Consolidated Statements of Stockholders' Equity
For the Three and Six Months Ended June 30, 2021 and 2020

(5)5)Fair Value of Financial Instruments

ASC 825,Disclosures about Fair Values of Financial Instruments requires interim reporting period disclosure ~~about~~of the estimated fair ~~value~~values of the Company’s financial instruments, including assets, liabilities and off-balance sheet items for which it is practicable to estimate fair value. The fair value estimates are made as of ~~September~~June 30, ~~2020~~ 2021 and December 31, ~~2019~~ 2020 based upon relevant market information, if available, and upon the characteristics of the financial instruments themselves. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based upon judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors.

The estimated fair value of the Company’s financial instruments as of ~~September~~June 30, ~~2020~~ 2021 and December 31, ~~2019~~ 2020 are shown inbelow. Following the ~~following table.~~table, there is an explanation of the methods and assumptions used to estimate the fair value of each class of financial instruments.

	September 30, 2020													December 31, 2019													June 30, 2021													December 31, 2020
							Fair value hierarchy													Fair value hierarchy													Fair Value Hierarchy													Fair Value Hierarchy
(Dollars in thousands)	Carrying amount			Estimated fair value			Level 1		Level 2		Level 3	Contract amount		Carrying amount			Estimated fair value			Level 1		Level 2		Level 3	Contract amount		Carrying Amount			Estimated Fair Value			Level 1		Level 2		Level 3	Contract Amount		Carrying Amount			Estimated Fair Value			Level 1		Level 2		Level 3	Contract Amount
Financial assets:
Cash and cash equivalents	$	76,027			76,027			76,027							44,399			44,399			44,399						$	100,406			100,406			100,406							86,269			86,269			86,269
Securities available for sale		118,564			118,564					118,564					107,592			107,592					107,592					211,534			211,534					211,534					148,090			148,090					148,090
Equity securities		127			127					127					167			167					167					198			198					198					149			149					149
Loans held for sale		7,225			7,225					7,225					3,606			3,606					3,606					7,380			7,380					7,380					6,186			6,186					6,186
Loans receivable, net		670,297			674,804					674,804					596,392			600,863					600,863					637,219			640,968					640,968					642,630			648,275					648,275
Federal Home Loan Bank stock		932			932					932					854			854					854					1,092			1,092					1,092					932			932					932
Accrued interest receivable		4,236			4,236					4,236					2,251			2,251					2,251					2,135			2,135					2,135					3,102			3,102					3,102
Financial liabilities:
Deposits		787,023			787,975					787,975					673,870			673,945					673,945					862,282			862,597					862,597					795,204			795,927					795,927
Accrued interest payable		225			225					225					420			420					420					106			106					106					140			140					140
Off-balance sheet financial instruments:
Commitments to extend credit		266			266								191,522		14			14								178,804		186			186								209,513		261			261								180,330
Commitments to sell loans		(102	)		(102	)							48,199		(16	)		(16	)							10,098		(68	)		(68	)							25,652		(44	)		(44	)							24,746

Cash and Cash Equivalents

The carrying amount of cash and cash equivalents approximates their fair value.

Securities Available for Sale

The fair values of securities were based upon quoted market ~~prices for identical or similar instruments in active markets.~~prices.

Equity Securities

The fair values of equity securities were based upon quoted market prices.

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Loans Held for Sale

The fair values of loans held for sale were based upon quoted market prices for loans with similar interest rates and terms to maturity.

Loans Receivable, net

The fair value of the loan portfolio, with the exception of the adjustable rate portfolio, was calculated by discounting the scheduled cash flows through the estimated maturity using anticipated prepayment speeds and using discount rates that reflect the credit and interest rate risk inherent in each loan portfolio. The fair value of the adjustable loan portfolio was estimated by grouping the loans with similar characteristics and comparing the characteristics of each group to the prices quoted for similar types of loans in the secondary market. The fair value disclosures for both the fixed and adjustable rate portfolios were adjusted to reflect the exit price amount anticipated to be received from the sale of the portfolio in an open market transaction.

Federal Home Loan Bank (FHLB) Stock

The carrying amount of ~~Federal Home Loan Bank (FHLB)~~FHLB stock approximates its fair value.

Accrued Interest Receivable

The carrying amount of accrued interest receivable approximates its fair value since it is short-term in nature and does not present unanticipated credit concerns.

Deposits

The fair value of demand deposits, savings accounts and money market account deposits is the amount payable on demand at the reporting date. The fair value of fixed maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. The fair value disclosures for all of the deposits were adjusted to reflect the exit price amount anticipated to be received from the sale of the deposits in an open market transaction.

Accrued Interest Payable

The carrying amount of accrued interest payable approximates its fair value since it is short-term in nature.

Commitments to Extend Credit

The fair values of commitments to extend credit are estimated using the fees normally charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counter parties.

Commitments to Sell Loans

The fair values of commitments to sell loans are estimated using the quoted market prices for loans with similar interest rates and terms to maturity.

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(6(6)Other Comprehensive Income (Loss)~~Comprehensive~~~~Income~~ ~~(Loss)~~

Other comprehensive income (loss) is defined as the change in equity during a period from transactions and other events from ~~nonowner~~non-owner sources. Comprehensive income is the total of net income and other comprehensive income (loss), which for the Company is comprised of unrealized gains and losses on securities available for sale. The components of other comprehensive income (loss) and the related tax effects were as follows:

	For the three months ended September 30,															For the Three Months Ended June 30,
(Dollars in thousands)	2020									2019						2021						2020
Securities available for sale:	Before tax			Tax effect			Net of tax			Before tax		Tax effect		Net of tax		Before Tax		Tax Effect		Net of Tax		Before Tax		Tax Effect		Net of Tax
Net unrealized (losses) gains arising during the period	$	(281	)		(79	)		(202	)		206		57		149
Other comprehensive income (loss)	$	(281	)		(79	)		(202	)		206		57		149
Gross unrealized gains arising during the period																$	586		165		421		311		87		224
Other comprehensive income																$	586		165		421		311		87		224

For the Six Months Ended June 30,

(Dollars in thousands)

2021

2020

Securities available for sale:

Before
Tax

Tax
Effect

Net of
Tax

Before
Tax

Tax
Effect

Net of
Tax

Gross unrealized (losses) gains arising during the period
$ (1,135 ) (315 ) (820 ) 2,081 582 1,499
Other comprehensive (loss) income
$ (1,135 ) (315 ) (820 ) 2,081 582 1,499

For the nine months ended September 30,

(Dollars in thousands)

2020

2019

Securities available for sale:

Before tax

Tax effect

Net of tax

Before tax

Tax effect

Net of tax

Net unrealized gains arising during the period
$ 1,800 503 1,297 1,491 416 1,075
Other comprehensive income
$ 1,800 503 1,297 1,491 416 1,075

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~~(7)~~(7)Securities Available For Sale

The following table shows the gross unrealized losses and fair value for the securities available for sale portfolio, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at ~~September~~June 30, ~~2020~~ 2021 and December 31, ~~2019.~~2020.

	Less Than Twelve Months							Twelve Months or More							Total					Less Than Twelve Months							Twelve Months or More							Total
(Dollars in thousands)	# of Investments		Fair Value		Unrealized Losses			# of Investments		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			# of Investments		Fair Value		Unrealized Losses			# of Investments		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
September 30, 2020
Mortgage-backed securities:
June 30, 2021
Mortgage backed securities:
Federal National Mortgage Association (FNMA)		2	$	10,254		(35	)		0	$	0		0		$	10,254		(35	)		11	$	50,861		(271	)		0	$	0		0		$	50,861		(271	)
Federal Home Loan Mortgage Corporation (FHLMC)																					10		46,790		(173	)		0		0		0			46,790		(173	)
Other marketable securities:
Corporate obligations		1		37		(1	)		0		0		0			37		(1	)
U.S. Government agency obligations																					7		34,906		(90	)		0		0		0			34,906		(90	)
Corporate preferred stock		0		0		0			1		595		(105	)		595		(105	)		0		0		0			1		644		(56	)		644		(56	)
Total temporarily impaired securities		3	$	10,291		(36	)		1	$	595		(105	)	$	10,886		(141	)		28	$	132,557		(534	)		1	$	644		(56	)	$	133,201		(590	)

	Less Than Twelve Months							Twelve Months or More							Total					Less Than Twelve Months							Twelve Months or More							Total
(Dollars in thousands)	# of Investments		Fair Value		Unrealized Losses			# of Investments		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			# of Investments		Fair Value		Unrealized Losses			# of Investments		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
December 31, 2019
December 31, 2020
Mortgage backed securities:
FNMA		4	$	12,143		(65	)		0	$	0		0		$	12,143		(65	)		1	$	4,956		(3	)		0	$	0		0		$	4,956		(3	)
Other marketable securities:
U.S. Government agency obligations		0		0		0			4		19,972		(21	)		19,972		(21	)
Corporate preferred stock		0		0		0			1		665		(35	)		665		(35	)		0		0		0			1		630		(70	)		630		(70	)
Total temporarily impaired securities		4	$	12,143		(65	)		5	$	20,637		(56	)	$	32,780		(121	)		1	$	4,956		(3	)		1	$	630		(70	)	$	5,586		(73	)

The Company reviews its investment portfolio on a quarterly basis for indications of impairment. This review includes analyzing the length of time and the extent to which the fair value has been lower than the cost, the market liquidity for the investment, the financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer and the Company’s intent and ability to hold the investment for a period of time sufficient to recover the temporary loss. The unrealized losses on impaired securities other than the corporate preferred stock are the result of changes in interest rates. The unrealized losses reported for the corporate preferred stock at ~~September~~June 30, ~~2020~~ 2021 relates to a single trust preferred security that was issued by the holding company of a small community bank. As of ~~September~~June 30, ~~2020~~ 2021 all payments were current on the trust preferred security and the issuer’s subsidiary bank was considered to be “well capitalized” based on its most recent regulatory filing. Based on a review of the issuer, it was determined that the trust preferred security was not other-than-temporarily impaired at ~~September~~June 30, ~~2020. The~~2021 as the Company does not intend to sell ~~the preferred stock~~ and has the intent and ability to hold it for a period of time sufficient to recover the temporary loss. Management believes that the Company will receive all principal and interest payments contractually due on the security and that the decrease in the market value is primarily due to a lack of liquidity in the market for trust preferred securities. Management will continue to monitor the credit risk of the issuer and may be required to recognize other-than-temporary impairment charges on this security in future periods.

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A summary of securities available for sale at ~~September~~June 30, ~~2020~~ 2021 and December 31, ~~2019~~ 2020 is as follows:

(Dollars in thousands)

Amortized cost

Gross unrealized
gains

Gross unrealized
losses

Fair value

September 30, 2020:

Mortgage-backed securities:

FNMA
$ 52,922 1,388 (35 ) 54,275
Federal Home Loan Mortgage Corporation (FHLMC)
16,783 272 0 17,055
Collateralized mortgage obligations:

FNMA
121 7 0 128
69,826 1,667 (35 ) 71,458
Other marketable securities:

U.S. Government agency obligations
45,046 333 0 45,379
Municipal obligations
1,091 5 0 1,096
Corporate obligations
37 0 (1 ) 36
Corporate preferred stock
700 0 (105 ) 595
46,874 338 (106 ) 47,106
$ 116,700 2,005 (141 ) 118,564

Dollars in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
December 31, 2019
(Dollars in thousands)										Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
June 30, 2021
Mortgage-backed securities:
FNMA	$	46,604		47		(65	)		46,586	$	98,253		917		(271	)		98,899
FHLMC		8,004		88		0			8,092		66,889		207		(173	)		66,923
Collateralized mortgage obligations:
FNMA		169		4		0			173		60		4		0			64
		54,777		139		(65	)		54,851		165,202		1,128		(444	)		165,886
Other marketable securities:
U.S. Government agency obligations		49,974		39		(21	)		49,992		44,990		104		(90	)		45,004
Municipal obligations		1,969		7		0			1,976
Corporate obligations		108		0		0			108
Corporate preferred stock		700		0		(35	)		665		700		0		(56	)		644
		52,751		46		(56	)		52,741		45,690		104		(146	)		45,648
	$	107,528		185		(121	)		107,592	$	210,892		1,232		(590	)		211,534

(Dollars in thousands)

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

December 31, 2020

Mortgage-backed securities:

FNMA
$ 68,699 1,313 (3 ) 70,009
FHLMC
31,025 327 0 31,352
Collateralized mortgage obligations:

FNMA
97 6 0 103
99,821 1,646 (3 ) 101,464
Other marketable securities:

U.S. Government agency obligations
45,029 204 0 45,233
Municipal obligations
725 1 0 726
Corporate obligations
37 0 0 37
Corporate preferred stock
700 0 (70 ) 630
46,491 205 (70 ) 46,626
$ 146,312 1,851 (73 ) 148,090

The following table indicates amortized cost and estimated fair value of securities available for sale at ~~September~~June 30, ~~2020~~ 2021 based upon contractual maturity adjusted for scheduled repayments of principal and projected prepayments of principal based upon current economic conditions and interest rates.

(Dollars in thousands)

Amortized
Cost

Fair
Value

Amortized
Cost

Fair
Value

Due less than one year
$ 63,341 64,159 $ 69,884 70,096
Due after one year through five years
43,832 44,776 117,826 118,219
Due after five years through ten years
8,662 8,865 22,403 22,495
Due after ten years
865 764 779 724
Total
$ 116,700 118,564 $ 210,892 211,534

The allocation of mortgage-backed securities in the table above is based upon the anticipated future cash flow of the securities using estimated mortgage prepayment speeds. The allocation of other marketable securities that have call features is based on the anticipated cash flows to the expected call date if it is anticipated that the security will be called, or to the maturity date if it is not anticipated to be called.

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(8)Loans Receivable, Net

A summary of loans receivable at ~~September~~June 30, ~~2020~~ 2021 and December 31, ~~2019~~ 2020 is as follows:

(Dollars in thousands)	September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Single family	$	130,843		120,064		$	150,270		135,023
Commercial real estate:
Real estate rental and leasing		213,696		192,502			200,662		202,400
Other		170,211		157,693			176,949		178,304
		383,907		350,195			377,611		380,704
Consumer		59,271		69,949			46,266		55,391
Commercial business		106,796		64,227			74,118		82,673
Total loans		680,817		604,435			648,265		653,791
Less:
Unamortized discounts		13		15			11		12
Net deferred loan fees (costs)		975		(536	)
Net deferred loan fees							1,120		450
Allowance for loan losses		9,532		8,564			9,915		10,699
Total loans receivable, net	$	670,297		596,392		$	637,219		642,630

(9)9)Allowance for Loan Losses and Credit Quality Information

The allowance for loan losses is summarized as follows:

(Dollars in thousands)	Single Family		Commercial Real Estate			Consumer			Commercial Business			Total				Single Family				Commercial Real Estate			Consumer			Commercial Business			Total
For the three months ended September 30, 2020:
Balance, June 30, 2020	$	938		5,382			1,464			865			8,649
For the three months ended June 30, 2021:															For the three months ended June 30, 2021:
Balance, March 31, 2021																$	839				7,073			1,189			1,031			10,132
Provision for losses		27		878			(64	)		(71	)		770				90				(690	)		(166	)		(125	)		(891	)
Charge-offs		0		0			(29	)		(8	)		(37	)			0				0			(11	)		0			(11	)
Recoveries		0		0			5			145			150				0				650			27			8			685
Balance, September 30, 2020	$	965		6,260			1,376			931			9,532
Balance, June 30, 2021																$	929				7,033			1,039			914			9,915

For the nine months ended September 30, 2020:
Balance, December 31, 2019	$	857		5,060			1,507			1,140			8,564
For the six months ended June 30, 2021:															For the six months ended June 30, 2021:
Balance, December 31, 2020																$	1,030				7,295			1,389			985			10,699
Provision for losses		108		1,913			(79	)		(394	)		1,548				(101	)			(912	)		(336	)		(118	)		(1,467	)
Charge-offs		0		(730	)		(74	)		(8	)		(812	)			0				0			(42	)		0			(42	)
Recoveries		0		17			22			193			232				0				650			28			47			725
Balance, September 30, 2020	$	965		6,260			1,376			931			9,532
Balance, June 30, 2021																$	929				7,033			1,039			914			9,915

Allocated to:
Specific reserves	$	62		451			119			93			725
General reserves		795		4,609			1,388			1,047			7,839
Balance, December 31, 2019	$	857		5,060			1,507			1,140			8,564
Specific allowance																$	29				95			100			14			238
General allowance																	1,001				7,200			1,289			971			10,461
Balance, December 31, 2020																$	1,030				7,295			1,389			985			10,699

Allocated to:
Specific reserves	$	31		5			63			17			116
General reserves		934		6,255			1,313			914			9,416
Balance, September 30, 2020	$	965		6,260			1,376			931			9,532
Specific allowance																$	68				135			51			9			263
General allowance																	861				6,898			988			905			9,652
Balance, June 30, 2021																$	929		��		7,033			1,039			914			9,915

Loans receivable at December 31, 2019:
Loans receivable at December 31, 2020:															Loans receivable at December 31, 2020:
Individually reviewed for impairment	$	974		1,166			976			735			3,851			$	857				1,484			750			35			3,126
Collectively reviewed for impairment		119,090		349,029			68,973			63,492			600,584				134,166				379,220			54,641			82,638			650,665
Ending balance	$	120,064		350,195			69,949			64,227			604,435			$	135,023				380,704			55,391			82,673			653,791

Loans receivable at September 30, 2020:
Loans receivable at June 30, 2021:
Individually reviewed for impairment	$	708		1,537			707			45			2,997			$	578				519			723			26			1,846
Collectively reviewed for impairment		130,135		382,370			58,564			106,751			677,820				149,692				377,092			45,543			74,092			646,419
Ending balance	$	130,843		383,907			59,271			106,796			680,817			$	150,270				377,611			46,266			74,118			648,265

Table of Contents

(Dollars in thousands)

Single Family

Commercial
Real Estate

Consumer

Commercial
Business

Total

For the three months ended September 30, 2019:

Balance, June 30, 2019
$ 867 4,762 1,632 1,363 8,624
Provision for losses
24 (42 ) (37 ) (365 ) (420 )
Charge-offs
(2 ) 0 (46 ) 0 (48 )
Recoveries
0 0 2 37 39
Balance, September 30, 2019
$ 889 4,720 1,551 1,035 8,195

For the nine months ended September 30, 2019:

Balance, December 31, 2018
$ 833 4,869 1,622 1,362 8,686
Provision for losses
58 (1,834 ) 13 311 (1,452 )
Charge-offs
(2 ) 0 (92 ) (869 ) (963 )
Recoveries
0 1,685 8 231 1,924
Balance, September 30, 2019
$ 889 4,720 1,551 1,035 8,195

(Dollars in thousands)

Single
Family

Commercial
Real Estate

Consumer

Commercial
Business

Total

For the three months ended June 30, 2020:

Balance, March 31, 2020
$ 937 5,539 1,583 977 9,036
Provision for losses
1 556 (101 ) (138 ) 318
Charge-offs
0 (730 ) (34 ) 0 (764 )
Recoveries
0 17 16 26 59
Balance, June 30, 2020
$ 938 5,382 1,464 865 8,649

For the six months ended June 30, 2020:

Balance, December 31, 2019
$ 857 5,060 1,507 1,140 8,564
Provision for losses
81 1,035 (15 ) (323 ) 778
Charge-offs
0 (730 ) (45 ) 0 (775 )
Recoveries
0 17 17 48 82
Balance, June 30, 2020
$ 938 5,382 1,464 865 8,649

The following table summarizes the ~~amount~~amounts of classified and unclassified loans at ~~September~~June 30, ~~2020~~ 2021 and December 31, ~~2019:~~2020.

