108,728	$	11.37	57,242	$	12.23	Unvested and outstanding at end of year	102,659	$	11.29	57,242	$	12.23

The Company accounts for ~~stock-based~~stock option-based employee compensation related to the Company’s 2008 Equity Incentive Plan and 2018 Equity Incentive Plan using the fair-value-based method. Accordingly, management records compensation expense based on the value of the award as measured on the grant date and then the Company recognizes that cost over the vesting period for the award. The compensation cost recognized for ~~stock-based~~stock option-based employee compensation related to these plans for the three and six month ~~period~~periods ended ~~March 31,~~June 30, 2021 was ~~$3.~~$2 and $5, respectively. The compensation cost recognized for ~~stock-based~~stock option-based employee compensation related to these plans for the three and six month period ended ~~March 31,~~June 30, 2020 was ~~$4.~~$4 and $8, respectively.

4345

Common Stock Option Awards


		Option Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value			Option Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term in Years	Aggregate Intrinsic Value
March, 31, 2021
June 30, 2021								June 30, 2021
Outstanding at beginning of year	Outstanding at beginning of year	72,300	$	11.05				Outstanding at beginning of year	72,300	$	11.05

Exercised	Exercised	0	0					Exercised	(2,000)	8.6
Forfeited or expired	Forfeited or expired	(600)	13.76					Forfeited or expired	(600)	13.76
Outstanding at end of year		71,700	$	11.02	5.23
Exercisable at end of year		57,100	$	10.69	5.06	$	98
Fully vested and expected to vest		71,700	$	11.02	5.23	$	99
Outstanding at end of period								Outstanding at end of period	69,700	$	11.09	5.03
Exercisable at end of period								Exercisable at end of period	61,300	$	10.74	4.88	$	180

December 31, 2020	December 31, 2020							December 31, 2020
Outstanding at beginning of year	Outstanding at beginning of year	78,100	$	11.18				Outstanding at beginning of year	78,100	$	11.18

Exercised	Exercised	0	0					Exercised	0	0
Forfeited or expired	Forfeited or expired	(5,800)	11.95					Forfeited or expired	(5,800)	11.95
Outstanding at end of year	Outstanding at end of year	72,300	$	11.05	5.49			Outstanding at end of year	72,300	$	11.05	5.49
Exercisable at end of year	Exercisable at end of year	54,100	$	10.82	5.37	$	4	Exercisable at end of year	54,100	$	10.82	5.37	$	4
Fully vested and expected to vest		72,300	$	11.05	5.49	$	0

Information related to the 2008 Equity Incentive Plan for the respective periods follows:


		Three months ended March 31, 2021		Twelve months ended December 31, 2020			Six months ended June 30, 2021		Twelve months ended December 31, 2020
Intrinsic value of options exercised	Intrinsic value of options exercised	$	0	$	0	Intrinsic value of options exercised	$	10	$	0
Cash received from options exercised	Cash received from options exercised	$	0	$	0	Cash received from options exercised	$	17	$	0
Tax benefit realized from options exercised	Tax benefit realized from options exercised	$	0	$	0	Tax benefit realized from options exercised	$	0	$	0

NOTE 10 – FAIR VALUE ACCOUNTING

ASC Topic 820-10, “Fair Value Measurements and Disclosures” establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The topic describes three levels of inputs that may be used to measure fair value:

Level 1- Quoted prices (unadjusted) for identical assets or liabilities in active markets that the Company has the ability to access as of the measurement date.

Level 2- Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3- Significant unobservable inputs that reflect the Company’s assumptions about the factors that market participants would use in pricing an asset or liability.

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

The fair value of securities available for sale is determined by obtaining market price quotes from independent third parties wherever such quotes are available (Level 1 inputs); or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). Where such quotes are not available, we utilize independent third party valuation analysis to support our own estimates and judgments in determining fair value (Level 3 inputs).

Assets Measured on a Recurring Basis

The following tables present the financial instruments measured at fair value on a recurring basis as of ~~March 31,~~June 30, 2021 and December 31, 2020:


		Fair Value		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Fair Value		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
March 31, 2021
June 30, 2021										June 30, 2021
Investment securities:	Investment securities:									Investment securities:
U.S. government agency obligations	U.S. government agency obligations	$	31,712	$	0	$	31,712	$	0	U.S. government agency obligations	$	30,728	$	0	$	30,728	$	0
Obligations of states and political subdivisions	Obligations of states and political subdivisions	140		0		140		0		Obligations of states and political subdivisions	140		0		140		0
Mortgage-backed securities	Mortgage-backed securities	72,056		0		72,056		0		Mortgage-backed securities	126,536		0		126,536		0

Corporate debt securities	Corporate debt securities	27,913		0		27,913		0		Corporate debt securities	35,295		0		35,295		0
Corporate asset-backed securities	Corporate asset-backed securities	35,709		0		35,709		0		Corporate asset-backed securities	35,272		0		35,272		0
Trust preferred securities	Trust preferred securities	17,630		0		17,630		0		Trust preferred securities	15,775		0		15,775		0
Total	Total	$	185,160	$	0	$	185,160	$	0	Total	$	243,746	$	0	$	243,746	$	0
December 31, 2020	December 31, 2020									December 31, 2020
Investment securities:	Investment securities:									Investment securities:
U.S. government agency obligations	U.S. government agency obligations	$	33,365	$	0	$	33,365	$	0	U.S. government agency obligations	$	33,365	$	0	$	33,365	$	0
Obligations of states and political subdivisions	Obligations of states and political subdivisions	140		0		140		0		Obligations of states and political subdivisions	140		0		140		0
Mortgage-backed securities	Mortgage-backed securities	40,991		0		40,991		0		Mortgage-backed securities	40,991		0		40,991		0

Corporate debt securities	Corporate debt securities	17,462		0		17,462		0		Corporate debt securities	17,462		0		17,462		0
Corporate asset backed securities	Corporate asset backed securities	35,827		0		35,827		0		Corporate asset backed securities	35,827		0		35,827		0
Trust preferred securities	Trust preferred securities	16,448		0		16,448		0		Trust preferred securities	16,448		0		16,448		0
Total	Total	$	144,233	$	0	$	144,233	$	0	Total	$	144,233	$	0	$	144,233	$	0

Assets Measured on Nonrecurring Basis

The following tables present the financial instruments measured at fair value on a nonrecurring basis as of ~~March 31,~~June 30, 2021 and December 31, 2020:


		Carrying Value		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Carrying Value		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
March 31, 2021
June 30, 2021										June 30, 2021
Foreclosed and repossessed assets, net	Foreclosed and repossessed assets, net	$	85	$	0	$	0	$	85	Foreclosed and repossessed assets, net	$	145	$	0	$	0	$	145
Impaired loans with allocated allowances	Impaired loans with allocated allowances	4,704		0		0		4,704		Impaired loans with allocated allowances	3,485		0		0		3,485
Mortgage servicing rights	Mortgage servicing rights	3,999		0		0		4,005		Mortgage servicing rights	3,862		0		0		3,894
Total	Total	$	8,788	$	0	$	0	$	8,794	Total	$	7,492	$	0	$	0	$	7,524
December 31, 2020	December 31, 2020									December 31, 2020
Foreclosed and repossessed assets, net	Foreclosed and repossessed assets, net	$	197	$	0	$	0	$	197	Foreclosed and repossessed assets, net	$	197	$	0	$	0	$	197
Impaired loans with allocated allowances	Impaired loans with allocated allowances	3,037		0		0		3,037		Impaired loans with allocated allowances	3,037		0		0		3,037
Mortgage servicing rights	Mortgage servicing rights	3,252		0		0		3,285		Mortgage servicing rights	3,252		0		0		3,285
Total	Total	$	6,486	$	0	$	0	$	6,519	Total	$	6,486	$	0	$	0	$	6,519

4547

The fair value of impaired loans referenced above was determined by obtaining independent third party appraisals and/or internally developed collateral valuations to support the Company’s estimates and judgments in determining the fair value of the underlying collateral supporting impaired loans.

The fair value of foreclosed and repossessed assets was determined by obtaining market price valuations from independent third parties wherever such quotes were available for other collateral owned. The Company utilized independent third party appraisals to support the Company’s estimates and judgments in determining fair value for other real estate owned.

The fair value of mortgage servicing rights was estimated using discounted cash flows based on current market rates and other factors.

The following table represents additional quantitative information about assets measured at fair value on a

recurring and nonrecurring basis and for which we have utilized Level 3 inputs to determine their fair value at

~~March 31,~~June 30, 2021.

Fair
Value

Valuation Techniques (1)

Significant Unobservable Inputs (2)

Range

~~March 31,~~June 30, 2021

Foreclosed and repossessed assets, net

85145

Appraisal value

Estimated costs to sell

10% - 15%

Impaired loans with allocated allowances

~~4,704~~3,485

Appraisal value

Estimated costs to sell

10% - 15%

Mortgage servicing rights

~~4,005~~3,894

Discounted cash flows

Discounted rates

9% - 12%

December 31, 2020

Foreclosed and repossessed assets, net

197

Appraisal value

Estimated costs to sell

10% - 15%

Impaired loans with allocated allowances

3,037

Appraisal value

Estimated costs to sell

10% - 15%

Mortgage servicing rights

3,285

Discounted cash flows

Discounted rates

9% - 12%

(1) Fair value is generally determined through independent third-party appraisals of the underlying

collateral, which generally includes various level 3 inputs which are not observable.

(2) The fair value basis of impaired loans and real estate owned may be adjusted to reflect management

estimates of disposal costs including, but not limited to, real estate brokerage commissions, legal fees,

and delinquent property taxes.

4648

The table below represents what we would receive to sell an asset or what we would have to pay to transfer a liability in an orderly transaction between market participants at the measurement date. The carrying amount and estimated fair value of the Company’s financial instruments as of the dates indicated below were as follows:


			March 31, 2021				December 31, 2020						June 30, 2021				December 31, 2020
		Valuation Method Used	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value			Valuation Method Used	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial assets:	Financial assets:										Financial assets:
Cash and cash equivalents	Cash and cash equivalents	(Level I)	$	196,039	$	196,039	$	119,440	$	119,440	Cash and cash equivalents	(Level I)	$	128,440	$	128,440	$	119,440	$	119,440
Other interest-bearing deposits	Other interest-bearing deposits	(Level II)	2,016		2,062		3,752		3,818		Other interest-bearing deposits	(Level II)	1,512		1,550		3,752		3,818
Securities available for sale “AFS”	Securities available for sale “AFS”	(Level II)	185,160		185,160		144,233		144,233		Securities available for sale “AFS”	(Level II)	243,746		243,746		144,233		144,233
Securities held to maturity “HTM”	Securities held to maturity “HTM”	(Level II)	57,419		55,786		43,551		43,784		Securities held to maturity “HTM”	(Level II)	59,582		58,362		43,551		43,784
Equity securities with readily determinable fair value	Equity securities with readily determinable fair value	(Level I)	297		297		200		200		Equity securities with readily determinable fair value	(Level I)	297		297		200		200
Other investments	Other investments	(Level II)	15,069		15,069		14,948		14,948		Other investments	(Level II)	14,966		14,966		14,948		14,948
Loans receivable, net	Loans receivable, net	(Level III)	1,175,266		1,198,049		1,220,538		1,239,692		Loans receivable, net	(Level III)	1,164,713		1,179,776		1,220,538		1,239,692
Loans held for sale	Loans held for sale	(Level II)	2,267		2,267		3,075		3,075		Loans held for sale	(Level II)	3,109		3,109		3,075		3,075
Mortgage servicing rights	Mortgage servicing rights	(Level III)	3,999		4,005		3,252		3,285		Mortgage servicing rights	(Level III)	3,862		3,894		3,252		3,285
Accrued interest receivable	Accrued interest receivable	(Level 1)	5,464		5,464		5,652		5,652		Accrued interest receivable	(Level 1)	4,898		4,898		5,652		5,652
Financial liabilities:	Financial liabilities:										Financial liabilities:
Deposits	Deposits	(Level III)	$	1,380,202	$	1,360,333	$	1,295,256	$	1,292,104	Deposits	(Level III)	$	1,371,226	$	1,350,069	$	1,295,256	$	1,292,104
FHLB advances	FHLB advances	(Level II)	115,481		118,996		123,498		128,282		FHLB advances	(Level II)	111,496		114,632		123,498		128,282
Other borrowings	Other borrowings	(Level I)	58,354		58,354		58,328		58,328		Other borrowings	(Level I)	58,380		58,380		58,328		58,328
Accrued interest payable	Accrued interest payable	(Level I)	603		603		796		796		Accrued interest payable	(Level I)	685		685		796		796

NOTE 11—EARNINGS PER SHARE

Earnings per share is based on the weighted average number of shares outstanding for the period. A reconciliation of the basic and diluted earnings per share is as follows:


	Three Months Ended				Six Months Ended
(Share count in thousands)	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020

Basic
Net income attributable to common stockholders	$	4,706	$	3,069	$	10,212	$	5,675
Weighted average common shares outstanding	10,778		11,151		10,879		11,182
Basic earnings per share	$	0.44	$	0.28	$	0.94	$	0.51
Diluted
Net income attributable to common stockholders	$	4,706	$	3,069	$	10,212	$	5,675
Weighted average common shares outstanding	10,778		11,151		10,879		11,182

Add: Dilutive stock options outstanding	12		0		8		1
Average shares and dilutive potential common shares	10,790		11,151		10,887		11,183
Diluted earnings per share	$	0.44	$	0.28	$	0.94	$	0.51
Additional common stock option shares that have not been included due to their antidilutive effect	21		74		21		53

4749

NOTE 1112 – OTHER COMPREHENSIVE INCOME (LOSS)

The following tables show the tax effects allocated to each component of other comprehensive ~~loss~~income for the

three and six months ended ~~March 31,~~June 30, 2021 and 2020:


		Three months ended													Three months ended
		March 31, 2021						March 31, 2020							June 30, 2021						June 30, 2020
		Before-Tax Amount		Tax Expense		Net-of-Tax Amount		Before-Tax Amount		Tax Expense		Net-of-Tax Amount			Before-Tax Amount		Tax Expense		Net-of-Tax Amount		Before-Tax Amount		Tax Expense		Net-of-Tax Amount
Unrealized gains on securities:	Unrealized gains on securities:													Unrealized gains on securities:
Net unrealized losses arising during the period		$	(672)	$	186	$	(486)	$	(1,643)	$	452	$	(1,191)
Net unrealized gains arising during the period														Net unrealized gains arising during the period	$	1,492	$	(410)	$	1,082	$	2,245	$	(617)	$	1,628
Reclassification adjustment for gains included in net income	Reclassification adjustment for gains included in net income	0		0		0		73		(20)		53		Reclassification adjustment for gains included in net income	(36)		10		(26)		0		0		0

Other comprehensive loss		$	(672)	$	186	$	(486)	$	(1,570)	$	432	$	(1,138)
Other comprehensive income														Other comprehensive income	$	1,456	$	(400)	$	1,056	$	2,245	$	(617)	$	1,628


	Six Months Ended
	June 30, 2021						June 30, 2020
	Before-Tax Amount		Tax Expense		Net-of-Tax Amount		Before-Tax Amount		Tax Expense		Net-of-Tax Amount
Unrealized gains on securities:
Net unrealized gains arising during the period	$	820	$	(224)	$	596	$	832	$	(229)	$	603
Reclassification adjustment for gains included in net income	(36)		10		(26)		(156)		43		(113)




Other comprehensive income	$	784	$	(214)	$	570	$	676	$	(186)	$	490

The changes in the accumulated balances for each component of other comprehensive income (loss), net of tax for the twelve months ended December 31, 2020 and the ~~three~~six months ended ~~March 31,~~June 30, 2021 were as follows:


		Unrealized Gains (Losses) on Securities		Other Accumulated Comprehensive Income (Loss), net of tax			Unrealized Gains (Losses) on Securities		Other Accumulated Comprehensive Income (Loss), net of tax
Beginning Balance, January 1, 2020	Beginning Balance, January 1, 2020	$	(649)	$	(471)	Beginning Balance, January 1, 2020	$	(649)	$	(471)
Current year-to-date other comprehensive income	Current year-to-date other comprehensive income	2,705		1,961		Current year-to-date other comprehensive income	2,705		1,961

Ending balance, December 31, 2020	Ending balance, December 31, 2020	$	2,056	$	1,490	Ending balance, December 31, 2020	$	2,056	$	1,490
Current year-to-date other comprehensive loss		(672)		(486)
Ending balance, March 31, 2021		$	1,384	$	1,004
Current year-to-date other comprehensive income						Current year-to-date other comprehensive income	784		570
Ending balance, June 30, 2021						Ending balance, June 30, 2021	$	2,840	$	2,060

Reclassifications out of accumulated other comprehensive income (loss) for the three and six months ended ~~March 31,~~June 30, 2021 were as follows:

~~Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)~~

~~Details about Accumulated Other Comprehensive Income (Loss) Components~~

~~Three months ended March 31, 2021~~

~~(1)~~

~~Affected Line Item on the Statement of Operations~~

~~Unrealized gains and losses~~

~~Sale of securities~~

~~Net gains on investment securities~~

~~Tax Effect~~

~~Provision for income taxes~~

~~Total reclassifications for the period~~

~~Net gain attributable to common shareholders~~


	Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)
Details about Accumulated Other Comprehensive Income (Loss) Components	Three months ended June 30, 2021		Six months ended June 30, 2021		(1)	Affected Line Item on the Statement of Operations
Unrealized gains and losses
Sale of securities	$	36	$	36		Net gains on investment securities
Tax Effect	(10)		(10)			Provision for income taxes
Total reclassifications for the period	$	26	$	26		Net income attributable to common stockholders

(1) Amounts in parentheses indicate decreases to income/loss.

