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 SeptemberJune 30, 20202021
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission file number001-35968

MIDWESTONE FINANCIAL GROUP, INC.
(Exact name of Registrant as specified in its charter)

Iowa42-1206172
(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 classTrading Symbol(s)Name of each exchange on which registered
Common stock, $1.00 par valueMOFGThe 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 filerx
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 NovemberAugust 3, 2020,2021, there were 16,096,32415,875,091 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
Page No.
PART I
Item 1.
1
1
2
3
4
65
87
Item 2.
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Item 3.
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Item 4.
6857
Part II
Item 1.
6958
Item 1A.
6958
Item 2.
7258
Item 3.
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Item 4.
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Item 5.
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Item 6.
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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 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."
AFSACLAvailableAllowance for SaleCredit LossesFHLBFederal Home Loan Bank
ACLAFSAllowanceAvailable for Credit LossesSaleFHLBCFederal Home Loan Bank of Chicago
AOCIAccumulated Other Comprehensive IncomeFHLBDMFederal Home Loan Bank of Des Moines
AOCIAccumulated Other Comprehensive IncomeFHLBCFederal Home Loan Bank of Chicago
ASCAccounting Standards CodificationFHLMCFederal Home Loan Mortgage Corporation
ASUAccounting Standards UpdateFRBBoard of Governors of the Federal Reserve System
ABTWAmerican Bank and Trust-Wisconsin of Cuba City, WisconsinFNMAFederal National Mortgage Association
ATMAutomated Teller MachineGAAPFRBU.S. Generally Accepted Accounting Principles
ATSBAmerican Trust & Savings BankBoard of Dubuque, IowaGLBAGramm-Leach-Bliley ActGovernors of 1999the Federal Reserve System
Basel III RulesA comprehensive capital framework and rules for U.S. banking organizations approved by the FRB and the FDIC in 2013GNMAGAAPGovernment National Mortgage AssociationU.S. Generally Accepted Accounting Principles
BHCABank Holding Company Act of 1956, as amendedHTMGLBAHeld to MaturityGramm-Leach-Bliley Act of 1999
BOLIBank Owned Life InsuranceICSGNMAInsured Cash SweepGovernment National Mortgage Association
CAAConsolidated Appropriations Act, 2021HTMHeld to Maturity
CARES ActCoronavirus Aid, Relief and Economic Security ActLIBORICSThe London Inter-bank Offered RateInsured Cash Sweep
CDARSCertificate of Deposit Account Registry ServiceMBSLIBORMortgage-Backed SecuritiesThe London Inter-bank Offered Rate
CECLCurrent Expected Credit LossOTTIMBSOther-Than-Temporary ImpairmentMortgage-Backed Securities
CMOCollateralized Mortgage ObligationsOTTIOther-Than-Temporary Impairment
COVID-19Coronavirus Disease 2019PCDPurchased Financial Assets with Credit Deterioration
COVID-19CRACoronavirus Disease 2019Community Reinvestment ActPCIPurchased Credit Impaired
CRACRECommunity Reinvestment ActCommercial Real EstatePPPPaycheck Protection Program
CRECommercial Real EstateRREResidential Real Estate
DCFDiscounted cash flowsCash FlowsROURight-of-Use
Dodd-Frank ActDodd-Frank Wall Street Reform and Consumer Protection ActRREResidential Real Estate
ECLExpected Credit LossesRPACredit Risk Participation Agreement
ECLEVEExpected Credit LossesEconomic Value of EquitySBAU.S. Small Business Administration
EVEFASBEconomic Value of EquityFinancial Accounting Standards BoardSECU.S. Securities and Exchange Commission
FASBFDICFinancial Accounting Standards BoardFederal Deposit Insurance CorporationTDRTroubled Debt Restructuring
FDICFederal Deposit Insurance Corporation


Table of Contents
Item 1.   Financial Statements.Statements (unaudited).

MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 September 30, 2020 December 31, 2019
(dollars in thousands)(unaudited) 
ASSETS
Cash and due from banks$71,901 $67,174 
Interest earning deposits in banks55,421 6,112 
Federal funds sold7,540 198 
Total cash and cash equivalents134,862 73,484 
Debt securities available for sale at fair value1,366,344 785,977 
Loans held for sale13,096 5,400 
Gross loans held for investment3,555,969 3,469,236 
Unearned income, net(18,537)(17,970)
Loans held for investment, net of unearned income3,537,432 3,451,266 
Allowance for credit losses(58,500)(29,079)
Total loans held for investment, net3,478,932 3,422,187 
Premises and equipment, net87,955 90,723 
Goodwill62,477 91,918 
Other intangible assets, net26,811 32,218 
Foreclosed assets, net724 3,706 
Other assets159,507 147,960 
Total assets$5,330,708 $4,653,573 
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest bearing deposits$864,504 $662,209 
Interest bearing deposits3,469,137 3,066,446 
Total deposits4,333,641 3,728,655 
Short-term borrowings183,893 139,349 
Long-term debt245,481 231,660 
Other liabilities68,612 44,927 
Total liabilities4,831,627 4,144,591 
Shareholders' equity
Preferred stock, 0 par value; authorized 500,000 shares; 0 shares issued and outstanding0 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 16,099,324 and 16,162,17616,581 16,581 
Additional paid-in capital299,939 297,390 
Retained earnings175,017 201,105 
Treasury stock at cost, 481,693 and 418,841 shares(12,272)(10,466)
Accumulated other comprehensive income19,816 4,372 
Total shareholders' equity499,081 508,982 
Total liabilities and shareholders' equity$5,330,708 $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 banks11,124 17,409 
Federal funds sold13 172 
Total cash and cash equivalents63,434 82,659 
Debt securities available for sale at fair value2,072,452 1,657,381 
Loans held for sale6,149 59,956 
Gross loans held for investment3,344,156 3,496,790 
Unearned income, net(14,000)(14,567)
Loans held for investment, net of unearned income3,330,156 3,482,223 
Allowance for credit losses(48,000)(55,500)
Total loans held for investment, net3,282,156 3,426,723 
Premises and equipment, net84,667 86,401 
Goodwill62,477 62,477 
Other intangible assets, net22,394 25,242 
Foreclosed assets, net755 2,316 
Other assets154,731 153,493 
Total assets$5,749,215 $5,556,648 
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest bearing deposits$952,764 $910,655 
Interest bearing deposits3,839,902 3,636,394 
Total deposits4,792,666 4,547,049 
Short-term borrowings212,261 230,789 
Long-term debt169,839 208,691 
Other liabilities44,156 54,869 
Total liabilities5,218,922 5,041,398 
Shareholders' equity
Preferred stock, 0 par value; authorized 500,000 shares; 0 shares issued and outstanding0 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 16,016,78016,581 16,581 
Additional paid-in capital299,888 300,137 
Retained earnings219,884 188,191 
Treasury stock at cost, 617,549 and 564,237 shares(15,888)(14,251)
Accumulated other comprehensive income9,828 24,592 
Total shareholders' equity530,293 515,250 
Total liabilities and shareholders' equity$5,749,215 $5,556,648 
See accompanying notes to consolidated financial statements.  
1
Table of Contents
MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months EndedNine Months Ended
September 30,September 30,
(unaudited) (dollars in thousands, except per share amounts)2020 201920202019
Interest income 
Loans, including fees$38,191  $49,169 $120,417 $118,257 
Taxable investment securities4,574  3,376 12,937 9,592 
Tax-exempt investment securities2,360  1,401 5,730 4,231 
Other29 130 233 335 
Total interest income45,154  54,076 139,317 132,415 
Interest expense 
Deposits5,296  8,238 19,654 21,676 
Short-term borrowings175  522 772 1,479 
Long-term debt1,874  2,058 4,964 5,194 
Total interest expense7,345  10,818 25,390  28,349 
Net interest income37,809  43,258 113,927 104,066 
Credit loss expense4,992  4,264 31,410 6,554 
Net interest income after credit loss expense32,817  38,994 82,517 97,512 
Noninterest income 
Investment services and trust activities2,361  2,339 7,114 5,619 
Service charges and fees1,491  2,068 4,607 5,380 
Card revenue1,600  1,655 4,202 4,452 
Loan revenue3,252  991 6,285 2,032 
Bank-owned life insurance530  514 1,685 1,376 
Insurance commissions0 0 0 734 
Investment securities gains, net106  23 154 72 
Other230 414 3,947 2,545 
Total noninterest income9,570  8,004 27,994 22,210 
Noninterest expense 
Compensation and employee benefits16,460  17,426 48,759 46,414 
Occupancy expense of premises, net2,278  2,294 6,872 6,300 
Equipment1,935 2,181 5,825 5,466 
Legal and professional1,184 1,996 4,101 6,252 
Data processing1,308 1,234 3,902 3,087 
Marketing857 1,167 2,829 2,642 
Amortization of intangibles1,631  2,583 5,407 3,965 
FDIC insurance470  (42)1,363 762 
Communications428  489 1,334 1,208 
Foreclosed assets, net13 265 185 407 
Goodwill impairment31,500 0 31,500 0 
Other1,875  1,849 5,901 4,596 
Total noninterest expense59,939  31,442 117,978 81,099 
(Loss) income before income tax expense(17,552) 15,556 (7,467)38,623 
Income tax expense2,272  3,256 2,620 8,364 
Net (loss) income$(19,824) $12,300 $(10,087)$30,259 
Per common share information 
Earnings (loss) - basic$(1.23) $0.76 $(0.63)$2.10 
Earnings (loss) - diluted$(1.23) $0.76 $(0.63)$2.09 
Dividends paid$0.2200  $0.2025 $0.6600 $0.6075 
Three Months EndedSix Months Ended
June 30,June 30,
(unaudited) (dollars in thousands, except per share amounts)2021 202020212020
Interest income 
Loans, including fees$34,736  $40,214 $71,278 $82,226 
Taxable investment securities6,483  4,646 11,576 8,363 
Tax-exempt investment securities2,549  1,858 5,104 3,370 
Other19 40 33 204 
Total interest income43,787  46,758 87,991 94,163 
Interest expense 
Deposits3,409  6,409 7,017 14,358 
Short-term borrowings161  263 289 597 
Long-term debt1,712  1,374 3,563 3,090 
Total interest expense5,282  8,046 10,869  18,045 
Net interest income38,505  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) expense40,649  34,027 84,000 49,700 
Noninterest income 
Investment services and trust activities2,809  2,217 5,645 4,753 
Service charges and fees1,475  1,290 2,962 3,116 
Card revenue1,913  1,237 3,449 2,602 
Loan revenue3,151  1,910 7,881 3,033 
Bank-owned life insurance538  635 1,080 1,155 
Investment securities gains, net42  6 69 48 
Other290 974 956 3,717 
Total noninterest income10,218  8,269 22,042 18,424 
Noninterest expense 
Compensation and employee benefits17,404  15,682 34,321 32,299 
Occupancy expense of premises, net2,198  2,253 4,516 4,594 
Equipment1,861 2,010 3,654 3,890 
Legal and professional1,375 1,382 2,158 2,917 
Data processing1,347 1,240 2,599 2,594 
Marketing873 910 1,879 1,972 
Amortization of intangibles1,341  1,748 2,848 3,776 
FDIC insurance245  445 757 893 
Communications371  449 780 906 
Foreclosed assets, net136 34 183 172 
Other1,519  1,885 2,675 4,026 
Total noninterest expense28,670  28,038 56,370 58,039 
Income before income tax expense22,197  14,258 49,672 10,085 
Income tax expense4,926  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 $0.4400 
See accompanying notes to consolidated financial statements.
2
Table of Contents
MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months EndedNine Months Ended
September 30,September 30,
(unaudited) (dollars in thousands)2020 201920202019
Net (loss) income$(19,824)$12,300 $(10,087)$30,259 
Other comprehensive income, net of tax:
Unrealized gain from debt securities available for sale:
Unrealized net holding gains on debt securities available for sale arising during the period1,726 1,999 21,917 11,904 
Reclassification adjustment for gains included in net income(106)(19)(154)(68)
Income tax expense(423)(517)(5,680)(3,089)
Unrealized net gains on debt securities available for sale, net of reclassification adjustment1,197 1,463 16,083 8,747 
Unrealized gain (loss) from cash flow hedging instruments:
Unrealized net holding gains (losses) in cash flow hedging instruments arising during the period8 0 (1,009)0 
Reclassification adjustment for net losses in cash flow hedging instruments included in income88 0 145 0 
Income tax (expense) benefit(25)0 225 0 
Unrealized net gains (losses) on cash flow hedge instruments, net of reclassification adjustment71 0 (639)0 
Other comprehensive income, net of tax1,268 1,463 15,444 8,747 
Comprehensive (loss) income$(18,556)$13,763 $5,357 $39,006 
Three Months EndedSix Months Ended
June 30,June 30,
(unaudited) (dollars in thousands)2021202020212020
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 period7,874 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 adjustment5,788 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 period0 (129)0 (1,017)
Reclassification adjustment for net loss in cash flow hedging instruments included in income0 62 0 57 
Income tax benefit0 17 0 250 
Unrealized net losses on cash flow hedge instruments, net of reclassification adjustment0 (50)0 (710)
Other comprehensive income (loss), net of tax5,788 11,671 (14,764)14,176 
Comprehensive income$23,059 $23,383 $24,155 $23,913 
See accompanying notes to consolidated financial statements.

3
Table of Contents
MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Common Stock
(unaudited)
(dollars in thousands, except per share amounts)
Par Value
Additional
Paid-in
Capital
Retained EarningsTreasury Stock
Accumulated
Other
Comprehensive
Income (Loss)
Total
Balance at December 31, 2018$12,463 $187,813 $168,951 $(6,499)$(5,661)$357,067 
Net income— — 7,285 — — 7,285 
Other comprehensive income— — — — 3,038 3,038 
Release/lapse of restriction on RSUs (24,550 shares)— (570)— 501 — (69)
Repurchase of common stock (49,216 shares)— — — (1,299)— (1,299)
Share-based compensation— 292 — — — 292 
Dividends paid on common stock ($0.2025 per share)— — (2,465)— — (2,465)
Balance at March 31, 201912,463 187,535 173,771 (7,297)(2,623)363,849 
Issuance of common stock due to business combination (4,117,536 shares), net of expenses of $3234,118 109,228 — — — 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 
Net income— — 12,300 — — 12,300 
Acquisition accounting adjustment for restricted shares— 8 — — — 8 
Dividends paid on common stock ($0.2025 per share)— — (3,277)— — (3,277)
Release/lapse of restriction on RSUs (0 shares, net)— — — — — — 
Repurchase of common stock (41,426 shares)— — — (1,217)— (1,217)
Share-based compensation— 257 — — — 257 
Other comprehensive income— — — — 1,463 1,463 
Balance at September 30, 2019$16,581 $297,144 $191,007 $(9,933)$3,086 $497,885 
4
Table of Contents
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 EarningsTreasury Stock
Accumulated
Other
Comprehensive
Income (Loss)
Total
Common Stock
(unaudited)
(dollars in thousands, except per share amounts)
Par Value
Additional
Paid-in
Capital
Retained EarningsTreasury Stock
Accumulated
Other
Comprehensive
Income (Loss)
Total
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)
— — (5,362)— — (5,362)
Net loss— — (1,975)— — (1,975)
Other comprehensive income— — — — 2,505 2,505 
Acquisition fair value finalization(2)
— 2,355 — — — 2,355 
Release/lapse of restriction on RSUs (22,946 shares, net)— (679)— 552 — (127)
Repurchase of common stock (95,340 shares)— — — (2,604)— (2,604)
Share-based compensation— 346 — — — 346 
Dividends paid on common stock ($0.22 per share)— — (3,556)— — (3,556)
Balance at March 31, 2020Balance at March 31, 202016,581 299,412 190,212 (12,518)6,877 500,564 Balance at March 31, 2020$16,581 $299,412 $190,212 $(12,518)$6,877 $500,564 
Net income Net income— — 11,712 — — 11,712 Net income— — 11,712 — — 11,712 
Other comprehensive income Other comprehensive income— — — — 11,671 11,671 Other comprehensive income— — — — 11,671 11,671 
Release/lapse of restriction on RSUs (9,542 shares, net) Release/lapse of restriction on RSUs (9,542 shares, net)— (258)— 246 — (12)Release/lapse of restriction on RSUs (9,542 shares, net)— (258)— 246 — (12)
Repurchase of common stock (0 shares)— — — — — 0 
Share-based compensation Share-based compensation— 388 — — — 388 Share-based compensation— 388 — — — 388 
Dividends paid on common stock ($0.22 per share)— — (3,542)— — (3,542)
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, 2020Balance at June 30, 2020$16,581 $299,542 $198,382 $(12,272)$18,548 $520,781 Balance at June 30, 2020$16,581 $299,542 $198,382 $(12,272)$18,548 $520,781 
Net loss— — (19,824)— — (19,824)
Balance at March 31, 2021Balance at March 31, 2021$16,581 $299,747 $206,230 $(15,278)$4,040 511,320 
Net incomeNet income— — 17,271 — — 17,271 
Other comprehensive income Other comprehensive income— — — — 1,268 1,268 Other comprehensive income— — 0 — 5,788 5,788 
Release/lapse of restriction on RSUs (0 shares, net)— 0 — — 0 
Repurchase of common stock (0 shares)— — — — — — 
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— 397 — — — 397 Share-based compensation— 667 — — — 667 
Dividends paid on common stock ($0.22 per share)— — (3,541)— — (3,541)
Balance at September 30, 2020$16,581 $299,939 $175,017 $(12,272)$19,816 $499,081 
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, 2021Balance 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 EarningsTreasury Stock
Accumulated
Other
Comprehensive
Income (Loss)
Total
Balance at December 31, 2019Balance 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)
Net IncomeNet Income— — 9,737 — — 9,737 
Other comprehensive incomeOther comprehensive income— — — — 14,176 14,176 
Acquisition fair value finalization(2)
Acquisition fair value finalization(2)
— 2,355 — — — 2,355 
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)
Share-based compensationShare-based compensation— 734 — — — 734 
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, 2020Balance at June 30, 2020$16,581 $299,542 $198,382 $(12,272)$18,548 $520,781 
Balance at December 31, 2020Balance at December 31, 2020$16,581 $300,137 $188,191 $(14,251)$24,592 515,250 
Net incomeNet income— — 38,919 — — 38,919 
Other comprehensive lossOther 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 compensationShare-based compensation— 1,051 — — — 1,051 
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, 2021Balance 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, $296 thousand impact on deferred income taxes, with the offsetting impact being to additional paid-in capital. See Note 6. Goodwill and Intangible Assets for additional information.
See accompanying notes to consolidated financial statements.
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MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
(unaudited) (dollars in thousands)2020 2019
Cash flows from operating activities:
Net (loss) income$(10,087) $30,259 
Adjustments to reconcile net (loss) income to net cash provided by operating activities: 
Credit loss expense31,410  6,554 
         Goodwill impairment31,500 0 
Depreciation, amortization, and accretion4,054  8,877 
Net loss on sale of premises and equipment55  55 
Share-based compensation1,131  861 
Net gain on sale or call of debt securities available for sale(132) (68)
Net gain on call of debt securities held to maturity0 (4)
Net (gain) loss on sale of foreclosed assets, net(39) 25 
Writedown of foreclosed assets164 170 
Net gain on sale of loans held for sale(5,519)(1,553)
Origination of loans held for sale(286,551) (87,369)
Proceeds from sales of loans held for sale284,374 83,030 
Increase in cash surrender value of bank-owned life insurance(1,317)(1,376)
(Increase) decrease in deferred income taxes, net(7,105)752 
Change in:
Other assets(8,393) 9,222 
Other liabilities8,495 (10,016)
Net cash provided by operating activities42,040  39,419 
Cash flows from investing activities: 
Proceeds from sales of debt securities available for sale27,020  125,433 
Proceeds from maturities and calls of debt securities available for sale169,210  66,940 
Purchases of debt securities available for sale(746,101) (170,660)
         Proceeds from sales of debt securities held to maturity0 1,381 
Proceeds from maturities and calls of debt securities held to maturity0  4,540 
Net (increase) decrease in loans held for investment(81,867) 4,043 
Purchases of premises and equipment(1,514) (1,242)
Proceeds from sale of foreclosed assets2,922 1,321 
Proceeds from sale of premises and equipment49  312 
         Net cash acquired in business acquisition0 37,054 
Proceeds from sale of intangible assets0 99 
Net cash (used in) provided by investing activities(630,281) 69,221 
Cash flows from financing activities: 
Net increase (decrease) in:
Deposits604,699  17,688 
Short-term borrowings44,544 (37,082)
         Proceeds from issuance of subordinated debt65,000 0 
         Payments of subordinated debt issuance costs(1,248)0 
         Payments on finance lease liability(94)(83)
Proceeds from Federal Home Loan Bank borrowings0 31,400 
Payments of Federal Home Loan Bank borrowings(44,400)(94,400)
Proceeds from other long-term debt0 35,000 
Payments of other long-term debt(5,500)(7,250)
Taxes paid relating to the release/lapse of restriction on RSUs(139)(88)
Dividends paid(10,639) (8,203)
Payment of stock issuance costs0 (323)
Repurchase of common stock(2,604)(4,112)
Net cash provided by (used in) financing activities649,619  (67,453)
Net increase in cash and cash equivalents61,378  41,187 
Cash and cash equivalents:
        Beginning of Period73,484  45,480 
        Ending balance$134,862  $86,667 
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 accretion632  2,342 
Net loss on sale of premises and equipment5  61 
Share-based compensation1,051  734 
Net gain on sale or call of debt securities available for sale(69) (48)
Net change in foreclosed assets due to writedown or sale133 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 sale227,236 175,463 
Increase in cash surrender value of bank-owned life insurance(807)(786)
Decrease (increase) in deferred income taxes, net1,554 (6,680)
Change in:
Other assets3,055  (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  $22,146 
Proceeds from maturities and calls of debt securities available for sale210,574  78,311 
Purchases of debt securities available for sale(688,292) (452,716)
Net decrease (increase) in loans held for investment158,800  (142,475)
Purchases of premises and equipment(644) (803)
Proceeds from sale of foreclosed assets1,712 2,637 
Proceeds from sale of premises and equipment3  2 
Net cash (used in) investing activities$(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 debt0 (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 Period82,659  73,484 
        Ending balance$63,434  $117,210 

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(unaudited) (dollars in thousands)Nine Months Ended September 30,
 2020 2019
Supplemental disclosures of cash flow information: 
Cash paid during the period for interest$25,478  $26,910 
Cash paid during the period for income taxes8,970  1,915 
Supplemental schedule of non-cash investing and financing activities:
Transfer of loans to foreclosed assets, net$65  $2,256 
Investment securities purchased but not settled10,690 0 
Initial recognition of operating lease right of use asset0 2,892 
Initial recognition of operating lease liability0 2,892 
Supplemental schedule of non-cash investing activities from acquisition:
   Noncash assets acquired:
              Debt securities available for sale$0 $99,056 
Loans0 1,138,928 
Premises and equipment0 18,623 
Goodwill0 28,604 
 Core deposit intangible0 23,539 
 Trust customer list intangible0 4,285 
 Bank-owned life insurance0 18,759 
 Foreclosed assets0 3,091 
 Other assets0 20,677 
      Total noncash assets acquired0 1,355,562 
   Liabilities assumed:
             Deposits0 1,079,094 
Short-term borrowing0 100,761 
FHLB borrowings0 42,770 
Junior subordinated notes issued to capital trusts0 17,555 
 Subordinated debentures0 10,909 
 Other liabilities0 27,850 
     Total liabilities assumed$0 $1,278,939 
(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 taxes11,185  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 settled1,500 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.    SummaryNature of Business and Significant Accounting Policies
Nature of Business
MidWestOneMidWestOne 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. The Company previously owned all of the common stock of MidWestOne Insurance Services, Inc., Oskaloosa, Iowa, until that entity dissolved in December 2019. 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 cushionmitigate the economic fallout. Most notably,impact of the pandemic. The CARES Act was signed into law at the end ofin 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 escalatesescalate 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 resultingrelated 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 continues to actively work with COVID-19 affected customers. During the second and third quarters of 2020, we waived 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 extendedthe negative economic recession brought about byimpact 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. The 5.75% fixed-to-floating rate subordinated notes are due July 30, 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.

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 areis 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, cash flows or liquidity position.

In the third quarter 2020, due to the continued 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 September 30, 2020. Based upon the interim impairment assessment, we concluded that a portion of our goodwill was impaired as our estimated fair value was less than our book value on this date. The Company recorded a goodwill impairment charge of $31.5 million, which was reflected within "Noninterest expense" in the Consolidated Statements of Income. See Note 6. Goodwill and Intangible Assets for additional information.