September 30, 2020

June 30, 2021

Classified

Unclassified

Classified

Unclassified

(Dollars in thousands)

Special
Mention

Substandard

Doubtful

Loss

Total

Total

Total Loans

Special
Mention

Substandard

Doubtful

Loss

Total

Total

Total
Loans

Single family
$ 274 2,313 31 0 2,618 128,225 130,843 $ 990 1,570 27 42 2,629 147,641 150,270
Commercial real estate:

Real estate rental and leasing
5,194 3,451 0 0 8,645 205,051 213,696 8,669 1,569 0 0 10,238 190,424 200,662
Other
5,537 5,574 0 0 11,111 159,100 170,211 7,388 8,099 0 0 15,487 161,462 176,949
Consumer
0 624 63 20 707 58,564 59,271 0 653 57 13 723 45,543 46,266
Commercial business
3,575 1,884 0 0 5,459 101,337 106,796 2,890 1,522 0 0 4,412 69,706 74,118
$ 14,580 13,846 94 20 28,540 652,277 680,817 $ 19,937 13,413 84 55 33,489 614,776 648,265

December 31, 2019

December 31, 2020

Classified

Unclassified

Classified

Unclassified

(Dollars in thousands)

Special
Mention

Substandard

Doubtful

Loss

Total

Total

Total Loans

Special
Mention

Substandard

Doubtful

Loss

Total

Total

Total
Loans

Single family
$ 1,118 1,765 35 0 2,918 117,146 120,064 $ 1,219 2,845 29 0 4,093 130,930 135,023
Commercial real estate:

Real estate rental and leasing
3,489 9,114 0 0 12,603 179,899 192,502 8,065 3,483 0 0 11,548 190,852 202,400
Other
4,451 5,253 0 0 9,704 147,989 157,693 8,774 9,750 0 0 18,524 159,780 178,304
Consumer
0 842 69 65 976 68,973 69,949 0 600 132 18 750 54,641 55,391
Commercial business
5,710 2,516 0 0 8,226 56,001 64,227 1,968 2,482 0 0 4,450 78,223 82,673
$ 14,768 19,490 104 65 34,427 570,008 604,435 $ 20,026 19,160 161 18 39,365 614,426 653,791

Classified loans represent special mention, substandard (performing and non-performing), and non-performing loans categorized as doubtful and loss. Loans classified as special mention are loans that have potential weaknesses that, if left uncorrected, may result in deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date. Loans classified as substandard are loans that are generally inadequately protected by the current net worth and paying capacity of the obligor, or by the collateral pledged, if any. Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Substandard loans are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loans classified as doubtful have the weaknesses of those classified as substandard, with additional characteristics that make collection in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. A loan classified as loss is essentially uncollateralized and/or considered uncollectible and of such little value that continuance as an asset on the balance sheet may not be warranted. Loans classified as substandard or doubtful require the Bank to perform an analysis of the individual loan and charge off any loans, or portion thereof, that are deemed uncollectible.

14
Table of Contents

The aging of past due loans at ~~September~~June 30, ~~2020~~ 2021 and December 31, ~~2019~~ 2020 is summarized as follows:

(Dollars in thousands)

30-59 Days
Past Due

60-89 Days
Past Due

90 Days
or More
Past Due

Total
Past Due

Current
Loans

Total Loans

Loans 90 Days
or More Past
Due and Still
Accruing

30-59 Days
Past Due

60-89 Days
Past Due

90 Days
or More
Past Due

Total
Past Due

Current
Loans

Total
Loans

Loans 90 Days
or More
Past Due and
Still Accruing

September 30, 2020

June 30, 2021

Single family
$ 550 223 144 917 129,926 130,843 0 $ 500 150 430 1,080 149,190 150,270 0
Commercial real estate:

Real estate rental and leasing
0 0 0 0 213,696 213,696 0 333 0 0 333 200,329 200,662 0
Other
0 0 185 185 170,026 170,211 0 0 0 0 0 176,949 176,949 0
Consumer
360 49 300 709 58,562 59,271 0 329 64 291 684 45,582 46,266 0
Commercial business
0 0 0 0 106,796 106,796 0 25 0 0 25 74,093 74,118
$ 910 272 629 1,811 679,006 680,817 0 $ 1,187 214 721 2,122 646,143 648,265 0
December 31, 2019

December 31, 2020

Single family
$ 786 77 59 922 119,142 120,064 0 $ 626 38 298 962 134,061 135,023 0
Commercial real estate:

Real estate rental and leasing
0 0 0 0 192,502 192,502 0 0 0 0 0 202,400 202,400 0
Other
0 0 0 0 157,693 157,693 0 0 0 0 0 178,304 178,304 0
Consumer
527 31 206 764 69,185 69,949 0 458 66 279 803 54,588 55,391 0
Commercial business
147 13 550 710 63,517 64,227 0 0 0 0 0 82,673 82,673 0
$ 1,460 121 815 2,396 602,039 604,435 0 $ 1,084 104 577 1,765 652,026 653,791 0

Impaired loans include loans that are non-performing (non-accruing) and loans that have been modified in a troubled debt restructuring (TDR). The following table summarizes impaired loans and related allowances as of ~~September~~June 30, ~~2020~~ 2021 and December 31, ~~2019:~~2020.

September 30, 2020

December 31, 2019

June 30, 2021

December 31, 2020

(Dollars in thousands)

Recorded
Investment

Unpaid
Principal
Balance

Related
Allowance

Recorded
Investment

Unpaid
Principal
Balance

Related
Allowance

Recorded
Investment

Unpaid
Principal
Balance

Related
Allowance

Recorded
Investment

Unpaid
Principal
Balance

Related
Allowance

Loans with no related allowance recorded:

Single family
$ 588 607 0 544 563 0 $ 423 442 0 740 759 0
Commercial real estate:

Real estate rental and leasing
968 1,618 0 0 0 0 156 156 0 932 1,582 0
Other
399 479 0 0 0 0 194 194 0 211 211 0
Consumer
596 596 0 781 781 0 628 628 0 574 574 0
Loans with an allowance recorded:

Single family
120 120 31 430 430 62 155 155 68 117 117 29
Commercial real estate:

Real estate rental and leasing
170 170 5 184 184 16 0 0 0 166 166 5
Other
0 0 0 982 982 435 169 169 135 175 175 90
Consumer
111 111 63 195 195 119 95 95 51 176 176 100
Commercial business
45 597 17 735 1,287 93 26 578 9 35 586 14
Total:

Single family
708 727 31 974 993 62 578 597 68 857 876 29
Commercial real estate:

Real estate rental and leasing
1,138 1,788 5 184 184 16 156 156 0 1,098 1,748 5
Other
399 479 0 982 982 435 363 363 135 386 386 90
Consumer
707 707 63 976 976 119 723 723 51 750 750 100
Commercial business
45 597 17 735 1,287 93 26 578 9 35 586 14
$ 2,997 4,298 116 3,851 4,422 725 $ 1,846 2,417 263 3,126 4,346 238

15
Table of Contents

The following ~~tables summarize~~table summarizes the average recorded investment and interest income recognized on impaired loans ~~during~~for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~ 2021 and ~~2019.~~2020.

For the three months ended
September 30, 2020

For the nine months ended
September 30, 2020

For the Three Months Ended June 30, 2021

For the Six Months Ended June 30, 2021

(Dollars in thousands)

Average
Recorded
Investment

Interest
Income
Recognized

Average
Recorded
Investment

Interest
Income
Recognized

Average Recorded
Investment

Interest Income
Recognized

Average Recorded
Investment

Interest Income
Recognized

Loans with no related allowance recorded:

Single family
$ 606 6 585 23 $ 580 1 633 2
Commercial real estate:

Real estate rental and leasing
985 0 493 33 614 0 720 0
Other
401 0 340 2 196 0 201 0
Consumer
586 3 640 9 570 2 571 2
Commercial business
4 0 2 0
Loans with an allowance recorded:

Single family
121 0 273 0 135 0 129 0
Commercial real estate:

Real estate rental and leasing
173 0 177 0 0 0 55 0
Other
0 0 487 0 154 0 161 0
Consumer
142 0 169 2 122 0 140 1
Commercial business
50 1 242 2 32 0 33 1
Total:

Single family
727 6 858 23 715 1 762 2
Commercial real estate:

Real estate rental and leasing
1,158 0 670 33 614 0 775 0
Other
401 0 827 2 350 0 362 0
Consumer
728 3 809 11 692 2 711 3
Commercial business
54 1 244 2 32 0 33 1
$ 3,068 10 3,408 71 $ 2,403 3 2,643 6
��

For the three months ended
September 30, 2019

For the nine months ended
September 30, 2019

(Dollars in thousands)

Average
Recorded
Investment

Interest
Income
Recognized

Average
Recorded
Investment

Interest
Income
Recognized

Loans with no related allowance recorded:

Single family
$ 551 6 499 17
Commercial real estate:

Other
0 0 13 0
Consumer
612 3 530 17
Loans with an allowance recorded:

Single family
579 1 684 2
Commercial real estate:

Real estate rental and leasing
191 0 195 0
Other
1,061 20 1,065 22
Consumer
192 3 241 8
Commercial business
248 3 286 8
Total:

Single family
1,130 7 1,183 19
Commercial real estate:

Real estate rental and leasing
191 0 195 0
Other
1,061 20 1,078 22
Consumer
804 6 771 25
Commercial business
248 3 286 8
$ 3,434 36 3,513 74

16
~~Table of Contents~~

For the Three Months Ended June 30, 2020

For the Six Months Ended June 30, 2020

(Dollars in thousands)

Average Recorded
Investment

Interest Income
Recognized

Average Recorded
Investment

Interest Income
Recognized

Loans with no related allowance recorded:

Single family
$ 604 7 584 18
Commercial real estate:

Real estate rental and leasing
501 13 334 33
Other
480 0 320 2
Consumer
591 3 654 6
Commercial business
4 0 3 0
Loans with an allowance recorded:

Single family
271 0 324 0
Commercial real estate:

Real estate rental and leasing
177 0 179 0
Other
484 0 650 0
Consumer
185 1 188 3
Commercial business
93 1 307 1
Total:

Single family
875 7 908 18
Commercial real estate:

Real estate rental and leasing
678 13 513 33
Other
964 0 970 2
Consumer
776 4 842 9
Commercial business
97 1 310 1
$ 3,390 25 3,543 63

At ~~September~~June 30, ~~2020~~ 2021 and December 31, ~~2019,~~ 2020, non-accruing loans totaled ~~$2.5~~$1.8 million and ~~$2.1~~$2.7 million, respectively, for which the related allowance for loan losses was ~~$0.1~~$0.3 million and $0.2 million, respectively. All of the interest income that was recognized for non-accruing loans was recognized using the cash basis method of income recognition. Non-accruing loans for which no specific allowance has been recorded, because management determined that the value of the collateral was sufficient to repay the loan, totaled ~~$2.2~~$1.4 million and ~~$0.8~~$2.1 million at ~~September~~June 30, ~~2020~~ 2021 and December 31, ~~2019,~~ 2020, respectively. Non-accrual loans also include certain loans that have had terms modified in a TDR.

16
Table of Contents
The non-accrual loans at ~~September~~June 30, ~~2020~~ 2021 and December 31, ~~2019~~ 2020 are summarized as follows:

(Dollars in thousands)

September 30, 2020

December 31, 2019

June 30,
2021

December 31,
2020

Single family
$ 352 617 $ 557 502
Commercial real estate:

Real estate rental and leasing
1,138 184 156 1,098
Other
399 0 363 386
Consumer
641 659 669 689
Commercial business
11 621 8 9
$ 2,541 2,081 $ 1,753 2,684

At ~~September~~June 30, ~~2020~~ 2021 and December 31, ~~2019~~ 2020 there were loans included in loans receivable, net, with terms that had been modified in a TDR totaling $1.3 million and $1.5 million, ~~and $2.5 million,~~ respectively. ~~There were no loans that were restructured as TDR’s in the third quarter of 2020.~~ Of the loans that were restructured as ~~TDR’s~~TDRs in the ~~third~~second quarter of ~~2019,~~ 2021,none were classified but performing, and $0.1 million were non-performing at ~~September~~June 30, ~~2019.~~2021. There were 0 loans that were restructured as TDRs in the second quarter of 2020.

The following table summarizes TDRs at ~~September~~June 30, ~~2020~~ 2021 and December 31, ~~2019:~~2020.

September 30, 2020

December 31, 2019

June 30, 2021

December 31, 2020

(Dollars in thousands)

Accrual

Non-Accrual

Total

Accrual

Non-Accrual

Total

Accruing

Non-
Accruing

Total

Accruing

Non-
Accruing

Total

Single family
$ 356 261 617 357 266 623 $ 22 249 271 355 257 612
Commercial real estate
0 214 214 983 0 983 0 363 363 0 211 211
Consumer
66 589 655 316 429 745 54 606 660 62 568 630
Commercial business
35 0 35 114 0 114 18 0 18 25 0 25
$ 457 1,064 1,521 1,770 695 2,465 $ 94 1,218 1,312 442 1,036 1,478

As of ~~September~~June 30, ~~2020,~~ 2021, the Bank had commitments to lend an additional ~~$1.3~~$0.5 million to a borrower who has TDR and non-accrual loans. These additional funds are for the construction of single family homes with a maximum loan-to-value ratio of 75%. These loans are secured by the homes under construction. At December 31, ~~2019,~~ 2020, there were commitments to lend additional funds of ~~$0.8~~$1.1 million to this same borrower.

TDR concessions can include reduction of interest rates, extension of maturity dates, forgiveness of principal and/or interest due, or acceptance of real estate or other assets in full or partial satisfaction of the debt. Loan modifications are not reported as TDRs after 12twelve months if the loan was modified at a market rate of interest for comparable risk loans, and the loan is performing in accordance with the terms of the restructured agreement for the entire 12twelve month period. All loans classified as TDRs are considered to be impaired.

When a loan is modified as a TDR, there may be a direct, material impact on the loans within the consolidated balance sheets, as principal balances may be partially forgiven. The financial effects of TDRs are presented in the following ~~tables~~table and represent the difference between the outstanding recorded balance pre-modification and post-modification, for the three ~~month~~ and ~~nine~~six month periods ~~ended September~~ending June 30, ~~2020~~ 2021 and ~~2019.~~2020.

Three Months Ended
June 30, 2021

Six Months Ended
June 30, 2021

(Dollars in thousands)

Number of
Contracts

Pre-
Modification
Outstanding
Recorded
Investment

Post-
Modification
Outstanding
Recorded
Investment

Number of
Contracts

Pre-
Modification
Outstanding
Recorded
Investment

Post-
Modification
Outstanding
Recorded
Investment

Troubled debt restructurings:

Commercial real estate:

Other
0 $ 0 0 1 $ 139 139
Consumer
1 93 94 1 93 94
Commercial business
0 0 0 1 14 14
Total
1 $ 93 94 3 $ 246 247

17
Table of Contents

Three Months Ended
September 30, 2020

Nine Months Ended
September 30, 2020

(Dollars in thousands)

Number of
Contracts

Pre-
modification
Outstanding
Recorded
Investment

Post-
modification
Outstanding
Recorded
Investment

Number of
Contracts

Pre-
modification
Outstanding
Recorded
Investment

Post-
modification
Outstanding
Recorded
Investment

Troubled debt restructurings:

Single family
0 $ 0 0 1 $ 94 101
Commercial real estate:

Other
0 0 0 2 293 293
Total
0 $ 0 0 3 $ 387 394

Three Months Ended
September 30, 2019

Nine Months Ended
September 30, 2019

(Dollars in thousands)

Number of
Contracts

Pre-
modification
Outstanding
Recorded
Investment

Post-
modification
Outstanding
Recorded
Investment

Number of
Contracts

Pre-
modification
Outstanding
Recorded
Investment

Post-
modification
Outstanding
Recorded
Investment

Troubled debt restructurings:

Single family
0 $ 0 0 3 $ 176 181
Consumer
1 58 58 4 118 118
Total
1 $ 58 58 7 $ 294 299

Three Months Ended
June 30, 2020

Six Months Ended
June 30, 2020

(Dollars in thousands)

Number of
Contracts

Pre-
modification
Outstanding
Recorded
Investment

Post-
modification
Outstanding
Recorded
Investment

Number of
Contracts

Pre-
modification
Outstanding
Recorded
Investment

Post-
modification
Outstanding
Recorded
Investment

Troubled debt restructurings:

Single family
0 $ 0 0 1 $ 94 101
Commercial real estate:

Other
0 0 0 2 293 293
Total
0 $ 0 0 3 $ 387 394

There were no0 loans that were restructured in the 12twelve months preceding ~~September~~June 30, ~~2020~~ 2021 and ~~2019~~2020 that subsequently defaulted during the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~ 2021 and ~~2019, respectively.~~2020.

The Company considers a loan to have defaulted when it becomes 90 or more days past due under the modified terms, when it is placed in non-accrual status, when it becomes other real estate owned, or when it becomes non-compliant with some other material requirement of the modification agreement. Loans that were non-accrual prior to modification remain on non-accrual status for at least six months following modification. Non-accrual TDR loans that have performed according to the modified terms for six months may be returned to accrual status. Loans that were accruing prior to modification remain on accrual status after the modification as long as the loan continues to perform under the new terms.

TDRs are reviewed for impairment following the same methodology as other impaired loans. For loans that are collateral-dependent, the value of the collateral is reviewed and additional reserves may be added to specific reserves as needed. Loans that are not collateral-dependent may have additional reserves established if deemed necessary. The reserves for TDRs were ~~$0.1~~$0.3 million, or ~~1.1%~~2.6%, of the total ~~$9.5~~$9.9 million in loan loss reserves at ~~September~~June 30, ~~2020~~ 2021 and ~~$0.6~~$0.1 million, or ~~7.2%~~0.9%, of the total ~~$8.6~~$10.7 million in loan loss reserves at December 31, ~~2019.~~2020.

InThe Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020 and the first nine months of 2020 the Company deferred loan payments for up to six months for some borrowers that were negatively impacted by the COVID-19 pandemic. In accordance with the regulatory guidance inBank’s regulators issued the Interagency Statement on Loan Modification and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus ~~that was issued~~ on April 7, ~~2020,~~2020. Section 4013 of the CARES Act temporarily allows the Bank to grant modifications of loans to borrowers that were impacted by the pandemic without classifying the modifications as TDRs if the accommodation is granted before December 31, 2021. In accordance with the regulatory guidance, the Bank granted accommodations on certain loans to borrowers who were negatively impacted by the COVID-19 pandemic. At June 30, 2021, the Bank had $33.5 million of loans that had been granted loan accommodations in accordance with Section 4013 of the CARES Act. These accommodations are in addition to the TDRs that are disclosed above. The accommodations granted included $29.2 million of loans that are required to make interest only payments for periods up to December 31, 2021 and $4.3 million of loans that had their loan amortization period increased. Of these ~~deferred amounts~~loans, $5.7 million were ~~not included in the TDR information noted above. Furthermore, based on management’s review the risk ratings on~~classified but still accruing at June 30, 2021 and all of these loans were ~~not changed~~current with their agreed upon payments. The commercial credit area continues to communicate regularly with the borrowers that have been granted loan accommodations and ~~the loans continue~~monitors their activity closely. This information is used to ~~accrue interest based on the applicable guidance. Management will continue to monitor~~analyze the performance ~~and condition~~ of these loans and ~~make~~to anticipate any ~~necessary changes~~potential issues that these loans may develop so that risk ratings may be appropriately adjusted in a timely manner. It is anticipated that most of the remaining borrowers that have been granted accommodations will be in a position to resume making their ~~classification that~~ regular loan payments at the end of the initial accommodation period. Other borrowers, particularly in the hospitality and restaurant industries, may ~~be required based on future regulatory guidance. A summary~~need additional accommodations when their initial accommodation period ends as their operations may need more time to recover from the impact of ~~deferred loans at September 30, 2020 and June 30, 2020 by industry and collateral type is as follows:~~the pandemic.

18
Table of Contents

(Dollars in thousands)

Balance
September 30, 2020

Balance
June 30, 2020

Commercial real estate loans by industry:

Hotels ⁽¹⁾
$ 54,660 54,660
Retail/Office
7,127 20,322
Theaters
11,269 11,269
Multi-family
0 11,195
Single family
0 4,675
Restaurant/Bar
2,876 4,477
Other
5,747 9,449
Total commercial loans
81,679 116,047

Consumer loans by collateral type:

Single family
366 2,955
Other
0 77
Total consumer loans
366 3,032
Total deferred loans
$ 82,045 119,079
~~(1)~~
Approximately $38.5 million of the hotel properties are located in Minnesota with approximately $21.3 million located in Rochester, Minnesota, $13.8 million in the Minneapolis/St. Paul, Minnesota metro area, and $3.4 million in St. Cloud, Minnesota.
All of the borrowers whose loan deferral period ended during the third quarter of 2020 had resumed making their normal payments and none of the loans removed from the deferral list were classified as non-performing as of September 30, 2020. The initial deferral period for all remaining deferred loans at September 30, 2020 is scheduled to end in the fourth quarter of 2020. The Company’s commercial credit department continues to communicate regularly with the borrowers that have had their loan payments deferred and monitors their activity closely. This information is used to analyze the performance of these borrowers and to help anticipate any potential issues that these borrowers may have when their initial deferral period ends. It is anticipated that some of the remaining borrowers with deferred loan payments will be in a position to resume making their regular loan payments, while other borrowers, particularly in the hospitality and restaurant industries, may need to have their loan terms modified for a period of time until their operations recover more fully from the impacts of the pandemic.
(1010) Intangible Assets
The Company’s intangible assets consist of ~~mortgage servicing rights,~~ core deposit intangibles, goodwill and ~~goodwill.~~mortgage servicing rights. A summary of mortgage servicing rights activity is as follows:

(Dollars in thousands)

Nine Months ended
September 30, 2020

Twelve Months ended
December 31, 2019

Nine Months ended
September 30, 2019

Six Months Ended
June 30, 2021

Twelve Months Ended
December 31, 2020

Six Months Ended
June 30, 2020

Balance, beginning of period
$ 2,172 1,855 1,855 $ 3,043 2,172 2,172
Originations
1,710 1,097 674 691 2,189 1,096
Amortization
(1,002 ) (780 ) (535 ) (574 ) (1,318 ) (621 )
Balance, end of period
$ 2,880 2,172 1,994 $ 3,160 3,043 2,647
Fair value of mortgage servicing rights
$ 2,956 3,390 2,922 $ 4,316 3,378 2,840

All of the loans sold where the Company continues to service the loans are serviced for FNMA under ~~the mortgage-backed security program or~~ the individual loan sale program. The following is a summary of the risk characteristics of the loans being serviced for FNMA at ~~September~~June 30, ~~2020.~~2021.