4850

Reclassifications out of accumulated other comprehensive income (loss) for the three and six months ended ~~March 31,~~June 30, 2020 were as follows:

~~Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)~~

~~Details about Accumulated Other Comprehensive Income (Loss) Components~~

~~Three months ended March 31, 2020~~

~~(1)~~

~~Affected Line Item on the Statement of Operations~~

~~Unrealized gains and losses~~

~~Sale of securities~~

~~Net gains on investment securities~~

~~Tax Effect~~

~~(20)~~

~~Provision for income taxes~~

~~Total reclassifications for the period~~

~~Net gain attributable to common shareholders~~


	Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)
Details about Accumulated Other Comprehensive Income (Loss) Components	Three months ended June 30, 2020		Six months ended June 30, 2020		(1)	Affected Line Item on the Statement of Operations
Unrealized gains and losses
Sale of securities	$	0	$	156		Net gains on investment securities
Tax Effect	0		(43)			Provision for income taxes
Total reclassifications for the period	$	0	$	113		Net income attributable to common stockholders

(1) Amounts in parentheses indicate decreases to profit/loss.

4951

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

Certain matters discussed in this report contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and the Company intends that these forward-looking statements be covered by the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. These statements may be identified by the use of forward-looking words or phrases such as “anticipate,” “believe,” “could,” “expect,” “estimates”, “intend,” “may,” “preliminary,” “planned,” “potential,” “should,” “will,” “would,” or the negative of those terms or other words of similar meaning. Similarly, statements that describe the Company’s future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are inherently subject to many uncertainties in the Company’s operations and business environment.

Factors that could affect actual results or outcomes include the matters described under the caption “Risk Factors” in Item 1A of our annual report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 8, 2021 (“2020 10-K”), the matters described in “Risk Factors” in Item 1A of our Form 10Q for the quarter ended March 31, 2021 and in Item 1A of this Form 10-Q, and the following:

•conditions in the financial markets and economic conditions generally;

•adverse impacts to the Company or Bank arising from the COVID-19 pandemic;

•the possibility of a deterioration in the residential real estate markets;

•interest rate risk;

•lending risk;

•the impact of changing long-term interest rates on the fair market value of the Company’s mortgage servicing rights (MSR );

•the sufficiency of loan allowances;

•changes in the fair value or ratings downgrades of our securities;

•competitive pressures among depository and other financial institutions;

•our ability to maintain our reputation;

•our ability to realize the benefits of net deferred tax assets;

•our ability to maintain or increase our market share;

•acts of terrorism and political or military actions by the United States or other governments;

•legislative or regulatory changes or actions, or significant litigation, adversely affecting the Company or Bank;

•increases in FDIC insurance premiums or special assessments by the FDIC;

•disintermediation risk;

•our inability to obtain needed liquidity;

•our ability to successfully execute our acquisition growth strategy;

•risks posed by acquisitions and other expansion opportunities, including difficulties and delays in integrating the acquired business operations or fully realizing the cost savings and other benefits;

•our ability to raise capital needed to fund growth or meet regulatory requirements;

•the possibility that our internal controls and procedures could fail or be circumvented;

•our ability to attract and retain key personnel;

•our ability to keep pace with technological change;

•cybersecurity risks;

•changes in federal or state tax laws;

•changes in accounting principles, policies or guidelines and their impact on financial performance;

•restrictions on our ability to pay dividends; and

•the potential volatility of our stock price.

Stockholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are only made as of the date of this filing and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances occurring after the date of this report.

5052

GENERAL

The following discussion sets forth management’s discussion and analysis of our consolidated financial condition as of ~~March 31,~~June 30, 2021, and our consolidated results of operations for the three and six months ended ~~March 31,~~June 30, 2021, compared to the same period in the prior fiscal year for the three and six months ended ~~March 31,~~June 30, 2020. This discussion should be read in conjunction with the interim consolidated financial statements and the condensed notes thereto included with this report and with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes related thereto included in our 2020 10-K. Unless otherwise stated, all monetary amounts in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, other than share, per share and capital ratio amounts, are stated in thousands.

CRITICAL ACCOUNTING ESTIMATES

Our consolidated financial statements are prepared in accordance with GAAP. In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amount of assets, liabilities, revenue, expenses, and their related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that our management believes to be relevant at the time our consolidated financial statements are prepared. Some of these estimates are more critical than others. In addition to the policies included in Note 1, “Nature of Business and Summary of Significant Accounting Policies,” to the Consolidated Financial Statements included as an exhibit in our annual report on our 2020 10-K, our critical accounting estimates are as follows:

Allowance for Loan Losses.

We maintain an allowance for loan losses to absorb probable and inherent losses in our loan portfolio. The allowance is based on ongoing, quarterly assessments of the estimated probable incurred losses in our loan portfolio. In evaluating the level of the allowance for loan loss, we consider the types of loans and the amount of loans in our loan portfolio, historical loss experience, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, prevailing economic conditions and other relevant factors determined by management. We follow all applicable regulatory guidance, including the “Interagency Policy Statement on the Allowance for Loan and Lease Losses,” issued by the Federal Financial Institutions Examination Council (FFIEC). We believe that the Bank’s Allowance for Loan Losses Policy conforms to all applicable regulatory requirements. However, based on periodic examinations by regulators, the amount of the allowance for loan losses recorded during a particular period may be adjusted.

Our determination of the allowance for loan losses is based on (1) specific allowances for specifically identified and evaluated impaired loans and their corresponding estimated loss based on likelihood of default, payment history, and net realizable value of underlying collateral. Specific allocations for collateral dependent loans are based on fair value of the underlying collateral relative to the unpaid principal balance of individually impaired loans. For loans that are not collateral dependent, the specific allocation is based on the present value of expected future cash flows discounted at the loan’s original effective interest rate through the repayment period; and (2) a general allowance on loans not specifically identified in (1) above, based on historical loss ratios, which are adjusted for qualitative and general economic factors. We continue to refine our allowance for loan losses methodology, with an increased emphasis on historical performance adjusted for applicable economic and qualitative factors.

Assessing the allowance for loan losses is inherently subjective as it requires making material estimates, including the amount and timing of future cash flows expected to be received on impaired loans, any of which estimates may be susceptible to significant change. In our opinion, the allowance, when taken as a whole, reflects estimated probable loan losses in our loan portfolio.

Goodwill.

We account for goodwill and other intangible assets in accordance with ASC Topic 350, “Intangibles - Goodwill and Other.” The Company records the excess of the cost of acquired entities over the fair value of identifiable tangible and intangible assets acquired, less liabilities assumed, as goodwill. The Company amortizes acquired intangible assets with definite useful economic lives over their useful economic lives utilizing the straight-line method. On a periodic basis, management assesses whether events or changes in circumstances indicate that the carrying amounts of the intangible assets may be impaired. The Company does not amortize goodwill, but reviews goodwill for impairment at a reporting unit level on an annual basis, or when events or changes in circumstances indicate that the carrying amounts may be impaired. A reporting unit is

defined as any distinct, separately identifiable component of the Company’s one operating segment for which complete, discrete financial information is available and reviewed regularly by the segment’s management. The Company has one reporting unit as of ~~March 31,~~June 30, 2021, which is related to its banking activities. The Company performed the required goodwill

impairment test and determined that goodwill was not impaired as of December 31, 2020. ~~The Company performed a goodwill impairment analysis as of March 31, 2021 and determined that goodwill was not impaired.~~.

Fair Value Measurements and Valuation Methodologies.

We apply various valuation methodologies to assets and liabilities which often involve a significant degree of judgment, particularly when liquid markets do not exist for the particular items being valued. Quoted market prices are referred to when estimating fair values for certain assets, such as most investment securities. However, for those items for which an observable liquid market does not exist, management utilizes significant estimates and assumptions to value such items. Examples of these items include loans, deposits, borrowings, goodwill, core deposit intangible assets, other assets and liabilities obtained or assumed in business combinations, and certain other financial instruments. These valuations require the use of various assumptions, including, among others, discount rates, rates of return on assets, repayment rates, cash flows, default rates, and liquidation values. The use of different assumptions could produce significantly different results, which could have material positive or negative effects on the Company’s results of operations, financial condition or disclosures of fair value information.

In addition to valuation, the Company must assess whether there are any declines in value below the carrying value of assets that should be considered other than temporary or otherwise require an adjustment in carrying value and recognition of a loss in the consolidated statement of income. Examples include but are not limited to; loans, investment securities, goodwill, core deposit intangible assets and deferred tax assets, among others. Specific assumptions, estimates and judgments utilized by management are discussed in detail herein in management’s discussion and analysis of financial condition and results of operations and in notes 1, 2, 3, 4 and 10 of Condensed Notes to Consolidated Financial Statements.

Income Taxes.

Amounts provided for income tax expenses are based on income reported for financial statement purposes and do not necessarily represent amounts currently payable under tax laws. Deferred income tax assets and liabilities, which arise principally from temporary differences between the amounts reported in the financial statements and the tax basis of certain assets and liabilities, are included in the amounts provided for income taxes. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and tax planning strategies which will create taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and if necessary, tax planning strategies in making this assessment.

The assessment of tax assets and liabilities involves the use of estimates, assumptions, interpretations, and judgments concerning certain accounting pronouncements and application of specific provisions of federal and state tax codes. There can be no assurance that future events, such as court decisions or positions of federal and state taxing authorities, will not differ from management’s current assessment, the impact of which could be material to our consolidated results of our operations and reported earnings. We believe that the deferred tax assets and liabilities are adequate and properly recorded in the accompanying consolidated financial statements. As of ~~March 31,~~June 30, 2021, management does not believe a valuation allowance related to the realizability of its deferred tax assets is necessary.

5254

STATEMENT OF OPERATIONS ANALYSIS

Net Interest Income. Net interest income represents the difference between the dollar amount of interest earned on interest-bearing assets and the dollar amount of interest paid on interest-bearing liabilities. The interest income and expense of financial institutions (including those of the Bank) are significantly affected by general economic conditions, competition, policies of regulatory authorities and other factors.

Interest rate spread and net interest margin are used to measure and explain changes in net interest income. Interest rate spread is the difference between the yield on interest earning assets and the rate paid for interest-bearing liabilities that fund those assets. Net interest margin is expressed as the percentage of net interest income to average interest earning assets. Net interest margin currently exceeds interest rate spread because non-interest-bearing sources of funds (“net free funds”), principally demand deposits and stockholders’ equity, also support interest earning assets. The narrative below discusses net interest income, interest rate spread, and net interest margin for the ~~three-month~~three and six-month periods ended ~~March 31,~~June 30, 2021, and ~~March 31,~~June 30, 2020, respectively.

Net interest income was $12.8 million for the three months ended ~~March 31,~~June 30, 2021 and $25.6 million for the six months ended June 30, 2021, compared to ~~$12.7~~$12.3 million for the three months ended ~~March 31,~~June 30, 2020 and $25.0 million for the six months ended June 30, 2020. For the three and six months ended ~~March 31,~~June 30, 2021, net interest income benefited ~~from~~from: 1) the accretion of ~~$1.75~~$1.31 million and $3.06 million, respectively, of deferred fees related to the SBA Paycheck Protection Program (“SBA PPP”) loans, compared to $0.5 million for both the three and six months ended June 30, 2020; 2) lower liability costs; and 3) organic loan growth from ~~March 31, 2020, partially offset by~~June 30, 2020. Net interest income for the three and six months ended June 30, 2021 was negatively impacted by: 1) lower accretion associated with reductions in ~~purchase~~purchased credit impaired ~~loans. In addition, net interest income for~~loans; 2) the ~~quarter ended March 31, 2021 was negatively impacted by: (1)~~impact of Federal Reserve actions to offset the impact of the pandemic in March 2020, during which it lowered overnight interest rates by 125 basis points in 6 days; and ~~(2)~~3) market reactions to decreasing longer-term interest rates on loans, investments and cash and cash ~~equivalents~~equivalent security ~~yields; partially offset by lower deposit rates due to management action to reduce interest rates.~~yields.

The net interest margin for the three-month period ended ~~March 31,~~June 30, 2021, was ~~3.31%~~3.22%, compared to ~~3.64%~~3.34% for the three-month period ended ~~March 31,~~June 30, 2020. The net interest margin decreased due to: 1) a 19 basis point increase in SBA PPP deferred loan fee accretion and 2) 6 basis points of lower liability costs in the three months ended June 30, 2021, compared to the three months ended June 2020. These increases were more than offset by decreases in net interest margin largely due to: 1) the impact of higher cash and cash equivalent balances, which decreased the interest margin percentage by 12 basis points; 2) 7 basis points of lower accretion associated with reductions in purchased credit impaired loans; and 3) market reactions to decreasing longer-term interest rates and the related impact on yields on loans, investments and cash and cash equivalent security yields.

The net interest margin for the six-month period ended June 30, 2021 was 3.26%, compared to 3.48% for the six-month period ended June 30, 2020. The decrease in net interest margin was largely due to: ~~(1)~~1) 14 basis points of lower accretion associated with reductions in purchased credit impaired loans; 2) the impact of higher cash and cash equivalent balances, which decreased the interest margin percentage by 17 basis points; 3) the impact of Federal Reserve actions to offset the impact of the pandemic in March 2020, during which it lowered overnight interest rates by 125 basis points in 6 ~~days (2)~~days; and 4) market reactions to ~~decreasing longer-term interest rates~~lower yields on new originations of loans, purchases of investments and reduced yields on cash and cash equivalents security yields, (3) 26 basis points of lower accretion associated with reduction in purchase credit impaired loans and (4) the impact of higher cash and cash equivalents balances decreased the interest margin percentage by 21 basis points.equivalents. These decreases were partially offset by lower deposit rates due to management action to reduce interest rates on deposits and 45a 36 basis ofpoint increase in loans due to higher SBA PPP deferred loan fee accretion.