Processes, controls and business continuity plan
The Company maintains a Business Continuity Plan, which was enacted upon the World Health Organization declaration of COVID-19 to be a global pandemic. Shortly after enacting the plan, the Company deployed a successful remote working strategy. The Company also implemented a number of other safety protocols, as well as initiated strategies for monitoring and responding to COVID-19 in our market areas, including customer relief efforts. As of September 30, 2020, the majority of our employees have returned to work in our branch offices with no disruption to our operations. To date, no material operational or internal control challenges or risks have been identified. We have also not incurred additional material cost related to our remote working strategy to date, nor do we anticipate incurring material cost in future periods. Further, as of September 30, 2020 the Company also does not anticipate significant challenges in 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.
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Credit
The Company is working with customers directly affected by COVID-19. The Company 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 situationsituations and the challenges faced, allowing it to respond proactively as needs and issues arise. ShouldWe 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 ninesix months ended SeptemberJune 30, 20202021 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 managementservices, 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,
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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; 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 in the first quarter of 2020 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
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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 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 GAAP related to TDRs for a limited period of time during the COVID-19 pandemic. Under Section 4013 of the CARES Act, loan modifications that qualify for such suspension are those where the borrower was not more than 30 days past due as of December 31, 2019. In addition, the loan modification being made in response to the COVID-19 pandemic must include a deferral or delay in the payment of principal or interest, or change in the interest rate on the loan. 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.

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2.    Effect of New Financial Accounting Standards
Accounting Guidance Adopted in 2020
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.

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 AdoptionImpact of ASC 326 AdoptionAs Reported Under ASC 326
(in thousands)
Assets:
Loans
Agricultural$3,748 $(2,557)$1,191 
Commercial and industrial8,394 2,728 11,122 
Commercial real estate13,804 1,300 15,104 
Residential real estate2,685 2,050 4,735 
Consumer448 463 911 
Allowance for credit losses on loans$29,079 $3,984 $33,063 
Liabilities:
Liability for off-balance sheet credit exposures$0 $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.

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Accounting Guidance Pending Adoption at SeptemberJune 30, 20202021

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.

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 SecuritiesFair Value
U.S. Government agencies and corporations$313 $3 $0 $0 $316 
State and political subdivisions685,287 12,562 2,975 0 694,874 
Mortgage-backed securities115,636 1,673 355 0 116,954 
Collateralized mortgage obligations813,004 3,561 8,491 0 808,074 
Corporate debt securities444,913 9,288 1,967 0 452,234 
Total debt securities$2,059,153 $27,087 $13,788 $0 $2,072,452 
 As of September 30, 2020
(in thousands)Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Allowance for Credit Loss related to Debt SecuritiesEstimated Fair Value
U.S. Government agencies and corporations$378 $8 $0 $0 $386 
State and political subdivisions499,922 11,875 1,314 0 510,483 
Mortgage-backed securities106,997 1,759 123 0 108,633 
Collateralized mortgage obligations395,772 7,599 478 0 402,893 
Corporate debt securities335,596 8,928 575 0 343,949 
Total debt securities$1,338,665 $30,169 $2,490 $0 $1,366,344 
 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 $0 $441 
State and political subdivisions253,750 3,803 348 257,205 
Mortgage-backed securities43,009 536 15 43,530 
Collateralized mortgage obligations293,911 1,000 1,965 292,946 
Corporate debt securities188,952 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 subdivisions611,666 17,163 483 0 628,346 
Mortgage-backed securities92,261 1,758 1 0 94,018 
Collateralized mortgage obligations559,718 6,332 214 0 565,836 
Corporate debt securities360,103 9,333 616 0 368,820 
Total debt securities$1,624,103 $34,592 $1,314 $0 $1,657,381 
 
Investment securities with a carryingfair value of $434.5$509.6 million and $264.8$434.7 million at SeptemberJune 30, 20202021 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 SeptemberJune 30, 2020,2021, aggregated by investment category and length of time in a continuous loss position:  
 As of September 30, 2020  As of June 30, 2021
Number
of
Securities
Less than 12 Months12 Months or MoreTotal
Number
of
Securities
Less than 12 Months12 Months or MoreTotal
Available for SaleAvailable for Sale
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Available for Sale
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 subdivisionsState and political subdivisions68 $90,190 $1,314 $— $0 $90,190 $1,314 State and political subdivisions96 $201,496 $2,845 $7,485 $130 $208,981 $2,975 
Mortgage-backed securitiesMortgage-backed securities7 25,209 123 16 0 25,225 123 Mortgage-backed securities6 18,643 355 — 0 18,643 355 
Collateralized mortgage obligationsCollateralized mortgage obligations5 60,760 249 9,444 229 70,204 478 Collateralized mortgage obligations32 600,050 8,491 0 0 600,050 8,491 
Corporate debt securitiesCorporate debt securities18 44,417 488 1,316 87 45,733 575 Corporate debt securities17 118,649 1,810 750 157 119,399 1,967 
TotalTotal98 $220,576 $2,174 $10,776 $316 $231,352 $2,490 Total151 $938,838 $13,501 $8,235 $287 $947,073 $13,788 
As of SeptemberJune 30, 2020, 682021, 96 state and political subdivisions securities with total unrealized losses of $1.3$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 evaluatedmay 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.
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As of SeptemberJune 30, 2020, 72021, 6 mortgage-backed securities and 532 collateralized mortgage obligations with unrealized losses totaling $0.6$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.
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As of SeptemberJune 30, 2020, 182021, 17 corporate debt securities with total unrealized losses of $0.6$2.0 million were held by the Company. Management evaluated these securities by considering credit agency ratings and payment history. In addition, management evaluatedmay 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 $6.1$8.4 million at SeptemberJune 30, 2021 and $7.3 million at December 31, 2020 and is excluded from the estimate of credit losses.
The following table presents information pertaining to debt securities with grossAFS in an unrealized loss position for which an allowance for credit losses as ofhas 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 Months12 Months or MoreTotal
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
(in thousands, except number of securities) 
State and political subdivisions47 $27,161 $322 $2,112 $26 $29,273 $348 
Mortgage-backed securities7 963 12 1,365 3 2,328 15 
Collateralized mortgage obligations33 103,395 719 65,604 1,246 168,999 1,965 
Corporate debt securities7 7,012 14 8,788 101 15,800 115 
Total94 $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 Months12 Months or MoreTotal
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
(in thousands, except number of securities) 
State and political subdivisions27 $31,489 $157 $4,065 $326 $35,554 $483 
Mortgage-backed securities7 315 1 0 0 315 1 
Collateralized mortgage obligations8 133,032 214 0 0 133,032 214 
Corporate debt securities15 35,995 523 3,311 93 39,306 616 
Total57 $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 ninesix months ended SeptemberJune 30, 20202021 and 20192020 were as follows:
Three Months EndedNine Months Ended
(in thousands)September 30, 2020September 30, 2019September 30, 2020September 30, 2019
Proceeds from sales of debt securities available for sale$4,885 $19 $27,020 $125,433 
Gross realized gains from sales of debt securities available for sale105 18 255 124 
Gross realized losses from sales of debt securities available for sale(10)(1)(123)(56)
Net realized gain from sales of debt securities available for sale$95 $17 $132 $68 

Three Months EndedSix Months Ended
(in thousands)June 30, 2021June 30, 2020June 30, 2021June 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 sale824 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 SeptemberJune 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 CostFair Value
Due in one year or less$52,185 $52,578 
Due after one year through five years252,498 260,915 
Due after five years through ten years220,385 225,480 
Due after ten years310,828 315,845 
$835,896 $854,818 
Mortgage-backed securities106,997 108,633 
Collateralized mortgage obligations395,772 402,893 
Total$1,338,665 $1,366,344 
 Available For Sale
(in thousands)Amortized CostFair Value
Due in one year or less$44,542 $45,142 
Due after one year through five years289,759 296,104 
Due after five years through ten years461,564 465,685 
Due after ten years334,648 340,493 
$1,130,513 $1,147,424 
Mortgage-backed securities115,636 116,954 
Collateralized mortgage obligations813,004 808,074 
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 ofAs of
(in thousands)(in thousands)September 30, 2020December 31, 2019(in thousands)June 30, 2021December 31, 2020
AgriculturalAgricultural$129,453 $140,446 Agricultural$107,834 $116,392 
Commercial and industrialCommercial and industrial1,103,102 835,236Commercial and industrial982,092 1,055,488
Commercial real estate:Commercial real estate:Commercial real estate:
Construction & developmentConstruction & development191,423 298,077Construction & development168,070 181,291
FarmlandFarmland152,362 181,885Farmland134,877 144,970
MultifamilyMultifamily235,241 227,407Multifamily255,826 256,525
Commercial real estate-otherCommercial real estate-other1,128,009 1,107,490Commercial real estate-other1,147,016 1,149,575
Total commercial real estateTotal commercial real estate1,707,035 1,814,859Total commercial real estate1,705,789 1,732,361
Residential real estate:Residential real estate:Residential real estate:
One- to four- family first liensOne- to four- family first liens371,390 407,418One- to four- family first liens332,117 355,684
One- to four- family junior liensOne- to four- family junior liens150,180 170,381One- to four- family junior liens136,464 143,422
Total residential real estateTotal residential real estate521,570 577,799Total residential real estate468,581 499,106
ConsumerConsumer76,272 82,926Consumer65,860 78,876
Loans held for investment, net of unearned incomeLoans held for investment, net of unearned income3,537,432 3,451,266Loans held for investment, net of unearned income3,330,156 3,482,223
Allowance for credit lossesAllowance for credit losses(58,500)(29,079)Allowance for credit losses(48,000)(55,500)
Total loans held for investment, netTotal loans held for investment, net$3,478,932 $3,422,187 Total loans held for investment, net$3,282,156 $3,426,723 

Loans with unpaid principal in the amount of $858.1$822.0 million and $945.9$830.2 million at SeptemberJune 30, 20202021 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 September 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 Assets90 Days or More Past Due And AccruingAge Analysis of Past-Due Financial Assets90 Days or More Past Due And Accruing
(in thousands)(in thousands)Current30 - 59 Days Past Due60 - 89 Days Past Due90 Days or More Past DueTotal(in thousands)Current30 - 59 Days Past Due60 - 89 Days Past Due90 Days or More Past DueTotal
September 30, 2020
June 30, 2021June 30, 2021
AgriculturalAgricultural$127,448 $390 $339 $1,276 $129,453 $0 Agricultural$106,390 $417 $69 $958 $107,834 $0 
Commercial and industrialCommercial and industrial1,098,272 1,027 105 3,698 1,103,102 5 Commercial and industrial978,508 732 63 2,789 982,092 0 
Commercial real estate:Commercial real estate:Commercial real estate:
Construction and developmentConstruction and development188,115 1,774 825 709 191,423 0 Construction and development167,474 0 0 596 168,070 0 
FarmlandFarmland142,470 114 353 9,425 152,362 0 Farmland130,835 649 27 3,366 134,877 0 
MultifamilyMultifamily235,241 0 0 0 235,241 0 Multifamily254,440 1,386 0 0 255,826 0 
Commercial real estate-otherCommercial real estate-other1,121,100 996 3 5,910 1,128,009 0 Commercial real estate-other1,141,031 352 46 5,587 1,147,016 0 
Total commercial real estateTotal commercial real estate1,686,926 2,884 1,181 16,044 1,707,035 0 Total commercial real estate1,693,780 2,387 73 9,549 1,705,789 0 
Residential real estate:Residential real estate:Residential real estate:
One- to four- family first liensOne- to four- family first liens364,393 1,856 1,271 3,870 371,390 2,588 One- to four- family first liens328,847 1,929 511 830 332,117 664 
One- to four- family junior liensOne- to four- family junior liens149,374 603 46 157 150,180 0 One- to four- family junior liens136,113 237 9 105 136,464 0 
Total residential real estateTotal residential real estate513,767 2,459 1,317 4,027 521,570 2,588 Total residential real estate464,960 2,166 520 935 468,581 664 
ConsumerConsumer76,078 78 23 93 76,272 0 Consumer65,724 76 48 12 65,860 1 
TotalTotal$3,502,491 $6,838 $2,965 $25,138 $3,537,432 $2,593 Total$3,309,362 $5,778 $773 $14,243 $3,330,156 $665 
December 31, 2019
December 31, 2020December 31, 2020
AgriculturalAgricultural$137,715 $975 $0 $1,756 $140,446 $0 Agricultural$115,284 $8 $45 $1,055 $116,392 $0 
Commercial and industrialCommercial and industrial828,842 846 270 5,278 835,236 0 Commercial and industrial1,051,727 477 333 2,951 1,055,488 106 
Commercial real estate:Commercial real estate:Commercial real estate:
Construction and developmentConstruction and development294,995 2,256 621 205 298,077 0 Construction and development180,059 586 42 604 181,291 0 
FarmlandFarmland175,281 362 0 6,242 181,885 0 Farmland138,798 226 324 5,622 144,970 0 
MultifamilyMultifamily227,013 394 0 0 227,407 0 Multifamily256,525 0 0 0 256,525 0 
Commercial real estate-otherCommercial real estate-other1,102,504 1,965 347 2,674 1,107,490 0 Commercial real estate-other1,132,015 11,514 318 5,728 1,149,575 0 
Total commercial real estateTotal commercial real estate1,799,793 4,977 968 9,121 1,814,859 0 Total commercial real estate1,707,397 12,326 684 11,954 1,732,361 0 
Residential real estate:Residential real estate:Residential real estate:
One- to four- family first liensOne- to four- family first liens402,471 2,579 857 1,511 407,418 99 One- to four- family first liens351,370 2,062 566 1,686 355,684 625 
One- to four- family junior liensOne- to four- family junior liens169,592 518 108 163 170,381 25 One- to four- family junior liens142,663 377 234 148 143,422 0 
Total residential real estateTotal residential real estate572,063 3,097 965 1,674 577,799 124 Total residential real estate494,033 2,439 800 1,834 499,106 625 
ConsumerConsumer82,558 150 80 138 82,926 12 Consumer78,747 43 39 47 78,876 8 
TotalTotal$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 relatedDecember 31, 2020:
NonaccrualNonaccrual with no Allowance for Credit Losses90 Days or More Past Due And Accruing
(in thousands)June 30, 2021December 31, 2020June 30, 2021December 31, 2020June 30, 2021December 31, 2020
Agricultural$2,086 $2,584 $1,381 $1,599 $0 $0 
Commercial and industrial6,395 7,326 3,858 4,349 0 106 
Commercial real estate:
Construction and development609 1,145 596 900 0 0 
Farmland10,280 8,319 9,616 7,266 0 0 
Multifamily1,073 746 377 39 0 0 
Commercial real estate-other17,802 19,134 1,732 2,497 0 0 
Total commercial real estate29,764 29,344 12,321 10,702 0 0 
Residential real estate:
One- to four- family first liens1,762 1,895 344 75 664 625 
One- to four- family junior liens695 722 0 1 0 0 
Total residential real estate2,457 2,617 344 76 664 625 
Consumer62 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 September 30,Nine Months Ended September 30,
(in thousands)Beginning of Period NonaccrualEnd of Period NonaccrualNonaccrual with no Allowance for Credit Losses90 Days or More Past Due And AccruingInterest Income Recognized on NonaccrualInterest Income Recognized on Nonaccrual
As of and for the Three and Nine Months Ended September 30, 2020
Agricultural$2,894 $2,787 $1,576 $0 $14 $94 
Commercial and industrial13,276 8,725 4,825 5 49 150 
Commercial real estate:
Construction and development1,494 1,387 1,007 0 5 46 
Farmland10,402 13,693 12,385 0 23 116 
Multifamily0 0 0 0 0 1 
Commercial real estate-other10,141 9,783 2,850 0 8 32 
Total commercial real estate22,037 24,863 16,242 0 36 195 
Residential real estate:
One- to four- family first liens2,557 1,999 207 2,588 21 62 
One- to four- family junior liens513 552 1 0 9 16 
Total residential real estate3,070 2,551 208 2,588 30 78 
Consumer206 145 13 0 1 9 
Total$41,483 $39,071 $22,864 $2,593 $130 $526 

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.

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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 SeptemberJune 30, 2020.2021. As of SeptemberJune 30, 2020,2021, there were no 'loss' rated credits.
Term Loans by Origination YearRevolving Loans
September 30, 2020
(in thousands)
20202019201820172016PriorTotal
Agricultural
Pass$18,711 $9,402 $3,467 $2,612 $1,607 $2,392 $66,182 $104,373 
Special mention / watch5,268 1,456 125 113 593 1,110 7,885 16,550 
Substandard3,830 874 272 187 130 227 3,009 8,529 
Doubtful0 — — — — 1 — 1 
Total$27,809 $11,732 $3,864 $2,912 $2,330 $3,730 $77,076 $129,453 
Commercial and industrial
Pass$552,011 $113,602 $61,017 $71,706 $40,276 $96,039 $130,932 $1,065,583 
Special mention / watch3,770 679 1,437 2,395 869 1,272 6,065 16,487 
Substandard3,846 1,651 609 841 538 4,301 9,242 21,028 
Doubtful0 — — 1 — 2 1 4 
Total$559,627 $115,932 $63,063 $74,943 $41,683 $101,614 $146,240 $1,103,102 
CRE - Construction and development
Pass$86,471 $47,688 $20,154 $4,356 $929 $1,165 $21,666 $182,429 
Special mention / watch4,570 461 546 — 11 33 — 5,621 
Substandard1,053 1,497 220 — — 38 565 3,373 
Doubtful0 — — — — — — 0 
Total$92,094 $49,646 $20,920 $4,356 $940 $1,236 $22,231 $191,423 
CRE - Farmland
Pass$39,115 $28,158 $11,528 $11,938 $8,493 $16,116 $1,740 $117,088 
Special mention / watch7,976 4,709 1,040 667 1,212 239 353 16,196 
Substandard2,656 4,163 4,509 1,729 204 5,767 50 19,078 
Doubtful0 — — — — — — 0 
Total$49,747 $37,030 $17,077 $14,334 $9,909 $22,122 $2,143 $152,362 
CRE - Multifamily
Pass$131,319 $18,505 $18,183 $17,687 $16,004 $21,446 $10,612 $233,756 
Special mention / watch346 — — — 70 — — 416 
Substandard1,069 — — — — — — 1,069 
Doubtful0 — — — — — — 0 
Total$132,734 $18,505 $18,183 $17,687 $16,074 $21,446 $10,612 $235,241 
CRE - other
Pass$423,851 $130,751 $69,359 $90,154 $75,302 $104,107 $41,301 $934,825 
Special mention / watch79,206 16,202 12,061 4,865 4,054 4,159 885 121,432 
Substandard44,915 7,767 7,021 1,233 586 9,231 999 71,752 
Doubtful0 — — — — — — 0 
Total$547,972 $154,720 $88,441 $96,252 $79,942 $117,497 $43,185 $1,128,009 
RRE - One- to four- family first liens
Performing$98,719 $54,993 $46,672 $41,713 $39,818 $75,091 $9,796 $366,802 
Nonperforming67 66 561 812 522 2,560 0 4,588 
Total$98,786 $55,059 $47,233 $42,525 $40,340 $77,651 $9,796 $371,390 
RRE - One- to four- family junior liens
Performing$15,090 $8,971 $14,175 $6,994 $3,821 $6,773 $93,804 $149,628 
Nonperforming0 0 0 32 117 233 170 552 
Total$15,090 $8,971 $14,175 $7,026 $3,938 $7,006 $93,974 $150,180 
Consumer
Performing$21,940 $16,255 $12,000 $5,796 $3,033 $6,450 $10,653 $76,127 
Nonperforming0 34 46 18 12 35 0 145 
Total$21,940 $16,289 $12,046 $5,814 $3,045 $6,485 $10,653 $76,272 
Term Loans by Origination YearRevolving Loans
June 30, 2021
(in thousands)
20212020201920182017PriorTotal
Agricultural
Pass$23,338 $11,915 $5,413 $1,782 $1,353 $2,109 $48,404 $94,314 
Special mention / watch1,730 1,612 874 — 76 1,034 4,264 9,590 
Substandard265 1,313 140 229 164 299 1,520 3,930 
Doubtful0 — 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 / watch6,649 2,285 493 163 475 223 2,731 13,019 
Substandard2,487 2,186 1,093 833 367 3,534 2,380 12,880 
Doubtful0 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 / watch565 — 174 532 0 1 0 1,272 
Substandard0 910 1,060 0 0 17 0 1,987 
Doubtful0 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 / watch1,826 4,617 3,963 1,428 297 234 147 12,512 
Substandard4,476 2,500 1,783 2,336 1,668 2,333 30 15,126 
Doubtful0 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 / watch0 342 0 5,940 0 43 0 6,325 
Substandard0 2,459 0 0 0 1,337 0 3,796 
Doubtful0 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 / watch4,731 47,407 2,554 11,702 1,869 4,152 281 72,696 
Substandard3,383 40,572 12,659 6,245 983 7,308 — 71,150 
Doubtful0 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 
Nonperforming489 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 
Nonperforming0 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 
Nonperforming0 3 19 9 16 16 0 63 
Total$18,089 $21,270 $9,133 $6,293 $2,681 $6,099 $2,295 $65,860 


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Term Loans by Origination YearRevolving Loans
20212020201920182017PriorTotal
Total by Credit Quality Indicator Category
Pass$554,193 $1,023,396 $268,371 $101,085 $145,911 $228,676 $249,799 $2,571,431 
Special mention / watch15,501 56,263 8,058 19,765 2,717 5,687 7,423 115,414 
Substandard10,611 49,940 16,735 9,643 3,182 14,828 3,930 108,869 
Doubtful0 — 0 0 1 — — 1 
Performing98,667 128,468 49,461 44,713 28,877 101,386 79,685 531,257 
Nonperforming489 397 162 865 197 924 150 3,184 
Total$679,461 $1,258,464 $342,787 $176,071 $180,885 $351,501 $340,987 $3,330,156 

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Term Loans by Origination YearRevolving Loans
20202019201820172016PriorTotal
Total by Credit Quality Indicator Category
Pass$1,251,478 $348,106 $183,708 $198,453 $142,611 $241,265 $272,433 $2,638,054 
Special mention / watch101,136 23,507 15,209 8,040 6,809 6,813 15,188 176,702 
Substandard57,369 15,952 12,631 3,990 1,458 19,564 13,865 124,829 
Doubtful0 — — 1 — 3 1 5 
Performing135,749 80,219 72,847 54,503 46,672 88,314 114,253 592,557 
Nonperforming67 100 607 862 651 2,828 170 5,285 
Total$1,545,799 $467,884 $285,002 $265,849 $198,201 $358,787 $415,910 $3,537,432 

The following table sets forth the risk categoryamortized cost basis of loans by class of loans andreceivable by credit quality indicator usedand 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 YearRevolving Loans
December 31, 2020
(in thousands)
20202019201820172016PriorTotal
Agricultural
Pass$17,836 $6,959 $2,764 $2,145 $1,386 $1,833 $60,802 $93,725 
Special mention / watch4,892 1,083 117 108 553 1,103 7,210 15,066 
Substandard4,075 650 258 183 121 226 2,086 7,599 
Doubtful1 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 / watch3,410 572 497 2,261 611 112 4,796 12,259 
Substandard5,014 1,539 928 656 461 3,261 9,144 21,003 
Doubtful0 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 / watch843 298 542 0 9 3 0 1,695 
Substandard597 1,132 220 0 0 26 0 1,975 
Doubtful0 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 / watch8,088 4,583 935 660 361 237 0 14,864 
Substandard3,924 2,627 4,386 1,728 166 1,128 36 13,995 
Doubtful0 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 / watch345 0 0 0 59 0 0 404 
Substandard1,099 0 0 0 1,362 0 0 2,461 
Doubtful0 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 / watch71,141 14,870 12,415 5,953 3,756 4,335 455 112,925 
Substandard48,690 7,162 6,370 1,222 579 6,997 925 71,945 
Doubtful0 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 
Nonperforming239 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 
Nonperforming7 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 
Nonperforming2 21 13 5 13 24 0 78 
Total$30,757 $13,683 $10,354 $4,965 $2,669 $6,330 $10,118 $78,876 
December 31, 2019
(in thousands)		PassSpecial Mention / WatchSubstandardDoubtfulLossTotal
Agricultural$117,374 $13,292 $9,780 $0 $0 $140,446 
Commercial and industrial794,526 19,038 21,635 1 36 835,236 
Commercial real estate:
Construction and development283,921 11,423 2,733 0 0 298,077 
Farmland141,107 21,307 19,471 0 0 181,885 
Multifamily226,124 90 1,193 0 0 227,407 
Commercial real estate-other1,036,418 50,691 20,381 0 0 1,107,490 
Total commercial real estate1,687,570 83,511 43,778 0 0 1,814,859 
Residential real estate:
One- to four- family first liens396,175 4,547 6,532 164 0 407,418 
One- to four- family junior liens168,229 1,282 870 0 0 170,381 
Total residential real estate564,404 5,829 7,402 164 0 577,799 
Consumer82,650 39 218 19 0 82,926 
Total$3,246,524 $121,709 $82,813 $184 $36 $3,451,266 


