UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For the quarterly period ended June 30, ~~2020~~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			001-35968

MIDWESTONE FINANCIAL GROUP, INC.

(Exact name of Registrant as specified in its charter)


Iowa						42-1206172
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

102 South Clinton Street, Iowa City, IA 52240						(319) 356-5800
(Address of principal executive offices, including zip code)						(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, $1.00 par value

MOFG

The Nasdaq Stock Market LLC

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. x 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes ☐ No

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

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 x No

As of August ~~5, 2020,~~3, 2021, there were ~~16,099,324~~15,875,091 shares of common stock, $1.00 par value per share, outstanding.

Table of Contents

MIDWESTONE FINANCIAL GROUP, INC.

Form 10-Q Quarterly Report

Table of Contents

PART I – FINANCIAL INFORMATION

Glossary of Acronyms, Abbreviations, and Terms

As used in this report, references to "MidWestOne", "we", "our", "us", the "Company", and similar terms refer to the consolidated entity consisting of ~~MidWestOne~~MidWestOne Financial Group, Inc. and its wholly-owned subsidiaries. MidWestOne Bank or the "Bank" refers to MidWestOne's bank subsidiary, MidWestOne Bank.

The acronyms, abbreviations, and terms listed below are used in various sections of this Form 10-Q, including "Item 1. Financial Statements" and "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations."


~~AFS~~	~~Available for Sale~~	~~FDIC~~	~~Federal Deposit Insurance Corporation~~
ACL	Allowance for Credit Losses	FHLB	Federal Home Loan Bank
AFS	Available for Sale	FHLBC	Federal Home Loan Bank of Chicago
AOCI	Accumulated Other Comprehensive Income	FHLBDM	Federal Home Loan Bank of Des Moines
ASC	Accounting Standards Codification	~~FHLBC~~FHLMC	Federal Home Loan ~~Bank of Chicago~~Mortgage Corporation
ASU	Accounting Standards Update	~~FHLMC~~FNMA	Federal ~~Home Loan~~National Mortgage ~~Corporation~~Association
~~ABTW~~ATM	~~American Bank and Trust-Wisconsin of Cuba City, Wisconsin~~Automated Teller Machine	FRB	Board of Governors of the Federal Reserve System
~~ATM~~	~~Automated Teller Machine~~	~~FNMA~~	~~Federal National Mortgage Association~~
~~ATSB~~	~~American Trust & Savings Bank of Dubuque, Iowa~~	~~GAAP~~	~~U.S. Generally Accepted Accounting Principles~~
Basel III Rules	A comprehensive capital framework and rules for U.S. banking organizations approved by the FRB and the FDIC in 2013	~~GLBA~~GAAP	~~Gramm-Leach-Bliley Act of 1999~~U.S. Generally Accepted Accounting Principles
BHCA	Bank Holding Company Act of 1956, as amended	GLBA	Gramm-Leach-Bliley Act of 1999
BOLI	Bank Owned Life Insurance	GNMA	Government National Mortgage Association
~~BOLI~~CAA	~~Bank Owned Life Insurance~~Consolidated Appropriations Act, 2021	HTM	Held to Maturity
CARES Act	Coronavirus Aid, Relief and Economic Security Act	ICS	Insured Cash Sweep
CDARS	Certificate of Deposit Account Registry Service	LIBOR	The London Inter-bank Offered Rate ~~is an interest-rate average calculated from estimates submitted by the leading banks in London~~
CECL	Current Expected Credit Loss	MBS	Mortgage-Backed Securities
CMO	Collateralized Mortgage Obligations	OTTI	Other-Than-Temporary Impairment
COVID-19	Coronavirus Disease 2019	PCD	Purchased Financial Assets with Credit Deterioration
CRA	Community Reinvestment Act	PCI	Purchased Credit Impaired
CRE	Commercial Real Estate	~~RRE~~PPP	~~Residential Real Estate~~Paycheck Protection Program
DCF	Discounted ~~cash flows~~Cash Flows	ROU	Right-of-Use
Dodd-Frank Act	Dodd-Frank Wall Street Reform and Consumer Protection Act	RRE	Residential Real Estate
ECL	Expected Credit Losses	RPA	Credit Risk Participation Agreement
~~ECL~~EVE	~~Expected Credit Losses~~Economic Value of Equity	SBA	U.S. Small Business Administration
FASB	Financial Accounting Standards Board	SEC	U.S. Securities and Exchange Commission
~~EVE~~FDIC	~~Economic Value of Equity~~Federal Deposit Insurance Corporation	TDR	Troubled Debt Restructuring
~~FASB~~	~~Financial Accounting Standards Board~~

Table of Contents

Item 1. Financial ~~Statements.~~Statements (unaudited).

MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

June 30, 2020 December 31, 2019
(dollars in thousands) (unaudited)
ASSETS
Cash and due from banks $ 65,863 $ 67,174
Interest earning deposits in banks 45,018 6,112
Federal funds sold 6,329 198
Total cash and cash equivalents 117,210 73,484
Debt securities available for sale at fair value 1,187,455 785,977
Loans held for sale 12,048 5,400
Gross loans held for investment 3,618,675 3,469,236
Unearned income, net (21,636) (17,970)
Loans held for investment, net of unearned income 3,597,039 3,451,266
Allowance for credit losses (55,644) (29,079)
Total loans held for investment, net 3,541,395 3,422,187
Premises and equipment, net 88,929 90,723
Goodwill 93,977 91,918
Other intangible assets, net 28,443 32,218
Foreclosed assets, net 965 3,706
Other assets 160,541 147,960
Total assets $ 5,230,963 $ 4,653,573
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest bearing deposits $ 867,637 $ 662,209
Interest bearing deposits 3,397,798 3,066,446
Total deposits 4,265,435 3,728,655
Short-term borrowings 162,224 139,349
Long-term debt 189,973 231,660
Other liabilities 92,550 44,927
Total liabilities 4,710,182 4,144,591
Shareholders' equity
Preferred stock, 0 par value; authorized 500,000 shares; 0 shares issued and outstanding — —
Common stock, $1.00 par value; authorized 30,000,000 shares; issued shares of 16,581,017 and 16,581,017; outstanding shares of 16,099,324 and 16,162,176 16,581 16,581
Additional paid-in capital 299,542 297,390
Retained earnings 198,382 201,105
Treasury stock at cost, 481,693 and 418,841 shares (12,272) (10,466)
Accumulated other comprehensive income 18,548 4,372
Total shareholders' equity 520,781 508,982
Total liabilities and shareholders' equity $ 5,230,963 $ 4,653,573


	June 30, 2021		December 31, 2020
(unaudited) (dollars in thousands, except per share amounts)
ASSETS
Cash and due from banks	$	52,297	$	65,078
Interest earning deposits in banks	11,124		17,409
Federal funds sold	13		172
Total cash and cash equivalents	63,434		82,659
Debt securities available for sale at fair value	2,072,452		1,657,381
Loans held for sale	6,149		59,956
Gross loans held for investment	3,344,156		3,496,790
Unearned income, net	(14,000)		(14,567)
Loans held for investment, net of unearned income	3,330,156		3,482,223
Allowance for credit losses	(48,000)		(55,500)
Total loans held for investment, net	3,282,156		3,426,723
Premises and equipment, net	84,667		86,401
Goodwill	62,477		62,477
Other intangible assets, net	22,394		25,242
Foreclosed assets, net	755		2,316
Other assets	154,731		153,493
Total assets	$	5,749,215	$	5,556,648

LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest bearing deposits	$	952,764	$	910,655
Interest bearing deposits	3,839,902		3,636,394
Total deposits	4,792,666		4,547,049
Short-term borrowings	212,261		230,789
Long-term debt	169,839		208,691
Other liabilities	44,156		54,869
Total liabilities	5,218,922		5,041,398

Shareholders' equity
Preferred stock, 0 par value; authorized 500,000 shares; 0 shares issued and outstanding	0		0
Common stock, $1.00 par value; authorized 30,000,000 shares; issued shares of 16,581,017 and 16,581,017; outstanding shares of 15,963,468 and 16,016,780	16,581		16,581
Additional paid-in capital	299,888		300,137
Retained earnings	219,884		188,191
Treasury stock at cost, 617,549 and 564,237 shares	(15,888)		(14,251)
Accumulated other comprehensive income	9,828		24,592
Total shareholders' equity	530,293		515,250
Total liabilities and shareholders' equity	$	5,749,215	$	5,556,648

See accompanying notes to consolidated financial statements.

Table of Contents

MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended Six Months Ended
June 30, June 30,
(unaudited) (dollars in thousands, except per share amounts) 2020 2019 2020 2019
Interest income
Loans, including fees $ 40,214 $ 40,053 $ 82,226 $ 69,088
Taxable investment securities 4,646 3,289 8,363 6,216
Tax-exempt investment securities 1,858 1,424 3,370 2,830
Other 40 185 204 205
Total interest income 46,758 44,951 94,163 78,339
Interest expense
Deposits 6,409 7,743 14,358 13,438
Short-term borrowings 263 500 597 957
Long-term debt 1,374 1,876 3,090 3,136
Total interest expense 8,046 10,119 18,045 17,531
Net interest income 38,712 34,832 76,118 60,808
Credit loss expense 4,685 696 26,418 2,290
Net interest income after credit loss expense 34,027 34,136 49,700 58,518
Noninterest income
Investment services and trust activities 2,217 1,890 4,753 3,280
Service charges and fees 1,290 1,870 3,116 3,312
Card revenue 1,237 1,799 2,602 2,797
Loan revenue 1,910 648 3,033 1,041
Bank-owned life insurance 635 470 1,155 862
Insurance commissions — 314 — 734
Investment securities gains, net 6 32 48 49
Other 974 1,773 3,717 2,131
Total noninterest income 8,269 8,796 18,424 14,206
Noninterest expense
Compensation and employee benefits 15,682 16,409 32,299 28,988
Occupancy expense of premises, net 2,253 2,127 4,594 4,006
Equipment 2,010 1,914 3,890 3,285
Legal and professional 1,382 3,291 2,917 4,256
Data processing 1,240 1,008 2,594 1,853
Marketing 910 869 1,972 1,475
Amortization of intangibles 1,748 930 3,776 1,382
FDIC insurance 445 434 893 804
Communications 449 377 906 719
Foreclosed assets, net 34 84 172 142
Other 1,885 1,597 4,026 2,747
Total noninterest expense 28,038 29,040 58,039 49,657
Income before income tax expense 14,258 13,892 10,085 23,067
Income tax expense 2,546 3,218 348 5,108
Net income $ 11,712 $ 10,674 $ 9,737 $ 17,959
Per common share information
Earnings - basic $ 0.73 $ 0.72 $ 0.60 $ 1.33
Earnings - diluted $ 0.73 $ 0.72 $ 0.60 $ 1.33
Dividends paid $ 0.2200 $ 0.2025 $ 0.4400 $ 0.4050


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(unaudited) (dollars in thousands, except per share amounts)	2021		2020		2021		2020
Interest income
Loans, including fees	$	34,736	$	40,214	$	71,278	$	82,226
Taxable investment securities	6,483		4,646		11,576		8,363
Tax-exempt investment securities	2,549		1,858		5,104		3,370
Other	19		40		33		204
Total interest income	43,787		46,758		87,991		94,163
Interest expense
Deposits	3,409		6,409		7,017		14,358
Short-term borrowings	161		263		289		597
Long-term debt	1,712		1,374		3,563		3,090
Total interest expense	5,282		8,046		10,869		18,045
Net interest income	38,505		38,712		77,122		76,118
Credit loss (benefit) expense	(2,144)		4,685		(6,878)		26,418
Net interest income after credit loss (benefit) expense	40,649		34,027		84,000		49,700
Noninterest income
Investment services and trust activities	2,809		2,217		5,645		4,753
Service charges and fees	1,475		1,290		2,962		3,116
Card revenue	1,913		1,237		3,449		2,602
Loan revenue	3,151		1,910		7,881		3,033
Bank-owned life insurance	538		635		1,080		1,155


Investment securities gains, net	42		6		69		48
Other	290		974		956		3,717
Total noninterest income	10,218		8,269		22,042		18,424
Noninterest expense
Compensation and employee benefits	17,404		15,682		34,321		32,299
Occupancy expense of premises, net	2,198		2,253		4,516		4,594
Equipment	1,861		2,010		3,654		3,890
Legal and professional	1,375		1,382		2,158		2,917
Data processing	1,347		1,240		2,599		2,594
Marketing	873		910		1,879		1,972
Amortization of intangibles	1,341		1,748		2,848		3,776
FDIC insurance	245		445		757		893
Communications	371		449		780		906
Foreclosed assets, net	136		34		183		172

Other	1,519		1,885		2,675		4,026
Total noninterest expense	28,670		28,038		56,370		58,039
Income before income tax expense	22,197		14,258		49,672		10,085
Income tax expense	4,926		2,546		10,753		348
Net income	$	17,271	$	11,712	$	38,919	$	9,737

Per common share information
Earnings - basic	$	1.08	$	0.73	$	2.43	$	0.60
Earnings - diluted	$	1.08	$	0.73	$	2.43	$	0.60
Dividends paid	$	0.2250	$	0.2200	$	0.4500	$	0.4400

See accompanying notes to consolidated financial statements.

Table of Contents

MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended Six Months Ended
June 30, June 30,
(unaudited) (dollars in thousands) 2020 2019 2020 2019
Net income $ 11,712 $ 10,674 $ 9,737 $ 17,959
Other comprehensive income, net of tax:
Unrealized gain from debt securities available for sale:
Unrealized net holding gains on debt securities available for sale arising during the period 15,866 5,777 20,191 9,905
Reclassification adjustment for gains included in net income (6) (32) (48) (49)
Income tax expense (4,139) (1,499) (5,257) (2,572)
Unrealized net gains on debt securities available for sale, net of reclassification adjustment 11,721 4,246 14,886 7,284
Unrealized loss from cash flow hedging instruments:
Unrealized net holding loss in cash flow hedging instruments arising during the period (129) — (1,017) —
Reclassification adjustment for net losses in cash flow hedging instruments included in income 62 — 57 —
Income tax benefit 17 — 250 —
Unrealized net losses on cash flow hedge instruments, net of reclassification adjustment (50) — (710) —
Other comprehensive income, net of tax 11,671 4,246 14,176 7,284
Comprehensive income $ 23,383 $ 14,920 $ 23,913 $ 25,243


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(unaudited) (dollars in thousands)	2021		2020		2021		2020
Net income	$	17,271	$	11,712	$	38,919	$	9,737

Other comprehensive income (loss), net of tax:
Unrealized (loss) gain from debt securities available for sale:
Unrealized net holding (loss) gain on debt securities available for sale arising during the period	7,874		15,866		(19,910)		20,191
Reclassification adjustment for gains included in net income	(42)		(6)		(69)		(48)
Income tax benefit (expense)	(2,044)		(4,139)		5,215		(5,257)
Unrealized net (loss) gain on debt securities available for sale, net of reclassification adjustment	5,788		11,721		(14,764)		14,886
Unrealized loss from cash flow hedging instruments:
Unrealized net holding loss in cash flow hedging instruments arising during the period	0		(129)		0		(1,017)
Reclassification adjustment for net loss in cash flow hedging instruments included in income	0		62		0		57
Income tax benefit	0		17		0		250
Unrealized net losses on cash flow hedge instruments, net of reclassification adjustment	0		(50)		0		(710)
Other comprehensive income (loss), net of tax	5,788		11,671		(14,764)		14,176
Comprehensive income	$	23,059	$	23,383	$	24,155	$	23,913

See accompanying notes to consolidated financial statements.

Table of Contents

MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY


Three Months Ended June 30,														Three Months Ended June 30,
															Common Stock
(unaudited) (dollars in thousands, except per share amounts)														(unaudited) (dollars in thousands, except per share amounts)	Par Value		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total

		Common Stock
(unaudited) (dollars in thousands, except per share amounts)		Par Value		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total
Balance at December 31, 2018		$	12,463	$	187,813	$	168,951	$	(6,499)	$	(5,661)	$	357,067

Balance at March 31, 2020														Balance at March 31, 2020	$	16,581	$	299,412	$	190,212	$	(12,518)	$	6,877	$	500,564
Net income	Net income	—		—		7,285		—		—		7,285		Net income	—		—		11,712		—		—		11,712
Other comprehensive income	Other comprehensive income	—		—		—		—		3,038		3,038		Other comprehensive income	—		—		—		—		11,671		11,671
Release/lapse of restriction on RSUs (24,550 shares)		—		(570)		—		501		—		(69)
Repurchase of common stock (49,216 shares)		—		—		—		(1,299)		—		(1,299)
Release/lapse of restriction on RSUs (9,542 shares, net)														Release/lapse of restriction on RSUs (9,542 shares, net)	—		(258)		—		246		—		(12)
Share-based compensation	Share-based compensation	—		292		—		—		—		292		Share-based compensation	—		388		—		—		—		388
Dividends paid on common stock ($0.2025 per share)		—		—		(2,465)		—		—		(2,465)
Balance at March 31, 2019		12,463		187,535		173,771		(7,297)		(2,623)		363,849
Issuance of common stock due to business combination (4,117,536 shares), net of expenses of $323		4,118		109,228		—		—		—		113,346
Net income		—		—		10,674		—		—		10,674
Other comprehensive income		—		—		—		—		4,246		4,246
Release/lapse of restriction on RSUs (8,260 shares, net)		—		(196)		—		177		—		(19)
Repurchase of common stock (56,985 shares)		—		—		—		(1,596)		—		(1,596)
Share-based compensation		—		312		—		—		—		312
Dividends paid on common stock ($0.2025 per share)		—		—		(2,461)		—		—		(2,461)
Balance at June 30, 2019		$	16,581	$	296,879	$	181,984	$	(8,716)	$	1,623	$	488,351
Dividends paid on common stock ($0.2200 per share)														Dividends paid on common stock ($0.2200 per share)	—		—		(3,542)		—		—		(3,542)
Balance at June 30, 2020														Balance at June 30, 2020	$	16,581	$	299,542	$	198,382	$	(12,272)	$	18,548	$	520,781

Balance at March 31, 2021														Balance at March 31, 2021	$	16,581	$	299,747	$	206,230	$	(15,278)	$	4,040	511,320
Net income														Net income	—		—		17,271		—		—		17,271
Other comprehensive income														Other comprehensive income	—		—		0		—		5,788		5,788
Release/lapse of restriction on RSUs (21,155 shares, net)														Release/lapse of restriction on RSUs (21,155 shares, net)	—		(526)		(17)		538		—		(5)
Repurchase of common stock (38,775 shares)														Repurchase of common stock (38,775 shares)	—		—		—		(1,148)		—		(1,148)
Share-based compensation														Share-based compensation	—		667		—		—		—		667
Dividends paid on common stock ($0.2250 per share)														Dividends paid on common stock ($0.2250 per share)	—		—		(3,600)		—		—		(3,600)
Balance at June 30, 2021														Balance at June 30, 2021	$	16,581	$	299,888	$	219,884	$	(15,888)	$	9,828	$	530,293

Six Months Ended June 30,														Six Months Ended June 30,
															Common Stock
(unaudited) (dollars in thousands, except per share amounts)														(unaudited) (dollars in thousands, except per share amounts)	Par Value		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total
Balance at December 31, 2019	Balance at December 31, 2019	$	16,581	$	297,390	$	201,105	$	(10,466)	$	4,372	$	508,982	Balance at December 31, 2019	$	16,581	$	297,390	$	201,105	$	(10,466)	$	4,372	508,982
Cumulative effect of change in accounting principle⁽¹⁾	Cumulative effect of change in accounting principle⁽¹⁾	—		—		(5,362)		—		—		(5,362)		Cumulative effect of change in accounting principle(1)	—		—		(5,362)		—		—		(5,362)
Net loss		—		—		(1,975)		—		—		(1,975)
Net Income														Net Income	—		—		9,737		—		—		9,737
Other comprehensive income	Other comprehensive income	—		—		—		—		2,505		2,505		Other comprehensive income	—		—		—		—		14,176		14,176
Acquisition fair value finalization⁽²⁾	Acquisition fair value finalization⁽²⁾	—		2,355		—		—		—		2,355		Acquisition fair value finalization(2)	—		2,355		—		—		—		2,355
Release/lapse of restriction on RSUs (22,946 shares, net)		—		(679)		—		552		—		(127)
Release/lapse of restriction on RSUs (32,488 shares, net)														Release/lapse of restriction on RSUs (32,488 shares, net)	—		(937)		—		798		—		(139)
Repurchase of common stock (95,340 shares)	Repurchase of common stock (95,340 shares)	—		—		—		(2,604)		—		(2,604)		Repurchase of common stock (95,340 shares)	—		—		—		(2,604)		—		(2,604)
Share-based compensation	Share-based compensation	—		346		—		—		—		346		Share-based compensation	—		734		—		—		—		734
Dividends paid on common stock ($0.22 per share)		—		—		(3,556)		—		—		(3,556)
Balance at March 31, 2020		16,581		299,412		190,212		(12,518)		6,877		500,564
Net Income		—		—		11,712		—		—		11,712
Other comprehensive income		—		—		—		—		11,671		11,671
Release/lapse of restriction on RSUs (9,542 shares, net)		—		(258)		—		246		—		(12)
Dividends paid on common stock ($0.4400 per share)														Dividends paid on common stock ($0.4400 per share)	—		—		(7,098)		—		—		(7,098)
Balance at June 30, 2020														Balance at June 30, 2020	$	16,581	$	299,542	$	198,382	$	(12,272)	$	18,548	$	520,781

Balance at December 31, 2020														Balance at December 31, 2020	$	16,581	$	300,137	$	188,191	$	(14,251)	$	24,592	515,250
Net income														Net income	—		—		38,919		—		—		38,919
Other comprehensive loss														Other comprehensive loss	—		—		—		—		(14,764)		(14,764)
Release/lapse of restriction on RSUs (48,051 shares, net)														Release/lapse of restriction on RSUs (48,051 shares, net)	—		(1,300)		(28)		1,210		—		(118)
Repurchase of common stock (101,363 shares)														Repurchase of common stock (101,363 shares)	—		—		—		(2,847)		—		(2,847)
Share-based compensation	Share-based compensation	—		388		—		—		—		388		Share-based compensation	—		1,051		—		—		—		1,051
Dividends paid on common stock ($0.22 per share)		—		—		(3,542)		—		—		(3,542)
Balance at June 30, 2020		$	16,581	$	299,542	$	198,382	$	(12,272)	$	18,548	$	520,781
Dividends paid on common stock ($0.4500 per share)														Dividends paid on common stock ($0.4500 per share)	—		—		(7,198)		—		—		(7,198)
Balance at June 30, 2021														Balance at June 30, 2021	$	16,581	$	299,888	$	219,884	$	(15,888)	$	9,828	$	530,293

(1) Reclassification pursuant to adoption of ASU 2016-13,, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.~~See~~ ~~Note 2. Effect of New Financial Accounting Standards~~ ~~for additional information.~~

(2) Relates to the finalization of the purchase accounting adjustments for the ATBancorp acquisition. This purchase accounting adjustment had a $2.06 million impact on goodwill, $296 thousand impact on deferred income taxes, with the offsetting impact being to additional paid-in capital. ~~See~~ ~~Note~~ 6 ~~. Goodwill and~~ ~~Intangible Assets~~ ~~for additional information.~~

~~See accompanying notes to consolidated financial statements.~~

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MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30,
(unaudited) (dollars in thousands) 2020 2019
Cash flows from operating activities:
Net income $ 9,737 $ 17,959
Adjustments to reconcile net income to net cash provided by operating activities:
Credit loss expense 26,418 2,290
Depreciation, amortization, and accretion 2,342 4,473
Net loss on sale of premises and equipment 61 40
Share-based compensation 734 604
Net gain on sale or call of debt securities available for sale (48) (49)
Net (gain) loss on sale of foreclosed assets, net (45) 1
Writedown of foreclosed assets 164 —
Net gain on sale of loans held for sale (2,696) (821)
Origination of loans held for sale (179,415) (50,900)
Proceeds from sales of loans held for sale 175,463 49,429
Increase in cash surrender value of bank-owned life insurance (786) (862)
Increase in deferred income taxes, net (6,680) (76)
Change in:
Other assets (9,761) 1,028
Other liabilities 13,226 (4,866)
Net cash provided by operating activities 28,714 18,250
Cash flows from investing activities:
Proceeds from sales of debt securities available for sale 22,146 125,414
Proceeds from maturities and calls of debt securities available for sale 78,311 49,699
Purchases of debt securities available for sale (452,716) (112,256)
Proceeds from maturities and calls of debt securities held to maturity — 3,117
Net increase in loans, net of unearned income (142,475) (5,482)
Purchases of premises and equipment (803) (1,242)
Proceeds from sale of foreclosed assets 2,637 763
Proceeds from sale of premises and equipment 2 —
         Net cash acquired in business acquisition — 37,054
Proceeds from sale of intangible assets — 99
Net cash (used in) provided by investing activities (492,898) 97,166
Cash flows from financing activities:
Net increase (decrease) in:
Deposits 536,589 33,449
Short-term borrowings 22,875 (38,354)
               Long-term debt (41,713) (27,250)
Taxes paid relating to the release/lapse of restriction on RSUs (139) (88)
Dividends paid (7,098) (4,926)
Payment of stock issuance costs — (323)
Repurchase of common stock (2,604) (2,895)
Net cash provided by (used in) financing activities 507,910 (40,387)
Net increase in cash and cash equivalents 43,726 75,029
Cash and cash equivalents:
        Beginning of Period 73,484 45,480
        Ending balance $ 117,210 $ 120,509


	Six Months Ended June 30,
(unaudited) (dollars in thousands)	2021		2020
Cash flows from operating activities:
Net income	$	38,919	$	9,737
Adjustments to reconcile net income to net cash provided by operating activities:
Credit loss (benefit) expense	(6,878)		26,418

Depreciation, amortization, and accretion	632		2,342
Net loss on sale of premises and equipment	5		61
Share-based compensation	1,051		734
Net gain on sale or call of debt securities available for sale	(69)		(48)



Net change in foreclosed assets due to writedown or sale	133		119
Net gain on sale of loans held for sale	(5,402)		(2,696)
Origination of loans held for sale	(168,027)		(179,415)
Proceeds from sales of loans held for sale	227,236		175,463
Increase in cash surrender value of bank-owned life insurance	(807)		(786)
Decrease (increase) in deferred income taxes, net	1,554		(6,680)
Change in:
Other assets	3,055		(9,761)
Other liabilities	(12,113)		13,226
Net cash provided by operating activities	$	79,289	$	28,714
Cash flows from investing activities:


Proceeds from sales of debt securities available for sale	$	41,411	$	22,146
Proceeds from maturities and calls of debt securities available for sale	210,574		78,311
Purchases of debt securities available for sale	(688,292)		(452,716)


Net decrease (increase) in loans held for investment	158,800		(142,475)
Purchases of premises and equipment	(644)		(803)
Proceeds from sale of foreclosed assets	1,712		2,637
Proceeds from sale of premises and equipment	3		2



Net cash (used in) investing activities	$	(276,436)	$	(492,898)
Cash flows from financing activities:
Net increase (decrease) in:
Deposits	$	245,527	$	536,589
Short-term borrowings	(18,528)		22,875

Payments of subordinated debt issuance costs	(9)		0
Redemption of subordinated debentures	(10,835)		0
Payments on finance lease liability	(70)		(62)

Payments of Federal Home Loan Bank borrowings	(28,000)		(37,400)

Payments of other long-term debt	0		(4,251)

Taxes paid relating to the release/lapse of restriction on RSUs	(118)		(139)
Dividends paid	(7,198)		(7,098)


Repurchase of common stock	(2,847)		(2,604)
Net cash provided by financing activities	$	177,922	$	507,910
Net (decrease) increase in cash and cash equivalents	$	(19,225)	$	43,726
Cash and cash equivalents:
Beginning of Period	82,659		73,484
Ending balance	$	63,434	$	117,210

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(unaudited) (dollars in thousands) Six Months Ended June 30,
2020 2019
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 18,039 $ 15,493
Cash paid during the period for income taxes 3,505 1,405
Supplemental schedule of non-cash investing and financing activities:
Transfer of loans to foreclosed assets, net $ 15 $ 1,384
Investment securities purchased but not settled 30,192 —
Initial recognition of operating lease right of use asset — 2,892
Initial recognition of operation lease liability — 2,892
Supplemental schedule of non-cash investing activities from acquisition:
   Noncash assets acquired:
              Debt securities available for sale $ — $ 99,056
Loans — 1,137,880
Premises and equipment — 19,213
Goodwill — 28,722
Core deposit intangible — 28,230
Bank-owned life insurance — 18,759
Foreclosed assets — 3,767
Other assets — 17,657
      Total noncash assets acquired — 1,353,284
   Liabilities assumed:
             Deposits — 1,079,094
Short-term borrowing — 60,761
FHLB borrowings — 82,771
Junior subordinated notes issued to capital trusts — 17,557
Subordinated debentures — 10,873
Other liabilities — 25,613
     Total liabilities assumed $ — $ 1,276,669


(unaudited) (dollars in thousands)	Six Months Ended June 30,
	2021		2020
Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	11,643	$	18,039
Cash paid during the period for income taxes	11,185		3,505
Supplemental schedule of non-cash investing and financing activities:
Transfer of loans to foreclosed assets, net	$	284	$	15
Investment securities purchased but not settled	1,500		30,192

See accompanying notes to consolidated financial statements.

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MidWestOne Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

1. ~~Summary~~Nature of Business and Significant Accounting Policies

Nature of Business

~~MidWestOne~~MidWestOne Financial Group, Inc., an Iowa corporation formed in 1983, is a bank holding company under the BHCA and a financial holding company under the GLBA. Our principal executive offices are located at 102 South Clinton Street, Iowa City, Iowa 52240.

The Company owns all of the outstanding common stock of MidWestOne Bank, an Iowa state non-member bank chartered in 1934 with its main office in Iowa City, ~~Iowa, and, until its dissolution in December 2019, all of the common stock of MidWestOne~~ ~~Insurance Services, Inc., Oskaloosa,~~ Iowa. We operate primarily through MidWestOne Bank, our bank subsidiary.

On May 1, 2019, the Company acquired ATBancorp, a bank holding company whose wholly-owned banking subsidiaries were ATSB and ABTW, community banks headquartered in Dubuque, Iowa, and Cuba City, Wisconsin, respectively. As consideration for the merger, we issued 4,117,536 shares of our common stock with a value of $116 million, and paid cash in the amount of $34.8 million.

~~On June 30, 2019, the Company sold substantially all of the assets used by its wholly owned subsidiary, MidWestOne~~ Insurance Services, Inc. to sell insurance products. The Company recognized a pre-tax gain of $1.1 million from the sale, which was reported in “Other” noninterest income on the Company’s consolidated statements of income.

Basis of Presentation

The accompanying interim condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934. Accordingly, certain disclosures accompanying annual consolidated financial statements are omitted. In the opinion of management, all significant intercompany accounts and transactions have been eliminated and adjustments, consisting solely of normal recurring accruals and considered necessary for the fair presentation of financial statements for the interim periods, have been included. The current period's results of operations are not necessarily indicative of the results that ultimately may be achieved for the year. The interim condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Form 10-K for the year ended December 31, ~~2019,~~2020, filed with the SEC on March ~~6, 2020.~~11, 2021.

Risks and Uncertainties

The outbreak of COVID-19 has adversely impacted a broad range of industries in which the Company’s customers operate and could impair their ability to fulfill their financial obligations to the Company. The World Health Organization declared COVID-19 to be a global pandemic, indicating that almost all public commerce and related business activities must be, to varying degrees, curtailed with the goal of decreasing the rate of new infections. The spread of the outbreak has caused significant disruptions in the U.S. economy and has disrupted banking and other financial activity in the areas in which the Company operates. While there has been no material impact to the Company’s employees to date, COVID-19 could also potentially create widespread business continuity issues for the Company.

Congress, the President, and the FRB have taken several actions designed to ~~cushion~~mitigate the economic ~~fallout. Most notably,~~impact of the pandemic. The CARES Act was signed into law ~~at the end of~~in March 2020 as a $2 trillion legislative package. The goal of the CARES Act was to prevent a severe economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors. The package also includes extensive emergency funding for hospitals and healthcare providers. In addition to the general impact of COVID-19, certain provisions of the CARES Act as well as other recent legislative and regulatory relief efforts are expected to have a material impact on the Company’s operations. On December 27, 2020, a new COVID-19 relief bill was signed into law by President Trump, which included as part of the bill up to $284.5 billion of a second wave of PPP funding. The American Rescue Plan Act of 2021 was signed into law on March 11, 2021 by President Biden as a $1.9 trillion legislative package, which included as part of the bill a variety of economic assistance programs for Americans. In addition, on March 30, 2021, President Biden signed into law the PPP Extension Act of 2021, which set a deadline of May 31, 2021 for qualifying businesses to apply for a PPP loan, and provided an additional 30 days for the SBA to process pending PPP loan applications.

The Company’s business is dependent upon the willingness and ability of its employees and customers to conduct banking and other financial transactions. IfWhile it appears that economic conditions are trending in a positive direction as of June 30, 2021, should the global or national response to contain COVID-19 ~~escalates~~escalate further or isprove unsuccessful, the Company could experience a material adverse effect on its business, financial condition, results of operations and cash flows. While it is not possible to know the full universe or extent that the impact of COVID-19, and ~~resulting~~related measures to curtail its spread or to provide economic assistance to entities and individuals or otherwise stimulate the economy, will have on the Company’s operations, the Company discloses in this report potentially material items of which it is aware at the time this report is filed with the SEC.

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Financial position and results of operations

The Company’s interest income could be reduced due to COVID-19. In accordance with CARES Act provisions and regulatory guidance, the Company is ~~actively~~ working with COVID-19 affected borrowers to defer their payments, interest, and fees. While interest and fees will still accrue to income, through normal GAAP accounting, should eventual credit losses on these

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deferred payments emerge, interest income and fees accrued would need to be reversed. In such a scenario, interest income in future periods could be negatively impacted. At this time, the Company is unable to project the materiality of such an impact, but recognizes that the breadth of the economic impact of COVID-19 may affect its borrowers’ ability to repay in future periods.

The Company’s fee income could be reduced due to COVID-19. In keeping with guidance from regulators, the Company is actively working with COVID-19 affected customers to waive fees from a variety of sources, such as, but not limited to, insufficient funds and overdraft fees, ATM fees, account maintenance fees, etc. These reductions in fees are thought, at this time, to be temporary in conjunction with the length of the expected COVID-19 related economic crisis. At this time, the Company is unable to project the materiality of such an impact, but recognizes the breadth of the economic impact of COVID-19 is likely to impact its fee income in future periods.

Capital and liquidity

While the Company believes that it has sufficient capital to withstand ~~an extended~~the negative economic ~~recession brought about by~~impact of COVID-19, its reported and regulatory capital ratios could be adversely impacted by further credit losses. On July 28, 2020, the Company completed the private placement of $65.0 million of its subordinated notes with registration rights. The 5.75% fixed-to-floating rate subordinated notes are due July 2030. For regulatory capital purposes, the subordinated notes have been structured to qualify initially as Tier 2 Capital for the Company. The Company relies on cash on hand as well as dividends from its subsidiary bank to service its debt. If the Company’s capital deteriorates such that its subsidiary bank is unable to pay dividends to it for an extended period of time, the Company may not be able to service its debt. If ~~an extended recession causes~~ large numbers of the Company’s deposit customers to withdraw their funds, the Company might become more reliant on volatile or more expensive sources of funding.

Asset valuation

Currently, the Company does not expect COVID-19 to affect its ability to account timely for the assets on its balance sheet; however, this could change in future periods. While certain valuation assumptions and judgments will change to account for pandemic-related circumstances such as widening credit spreads, the Company does not anticipate significant changes in methodology used to determine the fair value of assets measured in accordance with GAAP.

Due to the economic impact that COVID-19 has had on the Company, management concluded that factors, such as the decline in macroeconomic conditions and a sustained decrease in share price, have led to the occurrence of a triggering event and therefore an interim impairment test over goodwill was performed as of June 30, 2020. As part of this interim impairment assessment, in the event that the Company concluded that all or a portion of its goodwill is impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital. Based upon the results of our interim goodwill assessment, we have concluded that an impairment did not exist as of the time of the assessment.

It is possible that the lingering effects of COVID-19 could cause the occurrence of what management would deem to be subsequent triggering events that could, under certain circumstances, cause us to perform a goodwill or intangible asset impairment test and result in an impairment charge being recorded for that period. In the event that the Company concludes that all or a portion of its goodwill or intangible assets ~~are~~is impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory ~~capital.~~

~~Processes, controls and business continuity plan~~

The Company has invoked its Business Continuity Plan that includes a remote working strategy. The Company does not anticipate incurring additional material costs related to its continued deployment of the remote working strategy. No material operationalcapital, cash flows or internal control challenges or risks have been identified to date. The Company does not anticipate significant challenges to its ability to maintain its systems and controls in light of the measures the Company has taken to prevent the spread of COVID-19. The Company does not currently face any material resource constraint through the implementation of its business continuity plans.liquidity position.

Credit

The Company is working with customers directly affected by COVID-19. The Company ~~is prepared~~has offered and continues to offer short-term assistance in accordance with regulatory guidelines. As a result of the current economic environment caused by the COVID-19 ~~virus,~~pandemic, the Company is engaging in more frequent communication with borrowers to better understand their ~~situation~~situations and the

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challenges faced, allowing it to respond proactively as needs and issues arise. ~~Should~~We acknowledge there are indicators that economic conditions are improving. However, should economic conditions worsen, the Company could experience further increases in its required ACL and record additional credit loss expense. It is possible that the Company’s asset quality measures could worsen atin future ~~measurement~~ periods if the effects of COVID-19 are prolonged.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect: (1) the reported amounts of assets and liabilities, (2) the disclosure of contingent assets and liabilities at the date of the financial statements, and (3) the reported amounts of revenues and expenses during the reporting period. These estimates are based on information available to management at the time the estimates are made. Actual results could differ from those estimates. The results for the six months ended June 30, ~~2020~~2021 may not be indicative of results for the year ending December 31, ~~2020,~~2021, or for any other period.

All significant accounting policies followed in the preparation of the quarterly financial statements are disclosed in the Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, filed with the SEC on March ~~6, 2020.~~11, 2021.

Segment Reporting

The Company’s activities are considered to be 1 reportable segment. The Company is engaged in the business of commercial and retail banking, and trust and investment ~~management~~services, with operations throughout Iowa, the Minneapolis/St. Paul metropolitan area of Minnesota, western Wisconsin, Naples and Fort Myers, Florida, and Denver, Colorado. Substantially all income is derived from a diverse base of commercial, mortgage and retail lending activities, and investments.

~~Allowance for Credit Losses~~

~~Debt Securities Available for Sale~~

For available for sale debt securities in an unrealized loss position, the Company evaluates the securities to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors. Any impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes. Credit-related impairment is recognized as an allowance for credit losses related to debt securities AFS on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings. Both the ACL and the adjustment to net income may be reversed if conditions change. However, if the Company intends to sell an impaired available for sale debt security or more likely than not will be required to sell such a security before recovering its amortized cost basis, the entire impairment amount must be recognized in earnings with a corresponding adjustment to the security’s amortized cost basis. Because the security’s amortized cost basis is adjusted to fair value, there is no ACL in this situation.

In evaluating available for sale debt securities in unrealized loss positions for impairment and the criteria regarding its intent or requirement to sell such securities, the Company considers the extent to which fair value is less than amortized cost, whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuers’ financial condition, among other factors.

Changes in the allowance for credit losses are recorded as credit loss expense (or reversal of credit loss expense). Losses are charged against the ACL when management believes the uncollectability of an available for sale debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

~~Accrued interest receivable is excluded from the estimate of credit losses.~~

~~Loans Held for Investment~~

Under the current expected credit loss model, the allowance for credit losses is a valuation account estimated at each balance sheet date and deducted from the amortized cost basis of loans held for investment to present the net amount expected to be collected.

The Company estimates the ACL based on the underlying assets’ amortized cost basis, which is the amount at which the financing receivable is originated or acquired, adjusted for collection of cash and charge-offs, as well as applicable accretion or amortization of premium, discount, and net deferred fees or costs. In the event that collection of principal becomes uncertain, the Company has policies in place to reverse accrued interest in a timely manner. Therefore, the Company has made a policy election to exclude accrued interest from the measurement of ACL.

Expected credit losses are reflected in the allowance for credit losses through a charge to credit loss expense. When the Company deems all or a portion of a financial asset to be uncollectible, the appropriate amount is written off and the ACL is reduced by the same amount. The Company applies judgment to determine when a financial asset is deemed uncollectible;

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however, generally speaking, an asset will be considered uncollectible no later than when all efforts at collection have been exhausted. Subsequent recoveries, if any, are credited to the ACL when received.

The Company measures expected credit losses of financial assets on a collective (pool) basis when the financial assets share similar risk characteristics. Depending on the nature of the pool of financial assets with similar risk characteristics, the Company uses a DCF method or a loss-rate method to estimate expected credit losses.

The Company’s methodologies for estimating the ACL consider available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. The methodologies apply historical loss information, adjusted for asset-specific characteristics, economic conditions at the measurement date, and forecasts about future economic conditions expected to exist through the contractual lives of the financial assets that are reasonable and supportable, to the identified pools of financial assets with similar risk characteristics for which the historical loss experience was observed. The Company’s methodologies revert back to historical loss driver information on a straight-line basis over four quarters when it can no longer develop reasonable and supportable forecasts. The Company adjusted the reversion period from the previously disclosed six quarters to four quarters based upon current forecasted conditions.

~~Discounted Cash Flow Method~~

The Company uses the DCF method to estimate expected credit losses for the agricultural, commercial and industrial, CRE - construction and development, CRE - farmland, CRE - multifamily, CRE - other, RRE - owner-occupied one-to-four family first liens, RRE - nonowner-occupied one-to-four family first liens, RRE - one-to-four family junior liens, and consumer loan pools. For each of these pools, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, curtailments, time to recovery, probability of default, and loss given default. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on historical internal data.

The Company uses regression analysis of historical internal and peer data to determine which variables are best suited to be economic variables utilized when modeling lifetime probability of default and loss given default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the economic variables. For the loan pools utilizing the DCF method, management utilizes one or multiple of the following economic variables: Midwest unemployment, national retail sales, CRE index, US rental vacancy rate, US gross domestic product, and national home price index (HPI).

For all DCF models, management has determined that four quarters represents a reasonable and supportable forecast period and reverts back to a historical loss rate over four quarters on a straight-line basis. Management leverages economic projections from a reputable and independent third party to inform its loss driver forecasts over the four quarter forecast period. Other internal and external indicators of economic forecasts are also considered by management when developing the forecast metrics.