Weighted

Weighted

Weighted

Weighted

Loan

Average

Average

Loan

Average

Average

Principal

Interest

Remaining

Number

Principal

Interest

Remaining

Number

(Dollars in thousands)

Balance

Rate

Term (months)

of Loans

Balance

Rate

Term (months)

of Loans

Original term 30 year fixed rate
$ 380,018 3.74
%
311 2,593 $ 407,078 3.50
%
312 2,629
Original term 15 year fixed rate
117,870 3.03 140 1,064 120,211 2.90 142 1,079

Amortization expense for amortizing intangible assets was $0.6 million and $0.7 million for the six month periods ended June 30, 2021 and 2020, respectively. The gross carrying amount of intangible assets and the associated accumulated amortization at ~~September~~June 30, ~~2020~~ 2021 and December 31, ~~2019~~ 2020 is presented in the following ~~table. Amortization expense for amortizing intangible assets was $1.1 million and $0.6 million for the nine month periods ended September 30, 2020 and 2019, respectively.~~tables.

19
~~Table of Contents~~

June 30, 2021

Gross

(Dollars in thousands)

Carrying
Amount

Accumulated
Amortization

Unamortized
Amount

Mortgage servicing rights
$ 6,015 (2,855 ) 3,160
Core deposit intangible
574 (551 ) 23
Goodwill
802 0 802
Total
$ 7,391 (3,406 ) 3,985

September 30, 2020

Gross

(Dollars in thousands)

Carrying
Amount

Accumulated Amortization

Unamortized Amount

Mortgage servicing rights
$ 6,018 (3,138 ) 2,880
Core deposit intangible
574 (492 ) 82
Goodwill
802 0 802
Total
$ 7,394 (3,630 ) 3,764

December 31, 2019

December 31, 2020

��
Gross

Gross

(Dollars in thousands)

Carrying
Amount

Accumulated Amortization

Unamortized Amount

Carrying
Amount

Accumulated
Amortization

Unamortized
Amount

Mortgage servicing rights
$ 4,968 (2,796 ) 2,172 $ 5,691 (2,648 ) 3,043
Core deposit intangible
574 (418 ) 156 574 (517 ) 57
Goodwill
802 0 802 802 0 802
Total
$ 6,344 (3,214 ) 3,130 $ 7,067 (3,165 ) 3,902

The following table indicates the estimated future amortization expense for ~~amortizing~~ intangible ~~assets:~~assets.

(Dollars in thousands)

Mortgage
Servicing Rights

Core Deposit
Intangible

Total
Amortizing
Intangible Assets

Year ending December 31,

2021
$ 338 13 351
2022
638 10 648
2023
597 0 597
2024
552 0 552
2025
471 0 471
Thereafter
564 0 564
Total
$ 3,160 23 3,183

(Dollars in thousands)

Mortgage
Servicing
Rights

Core
Deposit
Intangible

Total
Amortizing
Intangible
Assets

Year ended December 31,

2020
$ 156 25 181
2021
596 47 643
2022
550 10 560
2023
495 0 495
2024
437 0 437
Thereafter
646 0 646
Total
$ 2,880 82 2,962

19
Table of Contents

Projections of amortization are based on existing asset balances and the existing interest rate environment as of September 30, 2020. The Company's actual experience may be different depending upon changes in mortgage interest rates and other market conditions.
No amortization expense relating to goodwill is recorded as GAAP does not allow goodwill to be amortized but requires that it be tested for impairment at least annually, or sooner, if there are indications that impairment may exist. The Company’s stock was trading at a price below its book value at September 30, 2020 and therefore, goodwill was analyzed for impairment. Based on the analysis, the Company determined that goodwill was not permanently impaired and no write down was required at September 30, 2020.

Projections of amortization are based on existing asset balances and the existing interest rate environment as of June 30, 2021. The Company's actual experiences may be significantly different depending upon changes in mortgage interest rates and other market conditions.

~~(11)~~(11) Leases
The Company accounts for its leases in accordance with ASU ~~2016-02,~~2016-02, Leases (Topic ~~842)~~842) and as of ~~September~~June 30, ~~2020,~~ 2021 a ~~$3.4~~$2.8 million right-of-use asset and an offsetting lease payment obligation liability were recorded on the consolidated balance ~~sheets~~sheet in other assets and other liabilities, respectively.

Operating lease right-of-use assets represent the Company’s right to use an underlying asset during the lease term and operating lease liabilities represent its obligation to make lease payments arising from the lease. Right-of-use assets and operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents the Company’s incremental borrowing rate at the lease commencement date. Because the Company only has operating leases and the right-of-use asset is offset by a lease payment obligation liability, the lease payments are the only amount that is recorded in occupancy expense in the consolidated statements of comprehensive income.

The Company’s leases relate to office space and bank branches with remaining lease terms between 22fourteen and 54forty-six months. Certain leases contain extension options which typically range from 3three to 10ten years. Because these extension options are not considered reasonably certain of exercise, they are not included in the lease term.
The table below summarizes the Company’s net lease cost for the three and six months ended June 30, 2021.
(Dollars in thousands)

Three Months
Ended
June 30, 2021

Six Months
Ended
June 30, 2021

Operating lease cost
$ 223 449

The table below summarizes other information related to the Company’s operating leases.

Three Months Ended

Six Months Ended

(Dollars in thousands)

June 30,
2021

June 30,
2020

June 30,
2021

June 30,
2020

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases
$ 223 223 449 445
Weighted-average remaining lease term – operating leases, in years
3.3 4.2 3.3 4.2
Weighted-average discount rate – operating leases
2.19 % 2.19 % 2.19 % 2.19 %

The table below summarizes the maturities of remaining lease liabilities.

(Dollars in thousands)

June 30, 2021

2021
$ 452
2022
932
2023
807
2024
729
2025
15
Total lease payments
2,935
Less: Interest
(107 )
Present value of lease liabilities
$ 2,828

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~~The table below summarizes the Company’s net lease cost:~~
(Dollars in thousands)

Three Months Ended
September 30, 2020

Nine Months Ended
September 30, 2020

Operating lease cost
$ 224 669

~~The table below summarizes other information related to the Company’s operating leases:~~
(Dollars in thousands)

Three Months
Ended
September 30,
2020

Three Months
Ended
September 30,
2019

Nine Months
Ended
September 30,
2020

Nine Months
Ended
September 30,
2019

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases
$ 224 221 669 667
Weighted-average remaining lease term – operating leases, in years
3.9 5.0 3.9 5.0
Weighted-average discount rate – operating leases
2.19 % 2.19 % 2.19 % 2.19 %

~~The table below summarizes the maturities of remaining lease liabilities:~~
(Dollars in thousands)

September 30, 2020

2020
$ 222
2021
902
2022
924
2023
802
2024
667
2025 and thereafter
11
Total lease payments
3,528
Less: Interest
(153 )
Present value of lease liabilities
$ 3,375

(1212)Earnings per Common S~~hare~~Share
The following table reconciles the weighted average shares outstanding and the earnings available to common shareholders used for basic and diluted earnings per ~~share:~~common share.

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands, except per share data)

2020

2019

2020

2019

Weighted average number of common shares outstanding used in basic earnings per share calculation
4,628 4,614 4,624 4,606
(Dollars in thousands, except per share data)

2021

2020

2021

2020

Weighted average number of common shares outstanding used in basic earnings per common share calculation
4,492,502 4,618,555 4,526,434 4,622,231
Net dilutive effect of:

Restricted stock awards and options
23 28 26 29 34,394 25,664 32,983 26,691
Weighted average number of shares outstanding adjusted for effect of dilutive securities
4,651 4,642 4,650 4,635 4,526,896 4,644,219 4,559,417 4,648,922
Income available to common shareholders
$ 3,101 2,076 7,177 6,557
Income available to common stockholders
$ 4,528 2,691 7,946 4,076
Basic earnings per common share
$ 0.67 0.45 1.55 1.42 $ 1.01 0.58 1.76 0.88
Diluted earnings per common share
$ 0.67 0.45 1.54 1.41 $ 1.00 0.58 1.74 0.88

(13(13) Regulatory Capital and Oversight
The ~~Company and the~~ Bank ~~are~~is subject to the Basel III regulatory capital requirements. The Basel III requirements, among other things, (i) apply a set of capital requirements to the Bank, ~~(the Company is exempt, pursuant to the Small Bank Holding Company Policy Statement (Policy Statement) described below),~~ including requirements relating to common equity as a component of core capital, (ii) implement a “capital conservation buffer” against risk and a higher minimum Tier 1 capital requirement, and (iii) set forth rules for calculating risk-weighted assets for purposes of such requirements. The rules also made corresponding revisions to the prompt corrective action framework and include capital ratios and buffer ~~requirements which became fully phased in on January 1, 2019.~~requirements. 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 financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

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The Board of Governors of the Federal Reserve System amended its Small Bank Holding Company Policy Statement (Policy Statement), to exempt small bank holding companies with assets less than $3$3 billion from the above capital requirements. The Policy Statement was also expanded to include savings and loan holding companies that meet the Policy Statement’s qualitative requirements for exemption. The Company currently meets the qualitative exemption requirements, and therefore, is exempt from the above capital requirements.

Quantitative measures established by regulations to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the following table and defined in the regulation) of Common Equity Tier 1 capital to risk weighted assets, Tier 1 capital to adjusted total assets, Tier 1 capital to risk weighted assets and total capital to risk weighted assets.

The Bank’s average total assets for the quarter ended ~~September~~June 30, ~~2020~~ 2021 were ~~$886.7~~$977.2 million, its adjusted total assets were ~~$885.8~~$976.5 million, and its risk-weighted assets were ~~$655.1~~$689.6 million. The following table presents the Bank’s capital amounts and ratios at ~~September~~June 30, ~~2020~~ 2021 for actual capital, required capital and excess capital, including ratios in order to qualify as being well capitalized under the prompt corrective ~~action~~actions regulations.

Actual

Required to be
Adequately Capitalized

Excess Capital

To Be Well Capitalized
Under Prompt
Corrective Action
Provisions

(Dollars in thousands)

Amount

Percent of
Assets

Amount

Percent of
Assets

Amount

Percent of
Assets

Amount

Percent of
Assets

June 30, 2021

Common equity Tier 1 capital
$ 97,789 14.18
%
$ 31,033 4.50
%
$ 66,756 9.68
%
$ 44,826 6.50
%
Tier 1 capital leverage
97,789 10.01 39,059 4.00 58,730 6.01 48,823 5.00
Tier 1 risk-based capital
97,789 14.18 41,378 6.00 56,411 8.18 55,171 8.00
Total risk-based capital
106,425 15.43 55,171 8.00 51,254 7.43 68,963 10.00

Actual

Required to be
Adequately Capitalized

Excess Capital

To Be Well Capitalized
Under Prompt Corrective
Action Provisions

(Dollars in thousands)

Amount

Percent of
Assets

Amount

Percent of
Assets

Amount

Percent of
Assets

Amount

Percent of
Assets

September 30, 2020

Common equity tier 1 capital
$ 86,209 13.16
%
$ 29,481 4.50
%
$ 56,728 8.66
%
$ 42,583 6.50
%
Tier 1 capital leverage
86,209 9.73 35,432 4.00 50,777 5.73 44,291 5.00
Tier 1 risk-based capital
86,209 13.16 39,307 6.00 46,902 7.16 52,410 8.00
Total risk-based capital
94,414 14.41 52,410 8.00 42,004 6.41 65,512 10.00

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The Bank must maintain a capital conservation buffer of 2.50% composed of common equity Tier 1 capital above its minimum risk-based capital requirements in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers. Management believes that, as of ~~September~~June 30, ~~2020,~~ 2021, the Bank’s capital ratios were in excess of those quantitative capital ratio standards set forth under the current prompt corrective action regulations, including the capital conservation buffer described above. However, there can be no assurance that the Bank will continue to maintain such status in the future. The Office of the Comptroller of the Currency (OCC) has extensive discretion in its supervisory and enforcement activities, and can adjust the requirement to be “well-capitalized” in the future.

(14(14) ~~Stockholders’~~Stockholders’ Equity
The Company was authorized to repurchase up to ~~$5.6~~$1.8 million ~~additional shares~~ of its common stock under the existing board-approved share repurchase program at ~~September~~June 30, ~~2020.~~ 2021. The Company ~~suspended~~did not declare any dividends on its common stock but did repurchase ~~program through September 30, 2020 and did not repurchase any~~108,000 shares of its common stock in the open market for $2.2 million under the share repurchase program during the second ~~or third quarters~~ quarter of ~~2020. The suspension~~2021. Subsequent to the end of the ~~stock~~quarter, on July 27, 2021, the board approved an additional $4.2 million for the share repurchase program, ~~was done in order~~increasing to ~~preserve capital while~~$6.0 million the ~~Company evaluated its capital needs as a result~~amount of the stressed economic environment related to the COVID-19 pandemic. Although, the evaluation of capital needs is an ongoing process, the stock repurchase program is no longer suspended. The Company did not pay any dividends on its common stock ~~in the third quarter of 2020 and no dividends are anticipated~~authorized to be ~~paid in~~repurchased under the ~~fourth quarter~~share repurchase program as of ~~2020.~~that date.

(15(15)Commitments and Contingencies
The Bank issues standby letters of credit which guarantee the performance of customers to third parties. The standby letters of credit issued and available at ~~September~~June 30, ~~2020~~ 2021 were approximately ~~$7.0~~$5.0 million, expire over the next 14sixteen months and are collateralized primarily with commercial real estate mortgages. Since the conditions under which the Bank is required to fund the standby letters of credit may not materialize, the cash requirements are expected to be less than the total outstanding commitments.

From time to time, the Company is party to legal proceedings arising out of its lending and deposit operations. The Company is, and expects to become, engaged in foreclosure proceedings, collection actions and other litigation as part of its normal banking activities. Among the various current litigation matters, the Company is involved in a bankruptcy litigation claim where the bankruptcy trustee is attempting to recover ~~$1.9~~$2.0 million related to the principal and interest payments made to the Bank prior to the bankruptcy filing of a former customer of the Bank.
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The Company examines each legal matter, and, in those situations where it determines that a particular legal matter presents loss contingencies that are both probable and reasonably estimable, establishes an appropriate accrual. In many situations, the Company is not able to estimate reasonably possible losses due to the preliminary nature of the legal matter, as well as a variety of other factors and uncertainties. For those legal matters where the Company is able to estimate a range of reasonably possible losses, management currently estimates that the aggregate range of losses from all of the Company’s outstanding litigation is from $0 to $0.9 million in excess of the amounts accrued, if any. This estimated aggregate range is based on an assessment of the information currently available to the Company and the actual aggregate losses could be higher. However, the Company does not believe these losses are probable ~~to occur~~ at this time. The Company reassesses all of its potential loss positions based on the available information each quarter and the estimated range of reasonably possible losses may change in the future. The Company typically vigorously pursues all available defenses related to litigation but may consider other alternatives, including settlement, in situations where there is an opportunity to resolve a legal matter on terms that are considered to be favorable to the Company when considering the continued expense and distraction of defending against any particular legal action.

Based on the Company’s current understanding of all of the outstanding legal matters, management does not believe that judgments or settlements arising from any pending or threatened litigation, individually or in the aggregate, would have a material adverse effect on the consolidated financial condition or results of operations. However, litigation is unpredictable and the actual results of litigation cannot be determined with any certainty. Therefore, the ultimate aggregate resolution of any, or all, of the current outstanding legal matters could have a material adverse effect on the Company’s results of operations in the future.

~~(16)~~(16) Business Segments
The Bank has been identified as a reportable operating segment in accordance with the provisions of ASC 280. HMN, the holding company, did not meet the quantitative thresholds for a reportable segment and therefore is included in the “Other” category.
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The Company evaluates performance and allocates resources based on the segment’s net income, return on average assets and return on average equity. Each corporation is managed separately with its own officers and board of directors.

23
~~Table of Contents~~
The following table sets forth certain information about the reconciliations of reported profit and assets for each of the Company’s reportable segments.

(Dollars in thousands)

Home Federal
Savings Bank

Other

Eliminations

Consolidated
Total

Home Federal
Savings Bank

Other

Eliminations

Consolidated
Total

At or for the nine months ended September 30, 2020:

Interest income - external customers
$ 23,676 0 0 23,676
Non-interest income - external customers
10,461 0 0 10,461
At or for the six months ended June 30, 2021:

Interest income – external customers
$ 15,983 0 0 15,983
Non-interest income – external customers
7,996 1 0 7,997
Intersegment interest income
0 32 (32 ) 0 0 14 (14 ) 0
Intersegment non-interest income
175 7,609 (7,784 ) 0 117 8,281 (8,398 ) 0
Interest expense
2,325 0 (32 ) 2,293 877 0 (14 ) 863
Provision for loan losses
1,548 0 0 1,548 (1,467 ) 0 0 (1,467 )
Non-interest expense
19,863 562 (175 ) 20,250 13,140 436 (117 ) 13,459
Income tax expense
2,967 (98 ) 0 2,869 3,265 (86 ) 0 3,179
Net income
7,609 7,177 (7,609 ) 7,177 8,281 7,946 (8,281 ) 7,946
Total assets
897,694 101,308 (100,550 ) 898,452 981,023 107,421 (107,418 ) 981,026
At or for the nine months ended September 30, 2019:

Interest income - external customers
$ 24,029 2 (2 ) 24,029
Non-interest income - external customers
5,939 0 0 5,939
Intersegment non-interest income
176 7,015 (7,191 ) 0
Interest expense
2,427 0 (2 ) 2,425
Provision for loan losses
(1,452 ) 0 0 (1,452 )
Non-interest expense
19,363 574 (176 ) 19,761
Income tax expense
2,791 (114 ) 0 2,677
Net income
7,015 6,557 (7,015 ) 6,557
Total assets
762,445 91,388 (90,605 ) 763,228
At or for the quarter ended September 30, 2020:

Interest income - external customers
$ 7,949 0 0 7,949
Non-interest income - external customers
4,396 0 0 4,396
At or for the six months ended June 30, 2020:

Interest income – external customers
15,727 0 0 15,727
Non-interest income – external customers
6,065 0 0 6,065
Intersegment interest income
0 9 (9 ) 0 0 23 (23 ) 0
Intersegment non-interest income
58 3,251 (3,309 ) 0 117 4,358 (4,475 ) 0
Interest expense
665 0 (9 ) 656 1,660 0 (23 ) 1,637
Provision for loan losses
770 0 0 770 778 0 0 778
Non-interest expense
6,460 194 (58 ) 6,596 13,403 368 (117 ) 13,654
Income tax expense
1,257 (35 ) 0 1,222 1,710 (63 ) 0 1,647
Net income
3,251 3,101 (3,251 ) 3,101 4,358 4,076 (4,358 ) 4,076
Total assets
897,694 101,308 (100,550 ) 898,452 862,046 98,247 (97,510 ) 862,783
At or for the quarter ended September 30, 2019:

Interest income - external customers
$ 7,998 2 (2 ) 7,998
Non-interest income - external customers
2,227 0 0 2,227
At or for the quarter ended June 30, 2021:

Interest income – external customers
$ 8,094 0 0 8,094
Non-interest income – external customers
4,742 0 0 4,742
Intersegment interest income
0 6 (6 ) 0
Intersegment non-interest income
59 2,235 (2,294 ) 0 59 4,687 (4,746 ) 0
Interest expense
908 0 (2 ) 906 416 0 (6 ) 410
Provision for loan losses
(420 ) 0 0 (420 ) (891 ) 0 0 (891 )
Non-interest expense
6,604 202 (59 ) 6,747 6,831 208 (59 ) 6,980
Income tax expense
957 (41 ) 0 916 1,852 (43 ) 0 1,809
Net income
2,235 2,076 (2,235 ) 2,076 4,687 4,528 (4,687 ) 4,528
Total assets
762,445 91,388 (90,605 ) 763,228 981,023 107,421 (107,418 ) 981,026
��
At or for the quarter ended June 30, 2020:

Interest income – external customers
$ 7,883 0 0 7,883
Non-interest income – external customers
3,594 0 0 3,594
Intersegment interest income
0 8 (8 ) 0
Intersegment non-interest income
58 2,834 (2,892 ) 0
Interest expense
753 0 (8 ) 745
Provision for loan losses
318 0 0 318
Non-interest expense
6,529 182 (58 ) 6,653
Income tax expense
1,101 (31 ) 0 1,070
Net income
2,834 2,691 (2,834 ) 2,691
Total assets
862,046 98,247 (97,510 ) 862,783

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Item 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-looking Information
Safe Harbor Statement
This quarterly report on Form 10-Q and other reports filed by the Company with the SEC may contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are often identified by such forward-looking terminology as “expect,” “intend,” “look,” “believe,” “anticipate,” “project,” “continue,” “may,” “will,” “would,” “could,” “should,” and “trend,” or similar statements or variations of such terms and include, but are not limited to, those relating to growing the Company’s core deposit relationships and loan balances; enhancing the financial performance of its core banking operations; maintaining credit quality; maintaining net interest margins; reducing non-performing assets; generating improved financial results; the adequacy and amount of available liquidity and capital resources to the Bank; the Company’s liquidity and capital requirements; ~~its~~ expectations for core capital and ~~its~~ strategies and potential strategies for maintenance thereof; improvements in loan production; changes in the size of the Bank’s loan portfolio; the anticipated impacts of the COVID-19 pandemic and efforts to mitigate the same on the general economy, ~~the Company’s~~ clients, deposit balances, and the allowance for loan losses; the anticipated benefits that will be realized by ~~its~~ clients from government assistance programs related to the COVID-19 ~~pandemic;~~pandemic, including the forgiveness of loans under the Paycheck Protection Program, the Company’s expectations relating to repurchases of its common stock during the COVID-19 ~~pandemic;~~pandemic and requests for loan payment accommodation from borrowers; the amount of the Bank’s non-performing assets in future periods and the appropriateness of the allowances therefor; anticipated future levels of the provision for loan losses; future losses on non-performing non-accruing and purchased loans; the amount and composition of non-interest and interest bearing liabilities; the need for an availability of alternate funding sources; the payment of dividends or repurchases of stock by HMN; the amount of deposits that will be withdrawn from checking and money market accounts and how the withdrawn deposits will be replaced; ~~requests for loan payment accommodations from borrowers;~~ the projected changes in net interest income based on rate shocks; the range that interest rates may fluctuate over the next twelve months; the net market risk of interest rate shocks; the future outlook for the issuer of the trust preferred securities held by the Bank; the anticipated results of litigation and the Company’s assessment of the impact on its financial statements; the ability of the Bank to pay dividends to HMN; the ability to remain well capitalized; the impact of new accounting pronouncements; and compliance by the Bank with regulatory standards generally (including the Bank’s status as “well-capitalized”) and other supervisory directives or requirements to which the Company or the Bank are or may become expressly subject and possible responses of the ~~OCC,~~Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System, the Bank, and the Company due to any failure to comply with any such regulatory standard, directive or requirement.