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Term Loans by Origination YearRevolving Loans
20202019201820172016PriorTotal
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 / watch88,719 21,406 14,506 8,982 5,349 5,790 12,461 157,213 
Substandard63,399 13,110 12,162 3,789 2,689 11,638 12,191 118,978 
Doubtful1 0 0 1 0 4 1 7 
Performing168,496 68,216 65,356 41,740 43,530 80,161 107,162 574,661 
Nonperforming248 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 SeptemberJune 30, 2020,2021, the economic forecast used by the Company showed a decline inthe following: (1) Midwest unemployment – decreases over the next four forecasted quarters; increases(2) Year-to-year change in national retail sales - increases over the next threefour forecasted quarters, with a declinequarters; (3) Year-to-year change in CRE Index - decreases over the fourth quarter; decreasesnext four forecasted quarters; (4) Year-to-year change in U.S. GDP - increases over the CRE indexnext 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 beginning in the third quarter; increases in U.S. GDP over the next three forecasted quarters, withfollowed by a decline in the fourth quarter; decreases in the national home price index over the next three forecasted quarters, with improvements beginning in the fourth quarter;third and a decline in the U.S. rental vacancy rate through the second forecasted quarter, with an improvement in the third forecasted quarter, and then a decline beginning in the fourth forecasted quarter. Thesequarters. Overall, economic forecast loss drivers saw improvementsdriver data improved when compared to the priorpreviously disclosed first quarter however are consistently worse when compared to recent historical trends over the past several years, largely as a result 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 $14.8$11.1 million at SeptemberJune 30, 2021 and $14.2 million at December 31, 2020 and is excluded from the estimate of credit losses.
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The changes in the allowance for credit losses by portfolio segment were as follows:
For the Three Months Ended September 30, 2020 and 2019
(in thousands)AgriculturalCommercial and IndustrialCommercial Real EstateResidential Real EstateConsumerTotal
For the Three Months September 30, 2020
Beginning balance$1,408 $18,709 $28,221 $6,074 $1,232 $55,644 
Charge-offs(746)(983)(275)(83)(101)(2,188)
Recoveries103 180 9 14 41 347 
Credit loss expense(1)
649 (1,267)2,966 2,273 76 4,697 
Ending balance$1,414 $16,639 $30,921 $8,278 $1,248 $58,500 
For the Three Months Ended September 30, 2019
Beginning balance$3,720 $7,633 $13,655 $3,377 $306 $28,691 
Charge-offs(986)(328)— (121)(200)(1,635)
Recoveries22 9 8 49 124 212 
Credit loss expense1,372 1,680 1,808 (742)146 4,264 
Ending balance$4,128 $8,994 $15,471 $2,563 $376 $31,532 
For the Nine Months Ended September 30, 2020 and 2019
(in thousands)AgriculturalCommercial and IndustrialCommercial Real EstateResidential Real EstateConsumerTotal
For the Nine Months Ended September 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(939)(2,356)(1,787)(186)(520)(5,788)
Recoveries129 559 28 29 137 882 
Credit loss expense(1)
1,033 7,314 17,576 3,700 720 30,343 
Ending balance$1,414 $16,639 $30,921 $8,278 $1,248 $58,500 
For the Nine Months Ended September 30, 2019
Beginning balance$3,637 $7,478 $15,635 $2,349 $208 $29,307 
Charge-offs(1,137)(2,441)(960)(171)(469)(5,178)
Recoveries31 158 272 67 321 849 
Credit loss expense1,597 3,799 524 318 316 6,554 
Ending balance$4,128 $8,994 $15,471 $2,563 $376 $31,532 
(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 $0.3 million and $1.1 million related to off-balance sheet credit exposures for the three months and nine months ended September 30, 2020, respectively.

For the Three Months Ended June 30, 2021 and 2020
(in thousands)AgriculturalCommercial and IndustrialCommercial Real EstateResidential Real EstateConsumerTotal
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)
Recoveries21 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)
Recoveries1 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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Table of Contents
For the Six Months Ended June 30, 2021 and 2020
(in thousands)AgriculturalCommercial and IndustrialCommercial Real EstateResidential Real EstateConsumerTotal
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)
Recoveries48 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)
Recoveries26 379 19 15 96 535 
Credit loss expense384 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)AgriculturalCommercial and IndustrialCommercial Real EstateResidential Real EstateConsumerTotal
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 impairment106,297 976,339 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 impairment1,005 13,146 26,456 3,925 608 45,140 
Total$1,013 $13,787 $28,516 $4,076 $608 $48,000 
As of September 30, 2020As of December 31, 2020
(in thousands)(in thousands)AgriculturalCommercial and IndustrialCommercial Real EstateResidential Real EstateConsumerTotal(in thousands)AgriculturalCommercial and IndustrialCommercial Real EstateResidential Real EstateConsumerTotal
Loans held for investment, net of unearned incomeLoans held for investment, net of unearned incomeLoans held for investment, net of unearned income
Individually evaluated for impairmentIndividually evaluated for impairment$2,161 $7,774 $23,412 $204 $7 $33,558 Individually evaluated for impairment$2,088 $6,582 $28,235 $427 $8 $37,340 
Collectively evaluated for impairmentCollectively evaluated for impairment127,292 1,095,328 1,683,623 521,366 76,265 3,503,874 Collectively evaluated for impairment114,304 1,048,906 1,704,126 498,679 78,868 3,444,883 
TotalTotal$129,453 $1,103,102 $1,707,035 $521,570 $76,272 $3,537,432 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 impairmentIndividually evaluated for impairment$55 $504 $675 $— $— $1,234 Individually evaluated for impairment$66 $799 $2,031 $179 $0 $3,075 
Collectively evaluated for impairmentCollectively evaluated for impairment1,359 16,135 30,246 8,278 1,248 57,266 Collectively evaluated for impairment1,280 14,890 30,609 4,703 943 52,425 
TotalTotal$1,414 $16,639 $30,921 $8,278 $1,248 $58,500 Total$1,346 $15,689 $32,640 $4,882 $943 $55,500 







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As of December 31, 2019
(in thousands)AgriculturalCommercial and IndustrialCommercial Real EstateResidential Real EstateConsumerTotal
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 impairment135,246 822,939 1,781,306 572,865 82,864 3,395,220 
Purchased credit impaired loans888 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 impairment3,536 6,194 11,836 2,152 448 24,166 
Purchased credit impaired loans0 2 788 460 0 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 EstateEquipmentOtherTotalACL Allocation
Agricultural$946 $591 $0 $1,537 $8 
Commercial and industrial629 2,590 2,534 5,753 641 
Commercial real estate:
     Construction and development595 0 0 595 0 
      Farmland9,961 0 0 9,961 6 
      Multifamily1,073 0 0 1,073 390 
      Commercial real estate-other17,260 0 0 17,260 1,664 
Residential real estate:
     One- to four- family first liens410 0 0 410 64 
     One- to four- family junior liens181 181 87 
Consumer0 8 0 8 0 
        Total$31,055 $3,189 $2,534 $36,778 $2,860 
As of September 30, 2020

(in thousands)		Primary Type of Collateral
Real EstateEquipmentOtherTotalACL Allocation
Agricultural$767 $741 $653 $2,161 $55 
Commercial and industrial682 4,151 2,941 7,774 504 
Commercial real estate:
     Construction and development1,006 0 0 1,006 0 
      Farmland11,826 1,345 0 13,171 88 
      Multifamily0 0 0 0 0 
      Commercial real estate-other8,794 441 0 9,235 587 
Residential real estate:
     One- to four- family first liens204 0 0 204 0 
     One- to four- family junior liens0 0 0 0 0 
Consumer7 0 0 7 0 
        Total$23,286 $6,678 $3,594 $33,558 $1,234 

As of December 31, 2020

(in thousands)		Primary Type of Collateral
Real EstateEquipmentOtherTotalACL Allocation
Agricultural$516 $824 $748 $2,088 $66 
Commercial and industrial667 3,037 2,878 6,582 799 
Commercial real estate:
     Construction and development899 0 0 899 0 
      Farmland7,850 0 0 7,850 88 
      Multifamily746 0 0 746 202 
      Commercial real estate-other18,740 0 0 18,740 1,741 
Residential real estate:
     One- to four- family first liens204 0 0 204 132 
     One- to four- family junior liens223 0 0 223 47 
Consumer0 8 0 8 0 
        Total$29,845 $3,869 $3,626 $37,340 $3,075 

Troubled Debt Restructurings
TDRs totaled $9.4$11.6 million and $11.0 million as of SeptemberJune 30, 20202021 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 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,
20212020
Number of ContractsPre-Modification Outstanding Recorded InvestmentPost-Modification Outstanding Recorded InvestmentNumber of ContractsPre-Modification Outstanding Recorded InvestmentPost-Modification Outstanding Recorded Investment
(dollars in thousands)
CONCESSION - Interest rate reduction
Farmland2 $1,982 $1,982 0 $0 $0 
One- to four- family first liens1 171 171 0 0 0 
CONCESSION - Extended maturity date
One- to four- family first liens1 85 85 2 145 145 
CONCESSION - Other
Agricultural0 0 0 1 208 208 
Farmland0 0 0 2 354 354 
Total4$2,238 $2,238 5 $707 $707 
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Three Months Ended September 30,
20202019
Number of ContractsPre-Modification Outstanding Recorded InvestmentPost-Modification Outstanding Recorded InvestmentNumber of ContractsPre-Modification Outstanding Recorded InvestmentPost-Modification Outstanding Recorded Investment
(dollars in thousands)
CONCESSION - Interest rate reduction
Commercial and industrial1 $143 $143 — $— $— 
CONCESSION - Extended maturity date
Agricultural— — — 7 341 341 
Commercial and industrial— — — 1 1,863 1,863 
Farmland— — — 1 158 158 
One- to four- family first liens1 128 132 — — — 
One- to four- family junior liens— — — 1 5 5 
CONCESSION - Other
Agricultural1 59 69 — — — 
Farmland1 150 161 — — — 
Total4$480 $505 10 $2,367 $2,367 


Nine Months Ended September 30,Six Months Ended June 30,
2020201920212020
Number of ContractsPre-Modification Outstanding Recorded InvestmentPost-Modification Outstanding Recorded InvestmentNumber of ContractsPre-Modification Outstanding Recorded InvestmentPost-Modification Outstanding Recorded InvestmentNumber of ContractsPre-Modification Outstanding Recorded InvestmentPost-Modification Outstanding Recorded InvestmentNumber of ContractsPre-Modification Outstanding Recorded InvestmentPost-Modification Outstanding Recorded Investment
(dollars in thousands)(dollars in thousands)(dollars in thousands)
CONCESSION - Interest rate reductionCONCESSION - Interest rate reductionCONCESSION - Interest rate reduction
Commercial and industrial1 $143 $143 — $— $— 
FarmlandFarmland2$1,982 $1,982 0$0 $0 
One- to four- family first liensOne- to four- family first liens1171 171 00 0 
CONCESSION - Extended maturity dateCONCESSION - Extended maturity date
CONCESSION - Extended maturity date
Agricultural— — — 7 341 341 
Commercial and industrial— — — 1 1,863 1,863 
Farmland— — — 1 158 158 
Commercial real estate-otherCommercial real estate-other3 759 808 — — — Commercial real estate-other00 0 3759 808 
One- to four- family first liensOne- to four- family first liens3 274 278 3 240 239 One- to four- family first liens2178 178 2145 145 
One- to four- family junior liens— — — 3 81 81 
CONCESSION - OtherCONCESSION - OtherCONCESSION - Other
AgriculturalAgricultural2 267 278 — — — Agricultural00 0 1208 208 
FarmlandFarmland3 504 514 — — — Farmland00 0 2354 354 
Commercial real estate-otherCommercial real estate-other144 44 00 0 
One- to four- family first liensOne- to four- family first liens1150 150 00 0 
TotalTotal12$1,947 $2,021 15 $2,683 $2,682 Total7$2,525 $2,525 8$1,466 $1,515 

For the three months and ninesix months ended SeptemberJune 30, 2021 and June 30, 2020, the Company had 40 TDRs totaling $412 thousand that redefaulted within 12 months subsequent to restructure. These TDRs that redefaulted within 12 months subsequent to restructure consisted of the following for the three and nine months ended September 30, 2020: 1 agricultural contract totaling $59 thousand, 1 farmland contract totaling $150 thousand, and 2 one-to four-family first lien contracts totaling $203 thousand.

For the three and nine months ended September 30, 2019, the Company had 12 TDRs, totaling $742 thousand that redefaulted within 12 months subsequent to restructure. These TDRs that redefaulted within 12 months subsequent to restructure consisted of the following for the three and nine months ended September 30, 2019: 6 agricultural contracts totaling $315 thousand, 1 farmland contract totaling $158 thousand, 3 one-to four-family first lien contracts totaling $239 thousand, and 2 one-to four-family junior lien contracts totaling $30 thousand.




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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, providesprovide 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 SeptemberJune 30, 2020, we had granted short-term payment deferrals on $115.3 million2021, 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.

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, which was prior to the adoption of ASC 326:
December 31, 2019
(in thousands)Recorded InvestmentUnpaid Principal BalanceRelated Allowance
With no related allowance recorded:
Agricultural$2,383 $2,913 $— 
Commercial and industrial7,391 10,875 — 
Commercial real estate:
Construction and development1,181 1,218 — 
Farmland4,306 4,331 — 
Multifamily— — — 
Commercial real estate-other5,709 5,854 — 
Total commercial real estate11,196 11,403 — 
Residential real estate:
One- to four- family first liens577 578 — 
One- to four- family junior liens— — — 
Total residential real estate577 578 — 
Consumer21 21 — 
Total$21,568 $25,790 $— 
With an allowance recorded:
Agricultural$1,929 $1,930 $212 
Commercial and industrial4,851 5,417 2,198 
Commercial real estate:
Construction and development135 135 135 
Farmland1,109 1,148 347 
Multifamily— — — 
Commercial real estate-other3,642 4,229 698 
Total commercial real estate4,886 5,512 1,180 
Residential real estate:
One- to four- family first liens261 262 73 
One- to four- family junior liens— — — 
Total residential real estate261 262 73 
Consumer— — — 
Total$11,927 $13,121 $3,663 
Total:
Agricultural$4,312 $4,843 $212 
Commercial and industrial12,242 16,292 2,198 
Commercial real estate:
Construction and development1,316 1,353 135 
Farmland5,415 5,479 347 
Multifamily— — — 
Commercial real estate-other9,351 10,083 698 
Total commercial real estate16,082 16,915 1,180 
Residential real estate:
One- to four- family first liens838 840 73 
One- to four- family junior liens— — — 
Total residential real estate838 840 73 
Consumer21 21 — 
Total$33,495 $38,911 $3,663 

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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 periods, which were prior to the adoption of ASC 326:
Three Months Ended September 30,Nine Months Ended September 30,
20192019
(in thousands)Average Recorded InvestmentInterest Income RecognizedAverage Recorded InvestmentInterest Income Recognized
With no related allowance recorded:
Agricultural$2,260 $11 $1,962 $— 
Commercial and industrial5,199 2 4,961 — 
Commercial real estate:
Construction and development— — — — 
Farmland2,410 — 1,710 — 
Multifamily— — — — 
Commercial real estate-other1,541 7 1,361 20 
Total commercial real estate3,951 7 3,071 20 
Residential real estate:
One- to four- family first liens347 — 260 — 
One- to four- family junior liens— — — — 
Total residential real estate347 — 260 — 
Consumer21 — 16 — 
Total$11,778 $20 $10,270 $20 
With an allowance recorded:
Agricultural$1,527 $— $1,378 $31 
Commercial and industrial4,577 16 3,386 — 
Commercial real estate:
Construction and development— — — — 
Farmland649 — 586 5 
Multifamily��� — — — 
Commercial real estate-other2,507 82 1,834 93 
Total commercial real estate3,156 82 2,420 98 
Residential real estate:
One- to four- family first liens265 2 266 7 
One- to four- family junior liens— — — — 
Total residential real estate265 2 266 7 
Consumer— — — — 
Total$9,525 $100 $7,450 $136 
Total:
Agricultural$3,787 $11 $3,340 $31 
Commercial and industrial9,776 18 8,347 — 
Commercial real estate:
Construction and development— — — — 
Farmland3,059 — 2,296 5 
Multifamily— — — — 
Commercial real estate-other4,048 89 3,195 113 
Total commercial real estate7,107 89 5,491 118 
Residential real estate:
One- to four- family first liens612 2 526 7 
One- to four- family junior liens— — — — 
Total residential real estate612 2 526 7 
Consumer21 — 16 — 
Total$21,303 $120 $17,720 $156 
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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 industrial147 
Commercial real estate17,803 
Residential real estate4,136 
Consumer57 
Outstanding balance23,047 
Carrying amount22,551 
Allowance for credit losses1,250 
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 September 30, 2020As of December 31, 2019As of June 30, 2021As of December 31, 2020
Notional
Amount
Fair Value
Notional
Amount
Fair Value
Notional
Amount
Fair Value
Notional
Amount
Fair Value
(in thousands)(in thousands)AssetsLiabilitiesAssetsLiabilities(in thousands)AssetsLiabilitiesAssetsLiabilities
Designated as hedging instruments
Fair value hedges
Designated as hedging instruments:Designated as hedging instruments:
Fair value hedges:Fair value hedges:
Interest rate swapsInterest rate swaps$25,744 $0 $2,926 $16,734 $0 $1,113 Interest rate swaps$25,184 $339 $1,699 $25,559 $34 $2,452 
Cash flow hedges
Interest rate swaps30,000 0 864 0 0 0 
TotalTotal$55,744 $0 $3,790 $16,734 $0 $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 swapsInterest rate swaps$342,670 $13,550 $13,692 $113,632 $1,824 $1,999 Interest rate swaps$343,761 $6,267 $6,280 $347,380 $10,758 $10,807 
RPAs - protection soldRPAs - protection sold4,530 10 0 4,702 24 0 RPAs - protection sold4,353 1 0 4,471 4 0 
RPAs - protection purchasedRPAs - protection purchased9,873 0 21 10,009 0 130 RPAs - protection purchased9,730 0 3 9,825 0 8 
TotalTotal$357,073 $13,560 $13,713 $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.
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The 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 $358 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 ninesix months ended SeptemberJune 30, 20202021 and 2019.2020.
Amount of Gain (Loss) Recognized in AOCI on DerivativeLocation of Gain (Loss) Reclassified from AOCI into IncomeAmount of Gain (Loss) Reclassified from AOCI into Income
Three Months Ended June 30,Three Months Ended June 30,
(in thousands)2021202020212020
Interest rate swaps$0 $(129)Interest Expense$0 $(62)
Amount of Gain (Loss) Recognized in AOCI on DerivativeLocation of Gain (Loss) Reclassified from AOCI into IncomeAmount of Gain (Loss) Reclassified from AOCI into Income
Six Months Ended June 30,Six Months Ended June 30,
(in thousands)2021202020212020
Interest rate swaps$0 $(1,017)Interest Expense$0 $(57)
Amount of Gain (Loss) Recognized in AOCI on DerivativeLocation of Gain (Loss) Reclassified from AOCI into IncomeAmount of Gain (Loss) Reclassified from AOCI into Income
Three Months Ended September 30,Three Months Ended September 30,
(in thousands)2020201920202019
Interest rate swaps$8 $0 Interest Expense$(88)$0 
Amount of Gain (Loss) Recognized in AOCI on DerivativeLocation of Gain (Loss) Reclassified from AOCI into IncomeAmount of Gain (Loss) Reclassified from AOCI into Income
Nine Months Ended September 30,Nine Months Ended September 30,
(in thousands)2020201920202019
Interest rate swaps$(1,009)$0 Interest Expense$(145)$0 
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The table below presents the effect of the Company’s derivative financial instruments designated as hedging instruments on the consolidated statements of income for the periods indicated:
Location and Amount of Gain or Loss Recognized in Income on Fair Value and Cash Flow Hedging Relationships
For the Three Months Ended June 30,For the Six Months Ended June 30,
2021202020212020
(in thousands)Interest IncomeOther IncomeInterest IncomeOther IncomeInterest IncomeOther IncomeInterest IncomeOther Income
Total amounts of income and expense line items presented in the consolidated statements of income in which the effects of fair value or cash flow hedges are recorded$(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 items578 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 income0 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 September 30,For the Nine Months Ended September 30,
2020201920202019
(in thousands)Interest IncomeInterest ExpenseInterest IncomeInterest ExpenseInterest IncomeInterest ExpenseInterest IncomeInterest 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$(102)$0 $(1)$0 $(229)$0 $(2)$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(174)0 617 0 1,814 0 1,412 0 
Derivative designated as hedging instruments180 (618)0 (1,813)0 (1,414)0 
Income statement effect of cash flow hedging relationships in subtopic 815-20:
Interest contracts:
Amount reclassified from AOCI into income0 88 — — — 145 0 0 
As of SeptemberJune 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)(in thousands)(in thousands)
LoansLoans$28,679 $2,924 Loans$26,565 $1,364 




