Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

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

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

As of August ~~8, 2019,~~7, 2020, the registrant had ~~6,727,908~~6,317,890 shares of common stock, $0.01 par value per share, outstanding.

	June 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
	(unaudited)						(unaudited)
	(dollars in thousands except per share data)						(dollars in thousands except per share data)
ASSETS
Cash and cash equivalents	$	116,251		$	61,087		$	127,016		$	108,457
Interest earning cash at other financial institutions								416			20,554
Securities available-for-sale, at fair value		158,561			195,945			226,971			158,733
FHLB Stock		2,178			2,978			5,758			1,628
Loans held for sale		7,448			2,949			11,847			2,151
Loans, net of allowance for loan losses of $16,258 as of June 30, 2019; $16,505 as of December 31, 2018		1,131,574			1,190,790
Loans, net of allowance for loan losses of $18,569 as of June 30, 2020; $15,267 as of December 31, 2019								1,068,955			1,020,506
Premises and equipment, net		15,713			16,075			14,314			13,603
Loan servicing rights		9,621			9,047			16,486			12,509
Other real estate owned, net		8,693			6,568			2,629			5,521
Cash surrender value of bank owned life insurance		18,067			17,842			28,646			18,302
Deferred tax asset, net		1,942			4,346			—			1,453
Goodwill		5,038			5,038			—			5,038
Core deposit intangible, net of accumulated amortization of $1,447 as of June 30, 2019; $1,288 as of December 31, 2018		354			513
Core deposit intangible, net								125			225
Accrued interest receivable and other assets		9,206			7,849			10,754			10,099
Total assets	$	1,484,646		$	1,521,027		$	1,513,917		$	1,378,779

LIABILITIES
Deposits:
Noninterest-bearing	$	111,022		$	121,436		$	149,963		$	138,489
Interest-bearing		1,094,155			1,101,911			923,090			962,953
Total deposits		1,205,177			1,223,347			1,073,053			1,101,442
Other borrowings		809			827			101,847			794
Advances from FHLB		59,400			89,400			93,400			44,400
Subordinated debentures		44,781			44,703			61,910			44,858
Deferred tax liability, net								384			—
Accrued interest payable and other liabilities		11,755			10,466			14,798			15,256
Total liabilities		1,321,922			1,368,743			1,345,392			1,206,750

SHAREHOLDERS' EQUITY
Preferred stock- $1,000 stated value; 15,000 shares authorized; 8,000 shares issued		8,000			8,000			8,000			8,000
Common stock - $0.01 par value; 50,000,000 authorized; 7,161,828 shares issued and 6,717,908 shares outstanding at June 30, 2019; 7,153,174 shares issued and 6,709,480 shares outstanding as of December 31, 2018		28			28
Common stock - $0.01 par value; 50,000,000 authorized; 7,202,000 shares issued and 6,375,150 shares outstanding as of June 30, 2020; 7,178,052 shares issued and 6,734,132 shares outstanding as of December 31, 2019								28			28
Surplus		53,484			53,162			54,813			54,122
Retained earnings		105,035			98,475			112,012			113,111
Treasury stock, at cost; 443,920 shares at June 30, 2019; 443,694 shares at December 31, 2018		(5,030	)		(5,030	)
Accumulated other comprehensive gain (loss)		1,207			(2,351	)
Treasury stock, at cost; 826,850 shares at June 30, 2020; 443,920 shares at December 31, 2019								(13,443	)		(5,030	)
Accumulated other comprehensive income								7,115			1,798
Total shareholders' equity		162,724			152,284			168,525			172,029
Total liabilities and shareholders' equity	$	1,484,646		$	1,521,027		$	1,513,917		$	1,378,779

	For the Three Months Ended June 30,				For the Six Months Ended June 30,				For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2019		2018		2019		2018		2020		2019		2020			2019
	(dollars in thousands except per share data)								(dollars in thousands except per share data)
INTEREST AND DIVIDEND INCOME
Loans, including fees	$	15,484	$	14,366	$	30,985	$	28,057	$	12,130	$	15,484	$	24,712		$	30,985
Taxable securities		1,177		982		2,363		1,614		1,283		1,177		2,565			2,363
Tax-exempt securities		82		14		257		171		162		82		168			257
Federal funds sold and other		465		401		729		614		111		465		336			729
Total interest and dividend income		17,208		15,763		34,334		30,456		13,686		17,208		27,781			34,334

INTEREST EXPENSE
Deposits		5,678		4,600		11,102		8,396		3,721		5,678		8,068			11,102
FHLB advances and other borrowed funds		415		487		879		971		343		415		587			879
Subordinated debentures		683		338		1,361		481		736		683		1,442			1,361
Total interest expense		6,776		5,425		13,342		9,848		4,800		6,776		10,097			13,342
Net interest income		10,432		10,338		20,992		20,608		8,886		10,432		17,684			20,992
Provision for loan losses		876		533		1,628		630		1,142		876		3,360			1,628
Net interest income after provision for loan losses		9,556		9,805		19,364		19,978		7,744		9,556		14,324			19,364
NON-INTEREST INCOME
Services charges		407		445		760		810		368		407		710			760
Gain on sale of loans, net		26		45		25		77		4		26		42			25
Loan servicing fees		1,909		1,613		3,656		3,075		2,197		1,909		4,317			3,656
Other		545		213		1,196		394		811		545		1,014			1,196
Total non-interest income		2,887		2,316		5,637		4,356		3,380		2,887		6,083			5,637
NON-INTEREST EXPENSE
Employee compensation and benefits		4,199		4,114		8,681		8,332		4,594		4,199		9,854			8,681
Occupancy		283		278		672		482		305		283		659			672
Information processing		591		529		1,154		994		663		591		1,333			1,154
Write-down of other real estate owned		250		104		250		104
Professional fees										480		417		881			816
Writedown of other real estate owned										—		250		1,360			250
Goodwill impairment										—		—		5,038			—
Other		2,123		1,912		3,994		3,810		1,423		1,706		3,357			3,178
Total non-interest expense		7,446		6,937		14,751		13,722		7,465		7,446		22,482			14,751
Income before income taxes		4,997		5,184		10,250		10,612
Income (loss) before income taxes										3,659		4,997		(2,075	)		10,250
Income tax expense		1,293		1,334		2,784		2,708		926		1,293		379			2,784
NET INCOME	$	3,704	$	3,850	$	7,466	$	7,904
NET INCOME (LOSS)									$	2,733	$	3,704	$	(2,454	)	$	7,466

NET INCOME PER SHARE:
NET INCOME (LOSS) PER SHARE:
Basic	$	0.53	$	0.56	$	1.07	$	1.15	$	0.40	$	0.53	$	(0.40	)	$	1.07
Diluted	$	0.53	$	0.55	$	1.07	$	1.14	$	0.40	$	0.53	$	(0.40	)	$	1.07
Dividends paid per share	$	0.05	$	0.07	$	0.10	$	0.14	$	0.07	$	0.05	$	0.14		$	0.10

For the Three Months Ended June 30,

For the Six Months Ended June 30,

2019

2018

2019

2018

(dollars in thousands)

Net income

$
3,704

$
3,850

$
7,466

$
7,904

Other comprehensive income:

Unrealized gain (loss) on securities available-for-sale

2,717

(373
)

6,369

(2,772
)
Income tax benefit (expense)

(740
)

80

(1,735
)

594

Reclassification for realized gains on securities

(341
)

—

(341
)

—

Income tax benefit (expense)

93

—

93

—

Total other comprehensive income (loss) on securities
available-for-sale

1,729

(293
)

4,386

(2,178
)
Unrealized gain (loss) on derivatives arising during the period

(653
)

51

(1,137
)

51

Income tax benefit (expense)

180

(14
)

309

(14
)
Total other comprehensive income (loss) on derivatives

(476
)

37

(828
)

37

Total other comprehensive income (loss)

1,253

(256
)

3,558

(2,141
)
Comprehensive income

$
4,957

$
3,594

$
11,024

$
5,763

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2020			2019			2020			2019
	(dollars in thousands)
Net income (loss)	$	2,733		$	3,704		$	(2,454	)	$	7,466
Other comprehensive income:
Unrealized gain on securities available-for-sale		5,685			2,717			9,132			6,369
Income tax expense		(1,548	)		(740	)		(2,487	)		(1,735	)
Reclassification for realized gains on securities		(570	)		(341	)		(570	)		(341	)
Income tax expense		154			93			154			93
Total other comprehensive income on securities available-for-sale		3,721			1,729			6,229			4,386
Unrealized loss on derivatives arising during the period		(60	)		(656	)		(1,254	)		(1,137	)
Income tax benefit		17			180			342			309
Total other comprehensive loss on derivatives		(43	)		(476	)		(912	)		(828	)
Total other comprehensive income		3,678			1,253			5,317			3,558
Comprehensive income	$	6,411		$	4,957		$	2,863		$	11,024