The combination of adjustments for credit expectations (default and loss) and timing expectations (prepayment, curtailment, and time to recovery) produces an expected cash flow stream at the instrument level. Instrument effective yield is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce an instrument-level net present value of expected cash flows (“NPV”). An ACL is established for the difference between the instrument’s NPV and amortized cost basis. In addition, management utilizes qualitative factors to adjust the calculated ACL as appropriate. Qualitative factors are based on management's judgment of company, market, industry or business specific data, changes in underlying loan composition of specific portfolios, trends relating to credit quality, delinquency, non-performing and adversely rated loans, and reasonable and supportable forecasts of economic conditions.

~~Loss-Rate Method~~

The Company uses a loss-rate method to estimate expected credit losses for the credit card and overdraft pools. For each of these pools, the Company applies an expected loss ratio based on internal and peer historical losses, adjusted as appropriate for qualitative factors. Qualitative loss factors are based on management's judgment of company, market, industry or business specific data, changes in underlying loan composition of specific portfolios, trends relating to credit quality, delinquency, non-performing and adversely rated loans, and reasonable and supportable forecasts of economic conditions.

~~Collateral Dependent Financial Assets~~

Loans that do not share risk characteristics are evaluated on an individual basis. For collateral dependent financial assets where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial

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difficulty and the Company expects repayment of the financial asset to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date. When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the present value of expected cash flows from the operation of the collateral. When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized costs basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The ACL may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset.

The Company’s estimate of the ACL reflects losses expected over the remaining contractual life of the assets. The contractual term does not consider extensions, renewals or modifications unless the Company has identified an expected TDR.

A loan that has been modified or renewed is considered a TDR when two conditions are met: 1) the borrower is experiencing financial difficulty and 2) concessions are made for the borrower's benefit that would not otherwise be considered for a borrower or transaction with similar credit risk characteristics. The Company’s ACL reflects all effects of a TDR when an individual asset is specifically identified as a reasonably expected TDR. The Company has determined that a TDR is reasonably expected no later than the point when the lender concludes that modification is the best course of action and it is at least reasonably possible that the troubled borrower will accept some form of concession from the lender to avoid a default. Reasonably expected TDRs and executed non-performing TDRs are evaluated individually to determine the required ACL. TDRs performing in accordance with their modified contractual terms for a reasonable period of time may be included in the Company’s existing pools based on the underlying risk characteristics of the loan to measure the ACL.

~~Guidance on Non-TDR Loan Modifications due to COVID-19~~

Section 4013 of the CARES Act, “Temporary Relief From Troubled Debt Restructurings,” allows financial institutions the option to temporarily suspend certain requirements under U.S. GAAP related to TDRs for a limited period of time during the COVID-19 pandemic. In March 2020, various regulatory agencies, including the FRB and the FDIC, issued an interagency statement, effective immediately, on loan modifications and reporting for financial institutions working with customers affected by COVID-19. The agencies confirmed with the staff of the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not to be considered TDRs. This includes short-term (e.g., six months) modifications, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented.

~~Liability for Off-Balance Sheet Credit Losses~~

Financial instruments include off-balance sheet credit losses, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.

The Company recognizes a liability for off-balance sheet credit losses, unless the commitments to extend credit are unconditionally cancellable, through a charge to credit loss expense for off-balance sheet credit losses included in credit loss expense in the Company’s consolidated statements of income. The liability for off-balance sheet credit losses is estimated by loan segment at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur, and is included in other liabilities on the Company’s consolidated balance sheets.

2. Effect of New Financial Accounting Standards

~~Accounting Guidance Adopted in 2019~~

~~On January 1, 2020, the Company adopted ASU 2016-13~~ ~~Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables. It is also applied to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases. In addition, ASC 326 made changes to the accounting for AFS debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on AFS debt securities that management does not intend to sell or believes that it is more likely than not they will be required to sell.

~~Table of Contents~~

The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance-sheet credit exposures. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a net decrease to retained earnings of $5.4 million as of January 1, 2020 for the cumulative effect of adopting ASC 326. The transition adjustment includes a $4.0 million impact due to the increase in ACL related to loans, a $3.4 million impact due the establishment of the allowance for unfunded commitments, and a $1.9 million impact on deferred taxes.

The Company adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration that were previously classified as PCI and accounted for under ASC 310-30. In accordance with the standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. On January 1, 2020, the amortized cost basis of the PCD assets were adjusted to reflect the addition of $119 thousand to the ACL. The remaining noncredit discount will be accreted into interest income at the effective interest rate as of January 1, 2020.

~~The following table illustrates the impact of ASC 326 on the allowance for credit losses on loans and the liability for off-balance sheet credit exposures:~~

January 1, 2020
Pre-ASC 326 Adoption Impact of ASC 326 Adoption As Reported Under ASC 326
(in thousands)
Assets:
Loans
Agricultural $ 3,748 $ (2,557) $ 1,191
Commercial and industrial 8,394 2,728 11,122
Commercial real estate 13,804 1,300 15,104
Residential real estate 2,685 2,050 4,735
Consumer 448 463 911
Allowance for credit losses on loans $ 29,079 $ 3,984 $ 33,063
Liabilities:
Liability for off-balance sheet credit exposures $ — $ 3,433 $ 3,433

~~In August 2018, the FASB issued ASU No. 2018-13,~~ ~~Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement.~~ The amendments in this update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, including the consideration of costs and benefits. Four disclosure requirements were removed, three were modified, and two were added. In addition, the amendments eliminate “~~at a minimum”~~ ~~from the phrase “an entity shall disclose at a minimum”~~ to promote the appropriate exercise of discretion by entities when considering fair value measurement disclosures and to clarify that materiality is an appropriate consideration of entities and their auditors when evaluating disclosure requirements. The amendments in this update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.

Accounting Guidance Pending Adoption at June 30, ~~2020~~2021

On March 12, 2020, the FASB issued ASU 2020-04, Reference Rate Reform (ASC 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASC 848 contains optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform. Entities may apply the provision as of the beginning of the reporting period when the election is made ~~and are available~~ until December 31, 2022. The Company is currently evaluating the impact of ASU 2020-04.

~~Table of Contents~~

3.2. Debt Securities

The amortized cost and fair value of investment debt securities AFS, with gross unrealized gains and losses, were as follows:


	As of June 30, 2021
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Loss related to Debt Securities		Fair Value

U.S. Government agencies and corporations	$	313	$	3	$	0	$	0	$	316
State and political subdivisions	685,287		12,562		2,975		0		694,874
Mortgage-backed securities	115,636		1,673		355		0		116,954
Collateralized mortgage obligations	813,004		3,561		8,491		0		808,074
Corporate debt securities	444,913		9,288		1,967		0		452,234
Total debt securities	$	2,059,153	$	27,087	$	13,788	$	0	$	2,072,452

As of June 30, 2020
(in thousands) Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Allowance for Credit Loss related to Debt Securities Estimated Fair Value
U.S. Government agencies and corporations $ 402 $ 8 $ — $ — $ 410
State and political subdivisions 424,935 10,317 1,206 — 434,046
Mortgage-backed securities 77,944 1,742 1 — 79,685
Collateralized mortgage obligations 352,318 8,148 438 — 360,028
Corporate debt securities 305,797 8,387 898 — 313,286
Total debt securities $ 1,161,396 $ 28,602 $ 2,543 $ — $ 1,187,455

As of December 31, 2019
(in thousands)
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
U.S. Government agencies and corporations $ 439 $ 2 $ — $ 441
State and political subdivisions 253,750 3,803 348 257,205
Mortgage-backed securities 43,009 536 15 43,530
Collateralized mortgage obligations 293,911 1,000 1,965 292,946
Corporate debt securities 188,952 3,018 115 191,855
Total debt securities $ 780,061 $ 8,359 $ 2,443 $ 785,977


	As of December 31, 2020
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Loss related to Debt Securities		Fair Value

U.S. Government agencies and corporations	$	355	$	6	$	0	$	0	$	361
State and political subdivisions	611,666		17,163		483		0		628,346
Mortgage-backed securities	92,261		1,758		1		0		94,018
Collateralized mortgage obligations	559,718		6,332		214		0		565,836
Corporate debt securities	360,103		9,333		616		0		368,820
Total debt securities	$	1,624,103	$	34,592	$	1,314	$	0	$	1,657,381

Investment securities with a ~~carrying~~fair value of ~~$377.8~~$509.6 million and ~~$264.8~~$434.7 million at June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, were pledged on public deposits, securities sold under agreements to repurchase and for other purposes, as required or permitted by law.

The following table presents debt securities AFS in an unrealized loss position for which an allowance for credit losses has not been recorded at June 30, ~~2020,~~2021, aggregated by investment category and length of time in a continuous loss position:


			As of June 30, 2020																																				As of June 30, 2021
		Number of Securities	Less than 12 Months									12 Months or More										Total								Number of Securities			Less than 12 Months						12 Months or More			Total
Available for Sale	Available for Sale				Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses		Available for Sale	Number of Securities			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses
(in thousands, except number of securities)	(in thousands, except number of securities)																			(in thousands, except number of securities)

State and political subdivisions	State and political subdivisions	63	$	41,403		$	1,206		$	—		$	—		$	41,403		$	1,206	State and political subdivisions	96			$	201,496		$	2,845		$	7,485		$	130		$	208,981		$	2,975
Mortgage-backed securities	Mortgage-backed securities	5	286			1			16			—			302			1		Mortgage-backed securities	6			18,643			355			—			0			18,643			355
Collateralized mortgage obligations	Collateralized mortgage obligations	3	31,044			438			—			—			31,044			438		Collateralized mortgage obligations	32			600,050			8,491			0			0			600,050			8,491
Corporate debt securities	Corporate debt securities	20	42,034			796			4,820			102			46,854			898		Corporate debt securities	17			118,649			1,810			750			157			119,399			1,967
Total	Total	91	$	114,767		$	2,441		$	4,836		$	102		$	119,603		$	2,543	Total	151			$	938,838		$	13,501		$	8,235		$	287		$	947,073		$	13,788

As of June 30, ~~2020, 63~~2021, 96 state and political subdivisions securities with total unrealized losses of ~~$1.2~~$3.0 million were held by the Company. Management evaluated these securities ~~by considering the yield spread to treasury securities,~~through a process that included consideration of credit agency ratings and payment history. In addition, management ~~evaluated~~may evaluate securities by considering the yield spread to treasury securities and the most recent financial information ~~available for certain of these securities.~~available. Based on this evaluation, management concluded that the decline in fair value was not attributable to credit losses.

Table of Contents

As of June 30, ~~2020, 5~~2021, 6 mortgage-backed securities and 332 collateralized mortgage obligations with unrealized losses totaling $8.8 million were held by the Company. Management evaluated the payment history of these securities. In addition, management considered the implied U.S. government guarantee of these agency securities and the level of credit enhancement for non-agency securities. Based on this evaluation, management concluded that the decline in fair value was not attributable to credit losses.

As of June 30, ~~2020, 20~~2021, 17 corporate debt securities with total unrealized losses of ~~$0.9~~$2.0 million were held by the Company. Management evaluated these securities by considering credit agency ratings and payment history. In addition, management ~~evaluated~~may evaluate securities by considering the yield spread to treasury securities and the most recent financial information ~~available for certain of these securities.~~available. Based on this evaluation, management concluded that the decline in fair value was not attributable to credit losses.

Accrued interest receivable on available for sale debt securities, which is recorded within 'Other Assets,' totaled ~~$5.6~~$8.4 million at June 30, 2021 and $7.3 million at December 31, 2020 and is excluded from the estimate of credit losses.

~~Table of Contents~~

The following table presents ~~information pertaining to~~ debt securities ~~with gross~~AFS in an unrealized loss position for which an allowance for credit losses ~~as of~~has not been recorded at December 31, ~~2019,~~2020, aggregated by investment category and length of time ~~that individual securities have been~~ in a continuous loss position:

As of December 31, 2019
Available for Sale
Number
of
Securities
Less than 12 Months 12 Months or More Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
(in thousands, except number of securities)
State and political subdivisions 47 $ 27,161 $ 322 $ 2,112 $ 26 $ 29,273 $ 348
Mortgage-backed securities 7 963 12 1,365 3 2,328 15
Collateralized mortgage obligations 33 103,395 719 65,604 1,246 168,999 1,965
Corporate debt securities 7 7,012 14 8,788 101 15,800 115
Total 94 $ 138,531 $ 1,067 $ 77,869 $ 1,376 $ 216,400 $ 2,443


		As of December 31, 2020
Available for Sale	Number of Securities	Less than 12 Months				12 Months or More				Total
		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
(in thousands, except number of securities)


State and political subdivisions	27	$	31,489	$	157	$	4,065	$	326	$	35,554	$	483
Mortgage-backed securities	7	315		1		0		0		315		1
Collateralized mortgage obligations	8	133,032		214		0		0		133,032		214
Corporate debt securities	15	35,995		523		3,311		93		39,306		616
Total	57	$	200,831	$	895	$	7,376	$	419	$	208,207	$	1,314

Proceeds and gross realized gains and losses on debt securities available for sale for the three ~~months~~ and six months ended June 30, ~~2020~~2021 and ~~2019~~2020 were as follows:

Three Months Ended Six Months Ended
(in thousands) June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019
Proceeds from sales of debt securities available for sale $ — $ 118,134 $ 22,140 $ 125,414
Gross realized gains from sales of debt securities available for sale — 79 155 105
Gross realized losses from sales of debt securities available for sale — (45) (113) (54)
Net realized gain from sales of debt securities available for sale $ — $ 34 $ 42 $ 51


	Three Months Ended				Six Months Ended
(in thousands)	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Proceeds from sales of debt securities available for sale	$	41,411	$	0	$	41,411	$	22,140

Gross realized gains from sales of debt securities available for sale	824		0		824		155
Gross realized losses from sales of debt securities available for sale	(791)		0		(791)		(113)
Net realized gain from sales of debt securities available for sale(1)	$	33	$	0	$	33	$	42

(1) The difference in investment security gains, net reported herein as compared to the Consolidated Statements of Income is associated with the net realized gain from the call or maturity of debt securities of $9.0 thousand and $36.0 thousand for the three and six months ended ended June 30, 2021, respectively, and $6.0 thousand for each of the three and six months ended June 30, 2020.

The contractual maturity distribution of investment debt securities at June 30, ~~2020,~~2021, is shown below. Expected maturities of MBS and CMO may differ from contractual maturities because the mortgages underlying the securities may be called or prepaid without any penalties. Therefore, these securities are not included in the maturity categories in the following summary.

Available For Sale
(in thousands) Amortized Cost Fair Value
Due in one year or less $ 56,816 $ 57,396
Due after one year through five years 250,000 257,274
Due after five years through ten years 206,548 211,367
Due after ten years 217,770 221,705
$ 731,134 $ 747,742
Mortgage-backed securities 77,944 79,685
Collateralized mortgage obligations 352,318 360,028
Total $ 1,161,396 $ 1,187,455


	Available For Sale
(in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	44,542	$	45,142
Due after one year through five years	289,759		296,104
Due after five years through ten years	461,564		465,685
Due after ten years	334,648		340,493
	$	1,130,513	$	1,147,424
Mortgage-backed securities	115,636		116,954
Collateralized mortgage obligations	813,004		808,074
Total	$	2,059,153	$	2,072,452

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4.3. Loans Receivable and the Allowance for Credit Losses

The composition of loans by class of receivable was as follows:


		As of							As of
(in thousands)	(in thousands)	June 30, 2020		December 31, 2019		(in thousands)	June 30, 2021		December 31, 2020
Agricultural	Agricultural	$	140,837	$	140,446	Agricultural	$	107,834	$	116,392
Commercial and industrial	Commercial and industrial	1,084,527		835,236		Commercial and industrial	982,092		1,055,488
Commercial real estate:	Commercial real estate:					Commercial real estate:
Construction & development	Construction & development	199,950		298,077		Construction & development	168,070		181,291
Farmland	Farmland	161,897		181,885		Farmland	134,877		144,970
Multifamily	Multifamily	247,403		227,407		Multifamily	255,826		256,525
Commercial real estate-other	Commercial real estate-other	1,155,489		1,107,490		Commercial real estate-other	1,147,016		1,149,575
Total commercial real estate	Total commercial real estate	1,764,739		1,814,859		Total commercial real estate	1,705,789		1,732,361
Residential real estate:	Residential real estate:					Residential real estate:
One- to four- family first liens	One- to four- family first liens	377,100		407,418		One- to four- family first liens	332,117		355,684
One- to four- family junior liens	One- to four- family junior liens	155,814		170,381		One- to four- family junior liens	136,464		143,422
Total residential real estate	Total residential real estate	532,914		577,799		Total residential real estate	468,581		499,106
Consumer	Consumer	74,022		82,926		Consumer	65,860		78,876
Loans held for investment, net of unearned income	Loans held for investment, net of unearned income	3,597,039		3,451,266		Loans held for investment, net of unearned income	3,330,156		3,482,223
Allowance for credit losses	Allowance for credit losses	(55,644)		(29,079)		Allowance for credit losses	(48,000)		(55,500)
Total loans held for investment, net	Total loans held for investment, net	$	3,541,395	$	3,422,187	Total loans held for investment, net	$	3,282,156	$	3,426,723

Loans with unpaid principal in the amount of ~~$889.3~~$822.0 million and ~~$945.9~~$830.2 million at June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, were pledged to the FHLB as collateral for borrowings.

Non-accrual and Delinquent Status

Loans are placed on non-accrual when (1) payment in full of principal and interest is no longer expected or (2) principal or interest has been in default for 90 days or more unless the loan is both well secured with marketable collateral and in the process of collection. All loans rated doubtful or worse, and certain loans rated substandard, are placed on non-accrual.

A non-accrual loan may be restored to an accrual status when (1) all past due principal and interest has been paid (excluding renewals and modifications that involve the capitalizing of interest) or (2) the loan becomes well secured with marketable collateral and is in the process of collection. An established track record of performance is also considered when determining accrual status.

Loans are considered past due or delinquent when the contractual principal or interest due in accordance with the terms of the loan agreement or any portion thereof remains unpaid after the due date of the scheduled payment.

~~As of June 30, 2020, the Company had 0 commitments to lend additional funds to borrowers who have a nonaccrual loan.~~

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The following table presents the amortized cost basis of loans based on delinquency status:


				Age Analysis of Past-Due Financial Assets															90 Days or More Past Due And Accruing					Age Analysis of Past-Due Financial Assets									90 Days or More Past Due And Accruing
(in thousands)	(in thousands)	Current		30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or More Past Due		Total				90 Days or More Past Due And Accruing		(in thousands)	Current			30 - 59 Days Past Due			60 - 89 Days Past Due			90 Days or More Past Due			Total			90 Days or More Past Due And Accruing
June 30, 2020
June 30, 2021														June 30, 2021
Agricultural	Agricultural	$	138,409	$	522	$	351	$	1,555	$	140,837	$	—	Agricultural	$	106,390		$	417		$	69		$	958		$	107,834		$	0
Commercial and industrial	Commercial and industrial	1,078,603		245		1,134		4,545		1,084,527		35		Commercial and industrial	978,508			732			63			2,789			982,092			0
Commercial real estate:	Commercial real estate:													Commercial real estate:
Construction and development	Construction and development	194,965		3,663		707		615		199,950		—		Construction and development	167,474			0			0			596			168,070			0
Farmland	Farmland	151,530		388		1,221		8,758		161,897		—		Farmland	130,835			649			27			3,366			134,877			0
Multifamily	Multifamily	247,403		—		—		—		247,403		—		Multifamily	254,440			1,386			0			0			255,826			0
Commercial real estate-other	Commercial real estate-other	1,147,912		1,432		—		6,145		1,155,489		—		Commercial real estate-other	1,141,031			352			46			5,587			1,147,016			0
Total commercial real estate	Total commercial real estate	1,741,810		5,483		1,928		15,518		1,764,739		—		Total commercial real estate	1,693,780			2,387			73			9,549			1,705,789			0
Residential real estate:	Residential real estate:													Residential real estate:
One- to four- family first liens	One- to four- family first liens	368,201		2,142		1,740		5,017		377,100		3,197		One- to four- family first liens	328,847			1,929			511			830			332,117			664
One- to four- family junior liens	One- to four- family junior liens	154,769		552		259		234		155,814		—		One- to four- family junior liens	136,113			237			9			105			136,464			0
Total residential real estate	Total residential real estate	522,970		2,694		1,999		5,251		532,914		3,197		Total residential real estate	464,960			2,166			520			935			468,581			664
Consumer	Consumer	73,768		136		13		105		74,022		6		Consumer	65,724			76			48			12			65,860			1
Total	Total	$	3,555,560	$	9,080	$	5,425	$	26,974	$	3,597,039	$	3,238	Total	$	3,309,362		$	5,778		$	773		$	14,243		$	3,330,156		$	665

December 31, 2019
December 31, 2020														December 31, 2020
Agricultural	Agricultural	$	137,715	$	975	$	—	$	1,756	$	140,446	$	—	Agricultural	$	115,284		$	8		$	45		$	1,055		$	116,392		$	0
Commercial and industrial	Commercial and industrial	828,842		846		270		5,278		835,236		—		Commercial and industrial	1,051,727			477			333			2,951			1,055,488			106
Commercial real estate:	Commercial real estate:													Commercial real estate:
Construction and development	Construction and development	294,995		2,256		621		205		298,077		—		Construction and development	180,059			586			42			604			181,291			0
Farmland	Farmland	175,281		362		—		6,242		181,885		—		Farmland	138,798			226			324			5,622			144,970			0
Multifamily	Multifamily	227,013		394		—		—		227,407		—		Multifamily	256,525			0			0			0			256,525			0
Commercial real estate-other	Commercial real estate-other	1,102,504		1,965		347		2,674		1,107,490		—		Commercial real estate-other	1,132,015			11,514			318			5,728			1,149,575			0
Total commercial real estate	Total commercial real estate	1,799,793		4,977		968		9,121		1,814,859		—		Total commercial real estate	1,707,397			12,326			684			11,954			1,732,361			0
Residential real estate:	Residential real estate:													Residential real estate:
One- to four- family first liens	One- to four- family first liens	402,471		2,579		857		1,511		407,418		99		One- to four- family first liens	351,370			2,062			566			1,686			355,684			625
One- to four- family junior liens	One- to four- family junior liens	169,592		518		108		163		170,381		25		One- to four- family junior liens	142,663			377			234			148			143,422			0
Total residential real estate	Total residential real estate	572,063		3,097		965		1,674		577,799		124		Total residential real estate	494,033			2,439			800			1,834			499,106			625
Consumer	Consumer	82,558		150		80		138		82,926		12		Consumer	78,747			43			39			47			78,876			8
Total	Total	$	3,420,971	$	10,045	$	2,283	$	17,967	$	3,451,266	$	136	Total	$	3,447,188		$	15,293		$	1,901		$	17,841		$	3,482,223		$	739

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The following table presents the amortized cost basis of loans on non-accrual status, amortized cost basis of loans on non-accrual status with no allowance for credit losses recorded, and loans past due 90 days or more and still accruing by class of loan as of June 30, 2021 and ~~related~~December 31, 2020:


	Nonaccrual				Nonaccrual with no Allowance for Credit Losses				90 Days or More Past Due And Accruing
(in thousands)	June 30, 2021		December 31, 2020		June 30, 2021		December 31, 2020		June 30, 2021		December 31, 2020

Agricultural	$	2,086	$	2,584	$	1,381	$	1,599	$	0	$	0
Commercial and industrial	6,395		7,326		3,858		4,349		0		106
Commercial real estate:
Construction and development	609		1,145		596		900		0		0
Farmland	10,280		8,319		9,616		7,266		0		0
Multifamily	1,073		746		377		39		0		0
Commercial real estate-other	17,802		19,134		1,732		2,497		0		0
Total commercial real estate	29,764		29,344		12,321		10,702		0		0
Residential real estate:
One- to four- family first liens	1,762		1,895		344		75		664		625
One- to four- family junior liens	695		722		0		1		0		0
Total residential real estate	2,457		2,617		344		76		664		625
Consumer	62		79		8		13		1		8
Total	$	40,764	$	41,950	$	17,912	$	16,739	$	665	$	739

The interest income ~~recognized:~~recognized on loans that were on nonaccrual for the three months ended June 30, 2021 and June 30, 2020 was $367 thousand and $124 thousand, respectively. The interest income recognized on loans that were on nonaccrual for the six months ended June 30, 2021 and June 30, 2020 was $603 thousand and $396 thousand, respectively.

Three Months Ended June 30, Six Months Ended June 30,
(in thousands) Beginning of Period Nonaccrual End of Period Nonaccrual Nonaccrual with no Allowance for Credit Losses 90 Days or More Past Due And Accruing Interest Income Recognized on Nonaccrual Interest Income Recognized on Nonaccrual
As of and for the Three and Six Months Ended June 30, 2020
Agricultural $ 2,894 $ 3,187 $ 1,611 $ — $ 16 $ 80
Commercial and industrial 13,276 10,041 5,104 35 45 101
Commercial real estate:
Construction and development 1,494 879 701 — 6 41
Farmland 10,402 14,178 12,593 — 9 93
Multifamily — — — — — 1
Commercial real estate-other 10,141 9,980 3,099 — 3 24
Total commercial real estate 22,037 25,037 16,393 — 18 159
Residential real estate:
One- to four- family first liens 2,557 2,293 207 3,197 33 41
One- to four- family junior liens 513 583 1 — 6 7
Total residential real estate 3,070 2,876 208 3,197 39 48
Consumer 206 162 13 6 6 8
Total $ 41,483 $ 41,303 $ 23,329 $ 3,238 $ 124 $ 396

Credit Quality Information

The Company aggregates loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as: current financial information, historical payment experience, credit documentation, and other factors. The Company analyzes loans individually to classify the loans as to credit risk. This analysis includes non-homogenous loans, such as agricultural, commercial and industrial, and commercial real estate loans. Loans not meeting the criteria described below that are analyzed individually are considered to be pass-rated. The Company uses the following definitions for risk ratings:

Special Mention/Watch - A special mention/watch asset has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date. Special mention/watch assets are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

Substandard - Substandard loans are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

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

Loss- Loans classified as loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.

Homogenous loans, including residential real estate and consumer loans, are not individually risk rated. Instead, these loans are categorized based on performance: performing and nonperforming. Nonperforming loans include those loans on nonaccrual and loans greater than 90 days past due and on ~~accrual, and TDRs on~~ accrual.

1713

Table of Contents

The following table sets forth the amortized cost basis of loans by class of receivable by credit quality indicator and vintage based on the most recent analysis performed, as of June 30, ~~2020.~~2021. As of June 30, ~~2020,~~2021, there were no 'loss' rated credits.

Term Loans by Origination Year Revolving Loans
June 30, 2020
(in thousands)
2020 2019 2018 2017 2016 Prior Total
Agricultural
Pass $ 21,013 $ 11,300 $ 4,898 $ 2,906 $ 2,753 $ 3,067 $ 71,689 $ 117,626
Special mention / watch 5,905 1,422 125 113 600 1,253 6,206 15,624
Substandard 1,093 1,282 2 191 131 227 4,661 7,587
Doubtful — — — — — — — —
Total $ 28,011 $ 14,004 $ 5,025 $ 3,210 $ 3,484 $ 4,547 $ 82,556 $ 140,837
Commercial and industrial
Pass $ 486,629 $ 114,316 $ 70,083 $ 77,159 $ 44,088 $ 114,435 $ 125,003 $ 1,031,713
Special mention / watch 5,018 1,309 1,953 4,243 906 3,356 18,615 35,400
Substandard 3,036 2,569 752 974 624 4,416 5,043 17,414
Doubtful — — — — — — — —
Total $ 494,683 $ 118,194 $ 72,788 $ 82,376 $ 45,618 $ 122,207 $ 148,661 $ 1,084,527
CRE - Construction and development
Pass $ 50,048 $ 76,696 $ 25,444 $ 8,655 $ 1,932 $ 1,308 $ 26,494 $ 190,577
Special mention / watch 4,159 1,688 775 — 14 34 — 6,670
Substandard 735 1,919 — — — 49 — 2,703
Doubtful — — — — — — — —
Total $ 54,942 $ 80,303 $ 26,219 $ 8,655 $ 1,946 $ 1,391 $ 26,494 $ 199,950
CRE - Farmland
Pass $ 37,140 $ 32,227 $ 14,315 $ 15,023 $ 10,590 $ 18,171 $ 2,257 $ 129,723
Special mention / watch 2,244 4,584 1,290 1,953 1,237 587 353 12,248
Substandard 2,732 3,632 4,339 1,729 449 6,051 994 19,926
Doubtful — — — — — — — —
Total $ 42,116 $ 40,443 $ 19,944 $ 18,705 $ 12,276 $ 24,809 $ 3,604 $ 161,897
CRE - Multifamily
Pass $ 109,637 $ 17,948 $ 18,346 $ 37,740 $ 16,722 $ 32,726 $ 12,788 $ 245,907
Special mention / watch 348 — — — 78 — — 426
Substandard 716 354 — — — — — 1,070
Doubtful — — — — — — — —
Total $ 110,701 $ 18,302 $ 18,346 $ 37,740 $ 16,800 $ 32,726 $ 12,788 $ 247,403
CRE - other
Pass $ 385,335 $ 129,669 $ 84,625 $ 106,504 $ 81,037 $ 147,048 $ 50,888 $ 985,106
Special mention / watch 85,815 24,505 6,821 6,526 4,537 5,671 199 134,074
Substandard 24,446 1,480 6,296 1,246 604 2,101 136 36,309
Doubtful — — — — — — — —
Total $ 495,596 $ 155,654 $ 97,742 $ 114,276 $ 86,178 $ 154,820 $ 51,223 $ 1,155,489
RRE - One- to four- family first liens
Performing $ 71,419 $ 61,180 $ 52,230 $ 47,208 $ 43,567 $ 85,959 $ 10,046 $ 371,609
Nonperforming 17 67 588 1,092 930 2,797 — 5,491
Total $ 71,436 $ 61,247 $ 52,818 $ 48,300 $ 44,497 $ 88,756 $ 10,046 $ 377,100
RRE - One- to four- family junior liens
Performing $ 3,687 $ 12,453 $ 16,629 $ 8,207 $ 4,343 $ 7,568 $ 102,345 $ 155,232
Nonperforming — — — 32 250 229 71 582
Total $ 3,687 $ 12,453 $ 16,629 $ 8,239 $ 4,593 $ 7,797 $ 102,416 $ 155,814
Consumer
Performing $ 12,933 $ 19,438 $ 14,079 $ 6,857 $ 3,607 $ 6,203 $ 10,743 $ 73,860
Nonperforming — 38 49 24 14 37 — 162
Total $ 12,933 $ 19,476 $ 14,128 $ 6,881 $ 3,621 $ 6,240 $ 10,743 $ 74,022


	Term Loans by Origination Year												Revolving Loans
June 30, 2021 (in thousands)	2021		2020		2019		2018		2017		Prior				Total
Agricultural
Pass	$	23,338	$	11,915	$	5,413	$	1,782	$	1,353	$	2,109	$	48,404		$	94,314
Special mention / watch	1,730		1,612		874		—		76		1,034		4,264			9,590
Substandard	265		1,313		140		229		164		299		1,520			3,930
Doubtful	0		—		0		0		0		—		0			0
Total	$	25,333	$	14,840	$	6,427	$	2,011	$	1,593	$	3,442	$	54,188		$	107,834
Commercial and industrial
Pass	$	227,143	$	298,502	$	87,470	$	44,810	$	59,602	$	110,679	$	127,986		$	956,192
Special mention / watch	6,649		2,285		493		163		475		223		2,731			13,019
Substandard	2,487		2,186		1,093		833		367		3,534		2,380			12,880
Doubtful	0		0		0		0		1		—		—			1
Total	$	236,279	$	302,973	$	89,056	$	45,806	$	60,445	$	114,436	$	133,097		$	982,092
CRE - Construction and development
Pass	$	32,005	$	80,144	$	23,982	$	3,905	$	1,896	$	2,863	$	20,016		$	164,811
Special mention / watch	565		—		174		532		0		1		0			1,272
Substandard	0		910		1,060		0		0		17		0			1,987
Doubtful	0		0		0		0		0		0		0			0
Total	$	32,570	$	81,054	$	25,216	$	4,437	$	1,896	$	2,881	$	20,016		$	168,070
CRE - Farmland
Pass	$	20,944	$	38,762	$	20,864	$	5,297	$	6,516	$	13,695	$	1,161		$	107,239
Special mention / watch	1,826		4,617		3,963		1,428		297		234		147			12,512
Substandard	4,476		2,500		1,783		2,336		1,668		2,333		30			15,126
Doubtful	0		0		0		0		0		0		0			0
Total	$	27,246	$	45,879	$	26,610	$	9,061	$	8,481	$	16,262	$	1,338		$	134,877
CRE - Multifamily
Pass	$	68,924	$	135,555	$	16,456	$	2,833	$	7,305	$	5,861	$	8,771		$	245,705
Special mention / watch	0		342		0		5,940		0		43		0			6,325
Substandard	0		2,459		0		0		0		1,337		0			3,796
Doubtful	0		0		0		0		0		0		0			0
Total	$	68,924	$	138,356	$	16,456	$	8,773	$	7,305	$	7,241	$	8,771		$	255,826
CRE - other
Pass	$	181,839	$	458,518	$	114,186	$	42,458	$	69,239	$	93,469	$	43,461		$	1,003,170
Special mention / watch	4,731		47,407		2,554		11,702		1,869		4,152		281			72,696
Substandard	3,383		40,572		12,659		6,245		983		7,308		—			71,150
Doubtful	0		0		0		0		0		0		0			0
Total	$	189,953	$	546,497	$	129,399	$	60,405	$	72,091	$	104,929	$	43,742		$	1,147,016
RRE - One- to four- family first liens
Performing	$	57,206	$	91,648	$	34,651	$	30,668	$	21,425	$	89,014	$	5,079		$	329,691
Nonperforming	489		394		0		675		166		702		0			2,426
Total	$	57,695	$	92,042	$	34,651	$	31,343	$	21,591	$	89,716	$	5,079		$	332,117
RRE - One- to four- family junior liens
Performing	$	23,372	$	15,553	$	5,696	$	7,761	$	4,787	$	6,289	$	72,311		$	135,769
Nonperforming	0		0		143		181		15		206		150			695
Total	$	23,372	$	15,553	$	5,839	$	7,942	$	4,802	$	6,495	$	72,461		$	136,464
Consumer
Performing	$	18,089	$	21,267	$	9,114	$	6,284	$	2,665	$	6,083	$	2,295		$	65,797
Nonperforming	0		3		19		9		16		16		0			63
Total	$	18,089	$	21,270	$	9,133	$	6,293	$	2,681	$	6,099	$	2,295		$	65,860

1814

Table of Contents


		Term Loans by Origination Year																								Revolving Loans								Term Loans by Origination Year								Revolving Loans
		2020		2019		2018		2017		2016		Prior				Total		Revolving Loans			2021			2020			2019			2018			2017			Prior			Revolving Loans	Total
Total by Credit Quality Indicator Category	Total by Credit Quality Indicator Category
Pass	Pass	$	1,089,802	$	382,156	$	217,711	$	247,987	$	157,122	$	316,755	$	289,119	$	2,700,652	Pass	$	554,193		$	1,023,396		$	268,371		$	101,085		$	145,911		$	228,676		$	249,799		$	2,571,431
Special mention / watch	Special mention / watch	103,489		33,508		10,964		12,835		7,372		10,901		25,373		204,442		Special mention / watch	15,501			56,263			8,058			19,765			2,717			5,687			7,423			115,414
Substandard	Substandard	32,758		11,236		11,389		4,140		1,808		12,844		10,834		85,009		Substandard	10,611			49,940			16,735			9,643			3,182			14,828			3,930			108,869
Doubtful	Doubtful	—		—		—		—		—		—		—		—		Doubtful	0			—			0			0			1			—			—			1
Performing	Performing	88,039		93,071		82,938		62,272		51,517		99,730		123,134		600,701		Performing	98,667			128,468			49,461			44,713			28,877			101,386			79,685			531,257
Nonperforming	Nonperforming	17		105		637		1,148		1,194		3,063		71		6,235		Nonperforming	489			397			162			865			197			924			150			3,184
Total	Total	$	1,314,105	$	520,076	$	323,639	$	328,382	$	219,013	$	443,293	$	448,531	$	3,597,039	Total	$	679,461		$	1,258,464		$	342,787		$	176,071		$	180,885		$	351,501		$	340,987		$	3,330,156

Table of Contents

The following table sets forth the ~~risk category~~amortized cost basis of loans by class of ~~loans and~~receivable by credit quality indicator ~~used~~and vintage based on the most recent analysis performed, as of December 31, ~~2019:~~2020. As of December 31, 2020, there were no 'loss' rated credits.


	Term Loans by Origination Year												Revolving Loans
December 31, 2020 (in thousands)	2020		2019		2018		2017		2016		Prior				Total
Agricultural
Pass	$	17,836	$	6,959	$	2,764	$	2,145	$	1,386	$	1,833	$	60,802		$	93,725
Special mention / watch	4,892		1,083		117		108		553		1,103		7,210			15,066
Substandard	4,075		650		258		183		121		226		2,086			7,599
Doubtful	1		0		0		0		0		1		0			2
Total	$	26,804	$	8,692	$	3,139	$	2,436	$	2,060	$	3,163	$	70,098		$	116,392
Commercial and industrial
Pass	$	546,171	$	105,523	$	57,055	$	61,753	$	38,695	$	92,526	$	120,498		$	1,022,221
Special mention / watch	3,410		572		497		2,261		611		112		4,796			12,259
Substandard	5,014		1,539		928		656		461		3,261		9,144			21,003
Doubtful	0		0		0		1		0		3		1			5
Total	$	554,595	$	107,634	$	58,480	$	64,671	$	39,767	$	95,902	$	134,439		$	1,055,488
CRE - Construction and development
Pass	$	109,885	$	25,972	$	14,994	$	2,696	$	679	$	876	$	22,519		$	177,621
Special mention / watch	843		298		542		0		9		3		0			1,695
Substandard	597		1,132		220		0		0		26		0			1,975
Doubtful	0		0		0		0		0		0		0			0
Total	$	111,325	$	27,402	$	15,756	$	2,696	$	688	$	905	$	22,519		$	181,291
CRE - Farmland
Pass	$	48,378	$	25,022	$	9,577	$	10,490	$	8,378	$	13,003	$	1,263		$	116,111
Special mention / watch	8,088		4,583		935		660		361		237		0			14,864
Substandard	3,924		2,627		4,386		1,728		166		1,128		36			13,995
Doubtful	0		0		0		0		0		0		0			0
Total	$	60,390	$	32,232	$	14,898	$	12,878	$	8,905	$	14,368	$	1,299		$	144,970
CRE - Multifamily
Pass	$	164,817	$	18,992	$	17,805	$	10,706	$	10,201	$	19,581	$	11,558		$	253,660
Special mention / watch	345		0		0		0		59		0		0			404
Substandard	1,099		0		0		0		1,362		0		0			2,461
Doubtful	0		0		0		0		0		0		0			0
Total	$	166,261	$	18,992	$	17,805	$	10,706	$	11,622	$	19,581	$	11,558		$	256,525
CRE - other
Pass	$	487,771	$	129,388	$	60,957	$	83,393	$	66,369	$	91,698	$	45,129		$	964,705
Special mention / watch	71,141		14,870		12,415		5,953		3,756		4,335		455			112,925
Substandard	48,690		7,162		6,370		1,222		579		6,997		925			71,945
Doubtful	0		0		0		0		0		0		0			0
Total	$	607,602	$	151,420	$	79,742	$	90,568	$	70,704	$	103,030	$	46,509		$	1,149,575
RRE - One- to four- family first liens
Performing	$	117,923	$	46,581	$	42,875	$	30,628	$	37,407	$	68,501	$	9,249		$	353,164
Nonperforming	239		1		596		303		148		1,233		0			2,520
Total	$	118,162	$	46,582	$	43,471	$	30,931	$	37,555	$	69,734	$	9,249		$	355,684
RRE - One- to four- family junior liens
Performing	$	19,818	$	7,973	$	12,140	$	6,152	$	3,467	$	5,354	$	87,795		$	142,699
Nonperforming	7		0		223		17		116		190		170			723
Total	$	19,825	$	7,973	$	12,363	$	6,169	$	3,583	$	5,544	$	87,965		$	143,422
Consumer
Performing	$	30,755	$	13,662	$	10,341	$	4,960	$	2,656	$	6,306	$	10,118		$	78,798
Nonperforming	2		21		13		5		13		24		0			78
Total	$	30,757	$	13,683	$	10,354	$	4,965	$	2,669	$	6,330	$	10,118		$	78,876

2019
(in thousands) Pass Special Mention / Watch Substandard Doubtful Loss Total
Agricultural $ 117,374 $ 13,292 $ 9,780 $ — $ — $ 140,446
Commercial and industrial 794,526 19,038 21,635 1 36 835,236
Commercial real estate:
Construction and development 283,921 11,423 2,733 — — 298,077
Farmland 141,107 21,307 19,471 — — 181,885
Multifamily 226,124 90 1,193 — — 227,407
Commercial real estate-other 1,036,418 50,691 20,381 — — 1,107,490
Total commercial real estate 1,687,570 83,511 43,778 — — 1,814,859
Residential real estate:
One- to four- family first liens 396,175 4,547 6,532 164 — 407,418
One- to four- family junior liens 168,229 1,282 870 — — 170,381
Total residential real estate 564,404 5,829 7,402 164 — 577,799
Consumer 82,650 39 218 19 — 82,926
Total $ 3,246,524 $ 121,709 $ 82,813 $ 184 $ 36 $ 3,451,266

Table of Contents


	Term Loans by Origination Year												Revolving Loans
	2020		2019		2018		2017		2016		Prior				Total
Total by Credit Quality Indicator Category
Pass	$	1,374,858	$	311,856	$	163,152	$	171,183	$	125,708	$	219,517	$	261,769		$	2,628,043
Special mention / watch	88,719		21,406		14,506		8,982		5,349		5,790		12,461			157,213
Substandard	63,399		13,110		12,162		3,789		2,689		11,638		12,191			118,978
Doubtful	1		0		0		1		0		4		1			7
Performing	168,496		68,216		65,356		41,740		43,530		80,161		107,162			574,661
Nonperforming	248		22		832		325		277		1,447		170			3,321
Total	$	1,695,721	$	414,610	$	256,008	$	226,020	$	177,553	$	318,557	$	393,754		$	3,482,223

Allowance for Credit Losses

At June 30, ~~2020,~~2021, the economic forecast used by the Company showed ~~continued increases in~~the following: (1) Midwest unemployment ~~over the next three forecasted quarters, with improvements starting in the fourth quarter; increases in national retail sales~~– decreases over the next four forecasted quarters; ~~decreases~~(2) Year-to-year change in ~~the CRE index~~national retail sales - increases over the next ~~three~~four forecasted ~~quarters, with improvements beginning~~quarters; (3) Year-to-year change in CRE Index - decreases over the ~~fourth quarter; decreases~~next four forecasted quarters; (4) Year-to-year change in U.S. GDP - increases over the next four forecasted quarters; (5) Year-to-year change in National Home Price Index – increases over the next four forecasted quarters; and (6) Rental Vacancy - an increase over the next two forecasted quarters, ~~with improvements starting~~followed by a decline in the third ~~quarter; decreases in the national home price index;~~ and ~~increases in the U.S. rental vacancy rate through the second~~fourth forecasted ~~quarter, with improvements starting in the third quarter. Consistent with the prior quarter, these~~quarters. Overall, economic forecast loss ~~drivers are worse~~driver data improved when compared to ~~recent historical trends over~~ the ~~past several years, largely as a result~~previously disclosed first quarter of ~~the COVID-19 pandemic.~~2021 results.