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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 IncomeFor the Three Months Ended September 30,For the Nine Months Ended September 30,Location in the Consolidated Statements of IncomeFor the Three Months Ended June 30,For the Six Months Ended June 30,
(in thousands)(in thousands)2020201920202019(in thousands)2021202020212020
Interest rate swapsInterest rate swapsOther income$(90)$(96)$33 $(226)Interest rate swapsOther income$1 $(18)$35 $123 
RPAsRPAsOther income(3)(24)94 (148)RPAsOther income1 (6)1 97 
Total Total$(93)$(120)$127 $(374) 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 SeptemberJune 30, 20202021 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 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 SheetGross Amounts Not Offset in the Balance Sheet
(in thousands)(in thousands)Gross Amounts of Recognized Assets (Liabilities)Gross Amounts Offset in the Balance SheetNet Amounts of Assets (Liabilities) presented in the Balance SheetFinancial InstrumentsCash Collateral PledgedNet Assets (Liabilities)(in thousands)Gross Amounts of Recognized Assets (Liabilities)Gross Amounts Offset in the Balance SheetNet Amounts of Assets (Liabilities) presented in the Balance SheetFinancial InstrumentsCash Collateral Received (Paid)Net Assets (Liabilities)
As of September 30, 2020
As of June 30, 2021As of June 30, 2021
Asset DerivativesAsset Derivatives$13,560 $0 $13,560 $0 $0 $13,560 Asset Derivatives$6,607 $0 $6,607 $0 $0 $6,607 
Liability DerivativesLiability Derivatives(17,503)0 (17,503)0 (17,503)0 Liability Derivatives(7,982)0(7,982)0(5,920)(2,062)
As of December 31, 2019
As of December 31, 2020As of December 31, 2020
Asset DerivativesAsset Derivatives$1,848 $0 $1,848 $0 $0 $1,848 Asset Derivatives$10,796 $0 $10,796 $0 $0 $10,796 
Liability DerivativesLiability Derivatives(3,242)0 (3,242)0 (3,242)0 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 SeptemberJune 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 $17.7$7.1 million. As of SeptemberJune 30, 2020,2021, the Company had minimum collateral posting thresholds with certain of its derivative counterparties and hashad posted $13.6$5.9 million of collateral related to these agreements. If the Company had breached any of these provisions at SeptemberJune 30, 2020,2021, it could have been required to settle its obligations under the agreements at their termination value of $17.7$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
Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations accounted for as acquisitions. Under ASC Topic 350, goodwill of a reporting unit is tested for impairment on an annual basis, or between annual tests if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying amount. The Company's annual assessment is done at the reporting unit level, which the Company has concluded is at the consolidated level. Due to the continued 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 September 30, 2020.
The Company performed a market capitalization approach, a guideline public company approach and a discounted cash flow approach, to determine the fair value of the Company. As a result of this interim assessment, the Company recorded a goodwill impairment charge of $31.5 million as its estimated fair value was less than its book value on that date. This non-cash charge was reflected within "Noninterest expense" in the Consolidated Statements of Income and had no impact on the Company's regulatory capital ratios, cash flows and liquidity position.
The following table presents the changes in the carrying amount of goodwill for the period indicated:
Nine Months Ended September 30,
(in thousands)2020
Goodwill, beginning of period$91,918 
Fair value adjustment(1)
2,059 
Goodwill impairment(31,500)
Total goodwill, end of period$62,477 
(1) 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, 2021As of December 31, 2020
(in thousands)Gross Carrying AmountAccumulated AmortizationNet Carrying AmountGross Carrying AmountAccumulated AmortizationNet Carrying Amount
Core deposit intangible$41,745 $(28,668)$13,077 $41,745 $(26,440)$15,305 
Customer relationship intangible5,265 (3,193)2,072 5,265 (2,630)2,635 
Other2,700 (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 September 30, 2020As of December 31, 2019
(in thousands)Gross Carrying AmountAccumulated AmortizationNet Carrying AmountGross Carrying AmountAccumulated AmortizationNet Carrying Amount
Core deposit intangible$41,745 $(25,208)$16,537 $41,745 $(21,032)$20,713 
Customer relationship intangible5,265 (2,324)2,941 5,265 (1,195)4,070 
Other2,700 (2,407)293 2,700 (2,305)395 
$49,710 $(29,939)$19,771 $49,710 $(24,532)$25,178 
Indefinite-lived trade name intangible$7,040 $7,040 
The following table provides the estimated future amortization expense for the remaining threesix months ending December 31, 20202021 and the succeeding annual periods:
Core Deposit IntangibleCustomer Relationship IntangibleOtherTotal
Estimated Remaining Amortization Expense for the Year Ending December 31,
2020$1,231 $306 $31 $1,568 
20214,190 1,062 106 5,358 
20223,487 797 79 4,363 
20232,833 518 51 3,402 
20242,180 239 24 2,443 
Thereafter2,616 19 2 2,637 
Total$16,537 $2,941 $293 $19,771 
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(in thousands)Core Deposit IntangibleCustomer Relationship IntangibleOtherTotal
Estimated Remaining Amortization Expense for the Year Ending December 31,
2021$1,962 $499 $49 $2,510 
20223,487 797 79 4,363 
20232,833 518 51 3,402 
20242,180 239 24 2,443 
20251,526 19 2 1,547 
Thereafter1,089 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 SeptemberJune 30, 20202021 and December 31, 20192020 were as follows:
(in thousands)(in thousands)September 30, 2020December 31, 2019(in thousands)June 30, 2021December 31, 2020
Bank-owned life insuranceBank-owned life insurance$82,942 $81,625 Bank-owned life insurance$84,290 $83,483 
Interest receivableInterest receivable21,112 18,525 Interest receivable19,758 21,706 
FHLB stockFHLB stock12,246 15,381 FHLB stock12,687 13,784 
Mortgage servicing rightsMortgage servicing rights5,274 7,026 Mortgage servicing rights5,997 5,137 
Operating lease right-of-use assets, netOperating lease right-of-use assets, net3,860 4,499 Operating lease right-of-use assets, net3,232 3,613 
Federal and state income taxes, currentFederal and state income taxes, current725 2,318 Federal and state income taxes, current2,340 0 
Federal and state income taxes, deferredFederal and state income taxes, deferred7,413 3,530 Federal and state income taxes, deferred7,506 3,845 
Derivative assetsDerivative assets13,560 1,848 Derivative assets6,607 10,796 
Other receivables/assetsOther receivables/assets12,375 13,208 Other receivables/assets12,314 11,129 
$159,507 $147,960 $154,731 $153,493 


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7.    Deposits
The following table presents the composition of our deposits as of the dates indicated:
(in thousands)(in thousands)As of September 30, 2020As of December 31, 2019(in thousands)June 30, 2021December 31, 2020
Noninterest bearing depositsNoninterest bearing deposits$864,504 $662,209 Noninterest bearing deposits$952,764 $910,655 
Interest checking depositsInterest checking deposits1,230,146 962,830 Interest checking deposits1,414,942 1,351,641 
Money market depositsMoney market deposits871,336 763,028 Money market deposits936,683 918,654 
Savings depositsSavings deposits486,876 387,142 Savings deposits596,199 529,751 
Time deposits under $250,000617,229 682,232 
Time deposits of $250,000 or more263,550 271,214 
Time deposits under $250Time deposits under $250538,331 581,471 
Time deposits of $250 or moreTime deposits of $250 or more353,747 254,877 
Total depositsTotal deposits$4,333,641 $3,728,655 Total deposits$4,792,666 $4,547,049 

The Company had $6.2$5.9 million and $6.6$7.8 million in brokeredreciprocal time deposits through the CDARS program as of SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively. Included in interest-bearing checking and money market deposits at SeptemberJune 30, 20202021 and December 31, 20192020 were $16.1$35.2 million and $10.1$14.8 million, respectively, of brokeredreciprocal deposits throughin 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 SeptemberJune 30, 20202021 and December 31, 2019,2020, the Company had public entity deposits that were collateralized by investment securities of $138.8$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:
September 30, 2020December 31, 2019June 30, 2021December 31, 2020
(in thousands)(in thousands)Weighted Average RateBalanceWeighted Average RateBalance(in thousands)Weighted Average RateBalanceWeighted Average RateBalance
Securities sold under agreements to repurchaseSecurities sold under agreements to repurchase0.35 %$183,893 1.06 %$117,249 Securities sold under agreements to repurchase0.26 %$172,961 0.28 %$174,289 
Federal Home Loan Bank advancesFederal Home Loan Bank advances0 0 1.73 22,100 Federal Home Loan Bank advances0.26 39,300 0.29 56,500 
Unsecured line of credit0 0 0 0 
TotalTotal0.35 %$183,893 1.17 %$139,349 Total0.26 %$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.
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TableUnsecured Line of ContentsCredit
- 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 SeptemberJune 30, 20202021 or December 31, 2019.2020.
Other - At SeptemberJune 30, 20202021 and December 31, 2019,2020, the Company had 0 Federal Reserve Discount Window borrowings, while the financing capacity was $67.9$62.9 million as of SeptemberJune 30, 20202021 and $12.7$67.7 million as of December 31, 2019.2020. As of SeptemberJune 30, 20202021 and December 31, 2019,2020, the Bank had municipal securities with a market value of $71.9$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, theThe Company entered intohas 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 atwith 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 $10.0of $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 againmatures on April 24, 2020 to extend the maturity date to NovemberSeptember 30, 2020.2021. The Company had no0 balance outstanding under this revolving credit facility as of both SeptemberJune 30, 20202021 and December 31, 2019.2020.


10.
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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 ValueBook ValueInterest RateRateMaturity DateCallable Date
June 30, 2021
ATBancorp Statutory Trust I$7,732 $6,869 Three-month LIBOR + 1.68%1.80 %06/15/203606/15/2011
ATBancorp Statutory Trust II12,372 10,879 Three-month LIBOR + 1.65%1.77 %09/15/203706/15/2012
Barron Investment Capital Trust I2,062 1,784 Three-month LIBOR + 2.15%2.29 %09/23/203609/23/2011
Central Bancshares Capital Trust II7,217 6,856 Three-month LIBOR + 3.50%3.62 %03/15/203803/15/2013
MidWestOne Statutory Trust II15,464 15,464 Three-month LIBOR + 1.59%1.71 %12/15/203712/15/2012
Total$44,847 $41,852 
December 31, 2020
ATBancorp Statutory Trust I$7,732 $6,850 Three-month LIBOR + 1.68%1.90 %06/15/203606/15/2011
ATBancorp Statutory Trust II12,37210,850Three-month LIBOR + 1.65%1.87 %09/15/203706/15/2012
Barron Investment Capital Trust I2,062 1,767 Three-month LIBOR + 2.15%2.39 %09/23/203609/23/2011
Central Bancshares Capital Trust II7,217 6,832 Three-month LIBOR + 3.50%3.72 %03/15/203803/15/2013
MidWestOne Statutory Trust II15,464 15,464 Three-month LIBOR + 1.59%1.81 %12/15/203712/15/2012
    Total$44,847 $41,763 
(in thousands)Face ValueBook ValueInterest RateRateMaturity DateCallable Date
September 30, 2020
ATBancorp Statutory Trust I$7,732 $6,841 Three-month LIBOR + 1.68%1.93 %06/15/203606/15/2011
ATBancorp Statutory Trust II12,372 10,836 Three-month LIBOR + 1.65%1.90 %09/15/203706/15/2012
Barron Investment Capital Trust I2,062 1,758 Three-month LIBOR + 2.15%2.37 %09/23/203609/23/2011
Central Bancshares Capital Trust II7,217 6,820 Three-month LIBOR + 3.50%3.75 %03/15/203803/15/2013
MidWestOne Statutory Trust II15,464 15,464 Three-month LIBOR + 1.59%1.84 %12/15/203712/15/2012
Total$44,847 $41,719 
December 31, 2019
ATBancorp Statutory Trust I$7,732 $6,814 Three-month LIBOR + 1.68%3.57 %06/15/203606/15/2011
ATBancorp Statutory Trust II12,37210,794Three-month LIBOR + 1.65%3.54 %09/15/203706/15/2012
Barron Investment Capital Trust I2,062 1,732 Three-month LIBOR + 2.15%4.08 %09/23/203609/23/2011
Central Bancshares Capital Trust II7,217 6,783 Three-month LIBOR + 3.50%5.39 %03/15/203803/15/2013
MidWestOne Statutory Trust II15,464 15,464 Three-month LIBOR + 1.59%3.48 %12/15/203712/15/2012
    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"). The ATB Debentures havehad a stated maturity of May 31, 2023, and bearbore 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 redeemredeemed 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, 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 ATB Debentures and At June 30, 2021, 100% of the subordinated notes constitutequalified as Tier 2 capital under thecapital. Per applicable Federal Reserve rules and regulations, of the Federal Reserve applicable to the capital statusamount of the subordinated debt of bank holding companies. The ATB Debentures and subordinated notes are phased out ofqualifying 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 September 30, 2020, we were permitted to treat 40% of the ATB Debentures as Tier 2 capital.
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subordinated notes.

Other Long-Term Debt
Long-term borrowings were as follows as of SeptemberJune 30, 20202021 and December 31, 2019:2020:
September 30, 2020December 31, 2019June 30, 2021December 31, 2020
(in thousands)(in thousands)Weighted Average RateBalanceWeighted Average RateBalance(in thousands)Weighted Average RateBalanceWeighted Average RateBalance
Finance lease payableFinance lease payable8.89 %$1,130 8.89 %$1,224 Finance lease payable8.89 %$1,026 8.89 %$1,096 
FHLB borrowingsFHLB borrowings1.89 101,222 2.25 145,700 FHLB borrowings2.18 63,151 1.92 91,198 
Notes payable to unaffiliated bank1.91 26,750 3.44 32,250 
TotalTotal1.96 %$129,102 2.51 %$179,174 Total2.29 %$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 SeptemberJune 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 dateAs of June 30, 2020. The Company drew $25.0 million on the note prior to June 30, 2015, at which time the ability to obtain additional advances ceased. The note was paid off on June 30, 2020.2021, FHLB borrowings were as follows:

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 September 30, 2020, $26.8 million of that note was outstanding.
(in thousands)Weighted Average RateAmount
Due in 20210.31 %$15,000 
Due in 20222.68 %31,000 
Due in 20232.79 %11,000 
Due in 20243.15 %6,000 
Total63,000 
Valuation adjustment from acquisition accounting151 
Total$63,151 

11.    Income Taxes
Income tax expense (benefit) based on statutory rate for the three months and nine months ended September 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 September 30,For the Nine Months Ended September 30,
2020201920202019
(in thousands)Amount% of Pretax IncomeAmount% of Pretax IncomeAmount% of Pretax IncomeAmount% of Pretax Income
Income tax based on statutory rate$(3,686)21.0 %$3,267 21.0 %$(1,568)21.0 %$8,111 21.0 %
Tax-exempt interest(801)4.6 (791)(5.1)(2,147)28.7 (1,732)(4.5)
Bank-owned life insurance(111)0.6 (108)(0.7)(353)4.7 (289)(0.7)
State income taxes, net of federal income tax benefit735 (4.2)833 5.4 1,280 (17.1)2,063 5.3 
Goodwill Impairment6,615 (37.7)0 0 6,615 (88.6)0 0 
Non-deductible acquisition expenses0 0 5 0 0 0 167 0.5 
General business credits(551)3.2 41 0.3 (1,322)17.7 13 0 
Other71 (0.4)9 0 115 (1.5)31 0.1 
Total income tax expense$2,272 (12.9)%$3,256 20.9 %$2,620 (35.1)%$8,364 21.7 %

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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 September 30,Nine Months Ended September 30,
(dollars in thousands, except per share amounts)2020201920202019
Basic (Loss) Earnings Per Share:
Net (loss) income$(19,824)$12,300 $(10,087)$30,259 
Weighted average shares outstanding16,099,324 16,200,667 16,111,591 14,434,411 
Basic (loss) earnings per common share$(1.23)$0.76 $(0.63)$2.10 
Diluted (Loss) Earnings Per Share:
Net (loss) income$(19,824)$12,300 $(10,087)$30,259 
Weighted average shares outstanding, including all dilutive potential shares16,099,324 16,214,562 16,111,591 14,444,732 
Diluted (loss) earnings per common share$(1.23)$0.76 $(0.63)$2.09 

The weighted average shares that have an antidilutive effect in the calculation of diluted earnings per common share and have been excluded from the computation above were as follows:

Three Months Ended September 30,Nine Months Ended September 30,
20202020
Dilutive shares (1)
7,132 6,820 
(1) Dilutive potential shares that were excluded from the computation of diluted earnings per common share for the three and nine months ended September 30, 2020 as a result of the reported net loss available to common shareholders.

Three Months Ended June 30,Six Months Ended June 30,
(dollars in thousands, except per share amounts)2021202020212020
Basic Earnings Per Share:
Net income$17,271 $11,712 $38,919 $9,737 
Weighted average shares outstanding15,986,822 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 shares16,011,766 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 SeptemberJune 30, 20202021 and December 31, 2019,2020, is presented below:
ActualFor Capital Adequacy Purposes With Capital Conservation Buffer(1)To Be Well Capitalized Under Prompt Corrective Action ProvisionsActual
For Capital Adequacy Purposes With Capital Conservation Buffer(1)
To Be Well Capitalized Under Prompt Corrective Action Provisions
(dollars in thousands)(dollars in thousands)AmountRatioAmountRatioAmountRatio(dollars in thousands)AmountRatioAmountRatioAmountRatio
At September 30, 2020
At June 30, 2021At June 30, 2021
Consolidated:Consolidated:Consolidated:
Total capital/risk weighted assetsTotal capital/risk weighted assets$562,01513.56%$435,33810.50%N/AN/ATotal capital/risk weighted assets$596,54313.63%$459,54610.50%N/AN/A
Tier 1 capital/risk weighted assetsTier 1 capital/risk weighted assets444,77210.73352,4168.50N/AN/ATier 1 capital/risk weighted assets490,67811.21372,0138.50N/AN/A
Common equity tier 1 capital/risk weighted assetsCommon equity tier 1 capital/risk weighted assets403,0539.72290,2257.00N/AN/ACommon equity tier 1 capital/risk weighted assets448,82610.26306,3647.00N/AN/A
Tier 1 leverage capital/average assetsTier 1 leverage capital/average assets444,7728.52208,8644.00N/AN/ATier 1 leverage capital/average assets490,6788.50230,9214.00N/AN/A
MidWestOne Bank:
MidWestOne Bank:
MidWestOne Bank:
Total capital/risk weighted assetsTotal capital/risk weighted assets$531,54112.95%$431,13010.50%$410,60010.00%Total capital/risk weighted assets$568,22813.02%$458,07910.50%$436,26610.00%
Tier 1 capital/risk weighted assetsTier 1 capital/risk weighted assets482,40611.75349,0108.50328,4808.00Tier 1 capital/risk weighted assets527,36312.09370,8268.50349,0128.00
Common equity tier 1 capital/risk weighted assetsCommon equity tier 1 capital/risk weighted assets482,40611.75287,4207.00266,8906.50Common equity tier 1 capital/risk weighted assets527,36312.09305,3867.00283,5736.50
Tier 1 leverage capital/average assetsTier 1 leverage capital/average assets482,4069.26208,3184.00260,3985.00Tier 1 leverage capital/average assets527,3639.15230,5324.00288,1655.00
At December 31, 2019
At December 31, 2020At December 31, 2020
Consolidated:Consolidated:Consolidated:
Total capital/risk weighted assetsTotal capital/risk weighted assets$463,60111.34%$429,07710.50%N/AN/ATotal capital/risk weighted assets$572,43713.41%$448,06810.50%N/AN/A
Tier 1 capital/risk weighted assetsTier 1 capital/risk weighted assets428,02110.47347,3488.50N/AN/ATier 1 capital/risk weighted assets456,52610.70362,7228.50N/AN/A
Common equity tier 1 capital/risk weighted assetsCommon equity tier 1 capital/risk weighted assets386,4349.46286,0517.00N/AN/ACommon equity tier 1 capital/risk weighted assets414,7639.72298,7127.00N/AN/A
Tier 1 leverage capital/average assetsTier 1 leverage capital/average assets428,0219.48180,5294.00N/AN/ATier 1 leverage capital/average assets456,5268.50214,7954.00N/AN/A
MidWestOne Bank:
MidWestOne Bank:
MidWestOne Bank:
Total capital/risk weighted assetsTotal capital/risk weighted assets$482,10611.83%$427,87710.50%$407,50210.00%Total capital/risk weighted assets$547,55812.89%$446,11310.50%$424,87010.00%
Tier 1 capital/risk weighted assetsTier 1 capital/risk weighted assets453,02711.12346,3778.50326,0028.00Tier 1 capital/risk weighted assets500,98111.79361,1398.50339,8968.00
Common equity tier 1 capital/risk weighted assetsCommon equity tier 1 capital/risk weighted assets453,02711.12285,2517.00264,8766.50Common equity tier 1 capital/risk weighted assets500,98111.79297,4097.00276,1656.50
Tier 1 leverage capital/average assetsTier 1 leverage capital/average assets453,02710.06180,2094.00231,1665.00Tier 1 leverage capital/average assets500,9819.35214,2514.00271,9925.00
(1) Includes a capital conservation buffer of 2.50%.
AsSubordinated Notes - The Company completed a private placement of December$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 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 Bank was requiredCompany redeemed, in whole, $10.8 million of ATB Debentures. The amount of ATB Debentures qualifying as Tier 2 regulatory capital would have been phased-out completely starting in the second quarter of 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 September 30, 2020, and therefore the total amount held in reserve was 0 dollars.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:
September 30, 2020December 31, 2019June 30, 2021December 31, 2020
(in thousands)(in thousands)(in thousands)
Commitments to extend creditCommitments to extend credit$893,147 $859,212 Commitments to extend credit$959,696 $897,274 
Commitments to sell loansCommitments to sell loans13,096 5,400 Commitments to sell loans6,149 59,956 
Standby letters of creditStandby letters of credit25,864 36,192 Standby letters of credit13,424 34,212 
TotalTotal$932,107 $900,804 Total$979,269 $991,442 
The Bank'sBank’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 requirement.cash requirements. The Bank evaluates each customer'scustomer’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'smanagement’s credit evaluation of the party. Collateral held varies, but may include accounts receivable, crops, livestock, inventory, property and equipment, residential real estate and income-producing commercial properties.
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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 SeptemberJune 30, 2020,2021, the liability for off-balance-sheet credit losses totaled $4.5$4.0 million, whereas the total amount of the liability as of December 31, 2020 was $4.1 million. The total amount recorded withinin credit loss (benefit) expense for the six months ended June 30, 2021 was a benefit of $0.1 million, while credit loss expense of $0.8 million was recorded for the ninesix months ended SeptemberJune 30, 2020 was $1.1 million. NaN liability was recorded in the prior year.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 63%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 26%19% and 18%14%, respectively, as of SeptemberJune 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'scompany’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 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 20192020 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 the Company's fair value measurements. Fair value is used on a nonrecurring basis to adjust carrying values for collateral dependent individually analyzed loans and other real estate owned.
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Recurring Basis
AssetsThe 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 September 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 corporationsU.S. Government agencies and corporations$386  $—  $386  $— U.S. Government agencies and corporations$316  $0  $316  $0 
State and political subdivisionsState and political subdivisions510,483  —  510,483  — State and political subdivisions694,874  0  694,874  0 
Mortgage-backed securitiesMortgage-backed securities108,633  —  108,633  — Mortgage-backed securities116,954  0  116,954  0 
Collateralized mortgage obligationsCollateralized mortgage obligations402,893 — 402,893 — Collateralized mortgage obligations808,074 0 808,074 0 
Corporate debt securitiesCorporate debt securities343,949  —  343,949  — Corporate debt securities452,234  0  452,234  0 
Derivative assetsDerivative assets13,560 0 13,560 0 Derivative assets6,607 0 6,607 0 
Mortgage servicing rights Mortgage servicing rights5,997 0 5,997 0 
Liabilities:Liabilities:Liabilities:
Derivative liabilitiesDerivative liabilities$17,503 $0 $17,503 $0 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 corporationsU.S. Government agencies and corporations$441  $0  $441  $0 U.S. Government agencies and corporations$361  $0  $361  $0 
State and political subdivisionsState and political subdivisions257,205  0  257,205  0 State and political subdivisions628,346  0  628,346  0 
Mortgage-backed securitiesMortgage-backed securities43,530  0  43,530  0 Mortgage-backed securities94,018  0  94,018  0 
Collateralized mortgage obligationsCollateralized mortgage obligations292,946 0 292,946 0 Collateralized mortgage obligations565,836 0 565,836 0 
Corporate debt securitiesCorporate debt securities191,855  0  191,855  0 Corporate debt securities368,820  0  368,820  0 
Derivative assetsDerivative assets1,848 0 1,848 0 Derivative assets10,796 0 10,796 0 
Mortgage servicing rightsMortgage servicing rights5,137 0 5,137 0 
Liabilities:Liabilities:Liabilities:
Derivative liabilitiesDerivative liabilities$3,242 $0 $3,242 $0 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 ninethree and six months ended SeptemberJune 30, 20202021 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 presenttable 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)TotalLevel 1Level 2Level 3
Collateral dependent individually analyzed loans$33,918 $0 $0 $33,918 
Foreclosed assets, net755 0 0 755 
 Fair Value Measurement at September 30, 2020 Using
(in thousands)TotalLevel 1Level 2Level 3
Collateral dependent individually analyzed loans$32,324 $— $— $32,324 
Foreclosed assets, net724 — — 724 

Fair Value Measurement at December 31, 2019 Using Fair Value Measurement at December 31, 2020 Using
(in thousands)(in thousands)TotalLevel 1Level 2Level 3(in thousands)TotalLevel 1Level 2Level 3
Collateral dependent impaired loans$6,749 $— $— $6,749 
Collateral dependent individually analyzed loansCollateral dependent individually analyzed loans$34,265 $0 $0 $34,265 
Foreclosed assets, netForeclosed assets, net3,706 — — 3,706 Foreclosed assets, net2,316 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 datedates indicated:
Fair Value atFair Value at
(dollars in thousands)(dollars in thousands)September 30, 2020December 31, 2019Valuation Techniques(s)Unobservable InputRange of InputsWeighted Average(dollars in thousands)June 30, 2021December 31, 2020Valuation Techniques(s)Unobservable InputRange of InputsWeighted Average
Collateral dependent impaired loans$32,324 $6,749 Fair value of collateralValuation adjustments0 %-75 %22 %
Collateral dependent individually analyzed loansCollateral dependent individually analyzed loans$33,918 $34,265 Fair value of collateralValuation adjustments0 %-55 %25 %
Foreclosed assets, netForeclosed assets, net$724 3,706 Fair value of collateralValuation adjustments12 %-55 %31 %Foreclosed assets, net$755 $2,316 Fair value of collateralValuation adjustments8 %-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 SeptemberJune 30, 20202021 and December 31, 20192020 were as follows:
 September 30, 2020
(in thousands)Carrying
Amount		Estimated
Fair Value		Level 1Level 2Level 3
Financial assets:
Cash and cash equivalents$134,862 $134,862 $134,862 $0 $0 
Debt securities available for sale1,366,344 1,366,344 0 1,366,344 0 
Loans held for sale13,096 13,433 0 13,433 0 
Loans held for investment, net3,478,932 3,530,722 0 0 3,530,722 
Interest receivable21,112 21,112 0 21,112 — 
Federal Home Loan Bank stock12,246 12,246 0 12,246 — 
Derivative assets13,560 13,560 0 13,560 0 
Financial liabilities:
Non-interest bearing deposits864,504 864,504 864,504 0 0 
Interest-bearing deposits3,469,137 3,474,719 2,588,358 886,361 0 
Short-term borrowings183,893 183,893 183,893 0 — 
Finance leases payable1,130 1,130 0 1,130 0 
Federal Home Loan Bank borrowings101,222 104,618 0 104,618 0 
Junior subordinated notes issued to capital trusts41,719 33,848 0 33,848 0 
Subordinated debentures74,660 76,651 0 76,651 0 
Other long-term debt26,750 26,750 0 26,750 0 
Derivative liabilities17,503 17,503 0 17,503 0 