	Preferred Stock		Common Stock			Surplus			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Shareholders' Equity			Preferred Stock		Common Stock		Surplus		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Shareholders' Equity
	(dollars in thousands except share data)
Balance at December 31, 2017	$	8,000	$	28		$	52,230		$	86,385		$	(5,030	)	$	(627	)	$	140,986
Net income		—		—			—			4,054			—			—			4,054
Other comprehensive loss		—		—			—			—			—			(1,885	)		(1,885	)
Stock compensation expense		—		—			117			—			—			—			117
Cash dividends declared on common stock		—		—			—			(468	)		—			—			(468	)
Cash dividends declared on preferred stock		—		—			—			(97	)		—			—			(97	)
Reclassification of par value to surplus		—		(21	)		21			—			—			—			—
Reclassification of stranded tax effects of rate change		—		—			—			126			—			(126	)		—
Proceeds from exercise of common stock options (2,952 shares)		—		—			107			—			—			—			107
Balance at March 31, 2018	$	8,000	$	7		$	52,475		$	90,000		$	(5,030	)	$	(2,638	)	$	142,814
Net income		—		—			—			3,850			—			—			3,850
Other comprehensive loss		—		—			—			—			—			(256	)		(256	)
Stock compensation expense		—		—			142			—			—			—			142
Cash dividends declared on common stock		—		—			—			(469	)		—			—			(469	)
Cash dividends declared on preferred stock		—		—			—			(99	)		—			—			(99	)
Reclassification of par value from surplus		—		21			(21	)		—			—			—			—
Proceeds from exercise of common stock options (9,640 shares)		—		—			100			—			—			—			100
Balance at June 30, 2018	$	8,000	$	28		$	52,696		$	93,282		$	(5,030	)	$	(2,894	)		146,082
																					(dollars in thousands except share data)
Balance at December 31, 2018	$	8,000	$	28		$	53,162		$	98,475		$	(5,030	)	$	(2,351	)	$	152,284		$	8,000	$	28	$	53,162	$	98,475		$	(5,030	)	$	(2,351	)	$	152,284
Net income		—		—			—			3,762			—			—			3,762			—		—		—		3,762			—			—			3,762
Other comprehensive income		—		—			—			—			—			2,305			2,305			—		—		—		—			—			2,305			2,305
Stock compensation expense		—		—			118			—			—			—			118			—		—		118		—			—			—			118
Cash dividends declared on common stock		—		—			—			(335	)		—			—			(335	)		—		—		—		(335	)		—			—			(335	)
Cash dividends declared on preferred stock		—		—			—			(117	)		—			—			(117	)		—		—		—		(117	)		—			—			(117	)
Balance at March 31, 2019	$	8,000	$	28		$	53,280		$	101,785		$	(5,030	)	$	(46	)	$	158,017		$	8,000	$	28	$	53,280	$	101,785		$	(5,030	)	$	(46	)	$	158,017
Net income		—		—			—			3,704			—			—			3,704			—		—		—		3,704			—			—			3,704
Other comprehensive loss																						—		—		—		—			—			1,253			1,253
Stock compensation expense																						—		—		144		—			—			—			144
Cash dividends declared on common stock																						—		—		—		(336	)		—			—			(336	)
Cash dividends declared on preferred stock																						—		—		—		(118	)		—			—			(118	)
Reclassification of par value from surplus																						—		—		—		—			—			—			—
Proceeds from exercise of common stock options (5,000 shares)																						—		—		60		—			—			—			60
Balance at June 30, 2019																					$	8,000	$	28	$	53,484	$	105,035		$	(5,030	)	$	1,207		$	162,724

Balance at December 31, 2019																					$	8,000	$	28	$	54,122	$	113,111		$	(5,030	)	$	1,798		$	172,029
Impact of cumulative effect of change in accounting principle⁽¹⁾																						—		—		—		2,484			—			—			2,484
Balance at January 1, 2020																					$	8,000	$	28	$	54,122	$	115,595		$	(5,030	)	$	1,798		$	174,513
Net loss																						—		—		—		(5,188	)		—			—			(5,188	)
Other comprehensive income		—		—			—			—			—			1,253			1,253			—		—		—		—			—			1,639			1,639
Stock compensation expense		—		—			144			—			—			—			144			—		—		314		—			—			—			314
Cash dividends declared on common stock		—		—			—			(336	)		—			—			(336	)		—		—		—		(466	)		—			—			(466	)
Cash dividends declared on preferred stock		—		—			—			(118	)		—			—			(118	)		—		—		—		(108	)		—			—			(108	)
Proceeds from exercise of common stock options (5,000 shares)		—		—			60			—			—			—			60
Balance at June 30, 2019	$	8,000	$	28		$	53,484		$	105,035		$	(5,030	)	$	1,207		$	162,724
Treasury stock purchases (255,650 shares)																						—		—		—		—			(5,853	)		—			(5,853	)
Proceeds from exercise of common stock options (14,590 shares)																						—		—		195		—			—			—			195
Balance at March 31, 2020																					$	8,000	$	28	$	54,631	$	109,833		$	(10,883	)	$	3,437		$	165,046
Net income																						—		—		—		2,733			—			—			2,733
Other comprehensive income																						—		—		—		—			—			3,678			3,678
Stock compensation expense																						—		—		182		—			—			—			182
Cash dividends declared on common stock																						—		—		—		(455	)		—			—			(455	)
Cash dividends declared on preferred stock																						—		—		—		(99	)		—			—			(99	)
Treasury stock purchases (127,280 shares)																															(2,560	)					(2,560	)
Balance at June 30, 2020																					$	8,000	$	28	$	54,813	$	112,012		$	(13,443	)	$	7,115		$	168,525

	For the Six Months Ended						For the Six Months Ended
	June 30, 2019			June 30, 2018			June 30, 2020			June 30, 2019
	(dollars in thousands)						(dollars in thousands)
Cash flows from operating activities
Net income	$	7,466		$	7,904
Net income (loss)							$	(2,454	)	$	7,466
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization of premises and equipment		687			560			676			687
Amortization of core deposit intangible		159			218			100			159
Amortization of subordinated debentures discount		78			34			76			78
Impairment of goodwill								5,038			—
Provision for loan losses		1,628			630			3,360			1,628
Realized gain on sales of securities available-for-sale		(341	)		—			(570	)		(341	)
Realized gain on sales of other real estate owned		(127	)		(149	)
Write-down of other real estate owned		250			104
Realized gain on sales of premises and equipment		(2	)		(1	)
Realized loss (gain) on sales of premises and equipment								236			(2	)
Realized loss (gain) on sales of other real estate owned								4			(127	)
Writedown of other real estate owned								1,360			250
Increase in cash surrender value of bank owned life insurance		(225	)		(225	)		(344	)		(225	)
Deferred income tax expense (benefit)		762			(373	)		(240	)		762
Stock compensation expense, net		262			259
Stock compensation expense								496			262
Net amortization of securities		243			445			443			243
Net change in:
Accrued interest receivable and other assets		(1,357	)		(1,057	)		(655	)		(1,357	)
Loans held for sale		(4,499	)		(4,893	)		(9,696	)		(4,499	)
Loan servicing rights		(574	)		(137	)		(1,493	)		(574	)
Accrued interest payable and other liabilities		462			839			(1,628	)		462
Net cash provided by operating activities		4,872			4,158
Net cash provided by (used in) operating activities								(5,291	)		4,872
Cash flows from investing activities								��
Proceeds from maturities, principal repayments, and call of securities available-for-sale		14,149			11,958			13,000			14,149
Purchases of securities available-for-sale		—			(76,684	)		(100,339	)		—
Proceeds from sales of securities available-for-sale		29,361			—			27,790			29,361
Redemption of FHLB stock		800			784
Purchase (redemption) of FHLB stock								(4,130	)		800
Purchase of bank owned life insurance								(10,000	)		—
Loan originations and principal collections, net		52,295			(37,425	)		(51,809	)		52,295
Proceeds from sales of premises and equipment		4			—			2,199			4
Purchases of premises and equipment		(327	)		(5,464	)		(3,822	)		(327	)
Proceeds from sales of other real estate owned		3,044			2,107			1,528			3,044
Net cash provided by (used in) investing activities		99,326			(104,724	)		(125,583	)		99,326
Cash flows from financing activities
Net increase (decrease) in demand and savings deposits		13,319			(27,247	)
Net increase (decrease) in certificates of deposits		(31,489	)		127,602
Net increase in demand and savings deposits								86,554			13,319
Net decrease in certificates of deposits								(114,943	)		(31,489	)
Net change in other borrowings		(18	)		(458	)		101,054			(18	)
Proceeds from FHLB advances		115,000			63,000			516,000			115,000
Repayment of FHLB advances		(145,000	)		(76,300	)		(467,000	)		(145,000	)
Payments to acquire treasury stock								(8,413	)		—
Proceeds from issuance of subordinated debt		—			29,168			16,976			—
Proceeds from issuance of common stock		60			207			195			60
Dividends paid on common stock		(671	)		(937	)		(921	)		(671	)
Dividends paid on preferred stock		(235	)		(196	)		(207	)		(235	)
Net cash provided by (used for) financing activities		(49,034	)		114,839
Net cash provided by (used in) financing activities								129,295			(49,034	)
Net change in cash and cash equivalents		55,164			14,273			(1,579	)		55,164
Cash and cash equivalents, beginning of period		61,087			66,771			129,011			61,087
Cash and cash equivalents, end of period	$	116,251		$	81,044		$	127,432		$	116,251