A number of factors, many of which are, and may continue to be amplified by the COVID-19 pandemic and efforts to mitigate the same, could cause actual results to differ materially from the Company’s assumptions and expectations. These include but are not limited to the adequacy and marketability of real estate and other collateral securing loans to borrowers; federal and state regulation and enforcement; possible legislative and regulatory changes, including changes to regulatory capital rules; the ability of the Bank to comply with other applicable regulatory capital requirements; enforcement activity of the OCC and the Federal Reserve Bank (FRB) in the event of non-compliance with any applicable regulatory standard or requirement; adverse economic, business and competitive developments such as continued shrinking interest margins, reduced collateral values, deposit outflows, changes in credit or other risks posed by the Company’s loan and investment portfolios; changes in costs associated with traditional and alternate funding sources, including changes in collateral advance rates and policies of the ~~FHLB~~Federal Home Loan Bank and the ~~Federal Reserve Bank;~~FRB; technological, computer-related or operational difficulties including those from any third party cyberattack; results of litigation; reduced demand for financial services and loan products; changes in accounting policies and guidelines, or monetary and fiscal policies of the federal government or tax laws; domestic and international economic developments; the Company’s access to and adverse changes in securities markets; the market for credit related assets; the future operating results, financial condition, cash flow requirements and capital spending priorities of the Company and the Bank; the availability of internal and, as required, external sources of funding; the Company’s ability to attract and retain employees; or other significant uncertainties. Additional factors that may cause actual results to differ from the Company’s assumptions and expectations include those set forth in the Company’s most recent filings on Form 10-K and in this quarterly report on Form 10-Q, each as filed with the SEC. All forward-looking statements are qualified by, and should be considered in conjunction with, such cautionary statements. For additional discussion of the risks and uncertainties applicable to the Company, see the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 and Part II, Item 1A of its subsequently filed quarterly reports on Form 10-Q. All statements in this quarterly report on Form 10-Q, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no duty to update any of the forward-looking statements after the date of this quarterly report on Form 10-Q.

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Table of Contents

General
HMN is the stock savings bank holding company for the Bank, which operates community banking and loan production offices in Minnesota, Iowa, and Wisconsin. The earnings of the Company are primarily dependent on the Bank's net interest income, which is the difference between interest earned on loans and investments, and the interest paid on interest-bearing liabilities such as deposits and other borrowings. The difference between the average rate of interest earned on assets and the average rate paid on liabilities is the ~~"interest~~“interest rate ~~spread"~~spread”. Net interest income is produced when interest-earning assets equal or exceed interest-bearing liabilities and there is a positive interest rate spread. Net interest income and net interest rate spread are affected by changes in interest rates, the volume and composition of interest-earning assets and interest-bearing liabilities, and the level of non-performing assets. The Company's net earnings are also affected by the generation of non-interest income, which consists primarily of gains from the sale of loans and real estate owned, fees for servicing loans, commissions on the sale of uninsured investment products, and service charges on deposit accounts. The Bank incurs expenses in addition to interest expense in the form of compensation and benefits, occupancy and equipment expenses, provisions for loan losses, data processing costs, professional services, deposit insurance, amortization expense on mortgage servicing assets, advertising expenses and income taxes. The earnings of financial institutions, such as the Bank, are also significantly affected by prevailing economic and competitive conditions, particularly changes in interest rates, government monetary and fiscal policies, and regulations of various regulatory authorities. Lending activities are influenced by the demand for and supply of business credit, single family and commercial properties, competition among lenders, the level of interest rates and the availability of funds. Deposit flows and costs of deposits are influenced by prevailing market rates of interest on competing investments, account maturities and the levels of personal income and savings.

Critical Accounting Estimates
Critical accounting policies are those policies that the Company's management believes are the most important to understanding the Company’s financial condition and operating results. These critical accounting policies often involve estimates and assumptions that could have a material impact on the Company’s financial statements. The Company has identified the following critical accounting policies that management believes involve the most difficult, subjective and/or complex judgments that are inherently uncertain. Therefore, actual financial results could differ significantly depending upon the estimates, assumptions and other factors used.
Allowance for Loan Losses and Related Provision
The allowance for loan losses is based on periodic analysis of the loan portfolio and is maintained at an amount considered to be appropriate by management to provide for probable losses inherent in the loan portfolio as of the balance sheet dates. In this analysis, management considers factors including, but not limited to, specific occurrences of loan impairment, actual and anticipated changes in the size of the portfolios, national and regional economic conditions such as unemployment data, loan delinquencies, local economic conditions, demand for single family homes, demand for commercial real estate and building lots, loan portfolio composition, historical loss experience and observations made by the Company's ongoing internal audit and regulatory exam processes. Loans are charged off to the extent they are deemed to be uncollectible. The Company has established separate processes to determine the appropriateness of the loan loss allowance for its homogeneous and non-homogeneous loan portfolios. The determination of the allowance on the homogeneous single family and consumer loan portfolios is calculated on a pooled basis with individual determination of the allowance for all non-performing loans. The determination of the allowance for the non-homogeneous commercial, commercial real estate and multi-family loan portfolios involves assigning standardized risk ratings and loss factors that are periodically reviewed. The loss factors are estimated based on the Company's own loss experience and other qualitative factors and are assigned to all loans without identified credit weaknesses. For each non-performing loan, the Company also performs an individual analysis of impairment that is based on the expected cash flows or the value of the assets collateralizing the loans and establishes any necessary reserves or charges off all loans, or portions thereof, that are deemed uncollectible.

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Table of Contents

The appropriateness of the allowance for loan losses is dependent upon management’s estimates of variables affecting valuation, appraisals of collateral, evaluations of performance and status and the amounts and timing of future cash flows expected to be received on impaired loans. Such estimates, appraisals, evaluations and cash flows may be subject to adjustments due to changing economic prospects of borrowers or properties. The fair market value of collateral dependent loans is typically based on the appraised value of the property less estimated selling costs. The estimates are reviewed periodically and any adjustments are recorded in the provision for loan losses in the periods in which the adjustments become known. Because of the size of some loans, changes in estimates can have a significant impact on the loan loss provision. The allowance is allocated to individual loan categories based upon the relative risk characteristics of the loan portfolios, ~~and~~ the actual loss ~~experience.~~experience and other qualitative factors. The Company increases its allowance for loan losses by charging the provision for loan losses against income and by receiving recoveries of previously charged off loans. The Company decreases its allowance by crediting the provision for loan losses and recording loan ~~charge offs.~~charge-offs. Activity in the first six months of 2021 resulted in a decrease in the allowance and a credit to the loan loss provision. The methodology for establishing the allowance for loan losses takes into consideration probable losses that have been identified in connection with specific loans as well as losses in the loan portfolio that have not been specifically identified. Although management believes that based on current conditions the allowance for loan losses is maintained at an appropriate amount to provide for probable loan losses inherent in the portfolio as of the balance sheet dates, future conditions may differ substantially from those anticipated in determining the allowance for loan losses and adjustments may be required in the future.

Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. These calculations are based on many complex factors including estimates of the timing of reversals of temporary differences, the interpretation of federal and state income tax laws and a determination of the differences between the tax and the financial reporting basis of assets and liabilities. Actual results could differ significantly from the estimates and interpretations used in determining the current and deferred income tax assets and liabilities.

The Company maintains significant net deferred tax assets for deductible temporary differences, the largest of which relates to the allowance for loan losses. For tax purposes only the net charge-offs are deductible while the entire provision for loan losses is used to determine book income. A deferred tax asset is created because of the timing difference of when the expense is recognized for book and tax purposes. Under ~~GAAP,~~U.S. generally accepted accounting principles (GAAP), a valuation allowance is required to be recognized if it is “more likely than not” that the deferred tax asset will not be realized. The determination of the ~~ability to realize~~realizability of the deferred tax assets is highly subjective and dependent upon management’s judgment and evaluation of both positive and negative evidence, including the forecasts of future income, tax planning strategies and assessments of the current and future economic and business conditions. The positive evidence considered includes the Company’s cumulative net income in the prior three year period, the ability to implement tax planning strategies to accelerate taxable income recognition and the probability that taxable income will be generated in future periods. The Company could not currently identify any negative evidence. It is possible that future conditions may differ substantially from those anticipated in determining that no valuation allowance was required on deferred tax assets and adjustments may be required in the future.

Determining the ultimate settlement of any tax position requires significant estimates and judgments in arriving at the amount of tax benefits to be recognized in the financial statements. It is possible that the tax benefits realized upon the ultimate resolution of a tax position may result in tax benefits that are significantly different from those estimated.

Litigation

Estimates related to litigation are inherently subjective and the ultimate resolution of any litigation may be different than current management estimates. See ““Note 15 Commitments and ~~Contingencies”~~Contingencies” for further ~~information.~~information on outstanding litigation matters.

27
~~Table of Contents~~
COVID-19 Pandemic
~~The~~In 2020, the spread of COVID-19 ~~has~~ slowed ~~the~~ economic activity in many countries, including the United ~~States, in the first nine months of 2020.~~States. Millions of Americans ~~have~~were at some point ~~been~~ ordered to stay home, including those residing in the states of Minnesota and Wisconsin, and many businesses ~~have been~~were ordered to be closed for a period of time or to operate at reduced capacities in order to reduce the spread of COVID-19. These orders ~~have~~ severely reduced the flow of commerce which ~~has~~ reduced, or entirely eliminated, the revenue streams for many small businesses. This reduction in income ~~has~~ forced many small businesses to close temporarily, furlough employees, or ~~furlough employees. The Company has also been impacted by~~terminate operations entirely.
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Table of Contents
In the ~~disruption in economic activity that has occurred. The Bank has implemented~~first quarter of 2021, vaccines began to be distributed to targeted groups. During the ~~following measures in response~~second quarter of 2021, the distribution of the vaccines became more widely available to the general public and business activity improved because of the lessened impact of COVID-19 ~~pandemic:~~pandemic resulting from the increased vaccination rates and the removal of pandemic-focused restrictions.

●
~~The Bank temporarily closed~~
Despite the progress made in the vaccination of the general public during the second quarter of 2021, the lobbies in all of its locations and for a period of time conducted business entirely through the drive-ups at the branches that have them. Branches without drive-up facilities were closed for a period of time in order to meet the social distancing guidelines recommended by health officials. Beginning on June 22, 2020 the Bank re-opened all of its lobbies, except the Marshalltown, Iowa location, to walk-in services during limited hours while continuing to offer drive-up service during normal business hours. The Bank continues to encourage its customers to conduct business through its on-line loan and deposit account services, as well as the ATM and night drop facilities that are available at its branches.
●
None of the Bank’s market areas are currently under a stay-at-home order. However, Bank employees who are able to perform their duties remotely continue to work from their homes and the majority of the corporate staff is currently working from home.
●
~~The Bank’s regulators issued the~~ ~~Interagency Statement on Loan Modification and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus~~ on April 7, 2020. In accordance with the regulatory guidance, the Bank offered loan payment accommodations to certain customers by deferring the loan payments for up to six months on their outstanding loans with the Bank. At September 30, 2020, the Bank had deferred payments on loans to existing customers in the amount of $82.0 million. See additional information on deferred loan payments in ~~Note 9 – Allowance for Loan Losses and Credit Quality Information~~. The deferred loan balances have decreased substantially since June 30, 2020. It is anticipated that some of the remaining borrowers with deferred loan payments will be in a position to resume making their regular loan payments, while other borrowers, particularly in the hospitality and restaurant industries, may need to have their loan terms modified for a period of time until their operations recover more fully from the impacts of the pandemic.
●
~~The Bank actively participated in helping businesses that were negatively impacted by COVID-19 and that applied for forgivable loans under the~~ ~~Paycheck Protection Program~~ ~~(PPP) in connection with the~~ ~~Coronavirus Aid, Relief, and Economic Security Act~~ (CARES Act). The CARES Act, which was signed into law on March 27, 2020, allocated $349 billion in funding to help small businesses that were negatively impacted by the COVID-19 pandemic. As of September 30, 2020 the Bank had 410 loans with outstanding balances of $53.1 million under the program. The remaining net deferred fees associated with these loans totaling $1.4 million at September 30, 2020 and will be recognized into income over the remaining lives of the loans. During the third quarter, the Company began to help clients that received PPP loans navigate the application process to get the appropriate amount of their loans forgiven in accordance with the program requirements, although, no approvals of loan forgiveness had been obtained from the SBA as of September 30, 2020.
~~The~~ extent of the impact of COVID-19 on the Company is difficult to determine as it is not clear how ~~long~~many people will take the ~~reduced economic activity will persist, when,~~vaccines, or ~~if, a vaccine for COVID-19~~how effective the vaccines will be ~~developed,~~against variants of the virus, among other factors. In addition, it is not clear when, or if, businesses will re-hire those workers displaced by the pandemic or what the long-term implications will be on customer behaviors as a result of the ~~pandemic, among other factors.~~pandemic. Up to this point, the Company has not seen a negative impact on its deposit relationships as many of its clients have been able to conduct their business with the Bank through the ~~drive-ups,~~drive ups, ATMs, night drop, on-line banking website, or by using its mobile banking app. The impact on the Bank’s loan portfolio is also unclear for many of the same reasons.

~~RESULTS OF OPERATIONS FOR~~ ~~THE~~ ~~THREE AND NINE MONTH PERIODS~~ ~~ENDED SEPTEMBER 30,~~The CARES Act was signed into law on March 27, 2020 ~~COMPARED TO~~ TH~~E SAME PERIODS~~ ~~ENDED SEPTEMBER 30, 201~~ and the Bank’s regulators issued the Interagency Statement on Loan Modification and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus on April 7, 2020. Section 4013 of the CARES Act temporarily allows the Bank to grant modifications of loans to borrowers that were impacted by the pandemic without classifying the modifications as TDRs if the accommodation is granted before December 31, 2021. In accordance with Section 4013 of the CARES Act, the Bank granted accommodations on certain loans to borrowers. See “Note 9 Allowance for Loan Losses and Credit Quality Information”for further information.

~~Net~~ ~~Income~~Paycheck Protection Program
~~Net income was $3.1 million~~The CARES Act allocated $349 billion in funding to help small businesses that were negatively impacted by the COVID-19 pandemic. The Bank actively participated in helping businesses that were negatively impacted by COVID-19 that applied for forgivable loans under the third quarter of 2020, an increase of $1.0 million, compared to net income of $2.1 million for the third quarter of 2019. Diluted earnings per share for the third quarter of 2020 was $0.67, an increase of $0.22 per share, compared to diluted earnings per share of $0.45 for the third quarter of 2019. The increase in net income was primarily because of a $2.2 million increase in the gain on sales of mortgage loans between the periods. The increase in the gain on sales of mortgage loans was due primarily to the increase in mortgage loan refinance activity in the current periodPaycheck Protection Program (PPP) as ~~a result~~part of the ~~lower interest rate environment between~~CARES Act. The Bank had the periods. Net interest income increased $0.2 million primarily because of a decrease in interest expense between the periods. These increases in net income were partially offset by a $1.2 million increase in the provision for loan losses between the periods. The provision for loan losses increased primarily because of the changes in the economic environmentfollowing activity related to the ~~disruption in business activity as a result~~first round of the ~~COVID-19 pandemic. Income tax expense also increased $0.3 million as a result of the increased pre-tax income between the periods.~~PPP during 2020 and through June 30, 2021:
Dollars in thousands

Number of
Loans

Amount

Net
Deferred
Fees

Originated
413 $ 53,153 $ 1,837
Repaid
(130 ) (19,484 ) -
Net deferred fees recognized
- - (1,097 )
Balance, December 31, 2020
283 33,669 740
Repaid
(243 ) (21,419 ) -
Net deferred fees recognized
- - (597 )
Balance, March 31, 2021
40 12,250 143
Repaid
(35 ) (11,334 ) -
Net deferred fees recognized
- - (126 )
Balance, June 30, 2021
5 $ 916 $ 17

2827
Table of Contents

The Consolidated Appropriations Act of 2021, which was signed into law on December 27, 2020, allocated $284 billion to the SBA to fund a second round of the PPP and extended the application period for the program to March 31, 2021. The application period was later extended to May 31, 2021. The Bank actively participated in the second round of the program and began submitting applications for borrowers on January 15, 2021 when the application window opened. The program was adjusted for the second round to allow applications from both first time borrowers and those that obtained loans during the first round of the program. The revised program, among other things, requires that borrowers demonstrate or certify that they experienced a 25% or greater reduction in gross receipts from a quarter in 2020 compared to the same quarter in 2019 and certify that current economic uncertainty makes the loan request necessary to support their ongoing operations. The Bank had the following activity related to the second round of the PPP through June 30, 2021:
Dollars in thousands

Number of
Loans

Amount

Net
Deferred
Fees

Originated
416 $ 26,798 $ 1,476
Net deferred fees recognized
- - (29 )
Balance, March 31, 2021
416 26,798 1,447
Originated
50 2,167 149
Repaid
(182 ) (6,539 ) -
Net deferred fees recognized
- - (522 )
Balance, June 30, 2021
284 $ 22,426 $ 1,074

It is anticipated that the majority of the outstanding loans at June 30, 2021 will be forgiven by the SBA. The remaining net deferred fees will be recognized into income over the remaining lives of the loans.
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2021 COMPARED TO THE SAME PERIODS ENDED JUNE 30, 2020
Net Income
Net income ~~was $7.2 million~~ for the ~~nine month period ended September 30, 2020,~~second quarter of 2021 was $4.5 million, an increase of ~~$0.6~~$1.8 million, ~~or 9.5%,~~ compared to net income of ~~$6.6~~$2.7 million for the ~~nine month period ended September 30, 2019.~~second quarter of 2020. Diluted earnings per share for the ~~nine~~second quarter of 2021 was $1.00, an increase of $0.42 from the diluted earnings per share of $0.58 for the second quarter of 2020. The increase in net income between the periods was primarily because of a $1.6 million increase in other non-interest income primarily related to a gain that was realized on the sale of real estate owned, a $1.2 million decrease in the provision for loan losses primarily because of the recovery of a previously charged off commercial real estate loan and the reduction of qualitative reserves related to improvements in the economic environment because of the lessened impact of the COVID-19 pandemic and a $0.6 million increase in net interest income primarily related to the yield enhancements realized on PPP loans that were repaid during the period. These increases in net income were partially offset by a $0.7 million decrease in the gain on sales of loans due to a decrease in mortgage loan originations and sales, a $0.7 million increase in income tax expense as a result of the increase in pre-tax income between the periods and a $0.3 million increase in non-interest expenses primarily related to an increase in compensation expense.
Net income was $7.9 million for the six month period ended ~~September~~June 30, ~~2020 was $1.54,~~2021, an increase of ~~$0.13~~$3.8 million compared to net income of $4.1 million for the six month period ended June 30, 2020. Diluted earnings per share for the six month period ended June 30, 2021 was $1.74, an increase of $0.86 per share compared to diluted earnings per share of ~~$1.41~~$0.88 for the same period in ~~2019.~~2020. The increase in net income between the periods was primarily because of a ~~$4.7~~$2.3 million increase in the gain on sales of mortgage loans between the periods. The increase in the gain on sales of mortgage loans was due primarily to the increase in mortgage loan refinance activity in the current period as a result of the lower interest rate environment between the periods. This increase in net income was partially offset by a $3.0 million increasedecrease in the provision for loan ~~losses between the periods.~~losses. The provision for loan losses ~~increased~~decreased primarily because of the ~~changes~~reduction of required qualitative reserves due to improvements in the economic environment ~~related to~~because of the ~~disruption in business activity as a result~~lessened impact of the COVID-19 pandemic and also because of ~~the decrease in the net recoveries received in the current period when compared to the same period of 2019. Non-interest expenses increased $0.5 million due primarily to~~ an increase in ~~compensation expense~~the recoveries received on previously charged off loans between the periods. ~~Net interest~~Other non-interest income ~~decreased $0.2~~increased $1.7 million primarily because of ~~a decrease~~the gain that was realized on the sale of real estate owned. Net interest income increased $1.0 million primarily because of the increase in the yield ~~earned~~enhancements that were realized on ~~interest earning assets due to~~PPP loans that were repaid during the ~~decrease~~period. These increases in ~~the average prime rate between the periods. Income~~net income were partially offset by a $1.6 million increase in income tax expense ~~also increased $0.2 million~~ as a result of the ~~increased~~increase in pre-tax income between the periods.