Average Balances, Net Interest Income, Yields Earned and Rates Paid. The following net interest income analysis table presents interest income from average interest earning assets, expressed in dollars and yields, and interest expense on average interest-bearing liabilities, expressed in dollars and rates on a tax equivalent basis. Shown below is the weighted average tax equivalent yield on interest earning assets, rates paid on interest-bearing liabilities and the resultant spread at or during the ~~three month~~three- and six-month periods ended ~~March 31,~~June 30, 2021 and ~~March 31,~~June 30, 2020. Non-accruing loans have been included in the table as loans carrying a zero yield.

5355

NET INTEREST INCOME ANALYSIS ON A TAX EQUIVALENT BASIS

(Dollar amounts in thousands)

Three months ended ~~March 31,~~June 30, 2021 compared to the three months ended ~~March 31,~~June 30, 2020:


		Three months ended March 31, 2021						Three months ended March 31, 2020							Three months ended June 30, 2021						Three months ended June 30, 2020
		Average Balance		Interest Income/ Expense		Average Yield/ Rate (1)		Average Balance		Interest Income/ Expense		Average Yield/ Rate (1)			Average Balance		Interest Income/ Expense		Average Yield/ Rate (1)		Average Balance		Interest Income/ Expense		Average Yield/ Rate (1)
Average interest earning assets:	Average interest earning assets:													Average interest earning assets:
Cash and cash equivalents	Cash and cash equivalents	$	129,642	$	29	0.09	%	$	31,069	$	118	1.53	%	Cash and cash equivalents	$	113,561	$	28	0.10	%	$	19,995	$	5	0.10	%
Loans	Loans	1,213,562		14,517		4.85	%	1,172,246		15,459		5.30	%	Loans	1,186,439		13,960		4.72	%	1,266,273		14,687		4.66	%
Interest-bearing deposits	Interest-bearing deposits	3,437		20		2.36	%	4,362		27		2.49	%	Interest-bearing deposits	1,754		9		2.06	%	3,788		23		2.44	%
Investment securities (1)	Investment securities (1)	202,981		885		1.77	%	179,287		1,131		2.54	%	Investment securities (1)	283,557		1,308		1.85	%	174,875		988		2.27	%
Other investments	Other investments	15,038		169		4.56	%	15,006		173		4.64	%	Other investments	15,020		173		4.62	%	15,160		183		4.86	%
Total interest earning assets (1)	Total interest earning assets (1)	$	1,564,660	$	15,620	4.05	%	$	1,401,970	$	16,908	4.85	%	Total interest earning assets (1)	$	1,600,331	$	15,478	3.88	%	$	1,480,091	$	15,886	4.32	%
Average interest-bearing liabilities:	Average interest-bearing liabilities:													Average interest-bearing liabilities:
Savings accounts	Savings accounts	$	197,647	$	83	0.17	%	$	154,596	$	151	0.39	%	Savings accounts	$	219,804	$	99	0.18	%	$	171,285	$	99	0.23	%
Demand deposits	Demand deposits	330,674		251		0.31	%	234,822		375		0.64	%	Demand deposits	360,314		257		0.29	%	267,429		260		0.39	%
Money market	Money market	254,120		202		0.32	%	236,470		609		1.04	%	Money market	258,638		182		0.28	%	243,264		350		0.58	%
CD’s	CD’s	266,044		1,043		1.59	%	354,095		1,846		2.10	%	CD’s	240,224		868		1.45	%	328,543		1,706		2.09	%
IRA’s	IRA’s	40,877		135		1.34	%	42,695		199		1.87	%	IRA’s	39,970		115		1.15	%	42,117		192		1.83	%
Total deposits	Total deposits	$	1,089,362	$	1,714	0.64	%	$	1,022,678	$	3,180	1.25	%	Total deposits	$	1,118,950	$	1,521	0.55	%	$	1,052,638	$	2,607	1.00	%
FHLB Advances and other borrowings	FHLB Advances and other borrowings	180,635		1,142		2.56	%	146,810		1,057		2.90	%	FHLB Advances and other borrowings	171,261		1,126		2.64	%	186,191		976		2.11	%
Total interest-bearing liabilities	Total interest-bearing liabilities	$	1,269,997	$	2,856	0.91	%	$	1,169,488	$	4,237	1.46	%	Total interest-bearing liabilities	$	1,290,211	$	2,647	0.82	%	$	1,238,829	$	3,583	1.16	%
Net interest income	Net interest income			$	12,764					$	12,671			Net interest income			$	12,831					$	12,303
Interest rate spread	Interest rate spread					3.14	%					3.39	%	Interest rate spread					3.06	%					3.16	%
Net interest margin (1)	Net interest margin (1)					3.31	%					3.64	%	Net interest margin (1)					3.22	%					3.34	%
Average interest earning assets to average interest-bearing liabilities	Average interest earning assets to average interest-bearing liabilities					1.23						1.20		Average interest earning assets to average interest-bearing liabilities					1.24						1.19

(1) Fully taxable equivalent (FTE). The average yield on tax exempt securities is computed on a tax equivalent basis using a tax rate of 21.0% for the quarters ended ~~March 31,~~June 30, 2021 and ~~March 31,~~June 30, 2020. The FTE adjustment to net interest income included in the rate calculations totaled $1 and $0 thousand for the three months ended ~~March 31,~~June 30, 2021 and ~~March 31,~~June 30, 2020, respectively.

5456

NET INTEREST INCOME ANALYSIS ON A TAX EQUIVALENT BASIS

(Dollar amounts in thousands)

Six months ended June 30, 2021 compared to the six months ended June 30, 2020:


	Six months ended June 30, 2021						Six months ended June 30, 2020
	Average Balance		Interest Income/ Expense		Average Yield/ Rate (1)		Average Balance		Interest Income/ Expense		Average Yield/ Rate (1)
Average interest earning assets:
Cash and cash equivalents	$	121,557	$	57	0.09	%	$	25,532	$	123	0.97	%
Loans	1,199,925		28,477		4.79	%	1,219,905		30,146		4.97	%
Interest-bearing deposits	2,591		29		2.26	%	4,075		50		2.47	%
Investment securities (1)	243,492		2,193		1.82	%	177,081		2,119		2.41	%
Other investments	15,029		342		4.59	%	15,083		356		4.75	%
Total interest earning assets (1)	$	1,582,594	$	31,098	3.96	%	$	1,441,676	$	32,794	4.57	%
Average interest bearing liabilities:
Savings accounts	$	208,787	$	182	0.18	%	$	162,941	$	250	0.31	%
Demand deposits	345,576		507		0.3	%	251,125		635		0.51	%
Money market	256,391		384		0.3	%	239,867		959		0.80	%
CD’s	253,063		1,911		1.52	%	341,319		3,552		2.09	%
IRA’s	40,421		251		1.25	%	42,406		391		1.85	%
Total deposits	$	1,104,238	$	3,235	0.59	%	$	1,037,658	$	5,787	1.12	%
FHLB Advances and other borrowings	175,922		2,268		2.6	%	180,927		2033		2.26	%
Total interest bearing liabilities	$	1,280,160	$	5,503	0.87	%	$	1,218,585	$	7,820	1.29	%
Net interest income			$	25,595					$	24,974
Interest rate spread					3.09	%					3.28	%
Net interest margin (1)					3.26	%					3.48	%
Average interest earning assets to average interest bearing liabilities					1.24						1.18

(1) Fully taxable equivalent (FTE). The average yield on tax exempt securities is computed on a tax equivalent basis using a tax rate of 21.0% for the six months ended June 30, 2021 and June 30, 2020. The FTE adjustment to net interest income included in the rate calculations totaled $2 and $1 thousand for the six months ended June 30, 2021 and June 30, 2020, respectively.

Rate/Volume Analysis. The following table presents the dollar amount of changes in interest income and interest expense for the components of interest earning assets and ~~interest-bearing~~interest bearing liabilities that are presented in the preceding table. For each category of interest earning assets and interest-bearing liabilities, information is provided on changes attributable to: (1) changes in volume, which are changes in the average outstanding balances multiplied by the prior period rate (i.e., holding the initial rate constant); and (2) changes in rate, which are changes in average interest rates multiplied by the prior period volume (i.e., holding the initial balance constant). Rate changes have been discussed previously. For the three and six months ended ~~March 31,~~June 30, 2021, compared to the ~~three months ended March 31,~~same periods in 2020, the loan volume ~~increase~~decrease is primarily due to reductions in SBA PPP ~~originations, and~~loans, partially offset by the impact of organic growth since ~~March 31,~~the same period in 2020. The decrease in certificate volumes is due to planned runoff of brokered ~~CD’s~~CDs and to a lesser extent, retail ~~CD’s,~~CDs, partially offset by growth in non-maturity ~~deposits.~~deposits.

RATE / VOLUME ANALYSIS

(Dollar amounts in thousands)

Three months ended ~~March 31,~~June 30, 2021 compared to the three months ended ~~March 31,~~June 30, 2020.


		Increase (decrease) due to							Increase (decrease) due to
		Volume		Rate		Net			Volume		Rate		Net
Interest income:	Interest income:							Interest income:
Cash and cash equivalents	Cash and cash equivalents	$	215	$	(304)	$	(89)	Cash and cash equivalents	$	23	$	—	$	23
Loans	Loans	527		(1,469)		(942)		Loans	(938)		211		(727)
Interest-bearing deposits	Interest-bearing deposits	(5)		(2)		(7)		Interest-bearing deposits	(11)		(3)		(14)
Investment securities	Investment securities	136		(382)		(246)		Investment securities	539		(219)		320
Other investments	Other investments	—		(4)		(4)		Other investments	(2)		(8)		(10)
Total interest earning assets	Total interest earning assets	873		(2,161)		(1,288)		Total interest earning assets	(389)		(19)		(408)
Interest expense:	Interest expense:							Interest expense:
Savings accounts	Savings accounts	35		(103)		(68)		Savings accounts	25		(25)		—
Demand deposits	Demand deposits	124		(248)		(124)		Demand deposits	79		(82)		(3)
Money market accounts	Money market accounts	42		(449)		(407)		Money market accounts	21		(189)		(168)
CD’s	CD’s	(392)		(411)		(803)		CD’s	(383)		(455)		(838)
IRA’s	IRA’s	(8)		(56)		(64)		IRA’s	(9)		(68)		(77)
Total deposits	Total deposits	(199)		(1,267)		(1,466)		Total deposits	(267)		(819)		(1,086)
FHLB Advances and other borrowings	FHLB Advances and other borrowings	224		(139)		85		FHLB Advances and other borrowings	(84)		234		150
Total interest bearing liabilities	Total interest bearing liabilities	25		(1,406)		(1,381)		Total interest bearing liabilities	(351)		(585)		(936)
Net interest income	Net interest income	$	848	$	(755)	$	93	Net interest income	$	(38)	$	566	$	528

Six months ended June 30, 2021 compared to the six months ended June 30, 2020.


	Increase (decrease) due to
	Volume		Rate		Net
Interest income:
Cash and cash equivalents	$	267	$	(333)	$	(66)
Loans	(487)		(1,182)		(1,669)
Interest-bearing deposits	(17)		(4)		(21)
Investment securities	691		(617)		74
Other investments	(1)		(13)		(14)
Total interest earning assets	453		(2,149)		(1,696)
Interest expense:
Savings accounts	60		(128)		(68)
Demand deposits	199		(327)		(128)
Money market accounts	62		(637)		(575)
CD’s	(776)		(865)		(1,641)
IRA’s	(17)		(123)		(140)
Total deposits	(472)		(2,080)		(2,552)
FHLB Advances and other borrowings	(57)		292		235
Total interest bearing liabilities	(529)		(1,788)		(2,317)
Net interest income	$	982	$	(361)	$	621

Provision for Loan Losses. We determine our provision for loan losses (“provision”) based on our desire to provide an adequate allowance for loan losses (“ALL”) to reflect probable and inherent credit losses in our loan portfolio. We continue to monitor adverse general economic conditions that could affect our commercial and agricultural portfolios in the future.

Total provision for loan losses ~~expense~~ for both the three and six months ended ~~March 31,~~June 30, 2021, was $0. The ALL and related need for provision for loan losses was impacted by reductions in nonperforming and substandard assets, lower loan deferral balances associated with Section 4013 of the Cares Act, a smaller balance of loans receivable and low net loan charge offs. In addition, in the second quarter of 2021, the Bank reduced the allocation of the allowance for loan losses for general economic conditions, which offset increases in the allocation of the allowance for loan losses due to loan growth and specific reserve increases. Note that in discussing ALL allocations, the entire ALL balance is available for any loan that, in management’s judgment, should be charged off. The provision for loans losses for the three and six months ended ~~March 31,~~June 30, 2020 of $2$1.75 million and $3.75 million, respectively, was due to loan growth, the impact of net charge-offs and increase in Q-Factors due to uncertain market ~~conditions,~~conditions. Pandemic-related adverse economic impacts, including various “Stay-at-Home Orders”, were beginning to result in temporary business closures, reduced operating capacity and uncertainty regarding potential future revenue and cash flows for certain businesses, including bank borrowers.

Management believes that the provision ~~taken~~recorded for the current year ~~three-month period~~three and six-month periods is adequate in view of the present condition of our loan portfolio and the sufficiency of collateral supporting our non-performing loans. We continually monitor non-performing loan relationships and will adjust our provision, as necessary, if changing facts and circumstances require a change in the ALL. In addition, a decline in the quality of our loan portfolio as a result of general economic conditions, factors affecting particular borrowers or our market areas, or otherwise, could all affect the adequacy of our ALL. If there are significant charge-offs against the ALL, or we otherwise determine that the ALL is inadequate, we will need to record an additional provision in the future.

5559

Non-interest Income. The following table reflects the various components of non-interest income for the three and six month periods ended ~~March 31,~~June 30, 2021 and 2020, respectively.


		Three months ended March 31,						Three months ended June 30,						Six months ended June 30,
		2021		2020		% Change				2021		2020		% Change		2021		2020		% Change
Non-interest Income:	Non-interest Income:								Non-interest Income:
Service charges on deposit accounts	Service charges on deposit accounts	$	398	$	560	(28.93)	%		Service charges on deposit accounts	$	395	$	345	14.49	%	$	793	$	905	(12.38)	%
Interchange income	Interchange income	530		464		14.22	%		Interchange income	647		489		32.31	%	1,177		953		23.50	%
Loan servicing income	Loan servicing income	893		685		30.36	%		Loan servicing income	825		1,315		(37.26)	%	1,718		2,000		(14.10)	%
Gain on sale of loans	Gain on sale of loans	1,595		780		104.49	%		Gain on sale of loans	1,522		1,818		(16.28)	%	3,117		2,598		19.98	%
Loan fees and service charges	Loan fees and service charges	278		477		(41.72)	%		Loan fees and service charges	151		244		(38.11)	%	429		721		(40.50)	%
Insurance commission income	Insurance commission income	—		279		(100.00)	%		Insurance commission income	—		195		(100.00)	%	—		474		(100.00)	%
Net gains on investment securities	Net gains on investment securities	235		73		221.92	%		Net gains on investment securities	37		25		48.00	%	272		98		177.55	%

Net gain on sale of acquired business lines									Net gain on sale of acquired business lines	—		252		N/M		—		252		N/M
Settlement proceeds									Settlement proceeds	—		131		N/M		—		131		N/M
Other	Other	247		285		(13.33)	%		Other	216		199		8.54	%	463		484		(4.34)	%
Total non-interest income	Total non-interest income	$	4,176	$	3,603	15.90	%		Total non-interest income	$	3,793	$	5,013	(24.34)	%	$	7,969	$	8,616	(7.51)	%

Service charges on deposit accounts ~~decreased~~increased modestly to ~~$398~~$395 for the three months ended ~~March 31,~~June 20, 2021, from ~~$560~~$345 from the prior quarter year period due to higher customer spending activity during the quarter. For the six months ended June 30, 2021, service charges decreased to $793, compared to $905 in the comparable prior year ~~period. This decrease was~~period, due to higher average ~~balances~~deposit balances.