We have made a policy election to report interest receivable as a separate line on the balance sheet. Accrued interest receivable, which is recorded within 'Other Assets', totaled ~~$15.3~~$11.1 million at June 30, 2021 and $14.2 million at December 31, 2020 and is excluded from the estimate of credit losses.

~~Table of Contents~~

The changes in the allowance for credit losses by portfolio segment were as follows:

For the Three Months Ended June 30, 2020 and 2019
(in thousands) Agricultural Commercial and Industrial Commercial Real Estate Residential Real Estate Consumer Total
For the Three Months June 30, 2020
Beginning balance $ 1,146 $ 19,309 $ 23,138 $ 6,425 $ 1,169 $ 51,187
Charge-offs (109) (902) (792) (103) (197) (2,103)
Recoveries 1 166 11 8 50 236
Credit loss expense⁽¹⁾
370 136 5,864 (256) 210 6,324
Ending balance $ 1,408 $ 18,709 $ 28,221 $ 6,074 $ 1,232 $ 55,644
For the Three Months Ended June 30, 2019
Beginning balance $ 3,691 $ 7,594 $ 14,798 $ 3,272 $ 297 $ 29,652
Charge-offs (16) (1,759) (310) (1) (101) (2,187)
Recoveries 2 100 257 8 163 530
Credit loss expense 43 1,698 �� (1,090) 98 (53) 696
Ending balance $ 3,720 $ 7,633 $ 13,655 $ 3,377 $ 306 $ 28,691
For the Six Months Ended June 30, 2020 and 2019
(in thousands) Agricultural Commercial and Industrial Commercial Real Estate Residential Real Estate Consumer Total
For the Six Months Ended June 30, 2020
Beginning balance, prior to adoption of ASC 326 $ 3,748 $ 8,394 $ 13,804 $ 2,685 $ 448 $ 29,079
Day 1 transition adjustment from adoption of ASC 326 (2,557) 2,728 1,300 2,050 463 3,984
Charge-offs (193) (1,373) (1,512) (103) (419) (3,600)
Recoveries 26 379 19 15 96 535
Credit loss expense⁽¹⁾
384 8,581 14,610 1,427 644 25,646
Ending balance $ 1,408 $ 18,709 $ 28,221 $ 6,074 $ 1,232 $ 55,644
For the Six Months Ended June 30, 2019
Beginning balance $ 3,637 $ 7,478 $ 15,635 $ 2,349 $ 208 $ 29,307
Charge-offs (150) (2,113) (960) (50) (269) (3,542)
Recoveries 9 148 265 17 197 636
Credit loss expense 224 2,120 (1,285) 1,061 170 2,290
Ending balance $ 3,720 $ 7,633 $ 13,655 $ 3,377 $ 306 $ 28,691
(1) The difference in the credit loss expense reported herein as compared to the Consolidated Statements of Income is associated with the credit loss expense of $(1.6) million and $772 thousand related to off-balance sheet credit exposures for the three months and six months ended June 30, 2020, respectively.



	For the Three Months Ended June 30, 2021 and 2020
(in thousands)	Agricultural		Commercial and Industrial		Commercial Real Estate		Residential Real Estate		Consumer		Total
For the Three Months Ended June 30, 2021
Beginning balance	$	1,110	$	13,644	$	30,425	$	4,655	$	816	$	50,650
Charge-offs	(113)		(195)		(350)		(71)		(111)		(840)
Recoveries	21		314		9		47		43		434
Credit loss (benefit) expense(1)	(5)		24		(1,568)		(555)		(140)		(2,244)
Ending balance	$	1,013	$	13,787	$	28,516	$	4,076	$	608	$	48,000

For the Three Months Ended June 30, 2020
Beginning balance	$	1,146	$	19,309	$	23,138	$	6,425	$	1,169	$	51,187

Charge-offs	(109)		(902)		(792)		(103)		(197)		(2,103)
Recoveries	1		166		11		8		50		236
Credit loss expense(1)	370		136		5,864		(256)		210		6,324
Ending balance	$	1,408	$	18,709	$	28,221	$	6,074	$	1,232	$	55,644
(1) The difference in the credit loss expense reported herein as compared to the Consolidated Statements of Income is associated with the credit loss (benefit) expense of $0.1 million and $(1.6) million related to off-balance sheet credit exposures for the three months ended June 30, 2021 and June 30, 2020, respectively.

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	For the Six Months Ended June 30, 2021 and 2020
(in thousands)	Agricultural		Commercial and Industrial		Commercial Real Estate		Residential Real Estate		Consumer		Total
For the Six Months Ended June 30, 2021
Beginning balance	$	1,346	$	15,689	$	32,640	$	4,882	$	943	$	55,500
Charge-offs	(154)		(861)		(416)		(106)		(306)		(1,843)
Recoveries	48		606		315		56		96		1,121
Credit loss expense(1)	(227)		(1,647)		(4,023)		(756)		(125)		(6,778)
Ending balance	$	1,013	$	13,787	$	28,516	$	4,076	$	608	$	48,000

For the Six Months Ended June 30, 2020
Beginning balance	$	3,748	$	8,394	$	13,804	$	2,685	$	448	$	29,079
Day 1 transition adjustment from adoption of ASC 326	(2,557)		2,728		1,300		2,050		463		3,984
Charge-offs	(193)		(1,373)		(1,512)		(103)		(419)		(3,600)
Recoveries	26		379		19		15		96		535
Credit loss expense	384		8,581		14,610		1,427		644		25,646
Ending balance	$	1,408	$	18,709	$	28,221	$	6,074	$	1,232	$	55,644
(1) The difference in the credit loss expense reported herein as compared to the Consolidated Statements of Income is associated with the credit loss (benefit) expense of $(0.1) million and $0.8 million related to off-balance sheet credit exposures for the six months ended June 30, 2021 and June 30, 2020, respectively.

The composition of allowance for credit losses by portfolio segment based on evaluation method were as follows:


	As of June 30, 2021
(in thousands)	Agricultural		Commercial and Industrial		Commercial Real Estate		Residential Real Estate		Consumer		Total
Loans held for investment, net of unearned income
Individually evaluated for impairment	$	1,537	$	5,753	$	28,889	$	591	$	8	$	36,778
Collectively evaluated for impairment	106,297		976,339		1,676,900		467,990		65,852		3,293,378
Total	$	107,834	$	982,092	$	1,705,789	$	468,581	$	65,860	$	3,330,156
Allowance for credit losses:
Individually evaluated for impairment	$	8	$	641	$	2,060	$	151	$	0	$	2,860
Collectively evaluated for impairment	1,005		13,146		26,456		3,925		608		45,140
Total	$	1,013	$	13,787	$	28,516	$	4,076	$	608	$	48,000


		As of June 30, 2020																							As of December 31, 2020
(in thousands)	(in thousands)	Agricultural		Commercial and Industrial		Commercial Real Estate		Residential Real Estate		Consumer		Total		(in thousands)	Agricultural		Commercial and Industrial		Commercial Real Estate		Residential Real Estate		Consumer		Total
Loans held for investment, net of unearned income	Loans held for investment, net of unearned income													Loans held for investment, net of unearned income
Individually evaluated for impairment	Individually evaluated for impairment	$	2,747	$	8,593	$	23,714	$	204	$	8	$	35,266	Individually evaluated for impairment	$	2,088	$	6,582	$	28,235	$	427	$	8	$	37,340
Collectively evaluated for impairment	Collectively evaluated for impairment	138,090		1,075,934		1,741,025		532,710		74,014		3,561,773		Collectively evaluated for impairment	114,304		1,048,906		1,704,126		498,679		78,868		3,444,883

Total	Total	$	140,837	$	1,084,527	$	1,764,739	$	532,914	$	74,022	$	3,597,039	Total	$	116,392	$	1,055,488	$	1,732,361	$	499,106	$	78,876	$	3,482,223
Allowance for credit losses:	Allowance for credit losses:													Allowance for credit losses:
Individually evaluated for impairment	Individually evaluated for impairment	$	490	$	1,774	$	915	$	—	$	—	$	3,179	Individually evaluated for impairment	$	66	$	799	$	2,031	$	179	$	0	$	3,075
Collectively evaluated for impairment	Collectively evaluated for impairment	918		16,935		27,306		6,074		1,232		52,465		Collectively evaluated for impairment	1,280		14,890		30,609		4,703		943		52,425

Total	Total	$	1,408	$	18,709	$	28,221	$	6,074	$	1,232	$	55,644	Total	$	1,346	$	15,689	$	32,640	$	4,882	$	943	$	55,500

2018

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As of December 31, 2019
(in thousands) Agricultural Commercial and Industrial Commercial Real Estate Residential Real Estate Consumer Total
Loans held for investment, net of unearned income
Individually evaluated for impairment $ 4,312 $ 12,242 $ 16,082 $ 838 $ 21 $ 33,495
Collectively evaluated for impairment 135,246 822,939 1,781,306 572,865 82,864 3,395,220
Purchased credit impaired loans 888 55 17,471 4,096 41 22,551
Total $ 140,446 $ 835,236 $ 1,814,859 $ 577,799 $ 82,926 $ 3,451,266
Allowance for loan losses:
Individually evaluated for impairment $ 212 $ 2,198 $ 1,180 $ 73 $ — $ 3,663
Collectively evaluated for impairment 3,536 6,194 11,836 2,152 448 24,166
Purchased credit impaired loans — 2 788 460 — 1,250
Total $ 3,748 $ 8,394 $ 13,804 $ 2,685 $ 448 $ 29,079

The following table presents the amortized cost basis of collateral dependent loans, by the primary collateral type, which are individually evaluated to determine expected credit losses, and the related ACL allocated to these loans:


	As of June 30, 2021
(in thousands)	Primary Type of Collateral
	Real Estate		Equipment		Other		Total		ACL Allocation
Agricultural	$	946	$	591	$	0	$	1,537	$	8
Commercial and industrial	629		2,590		2,534		5,753		641
Commercial real estate:
Construction and development	595		0		0		595		0
Farmland	9,961		0		0		9,961		6
Multifamily	1,073		0		0		1,073		390
Commercial real estate-other	17,260		0		0		17,260		1,664
Residential real estate:
One- to four- family first liens	410		0		0		410		64
One- to four- family junior liens	181						181		87
Consumer	0		8		0		8		0
Total	$	31,055	$	3,189	$	2,534	$	36,778	$	2,860


		As of June 30, 2020																	As of December 31, 2020
(in thousands)	(in thousands)	Primary Type of Collateral																(in thousands)	Primary Type of Collateral
		Real Estate		Equipment		Other		Total		ACL Allocation			Real Estate		Equipment		Other		Total		ACL Allocation
Agricultural	Agricultural	$	124	$	2,011	$	612	$	2,747	$	490	Agricultural	$	516	$	824	$	748	$	2,088	$	66
Commercial and industrial	Commercial and industrial	1,230		4,066		3,297		8,593		1,774		Commercial and industrial	667		3,037		2,878		6,582		799
Commercial real estate:	Commercial real estate:											Commercial real estate:
Construction and development	Construction and development	700		—		—		700		—		Construction and development	899		0		0		899		0
Farmland	Farmland	13,646		—		—		13,646		283		Farmland	7,850		0		0		7,850		88
Multifamily	Multifamily	—		—		—		—		—		Multifamily	746		0		0		746		202
Commercial real estate-other	Commercial real estate-other	9,368		—		—		9,368		632		Commercial real estate-other	18,740		0		0		18,740		1,741
Residential real estate:	Residential real estate:											Residential real estate:
One- to four- family first liens	One- to four- family first liens	204		—		—		204		—		One- to four- family first liens	204		0		0		204		132
One- to four- family junior liens	One- to four- family junior liens	—		—		—		—		—		One- to four- family junior liens	223		0		0		223		47
Consumer	Consumer	—		8		—		8		—		Consumer	0		8		0		8		0
Total	Total	$	25,272	$	6,085	$	3,909	$	35,266	$	3,179	Total	$	29,845	$	3,869	$	3,626	$	37,340	$	3,075

Troubled Debt Restructurings

TDRs totaled ~~$8.9~~$11.6 million and $11.0 million as of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. As of June 30, 2021, the Company had $7 thousand of commitments to lend additional funds to borrowers with loans classified as TDR.

The following table sets forth information on the Company's TDRs by class of financing receivable occurring during the stated periods. TDRs ~~may~~

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include multiple concessions, and the disclosure classifications in the table are based on the primary concession provided to the borrower.


		Three Months Ended June 30,																			Three Months Ended June 30,
		2020								2019									2021				2020
		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment			Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
(dollars in thousands)	(dollars in thousands)											(dollars in thousands)
CONCESSION - Interest rate reduction												CONCESSION - Interest rate reduction

Farmland												Farmland	2	$	1,982	$	1,982	0	$	0	$	0

One- to four- family first liens												One- to four- family first liens	1	171		171		0	0		0

CONCESSION - Extended maturity date	CONCESSION - Extended maturity date											CONCESSION - Extended maturity date

One- to four- family first liens	One- to four- family first liens	2	$	145	$	145	3	$	240	$	239	One- to four- family first liens	1	85		85		2	145		145
One- to four- family junior liens		—	—		—		1	25		25

CONCESSION - Other	CONCESSION - Other											CONCESSION - Other
Agricultural	Agricultural	1	208		208		—	—		—		Agricultural	0	0		0		1	208		208

Farmland	Farmland	2	354		354		—	—		—		Farmland	0	0		0		2	354		354

Total	Total	5	$	707	$	707	4	$	265	$	264	Total	4	$	2,238	$	2,238	5	$	707	$	707

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	Six Months Ended June 30,
	2021					2020
	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
(dollars in thousands)
CONCESSION - Interest rate reduction



Farmland	2	$	1,982	$	1,982	0	$	0	$	0


One- to four- family first liens	1	171		171		0	0		0



CONCESSION - Extended maturity date





Commercial real estate-other	0	0		0		3	759		808
One- to four- family first liens	2	178		178		2	145		145



CONCESSION - Other
Agricultural	0	0		0		1	208		208


Farmland	0	0		0		2	354		354

Commercial real estate-other	1	44		44		0	0		0
One- to four- family first liens	1	150		150		0	0		0


Total	7	$	2,525	$	2,525	8	$	1,466	$	1,515

Six Months Ended June 30,
2020 2019
Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment
(dollars in thousands)
CONCESSION - Extended maturity date
Commercial real estate-other 3 $ 759 $ 808 — $ — $ —
One- to four- family first liens 2 145 145 3 240 239
One- to four- family junior liens — — — 2 76 76
CONCESSION - Other
Agricultural 1 208 208 — — —
Farmland 2 354 354 — — —
Total 8 $ 1,466 $ 1,515 5 $ 316 $ 315

~~For the three months and six months ended June 30, 2020, the Company had 0 TDRs that redefaulted within 12 months subsequent to restructure.~~ For the three and six months ended June 30, ~~2019,~~2021 and June 30, 2020, the Company had 0 TDRs that redefaulted within 12 months subsequent to restructure.

Modifications in response to COVID-19:

The Company began offering short-term loan modifications to assist borrowers during the COVID-19 pandemic. The CARES Act, as extended by the CAA, along with a joint interagency statement issued by the federal banking agencies, ~~provides~~provide that short-term modifications made in response to COVID-19 do not need to be accounted for as a TDR. Accordingly, the Company does not account for such loan modifications as TDRs. The Company's loan modifications allow for the initial deferral of three months of principal ~~and /~~ and/or interest. The deferred interest is due and payable at the end of the deferral period, and the deferred principal is due and payable on the maturity date. At June 30, ~~2020, we had granted short-term payment deferrals on $462.2 million~~2021, the outstanding balance of ~~loans.~~loans modified as a result of the COVID-19 pandemic totaled $21.0 million. The program is ongoing and additional loans continue to be granted deferrals.

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~~Pre-ASC 326 Adoption Impaired Loan Disclosures~~

~~The following table presents loans individually evaluated for impairment by class of receivable, as of December 31, 2019:~~

December 31, 2019
(in thousands) Recorded Investment Unpaid Principal Balance Related Allowance
With no related allowance recorded:
Agricultural $ 2,383 $ 2,913 $ —
Commercial and industrial 7,391 10,875 —
Commercial real estate:
Construction and development 1,181 1,218 —
Farmland 4,306 4,331 —
Multifamily — — —
Commercial real estate-other 5,709 5,854 —
Total commercial real estate 11,196 11,403 —
Residential real estate:
One- to four- family first liens 577 578 —
One- to four- family junior liens — — —
Total residential real estate 577 578 —
Consumer 21 21 —
Total $ 21,568 $ 25,790 $ —
With an allowance recorded:
Agricultural $ 1,929 $ 1,930 $ 212
Commercial and industrial 4,851 5,417 2,198
Commercial real estate:
Construction and development 135 135 135
Farmland 1,109 1,148 347
Multifamily — — —
Commercial real estate-other 3,642 4,229 698
Total commercial real estate 4,886 5,512 1,180
Residential real estate:
One- to four- family first liens 261 262 73
One- to four- family junior liens — — —
Total residential real estate 261 262 73
Consumer — — —
Total $ 11,927 $ 13,121 $ 3,663
Total:
Agricultural $ 4,312 $ 4,843 $ 212
Commercial and industrial 12,242 16,292 2,198
Commercial real estate:
Construction and development 1,316 1,353 135
Farmland 5,415 5,479 347
Multifamily — — —
Commercial real estate-other 9,351 10,083 698
Total commercial real estate 16,082 16,915 1,180
Residential real estate:
One- to four- family first liens 838 840 73
One- to four- family junior liens — — —
Total residential real estate 838 840 73
Consumer 21 21 —
Total $ 33,495 $ 38,911 $ 3,663

~~Table of Contents~~

~~The following table presents the average recorded investment and interest income recognized for loans individually evaluated for impairment by class of receivable, during the stated period:~~

Three Months Ended June 30, Six Months Ended June 30,
2019 2019
(in thousands) Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized
With no related allowance recorded:
Agricultural $ 2,632 $ 47 $ 2,227 $ 12
Commercial and industrial 4,347 — 4,610 —
Commercial real estate:
Construction and development — — — —
Farmland 3,001 32 2,011 —
Multifamily — — — —
Commercial real estate-other 920 10 857 20
Total commercial real estate 3,921 42 2,868 20
Residential real estate:
One- to four- family first liens 497 — 332 —
One- to four- family junior liens 75 — 50 —
Total residential real estate 572 — 382 —
Consumer 21 — 14 —
Total $ 11,493 $ 89 $ 10,101 $ 32
With an allowance recorded:
Agricultural $ 2,363 $ 53 $ 2,279 $ 60
Commercial and industrial 4,271 — 4,042 —
Commercial real estate:
Construction and development — — — —
Farmland 86 5 57 5
Multifamily — — — —
Commercial real estate-other 2,044 10 1,931 12
Total commercial real estate 2,130 15 1,988 17
Residential real estate:
One- to four- family first liens 526 6 440 8
One- to four- family junior liens — — — —
Total residential real estate 526 6 440 8
Consumer — — — —
Total $ 9,290 $ 74 $ 8,749 $ 85
Total:
Agricultural $ 4,995 $ 100 $ 4,506 $ 72
Commercial and industrial 8,618 — 8,652 —
Commercial real estate:
Construction and development — — — —
Farmland 3,087 37 2,068 5
Multifamily — — — —
Commercial real estate-other 2,964 20 2,788 32
Total commercial real estate 6,051 57 4,856 37
Residential real estate:
One- to four- family first liens 1,023 6 772 8
One- to four- family junior liens 75 — 50 —
Total residential real estate 1,098 6 822 8
Consumer 21 — 14 —
Total $ 20,783 $ 163 $ 18,850 $ 117

~~Table of Contents~~

~~Purchased Credit Impaired Loans (Pre-ASC 326 Adoption)~~

~~The following table summarizes the outstanding balance and carrying amount of our PCI loans that were identified prior to the adoption of ASC 326:~~


	~~December 31, 2019~~
~~(in thousands)~~
~~Agricultural~~	$	~~904~~
~~Commercial and industrial~~	~~147~~
~~Commercial real estate~~	~~17,803~~
~~Residential real estate~~	~~4,136~~
~~Consumer~~	57
~~Outstanding balance~~	~~23,047~~
~~Carrying amount~~	~~22,551~~
~~Allowance for credit losses~~	~~1,250~~
~~Carrying amount, net of allowance for credit losses~~	$	~~21,301~~

5.4. Derivatives, Hedging Activities and Balance Sheet Offsetting

The following table presents the total notional amounts and gross fair values of the Company’s derivatives as of the dates indicated. The derivative asset and liability balances are presented on a gross basis, prior to the application of master netting agreements, as included in other assets and other liabilities, respectively, on the consolidated balance sheets.

The fair values of the Company's derivative instrument assets and liabilities are summarized as follows:


		As of June 30, 2020												As of December 31, 2019												As of June 30, 2021					As of December 31, 2020
		Notional Amount		Fair Value								Notional Amount		Fair Value								Notional Amount		Fair Value				Notional Amount		Fair Value
(in thousands)	(in thousands)					Assets			Liabilities					Assets			Liabilities		(in thousands)	Notional Amount				Liabilities		Notional Amount				Liabilities
Designated as hedging instruments
Fair value hedges
Designated as hedging instruments:																Designated as hedging instruments:
Fair value hedges:																Fair value hedges:
Interest rate swaps	Interest rate swaps	$	25,927	$	—		$	3,106		$	16,734	$	—	$	1,113	Interest rate swaps		$	25,184	$	339	$	1,699	$	25,559	$	34	$	2,452
Cash flow hedges
Interest rate swaps		30,000		—			960			—		—		—

Total	Total	$	55,927	$	—		$	4,066		$	16,734	$	—	$	1,113	Total		$	25,184	$	339	$	1,699	$	25,559	$	34	$	2,452

Not designated as hedging instruments:	Not designated as hedging instruments:															Not designated as hedging instruments:
Interest rate swaps	Interest rate swaps	$	340,444	$	14,388		$	14,440		$	113,632	$	1,824	$	1,999	Interest rate swaps		$	343,761	$	6,267	$	6,280	$	347,380	$	10,758	$	10,807
RPAs - protection sold	RPAs - protection sold	4,589		3			—			4,702		24		—		RPAs - protection sold		4,353		1		0		4,471		4		0
RPAs - protection purchased	RPAs - protection purchased	9,920		—			11			10,009		—		130		RPAs - protection purchased		9,730		0		3		9,825		0		8
Total	Total	$	354,953	$	14,391		$	14,451		$	128,343	$	1,848	$	2,129	Total		$	357,844	$	6,268	$	6,283	$	361,676	$	10,762	$	10,815

Derivatives Designated as Hedging Instruments

The Company uses derivative instruments to hedge its exposure to economic risks, including interest rate, liquidity, and credit risk. Certain hedging relationships are formally designated and qualify for hedge accounting under GAAP as fair value or cash flow hedges.

Fair Value Hedges - Derivatives are designated as fair value hedges to limit the Company's exposure to changes in the fair value of assets or liabilities due to movements in interest rates. The Company entered into pay-fixed receive-floating interest rate swaps to manage its exposure to changes in fair value in certain fixed-rate assets. The gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in interest income.

Cash Flow Hedges - Derivatives are designated as cash flow hedges in order to minimize the variability in cash flows of earning assets or forecasted transactions caused by movement in interest rates. In February 2020, the Company entered into a pay-fixed receive-variable interest rate swap with a notional amount of $30.0 million to hedge against adverse fluctuations in interest rates by reducing exposure to variability in cash flows relating to interest payments on the Company's variable rate debt. The

~~Table of Contents~~

interest rate swap iswas designated as a cash flow hedge. The gain or loss on the derivative iswas recorded in accumulated other comprehensive income and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings. ~~During 2020,~~The Company terminated its cash flow hedge in the ~~Company estimates that an additional $356 thousand will be reclassified to interest expense.~~fourth quarter of 2020.

The table below presents the effect of cash flow hedge accounting on AOCI for three ~~months~~ and six months ended June 30, ~~2020~~2021 and ~~2019.~~2020.


	Amount of Gain (Loss) Recognized in AOCI on Derivative				Location of Gain (Loss) Reclassified from AOCI into Income	Amount of Gain (Loss) Reclassified from AOCI into Income
	Three Months Ended June 30,					Three Months Ended June 30,
(in thousands)	2021		2020			2021		2020
Interest rate swaps	$	0	$	(129)	Interest Expense	$	0	$	(62)

	Amount of Gain (Loss) Recognized in AOCI on Derivative				Location of Gain (Loss) Reclassified from AOCI into Income	Amount of Gain (Loss) Reclassified from AOCI into Income
	Six Months Ended June 30,					Six Months Ended June 30,
(in thousands)	2021		2020			2021		2020
Interest rate swaps	$	0	$	(1,017)	Interest Expense	$	0	$	(57)

Amount of Gain (Loss) Recognized in AOCI on Derivative Location of Gain (Loss) Reclassified from AOCI into Income Amount of Gain (Loss) Reclassified from AOCI into Income
Three Months Ended June 30, Three Months Ended June 30,
(in thousands) 2020 2019 2020 2019
Interest rate swaps $ (129) $ — Interest Expense $ (62) $ —
Amount of Gain (Loss) Recognized in AOCI on Derivative Location of Gain (Loss) Reclassified from AOCI into Income Amount of Gain (Loss) Reclassified from AOCI into Income
Six Months Ended June 30, Six Months Ended June 30,
(in thousands) 2020 2019 2020 2019
Interest rate swaps $ (1,017) $ — Interest Expense $ (57) $ —

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The table below presents the effect of the Company’s derivative financial instruments designated as hedging instruments on the consolidated statements of income for the periods indicated:


	Location and Amount of Gain or Loss Recognized in Income on Fair Value and Cash Flow Hedging Relationships
	For the Three Months Ended June 30,								For the Six Months Ended June 30,
	2021				2020				2021				2020
(in thousands)	Interest Income		Other Income		Interest Income		Other Income		Interest Income		Other Income		Interest Income		Other Income
Total amounts of income and expense line items presented in the consolidated statements of income in which the effects of fair value or cash flow hedges are recorded	$	(111)	$	0	$	(80)	$	0	$	(219)	$	0	$	(127)	$	0

The effects of fair value and cash flow hedging:
Gain (loss) on fair value hedging relationships in subtopic 815-20:
Interest contracts:
Hedged items	578		0		237		0		(1,055)		0		1,988		0
Derivative designated as hedging instruments	(370)		0		(232)		0		753		0		(1,993)		0

Income statement effect of cash flow hedging relationships in subtopic 815-20:
Interest contracts:
Amount reclassified from AOCI into income	0		0		(62)		0		0		0		(57)		0

Location and Amount of Gain or Loss Recognized in Income on Fair Value and Cash Flow Hedging Relationships
For the Three Months Ended June 30, For the Six Months Ended June 30,
2020 2019 2020 2019
(in thousands) Interest Income Interest Expense Interest Income Interest Expense Interest Income Interest Expense Interest Income Interest Expense
Total amounts of income and expense line items presented in the consolidated statements of income in which the effects of fair value or cash flow hedges are recorded $ (80) $ — $ — $ — $ (127) $ — $ (1) $ —
The effects of fair value and cash flow hedging:
Gain (loss) on fair value hedging relationships in subtopic 815-20:
Interest contracts:
Hedged items 237 — 491 — 1,988 — 795 —
Derivative designated as hedging instruments (232) — (491) — (1,993) — (796) —
Income statement effect of cash flow hedging relationships in subtopic 815-20:
Interest contracts:
Amount reclassified from AOCI into income — 62 — — — 57 — —

As of June 30, ~~2020,~~2021, the following amounts were recorded on the balance sheet related to cumulative basis adjustment for fair value hedges:

Line Item in the Balance

Sheet in Which the

Hedged Item is Included

Line Item in the Balance

Sheet in Which the

Hedged Item is Included

Carrying Amount of the

Hedged Assets

Cumulative Amount of Fair Value

Hedging Adjustment Included in the Carrying Amount of the Hedged Asset

Line Item in the Balance

Sheet in Which the

Hedged Item is Included

Carrying Amount of the

Hedged Assets

Cumulative Amount of Fair Value

Hedging Adjustment Included in the Carrying Amount of the Hedged Asset

(in thousands)

Loans

29,035

3,099

Loans

26,565

1,364

~~Table of Contents~~

Derivatives Not Designated as Hedging Instruments

Interest Rate Swaps - The Company has also entered into interest rate swap contracts. The derivative contracts related to transactions in which the Company enters into an interest rate swap with a customer, while simultaneously entering into an offsetting interest rate swap with an institutional counterparty.

Credit Risk Participation Agreements - The Company enters into RPAs to manage the credit exposure on interest rate contracts associated with a syndicated loan. The Company may enter into protection purchased RPAs with institutional counterparties to decrease or increase its exposure to a borrower. Under the RPA, the Company will receive or make payment if a borrower defaults on the related interest rate contract. The Company manages its credit risk on RPAs by monitoring the creditworthiness of the borrowers and institutional counterparties, which is based on the normal credit review process. The notional amount of the RPAs reflects the Company’s pro-rata share of the derivative instrument.

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The following table presents the net gains (losses) recognized on the consolidated statements of income related to the derivatives not designated as hedging instruments for the periods indicated:


		Location in the Consolidated Statements of Income	For the Three Months Ended June 30,									For the Six Months Ended June 30,									Location in the Consolidated Statements of Income			For the Three Months Ended June 30,						For the Six Months Ended June 30,
(in thousands)	(in thousands)				2020			2019			2020			2019	(in thousands)		Location in the Consolidated Statements of Income			2021			2020			2021			2020
Interest rate swaps	Interest rate swaps	Other income	$	(18)		$	(108)		$	123		$	(130)	Interest rate swaps		Other income		$	1		$	(18)		$	35		$	123
RPAs	RPAs	Other income	(6)			(107)			97			(124)		RPAs		Other income		1			(6)			1			97
Total	Total		$	(24)		$	(215)		$	220		$	(254)	Total				$	2		$	(24)		$	36		$	220

Offsetting of Derivatives

The Company has entered into agreements with certain counterparty financial institutions, which include master netting agreements. However, the Company has elected to account for all derivatives with counterparty institutions on a gross basis. The Company manages the risk of default by its borrower counterparties through its normal loan underwriting and credit monitoring policies and procedures.

The ~~following~~ table below presents gross derivatives and the respective collateral received or pledged in the form of other financial instruments as of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, which are generally marketable securities and/or cash. The collateral amounts in the table below are limited to the outstanding balances of the related asset or liability (after netting is applied); thus instances of ~~overcollateralization~~over-collateralization are not shown. Further, the net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the consolidated balance sheets.


										Gross Amounts Not Offset in the Balance Sheet																Gross Amounts Not Offset in the Balance Sheet
(in thousands)	(in thousands)	Gross Amounts of Recognized Assets (Liabilities)		Gross Amounts Offset in the Balance Sheet		Net Amounts of Assets (Liabilities) presented in the Balance Sheet		Financial Instruments			Cash Collateral Pledged		Net Assets (Liabilities)		(in thousands)	Gross Amounts of Recognized Assets (Liabilities)		Gross Amounts Offset in the Balance Sheet		Net Amounts of Assets (Liabilities) presented in the Balance Sheet		Financial Instruments		Cash Collateral Received (Paid)			Net Assets (Liabilities)
As of June 30, 2020
As of June 30, 2021															As of June 30, 2021
Asset Derivatives	Asset Derivatives	$	14,391	$	—	$	14,391	$	—		$	—	$	14,391	Asset Derivatives	$	6,607	$	0	$	6,607	$	0	$	0		$	6,607
Liability Derivatives	Liability Derivatives	(18,517)		—		(18,517)		—			(18,517)		—		Liability Derivatives	(7,982)		0		(7,982)		0		(5,920)			(2,062)

As of December 31, 2019
As of December 31, 2020															As of December 31, 2020
Asset Derivatives	Asset Derivatives	$	1,848	$	—	$	1,848	$	—		$	—	$	1,848	Asset Derivatives	$	10,796	$	0	$	10,796	$	0	$	0		$	10,796
Liability Derivatives	Liability Derivatives	(3,242)		—		(3,242)		—			(3,242)		—		Liability Derivatives	(13,267)		0		(13,267)		0		(13,267)			0

Credit-risk-related Contingent Features

The Company has an unsecured federal funds line with its institutional derivative counterparty. The Company has an agreement with its institutional derivative counterparty that contains a provision under which if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations. The Company also has an agreement with its derivative counterparty that contains a provision under which the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company’s default on the indebtedness.

As of June 30, ~~2020,~~2021, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was ~~$18.7~~$7.1 million. As of June 30, ~~2020,~~2021, the Company had minimum collateral posting thresholds with certain of its derivative counterparties and ~~has~~had posted ~~$14.4~~$5.9 million of collateral related to these agreements. If the Company had breached any of these provisions at June 30, ~~2020,~~2021, it could have been required to settle its obligations under the agreements at their termination value of ~~$18.7~~$7.1 million.

5. Goodwill and Intangible Assets

The carrying amount of goodwill was $62.5 million at June 30, 2021 and December 31, 2020.

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~~6. Goodwill and Intangible Assets~~

~~The following table presents the changes in the carrying amount of goodwill for the periods indicated:~~


	~~Six Months Ended June 30,~~
~~(in thousands)~~	~~2020~~
~~Goodwill, beginning of period~~	$	~~91,918~~
~~Fair value adjustment~~	~~2,059~~
~~Total goodwill, end of period~~	$	~~93,977~~

~~Goodwill adjustments consisted of the ATBancorp acquisition purchase accounting adjustments, which were finalized in the first quarter of 2020.~~

The following table presents the gross carrying amount, accumulated amortization, and net carrying amount of other intangible assets at the dates indicated:


	As of June 30, 2021						As of December 31, 2020
(in thousands)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Core deposit intangible	$	41,745	$	(28,668)	$	13,077	$	41,745	$	(26,440)	$	15,305
Customer relationship intangible	5,265		(3,193)		2,072		5,265		(2,630)		2,635
Other	2,700		(2,495)		205		2,700		(2,438)		262
	$	49,710	$	(34,356)	$	15,354	$	49,710	$	(31,508)	$	18,202

Indefinite-lived trade name intangible	$	7,040					$	7,040

As of June 30, 2020 As of December 31, 2019
(in thousands) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount
Core deposit intangible $ 41,745 $ (23,932) $ 17,813 $ 41,745 $ (21,032) $ 20,713
Customer relationship intangible 5,265 (2,000) 3,265 5,265 (1,195) 4,070
Other 2,700 (2,375) 325 2,700 (2,305) 395
$ 49,710 $ (28,307) $ 21,403 $ 49,710 $ (24,532) $ 25,178
Indefinite-lived trade name intangible $ 7,040 $ 7,040

The following table provides the ~~estimate~~estimated future amortization expense for the remaining six months ending December 31, ~~2020~~2021 and the succeeding annual periods:

Core Deposit Intangible Customer Relationship Intangible Other Total
Estimated Amortization Expense for the Year Ending December 31,
2020 $ 2,507 $ 630 $ 63 $ 3,200
2021 4,190 1,062 106 5,358
2022 3,487 797 �� 79 4,363
2023 2,833 518 51 3,402
2024 2,180 239 24 2,443
Thereafter 2,616 19 2 2,637
Total $ 17,813 $ 3,265 $ 325 $ 21,403


(in thousands)	Core Deposit Intangible		Customer Relationship Intangible		Other		Total
Estimated Remaining Amortization Expense for the Year Ending December 31,
2021	$	1,962	$	499	$	49	$	2,510
2022	3,487		797		79		4,363
2023	2,833		518		51		3,402
2024	2,180		239		24		2,443
2025	1,526		19		2		1,547
Thereafter	1,089		0		0		1,089
Total	$	13,077	$	2,072	$	205	$	15,354

7.6. Other Assets

The components of the Company's other assets as of June 30, ~~2020~~2021 and December 31, ~~2019~~2020 were as follows:


(in thousands)	(in thousands)	June 30, 2020		December 31, 2019		(in thousands)	June 30, 2021		December 31, 2020

Bank-owned life insurance	Bank-owned life insurance	$	82,411	$	81,625	Bank-owned life insurance	$	84,290	$	83,483
Interest receivable	Interest receivable	21,082		18,525		Interest receivable	19,758		21,706
FHLB stock	FHLB stock	12,858		15,381		FHLB stock	12,687		13,784
Mortgage servicing rights	Mortgage servicing rights	5,833		7,026		Mortgage servicing rights	5,997		5,137
Operating lease ROU assets, net		4,067		4,499
Federal & state taxes, current		—		2,318
Federal & state taxes, deferred		7,435		3,530
Operating lease right-of-use assets, net						Operating lease right-of-use assets, net	3,232		3,613
Federal and state income taxes, current						Federal and state income taxes, current	2,340		0
Federal and state income taxes, deferred						Federal and state income taxes, deferred	7,506		3,845
Derivative assets	Derivative assets	14,391		1,848		Derivative assets	6,607		10,796
Other receivables/assets	Other receivables/assets	12,464		13,208		Other receivables/assets	12,314		11,129
		$	160,541	$	147,960		$	154,731	$	153,493

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8.7. Deposits

The following table presents the composition of our deposits as of the dates indicated:


(in thousands)	(in thousands)	As of June 30, 2020		As of December 31, 2019		(in thousands)	June 30, 2021		December 31, 2020
Noninterest bearing deposits	Noninterest bearing deposits	$	867,637	$	662,209	Noninterest bearing deposits	$	952,764	$	910,655
Interest checking deposits	Interest checking deposits	1,153,697		962,830		Interest checking deposits	1,414,942		1,351,641
Money market deposits	Money market deposits	811,368		763,028		Money market deposits	936,683		918,654
Savings deposits	Savings deposits	463,262		387,142		Savings deposits	596,199		529,751
Time deposits under $250,000		656,723		682,232
Time deposits of $250,000 or more		312,748		271,214
Time deposits under $250						Time deposits under $250	538,331		581,471
Time deposits of $250 or more						Time deposits of $250 or more	353,747		254,877
Total deposits	Total deposits	$	4,265,435	$	3,728,655	Total deposits	$	4,792,666	$	4,547,049

The Company had ~~$5.2~~$5.9 million and ~~$6.6~~$7.8 million in ~~brokered~~reciprocal time deposits through the CDARS program as of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. Included in interest-bearing checking and money market deposits at June 30, ~~2020~~2021 and December 31, ~~2019~~2020 were ~~$12.6~~$35.2 million and ~~$10.1~~$14.8 million, respectively, of ~~brokered~~reciprocal deposits ~~through~~in the ICS program. The CDARS and ICS programs coordinate, on a reciprocal basis, a network of banks to spread deposits exceeding the FDIC insurance coverage limits out to numerous institutions in order to provide insurance coverage for all participating deposits.

As of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company had public entity deposits that were collateralized by investment securities of ~~$130.7~~$233.3 million and ~~$96.6~~$156.7 million, respectively.

9.8. Short-Term Borrowings

The following table summarizes our short-term borrowings as of the dates indicated:


		June 30, 2020						December 31, 2019							June 30, 2021				December 31, 2020
(in thousands)	(in thousands)	Weighted Average Rate		Balance		Weighted Average Rate		Balance		(in thousands)	Weighted Average Rate		Balance		Weighted Average Rate		Balance
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	0.41	%	$	152,224	1.06	%	$	117,249	Securities sold under agreements to repurchase	0.26	%	$	172,961	0.28	%	$	174,289
Federal Home Loan Bank advances	Federal Home Loan Bank advances	—		—		1.73		22,100		Federal Home Loan Bank advances	0.26		39,300		0.29		56,500

Unsecured line of credit		1.94		10,000		—		—

Total	Total	0.51	%	$	162,224	1.17	%	$	139,349	Total	0.26	%	$	212,261	0.28	%	$	230,789

Securities Sold Under an Agreement to Repurchase - Securities sold under agreements to repurchase are agreements in which the Company acquires funds by selling assets to another party under a simultaneous agreement to repurchase the same assets at a specified price and date. The Company enters into repurchase agreements and also offers a demand deposit account product to customers that sweeps their balances in excess of an agreed upon target amount into overnight repurchase agreements. All securities sold under agreements to repurchase are recorded on the face of the balance sheet.

Federal Home Loan Bank Advances - The Bank has a secured line of credit with the FHLBDM. Advances from the FHLBDM are collateralized primarily by one- to four-family residential, commercial and agricultural real estate first mortgages equal to various percentages of the total outstanding notes. See Note 4 .3. Loans Receivable and the Allowance for Credit Losses of the notes to the consolidated financial statements.

Unsecured Line of Credit - The Bank has unsecured federal funds lines totaling $145.0 million from multiple correspondent banking relationships. There were 0 borrowings from such lines at either June 30, ~~2020~~2021 or December 31, ~~2019.~~2020.

Other - At June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company had 0 Federal Reserve Discount Window borrowings, while the financing capacity was ~~$65.6~~$62.9 million as of June 30, ~~2020~~2021 and ~~$12.7~~$67.7 million as of December 31, ~~2019.~~2020. As of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Bank had municipal securities with a market value of ~~$70.2~~$68.1 million and ~~$13.0~~$72.0 million, respectively, pledged to the Federal Reserve Bank of Chicago to secure potential borrowings.