 June 30, 2021
(in thousands)Carrying
Amount		Estimated
Fair Value		Level 1Level 2Level 3
Financial assets:
Cash and cash equivalents$63,434 $63,434 $63,434 $0 $0 
Debt securities available for sale2,072,452 2,072,452 0 2,072,452 0 
Loans held for sale6,149 6,303 0 6,303 0 
Loans held for investment, net3,282,156 3,302,688 0 0 3,302,688 
Interest receivable19,758 19,758 0 19,758 — 
FHLB stock12,687 12,687 0 12,687 — 
Derivative assets6,607 6,607 0 6,607 0 
Financial liabilities:
Noninterest bearing deposits952,764 952,764 952,764 0 0 
Interest bearing deposits3,839,902 3,839,869 2,947,824 892,045 0 
Short-term borrowings212,261 212,261 212,261 0 — 
Finance leases payable1,026 1,026 0 1,026 0 
FHLB borrowings63,151 64,653 0 64,653 0 
Junior subordinated notes issued to capital trusts41,852 34,131 0 34,131 0 
Subordinated debentures63,810 67,384 0 67,384 0 
Derivative liabilities7,982 7,982 0 7,982 0 
 December 31, 2020
(in thousands)
Carrying
Amount
Estimated
Fair Value
Level 1Level 2Level 3
Financial assets:
Cash and cash equivalents$82,659 $82,659 $82,659 $0 $0 
Debt securities available for sale1,657,381 1,657,381 0 1,657,381 0 
Loans held for sale59,956 60,039 0 60,039 0 
Loans held for investment, net3,426,723 3,469,515 0 0 3,469,515 
Interest receivable21,706 21,706 0 21,706 0 
FHLB stock13,784 13,784 0 13,784 0 
Derivative assets10,796 10,796 0 10,796 0 
Financial liabilities:
Noninterest bearing deposits910,655 910,655 910,655 0 0 
Interest bearing deposits3,636,394 3,640,365 2,800,046 840,319 
Short-term borrowings230,789 230,789 230,789 0 0 
Finance leases payable1,096 1,096 0 1,096 0 
FHLB borrowings91,198 93,380 0 93,380 
Junior subordinated notes issued to capital trusts41,763 33,986 0 33,986 
Subordinated debentures74,634 77,228 0 77,228 0
Derivative liabilities13,267 13,267 0 13,267 0 

 December 31, 2019
(in thousands)
Carrying
Amount
Estimated
Fair Value
Level 1Level 2Level 3
Financial assets:
Cash and cash equivalents$73,484 $73,484 $73,484 $0 $0 
Debt securities available for sale785,977 785,977 0 785,977 0 
Loans held for sale5,400 5,476 0 5,476 0 
Loans held for investment, net3,422,187 3,427,952 0 0 3,427,952 
Interest receivable18,525 18,525 0 18,525 0 
Federal Home Loan Bank stock15,381 15,381 0 15,381 0 
Derivative assets1,848 1,848 0 1,848 0 
Financial liabilities:
Non-interest bearing deposits662,209 662,209 662,209 0 0 
Interest-bearing deposits3,066,446 3,066,427 2,113,000 953,427 0 
Short-term borrowings139,349 139,349 139,349 0 0 
Finance leases payable1,224 1,224 0 1,224 0 
Federal Home Loan Bank borrowings145,700 146,913 0 146,913 0 
Junior subordinated notes issued to capital trusts41,587 39,391 0 39,391 0 
Subordinated debentures10,899 11,083 0 11,083 0 
Other long-term debt32,250 32,250 0 32,250 0 
Derivative liabilities3,242 3,242 0 3,242 0 
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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 branchesbanking 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 onwith the Company’s consolidated balance sheets. The Company has oneonly holding 1 existing finance lease (previously referred to as a capital lease) for a branchbanking office location with a lease term through 2025.

Supplemental balance sheet information related to leases was as follows:
(in thousands)(in thousands)ClassificationSeptember 30, 2020December 31, 2019(in thousands)ClassificationJune 30, 2021December 31, 2020
Lease Right-of-Use AssetsLease Right-of-Use AssetsLease Right-of-Use Assets
Operating lease right-of-use assetsOperating lease right-of-use assets
Other assets
$3,860 $4,499 Operating lease right-of-use assets
Other assets
$3,232 $3,613 
Finance lease right-of-use assetFinance lease right-of-use assetPremises and equipment, net573 637 Finance lease right-of-use asset
Premises and equipment, net
494 542 
Total right-of-use assetsTotal right-of-use assets$4,433 $5,136 Total right-of-use assets$3,726 $4,155 
Lease LiabilitiesLease LiabilitiesLease Liabilities
Operating lease liabilityOperating lease liability
Other liabilities
$4,830 $5,430 Operating lease liability
Other liabilities
$4,184 $4,583 
Finance lease liabilityFinance lease liabilityLong-term debt1,130 1,225 Finance lease liability
Long-term debt
1,026 1,096 
Total lease liabilitiesTotal lease liabilities$5,960 $6,655 Total lease liabilities$5,210 $5,679 
Weighted-average remaining lease termWeighted-average remaining lease termWeighted-average remaining lease term
Operating leasesOperating leases8.78 years8.90 yearsOperating leases9.03 years8.82 years
Finance leaseFinance lease5.92 years6.67 yearsFinance lease5.17 years5.67 years
Weighted-average discount rateWeighted-average discount rateWeighted-average discount rate
Operating leasesOperating leases3.87 %3.78 %Operating leases4.01 %3.92 %
Finance leaseFinance lease8.89 %8.89 %Finance lease8.89 %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 EndedSix Months Ended
June 30,June 30,
(in thousands)2021 202020212020
Lease Costs
Operating lease cost$294 $409 $593 $728 
Variable lease cost20 109 93 147 
Interest on lease liabilities(1)
23 26 46 52 
Amortization of right-of-use assets24 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 lease23 26 46 52 
Finance cash flows from finance lease35 31 70 62 
     Supplemental non-cash information on lease liabilities:
           Right-of-use assets obtained in exchange for new operating lease liabilities119 94 119 94 
Three Months EndedNine Months Ended
September 30,September 30,
(in thousands)2020 201920202019
Lease Costs
Operating lease cost$209 $303 $937 $755 
Variable lease cost42 52 189 118 
Short-term lease cost0 0 0 0 
Interest on lease liabilities (1)
25 28 78 85 
Amortization of right-of-use assets24 24 72 72 
Net lease cost$300 $407 $1,276 $1,030 
Other Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$443 $524 $1,598 $1,354 
Operating cash flows from finance lease25 41 78 124 
Finance cash flows from finance lease32 28 94 83 
Right-of-use assets obtained in exchange for new operating lease liabilities39 49 132 5,319 
Right-of-use assets obtained in exchange for new finance lease liabilities0 0 0 0 
(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 SeptemberJune 30, 20202021 were as follows:
(in thousands)(in thousands)Finance LeasesOperating Leases(in thousands)Finance LeasesOperating Leases
Twelve Months Ended:Twelve Months Ended:Twelve Months Ended:
December 31, 2020$58 $287 
December 31, 2021December 31, 2021235 1,112 December 31, 2021$118 $528 
December 31, 2022December 31, 2022240 993 December 31, 2022240 1,008 
December 31, 2023December 31, 2023245 932 December 31, 2023245 947 
December 31, 2024December 31, 2024250 702 December 31, 2024250 717 
December 31, 2025December 31, 2025255 247 
ThereafterThereafter426 2,139 Thereafter171 1,973 
Total undiscounted lease paymentTotal undiscounted lease payment$1,454 $6,165 Total undiscounted lease payment$1,279 $5,420 
Amounts representing interestAmounts representing interest(324)(1,335)Amounts representing interest(253)(1,236)
Lease liabilityLease liability$1,130 $4,830 Lease liability$1,026 $4,184 

17.15.    Subsequent Events
On October 20, 2020, the board of directors of the Company authorized resuming repurchases under the Company's share repurchase program. The Company previously announced the temporary suspension of its share repurchase program in light of market conditions associated with the COVID-19 pandemic.
On October 28, 2020, the board of directors of the Company declared a cash dividend of $0.22 per share payable on December 15, 2020 to shareholders of record as of the close of business on December 1, 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.
The Company has evaluated events that have occurred subsequent to SeptemberJune 30, 20202021 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 CARES Act, the CAA and 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 causecausing an increase in ourthe 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 allowanceallowances 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;
•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 governmentgovernmental 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 onare 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 ninethree and six months ended SeptemberJune 30, 20202021 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 ninethree and six months ended SeptemberJune 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.
COVID-19 Response in our Markets: 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 continues 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.
•Iowa: On October 16, 2020, Each of our market areas have also had varying responses to the Governor issued an order that is effective unless otherwise modified until November 15, 2020 that includes social distancing requirements, in additionCOVID-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.
•Minnesota: On October 12, 2020, the Governor extended the protocols enacted in prior orders, which included social distancing protocols, limitations of social gatherings, requirement for face coverings in certain settings, in addition to other similar requirements, and is effective through November 12, 2020.
•Wisconsin: On October 6, 2020 the Governor issued a proclamation that limited the size of public gatherings, which is in effect until November 6, 2020. In addition, an order from September 22, 2020 contained provisions for the requirement of face coverings when outside the home, with other social distancing protocols still in effect.
•Florida: On September 25, 2020, the Governor of Florida issued an executive order that contains certain provisions as part of Phase 3availability of the plan to re-open, which included the removal of certain restrictions that were previously imposed on residents' ability to work and operate a business and restaurant capacity, among other provisions. Any prior social distancing protocols or requirements as part of Phase 2 remain in effect, unless otherwise modified.
•Colorado: On October 21, 2020, the Governor issued various orders that both amended and extended prior orders that were issued that contained social distancing protocols for the state. In addition, prior orders from the month of October 2020 also imposed additional restrictions such as the requirement to wear face coverings in certain settings, among
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other social distancing requirements that are similar to those of other states. On October 27, 2020, the Mayor of Denver placed additional capacity restrictions on locations such as, but not limited to, restaurants, churches, and retail centers as part of the shift from the Safer at Home: Level 2 to the more restrictive Safer at Home: Level 3. In addition, this recent mandate also contained limitations for schools, gathering at indoor and outdoor events, among other social distancing protocols.
COVID-19 vaccine. The Bank's branchesbanking offices have remained open during these orders because the Bank is deemed to be an essential business. Based on the current environment,While it appears that economic conditions are trending in a positive direction as of June 30, 2021, it is unclear how the states in our market areas will continue to change or relax their stay at home and social distancing policies in response to the futureCOVID-19 pandemic and the impact of these policies on our customers located in and the economies of these states.regional economies.
COVID-19 Impact - National: The U.S. has experienced a substantial decline nationally in economic condition although it experienced an annualized 33.1% GDP rebound in the third quarter of 2020, recovering a portion of the ground that the GDP lost earlier in 2020. In addition, theThe national unemployment rate has fluctuated since the outbreak of the COVID-19 pandemic and has declined from 6.7% in SeptemberDecember 2020 to 5.9% in June 2021, but remains elevated when compared to the pre-pandemic levels in February 2020 of 7.9% has declined 3.2% from June 2020; however this rate remains substantially higher than the national unemployment rate of 3.5% in September 2019 per the U.S. Department of Labor.
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, includingpandemic. 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 a current range of 0.0 – 0.25%.
•On March 27, 2020, President Trump11, 2021 signed into law the CARES Act, which established a $2.0 trillion economic stimulus package, including cash payments to individuals, supplemental unemployment insurance benefits and a $349 billion PPP loan program administered through the SBA. The Bank was a participating lender in the PPP. The provisions of the PPP were modified on June 5, 2020 by the Paycheck Protection Program FlexibilityAmerican Rescue Plan Act of 2020. In addition,2021, a new $1.9 trillion COVID-19 relief bill. The bill includes a variety of economic assistance programs for Americans, such as the CARES Act provides financial institutions the option to temporarily suspend certain requirements under GAAP related to TDRspayment of an additional stimulus check, extension of job benefits, additional funding for a limited period of time to account for the effects of COVID-19. See Note 4. Loans Receivablecoronavirus testing and the Allowance for Credit Losses for additional information on TDRs. The PPP closed on August 8, 2020, and the SBA is no longer accepting PPP applications from participating lenders.
•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 is authorized up to $600 billion.
•On August 3, 2020, the FFIEC issued a joint statement on Additional Loan Accommodations Related to COVID-19, which, among other things, encouraged financial institutions to consider prudent additional loan accommodation options when borrowers are unable to meet their obligations due to continuing financial challenges. Accommodation options should be based on prudent risk management and consumer protection principles.
•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 investmentvaccine
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funds; issuing guidance to encourage banks to work with customers affected by the pandemicdistribution, an infusion of cash in state and encourage loan workouts;local governments, an array of tax benefits, and providing credit under the CRA for certain pandemic-related loans, investmentsexpansion and public service. Moreover, becausemodification of the need for social distancing measures, the agencies revamped the manner in which they conducted periodic examinations of their regulated institutions, including making greater use of off-site reviews. The 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 inPPP, among other economic incentives.
•President Biden on March 30, 2021 signed into law the 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 Federal Reserve’sSBA to process pending PPP Liquidity Facility and Money Market Mutual Fund Liquidity Facility.
Effects on Our Business.
The COVID-19 pandemic and the specific developments referred to above have had and will continue to 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, which represents approximately 14% of our loan portfolio, 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.applications.
Our Response.
The Company maintains a Business Continuity Plan, which was enacted upon the World Health Organization declaration of COVID-19 to be a global pandemic. Shortly after enacting the plan, the Company deployed a successful remote working strategy. As of September 30, 2020, the majority of our employees have returned to work in our branch offices with no disruption to our operations. Our response to COVID-19 continues to be focused on how we can best serve our employees, customers, and communities. The Bank has utilized a combination of digital banking, voice, branch drive-thru and other channels in order to meet the needs of our customers. In addition, we haveWe 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 and requirements to wear protective face coverings, among other social distancing requirements for both customers and employees.locations. We have also increased our cleaning servicescontinued 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 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 2,682 for existing and new customers in the aggregate loan amount of $348.6 million, and the CARES Act SBA payment forgiveness program. We have committed an additional $150,000 to our annual charitable giving. In addition, we've 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.
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 beor paid on deposits. These actions reduced dueboth short-term and long-term interest rates and added significantly to COVID-19the country’s money supply. Thus, the interest rates at which we originated new loans and due to reductionsrepriced 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 withnumber of COVID-19 affected borrowers to defer theirwho 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. Aa 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'sWith respect to interest expense, could be impacted by COVID-19 duethe reduction in short-term interest rates led to changesa corresponding reduction in the rates we pay for customer deposit accounts and short-term borrowings. Finally, the Company’s funding mix. Anmix 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. PertainingIn 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 SeptemberJune 30, 20202021 financial condition and results of operations, COVID-19,our ACL declined compared to December 31, 2020 due to overall improvements in forecasted economic conditions and an improved outlook on the credit risk profile. However, as well as other factors, such as changes in our modeling assumptions, had an impact on our ACL. While we have not yet experienced any charge-offs related to COVID-19, our ACL calculation and credit loss expense are significantly impacted by changes in forecasted economic conditions. Significantconditions, significant worsening of forecasted conditions is possible and would result in further increases in the ACL and credit loss expense in future periods.
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Noninterest Income. The Company’sCompany's fee income could be reduced due tohas been impacted by COVID-19. For example, in keeping with guidance from regulators, during the second and third quarters of 2020, the Company has continued to workworked with COVID-19 affected customers and hastemporarily 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 in fees are expected, at this time, to be temporary in conjunction with the length of the expected COVID-19 related economic crisis as we are working to help our customers during this time.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 an impact,actions on the Company's noninterest income, but recognizes the breadth of the long-term economic impact from COVID-19 is likely tocan impact its fee income in future periods.
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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 will impact noninterest expense by impactinghas impacted the timing of compensation and benefit expense as PPP loan origination costs are deferred and amortized over the life of the loan to which they relate. In addition, we also anticipate the PPP will also leadled 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,” allowsand guidance from the FRB and the FDIC allow financial institutions the option to temporarily suspend certain requirements under GAAP related to TDRs for a limited period of time during the COVID-19 pandemic. In March 2020, various regulatory agencies, including the FRBpandemic 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 SeptemberJune 30, 2020,2021, the total amountoutstanding balance of loans modified as a result of the eligible loans in deferral (deferral of principal and/or interest) that met the requirements set forth under the interagency statement and therefore were not considered TDRsCOVID-19 pandemic was 113 loans, totaling $115.3$21.0 million, as compared to 832 loans totaling $462.2$44.1 million as of June 30,December 31, 2020. We anticipateThe Company is unable to project the overall impact that the currentsuch loan modifications and future economic conditionsloan modifications will continue to have an impact on the initial modifications that were made that qualified under such criteria. As such, we expect the Company'sour 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.statements.
The Bank was a participating lender in the PPP. The PPP loans have a two-year or five-year term and earn interest at 1%. Loans funded through the PPP program 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 September 30, 2020, the Company had $331.7 million in outstanding PPP loans, with $8.1 million of unamortized net loan origination fees. In addition, as of September 30, 2020, certain of the Company's PPP loan customers had initiated the loan forgiveness process, but no PPP loans submitted to the SBA by the Company had yet been forgiven. 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 consideredbelieve to be "vulnerable"uniquely vulnerable to significant impactcredit deterioration stemming from the COVID-19 pandemic as of SeptemberJune 30, 2020.2021.
Balance% of Gross Loans Held for InvestmentBalance% of Total Loans
(dollars in thousands)(dollars in thousands)(dollars in thousands)
Non-essential retailNon-essential retail$101,229 2.86 %Non-essential retail$78,414 2.4 %
Restaurant52,720 1.49 %
Hotel121,078 3.42 %
RestaurantsRestaurants51,319 1.5 
HotelsHotels108,209 3.2 
CRE - RetailCRE - Retail199,958 5.65 %CRE - Retail202,582 6.1 
Arts, entertainment, and gamingArts, entertainment, and gaming25,915 0.73 %Arts, entertainment, and gaming23,032 0.7 
$500,900 14.15 %$463,556 13.9 %
Goodwill and Other Intangible Assets. 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 for goodwill impairment. The Company completed an interim goodwill assessment as of September 30, 2020 that contemplated a single reporting unit. Based upon our interim assessment, we recorded a goodwill impairment charge of $31.5 million, as our estimated fair value was less than our book value on that date. This non-cash charge
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was reflected within "Noninterest expense" in the Consolidated Statements of Income and had no impact on our regulatory capital ratios, cash flows or liquidity position.
Capital and liquidity.liquidity
As of SeptemberJune 30, 2020,2021, all of our capital ratios, and 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, the Company completed the private placement of $65.0 million of its subordinated notes, 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. 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 bankthe Bank to service our debt. If our capital deteriorates such that our 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 causes large numbers of our deposit customers to withdraw their funds, we might become more reliant on volatile or more expensive sources of funding.
In March 2020,As stated above, liquidity was also impacted by the Company temporarily suspended its share repurchase program in light of market conditions associated with the COVID-19 pandemic. Subsequent to September 30, 2020, the Company's board of directors authorized resuming repurchases under the Company's share repurchase program.
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 deploymentactions of the remote working strategy. No material operationalfederal, 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 identifiedpaid on deposits, included tactics such as the reduction in the reserve requirement ratio to date as a result ofzero, reduction in the contingencies we have hadtarget 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 Plan.country’s money supply.
Critical Accounting Estimates
Management has identified the accounting policies related to the ACL, accounting forfair 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 SeptemberJune 30, 20202021 and SeptemberJune 30, 20192020
Summary
ForOverall: Our consolidated net income for the three months ended SeptemberJune 30, 2020, we incurred a net loss2021 was $17.3 million, an increase of $19.8 million, which was a decrease of $32.1$5.6 million, from net income of $12.3$11.7 million for the three months ended SeptemberJune 30, 2019.2020. The decreaseincrease in net income was due primarily to a decline in credit loss expense of $6.8 million, or 145.8%, coupled with an increase of $28.5$1.9 million, or 90.6%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 $5.4$2.4 million increase in income tax expense, and a $0.2 million, or 12.6%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 increased primarily due to increases in additionloan 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 increase in noninterest expense was primarily due to an increase of $1.7 million in credit loss expensescompensation and employee benefits expense, and partially offset by a decline of $0.7$0.4 million or 17.1%. Noninterest expense increased primarily as a result of the $31.5 million goodwill impairment that was recorded in the thirdamortization 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 2020. Offsetting these amounts was an increase2021, as compared to the second quarter of $1.6 million, or 19.6%,2020, coupled with increased incentive and commission expense, normal annual increases in noninterest income between the two comparable periods and a decrease in income tax expense of $1.0 million. compensation, as well as increased share-based compensation expense.
Financial Performance: Both basic and diluted lossearnings per common share for the three months ended SeptemberJune 30, 20202021 were $1.23$1.08 as compared with both basic and diluted earnings per common share of $0.76$0.73 for the three months ended SeptemberJune 30, 2019. Excluding the goodwill impairment, core earnings for the three months ended September 30, 2020 were lower at $11.7 million, or $0.73 per diluted common share (a non-GAAP financial measure - see "Non-GAAP Financial Measures" for a reconciliation to the most comparable GAAP equivalent) compared to net income of $12.3 million for the three months ended September 30, 2019.2020. Our annualized return on average shareholders' equity was (14.88)%13.24% for the three months ended SeptemberJune 30, 20202021 compared with 9.92%9.21% for the three months ended SeptemberJune 30, 2019. Our annualized return on average tangible equity was 12.56%2020.
Selected financial performance and capital ratios for the three months ended September 30, 2020 compared with 15.57% forCompany are presented in the three months ended September 30, 2019 (a non-GAAP financial measure - see "Non-GAAP Financial Measures" for a reconciliation to the most comparable GAAP equivalent).

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The following table presents selected financial results and measuresbelow as of andor for the quarters ended SeptemberJune 30, 20202021 and 2019.2020.
As of and for the Three Months Ended September 30,
(dollars in thousands, except per share amounts)2020 2019
Net (Loss) Income$(19,824) $12,300 
Average Assets5,311,386  4,620,531 
Average Shareholders’ Equity529,857  491,750 
Return on Average Assets(1.48)% 1.06 %
Return on Average Equity(14.88) 9.92 
Return on Average Tangible Equity(1)
12.56  15.57 
Efficiency Ratio(1)
55.37 50.46 
Equity to Assets Ratio (end of period)9.36  10.71 
Tangible Common Equity Ratio (end of period)(1)
7.82  8.21 
Book Value per Share$31.00 $30.77 
Tangible Book Value per Share(1)
25.45 22.93 
(1) A non-GAAP financial measure. See "Non-GAAP Financial Measures" for a reconciliation to the most comparable GAAP equivalents.