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	12,346		$	9,538		$	12,729		$	12,346
Income taxes	$	—		$	1,975		$	350		$	—
Noncash operating activities:
Change in accounting principle							$	2,484		$	—
Noncash investing activities:
Transfer from loans to other real estate owned	$	5,292		$	6,104		$	—		$	5,292
Loans charged off	$	3,584		$	42		$	144		$	3,584

The unaudited consolidated financial statements of County Bancorp, Inc. (“we,” “us,” ”our,” or the “Company”) and its subsidiaries, including Investors Community Bank (the “Bank”), have been prepared, in the opinion of management, to reflect all adjustments necessary for a fair presentation of the financial position, results of operations, and cash flows as of and for the ~~three and six months~~period ended June 30, ~~2019.~~2020. The results of operations for the three and six months ended June 30, ~~2019~~2020 may not necessarily be indicative of the results to be expected for the year ending December 31, ~~2019,~~2020, or for any other period.

Management of the Company is required to make estimates and assumptions which affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of income and expenses during the reported periods. Actual results could differ significantly from those estimates.

These unaudited interim financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”). Certain information in footnote disclosure normally included in financial statements prepared in accordance with GAAP has been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019 filed with the SEC on March 13, 2020.

The Company qualifies as an “emerging growth company” under the Jumpstart Our Business Startups Act (the “JOBS Act”). Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”), for complying with new or revised accounting standards. As an emerging growth company, the Company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company elected to take advantage of the benefits of this extended transition period.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law. Section 4013 of the CARES Act allows financial institutions to elect to suspend troubled debt restructuring accounting under certain circumstances when the temporary restructuring is related to the Coronavirus Disease 2019 (COVID-19) pandemic. The Company has elected to implement Section 4013, and for the three months and six months ended June 30, 2020, the Company has processed 184 requests with loan balances totaling $200.7 million.

In ~~June 2016,~~March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848). The ASU provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendment only applies to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The ASU is effective as of March 12, 2020 through December 31, 2022. The Company is in the process of evaluating the impact of this standard but does not expect this standard to have a material impact on its results of operations, financial position, and liquidity.

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2016-13, Financial Instruments – Credit Losses, to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendment replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This amendment is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years with early adoption permitted for the fiscal year beginning after December 15, 2018, including interim periods within those fiscal years. Entities should apply this amendment by a modified-retrospective approach, through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company has engaged a third-party software consultant and is currently testing the model’s methodology in parallel to current loss model calculations. At this time, the effect this ASU will have on its consolidated financial statements is still being quantified as the Company ensures data, assumptions, and methods all comply with the requirements of ASU 2016-13. In ~~July~~October 2019, the FASB ~~made a tentative decision~~voted to delay the effective date for the credit losses standard to January 2023 for certain entities, including ~~certain Securities and Exchange Commission~~SEC filers ~~public business entities,~~that qualify as smaller reporting companies and private companies. As a smaller reporting company, the Company ~~would be~~is eligible for the ~~proposed delay. The Company is currently evaluating the impact of the proposed~~ delay and will be deferring adoption. Management will continue to progress on its implementation project ~~plan.~~

~~In August 2017, the FASB issued ASU No. 2017-12,~~ ~~Derivatives~~plan and ~~Hedging (Topic 815)~~, to permit entities to better portray the economic results of their hedging strategies in their financial statements. In addition, the amendments make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. The amendment is effective for fiscal years beginning after December 15, 2018, with early adoption permitted, including adoption in an interim period. The Company has chosen to early adopt this amendment in connection with the interest rate swap that commenced on June 15, 2018, and it had no material impact onimprove the Company’s ~~results of operation, financial position, or liquidity.~~approach throughout the deferral period.

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases: Amendments to the FASB Accounting Standards Codification~~ which requires companies to recognize all leases as assets and liabilities on the consolidated balance sheet. This ASU retains a distinction between finance leases and operating leases, and the classification criteria for distinguishing between finance leases and

operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the current accounting literature. The result of retaining a distinction between finance leases and operating leases is that under the lessee accounting model, the effect of leases in a consolidated statement of comprehensive income and a consolidated statement of cash flows is largely unchanged from previous GAAP. ~~In July 2018, the FASB issued ASU 2018-11,~~ ~~Leases (Topic 842) – Targeted Improvements~~, which provided an additional and optional transition method with which to adopt the new leases standard. The updated ASU allows entities to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The amendment became effective January 1, 2019, and was adopted by the Company retrospectively to the beginning of the adoption period. Since all of the Company’s leases are operating leases, there was no impact to the consolidated statements of operations; however, a right-of-use asset of $0.2 million and a corresponding liability were recorded on the Company’s balance sheet as of the effective date of the amendment.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic ~~842)~~820) – Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which focuses on improving the effectiveness of disclosures in the notes to the

financial statements. ~~The amendment is effective for the fiscal years beginning after December 15, 2019.~~ The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The ~~Company is currently evaluating~~amendment became effective on January 1, 2020, and the adoption did not have a material effect ~~this standard will have~~ on the Company’s financial statements.

As of January 1, 2020, the Company elected to make an accounting principle change for the valuation of the loan servicing assets from amortized cost to fair market value. Under the amortized cost method, servicing rights were amortized in proportion to and over the period of estimated net servicing income. The amortized cost of these assets was assessed for impairment at each reporting date. Under the fair market value method, the value of the asset is based on market prices for comparable servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the discount rate, the custodial earnings rate, prepayment speeds and default rates and losses.

We believe that the fair value method is the preferred method of presenting these assets and is more widely recognized by current and potential investors. These assets represent the value of future net revenue streams. Updating the estimate of these cash flow streams based on both observable and unobservable trends and inputs at each reporting period provides meaningful changes to the economic value to shareholders. The amortized cost approach requires a periodic impairment test; however, it does not provide any transparency if the portfolio, or certain tranches within the portfolio, have significant increases in value. Therefore, the fair value method provides a balanced, measurement policy for the benefit of the investing public. As a result of this accounting principle change, servicing assets increased by $3.4 million and deferred tax assets decreased by $0.9 million. The adoption of the change was recorded through a cumulative effect adjustment to retained earnings as of January 1, 2020, of $2.5 million. All future adjustments to fair value will be reflected in the income statement.

Earnings per common share is computed using the two-class method. Basic earnings per common share is computed by dividing net income by the weighted-average number of common shares outstanding during the applicable period. Diluted earnings per share is computed using the weighted-average number of shares determined for the basic earnings per common share plus the dilutive effect of share-based compensation using the treasury stock method.