~~On April 30, 2015, the~~The Company ~~entered into~~has a credit agreement with a correspondent bank ~~under which the Company could borrow up to $5.0 million from an unsecured revolving credit facility. Interest was payable at~~with a ~~rate of one-month LIBOR plus 2.00%. The credit agreement was amended on April 29, 2019 such that, commencing May 1, 2019, the~~ revolving commitment ~~amount was increased to $10.0~~of $25.0 million with interest payable at a rate of one-month LIBOR plus 1.75%. Fees are paid on the average daily unused revolving commitment in the amount of 0.30% per annum. The credit agreement ~~was amended again~~matures on ~~April 24, 2020 to extend the maturity date to November~~September 30, ~~2020.~~2021. The Company had ~~$10.0 million~~0 balance outstanding under this revolving credit facility as of both June 30, ~~2020~~2021 and ~~0thing outstanding as of~~ December 31, ~~2019.~~2020.

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~~10.~~9. Long-Term Debt

Junior Subordinated Notes Issued to Capital Trusts

The table below summarizes the terms of each issuance of junior subordinated notes outstanding as of the dates indicated:


(in thousands)	Face Value		Book Value		Interest Rate	Rate		Maturity Date	Callable Date
June 30, 2021
ATBancorp Statutory Trust I	$	7,732	$	6,869	Three-month LIBOR + 1.68%	1.80	%	06/15/2036	06/15/2011
ATBancorp Statutory Trust II	12,372		10,879		Three-month LIBOR + 1.65%	1.77	%	09/15/2037	06/15/2012
Barron Investment Capital Trust I	2,062		1,784		Three-month LIBOR + 2.15%	2.29	%	09/23/2036	09/23/2011
Central Bancshares Capital Trust II	7,217		6,856		Three-month LIBOR + 3.50%	3.62	%	03/15/2038	03/15/2013
MidWestOne Statutory Trust II	15,464		15,464		Three-month LIBOR + 1.59%	1.71	%	12/15/2037	12/15/2012
Total	$	44,847	$	41,852

December 31, 2020
ATBancorp Statutory Trust I	$	7,732	$	6,850	Three-month LIBOR + 1.68%	1.90	%	06/15/2036	06/15/2011
ATBancorp Statutory Trust II	12,372		10,850		Three-month LIBOR + 1.65%	1.87	%	09/15/2037	06/15/2012
Barron Investment Capital Trust I	2,062		1,767		Three-month LIBOR + 2.15%	2.39	%	09/23/2036	09/23/2011
Central Bancshares Capital Trust II	7,217		6,832		Three-month LIBOR + 3.50%	3.72	%	03/15/2038	03/15/2013
MidWestOne Statutory Trust II	15,464		15,464		Three-month LIBOR + 1.59%	1.81	%	12/15/2037	12/15/2012
Total	$	44,847	$	41,763

(in thousands) Face Value Book Value Interest Rate Rate Maturity Date Callable Date
June 30, 2020
ATBancorp Statutory Trust I $ 7,732 $ 6,832 Three-month LIBOR + 1.68% 1.99 % 06/15/2036 06/15/2011
ATBancorp Statutory Trust II 12,372 10,821 Three-month LIBOR + 1.65% 1.96 % 06/15/2037 06/15/2012
Barron Investment Capital Trust I 2,062 1,750 Three-month LIBOR + 2.15% 2.46 % 09/23/2036 09/23/2011
Central Bancshares Capital Trust II 7,217 6,808 Three-month LIBOR + 3.50% 3.81 % 03/15/2038 03/15/2013
MidWestOne Statutory Trust II 15,464 15,464 Three-month LIBOR + 1.59% 1.90 % 12/15/2037 12/15/2012
Total $ 44,847 $ 41,675
December 31, 2019
ATBancorp Statutory Trust I $ 7,732 $ 6,814 Three-month LIBOR + 1.68% 3.57 % 06/15/2036 06/15/2011
ATBancorp Statutory Trust II 12,372 10,794 Three-month LIBOR + 1.65% 3.54 % 09/15/2037 06/15/2012
Barron Investment Capital Trust I 2,062 1,732 Three-month LIBOR + 2.15% 4.08 % 09/23/2036 09/23/2011
Central Bancshares Capital Trust II 7,217 6,783 Three-month LIBOR + 3.50% 5.39 % 03/15/2038 03/15/2013
MidWestOne Statutory Trust II 15,464 15,464 Three-month LIBOR + 1.59% 3.48 % 12/15/2037 12/15/2012
Total $ 44,847 $ 41,587
The trust preferred securities are subject to mandatory redemption, in whole or in part, upon repayment of the junior subordinated notes at the stated maturity date or upon redemption of the junior subordinated notes. Each trust’s ability to pay amounts due on the trust preferred securities is solely dependent upon the Company making payment on the related junior subordinated notes. The Company’s obligation under the junior subordinated notes and other relevant trust agreements, in aggregate, constitutes a full and unconditional guarantee by the Company of each trust’s obligations under the trust preferred securities issued by each trust. The Company has the right to defer payment of interest on the junior subordinated notes and, therefore, distributions on the trust preferred securities, for up to five years, but not beyond the stated maturity date in the table above. During any such deferral period the Company may not pay cash dividends on its stock and generally may not repurchase its stock.

Subordinated Debentures

On May 1, 2019, with the acquisition of ATBancorp, the Company assumed $10.9 million of subordinated debentures (the "ATB Debentures"). ~~These debentures have~~The ATB Debentures had a stated maturity of May 31, 2023, and ~~bear~~bore interest at a fixed annual rate of 6.50%, with interest payable ~~semi-annually on March 15th and September 15th.~~semi-annually. The Company ~~has the option to redeem~~redeemed the debentures, in whole, ~~or part, at any time~~ on ~~or after~~ May 31, 2021. At the time of redemption, we were permitted to treat 20% of the ATB Debentures as Tier 2 capital under the applicable rules and regulations of the Federal Reserve. The amount of ATB Debentures qualifying as Tier 2 regulatory capital would have been phased-out completely starting in the second quarter of 2022.

On July 28, 2020, the Company completed the private placement offering of $65.0 million of its subordinated notes, ~~with registration rights.~~of which $63.75 million have been exchanged for subordinated notes registered under the Securities Act of 1933. The 5.75% fixed-to-floating rate subordinated notes are due July 30, 2030.

~~The debentures and~~ At June 30, 2021, 100% of the subordinated notes ~~constitute~~qualified as Tier 2 ~~capital under the~~capital. Per applicable Federal Reserve rules and regulations, of the ~~Federal Reserve applicable to the capital status~~amount of the subordinated ~~debt of bank holding companies. The debentures and subordinated~~ notes ~~are phased out of~~qualifying as Tier 2 regulatory capital will be phased-out by 20% of the amount of the ~~debentures or~~ subordinated notes in each of the five years beginning on the fifth anniversary preceding the maturity date of ~~each debenture. At June 30, 2020, we were permitted to treat 40% of~~ the ~~ATB Debentures as Tier 2 capital.~~subordinated notes.

Other Long-Term Debt

Long-term borrowings were as follows as of June 30, ~~2020~~2021 and December 31, ~~2019:~~2020:


		June 30, 2020						December 31, 2019							June 30, 2021				December 31, 2020
(in thousands)	(in thousands)	Weighted Average Rate		Balance		Weighted Average Rate		Balance		(in thousands)	Weighted Average Rate		Balance		Weighted Average Rate		Balance
Finance lease payable	Finance lease payable	8.89	%	$	1,162	8.89	%	$	1,224	Finance lease payable	8.89	%	$	1,026	8.89	%	$	1,096
FHLB borrowings	FHLB borrowings	1.92		108,246		2.25		145,700		FHLB borrowings	2.18		63,151		1.92		91,198
Notes payable to unaffiliated bank		1.93		28,000		3.44		32,250

Total	Total	1.98	%	$	137,408	2.51	%	$	179,174	Total	2.29	%	$	64,177	2.00	%	$	92,294

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As a member of the FHLBDM, the Bank may borrow funds from the FHLB in amounts up to 45% of the Bank’s total assets, provided the Bank is able to pledge an adequate amount of qualified assets to secure the borrowings. Advances from the FHLB are collateralized primarily by one- to four-family residential, commercial and agricultural real estate first mortgages equal to various percentages of the total outstanding notes. See Note 4 .3. Loans Receivable and the Allowance for Credit Losses of the notes to the consolidated financial statements. At June 30, ~~2020,~~2021, FHLB long-term borrowings included advances from the FHLBC, which were collateralized by investment securities. See Note 3 .2. Debt Securities of the notes to the consolidated financial statements.

~~On April 30, 2015, the Company entered into a $35.0 million unsecured note payable with a correspondent bank with a maturity date of June 30, 2020.~~ As of June 30, ~~2020, the note was paid off.~~2021, FHLB borrowings were as follows:

~~Table of Contents~~

On April 30, 2019, the Company entered into a $35.0 million unsecured note payable with a correspondent bank with a maturity date of April 30, 2024. Quarterly principal and interest payments began June 30, 2019 and, as of June 30, 2020, $28.0 million of that note was outstanding.


(in thousands)	Weighted Average Rate		Amount
Due in 2021	0.31	%	$	15,000
Due in 2022	2.68	%	31,000
Due in 2023	2.79	%	11,000
Due in 2024	3.15	%	6,000


Total			63,000
Valuation adjustment from acquisition accounting			151
Total			$	63,151

~~11. Income Taxes~~

Income tax expense for the three months and six months ended June 30, 2020 and 2019 varied from the amount computed by applying the maximum effective federal income tax rate of 21%, to the income before income taxes, because of the following items:

For the Three Months Ended June 30, For the Six Months Ended June 30,
2020 2019 2020 2019
(in thousands) Amount % of Pretax Income Amount % of Pretax Income Amount % of Pretax Income Amount % of Pretax Income
Income tax based on statutory rate $ 2,994 21.0 % $ 2,917 21.0 % $ 2,118 21.0 % $ 4,844 21.0 %
Tax-exempt interest (703) (4.9) (472) (3.4) (1,346) (13.3) (940) (4.1)
Bank-owned life insurance (133) (0.9) (99) (0.7) (242) (2.4) (181) (0.8)
State income taxes, net of federal income tax benefit 736 5.2 744 5.4 545 5.4 1,231 5.3
Non-deductible acquisition expenses — — 136 1.0 — — 162 0.7
General business credits (388) (2.7) (14) (0.1) (771) (7.6) (28) (0.1)
Other 40 0.2 6 — 44 0.4 20 0.1
Total income tax expense $ 2,546 17.9 % $ 3,218 23.2 % $ 348 3.5 % $ 5,108 22.1 %

~~12.~~10. Earnings per Share

The following table presents the computation of basic and diluted earnings per common share for the periods indicated:

Three Months Ended June 30, Six Months Ended June 30,
(dollars in thousands, except per share amounts) 2020 2019 2020 2019
Basic Earnings Per Share:
Net income $ 11,712 $ 10,674 $ 9,737 $ 17,959
Weighted average shares outstanding 16,094,084 14,893,854 16,117,792 13,536,646
Basic earnings per common share $ 0.73 $ 0.72 $ 0.60 $ 1.33
Diluted Earnings Per Share:
Net income 11,712 $ 10,674 $ 9,737 $ 17,959
Weighted average shares outstanding, including all dilutive potential shares 16,099,682 14,900,057 16,125,375 13,545,290
Diluted earnings per common share $ 0.73 $ 0.72 $ 0.60 $ 1.33


	Three Months Ended June 30,				Six Months Ended June 30,
(dollars in thousands, except per share amounts)	2021		2020		2021		2020
Basic Earnings Per Share:
Net income	$	17,271	$	11,712	$	38,919	$	9,737
Weighted average shares outstanding	15,986,822		16,094,084		15,988,762		16,117,792
Basic earnings per common share	$	1.08	$	0.73	$	2.43	$	0.60

Diluted Earnings Per Share:
Net income	$	17,271	$	11,712	$	38,919	$	9,737
Weighted average shares outstanding, including all dilutive potential shares	16,011,766		16,099,682		16,016,037		16,125,375
Diluted earnings per common share	$	1.08	$	0.73	$	2.43	$	0.60

~~13.~~11. Regulatory Capital Requirements and Restrictions on Subsidiary Cash

Regulatory Capital and Reserve Requirement - The Company (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's consolidated financial statements. The capital amounts and classification are also ~~are~~ subject to qualitative judgments by the regulators about components, risk weightings and other factors.

As of June 30, 2021 and December 31, 2020, the Bank was not required to maintain reserve balances in cash on hand or on deposit with Federal Reserve Banks, and therefore the total amount held in reserve for each of these periods was 0 dollars.

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A comparison of the Company's and the Bank's capital with the corresponding minimum regulatory requirements in effect as of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, is presented below:


		Actual			For Capital Adequacy Purposes With Capital Conservation Buffer(1)					To Be Well Capitalized Under Prompt Corrective Action Provisions			Actual		For Capital Adequacy Purposes With Capital Conservation Buffer(1)	To Be Well Capitalized Under Prompt Corrective Action Provisions
(dollars in thousands)	(dollars in thousands)	Amount	Ratio	Amount	Ratio	Amount	Ratio	(dollars in thousands)	Amount		Ratio	Amount	Ratio	Amount	Ratio
At June 30, 2020
At June 30, 2021								At June 30, 2021
Consolidated:	Consolidated:							Consolidated:
Total capital/risk weighted assets	Total capital/risk weighted assets	$485,309	11.72%	$434,970	10.50%	N/A	N/A	Total capital/risk weighted assets	$596,543		13.63%	$459,546	10.50%	N/A	N/A
Tier 1 capital/risk weighted assets	Tier 1 capital/risk weighted assets	434,207	10.48	352,118	8.50	N/A	N/A	Tier 1 capital/risk weighted assets	490,678		11.21	372,013	8.50	N/A	N/A
Common equity tier 1 capital/risk weighted assets	Common equity tier 1 capital/risk weighted assets	392,532	9.48	289,980	7.00	N/A	N/A	Common equity tier 1 capital/risk weighted assets	448,826		10.26	306,364	7.00	N/A	N/A
Tier 1 leverage capital/average assets	Tier 1 leverage capital/average assets	434,207	8.72	199,225	4.00	N/A	N/A	Tier 1 leverage capital/average assets	490,678		8.50	230,921	4.00	N/A	N/A
MidWestOne Bank:	MidWestOne Bank:							MidWestOne Bank:
Total capital/risk weighted assets	Total capital/risk weighted assets	$513,922	12.47%	$432,647	10.50%	$412,045	10.00%	Total capital/risk weighted assets	$568,228		13.02%	$458,079	10.50%	$436,266	10.00%
Tier 1 capital/risk weighted assets	Tier 1 capital/risk weighted assets	467,154	11.34	350,238	8.50	329,636	8.00	Tier 1 capital/risk weighted assets	527,363		12.09	370,826	8.50	349,012	8.00
Common equity tier 1 capital/risk weighted assets	Common equity tier 1 capital/risk weighted assets	467,154	11.34	288,431	7.00	267,829	6.50	Common equity tier 1 capital/risk weighted assets	527,363		12.09	305,386	7.00	283,573	6.50
Tier 1 leverage capital/average assets	Tier 1 leverage capital/average assets	467,154	9.39	198,967	4.00	248,709	5.00	Tier 1 leverage capital/average assets	527,363		9.15	230,532	4.00	288,165	5.00

At December 31, 2019
At December 31, 2020								At December 31, 2020
Consolidated:	Consolidated:							Consolidated:
Total capital/risk weighted assets	Total capital/risk weighted assets	$463,601	11.34%	$429,077	10.50%	N/A	N/A	Total capital/risk weighted assets	$572,437		13.41%	$448,068	10.50%	N/A	N/A
Tier 1 capital/risk weighted assets	Tier 1 capital/risk weighted assets	428,021	10.47	347,348	8.50	N/A	N/A	Tier 1 capital/risk weighted assets	456,526		10.70	362,722	8.50	N/A	N/A
Common equity tier 1 capital/risk weighted assets	Common equity tier 1 capital/risk weighted assets	386,434	9.46	286,051	7.00	N/A	N/A	Common equity tier 1 capital/risk weighted assets	414,763		9.72	298,712	7.00	N/A	N/A
Tier 1 leverage capital/average assets	Tier 1 leverage capital/average assets	428,021	9.48	180,529	4.00	N/A	N/A	Tier 1 leverage capital/average assets	456,526		8.50	214,795	4.00	N/A	N/A
MidWestOne Bank:	MidWestOne Bank:							MidWestOne Bank:
Total capital/risk weighted assets	Total capital/risk weighted assets	$482,106	11.83%	$427,877	10.50%	$407,502	10.00%	Total capital/risk weighted assets	$547,558		12.89%	$446,113	10.50%	$424,870	10.00%
Tier 1 capital/risk weighted assets	Tier 1 capital/risk weighted assets	453,027	11.12	346,377	8.50	326,002	8.00	Tier 1 capital/risk weighted assets	500,981		11.79	361,139	8.50	339,896	8.00
Common equity tier 1 capital/risk weighted assets	Common equity tier 1 capital/risk weighted assets	453,027	11.12	285,251	7.00	264,876	6.50	Common equity tier 1 capital/risk weighted assets	500,981		11.79	297,409	7.00	276,165	6.50
Tier 1 leverage capital/average assets	Tier 1 leverage capital/average assets	453,027	10.06	180,209	4.00	231,166	5.00	Tier 1 leverage capital/average assets	500,981		9.35	214,251	4.00	271,992	5.00

(1) Includes a capital conservation buffer of 2.50% ~~at June 30, 2020~~.

Subordinated Notes - The Company completed a private placement of $65.0 million aggregate principal amount of 5.75% fixed-to-floating rate subordinated notes on July 28, 2020. The subordinated notes are intended to qualify as Tier 2 capital for regulatory purposes, and ~~December~~the Company is using the net proceeds from the offering for general corporate purposes and to support its organic growth plans, including maintaining its regulatory capital ratios.

ATBancorp Subordinated Debenture Redemption: On May 31, ~~2019.~~

2021, the Company redeemed, in whole, $10.8 million of ATB Debentures. The ~~Bank for~~amount of ATB Debentures qualifying as Tier 2 regulatory capital would have been phased-out completely starting in the ~~period as~~second quarter of ~~December 31, 2019 was required~~2022. See Note 9. Long-Term Debt of the notes to maintain reserve balances in cash on hand or on deposit with Federal Reserve Banks, of which these reserve amounts totaled $24.1 million. There was no such requirement to maintain such reserve balances as of June 30, 2020, and therefore the ~~total amount held in reserve was $0.0 million.~~consolidated financial statements.

~~14.~~12. Commitments and Contingencies

Credit-related financial instruments: - The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, commitments to sell loans, and standby letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheets.

The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. The following table summarizes the Bank's commitments as of the dates indicated:


		June 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
(in thousands)	(in thousands)					(in thousands)
Commitments to extend credit	Commitments to extend credit	$	892,199	$	859,212	Commitments to extend credit	$	959,696	$	897,274
Commitments to sell loans	Commitments to sell loans	12,048		5,400		Commitments to sell loans	6,149		59,956
Standby letters of credit	Standby letters of credit	30,809		36,192		Standby letters of credit	13,424		34,212
Total	Total	$	935,056	$	900,804	Total	$	979,269	$	991,442

The ~~Bank's~~Bank’s exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since many of the

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commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent a future cash requirements. The Bank evaluates each ~~customer's~~customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on ~~management's~~management’s credit evaluation of the party.

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Collateral held varies, but may include accounts receivable, crops, livestock, inventory, property and equipment, residential real estate and income-producing commercial properties.

Commitments to sell loans are agreements to sell loans held for sale to third parties at an agreed upon price.

Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements and, generally, have terms of one year or less. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank holds collateral, which may include accounts receivable, inventory, property, equipment and income-producing properties, that support those commitments, if deemed necessary. In the event the customer does not perform in accordance with the terms of the agreement with the third party, the Bank would be required to fund the commitment. The maximum potential amount of future payments the Bank could be required to make is represented by the contractual amount shown in the summary above. If the commitment is funded, the Bank would be entitled to seek recovery from the customer.

Liability for Off-Balance Sheet Credit Losses: - The Company records a liability for off-balance sheet credit losses through a charge to credit loss expense (or a reversal of credit loss expense) on the Company's consolidated statements of income and other liabilities on the Company's consolidated balance sheets. At June 30, ~~2020,~~2021, the liability for off-balance-sheet credit losses totaled ~~$4.2~~$4.0 million, whereas the total amount of the liability as of December 31, 2020 was $4.1 million. The total amount recorded ~~within~~in credit loss (benefit) expense for the six months ended June 30, 2021 was ~~$772 thousand. NaN liability~~a benefit of $0.1 million, while credit loss expense of $0.8 million was recorded infor the ~~prior year.~~six months ended June 30, 2020.

~~Litigation:~~Litigation - In the normal course of business, the Company and its subsidiaries have been named, from time to time, as defendants in various legal actions. Certain of the actual or threatened legal actions may include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. Management, after consulting with legal counsel, is of the opinion that the ultimate liability, if any, resulting from these pending or threatened actions and proceedings will not have a material effect on the financial statements of the Company.

Concentrations of credit risk: - Substantially all of the Bank’s loans, commitments to extend credit and standby letters of credit have been granted to customers in the Bank’s market areas. Although the loan portfolio of the Bank is diversified, approximately ~~64%~~61% of the loans are real estate loans, excluding farmland, and approximately 8%7% are agriculturally related. The concentrations of credit by type of loan are set forth in Note 4 .3. Loans Receivable and the Allowance for Credit Losses. Commitments to extend credit are primarily related to commercial loans and home equity loans. Standby letters of credit were granted primarily to commercial borrowers. Investments in securities issued by state and political subdivisions involve certain governmental entities within Iowa and Minnesota. The carrying value of investment securities of Iowa and Minnesota political subdivisions totaled ~~34%~~19% and ~~20%~~14%, respectively, as of June 30, ~~2020.~~2021.

~~15.~~13. Fair Value of Financial Instruments and Fair Value Measurements

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

•Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity 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 a ~~company's~~company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

For information regarding the valuation methodologies used to measure ~~our~~the Company's assets recorded at fair value (under ASC Topic 820), and for estimating fair value for financial instruments not recorded at fair value (under ASC Topic 825, as amended by ASU 2016-01 and ASU 2018-03), see Note 1. Nature of Business and Significant Accounting Policies and Note 20. Estimated Fair Value of Financial Instruments and Fair Value Measurements to the consolidated financial statements in the Company's ~~2019~~2020 Annual Report on Form 10-K, filed with the SEC on March ~~6, 2020.~~11, 2021.

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The Company uses fair value to measure certain assets and liabilities on a recurring basis, primarily available for sale debt securities, derivatives and ~~derivatives.~~mortgage servicing rights. For assets measured at the lower of cost or fair value, the fair value measurement criteria may or may not be met during a reporting period and such measurements are therefore considered "nonrecurring" for purposes of disclosing ~~our~~the Company's fair value measurements. Fair value is used on a nonrecurring basis to adjust carrying values for ~~impaired~~collateral dependent individually analyzed loans and other real estate owned.

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Recurring Basis

~~Assets~~The following table summarizes assets and liabilities measured at fair value on a recurring basis ~~comprise the following~~ as of the dates ~~indicated:~~indicated, by level within the fair value hierarchy:


		Fair Value Measurement at June 30, 2020 Using															Fair Value Measurement at June 30, 2021 Using
(in thousands)	(in thousands)	Total		Level 1		Level 2		Level 3		(in thousands)	Total		Level 1		Level 2		Level 3
Assets:	Assets:									Assets:
Available for sale debt securities:	Available for sale debt securities:									Available for sale debt securities:
U.S. Government agencies and corporations	U.S. Government agencies and corporations	$	410	$	—	$	410	$	—	U.S. Government agencies and corporations	$	316	$	0	$	316	$	0
State and political subdivisions	State and political subdivisions	434,046		—		434,046		—		State and political subdivisions	694,874		0		694,874		0
Mortgage-backed securities	Mortgage-backed securities	79,685		—		79,685		—		Mortgage-backed securities	116,954		0		116,954		0
Collateralized mortgage obligations	Collateralized mortgage obligations	360,028		—		360,028		—		Collateralized mortgage obligations	808,074		0		808,074		0
Corporate debt securities	Corporate debt securities	313,286		—		313,286		—		Corporate debt securities	452,234		0		452,234		0
Derivative assets	Derivative assets	14,391		—		14,391		—		Derivative assets	6,607		0		6,607		0
Mortgage servicing rights										Mortgage servicing rights	5,997		0		5,997		0

Liabilities:	Liabilities:									Liabilities:
Derivative liabilities	Derivative liabilities	$	18,517	$	—	$	18,517	$	—	Derivative liabilities	$	7,982	$	0	$	7,982	$	0


		Fair Value Measurement at December 31, 2019 Using															Fair Value Measurement at December 31, 2020 Using
(in thousands)	(in thousands)	Total		Level 1		Level 2		Level 3		(in thousands)	Total		Level 1		Level 2		Level 3
Assets:	Assets:									Assets:
Debt securities available for sale:	Debt securities available for sale:									Debt securities available for sale:
U.S. Government agencies and corporations	U.S. Government agencies and corporations	$	441	$	—	$	441	$	—	U.S. Government agencies and corporations	$	361	$	0	$	361	$	0
State and political subdivisions	State and political subdivisions	257,205		—		257,205		—		State and political subdivisions	628,346		0		628,346		0
Mortgage-backed securities	Mortgage-backed securities	43,530		—		43,530		—		Mortgage-backed securities	94,018		0		94,018		0
Collateralized mortgage obligations	Collateralized mortgage obligations	292,946		—		292,946		—		Collateralized mortgage obligations	565,836		0		565,836		0
Corporate debt securities	Corporate debt securities	191,855		—		191,855		—		Corporate debt securities	368,820		0		368,820		0
Derivative assets	Derivative assets	1,848		—		1,848		—		Derivative assets	10,796		0		10,796		0
Mortgage servicing rights										Mortgage servicing rights	5,137		0		5,137		0

Liabilities:	Liabilities:									Liabilities:
Derivative liabilities	Derivative liabilities	$	3,242	$	—	$	3,242	$	—	Derivative liabilities	$	13,267	$	0	$	13,267	$	0

There were no transfers of assets between Level 3 and other levels of the fair value hierarchy during the three and six months ended June 30, ~~2020~~2021 or the year ended December 31, ~~2019.~~2020.

Changes in the fair value of available for sale debt securities are included in other comprehensive income.

Nonrecurring Basis

The following ~~tables present~~table presents assets measured at fair value on a nonrecurring basis as of the dates indicated:


	Fair Value Measurement at June 30, 2021 Using
(in thousands)	Total		Level 1		Level 2		Level 3
Collateral dependent individually analyzed loans	$	33,918	$	0	$	0	$	33,918
Foreclosed assets, net	755		0		0		755

Fair Value Measurement at June 30, 2020 Using
(in thousands) Total Level 1 Level 2 Level 3
Collateral dependent impaired loans $ 8,798 $ — $ — $ 8,798
Foreclosed assets, net 965 — — 965


		Fair Value Measurement at December 31, 2019 Using															Fair Value Measurement at December 31, 2020 Using
(in thousands)	(in thousands)	Total		Level 1		Level 2		Level 3		(in thousands)	Total		Level 1		Level 2		Level 3
Collateral dependent impaired loans		$	6,749	$	—	$	—	$	6,749
Collateral dependent individually analyzed loans										Collateral dependent individually analyzed loans	$	34,265	$	0	$	0	$	34,265
Foreclosed assets, net	Foreclosed assets, net	3,706		—		—		3,706		Foreclosed assets, net	2,316		0		0		2,316

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The following table presents the valuation technique(s), unobservable inputs, and quantitative information about the unobservable inputs used for fair value measurements of the financial instruments held by the Company and categorized within Level 3 of the fair value hierarchy as of the ~~date~~dates indicated:


		Fair Value at																	Fair Value at
(dollars in thousands)	(dollars in thousands)	June 30, 2020		December 31, 2019		Valuation Techniques(s)	Unobservable Input	Range of Inputs									Weighted Average	(dollars in thousands)	June 30, 2021		December 31, 2020	Valuation Techniques(s)	Unobservable Input			Range of Inputs				Weighted Average
Collateral dependent impaired loans		$	8,798	$	6,749	Fair value of collateral	Valuation adjustments	—	%	-	90	%	31	%

Collateral dependent individually analyzed loans															Collateral dependent individually analyzed loans	$	33,918		$	34,265	Fair value of collateral	Valuation adjustments	0	%	-	55	%	25	%
Foreclosed assets, net	Foreclosed assets, net	$	965	3,706		Fair value of collateral	Valuation adjustments	8	%	-	47	%	27	%	Foreclosed assets, net	$	755		$	2,316	Fair value of collateral	Valuation adjustments	8	%	-	66	%	24	%

Changes in assumptions or estimation methodologies may have a material effect on these estimated fair values.

The carrying amount and estimated fair value of financial instruments at June 30, ~~2020~~2021 and December 31, ~~2019~~2020 were as follows:

June 30, 2020
(in thousands) Carrying
Amount Estimated
Fair Value Level 1 Level 2 Level 3
Financial assets:
Cash and cash equivalents $ 117,210 $ 117,210 $ 117,210 $ — $ —
Debt securities available for sale 1,187,455 1,187,455 — 1,187,455 —
Loans held for sale 12,048 12,401 — 12,401 —
Loans held for investment, net 3,541,395 3,597,325 — — 3,597,325
Interest receivable 21,082 21,082 — 21,082 —
Federal Home Loan Bank stock 12,858 12,858 — 12,858 —
Derivative assets 14,391 14,391 — 14,391 —
Financial liabilities:
Non-interest bearing deposits 867,637 867,637 867,637 — —
Interest-bearing deposits 3,397,798 3,405,414 2,428,327 977,087 —
Short-term borrowings 162,224 162,224 162,224 — —
Finance leases payable 1,162 1,162 — 1,162 —
Federal Home Loan Bank borrowings 108,246 111,902 — 111,902 —
Junior subordinated notes issued to capital trusts 41,675 34,546 — 34,546 —
Subordinated debentures 10,890 11,123 — 11,123 —
Other long-term debt 28,000 28,000 — 28,000 —
Derivative liabilities 18,517 18,517 — 18,517 —


	June 30, 2021
(in thousands)	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	63,434	$	63,434	$	63,434	$	0	$	0
Debt securities available for sale	2,072,452		2,072,452		0		2,072,452		0
Loans held for sale	6,149		6,303		0		6,303		0
Loans held for investment, net	3,282,156		3,302,688		0		0		3,302,688
Interest receivable	19,758		19,758		0		19,758		—
FHLB stock	12,687		12,687		0		12,687		—
Derivative assets	6,607		6,607		0		6,607		0
Financial liabilities:
Noninterest bearing deposits	952,764		952,764		952,764		0		0
Interest bearing deposits	3,839,902		3,839,869		2,947,824		892,045		0
Short-term borrowings	212,261		212,261		212,261		0		—
Finance leases payable	1,026		1,026		0		1,026		0
FHLB borrowings	63,151		64,653		0		64,653		0
Junior subordinated notes issued to capital trusts	41,852		34,131		0		34,131		0
Subordinated debentures	63,810		67,384		0		67,384		0

Derivative liabilities	7,982		7,982		0		7,982		0


	December 31, 2020
(in thousands)	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	82,659	$	82,659	$	82,659	$	0	$	0

Debt securities available for sale	1,657,381		1,657,381		0		1,657,381		0

Loans held for sale	59,956		60,039		0		60,039		0
Loans held for investment, net	3,426,723		3,469,515		0		0		3,469,515
Interest receivable	21,706		21,706		0		21,706		0
FHLB stock	13,784		13,784		0		13,784		0
Derivative assets	10,796		10,796		0		10,796		0
Financial liabilities:
Noninterest bearing deposits	910,655		910,655		910,655		0		0
Interest bearing deposits	3,636,394		3,640,365		2,800,046		840,319
Short-term borrowings	230,789		230,789		230,789		0		0
Finance leases payable	1,096		1,096		0		1,096		0
FHLB borrowings	91,198		93,380		0		93,380
Junior subordinated notes issued to capital trusts	41,763		33,986		0		33,986
Subordinated debentures	74,634		77,228		0		77,228		0

Derivative liabilities	13,267		13,267		0		13,267		0

December 31, 2019
(in thousands)
Carrying
Amount
Estimated
Fair Value
Level 1 Level 2 Level 3
Financial assets:
Cash and cash equivalents $ 73,484 $ 73,484 $ 73,484 $ — $ —
Debt securities available for sale 785,977 785,977 — 785,977 —
Loans held for sale 5,400 5,476 — 5,476 —
Loans held for investment, net 3,422,187 3,427,952 — — 3,427,952
Interest receivable 18,525 18,525 — 18,525 —
Federal Home Loan Bank stock 15,381 15,381 — 15,381 —
Derivative assets 1,848 1,848 — 1,848 —
Financial liabilities:
Non-interest bearing deposits 662,209 662,209 662,209 — —
Interest-bearing deposits 3,066,446 3,066,427 2,113,000 953,427 —
Short-term borrowings 139,349 139,349 139,349 — —
Finance leases payable 1,224 1,224 — 1,224 —
Federal Home Loan Bank borrowings 145,700 146,913 — 146,913 —
Junior subordinated notes issued to capital trusts 41,587 39,391 — 39,391 —
Subordinated debentures 10,899 11,083 — 11,083 —
Other long-term debt 32,250 32,250 — 32,250 —
Derivative liabilities 3,242 3,242 — 3,242 —

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~~16.~~14. Leases

A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. The Company adopted FASB Topic 842 on January 1, 2019.

Substantially all of the leases in which the Company is the lessee are comprised of real estate property for ~~branches~~banking offices and office space with terms extending through 2025. We do not have any subleased properties. Substantially all of our leases are classified as operating leases, ~~and therefore, were previously not recognized on~~with the ~~Company’s consolidated balance sheets. The~~ Company ~~has one~~only holding 1 existing finance lease ~~(previously referred to as a capital lease)~~ for a ~~branch~~banking office location with a lease term through 2025.

Supplemental balance sheet information related to leases was as follows:


(in thousands)	(in thousands)	Classification	June 30, 2020			December 31, 2019			(in thousands)	Classification	June 30, 2021			December 31, 2020
Lease Right-of-Use Assets	Lease Right-of-Use Assets								Lease Right-of-Use Assets
Operating lease right-of-use assets	Operating lease right-of-use assets	Other assets	$	4,067		$	4,499		Operating lease right-of-use assets	Other assets	$	3,232		$	3,613
Finance lease right-of-use asset	Finance lease right-of-use asset	Premises and equipment, net	589			637			Finance lease right-of-use asset	Premises and equipment, net	494			542
Total right-of-use assets	Total right-of-use assets		$	4,656		$	5,136		Total right-of-use assets		$	3,726		$	4,155

Lease Liabilities	Lease Liabilities								Lease Liabilities
Operating lease liability	Operating lease liability	Other liabilities	$	5,036		$	5,430		Operating lease liability	Other liabilities	$	4,184		$	4,583
Finance lease liability	Finance lease liability	Long-term debt	1,162			1,224			Finance lease liability	Long-term debt	1,026			1,096
Total lease liabilities	Total lease liabilities		$	6,198		$	6,654		Total lease liabilities		$	5,210		$	5,679

Weighted-average remaining lease term	Weighted-average remaining lease term								Weighted-average remaining lease term
Operating leases	Operating leases		8.22 years			8.90 years			Operating leases		9.03 years			8.82 years
Finance lease	Finance lease		6.17 years			6.67 years			Finance lease		5.17 years			5.67 years

Weighted-average discount rate	Weighted-average discount rate								Weighted-average discount rate
Operating leases	Operating leases		3.58		%	3.78		%	Operating leases		4.01		%	3.92		%
Finance lease	Finance lease		8.89		%	8.89		%	Finance lease		8.89		%	8.89		%

The calculated amount of the right-of-use assets and lease liabilities in the table above are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. The Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability. Regarding the discount rate, Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term. For operating leases existing prior to January 1, 2019, the rate for the remaining lease term as of January 1, 2019 was used. For finance leases, the Company utilizes the rate implicit in the lease.

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The following table represents lease costs and other lease information. As the Company elected, for all classes of underlying assets, not to separate lease and non-lease components and instead to account for them as a single lease component, the variable lease cost primarily represents variable payments such as common area maintenance and utilities.


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2021		2020		2021		2020
Lease Costs
Operating lease cost	$	294	$	409	$	593	$	728
Variable lease cost	20		109		93		147

Interest on lease liabilities(1)	23		26		46		52
Amortization of right-of-use assets	24		24		48		48
Net lease cost	$	361	$	568	$	780	$	975

Other Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	530	$	651	$	1,102	$	1,154
Operating cash flows from finance lease	23		26		46		52
Finance cash flows from finance lease	35		31		70		62

Supplemental non-cash information on lease liabilities:
Right-of-use assets obtained in exchange for new operating lease liabilities	119		94		119		94

Three Months Ended Six Months Ended
June 30, June 30,
(in thousands) 2020 2019 2020 2019
Lease Costs
Operating lease cost $ 409 $ 257 $ 728 $ 450
Variable lease cost 109 13 147 40
Short-term lease cost — — — —
Interest on lease liabilities ⁽¹⁾
26 28 52 57
Amortization of right-of-use assets 24 24 48 48
Net lease cost $ 568 $ 322 $ 975 $ 595
Other Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 651 $ 455 $ 1,154 $ 838
Operating cash flows from finance lease 26 41 52 83
Finance cash flows from finance lease 31 28 62 55
Right-of-use assets obtained in exchange for new operating lease liabilities 94 1,599 94 1,599
Right-of-use assets obtained in exchange for new finance lease liabilities — — — —

(1)Included in long-term debt interest expense in the Company’s consolidated statements of income. All other lease costs in this table are included in occupancy expense of premises, net.

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Future minimum payments for finance leases and operating leases with initial or remaining terms of one year or more as of June 30, ~~2020~~2021 were as follows:


(in thousands)	(in thousands)	Finance Leases		Operating Leases		(in thousands)	Finance Leases		Operating Leases
Twelve Months Ended:	Twelve Months Ended:					Twelve Months Ended:
December 31, 2020		$	116	$	554
December 31, 2021	December 31, 2021	235		1,093		December 31, 2021	$	118	$	528
December 31, 2022	December 31, 2022	240		993		December 31, 2022	240		1,008
December 31, 2023	December 31, 2023	245		932		December 31, 2023	245		947
December 31, 2024	December 31, 2024	250		702		December 31, 2024	250		717
December 31, 2025						December 31, 2025	255		247
Thereafter	Thereafter	426		2,138		Thereafter	171		1,973
Total undiscounted lease payment	Total undiscounted lease payment	$	1,512	$	6,412	Total undiscounted lease payment	$	1,279	$	5,420
Amounts representing interest	Amounts representing interest	(350)		(1,376)		Amounts representing interest	(253)		(1,236)
Lease liability	Lease liability	$	1,162	$	5,036	Lease liability	$	1,026	$	4,184

~~17.~~15. Subsequent Events

On July 29, 2020, the board of directors of the Company declared a cash dividend of $0.22 per share payable on September 15, 2020 to shareholders of record as of the close of business on September 1, 2020.

On July 28, 2020, the Company completed a private placement offering of $65.0 million of subordinated debt with registration rights. The 5.75% fixed-to-floating rate subordinated notes are due July 2030. For regulatory capital purposes, the subordinated notes have been structured to qualify initially as Tier 2 Capital for the Company.

~~On July 28, 2020, the Company paid, with interest, the total amount that was outstanding under the Company's revolving credit facility, which was $10.0 million as of June 30, 2020.~~

Effective October 28, 2020, the Company plans to consolidate its branch office in Newport, Minnesota into its nearby branch office in South St. Paul, Minnesota. This branch consolidation is part of the Company's strategy to improve operating efficiency. The Company estimates the branch consolidation will reduce its annual operating expenses by approximately $360 thousand.

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The Company has evaluated events that have occurred subsequent to June 30, ~~2020~~2021 and has concluded there are no other subsequent events that would require recognition in the accompanying consolidated financial statements.

On July 20, 2021, the board of directors of the Company declared a cash dividend of $0.2250 per share payable on September 15, 2021 to shareholders of record as of the close of business on September 1, 2021.

Pursuant to the Company’s new share repurchase program approved on June 22, 2021, the Company has purchased 88,377 shares of common stock subsequent to June 30, 2021 and through August 3, 2021 for a total cost of $2.5 million inclusive of transaction costs, leaving $11.9 million remaining available under the program.

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

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-Q contains certain “forward-looking statements” within the meaning of such term in the Private Securities Litigation Reform Act of 1995. We and our representatives may, from time to time, make written or oral statements that are “forward-looking” and provide information other than historical information. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from any results, levels of activity, performance or achievements expressed or implied by any forward-looking statement. These factors include, among other things, the factors listed below. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of our management and on information currently available to management, are generally identifiable by the use of words such as “believe,” “expect,” “anticipate,” “should,” “could,” “would,” “plans,” “intend,” “project,” “estimate,” “forecast,” “may” or similar expressions. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in, or implied by, these statements. Readers are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Additionally, we undertake no obligation to update any statement in light of new information or future events, except as required under federal securities law.

Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors that could have an impact on our ability to achieve operating results, growth plan goals and future prospects include, but are not limited to, the following:

•the effects of the COVID-19 pandemic, including its effects on the economic environment, our customers and our operations, as well as any changes to federal, state, or local government laws, regulations, or orders in connection with the pandemic;

•government intervention in the U.S. financial system in response to the COVID-19 pandemic, including the effects of recent legislative, tax, accounting and regulatory actions and reforms, including the ~~Coronavirus Aid, Relief,~~CARES Act, the CAA and ~~Economic Security~~the American Rescue Plan Act;

•the impact of the COVID-19 pandemic on our financial results, including possible lost revenue and increased expenses (including the cost of capital), as well as possible goodwill impairment charges;

•credit quality deterioration or pronounced and sustained reduction in real estate market values ~~could cause~~causing an increase in ~~our~~the allowance for credit losses, an increase in the credit loss expense, and a reduction in net earnings;

•the effects of interest rates, including on our net income and the value of our securities portfolio;

•changes in the economic environment, competition, or other factors that may affect our ability to acquire loans or influence the anticipated growth rate of loans and deposits and the quality of the loan portfolio and loan and deposit pricing;

•fluctuations in the value of our investment securities;

•governmental monetary and fiscal policies;

•changes in and uncertainty related to benchmark interest rates used to price ~~our~~ loans and deposits, including the expected elimination of ~~LIBOR;~~LIBOR, and the adoption of a substitute;

•legislative and regulatory changes, including changes in banking, securities, ~~consumer protection,~~ trade, and tax laws and regulations and their application by our regulators;

•the ability to attract and retain key executives and employees experienced in banking and financial services;

•the sufficiency of the allowance for credit losses to absorb the amount of actual losses inherent in our existing loan portfolio;

•our ability to adapt successfully to technological changes to compete effectively in the marketplace;

•credit risks and risks from concentrations (by geographic area and by industry) within our loan portfolio;

•the effects of competition from other commercial banks ~~thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds, financial technology companies,~~ and other financial institutions operating in our markets or elsewhere or providing similar services;

•the failure of assumptions underlying the establishment of ~~the allowance~~allowances for credit losses and estimation of values of collateral and various financial assets and liabilities;

•the risks of mergers, including, without limitation, the related time and costs of implementing such transactions, integrating operations as part of these transactions and possible failures to achieve expected gains, revenue growth and/or expense savings from such transactions;

•volatility of rate-sensitive deposits;

•operational risks, including data processing system failures or fraud;

•asset/liability matching risks and liquidity risks;

•the costs, effects and outcomes of existing or future litigation;

•changes in general economic, political, or industry conditions, nationally, internationally or in the communities in which we conduct business;

•changes in accounting policies and practices, as may be adopted by state and federal regulatory agencies and the ~~FASB, such as the implementation of CECL;~~FASB;

•war or terrorist activities, widespread disease or ~~pandemics, such as the COVID-19~~ pandemic, or other adverse external events, which may cause deterioration in the economy or cause instability in credit markets;

•the effects of cyber-attacks;

•the imposition of tariffs or other domestic or international ~~government~~governmental policies impacting the value of the agricultural or other products of our borrowers; and

•other factors and risks described under “Risk Factors” in this Form 10-Q and in other reports we file with the SEC.