As of or for the Three Months Ended June 30,
(dollars in thousands, except per share amounts)2021 2020
Net Income$17,271  $11,712 
Return on Average Assets1.18 % 0.92 %
Return on Average Equity13.24  9.21 
Return on Average Tangible Equity(1)
16.75  13.50 
Efficiency Ratio(1)
54.83 54.80 
Dividend Payout Ratio20.83 30.14 
Common Equity Ratio9.22  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.
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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 September 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)
$3,576,642 $38,727  4.31 % $3,526,149 $49,712  5.59 %
Taxable investment securities864,864 4,574  2.10  471,180 3,376  2.84 
Tax-exempt investment securities (2)(4)
405,517 2,968  2.91  200,533 1,765  3.49 
Total securities held for investment (2)
1,270,381 7,542  2.36  671,713 5,141  3.04 
Other88,152 29  0.13  17,609 130  2.93 
Total interest earning assets (2)
$4,935,175 $46,298  3.73 % $4,215,471 $54,983  5.17 %
Other assets376,211   405,060  
Total assets$5,311,386   $4,620,531  
     
LIABILITIES AND SHAREHOLDERS' EQUITY   
Interest checking deposits$1,174,033 $1,049 0.36 %$877,470 $1,398 0.63 %
Money market deposits847,059 622 0.29 809,264 1,904 0.93 
Savings deposits473,000 351  0.30  392,298 463  0.47 
Time deposits931,655 3,274  1.40  939,480 4,473  1.89 
Total interest bearing deposits3,425,747 5,296  0.62  3,018,512 8,238  1.08 
Short-term borrowings165,840 175  0.42  139,458 522  1.49 
Long-term debt231,406 1,874  3.22  249,226 2,058  3.28 
Total borrowed funds397,246 2,049 2.05 388,684 2,580 2.63 
Total interest bearing liabilities$3,822,993 $7,345  0.76 % $3,407,196 $10,818  1.26 %
         
Noninterest bearing deposits891,425   674,003  
Other liabilities67,111   47,582  
Shareholders’ equity529,857 491,750 
Total liabilities and shareholders’ equity$5,311,386   $4,620,531  
Net interest income (2)
 $38,953    $44,165  
Net interest spread(2)
2.97 %3.91 %
Net interest margin(2)
3.14 %4.15 %
Total deposits(5)
$4,317,172 $5,296 0.49 %$3,692,515 $8,238 0.89 %
Cost of funds(6)
0.62 %1.05 %

 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 securities1,604,463 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 
Other48,208 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 assets329,309   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 deposits942,072 502 0.21 829,826 885 0.43 
Savings deposits595,150 324  0.22  439,592 365  0.33 
Time deposits896,169 1,488  0.67  990,797 4,046  1.64 
Total interest bearing deposits3,903,244 3,409  0.35  3,351,780 6,409  0.77 
Short-term borrowings218,491 161  0.30  159,157 263  0.66 
Long-term debt189,644 1,712  3.62  201,240 1,374  2.75 
Total borrowed funds408,135 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 deposits972,080   813,794  
Other liabilities45,035   61,637  
Shareholders’ equity523,242 511,239 
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 $1.1$2.3 million and $(353)$748 thousand for the three months ended SeptemberJune 30, 20202021 and SeptemberJune 30, 2019,2020, respectively. Loan purchase discount accretion was $1.9 million$873 thousand and $7.2$2.6 million for the three months ended SeptemberJune 30, 20202021 and SeptemberJune 30, 2019,2020, respectively. Tax equivalent adjustments were $536$519 thousand and $543$507 thousand for the three months ended SeptemberJune 30, 20202021 and SeptemberJune 30, 2019,2020, respectively. The federal statutory tax rate utilized was 21%.
(4)Interest income includes tax equivalent adjustments of $608$647 thousand and $364$482 thousand for the three months ended SeptemberJune 30, 20202021 and SeptemberJune 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.
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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 September 30,
 2020 Compared to 2019 Change due to
 Volume Yield/Cost Net
(in thousands)  
Increase (decrease) in interest income:  
Loans, including fees (1)
$688  $(11,673) $(10,985)
Taxable investment securities2,249  (1,051) 1,198 
Tax-exempt investment securities (1)
1,537  (334) 1,203 
Total securities held for investment (1)
3,786  (1,385) 2,401 
Other119  (220) (101)
Change in interest income (1)
4,593  (13,278) (8,685)
Increase (decrease) in interest expense:  
Interest checking deposits372 (721)(349)
Money market deposits84 (1,366)(1,282)
Savings deposits81  (193) (112)
Time deposits(37) (1,162) (1,199)
Total interest-bearing deposits500  (3,442) (2,942)
Short-term borrowings84  (431) (347)
Long-term debt(146) (38) (184)
Total borrowed funds(62) (469) (531)
Change in interest expense438  (3,911) (3,473)
Change in net interest income$4,155  $(9,367) $(5,212)
Percentage (decrease) increase in net interest income over prior period  (11.8)%
(1) Tax equivalent, using a federal statutory tax rate of 21%.
Net interest income of $37.8 million for the third quarter of 2020, was down $5.4 million, or 12.6%, from $43.3 million for the third quarter of 2019, due primarily to net interest margin compression, which was only slightly offset by larger volumes of interest earning assets. The primary drivers of the decrease in net interest income was a decrease in interest income of $8.9 million, or 16.5%, offset in part by a decline in interest expense of $3.5 million, or 32.1%. The decline in interest income was primarily a result of a decline of $11.0 million in interest income from loans. Partially offsetting this decline was an increase in the interest income earned from investment securities, which was $6.9 million for the third quarter of 2020, up $2.2 million from the third quarter of 2019 due to an increased volume of securities, which was a result of the Company's investment of net deposit inflows. The contributing factors for the decrease in interest expense was a decrease of $2.9 million in interest expense on interest-bearing deposits due to lower costs incurred on such deposits that more than offset the increase in the volume of deposits from PPP loan proceeds that were generally deposited into customer accounts at the Bank, coupled with a decrease in the interest expense on borrowed funds of $0.5 million. Loan purchase discount accretion added $1.9 million to net interest income in the third quarter of 2020 as compared to $7.2 million in the third quarter of 2019. Net fee accretion for PPP loans for the third quarter of 2020 was $1.3 million, compared to none in the third quarter of 2019.
The tax equivalent net interest margin for the third quarter of 2020 was 3.14%, or 101 basis points lower than the tax equivalent net interest margin of 4.15% for the third quarter of 2019. The yield on loans decreased 128 basis points, approximately 18 basis points of which was attributable to PPP loans, which have a coupon rate of 1%. The tax equivalent yield on investment securities decreased by 68 basis points. Combined, the resulting yield on interest-earning assets for the third quarter of 2020 was 144 basis points lower than the third quarter of 2019. The cost of interest-bearing deposits decreased 46 basis points, while the average cost of borrowings was lower by 58 basis points for the third quarter of 2020, compared to the third quarter of 2019. The FRB decreased the target federal funds interest rate by 25 basis points in each of August, September and October 2019, and an additional 150 basis points in March 2020 in response to the COVID-19 pandemic which contributed to the decreasing interest rates in the third quarter 2020 as compared to the third quarter 2019. These decreases impact the comparability of net interest income and net interest margin between 2019 and 2020.

Credit Loss Expense
During the third quarter of 2020, we recorded credit loss expense of $5.0 million, an increase of $0.7 million, or 17.1%, from $4.3 million for the third quarter of 2019. The increased credit loss expense in the third quarter of 2020 was attributable to
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changes in the economic forecast and changes to modeling assumptions. In addition, upon the Company's adoption of the CECL accounting guidance on January 1, 2020, the methodology for estimating the total amount of the credit loss expense changed. Specifically, for the third quarter of 2020, we utilized the current expected credit loss methodology, as compared to incurred loss methodology that was utilized in the prior year comparable period. The total amount of net loans charged off in the third quarter of 2020 was higher at $1.8 million, as compared to $1.4 million in the third quarter of 2019.
Noninterest Income
The following table presents the significant components of noninterest income and the related dollar and percentage change from period to period:
 Three Months Ended September 30,
 2020 2019$ Change% Change
(dollars in thousands)  
Investment services and trust activities$2,361  $2,339 $22 0.9 %
Service charges and fees1,491  2,068 (577)(27.9)
Card revenue1,600  1,655 (55)(3.3)
Loan revenue3,252 991 2,261 228.2 
Bank-owned life insurance530  514 16 3.1 
Investment securities gains, net106  23 83 360.9 
Other230 414 (184)(44.4)
Total noninterest income$9,570  $8,004 $1,566 19.6 %
Total noninterest income for the third quarter of 2020 increased $1.6 million, or 19.6%, to $9.6 million from $8.0 million in the third quarter of 2019. The most notable increase in noninterest income was an increase of $2.3 million in loan revenue, which was driven by increased volume in origination of home mortgage loans as a result of the low interest rate environment. Slightly offsetting the increase in loan revenue was a decrease of $0.5 million in overdraft fees, included in service charges and fees, in the third quarter of 2020 as compared to the same period in 2019, which reflected lower customer overdraft activity coupled with increased waivers of such fees.
Noninterest Expense
The following table presents the significant components of noninterest expense and the related dollar and percentage change from period to period:
 Three Months Ended September 30,
 20202019$ Change% Change
(dollars in thousands) 
Compensation and employee benefits$16,460 $17,426 $(966)(5.5)%
Occupancy expense of premises, net2,278 2,294 (16)(0.7)
Equipment1,935 2,181 (246)(11.3)
Legal and professional1,184 1,996 (812)(40.7)
Data processing1,308 1,234 74 6.0 
Marketing857 1,167 (310)(26.6)
Amortization of intangibles1,631 2,583 (952)(36.9)
FDIC insurance470 (42)512 (1,219.0)
Communications428 489 (61)(12.5)
Foreclosed assets, net13 265 (252)(95.1)
Other1,875 1,849 26 1.4 
Total core noninterest expense$28,439 $31,442 $(3,003)(9.6)%
Goodwill impairment31,500 — 31,500 100.0 
Total noninterest expense$59,939 $31,442 $28,497 90.6 %

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The following table shows the impact of merger-related expenses to the various components of noninterest expense for the periods indicated:
Three Months Ended September 30,
Merger-related expenses:20202019
(dollars in thousands)
Compensation and employee benefits$— $1,584 
Legal and professional— 163 
Data processing— 567 
Other— 233 
Total impact of merger-related expenses to noninterest expense$— $2,547 
Noninterest expense for the third quarter of 2020 was $59.9 million, an increase of $28.5 million, or 90.6%, from $31.4 million for the third quarter of 2019. The increase in noninterest expense was primarily due to a $31.5 million goodwill impairment charge. Excluding the goodwill impairment charge, core noninterest expense decreased $3.0 million, or 9.6%, primarily as a result of the decline in merger-related expenses that were incurred in the third quarter of 2019 from the acquisition of ATBancorp that was completed on May 1, 2019.
Income Tax Expense
Our effective income tax rate, or income taxes divided by income before taxes, was (12.9)% for the third quarter of 2020, as compared to the effective tax rate of 20.9% for the third quarter of 2019. Excluding non-deductible goodwill impairment, the effective income tax rate in the third quarter of 2020 was 16.3%, reflecting benefits related to general business and renewable energy tax credits and tax exempt interest. Excluding the non-deductible goodwill impairment, the effective tax rate for the full year of 2020 is currently expected to be in the range of 14-16%. See Note 11. Income Taxes for additional information.


Comparison of Operating Results for the Nine Months Ended September 30, 2020 and September 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 nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, unless otherwise noted.
For the nine months ended September 30, 2020, we incurred a net loss of $10.1 million, which was a decrease of $40.3 million from net income of $30.3 million for the nine months ended September 30, 2019. The decrease in net income was due primarily to an increase of $36.9 million, or 45.5% in noninterest expense, coupled with an increase of $24.8 million in credit loss expense. Noninterest expense increased primarily as a result of the $31.5 million goodwill impairment that was recorded in the third quarter of 2020. The increase in credit loss expense reflects the Company's adoption of CECL on January 1, 2020, combined with the impact that the COVID-19 pandemic has had on current and forecasted economic conditions for the U.S. and our regional economies, as well as changes in our modeling assumptions. Offsetting these amounts was a $9.9 million, or 9.5%, increase in net interest income, a $5.8 million, or 26.0%, increase in noninterest income, in addition to a decrease in income tax expense of $5.7 million between the two comparable periods. Both basic and diluted loss per common share for the nine months ended September 30, 2020 were $0.63 as compared with basic and diluted earnings per common share of $2.10 and $2.09 respectively for the nine months ended September 30, 2019. Excluding the goodwill impairment, core earnings for the nine months ended September 30, 2020 were lower at $21.4 million, or $1.33 per diluted common share (a non-GAAP financial measure - see "Non-GAAP Financial Measures" for a reconciliation to the most comparable GAAP equivalent), compared to $30.3 million for the nine months ended September 30, 2019. Our annualized return on average shareholders' equity was (2.60)% for the nine months ended September 30, 2020 compared with 9.37% for the nine months ended September 30, 2019. Our annualized return on average tangible equity was 8.58% for the nine months ended September 30, 2020 compared with 13.48% for the nine months ended September 30, 2019 (a non-GAAP financial measure - see "Non-GAAP Financial Measures" for a reconciliation to the most comparable GAAP equivalent).
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The following table presents selected financial results and measures as of and for the nine months ended September 30, 2020 and 2019.
 As of and for the Nine Months Ended September 30,
(dollars in thousands, except per share amounts)2020 2019
Net (Loss) Income$(10,087) $30,259 
Average Assets5,027,692  4,054,731 
Average Shareholders’ Equity518,796  431,907 
Return on Average Assets(0.27)% 1.00 %
Return on Average Equity(2.60) 9.37 
Return on Average Tangible Equity(1)
8.58  13.48 
Efficiency Ratio (1)
55.95 55.45 
Equity to Assets Ratio (end of period)9.36  10.71 
Tangible Common Equity Ratio (end of period)(1)
7.82  8.21 
Book Value per Share$31.00 $30.77 
Tangible Book Value per Share(1)
25.45 22.93 
(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.
 Nine Months Ended September 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)
$3,548,968 $121,957  4.59 % $3,043,772 $119,519  5.25 %
Taxable investment securities721,266 12,937  2.40  448,407 9,592  2.86 
Tax-exempt investment securities (2)(4)
305,514 7,215  3.15  201,908 5,331  3.53 
Total securities held for investment (2)
1,026,780 20,152  2.62  650,315 14,923  3.07 
Other70,983 233  0.44  18,951 335  2.36 
Total interest-earning assets (2)
$4,646,731 $142,342  4.09 % $3,713,038 $134,777  4.85 %
Other assets380,961   341,693  
Total assets$5,027,692   $4,054,731  
     
LIABILITIES AND SHAREHOLDERS' EQUITY   
Interest checking deposits$1,052,816 $3,477 0.44 %$766,343 $3,329 0.58 %
Money market deposits814,669 3,152 0.52 760,115 5,729 1.01 
Savings deposits435,612 1,107  0.34  309,270 703  0.30 
Time deposits973,044 11,918  1.64  847,077 11,915  1.88 
Total interest-bearing deposits3,276,141 19,654  0.80  2,682,805 21,676  1.08 
Short-term borrowings149,041 772  0.69  124,433 1,479  1.59 
Long-term debt219,455 4,964  3.02  219,553 5,194  3.16 
Total borrowed funds368,496 5,736 2.08 343,986 6,673 2.59 
Total interest-bearing liabilities$3,644,637 $25,390  0.93 % $3,026,791 $28,349  1.25 %
Noninterest bearing deposits805,641 557,708 
Other liabilities58,618 38,325 
Shareholders' equity518,796 431,907 
Total liabilities and shareholders' equity$5,027,692     $4,054,731    
Net interest income (2)
$116,952 $106,428 
Net interest spread(2)
 3.16 %  3.60 %
Net interest margin (2)
 3.36 %  3.83 %
Total deposits(5)
$4,081,782 $19,654 0.64 %$3,240,513 $21,676 0.89 %
Cost of funds(6)
0.76 %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 $1.8 million and $(670) thousand for the nine months ended September 30, 2020 and September 30, 2019, respectively. Loan purchase discount accretion was $7.6 million and $10.0 million for the nine months ended September 30, 2020 and September 30, 2019, respectively. Tax equivalent adjustments were $1.5 million and $1.3 million for the nine months ended September 30, 2020 and September 30, 2019, respectively. The federal statutory tax rate utilized was 21%.
(4)Interest income includes tax equivalent adjustments of $1.5 million and $1.1 million for the nine months ended September 30, 2020 and September 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.

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The following table presents the dollar amount ofshows changes to tax equivalent net interest income attributable to (i) changes in interest incomevolume and interest expense for major components of interest-earning assets and interest-bearing liabilities.(ii) changes in rate. Changes attributable to the combined effect ofboth rate and volume and interest rates have been allocated proportionately to the changeschange due to volume and the changeschange due to interest rates.rate.
Nine Months Ended September 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)
$18,502  $(16,064) $2,438 
Loans, including fees (1)
$(2,497) $(2,969) $(5,466)
Taxable investment securitiesTaxable investment securities5,088  (1,743) 3,345 Taxable investment securities4,006  (2,169) 1,837 
Tax-exempt investment securities(1)
Tax-exempt investment securities(1)
2,507  (623) 1,884 
Tax-exempt investment securities (1)
1,326  (470) 856 
Total securities held for investment(1)
Total securities held for investment(1)
7,595  (2,366) 5,229 
Total securities held for investment (1)
5,332  (2,639) 2,693 
OtherOther341  (443) (102)Other(10) (11) (21)
Change in interest income (1)
Change in interest income (1)
26,438  (18,873) 7,565 
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 depositsInterest checking deposits1,066 (918)148 Interest checking deposits327 (345)(18)
Money market depositsMoney market deposits386 (2,963)(2,577)Money market deposits110 (493)(383)
Savings depositsSavings deposits304  100  404 Savings deposits103  (144) (41)
Time depositsTime deposits1,640  (1,637) 3 Time deposits(356) (2,202) (2,558)
Total interest-bearing depositsTotal interest-bearing deposits3,396  (5,418) (2,022)Total interest-bearing deposits184  (3,184) (3,000)
Short-term borrowingsShort-term borrowings251  (958) (707)Short-term borrowings75  (177) (102)
Long-term debtLong-term debt(2) (228) (230)Long-term debt(83) 421  338 
Total borrowed fundsTotal borrowed funds249  (1,186) (937)Total borrowed funds(8) 244  236 
Change in interest expenseChange in interest expense3,645  (6,604) (2,959)Change in interest expense176  (2,940) (2,764)
Change in net interest incomeChange in net interest income$22,793  $(12,269) $10,524 Change in net interest income$2,649  $(2,679) $(30)
Percentage increase in net interest income over prior period  9.9 %
Percentage (decrease) in net interest income over prior periodPercentage (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 nine months ended September 30,second quarter of 2021 was relatively flat compared to the second quarter of 2020 was $113.9 million, up $9.9 million, or 9.5%, from $104.1 million for the nine months ended September 30, 2019, as larger volumes of interest earning assets more than offset net interest margin compression. The primary drivers of the increase in netat $39.7 million. Loan interest income weredeclined $5.5 million, which was partially offset by an increase in interest income of $6.9$2.7 million or 5.2%, and a decrease of $3.0 million, or 10.4%, in interest expense. The increase in interest income was primarily a result of a $4.8 million, or 35.0%, increase in interest income earned from investment securities, coupled with increased loanwhich 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 which rose $2.2in 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 1.8%5.9%, for the first nine monthssecond quarter of 2020 compared to the first nine months2021 was a decline in interest expense of 2019. Interest expense declined primarily as a result of the $2.0$2.8 million, or 9.3%,34.4%. The decline in interest expense was primarily due to a decline in interest expense on interest-bearing deposits for the first nine months of 2020 compared$3.0 million, or 46.8%, to the first nine months$3.4 million as a result of 2019 due to lower costs incurredrates paid on such deposits that more than offset the increase in the volume of deposits from PPP loan proceeds that were generally deposited into customer accounts at the Bank. Loan purchase discount accretion added $7.6 million to net interest income for the nine months ended September 30, 2020 as compared to $10.0 million for the nine months ended September 30, 2019.deposits. Net fee accretion for PPP loans for the nine months ended September 30, 2020second quarter of 2021 was $2.3$2.5 million, compared to none$1.1 million in the nine months ended September 30, 2019.second quarter of 2020.
The tax equivalent net interest margin for the nine months ended September 30, 2020second quarter of 2021 was 3.36%2.88%, or 4750 basis points lower than the tax equivalent net interest margin of 3.83%3.38% for the nine months ended September 30, 2019.second quarter of 2020. The yield on loans decreased 6635 basis points, approximately 5 basis points of which was attributable to PPP loans, which have a coupon rate of 1%.points. The tax equivalent yield on investment securities decreased by 4589 basis points. Combined, the resulting yield on interest-earning assets for the nine months ended September 30, 2020second quarter of 2021 was 7681 basis points lower than the nine months ended September 30, 2019.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 2842 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 $1.9 million in the second quarter of 2020.
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Noninterest Income
The following table sets forth the various categories of noninterest income for the three months ended June 30, 2021 and June 30, 2020:
 Three Months Ended June 30,
(dollars in thousands)2021 2020$ Change% Change
Investment services and trust activities$2,809  $2,217 $592 26.7 %
Service charges and fees1,475  1,290 185 14.3 
Card revenue1,913  1,237 676 54.6 
Loan revenue3,151 1,910 1,241 65.0 
Bank-owned life insurance538  635 (97)(15.3)
Investment securities gains, net42  6 36 600.0 
Other290 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 $0.7 million that stemmed from a decline in income from our commercial loan back-to-back swap program.
Noninterest Expense
The following table presents significant components of noninterest expense and the related dollar and percentage change from period to period:
 Three Months Ended June 30,
(dollars in thousands)20212020$ Change% Change
Compensation and employee benefits$17,404 $15,682 $1,722 11.0 %
Occupancy expense of premises, net2,198 2,253 (55)(2.4)
Equipment1,861 2,010 (149)(7.4)
Legal and professional1,375 1,382 (7)(0.5)
Data processing1,347 1,240 107 8.6 
Marketing873 910 (37)(4.1)
Amortization of intangibles1,341 1,748 (407)(23.3)
FDIC insurance245 445 (200)(44.9)
Communications371 449 (78)(17.4)
Foreclosed assets, net136 34 102 300.0 
Other1,519 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%.
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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 Assets1.38 % 0.40 %
Return on Average Equity15.10  3.82 
Return on Average Tangible Equity(1)
19.10  6.48 
Efficiency Ratio (1)
52.76 56.24 
Dividend Payout Ratio18.52 73.33 
Common Equity Ratio9.22  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.
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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.
 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 securities1,436,522 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 
Other42,404 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 assets325,434   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 deposits927,660 980 0.21 798,296 2,530 0.64 
Savings deposits574,602 610  0.21  416,713 756  0.36 
Time deposits866,976 3,341  0.78  993,966 8,644  1.75 
Total interest-bearing deposits3,779,332 7,017  0.37  3,237,296 14,358  0.89 
Short-term borrowings196,962 289  0.30  140,550 597  0.85 
Long-term debt197,762 3,563  3.63  213,413 3,090  2.91 
Total borrowed funds394,724 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 deposits946,112 725,499 
Other liabilities47,008 54,323 
Shareholders' equity519,760 513,204 
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.
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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 securities7,194  (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 deposits705 (1,047)(342)
Money market deposits361 (1,911)(1,550)
Savings deposits226  (372) (146)
Time deposits(993) (4,310) (5,303)
Total interest-bearing deposits299  (7,640) (7,341)
Short-term borrowings176  (484) (308)
Long-term debt(240) 713  473 
Total borrowed funds(64) 229  165 
Change in interest expense235  (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, 2021 was $79.5 million, an increase of $1.5 million, or 1.9%, as compared to $78.0 million for the six months ended June 30, 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 a result of lower rates paid on such deposits that more than offset the increase in the volume of deposits. Partially offsetting the decrease in interest expense was 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 new loans and repricing of variable rate loans at lower rates. The identified decline in interest income from loans was partially offset by a net increase in loan fees of $5.2 million, which was primarily due to PPP fee accretion. Partially offsetting the decline in interest income from loans was an increase in interest income earned from investment securities, which was $18.0 million for the six months ended June 30, 2021, up $5.4 million from the six months ended June 30, 2020. The increase in interest income earned from investment securities 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.