Net Interest Income
Net interest income was ~~$7.3~~$7.7 million for the ~~third~~second quarter of ~~2020,~~2021, an increase of $0.6 million, or 7.6%, compared to $7.1 million for the second quarter of 2020. Interest income was $8.1 million for the second quarter of 2021, an increase of $0.2 million, or ~~2.8%~~2.7%, from ~~$7.1 million for the third quarter of 2019. Interest income was~~ $7.9 million for the ~~third~~second quarter of ~~2020, a decrease of $0.1 million, or 0.6%, from $8.0 million for the third quarter of 2019.~~2020. Interest income ~~decreased despite~~increased primarily because of the ~~$143.4~~$0.6 million in yield enhancements recognized on PPP loans that were repaid during the period. Interest income also increased because of the $139.4 million increase in the average interest-earning assets between the ~~periods primarily because of the~~periods. These increases in interest income were partially offset by a decrease in the average yield earned on interest-earning ~~assets. The average yield earned on interest-earning~~ assets which was ~~3.71%~~3.44% for the ~~third~~second quarter of ~~2020,~~2021, a decrease of 7650 basis points from ~~4.47%~~3.94% for the ~~third~~second quarter of ~~2019.~~2020. The decrease in the average yield is primarily related to the decrease in the ~~average~~ prime rate ~~between~~that occurred in the ~~periods.~~first quarter of 2020, which lowered the rate on adjustable rate loans in the portfolio as well as any new or renewing fixed rate loans that were originated since that time.
28
Table of Contents

Interest expense was $0.4 million for the second quarter of 2021, a decrease of $0.3 million, or 45.0%, compared to $0.7 million for the ~~third~~second quarter of ~~2020, a decrease of $0.2 million, or 27.6%, from $0.9 million for the third quarter of 2019.~~2020. Interest expense decreased despite the ~~$133.7~~$127.7 million increase in the average interest-bearing liabilities and non-interest bearing deposits between the periods primarily because of the decrease in the average interest rate paid on deposits. The average interest rate paid on interest-bearing liabilities and non-interest bearing deposits was ~~0.34%~~0.19% for the ~~third~~second quarter of ~~2020,~~2021, a decrease of 2221 basis points from ~~0.56%~~0.40% for the ~~third~~second quarter of ~~2019.~~2020. The decrease in the interest paid on interest-bearing liabilities was primarily because of the decrease in deposit rates as a result of the ~~average~~decrease in the federal funds rate ~~between~~that occurred in the ~~periods.~~first quarter of 2020.

Net interest margin (net interest income divided by average interest-earning assets) for the ~~third~~second quarter of ~~2020~~2021 was ~~3.40%~~3.27%, a decrease of 5730 basis points, compared to ~~3.97%~~3.57% for the ~~third~~second quarter of ~~2019.~~2020. The decrease in the net interest margin is primarily related to the decrease in the average yield earned on interest-earning assets as a result of the decrease in the prime rate ~~decreases~~ that occurred ~~between~~in the ~~periods.~~first quarter of 2020.

Net interest income was ~~$21.4~~$15.1 million for the first ~~nine~~six months of ~~2020, a decrease~~2021, an increase of ~~$0.2~~$1.0 million, or ~~1.0%~~7.3%, ~~from $21.6~~compared to $14.1 million for the same period ~~in 2019.~~of 2020. Interest income was ~~$23.7~~$16.0 million for the ~~nine~~first six months ~~ended September 30, 2020, a decrease~~of 2021, an increase of $0.3 million, or ~~1.5%~~1.6%, from ~~$24.0~~$15.7 million for the ~~same nine month period in 2019.~~first six months of 2020. Interest income ~~decreased despite~~increased primarily because of the ~~$103.0~~$1.2 million in yield enhancements recognized on PPP loans that were repaid during the period. Interest income also increased because of the $146.9 million increase in the average interest-earning assets between the ~~periods primarily because of the~~periods. These increases in interest income were partially offset by a decrease in the average yield earned on interest-earning ~~assets. The average yield earned on interest-earning~~ assets which was ~~3.95%~~3.50% for the first ~~nine~~six months of ~~2020,~~2021, a decrease of 6559 basis points from ~~4.60%~~4.09% for the first ~~nine~~six months of ~~2019.~~2020. The decrease in the average yield is primarily related to the decrease in the ~~average~~ prime rate ~~between~~that occurred in the ~~periods.~~
29
~~Table~~first quarter of ~~Contents~~
2020 which lowered the rate on adjustable rate loans in the portfolio as well as any new or renewing fixed rate loans that were originated since that time.

Interest expense was ~~$2.3~~$0.9 million for the first ~~nine~~six months of ~~2020,~~2021, a decrease of ~~$0.1~~$0.7 million, or ~~5.4%~~47.3%, compared to ~~$2.4~~$1.6 million infor the ~~first nine months~~same period of ~~2019.~~2020. Interest expense decreased despite the ~~$97.8~~$137.4 million increase in the average interest-bearing liabilities and non-interest bearing deposits between the periods primarily because of the decrease in the average interest rate paid on deposits. The average interest rate paid on interest-bearing liabilities and non-interest bearing deposits was ~~0.42%~~0.21% for the first ~~nine~~six months of ~~2020,~~2021, a decrease of 926 basis points from ~~0.51%~~0.47% for the first ~~nine~~six months of ~~2019.~~2020. The decrease in the interest paid on interest-bearing liabilities was primarily because of the decrease in deposit rates as a result of the decrease in the average federal funds rate between the periods.

Net interest margin (net interest income divided by average interest-earning assets) for the first ~~nine~~six months of ~~2020~~2021 was ~~3.57%~~3.31%, a decrease of 5735 basis points, compared to ~~4.14%~~3.66% for the first ~~nine~~six months of ~~2019.~~2020. The decrease in the net interest margin is primarily related to the decrease in the average yield earned on interest-earning assets as a result of the decrease in the average prime rate ~~decreases that occurred~~ between the periods.
29
Table of Contents

A summary of the Company’s net interest margin for the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 is as follows:

For the three month period ended

For the three month period ended

September 30, 2020

September 30, 2019

June 30, 2021

June 30, 2020

(Dollars in thousands)

Average
Outstanding
Balance

Interest
Earned/
Paid

Yield/
Rate

Average
Outstanding
Balance

Interest
Earned/
Paid

Yield/
Rate

Average
Outstanding
Balance

Interest
Earned/
Paid

Yield/
Rate

Average
Outstanding
Balance

Interest
Earned/
Paid

Yield/
Rate

Interest-earning assets:

Securities available for sale
$ 103,132 434 1.67
%
$ 80,286 365 1.80
%
$ 197,739 502 1.02
%
$ 96,241 436 1.82
%
Loans held for sale
9,309 65 2.76 3,557 43 4.72 4,821 38 3.14 8,736 67 3.07
Single family loans, net
134,460 1,325 3.92 115,844 1,236 4.23 155,205 1,418 3.66 129,584 1,306 4.05
Commercial loans, net
474,325 5,390 4.52 398,674 5,229 5.20 442,794 5,571 5.05 455,330 5,293 4.68
Consumer loans, net
60,473 709 4.66 73,788 920 4.95 47,235 530 4.50 64,864 761 4.72
Other
71,180 26 0.15 37,355 205 2.18 95,750 35 0.15 49,435 20 0.16
Total interest-earning assets
852,879 7,949 3.71 709,504 7,998 4.47 943,544 8,094 3.44 804,190 7,883 3.94

Interest-bearing liabilities and non-interest-bearing deposits:

Interest-bearing liabilities:

Checking accounts
129,276 41 0.13 93,024 23 0.10 161,288 48 0.12 112,605 30 0.11
Savings accounts
93,022 17 0.07 80,269 16 0.08 113,717 18 0.06 88,528 16 0.07
Money market accounts
221,991 190 0.34 173,606 303 0.69 240,852 141 0.24 204,939 201 0.39
Certificates
111,847 408 1.45 127,888 564 1.75
Certificate accounts
95,306 203 0.86 119,722 498 1.67
Total interest-bearing liabilities
556,136 474,787 611,163 525,794
Non-interest checking
219,512 166,972 251,196 209,194
Other non-interest bearing deposits
2,218 2,415 2,425 2,142
Total interest-bearing liabilities and non-interest-bearing deposits
$ 777,866 656 0.34 $ 644,174 906 0.56
Total interest-bearing liabilities and non-interest bearing deposits
$ 864,784 410 0.19 $ 737,130 745 0.40
Net interest income
$ 7,293 $ 7,092 $ 7,684 $ 7,138
Net interest rate spread
3.37
%
3.91
%
3.25
%
3.54
%
Net interest margin
3.40
%
3.97
%
3.27
%
3.57
%

For the six month period ended

June 30, 2021

June 30, 2020

(Dollars in thousands)

Average
Outstanding
Balance

Interest
Earned/
Paid

Yield/
Rate

Average
Outstanding
Balance

Interest
Earned/
Paid

Yield/
Rate

Interest-earning assets:

Securities available for sale
$ 181,220 1,000 1.11
%
$ 99,755 937 1.89
%
Loans held for sale
4,953 75 3.04 5,745 91 3.18
Single family loans, net
150,114 2,747 3.69 128,409 2,581 4.04
Commercial loans, net
440,351 10,943 5.01 432,556 10,390 4.83
Consumer loans, net
49,722 1,152 4.67 66,641 1,605 4.84
Other
94,495 66 0.14 40,844 123 0.61
Total interest-earning assets
920,855 15,983 3.50 773,950 15,727 4.09

Interest-bearing liabilities:

Checking accounts
157,802 92 0.12 107,949 61 0.11
Savings accounts
109,778 34 0.06 84,839 32 0.07
Money market accounts
232,255 270 0.23 197,718 494 0.50
Certificate accounts
97,541 467 0.97 121,746 1,050 1.73
Total interest-bearing liabilities
597,376 512,252
Non-interest checking
243,874 191,590
Other non-interest bearing deposits
2,485 2,468
Total interest-bearing liabilities and non-interest bearing deposits
$ 843,735 863 0.21 $ 706,310 1,637 0.47
Net interest income
$ 15,120 $ 14,090
Net interest rate spread
3.29
%
3.62
%
Net interest margin
3.31
%
3.66
%

Provision for Loan Losses
The provision for loan losses was ($0.9) million for the second quarter of 2021, a decrease of $1.2 million compared to $0.3 million for the second quarter of 2020. The provision for loan losses was ($1.5) million for the first six months of 2021, a decrease of $2.3 million compared to $0.8 million for the first six months of 2020. The provision for loan losses decreased primarily because of the reduction of qualitative reserves due to improvements in the economic environment because of the lessened impact of the COVID-19 pandemic and also because of an increase in the recoveries received on previously charged off loans between the periods.

30
Table of Contents

For the nine month period ended

September 30, 2020

September 30, 2019

(Dollars in thousands)

Average
Outstanding
Balance

Interest
Earned/
Paid

Yield/
Rate

Average
Outstanding
Balance

Interest
Earned/
Paid

Yield/
Rate

Interest-earning assets:

Securities available for sale
$ 100,889 1,371 1.81
%
$ 79,163 1,051 1.77
%
Loans held for sale
6,942 156 2.99 2,417 82 4.51
Mortgage loans, net
130,441 3,907 4.00 115,162 3,744 4.35
Commercial loans, net
446,580 15,781 4.72 402,469 15,966 5.30
Consumer loans, net
64,570 2,312 4.78 73,384 2,805 5.11
Other
51,030 149 0.39 24,886 381 2.05
Total interest-earning assets
800,452 23,676 3.95 697,481 24,029 4.60

Interest-bearing liabilities and non-interest-bearing deposits:

Checking accounts
115,110 102 0.12 95,748 73 0.10
Savings accounts
87,587 48 0.07 79,599 47 0.08
Money market accounts
205,868 684 0.44 174,565 878 0.67
Certificates
118,422 1,459 1.65 120,376 1,420 1.58
Advances and other borrowings
0 0 0.00 384 7 2.54
Total interest-bearing liabilities
526,987 470,672
Non-interest checking
200,965 159,820
Other non-interest bearing deposits
2,384 2,030
Total interest-bearing liabilities and non-interest-bearing deposits
$ 730,336 2,293 0.42 $ 632,522 2,425 0.51
Net interest income
$ 21,383 $ 21,604
Net interest rate spread
3.53
%
4.09
%
Net interest margin
3.57
%
4.14
%

Pr~~ovision for Loan Losses~~
~~The provision~~During 2020, the Company increased its allowance for loan losses was $0.8 million for the third quarter of 2020, an increase of $1.2 million from the ($0.4) million provision for loan losses for the third quarter of 2019. The provision for loan losses increased between the periods primarily because ofdue to the changes in the economic environment related to the disruption in business activity as a result of the COVID-19 pandemic.
The provision for loan losses was $1.5 million for the first nine months of 2020, an increase of $3.0 million compared to the ($1.5) million provision for loan losses for the first nine months of 2019. The provision for loan losses increased between the periods primarily because of the changes in the economic environment related to the disruption in business activity as a result of the COVID-19 pandemic and also because of the decrease in the net recoveries received in the current period when compared to the same period of 2019.
The amount of the increase in the allowance for loan losses ~~in both the three and nine month periods ended September 30, 2020~~ related to the economic environment was based, in part, on the amount of loans to borrowers in the hospitality, restaurant and entertainment industries that ~~continued to have their loan payments deferred because of~~were negatively impacted by the ~~impact of the~~COVID-19 pandemic. At ~~September~~June 30, ~~2020~~2021, the Bank had ~~$82.0~~$33.5 million of loans that had been granted loan accommodations in accordance with Section 4013 of the CARES Act. The accommodations granted included $29.2 million of loans that are required to ~~borrowers who~~make interest only payments for periods up to December 31, 2021 and $4.3 million of loans that had their loan ~~payments deferred for up to six months compared to $119.1~~amortization period increased. Of these loans, $5.7 million ~~of loans to borrowers who had their payments deferred~~were classified but still accruing at June 30, ~~2020.~~
31
~~Table~~2021 and all of ~~Contents~~
~~A summary of deferred~~these loans ~~at September 30, 2020 and June 30, 2020 by industry and collateral type is as follows:~~

(Dollars in thousands)

Balance
September 30, 2020

Balance
June 30, 2020

Commercial real estate loans by industry:

Hotels ⁽¹⁾
$ 54,660 54,660
Retail/Office
7,127 20,322
Theaters
11,269 11,269
Multi-family
0 11,195
Single family
0 4,675
Restaurant/Bar
2,876 4,477
Other
5,747 9,449
Total commercial loans
81,679 116,047

Consumer loans by collateral type:

Single family
366 2,955
Other
0 77
Total consumer loans
366 3,032
Total deferred loans
$ 82,045 119,079

~~(1)~~
~~Approximately $38.5 million of the hotel properties are located in Minnesota~~were current with ~~approximately $21.3 million located in Rochester, Minnesota, $13.8 million in the Minneapolis/St. Paul, Minnesota metro area, and $3.4 million in St. Cloud, Minnesota.~~
~~All of the borrowers whose loan deferral period ended during the third quarter of 2020 had resumed making~~ their normal payments and none of the loans removed from the deferral list were classified as non-performing as of September 30, 2020. The initial deferral period for all remaining deferred loans at September 30, 2020 is scheduled to end in the fourth quarter of 2020.agreed upon payments. The commercial credit ~~department~~area continues to communicate regularly with the borrowers that have ~~had their~~been granted loan ~~payments deferred~~accommodations and monitors their activity closely. This information is used to analyze the performance of these ~~borrowers~~loans and to ~~help~~ anticipate any potential issues that these ~~borrowers~~loans may ~~have when their initial deferral period ends.~~develop so that risk ratings may be appropriately adjusted in a timely manner. It is anticipated that ~~some~~most of the remaining borrowers ~~with deferred loan payments~~that have been granted accommodations will be in a position to resume making their regular loan payments ~~while other~~at the end of the initial accommodation period. Other borrowers, particularly in the hospitality and restaurant industries, may need ~~to have~~additional accommodations when their ~~loan terms modified for a~~initial accommodation period ~~of time until~~ends as their operations ~~recover~~may need more ~~fully~~time to recover from the ~~impacts~~impact of the pandemic.

The allowance for loan losses is made up of general reserves on the entire loan portfolio and specific reserves on impaired loans. The general reserve amount includes quantitative reserves based on ~~our~~the Company’s past loan loss history and qualitative reserves for other items determined to have a potential impact on future loan losses. The general reserves ~~increased~~decreased during the ~~three and nine month periods ended September 30, 2020~~second quarter as a result of a decrease in the required qualitative reserves due to an ~~increase~~improvement in ~~our~~business activity because of the lessened impact of COVID-19 pandemic resulting from increased vaccination rates and the removal of pandemic-focused restrictions during the period. Despite the progress made in the vaccination of the general public during the period, it was determined that economic risks related to the pandemic continued to exist and more time was needed to prudently evaluate the impact that these risks would have on the Company’s loan portfolio before more qualitative reserves would be released from the allowance for loan losses. The qualitative allowance amount increased because of the current economic stress caused by the disruption in business activity as a result of the COVID-19 pandemic and an increase in reserves related to an analysis of the Bank’s charged off loan history. Total non-performing assets were $3.0 million at September 30, 2020, an increase of $0.3 million, or 11.0%, from $2.7 million at December 31, 2019.

A reconciliation of the Company’s allowance for loan losses for the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 is summarized as follows:

(Dollars in thousands)

2020

2019

2021

2020

Balance at June 30,
$ 8,649 8,624
Balance at March 31,
$ 10,132 9,036
Provision
770 (420 ) (891 ) 318
Charge offs:

Single family
0 (2 )
Consumer
(29 ) (46 ) (11 ) (34 )
Commercial business
(8 ) 0
Commercial real estate
0 (730 )
Recoveries
150 39 685 59
Balance at September 30,
$ 9,532 8,195
Balance at June 30,
$ 9,915 8,649

Allocated to:

General allowance
$ 9,416 7,528 $ 9,652 8,495
Specific allowance
116 667 263 154
$ 9,532 8,195 $ 9,915 8,649

(Dollars in thousands)

2021

2020

Balance at January 1,
$ 10,699 8,564
Provision
(1,467 ) 778
Charge offs:

Consumer
(42 ) (45 )
Commercial real estate
0 (730 )
Recoveries
725 82
Balance at June 30,
$ 9,915 8,649

The $0.7 million of recoveries relates primarily to a commercial loan in the transportation industry.