We qualify all of our forward-looking statements by the foregoing cautionary statements. Because of these risks and other uncertainties, our actual future results, performance or achievement, or industry results, may be materially different from the results indicated by these forward-looking statements. In addition, our past results of operations are not necessarily indicative of our future results.

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OVERVIEW

The Company provides financial services to individuals, businesses, governmental units and institutional customers located primarily in the upper Midwest through its bank subsidiary, MidWestOne Bank. The Bank has locations throughout central and eastern Iowa, the Minneapolis/St. Paul metropolitan area of Minnesota, southwestern Wisconsin, southwestern Florida, and Denver, Colorado.

The Bank is focused on delivering relationship-based business and personal banking products and services. The Bank provides commercial loans, real estate loans, agricultural loans, credit card loans, and consumer loans. The Bank also provides deposit products including demand and interest checking accounts, savings accounts, money market accounts, and time deposits. Complementary to our loan and deposit products, the Bank also provides products and services including treasury management, Zelle, online and mobile banking, credit and debit cards, ATMs, and safe deposit boxes. The Bank also has a trust department through which it offers services including the administration of estates, personal trusts, and conservatorships and the management of real property. Finally, the Bank’s investment services department offers financial planning, investment advisory, and retail securities brokerage services (the latter of which is provided through an agreement with a third-party registered broker-dealer).

Our results of operations ~~depend primarily on~~are significantly affected by our net interest income, which is the difference between the interest income on our interest-earning assets, such as loans and securities held for investment, and the interest expense paid on our deposits and borrowings.income. Results of operations are also affected by noninterest income and expense, credit loss expense and income tax expense. Significant external factors that impact our results of operations include general economic and competitive conditions, as well as changes in market interest rates, government policies, and actions of regulatory authorities.

The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes and the statistical information and financial data appearing in this report as well as our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, filed with the SEC on March ~~6, 2020.~~11, 2021. Results of operations for the three and six months ended June 30, ~~2020~~2021 are not necessarily indicative of results to be attained for any other period.

COVID-19 Update

The outbreak of the COVID-19 pandemic in the United States has had an adverse impact on our financial condition and results of operations as of and for the three and six months ended June 30, ~~2020,~~2021, and is expected to have a complex and significant adverse impact on the economy, the banking industry and the Company in future fiscal periods, all subject to a high degree of uncertainty.

Effects on Our Market Areas.

Our commercial and consumer banking products and services are offered primarily in Iowa, Minnesota, Wisconsin, Florida and Colorado, where individual and governmental responses to the COVID-19 pandemic led to a broad curtailment of economic activity beginning in March 2020. ~~More recently,~~Since the outbreak of the COVID-19 pandemic, we've seen in our markets a variety of responses to the ~~COVID-19~~ pandemic, ~~as the economy has begun to re-open,~~ which have included social distancing protocols, limitations on the numbers of customers at restaurants and retail stores, limitations of social gathering sizes, safety practices for the at-risk and elderly, as well as other safeguarding practices.

~~In Iowa,~~ Each of our market areas have also had varying responses to the ~~Governor issued an order on July 24, 2020 that is effective unless otherwise modified until August 23, 2020 that includes social distancing requirements, in addition~~COVID-19 pandemic due to ~~encouraging all vulnerable Iowans, including those with pre-existing medical conditions and~~ the elderly, to continue to limit their activities outside of their home. A similar proclamation was made in Minnesota by the Governor that extends previous orders which included social distancing protocols, limitations of social gatherings, and other similar requirements, and is effective through August 12, 2020. The Wisconsin Supreme Court lifted the prior stay at home order requirements on May 13, 2020 that were previously enacted by the Governor and were set to expire on May 26, 2020, which allowed for the State to begin to re-open with the ability of local authorities to establish their own social distancing requirements. On July 7, 2020, the Governor of Florida extended the prior state of emergency and also stated that all other previous actions, including the state's step-by-step plans for re-opening, remain in effect, unless otherwise modified. The state of Florida is currently working under Phase 2availability of the ~~plan, which includes social distancing protocols, limitations~~COVID-19 vaccine. The Bank's banking offices have remained open during these orders because the Bank is deemed to be an essential business. While it appears that economic conditions are trending in a positive direction as of social gatherings, and other similar requirements. In Colorado, the Governor issued various orders on July 21, 2020 and July 23, 2020 that both amended and extended prior orders that were issued that contained social distancing protocols for the state. These social distancing requirements are similar to those of other states, and include provisions for the protection of the at-risk population. Based on the current environment,June 30, 2021, it is unclear how the states in our market areas will continue to change ~~or relax their stay at home~~policies in response to the COVID-19 pandemic and ~~social distancing policies.~~the impact of these policies on our customers and regional economies.

The U.S. ~~has~~ experienced a substantial decline nationally in economic condition ~~as indicated by the annualized 32.9% GDP contraction~~ in ~~the second quarter of~~ 2020. ~~In addition, the~~The national unemployment rate has fluctuated since the outbreak of the COVID-19 pandemic and has declined from 6.7% in December 2020 to 5.9% in June 2021, but remains elevated when compared to the pre-pandemic levels in February 2020 of ~~11.1% is substantially higher than~~3.5% per the ~~national unemployment rate in June 2019, which had a national unemployment rate of 3.7% per~~ U.S. Department of Labor.

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Policy and Regulatory Developments

Federal, state, and local governments and regulatory authorities throughout 2020 and into the first half of 2021 have enacted and issued a range of policy responses to the COVID-19 ~~pandemic, including~~pandemic. More recently, these have included policies such as the following:

•~~The Federal Reserve decreased the range for the federal funds target rate by 0.5%~~President Biden on March ~~3, 2020, and by another 1.0% on March 16, 2020, reaching~~11, 2021 signed into law the American Rescue Plan Act of 2021, a ~~current range~~new $1.9 trillion COVID-19 relief bill. The bill includes a variety of ~~0.0 – 0.25%.~~

•~~On March 27, 2020, President Trump signed the Coronavirus Aid, Relief and Economic Security Act, or CARES Act, which established a $2.0 trillion~~ economic stimulus package, including cash payments to individuals, supplemental unemployment insurance benefits and a $349 billion loan program administered through the U.S. Small Business Administration ("SBA"), referred toassistance programs for Americans, such as the ~~Paycheck Protection Program ("PPP"). Under the PPP, small businesses, sole proprietorships, independent contractors~~payment of an additional stimulus check, extension of job benefits, additional funding for coronavirus testing and self-employed individuals may apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility criteria. The Bank is participating as a lender in the PPP. The provisions of the PPP were modified on June 5, 2020 by the Paycheck Protection Program Flexibility Act of 2020. In addition, the CARES Act provides financial institutions the option to temporarily suspend certain requirements under GAAP related to TDRs for a limited period of time to account for the effects of COVID-19. See ~~Note~~ 4 ~~. Loans Receivable and the Allowance for Credit Losses~~ ~~for additional information on TDRs.~~

•On April 7, 2020, federal banking regulators issued a revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions, which, among other things, encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19, and stated that institutions generally do not need to categorize COVID-19-related modifications as TDRs and that the agencies will not direct supervised institutions to automatically categorize all COVID-19 related loan modifications as TDRs. See ~~Note~~ 4 ~~. Loans Receivable and the Allowance for Credit Losses~~ ~~for additional information on TDRs.~~

•On April 9, 2020, the FRB announced additional measures aimed at supporting small and mid-sized business, as well as state and local governments impacted by COVID-19. The FRB announced the Main Street Business Lending Program, which establishes two new loan facilities intended to facilitate lending to small and mid-sized businesses: (1) the Main Street New Loan Facility ("MSNLF"), and (2) the Main Street Expanded Loan Facility ("MSELF"). MSNLF loans are unsecured term loans originated on or after April 8, 2020, while MSELF loans are provided as upsized tranches of existing loans originated before April 8, 2020. The combined size of the program will be up to $600 billion. The program is designed for businesses with up to 10,000 employees or $2.5 billion in 2019 revenues. In addition, the FRB created a Municipal Liquidity Facility ("MLF") to support state and local governments with up to $500 billion in lending, with the Treasury Department backing $35 billion for the facility using funds appropriated by the CARES Act. The facility will make short-term financing available to cities with a population of more than one million or counties with a population of greater than two million. The FRB expanded both the size and scope its Primary and Secondary Market Corporate Credit Facilities to support up to $750 billion in credit to corporate debt issuers. This will allow companies that were investment grade before the onset of COVID-19 but then subsequently downgraded after March 22, 2020 to gain access to the facility. Finally, the FRB announced that its Term Asset-Backed Securities Loan Facility will be scaled up in scope to include the triple A-rated tranche of commercial mortgage-backed securities and newly issued collateralized loan obligations. The size of the facility is $100 billion.

•On April 27, 2020, the FRB made additional revisions to the MLF. These revisions expand the population thresholds that will be able to borrow from the MLF as compared to the initial plan that was announced on April 9, 2020. In addition, as part of these revisions, the term of the notes and corresponding termination date of the MLF were both extended. Specifically, the initial term of the notes was extended from 24 months to 36 months from the date of issuance, and the termination date of the MLF is now December 31, 2020.

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

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~~the manner~~distribution, an infusion of cash in ~~which they conducted periodic examinations~~state and local governments, an array of ~~their regulated institutions, including making greater use~~tax benefits, and expansion and modification of off-site reviews. The FRB also issued guidance encouraging banking institutions to utilize its discount window for loans and intraday credit extended by its Reserve Banks to help households and businesses impacted by the pandemic and announced numerous funding facilities. The FDIC has also acted to mitigate the deposit insurance assessment effects of participating in the PPP, ~~and the Federal Reserve’s PPP Liquidity Facility and Money Market Mutual Fund Liquidity Facility.~~among other economic incentives.

~~Effects~~•President Biden on ~~Our Business~~.

~~We currently expect that~~March 30, 2021 signed into law the ~~COVID-19 pandemic~~PPP Extension Act of 2021, which set a deadline for qualifying businesses to apply for a PPP loan of May 31, 2021, and provided an additional 30 days for the ~~specific developments referred~~SBA to above will have a significant impact on our business. In particular, we anticipate that a significant portion of the Bank’s borrowers in the non-essential retail, restaurants, hotels, CRE-retail, and arts, entertainment & gaming industries will endure significant economic distress which will adversely affect their ability to repay existing indebtedness. These developments, together with economic conditions generally, are also expected to impact the value of certain collateral securing our loans. As a result, we anticipate that our financial condition, capital levels and results of operations will be significantly adversely affected, as described in further detail below.process pending PPP loan applications.

Our Response.

~~The Company has invoked its Business Continuity Plan that includes a remote working strategy.~~ Our response to COVID-19 iscontinues to be focused on how we can best serve our employees, customers, and communities. The Bank has ~~continued serving its customers through~~utilized a combination of digital banking, voice, branch drive-thru and other ~~channels.~~channels in order to meet the needs of our customers. We ~~began re-opening selected branch lobbies on June 1, 2020 and are actively managing lobby access based on local COVID-19 community spread conditions. In addition, we have~~ implemented additional safety measures to achieve appropriate social distancing for both customers and employees throughout our ~~locations, with all of our locations having capacity restrictions, requirements to wear protective face coverings, among other social distancing requirements for both customers and employees.~~locations. We have ~~also increased our cleaning services~~continued to adjust procedures and ~~implemented business travel restrictions.~~restrictions based on local conditions and generally in alignment with guidance from the Centers for Disease Control.

We continue to work with our customers to ~~determine~~understand the level of impact tothe pandemic has had on their business operations as the pandemic continues to determine how best to serve them in these unprecedented times. Additionally, we implemented a loan payment deferral program and assisted our clients through the PPP. We ~~also~~ continue to lend to qualified businesses for working capital and general business purposes, while also meeting the needs of our individual customers. Further, we implemented a loan payment deferral program and assisted our clients through the PPP, including 2,534 existing and new customers in the amount of $345.4 million, and the CARES Act SBA payment forgiveness program. We have committed an additional $150,000 to our annual charitable giving. Further, we recently partnered with other local banks in the Iowa City area in the ~~Holding our Own~~ ~~program. This program encourages the community to shop local, with a goal of motivating over $1.0 million of local spending. Despite this challenging environment, MidWestOne~~ ~~remains open for business.~~

Financial Condition & Results of ~~Operations.~~Operations

Net Interest Income. The Company's net interest income continues to be impacted by the monetary policy tools that were implemented by the FRB in March 2020 to stimulate the economy and influence overall growth and distribution of credit, bank loans, investments and deposits, and also to affect interest rates charged on loans ~~could be~~or paid on deposits. These actions reduced ~~due~~both short-term and long-term interest rates and added significantly to ~~COVID-19~~the country’s money supply. Thus, the interest rates at which we originated new loans and ~~due to reductions~~repriced existing loans were generally lower than pre-pandemic existing loan portfolio rates, reducing loan interest income. In addition, while we've generally seen a decline in the ~~targeted federal funds rate. In keeping with guidance from regulators, the Company is actively working with~~number of COVID-19 affected borrowers ~~to defer their~~who have requested a deferral of loan principal and/or interest payments interest, and fees. While interest and fees will still accrue to income, through normal GAAP accounting, should eventual credit losses on these deferred payments emerge, interest income and fees accrued would need to be reversed. In such a scenario, interest income in future periods could be negatively impacted. At this time, the Company is unable to project the materiality of such an impact, but recognizes the breadth ofsince March 31, 2021, we recognize that the economic impact from COVID-19 may affect ~~its borrowers’~~our borrowers' ability to repay the deferred principal and interest in future ~~periods.~~periods, which would reduce interest income. We are unable to project the materiality that such actions may have on the Company's results of operations.

Further, the aforementioned increase in the country’s money supply, in combination with the fiscal stimulus and general economic uncertainty amid the COVID-19 pandemic, weakened customer loan demand and line utilization, but increased customer deposit balances. As a result, the Company invested the net deposit inflows into debt securities, which generally carry a lower yield than loans. In addition, ~~the Company's interest income on investment securities could be reduced due to COVID-19. A~~a severe and sustained economic downturn could impact the debt securities issuers' ability to make payments on debt or to raise additional funds to continue operations, which could result in ana reduction in interest income from debt securities and increased credit loss expense. ~~In addition, the Company's~~With respect to interest expense, ~~could be impacted by COVID-19 due~~the reduction in short-term interest rates led to ~~changes~~a corresponding reduction in the rates we pay for customer deposit accounts and short-term borrowings. Finally, the Company’s funding ~~mix. An~~mix changed favorably toward lower cost deposit products. However, an extended recession could cause large numbers of our deposit customers to withdraw their funds, which could increase our reliance on more volatile or expensive funding sources.

Credit Loss Expense. The Company's credit loss expense iswas impacted by COVID-19. ~~Pertaining~~In 2020, the overall increase in the ACL reflected the impact that the COVID-19 pandemic had on current and forecasted economic conditions that were utilized in our ACL model. As it pertains to our June 30, ~~2020~~2021 financial condition and results of operations, ~~COVID-19 continued~~our ACL declined compared to ~~impact our ACL. While we have not yet experienced any charge-offs related~~December 31, 2020 due to ~~COVID-19,~~overall improvements in forecasted economic conditions and an improved outlook on the credit risk profile. However, as our ACL calculation and credit loss expense are significantly impacted by changes in forecasted economic ~~conditions. Throughout the first and second quarters of 2020, the COVID-19 pandemic has continued to drive a~~conditions, significant ~~increase in credit loss expense due to the worsening of forecasted conditions. Significant~~ worsening of forecasted conditions is possible and would result in further increases in the ACL and credit loss expense in future periods.

Noninterest Income. The ~~Company’s~~Company's fee income ~~could be reduced due to~~has been impacted by COVID-19. For example, in keeping with guidance from regulators, during the second and third quarters of 2020, the Company ~~is actively working~~worked with COVID-19 affected customers ~~to waive~~and temporarily waived fees from a variety of sources, such as, but not limited to, insufficient funds and overdraft fees, ATM fees, and account maintenance ~~fees, etc. These reductions~~fees. At this time, the Company is unable to project whether such fee waivers will be implemented again in the future and the materiality of such actions on the Company's noninterest income, but recognizes the breadth of the long-term economic impact from COVID-19 can impact its fee income in future periods.

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fees are expected, at this time, to be temporary in conjunction with the length of the expected COVID-19 related economic crisis. At this time, the Company is unable to project the materiality of such an impact, but recognizes the breadth of the economic impact from COVID-19 is likely to impact its fee income in future periods.

Noninterest Expense. We anticipate increases in noninterest expenses that are a result of COVID-19 for additional cleaning services, protective equipment, supplies, and expanded IT equipment and network/information services. We also anticipate employee productivity will also decline due to pandemic-related absences and normal challenges associated with working remotely. We also anticipate that theThe PPP ~~loan program will impact noninterest expense by impacting~~has impacted the timing of compensation and benefit expense as PPP loan origination costs are deferred and ~~due~~amortized over the life of the loan to which they relate. In addition, the PPP led to increased information service ~~expenses.~~expenses as a result of the Company's adoption of a PPP loan origination platform in the second quarter of 2020.

Credit Administration. The federal government has taken several actions designed to cushion the economic impact as a result of COVID-19 and related restrictions. Section 4013 of the CARES Act, “Temporary Relief From Troubled Debt Restructurings,” ~~allows~~and guidance from the FRB and the FDIC allow financial institutions the option to temporarily suspend certain requirements under ~~U.S.~~ GAAP related to TDRs for a limited period of time during the COVID-19 ~~pandemic. In March 2020, various regulatory agencies, including the FRB~~pandemic and the FDIC, issued an interagency statement, effective immediately, on loan modifications and reporting for financial institutions working with customers affected by COVID-19. The agencies confirmed with the staff of the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not to be considered TDRs. This includes short-term (e.g., six months) modifications, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. As of June 30, ~~2020,~~2021, the ~~total amount~~outstanding balance of loans modified as a result of the ~~eligible loans in deferral (deferral~~COVID-19 pandemic was $21.0 million, as compared to $44.1 million as of principal and/or interest) that met the requirements set forth under the interagency statement and therefore were not considered TDRs was 832 loans, totaling $462.2 million. We anticipate that the current and future economic conditions will continue to have an impact on the initial modifications that were made that qualified under such criteria. As such, we expect the Company's financial statements will be materially impacted by the CARES Act and the interagency guidance, of which at this time the total impact cannot be quantified.

December 31, 2020. The Company is ~~actively~~unable to project the overall impact that such loan modifications and future loan modifications will have on our financial statements.

The Bank was a participating lender in ~~assisting its customers with applications for resources through~~ the PPP. The PPP loans have a two-year or five-year term and earn interest at 1%. Loans funded through the PPP are fully guaranteed by the U.S. government if certain criteria are met. The Company believes that the majority of these loans will ~~ultimately~~ be forgiven by the SBA in accordance with the terms of the program. ~~As of June 30, 2020, the Company had $327.6 million in outstanding PPP loans. Loans funded through the PPP program are fully guaranteed by the U.S. government if certain criteria are met.~~ Should those circumstances change, the Company could be required to establish additional allowance for credit loss through additional credit loss expense charged to earnings. As of June 30, 2021, the Company had $184.4 million in outstanding PPP loans, with $6.5 million of unamortized net loan origination fees. We expect PPP loans outstanding will continue to decline after June 30, 2021 as a result of PPP loan forgiveness.

Loan Portfolio.

WeCOVID-19 has impacted the Company's loan growth, and we anticipate that loan growth will continue to be impacted in the ~~future as a result of COVID-19 and the related decline in economic conditions in our market areas.~~future. While all industries have and will continue to experience adverse impacts as a result of the COVID-19 pandemic, we had exposures in the following industries that we ~~considered~~believe to be ~~"vulnerable"~~uniquely vulnerable to ~~significant impact~~credit deterioration stemming from the COVID-19 pandemic as of June 30, ~~2020.~~

Balance % of Gross Loans Held for Investment
(in thousands)
Non-essential retail $ 107,878 3.00 %
Restaurant 60,668 1.69 %
Hotel 122,623 3.41 %
CRE - Retail 208,423 5.79 %
Arts, entertainment, and gaming 21,550 0.60 %
$ 521,142 14.49 %

~~Goodwill and Other Intangible Assets.~~ The Company's goodwill and other intangible assets could be impacted by the COVID-19 pandemic. A sustained economic downturn could impact the Company's asset valuation or results of operations, which could result in an impairment of goodwill or other intangible assets. The Company completed an interim goodwill assessment that contemplates a single reporting unit as of June 30, 2020. Based upon our interim assessment, we concluded that no impairment existed at that time. The estimated fair value of the reporting unit equaled approximately $540.6 million, which exceeded the carrying value by approximately $19.8 million.2021.


	Balance		% of Total Loans
(dollars in thousands)
Non-essential retail	$	78,414	2.4	%
Restaurants	51,319		1.5
Hotels	108,209		3.2
CRE - Retail	202,582		6.1
Arts, entertainment, and gaming	23,032		0.7
	$	463,556	13.9	%

Capital and ~~liquidity.~~liquidity

As of June 30, ~~2020,~~2021, all of our capital ratios, and ~~our subsidiary bank’s~~the Bank’s capital ratios, were in excess of all regulatory requirements. While we believe that we have sufficient capital to withstand an extended economic recession brought about by COVID-19, our reported and regulatory capital ratios could be adversely impacted by further credit losses. ~~On July 28, 2020,~~

~~Table of Contents~~

the Company completed the private placement of $65.0 million of its subordinated notes with registration rights. The 5.75% fixed-to-floating rate subordinated notes are due July 2030. For regulatory capital purposes, the subordinated notes have been structured to qualify initially as Tier 2 Capital for the Company. We rely on cash on hand as well as dividends from ~~our subsidiary bank~~the Bank to service our debt. If our capital deteriorates such that our ~~subsidiary bank~~Bank is unable to pay dividends to us for an extended period of time, we may not be able to service our debt. If ~~an extended recession caused~~ large numbers of our deposit customers to withdraw their funds, we might become more reliant on volatile or more expensive sources of funding.

~~We discontinued repurchases of our stock in mid-March 2020 and have no near-term plans to resume repurchases until we have more clarity on~~As stated above, liquidity was also impacted by the ~~economic outlook.~~

~~Processes, controls and business continuity plan~~

~~The Company has invoked its Business Continuity Plan that includes a remote working strategy. The Company does not anticipate incurring additional material cost related to its continued deployment~~actions of the ~~remote working strategy. No material operational~~federal, state, and local governments and other regulatory authorities in response to COVID-19. Specifically, the FRB’s use of a variety of monetary policy tools to stimulate the economy and influence overall growth and distribution of credit, bank loans, investments and deposits, and also to affect interest rates charged on loans or ~~internal control challenges or risks have been identified~~paid on deposits, included tactics such as the reduction in the reserve requirement ratio to ~~date as a result of~~zero, reduction in the ~~contingencies we have had~~target federal funds rate, and also commencing quantitative easing by purchasing longer-term Treasury and mortgage-backed securities. These aforementioned monetary policy tools utilized by the FRB significantly added to ~~deal with as a result of COVID-19. The Company does not anticipate significant challenges to its ability to maintain its systems and controls in light of~~ the ~~measures the Company has taken to prevent the spread of COVID-19. The Company does not currently face any material resource constraint through the implementation of its business continuity plans.~~country’s money supply.

Critical Accounting Estimates

Management has identified the accounting policies related to the ACL, ~~accounting for~~fair value of assets acquired and liabilities assumed in a business ~~combinations,~~combination, and the annual impairment testing of goodwill and other intangible assets asto be critical accounting ~~estimates.~~policies. Information about our critical accounting estimates is included under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, filed with the SEC on March 6,11, 2021, and there have been no material changes in these critical accounting policies since December 31, 2020.

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RESULTS OF OPERATIONS

Comparison of Operating Results for the Three Months Ended June 30, ~~2020~~2021 and June 30, ~~2019~~2020

Summary

~~On May 1, 2019, we completed the acquisition of ATBancorp. The effects of this acquisition are one of the primary causes of the changes in our operating results~~Overall: Our consolidated net income for the three months ended June 30, ~~2020 compared to the three months ended June 30, 2019, unless otherwise noted.~~

~~For the three months ended June 30, 2020, we earned~~2021 was $17.3 million, an increase of $5.6 million, from net income of $11.7 ~~million, which was an increase of $1.0 million from $10.7~~ million for the three months ended June 30, ~~2019.~~2020. The increase in net income was due primarily to a ~~$3.9~~decline in credit loss expense of $6.8 million, or ~~11.1%~~145.8%, coupled with an increase of $1.9 million, or 23.6%, in noninterest income. Partially offsetting the identified increases to net income was an increase of $0.6 million, or 2.3%, in noninterest expense, a $2.4 million increase in income tax expense, and a $0.2 million, or 0.5%, decrease in net interest income.

Credit Loss (Benefit) Expense: The credit loss benefit recorded in the second quarter of 2021 reflected overall improvements in the economic forecast and an improved outlook on the credit risk profile. In the second quarter of 2020, the Company recorded a credit loss expense primarily due to the impact of economic uncertainty stemming from the COVID-19 pandemic on forecasted economic conditions.

Noninterest Income: Noninterest income ~~combined~~increased primarily due to increases in loan revenue, card revenue, and investment services and trust activities of $1.2 million, $0.7 million, and $0.6 million, respectively. The increase in loan revenue was reflective of a $0.8 million increase stemming from the fair value of our mortgage servicing rights, coupled with a ~~decrease of $1.0~~$0.4 million ~~or 3.5%,~~increase in ~~noninterest expense. Offsetting these amounts was~~mortgage origination fee income. The increase in card revenue reflects an increase in ~~credit loss expenses~~transaction volumes in the second quarter of ~~$4.0 million,~~2021 when compared to the second quarter of 2020, while investment services and trust activities revenue was positively impacted by improvements in ~~addition to a $0.5 million, or 6.0%, decrease~~the financial markets and increased assets under administration. Partially offsetting the identified increases in noninterest income ~~between~~was a decrease in 'Other' noninterest income of $0.7 million that stemmed from a decline in income from our commercial loan back-to-back swap program.

Noninterest Expense: The increase in noninterest expense was primarily due to an increase of $1.7 million in compensation and employee benefits expense, and partially offset by a decline of $0.4 million in the ~~two comparable periods.~~amortization of intangibles and a decline of $0.4 million in 'Other' noninterest expense. The increase in compensation and employee benefits was primarily due to a smaller benefit from deferred loan origination costs recognized in connection with SBA PPP loans during the second quarter of 2021, as compared to the second quarter of 2020, coupled with increased incentive and commission expense, normal annual increases in compensation, as well as increased share-based compensation expense.

~~The following~~Financial Performance: Both basic and diluted earnings per common share for the three months ended June 30, 2021 were $1.08 as compared with both basic and diluted earnings per common share of $0.73 for the three months ended June 30, 2020. Our annualized return on average shareholders' equity was 13.24% for the three months ended June 30, 2021 compared with 9.21% for the three months ended June 30, 2020.

Selected financial performance and capital ratios for the Company are presented in the table ~~presents selected financial results and measures~~below as of ~~and~~or for the quarters ended June 30, ~~2020~~2021 and ~~2019.~~2020.


		As of and for the Three Months Ended June 30,										As of or for the Three Months Ended June 30,
(dollars in thousands, except per share amounts)	(dollars in thousands, except per share amounts)	2020			2019			(dollars in thousands, except per share amounts)	2021			2020
Net Income	Net Income	$	11,712		$	10,674		Net Income	$	17,271		$	11,712
Pre-tax, Pre-provision Net Revenue⁽¹⁾		18,943			14,588
Average Assets		5,098,847			4,230,447
Average Shareholders’ Equity		511,239			443,114

Return on Average Assets	Return on Average Assets	0.92		%	1.01		%	Return on Average Assets	1.18		%	0.92		%
Return on Average Equity	Return on Average Equity	9.21			9.66			Return on Average Equity	13.24			9.21
Return on Average Tangible Equity⁽¹⁾	Return on Average Tangible Equity⁽¹⁾	13.50			13.41			Return on Average Tangible Equity(1)	16.75			13.50
Efficiency Ratio⁽¹⁾	Efficiency Ratio⁽¹⁾	54.80			56.24			Efficiency Ratio(1)	54.83			54.80
Equity to Assets Ratio (end of period)		9.96			10.47
Tangible Common Equity Ratio (end of period)⁽¹⁾		7.80			7.91
Dividend Payout Ratio								Dividend Payout Ratio	20.83			30.14
Common Equity Ratio								Common Equity Ratio	9.22			9.96
Tangible Common Equity Ratio(1)								Tangible Common Equity Ratio(1)	7.86			7.80
Book Value per Share	Book Value per Share	$	32.35		$	30.11		Book Value per Share	$	33.22		$	32.35
Tangible Book Value per Share⁽¹⁾	Tangible Book Value per Share⁽¹⁾	24.74			22.09			Tangible Book Value per Share(1)	27.90			24.74
(1) A non-GAAP financial measure. See "Non-GAAP Financial Measures" for a reconciliation to the most comparable GAAP equivalents.	(1) A non-GAAP financial measure. See "Non-GAAP Financial Measures" for a reconciliation to the most comparable GAAP equivalents.												(1) A non-GAAP financial measure. See "Non-GAAP Financial Measures" for a reconciliation to the most comparable GAAP equivalents.

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Net Interest Income

The following table shows consolidated average balance sheets, detailing the major categories of assets and liabilities, the interest income earned on interest-earning assets, the interest expense paid for interest-bearing liabilities, and the related yields and costs for the periods indicated.

Three Months Ended June 30,
2020 2019
Average
Balance Interest
Income/
Expense Average
Yield/
Cost Average
Balance Interest
Income/
Expense Average
Yield/
Cost
(dollars in thousands)
ASSETS
Loans, including fees ^(1)(2)(3)
$ 3,633,695 $ 40,721 4.51 % $ 3,183,138 $ 40,495 5.10 %
Taxable investment securities 731,699 4,646 2.55 458,438 3,289 2.88
Tax-exempt investment securities ⁽²⁾⁽⁴⁾
285,758 2,340 3.29 203,179 1,794 3.54
Total securities held for investment ⁽²⁾
1,017,457 6,986 2.76 661,617 5,083 3.08
Other 67,429 40 0.24 36,031 185 2.06
Total interest earning assets ⁽²⁾
$ 4,718,581 $ 47,747 4.07 % $ 3,880,786 $ 45,763 4.73 %
Other assets 380,266 349,661
Total assets $ 5,098,847 $ 4,230,447

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest checking deposits $ 1,091,565 $ 1,113 0.41 % $ 731,973 $ 1,021 0.56 %
Money market deposits 829,826 885 0.43 880,973 2,491 1.13
Savings deposits 439,592 365 0.33 328,694 182 0.22
Time deposits 990,797 4,046 1.64 874,619 4,049 1.86
Total interest bearing deposits 3,351,780 6,409 0.77 2,816,259 7,743 1.10
Short-term borrowings 159,157 263 0.66 123,586 500 1.62
Long-term debt 201,240 1,374 2.75 229,152 1,876 3.28
Total borrowed funds 360,397 1,637 1.83 352,738 2,376 2.70
Total interest bearing liabilities $ 3,712,177 $ 8,046 0.87 % $ 3,168,997 $ 10,119 1.28 %

Noninterest bearing deposits 813,794 574,720
Other liabilities 61,637 43,616
Shareholders’ equity 511,239 443,114
Total liabilities and shareholders’ equity $ 5,098,847 $ 4,230,447
Net interest income ⁽²⁾
$ 39,701 $ 35,644
Net interest spread⁽²⁾
3.20 % 3.45 %
Net interest margin⁽²⁾
3.38 % 3.68 %
Total deposits⁽⁵⁾
$ 4,165,574 $ 6,409 0.62 % $ 3,390,979 $ 7,743 0.92 %
Cost of funds⁽⁶⁾
0.72 % 1.08 %


	Three Months Ended June 30,
	2021						2020
	Average Balance		Interest Income/ Expense		Average Yield/ Cost		Average Balance		Interest Income/ Expense		Average Yield/ Cost
(dollars in thousands)
ASSETS
Loans, including fees (1)(2)(3)	$	3,396,575	$	35,255	4.16	%	$	3,633,695	$	40,721	4.51	%
Taxable investment securities	1,604,463		6,483		1.62		731,699		4,646		2.55
Tax-exempt investment securities (2)(4)	473,181		3,196		2.71		285,758		2,340		3.29
Total securities held for investment (2)	2,077,644		9,679		1.87		1,017,457		6,986		2.76
Other	48,208		19		0.16		67,429		40		0.24
Total interest earning assets (2)	$	5,522,427	$	44,953	3.26	%	$	4,718,581	$	47,747	4.07	%
Other assets	329,309						380,266
Total assets	$	5,851,736					$	5,098,847

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest checking deposits	$	1,469,853	$	1,095	0.30	%	$	1,091,565	$	1,113	0.41	%
Money market deposits	942,072		502		0.21		829,826		885		0.43
Savings deposits	595,150		324		0.22		439,592		365		0.33
Time deposits	896,169		1,488		0.67		990,797		4,046		1.64
Total interest bearing deposits	3,903,244		3,409		0.35		3,351,780		6,409		0.77
Short-term borrowings	218,491		161		0.30		159,157		263		0.66
Long-term debt	189,644		1,712		3.62		201,240		1,374		2.75
Total borrowed funds	408,135		1,873		1.84		360,397		1,637		1.83
Total interest bearing liabilities	$	4,311,379	$	5,282	0.49	%	$	3,712,177	$	8,046	0.87	%

Noninterest bearing deposits	972,080						813,794
Other liabilities	45,035						61,637
Shareholders’ equity	523,242						511,239
Total liabilities and shareholders’ equity	$	5,851,736					$	5,098,847
Net interest income (2)			$	39,671					$	39,701
Net interest spread(2)					2.77	%					3.20	%
Net interest margin(2)					2.88	%					3.38	%

Total deposits(5)	$	4,875,324	$	3,409	0.28	%	$	4,165,574	$	6,409	0.62	%
Cost of funds(6)					0.40	%					0.72	%


(1)			Average balance includes nonaccrual loans.
(2)			Tax equivalent. The federal statutory tax rate utilized was 21%.
(3)			Interest income includes net loan fees, loan purchase discount accretion and tax equivalent adjustments. Net loan fees were ~~$748 thousand~~$2.3 million and ~~$(202)~~$748 thousand for the three months ended June 30, ~~2020~~2021 and June 30, ~~2019,~~2020, respectively. Loan purchase discount accretion was ~~$2.6 million~~$873 thousand and ~~$2.2~~$2.6 million for the three months ended June 30, ~~2020~~2021 and June 30, ~~2019,~~2020, respectively. Tax equivalent adjustments were ~~$507~~$519 thousand and ~~$442~~$507 thousand for the three months ended June 30, ~~2020~~2021 and June 30, ~~2019,~~2020, respectively. The federal statutory tax rate utilized was 21%.
(4)			Interest income includes tax equivalent adjustments of ~~$482~~$647 thousand and ~~$370~~$482 thousand for the three months ended June 30, ~~2020~~2021 and June 30, ~~2019, respectively. The federal statutory tax rate utilized was 21%.~~
~~(5)~~			Total deposits is the sum of total interest-bearing deposits and noninterest bearing deposits. The cost of total deposits is calculated as annualized interest expense on deposits divided by average total deposits.
~~(6)~~			~~Cost of funds is calculated as annualized total interest expense divided by the sum of average total deposits and borrowed funds.~~

~~Table of Contents~~

The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. Changes attributable to the combined effect of volume and interest rates have been allocated proportionately to the changes due to volume and the changes due to interest rates.

Three Months Ended June 30,
2020 Compared to 2019 Change due to
Volume Yield/Cost Net
(in thousands)
Increase (decrease) in interest income:
Loans, including fees ⁽¹⁾
$ 5,263 $ (5,037) $ 226
Taxable investment securities 1,769 (412) 1,357
Tax-exempt investment securities ⁽¹⁾
680 (134) 546
Total securities held for investment ⁽¹⁾
2,449 (546) 1,903
Other 90 (235) (145)
Change in interest income ⁽¹⁾
7,802 (5,818) 1,984
Increase (decrease) in interest expense:
Interest checking deposits 413 (321) 92
Money market deposits (138) (1,468) (1,606)
Savings deposits 74 109 183
Time deposits 504 (507) (3)
Total interest-bearing deposits 853 (2,187) (1,334)
Short-term borrowings 115 (352) (237)
Long-term debt (216) (286) (502)
Total borrowed funds (101) (638) (739)
Change in interest expense 752 (2,825) (2,073)
Change in net interest income $ 7,050 $ (2,993) $ 4,057
Percentage increase (decrease) in net interest income over prior period 11.4 %
^{(1) Tax equivalent, using a federal statutory tax rate of 21%.}

~~Net interest income of $38.7 million for the second quarter of~~ 2020, was up $3.9 million, or 11.1%, from $34.8 million for the second quarter of 2019, as larger volumes of interest earning assets more than offset net interest margin compression. The primary drivers of the increase in net interest income were an increase in interest income of $1.8 million, or 4.0%, and decreased interest expense of $2.1 million, or 20.5%. The increase in interest income was primarily a result of the interest income earned from investment securities, which was $6.5 million for the second quarter of 2020, up $1.8 million from the second quarter of 2019, while interest income earned on loans increased $0.2 million between the two periods. The contributing factors for the decrease in interest expense was a decrease of $1.3 million in interest expense on interest-bearing deposits, in addition to the decrease in the interest expense on borrowed funds of $0.7 million.

The tax equivalent net interest margin for the second quarter of 2020 was 3.38%, or 30 basis points lower than the tax equivalent net interest margin of 3.68% for the second quarter of 2019. Loan purchase discount accretion added $2.6 million to net interest income in the second quarter of 2020 as compared to $2.2 million in the second quarter of 2019. The yield on loans decreased 59 basis points, approximately 14 basis points of which was attributable to PPP loans, which have a coupon rate of 1%. Net fee accretion for PPP loans for the second quarter of 2020 was $1.1 million. The tax equivalent yield on investment securities decreased by 32 basis points. Combined, the resulting yield on interest-earning assets for the second quarter of 2020 was 66 basis points lower than the second quarter of 2019. The cost of interest-bearing deposits decreased 33 basis points, while the average cost of borrowings was lower by 87 basis points for the second quarter of 2020, compared to the second quarter of 2019. The FRB decreased the target federal funds interest rate by a total of 75 basis points in the second half of 2019, which contributed to the decreasing interest rates in the second quarter 2020 as compared to the second quarter 2019. In addition, in response to the COVID-19 pandemic, the FRB decreased the target federal funds interest rate by a total of 150 basis points in March 2020. These decreases impact the comparability of net interest income and net interest margin between 2019 and 2020.

~~Credit Loss Expense~~

We recorded credit loss expense of $4.7 million in the second quarter of 2020, an increase of $4.0 million, or 573.1%, from $0.7 million for the second quarter of 2019. Our credit loss expense reflected the impact of the COVID-19 pandemic on current and forecasted economic conditions for the U.S. and our regional economy. The total amount of net loans charged off in the second quarter of 2020 was slightly higher at $1.9 million, as compared to $1.7 million in the second quarter of 2019.

~~Table of Contents~~

~~Noninterest Income~~

~~The following table presents the significant components of noninterest income and the related dollar and percentage change from period to period:~~

Three Months Ended June 30,
2020 2019 $ Change % Change
(dollars in thousands)
Investment services and trust activities $ 2,217 $ 1,890 $ 327 17.3 %
Service charges and fees 1,290 1,870 (580) (31.0)
Card revenue 1,237 1,799 (562) (31.2)
Loan revenue 1,910 648 1,262 194.8
Bank-owned life insurance 635 470 165 35.1
Insurance commissions — 314 (314) NM
Investment securities gains, net 6 32 (26) (81.3)
Other 974 1,773 (799) (45.1)
Total noninterest income $ 8,269 $ 8,796 $ (527) (6.0) %

Total noninterest income for the second quarter of 2020 decreased $0.5 million, or 6.0%, to $8.3 million from $8.8 million in the second quarter of 2019. The most notable decreases in noninterest income were attributable to the sale of the Company's MidWest~~One~~ Insurance subsidiary in the second quarter of 2019, which resulted in a pre-tax gain on the sale of the assets of $1.1 million in the 'Other' category in the 2019 period, as well as a decline in insurance commissions of $0.3 million in the second quarter of 2020 as compared to the same period in 2019. In addition, the decrease was also driven by a $0.5 million decrease in overdraft fees, included in service charges and fees, in the second quarter of 2020 as compared to the same period in 2019, which reflected lower customer overdraft activity coupled with increased waivers of such fees. Offsetting these decreases was an increase of $1.3 million in loan revenue, which was driven by increased volume in home mortgage loans, as a result of the low interest rate environment.