The tax equivalent net interest margin for the six months ended June 30, 2021 was 2.99%, or 49 basis points lower than the tax equivalent net interest margin of 3.48% for the six months ended June 30, 2020. The yield on loans decreased 46 basis points. The tax equivalent yield on investment securities decreased by 91 basis points. Combined, the resulting yield on interest-earning assets for the six months ended June 30, 2021 was 89 basis points lower than the six months ended June 30, 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 52 basis points, while the average cost of borrowings was lower by 5112 basis points for the ninesix months ended SeptemberJune 30, 2020,2021, compared to the ninesix months ended SeptemberJune 30, 2019. The FRB decreased2020. Our lower deposit costs in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020 were a result of lower market interest rates following the FRB's reduction of the target federal funds interest rate by a total of 25 basis points in each of August, September and October of 2019, and an additional 150 basis points in March 2020 in response to the COVID-19 pandemic, which contributed topandemic.
Credit Loss (Benefit) Expense
We recorded a credit loss benefit of $6.9 million in the decreasing interest rates for the ninefirst six months ended September 30, 2020of 2021, as compared to credit loss expense of $26.4 million for the ninefirst six months ended September 30, 2019. These decreases impact the comparability of net interest income and net interest margin between 2019 and 2020.
Credit Loss Expense
We2020, a decrease of $33.3 million, or 126.1%. The Company recorded credit loss expense of $31.4 million in the first nine monthsand second quarters of 2020 an increase of $24.8 million, or 379.1%, from $6.6 million for the same period of 2019. Our credit loss expense reflectedprimarily due to the impact of economic uncertainty stemming from the COVID-19 pandemic on current andforecasted economic conditions. The credit loss benefit recorded in the first six months of 2021 reflected overall improvements in forecasted economic conditions forand an improved outlook on the U.S. and our regional economies, in addition to changes to modeling assumptions.credit risk profile. Specifically, the economic
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In addition, uponforecast utilized by the Company's adoption of the CECL accounting guidance on January 1, 2020, the methodology for estimating the total amount of the credit loss expense changed. Specifically, for the first nine months of 2020, we utilized the current expected credit loss methodology, as comparedCompany is sensitive to incurred loss methodology that was utilizedchanges in the prior year comparable period.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 first ninesix months of 20202021 was higher at $4.9$0.7 million as compared to $4.3$3.1 million in the first ninesix months of 2019.2020.
Noninterest Income
The following table presents the significant components of noninterest income and the related dollar and percentage change from period to period:
Nine Months Ended September 30, Six Months Ended June 30,
(dollars in thousands)(dollars in thousands)2020 2019$ Change% Change(dollars in thousands)2021 2020$ Change% Change
Investment services and trust activitiesInvestment services and trust activities$7,114  $5,619 $1,495 26.6 %Investment services and trust activities$5,645  $4,753 $892 18.8 %
Service charges and feesService charges and fees4,607  5,380 (773)(14.4)Service charges and fees2,962  3,116 (154)(4.9)
Card revenueCard revenue4,202  4,452 (250)(5.6)Card revenue3,449  2,602 847 32.6 
Loan revenueLoan revenue6,285  2,032 4,253 209.3 Loan revenue7,881  3,033 4,848 159.8 
Bank-owned life insuranceBank-owned life insurance1,685 1,376 309 22.5 Bank-owned life insurance1,080 1,155 (75)(6.5)
Insurance commissions—  734 (734)(100.0)
Investment securities gains, netInvestment securities gains, net154  72 82 113.9 Investment securities gains, net69  48 21 43.8 
OtherOther3,947 2,545 1,402 55.1 Other956 3,717 (2,761)(74.3)
Total noninterest incomeTotal noninterest income$27,994  $22,210 $5,784 26.0 %Total noninterest income$22,042  $18,424 $3,618 19.6 %
Total noninterest income for the first ninesix months of 20202021 increased $5.8$3.6 million, or 26.0%19.6%, to $28.0$22.0 million from $22.2$18.4 million during the same period of 2019.2020. This increase was due primarily to anincreases in loan revenue, investment services and trust activities, and card revenue of $4.8 million, $0.9 million, and $0.8 million, respectively. The increase in loan revenue was primarily due to an increase of $4.3$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 driven by increased volume in originations of home mortgage loans asdue to a result of the low interest rate environment, coupled with an increasedecline in income from our commercial loan back-to-back swap program of $2.4 million, as recorded in the 'Other' noninterest income. In addition, the increase in noninterest income was also attributable to the additional fee income earned as a result of the acquisition of ATBancorp, which is reflected within the $1.5 million increase in investment services and trust activities. Partially offsetting these increases was a decrease of $1.1 million from a pre-tax gain that was recognized from the sale of sale of MidWestOne Insurance Services, Inc. assets during the first nine months of 2019 and was recorded in 'Other' noninterest income. In addition, also offsetting in part the identified increases was a decrease of $0.7 million in insurance commissions as a result of the sale of MidWestOne Insurance Services, Inc. in 2019, and a decrease of $0.7 million in overdraft fees, which reflected lower customer overdraft activity coupled with increased waivers of such fees and are recorded within service charges and fees. Further, there was a decrease of $0.4 million in the mortgage servicing rights fair value adjustment, which is recorded in 'Loan revenue' in noninterest income, during the first nine months of 2020 as compared to the same period in 2019.program.
Noninterest Expense
The following table presents the significant components of noninterest expense and the related dollar and percentage change from period to period:
Nine Months Ended September 30, Six Months Ended June 30,
(dollars in thousands)(dollars in thousands)20202019$ Change% Change(dollars in thousands)20212020$ Change% Change
Compensation and employee benefitsCompensation and employee benefits$48,759 $46,414 $2,345 5.1 %Compensation and employee benefits$34,321 $32,299 $2,022 6.3 %
Occupancy expense of premises, netOccupancy expense of premises, net6,872 6,300 572 9.1 Occupancy expense of premises, net4,516 4,594 (78)(1.7)
EquipmentEquipment5,825 5,466 359 6.6 Equipment3,654 3,890 (236)(6.1)
Legal and professionalLegal and professional4,101 6,252 (2,151)(34.4)Legal and professional2,158 2,917 (759)(26.0)
Data processingData processing3,902 3,087 815 26.4 Data processing2,599 2,594 5 0.2 
MarketingMarketing2,829 2,642 187 7.1 Marketing1,879 1,972 (93)(4.7)
Amortization of intangiblesAmortization of intangibles5,407 3,965 1,442 36.4 Amortization of intangibles2,848 3,776 (928)(24.6)
FDIC insuranceFDIC insurance1,363 762 601 78.9 FDIC insurance757 893 (136)(15.2)
CommunicationsCommunications1,334 1,208 126 10.4 Communications780 906 (126)(13.9)
Foreclosed assets, netForeclosed assets, net185 407 (222)(54.5)Foreclosed assets, net183 172 11 6.4 
OtherOther5,901 4,596 1,305 28.4 Other2,675 4,026 (1,351)(33.6)
Total core noninterest expense$86,478 $81,099 $5,379 6.6 %
Goodwill impairment31,500 — 31,500 100.0 
Total noninterest expenseTotal noninterest expense$117,978 $81,099 $36,879 45.5 %Total noninterest expense$56,370 $58,039 $(1,669)(2.9)%

Noninterest expense for the six months ended June 30, 2021 was $56.4 million, a decrease of $1.7 million, or 2.9%, from $58.0 million for the six months ended June 30, 2020. The decline in noninterest expense was primarily 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 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 $2.0 million in compensation and employee benefits expense that stemmed primarily
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The following table shows the impact of merger-related expenses to the various components of noninterestfrom increased incentive and commission expense, for the periods indicated:
Nine Months Ended September 30,
(dollars in thousands)20202019
Merger-related expenses:
Compensation and employee benefits$— $2,614 
Equipment7 — 
Legal and professional— 2,115 
Data processing44 812 
Other10 307 
Total impact of merger-related expenses to noninterest expense$61 $5,848 
Noninterest expense for the nine months ended September 30, 2020 was $118.0 million, an increase of $36.9 million, or 45.5%, from $81.1 million for the nine months ended September 30, 2019. The increase in noninterest expense was due primarily to a $31.5 million goodwill impairment charge recognized as of September 30, 2020. Excluding the goodwill impairment charge, core noninterest expense increased $5.4 million, or 6.6%. The increase in core noninterest expense was due primarily tonormal annual increases in compensation, and employee benefits of $3.8 million due to the addition of employees resulting from the merger with ATBancorp, offset in part by an increase of $1.5 million in deferredas well as increased share-based compensation and employee benefits stemming from loan origination cost. In addition, the increase in core noninterest expense was also due to an increase of $1.4 million in the amortization of intangibles resulting from the merger with ATBancorp and an increase in 'Other' noninterest expense, which was primarily due to the recognition of $1.4 million of amortization expense related to the renewable energy tax credit. Offsetting these increases was a decrease in merger-related expenses, a primary contributing factor to the decline of $2.2 million in legal and professional expenses.expense.
Income Tax Expense
Our effective income tax rate, or income taxes divided by income before taxes, was (35.1)%21.6% for the first ninesix months of 2020,2021, as compared to an effective tax rate of 21.7%3.5% for the first ninesix months of 2019. Excluding non-deductible goodwill impairment, the effective income tax rate for the first nine months of 2020 was 10.9%, reflecting benefits related to tax-exempt interest income, bank-owned life insurance, general business and renewable energy tax credits. Excluding the non-deductible goodwill impairment, the2020. The effective tax rate for the full year 20202021 is currently expected to be in the range of 14-16%20-22%. See Note 11. 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)September 30, 2020December 31, 2019$ Change% Change
ASSETS
Cash and cash equivalents$134,862 $73,484 $61,378 83.5 
Debt securities available for sale1,366,344 785,977 580,367 73.8 
Loans held for investment, net of unearned income3,537,432 3,451,266 86,166 2.5 
Allowance for credit losses(58,500)(29,079)(29,421)101.2 
Total loans held for investment, net3,478,932 3,422,187 56,745 1.7 
Other assets350,570 371,925 (21,355)(5.7)
Total assets$5,330,708 $4,653,573 $677,135 14.6 
LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits$4,333,641 $3,728,655 $604,986 16.2 
Total borrowings429,374 371,009 58,365 15.7 
Other liabilities68,612 44,927 23,685 52.7 
Total shareholders' equity499,081 508,982 (9,901)(1.9)
Total liabilities and shareholders' equity$5,330,708 $4,653,573 $677,135 14.6 

(dollars in thousands)June 30, 2021December 31, 2020$ Change% Change
ASSETS
Cash and cash equivalents$63,434 $82,659 $(19,225)(23.3)%
Loans held for sale6,149 59,956 (53,807)(89.7)
Debt securities available for sale at fair value2,072,452 1,657,381 415,071 25.0 
Loans held for investment, net of unearned income3,330,156 3,482,223 (152,067)(4.4)
Allowance for credit losses(48,000)(55,500)7,500 (13.5)
Total loans held for investment, net3,282,156 3,426,723 (144,567)(4.2)
Other assets325,024 329,929 (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 borrowings382,100 439,480 (57,380)(13.1)
Other liabilities44,156 54,869 (10,713)(19.5)
Total shareholders' equity530,293 515,250 15,043 2.9 
Total liabilities and shareholders' equity$5,749,215 $5,556,648 $192,567 3.5 %
Debt Securities Available for Sale
DebtThe composition of debt securities totaled $1.4available 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 subdivisions694,874 33.5 628,346 37.9 
Mortgage-backed securities116,954 5.6  94,018 5.7 
Collateralized mortgage obligations808,074 39.0  565,836 34.1 
Corporate debt securities452,234 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, 2021, the fair value of debt securities available for sale was $2.1 billion, at September 30, 2020, or 25.6% of total assets, an increase of $580.4$415.1 million from $786.0 million, or 16.9% of total assets,$1.7 billion as of December 31, 2019, due to2020. The increase was primarily driven by the Company'sexcess liquidity generated by the increased levels of deposit balances that were deployed into investment security purchases. There were $27.1 million of gross unrealized gains and $13.8 million of gross unrealized losses in our debt securities available for sale portfolio for a net deposit inflows. Asunrealized gain of $13.3 million at June 30, 2021.



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September 30, 2020, the portfolio consisted mainly of MBS and CMOs (37.4%), obligations of states and political subdivisions (37.4%), and corporate debt securities (25.2%). No debt securities were classified as HTM at September 30, 2020 or December 31, 2019.
Loans
The composition of loans held for investment, netour loan portfolio by type of unearned incomeloan was as follows:
September 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 AgriculturalAgricultural$107,834 3.2 %$116,392 3.3 %
PPP Loans$2,045 0.1 % $— — %
Non-PPP loans127,408 3.6 140,446 4.1 
Commercial and industrialCommercial and industrialCommercial and industrial982,092 29.5 1,055,488 30.3 
PPP Loans329,658 9.3  — — 
Non-PPP loans773,444 21.9 835,236 24.2 
Commercial real estate:Commercial real estate: Commercial real estate: 
Construction and developmentConstruction and development191,423 5.4  298,077 8.6 Construction and development168,070 5.0  181,291 5.2 
FarmlandFarmland152,362 4.2 181,885 5.3 Farmland134,877 4.1 144,970 4.2 
MultifamilyMultifamily235,241 6.7 227,407 6.6 Multifamily255,826 7.7 256,525 7.4 
Commercial real estate-otherCommercial real estate-other1,128,009 31.9 1,107,490 32.1 Commercial real estate-other1,147,016 34.4 1,149,575 33.0 
Total commercial real estateTotal commercial real estate1,707,035 48.2  1,814,859 52.6 Total commercial real estate1,705,789 51.2  1,732,361 49.8 
Residential real estate:Residential real estate: Residential real estate: 
One- to four-family first liensOne- to four-family first liens371,390 10.5  407,418 11.8 One- to four-family first liens332,117 10.0  355,684 10.2 
One- to four-family junior liensOne- to four-family junior liens150,180 4.2  170,381 4.9 One- to four-family junior liens136,464 4.1  143,422 4.1 
Total residential real estateTotal residential real estate521,570 14.7  577,799 16.7 Total residential real estate468,581 14.1  499,106 14.3 
ConsumerConsumer76,272 2.2  82,926 2.4 Consumer65,860 2.0  78,876 2.3 
Loans held for investment, net of unearned incomeLoans held for investment, net of unearned income$3,537,432 100.0 %$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 saleLoans held for sale$6,149 $59,956 
Loans held for investment, net of unearned income, increased $86.2decreased $152.1 million, or 2.5%4.4%, from a balance of $3.45$3.48 billion at December 31, 2019,2020, to $3.54$3.33 billion at SeptemberJune 30, 20202021, primarily as a result of the Company's participation in thenet loan pay-downs, PPP offset in part by the continued pay downs on loans held for investment.loan forgiveness, and lower line utilization. As of SeptemberJune 30, 2020,2021, the amortized cost basis of PPP loans was $331.7$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 $8.1 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, 2021December 31, 2020
(in thousands)Nonaccrual90+ Days Past Due and Still Accruing InterestTotalNonaccrual90+ Days Past Due and Still Accruing InterestTotal
Agricultural$2,086 $— $2,086 $2,584 $— $2,584 
Commercial and industrial6,395 — 6,395 7,326 106 7,432 
Commercial real estate:
Construction and development609 — 609 1,145 — 1,145 
Farmland10,280 — 10,280 8,319 — 8,319 
Multifamily1,073 — 1,073 746 — 746 
Commercial real estate-other17,802 — 17,802 19,134 — 19,134 
Total commercial real estate29,764 — 29,764 29,344 — 29,344 
Residential real estate:
One- to four- family first liens1,762 664 2,426 1,895 625 2,520 
One- to four- family junior liens695 — 695 722 — 722 
Total residential real estate2,457 664 3,121 2,617 625 3,242 
Consumer62 1 63 79 8 87 
Total nonperforming loans$40,764 $665 $41,429 $41,950 $739 $42,689 
     Foreclosed assets, net755 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 September 30, 2020As of December 31, 2019As of June 30, 2021As of December 31, 2020
(in thousands)(in thousands)Balance% of TotalBalance% of Total(in thousands)Balance% of TotalBalance% of Total
Noninterest bearing depositsNoninterest bearing deposits$864,504 19.9 %$662,209 17.8 %Noninterest bearing deposits$952,764 19.9 %$910,655 20.0 %
Interest checking depositsInterest checking deposits1,230,146 28.5 %962,830 25.7 %Interest checking deposits1,414,942 29.6 1,351,641 29.7 
Money market depositsMoney market deposits871,336 20.1 %763,028 20.5 %Money market deposits936,683 19.5 918,654 20.2 
Savings depositsSavings deposits486,876 11.2 %387,142 10.4 %Savings deposits596,199 12.4 529,751 11.7 
Time deposits under $250,000617,229 14.2 %682,232 18.3 %
Time deposits of $250,000 or more263,550 6.1 %271,214 7.3 %
Time deposits under $250Time deposits under $250538,331 11.2 581,471 12.8 
Time deposits of $250 or moreTime deposits of $250 or more353,747 7.4 254,877 5.6 
Total depositsTotal deposits$4,333,641 100.0 %$3,728,655 100.0 %Total deposits$4,792,666 100.0 %$4,547,049 100.0 %
Deposits increased $605.0$245.6 million from December 31, 2019,2020, or 16.2%. The origination5.4%, reflecting the combination of fiscal stimulus and the deposit of PPP loans during the second and third quarters of 2020 resulted in an increase in total deposits, as PPP loan proceeds, which were generally deposited into customer accounts at the Bank. Approximately 79.3%81.4% of our total deposits were considered “core” deposits as of SeptemberJune 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 deposittime 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.

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Goodwill and Other Intangible Assets

Goodwill was $62.5 million as of September 30, 2020, a decrease of $29.4 million, or 32.0%, from $91.9 million at December 31, 2019 due primarily to the $31.5 goodwill impairment that was recorded in the third quarter of 2020. Other intangible assets were $26.8 million, a decrease of $5.4 million, or 16.8%, from $32.2 million at December 31, 2019 due to the additional amortization of these assets.

Short-Term BorrowingsLoan Modifications
Federal funds purchased
 -
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 Bank purchases federal funds for short-term funding needs from correspondent and regional banks. As of September 30, 2020 and December 31, 2019, the Bank had no federal funds purchased.following factors are indicators that a concession has been granted (one or multiple items may be present):

Securities Sold Under Agreements•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 Repurchase - Securities sold under agreementsthe Company granting a concession to repurchase rose $66.6a 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 or 56.8%,and $2.5 million, respectively.
Refer above to $183.9 million 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 SeptemberJune 30, 2020, compared2021 was $48.0 million, which was 1.44% of loans held for investment, net of unearned income. This compares with $117.2an ACL of $55.5 million as of December 31, 2019. 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.
Federal Home Loan Bank Advances - The Bank utilizes FHLB short-term advances for short-term funding needs. The Company had no short-term advances as of September 30, 2020, compared with $22.1 million as of December 31, 2019,2020, 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 $22.1 million.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.
LineLoan 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 Credit - The Bank entered into a credit agreement with a correspondent bank under which the Companyloan 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 able to borrow up to $10.0 million from an unsecured revolving credit facility. The Company had nothing outstanding under this revolving credit facilityboth 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 both SeptemberJune 30, 20202021, the ACL was adequate; however, there is no assurance losses will not exceed the allowance, and December 31, 2019.
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 9. Short-Term Borrowings3. Loans Receivable and the Allowance for Credit Losses to our unaudited consolidated financial statements for additional information related to short-term borrowings.the allowance for credit losses.
Long-Term DebtDeposits
Finance Lease Payable
 -
The Company has one existing finance lease for a branch location, with a present value liability balancecomposition of $1.1deposits was as follows:
As of June 30, 2021As of December 31, 2020
(in thousands)Balance% of TotalBalance% of Total
Noninterest bearing deposits$952,764 19.9 %$910,655 20.0 %
Interest checking deposits1,414,942 29.6 1,351,641 29.7 
Money market deposits936,683 19.5 918,654 20.2 
Savings deposits596,199 12.4 529,751 11.7 
Time deposits under $250538,331 11.2 581,471 12.8 
Time deposits of $250 or more353,747 7.4 254,877 5.6 
Total deposits$4,792,666 100.0 %$4,547,049 100.0 %
Deposits increased $245.6 million as of September 30, 2020, substantially unchanged from December 31, 2019.
Junior Subordinated Notes Issued to Capital Trusts - Junior subordinated notes that have been issued to capital trusts that issued trust preferred securities2020, or 5.4%, reflecting the combination of fiscal stimulus and the deposit of PPP loan proceeds, which were $41.7 milliongenerally deposited into customer accounts at the Bank. Approximately 81.4% of our total deposits were considered “core” deposits as of SeptemberJune 30, 2020, substantially unchanged from December 31, 2019.
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. 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. As a result of the offering, the balance of subordinated debentures increased to $74.7 million as of September 30, 2020, as2021, compared to $10.9 million81.6% at December 31, 2019.
Federal Home Loan Bank Borrowings - FHLB borrowings totaled $101.2 million as of September 30, 2020, compared with $145.7 million as of December 31, 2019, a decrease of $44.5 million, or 30.5%, due to maturities of FHLB advances.2020. We utilize FHLB borrowings as a supplement to customerconsider core deposits to fund interest-earning assetsbe the total of all deposits other than time deposits 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, $26.8 million of which was outstanding at September 30, 2020, as compared to $32.3 million outstanding at December 31, 2019.
non-reciprocal brokered money market deposits. See Note 10. Long-Term Debt7. Deposits to our unaudited consolidated financial statements for additional information related to long-term debt.our deposits.
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Nonperforming Assets
The following tables set forth information concerning nonperforming loans by class of receivable at September 30, 2020 and December 31, 2019:
September 30, 2020December 31, 2019
(in thousands)Nonaccrual90+ Days Past Due and Still Accruing InterestTotalNonaccrual90+ Days Past Due and Still Accruing InterestTotal
Agricultural$2,787 $— $2,787 $2,894 $— $2,894 
Commercial and industrial8,725 5 8,730 13,276 — 13,276 
Commercial real estate:
Construction and development1,387 — 1,387 1,494 — 1,494 
Farmland13,693 — 13,693 10,402 — 10,402 
Multifamily— — — — — — 
Commercial real estate-other9,783 — 9,783 10,141 — 10,141 
Total commercial real estate24,863 — 24,863 22,037 — 22,037 
Residential real estate:
One- to four- family first liens1,999 2,588 4,587 2,557 99 2,656 
One- to four- family junior liens552 — 552 513 25 538 
Total residential real estate2,551 2,588 5,139 3,070 124 3,194 
Consumer145 — 145 206 12 218 
Total (1)
$39,071 $2,593 $41,664 $41,483 $136 $41,619 
(1) Starting in the second quarter of 2020, performing troubled debt restructured loans held for investment are no longer included in nonperforming assets. Prior period information has been adjusted to exclude these loans.