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Table of Contents

(Dollars in thousands)

2020

2019

Balance at January 1,
$ 8,564 8,686
Provision
1,548 (1,452 )
Charge offs:

Single family
0 (2 )
Commercial real estate
(730 ) 0
Consumer
(74 ) (92 )
Commercial business
(8 ) (869 )
Recoveries
232 1,924
Balance at September 30,
$ 9,532 8,195

Non
The $0.7 million of commercial real estate charge offs during the nine month period ended September 30, 2020 relates to a commercial property in the transportation industry whose tenant filed for bankruptcy and the appraised value of the property decreased. The $0.9 million in commercial business loan charge offs in the three and nine month periods ended September 30, 2019 relates primarily to two commercial business loans that were charged off due to the bankruptcy filing of the borrowers. The $1.9 million of recoveries in the nine month period ended September 30, 2019 relates primarily to the repayment of a commercial real estate loan of which $1.7 million had previously been charged off.
‑
~~Non-Interest~~Interest Income
Non-interest income was ~~$4.4~~$4.7 million for the ~~third~~second quarter of ~~2020,~~2021, an increase of ~~$2.2~~$1.1 million, or ~~97.4%~~31.9%, from ~~$2.2~~$3.6 million for the ~~third~~second quarter of ~~2019. Gain on sales of loans increased $2.2 million between the periods primarily because of an increase in single family loan originations and sales.~~2020. Other non-interest income increased $1.6 million due primarily to a $1.5 million gain that was realized on the sale of real estate owned. Fees and service charges increased $0.1 million between the periods due primarily to an increase in ~~the fees earned on the sale of uninsured investment products between the periods.~~debit card income. Loan servicing fees increased ~~slightly~~$0.1 million between the periods due to an increase in the aggregate balances of single family mortgage loans that were being serviced for others. These increases in ~~the~~ non-interest income were partially offset by a ~~decrease of $0.1~~$0.7 million ~~in fees and service charges earned between the periods due primarily to a~~ decrease in the ~~overdraft fees collected.~~
~~Non-interest income was $10.5 million for the first nine months of 2020, an increase of $4.6 million, or 76.1%, from $5.9 million for the same period of 2019. Gain~~gain on sales of loans ~~increased $4.7 million between the periods~~ primarily because of ~~an increase~~a decrease in single family loan originations and ~~sales.~~sales between the periods.
Non-interest income was $8.0 million for the first six months of 2021, an increase of $1.9 million, or 31.9%, from $6.1 million for the first six months of 2020. Other non-interest income increased $1.7 million due primarily to a $1.5 million gain that was realized on the sale of commercial real estate owned. Loan servicing fees increased ~~slightly~~$0.2 million between the periods due to an increase in the aggregate balances of single family mortgage loans that were being serviced for others. ~~Other non-interest income~~Fees and service charges increased ~~slightly~~$0.1 million between the periods due primarily to an increase in ~~the fees earned on the sale of uninsured investment products between the periods.~~debit card income. These increases in ~~the~~ non-interest income were partially offset by a slight decrease in the gain on sales of loans primarily because of a decrease in single family loan originations and sales between the periods.
Non‑Interest Expense
Non-interest expense was $7.0 million for the second quarter of 2021, an increase of $0.3 million, or 4.9%, from $6.7 million for the second quarter of 2020. Compensation and benefits expense increased $0.3 million primarily because of a decrease in the direct loan origination compensation costs that were deferred as a result of the decreased mortgage loan production between the periods. Other non-interest expense increased $0.2 million ~~in the fees and services charges earned between the periods~~ due primarily to a decrease in the ~~overdraft fees collected.~~
~~Non-Interest Expense~~
~~Non-interest~~direct loan printing and supply costs that were deferred as a result of the decreased mortgage loan production and also because of an increase in charitable contributions between the periods. Data processing expense ~~was $6.6~~increased slightly between the periods due to an increase in debit card processing costs because of increased activity. These increases in non-interest expense were partially offset by a $0.2 million ~~for the third quarter of 2020, a~~ decrease ~~of $0.1 million, or 2.2%, from $6.7 million for the third quarter of 2019. Professional~~in professional services expense ~~decreased $0.2 million~~ between the periods primarily because of a decrease in legal expenses relating to an ongoing bankruptcy litigation claim. Occupancy and equipment expense decreased slightly ~~between the periods~~ due to a decrease in ~~depreciation and~~the purchase of non-capitalized equipment ~~costs. Other non-interest expense decreased slightly due primarily to an increase in the gains recognized on the sale of other real estate owned~~ between the periods. These decreases in non-interest expense were partially offset by a $0.1 million increase in compensation and benefits expense related to the increased mortgage loan production between the periods. Data processing costs increased slightly between the periods due to an increase in internet and mobile banking expenses.

Non-interest expense was ~~$20.3~~$13.5 million for the first ~~nine~~six months of ~~2020, an increase~~2021, a decrease of ~~$0.5~~$0.2 million, or ~~2.5%~~1.4%, from ~~$19.8~~$13.7 million for the ~~same period~~first six months of ~~2019. Compensation and benefits expense increased $0.3 million primarily related to the increased mortgage loan production between the periods.~~2020. Professional services expense ~~increased $0.1~~decreased $0.4 million between the periods primarily because of ~~an increase~~a decrease in legal expenses relating to an ongoing bankruptcy litigation claim. Occupancy and equipment costs ~~increased~~decreased slightly between the periods due to a decrease in depreciation and non-capitalized software costs. These decreases were partially offset by a $0.1 million increase in other non-interest expenses due primarily to an increase in FDIC insurance premiums between the periods, a $0.1 million increase in data processing expense between the periods due to an increase in ~~depreciation and non-capitalized equipment costs. Data~~debit card processing costs because of increased ~~slightly between the periods~~activity and a $0.1 million increase in compensation and benefits expense due to ~~an increase~~a decrease in ~~internet and mobile banking expenses. Other non-interest expense increased slightly due to an increase in~~the direct loan origination compensation costs that were deferred as a result of the decreased mortgage loan ~~servicing expenses caused by the increase in serviced loans that were refinanced~~production between the periods.
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~~Table of Contents~~

Income Taxes
Income tax expense was ~~$1.2~~$1.8 million for the ~~third~~second quarter of ~~2020,~~2021, an increase of ~~$0.3~~$0.7 million from ~~$0.9~~$1.1 million for the ~~third~~second quarter of ~~2019.~~2020. Income tax expense was ~~$2.9~~$3.2 million for the first ~~nine~~six months of ~~2020,~~2021, an increase of ~~$0.2~~$1.6 million from ~~$2.7~~$1.6 million for the first ~~nine~~six months of ~~2019.~~2020. The increase in income tax expense between the periods is primarily the result of an increase in pre-tax income.

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Table of Contents
FINANCIAL CONDITION
~~Non-Performing~~Non‑Performing Assets
The following table summarizes the amounts and categories of non-performing assets in the Bank’s portfolio and loan delinquency information as of the end of the ~~two~~three most recently completed ~~quarters and December 31, 2019.~~quarters.

September 30,

June 30,

December 31,

June 30,

March 31,

December 31,

(Dollars in thousands)

2020

2020

2019

2021

2021

2020

Non-Performing Loans:

Non‑performing loans:

Single family
$ 352 $ 390 $ 617 $ 557 $ 497 $ 502
Commercial real estate
1,537 1,579 184 519 1,408 1,484
Consumer
641 475 659 669 612 689
Commercial business
11 27 621
Commercial
8 8 9
Total
2,541 2,471 2,081 1,753 2,525 2,684

Foreclosed and Repossessed Assets:

Single family
0 269 166
Foreclosed and repossessed assets:

Commercial real estate
414 414 414 0 636 636
Total non-performing assets
$ 2,955 $ 3,154 $ 2,661
Consumer
0 30 0
0 666 636
Total non‑performing assets
$ 1,753 $ 3,191 $ 3,320
Total as a percentage of total assets
0.33
%
0.37
%
0.34
%
0.18
%
0.33
%
0.37
%
Total non-performing loans
$ 2,541 $ 2,471 $ 2,081
Total as a percentage of total loans receivable, net
0.38
%
0.37
%
0.35
%
0.28
%
0.39
%
0.42
%
Allowance for loan losses to non-performing loans
375.19
%
349.92
%
411.45
%
Allowance for loan loss to non-performing loans
565.75
%
401.37
%
398.72
%

Delinquency Data:

Delinquency data:

Delinquencies ⁽¹⁾

30+ days
$ 995 $ 775 $ 1,167 $ 1,255 $ 1,147 $ 995
90+ days
0 0 0 0 0 0
Delinquencies as a percentage of loan portfolio ⁽¹⁾

30+ days
0.14
%
0.11
%
0.19
%
0.19
%
0.17
%
0.15
%
90+ days
0.00
%
0.00
%
0.00
%
0.00
%
0.00
%
0.00
%

⁽¹⁾ Excludes non-accrual loans.
Total non-performing assets were ~~$3.0~~$1.8 million at ~~September~~June 30, ~~2020,~~2021, a decrease of ~~$0.2~~$1.4 million, or ~~6.3%~~45.1%, from $3.2 million at ~~June 30, 2020~~March 31, 2021 and ~~an increase~~a decrease of ~~$0.3~~$1.5 million, or ~~11.0%~~47.2%, from ~~$2.7~~$3.3 million at December 31, ~~2019.~~2020. Non-performing loans ~~increased $0.1~~decreased $0.7 million and foreclosed and repossessed assets decreased ~~$0.3~~$0.7 million during the ~~third~~second quarter of ~~2020.~~2021. Non-performing loans ~~increased $0.5~~decreased $0.9 million and foreclosed and repossessed assets decreased ~~$0.2~~$0.6 million during the first ~~nine~~six months of ~~2020.~~2021.
Dividends
The declaration of dividends is subject to, among other things, the Company's financial condition and results of operations, the Bank's compliance with regulatory capital requirements and other regulatory restrictions, tax considerations, industry standards, economic conditions, general business practices and other factors. The Company has not ~~made~~declared any dividend ~~payments to common stockholders~~ during the three year period ended ~~September~~June 30, ~~2020.~~2021.

LIQUIDITY AND CAPITAL RESOURCES
For the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, the net cash provided by operating activities was ~~$8.2~~$9.3 million. The Company ~~received $30.9~~collected $25.8 million from called or maturing ~~or called~~ securities, ~~$11.1~~purchased securities of $107.3 million, received proceeds from the sales of real estate of $2.1 million and received $16.5 million in principal repayments on ~~securities and $0.4 million in proceeds from the sale of real estate.~~securities. The Company purchased ~~$51.2 million in securities available for sale, $0.1~~$0.2 million in FHLB stock and ~~paid $0.7~~$0.2 million ~~for the purchase~~ of premises and equipment. Net loans receivable ~~increased $79.2 million, customer escrows~~ decreased ~~$0.6~~$3.4 million and the Company had a net increase in deposit balances of ~~$113.2~~$67.1 million. The Company also purchased ~~$0.4~~$2.7 million of ~~its common~~treasury stock and ~~received $0.1 million in common stock from for tax withholding on stock awards.~~customer escrow accounts increased $0.4 million.
34
~~Table of Contents~~

The Company has certificates of ~~deposits~~deposit with outstanding balances of ~~$79.0~~$66.4 million that mature over the next 12 months. Based upon past experience, management anticipates that the majority of the deposits will renew for another term. The Company believes that cash outflow from certificates that do not renew will be replaced with other deposits or FHLB advances. ~~Federal Reserve Bank~~FRB borrowings or proceeds from the sale of securities could also be used to fund unanticipated outflows of certificates of deposits.

33
Table of Contents
The Company had ~~six~~ten deposit customers that individually had aggregate deposits greater than $5.0 million as of ~~September~~June 30, ~~2020.~~2021. The ~~$84.5~~$102.0 million in funds held by these customers may be withdrawn at any time, but management believes that the majority of these deposits will not be withdrawn from the Bank over the next twelve months. If these deposits are withdrawn, it is anticipated that they would be replaced with deposits from other customers or FHLB advances. ~~Federal Reserve Bank~~FRB borrowings or proceeds from the sale of securities could also be used to replace unanticipated outflows of large checking and money market deposits.

The Company had the ability to borrow ~~$169.5~~$172.5 million from the FHLB at ~~September~~June 30, ~~2020,~~2021, based on the collateral value of the loans pledged. The credit policy of the FHLB relating to the collateral value of the loans collateralizing the available line of credit with the FHLB may change such that the current collateral pledged to secure future advances is no longer acceptable or the formulas for determining the excess pledged collateral may change. The FHLB could also reduce the amount of funds it will lend to the Bank. It is not anticipated that the Bank will need to find alternative funding sources in the next twelve months to replace the available borrowings from the FHLB. However, if needed, ~~excess collateral currently pledged to the FHLB could be pledged to the Federal Reserve Bank and~~ the Bank could borrow an additional ~~funds~~$50.4 million from the ~~Federal Reserve Bank~~FRB at June 30, 2021 based on the ~~increased~~ collateral ~~levels or obtain additional deposits.~~value of the loans pledged.

The Company’s primary source of cash is dividends from the Bank. At ~~September~~June 30, ~~2020,~~2021, the Company had ~~$12.1~~$8.3 million in cash and other assets that could readily be turned into cash. The primary use of cash by the Company is the payment of operating ~~expenses.~~expense and the purchase of treasury stock.

The Company also serves as a source of capital, liquidity, and financial support to the Bank. Depending upon the operating performance of the Bank and the Company’s other liquidity and capital needs, including Company level expenses, the Company may find it prudent, subject to prevailing capital market conditions and other factors, to raise additional capital through issuance of its common stock or other equity securities. Additional capital would also potentially permit the Company to implement a strategy of growing Bank assets. Depending on the circumstances, if
it were to raise capital, the Company may deploy it to the Bank for general banking purposes or may retain some or all of it for use by the Company.

If the Company were to raise capital through the issuance of additional shares of common stock or other equity securities, it would dilute the ownership interests of existing stockholders, and, if issued at a price less than the Company’s book value, would dilute the per share book value of the Company’s common stock, and could result in a change in control of the Company and the Bank. New investors may also have rights, preferences and privileges senior to the Company’s current stockholders, which may adversely impact the Company’s current stockholders. The Company’s ability to raise additional capital through the issuance of equity securities, if deemed prudent, will depend on, among other factors, conditions in the capital markets at that time, which are outside of its control, and on the Company’s financial performance and plans.
Market Risk
Market risk is the risk of loss from adverse changes in market prices and rates. The Company’s market risk arises primarily from interest rate risk inherent in its investing, lending and deposit taking activities. Management actively monitors and manages its interest rate risk exposure.

The Company’s profitability is affected by fluctuations in interest rates. A sudden and substantial change in interest rates may adversely impact the Company’s earnings to the extent that the interest rates borne by assets and liabilities do not change at the same speed, to the same extent, or on the same basis. The Company monitors the projected changes in net interest income that occur if interest rates were to suddenly change up or down. The Rate Shock Table located in the following Asset/Liability Management section of this report discloses the Company’s projected changes in net interest income based upon immediate interest rate changes called rate shocks. The Company utilizes a model that uses the discounted cash flows from its interest-earning assets and its interest-bearing liabilities to calculate the current market value of those assets and liabilities. The model also calculates the changes in market value of the interest-earning assets and interest-bearing liabilities under different interest rate changes.

3534
Table of Contents

The following table discloses the projected changes in the market value toof the Company’s interest-earning assets and interest-bearing liabilities based upon incremental 100 ~~basis point~~basis-point changes in interest rates from interest rates in effect on ~~September~~June 30, ~~2020.~~2021.

Market Value

Market Value

(Dollars in thousands)
Basis point change in interest rates
-100 0
+100

+200

‑100
0
+100

+200

Total market risk sensitive assets
$ 892,277 889,391 873,335 856,952 $ 984,853 973,112 950,867 928,441
Total market risk sensitive liabilities
855,635 800,113 749,848 706,718 898,585 844,768 799,383 760,002
Off-balance sheet financial instruments
1,230 0 1,699 3,278 325 0 906 1,730
Net market risk
$ 35,412 89,278 121,788 146,956 $ 85,943 128,344 150,578 166,709
Percentage change from current market value (60.34 )% 0.00 % 36.41 % 64.60 % (33.04
)%
0.00
%
17.32
%
29.89
%

The preceding table was prepared utilizing a model using the following assumptions (the Model Assumptions) regarding prepayment and decay ratios that were determined by management based upon their review of historical prepayment speeds and future prepayment projections. Fixed rate loans were assumed to prepay at annual rates of between 3%2% to 55%, depending on the note rate and the period to maturity. Adjustable rate mortgages (ARMs) were assumed to prepay at annual rates of between 5%6% and ~~54%~~51%, depending on the note rate and the period to maturity. Mortgage-backed securities were projected to have prepayments based upon the underlying collateral securing the instrument. Certificate accounts were assumed not to be withdrawn until maturity. Passbook accounts and ~~retail~~ money market accounts were assumed to decay at an annual rate of 6%8% and 8%17%, respectively. Retail checking accounts, ~~were assumed to decay at an annual rate of 11%. Commercial~~commercial checking accounts and money market accounts were assumed to decay at annual rates of 9%6%, 22%, and ~~12%~~13%, respectively. Callable investments were projected to be called at the first call date where the projected interest rate on similar remaining term instruments iswas less than the interest rate on the callable ~~advance or~~ investment.

Certain shortcomings are inherent in the method of analysis presented in the above table. The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types of assets and liabilities may lag behind changes in market interest rates. The model assumes that the difference between the current interest rate being earned or paid compared to a treasury instrument or other interest index with a similar term to maturity (the Interest Spread) will remain constant over the interest changes disclosed in the table. Changes in Interest Spread could impact projected market value changes. Certain assets, such as ARMs, have features which restrict changes in interest rates on a short-term basis and over the life of the assets. The market value of the interest-bearing assets that are approaching their lifetime interest rate caps could be different from the values disclosed in the table. Certain liabilities, such as certificates of deposit, have fixed rates that restrict interest rate changes until maturity. In the event of a change in interest rates, prepayment and early withdrawal levels may deviate significantly from those assumed in calculating the foregoing table. The ability of many borrowers to service their debt may also decrease in the event of a substantial sustained increase in interest rates.
Asset/Liability Management
The Company’s management reviews the impact that changing interest rates will have on the Company’s net interest income projected for the next twelve months to determine if its current level of interest rate risk is acceptable. The following table projects the estimated impact on net interest income during the twelve month period ending ~~September~~June 30, 2021 of immediate interest rate changes called rate shocks.

36
~~Table of Contents~~
(Dollars in thousands)
(Dollars in thousands)

(Dollars in thousands)

Rate Shock in
Basis Points

Projected
Change in Net
Interest Income

Percentage
Change

Projected
Change in Net
Interest Income

Percentage
Change

+200
$ 2,742 9.86
%
$ 2,525 9.15 %
+100
1,313 4.72 1,266 4.59
0 0 0.00 0 0.00
-100 (1,172 ) (4.22 ) (1,420 ) (5.14 )

The preceding table was prepared utilizing the Model Assumptions. Certain shortcomings are inherent in the method of analysis presented in the foregoing table. In the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the foregoing table. The ability of many borrowers to service their debt may decrease in the event of a substantial increase in interest rates and could impact net interest income.
The increase in interest income in a rising rate environment is primarily because there are more adjustable rate loans that would re-price to higher interest rates than there are deposits that would re-price higher to the same extent in the next twelve months. The decrease in interest income in a declining rate environment is primarily because there are more loans and investments that would ~~re-price~~reprice to lower interest rates than there are deposits that would be able to be ~~re-priced~~repriced lower to the same extent in the next twelve months.
35
Table of Contents

In an attempt to manage its exposure to changes in interest rates, management closely monitors interest rate risk. The Bank has an Asset/Liability Committee that meets frequently to discuss changes in the interest rate risk position and projected profitability. This Committee makes adjustments to the ~~asset/liability~~asset-liability position of the Bank that are reviewed by the Board of Directors of the Bank. This Committee also reviews the Bank's portfolio, formulates investment strategies and oversees the timing and implementation of transactions as intended to assure attainment of the Bank's objectives in an effective manner. In addition, each quarter the Board reviews the Bank's asset/liability position, including simulations of the effect on the Bank's capital of various interest rate scenarios.

In managing its asset/liability composition, the Bank may, at times, depending on the relationship between long-term and short-term interest rates, market conditions and consumer preference, place more emphasis on managing net interest margin than on better matching the interest rate sensitivity of its assets and liabilities in an effort to enhance net interest income. Management believes that the increased net interest income resulting from a mismatch in the maturity of its asset and liability portfolios can, in certain situations, provide high enough returns to justify the increased exposure to sudden and unexpected changes in interest rates.

To the extent consistent with its interest rate spread objectives, the Bank attempts to manage its interest rate risk and has taken a number of steps to restructure its balance sheet in order to better match the maturities of its assets and liabilities. In the past, more long-term fixed rate loans were placed into the single family loan portfolio. In recent years, the Bank has continued to focus its 30 year fixed rate single family residential lending program on loans that are saleable to third parties and generally places only adjustable rate or shorter-term fixed rate loans that meet certain risk characteristics into its loan portfolio. A significant portion of the Bank’s commercial loan production continues to be in adjustable rate loans that reprice every one, two or three years.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements other than commitments to originate ~~fund,~~ and sell loans in the ordinary course of business.

I~~tem~~Item 3: Quantitative and Qualitative Disclosures ~~about~~About Market Risk
Not applicable.
37
~~Table of Contents~~

Item 4: Controls and Procedures
Evaluation of disclosure controls and procedures. As of the end of the period covered by this report, the Company conducted an evaluation, under the supervision and with the participation of the Company’s management, including the principal executive officer and principal financial officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act)). Based on this evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures ~~are~~were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

Changes in internal controls. There was no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Table of Contents

HMN FINANCIAL, INC.