~~Noninterest Expense~~

~~The following table presents the significant components of noninterest expense and the related dollar and percentage change from period to period:~~

Three Months Ended June 30,
2020 2019 $ Change % Change
(dollars in thousands)
Compensation and employee benefits $ 15,682 $ 16,409 $ (727) (4.4) %
Occupancy expense of premises, net 2,253 2,127 126 5.9
Equipment 2,010 1,914 96 5.0
Legal and professional 1,382 3,291 (1,909) (58.0)
Data processing 1,240 1,008 232 23.0
Marketing 910 869 41 4.7
Amortization of intangibles 1,748 930 818 88.0
FDIC insurance 445 434 11 2.5
Communications 449 377 72 19.1
Foreclosed assets, net 34 84 (50) (59.5)
Other 1,885 1,597 288 18.0
Total noninterest expense $ 28,038 $ 29,040 $ (1,002) (3.5) %

~~Table of Contents~~

~~The following table shows the impact of merger-related expenses to the various components of noninterest expense for the periods indicated:~~

Three Months Ended June 30,
Merger-related expenses: 2020 2019
(dollars in thousands)
Compensation and employee benefits $ — $ 1,020
Equipment 7 —
Legal and professional — 1,826
Data processing — 240
Other — 48
Total impact of merger-related expenses to noninterest expense $ 7 $ 3,134

Noninterest expense for the second quarter of 2020 was $28.0 million, a decrease of $1.0 million, or 3.5%, from $29.0 million for the second quarter of 2019. The decrease in noninterest expense was primarily due to a decrease in compensation and employee benefits of $0.7 million, in addition to a decrease in legal and professional expenses of $1.9 million for the second quarter of 2020 compared to the second quarter of 2019, primarily as a result of the decline in merger-related expenses. Offsetting these decreases, amortization of intangibles for the second quarter of 2020 was $1.7 million, an increase of $0.8 million, or 88.0%, from $0.9 million for the second quarter of 2019, due primarily to additions from the merger.

~~Income Tax Expense~~

Our effective income tax rate was 17.9% for the second quarter of 2020, which was lower than the effective tax rate of 23.2% for the second quarter of 2019. The Company recorded a net income tax expense of $2.5 million in the second quarter of 2020 compared to a net income tax expense of $3.2 million for the same period of 2019. The income tax expense was primarily driven by the net income experienced in the second quarter of 2020, as well as the general business credit and tax-exempt interest income recognized in the second quarter of 2020. See ~~Note 1~~1 ~~. Income Taxes~~ ~~for additional information.~~

~~Comparison of Operating Results for the Six Months Ended June 30, 2020 and June 30, 2019~~

~~Summary~~

On May 1, 2019, we completed the acquisition of ATBancorp. The effects of this acquisition are one of the primary causes of the stated changes in our operating results for the six months ended June 30, 2020 compared to the six months ended June 30, 2019, unless otherwise noted.

~~For the six months ended June 30, 2020, we earned net income of~~ ~~$9.7 million, which was a decrease of $8.2 million from $18.0 million~~ for the six months ended June 30, 2019. The decrease in net income was due primarily to an increase of $24.1 million in credit loss expense, combined with an increase of $8.4 million, or 16.9% in noninterest expense. Offsetting these amounts was a $15.3 million, or 25.2%, increase in net interest income, combined with a $4.2 million, or 29.7%, increase in noninterest income between the two comparable periods.

~~The following table presents selected financial results and measures as of and for the six months ended June 30, 2020 and 2019.~~

As of and for the Six Months Ended June 30,
(dollars in thousands, except per share amounts) 2020 2019
Net Income $ 9,737 $ 17,959
Pre-tax, Pre-provision Net Revenue ⁽¹⁾
36,503 25,357
Average Assets 4,884,285 3,767,729
Average Shareholders’ Equity 513,204 401,490
Return on Average Assets 0.40 % 0.96 %
Return on Average Equity 3.82 9.02
Return on Average Tangible Equity⁽¹⁾
6.48 12.24
Efficiency Ratio ⁽¹⁾
56.24 58.85
Equity to Assets Ratio (end of period) 9.96 10.47
Tangible Common Equity Ratio (end of period)⁽¹⁾
7.80 7.91
Book Value per Share $ 32.35 $ 30.11
Tangible Book Value per Share⁽¹⁾
24.74 22.09
^{(1) A non-GAAP financial measure. See "Non-GAAP Financial Measures" for a reconciliation to the most comparable GAAP equivalents.}

~~Table of Contents~~

~~Net Interest Income~~

Six Months Ended June 30,
2020 2019
(dollars in thousands)
Average
Balance
Interest
Income/
Expense

Average
Yield/
Cost

Average
Balance
Interest
Income/
Expense

Average
Yield/
Cost
ASSETS
Loans, including fees ^(1)(2)(3)
$ 3,534,979 $ 83,230 4.73 % $ 2,798,526 $ 69,803 5.03 %
Taxable investment securities 648,678 8,363 2.59 436,832 6,216 2.87
Tax-exempt investment securities ⁽²⁾⁽⁴⁾
254,963 4,247 3.35 202,606 3,566 3.55
Total securities held for investment ⁽²⁾
903,641 12,610 2.81 639,438 9,782 3.08
Other 62,304 204 0.66 19,633 205 2.11
Total interest-earning assets ⁽²⁾
$ 4,500,924 $ 96,044 4.29 % $ 3,457,597 $ 79,790 4.65 %
Other assets 383,361 310,132
Total assets $ 4,884,285 $ 3,767,729

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest checking deposits $ 1,028,321 $ 2,428 0.47 % $ 698,654 $ 1,931 0.56 %
Money market deposits 798,296 2,530 0.64 746,339 3,825 1.03
Savings deposits 416,713 756 0.36 267,068 240 0.18
Time deposits 993,966 8,644 1.75 800,109 7,442 1.88
Total interest-bearing deposits 3,237,296 14,358 0.89 2,512,170 13,438 1.08
Short-term borrowings 140,550 597 0.85 116,795 957 1.65
Long-term debt 213,413 3,090 2.91 204,471 3,136 3.09
Total borrowed funds 353,963 3,687 2.09 321,266 4,093 2.57
Total interest-bearing liabilities $ 3,591,259 $ 18,045 1.01 % $ 2,833,436 $ 17,531 1.25 %
Noninterest bearing deposits 725,499 498,733
Other liabilities 54,323 34,070
Shareholders' equity 513,204 401,490
Total liabilities and shareholders' equity $ 4,884,285 $ 3,767,729
Net interest income ⁽²⁾
$ 77,999 $ 62,259
Net interest spread⁽²⁾
3.28 % 3.40 %
Net interest margin ⁽²⁾
3.48 % 3.63 %
Total deposits⁽⁵⁾
$ 3,962,795 $ 14,358 0.73 % $ 3,010,903 $ 13,438 �� 0.90 %
Cost of funds⁽⁶⁾
0.84 % 1.06 %


~~(1)~~			~~Average balance includes nonaccrual loans.~~
~~(2)~~			~~Tax equivalent. The federal statutory tax rate utilized was 21%.~~
~~(3)~~			Interest income includes net loan fees, loan purchase discount accretion and tax equivalent adjustments. Net loan fees were $626 thousand and $(317) thousand for the six months ended June 30, 2020 and June 30, 2019, respectively. Loan purchase discount accretion was $5.6 million and $2.8 million for the six months ended June 30, 2020 and June 30, 2019, respectively. Tax equivalent adjustments were $1.0 million and $715 thousand for the six months ended June 30, 2020 and June 30, 2019, respectively. The federal statutory tax rate utilized was 21%.
~~(4)~~			~~Interest income includes tax equivalent adjustments of $877 thousand and $736 thousand for the six months ended June 30, 2020 and June 30, 2019,~~ respectively. The federal statutory tax rate utilized was 21%.
(5)			Total deposits is the sum of total interest-bearing deposits and noninterest bearing deposits. The cost of total deposits is calculated as annualized interest expense on deposits divided by average total deposits.
(6)			Cost of funds is calculated as annualized total interest expense divided by the sum of average total deposits and borrowed funds.

4939

Table of Contents

The following table ~~presents the dollar amount of~~shows changes to tax equivalent net interest income attributable to (i) changes in ~~interest income~~volume and ~~interest expense for major components of interest-earning assets and interest-bearing liabilities.~~(ii) changes in rate. Changes attributable to ~~the combined effect of~~both rate and volume ~~and interest rates~~ have been allocated proportionately to the ~~changes~~change due to volume and the ~~changes~~change due to ~~interest rates.~~rate.


		Six Months Ended June 30,												Three Months Ended June 30,
		2020 Compared to 2019 Change due to												2021 Compared to 2020 Change due to
(in thousands)	(in thousands)	Volume		Yield/Cost		Net			(in thousands)	Volume		Yield/Cost		Net
Increase (decrease) in interest income:	Increase (decrease) in interest income:								Increase (decrease) in interest income:
Loans, including fees ⁽¹⁾	Loans, including fees ⁽¹⁾	$	17,753	$	(4,326)	$	13,427		Loans, including fees (1)	$	(2,497)	$	(2,969)	$	(5,466)
Taxable investment securities	Taxable investment securities	2,800		(653)		2,147			Taxable investment securities	4,006		(2,169)		1,837
Tax-exempt investment securities⁽¹⁾	Tax-exempt investment securities⁽¹⁾	890		(209)		681			Tax-exempt investment securities (1)	1,326		(470)		856
Total securities held for investment⁽¹⁾	Total securities held for investment⁽¹⁾	3,690		(862)		2,828			Total securities held for investment (1)	5,332		(2,639)		2,693
Other	Other	215		(216)		(1)			Other	(10)		(11)		(21)
Change in interest income ⁽¹⁾	Change in interest income ⁽¹⁾	21,658		(5,404)		16,254			Change in interest income (1)	2,825		(5,619)		(2,794)
Increase (decrease) in interest expense:	Increase (decrease) in interest expense:								Increase (decrease) in interest expense:
Interest checking deposits	Interest checking deposits	837		(340)		497			Interest checking deposits	327		(345)		(18)
Money market deposits	Money market deposits	248		(1,543)		(1,295)			Money market deposits	110		(493)		(383)
Savings deposits	Savings deposits	185		331		516			Savings deposits	103		(144)		(41)
Time deposits	Time deposits	1,740		(538)		1,202			Time deposits	(356)		(2,202)		(2,558)
Total interest-bearing deposits	Total interest-bearing deposits	3,010		(2,090)		920			Total interest-bearing deposits	184		(3,184)		(3,000)
Short-term borrowings	Short-term borrowings	168		(528)		(360)			Short-term borrowings	75		(177)		(102)
Long-term debt	Long-term debt	137		(183)		(46)			Long-term debt	(83)		421		338
Total borrowed funds	Total borrowed funds	305		(711)		(406)			Total borrowed funds	(8)		244		236
Change in interest expense	Change in interest expense	3,315		(2,801)		514			Change in interest expense	176		(2,940)		(2,764)
Change in net interest income	Change in net interest income	$	18,343	$	(2,603)	$	15,740		Change in net interest income	$	2,649	$	(2,679)	$	(30)
Percentage increase (decrease) in net interest income over prior period						25.3		%
Percentage (decrease) in net interest income over prior period									Percentage (decrease) in net interest income over prior period					(0.1)		%
_{(1) Tax equivalent, using a federal statutory tax rate of 21%.}	_{(1) Tax equivalent, using a federal statutory tax rate of 21%.}								(1) Tax equivalent, using a federal statutory tax rate of 21%.

Our tax equivalent net interest income for the second quarter of 2021 was relatively flat compared to the second quarter of 2020 at $39.7 million. Loan interest income declined $5.5 million, which was partially offset by an increase of $2.7 million in interest income earned from investment securities, which was $9.7 million for the second quarter of 2021. The increase reflected the larger volume of securities held for investment from the Company's investment of net deposit inflows, partially offset by a decrease in yield. Loan purchase discount accretion added $0.9 million to net interest income in the second quarter of 2021 compared to $2.6 million in the second quarter of 2020. Offsetting the decline in interest income of $2.8 million, or 5.9%, for the second quarter of 2021 was a decline in interest expense of $2.8 million, or 34.4%. The decline in interest expense was primarily due to a decline in interest expense on interest-bearing deposits of $3.0 million, or 46.8%, to $3.4 million as a result of lower rates paid on such deposits that more than offset the increase in the volume of deposits. Net fee accretion for PPP loans for the second quarter of 2021 was $2.5 million, compared to $1.1 million in the second quarter of 2020.

The tax equivalent net interest margin for the second quarter of 2021 was 2.88%, or 50 basis points lower than the tax equivalent net interest margin of 3.38% for the second quarter of 2020. The yield on loans decreased 35 basis points. The tax equivalent yield on investment securities decreased by 89 basis points. Combined, the resulting yield on interest-earning assets for the second quarter of 2021 was 81 basis points lower than the second quarter of 2020, which primarily reflected the shift in earning asset mix to a greater proportion of investment securities, which generally have lower yields than loans, in addition to the continued origination and re-pricing of loans at generally lower coupon rates when compared to existing portfolio coupon rates. The cost of interest-bearing deposits decreased 42 basis points, while the average cost of borrowings was 1 basis point higher for the second quarter of 2021, compared to the second quarter of 2020.

Credit Loss (Benefit) Expense

We recorded a credit loss benefit during the second quarter of 2021 of $2.1 million, as compared to credit loss expense of $4.7 million for the second quarter of 2020, a decrease of $6.8 million, or 145.8%. In the second quarter of 2020, the Company recorded a credit loss expense primarily due to the impact of economic uncertainty stemming from the COVID-19 pandemic on forecasted economic conditions. The decline in credit loss expense in the second quarter of 2021 reflected overall improvements in forecasted economic conditions and an improved outlook on the credit risk profile. Specifically, the economic forecast utilized by the Company is sensitive to changes in the following loss drivers: (1) Midwest unemployment, (2) year-to-year change in national retail sales, (3) year-to-year change in the CRE Index, (4) year-to-year change in U.S. GDP, (5) year-to-year change in the National Home Price Index, and (6) Rental Vacancy. The total amount of net loans charged off in the second quarter of 2021 was $0.4 million as compared to $1.9 million in the second quarter of 2020.

Table of Contents

Noninterest Income

The following table sets forth the various categories of noninterest income for the three months ended June 30, 2021 and June 30, 2020:


	Three Months Ended June 30,
(dollars in thousands)	2021		2020		$ Change		% Change
Investment services and trust activities	$	2,809	$	2,217	$	592	26.7	%
Service charges and fees	1,475		1,290		185		14.3
Card revenue	1,913		1,237		676		54.6
Loan revenue	3,151		1,910		1,241		65.0
Bank-owned life insurance	538		635		(97)		(15.3)

Investment securities gains, net	42		6		36		600.0
Other	290		974		(684)		(70.2)
Total noninterest income	$	10,218	$	8,269	$	1,949	23.6	%

Total noninterest income for the second quarter of 2021 increased $1.9 million, or 23.6%, to $10.2 million from $8.3 million in the second quarter of 2020. The increase in noninterest income was primarily due to increases in loan revenue, card revenue and investment services and trust activities of $1.2 million, $0.7 million, and $0.6 million, respectively. The increase in loan revenue was reflective of a $0.8 million increase stemming from the fair value of our mortgage servicing rights, coupled with a $0.4 million increase in mortgage origination fee income. The increase in card revenue reflects an increase in transaction volumes in the second quarter of 2021 when compared to the second quarter of 2020, while investment services and trust activities revenue was positively impacted by improvements in the financial markets and increased assets under administration. Partially offsetting the identified increases in noninterest income was a decrease in 'Other' noninterest income of $0.7 million that stemmed from a decline in income from our commercial loan back-to-back swap program.

Noninterest Expense

The following table presents significant components of noninterest expense and the related dollar and percentage change from period to period:


	Three Months Ended June 30,
(dollars in thousands)	2021		2020		$ Change		% Change
Compensation and employee benefits	$	17,404	$	15,682	$	1,722	11.0	%
Occupancy expense of premises, net	2,198		2,253		(55)		(2.4)
Equipment	1,861		2,010		(149)		(7.4)
Legal and professional	1,375		1,382		(7)		(0.5)
Data processing	1,347		1,240		107		8.6
Marketing	873		910		(37)		(4.1)
Amortization of intangibles	1,341		1,748		(407)		(23.3)
FDIC insurance	245		445		(200)		(44.9)
Communications	371		449		(78)		(17.4)
Foreclosed assets, net	136		34		102		300.0

Other	1,519		1,885		(366)		(19.4)


Total noninterest expense	$	28,670	$	28,038	$	632	2.3	%

Noninterest expense for the second quarter of 2021 was $28.7 million, an increase of $0.6 million, or 2.3%, from $28.0 million for the second quarter of 2020. The increase in noninterest expense was primarily due to an increase of $1.7 million in compensation and employee benefits expense, and partially offset by a decline of $0.4 million in the amortization of intangibles and a decline of $0.4 million in other noninterest expense. The increase in compensation and employee benefits was primarily due to a $1.0 million decline in the benefit received from deferred loan origination costs recognized in connection with SBA PPP loans during the second quarter of 2021, as compared to the second quarter of 2020. In addition, compensation and employee benefits expense also increased by $0.5 million in the second quarter of 2021 as compared to the second quarter of 2020 due to increased incentive and commission expense, normal annual increases in compensation, as well as increased share-based compensation expense. The decrease in the amortization of intangibles reflected the accelerated amortization methodology utilized for certain finite-lived intangible assets, while the decrease in other noninterest expense was primarily due to a reduction in tax credit partnership investment amortization.

Income Tax Expense

Our effective income tax rate, or income taxes divided by income before taxes, was 22.2% for the three months ended June 30, 2021, as compared to an effective tax rate of 17.9% for the three months ended June 30, 2020. The effective tax rate for the full year 2021 is expected to be in the range of 20-22%.

Table of Contents

Comparison of Operating Results for the Six Months Ended June 30, 2021 and June 30, 2020

Summary

Overall: Our consolidated net income for the six months ended June 30, 2021 was $38.9 million, an increase of $29.2 million from net income of $9.7 million for the six months ended June 30, 2020. The increase in net income was due primarily to a decrease of $33.3 million in credit loss expense, coupled with a $3.6 million, or 19.6%, increase in noninterest income, a decrease of $1.7 million, or 2.9%, in noninterest expense, and a $1.0 million, or 1.3%, increase in net interest income. Partially offsetting the identified increases to net income was an increase in income tax expense of $10.4 million.

Credit Loss (Benefit) Expense: The credit loss benefit recorded in the first six months of 2021 reflected overall improvements in forecasted economic conditions and an improved outlook in the credit risk profile. The Company recorded credit loss expense in the first six months of 2020 primarily due to the impact of economic uncertainty stemming from the COVID-19 pandemic on forecasted economic conditions.

Noninterest Income: The increase in noninterest income was primarily due to increased loan revenue of $4.8 million, which reflected a $2.6 million increase in mortgage origination fees, as well as an increase of $2.1 million stemming from the fair value of our mortgage servicing rights. Also contributing to the increases in noninterest income were increases of $0.9 million and $0.8 million of revenue from investment services and trust activities and card revenue, respectively. Partially offsetting the identified increases in noninterest income was a decrease in other noninterest income of $2.8 million, which was primarily due to a decline in income from our commercial loan back-to-back swap program.

Noninterest Expense: The decline in noninterest expense was due to decreases in other noninterest expense, amortization of intangibles, and legal and professional expenses of $1.4 million, $0.9 million, and $0.8 million, respectively. The largest driver in the decrease in other noninterest expense was a reduction in tax credit partnership investment amortization of $0.7 million. The decrease in the amortization of intangibles reflected the accelerated amortization methodology utilized for certain finite-lived intangible assets, while the decline in legal and professional expenses primarily reflected a decline in loan legal expenses. Partially offsetting the identified decreases in noninterest expense was an increase of $2.0 million in compensation and employee benefits expense that stemmed primarily from increased incentive and commission expense, normal annual increases in compensation, as well as increased share-based compensation expense.

Financial Performance: Both basic and diluted earnings per common share for the six months ended June 30, 2021 were $2.43 as compared with basic and diluted earnings per common share of $0.60 for the six months ended June 30, 2020. Our annualized return on average shareholders' equity was 15.10% for the six months ended June 30, 2021 compared with 3.82% for the six months ended June 30, 2020.

Selected financial performance and capital ratios for the Company are presented in the table below as of or for the six months ended June 30, 2021 and 2020.


	As of and for the Six Months Ended June 30,
(dollars in thousands, except per share amounts)	2021			2020
Net Income	$	38,919		$	9,737



Return on Average Assets	1.38		%	0.40		%
Return on Average Equity	15.10			3.82
Return on Average Tangible Equity(1)	19.10			6.48
Efficiency Ratio (1)	52.76			56.24
Dividend Payout Ratio	18.52			73.33
Common Equity Ratio	9.22			9.96
Tangible Common Equity Ratio(1)	7.86			7.80
Book Value per Share	$	33.22		$	32.35
Tangible Book Value per Share(1)	27.90			24.74

(1) A non-GAAP financial measure. See "Non-GAAP Financial Measures" for a reconciliation to the most comparable GAAP equivalents.

Table of Contents

Net Interest Income


	Six Months Ended June 30,
	2021						2020
(dollars in thousands)	Average Balance		Interest Income/ Expense		Average Yield/ Cost		Average Balance		Interest Income/ Expense		Average Yield/ Cost
ASSETS
Loans, including fees (1)(2)(3)	$	3,413,069	$	72,328	4.27	%	$	3,534,979	$	83,230	4.73	%
Taxable investment securities	1,436,522		11,576		1.63		648,678		8,363		2.59
Tax-exempt investment securities (2)(4)	469,507		6,399		2.75		254,963		4,247		3.35
Total securities held for investment (2)	1,906,029		17,975		1.90		903,641		12,610		2.81
Other	42,404		33		0.16		62,304		204		0.66
Total interest-earning assets (2)	$	5,361,502	$	90,336	3.40	%	$	4,500,924	$	96,044	4.29	%

Other assets	325,434						383,361
Total assets	$	5,686,936					$	4,884,285

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest checking deposits	$	1,410,094	$	2,086	0.30	%	$	1,028,321	$	2,428	0.47	%
Money market deposits	927,660		980		0.21		798,296		2,530		0.64
Savings deposits	574,602		610		0.21		416,713		756		0.36
Time deposits	866,976		3,341		0.78		993,966		8,644		1.75
Total interest-bearing deposits	3,779,332		7,017		0.37		3,237,296		14,358		0.89
Short-term borrowings	196,962		289		0.30		140,550		597		0.85
Long-term debt	197,762		3,563		3.63		213,413		3,090		2.91
Total borrowed funds	394,724		3,852		1.97		353,963		3,687		2.09
Total interest-bearing liabilities	$	4,174,056	$	10,869	0.53	%	$	3,591,259	$	18,045	1.01	%

Noninterest bearing deposits	946,112						725,499
Other liabilities	47,008						54,323
Shareholders' equity	519,760						513,204
Total liabilities and shareholders' equity	$	5,686,936					$	4,884,285
Net interest income (2)			$	79,467					$	77,999
Net interest spread(2)					2.87	%					3.28	%









Net interest margin (2)					2.99	%					3.48	%

Total deposits(5)	$	4,725,444	$	7,017	0.30	%	$	3,962,795	$	14,358	0.73	%
Cost of funds(6)					0.43	%					0.84	%


(1)			Average balance includes nonaccrual loans.
(2)			Tax equivalent. The federal statutory tax rate utilized was 21%.
(3)			Interest income includes net loan fees, loan purchase discount accretion and tax equivalent adjustments. Net loan fees were $5.8 million and $0.6 million for the six months ended June 30, 2021 and June 30, 2020, respectively. Loan purchase discount accretion was $2.0 million and $5.6 million for the six months ended June 30, 2021 and June 30, 2020, respectively. Tax equivalent adjustments were $1.0 million and $1.0 million for the six months ended June 30, 2021 and June 30, 2020, respectively. The federal statutory tax rate utilized was 21%.
(4)			Interest income includes tax equivalent adjustments of $1.3 million and $0.9 million for the six months ended June 30, 2021 and June 30, 2020, respectively. The federal statutory tax rate utilized was 21%.
(5)			Total deposits is the sum of total interest-bearing deposits and noninterest bearing deposits. The cost of total deposits is calculated as annualized interest expense on deposits divided by average total deposits.
(6)			Cost of funds is calculated as annualized total interest expense divided by the sum of average total deposits and borrowed funds.

Table of Contents

The following table shows changes to tax equivalent net interest income attributable to (i) changes in volume and (ii) changes in rate. Changes attributable to both rate and volume have been allocated proportionately to the change due to volume and the change due to rate.


	Six Months Ended June 30,
	2021 Compared to 2020 Change due to
(in thousands)	Volume		Yield/Cost		Net
Increase (decrease) in interest income:
Loans, including fees (1)	$	(2,854)	$	(8,048)	$	(10,902)
Taxable investment securities	7,194		(3,981)		3,213
Tax-exempt investment securities(1)	3,026		(874)		2,152
Total securities held for investment(1)	10,220		(4,855)		5,365
Other	(51)		(120)		(171)
Change in interest income (1)	7,315		(13,023)		(5,708)
Increase (decrease) in interest expense:
Interest checking deposits	705		(1,047)		(342)
Money market deposits	361		(1,911)		(1,550)
Savings deposits	226		(372)		(146)
Time deposits	(993)		(4,310)		(5,303)
Total interest-bearing deposits	299		(7,640)		(7,341)
Short-term borrowings	176		(484)		(308)
Long-term debt	(240)		713		473
Total borrowed funds	(64)		229		165
Change in interest expense	235		(7,411)		(7,176)
Change in net interest income	$	7,080	$	(5,612)	$	1,468
Percentage (decrease) increase in net interest income over prior period					1.9		%
(1) Tax equivalent, using a federal statutory tax rate of 21%.

Our tax equivalent net interest income for the six months ended June 30, ~~2020,~~2021 was ~~$76.1~~$79.5 million, ~~up $15.3~~an increase of $1.5 million, or ~~25.2%~~1.9%, ~~from $60.8~~as compared to $78.0 million for the six months ended June 30, ~~2019,~~2020. Interest expense declined $7.2 million, or 39.8%, primarily due to a decline in interest expense on interest-bearing deposits of $7.3 million, or 51.1%, to $7.0 million as ~~larger volumes~~a result of ~~interest earning assets~~lower rates paid on such deposits that more than offset ~~net interest margin compression. The primary driver of~~ the increase in ~~net~~the volume of deposits. Partially offsetting the decrease in interest ~~income~~expense was ~~an increase~~a decline of $10.9 million in interest income from loans due to lower loan purchase discount accretion, which decreased $3.6 million, reduced loan demand and line utilization, coupled with the origination of ~~$15.8 million, or 20.2%, which~~new loans and repricing of variable rate loans at lower rates. The identified decline in interest income from loans was partially offset by ana net increase in loan fees of ~~$0.5~~$5.2 million, ~~or 2.9%, in interest expense. The increase~~which was primarily due to PPP fee accretion. Partially offsetting the decline in interest income from loans was primarily a result of increased loan interest income, which rose $13.1 million, or 19.0%, for the first six months of 2020 compared to the first six months of 2019, combined with a $2.7 million, or 29.7%,an increase in interest income earned from investment ~~securities. Interest expense rose primarily as a result of~~securities, which was $18.0 million for the ~~$0.9~~six months ended June 30, 2021, up $5.4 million ~~or 6.8%,~~from the six months ended June 30, 2020. The increase in interest ~~expense on interest-bearing deposits~~income earned from investment securities reflected the larger volume of securities held for investment from the ~~first six months~~Company's investment of ~~2020 compared to the first six months of 2019.~~net deposit inflows, partially offset by a decrease in yield.

The tax equivalent net interest margin for the six months ended June 30, ~~2020~~2021 was ~~3.48%~~2.99%, or 1549 basis points lower than the tax equivalent net interest margin of ~~3.63%~~3.48% for the six months ended June 30, ~~2019. Loan purchase discount accretion added $5.6 million to net interest income for the six months ended June 30, 2020 as compared to $2.8 million for the six months ended June 30, 2019.~~2020. The yield on loans decreased 3046 basis points. The tax equivalent yield on investment securities decreased by 2791 basis points. Combined, the resulting yield on interest-earning assets for the six months ended June 30, ~~2020~~2021 was 3689 basis points lower than the six months ended June 30, ~~2019.~~2020, and reflected the origination and re-pricing of loans at generally lower coupon rates compared to existing portfolio coupon rates, as well as a shift in earning asset mix to a greater proportion of investment securities, which generally have lower yields than loans. The cost of interest-bearing deposits decreased 1952 basis points, while the average cost of borrowings was lower by 4812 basis points for the six months ended June 30, ~~2020,~~2021, compared to the six months ended June 30, ~~2019. The FRB decreased the target federal funds interest rate by a total of 75 basis points~~2020. Our lower deposit costs in ~~the second half of 2019, which contributed to the decreasing interest rates for~~ the six months ended June 30, ~~2020~~2021 as compared to the six months ended June 30, ~~2019. In addition, in response to~~2020 were a result of lower market interest rates following the ~~COVID-19 pandemic, the FRB decreased~~FRB's reduction of the target federal funds interest rate by ~~a total of~~ 150 basis points in March ~~2020. These decreases impact~~2020 in response to the ~~comparability of net interest income and net interest margin between 2019 and 2020.~~COVID-19 pandemic.

Credit Loss (Benefit) Expense

We recorded a credit loss ~~expense~~benefit of ~~$26.4~~$6.9 million in the first six months of ~~2020, an increase~~2021, as compared to credit loss expense of ~~$24.1 million, or 1,053.6%, from $2.3~~$26.4 million for the ~~same period~~first six months of ~~2019. Our~~2020, a decrease of $33.3 million, or 126.1%. The Company recorded credit loss expense ~~reflected~~in the first and second quarters of 2020 primarily due to the impact of economic uncertainty stemming from the COVID-19 pandemic on ~~current and~~forecasted economic conditions. The credit loss benefit recorded in the first six months of 2021 reflected overall improvements in forecasted economic conditions ~~for~~and an improved outlook on the credit risk profile. Specifically, the economic

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forecast utilized by the Company is sensitive to changes in the following loss drivers: (1) Midwest unemployment, (2) year-to-year change in national retail sales, (3) year-to-year change in the CRE Index, (4) year-to-year change in U.S. GDP, (5) year-to-year change in the National Home Price Index, and ~~our regional economy.~~(6) Rental Vacancy. The total amount of net loans charged off in the first six months of ~~2020 were slightly higher at $3.1~~2021 was $0.7 million as compared to ~~$2.9~~$3.1 million in the first six months of ~~2019.~~

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2020.

Noninterest Income

The following table presents the significant components of noninterest income and the related dollar and percentage change from period to period:


		Six Months Ended June 30,															Six Months Ended June 30,
(dollars in thousands)	(dollars in thousands)	2020		2019		$ Change		% Change		(dollars in thousands)	2021		2020		$ Change		% Change
Investment services and trust activities	Investment services and trust activities	$	4,753	$	3,280	$	1,473	44.9	%	Investment services and trust activities	$	5,645	$	4,753	$	892	18.8	%
Service charges and fees	Service charges and fees	3,116		3,312		(196)		(5.9)		Service charges and fees	2,962		3,116		(154)		(4.9)
Card revenue	Card revenue	2,602		2,797		(195)		(7.0)		Card revenue	3,449		2,602		847		32.6
Loan revenue	Loan revenue	3,033		1,041		1,992		191.4		Loan revenue	7,881		3,033		4,848		159.8
Bank-owned life insurance	Bank-owned life insurance	1,155		862		293		34.0		Bank-owned life insurance	1,080		1,155		(75)		(6.5)
Insurance commissions		—		734		(734)		(100.0)

Investment securities gains, net	Investment securities gains, net	48		49		(1)		(2.0)		Investment securities gains, net	69		48		21		43.8
Other	Other	3,717		2,131		1,586		74.4		Other	956		3,717		(2,761)		(74.3)
Total noninterest income	Total noninterest income	$	18,424	$	14,206	$	4,218	29.7	%	Total noninterest income	$	22,042	$	18,424	$	3,618	19.6	%

Total noninterest income for the first six months of ~~2020~~2021 increased ~~$4.2~~$3.6 million, or ~~29.7%~~19.6%, to ~~$18.4~~$22.0 million from ~~$14.2~~$18.4 million during the same period of ~~2019.~~2020. This increase was due ~~primarily~~ to ~~additional fee income earned as a result of the acquisition, which is reflected within the $1.5 million increase~~increases in loan revenue, investment services and trust ~~activities.~~activities, and card revenue of $4.8 million, $0.9 million, and $0.8 million, respectively. The increase ~~is also attributable~~in loan revenue was primarily due to an increase of $2.6 million in mortgage origination fee income, as well as an increase of $2.1 million stemming from the fair value of our mortgage servicing rights. Investment services and trust activities revenue was positively impacted by improvements in the financial markets and increased assets under administration, while the increase in card revenue reflects an increase in transaction volumes in the first six months of 2021, as compared to first six months of 2020. Partially offsetting the identified increases in noninterest income was a decrease in other noninterest income of $2.8 million, which was primarily due to a decline in income from our commercial loan back-to-back swap program of $2.4 million, as recorded in the 'Other' noninterest income, combined with the increase in loan revenue of $2.0 million, which was primarily driven by increased volume in home mortgage loans as a result of the low interest rate environment. Offsetting these increases was a decrease in 'Other' noninterest income from the pre-tax gain of $1.1 million recognized from the sale of MidWest~~One~~ Insurance Services, Inc. assets in the first six months 2019, a decrease in insurance commissions of $0.7 million, in addition to a mortgage servicing rights fair value adjustment of $0.7 million in the first six months of 2019 compared to $1.2 million in the first six months of 2020, an increase of $0.5 million.program.

Noninterest Expense

The following table presents the significant components of noninterest expense and the related dollar and percentage change from period to period:


		Six Months Ended June 30,															Six Months Ended June 30,
(dollars in thousands)	(dollars in thousands)	2020		2019		$ Change		% Change		(dollars in thousands)	2021		2020		$ Change		% Change
Compensation and employee benefits	Compensation and employee benefits	$	32,299	$	28,988	$	3,311	11.4	%	Compensation and employee benefits	$	34,321	$	32,299	$	2,022	6.3	%
Occupancy expense of premises, net	Occupancy expense of premises, net	4,594		4,006		588		14.7		Occupancy expense of premises, net	4,516		4,594		(78)		(1.7)
Equipment	Equipment	3,890		3,285		605		18.4		Equipment	3,654		3,890		(236)		(6.1)
Legal and professional	Legal and professional	2,917		4,256		(1,339)		(31.5)		Legal and professional	2,158		2,917		(759)		(26.0)
Data processing	Data processing	2,594		1,853		741		40.0		Data processing	2,599		2,594		5		0.2
Marketing	Marketing	1,972		1,475		497		33.7		Marketing	1,879		1,972		(93)		(4.7)
Amortization of intangibles	Amortization of intangibles	3,776		1,382		2,394		173.2		Amortization of intangibles	2,848		3,776		(928)		(24.6)
FDIC insurance	FDIC insurance	893		804		89		11.1		FDIC insurance	757		893		(136)		(15.2)
Communications	Communications	906		719		187		26.0		Communications	780		906		(126)		(13.9)
Foreclosed assets, net	Foreclosed assets, net	172		142		30		21.1		Foreclosed assets, net	183		172		11		6.4
Other	Other	4,026		2,747		1,279		46.6		Other	2,675		4,026		(1,351)		(33.6)

Total noninterest expense	Total noninterest expense	$	58,039	$	49,657	$	8,382	16.9	%	Total noninterest expense	$	56,370	$	58,039	$	(1,669)	(2.9)	%

~~The following table shows the impact of merger-related expenses to the various components of noninterest expense for the periods indicated:~~

Six Months Ended June 30,
(dollars in thousands) 2020 2019
Merger-related expenses:
Compensation and employee benefits $ — $ 1,030
Equipment 7 —
Legal and professional — 1,952
Data processing 44 245
Other 10 74
Total impact of merger-related expenses to noninterest expense $ 61 $ 3,301

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Noninterest expense for the six months ended June 30, ~~2020~~2021 was ~~$58.0~~$56.4 million, ~~an increase~~a decrease of ~~$8.4~~$1.7 million, or ~~16.9%~~2.9%, from ~~$49.7~~$58.0 million for the six months ended June 30, ~~2019.~~2020. The ~~increase~~decline in noninterest expense was primarily due ~~primarily~~ to ~~increases~~decreases in other noninterest expense, amortization of intangibles, and legal and professional expenses of $1.4 million, $0.9 million, and $0.8 million, respectively. The decrease in other noninterest expense was principally due to a reduction in tax credit partnership investment amortization of $0.7 million. The decrease in the amortization of intangibles reflected the accelerated amortization methodology utilized for certain finite-lived intangible assets, while the decline in legal and professional expenses reflected a decline in loan legal expenses, as well as a decline in non-recurring audit fees. Partially offsetting the identified decreases in noninterest expense was an increase of $2.0 million in compensation and employee benefits expense that stemmed primarily

Table of ~~$3.3 million, which~~Contents

from increased due to the merger with ATBancorp, combined with the amortization of intangibles for the six months ended June 30, 2020 of $3.8 million, an increase of $2.4 million, or 173.2%, due primarily to the additions from the merger. Offsetting these identifiedincentive and commission expense, normal annual increases ~~was a decrease~~ in ~~merger-related expenses, a primary contributing factor to the decline of $1.3 million in legal and professional expenses,~~compensation, as well as ~~an increase of $1.6 million, as compared to the six months ended June 30, 2019, in deferred~~increased share-based compensation ~~and employee benefits stemming from loan origination costs.~~expense.

Income Tax Expense

Our effective income tax rate, or income taxes divided by income before taxes, was 21.6% for the first six months of 2021, as compared to an effective tax rate of 3.5% for the first six months of 2020, which was lower than the effective tax rate of 22.1% for the first six months of 2019. The Company recorded a net income tax expense of $0.3 million in the first six months of 2020 compared to net income tax expense of $5.1 million for the same period of 2019.2020. The effective tax rate ~~remains lower than~~for the ~~statutory tax rate due~~full year 2021 is currently expected to ~~tax-exempt interest income, bank-owned life insurance, and general business credits. See~~ ~~Note 1~~1 be in the range of 20-22%. ~~Income Taxes~~ ~~for additional information.~~

FINANCIAL CONDITION

Following is a table that represents the major categories of the Company's balance ~~sheet:~~sheet as of the dates indicated:

(dollars in thousands) June 30, 2020 December 31, 2019 $ Change % Change
ASSETS
Cash and cash equivalents $ 117,210 $ 73,484 $ 43,726 59.5
Debt securities available for sale 1,187,455 785,977 401,478 51.1
Loans held for investment, net of unearned income 3,597,039 3,451,266 145,773 4.2
Allowance for credit losses (55,644) (29,079) (26,565) 91.4
Total loans held for investment, net 3,541,395 3,422,187 119,208 3.5
Other assets 384,903 371,925 12,978 3.5
Total assets $ 5,230,963 $ 4,653,573 $ 577,390 12.4
LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits $ 4,265,435 $ 3,728,655 $ 536,780 14.4
Total borrowings 352,197 371,009 (18,812) (5.1)
Other liabilities 92,550 44,927 47,623 106.0
Total shareholders' equity 520,781 508,982 11,799 2.3
Total liabilities and shareholders' equity $ 5,230,963 $ 4,653,573 $ 577,390 12.4


(dollars in thousands)	June 30, 2021		December 31, 2020		$ Change		% Change
ASSETS
Cash and cash equivalents	$	63,434	$	82,659	$	(19,225)	(23.3)	%
Loans held for sale	6,149		59,956		(53,807)		(89.7)
Debt securities available for sale at fair value	2,072,452		1,657,381		415,071		25.0
Loans held for investment, net of unearned income	3,330,156		3,482,223		(152,067)		(4.4)
Allowance for credit losses	(48,000)		(55,500)		7,500		(13.5)
Total loans held for investment, net	3,282,156		3,426,723		(144,567)		(4.2)
Other assets	325,024		329,929		(4,905)		(1.5)
Total assets	$	5,749,215	$	5,556,648	$	192,567	3.5	%
LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits	$	4,792,666	$	4,547,049	$	245,617	5.4	%
Total borrowings	382,100		439,480		(57,380)		(13.1)
Other liabilities	44,156		54,869		(10,713)		(19.5)
Total shareholders' equity	530,293		515,250		15,043		2.9
Total liabilities and shareholders' equity	$	5,749,215	$	5,556,648	$	192,567	3.5	%

Debt Securities Available for Sale

~~Debt~~The composition of debt securities ~~totaled $1.2 billion at~~available for sale as of the dates indicated was as follows:


	June 30, 2021				December 31, 2020
(dollars in thousands)	Balance		% of Total		Balance		% of Total
U.S. Government agencies and corporations	$	316	—	%	$	361	—	%
States and political subdivisions	694,874		33.5		628,346		37.9
Mortgage-backed securities	116,954		5.6		94,018		5.7
Collateralized mortgage obligations	808,074		39.0		565,836		34.1
Corporate debt securities	452,234		21.8		368,820		22.3
Fair value of debt securities available for sale	$	2,072,452	100	%	$	1,657,381	100	%

As of June 30, ~~2020, or 22.7%~~2021, the fair value of ~~total assets,~~debt securities available for sale was $2.1 billion, an increase of ~~$401.5~~$415.1 million from ~~$786.0 million, or 16.9% of total assets,~~$1.7 billion as of December 31, ~~2019. As~~2020. The increase was primarily driven by the excess liquidity generated by the increased levels of ~~June 30, 2020, the portfolio consisted mainly~~deposit balances that were deployed into investment security purchases. There were $27.1 million of ~~MBS~~gross unrealized gains and ~~CMOs (37.0%), obligations~~$13.8 million of ~~states and political subdivisions (36.6%), and corporate~~gross unrealized losses in our debt securities ~~(26.4%). No debt securities were classified as HTM~~available for sale portfolio for a net unrealized gain of $13.3 million at June 30, ~~2020 or December 31, 2019.~~2021.