Interchange income increased to $647 and $1,177 for the three and six months ended June 30, 2021, compared to $489 and $953, respectively, for the similar prior year periods. Customer spending activity increased due to a stronger general economy, as our regional economies benefited from lower unemployment and were less impacted by business shutdowns as a result of ~~retail checking accounts, which lowered service charges assessed.~~the pandemic.

Loan servicing income ~~increased largely due to increased capitalized~~decreased with reduced capitalization of mortgage servicing rights due to ~~higher~~lower mortgage loan origination fees in the ~~quarter ending March 31,~~three- and six-month periods ended June 30, 2021.

Gain on sale of loans ~~increased~~decreased in the current ~~three~~three-month period ended June 30, 2021, compared to June 30, 2020, due to lower mortgage loan origination volumes, partially offset by an increase on the gain on sale of SBA and FSA loans. For the six-month period ended June 30, 2021, gain on sale of loans increased $519 thousand largely due to the gain on sale of SBA and FSA loans and a modest increase in gain on sale of mortgage loans, primarily due to higher ~~mortgage loan origination sold volumes.~~gain on sale percentages.

The change in loan fees and service charges for the three and six months ended ~~March 31,~~June 30, 2021, is largely due to decreases in commercial loan customer ~~activity from the first quarter of 2020.~~activity.

The decrease in insurance commission income is due to the sale of the Wells Insurance Agency ~~change~~ in June 2020.

The ~~change in~~ net gains on investment securities in ~~March 31,~~the three- and six-month periods ended June 30, 2021, is largely due to unrealized gains on equity securities with readily determinable fair value ~~during the three months ended March 31, 2021, while the gains~~recorded in the first quarter of 2021 and a realized $36 gain on sale of one of its trust-preferred securities in the second quarter of 2021. In 2020, the gains in the six month period ended June 30, 2020, were ~~largely~~ due to the sale of a $10.7 million of fixed-rate mortgage-backed certificates (“MBS”).

in the first quarter of 2020 and unrealized gain on equity security valuations in the second quarter of 2020.

5660

Non-interest Expense. The following table reflects the various components of non-interest expense for the three and six month periods ended ~~March 31,~~June 30, 2021 and 2020, respectively.


		Three months ended March 31,								Three months ended June 30,								Six months ended June 30,
		2021			2020			% Change				2021			2020			% Change		2021			2020			% Change
Non-interest Expense:	Non-interest Expense:										Non-interest Expense:
Compensation and related benefits	Compensation and related benefits	$	5,596		$	5,435		2.96	%		Compensation and related benefits	$	5,473		$	5,908		(7.36)	%	$	11,069		$	11,343		(2.42)	%
Occupancy	Occupancy	1,316			1,374			(4.22)	%		Occupancy	1,314			1,336			(1.65)	%	2,630			2,710			(2.95)	%

Data processing	Data processing	1,342			1,192			12.58	%		Data processing	1,396			1,212			15.18	%	2,738			2,404			13.89	%
Amortization of intangible assets	Amortization of intangible assets	399			412			(3.16)	%		Amortization of intangible assets	399			412			(3.16)	%	798			824			(3.16)	%
Mortgage servicing rights expense, net	Mortgage servicing rights expense, net	(450)			736			(161.14)	%		Mortgage servicing rights expense, net	441			991			(55.50)	%	(9)			1,727			(100.52)	%
Advertising, marketing and public relations	Advertising, marketing and public relations	163			239			(31.80)	%		Advertising, marketing and public relations	194			303			(35.97)	%	357			542			(34.13)	%
FDIC premium assessment	FDIC premium assessment	165			68			142.65	%		FDIC premium assessment	82			180			(54.44)	%	247			248			(0.40)	%
Professional services	Professional services	521			604			(13.74)	%		Professional services	381			353			7.93	%	902			957			(5.75)	%
Gains on repossessed assets, net	Gains on repossessed assets, net	(117)			(68)			(72.06)	%		Gains on repossessed assets, net	(29)			(22)			(31.82)	%	(146)			(90)			(62.22)	%
Other	Other	554			760			(27.11)	%		Other	547			719			(23.92)	%	1,101			1,458			(24.49)	%
Total non-interest expense	Total non-interest expense	$	9,489		$	10,752		(11.75)	%		Total non-interest expense	$	10,198		$	11,392		(10.48)	%	$	19,687		$	22,123		(11.01)	%

Non-interest expense (annualized) / Average assets	Non-interest expense (annualized) / Average assets	2.29		%	2.85		%	(19.72)	%		Non-interest expense (annualized) / Average assets	2.41		%	2.89		%	(15.45)	%	2.34		%	2.86		%	(18.08)	%

Compensation expense for the ~~three-month period~~three and six-month periods ended ~~March 31,~~June 30, 2021, was ~~higher~~lower than the comparable prior year period due ~~primarily to higher~~to: 1) lower variable mortgage production compensation related to ~~higher~~lower mortgage loan origination ~~activity, higher incentive~~activity; 2) lower compensation ~~accrued based on improved performance, partially offset by~~due to fewer FTEs, including the sale of Wells Insurance Agency in June of 2020; and 3) the closure of three branches in November 2020, ~~and lower salaries paid due to fewer FTE’s.~~partially offset by higher accrued incentive compensation from improved Bank performance.

Data processing expense increases were due primarily to the impact of larger ~~loans~~loan and deposit balances.

Mortgage servicing rights expense, net decreased during the three ~~months~~and six-months ended ~~March 31,~~June 30, 2021, ~~by $1.2 million,~~ compared to the comparable prior year ~~period.~~periods. The Company reversed previously recognized impairment charges of $0.9 million, largely due to the impact of lower forecasted prepayment ~~rates.~~rates with over 95% of this impairment reversal done in the first quarter of 2021. The Bank recorded MSR impairment charges of $0.7 million and $1.2 million for the three- and six-month periods ended June 30, 2020, respectively. The remaining ~~decrease~~change is due to higher amortization ~~based on~~in 2021.

Advertising, marketing and public relations expense decreased in both the ~~current interest rate environment.~~three- and six-month periods ended June 30, 2021, from the same periods in 2020 largely due to the pandemic related charitable contribution made in the second quarter of 2020 to local non-profit organizations

The FDIC insurance premium ~~increased~~decreased during the three months ended ~~March 31,~~June 30, 2021 and six-months ended June 30, 2021, from the comparable prior year ~~comparable quarter~~periods due to the ~~realization~~impact of increased capital ratios stronger earnings performance and lower levels of non-performing assets, which more than offset the impact of a larger asset base. The Bank also realized a $56 FDIC insurance credit in the first quarter of ~~2020 and the impact of higher assets, which increase the asset base.~~

~~The decrease in professional services expense was primarily due to lower audit fees, public accounting fees and lower costs to prepare Form 10-K.~~2020.

Other expenses for the ~~three-month period~~three- and six-month periods ended ~~March 31,~~June 30, 2021, decreased compared to ~~March 31, 2020,~~the comparable prior period, largely due to lower loan origination and collection expenses, ~~partially offset by~~recognized in the ~~debt termination cost of $0.1 million.~~similar periods in 2020.

Income Taxes. Income tax expense was ~~$1.9~~$1.7 million and $3.7 million for the three ~~months~~and six-months ended ~~March 31,~~June 30, 2021, respectively, compared to ~~$0.9~~$1.1 million and $2.0 million for the ~~three-month period~~three and six-months ended ~~March 31,~~June 30, 2020. The effective tax rate was ~~26.1%~~26.8% and 26.4% for the ~~quarter~~three and six-month periods ended ~~March 31,~~June 30, 2021 compared to ~~26.4%~~26.5% and 26.5% for the ~~quarter ended March 31, 2020.~~comparable prior periods.

BALANCE SHEET ANALYSIS

~~Cash and Cash Equivalents.~~ Cash and cash equivalents increased to $196.0 million at March 31, 2021 from $119.4 million at December 31, 2020. Deposit levels grew, while interest earning assets remained flat as loans receivable reductions were offset by securities purchases. As a result, interest-bearing cash at the Federal Reserve increased.

Investment Securities. We manage our securities portfolio to provide liquidity and enhance income. Our investment portfolio is comprised of securities available for sale and securities held to maturity.

Securities available for sale, which represent the majority of our investment portfolio, were ~~$185.2~~$243.7 million at ~~March 31,~~June 30, 2021, compared with $144.2 million at December 31, 2020. The increase in the available for sale portfolio is due to purchases of mortgage-backed securities and corporate debt ~~securities.~~securities, which consisted of bank holding company-issued subordinated debt. The Bank sold $1.9 million of trust preferred securities at a gain of $36 in the second quarter of 2021.

Securities held to maturity increased to ~~$57.4~~$59.6 million at ~~March 31,~~June 30, 2021, compared to $43.6 million at December 31, 2020. This increase was largely due to the purchase of agency mortgage-backed ~~securities in the first quarter of 2021.~~securities.

The amortized cost and market values of our available for sale securities by asset categories as of the dates indicated below were as follows:


Available for sale securities	Available for sale securities	Amortized Cost		Fair Value		Available for sale securities	Amortized Cost		Fair Value
March 31, 2021
June 30, 2021						June 30, 2021
U.S. government agency obligations	U.S. government agency obligations	$	31,474	$	31,712	U.S. government agency obligations	$	30,126	$	30,728
Obligations of states and political subdivisions	Obligations of states and political subdivisions	140		140		Obligations of states and political subdivisions	140		140
Mortgage-backed securities	Mortgage-backed securities	71,448		72,056		Mortgage-backed securities	125,439		126,536
Corporate debt securities	Corporate debt securities	27,752		27,913		Corporate debt securities	34,689		35,295
Corporate asset-backed securities	Corporate asset-backed securities	35,664		35,709		Corporate asset-backed securities	35,096		35,272
Trust preferred securities	Trust preferred securities	17,298		17,630		Trust preferred securities	15,416		15,775
Totals	Totals	$	183,776	$	185,160	Totals	$	240,906	$	243,746
December 31, 2020	December 31, 2020					December 31, 2020
U.S. government agency obligations	U.S. government agency obligations	$	33,048	$	33,365	U.S. government agency obligations	$	33,048	$	33,365
Obligations of states and political subdivisions	Obligations of states and political subdivisions	140		140		Obligations of states and political subdivisions	140		140
Mortgage-backed securities	Mortgage-backed securities	39,454		40,991		Mortgage-backed securities	39,454		40,991
Corporate debt securities	Corporate debt securities	17,199		17,462		Corporate debt securities	17,199		17,462
Corporate asset-backed securities	Corporate asset-backed securities	36,039		35,827		Corporate asset-backed securities	36,039		35,827
Trust preferred securities	Trust preferred securities	16,297		16,448		Trust preferred securities	16,297		16,448
Totals	Totals	$	142,177	$	144,233	Totals	$	142,177	$	144,233

The amortized cost and fair value of our held to maturity securities by asset categories as of the dates noted below were as follows:

Held to maturity securities Amortized
Cost Fair
Value
March 31, 2021
U.S. government agency obligations $ 3,500 $ 3,483
Obligations of states and political subdivisions 4,600 4,593
Mortgage-backed securities 49,319 47,710
Totals $ 57,419 $ 55,786
December 31, 2020
Obligations of states and political subdivisions $ 600 $ 602
Mortgage-backed securities 42,951 43,182
Totals $ 43,551 $ 43,784


Held to maturity securities	Amortized Cost		Fair Value
June 30, 2021
U.S. government agency obligations	$	3,500	$	3,501
Obligations of states and political subdivisions	4,600		4,595
Mortgage-backed securities	51,482		50,266
Totals	$	59,582	$	58,362
December 31, 2020
Obligations of states and political subdivisions	$	600	$	602
Mortgage-backed securities	42,951		43,182
Totals	$	43,551	$	43,784

5862

The composition of our available for sale portfolios by credit rating as of the dates indicated below was as follows:


		March 31, 2021				December 31, 2020					June 30, 2021				December 31, 2020
Available for sale securities	Available for sale securities	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Available for sale securities	Amortized Cost		Fair Value		Amortized Cost		Fair Value
U.S. government agency	U.S. government agency	$	102,922	$	103,769	$	72,502	$	74,356	U.S. government agency	$	155,565	$	157,264	$	72,502	$	74,356
AAA	AAA	11,101		11,134		11,142		11,088		AAA	11,053		11,131		11,142		11,088
AA	AA	24,703		24,715		25,037		24,879		AA	24,183		24,281		25,037		24,879
A	A	13,519		13,666		8,713		8,925		A	14,008		14,203		8,713		8,925
BBB	BBB	31,531		31,877		24,783		24,985		BBB	36,097		36,867		24,783		24,985

Non-rated	Non-rated	—		—		—		—		Non-rated	—		—		—		—
Total available for sale securities	Total available for sale securities	$	183,776	$	185,161	$	142,177	$	144,233	Total available for sale securities	$	240,906	$	243,746	$	142,177	$	144,233

The composition of our held to maturity portfolio by credit rating as of the dates indicated was as follows:


		March 31, 2021				December 31, 2020					June 30, 2021				December 31, 2020
Held to maturity securities	Held to maturity securities	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Held to maturity securities	Amortized Cost		Fair Value		Amortized Cost		Fair Value
U.S. government agency	U.S. government agency	$	52,819	$	51,193	$	42,951	$	43,182	U.S. government agency	$	51,482	$	50,266	$	42,951	$	43,182

AAA										AAA	3,500		3,501		—		—
AA	AA	4,000		4,002		600		602		AA	4,000		4,001		—		—
A										A	600		594		600		602

Non-rated		—		—		—		—
Total	Total	$	57,419	$	55,786	$	43,551	$	43,784	Total	$	59,582	$	58,362	$	43,551	$	43,784

As of ~~March 31,~~June 30, 2021, the Bank has pledged U.S. Government Agency securities with a carrying value $0.5 million and mortgage-backed securities with a carrying value of ~~$2.7~~$3.7 million as collateral against specific municipal deposits. At ~~March 31,~~June 30, 2021, the Bank has pledged mortgage-backed securities with a carrying value of ~~$1.1~~$1.2 million as collateral against a borrowing line of credit with the Federal Reserve Bank. However, as of ~~March 31,~~June 30, 2021, there were no borrowings outstanding on this Federal Reserve Bank line of credit. As of ~~March 31,~~June 30, 2021, the Bank also has mortgage-backed securities with a carrying value of $0.4 million pledged as collateral to the Federal Home Loan Bank of Des Moines.