PART II - OTHER INFORMATION

ITEM 1.
Legal Proceedings.
From time to time, the Company is party to legal proceedings arising out of its lending and deposit operations. See Note ~~15-~~ 15 – Commitments and Contingencies ~~of the Notes to the Consolidated Financial Statements~~ for more information.

ITEM 1A.
Risk Factors.
The ~~updated~~ risks described ~~below and those identified~~ in ~~our~~the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019,~~2020, filed with the SEC, under “Part 1, Item 1A. Risk Factors” could affect the Company’s financial performance and could cause its actual results for future periods to differ materially from its anticipated results or other expectations, including those expressed in any forward-looking statements made in this Quarterly Report on Form 10-Q.
~~The global COVID-19 outbreak is harming the Company’s business and results of operations.~~
In December 2019, a COVID-19 outbreak was reported in China, and, in March 2020, the World Health Organization declared it a pandemic. Since that time, the COVID-19 has spread throughout the United States, including in the regions and communities in which the Company operates. In response, many state and local governments, including the states of Minnesota and Wisconsin, had instituted emergency restrictions that substantially limited the operation of non-essential businesses and the activities of individuals, although many states have begun phased re-opening and lifting such emergency restrictions. However, several states that began re-openings have re-implemented restrictions in response to a surge in COVID-19 cases. The extent, duration, and magnitude of the COVID-19 pandemic is highly uncertain and will continue to depend on future developments. These restrictions could result in significant adverse effects on the Bank’s borrowers and many different types of small and mid-sized businesses within the Company’s client base, particularly those in the retail, hospitality and food and beverage industries, among many others, and has resulted in a significant number of layoffs and furloughs of employees nationwide and in the regions and communities in which the Company operates. The ultimate effect of COVID-19 on the local or broader economy is not known nor is the ultimate length of the restrictions described and any accompanying effects. Moreover, the Federal Reserve has taken action to lower the Federal Funds rate, which may negatively affect interest income and, therefore, earnings, financial condition and results of operation of the Company.
The effect of COVID-19 and related events, including those described above and those not yet known or knowable, has had a negative effect on the stock price, business prospects, financial condition and results of operations of the Company, including as a result of quarantines, market volatility, market downturns, changes in consumer behavior, business closures, deterioration in the credit quality of borrowers or the potential inability of borrowers to satisfy their obligations to the Company (and any related forbearances or restructurings that may be implemented), declines in the value of collateral securing outstanding loans, branch or office closures and business interruptions. The bank regulatory agencies and various governmental authorities are urging 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. Further, demand for loans and other products and services that the Company offers and whose success it relies on to drive growth, is highly dependent upon the business environment in the primary markets in which the Company operates and in the United States as a whole.
There have been no other material changes to the Company’s risk factors contained in its Annual Report on Form 10-K for the year ended December 31, 2019. For a further discussion of the Company’s Risk Factors, see Part I, Item 1A. of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
39
~~Table of Contents~~

ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
The following table provides information with respect to purchases made by the Company of its own stock during
the ~~third~~second quarter of ~~2020:~~2021:

Period

Total Number
of Shares
Purchased

Average Price
Paid per Share

Total Number of Shares
Purchased as Part of
Publicly Announced Plans
or Programs (a)

Maximum Number (or
Approximate Dollar Value) of
Shares that May Yet Be
Purchased under the Plans or
Programs (a)

July 1, 2020 to July 31, 2020
0 $ N/A 0 $ 5,640,000
August 1, 2020 to August 31, 2020
0 N/A 0 $ 5,640,000
September 1, 2020 to September 30, 2020
0 N/A 0 $ 5,640,000
Total
0 $ N/A 0 $ 5,640,000
Period

Total Number of
Shares Purchased

Average Price
Paid per Share

Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs (a)

Maximum Number (or
Approximate Dollar Value) of
Shares that May Yet Be
Purchased under the Plans or
Programs (a)

April 1, 2021 to April 30, 2021
20,000 $ 20.03 20,000 $ 3,625,781
May 1, 2021 to May 31, 2021
88,000 20.60 88,000 $ 1,813,341
June 1, 2021 to June 30, 2021
0 N/A 0 $ 1,813,341
Total
108,000 $ 20.49 108,000 $ 1,813,341

(a) On November 28, 2018, the Board of Directors announced a share repurchase program pursuant to which the Company may purchase shares of its common stock for an aggregate purchase price not to exceed $6.0 million. The share repurchase program does not obligate the Company to purchase any shares and has no set expiration date. The Company suspended its stock repurchase program through September 30, 2020 and did not repurchase any of its common stock in the open market during the second or third quarters of 2020. The suspension of the stock repurchase program was done in order to preserve capital while the Company evaluated its capital needs as a result of the stressed economic environment related to the COVID-19 pandemic. Although, the evaluation of capital needs is an ongoing process, the stock repurchase program is no longer suspended.
On November 28, 2018, the Company’s board of directors announced a share repurchase authorization, pursuant to which the Company may, from time to time, purchase shares of its common stock for an aggregate purchase price not to exceed $6.0 million. On July 27, 2021, our board of directors announced an increase of $4,187,259 in the aggregate purchase price authorized to be repurchased which increased the total amount available to $6.0 million. Share repurchases may be executed through various means, including through open market transactions, privately negotiated transactions or otherwise. The repurchase authorization does not obligate the Company to purchase any shares and has no set expiration date.

ITEM 3.
Defaults Upon Senior Securities.
None.

ITEM 4.
Mine Safety Disclosures.
Not applicable.

ITEM 5.
Other Information.
None.
4037
Table of Contents

~~ITEM~~Item 6.
Exhibits.
~~Exhibits.~~

INDEX TO EXHIBITS

Exhibit

Filing
Number
Exhibit
Status

31.1
Rule 13a-14(a)/15d-14(a) Certification of CEO
Filed Electronically

31.2
Rule 13a-14(a)/15d-14(a) Certification of CFO
Filed Electronically

32
Section 1350 Certifications of CEO and CFO
Filed Electronically

101
Financial statements from the Quarterly Report on Form 10-Q of the Company for the period ended ~~September~~June 30, ~~2020,~~2021, filed with the SEC on ~~October 30, 2020,~~August 3, 2021, formatted in Inline Extensible Business Reporting Language ~~(XBRL)~~(iXBRL); (i) the Consolidated Balance Sheets at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, (ii) the Consolidated Statements of Comprehensive Income for the Three ~~Month~~Months and ~~Nine Month Periods~~Six Months Ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, (iii) the Consolidated Statements of Stockholders’ Equity for the Three and ~~Nine~~Six Month Periods Ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, (iv) the Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, and (v) Notes to Consolidated Financial Statements.
Filed Electronically
104
~~Filed Electronically~~Cover Page Interactive Data File from the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2021 (formatted as Inline XBRL and contained in Exhibit 101).
Filed Electronically

41
38
~~Table of Contents~~

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.

HMN FINANCIAL, INC.
Registrant
~~Date: October 30, 2020~~
~~By:~~
~~/s/~~ ~~Bradley Krehbiel~~
Date:
August 3, 2021 /s/ Bradley Krehbiel
Bradley Krehbiel, President and Chief Executive Officer

(Principal Executive Officer)
~~(Principal Executive Officer)~~

Date: August 3, 2021
~~Date: October 30, 2020~~ ~~By:~~ /s/ Jon Eberle
Jon Eberle,
Senior Vice President and Chief Financial Officer ~~and Treasurer~~

(Principal Financial Officer)

4239

Delaware		41-1777397
(State or ~~other jurisdiction~~Other Jurisdiction of ~~incorporation~~Incorporation or ~~organization)~~Organization)		(I.R.S. Employer Identification No.)

1016 Civic Center Drive N.W., Rochester, MN		55901
(Address of ~~principal executive offices)~~Principal Executive Offices)		(Zip Code)

Registrant's ~~telephone number, including area code:~~Telephone Number, Including Area Code:		(507) 535-1200

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock	HMNF	The Nasdaq Stock Market LLC

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

Class		Outstanding at ~~October 26, 2020~~July 28, 2021
Common stock, $0.01 par value		~~4,836,359~~4,644,575

			Page
Item 1:	Financial Statements	3

	~~Item 1:~~ Consolidated Balance Sheets at June 30, 2021 and December 31, 2020	~~Financial Statements~~	3

		~~Consolidated Balance Sheets at September 30, 2020 and December 31, 2019~~	3

		Consolidated Statements of Comprehensive Income for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020	4

		Consolidated Statements of Stockholders' Equity for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020	5

		Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020	6

		Notes to Consolidated Financial Statements	7

	Item 2:	Management's Discussion and Analysis of Financial Condition and Results of Operations	25 24

	Item 3:	Quantitative and Qualitative Disclosures ~~about~~About Market Risk	37 36

	Item 4:	Controls and Procedures	37

	~~Item 1:~~	~~Legal Proceedings~~	39

		~~Item 1A:~~	~~Risk Factors~~PART II – OTHER INFORMATION	39

Item 1:	Legal Proceedings	37

Item 1A:	Risk Factors	37

Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	39 37

	Item 3:	Defaults Upon Senior Securities	40 37

	Item 4:	Mine Safety Disclosures	40 37

	Item 5:	Other Information	40 37

	Item 6:	Exhibits	41 38

		Signatures	39	42

HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets

	September 30,			December 31,			June 30,			December 31,
(Dollars in thousands, except per share data)	2020			2019
(Dollars in thousands)							2021			2020
	(unaudited)						(unaudited)
Assets
Cash and cash equivalents	$	76,027			44,399		$	100,406			86,269
Securities available for sale:
Mortgage-backed and related securities (amortized cost $69,826 and $54,777)		71,458			54,851
Other marketable securities (amortized cost $46,874 and $52,751)		47,106			52,741
Mortgage-backed and related securities (amortized cost $165,202 and $99,821)								165,886			101,464
Other marketable securities (amortized cost $45,690 and $46,491)								45,648			46,626
		118,564			107,592			211,534			148,090

Loans held for sale		7,225			3,606			7,380			6,186
Loans receivable, net		670,297			596,392			637,219			642,630
Accrued interest receivable		4,236			2,251			2,135			3,102
Mortgage servicing rights, net		2,880			2,172			3,160			3,043
Premises and equipment, net		10,342			10,515			9,871			10,133
Goodwill		802			802			802			802
Core deposit intangible		82			156			23			57
Prepaid expenses and other assets		6,798			8,052			6,154			7,241
Deferred tax asset, net		1,199			1,702			2,342			2,027
Total assets	$	898,452			777,639		$	981,026			909,580

Liabilities and Stockholders’ Equity

Liabilities and Stockholders’ Equity
Deposits	$	787,023			673,870		$	862,282			795,204
Accrued interest payable		225			420			106			140
Customer escrows		1,857			2,413			2,382			1,998
Accrued expenses and other liabilities		8,204			8,288			8,298			8,986
Total liabilities		797,309			684,991			873,068			806,328
Commitments and contingencies
Stockholders’ equity:
Serial preferred stock ($.01 par value): authorized 500,000 shares; issued 0		0			0
Common stock ($.01 par value): authorized 16,000,000 shares; issued 9,128,662		91			91
Serial-preferred stock: ($.01 par value) authorized 500,000 shares; issued 0								0			0
Common stock ($.01 par value): Authorized 16,000,000 shares; issued 9,128,662								91			91
Additional paid-in capital		40,393			40,365			40,484			40,480
Retained earnings, subject to certain restrictions		114,724			107,547			125,795			117,849
Accumulated other comprehensive income		1,343			46			462			1,282
Unearned employee stock ownership plan shares		(1,498	)		(1,643	)		(1,353	)		(1,450	)
Treasury stock, at cost 4,292,303 and 4,284,840 shares		(53,910	)		(53,758	)
Treasury stock, at cost 4,484,087 and 4,359,552 shares								(57,521	)		(55,000	)
Total stockholders’ equity		101,143			92,648			107,958			103,252
Total liabilities and stockholders’ equity	$	898,452			777,639		$	981,026			909,580

													Three Months Ended					Six Months Ended
		Three Months Ended September 30,						Nine Months Ended September 30,					June 30,					June 30,
(Dollars in thousands, except per share data)		2020			2019			2020		2019			2021			2020		2021			2020
Interest income:	Interest income:
Loans receivable		$	7,489			7,428			22,156		22,597		$	7,557			7,427		14,917			14,667
Securities available for sale:
Mortgage-backed and related			271			56			825		146			440			265		831			554
Other marketable			163			309			546		905			62			171		169			383
Other			26			205			149		381			35			20		66			123
Total interest income			7,949			7,998			23,676		24,029			8,094			7,883		15,983			15,727

Interest expense:
Deposits			656			906			2,293		2,418			410			745		863			1,637
Federal Home Loan Bank advances and other borrowings			0			0			0		7
Total interest expense			656			906			2,293		2,425			410			745		863			1,637
Net interest income			7,293			7,092			21,383		21,604			7,684			7,138		15,120			14,090
Provision for loan losses			770			(420	)		1,548		(1,452	)		(891	)		318		(1,467	)		778
Net interest income after provision for loan losses			6,523			7,512			19,835		23,056			8,575			6,820		16,587			13,312

Non-interest income:
Fees and service charges			753			820			2,136		2,305			783			669		1,522			1,383
Loan servicing fees			347			324			976		957			384			297		779			629
Gain on sales of loans			3,005			845			6,503		1,835			1,665			2,364		3,438			3,498
Other			291			238			846		842			1,910			264		2,258			555
Total non-interest income			4,396			2,227			10,461		5,939			4,742			3,594		7,997			6,065

Non-interest expense:
Compensation and benefits			3,916			3,849			11,762		11,496			4,096			3,799		7,917			7,846
Occupancy and equipment			1,101			1,142			3,335		3,284			1,104			1,111		2,211			2,234
Data processing			334			319			963		925			368			321		715			629
Professional services			241			428			1,175		1,081			283			447		486			934
Other			1,004			1,009			3,015		2,975			1,129			975		2,130			2,011
Total non-interest expense			6,596			6,747			20,250		19,761			6,980			6,653		13,459			13,654
Income before income tax expense			4,323			2,992			10,046		9,234			6,337			3,761		11,125			5,723
Income tax expense			1,222			916			2,869		2,677			1,809			1,070		3,179			1,647
Net income			3,101			2,076			7,177		6,557			4,528			2,691		7,946			4,076
Other comprehensive income (loss), net of tax			(202	)		149			1,297		1,075			421			224		(820	)		1,499
Comprehensive income available to common shareholders		$	2,899			2,225			8,474		7,632
Comprehensive income available to common stockholders													$	4,949			2,915		7,126			5,575
Basic earnings per share		$	0.67			0.45			1.55		1.42		$	1.01			0.58		1.76			0.88
Diluted earnings per share		$	0.67			0.45			1.54		1.41		$	1.00			0.58		1.74			0.88

											Unearned
											Employee																			Unearned
								Accumulated			Stock						Total										Accumulated			Employee
			Additional					Other			Ownership						Stock-					Additional					Other			Stock						Total
	Common		Paid-in			Retained		Comprehensive			Plan			Treasury			Holders’			Common		Paid-In			Retained		Comprehensive			Ownership			Treasury			Stockholders’
(Dollars in thousands)	Stock		Capital			Earnings		Income			Shares			Stock			Equity			Stock		Capital			Earnings		Income			Plan Shares			Stock			Equity

Balance, June 30, 2020	$	91		40,312			111,623		1,545			(1,546	)		(53,910	)		98,115
Balance, March 31, 2021																				$	91		40,405			121,267		41			(1,401	)		(55,339	)		105,064
Net income							3,101											3,101								4,528											4,528
Other comprehensive loss									(202	)								(202	)
Amortization of restricted stock awards				54														54
Earned employee stock ownership plan shares				27								48						75
Balance, September 30, 2020	$	91		40,393			114,724		1,343			(1,498	)		(53,910	)		101,143

Balance, December 31, 2019	$	91		40,365			107,547		46			(1,643	)		(53,758	)		92,648
Net income							7,177											7,177
Other comprehensive gain									1,297									1,297
Other comprehensive income																												421									421
Stock repurchases															(360	)		(360	)				0											(2,213	)		(2,213	)
Restricted stock awards				(268	)										268			0					(38	)										38			0
Stock awards withheld for tax withholding															(60	)		(60	)															(7	)		(7	)
Amortization of restricted stock awards				184														184					61														61
Earned employee stock ownership plan shares				112								145						257					56								48						104
Balance, September 30, 2020	$	91		40,393			114,724		1,343			(1,498	)		(53,910	)		101,143
Balance, June 30, 2021																				$	91		40,484			125,795		462			(1,353	)		(57,521	)		107,958

Balance, December 31, 2020																				$	91		40,480			117,849		1,282			(1,450	)		(55,000	)		103,252
Net income																										7,946											7,946
Other comprehensive loss																												(820	)								(820	)
Stock repurchases																																		(2,736	)		(2,736	)
Restricted stock awards																							(222	)										222			0
Stock awards withheld for tax withholding																																		(7	)		(7	)
Amortization of restricted stock awards																							121														121
Earned employee stock ownership plan shares																							105								97						202
Balance, June 30, 2021																				$	91		40,484			125,795		462			(1,353	)		(57,521	)		107,958

	Nine Months Ended September 30,						Six Months Ended June 30,
(Dollars in thousands)	2020			2019			2021			2020
Cash flows from operating activities:
Net income	$	7,177			6,557		$	7,946			4,076
Adjustments to reconcile net income to cash provided by operating activities:
Provision for loan losses		1,548			(1,452	)		(1,467	)		778
Depreciation		785			838			507			570
Amortization of premiums (discounts), net		119			(10	)
Amortization of premiums, net								425			58
Amortization of deferred loan fees		(350	)		(153	)		(1,327	)		(170	)
Amortization of core deposit intangible		74			74			34			49
Amortization of purchased asset fair value adjustments		(26	)		(29	)
Amortization of other purchased fair value adjustments								(15	)		(19	)
Amortization of mortgage servicing rights		1,002			535			574			621
Capitalized mortgage servicing rights		(1,710	)		(674	)		(691	)		(1,096	)
Securities losses (gains), net		40			(42	)
(Gain) loss on sale of premises and equipment		(6	)		20
Gain on sales of real estate		(129	)		0
(Gains) losses recognized on equity securities, net								(49	)		39
Gains on sale of premises								(15	)		0
(Gain) loss on sales of real estate								(1,492	)		2
Gain on sales of loans		(6,503	)		(1,835	)		(3,438	)		(3,498	)
Proceeds from sales of loans held for sale		202,243			77,289
Proceeds from sale of loans held for sale								95,028			120,978
Disbursements on loans held for sale		(195,571	)		(75,833	)		(87,885	)		(117,307	)
Amortization of restricted stock awards		184			138			121			130
Amortization of unearned Employee Stock Ownership Plan shares		145			144			97			97
Earned Employee Stock Ownership Plan shares priced above original cost		112			173			105			85
Stock option compensation expense		0			1
(Increase) decrease in accrued interest receivable		(1,985	)		139
(Decrease) increase in accrued interest payable		(195	)		31
Decrease (increase) in accrued interest receivable								967			(1,129	)
Decrease in accrued interest payable								(34	)		(149	)
Decrease in other assets		1,379			1,285			584			1,230
(Decrease) increase in other liabilities		(170	)		923			(711	)		1,467
Other, net		6			22			5			4
Net cash provided by operating activities		8,169			8,141			9,269			6,816
Cash flows from investing activities:
Principal collected on securities available for sale		11,050			1,347			16,534			6,047
Proceeds collected on maturities of securities available for sale		30,875			10,400			25,762			30,875
Purchases of securities available for sale		(51,218	)		(15,246	)		(107,299	)		(25,102	)
Purchase of Federal Home Loan Bank stock		(79	)		(1,040	)
Redemption of Federal Home Loan Bank stock		0			1,054
Purchase of Federal Home Loan Bank Stock								(159	)		(79	)
Proceeds from sales of real estate		434			0			2,128			34
Net (increase) decrease in loans receivable		(79,174	)		1,008
Proceeds from sale of premises and equipment		63			195
Net decrease (increase) in loans receivable								3,413			(74,754	)
Proceeds from sale of premises								16			0
Purchases of premises and equipment		(669	)		(1,748	)		(246	)		(303	)
Net cash used by investing activities		(88,718	)		(4,030	)		(59,851	)		(63,282	)
Cash flows from financing activities:
Increase in deposits		113,153			36,256			67,078			78,889
Common Stock purchased		(360	)		0
Purchase of treasury stock								(2,736	)		(360	)
Stock awards withheld for tax withholding		(60	)		(45	)		(7	)		(60	)
Proceeds from borrowings		0			26,000
Repayment of borrowings		0			(26,000	)
(Decrease) increase in customer escrows		(556	)		1,476
Increase (decrease) in customer escrows								384			(592	)
Net cash provided by financing activities		112,177			37,687			64,719			77,877
Increase in cash and cash equivalents		31,628			41,798			14,137			21,411
Cash and cash equivalents, beginning of period		44,399			20,709			86,269			44,399
Cash and cash equivalents, end of period	$	76,027			62,507		$	100,406			65,810
Supplemental cash flow disclosures:
Cash paid for interest	$	2,488			2,394		$	897			1,786
Cash paid for income taxes		2,041			2,189			3,301			1,240
Supplemental noncash flow disclosures:
Loans transferred to loans held for sale		3,960			4,054			4,806			1,987
Transfer of loans to real estate		139			166			0			139
Right to use assets and lease obligations		0			4,241