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Loans

The composition of ~~loans held for investment, net~~our loan portfolio by type of ~~unearned income~~loan was as follows:


		June 30, 2020						December 31, 2019							June 30, 2021				December 31, 2020
(dollars in thousands)	(dollars in thousands)	Balance		% of Total		Balance		% of Total		(dollars in thousands)	Balance		% of Total		Balance		% of Total
Agricultural	Agricultural	$	140,837	3.9	%	$	140,446	4.1	%	Agricultural	$	107,834	3.2	%	$	116,392	3.3	%

Commercial and industrial	Commercial and industrial	1,084,527		30.2		835,236		24.2		Commercial and industrial	982,092		29.5		1,055,488		30.3

Commercial real estate:	Commercial real estate:									Commercial real estate:
Construction and development	Construction and development	199,950		5.6		298,077		8.6		Construction and development	168,070		5.0		181,291		5.2
Farmland	Farmland	161,897		4.4		181,885		5.3		Farmland	134,877		4.1		144,970		4.2
Multifamily	Multifamily	247,403		6.9		227,407		6.6		Multifamily	255,826		7.7		256,525		7.4
Commercial real estate-other	Commercial real estate-other	1,155,489		32.1		1,107,490		32.1		Commercial real estate-other	1,147,016		34.4		1,149,575		33.0
Total commercial real estate	Total commercial real estate	1,764,739		49.0		1,814,859		52.6		Total commercial real estate	1,705,789		51.2		1,732,361		49.8
Residential real estate:	Residential real estate:									Residential real estate:
One- to four-family first liens	One- to four-family first liens	377,100		10.5		407,418		11.8		One- to four-family first liens	332,117		10.0		355,684		10.2
One- to four-family junior liens	One- to four-family junior liens	155,814		4.3		170,381		4.9		One- to four-family junior liens	136,464		4.1		143,422		4.1
Total residential real estate	Total residential real estate	532,914		14.8		577,799		16.7		Total residential real estate	468,581		14.1		499,106		14.3
Consumer	Consumer	74,022		2.1		82,926		2.4		Consumer	65,860		2.0		78,876		2.3
Loans held for investment, net of unearned income	Loans held for investment, net of unearned income	$	3,597,039	100.0	%	$	3,451,266	100.0	%	Loans held for investment, net of unearned income	$	3,330,156	100.0	%	$	3,482,223	100.0	%
Loans held for sale										Loans held for sale	$	6,149			$	59,956

Loans held for investment, net of unearned income, ~~increased $145.8~~decreased $152.1 million, or ~~4.2%~~4.4%, from a balance of ~~$3.45~~$3.48 billion at December 31, ~~2019,~~2020, to ~~$3.60~~$3.33 billion at June 30, ~~2020~~2021, primarily as a result of ~~the Company's participation in the~~net loan pay-downs, PPP ~~offset by the continued pay downs on loans held for investment.~~loan forgiveness, and lower line utilization. As of June 30, ~~2020,~~2021, the amortized cost basis of PPP loans was ~~$327.6~~$184.4 million, or 5.5% of loans held for investment, as compared to $259.3 million, or 7.4% of loans held for investment, at December 31, 2020, which are included in the agricultural and ~~the unamortized net fees were $9.3 million.~~commercial and industrial loan portfolios. See Note 4.3. Loans Receivable and the Allowance for Credit Losses to our consolidated financial statements for additional information related to our loan portfolio.

Commitments under standby letters of credit, unused lines of credit and other conditionally approved credit lines totaled approximately $979.3 million and $991.4 million as of June 30, 2021 and December 31, 2020, respectively.

Our loan to deposit ratio decreased to 69.48% as of June 30, 2021 as compared to 76.58% as of December 31, 2020. The loan to deposit ratio fell when compared to the prior year-end due to net loan pay-downs, PPP loan forgiveness and lower line utilization. In addition, deposit growth fueled by the government stimulus and PPP loan proceeds, which were generally deposited into customer accounts at the Bank, were principally utilized to purchase debt securities.

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Nonperforming Assets

The following table sets forth information concerning nonperforming loans by class of receivable and our nonperforming assets at June 30, 2021 and December 31, 2020:


	June 30, 2021							December 31, 2020
(in thousands)	Nonaccrual		90+ Days Past Due and Still Accruing Interest		Total			Nonaccrual		90+ Days Past Due and Still Accruing Interest		Total
Agricultural	$	2,086	$	—	$	2,086		$	2,584	$	—	$	2,584
Commercial and industrial	6,395		—		6,395			7,326		106		7,432
Commercial real estate:
Construction and development	609		—		609			1,145		—		1,145
Farmland	10,280		—		10,280			8,319		—		8,319
Multifamily	1,073		—		1,073			746		—		746
Commercial real estate-other	17,802		—		17,802			19,134		—		19,134
Total commercial real estate	29,764		—		29,764			29,344		—		29,344
Residential real estate:
One- to four- family first liens	1,762		664		2,426			1,895		625		2,520
One- to four- family junior liens	695		—		695			722		—		722
Total residential real estate	2,457		664		3,121			2,617		625		3,242
Consumer	62		1		63			79		8		87
Total nonperforming loans	$	40,764	$	665	$	41,429		$	41,950	$	739	$	42,689
Foreclosed assets, net					755							2,316
Total nonperforming assets					$	42,184						$	45,005

Nonperforming loans ratio (1)					1.24		%					1.23		%
Nonperforming assets ratio (2)					0.73		%					0.81		%

(1) Nonperforming loans ratio is calculated as total nonperforming loans divided by loans held for investment, net of unearned income, at the end of the period.
(2) Nonperforming assets ratio is calculated as total nonperforming assets divided by total assets at the end of the period.

Loan Review and Classification Process for Agricultural, Commercial and Industrial, and Commercial Real Estate Loans:

The Bank maintains a loan review and classification process which involves multiple officers of the Bank and is designed to assess the general quality of credit underwriting and to promote early identification of potential problem loans. All commercial and agricultural loan officers are charged with the responsibility of risk rating all loans in their portfolios and updating the ratings, positively or negatively, on an ongoing basis as conditions warrant. Risk ratings are selected from an 8-point scale with ratings as follows: ratings 1- 4 Satisfactory (pass), rating 5 Watch (potential weakness), rating 6 Substandard (well-defined weakness), rating 7 Doubtful, and rating 8 Loss.

When a loan officer originates a new loan, based upon proper loan authorization, they document the credit file with an offering sheet summary, supplemental underwriting analysis, relevant financial information and collateral evaluations. All of this information is used in the determination of the initial loan risk rating. The Bank’s loan review department undertakes independent credit reviews of relationships based on either criteria established by loan policy, risk-focused sampling, or random sampling. Credit relationships with larger exposure may pose incrementally higher risks. As a result, the Bank's loan review department is required to review all credit relationships with total exposure of $5.0 million or more, as determined semi-annually as of month-end in December and June, no less than annually. In addition, the individual loan reviews consider such items as: loan type; nature, type and estimated value of collateral; borrower and/or guarantor estimated financial strength; most recently available financial information; related loans and total borrower exposure; and current and anticipated performance of the loan. The results of such reviews are presented to both executive management and the audit committee of the Company's board of directors.

Through the review of delinquency reports, updated financial statements or other relevant information, the lending officer and/or loan review personnel may determine that a loan relationship has weakened to the point that a watch (loan grade 5) or classified (loan grades 6 through 8) status is warranted. At least quarterly, the loan strategy committee will meet to discuss loan relationships with total related exposure of $1.0 million or above that are Watch rated credits, loan relationships with total related exposure of $500 thousand and above that are Substandard or worse rated credits, as well as loan relationships with total related exposure of $250 thousand and above that are on non-accrual. Credits below these designated thresholds are reviewed upon request. The lending officer is charged with preparing a loan strategy summary worksheet that outlines the background of the credit problem, current repayment status of the loans, current collateral evaluation and a workout plan of action. This plan may include goals to improve the credit rating, assist the borrower in moving the loans to another institution and/or collateral

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liquidation. All such reports are presented to the loan strategy committee. Copies of the minutes of these committee meetings are presented to the board of directors of the Bank.

Depending upon the individual facts and circumstances and the result of the classified/watch review process, loan officers and/or loan review personnel may categorize a loan relationship as requiring an individual analysis. Once that determination has occurred, the credit analyst will complete an individually analyzed worksheet that contains an evaluation of the collateral (for collateral-dependent loans) based upon the estimated collateral value, adjusting for current market conditions and other local factors that may affect collateral value. Loan review personnel may also complete an independent individual analysis when deemed necessary. These judgmental evaluations may produce an initial specific allowance for placement in the Company’s allowance for credit losses calculation. An analysis for the underlying collateral value of each individually analyzed loan relationship is completed in the last month of the quarter. The individually analyzed worksheets are reviewed by the Credit Administration department prior to quarter-end. The board of directors of the Bank on a quarterly basis reviews the classified/watch reports including changes in credit grades of 5 or higher as well as all individually analyzed loans, the related allowances and foreclosed assets, net.

The review process also provides for the upgrade of loans that show improvement since the last review. All requests for an upgrade of a credit are approved by the proper authority based upon the aggregate credit exposure before the rating can be changed.

Loan Modifications

We restructure loans for our customers who appear to be able to meet the terms of their loan over the long term, but who may be unable to meet the terms of the loan in the near term due to individual circumstances. We consider the customer’s past performance, previous and current credit history, the individual circumstances surrounding the current difficulties and their plan to meet the terms of the loan in the future prior to restructuring the terms of the loan. The following factors are indicators that a concession has been granted (one or multiple items may be present):

•The borrower receives a reduction of the stated interest rate for the remaining original life of the debt.

•The borrower receives an extension of the maturity date or dates at a stated interest rate lower than the current market interest rate for new debt with similar risk characteristics.

•The borrower receives a reduction of the face amount or maturity amount of the debt as stated in the instrument or other agreement.

•The borrower receives a deferral of required payments (principal and/or interest).

•The borrower receives a reduction of the accrued interest.

Generally, short-term deferral of required payments would not be considered a concession. During the three and six months ended June 30, 2021, the Company classified four loans and seven loans as TDRs, respectively, due to the Company granting a concession to a borrower experiencing financial difficulty. The aggregate post-modification outstanding recorded investment of the loans classified as TDRs during three and six months ended June 30, 2021 was $2.2 million and $2.5 million, respectively.

Refer above to the "COVID-19 Update" section for details pertaining to the modifications that were a result of COVID-19 that were not deemed to be TDRs.

Allowance for Credit Losses

Our ACL as of June 30, 2021 was $48.0 million, which was 1.44% of loans held for investment, net of unearned income. This compares with an ACL of $55.5 million as of December 31, 2020, which was 1.59% of loans held for investment, net of unearned income. The ACL at June 30, 2021 does not include an allowance amount for PPP loans as they are fully guaranteed by the SBA. When adjusted for the impact of PPP loans, the ratio of the ACL as a percentage of loans held for investment, net of unearned income as of June 30, 2021 was 1.53% and as of December 31, 2020 was 1.72% (a non-GAAP financial measure - see "Non-GAAP Financial Measures"). The decrease in the ACL reflects overall improvements in forecasted economic conditions and an improved credit profile outlook. The liability for off-balance sheet credit exposures totaled $4.0 million as of June 30, 2021 as compared to $4.1 million at December 31, 2020 and is included in 'Other liabilities' on the balance sheet.

The Company recorded a credit loss benefit related to loans of $6.8 million for the six months ended June 30, 2021 as compared to a credit loss expense related to loans of $25.6 million for the six months ended June 30, 2020. Gross charge-offs for the first six months of 2021 totaled $1.8 million, while there were $1.1 million in gross recoveries of previously charged-off loans. The ratio of annualized net loan charge offs to average loans for the first six months of 2021 was 0.04% compared to 0.17% for the six months ended June 30, 2020.

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Economic Forecast: At June 30, 2021, the economic forecast used by the Company showed the following: (1) Midwest unemployment – decreases over the next four forecasted quarters; (2) Year-to-year change in national retail sales - increases over the next four forecasted quarters; (3) Year-to-year change in CRE Index - decreases over the next four forecasted quarters; (4) Year-to-year change in U.S. GDP - increases over the next four forecasted quarters; (5) Year-to-year change in National Home Price Index – increases over the next four forecasted quarters; and (6) Rental Vacancy - an increase over the next two forecasted quarters, followed by a decline in the third and fourth forecasted quarters. Overall, economic forecast loss driver data improved when compared to the previously disclosed first quarter of 2021 results.

Loan Policy: We review all nonaccrual loans greater than $250,000 individually on a quarterly basis to estimate the appropriate allowance due to collateral deficiency or insufficient cash-flow based on a discounted cash-flow analysis. At June 30, 2021, TDRs were not a material portion of the loan portfolio. We review loans 90 days or more past due that are still accruing interest no less than quarterly to determine if the asset is both well secured and in the process of collection. If not, such loans are placed on non-accrual status.

Based on the inherent risk in the loan portfolio, management believed that as of June 30, 2021, the ACL was adequate; however, there is no assurance losses will not exceed the allowance, and any growth in the loan portfolio or uncertainty in the general economy will require that management continue to evaluate the adequacy of the ACL and make additional provisions in future periods as deemed necessary. See Note 3. Loans Receivable and the Allowance for Credit Losses to our unaudited consolidated financial statements for additional information related to the allowance for credit losses.

Deposits

The composition of deposits was as follows:


		As of June 30, 2020						As of December 31, 2019							As of June 30, 2021				As of December 31, 2020
(in thousands)	(in thousands)	Balance		% of Total		Balance		% of Total		(in thousands)	Balance		% of Total		Balance		% of Total
Noninterest bearing deposits	Noninterest bearing deposits	$	867,637	20.3	%	$	662,209	17.8	%	Noninterest bearing deposits	$	952,764	19.9	%	$	910,655	20.0	%
Interest checking deposits	Interest checking deposits	1,153,697		27.0	%	962,830		25.8	%	Interest checking deposits	1,414,942		29.6		1,351,641		29.7
Money market deposits	Money market deposits	811,368		19.0	%	763,028		20.5	%	Money market deposits	936,683		19.5		918,654		20.2
Savings deposits	Savings deposits	463,262		10.9	%	387,142		10.4	%	Savings deposits	596,199		12.4		529,751		11.7
Time deposits under $250,000		656,723		15.4	%	682,232		18.3	%
Time deposits of $250,000 or more		312,748		7.3	%	271,214		7.3	%
Time deposits under $250										Time deposits under $250	538,331		11.2		581,471		12.8
Time deposits of $250 or more										Time deposits of $250 or more	353,747		7.4		254,877		5.6
Total deposits	Total deposits	$	4,265,435	100.0	%	$	3,728,655	100.0	%	Total deposits	$	4,792,666	100.0	%	$	4,547,049	100.0	%

Deposits increased ~~$536.8~~$245.6 million from December 31, ~~2019,~~2020, or ~~14.4%. The origination~~5.4%, reflecting the combination of fiscal stimulus and the deposit of PPP ~~loans during the second quarter of 2020 resulted in an increase in total deposits, as PPP~~ loan proceeds, which were generally deposited into customer accounts at the Bank. Approximately ~~77.0%~~81.4% of our total deposits were considered “core” deposits as of June 30, ~~2020,~~2021, compared to ~~74.2%~~81.6% at December 31, ~~2019.~~2020. We consider core deposits to be the total of all deposits other than ~~certificates of deposit~~time deposits and non-reciprocal brokered money market deposits. See Note 8.7. Deposits to our consolidated financial statements for additional information related to our deposits.

Short-Term Borrowings

Federal funds purchased - The Bank purchases federal funds for short-term funding needs from correspondent and regional banks. As of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Bank had no federal funds purchased.

Securities Sold Under Agreements to Repurchase - Securities sold under agreements to repurchase ~~rose $35.0~~declined $1.3 million, or ~~29.8%~~0.8%, to ~~$152.2 milion~~$173.0 million as of June 30, ~~2020~~2021, compared with ~~$117.2~~$174.3 million as of December 31, ~~2019.~~2020. Securities sold under agreements to repurchase are agreements in which the Company acquires funds by selling investment securities to another party under a simultaneous agreement to repurchase the same investment securities at a specified price and date. The Company enters into repurchase agreements and also offers a demand deposit account product to customers that sweeps their balances in excess of an agreed upon target amount into overnight repurchase agreements. As such, the balance of these borrowings vary according to the liquidity needs of the customers participating in these sweep accounts.

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Federal Home Loan Bank Advances - The Bank utilizes FHLB short-term advances for short-term funding needs. The Company had no$39.3 million of short-term advances as of June 30, ~~2020~~2021, compared with ~~$22.1~~$56.5 million as of December 31, ~~2019, a decrease of $22.1 million.~~2020.

~~Line of Credit~~Other - At June 30, 2021 and December 31, 2020, the Company had no Federal Reserve Discount Window borrowings, while the financing capacity was $62.9 million as of June 30, 2021 and $67.7 million as of December 31, 2020.

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The Bank ~~entered into~~maintains a credit agreement with a correspondent bank under which the Company is able to borrow up to ~~$10.0~~$25.0 million from an unsecured revolving credit facility. The Company had ~~$10.0 million~~no balance outstanding under this revolving ~~loan~~credit facility as of both June 30, ~~2020~~2021 and ~~nothing outstanding as of~~ December 31, ~~2019.~~2020.

See Note 9 .8. Short-Term Borrowings to our unaudited consolidated financial statements for additional information related to short-term borrowings.

Long-Term Debt

Finance Lease Payable - The Company has one existing finance lease for a branch location, with a present value liability balance of ~~$1.2~~$1.0 million as of June 30, ~~2020, substantially unchanged from~~2021 and $1.1 million as of December 31, ~~2019.~~2020.

Junior Subordinated Notes Issued to Capital Trusts - Junior subordinated notes that have been issued to capital trusts that issued trust preferred securities were ~~$41.7~~$41.9 million as of June 30, ~~2020, substantially unchanged from~~2021 and $41.8 million as of December 31, ~~2019.~~2020.

Subordinated Debentures - On May 1, 2019, the Company assumed $10.9 million in aggregate principal amount of subordinated debentures as a result of the merger with ATBancorp. The Company redeemed the ATB Debentures, in whole, on May 31, 2021. In addition, on July 28, 2020, the Company completed the private placement offering of $65.0 million aggregate principal amount of 5.75% fixed-to-floating rate subordinated notes, of which $63.75 million have been exchanged for subordinated notes registered under the Securities Act of 1933. The balance of the subordinated debt was ~~substantially unchanged~~$63.8 million as of June 30, ~~2020 and~~2021, as compared to $74.6 million at December 31, ~~2019, with a recorded amount of $10.9 million.~~2020.

Federal Home Loan Bank Borrowings - FHLB borrowings totaled ~~$108.2~~$63.2 million as of June 30, ~~2020~~2021, compared with ~~$145.7~~$91.2 million as of December 31, ~~2019,~~2020, a decrease of ~~$37.5~~$28.0 million, or ~~25.7%.~~30.8%, due to maturities of FHLB advances. We utilize FHLB borrowings as a supplement to customer deposits to fund interest-earning assets and to assist in managing interest rate risk.

~~Other Long-Term Debt~~ ~~- On April 30, 2019, the Company entered into a $35.0 million unsecured note in connection with the ATBancorp acquisition, $28.0 million of which was outstanding at June 30, 2020.~~

See Note 1 0 .9. Long-Term Debt to our unaudited consolidated financial statements for additional information related to long-term debt.

~~Nonperforming Assets~~

~~The following tables set forth information concerning nonperforming loans by class of receivable at June 30, 2020 and December 31, 2019:~~

June 30, 2020 December 31, 2019
(in thousands) Nonaccrual 90+ Days Past Due and Still Accruing Interest Total Nonaccrual 90+ Days Past Due and Still Accruing Interest Total
Agricultural $ 3,187 $ — $ 3,187 $ 2,894 $ — $ 2,894
Commercial and industrial 10,041 35 10,076 13,276 — 13,276
Commercial real estate:
Construction and development 879 — 879 1,494 — 1,494
Farmland 14,178 — 14,178 10,402 — 10,402
Multifamily — — — — — —
Commercial real estate-other 9,980 — 9,980 10,141 — 10,141
Total commercial real estate 25,037 — 25,037 22,037 — 22,037
Residential real estate:
One- to four- family first liens 2,293 3,197 5,490 2,557 99 2,656
One- to four- family junior liens 583 — 583 513 25 538
Total residential real estate 2,876 3,197 6,073 3,070 124 3,194
Consumer 162 6 168 206 12 218
Total ⁽¹⁾
$ 41,303 $ 3,238 $ 44,541 $ 41,483 $ 136 $ 41,619
⁽¹⁾Starting in the second quarter of 2020, performing troubled debt restructured loans held for investment are no longer considered nonperforming assets. Prior period information has been adjusted to exclude these loans.

~~At June 30, 2020, net foreclosed assets totaled $1.0 million, down from $3.7 million at December 31, 2019 primarily due to the sale of foreclosed assets.~~

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~~Loan Review and Classification Process for Agricultural, Commercial and Industrial, and Commercial Real Estate Loans:~~

When a loan officer originates a new loan, based upon proper loan authorization, he or she documents the credit file with an offering sheet summary, supplemental underwriting analysis, relevant financial information and collateral evaluations. All of this information is used in the determination of the initial loan risk rating. The Bank’s loan review department undertakes independent credit reviews of relationships based on either criteria established by loan policy, risk-focused sampling, or random sampling. Loan policy requires all lending relationships with total exposure of $5.0 million or more as well as all classified (loan grades 6 through 8) and watch (loan grade 5) rated credits over $1.0 million be reviewed no less than annually. The individual loan reviews consider such items as: loan type; nature, type and estimated value of collateral; borrower and/or guarantor estimated financial strength; most recently available financial information; related loans and total borrower exposure; and current and anticipated performance of the loan. The results of such reviews are presented to executive management.

Through the review of delinquency reports, updated financial statements or other relevant information, the lending officer and/or loan review personnel may determine that a loan relationship has weakened to the point that a watch (loan grade 5) or classified (loan grades 6 through 8) status is warranted. When a loan relationship with total related exposure of $1.0 million or greater is adversely graded (loan grade 5 or above), or is classified as a TDR (regardless of size), the lending officer is then charged with preparing a loan strategy summary worksheet that outlines the background of the credit problem, current repayment status of the loans, current collateral evaluation and a workout plan of action. This plan may include goals to improve the credit rating, assist the borrower in moving the loans to another institution and/or collateral liquidation. All such reports are first presented to regional management and then to the loan strategy committee. Copies of the minutes of these committee meetings are presented to the board of directors of the Bank.

Depending upon the individual facts and circumstances and the result of the classified/watch review process, loan officers and/or loan review personnel may categorize the loan relationship as impaired. Once that determination has occurred, the credit analyst will complete an evaluation of the collateral (for collateral-dependent loans) based upon the estimated collateral value, adjusting for current market conditions and other local factors that may affect collateral value. Loan review personnel may also complete an independent impairment analysis when deemed necessary. These judgmental evaluations may produce an initial specific allowance for placement in the Company’s allowance for credit losses calculation. Impairment analysis for the underlying collateral value is completed in the last month of the quarter. The impairment analysis worksheets are reviewed by the Credit Administration department prior to quarter-end. The board of directors of the Bank on a quarterly basis reviews the classified/watch reports including changes in credit grades of 5 or higher as well as all impaired loans, the related allowances and foreclosed assets, net.

The review process also provides for the upgrade of loans that show improvement since the last review. All requests for an upgrade of a credit are approved by the loan strategy committee before the rating can be changed.

~~Enhanced Credit Monitoring~~

In response to the current economic environment, beginning in the second quarter of 2020, we performed an additional risk rating review, which encompassed all loans greater than $1 million from industry groups identified as "vulnerable" to significant impact from COVID-19, in addition to the top 30 largest loan relationships. The additional risk rating review allows us to build on our existing portfolio monitoring processes, while also creating enhanced monitoring procedures to increase the penetration of our portfolio and ultimately the transparency of the risk profile of the portfolio.

~~Restructured Loans~~

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•~~The borrower receives a reduction of the stated interest rate for the remaining original life of the debt.~~

•~~The borrower receives an extension of the maturity date or dates at a stated interest rate lower than the current market interest rate for new debt with similar risk characteristics.~~

•~~The borrower receives a reduction of the face amount or maturity amount of the debt as stated in the instrument or other agreement.~~

•~~The borrower receives a deferral of required payments (principal and/or interest).~~

•~~The borrower receives a reduction of the accrued interest.~~

Generally, short-term deferral of required payments would not be considered a concession. Once a restructured loan has gone 90 days or more past due or is placed on nonaccrual status, it is included in the 90 days or more past due or nonaccrual totals.

~~During the six months ended June 30, 2020, the Company modified eight loans that were considered TDRs due to granting a concession to a borrower experiencing financial difficulties.~~

~~Refer above to the "COVID-19 Update" section for details pertaining to the modifications that were a result of COVID-19 that were not deemed to be TDRs.~~

~~Allowance for Credit Losses~~

Our ACL as of June 30, 2020 was $55.6 million, which was 1.55% of loans held for investment, net of unearned income, as of that date. This compares with an ACL of $29.1 million as of December 31, 2019, which was 0.84% of loans held for investment, net of unearned income, as of that date. When adjusted for the impact of PPP loans, the ratio of the ACL as a percentage of loans held for investment, net of unearned income as of June 30, 2020 was 1.70% (a non-GAAP financial measure. See "Non-GAAP Financial Measures"). Gross charge-offs for the first six months of 2020 totaled $3.6 million, while there were $0.5 million in recoveries of previously charged-off loans. The increase in the ACL is due to the adoption of the CECL accounting guidance, which included a one-time cumulative effect adjustment for credit losses associated with the acquired loan portfolio that was previously excluded, in addition to changes in current and forecasted conditions due to the COVID-19 pandemic. The framework requires that management's estimate reflects credit losses over the full remaining expected life of each credit and considers expected future changes in macroeconomic conditions. The adoption resulted in the recognition of a day 1 transition adjustment of $4.0 million related to the allowance for credit losses for loans. In addition, as part of the adoption of CECL, effective January 1, 2020, the Company recognized a day 1 adjustment of $3.4 million related to the recognition of a liability for off-balance sheet credit exposures. The liability for off-balance sheet credit exposures totaled $4.2 million as of June 30, 2020 and is included in 'Other liabilities' on the balance sheet. See ~~Note 2. Effect of New Financial Accounting Standards~~ ~~for additional information on the Company's adoption of CECL.~~

The Company recorded credit loss expense related to loans of $25.6 million for the six months ended June 30, 2020 as compared to $2.3 million for the six months ended June 30, 2019. The ratio of annualized net loan charge offs to average loans for the first six months of 2020 was 0.21% compared to 0.23% for the year ended December 31, 2019. As of June 30, 2020, the ACL was 124.9% of nonperforming loans compared with 69.9% as of December 31, 2019. This increase in the ratio of the ACL to nonperforming loans was due to an increased provision that was driven by the deterioration in current and forecasted economic conditions, largely as a result of the COVID-19 pandemic. Based on the inherent risk in the loan portfolio, management believed that as of June 30, 2020, the ACL was adequate; however, there is no assurance losses will not exceed the allowance, and any growth in the loan portfolio or uncertainty in the general economy will require that management continue to evaluate the adequacy of the ACL and make additional provisions in future periods as deemed necessary.

At June 30, 2020, a macroeconomic forecast used by the Company showed continued increases in Midwest unemployment over the next three forecasted quarters, with improvements starting in the fourth forecasted quarter; increases in national retail sales over the next four forecasted quarters; decreases in the CRE index over the next three forecasted quarters, with improvements beginning in the fourth forecasted quarter; decreases in U.S. GDP over the next two forecasted quarters, with improvements starting in the third forecasted quarter; decreases in the national home price index; and increases in the U.S. rental vacancy rate through the second forecasted quarter, with improvements starting in the third forecasted quarter. Consistent with the prior quarter, these loss drivers are worse when compared to recent historical trends over the past several years, largely as a result of the COVID-19 pandemic.

We review all nonaccrual loans greater than $250,000 individually on a quarterly basis to estimate the appropriate allowance due to collateral deficiency or insufficient cash-flow based on a discounted cash-flow analysis. At June 30, 2020, TDRs were not a material portion of the loan portfolio. We review loans 90 days or more past due that are still accruing interest no less than quarterly to determine if there is a strong reason that the credit should not be placed on non-accrual.

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Capital Resources

Shareholder's Equity

Total shareholders’ equity was ~~$520.8~~$530.3 million as of June 30, ~~2020,~~2021, compared to ~~$509.0~~$515.3 million as of December 31, ~~2019,~~2020, an increase of ~~$11.8~~$15.0 million, or ~~2.3%. This~~2.9%, primarily as a result of an increase was primarily due to a $14.2 million increase in accumulated other comprehensive income, which is due to to market value adjustments on investment securities AFS and changes in the cash flow hedge. The increase in total shareholders' equity from accumulated other comprehensive income was offset by a decrease of $2.7 million in retained earnings. The decrease in retained earnings, was due to a $5.4 million negative adjustment for the cumulative effect of change in accounting principle and dividends paid of $7.1 million, offset in part by net income of $9.7 million for the first six months of 2020. In addition, there was a $1.8 million increase in treasury stock due to the repurchase of 95,340 shares of Company common stock at a cost of $2.6 million, partially offset by ~~the issuance of 32,488 shares of Company common stock in connection with stock compensation plans during the first six months of 2020.~~decreased AOCI. The total shareholders’ equity to total assets ratio was ~~9.96%~~9.22% at June 30, ~~2020,~~2021, down from ~~10.94%~~9.27% at December 31, ~~2019.~~2020. The tangible common equity ~~to tangible assets~~ ratio (a non-GAAP financial ~~measure. See~~measure -see "Non-GAAP Financial Measures") was ~~7.80%~~7.86% at June 30, ~~2020,~~2021, compared with ~~8.50%~~7.82% at December 31, ~~2019.~~2020. Book value was ~~$32.35~~$33.22 per share at June 30, ~~2020,~~2021, an increase from ~~$31.49~~$32.17 per share at December 31, ~~2019.~~2020. Tangible book value per share (a non-GAAP financial ~~measure. See~~measure - see "Non-GAAP Financial Measures") was ~~$24.74~~$27.90 at June 30, ~~2020,~~2021, an increase from ~~$23.81~~$26.69 per share at December 31, ~~2019.~~2020.

Capital Adequacy

Our Tier 1 capital to risk-weighted assets ratio was ~~10.48%~~11.21% as of June 30, ~~2020~~2021 and was ~~10.47%~~10.70% as of December 31, ~~2019.~~2020. Risk-based capital guidelines require the classification of assets and some off-balance-sheet items in terms of credit-risk exposure and the measuring of capital as a percentage of the risk-adjusted asset totals. Management believed that, as of June 30, ~~2020,~~2021, the Company and the Bank met all capital adequacy requirements to which we were subject. As of that date, the Bank was “well capitalized” under regulatory prompt corrective action provisions. See Note 1 3 .11. Regulatory Capital Requirements and Restrictions on Subsidiary Cash to our unaudited consolidated financial statements for additional information related to our capital.

Stock Compensation

Restricted stock units were granted to certain officers and directors of the Company on February 15, ~~2020~~2021 and May 15, ~~2020,~~2021, in the aggregate amounts of ~~48,066~~65,168 and ~~17,084,~~11,231, respectively. Additionally, during the first six months of ~~2020, 37,005~~2021, 52,323 shares of common stock were issued in connection with the vesting of previously awarded grants of restricted stock units, of which ~~4,517~~4,272 shares were surrendered by grantees to satisfy tax requirements, and ~~805~~9,533 unvested restricted stock units were forfeited.

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Liquidity

Liquidity Management

Liquidity management involves meeting the cash flow requirements of depositors and borrowers. We conduct liquidity management on both a daily and long-term basis, and adjust our investments in liquid assets based on expected loan demand, projected loan maturities and payments, expected deposit flows, yields available on interest-bearing deposits, and the objectives of our asset/liability management program.

~~We had~~ Excess liquidity is invested generally in short-term U.S. government and agency securities, short- and medium-term state and political subdivision securities, and other investment securities. Our most liquid assets ~~(cash~~are cash and due from banks, interest-bearing bank deposits, and federal funds sold. The balances of these assets are dependent on our operating, investing, and financing activities during any given period.

Generally, the government’s response to the COVID-19 pandemic in the form of fiscal stimulus payments to individuals, coupled with economic uncertainty stemming from the pandemic, has resulted in increased liquidity throughout 2020 and into 2021.

Cash and cash ~~equivalents) of $117.2 million as of June 30, 2020, compared with $73.5 million as of December 31, 2019. Interest-bearing deposits~~equivalents are summarized in banks at June 30, 2020, were $45.0 million, an increase of $38.9 million from $6.1 million at December 31, 2019. Debt securities classified as AFS, totaling $1.2 billion and $786.0 million as of June 30, 2020 and December 31, 2019, respectively, could be sold to meet liquidity needs if necessary. Additionally, the Bank maintains unsecured lines of credit with several correspondent banks and secured lines with the Federal Reserve Bank Discount Window and the FHLB that would allow us to borrow funds on a short-term basis, if necessary.table below:


(dollars in thousands)	As of June 30, 2021		As of December 31, 2020
Cash and due from banks	$	52,297	$	65,078
Interest-bearing deposits	11,124		17,409
Federal funds sold	13		172
Total	$	63,434	$	82,659

Generally, our principal sources of funds are deposits, advances from the FHLB, principal repayments on loans, proceeds from the sale of loans, proceeds from the maturity and sale of investment securities, our federal funds lines, and funds provided by operations. While scheduled loan amortization and maturing interest-bearing deposits ~~in banks~~ are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by economic conditions, the general level of interest rates, and competition. We ~~utilize~~utilized particular sources of funds based on comparative costs and availability. The Bank maintains unsecured lines of credit with several correspondent banks and secured lines with the Federal Reserve Bank of Chicago and the FHLB that would allow us to borrow funds on a short-term basis, if necessary. We also hold debt securities classified as available for sale that could be sold to meet liquidity needs if necessary.

AsNet cash provided by operations was another major source of liquidity. The net cash provided by operating activities was $79.3 million for the six months ended June 30, ~~2020, we had $28.0~~2021 and $28.7 million ~~of long-term debt outstanding to an unaffiliated banking organization. See~~ ~~Note 1~~0 ~~. Long-Term Debt~~ ~~to our consolidated financial statements~~ for additional information related to our long-term debt. We also have $41.7 million of indebtedness payable under junior subordinated notes issued to subsidiary trusts that issued trust preferred securities in pooled offerings, and $10.9 million payable under subordinated debentures. See ~~Note 1~~0 ~~. Long-Term Debt~~ ~~to our consolidated financial statements for additional information related to our junior subordinated notes.~~

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the six months ended June 30, 2020.

Inflation

The effects of price changes and inflation can vary substantially for most financial institutions. While management believes that inflation affects the growth of total assets, it is difficult to assess its overall impact on the Company. The price of one or more of the components of the Consumer Price Index may fluctuate considerably and thereby influence the overall Consumer Price Index without having a corresponding effect on interest rates or upon the cost of those goods and services normally purchased by us. In years of high inflation and high interest rates, intermediate and long-term interest rates tend to increase, thereby adversely impacting the market values of investment securities, mortgage loans and other long-term fixed rate loans held by financial institutions. In addition, higher short-term interest rates caused by inflation tend to increase financial institutions’ cost of funds. In other years, the reverse situation may occur.

Off-Balance-Sheet Arrangements

During the normal course of business, we are a party to financial instruments with off-balance-sheet risk in order to meet the financing needs of our customers. These financial instruments include commitments to extend credit, commitments to sell loans, and standby letters of credit. We follow the same credit policy (including requiring collateral, if deemed appropriate) to make such commitments as is followed for those loans that are recorded in our financial statements.

Our exposure to credit losses in the event of nonperformance is represented by the contractual amount of the commitments. Management does not expect any significant losses as a result of these commitments, and also expects to have sufficient liquidity available to cover these off-balance-sheet instruments. Off-balance-sheet transactions are more fully discussed in Note 1 4 .12. Commitments and Contingencies to our unaudited consolidated financial statements.

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Contractual Obligations

~~There~~Outside the redemption on May 31, 2021 of the ATB Debentures that were assumed upon the acquisition of ATBancorp, there have been no material changes to the contractual obligations existing at December 31, ~~2019,~~2020, as disclosed in the Annual Report on Form 10-K, filed with the SEC on March ~~6, 2020.~~11, 2021.

Non-GAAP Financial Measures

~~We disclose certain non-GAAP~~Certain ratios and amounts not in conformity with GAAP are provided to evaluate and measure the Company’s operating performance and financial condition, including return on average tangible equity, tangible common equity, tangible book value per share, tangible common equity ratio, net interest margin (tax equivalent), core net interest margin, efficiency ratio, ~~pre-tax pre-provision net revenue,~~ and ~~ACL to~~ adjusted ~~loans held~~allowance for ~~investment, net of unearned income.~~credit losses ratio. Management believes these ~~measures~~ratios and amounts provide investors with useful information regarding the ~~Company's~~Company’s profitability, financial condition and capital adequacy, consistent with how management evaluates the ~~Company's~~Company’s financial performance.

The following tables provide a reconciliation of ~~the~~each non-GAAP ~~measures~~measure to the most comparable GAAP ~~equivalents for the dates or periods indicated:~~equivalent.


		For the Three Months Ended June 30,									For the Six Months Ended June 30,										Three Months Ended						Six Months Ended
Return on Average Tangible Equity	Return on Average Tangible Equity	2020			2019			2020			2019			Return on Average Tangible Equity	June 30, 2021			June 30, 2020			June 30, 2021			June 30, 2020
(Dollars in thousands)	(Dollars in thousands)													(Dollars in thousands)
Net income	Net income	$	11,712		$	10,674		$	9,737		$	17,959		Net income	$	17,271		$	11,712		$	38,919		$	9,737
Intangible amortization, net of tax ⁽¹⁾	Intangible amortization, net of tax ⁽¹⁾	1,311			698			2,832			1,037			Intangible amortization, net of tax (1)	1,006			1,311			2,136			2,832

Tangible net income	Tangible net income	$	13,023		$	11,372		$	12,569		$	18,996		Tangible net income	$	18,277		$	13,023		$	41,055		$	12,569

Average shareholders' equity	Average shareholders' equity	$	511,239		$	443,114		$	513,204		$	401,490		Average shareholders' equity	$	523,242		$	511,239		$	519,760		$	513,204
Average intangible assets, net	Average intangible assets, net	(123,313)			(102,919)			(123,130)			(88,633)			Average intangible assets, net	(85,518)			(123,313)			(86,235)			(123,130)
Average tangible equity	Average tangible equity	$	387,926		$	340,195		$	390,074		$	312,857		Average tangible equity	$	437,724		$	387,926		$	433,525		$	390,074

Return on average equity	Return on average equity	9.21		%	9.66		%	3.82		%	9.02		%	Return on average equity	13.24		%	9.21		%	15.10		%	3.82		%
Return on average tangible equity ⁽²⁾	Return on average tangible equity ⁽²⁾	13.50		%	13.41		%	6.48		%	12.24		%	Return on average tangible equity (2)	16.75		%	13.50		%	19.10		%	6.48		%

(1) Computed assuming a combined marginal income tax rate of 25%.	(1) Computed assuming a combined marginal income tax rate of 25%.													(1) Computed assuming a combined marginal income tax rate of 25%.
(2) Annualized tangible net income divided by average tangible equity.	(2) Annualized tangible net income divided by average tangible equity.													(2) Annualized tangible net income divided by average tangible equity.


Tangible Common Equity/Tangible Book Value per Share / Tangible Common Equity Ratio	June 30, 2021			December 31, 2020
(Dollars in thousands, except per share data)
Total shareholders’ equity	$	530,293		$	515,250
Intangible assets, net	(84,871)			(87,719)
Tangible common equity	$	445,422		$	427,531

Total assets	$	5,749,215		$	5,556,648
Intangible assets, net	(84,871)			(87,719)
Tangible assets	$	5,664,344		$	5,468,929

Book value per share	$	33.22		$	32.17
Tangible book value per share (1)	$	27.90		$	26.69
Shares outstanding	15,963,468			16,016,780

Equity to assets ratio	9.22		%	9.27		%
Tangible common equity ratio (2)	7.86		%	7.82		%

(1) Tangible common equity divided by shares outstanding.
(2) Tangible common equity divided by tangible assets.

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Tangible Common Equity/Tangible Book Value per Share /
Tangible Common Equity Ratio June 30, 2020 December 31, 2019
(Dollars in thousands, except per share data)
Total shareholders’ equity $ 520,781 $ 508,982
Intangible assets, net (122,420) (124,136)
Tangible common equity $ 398,361 $ 384,846
Total assets $ 5,230,963 $ 4,653,573
Intangible assets, net (122,420) (124,136)
Tangible assets $ 5,108,543 $ 4,529,437
Book value per share $ 32.35 $ 31.49
Tangible book value per share ⁽¹⁾
$ 24.74 $ 23.81
Shares outstanding 16,099,324 16,162,176
Equity to assets ratio 9.96 % 10.94 %
Tangible common equity ratio ⁽²⁾
7.80 % 8.50 %
(1) Tangible common equity divided by shares outstanding.
(2) Tangible common equity divided by tangible assets.


	Three Months Ended						Six Months Ended
Net Interest Margin, Tax Equivalent/Core Net Interest Margin	June 30, 2021			June 30, 2020			June 30, 2021			June 30, 2020
(dollars in thousands)
Net interest income	$	38,505		$	38,712		$	77,122		$	76,118
Tax equivalent adjustments:
Loans (1)	519			507			1,050			1,004
Securities (1)	647			482			1,295			877
Net interest income, tax equivalent	$	39,671		$	39,701		$	79,467		$	77,999
Loan purchase discount accretion	(873)			(2,610)			(1,971)			(5,633)
Core net interest income	$	38,798		$	37,091		$	77,496		$	72,366

Net interest margin	2.80		%	3.30		%	2.90		%	3.40		%
Net interest margin, tax equivalent (2)	2.88		%	3.38		%	2.99		%	3.48		%
Core net interest margin (3)	2.82		%	3.16		%	2.91		%	3.23		%
Average interest earning assets	$	5,522,427		$	4,718,581		$	5,361,502		$	4,500,924

(1) The federal statutory tax rate utilized was 21%.
(2) Annualized tax equivalent net interest income divided by average interest earning assets.
(3) Annualized core net interest income divided by average interest earning assets.

Three Months Ended For the Six Months Ended
Net Interest Margin, Tax Equivalent/Core Net Interest Margin June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019
(dollars in thousands)
Net interest income $ 38,712 $ 34,832 $ 76,118 $ 60,808
Tax equivalent adjustments:
Loans ⁽¹⁾
507 442 1,004 715
Securities ⁽¹⁾
482 370 877 736
Net interest income, tax equivalent $ 39,701 $ 35,644 $ 77,999 $ 62,259
Loan purchase discount accretion (2,610) (2,246) (5,633) (2,832)
Core net interest income $ 37,091 $ 33,398 $ 72,366 $ 59,427
Net interest margin 3.30 % 3.60 % 3.40 % 3.55 %
Net interest margin, tax equivalent ⁽²⁾
3.38 % 3.68 % 3.48 % 3.63 %
Core net interest margin ⁽³⁾
3.16 % 3.45 % 3.23 % 3.47 %
Average interest earning assets $ 4,718,581 $ 3,880,786 $ 4,500,924 $ 3,457,597
(1) The federal statutory tax rate utilized was 21%.
(2) Annualized tax equivalent net interest income divided by average interest earning assets.
(3) Annualized core net interest income divided by average interest earning assets.