	For the Three Months Ended				For the Six Months Ended				For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,				June 30,				June 30,
	2019		2018		2019		2018		2020		2019		2020			2019
	(dollars in thousands)								(dollars in thousands)
Net income from continuing operations	$	3,704	$	3,850	$	7,466	$	7,904
Net income (loss) from continuing operations									$	2,733	$	3,704	$	(2,454	)	$	7,466
Less: preferred stock dividends		118		99		235		196		99		118		207			235
Income available to common shareholders for basic earnings per common share	$	3,586	$	3,751	$	7,231	$	7,708
Income (loss) available to common shareholders for basic earnings per common share									$	2,634	$	3,586	$	(2,661	)	$	7,231

Weighted average number of common shares issued		7,159,072		7,351,985		7,156,139		7,349,923		7,198,901		7,159,072		7,190,923			7,156,139
Less: weighted average treasury shares		443,920		442,102		443,825		440,974		759,294		443,920		639,017			443,825
Plus: weighted average of participating restricted stock units		30,483		219,315		23,411		224,550		65,291		30,483		52,281			23,411
Weighted average number of common shares and participating securities outstanding		6,745,635		6,690,568		6,735,725		6,684,399		6,504,898		6,745,635		6,604,187			6,735,725
Effect of dilutive options		20,731		79,368		21,170		77,518		28,511		20,731		39,548			21,170
Weighted average number of common shares outstanding used to calculate diluted earnings per common share		6,766,366		6,769,936		6,756,895		6,761,917		6,533,409		6,766,366		6,643,735			6,756,895
Weighted average of anti-dilutive options		133,147		-		131,729		-		62,313		133,147		55,764			131,729

The amortized cost and fair value of securities available-for-sale as of June 30, ~~2019~~2020 and December 31, ~~2018~~2019 were as follows:

	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
	(dollars in thousands)									(dollars in thousands)
June 30, 2019
June 30, 2020
U.S. government and agency securities										$	15,817	$	—	$	(214	)	$	15,603
Asset-backed securities											17,082		—		(516	)		16,566
Municipal securities											48,460		3,180		—			51,640
Mortgage-backed securities											133,608		9,570		(16	)		143,162
										$	214,967	$	12,750	$	(746	)	$	226,971
December 31, 2019
U.S. government and agency securities	$	3,731	$	—	$	(32	)	$	3,699	$	3,490	$	—	$	(32	)	$	3,458
U.S. treasury securities		2,498		9		—			2,507		2,499		7		—			2,506
Mortgage-backed securities		149,356		3,263		(264	)		152,355		149,302		3,633		(166	)		152,769
	$	155,585	$	3,272	$	(296	)	$	158,561	$	155,291	$	3,640	$	(198	)	$	158,733
December 31, 2018
U.S. government and agency securities	$	4,368	$	—	$	(37	)	$	4,331
U.S. treasury securities		2,497		—		(6	)		2,491
Municipal securities		34,985		33		(498	)		34,520
Mortgage-backed securities		157,147		203		(2,747	)		154,603
	$	198,997	$	236	$	(3,288	)	$	195,945

The amortized cost and fair value of securities at June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(dollars in thousands)				(dollars in thousands)
June 30, 2019
June 30, 2020
Due in one year or less					$	—	$	—
Due from one to five years						—		—
Due from five to ten years						17,847		17,760
Due after ten years						46,430		49,483
Asset-backed securities						17,082		16,566
Mortgage-backed securities						133,608		143,162
					$	214,967	$	226,971
December 31, 2019
Due in one year or less	$	2,498	$	2,507	$	2,499	$	2,506
Due from one to five years		—		—		—		—
Due from five to ten years		3,731		3,699		3,490		3,458
Due after ten years		—		—		—		—
Mortgage-backed securities		149,356		152,355		149,302		152,769
	$	155,585	$	158,561	$	155,291	$	158,733
December 31, 2018
Due in one year or less	$	5,848	$	5,843
Due from one to five years		11,113		10,974
Due from five to ten years		8,458		8,382
Due after ten years		16,431		16,143
Mortgage-backed securities		157,147		154,603
	$	198,997	$	195,945

Proceeds from the sale of available-for-sale securities were ~~$29.4~~$27.8 million ~~which resulted in a gain of $0.3~~and $29.4 million for the three and six months ended June 30, ~~2019.~~ ~~There were no security sales for the six months ended June 30, 2018.~~ 2020 and 2019, respectively which resulted in gains of $0.6 million and $0.3 million, respectively.

At June 30, ~~2019~~2020 and December 31, ~~2018, no~~2019, there were $43.0 million and $63.0 million, respectively, of securities ~~were~~ pledged at the Federal Reserve Bank to secure ~~the~~ municipial customer deposits.

Federal Home Loan Bank (~~“FHLB”~~)(FHLB) advances ~~besides FHLB stock of $2.2~~were secured by $5.8 million and ~~$3.0~~$1.6 million ~~respectively. There were no securities pledged to secure the Federal Reserve Bank line of credit~~FHLB stock at June 30, ~~2019~~2020 and December 31, ~~2018; however, there were $45.5 million and $53.4 million of securities pledged to secure municipial customer deposts at June 30,~~ 2019, ~~and December 31, 2018,~~ respectively.

The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to be other-than-temorarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, ~~2019~~2020 and December 31, ~~2018:~~2019:

	Less Than 12 Months					12 Months or Greater					Total					Less Than 12 Months					12 Months or Greater					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses			Value		Losses			Value		Losses			Value		Losses
	(dollars in thousands)															(dollars in thousands)
June 30, 2019
June 30, 2020
U.S. government and agency securities																$	13,035	$	(184	)	$	2,568	$	(30	)	$	15,603	$	(214	)
Asset-backed securities																	16,566		(516	)		—		—			16,566		(516	)
Mortgage-backed securities																	—		—			5,956		(16	)		5,956		(16	)
																$	29,601	$	(700	)	$	8,524	$	(46	)	$	38,125	$	(746	)
December 31, 2019
U.S. government and agency securities	$	—	$	—		$	3,699	$	(32	)		3,699		(32	)	$	—	$	—		$	3,458	$	(32	)	$	3,458	$	(32	)
Mortgage-backed securities		—		—			29,945		(264	)		29,945		(264	)		9,873		(41	)		11,867		(125	)		21,740		(166	)
	$	—	$	—		$	33,644	$	(296	)	$	33,644	$	(296	)	$	9,873	$	(41	)	$	15,325	$	(157	)	$	25,198	$	(198	)
December 31, 2018
U.S. government and agency securities	$	—	$	—		$	4,331	$	(37	)		4,331		(37	)
U.S. treasury securities		2,491		(6	)		—		—			2,491		(6	)
Municipal securities		4,291		(15	)		25,377		(483	)		29,668		(498	)
Mortgage-backed securities		41,925		(208	)		83,319		(2,539	)		125,244		(2,747	)
	$	48,707	$	(229	)	$	113,027	$	(3,059	)	$	161,734	$	(3,288	)

The unrealized losses on the investments at June 30, ~~2019~~2020 and December 31, ~~2018~~2019 were due to market conditions as well as normal fluctuations and pricing inefficiencies. The contractual terms of the investments do not permit the issuers to settle the securities at a price less than the amortized cost basis of the investment. Because the Company does not intend to sell the investments and it is not more-likely-than-not that the Company will be required to sell the investments before recovery of the amortized cost basis, which may be maturity, the Company did not consider these investments to be other-than-temporarily impaired at June 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

	June 30,			December 31,			June 30,			December 31,
	2019			2018			2020			2019
	(dollars in thousands)						(dollars in thousands)
Agricultural loans	$	713,602		$	724,508		$	624,339		$	659,725
Commercial real estate loans		268,544			299,212			247,149			235,936
Commercial loans		114,998			116,460			184,537			95,787
Residential real estate loans		50,436			66,843			31,414			43,958
Installment and consumer other		252			272			85			367
Total gross loans		1,147,832			1,207,295			1,087,524			1,035,773
Allowance for loan losses		(16,258	)		(16,505	)		(18,569	)		(15,267	)
Net loans	$	1,131,574		$	1,190,790		$	1,068,955		$	1,020,506

Changes in the allowance for loan losses by portfolio segment for the three and six months ended June 30, 2020 and2019~~and~~ ~~2018~~ were as follows:

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

For the Six Months Ended June 30, 2020
Balance, beginning of year																		$	11,737		$	1,913		$	1,599		$	15		$	3		$	15,267
Provision for loan losses																			910			1,884			498			70			(2	)		3,360
Loans charged off																			—			—			(144	)		—			—			(144	)
Recoveries																			23			62			1			—			—			86
Balance, end of period																		$	12,670		$	3,859		$	1,954		$	85		$	1		$	18,569
	(dollars in thousands)
For the Three Months Ended June 30, 2019
Balance, beginning of period	$	12,123	$	4,152		$	1,201		$	16		$	1		$	17,493		$	12,123		$	4,152		$	1,201		$	16		$	1		$	17,493
Provision for loan losses		1,509		(1,003	)		367			3			—			876			1,509			(1,003	)		367			3			—			876
Loans charged off		—		(2,234	)		(960	)		—			—			(3,194	)		—			(2,234	)		(960	)		—			—			(3,194	)
Recoveries		15		967			101			—			—			1,083			15			967			101			—			—			1,083
Balance, end of period	$	13,647	$	1,882		$	709		$	19		$	1		$	16,258		$	13,647		$	1,882		$	709		$	19		$	1		$	16,258
For the Six Months Ended June 30,2019

For the Six Months Ended June 30, 2019
Balance, beginning of year	$	12,258	$	2,779		$	1,414		$	53		$	1		$	16,505		$	12,258		$	2,779		$	1,414		$	53		$	1		$	16,505
Provision for loan losses		1,374		135			153			(34	)		—			1,628			1,374			135			153			(34	)		—			1,628
Loans charged off		—		(2,624	)		(960	)		—			—			(3,584	)		—			(2,624	)		(960	)		—			—			(3,584	)
Recoveries		15		1,592			102			—			—			1,709			15			1,592			102			—			—			1,709
Balance, end of period	$	13,647	$	1,882		$	709		$	19		$	1		$	16,258		$	13,647		$	1,882		$	709		$	19		$	1		$	16,258

For the Three Months Ended June 30, 2018
Balance, beginning of period	$	11,250	$	2,058		$	1,257		$	45		$	2		$	14,612
Provision for loan losses		378		(166	)		322			(1	)		—			533
Loans charged off		—		—			—			—			—			—
Recoveries		—		11			(27	)		—			—			(16	)
Balance, end of period	$	11,628	$	1,903		$	1,552		$	44		$	2		$	15,129
For the Six Months Ended June 30,2018
Balance, beginning of year	$	9,712	$	1,978		$	1,508		$	47		$	2		$	13,247
Provision for loan losses		1,915		(1,284	)		3			(3	)		(1	)		630
Loans charged off		—		(42	)		—			—			—			(42	)
Recoveries		1		1,251			41			—			1			1,294
Balance, end of period	$	11,628	$	1,903		$	1,552		$	44		$	2		$	15,129

The following tables present the balances in the allowance for loan losses and the recorded balance in loans by portfolio segment and based on impairment method as of June 30, ~~2019~~2020 and December 31, ~~2018:~~ 2019:

	June 30, 2019							June 30, 2020
	Individually Evaluated for Impairment			Collectively Evaluated for Impairment		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total
	(dollars in thousands)							(dollars in thousands)
Allowance for loan losses:
Agricultural loans	$	3,415		$	10,232	$	13,647	$	3,826	$	8,844	$	12,670
Commercial real estate loans		5			1,877		1,882		2,471		1,388		3,859
Commercial loans		290			419		709		1,226		728		1,954
Residential real estate loans		—			19		19		—		85		85
Installment and consumer other		—	��		1		1		—		1		1
Total ending allowance for loan losses		3,710			12,548		16,258		7,523		11,046		18,569
Loans:
Agricultural loans		59,876			653,726		713,602		58,895		565,444		624,339
Commercial real estate loans		1,022			267,522		268,544		9,351		237,798		247,149
Commercial loans		532			114,466		114,998		2,882		181,655		184,537
Residential real estate loans		—			50,436		50,436		60		31,354		31,414
Installment and consumer other		—			252		252		—		85		85
Total loans		61,430			1,086,402		1,147,832		71,188		1,016,336		1,087,524
Net loans	$	57,720		$	1,073,854	$	1,131,574	$	63,665	$	1,005,290	$	1,068,955

	December 31, 2018							December 31, 2019
	Individually Evaluated for Impairment			Collectively Evaluated for Impairment		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total
	(dollars in thousands)							(dollars in thousands)
Allowance for loan losses:
Agricultural loans	$	2,325		$	9,933	$	12,258	$	3,515	$	8,222	$	11,737
Commercial real estate loans		583			2,196		2,779		836		1,077		1,913
Commercial loans		745			669		1,414		1,238		361		1,599
Residential real estate loans		—			53		53		—		15		15
Installment and consumer other		—			1		1		—		3		3
Total ending allowance for loan losses		3,653			12,852		16,505		5,589		9,678		15,267
Loans:
Agricultural loans		52,947			671,561		724,508		58,833		600,892		659,725
Commercial real estate loans		2,037			297,175		299,212		3,682		232,254		235,936
Commercial loans		1,773			114,687		116,460		1,862		93,925		95,787
Residential real estate loans		—			66,843		66,843		62		43,896		43,958
Installment and consumer other		—			272		272		—		367		367
Total loans		56,757			1,150,538		1,207,295		64,439		971,334		1,035,773
Net loans	$	53,104		$	1,137,686	$	1,190,790	$	58,850	$	961,656	$	1,020,506

The following ~~table presents~~tables present loans individually evaluated for impairment by class of loans at June 30, ~~2019~~2020 and December 31, ~~2018:~~2019:

	June 30, 2019
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		June 30, 2020
	(dollars in thousands)						Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
							(dollars in thousands)
With no related allowance:
Agricultural loans	$	20,020	$	19,986	$	—	$	15,059	$	14,977	$	—
Commercial real estate loans		—		—		—		288		288		—
Commercial loans		—		—		—		1,229		1,202		—
Residential real estate loans		—		—		—		—		60		—
	$	20,020	$	19,986	$	—	$	16,576	$	16,527	$	—

With an allowance recorded
With an allowance recorded:
Agricultural loans	$	42,251	$	39,890	$	3,415	$	47,209	$	43,918	$	3,826
Commercial real estate loans		1,022		1,022		5		9,132		9,063		2,471
Commercial loans		539		532		290		1,733		1,680		1,226
Residential real estate loans		—		—		—		—		—		—
		43,812		41,444		—	$	58,074	$	54,661	$	7,523
Total	$	63,832	$	61,430	$	3,710	$	74,650	$	71,188	$	7,523

	December 31, 2018						December 31, 2019
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
	(dollars in thousands)						(dollars in thousands)
With no related allowance:
Agricultural loans	$	22,218	$	21,654	$	—	$	14,151	$	14,131	$	—
Commercial real estate loans		—		—		—		—		—		—
Commercial loans		455		455		—		—		—		—
Residential real estate loans		—		—		—		62		62		—
	$	22,673	$	22,109	$	—	$	14,213	$	14,193	$	—

With an allowance recorded
With an allowance recorded:
Agricultural loans	$	33,090	$	31,293	$	2,325	$	47,225	$	44,702	$	3,515
Commercial real estate loans		2,037		2,037		583		3,681		3,682		836
Commercial loans		1,326		1,318		745		2,155		1,862		1,238
Residential real estate loans		—		—		—		—		—		—
		36,453		34,648		3,653	$	53,061	$	50,246	$	5,589
Total	$	59,126	$	56,757	$	3,653	$	67,274	$	64,439	$	5,589

The following table presents the aging of the recorded investment in past due loans at June 30, ~~2019~~2020 and December 31, ~~2018:~~2019:

	30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Total Past Due		Loans Not Past Due		Total Loans		30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Total Past Due		Loans Not Past Due		Total Loans
	(dollars in thousands)												(dollars in thousands)
June 30, 2019
June 30, 2020
Agricultural loans	$	1,221	$	580	$	5,959	$	7,760	$	705,842	$	713,602	$	2,736	$	—	$	6,633	$	9,369	$	614,970	$	624,339
Commercial real estate loans		2,823		—		—		2,823		265,721		268,544		—		—		361		361		246,788		247,149
Commercial loans		28		155		446		629		114,369		114,998		43		—		107		150		184,387		184,537
Residential real estate loans		63		—		—		63		50,373		50,436		—		—		60		60		31,354		31,414
Installment and consumer other		—		—		—		—		252		252		—		—		—		—		85		85
Total	$	4,135	$	735	$	6,405	$	11,275	$	1,136,557	$	1,147,832	$	2,779	$	—	$	7,161	$	9,940	$	1,077,584	$	1,087,524