	Carrying value at September 30, 2020								Carrying Value at June 30, 2021
(Dollars in thousands)	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Securities available for sale	$	118,564		0		118,564		0	$	211,534		0		211,534		0
Equity securities		127		0		127		0		198		0		198		0
Mortgage loan commitments		266		0		266		0		186		0		186		0
Total	$	118,957		0		118,957		0	$	211,918		0		211,918		0

	Carrying value at December 31, 2019								Carrying Value at December 31, 2020
(Dollars in thousands)	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Securities available for sale	$	107,592		0		107,592		0	$	148,090		0		148,090		0
Equity securities		167		0		167		0		149		0		149		0
Mortgage loan commitments		14		0		14		0		261		0		261		0
Total	$	107,773		0		107,773		0	$	148,500		0		148,500		0

	For the Six Months Ended June 30,
(Dollars in thousands)	2021									2020
Securities available for sale:	Before Tax			Tax Effect			Net of Tax			Before Tax		Tax Effect		Net of Tax
Gross unrealized (losses) gains arising during the period	$	(1,135	)		(315	)		(820	)		2,081		582		1,499
Other comprehensive (loss) income	$	(1,135	)		(315	)		(820	)		2,081		582		1,499

	For the nine months ended September 30,
(Dollars in thousands)	2020						2019
Securities available for sale:	Before tax		Tax effect		Net of tax		Before tax		Tax effect		Net of tax
Net unrealized gains arising during the period	$	1,800		503		1,297		1,491		416		1,075
Other comprehensive income	$	1,800		503		1,297		1,491		416		1,075

	September 30, 2020														June 30, 2021
	Classified										Unclassified				Classified										Unclassified
(Dollars in thousands)	Special Mention		Substandard		Doubtful		Loss		Total		Total		Total Loans		Special Mention		Substandard		Doubtful		Loss		Total		Total		Total Loans
Single family	$	274		2,313		31		0		2,618		128,225		130,843	$	990		1,570		27		42		2,629		147,641		150,270
Commercial real estate:
Real estate rental and leasing		5,194		3,451		0		0		8,645		205,051		213,696		8,669		1,569		0		0		10,238		190,424		200,662
Other		5,537		5,574		0		0		11,111		159,100		170,211		7,388		8,099		0		0		15,487		161,462		176,949
Consumer		0		624		63		20		707		58,564		59,271		0		653		57		13		723		45,543		46,266
Commercial business		3,575		1,884		0		0		5,459		101,337		106,796		2,890		1,522		0		0		4,412		69,706		74,118
	$	14,580		13,846		94		20		28,540		652,277		680,817	$	19,937		13,413		84		55		33,489		614,776		648,265

(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current Loans		Total Loans		Loans 90 Days or More Past Due and Still Accruing		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current Loans		Total Loans		Loans 90 Days or More Past Due and Still Accruing
September 30, 2020
June 30, 2021
Single family	$	550		223		144		917		129,926		130,843		0	$	500		150		430		1,080		149,190		150,270		0
Commercial real estate:
Real estate rental and leasing		0		0		0		0		213,696		213,696		0		333		0		0		333		200,329		200,662		0
Other		0		0		185		185		170,026		170,211		0		0		0		0		0		176,949		176,949		0
Consumer		360		49		300		709		58,562		59,271		0		329		64		291		684		45,582		46,266		0
Commercial business		0		0		0		0		106,796		106,796		0		25		0		0		25		74,093		74,118
	$	910		272		629		1,811		679,006		680,817		0	$	1,187		214		721		2,122		646,143		648,265		0
December 31, 2019
December 31, 2020
Single family	$	786		77		59		922		119,142		120,064		0	$	626		38		298		962		134,061		135,023		0
Commercial real estate:
Real estate rental and leasing		0		0		0		0		192,502		192,502		0		0		0		0		0		202,400		202,400		0
Other		0		0		0		0		157,693		157,693		0		0		0		0		0		178,304		178,304		0
Consumer		527		31		206		764		69,185		69,949		0		458		66		279		803		54,588		55,391		0
Commercial business		147		13		550		710		63,517		64,227		0		0		0		0		0		82,673		82,673		0
	$	1,460		121		815		2,396		602,039		604,435		0	$	1,084		104		577		1,765		652,026		653,791		0

		For the three months ended September 30, 2020				For the nine months ended September 30, 2020				For the Three Months Ended June 30, 2021				For the Six Months Ended June 30, 2021
(Dollars in thousands)		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Loans with no related allowance recorded:
Single family		$	606		6		585		23	$	580		1		633		2
Commercial real estate:
Real estate rental and leasing			985		0		493		33		614		0		720		0
Other			401		0		340		2		196		0		201		0
Consumer			586		3		640		9		570		2		571		2
Commercial business			4		0		2		0
Loans with an allowance recorded:
Single family			121		0		273		0		135		0		129		0
Commercial real estate:
Real estate rental and leasing			173		0		177		0		0		0		55		0
Other			0		0		487		0		154		0		161		0
Consumer			142		0		169		2		122		0		140		1
Commercial business			50		1		242		2		32		0		33		1
Total:
Single family			727		6		858		23		715		1		762		2
Commercial real estate:
Real estate rental and leasing			1,158		0		670		33		614		0		775		0
Other			401		0		827		2		350		0		362		0
Consumer			728		3		809		11		692		2		711		3
Commercial business			54		1		244		2		32		0		33		1
		$	3,068		10		3,408		71	$	2,403		3		2,643		6
	��

	For the Three Months Ended June 30, 2020				For the Six Months Ended June 30, 2020
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Loans with no related allowance recorded:
Single family	$	604		7		584		18
Commercial real estate:
Real estate rental and leasing		501		13		334		33
Other		480		0		320		2
Consumer		591		3		654		6
Commercial business		4		0		3		0
Loans with an allowance recorded:
Single family		271		0		324		0
Commercial real estate:
Real estate rental and leasing		177		0		179		0
Other		484		0		650		0
Consumer		185		1		188		3
Commercial business		93		1		307		1
Total:
Single family		875		7		908		18
Commercial real estate:
Real estate rental and leasing		678		13		513		33
Other		964		0		970		2
Consumer		776		4		842		9
Commercial business		97		1		310		1
	$	3,390		25		3,543		63

	Three Months Ended June 30, 2021						Six Months Ended June 30, 2021
(Dollars in thousands)	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial real estate:
Other		0	$	0		0		1	$	139		139
Consumer		1		93		94		1		93		94
Commercial business		0		0		0		1		14		14
Total		1	$	93		94		3	$	246		247

	Three Months Ended September 30, 2020						Nine Months Ended September 30, 2020
(Dollars in thousands)	Number of Contracts		Pre- modification Outstanding Recorded Investment		Post- modification Outstanding Recorded Investment		Number of Contracts		Pre- modification Outstanding Recorded Investment		Post- modification Outstanding Recorded Investment
Troubled debt restructurings:
Single family		0	$	0		0		1	$	94		101
Commercial real estate:
Other		0		0		0		2		293		293
Total		0	$	0		0		3	$	387		394

	Three Months Ended September 30, 2019						Nine Months Ended September 30, 2019
(Dollars in thousands)	Number of Contracts		Pre- modification Outstanding Recorded Investment		Post- modification Outstanding Recorded Investment		Number of Contracts		Pre- modification Outstanding Recorded Investment		Post- modification Outstanding Recorded Investment
Troubled debt restructurings:
Single family		0	$	0		0		3	$	176		181
Consumer		1		58		58		4		118		118
Total		1	$	58		58		7	$	294		299

	Three Months Ended June 30, 2020						Six Months Ended June 30, 2020
(Dollars in thousands)	Number of Contracts		Pre- modification Outstanding Recorded Investment		Post- modification Outstanding Recorded Investment		Number of Contracts		Pre- modification Outstanding Recorded Investment		Post- modification Outstanding Recorded Investment
Troubled debt restructurings:
Single family		0	$	0		0		1	$	94		101
Commercial real estate:
Other		0		0		0		2		293		293
Total		0	$	0		0		3	$	387		394

(Dollars in thousands)	Balance September 30, 2020		Balance June 30, 2020
Commercial real estate loans by industry:
Hotels ⁽¹⁾	$	54,660		54,660
Retail/Office		7,127		20,322
Theaters		11,269		11,269
Multi-family		0		11,195
Single family		0		4,675
Restaurant/Bar		2,876		4,477
Other		5,747		9,449
Total commercial loans		81,679		116,047

Consumer loans by collateral type:
Single family		366		2,955
Other		0		77
Total consumer loans		366		3,032
Total deferred loans	$	82,045		119,079

(Dollars in thousands)	Nine Months ended September 30, 2020			Twelve Months ended December 31, 2019			Nine Months ended September 30, 2019			Six Months Ended June 30, 2021			Twelve Months Ended December 31, 2020			Six Months Ended June 30, 2020
Balance, beginning of period	$	2,172			1,855			1,855		$	3,043			2,172			2,172
Originations		1,710			1,097			674			691			2,189			1,096
Amortization		(1,002	)		(780	)		(535	)		(574	)		(1,318	)		(621	)
Balance, end of period	$	2,880			2,172			1,994		$	3,160			3,043			2,647
Fair value of mortgage servicing rights	$	2,956			3,390			2,922		$	4,316			3,378			2,840

			Weighted			Weighted						Weighted			Weighted
	Loan		Average			Average				Loan		Average			Average
	Principal		Interest			Remaining		Number		Principal		Interest			Remaining		Number
(Dollars in thousands)	Balance		Rate			Term (months)		of Loans		Balance		Rate			Term (months)		of Loans
Original term 30 year fixed rate	$	380,018		3.74	%		311		2,593	$	407,078		3.50	%		312		2,629
Original term 15 year fixed rate		117,870		3.03			140		1,064		120,211		2.90			142		1,079

	June 30, 2021
	Gross
(Dollars in thousands)	Carrying Amount		Accumulated Amortization			Unamortized Amount
Mortgage servicing rights	$	6,015		(2,855	)		3,160
Core deposit intangible		574		(551	)		23
Goodwill		802		0			802
Total	$	7,391		(3,406	)		3,985

(Dollars in thousands)	Mortgage Servicing Rights		Core Deposit Intangible		Total Amortizing Intangible Assets
Year ending December 31,
2021	$	338		13		351
2022		638		10		648
2023		597		0		597
2024		552		0		552
2025		471		0		471
Thereafter		564		0		564
Total	$	3,160		23		3,183

(Dollars in thousands)	Mortgage Servicing Rights		Core Deposit Intangible		Total Amortizing Intangible Assets
Year ended December 31,
2020	$	156		25		181
2021		596		47		643
2022		550		10		560
2023		495		0		495
2024		437		0		437
Thereafter		646		0		646
Total	$	2,880		82		2,962

(Dollars in thousands)	Three Months Ended September 30, 2020			Three Months Ended September 30, 2019			Nine Months Ended September 30, 2020			Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	224			221			669			667
Weighted-average remaining lease term – operating leases, in years		3.9			5.0			3.9			5.0
Weighted-average discount rate – operating leases		2.19	%		2.19	%		2.19	%		2.19	%

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
(In thousands, except per share data)	2020		2019		2020		2019
Weighted average number of common shares outstanding used in basic earnings per share calculation		4,628		4,614		4,624		4,606
(Dollars in thousands, except per share data)									2021		2020		2021		2020
Weighted average number of common shares outstanding used in basic earnings per common share calculation										4,492,502		4,618,555		4,526,434		4,622,231
Net dilutive effect of:
Restricted stock awards and options		23		28		26		29		34,394		25,664		32,983		26,691
Weighted average number of shares outstanding adjusted for effect of dilutive securities		4,651		4,642		4,650		4,635		4,526,896		4,644,219		4,559,417		4,648,922
Income available to common shareholders	$	3,101		2,076		7,177		6,557
Income available to common stockholders									$	4,528		2,691		7,946		4,076
Basic earnings per common share	$	0.67		0.45		1.55		1.42	$	1.01		0.58		1.76		0.88
Diluted earnings per common share	$	0.67		0.45		1.54		1.41	$	1.00		0.58		1.74		0.88

	Actual					Required to be Adequately Capitalized					Excess Capital					To Be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars in thousands)	Amount		Percent of Assets			Amount		Percent of Assets			Amount		Percent of Assets			Amount		Percent of Assets
June 30, 2021
Common equity Tier 1 capital	$	97,789		14.18	%	$	31,033		4.50	%	$	66,756		9.68	%	$	44,826		6.50	%
Tier 1 capital leverage		97,789		10.01			39,059		4.00			58,730		6.01			48,823		5.00
Tier 1 risk-based capital		97,789		14.18			41,378		6.00			56,411		8.18			55,171		8.00
Total risk-based capital		106,425		15.43			55,171		8.00			51,254		7.43			68,963		10.00

(Dollars in thousands)	Home Federal Savings Bank			Other			Eliminations			Consolidated Total			Home Federal Savings Bank			Other			Eliminations			Consolidated Total
At or for the nine months ended September 30, 2020:
Interest income - external customers	$	23,676			0			0			23,676
Non-interest income - external customers		10,461			0			0			10,461
At or for the six months ended June 30, 2021:
Interest income – external customers													$	15,983			0			0			15,983
Non-interest income – external customers														7,996			1			0			7,997
Intersegment interest income		0			32			(32	)		0			0			14			(14	)		0
Intersegment non-interest income		175			7,609			(7,784	)		0			117			8,281			(8,398	)		0
Interest expense		2,325			0			(32	)		2,293			877			0			(14	)		863
Provision for loan losses		1,548			0			0			1,548			(1,467	)		0			0			(1,467	)
Non-interest expense		19,863			562			(175	)		20,250			13,140			436			(117	)		13,459
Income tax expense		2,967			(98	)		0			2,869			3,265			(86	)		0			3,179
Net income		7,609			7,177			(7,609	)		7,177			8,281			7,946			(8,281	)		7,946
Total assets		897,694			101,308			(100,550	)		898,452			981,023			107,421			(107,418	)		981,026
At or for the nine months ended September 30, 2019:
Interest income - external customers	$	24,029			2			(2	)		24,029
Non-interest income - external customers		5,939			0			0			5,939
Intersegment non-interest income		176			7,015			(7,191	)		0
Interest expense		2,427			0			(2	)		2,425
Provision for loan losses		(1,452	)		0			0			(1,452	)
Non-interest expense		19,363			574			(176	)		19,761
Income tax expense		2,791			(114	)		0			2,677
Net income		7,015			6,557			(7,015	)		6,557
Total assets		762,445			91,388			(90,605	)		763,228
At or for the quarter ended September 30, 2020:
Interest income - external customers	$	7,949			0			0			7,949
Non-interest income - external customers		4,396			0			0			4,396
At or for the six months ended June 30, 2020:
Interest income – external customers														15,727			0			0			15,727
Non-interest income – external customers														6,065			0			0			6,065
Intersegment interest income		0			9			(9	)		0			0			23			(23	)		0
Intersegment non-interest income		58			3,251			(3,309	)		0			117			4,358			(4,475	)		0
Interest expense		665			0			(9	)		656			1,660			0			(23	)		1,637
Provision for loan losses		770			0			0			770			778			0			0			778
Non-interest expense		6,460			194			(58	)		6,596			13,403			368			(117	)		13,654
Income tax expense		1,257			(35	)		0			1,222			1,710			(63	)		0			1,647
Net income		3,251			3,101			(3,251	)		3,101			4,358			4,076			(4,358	)		4,076
Total assets		897,694			101,308			(100,550	)		898,452			862,046			98,247			(97,510	)		862,783
At or for the quarter ended September 30, 2019:
Interest income - external customers	$	7,998			2			(2	)		7,998
Non-interest income - external customers		2,227			0			0			2,227
At or for the quarter ended June 30, 2021:
Interest income – external customers													$	8,094			0			0			8,094
Non-interest income – external customers														4,742			0			0			4,742
Intersegment interest income														0			6			(6	)		0
Intersegment non-interest income		59			2,235			(2,294	)		0			59			4,687			(4,746	)		0
Interest expense		908			0			(2	)		906			416			0			(6	)		410
Provision for loan losses		(420	)		0			0			(420	)		(891	)		0			0			(891	)
Non-interest expense		6,604			202			(59	)		6,747			6,831			208			(59	)		6,980
Income tax expense		957			(41	)		0			916			1,852			(43	)		0			1,809
Net income		2,235			2,076			(2,235	)		2,076			4,687			4,528			(4,687	)		4,528
Total assets		762,445			91,388			(90,605	)		763,228			981,023			107,421			(107,418	)		981,026
	��
At or for the quarter ended June 30, 2020:
Interest income – external customers													$	7,883			0			0			7,883
Non-interest income – external customers														3,594			0			0			3,594
Intersegment interest income														0			8			(8	)		0
Intersegment non-interest income														58			2,834			(2,892	)		0
Interest expense														753			0			(8	)		745
Provision for loan losses														318			0			0			318
Non-interest expense														6,529			182			(58	)		6,653
Income tax expense														1,101			(31	)		0			1,070
Net income														2,834			2,691			(2,834	)		2,691
Total assets														862,046			98,247			(97,510	)		862,783

Dollars in thousands	Number of Loans			Amount			Net Deferred Fees
Originated		413		$	53,153		$	1,837
Repaid		(130	)		(19,484	)		-
Net deferred fees recognized		-			-			(1,097	)
Balance, December 31, 2020		283			33,669			740
Repaid		(243	)		(21,419	)		-
Net deferred fees recognized		-			-			(597	)
Balance, March 31, 2021		40			12,250			143
Repaid		(35	)		(11,334	)		-
Net deferred fees recognized		-			-			(126	)
Balance, June 30, 2021		5		$	916		$	17

	For the three month period ended														For the three month period ended
	September 30, 2020							September 30, 2019							June 30, 2021							June 30, 2020
(Dollars in thousands)	Average Outstanding Balance		Interest Earned/ Paid		Yield/ Rate			Average Outstanding Balance		Interest Earned/ Paid		Yield/ Rate			Average Outstanding Balance		Interest Earned/ Paid		Yield/ Rate			Average Outstanding Balance		Interest Earned/ Paid		Yield/ Rate
Interest-earning assets:
Securities available for sale	$	103,132		434		1.67	%	$	80,286		365		1.80	%	$	197,739		502		1.02	%	$	96,241		436		1.82	%
Loans held for sale		9,309		65		2.76			3,557		43		4.72			4,821		38		3.14			8,736		67		3.07
Single family loans, net		134,460		1,325		3.92			115,844		1,236		4.23			155,205		1,418		3.66			129,584		1,306		4.05
Commercial loans, net		474,325		5,390		4.52			398,674		5,229		5.20			442,794		5,571		5.05			455,330		5,293		4.68
Consumer loans, net		60,473		709		4.66			73,788		920		4.95			47,235		530		4.50			64,864		761		4.72
Other		71,180		26		0.15			37,355		205		2.18			95,750		35		0.15			49,435		20		0.16
Total interest-earning assets		852,879		7,949		3.71			709,504		7,998		4.47			943,544		8,094		3.44			804,190		7,883		3.94

Interest-bearing liabilities and non-interest-bearing deposits:
Interest-bearing liabilities:
Checking accounts		129,276		41		0.13			93,024		23		0.10			161,288		48		0.12			112,605		30		0.11
Savings accounts		93,022		17		0.07			80,269		16		0.08			113,717		18		0.06			88,528		16		0.07
Money market accounts		221,991		190		0.34			173,606		303		0.69			240,852		141		0.24			204,939		201		0.39
Certificates		111,847		408		1.45			127,888		564		1.75
Certificate accounts																95,306		203		0.86			119,722		498		1.67
Total interest-bearing liabilities		556,136							474,787							611,163							525,794
Non-interest checking		219,512							166,972							251,196							209,194
Other non-interest bearing deposits		2,218							2,415							2,425							2,142
Total interest-bearing liabilities and non-interest-bearing deposits	$	777,866		656		0.34		$	644,174		906		0.56
Total interest-bearing liabilities and non-interest bearing deposits															$	864,784		410		0.19		$	737,130		745		0.40
Net interest income			$	7,293						$	7,092						$	7,684						$	7,138
Net interest rate spread						3.37	%						3.91	%						3.25	%						3.54	%
Net interest margin						3.40	%						3.97	%						3.27	%						3.57	%