At December 31, 2020, the Bank has pledged certain of its mortgage-backed securities with a carrying value of ~~$1,209~~$1.2 million as collateral to secure a line of credit with the Federal Reserve Bank. As of December 31, 2020, there were no borrowings outstanding on this Federal Reserve Bank line of credit. As of December 31, 2020, the Bank has pledged certain of its U.S. Government Agency securities with a carrying value of ~~$576~~$0.6 million and mortgage-backed securities with a carrying value of ~~$3,028~~$3.0 million as collateral against specific municipal deposits. As of December 31, 2020, the Bank also has mortgage-backed securities with a carrying value of ~~$468~~$0.5 million pledged as collateral to the Federal Home Loan Bank of Des Moines

5963

Loans. Total loans outstanding, net of deferred loan fees and costs and unamortized discount on acquired loans, decreased by ~~$45.5~~$56.0 million, to ~~$1.19~~$1.18 billion as of ~~March 31,~~June 30, 2021, from $1.24 billion at December 31, 2020. The originated loan portfolio before SBA PPP loans ~~decreased $18.3~~increased $42.2 million in the ~~quarter.~~six month period. This ~~decrease~~increase included the repayment of $5.5 million of draws on a ~~Line~~line of credit originated the last business day of December and repaid on the first business day of January. Total SBA PPP loans decreased ~~$4.8~~$48.8 million due to debt forgiveness of ~~$55~~$104.6 million, offset by strong new SBA PPP second round loan originations of ~~$47~~$55.8 million. Acquired loans decreased by ~~$22.6~~$49.3 million. ~~This decrease was partially due to reductions in agricultural real estate, due to borrowers requesting a long-term fixed-rate loan which the Bank facilitated using Farmer Mac financing.~~ The following table reflects the composition, or mix of our loan portfolio at ~~March 31,~~June 30, 2021 and December 31, 2020:


		March 31, 2021				December 31, 2020					June 30, 2021				December 31, 2020
		Amount		Percent		Amount		Percent			Amount		Percent		Amount		Percent
Real estate loans:	Real estate loans:									Real estate loans:
Commercial/agricultural real estate	Commercial/agricultural real estate									Commercial/agricultural real estate
Commercial real estate	Commercial real estate	$	515,189	43.3	%	$	507,675	40.9	%	Commercial real estate	$	560,062	47.5	%	$	507,675	40.9	%
Agricultural real estate	Agricultural real estate	70,567		5.9	%	68,795		5.6	%	Agricultural real estate	72,665		6.1	%	68,795		5.6	%
Multi-family real estate	Multi-family real estate	118,988		10.0	%	122,152		9.9	%	Multi-family real estate	121,191		10.3	%	122,152		9.9	%
Construction and land development	Construction and land development	90,732		7.6	%	98,517		8.0	%	Construction and land development	90,788		7.7	%	98,517		8.0	%
Residential mortgage	Residential mortgage									Residential mortgage
Residential mortgage	Residential mortgage	122,331		10.3	%	131,386		10.6	%	Residential mortgage	106,746		9.0	%	131,386		10.6	%
Purchased HELOC loans	Purchased HELOC loans	5,291		0.4	%	6,260		0.5	%	Purchased HELOC loans	4,949		0.4	%	6,260		0.5	%
Total real estate loans	Total real estate loans	923,098		77.5	%	934,785		75.5	%	Total real estate loans	956,401		81.0	%	934,785		75.5	%
C&I/Agricultural operating and Consumer Installment Loans:	C&I/Agricultural operating and Consumer Installment Loans:									C&I/Agricultural operating and Consumer Installment Loans:
C&I/Agricultural operating	C&I/Agricultural operating									C&I/Agricultural operating
Commercial and industrial (“C&I”)	Commercial and industrial (“C&I”)	95,933		8.0	%	116,553		9.4	%	Commercial and industrial (“C&I”)	100,484		8.5	%	116,553		9.4	%
Agricultural operating	Agricultural operating	28,250		2.4	%	32,785		2.6	%	Agricultural operating	27,907		2.4	%	32,785		2.6	%
Consumer installment	Consumer installment							—	%	Consumer installment							—	%
Originated indirect paper	Originated indirect paper	23,186		1.9	%	25,851		2.1	%	Originated indirect paper	20,377		1.7	%	25,851		2.1	%

Other Consumer	Other Consumer	11,864		1.0	%	13,213		1.1	%	Other Consumer	10,944		0.9	%	13,213		1.1	%
Total C&I/Agricultural operating and Consumer installment Loans	Total C&I/Agricultural operating and Consumer installment Loans	159,233		13.3	%	188,402		15.2	%	Total C&I/Agricultural operating and Consumer installment Loans	159,712		13.5	%	188,402		15.2	%
Gross loans before C&I SBA PPP loans	Gross loans before C&I SBA PPP loans	1,082,331		90.8	%	1,123,187		90.7	%	Gross loans before C&I SBA PPP loans	1,116,113		94.5	%	1,123,187		90.7	%
SBA PPP loans	SBA PPP loans	118,931		10.0	%	123,702		10.0	%	SBA PPP loans	74,925		6.3	%	123,702		10.0	%
Gross loans	Gross loans	$	1,201,262	100.8	%	$	1,246,889	100.7	%	Gross loans	$	1,191,038	100.8	%	$	1,246,889	100.7	%
Unearned net deferred fees and costs and loans in process	Unearned net deferred fees and costs and loans in process	(4,487)		(0.4)	%	(4,245)		(0.3)	%	Unearned net deferred fees and costs and loans in process	(5,133)		(0.4)	%	(4,245)		(0.3)	%
Unamortized discount on acquired loans	Unamortized discount on acquired loans	(4,649)		(0.4)	%	(5,063)		(0.4)	%	Unamortized discount on acquired loans	(4,347)		(0.4)	%	(5,063)		(0.4)	%
Total loans (net of unearned income and deferred expense)	Total loans (net of unearned income and deferred expense)	1,192,126		100.0	%	1,237,581		100.0	%	Total loans (net of unearned income and deferred expense)	1,181,558		100.0	%	1,237,581		100.0	%
Allowance for loan losses	Allowance for loan losses	(16,860)				(17,043)				Allowance for loan losses	(16,845)				(17,043)
Total loans receivable, net	Total loans receivable, net	$	1,175,266			$	1,220,538			Total loans receivable, net	$	1,164,713			$	1,220,538

6064

The following table summarizes SBA PPP loans by ~~round~~origination year at ~~March 31, 2021 and December 31, 2020 and includes additional round 2 activity in April~~June 30, 2021:

Balance Net Deferred Fee Income
SBA PPP Loans - Round 1 $ 124 $ 3.0
SBA PPP Loans - Round 2 — —
Total SBA PPP Loans, December 31, 2020 124 3.0
SBA PPP Loans - Round 1 $ 72 $ 1.3
SBA PPP Loans - Round 2 47 1.7
Total SBA PPP Loans, March 31, 2021 119 3.0
Net deferred fees collected after March 31, 2021 from Q1 SBA PPP loan originations — 0.9
119 3.9
SBA PPP Pipeline Round 2, April 2021 8 0.8
March 31, 2021 plus SBA PPP Pipeline - Round 2, April 2021 $ 127 $ 4.7


	2020 Originations				2021 Originations				Total
	Balance		Net Deferred Fee Income		Balance		Net Deferred Fee Income		Balance		Net Deferred Fee Income
SBA PPP Loans, December 31, 2020	$	123,702	$	2,991	$	—	$	—	$	123,702	$	2,991
2021 SBA PPP Loan Originations	—		—		55,790		3,485		55,790		3,485
Less: 2021 SBA PPP Loan Forgiveness and Fee Accretion	(102,295)		(2,683)		(2,272)		(376)		(104,567)		(3,059)
Balance, June 30, 2021	$	21,407	$	308	$	53,518	$	3,109	$	74,925	$	3,417

Allowance for Loan Losses. The loan portfolio is our primary asset subject to credit risk. To address this credit risk, we maintain an ALL for probable and inherent credit losses through periodic charges to our earnings. These charges are shown in our consolidated statements of operations as PLL. See “Provision for Loan Losses” earlier in this quarterly report. We attempt to control, monitor and minimize credit risk through the use of prudent lending standards, a thorough review of potential borrowers prior to lending and ongoing and timely review of payment performance. Asset quality administration, including early identification of loans performing in a substandard manner, as well as timely and active resolution of problems, further enhances management of credit risk and minimization of loan losses. Any losses that occur and that are charged off against the ALL are periodically reviewed with specific efforts focused on achieving maximum recovery of both principal and interest.

At least quarterly, we review the adequacy of the ALL. Based on an estimate computed pursuant to the requirements of ASC 450-10, “Accounting for Contingencies” and ASC 310-10, “Accounting by Creditors for Impairment of a Loan”, the analysis of the ALL consists of three components: (i) specific credit allocation established for expected losses relating to specific impaired loans for which the recorded investment in the loan exceeds its fair value; (ii) general portfolio allocation based on historical loan loss experience for significant loan categories; and (iii) general portfolio allocation based on qualitative factors such as economic conditions and other relevant factors specific to the markets in which we operate. We continue to refine our ALL methodology by introducing a greater level of granularity to our loan portfolio. We currently segregate loans into pools based on common risk characteristics for purposes of determining the ALL. The additional segmentation of the portfolio is intended to provide a more effective basis for the determination of qualitative factors affecting our ALL. In addition, management continually evaluates our ALL methodology to assess whether modifications in our methodology are appropriate in light of underwriting practices, market conditions, identifiable trends, regulatory pronouncements or other factors. We believe that any modifications or changes to the ALL methodology would be to enhance the ALL. However, any such modifications could result in materially different ALL levels in future periods.

The specific credit allocation for the ALL is based on a regular analysis of all loans that are considered impaired. In compliance with ASC 310-10, the fair value of the loan is determined based on either the present value of expected cash flows discounted at the loan’s effective interest rate, the market price of the loan, or, if the loan is collateral dependent, the fair value of the underlying collateral less the expected cost of sale for such collateral. At ~~March 31,~~June 30, 2021, the Company had identified impaired loans of ~~$40.2~~$38.9 million, consisting of ~~$17.4.~~$16.6 million TDR loans, the carrying amount of purchased credit impaired loans of ~~$16.5~~$15.6 million and ~~$6.3~~$6.7 million of substandard non-TDR loans. ~~The $40.2 million total of~~Included in impaired loans ~~includes $11.8~~is $11.6 million of performing TDR loans. At December 31, 2020, the Company had identified impaired loans of $43.4 million, consisting of $18.5 million TDR loans, the carrying amount of purchased credit impaired loans of $16.9 million and $8.0 million of substandard non-TDR loans. The $43.4 million total of impaired loans includes $11.7 million of performing TDR loans. At ~~March 31, 2020~~June 30, 2021, and December 31, 2020, we had ~~292~~271 and 325 such impaired loans, respectively, all secured by real estate or personal property. Of the impaired loans, there were 1213 individual loans where the estimated fair value was less than their book value (i.e., we deemed impairment to exist) totaling ~~$6.0~~$5.0 million for which ~~$1.3~~$1.5 million in specific ALL was recorded as of ~~March 31,~~June 30, 2021.

The allowance for loan ~~and~~ losses modestly decreased to ~~$16.9~~$16.8 million at ~~March 31,~~June 30, 2021, representing ~~1.57%~~1.52% of loans receivable, less the 100% SBA guaranteed PPP loans. A significant portion of the current loan portfolio includes loans

purchased through whole bank acquisitions in recent years resulting in purchased credit impairments which are not included in the allowance for loan losses. The allowance for loan losses was $17.0 million at December 31, 2020, representing 1.53% of loans receivable, less the 100% SBA guaranteed PPP loans. The decrease in the allowance was due to modest loan payoffs, increases in unallocated, increases in specific reserves on impaired loans and continued anticipation of pandemic-related adverse economic impacts, including various “Stay-at-Home Orders” which continued to result in temporary business closures, reduced operating capacity and uncertainty regarding potential future revenue and cash flows for certain businesses, including bank borrowers.charge-offs.

Allowance for Loan Losses to Loans, net of SBA PPP Loans

(in thousands, except ratios)


		March 31, 2021			Decmber 31, 2020				June 30, 2021			December 31, 2020
Loans, end of period	Loans, end of period	$	1,192,126		$	1,237,581		Loans, end of period	$	1,181,558		$	1,237,581
SBA PPP loans, net of deferred fees	SBA PPP loans, net of deferred fees	(115,920)			(120,711)			SBA PPP loans, net of deferred fees	(71,508)			(120,711)
Loans, net of SBA PPP loans and deferred fees	Loans, net of SBA PPP loans and deferred fees	$	1,076,206		$	1,116,870		Loans, net of SBA PPP loans and deferred fees	$	1,110,050		$	1,116,870
Allowance for loan losses	Allowance for loan losses	$	16,860		$	17,043		Allowance for loan losses	$	16,845		$	17,043
ALL to loans net of SBA PPP loans and deferred fees	ALL to loans net of SBA PPP loans and deferred fees	1.57		%	1.53		%	ALL to loans net of SBA PPP loans and deferred fees	1.52		%	1.53		%
ALL to loans, end of period	ALL to loans, end of period	1.41		%	1.38		%	ALL to loans, end of period	1.43		%	1.38		%

All of the nine factors identified in the FFIEC’s Interagency Policy Statement on the Allowance for Loan and Lease Losses are taken into account in determining the ALL. The impact of the factors in general categories are subject to change; thus, the allocations are management’s estimate of the loan loss categories in which the probable and inherent loss has occurred as of the date of our assessment. Of the nine factors, we believe the following have the greatest impact on our customers’ ability to repay loans and our ability to recover potential losses through collateral sales: (1) lending policies and procedures; (2) economic and business conditions; and (3) the value of the underlying collateral. As loan balances and estimated losses in a particular loan type decrease or increase and as the factors and resulting allocations are monitored by management, changes in the risk profile of the various parts of the loan portfolio may be reflected in the allocated allowance. The general component covers non-impaired loans and is based on historical loss experience adjusted for these and other qualitative factors. In addition, management continues to refine the ALL estimation process as new information becomes available. These refinements could also cause increases or decreases in the ALL. See Provision for loan losses in the Consolidated Statements of Operations (unaudited) for further details. The unallocated portion of the ALL is intended to account for imprecision in the estimation process or relevant current information that may not have been considered in the process.

Nonperforming Loans, Potential Problem Loans and Foreclosed Properties. We practice early identification of nonaccrual and problem loans in order to minimize the Bank’s risk of loss. Nonperforming loans are defined as nonaccrual loans and restructured loans that were 90 days or more past due at the time of their restructure, or when management determines that such classification is warranted. The accrual of interest income is discontinued on our loans according to the following schedule:

•Commercial/agricultural real estate loans, past due 90 days or more;

•C&I/Agricultural operating loans, past due 90 days or more;

•Closed ended consumer installment loans past due 120 days or more; and

•Residential mortgage loans and open-ended consumer installment loans past due 180 days or more.