The following table sets forth information on our nonperforming assets and performing TDRs at September 30, 2020 and December 31, 2019:

September 30, 2020December 31, 2019
(in thousands)
Nonaccrual loans held for investment$39,071 $41,483 
Accruing loans contractually past due 90 days or more2,593 136 
Foreclosed assets, net724 3,706 
         Total nonperforming assets (1)
42,388 45,325 
Nonperforming assets ratio (2)
1.20 %1.31 %
Performing troubled debt restructured loans held for investment$2,355 $4,372 
(1) Starting in the second quarter of 2020, performing troubled debt restructured loans held for investment are no longer included in nonperforming assets. Prior period information has been adjusted to exclude these loans.
(2) Nonperforming assets ratio is calculated as total nonperforming assets divided by the sum of loans held for investment, net of unearned income and foreclosed assets, net 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, 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
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independent credit reviews of relationships based on either criteria established by loan policy, risk-focused sampling, or random sampling. Loan policy requires all credit relationships with total exposure of $5.0 million or more, as determined semi-annually as of month-end December and June, to be reviewed no less than annually. In addition, all classified (loan grades 6 through 8) and watch (loan grade 5) rated credits over $1.0 million are to 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 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. 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.
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. 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.
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During the ninethree and six months ended SeptemberJune 30, 2020,2021, the Company modified twelveclassified four loans that were consideredand seven loans as TDRs, respectively, due to the Company granting a concession to a borrower experiencing financial difficulties.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
CECL Adoption and ACL Framework: The framework requires that management's estimate reflects credit losses over the full remaining expected life of each credit, which includes the acquired loan portfolio that was previously excluded, and considers expected future changes in macroeconomic conditions. The adoption resulted in the recognition on January 1, 2020 of cumulative effect adjustments of $4.0 million related to the allowance for credit losses for loans and $3.4 million related to the liability for off-balance sheet credit exposures. See Note 2. Effect of New Financial Accounting Standards for additional information on the Company's adoption of CECL.
Actual Results: Our ACL as of SeptemberJune 30, 20202021 was $58.5$48.0 million, which was 1.65%1.44% of loans held for investment, net of unearned income, as of that date.income. This compares with an ACL of $29.1$55.5 million as of December 31, 2019,2020, which was 0.84%1.59% of loans held for investment, net of unearned income, as of that date.income. The ACL at SeptemberJune 30, 20202021 does not include a reservean allowance amount for the 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 SeptemberJune 30, 2021 was 1.53% and as of December 31, 2020 was 1.82%1.72% (a non-GAAP financial measure - see "Non-GAAP Financial Measures"). The increasedecrease in the ACL is duereflects overall improvements in part to the adoption of the CECL accounting guidance, which included the one-time cumulative effect adjustment previously described. The increase in the ACL also reflects changes in currentforecasted economic conditions and forecasted conditions due to the COVID-19 pandemic, as well as changes to modeling assumptions.an improved credit profile outlook. The liability for off-balance sheet credit exposures totaled $4.5$4.0 million as of SeptemberJune 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 $30.3$25.6 million for the ninesix months ended SeptemberJune 30, 2020 as compared to $6.6 million for the nine months ended September 30, 2019.2020. Gross charge-offs for the first ninesix months of 20202021 totaled $5.8$1.8 million, while there were $0.9$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 ninesix months of 20202021 was 0.18%0.04% compared to 0.23%0.17% for the yearsix months ended December 31, 2019. AsJune 30, 2020.
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Table of September 30, 2020, the ACL was 140.4% 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.Contents
Economic Forecast:At SeptemberJune 30, 2020,2021, the economic forecast used by the Company showed a decline inthe following: (1) Midwest unemployment – decreases over the next four forecasted quarters; increases(2) Year-to-year change in national retail sales - increases over the next threefour forecasted quarters, with a declinequarters; (3) Year-to-year change in CRE Index - decreases over the fourth quarter; decreasesnext four forecasted quarters; (4) Year-to-year change in U.S. GDP - increases over the CRE indexnext 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 beginning in the third quarter; increases in U.S. GDP over the next three forecasted quarters, withfollowed by a decline in the fourth quarter; decreases in the national home price index over the next three forecasted quarters, with improvements beginning in the fourth quarter;third and a decline in the U.S. rental vacancy rate through the second forecasted quarter, with an improvement in the third forecasted quarter, and then a decline beginning in the fourth forecasted quarter. Thesequarters. Overall, economic forecast loss drivers saw improvementsdriver data improved when compared to the priorpreviously disclosed first quarter however are consistently worse when compared to recent historical trends over the past several years, largely as a result of the COVID-19 pandemic.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 SeptemberJune 30, 2020,2021, 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 SeptemberJune 30, 2020,2021, 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.
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See Note 4.3. 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, 2021As of December 31, 2020
(in thousands)Balance% of TotalBalance% of Total
Noninterest bearing deposits$952,764 19.9 %$910,655 20.0 %
Interest checking deposits1,414,942 29.6 1,351,641 29.7 
Money market deposits936,683 19.5 918,654 20.2 
Savings deposits596,199 12.4 529,751 11.7 
Time deposits under $250538,331 11.2 581,471 12.8 
Time deposits of $250 or more353,747 7.4 254,877 5.6 
Total deposits$4,792,666 100.0 %$4,547,049 100.0 %
Deposits increased $245.6 million from December 31, 2020, or 5.4%, reflecting the combination of fiscal stimulus and the deposit of PPP loan proceeds, which were generally deposited into customer accounts at the Bank. Approximately 81.4% of our total deposits were considered “core” deposits as of June 30, 2021, compared to 81.6% at December 31, 2020. We consider core deposits to be the total of all deposits other than time deposits and non-reciprocal brokered money market deposits. See Note 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, 2021 and December 31, 2020, the Bank had no federal funds purchased.
Securities Sold Under Agreements to Repurchase - Securities sold under agreements to repurchase declined $1.3 million, or 0.8%, to $173.0 million as of June 30, 2021, compared with $174.3 million as of December 31, 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.
Federal Home Loan Bank Advances - The Bank utilizes FHLB short-term advances for short-term funding needs. The Company had $39.3 million of short-term advances as of June 30, 2021, compared with $56.5 million as of December 31, 2020.
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 maintains a credit agreement with a correspondent bank under which the Company is able to borrow up to $25.0 million from an unsecured revolving credit facility. The Company had no balance outstanding under this revolving credit facility as of both June 30, 2021 and December 31, 2020.
See Note 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 $1.0 million as of June 30, 2021 and $1.1 million as of December 31, 2020.
Junior Subordinated Notes Issued to Capital Trusts - Junior subordinated notes that have been issued to capital trusts that issued trust preferred securities were $41.9 million as of June 30, 2021 and $41.8 million as of December 31, 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 $63.8 million as of June 30, 2021, as compared to $74.6 million at December 31, 2020.
Federal Home Loan Bank Borrowings - FHLB borrowings totaled $63.2 million as of June 30, 2021, compared with $91.2 million as of December 31, 2020, a decrease of $28.0 million, or 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.
See Note 9. Long-Term Debt to our unaudited consolidated financial statements for additional information related to long-term debt.
Capital Resources
Shareholder's Equity
Total shareholders’ equity was $499.1$530.3 million as of SeptemberJune 30, 2020,2021, compared to $509.0$515.3 million as of December 31, 2019, a decrease2020, an increase of $9.9$15.0 million, or 1.9%. This decrease was2.9%, primarily due toas a decreaseresult of $26.1 million in retained earnings. The decreasean increase in retained earnings, was due to a $5.4 million negative adjustment for the cumulative effect of change in accounting principle related to CECL, dividends paid of $10.6 million, and net loss of $10.1 million for the first nine months of 2020. Partially offsetting this decrease was an increase of $15.4 million in accumulated other comprehensive income, which was due to market value adjustments on investment securities AFS and changes in the cash flow hedge. 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 nine months of 2020.decreased AOCI. The total shareholders’ equity to total assets ratio was 9.36%9.22% at SeptemberJune 30, 2020,2021, down from 10.94%9.27% at December 31, 2019.2020. The tangible common equity ratio (a non-GAAP financial measure -see "Non-GAAP Financial Measures") was 7.82%7.86% at SeptemberJune 30, 2020,2021, compared with 8.50%7.82% at December 31, 2019.2020. Book value was $31.00$33.22 per share at SeptemberJune 30, 2020, a decrease2021, 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 "Non-GAAP Financial Measures") was $25.45$27.90 at SeptemberJune 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 10.73%11.21% as of SeptemberJune 30, 20202021 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 SeptemberJune 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 13.11. 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, and August 15, 20202021, in the aggregate amounts of 48,066, 17,084,65,168 and 6,57911,231, respectively. Additionally, during the first ninesix months of 2020, 37,0052021, 52,323 shares of common stock were issued in connection with the vesting of previously awarded grants of restricted stock units, of which 4,5174,272 shares were surrendered by grantees to satisfy tax requirements, and 1,3969,533 unvested restricted stock units were forfeited.
Subsequent to September 30, 2020, the Company's board
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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 (cashare 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 $134.9 million as of September 30, 2020, compared with $73.5 million as of December 31, 2019. Interest-bearing depositsequivalents are summarized in banks at September 30, 2020, were $55.4 million, an increase of $49.3 million from $6.1 million at December 31, 2019. Debt securities classified as AFS, totaling $1.4 billion and $786.0 million as of September 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, 2021As of December 31, 2020
Cash and due from banks$52,297 $65,078 
Interest-bearing deposits11,124 17,409 
Federal funds sold13 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
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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 utilizeutilized particular sources of funds based on comparative costs and availability.
As The Bank maintains unsecured lines of September 30, 2020, we had $26.8 millioncredit with several correspondent banks and secured lines with the Federal Reserve Bank of long-term debt outstandingChicago and the FHLB that would allow us to an unaffiliated banking organization.borrow funds on a short-term basis, if necessary. We also have $41.7hold debt securities classified as available for sale that could be sold to meet liquidity needs if necessary.
Net cash provided by operations was another major source of liquidity. The net cash provided by operating activities was $79.3 million of indebtedness payable under junior subordinated notes issued to subsidiary trusts that issued trust preferred securities in pooled offerings,for the six months ended June 30, 2021 and $74.7$28.7 million payable under subordinated debentures. See Note 10. Long-Term Debt to our consolidated financial statements for additional information related to our long-term debt.
Dividends
Our ability to pay dividends to our shareholders is affected by both corporate law considerations and policies of the FRB applicable to bank holding companies. The FRB requires notification and must provide approval before any declaration and payment of a dividend can occur in a period in which quarterly and/or cumulative twelve-month net earnings are insufficient to fund the dividend amount, among other requirements. We may not pay a dividend if the FRB objects or until such time as we receive approval from the FRB or we no longer need to provide notice under applicable regulations. Due to the impact of the goodwill impairment charge on our earnings during the third quarter of 2020, we were required to receive approval from the FRB, as described above, prior to declaring a dividend. Such approval was received from the FRB prior to the declaration of a cash dividend of $0.22 per share by the board of directors of the Company on October 28,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 14.12. Commitments and Contingencies to our unaudited consolidated financial statements.
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Contractual Obligations
ThereOutside 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-GAAPCertain 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, core earnings, and adjusted allowance for credit losses ratio. Management believes these measuresratios and amounts provide investors with useful information regarding the Company'sCompany’s profitability, financial condition and capital adequacy, consistent with how management evaluates the Company'sCompany’s financial performance. The following tables provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.
Three Months EndedSix Months Ended
Return on Average Tangible EquityJune 30, 2021June 30, 2020June 30, 2021June 30, 2020
(Dollars in thousands)
Net income$17,271 $11,712 $38,919 $9,737 
Intangible amortization, net of tax (1)
1,006 1,311 2,136 2,832 
Tangible net income$18,277  $13,023 $41,055 $12,569 
 
Average shareholders' equity$523,242  $511,239 $519,760 $513,204 
Average intangible assets, net(85,518) (123,313)(86,235)(123,130)
Average tangible equity$437,724  $387,926 $433,525 $390,074 
Return on average equity13.24 %9.21 %15.10 %3.82 %
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%.
(2) Annualized tangible net income divided by average tangible equity.
Tangible Common Equity/Tangible Book Value per Share /
Tangible Common Equity Ratio		June 30, 2021December 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 outstanding15,963,468 16,016,780 
Equity to assets ratio9.22 %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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The following tables provide a reconciliation of the non-GAAP measures to the most comparable GAAP equivalents for the dates or periods indicated:
Three Months EndedSix Months Ended
Net Interest Margin, Tax Equivalent/Core Net Interest MarginJune 30, 2021June 30, 2020June 30, 2021June 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 margin2.80 %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 $4,500,924 
(1) The federal statutory tax rate utilized was 21%.
(2) Annualized tax equivalent net interest income divided by average interest earning assets.
(3) Annualized core net interest income divided by average interest earning assets.
Three Months EndedNine Months Ended
Return on Average Tangible EquitySeptember 30, 2020September 30, 2019September 30, 2020September 30, 2019
(Dollars in thousands)
Net (loss) income$(19,824)$12,300 $(10,087)$30,259 
Intangible amortization, net of tax (1)
1,223 1,937 4,055 2,974 
Goodwill impairment31,500 — 31,500 — 
Tangible net income$12,899  $14,237 $25,468 $33,233 
 
Average shareholders' equity$529,857  $491,750 $518,796 $431,907 
Average intangible assets, net(121,306) (128,963)(122,518)(102,224)
Average tangible equity$408,551  $362,787 $396,278 $329,683 
Return on average equity(14.88)%9.92 %(2.60)%9.37 %
Return on average tangible equity (2)
12.56 % 15.57 %8.58 %13.48 %
(1) Computed assuming a combined marginal income tax rate of 25%.
(2) Annualized tangible net income divided by average tangible equity.

Tangible Common Equity/Tangible Book Value per Share /
Tangible Common Equity Ratio		September 30, 2020December 31, 2019
(Dollars in thousands, except per share data)
Total shareholders’ equity$499,081 $508,982 
Intangible assets, net(89,288)(124,136)
Tangible common equity$409,793 $384,846 
Total assets$5,330,708 $4,653,573 
Intangible assets, net(89,288)(124,136)
Tangible assets$5,241,420 $4,529,437 
Book value per share$31.00 $31.49 
Tangible book value per share (1)
$25.45 $23.81 
Shares outstanding16,099,324 16,162,176 
Equity to assets ratio9.36 %10.94 %
Tangible common equity ratio (2)
7.82 %8.50 %
(1) Tangible common equity divided by shares outstanding.
(2) Tangible common equity divided by tangible assets.

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Three Months EndedNine Months Ended
Net Interest Margin, Tax Equivalent/Core Net Interest MarginSeptember 30, 2020September 30, 2019September 30, 2020September 30, 2019
(dollars in thousands)
Net interest income$37,809 $43,258 $113,927 $104,066 
Tax equivalent adjustments:
Loans (1)
536 543 1,540 1,262 
Securities (1)
608 364 1,485 1,100 
Net interest income, tax equivalent$38,953 $44,165 $116,952 $106,428 
Loan purchase discount accretion(1,923)(7,207)(7,556)(10,040)
  Core net interest income$37,030 $36,958 $109,396 $96,388 
Net interest margin3.05 %4.07 %3.27 %3.75 %
Net interest margin, tax equivalent (2)
3.14 %4.15 %3.36 %3.83 %
Core net interest margin (3)
2.99 %3.48 %3.14 %3.47 %
Average interest earning assets$4,935,175 $4,215,471 $4,646,731 $3,713,038 
(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 EndedNine Months Ended
Efficiency RatioSeptember 30, 2020September 30, 2019September 30, 2020September 30, 2019
(dollars in thousands)
Total noninterest expense$59,939 $31,442 $117,978 $81,099 
Amortization of intangibles(1,631)(2,583)(5,407)(3,965)
Merger-related expenses— (2,547)(61)(5,848)
Goodwill impairment(31,500)— (31,500)— 
Noninterest expense used for efficiency ratio$26,808 $26,312 $81,010 $71,286 
Net interest income, tax equivalent(1)
$38,953 $44,165 $116,952 $106,428 
Noninterest income9,570 8,004 27,994 22,210 
Investment security gains, net(106)(23)(154)(72)
Net revenues used for efficiency ratio$48,417 $52,146 $144,792 $128,566 
Efficiency ratio55.37 %50.46 %55.95 %55.45 %
(1) The federal statutory tax rate utilized was 21%.
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Three Months EndedNine Months Ended
Core EarningsSeptember 30, 2020September 30, 2019September 30, 2020September 30, 2019
(dollars in thousands, except per share data)
Net (loss) income$(19,824)$12,300 $(10,087)$30,259 
Goodwill impairment31,500 — 31,500 — 
       Core earnings$11,676 $12,300 $21,413 $30,259 
Weighted average diluted common shares outstanding16,099,32416,214,56216,111,59114,444,732
Earnings (loss) per common share
     Earnings per common share - diluted$(1.23)$0.76 $(0.63)$2.09 
     Core earnings per common share - diluted(1)
$0.73 $0.76 $1.33 $2.09 
(1) Core earnings divided by weighted average diluted common shares outstanding.

Adjusted Allowance for Credit Losses RatioSeptember 30, 2020December 31, 2019
(dollars in thousands)
Loans held for investment, net of unearned income$3,537,432 $3,451,266 
PPP loans331,703 — 
Adjusted loans held for investment, net of unearned income$3,205,729 $3,451,266 
Allowance for credit losses$(58,500)$(29,079)
Allowance for credit losses ratio1.65 %0.84 %
Adjusted allowance for credit losses ratio (1)
1.82 %0.84 %
(1) Allowance for credit losses divided by adjusted loans held for investment, net of unearned income.
Three Months EndedSix Months Ended
Efficiency RatioJune 30, 2021June 30, 2020June 30, 2021June 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 income10,218 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 RatioJune 30, 2021December 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 ratio1.44 %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 Companyus as other types of market risk, such as foreign currency exchange rate risk and commodity price risk, play a lesser roledo 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 $42.0$79.3 million in the first ninesix months of 2020,June 30, 2021, compared with $39.4$28.7 million in the first ninesix months of 2019.
2020. Net cash outflows from investing activities were $630.3$276.4 million in the first ninesix months of 2020,2021, compared to net cash inflowsoutflows of $69.2$492.9 million in the comparable nine-monthsix-month period of 2019. Investment securities transactions resulted in net cash outflows of $549.9 million the first nine months of 2020 compared to inflows of $27.6 million during the same period of 2019. Net cash outflows related to the net increase in loans were $81.9 million for the first nine months of 2020, compared with $4.0 million of net cash inflows for the same period of 2019.
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2020. Net cash inflows from financing activities in the first ninesix months of 20202021 were $649.6$177.9 million, compared with net cash outflowsinflows of $67.5$507.9 million for the same period of 2019. Uses of cash in the first nine months of 2020 were highlighted by a net decrease of $50.0 million in long-term debt (excluding the net proceeds from the July 28, 2020 issuance of subordinated debt) and $10.6 million to pay dividends. Net cash provided by financing activities in the first nine months of 2020 were highlighted by a net increase of $63.8 million in proceeds received from the July 28, 2020 subordinated debt issuance, a net increase of $44.5 million in short-term borrowings, in addition to the largest financing cash inflow during the nine months ended September 30, 2020 of deposits, which increased $604.7 million.2020.
To further mitigatemanage 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
•Brokered Repurchase Agreements
Federal Funds Lines:Lines - Routine liquidity requirements are met by fluctuations in the federal funds positionsposition 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 hasmaintains 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 SeptemberJune 30, 2020,2021, the Bank had municipal securities with an approximate market value of $71.9$68.1 million pledged for liquidity purposes, and had a borrowing capacity of $67.9$62.9 million. There were no outstanding borrowings through the FRB Discount Window at June 30, 2021.
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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 SeptemberJune 30, 2020,2021, the Bank had $101.2$63.2 million in outstanding FHLB borrowings, leaving $430.4$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 oftime 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 SeptemberJune 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 morea 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. TheMultiple interest rate scenarios are used in suchthis analysis maywhich 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 September 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 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
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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 SeptemberJune 30, 20202021 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
September 30, 2020   
Dollar changeN/A N/A $1,719  $2,029 
Percent changeN/A N/A 1.2 % 1.4 %
December 31, 2019   
Dollar change$1,302  $101  $(638) $(2,354)
Percent change0.9 % 0.1 % (0.5)% (1.7)%
 Immediate Change in Rates
(dollars in thousands)-200 -100 +100 +200
June 30, 2021   
Dollar changeN/A N/A $32  $(599)
Percent changeN/A N/A — % 0.4 %
December 31, 2020   
Dollar changeN/A N/A $2,667  $4,167 
Percent changeN/A N/A 1.8 % 2.8 %
As of SeptemberJune 30, 2020, 50.1%2021, 28.8% of the Company’s earning asset balances will reprice or are expected to pay down in the next twelve months, and 48.3%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 ourThe Company’s management, including our chief executive officerthe Chief Executive Officer and chief financial officer, we completed an evaluation ofSenior Executive Vice President and Chief Financial Officer, evaluated the effectiveness of the design and operation of ourCompany’s disclosure controls and procedures (as defined in RulesRule 13a-15(e) andor Rule 15d-15(e) under the SecuritiesExchange 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 September 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 officerthe Chief Executive Officer and chief financial officerSenior 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.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 waswere no changechanges in ourthe Company’s internal controlcontrols 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 SeptemberJune 30, 20202021 that hashave materially affected or isare reasonably likely to materially affect ourthe 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.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
The CompanyWe and itsour subsidiaries are from time to time parties to various legal actions arising in the normal course of business. We believe that there areis no threatened or pending proceedings,proceeding, other than ordinary routine litigation incidental to the Company’s business, against the Companyus or itsour subsidiaries or of which any of theirour property is the subject, which, if determined adversely, would have a material adverse effect on theour consolidated business or financial condition of the Company.condition.

Item 1A. Risk Factors.
In additionThere have been no material changes to the risk factors set forth under Part I, Item 1A “Risk Factors”"Risk Factors" in the Company’sCompany's Form 10-K for the fiscal year ended December 31, 2019,2020. Please refer to that section of our Form 10-K for disclosures regarding the following risk factors applyrisks and uncertainties related 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.business.

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 seeing 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 implementation of our growth strategy. Although the U.S. government initially introduced a number of programs designed to soften the impact of COVID-19 on small businesses, the lack of additional programs may cause our borrowers to not be able to satisfy their financial obligations to us.

In addition, COVID-19 has impacted 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. As COVID-19 cases have begun to surge in recent months 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.

The ultimate extent of the COVID-19 pandemic’s effect on our business will depend on many factors, primarily including the speed and extent of any recovery from the related economic recession. Among other things, this will depend on the duration of the COVID-19 pandemic, particularly in our markets, the development and distribution of vaccines, therapies and other public health initiatives to control the spread of the disease, the nature and size of federal economic stimulus and other governmental efforts, and the possibility of additional state lockdown or stay-at-home orders in our markets in response to the recent surge in the number of COVID-19 cases.

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;
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•increased demand on our liquidity as we meet borrowers’ needs and cover expenses 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;
•the modification of our business practices, including with respect to branch operations, employee travel, employee work locations, participation in meetings, events and conferences, and related changes for our vendors and other business partners;
•the disruption of our acquisition strategy due to the uncertainties created by the pandemic and challenges to our own business, which could limit or delay our future growth plans;
•increases in federal and state taxes as a result of the effects of the pandemic and stimulus programs on governmental budgets;
•an increase in FDIC premiums if the agency experiences additional resolution costs relating to bank failures; and
•other operational failures due to changes in our normal business practices because of the pandemic and governmental actions to contain it.

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 FRB, 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 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 SBA referred to as the 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 FRB has taken a number of actions in response. In March 2020, the FRB 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 FRB 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, our net interest margin and our profitability. The FRB also launched the Main Street Lending Program, which offers 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
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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 could apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility criteria. The Bank participated 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 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, litigation 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 September 30, 2020, and based upon our interim assessment, we concluded that an impairment of goodwill existed. We will be required to perform additional goodwill impairment assessments on at least an annual basis, and perhaps more frequently, which could result in additional 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 additional impairment charge being recorded in 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.

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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, 20211,890 $29.37 1,890 $2,617,267 
May 1 - 31, 2021— — — 2,617,267 
June 1 - 30, 202136,885 29.61 36,885 14,474,621 
Total38,775 $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.

As2021. For the period June 23, 2021 through June 30, 2021, the Company repurchased 17,790 shares of September 30, 2020, the total amountcommon 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. Subsequent to September 30, 2020, the Company's board of directors authorized resuming repurchases under of the Company's share repurchase program. The Company previously announced the temporary suspension of its share repurchase program in light of market conditions associated with the COVID-19 pandemic.repurchased.


Item 3. Defaults Upon Senior Securities.
None.

Item 4. Mine Safety Disclosures.
Not Applicable.

Item 5. Other Information.
None.

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Item 6. Exhibits.
Exhibit
Number
DescriptionIncorporated by Reference to:
4.13.1
Indenture, dated July 28, 2020, byAmended and betweenRestated Articles of Incorporation of MidWestOneFinancial Group, Inc. and U.S. Bank National Association, as trusteefiled with the Secretary of State of the State of Iowa on March 14, 2008
Exhibit 4.13.3 to the 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 29, 2020January 23, 2009
4.23.3
Forms
Articles of 5.75% Fixed-to-Floating Rate Subordinated Note due 2030 (included as Exhibit A-1 and Exhibit A-2Amendment (Second Amendment) to the IndentureAmended and Restated Articles of Incorporation of MidWestOne Financial Group, Inc. filed as Exhibit 4.1 hereto)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 4.23.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 29, 2020February 6, 2009
10.13.4
Employment Agreement betweenArticles of Amendment (Third Amendment) to the 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 April 21, 2017
Exhibit 10.13.1 to the Company'sCompany’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 July 6, 2020January 25, 2021
10.2
Form of Subordinated Note Purchase Agreement, dated July 28, 2020, by and among MidWestOne Financial Group, Inc. and the Purchasers
Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on July 29, 2020
10.3
Form of Registration Rights Agreement, dated July 28, 2020, by and among MidWestOne Financial Group, Inc. and the Purchasers
Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the SEC on July 29, 2020
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 2002Filed 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 2002Filed herewith
101The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended SeptemberJune 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.SCHiXBRL (Inline eXtensible Business Reporting Language)Inline XBRL Taxonomy Extension Schema DocumentFiled herewith
101.CALiXBRL (Inline eXtensible Business Reporting Language)Inline XBRL Taxonomy Extension Calculation Linkbase DocumentFiled herewith
101.DEFiXBRL (Inline eXtensible Business Reporting Language)Inline XBRL Taxonomy Extension Definition Linkbase DocumentFiled herewith
101.LABiXBRL (Inline eXtensible Business Reporting Language)Inline XBRL Taxonomy Extension Label Linkbase DocumentFiled herewith
101.PREiXBRL (Inline eXtensible Business Reporting Language)Inline XBRL Taxonomy Extension Presentation Linkbase DocumentFiled herewith
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)Filed herewith

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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:NovemberAugust 5, 20202021By: /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)
 
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