December 31, 2018
December 31, 2019
Agricultural loans	$	460	$	969	$	7,968	$	9,397	$	715,111	$	724,508	$	1,489	$	71	$	4,974	$	6,534	$	653,191	$	659,725
Commercial real estate loans		—		—		2,037		2,037		297,175		299,212		—		288		-		288		235,648		235,936
Commercial loans		—		—		600		600		115,860		116,460		—		28		228		256		95,531		95,787
Residential real estate loans		—		—		—		—		66,843		66,843		—		—		62		62		43,896		43,958
Installment and consumer other		—		—		—		—		272		272		—		—		—		—		367		367
Total	$	460	$	969	$	10,605	$	12,034	$	1,195,261	$	1,207,295	$	1,489	$	387	$	5,264	$	7,140	$	1,028,633	$	1,035,773

~~The following table lists information on nonaccrual, troubled debt restructured, and loans 90 days or more past due and still accruing at June 30, 2019 and December 31, 2018:~~

The following table presents the recorded investment in nonaccrual loans ~~and loans 90 days or more past due and still accruing~~ by class of loan:

	June 30,		December 31,		June 30,		December 31,
	2019		2018		2020		2019
	(dollars in thousands)				(dollars in thousands)
Agricultural loans	$	19,565	$	19,173	$	25,398	$	26,415
Commercial real estate loans		-		2,037		8,348		2,673
Commercial loans		532		1,773		1,650		1,818
Residential real estate loans						60		62
Total	$	20,097	$	22,983	$	35,456	$	30,968

The following ~~table presents~~tables present the average recorded investment and interest income recognized on impaired loans by portfolio segment for the three and six months ended June 30, ~~2019~~2020 and ~~2018:~~2019:

	As of and for the Three Months Ended June 30, 2019										As of and for the Three Months Ended June 30, 2020
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized
	(dollars in thousands)										(dollars in thousands)
Agricultural loans	$	62,271	$	59,876	$	3,415	$	57,064	$	1,531	$	62,268	$	58,895	$	3,826	$	59,565	$	1,060
Commercial real estate loans		539		1,022		5		3,527		7		9,420		9,351		2,471		6,496		115
Commercial loans		1,022		532		290		834		1		2,962		2,882		1,226		2,360		21
Residential real estate loans												—		60		—		60		—
Total											$	74,650	$	71,188	$	7,523	$	68,480	$	1,196

											As of and for the Six Months Ended June 30, 2020
											Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized
											(dollars in thousands)
Agricultural loans											$	62,268	$	58,895	$	3,826	$	58,864	$	2,370
Commercial real estate loans												9,420		9,351		2,471		6,517		140
Commercial loans												2,962		2,882		1,226		2,372		69
Residential real estate loans												—		60		—		61		1
Total	$	63,832	$	61,430	$	3,710	$	61,425	$	1,539	$	74,650	$	71,188	$	7,523	$	67,814	$	2,580

	As of and for the Six Months Ended June 30, 2019										As of and for the Three Months Ended June 30, 2019
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized
	(dollars in thousands)										(dollars in thousands)
Agricultural loans	$	62,271	$	59,876	$	3,415	$	56,412	$	2,704	$	62,271	$	59,876	$	3,415	$	57,064	$	1,531
Commercial real estate loans		539		1,022		5		1,530		31		539		1,022		5		3,527		7
Commercial loans		1,022		532		290		1,153		3		1,022		532		290		834		1
Total	$	63,832	$	61,430	$	3,710	$	59,095	$	2,738	$	63,832	$	61,430	$	3,710	$	61,425	$	1,539

	As of and for the Three Months Ended June 30, 2018										As of and for the Six Months Ended June 30, 2019
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized
	(dollars in thousands)										(dollars in thousands)
Agricultural loans	$	43,374	$	42,838	$	2,855	$	39,192	$	771	$	62,271	$	59,876	$	3,415	$	56,412	$	2,704
Commercial real estate loans		2,372		2,366		10		1,470		6		539		1,022		5		1,530		31
Commercial loans		1,883		1,878		781		1,516		24		1,022		532		290		1,153		3
Total	$	47,629	$	47,082	$	3,646	$	42,178	$	801	$	63,832	$	61,430	$	3,710	$	59,095	$	2,738

	As of and for the Six Months Ended June 30, 2018
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized
	(dollars in thousands)
Agricultural loans	$	43,374	$	42,838	$	2,855	$	35,791	$	1,416
Commercial real estate loans		2,372		2,366		10		2,416		6
Commercial loans		1,883		1,878		781		1,836		25
Residential real estate loans		—		—		—		—		1
Total	$	47,629	$	47,082	$	3,646	$	40,043	$	1,448

Impaired loans include nonaccrual loans, troubled debt restructured loans, and loans that are 90 days or more past due and still accruing. For nonaccrual loans included in impaired loans, the interest income that would have been recognized had those loans been performing in accordance with their original terms would have been approximately $2.1 million and $0.4 million for the three months ended June 30, 2020 and 2019, respectively, and $2.8 million and $1.0 million for the six months ended June 30, 2020 and 2019, ~~and 2018.~~respectively.

The Company allocated approximately ~~$3.0~~$3.8 million and ~~$2.0~~$3.5 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings (“TDR”) at June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. The Company had no0 additional lending commitments at June 30, ~~2019~~2020 or December 31, ~~2018~~2019 to customers with outstanding loans that were classified as TDRs.

A TDR on nonaccrual status is classified as a nonaccrual loan until evaluation supports reasonable assurance of repayment and there has been a satisfactory period of performance according to the modified terms of the loan. Once this assurance is reached,

the TDR is ~~classified as a restructured loan.~~returned to accrual status. The following table presents the TDRs and related allowance for loan losses by loan class at June 30, ~~2019~~2020 and December 31, ~~2018:~~2019:

	Non-Accrual		Restructured and Accruing		Total		Non-Accrual		Restructured and Accruing		Total		Allowance for Loan Losses Allocated
	(dollars in thousands)						(dollars in thousands)
June 30, 2019
June 30, 2020
Agricultural loans	$	9,839	$	27,870	$	37,709	$	18,672	$	20,940	$	39,612	$	3,807
Commercial real estate loans		—		1,022		1,022		—		1,002		1,002		31
Commercial loans		532		—		532		79		43		122		4
Total	$	10,371	$	28,892	$	39,263	$	18,751	$	21,985	$	40,736	$	3,842

December 31, 2018
December 31, 2019
Agricultural loans	$	12,034	$	19,389	$	31,423	$	19,033	$	20,731	$	39,764	$	3,436
Commercial real estate loans								—		1,009	$	1,009	$	32
Commercial loans		92		—		92		228		44		272		60
Total	$	12,126	$	19,389	$	31,515	$	19,261	$	21,784	$	41,045	$	3,528

The following table ~~provides~~s provide the number of loans modified in a troubled debt restructuring investment by class for the three and six months ended June 30, ~~2019~~2020 and ~~2018:~~2019:

	For the Six Months Ended								For the Three Months Ended
	June 30, 2019				June 30, 2018				June 30, 2020				June 30, 2019
	Number of Loans		Recorded Investment		Number of Loans		Recorded Investment		Number of Loans		Recorded Investment		Number of Loans		Recorded Investment
	(dollars in thousands)								(dollars in thousands)
Troubled debt restructurings:
Agricultural loans		33	$	13,784		15	$	5,375		6	$	2,640		25	$	12,125
Commercial real estate loans		1		1,022		—		—		—		—		—		—
Commercial loans		1		446		—		—		—		—		—		—
Total		35	$	15,252		15	$	5,375		6	$	2,640		25	$	12,125

The following ~~table provides~~tables provide the troubled debt restructurings for the six months ended June 30, ~~2019~~2020 and ~~2018~~2019 grouped by type of concession:

	For the Six Months Ended								For the Three Months Ended
	June 30, 2019				June 30, 2018				June 30, 2020				June 30, 2019
	Number of Loans		Recorded Investment		Number of Loans		Recorded Investment		Number of Loans		Recorded Investment		Number of Loans		Recorded Investment
	(dollars in thousands)								(dollars in thousands)
Agricultural loans
Payment concessions		5	$	777		9	$	3,744		1	$	231		4	$	441
Term concessions		2		453		—		—		—		435		2		453
Rate concessions		1		85		—		—		—		—		1		85
Extension of interest-only payments		24		12,317		6		1,631		2		75		17		10,994
Capitalized interest		1		152		—		—		1		153		1		152
Commercial real estate loans
Payment concessions		1		1,022		—		—
Commercial loans
Combination of extension of term and interest rate concessions		1		446		—		—		2		1,746		—		—
Total		35	$	15,252		15	$	5,375		6	$	2,640		25	$	12,125

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

Section 4013 of the CARES Act allows financial institutions to elect to suspend troubled debt restructuring accounting under certain circumstances when the temporary restructuring is related to the Coronavirus Disease 2019 (COVID-19) pandemic. The Company has elected to implement Section 4013, and for the three months and six months ended June 30, 2020, the Company has processed 184 requests with loan balances totaling $200.7 million.