For the Three Months Ended For the Six Months Ended
Efficiency Ratio June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019
(dollars in thousands)
Total noninterest expense $ 28,038 $ 29,040 $ 58,039 $ 49,657
Amortization of intangibles (1,748) (930) (3,776) (1,382)
Merger-related expenses (7) (3,134) (61) (3,301)
Noninterest expense used for efficiency ratio $ 26,283 $ 24,976 $ 54,202 $ 44,974
Net interest income, tax equivalent⁽¹⁾
$ 39,701 $ 35,644 $ 77,999 $ 62,259
Noninterest income 8,269 8,796 18,424 14,206
Investment security gains, net (6) (32) (48) (49)
Net revenues used for efficiency ratio $ 47,964 $ 44,408 $ 96,375 $ 76,416
Efficiency ratio 54.80 % 56.24 % 56.24 % 58.85 %
(1) The federal statutory tax rate utilized was 21%.

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For the Three Months Ended For the Six Months Ended
Pre-tax Pre-provision Net Revenue June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019
(dollars in thousands)
Net interest income $ 38,712 $ 34,832 $ 76,118 $ 60,808
Noninterest income 8,269 8,796 18,424 14,206
Noninterest expense (28,038) (29,040) (58,039) (49,657)
Pre-tax Pre-provision Net Revenue $ 18,943 $ 14,588 $ 36,503 $ 25,357

ACL / Loans Held for Investment, Net of Unearned Income June 30, 2020 December 31, 2019
(dollars in thousands)
Loans held for investment, net of unearned income $ 3,597,039 $ 3,451,266
PPP loans 327,648 —
Adjusted loans held for investment, net of unearned income $ 3,269,391 $ 3,451,266
Allowance for credit losses $ (55,644) $ (29,079)
ACL to adjusted loans for investment, net of unearned income 1.70 % 0.84 %


	Three Months Ended						Six Months Ended
Efficiency Ratio	June 30, 2021			June 30, 2020			June 30, 2021			June 30, 2020
(dollars in thousands)
Total noninterest expense	$	28,670		$	28,038		$	56,370		$	58,039
Amortization of intangibles	(1,341)			(1,748)			(2,848)			(3,776)
Merger-related expenses	—			(7)			—			(61)

Noninterest expense used for efficiency ratio	$	27,329		$	26,283		$	53,522		$	54,202

Net interest income, tax equivalent(1)	$	39,671		$	39,701		$	79,467		$	77,999
Noninterest income	10,218			8,269			22,042			18,424
Investment security gains, net	(42)			(6)			(69)			(48)
Net revenues used for efficiency ratio	$	49,847		$	47,964		$	101,440		$	96,375

Efficiency ratio(2)	54.83		%	54.80		%	52.76		%	56.24		%
(1) The federal statutory tax rate utilized was 21%.
(2) Noninterest expense adjusted for amortization of intangibles and merger-related expenses divided by the sum of tax equivalent net interest income, noninterest income and net investment securities gains.


Adjusted Allowance for Credit Losses Ratio	June 30, 2021			December 31, 2020
(dollars in thousands)
Loans held for investment, net of unearned income	$	3,330,156		$	3,482,223
PPP loans	(184,390)			(259,260)
Core loans	$	3,145,766		$	3,222,963

Allowance for credit losses	$	48,000		$	55,500

Allowance for credit losses ratio	1.44		%	1.59		%
Adjusted allowance for credit losses ratio (1)	1.53		%	1.72		%

(1) Allowance for credit losses divided by core loans.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

In general, market risk is the risk of change in asset values due to movements in underlying market rates and prices. Interest rate risk is the risk to earnings and capital arising from movements in interest rates. Interest rate risk is the most significant market risk affecting ~~the Company~~us as other types of market risk, such as foreign currency exchange rate risk and commodity price risk, ~~play a lesser role~~do not arise in the normal course of our business activities.

In addition to interest rate risk, economic conditions in recent years have made liquidity risk ~~(in particular,~~(namely, funding liquidity risk) a more prevalent concern among financial institutions. In general, liquidity risk is the risk of being unable to fund an entity’s

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obligations to creditors (including, in the case of banks, obligations to depositors) as such obligations become due and/or to fund its acquisition of assets.

Liquidity Risk

Liquidity refers to our ability to fund operations, to meet depositor withdrawals, to provide for our customers’ credit needs, and to meet maturing obligations and existing commitments. Our liquidity principally depends on cash flows from operating activities, investment in and maturity of assets, changes in balances of deposits and borrowings, and our ability to borrow funds.

Net cash inflows from operating activities were $79.3 million in the first six months of June 30, 2021, compared with $28.7 million in the first six months of ~~2020, compared with $18.3~~2020. Net cash outflows from investing activities were $276.4 million in the first six months of ~~2019. Net cash outflows from investing activities were $492.9 million in the first six months of 2020,~~2021, compared to net cash ~~inflows~~outflows of ~~$97.2~~$492.9 million in the comparable six-month period of 2019. Investment securities transactions resulted in net cash outflows of $352.3 million the first six months of 2020 compared to inflows of $66.0 million during the same period of 2019. Net cash outflows related to the net increase in loans were $142.5 million for the first six months of 2020, compared with $5.5 million of net cash outflows for the same period of 2019.

2020. Net cash inflows from financing activities in the first six months of ~~2020~~2021 were ~~$507.9~~$177.9 million, compared with net cash ~~outflows~~inflows of ~~$40.4~~$507.9 million for the same period of 2019. Uses of cash in the first six months of 2020 were highlighted by a net decrease of $41.7 million in long-term debt, a net increase of $22.9 million in short-term borrowings, and $7.1 million to pay dividends. The largest financing cash inflows during the six months ended June 30, 2020 was deposits, which increased $536.6 million.2020.

To ~~further mitigate~~manage liquidity risk, the Bank has several sources of liquidity in place to maximize funding availability and increase the diversification of funding sources. The criteria for evaluating the use of these sources include volume concentration (percentage of liabilities), cost, volatility, and the fit with the current asset/liability management plan. These acceptable sources of liquidity include:

•Federal Funds Lines

•Federal Reserve Bank Discount Window

•FHLB Borrowings

•Brokered Deposits

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•Brokered Repurchase Agreements

Federal Funds ~~Lines:~~Lines - Routine liquidity requirements are met by fluctuations in the federal funds ~~positions~~position of the Bank. The principal function of these funds is to maintain short-term liquidity. Unsecured federal funds purchased lines are viewed as a volatile liability and are not used as a long-term funding solution, especially when used to fund long-term assets. The current federal funds purchased limit is 10% of total assets, or the amount of established federal funds lines, whichever is smaller. Currently, the Bank ~~has~~maintains several unsecured federal funds lines ~~available~~ totaling $145.0 million, which lines are tested annually to ensure availability.

Federal Reserve Bank Discount ~~Window:~~Window - The Federal Reserve Bank Discount Window is another source of liquidity, particularly during difficult economic times. The Bank has a borrowing capacity with the Federal Reserve Bank of Chicago limited by the amount of municipal securities pledged against the line. As of June 30, ~~2020,~~2021, the Bank had municipal securities with an approximate market value of ~~$70.2~~$68.1 million pledged for liquidity purposes, and had a borrowing capacity of ~~$65.6~~$62.9 million. There were no outstanding borrowings through the FRB Discount Window at June 30, 2021.

FHLB ~~Borrowings:~~Borrowings - FHLB borrowings provide both a source of liquidity and long-term funding for the Bank. Use of this type of funding is coordinated with both the strategic balance sheet growth projections and interest rate risk profile of the Bank. Factors that are taken into account when contemplating use of FHLB borrowings are the effective interest rate, the collateral requirements, community investment program credits, and the implications and cost of having to purchase incremental FHLB stock. The current FHLB borrowing limit is 45% of total assets. As of June 30, ~~2020,~~2021, the Bank had ~~$108.2~~$63.2 million in outstanding FHLB borrowings, leaving ~~$449.5~~$422.3 million available for liquidity needs, based on collateral capacity. These borrowings are secured by various real estate loans (residential, commercial and agricultural).

Brokered ~~Deposits:~~Deposits and Reciprocal Deposits - The Bank has brokered ~~certificate of~~time deposit ~~lines~~ and non-maturity deposit relationships available to ~~help~~ diversify its ~~various~~ funding sources. Brokered deposits offer several benefits relative to other funding sources, such as: maturity structures which cannot be duplicated in the current retail market, deposit gathering which does not cannibalize the existing deposit base, the unsecured nature of these liabilities, and the ability to quickly generate funds. However, brokered deposits are often viewed as a volatile liability by banking regulators and market participants. This viewpoint, and the desire to not develop a large funding concentration in any one area outside of theThe Bank’s ~~core market area, is reflected in an~~ internal policy ~~stating that the Bank~~ limits the use of brokered deposits as a funding source to no more than 10% of total assets. Board approval is required to exceed this limit. The Bank will also have to maintain a “well capitalized” standing to access brokered deposits, as an “adequately capitalized” rating would require an FDIC waiver to do so, and an “undercapitalized” rating would prohibit it from using brokered deposits altogether. The Company did not hold any brokered deposits at June 30, 2021.

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Under a final rule that was issued by the FDIC in December 2018, financial institutions that are considered "well capitalized" qualify for the exemption of certain reciprocal deposits from being considered brokered deposits. Such exemption is limited to the lesser of 20 percent of total liabilities or $5 billion, with some exceptions for financial institutions that do not meet such criteria. At June 30, 2021, the Company had $5.9 million of reciprocal time deposits through the CDARS program and $35.2 million of reciprocal non-maturity deposits through the ICS program that qualified for the brokered deposit exemption.

Brokered Repurchase ~~Agreements:~~Agreements - Brokered repurchase agreements may be established with approved brokerage firms and banks. Repurchase agreements create rollover risk (the risk that a broker will discontinue the relationship due to market factors) and are not used as a long-term funding solution, especially when used to fund long-term assets. Collateral requirements and availability are evaluated and monitored. The current policy limit for brokered repurchase agreements is 10% of total assets. There were no outstanding brokered repurchase agreements at June 30, ~~2020.~~2021.

Interest Rate Risk

Interest rate risk is defined as the exposure of net interest income and fair value of financial instruments (interest-earning assets, deposits and borrowings) to movements in interest rates. The Company’s results of operations depend to a large degree on its net interest income and its ability to manage interest rate risk. The Company considers interest rate risk to be ~~one of its more~~a significant market ~~risks.~~risk. The major sources of the Company’s interest rate risk are timing differences in the maturity and re-pricing characteristics of assets and liabilities, changes in the shape of the yield curve, changes in customer behavior and changes in relationships between rate indices (basis risk). Management measures these risks and their impact in various ways, including through the use of income simulation and valuation analyses. ~~The~~Multiple interest rate scenarios are used in ~~such~~this analysis ~~may~~which include ~~gradual or rapid~~ changes in interest rates, spread narrowing and widening, yield curve twists and changes in assumptions about customer behavior in various interest rate scenarios. A mismatch between maturities, interest rate sensitivities and prepayment characteristics of assets and liabilities results in interest-rate risk. Like most financial institutions, we have material interest-rate risk exposure to changes in both short-term and long-term interest rates, as well as variable interest rate indices (e.g., the prime rate or LIBOR). There has been no material change in the Company’s interest rate profile between June 30, 2020 and December 31, 2019. The mix of earning assets and interest-bearing liabilities has remained stable over the period.

The Bank’s asset and liability committee meets regularly and is responsible for reviewing its interest rate sensitivity position and establishing policies to monitor and limit exposure to interest rate risk. Our asset and liability committee seeks to manage interest rate risk under a variety of rate environments by structuring our balance sheet and off-balance-sheet positions in

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such a way that changes in interest rates do not have a large negative impact. The risk is monitored and managed within approved policy limits.

We use a third-party service to model and measure our exposure to potential interest rate changes. For various assumed hypothetical changes in market interest rates, numerous other assumptions are made, such as prepayment speeds on loans and securities backed by mortgages, the slope of the Treasury yield-curve, the rates and volumes of our deposits, and the rates and volumes of our loans. There are two primary tools used to evaluate interest rate risk: net interest income simulation and economic value of equity ("EVE"). In addition, interest rate gap is reviewed to monitor asset and liability repricing over various time periods.

Net Interest Income ~~Simulation:~~Simulation - Management utilizes net interest income simulation models to estimate the near-term effects of changing interest rates on its net interest income. Net interest income simulation involves projecting net interest income under a variety of scenarios, which include varying the level of interest rates and shifts in the shape of the yield curve. Management exercises its best judgment in making assumptions regarding events that management can influence, such as non-contractual deposit re-pricings, and events outside management’s control, such as customer behavior on loan and deposit activity and the effect that competition has on both loan and deposit pricing. These assumptions are subjective and, as a result, net interest income simulation results will differ from actual results due to the timing, magnitude and frequency of interest rate changes, changes in market conditions, customer behavior and management strategies, among other factors. We perform various sensitivity analyses on assumptions of deposit attrition and deposit re-pricing.

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The following table presents the anticipated effect on net interest income over a twelve month period if short- and long-term interest rates were to sustain an immediate decrease of 100 basis points or 200 basis points (the effects of which are not meaningful as of June 30, 2021 in the current low interest rate environment), or an immediate increase of 100 basis points or 200 basis points:

Immediate Change in Rates
(dollars in thousands) -200 -100 +100 +200
June 30, 2020
Dollar change N/A N/A $ 1,860 $ 2,278
Percent change N/A N/A 1.3 % 1.6 %
December 31, 2019
Dollar change $ 1,302 $ 101 $ (638) $ (2,354)
Percent change 0.9 % 0.1 % (0.5) % (1.7) %


	Immediate Change in Rates
(dollars in thousands)	-200	-100	+100			+200
June 30, 2021
Dollar change	N/A	N/A	$	32		$	(599)
Percent change	N/A	N/A	—		%	0.4		%
December 31, 2020
Dollar change	N/A	N/A	$	2,667		$	4,167
Percent change	N/A	N/A	1.8		%	2.8		%

As of June 30, ~~2020, 50.9%~~2021, 28.8% of the Company’s earning asset balances will reprice or are expected to pay down in the next twelve months, and ~~47.4%~~49.4% of the Company’s deposit balances are low cost or no cost deposits.

Economic Value of ~~Equity:~~Equity - Management also uses EVE to measure risk in the balance sheet that might not be taken into account in the net interest income simulation analysis. Net interest income simulation highlights exposure over a relatively short time period, while EVE analysis incorporates all cash flows over the estimated remaining life of all balance sheet positions. The valuation of the balance sheet, at a point in time, is defined as the discounted present value of asset cash flows minus the discounted present value of liability cash flows. EVE analysis addresses only the current balance sheet and does not incorporate the run-off replacement assumptions that are used in the net interest income simulation model. As with the net interest income simulation model, EVE analysis is based on key assumptions about the timing and variability of balance sheet cash flows and does not take into account any potential responses by management to anticipated changes in interest rates.

Interest Rate ~~Gap:~~Gap - The interest rate gap is the difference between interest-earning assets and interest-bearing liabilities re-pricing within a given period and represents the net asset or liability sensitivity at a point in time. An interest rate gap measure could be significantly affected by external factors such as loan prepayments, early withdrawals of deposits, changes in the correlation of various interest-bearing instruments, competition, or a rise or decline in interest rates.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

~~Under the supervision and with the participation of certain members of our~~The Company’s management, including ~~our chief executive officer~~the Chief Executive Officer and ~~chief financial officer, we completed an evaluation of~~Senior Executive Vice President and Chief Financial Officer, evaluated the effectiveness of the ~~design and operation of our~~Company’s disclosure controls and procedures (as defined in ~~Rules~~Rule 13a-15(e) ~~and~~or Rule 15d-15(e) under the ~~Securities~~Exchange Act) that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act ~~of 1934, as amended) as of June 30, 2020.~~is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Senior Executive Vice President and Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on this evaluation, ~~our chief executive officer~~the Chief Executive Officer and ~~chief financial officer~~Senior Executive Vice President and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report with respect to timely communication to them and other members of management responsible for preparing periodic reports of material information required to be disclosed in this report as it relates to the Company and our consolidated subsidiaries.

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June 30, 2021.

The effectiveness of our or any system of disclosure controls and procedures is subject to certain limitations, including the exercise of judgment in designing, implementing, and evaluating the controls and procedures, the assumptions used in identifying the likelihood of future events, and the inability to eliminate misconduct completely. As a result, there can be no assurance that our disclosure controls and procedures will prevent all errors or fraud or ensure that all material information will be made known to appropriate management in a timely fashion. By their nature, our or any system of disclosure controls and procedures can provide only reasonable assurance regarding management’s control objectives.

Changes in Internal Control over Financial Reporting

There ~~was~~were no ~~change~~changes in ~~our~~the Company’s internal ~~control~~controls over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act) that occurred during the ~~fiscal~~ quarter ended June 30, ~~2020~~2021 that ~~has~~have materially affected or isare reasonably likely to materially affect ~~our~~the Company's internal control over financial reporting. We implemented internal controls to ensure we adequately evaluated our contracts and properly assessed the impact of new accounting standards related to the current expected credit loss methodology on our financial statements to facilitate its adoption on January 1, 2020. There were no significant changes to our internal control over financial reporting due to the adoption of the new standard.

6357

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

~~The Company~~We and ~~its~~our subsidiaries are from time to time parties to various legal actions arising in the normal course of business. We believe that there ~~are~~is no threatened or pending ~~proceedings,~~proceeding, other than ordinary routine litigation incidental to the Company’s business, against ~~the Company~~us or ~~its~~our subsidiaries or of which ~~any of their~~our property is the subject, which, if determined adversely, would have a material adverse effect on ~~the~~our consolidated business or financial ~~condition of the Company.~~condition.

Item 1A. Risk Factors.

~~In addition~~There have been no material changes to the risk factors set forth under Part I, Item 1A ~~“Risk Factors”~~"Risk Factors" in the ~~Company’s~~Company's Form 10-K for the fiscal year ended December 31, ~~2019, the following risk factors apply~~2020. Please refer to ~~the Company:~~

The outbreak of Coronavirus Disease 2019, or COVID-19, has led to an economic recession and other severe disruptions in the U.S. economy and has adversely impacted certain industries in which our clients operate and impaired their ability to fulfill their financial obligations to us. As a result, we are starting to see the impact from COVID-19 on our business, and we believe that ~~it will be significant, adverse and potentially material.~~

Currently, COVID-19 is spreading through the United States and the world. The spread of COVID-19 has caused severe disruptions in the U.S. economy at large, and for small businesses in particular, which has disrupted our operations. We are starting to see the impact from COVID-19 on our business, and we believe that it will be significant, adverse and potentially material. The responses on the part of the U.S. and global governments and populations have created a recessionary environment, reduced economic activity and caused significant volatility in the global stock markets. We expect that we will experience significant disruptions across our business due to these effects, leading to decreased earnings and significant loan defaults and slowdowns in our loan collections. We expect increased unemployment and recessionary concerns will adversely affect loan originations in future periods.

The outbreak of COVID-19 has resulted in a decline in our clients’ businesses, a decrease in consumer confidence, an increase in unemployment and a disruption in the services provided by our vendors. Continued disruptions to our clients’ businesses could result in increased risk of delinquencies, defaults, foreclosures and losses on our loans, negatively impact regional economic conditions, result in declines in local loan demand, liquidity of loan guarantors, loan collateral (particularly in real estate), loan originations and deposit availability and negatively impact the implementationsection of our ~~growth strategy. Although~~Form 10-K for disclosures regarding the U.S. government has introduced a number of programs designed to soften the impact of COVID-19 on small businesses, once these programs expire, our borrowers may not be able to satisfy their financial obligations to us.

~~In addition, COVID-19 has impacted~~risks and likely will continue to impact the financial ability of businesses and consumers to borrow money, which would negatively impact loan volumes. Certain of our borrowers are in or have exposure to the non-essential retail, restaurants, hotels, CRE-retail, and arts, entertainment, and gaming industries and are located in areas that are or were quarantined or under stay-at-home orders, and COVID-19 may also have an adverse effect on our commercial real estate and consumer loan portfolios. Any new or prolonged quarantine or stay-at-home orders would have a negative adverse impact on these borrowers and their revenue streams, which consequently impacts their ability to meet their financial obligations and could result in loan defaults.

~~As a result of the COVID-19 pandemic we may experience adverse financial consequences due to a number of other factors, including, but not limited to:~~

•a further and sustained decline in our stock price or the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause management to perform impairment testing on our goodwill and other intangible assets that could result in an impairment charge being recorded for that period, which would adversely impact our results of operations and the ability of the Bank to pay dividends to us;

•~~the negative effect on earnings resulting from the Bank modifying loans and agreeing to loan payment deferrals due to the COVID-19 crisis;~~

•~~increased demand on our liquidity as we meet borrowers’ needs and cover expenses~~uncertainties related to our ~~business continuity plan;~~

•~~the potential for reduced liquidity and its negative affect on our capital and leverage ratios;~~

•~~increased cyber and payment fraud risk due to increased online and remote activity; and~~

•~~other operational failures due to changes in our normal business practices because of the pandemic and governmental actions to contain it.~~

~~Table of Contents~~

Overall, we believe that the economic impact from COVID-19 will be severe and could have a material and adverse impact on our business and result in significant losses in our loan portfolio, all of which would adversely and materially impact our earnings and capital. Even after the COVID-19 pandemic has subsided, we may continue to experience materially adverse impacts to our business as a result of the global economic impact of the COVID-19 pandemic, including the availability of credit, adverse impacts on liquidity and any recession that has occurred or may occur in the future. There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and, as a result, the ultimate impact of the pandemic is highly uncertain and subject to change.

The U.S. government and banking regulators, including the Federal Reserve, have taken a number of unprecedented actions in response to the COVID-19 pandemic, which could ultimately have a material adverse effect on our business and results of operations.

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act, or CARES Act, which established a $2.0 trillion economic stimulus package, including cash payments to individuals, supplemental unemployment insurance benefits and a $349 billion loan program administered through the U.S. Small Business Administration, or SBA, referred to as the Paycheck Protection Program, or PPP. In addition to implementing the programs contemplated by the CARES Act, the federal bank regulatory agencies have issued a steady stream of guidance in response to the COVID-19 pandemic and have taken a number of unprecedented steps to help banks navigate the pandemic and mitigate its impact. These include, without limitation:

•~~requiring banks to focus on business continuity and pandemic planning;~~

•~~adding pandemic scenarios to stress testing;~~

•~~encouraging bank use of capital buffers and reserves in lending programs;~~

•~~permitting certain regulatory reporting extensions;~~

•~~reducing margin requirements on swaps;~~

•~~permitting certain otherwise prohibited investments in investment funds;~~

•~~issuing guidance to encourage banks to work with customers affected by the pandemic and encourage loan workouts; and~~

•~~providing credit under the CRA for certain pandemic-related loans, investments and public service.~~

The COVID-19 pandemic has significantly affected the financial markets, and the Federal Reserve has taken a number of actions in response. In March 2020, the Federal Reserve dramatically reduced the target federal funds rate and announced a $700 billion quantitative easing program in response to the expected economic downturn caused by the COVID-19 pandemic. In addition, the Federal Reserve reduced the interest that it pays on excess reserves. We expect that these reductions in interest rates, especially if prolonged, could adversely affect our net interest income and margins and our profitability. The Federal Reserve also launched the Main Street Lending Program, which will offer deferred interest on four-year loans to small and mid-sized businesses. The full impact of the COVID-19 pandemic on our business activities as a result of new government and regulatory laws, policies, programs and guidelines, as well as market reactions to such activities, remains uncertain but may ultimately have a material adverse effect on our business and results of operations.

~~COVID-19 has disrupted banking and other financial activities in the areas in which we operate and could potentially create widespread business continuity issues for us.~~

The COVID-19 pandemic has negatively impacted the ability of our employees and clients to engage in banking and other financial transactions in the geographic areas in which we operate and could create widespread business continuity issues for us. We also could be adversely affected if key personnel or a significant number of employees were to become unavailable due to the effects and restrictions of an outbreak or escalation of the COVID-19 pandemic in our market areas, including because of illness, quarantines, government actions or other restrictions in connection with the COVID-19 pandemic. Although we have business continuity plans and other safeguards in place, there is no assurance that such plans and safeguards will be effective. Further, we rely upon our third-party vendors to conduct business and to process, record, and monitor transactions. If any of these vendors are unable to continue to provide us with these services, it could negatively impact our ability to serve our clients.

As a participating lender in the PPP, we are subject to additional risks of litigation from our clients or other parties regarding our processing of loans for the PPP and risks that the SBA may not fund some of or all PPP loan guarantees.

The CARES Act included a $349 billion loan program administered through the SBA referred to as the PPP. Under the PPP, small businesses and other entities and individuals can apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility criteria. The Bank is participating as a lender in the PPP. The PPP opened on April 3, 2020; however, because of the short timeframe between the passing of the CARES Act and the opening of the PPP, there is some ambiguity in the laws, rules, and guidance regarding the operation of the PPP, which exposes us to risks relating to noncompliance with the PPP. On or about April 16, 2020, the SBA notified lenders that the $349

~~Table of Contents~~

~~billion earmarked for the PPP was exhausted. On April 24, 2020, an additional $310 billion in funding for PPP loans was authorized, with such funds available for PPP loans beginning on April 27, 2020.~~

Since the opening of the PPP, several other larger banks have been subject to litigation regarding the process and procedures that such banks used in processing applications for the PPP and claims related to agent fees. If any such litigation is filed against us and is not resolved in a manner favorable to us, it may result in significant financial liability or adversely affect our reputation. In addition, litigation can be costly, regardless of outcome. Any financial liability, litigations costs, or reputational damage caused by the PPP related litigation could have a material adverse impact on our business, financial condition, and results of operations.

We also have credit risk on PPP loans if a determination is made by the SBA that there is a deficiency in the manner in which the loan was originated, funded, or serviced by the Bank, such as an issue with the eligibility of a borrower to receive a PPP loan, which may or may not be related to the ambiguity in the laws, rules, and guidance regarding the operation of the PPP. In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there is a deficiency in the manner in which the PPP loan was originated, funded, or serviced by us, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from us.

~~Our accounting estimates and risk management processes rely on analytical and forecasting models.~~

The processes that we use to estimate expected credit losses and to measure the fair value of assets carried on the balance sheet at fair value, as well as the processes used to estimate the effects of changing interest rates and other market measures on our financial condition and results of operations, depend upon the use of analytical and forecasting models. These models are complex and reflect assumptions that may not be accurate, particularly in times of market stress or other unforeseen circumstances, such as the COVID-19 pandemic. Although we have processes and procedures in place governing internal valuation models and their testing and calibration, such assumptions are complex as we must make judgments about the effect of matters that are inherently uncertain. Different assumptions could have resulted in significant changes in valuation, which in turn could have a material adverse effect on our financial condition and results of operations.

~~We face the risk of possible future goodwill impairment.~~

The Company completed an interim goodwill assessment as of June 30, 2020, and based upon our interim assessment, we concluded that no impairment existed at that time. We will be required to perform additional goodwill impairment assessments on at least an annual basis, and perhaps more frequently, which could result in goodwill impairment charges. It is possible that the effects of COVID-19 could cause the occurrence of what management would deem to be subsequent triggering events that could, under certain circumstances, cause the Company to perform a goodwill or intangible asset impairment test and result in an impairment charge being recorded for that period. Any future goodwill impairment charge on the current goodwill balance, or future goodwill arising out of acquisitions that we are required to take, could have a material adverse effect on our results of operations by reducing our net income or increasing our net losses.business.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The following table sets forth information about the Company’s purchases of its common stock during the second quarter of 2021:


	Total Number of Shares Purchased(1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs(1)	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program
April 1 - 30, 2021	1,890	$	29.37	1,890	$	2,617,267
May 1 - 31, 2021	—	—		—	2,617,267
June 1 - 30, 2021	36,885	29.61		36,885	14,474,621
Total	38,775	$	29.60	38,775	$	14,474,621

(1) Common shares repurchased by the Company during the quarter related to shares repurchased under the share repurchase program. Under the prior repurchase program, which authorized the repurchase of $10.0 million of common stock, the Company had repurchased 297,158 shares of common stock for approximately $7.9 million since the plan was announced in August 2019, leaving $2.1 million available to be repurchased under that repurchase program as of June 22, 2021, the end of such program.

On ~~August 20, 2019,~~June 22, 2021, the Board of Directors of the Company approved a new share repurchase program, allowing for the repurchase of up to ~~$10.0~~$15.0 million of the Company's common stock through December 31, ~~2021.~~2023. The new repurchase program replaced the Company’s prior repurchase program, ~~pursuant to~~ which the Company had repurchased 174,702 shares of common stock for approximately $4.7 million since the plan was announced in October 2018. The prior program had authorized the repurchase of $5.0 million of stock and was due to expire on December 31, ~~2020.~~

~~As of~~2021. For the period June 23, 2021 through June 30, ~~2020,~~2021, the ~~total amount~~Company repurchased 17,790 shares of common stock for approximately $0.5 million, leaving $14.5 million available to be repurchased under the Company’s current share repurchase program was $6.4 million. In light of the economic uncertainty, the Company has yet to resume share repurchases since discontinuing such repurchases in mid-March of 2020.repurchased.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not Applicable.

~~Table of Contents~~

Item 5. Other Information.

None.

6758

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Item 6. Exhibits.

Exhibit

Number

Description

Incorporated by Reference to:

~~10.1~~3.1

~~Employment Agreement between~~Amended and Restated Articles of Incorporation of MidWestOne Financial Group, Inc. ~~and Len D. Devaisher, dated July 6, 2020~~filed with the Secretary of State of the State of Iowa on March 14, 2008

Exhibit ~~10.1~~3.3 to the ~~Company's~~Company’s Amendment No. 1 to Registration Statement on Form S-4 (File No. 333-147628) filed with the SEC on January 14, 2008

3.2

Articles of Amendment (First Amendment) to the Amended and Restated Articles of Incorporation of MidWestOne Financial Group, Inc. filed with the Secretary of State of the State of Iowa on January 23, 2009

Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on ~~July~~January 23, 2009

3.3

Articles of Amendment (Second Amendment) to the Amended and Restated Articles of Incorporation of MidWestOne Financial Group, Inc. filed with the Secretary of State of the State of Iowa on February 4, 2009 (containing the Certificate of Designations for the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A)

Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 6, ~~2020~~2009

3.4

Articles of Amendment (Third Amendment) to the Amended and Restated Articles of Incorporation of MidWestOne Financial Group, Inc., filed with the Secretary of State of the State of Iowa on April 21, 2017

Exhibit 3.1 to the Company’s Form 10-Q for the quarter ended March 31, 2017, filed with the SEC on May 4, 2017

3.5

Third Amended and Restated Bylaws of MidWestOne Financial Group, Inc.

Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 25, 2021

31.1

Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a)

Filed herewith

31.2

Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a)

Filed herewith

32.1

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

Filed herewith

32.2

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

Filed herewith

101

The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, ~~2020,~~2021, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Shareholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags.

Filed herewith

101.SCH

~~iXBRL (Inline eXtensible Business Reporting Language)~~Inline XBRL Taxonomy Extension Schema Document

Filed herewith

101.CAL

~~iXBRL (Inline eXtensible Business Reporting Language)~~Inline XBRL Taxonomy Extension Calculation Linkbase Document

Filed herewith

101.DEF

~~iXBRL (Inline eXtensible Business Reporting Language)~~Inline XBRL Taxonomy Extension Definition Linkbase Document

Filed herewith

101.LAB

~~iXBRL (Inline eXtensible Business Reporting Language)~~Inline XBRL Taxonomy Extension Label Linkbase Document

Filed herewith

101.PRE

~~iXBRL (Inline eXtensible Business Reporting Language)~~Inline XBRL Taxonomy Extension Presentation Linkbase Document

Filed herewith

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

Filed herewith

6859

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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.

MIDWESTONE FINANCIAL GROUP, INC.

Dated:

August ~~6, 2020~~5, 2021

By:

/s/ CHARLES N. FUNK

Charles N. Funk

Chief Executive Officer

(Principal Executive Officer)

By:

/s/ BARRY S. RAY

Barry S. Ray

Senior Executive Vice President and Chief Financial Officer

(Principal Financial and Accounting Officer)

6960


	January 1, 2020
	Pre-ASC 326 Adoption		Impact of ASC 326 Adoption		As Reported Under ASC 326
	(in thousands)
Assets:
Loans
Agricultural	$	3,748	$	(2,557)	$	1,191
Commercial and industrial	8,394		2,728		11,122
Commercial real estate	13,804		1,300		15,104
Residential real estate	2,685		2,050		4,735
Consumer	448		463		911
Allowance for credit losses on loans	$	29,079	$	3,984	$	33,063

Liabilities:
Liability for off-balance sheet credit exposures	$	—	$	3,433	$	3,433


	Term Loans by Origination Year																Revolving Loans
June 30, 2020 (in thousands)	2020		2019		2018		2017		2016		Prior				Total
Agricultural
Pass	$	21,013	$	11,300	$	4,898	$	2,906	$	2,753	$	3,067	$	71,689	$	117,626
Special mention / watch	5,905		1,422		125		113		600		1,253		6,206		15,624
Substandard	1,093		1,282		2		191		131		227		4,661		7,587
Doubtful	—		—		—		—		—		—		—		—
Total	$	28,011	$	14,004	$	5,025	$	3,210	$	3,484	$	4,547	$	82,556	$	140,837
Commercial and industrial
Pass	$	486,629	$	114,316	$	70,083	$	77,159	$	44,088	$	114,435	$	125,003	$	1,031,713
Special mention / watch	5,018		1,309		1,953		4,243		906		3,356		18,615		35,400
Substandard	3,036		2,569		752		974		624		4,416		5,043		17,414
Doubtful	—		—		—		—		—		—		—		—
Total	$	494,683	$	118,194	$	72,788	$	82,376	$	45,618	$	122,207	$	148,661	$	1,084,527
CRE - Construction and development
Pass	$	50,048	$	76,696	$	25,444	$	8,655	$	1,932	$	1,308	$	26,494	$	190,577
Special mention / watch	4,159		1,688		775		—		14		34		—		6,670
Substandard	735		1,919		—		—		—		49		—		2,703
Doubtful	—		—		—		—		—		—		—		—
Total	$	54,942	$	80,303	$	26,219	$	8,655	$	1,946	$	1,391	$	26,494	$	199,950
CRE - Farmland
Pass	$	37,140	$	32,227	$	14,315	$	15,023	$	10,590	$	18,171	$	2,257	$	129,723
Special mention / watch	2,244		4,584		1,290		1,953		1,237		587		353		12,248
Substandard	2,732		3,632		4,339		1,729		449		6,051		994		19,926
Doubtful	—		—		—		—		—		—		—		—
Total	$	42,116	$	40,443	$	19,944	$	18,705	$	12,276	$	24,809	$	3,604	$	161,897
CRE - Multifamily
Pass	$	109,637	$	17,948	$	18,346	$	37,740	$	16,722	$	32,726	$	12,788	$	245,907
Special mention / watch	348		—		—		—		78		—		—		426
Substandard	716		354		—		—		—		—		—		1,070
Doubtful	—		—		—		—		—		—		—		—
Total	$	110,701	$	18,302	$	18,346	$	37,740	$	16,800	$	32,726	$	12,788	$	247,403
CRE - other
Pass	$	385,335	$	129,669	$	84,625	$	106,504	$	81,037	$	147,048	$	50,888	$	985,106
Special mention / watch	85,815		24,505		6,821		6,526		4,537		5,671		199		134,074
Substandard	24,446		1,480		6,296		1,246		604		2,101		136		36,309
Doubtful	—		—		—		—		—		—		—		—
Total	$	495,596	$	155,654	$	97,742	$	114,276	$	86,178	$	154,820	$	51,223	$	1,155,489
RRE - One- to four- family first liens
Performing	$	71,419	$	61,180	$	52,230	$	47,208	$	43,567	$	85,959	$	10,046	$	371,609
Nonperforming	17		67		588		1,092		930		2,797		—		5,491
Total	$	71,436	$	61,247	$	52,818	$	48,300	$	44,497	$	88,756	$	10,046	$	377,100
RRE - One- to four- family junior liens
Performing	$	3,687	$	12,453	$	16,629	$	8,207	$	4,343	$	7,568	$	102,345	$	155,232
Nonperforming	—		—		—		32		250		229		71		582
Total	$	3,687	$	12,453	$	16,629	$	8,239	$	4,593	$	7,797	$	102,416	$	155,814
Consumer
Performing	$	12,933	$	19,438	$	14,079	$	6,857	$	3,607	$	6,203	$	10,743	$	73,860
Nonperforming	—		38		49		24		14		37		—		162
Total	$	12,933	$	19,476	$	14,128	$	6,881	$	3,621	$	6,240	$	10,743	$	74,022


2019 (in thousands)	Pass		Special Mention / Watch		Substandard		Doubtful		Loss		Total
Agricultural	$	117,374	$	13,292	$	9,780	$	—	$	—	$	140,446
Commercial and industrial	794,526		19,038		21,635		1		36		835,236
Commercial real estate:
Construction and development	283,921		11,423		2,733		—		—		298,077
Farmland	141,107		21,307		19,471		—		—		181,885
Multifamily	226,124		90		1,193		—		—		227,407
Commercial real estate-other	1,036,418		50,691		20,381		—		—		1,107,490
Total commercial real estate	1,687,570		83,511		43,778		—		—		1,814,859
Residential real estate:
One- to four- family first liens	396,175		4,547		6,532		164		—		407,418
One- to four- family junior liens	168,229		1,282		870		—		—		170,381
Total residential real estate	564,404		5,829		7,402		164		—		577,799
Consumer	82,650		39		218		19		—		82,926
Total	$	3,246,524	$	121,709	$	82,813	$	184	$	36	$	3,451,266


	December 31, 2019
(in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Agricultural	$	2,383	$	2,913	$	—
Commercial and industrial	7,391		10,875		—
Commercial real estate:
Construction and development	1,181		1,218		—
Farmland	4,306		4,331		—
Multifamily	—		—		—
Commercial real estate-other	5,709		5,854		—
Total commercial real estate	11,196		11,403		—
Residential real estate:
One- to four- family first liens	577		578		—
One- to four- family junior liens	—		—		—
Total residential real estate	577		578		—
Consumer	21		21		—
Total	$	21,568	$	25,790	$	—
With an allowance recorded:
Agricultural	$	1,929	$	1,930	$	212
Commercial and industrial	4,851		5,417		2,198
Commercial real estate:
Construction and development	135		135		135
Farmland	1,109		1,148		347
Multifamily	—		—		—
Commercial real estate-other	3,642		4,229		698
Total commercial real estate	4,886		5,512		1,180
Residential real estate:
One- to four- family first liens	261		262		73
One- to four- family junior liens	—		—		—
Total residential real estate	261		262		73
Consumer	—		—		—
Total	$	11,927	$	13,121	$	3,663
Total:
Agricultural	$	4,312	$	4,843	$	212
Commercial and industrial	12,242		16,292		2,198
Commercial real estate:
Construction and development	1,316		1,353		135
Farmland	5,415		5,479		347
Multifamily	—		—		—
Commercial real estate-other	9,351		10,083		698
Total commercial real estate	16,082		16,915		1,180
Residential real estate:
One- to four- family first liens	838		840		73
One- to four- family junior liens	—		—		—
Total residential real estate	838		840		73
Consumer	21		21		—
Total	$	33,495	$	38,911	$	3,663


	Balance		% of Gross Loans Held for Investment
(in thousands)
Non-essential retail	$	107,878	3.00	%
Restaurant	60,668		1.69	%
Hotel	122,623		3.41	%
CRE - Retail	208,423		5.79	%
Arts, entertainment, and gaming	21,550		0.60	%
	$	521,142	14.49	%


	Three Months Ended June 30,
Merger-related expenses:	2020		2019
(dollars in thousands)
Compensation and employee benefits	$	—	$	1,020
Equipment	7		—
Legal and professional	—		1,826
Data processing	—		240
Other	—		48
Total impact of merger-related expenses to noninterest expense	$	7	$	3,134


	Three Months Ended									For the Six Months Ended
Net Interest Margin, Tax Equivalent/Core Net Interest Margin	June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019
(dollars in thousands)
Net interest income	$	38,712		$	34,832		$	76,118		$	60,808
Tax equivalent adjustments:
Loans ⁽¹⁾	507			442			1,004			715
Securities ⁽¹⁾	482			370			877			736
Net interest income, tax equivalent	$	39,701		$	35,644		$	77,999		$	62,259
Loan purchase discount accretion	(2,610)			(2,246)			(5,633)			(2,832)
Core net interest income	$	37,091		$	33,398		$	72,366		$	59,427

Net interest margin	3.30		%	3.60		%	3.40		%	3.55		%
Net interest margin, tax equivalent ⁽²⁾	3.38		%	3.68		%	3.48		%	3.63		%
Core net interest margin ⁽³⁾	3.16		%	3.45		%	3.23		%	3.47		%
Average interest earning assets	$	4,718,581		$	3,880,786		$	4,500,924		$	3,457,597

(1) The federal statutory tax rate utilized was 21%.
(2) Annualized tax equivalent net interest income divided by average interest earning assets.
(3) Annualized core net interest income divided by average interest earning assets.


	For the Three Months Ended									For the Six Months Ended
Efficiency Ratio	June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019
(dollars in thousands)
Total noninterest expense	$	28,038		$	29,040		$	58,039		$	49,657
Amortization of intangibles	(1,748)			(930)			(3,776)			(1,382)
Merger-related expenses	(7)			(3,134)			(61)			(3,301)
Noninterest expense used for efficiency ratio	$	26,283		$	24,976		$	54,202		$	44,974

Net interest income, tax equivalent⁽¹⁾	$	39,701		$	35,644		$	77,999		$	62,259
Noninterest income	8,269			8,796			18,424			14,206
Investment security gains, net	(6)			(32)			(48)			(49)
Net revenues used for efficiency ratio	$	47,964		$	44,408		$	96,375		$	76,416

Efficiency ratio	54.80		%	56.24		%	56.24		%	58.85		%
(1) The federal statutory tax rate utilized was 21%.


	For the Three Months Ended						For the Six Months Ended
Pre-tax Pre-provision Net Revenue	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
(dollars in thousands)
Net interest income	$	38,712	$	34,832	$	76,118	$	60,808
Noninterest income	8,269		8,796		18,424		14,206
Noninterest expense	(28,038)		(29,040)		(58,039)		(49,657)
Pre-tax Pre-provision Net Revenue	$	18,943	$	14,588	$	36,503	$	25,357