When interest accruals are discontinued, interest credited to income is reversed. If collection is in doubt, cash receipts on non-accrual loans are used to reduce principal rather than being recorded as interest income. A TDR typically involves the granting of some concession to the borrower involving a loan modification, such as modifying the payment schedule or making interest rate changes. TDR loans may involve loans that have had a charge-off taken against the loan to reduce the carrying amount of the loan to fair market value as determined pursuant to ASC ~~310-10.~~

310-10

6266

The following table identifies the various components of nonperforming assets and other balance sheet information as of the dates indicated below and changes in the ALL for the periods then ended:


		March 31, 2021 and Three Months Then Ended			December 31, 2020 and Twelve Months Then Ended				June 30, 2021 and Six Months Then Ended			December 31, 2020 and Twelve Months Then Ended
Nonperforming assets:	Nonperforming assets:							Nonperforming assets:
Nonaccrual loans	Nonaccrual loans							Nonaccrual loans
Commercial real estate	Commercial real estate	$	760		$	827		Commercial real estate	$	1,027		$	827
Agricultural real estate	Agricultural real estate	4,511			5,084			Agricultural real estate	3,716			5,084
Commercial and industrial	Commercial and industrial	391			357			Commercial and industrial	313			357
Agricultural operating	Agricultural operating	764			1,872			Agricultural operating	1,163			1,872
Residential mortgage	Residential mortgage	2,167			2,451			Residential mortgage	1,768			2,451
Consumer installment	Consumer installment	86			156			Consumer installment	88			156
Total nonaccrual loans	Total nonaccrual loans	$	8,679		$	10,747		Total nonaccrual loans	$	8,075		$	10,747
Accruing loans past due 90 days or more	Accruing loans past due 90 days or more	536			586			Accruing loans past due 90 days or more	542			586
Total nonperforming loans (“NPLs”)	Total nonperforming loans (“NPLs”)	9,215			11,333			Total nonperforming loans (“NPLs”)	8,617			11,333
Other real estate owned	Other real estate owned	85			156			Other real estate owned	129			156
Other collateral owned	Other collateral owned	—			41			Other collateral owned	16			41
Total nonperforming assets (“NPAs”)	Total nonperforming assets (“NPAs”)	$	9,300		$	11,530		Total nonperforming assets (“NPAs”)	$	8,762		$	11,530
Troubled Debt Restructurings (“TDRs”)	Troubled Debt Restructurings (“TDRs”)	$	17,442		$	18,477		Troubled Debt Restructurings (“TDRs”)	$	16,597		$	18,477
Accruing TDR's	Accruing TDR's	$	11,752		$	11,742		Accruing TDR's	$	11,736		$	11,742
Nonaccrual TDRs	Nonaccrual TDRs	$	5,690		$	6,735		Nonaccrual TDRs	$	4,861		$	6,735
Average outstanding loan balance	Average outstanding loan balance	$	1,213,562		$	1,234,732		Average outstanding loan balance	$	1,199,925		$	1,234,732
Loans, end of period	Loans, end of period	$	1,192,126		$	1,237,581		Loans, end of period	$	1,181,558		$	1,237,581
Total assets, end of period	Total assets, end of period	$	1,732,294		$	1,649,095		Total assets, end of period	$	1,714,472		$	1,649,095
ALL, at beginning of period	ALL, at beginning of period	$	17,043		$	10,320		ALL, at beginning of period	$	17,043		$	10,320
Loans charged off:	Loans charged off:							Loans charged off:
Commercial/Agricultural real estate	Commercial/Agricultural real estate	(200)			—			Commercial/Agricultural real estate	(251)			—
C&I/Agricultural operating	C&I/Agricultural operating	—			(1,091)			C&I/Agricultural operating	(7)			(1,091)
Residential mortgage	Residential mortgage	—			(78)			Residential mortgage	—			(78)
Consumer installment	Consumer installment	(25)			(149)			Consumer installment	(40)			(149)
Total loans charged off	Total loans charged off	(225)			(1,318)			Total loans charged off	(298)			(1,318)
Recoveries of loans previously charged off:	Recoveries of loans previously charged off:							Recoveries of loans previously charged off:
Commercial/Agricultural real estate	Commercial/Agricultural real estate	5			150			Commercial/Agricultural real estate	6			150
C&I/Agricultural operating	C&I/Agricultural operating	15			44			C&I/Agricultural operating	48			44
Residential mortgage	Residential mortgage	8			20			Residential mortgage	11			20
Consumer installment	Consumer installment	14			77			Consumer installment	35			77
Total recoveries of loans previously charged off:	Total recoveries of loans previously charged off:	42			291			Total recoveries of loans previously charged off:	100			291
Net loans charged off (“NCOs”)	Net loans charged off (“NCOs”)	(183)			(1,027)			Net loans charged off (“NCOs”)	(198)			(1,027)
Additions to ALL via provision for loan losses charged to operations	Additions to ALL via provision for loan losses charged to operations	—			7,750			Additions to ALL via provision for loan losses charged to operations	—			7,750
ALL, at end of period	ALL, at end of period	$	16,860		$	17,043		ALL, at end of period	$	16,845		$	17,043
Ratios:	Ratios:							Ratios:
ALL to NCOs (annualized)	ALL to NCOs (annualized)	2,303.28		%	1,659.49		%	ALL to NCOs (annualized)	4,253.79		%	1,659.49		%
NCOs (annualized) to average loans	NCOs (annualized) to average loans	0.06		%	0.08		%	NCOs (annualized) to average loans	0.03		%	0.08		%
ALL to total loans	ALL to total loans	1.41		%	1.38		%	ALL to total loans	1.43		%	1.38		%
NPLs to total loans	NPLs to total loans	0.77		%	0.92		%	NPLs to total loans	0.73		%	0.92		%
NPAs to total assets	NPAs to total assets	0.54		%	0.70		%	NPAs to total assets	0.51		%	0.70		%

6367

The following table shows the detail of non-performing assets by originated and acquired portfolios:

Nonperforming Originated / Acquired Assets

(in thousands, except ratios)


		March 31, 2021			December 31, 2020				June 30, 2021			December 31, 2020			June 30, 2020
Nonperforming assets:	Nonperforming assets:							Nonperforming assets:
Originated nonperforming assets:	Originated nonperforming assets:							Originated nonperforming assets:
Nonaccrual loans	Nonaccrual loans	$	2,344		$	3,649		Nonaccrual loans	$	2,420		$	3,649		$	3,951
Accruing loans past due 90 days or more	Accruing loans past due 90 days or more	391			415			Accruing loans past due 90 days or more	88			415			1,455
Total originated nonperforming loans (“NPL”)	Total originated nonperforming loans (“NPL”)	2,735			4,064			Total originated nonperforming loans (“NPL”)	2,508			4,064			5,406
Other real estate owned (“OREO”)	Other real estate owned (“OREO”)	—			63			Other real estate owned (“OREO”)	—			63			270
Other collateral owned	Other collateral owned	28			41			Other collateral owned	16			41			42
Total originated nonperforming assets (“NPAs”)	Total originated nonperforming assets (“NPAs”)	$	2,763		$	4,168		Total originated nonperforming assets (“NPAs”)	$	2,524		$	4,168		$	5,718
Acquired nonperforming assets:	Acquired nonperforming assets:							Acquired nonperforming assets:
Nonaccrual loans	Nonaccrual loans	$	6,335		$	7,098		Nonaccrual loans	$	5,655		$	7,098		$	10,836
Accruing loans past due 90 days or more	Accruing loans past due 90 days or more	145			171			Accruing loans past due 90 days or more	454			171			425
Total acquired nonperforming loans (“NPL”)	Total acquired nonperforming loans (“NPL”)	6,480			7,269			Total acquired nonperforming loans (“NPL”)	6,109			7,269			11,261
Other real estate owned (“OREO”)	Other real estate owned (“OREO”)	57			93			Other real estate owned (“OREO”)	129			93			422
Other collateral owned	Other collateral owned	—			—			Other collateral owned	—			—			—
Total acquired nonperforming assets (“NPAs”)	Total acquired nonperforming assets (“NPAs”)	$	6,537		$	7,362		Total acquired nonperforming assets (“NPAs”)	$	6,238		$	7,362		$	11,683
Total nonperforming assets (“NPAs”)	Total nonperforming assets (“NPAs”)	$	9,300		$	11,530		Total nonperforming assets (“NPAs”)	$	8,762		$	11,530		$	17,401
Loans, end of period	Loans, end of period	$	1,192,126		$	1,237,581		Loans, end of period	$	1,181,558		$	1,237,581		$	1,281,175
Total assets, end of period	Total assets, end of period	$	1,732,294		$	1,649,095		Total assets, end of period	$	1,714,472		$	1,649,095		$	1,607,514
Ratios:	Ratios:							Ratios:
Originated NPLs to total loans	Originated NPLs to total loans	0.23		%	0.33		%	Originated NPLs to total loans	0.21		%	0.33		%	0.42		%
Acquired NPLs to total loans	Acquired NPLs to total loans	0.54		%	0.59		%	Acquired NPLs to total loans	0.52		%	0.59		%	0.88		%
Originated NPAs to total assets	Originated NPAs to total assets	0.16		%	0.25		%	Originated NPAs to total assets	0.15		%	0.25		%	0.36		%
Acquired NPAs to total assets	Acquired NPAs to total assets	0.38		%	0.45		%	Acquired NPAs to total assets	0.36		%	0.45		%	0.73		%

Nonperforming assets decreased by ~~$2.2~~$2.7 million to ~~$9.3~~$8.8 million at ~~March 31,~~June 30, 2021 from December 31, 2020. This decrease is largely due to reductions in acquired non-performing loans. Refer to the “Allowance for Loan Losses” and “Nonperforming Loans, Potential Problem Loans and Foreclosed Properties” sections ~~below~~above for more information related to nonperforming loans.

6468

Nonaccrual Loans Roll forward:


		Quarter Ended											Quarter Ended
		March 31, 2021		December 31, 2020		September 30, 2020		June 30, 2020		March 31, 2020			June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020		June 30, 2020
Balance, beginning of period	Balance, beginning of period	$	10,747	$	13,154	$	14,787	$	16,090	$	19,056	Balance, beginning of period	$	8,678	$	10,747	$	13,154	$	14,787	$	16,090
Additions	Additions	430		912		716		1,907		1,811		Additions	863		430		912		716		1,907
Acquired nonaccrual loans	Acquired nonaccrual loans	—		—		—		—		—		Acquired nonaccrual loans	—		—		—		—		—
Charge offs	Charge offs	(205)		(2)		(141)		(175)		(452)		Charge offs	(58)		(205)		(2)		(141)		(175)
Transfers to OREO	Transfers to OREO	(45)		—		(172)		—		(1,100)		Transfers to OREO	—		(45)		—		(172)		—
Return to accrual status	Return to accrual status	(291)		—		(165)		(1,702)		(120)		Return to accrual status	(696)		(291)		—		(165)		(1,702)
Payments received	Payments received	(1,935)		(3,317)		(1,744)		(1,292)		(2,887)		Payments received	(712)		(1,935)		(3,317)		(1,744)		(1,292)
Other, net	Other, net	(23)		—		(127)		(41)		(218)		Other, net	—		(23)		—		(127)		(41)
Balance, end of period	Balance, end of period	$	8,678	$	10,747	$	13,154	$	14,787	$	16,090	Balance, end of period	$	8,075	$	8,678	$	10,747	$	13,154	$	14,787

Nonaccrual TDR loans decreased to ~~$5.7~~$4.9 million at ~~March 31,~~June 30, 2021 from $6.7 million at December 31, 2020.


		March 31, 2021			December 31, 2020			June 30, 2021		December 31, 2020			June 30, 2020
		Number of Modifications	Recorded Investment		Number of Modifications	Recorded Investment				Number of Modifications	Recorded Investment		Number of Modifications	Recorded Investment		Number of Modifications	Recorded Investment
Troubled debt restructurings: Accrual Status	Troubled debt restructurings: Accrual Status								Troubled debt restructurings: Accrual Status
Commercial/Agricultural real estate	Commercial/Agricultural real estate	14	$	4,472	16	$	4,695		Commercial/Agricultural real estate	14	$	4,841	16	$	4,695	19	$	1,885
C&I/Agricultural operating	C&I/Agricultural operating	5	4,042		4	3,836			C&I/Agricultural operating	6	3,804		4	3,836		5	1,199
Residential mortgage	Residential mortgage	44	3,195		43	3,162			Residential mortgage	40	3,040		43	3,162		39	2,981
Consumer installment	Consumer installment	8	43		8	49			Consumer installment	7	51		8	49		8	62
Total loans	Total loans	71	$	11,752	71	$	11,742		Total loans	67	$	11,736	71	$	11,742	71	$	6,127

Classified assets decreased to ~~$26.1~~$25.9 million at ~~March 31,~~June 30, 2021, from $28.5 million at December 31, 2020 largely due to the reduction in nonperforming assets discussed above, with a modest increase in newly classified assets. Nonperforming assets decreased to ~~$9.3~~$8.8 million or ~~0.54%~~0.51% of total assets at ~~March 31,~~June 30, 2021 compared to $11.5 million or 0.70% of total assets at December 31, 2020. Included in nonperforming assets at ~~March 31,~~June 30, 2021 are ~~$6.5~~$6.2 million of nonperforming assets acquired during recent whole-bank acquisitions.

The table below shows a summary of criticized loans for the ~~decrease~~past five quarters. Substandard loans, largely due to reductions in ~~substandard~~non-performing loans, ~~by quarter since the first impact of the F&M acquisition on September 30, 2019 levels. While special~~have decreased each quarter. Special mention loans have increased in ~~the first quarter of 2020 and more modestly in the second quarter of 2020, the balances decreased in the third quarter of 2020~~2021 due to ~~resolution.~~a single hotel loan. See Note 3, “Loans, Allowance for Loan Losses and Impaired Loans” for additional information.

(in thousands)
March 31,
2021 December 31,
2020 September 30,
2020 June 30,
2020 March 31,
2020
Special mention loan balances $ 13,659 $ 6,672 $ 7,777 $ 19,958 $ 19,387
Substandard loan balances 26,064 28,541 32,922 35,911 38,393
Criticized loans, end of period $ 39,723 $ 35,213 $ 40,699 $ 55,869 $ 57,780


	(in thousands)
	June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020		June 30, 2020
Special mention loan balances	$	12,308	$	13,659	$	6,672	$	7,777	$	19,958
Substandard loan balances	25,890		26,064		28,541		32,922		35,911
Criticized loans, end of period	$	38,198	$	39,723	$	35,213	$	40,699	$	55,869

Hotels and restaurants represent our portfolio’s two industry sectors most directly and adversely affected by the recent pandemic and related government actions. These sector loans totaled approximately $93 million and $39 million, respectively at ~~March 31,~~June 30, 2021. The weighted-average loan-to-value percentage and debt service coverage ratio on these hotel industry sector loans was ~~56%~~53% and 2.3 ~~times.~~times, respectively. Approximately ~~$24~~$23.3 million of restaurant sector loans are to franchise quick-service restaurants.

As of ~~March 31,~~June 30, 2021, the Bank had ~~$57.3~~$35.7 million of remaining loan modifications, ~~remaining~~ due to pandemic-related borrower requests. Approximately ~~$39~~$14.3 million of modifications are scheduled to resume their regular principal and interest payments in ~~the second quarter and 45% had made their contractual payment as of April 30, 2021. Hotel industry sector loans represent~~

6569

the third quarter. Hotel industry sector loans represent approximately ~~$49~~$31.1 million of the approved deferrals ~~projected~~ at ~~March 31,~~June 30, 2021. Of ~~these, $49~~this amount, $11.9 million ~~represent a~~are second ordeferrals and $19.2 million are third ~~deferral~~deferrals under the CARES ~~ACT,~~ACT.With this third deferral, the customer will make interest only payments which were funded by deposits made with the ~~customer making an interest only payment and~~Bank at the ~~Bank generally receives the reserve accounts pledge.~~time of modification. While the Company has no indication that any of the modified credits are specifically impaired, additional risk and uncertainty inherent in the current pandemic-affected environment ~~has~~have been considered. See “Allowance for Loan Losses” section above for discussion of pandemic-related qualitative factor, and related provision for loan losses.

Mortgage Servicing Rights. Mortgage servicing rights (“MSR”) assets are initially measured at fair value; assessed at least quarterly for impairment; carried at the lower of the initial capitalized amount, net of accumulated amortization, or estimated fair value. MSR assets are amortized in proportion to and over the period of estimated net servicing income, with the amortization recorded in non-interest expense in the consolidated statement of operations. The valuation of MSRs and related amortization thereon are based on numerous factors, assumptions and judgments, such as those for: changes in the mix of loans, interest rates, prepayment speeds, and default rates. Changes in these factors, assumptions and judgments may have a material effect on the valuation and amortization of MSRs. Although management believes that the assumptions used to evaluate the MSRs for impairment are reasonable, future adjustment may be necessary if future economic conditions differ substantially from the economic assumptions used to determine the value of MSRs.