The Company categorizes loans into risk categories based on relevant information about the ability of the borrowers to service their debt, such as current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. The Company analyzes agricultural, commercial, and commercial real estate loans individually by classifying the credits as to credit risk. The process of analyzing loans for changes in risk rating is ongoing through routine monitoring of the portfolio and annual internal credit reviews for credits with total exposure in excess of $300,000. The Company uses the following definitions for credit risk ratings:

Sound. Credits classified as sound show very good probability of ongoing ability to meet and/or exceed obligations.

Acceptable. Credits classified as acceptable show a good probability of ongoing ability to meet and/or exceed obligations.

Satisfactory. Credits classified as satisfactory show fair probability of ongoing ability to meet and/or exceed obligations.

Low Satisfactory. Credits classified as low satisfactory show fair probability of ongoing ability to meet and/or exceed obligations. Low satisfactory credits may be newer or have a less established track record of financial performance, inconsistent earnings, or may be going through an expansion.

Watch. Credits classified as watch show some questionable probability of ongoing ability to meet and/or exceed obligations.

Special Mention. Credits classified as special mention show potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loans or of the institution’s credit position at some future date.

Substandard – Performing. Credits classified as substandard – performing generally have well-defined weaknesses. Collateral coverage is adequate and the loans are not considered impaired. Payments are being made and the loans are on accrual status.

Substandard - Impaired. Credits classified as substandard generally have well-defined weaknesses that jeopardize the repayment of the debt. They have a distinct possibility that a loss will be sustained if the deficiencies are not corrected. Loans are considered impaired. Loans are either exhibiting signs of delinquency, are on non-accrual or are identified as a TDR.

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

The Company categorizes residential real estate, installment and consumer other loans as satisfactory at the time of origination based on information obtained as to the ability of the borrower(s) to service their debt, such as current financial information, employment status and history, historical payment experience, credit scores and type and amount of collateral among other factors. The Company updates relevant information on these types of loans at the time of refinance, troubled debt restructuring or other indications of financial difficulty, downgrading as needed using the same category descriptions as for agricultural, commercial, and commercial real estate loans. In addition, the Company further considers current payment status as an indicator of which risk category to assign the borrower.

The greater the level of deteriorated risk as indicated by a loan’s assigned risk category, the greater the likelihood a loss will occur in the future. If the loan is substandard - impaired, then the loan loss reserves for the loan are recorded at the loss level of impairment. If the loan is not impaired, then its loan loss reserves are determined by the application of a loss rate that increases with risk in accordance with the allowance for loan loss analysis.

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

Based on the most recent analysis performed by management, the risk category of loans by class of loans was as follows as of June 30, ~~2019~~2020 and December 31, ~~2018:~~ 2019:

	As of June 30, 2019												As of June 30, 2020
	Sound/ Acceptable/ Satisfactory/ Low Satisfactory		Watch		Special Mention		Substandard Performing		Substandard Impaired		Total Loans		Sound/ Acceptable/ Satisfactory/ Low Satisfactory		Watch		Special Mention		Substandard Performing		Substandard Impaired		Total Loans
	(dollars in thousands)												(dollars in thousands)
Agricultural loans	$	440,222	$	147,155	$	24,939	$	41,410	$	59,876	$	713,602	$	372,030	$	175,072	$	1,856	$	44,502	$	30,879	$	624,339
Commercial real estate loans		244,942		11,103		206		11,271		1,022		268,544		221,979		14,560		—		2,261		8,349		247,149
Commercial loans		101,626		9,309		110		3,421		532		114,998		173,901		8,175		—		811		1,650		184,537
Residential real estate loans		49,945		257		—		234		—		50,436		30,950		237		—		167		60		31,414
Installment and consumer other		252		—		—		—		—		252		85		—		—		—		—		85
Total	$	836,987	$	167,824	$	25,255	$	56,336	$	61,430	$	1,147,832	$	798,945	$	198,044	$	1,856	$	47,741	$	40,938	$	1,087,524

	As of December 31, 2018												As of December 31, 2019⁽¹⁾
	Sound/ Acceptable/ Satisfactory/ Low Satisfactory		Watch		Special Mention		Substandard Performing		Substandard Impaired		Total Loans		Sound/ Acceptable/ Satisfactory/ Low Satisfactory		Watch		Special Mention		Substandard Performing		Substandard Impaired		Total Loans
	(dollars in thousands)												(dollars in thousands)
Agricultural loans	$	495,418	$	133,582	$	564	$	41,997	$	52,947	$	724,508	$	388,184	$	184,050	$	9,239	$	46,587	$	31,665	$	659,725
Commercial real estate loans		253,853		18,968		4,642		19,712		2,037		299,212		209,279		21,703		—		2,281		2,673		235,936
Commercial loans		95,842		15,237		1,360		2,248		1,773		116,460		83,141		10,091		—		737		1,818		95,787
Residential real estate loans		62,787		3,883		—		173		—		66,843		43,473		254		—		169		62		43,958
Installment and consumer other		272		—		—		—		—		272		367		—		—		—		—		367
Total	$	908,172	$	171,670	$	6,566	$	64,130	$	56,757	$	1,207,295	$	724,444	$	216,098	$	9,239	$	49,774	$	36,218	$	1,035,773

Loans serviced for others are not included in the accompanying consolidated balance sheets. The risks inherent in servicing assets relate primarily to changes in prepayments that result from shifts in interest rates. The unpaid principal balances of ~~mortgage and other~~ loans serviced for others were approximately ~~$695.6~~$762.1 million and ~~$661.3~~$751.7 million at June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. The fair value of these rights were approximately ~~$14.1~~$16.5 million and ~~$13.2~~$15.9 million at June 30, ~~2019~~2020 and December 31, ~~2018.~~ 2019.

The fair value of servicing rights is highly sensitive to changes in underlying assumptions. The Company’s portfolio of loan serviced for others is mostly comprised of fixed rate loans. Generally, as market interest rates rise, prepayments on fixed rate loans decrease due to a decline in refinancing activity, which results in an increase in the fair value of servicing rights. However, due to the cross-collateralization of loans in the portfolio and the government guarantee programs under which many of the loans were originated, prepayments on the portfolio tend to be muted in comparison to those of other types of loans, such as mortgage loans. Measurement of fair value is limited to the conditions existing and the assumptions used as of a particular point in time, and those assumptions may not be appropriate if they applied at a different time.

The fair value of servicing rights at December 31, 2019 was determined using an assumed discount rate of 2014 percent and weighted average prepayment ~~speeds primarily~~speed of 7.33%, ranging from ~~4 percent~~5.00% to ~~9 percent,~~10.00%, depending upon the stratification of the specific right, and nominal credit losses.The fair value of servicing rights at June 30, 2020 was determined using an assumed discount rate of 14 percent and a weighted average prepayment speed of 9.77%, primarily ranging from 9.70% to 9.78%, depending upon loan type, the stratification of the specific right, and nominal credit losses.

Changes to the fair value are reported in loan servicing fees within the consolidated statements of operations.

The following ~~summarizes~~tables summarize servicing rights capitalized, ~~and amortized,~~ along with the aggregate activity in related valuation ~~allowances:~~allowances. The six months ended June 30, 2020 is presented at fair value, and the six months ended June 30, 2019 is presented using the amortized cost method.

The excess of the purchase price in an acquisition over the fair value of net assets acquired consists primarily of goodwill and the core deposit intangible. Goodwill is not amortized but is instead subject to impairment tests on at least an annual basis. Core deposit intangible, which arose from value ascribed to the deposit base of a bank acquired, has an estimated finite life and is amortized on an accelerated basis to expense over a 66-month period.