The fair market value of the Company’s MSR asset increased from $3.3 million at December 31, 2020, to ~~$4.0~~$3.9 million at ~~March 31,~~June 30, 2021, primarily due to higher future forecasted interest rates and resulting lower forecasted prepayment. As a result, $0.9 million of ~~impairment reversal~~previously recorded impairments on the MSR asset ~~due to the impact of a lower projected prepayment rate. Higher long-term interest rates as of at March 31, 2021 compared to December 31, 2020 resulted in the reduction in projected prepayment rates.~~was reversed.

The unpaid balances of one- to four-family residential real estate loans serviced for others as of ~~March 31,~~June 30, 2021, and December 31, 2020, were ~~$551.6~~$554.5 million and $553.7 million, respectively. The fair market value of the Company’s MSR asset as a percentage of its servicing portfolio at ~~March 31,~~June 30, 2021, and December 31, 2020, was ~~0.73%~~0.70% and 0.59%, respectively.

Deposits. Deposits increased ~~$84.9~~$76.0 million to ~~$1.380~~$1.37 billion at ~~March 31,~~June 30, 2021, from ~~$1.295~~$1.30 billion at December 31, 2020. This growth is due to non-maturity deposit growth, split between both retail and commercial deposits. This growth was partially offset by retail certificates of deposit decreasing by ~~$24~~$54.2 million, as the Company chose not to match higher rate local retail certificate competition.

The following is a summary of deposits by type at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively:


		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
Non-interest bearing demand deposits	Non-interest bearing demand deposits	$	257,042	$	238,348	Non-interest bearing demand deposits	$	253,097	$	238,348
Interest bearing demand deposits	Interest bearing demand deposits	352,302		301,764		Interest bearing demand deposits	375,005		301,764
Savings accounts	Savings accounts	222,448		196,348		Savings accounts	220,698		196,348
Money market accounts	Money market accounts	258,942		245,549		Money market accounts	263,390		245,549
Certificate accounts	Certificate accounts	289,468		313,247		Certificate accounts	259,036		313,247
Total deposits	Total deposits	$	1,380,202	$	1,295,256	Total deposits	$	1,371,226	$	1,295,256
Brokered deposits included above:	Brokered deposits included above:	$	2,516	$	2,516	Brokered deposits included above:	$	2,516	$	2,516

6670

Federal Home Loan Bank (FHLB) advances (borrowings) and Other Borrowings. A summary of Federal Home Loan Bank (FHLB) advances and other borrowings at ~~March 31,~~June 30, 2021 and December 31, 2020 is as follows:


			March 31, 2021						December 31, 2020								June 30, 2021						December 31, 2020
		Stated Maturity	Amount		Range of Stated Rates				Amount		Range of Stated Rates					Stated Maturity	Amount		Range of Stated Rates				Amount		Range of Stated Rates
Federal Home Loan Bank advances (1), (2), (3), (4)	Federal Home Loan Bank advances (1), (2), (3), (4)	2021	$	4,000	—	%	—	%	$	8,000	—	%	2.16	%	Federal Home Loan Bank advances (1), (2), (3), (4)	2021	$	—	—	%	—	%	$	8,000	0.00	%	2.16	%
		2022	11,000		2.45	%	2.45	%	15,000		2.34	%	2.45	%		2022	11,000		2.45	%	2.45	%	15,000		2.34	%	2.45	%
		2023	20,000		1.43	%	1.44	%	20,000		1.43	%	1.44	%		2023	20,000		1.43	%	1.44	%	20,000		1.43	%	1.44	%
		2024	20,530		—	%	1.45	%	20,530		—	%	1.45	%		2024	20,530		0.00	%	1.45	%	20,530		0.00	%	1.45	%
		2025	5,000		1.45	%	1.45	%	5,000		1.45	%	1.45	%		2025	5,000		1.45	%	1.45	%	5,000		1.45	%	1.45	%
		2029	42,500		1.00	%	1.13	%	42,500		1.00	%	1.13	%		2029	42,500		1.00	%	1.13	%	42,500		1.00	%	1.13	%
		2030	12,500		0.52	%	0.86	%	12,500		0.52	%	0.86	%		2030	12,500		0.52	%	0.86	%	12,500		0.52	%	0.86	%

Subtotal	Subtotal		115,530						123,530						Subtotal		111,530						123,530
Unamortized discount on acquired notes	Unamortized discount on acquired notes		(49)						(32)						Unamortized discount on acquired notes		(34)						(32)
Federal Home Loan Bank advances, net	Federal Home Loan Bank advances, net		$	115,481					$	123,498					Federal Home Loan Bank advances, net		$	111,496					$	123,498

Senior Notes (5)	Senior Notes (5)	2031	$	28,856	3.50	%	3.50	%	$	28,856	3.25	%	3.50	%	Senior Notes (5)	2031	$	28,856	3.50	%	3.50	%	$	28,856	3.25	%	3.50	%

Subordinated Notes (6)	Subordinated Notes (6)	2027	$	15,000	6.75	%	6.75	%	$	15,000	6.75	%	6.75	%	Subordinated Notes (6)	2027	$	15,000	6.75	%	6.75	%	$	15,000	6.75	%	6.75	%
		2030	15,000		6.00	%	6.00	%	15,000		6.00	%	6.00	%		2030	15,000		6.00	%	6.00	%	15,000		6.00	%	6.00	%
			$	30,000					$	30,000							$	30,000					$	30,000

Unamortized debt issuance costs	Unamortized debt issuance costs		$	(502)					$	(528)					Unamortized debt issuance costs		$	(476)					$	(528)
Total other borrowings	Total other borrowings		$	58,354					$	58,328					Total other borrowings		$	58,380					$	58,328

Totals	Totals		$	173,835					$	181,826					Totals		$	169,876					$	181,826

(3) The weighted-average interest rates on FHLB borrowings maturing within twelve months as of ~~March 31,~~June 30, 2021 and December 31, 2020 were ~~1.80%~~1.97% and ~~0.50%~~1.02%, respectively.

(5) Senior notes, entered into by the Company in June 2019 consist of the following:

(b) A $5,000 line of credit, maturing in August 2021, that remains undrawn upon.

(6) Subordinated notes resulted from the following:

6771

FHLB advances decreased ~~$8.0~~$12.0 million to ~~$115.5~~$111.5 million as of ~~March 31,~~June 30, 2021, compared to $123.5 million as of December 31, 2020. The Bank terminated $8.0 million of advances in the quarter ended March 31, 2021, incurring a $0.1 million prepayment penalty, as we ~~continue to utilize these advances, only as necessary, to supplement core deposits to meet our funding and liquidity needs, and as we evaluate all options to manage~~modestly reduced excess liquidity. In the ~~Bank’s cost~~second quarter of ~~funds.~~2021, a $4 million advance matured. The Bank has an irrevocable Standby Letter of Credit Master Reimbursement Agreement with the Federal Home Loan Bank. This irrevocable standby letter of credit (“LOC”) is supported by loan collateral as an alternative to directly pledging investment securities on behalf of a municipal customer as collateral for their interest-bearing deposit balances. The Bank’s current unused borrowing capacity, supported by loan collateral as of ~~March 31,~~June 30, 2021, is approximately ~~$122.8~~$167.4 million.

The Bank’s origination of SBA PPP loans allowed the Bank to gain access to the Federal Reserve Bank Paycheck Protection Program Liquidity Facility (“FRB PPPLF”), whereby the Bank can pledge SBA PPP loans, by ~~day~~date of origination, up to the contractual maturity of the Bank’s SBA PPP loans with no collateral haircut. Due to the strong growth in non-maturity deposits discussed above, the Bank had no outstanding borrowings under this facility at any time during the quarters ~~ending March 31,~~ended June 30, 2021 and December 31, 2020, respectively. The ~~Bank~~Bank’s borrowing capacity ~~was $118.9~~would be $74.9 million after pledging the underlying loans at ~~March 31,~~June 30, 2021. This FRB PPPLF program is scheduled to expire on July 30, 2021. In July 2021, the Bank pledged these SBA PPP loans to the FHLB.

At both ~~March 31,~~June 30, 2021 and December 31, 2020, the Bank had $55 million of 10-year, three-month callable advances.

See Note 7, “Federal Home Loan Bank and Federal Reserve Bank Advances and Other Borrowings” for more information.

At ~~March 31,~~June 30, 2021, the Bank has pledged ~~$720.0~~$740.6 million of loans to secure the current FHLB outstanding advances and letters of credit and to provide the unused borrowing capacity, compared to ~~$723.8~~$723.9 million of loans pledged at December 31, 2020.

Stockholders’ Equity.Total stockholders’ equity was ~~$160.7~~$164.0 million at ~~March 31,~~June 30, 2021, compared to $160.6 million at December 31, ~~20120.~~2020. The increase in stockholder’s equity was due to: 1) the Company’s net income of ~~$5.5 million was largely~~$10.2 million; and 2) an increase in the unrealized gain on available for sale securities of $0.57 million. These increases were partially offset by to1) the payment of the annual cash dividend paid in February to common stockholders of $0.23 per share or $2.5 million; and 2) the ~~first quarter~~ repurchase of approximately ~~224,000~~423 thousand shares of its common stock at a weighted average price of ~~$11.47~~$12.26 per share, ~~and decrease in the unrealized gain on sale of securities of approximately $0.5~~which reduced equity by $5.2 million.

Under the ~~December~~November 2020 stock buyback program, the company has repurchased approximately ~~322,000~~521,000 shares as of ~~March 31,~~June 30, 2021 and is authorized to repurchase up to approximately ~~236,000~~36,000 additional shares. In July 2021, the Board of Directors of the Company approved an additional stock repurchase program. Under this program, the Company may repurchase up to 532 thousand shares of its common stock, or 5% of the current outstanding shares, after the existing repurchase program is completed.

Liquidity and Asset / Liability Management. Our primary sources of funds are deposits; amortization, prepayments and maturities of outstanding loans; short-term investments; and borrowings. We use our sources of funds primarily to meet ongoing commitments, to pay non-renewing, maturing certificates of deposit and savings withdrawals, and to fund loan commitments. We have enhanced our liquidity monitoring and updated what we consider to be sources of on-balance sheet cash. We consider our interest-bearing cash and unpledged investment securities to be our sources of on-balance sheet liquidity. At ~~March 31,~~June 30, 2021, our on-balance sheet liquidity ratio was ~~23.3%~~22.8%. While scheduled payments from the amortization of loans and maturing short-term investments are relatively predictable sources of funds, deposit flows and loan prepayments are influenced by factors partially outside of the Bank’s control, including general interest rates, economic conditions and competition. Although ~~$217.4~~$221.2 million of our ~~$289.5~~$259.0 million ~~(75.1%~~(85.4%) CD portfolio as of ~~March 31,~~June 30, 2021, will mature within the next 12 months, we have historically retained a majority of our maturing ~~CD’s.~~CDs. However, due to strategic pricing decisions regarding rate matching based on currently liquidity levels, our retention rate may decrease in the future. At ~~March 31,~~June 30, 2021, the Bank had approximately ~~$160~~$110.5 million of certificate of deposit accounts maturing in 2021 with a weighted average cost of approximately ~~1.1%~~1.0% and approximately ~~$110~~$127.5 million of certificate of deposit accounts maturing in 2022 with a weighted average cost of approximately ~~2.0%~~1.8%. The 2021 maturities are approximately evenly spread throughout the year, with

approximately 85% of the 2022 maturities occurring in the first half of 2022. The approximate weighted average cost of new certificates in the first ~~quarter~~half of 2021 was below ~~0.5%.Through~~0.50%. Through new deposit product offerings to our branch and commercial customers, we are currently attempting to strengthen customer relationships to attract additional non-rate sensitive deposits. In our present interest rate environment, and based on maturing yields, this is intended to also reduce our cost of funds.

We maintain access to additional sources of funds including FHLB borrowings and lines of credit with the Federal Reserve Bank and correspondent banks. We utilize FHLB borrowings to leverage our capital base, to provide funds for our lending and investment activities, and to manage our interest rate risk. Our borrowing arrangement with the FHLB calls for pledging certain qualified real estate loans and borrowing up to 75% of the value of those loans, not to exceed 35% of the Bank’s total assets. As of ~~March 31,~~June 30, 2021, we had approximately ~~$122.8~~$144.7 million available under this arrangement, supported by loan collateral, as compared to $118.4 million at December 31, 2020. In the quarter ended June 30, 2020, the Bank’s origination of SBA PPP loans allowed the Bank to gain access to the Federal Reserve’s PPPLF facility, whereby the Bank can pledge SBA PPP loans, by ~~day~~date of origination, up to the contractual maturity of the Bank’s SBA PPP loans with no collateral haircut. Due to the strong growth in non-maturity deposits discussed above, the Bank had no outstanding borrowings under this facility at, or at any time during the quarters ended, ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. The Bank could borrow ~~$123.7~~$74.9 million under this facility at ~~March 31,~~June 30, 2021. This FRB PPPLF program is scheduled to expire on July 30, 2021. In July 2021, the Bank pledged these SBA PPP loans to the FHLB.

As the SBA PPP loans are forgiven, the collateral will reduce and our borrowing capacity under this facility will be reduced.

We maintain a line of credit with the Federal Reserve Bank which has a $1.0 million capacity, based on our current pledged collateral position. Additionally, we have $25.0 million of uncommitted federal funds purchased lines of credit, as well as a $5.0 million revolving line of credit which is available as needed for general liquidity purposes.

In reviewing our adequacy of liquidity, we review and evaluate historical financial information, including information regarding general economic conditions, current ratios, management goals and the resources available to meet our anticipated liquidity needs. Management believes that our liquidity is ~~adequate, and, to~~adequate. To management’s knowledge, there are no known events or uncertainties that will result, or are likely to reasonably result, in a material increase or decrease in our liquidity.

Off-Balance Sheet Liabilities. Some of our financial instruments have off-balance sheet risk. These instruments include unused commitments for lines of credit, overdraft protection lines of credit and home equity lines of credit, as well as commitments to extend credit. As of ~~March 31,~~June 30, 2021, the Company had ~~$209.5~~$238.3 million in unused commitments, compared to $247.3 million in unused commitments as of December 31, 2020.

Capital Resources. As of ~~March 31,~~June 30, 2021, as shown in the table below, the Bank’s Tier 1 and Risk-based capital levels exceeded levels necessary to be considered “Well Capitalized” under Prompt Corrective Action provisions.

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Below are the amounts and ratios for our capital levels as of the dates noted below for the Bank:


		Actual				For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions						Actual				For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
		Amount		Ratio		Amount			Ratio		Amount			Ratio			Amount		Ratio		Amount			Ratio		Amount			Ratio
As of March 31, 2021 (Unaudited)
As of June 30, 2021 (Unaudited)																As of June 30, 2021 (Unaudited)
Total capital (to risk weighted assets)	Total capital (to risk weighted assets)	$	174,424	15.5	%	$	89,877	> =	8.0	%	$	112,347	> =	10.0	%	Total capital (to risk weighted assets)	$	177,444	14.7	%	$	96,484	> =	8.0	%	$	120,606	> =	10.0	%
Tier 1 capital (to risk weighted assets)	Tier 1 capital (to risk weighted assets)	160,344		14.3	%	67,408		> =	6.0	%	89,877		> =	8.0	%	Tier 1 capital (to risk weighted assets)	162,346		13.5	%	72,363		> =	6.0	%	96,484		> =	8.0	%
Common equity tier 1 capital (to risk weighted assets)	Common equity tier 1 capital (to risk weighted assets)	160,344		14.3	%	50,556		> =	4.5	%	73,025		> =	6.5	%	Common equity tier 1 capital (to risk weighted assets)	162,346		13.5	%	54,272		> =	4.5	%	78,394		> =	6.5	%
Tier 1 leverage ratio (to adjusted total assets)	Tier 1 leverage ratio (to adjusted total assets)	160,344		9.8	%	65,595		> =	4.0	%	81,993		> =	5.0	%	Tier 1 leverage ratio (to adjusted total assets)	162,346		9.7	%	67,061		> =	4.0	%	83,826		> =	5.0	%
As of December 31, 2020 (Audited)	As of December 31, 2020 (Audited)															As of December 31, 2020 (Audited)
Total capital (to risk weighted assets)	Total capital (to risk weighted assets)	$	171,702	14.7	%	$	93,381	> =	8.0	%	$	116,726	> =	10.0	%	Total capital (to risk weighted assets)	$	171,702	14.7	%	$	93,381	> =	8.0	%	$	116,726	> =	10.0	%
Tier 1 capital (to risk weighted assets)	Tier 1 capital (to risk weighted assets)	157,081		13.5	%	70,035		> =	6.0	%	93,381		> =	8.0	%	Tier 1 capital (to risk weighted assets)	157,081		13.5	%	70,035		> =	6.0	%	93,381		> =	8.0	%
Common equity tier 1 capital (to risk weighted assets)	Common equity tier 1 capital (to risk weighted assets)	157,081		13.5	%	52,527		> =	4.5	%	75,872		> =	6.5	%	Common equity tier 1 capital (to risk weighted assets)	157,081		13.5	%	52,527		> =	4.5	%	75,872		> =	6.5	%
Tier 1 leverage ratio (to adjusted total assets)	Tier 1 leverage ratio (to adjusted total assets)	157,081		9.9	%	63,718		> =	4.0	%	79,647		> =	5.0	%	Tier 1 leverage ratio (to adjusted total assets)	157,081		9.9	%	63,718		> =	4.0	%	79,647		> =	5.0	%

At ~~March 31,~~June 30, 2021, the Bank was categorized as “Well Capitalized” under Prompt Corrective Action Provisions, as determined by the OCC, our primary regulator.

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Below are the amounts and ratios for our capital levels as of the dates noted below for the Company:


		Actual				For Capital Adequacy Purposes					Actual		For Capital Adequacy Purposes
		Amount		Ratio		Amount			Ratio				Amount		Ratio		Amount			Ratio
As of March 31, 2021 (Unaudited)
As of June 30, 2021 (Unaudited)												As of June 30, 2021 (Unaudited)
Total capital (to risk weighted assets)	Total capital (to risk weighted assets)	$	167,145	14.9	%	$	89,877	> =	8.0	%		Total capital (to risk weighted assets)	$	170,860	14.2	%	$	96,484	> =	8.0	%
Tier 1 capital (to risk weighted assets)	Tier 1 capital (to risk weighted assets)	123,065		11.0	%	67,408		> =	6.0	%		Tier 1 capital (to risk weighted assets)	125,762		10.4	%	72,363		> =	6.0	%
Common equity tier 1 capital (to risk weighted assets)	Common equity tier 1 capital (to risk weighted assets)	123,065		11.0	%	50,556		> =	4.5	%		Common equity tier 1 capital (to risk weighted assets)	125,762		10.4	%	54,272		> =	4.5	%
Tier 1 leverage ratio (to adjusted total assets)	Tier 1 leverage ratio (to adjusted total assets)	123,065		7.5	%	65,595		> =	4.0	%		Tier 1 leverage ratio (to adjusted total assets)	125,762		7.5	%	67,061		> =	4.0	%
As of December 31, 2020 (Audited)	As of December 31, 2020 (Audited)											As of December 31, 2020 (Audited)
Total capital (to risk weighted assets)	Total capital (to risk weighted assets)	$	166,703	14.3	%	$	93,381	> =	8.0	%		Total capital (to risk weighted assets)	$	166,703	14.3	%	$	93,381	> =	8.0	%
Tier 1 capital (to risk weighted assets)	Tier 1 capital (to risk weighted assets)	122,082		10.5	%	70,035		> =	6.0	%		Tier 1 capital (to risk weighted assets)	122,082		10.5	%	70,035		> =	6.0	%
Common equity tier 1 capital (to risk weighted assets)	Common equity tier 1 capital (to risk weighted assets)	122,082		10.5	%	52,527		> =	4.5	%		Common equity tier 1 capital (to risk weighted assets)	122,082		10.5	%	52,527		> =	4.5	%
Tier 1 leverage ratio (to adjusted total assets)	Tier 1 leverage ratio (to adjusted total assets)	122,082		7.7	%	63,718		> =	4.0	%		Tier 1 leverage ratio (to adjusted total assets)	122,082		7.7	%	63,718		> =	4.0	%

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our Risk When Interest Rates Change. The rates of interest we earn on assets and pay on liabilities generally are established contractually for a period of time. Market interest rates change over time and are not predictable or controllable. Accordingly, our results of operations, like those of other financial institutions, are impacted by changes in interest rates and the interest rate sensitivity of our assets and liabilities. Like other financial institutions, our interest income and interest expense are affected by general economic conditions and policies of regulatory authorities, including the monetary policies of the Federal Reserve. The risk associated with changes in interest rates and our ability to adapt to these changes is known as interest rate risk and is our most significant market risk.

How We Measure Our Risk of Interest Rate Changes. As part of our attempt to manage our exposure to changes in interest rates and comply with applicable regulations, we monitor our interest rate risk through several means including through the use of third party reporting software. In monitoring interest rate risk we continually analyze and manage assets and liabilities based on their payment streams and interest rates, the timing of their maturities, and their sensitivity to actual or potential changes in market interest rates.

In order to manage the potential for adverse effects of material and prolonged increases in interest rates on our results of operations, we adopted asset and liability management policies to better align the maturities and re-pricing terms of our interest earning assets and interest bearing liabilities. These policies are implemented by our Asset and Liability Management Committee (ALCO). The ALCO is comprised of members of the Bank’s senior management and Board of Directors. The ALCO establishes guidelines for and monitors the volume and mix of our assets and funding sources, taking into account relative costs and spreads, interest rate sensitivity and liquidity needs. The Committee’s objectives are to manage assets and funding sources to produce results that are consistent with liquidity, cash flow, capital adequacy, growth, risk and profitability goals for the Bank. The ALCO meets on a regularly scheduled basis to review, among other things, economic conditions and interest rate outlook, current and projected liquidity needs and capital position, anticipated changes in the volume and mix of assets and liabilities and interest rate risk exposure limits versus current projections pursuant to net present value of portfolio equity analysis. At each meeting, the Committee recommends strategy changes, as appropriate, based on this review. The Committee is responsible for reviewing and reporting on the effects of the policy implementations and strategies to the Bank’s Board of Directors on a regularly scheduled basis.

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In ~~order to manage~~managing our assets and liabilities ~~and~~to achieve desired levels ~~of liquidity, credit quality, cash flow,~~ interest rate risk, ~~profitability and capital targets,~~ we have focused our strategies on:

•originating shorter-term secured commercial, agricultural and consumer loan maturities;

•originating variable rate commercial and agricultural loans;

•managing our exposure to changes in interest rates, including, but not limited to the sale of longer-term fixed-rate residential loans in the secondary market with retained servicing;

•originating balloon mortgage loans with a term of five years or less to minimize the impact of sudden rate changes;

•managing our funding needs by utilizing core deposits, brokered certificates of deposits and borrowings as appropriate to extend terms and lock in fixed interest rates;

•~~reducing non-interest expense and managing~~purchasing investment securities to modify our ~~efficiency ratio by implementing technologies to enhance customer service and increase employee productivity; and~~

•~~realigning supervision and control of our branch network by modifying their configuration, staffing, locations and reporting structure to focus resources on our most productive markets.~~interest rate risk profile

At times, depending on the level of general interest rates, the relationship between long- and short-term interest rates, market conditions and competitive factors, the ALCO may determine to increase the Bank’s interest rate risk position somewhat in order to maintain or improve its net interest margin.

The following table sets forth, at ~~March 31,~~June 30, 2021 and December 31, 2020 an analysis of our interest rate risk as measured by the estimated changes in Economic Value of Equity (“EVE”) resulting from an immediate and permanent shift in the yield curve (up 300 basis points and down 100 basis points). As of ~~March 31,~~June 30, 2021 and December 31, 2020, due to the current level of interest rates, EVE estimates for decreases in interest rates greater than 100 basis points are not meaningful.


		Percent Change in Economic Value of Equity (EVE)					Percent Change in Economic Value of Equity (EVE)
Change in Interest Rates in Basis Points (“bp”) Rate Shock in Rates (1)	Change in Interest Rates in Basis Points (“bp”) Rate Shock in Rates (1)	At March 31, 2021		At December 31, 2020		Change in Interest Rates in Basis Points (“bp”) Rate Shock in Rates (1)	At June 30, 2021		At December 31, 2020

+300 bp	+300 bp	1	%	15	%	+300 bp	(1)	%	15	%
+200 bp	+200 bp	1	%	11	%	+200 bp	—	%	11	%
+100 bp	+100 bp	1	%	7	%	+100 bp	—	%	7	%
-100 bp	-100 bp	3	%	—	%	-100 bp	4	%	—	%

(1)Assumes an immediate and parallel shift in the yield curve at all maturities.

Our overall interest rate sensitivity is demonstrated by net interest income shock analysis which measures the change in net interest income in the event of hypothetical changes in interest rates. This analysis assesses the risk of change in our net interest income over the next 12 months in the event of an immediate and parallel shift in the yield curve (up 300 basis points and down 100 basis points). The table below presents our projected change in net interest income for the various rate shock levels at ~~March 31,~~June 30, 2021 and December 31, 2020.


		Percent Change in Net Interest Income Over One Year Horizon					Percent Change in Net Interest Income Over One Year Horizon
Change in Interest Rates in Basis Points (“bp”) Rate Shock in Rates (1)	Change in Interest Rates in Basis Points (“bp”) Rate Shock in Rates (1)	At March 31, 2021		At December 31, 2020		Change in Interest Rates in Basis Points (“bp”) Rate Shock in Rates (1)	At June 30, 2021		At December 31, 2020

+300 bp	+300 bp	—	%	3	%	+300 bp	(4)	%	3	%
+200 bp	+200 bp	—	%	3	%	+200 bp	(3)	%	3	%
+100 bp	+100 bp	—	%	2	%	+100 bp	(1)	%	2	%
-100 bp	-100 bp	2	%	(1)	%	-100 bp	2	%	(1)	%

(1)Assumes an immediate and parallel shift in the yield curve at all maturities.

Note: The table above may not be indicative of future results.

The assumptions used to measure and assess interest rate risk include interest rates, loan prepayment rates, deposit decay (runoff) rates, and the market values of certain assets under differing interest rate scenarios. Actual values may differ from those projections set forth above should market conditions vary from the assumptions used in preparing the analysis. Further, the computations do not contemplate any actions we may undertake in response to changes in interest rates.

ITEM 4.CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time

periods specified in the Securities and Exchange Commission’s rules and forms, and that the information required to be disclosed in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply judgment in evaluating the cost-benefit relationship of possible controls and procedures. We have designed our disclosure controls and procedures to reach a level of reasonable assurance of achieving the desired control objectives. We carried out an evaluation as of ~~March 31,~~June 30, 2021, under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of ~~March 31,~~June 30, 2021 at reaching a level of reasonable assurance.

There was no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. On July 1, 2019, we completed our acquisition of F&M. In accordance with our integration efforts, we plan to incorporate F&M’s operations into our internal control over financial reporting structure within the time frame provided by applicable SEC rules and regulations.

PART II – OTHER INFORMATION

Item 1.LEGAL PROCEEDINGS

In the normal course of business, the Company and/or the Bank occasionally become involved in other various legal proceedings. In our opinion, any liability from such proceedings would not have a material adverse effect on the business or financial condition of the Company.

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Item 1A.RISK FACTORS

The information in this Form 10-Q should be read in conjunction with the risk factors described in “Risk Factors” in Item 1A of our 2020 10-K and in “Risk Factors” in Item 1A of our Form 10Q for the quarter ended March 31, 2021 and the information under “Forward-Looking Statements” in this Form 10-Q, our Form 10Q for the quarter ended March 31, 2021 and in our 2020 10-K.

Item 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a)Not applicable.

(b)Not applicable.

(c)Issuer Purchases of Equity Securities.

On November 30, 2020, the Board of Directors approved a stock repurchase program. Under this program the Company may repurchase up to approximately 5% of the outstanding shares of its common stock as of November 30, 2020, or 557,728 shares, from time to time. The table below shows information about our repurchases of our common stock during the three months ended ~~March 31,~~June 30, 2021.

Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
January 1, 2021 - January 31, 2021 — $ — — 459,963
February 1, 2021 - February 28, 2021 212,649 $ 11.41 212,649 247,314
March 1, 2021 - March 31, 2021 11,832 $ 11.56 11,832 235,482
Total 224,481 $ 11.42 224,481


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
April 1, 2021 - April 30, 2021	5,909	$	12.48	5,909	229,573
May 1, 2021 - May 31, 2021	174,932	$	13.20	174,932	54,641
June 1, 2021 - June 30, 2021	17,807	$	13.62	17,807	36,834
Total	198,648	$	13.21	198,648

Subsequently, July 23, 2021, the Board of Directors approved a new stock repurchase program to authorize repurchases of additional shares of common stock. Under this program the Company may repurchase up to an additional 532 thousand shares of its common stock, or approximately 5% of the current outstanding shares, after the existing repurchase program is completed.

Item 3.DEFAULTS UPON SENIOR SECURITIES

Not applicable.

Item 4.MINE SAFETY DISCLOSURES

Not applicable.

Item 5.OTHER INFORMATION

Not applicable.

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Item 6.EXHIBITS

(a) Exhibits


3.1						Amendment to the Bylaws of Citizens Community Bancorp, Inc. dated June 10, 2021 (incorporated by reference to Exhibit 3.1 to the Company’s current report on Form 8-K filed on June 10, 2021 (File No. 001-33003)).
31.1						Rule 13a-14(a) Certification of the Company’s Chief Executive Officer
31.2						Rule 13a-14(a) Certification of the Company’s Chief Financial Officer
32.1*						Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).
101						The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~March 31,~~June 30, 2021 formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
104						Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)


*			This certification is not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CITIZENS COMMUNITY BANCORP, INC.

Date: ~~May 6,~~August 5, 2021

By:

/s/ Stephen M. Bianchi

Stephen M. Bianchi

Chief Executive Officer

Date: ~~May 6,~~August 5, 2021

By:

/s/ James S. Broucek

James S. Broucek

Chief Financial Officer

7680


	Balance		Net Deferred Fee Income
SBA PPP Loans - Round 1	$	124	$	3.0
SBA PPP Loans - Round 2	0		0
Total SBA PPP Loans, December 31, 2020	124		3.0

SBA PPP Loans - Round 1	$	72	$	1.3
SBA PPP Loans - Round 2	47		1.7
Total SBA PPP Loans, March 31, 2021	119		3.0
Net deferred fees collected after March 31, 2021 from Q1 SBA PPP loan originations	—		0.9
	119		3.9
SBA PPP Pipeline Round 2, April 2021	8		0.8
March 31, 2021 plus SBA PPP Pipeline - Round 2, April 2021	$	127	$	4.7