Management will periodically review the carrying value of its long-lived and intangible assets to determine if any impairment has occurred, in which case an impairment charge would be recorded as an expense in the period of impairment, or whether changes in circumstances have occurred that would require a revision to the remaining useful life which would impact expense prospectively. In making such determination, management evaluates whether there are any adverse qualitative factors indicating that an impairment may exist, as well as the performance, on an undiscounted basis, of the underlying operations or assets which give rise to the intangible.

~~Goodwill: Goodwill resulted from~~ During the ~~acquisition~~first quarter of ~~Fox River Valley Bancorp, Inc. (“Fox River Valley”~~2020, goodwill was evaluated for impairment due to economic disruption and unknown growth and credit risk related to the COVID-19 pandemic. Management provided to a third party its updated income projections. Three valuation models were weighted and evaluated: discounted cash flow model (60%), guideline public company method (30%) and transaction method (10%). The transaction method was weighted the lowest as most, if not all, of the identified transactions happened prior to the COVID-19 pandemic and could not be relied upon as comparable values as of March 31, 2020. More weighting was put toward cash flows as management believes the value of the Company is still tied to overall earnings. For the discounted cash flow method, the analysis discounted projected earnings by 14.5% based on ~~May 13, 2016. The~~an evaluation of required returns for similar public companies adjusted for an expected size and company-specific premium. Through this evaluation, it was determined that as of March 31, 2020, the fair value of the Company did not exceed the current carrying value by an amount in excess of the carrying amount of the goodwill; therefore, the full amount of goodwill was ~~$5.0 million at June 30, 2019 and December 31, 2018.~~deemed to be impaired.

Core deposit intangible: Core deposit intangible, primarily related to acquired customer relationships, is amortized over its estimated finite life. The core deposit intangible related to the Fox River Valley Bancorp, Inc. (“Fox River Valley”) acquisition in 2016 had a gross carrying amount of $1.8 million. There was 0 impairment charge to core deposit intangible for the three or six months ended June 30, 2020.

	June 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
	(dollars in thousands)						(dollars in thousands)
Core deposit intangible:
Gross carrying amount	$	1,801		$	1,801		$	1,801		$	1,801
Accumulated amortization		(1,447	)		(1,288	)		(1,676	)		(1,576	)
Net book value	$	354		$	513		$	125		$	225

Deposits are summarized as follows at June 30, ~~2019~~2020 and December 31, ~~2018:~~2019:

	June 30,		December 31,		June 30,		December 31,
	2019		2018		2020		2019
	(dollars in thousands)				(dollars in thousands)
Demand deposits	$	111,022	$	121,436	$	149,963	$	138,489
NOW and interest checking		54,253		51,779		81,656		67,805
Savings		6,621		5,770		8,369		6,395
Money market accounts		239,337		218,929		307,083		247,828
Certificates of deposit		387,899		356,484		346,482		375,100
National time deposits		149,570		160,445		57,997		99,485
Brokered deposits		256,475		308,504		121,503		166,340
Total deposits	$	1,205,177	$	1,223,347	$	1,073,053	$	1,101,442

The Bank had advances outstanding from the FHLB in the amount of ~~$59.4~~$93.4 million and ~~$89.4~~$44.4 million on June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. These advances, rates, and maturities were as follows:

					June 30,		December 31,						June 30,		December 31,
	Maturity	Rate			2019		2018		Maturity	Rate			2020		2019
					(dollars in thousands)								(dollars in thousands)
Fixed rate, fixed term	01/02/2019		2.54	%	$	—	$	3,000	02/20/2020		1.71	%	$	—	$	5,000
Fixed rate, fixed term	01/04/2019		2.55	%		—		12,000	07/16/2020		1.85	%		800		800
Fixed rate, fixed term	02/27/2019		1.47	%		—		5,000	08/25/2020		1.84	%		3,000		3,000
Fixed rate, fixed term	03/08/2019		1.54	%		—		10,000	08/27/2020		1.88	%		5,000		5,000
Fixed rate, fixed term	07/15/2019		1.11	%		8,000		8,000	12/30/2020		2.09	%		4,000		4,000
Fixed rate, fixed term	08/12/2019		2.24	%		5,000		5,000	12/31/2020		1.94	%		600		600
Fixed rate, fixed term	08/14/2019		1.77	%		2,000		2,000	04/12/2021		1.92	%		8,000		8,000
Fixed rate, fixed term	02/20/2020		1.71	%		5,000		5,000	05/03/2021		0.00	%		4,000		—
Fixed rate, fixed term	07/16/2020		1.85	%		800		800	06/15/2021		1.39	%		5,000		5,000
Fixed rate, fixed term	08/25/2020		1.84	%		3,000		3,000	08/16/2021		2.29	%		3,000		3,000
Fixed rate, fixed term	08/27/2020		1.88	%		5,000		5,000	12/30/2021		2.29	%		2,000		2,000
Fixed rate, fixed term	12/30/2020		2.09	%		4,000		4,000	03/18/2022		1.03	%		15,000		—
Fixed rate, fixed term	12/31/2020		1.94	%		600		600	03/25/2022		0.75	%		10,000		—
Fixed rate, putable, no call 2 years									01/12/2023		2.03	%		8,000		8,000
Fixed rate, fixed term	04/12/2021		1.92	%		8,000		8,000	03/23/2023		1.26	%		10,000		—
Fixed rate, fixed term	06/15/2021		1.39	%		5,000		5,000	03/27/2023		0.82	%		15,000		—
Fixed rate, fixed term	08/16/2021		2.29	%		3,000		3,000
Fixed rate, fixed term	12/30/2021		2.29	%		2,000		2,000
Fixed rate, putable, no call 2 years	01/12/2023		2.03	%		8,000		8,000
					$	59,400	$	89,400					$	93,400	$	44,400

The terms of security agreements with the FHLB require the Bank to pledge collateral for its borrowings. The collateral consists of qualifying first mortgage loans and stock of the FHLB. At June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Bank had pledged qualifying mortgage loans of ~~$431.5~~$368.6 million and ~~$453.8~~$393.7 million, respectively.

As of ~~credit with the FHLB as of~~ June 30, ~~2019~~2020 and December 31, ~~2018.~~

~~Future maturities of FHLB borrowings as of June 30,~~ 2019, ~~and December 31, 2018 were as follows:~~

~~As of~~ ~~June 30, 2019 and December 31, 2018,~~ the Bank also had a ~~line of credit~~line-of-credit available with the Federal Reserve Bank of Chicago. Borrowings under this line of credit are limited by the amount of collateral pledged by the Bank, which totaled ~~$145.7~~$111.3 million and ~~$143.4~~$127.3 million in loans at June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. There were no0 outstanding advances included in other borrowings at June 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

As of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company had aan unsecured credit agreement with U.S. Bank National Association for a ~~$15.0~~$10.0 million revolving line of credit with an interest rate of the one-month LIBOR rate plus 2.25%. The line also bears a non-usage fee of 0.275% per annum. The line did not have an outstanding balance as of June 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

Other borrowings are borrowings as a result of sold loans that do not qualify for sale accounting. These agreements are recorded as financing transactions as the Bank maintains effective control over the transferred loans. The dollar amount of the loans underlying the sale agreements continues to be carried in the Bank’s loan portfolio, and the transfer is reported as a secured borrowing with pledge of collateral. At June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the amounts of these borrowings was $0.8 million.

Also included in other borrowings is the financing lease for our full service banking location in Manitowoc, Wisconsin. This branch location was owned by the Bank, and was sold to a third party in March 2020. The Bank is leasing back a portion of the building for its full service branch. Under the terms of the current lease which began on March 2, 2020, the Company is obligated to pay monthly rent of $16 thousand with an initial lease term of ten years with 2 renewal options of five years each. As of June 30, 2020, the liability remaining under the financing lease was $1.4 million. There was 0 financing lease obligation as of December 31, 2019.

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

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


	June 30,			December 31,			June 30,			December 31,
	2019			2018			2020			2019
	(dollars in thousands)						(dollars in thousands)
Balance outstanding at end of period	$	809		$	827		$	101,847		$	794
Average amount outstanding during the period		1,204			1,027			66,910			800
Maximum amount outstanding at any month end		1,412			1,278			101,860			1,412
Weighted average interest rate during the period		4.47	%		4.81	%		0.42	%		4.60	%
Weighted average interest rate at end of period		4.51	%		4.51	%		2.65	%		4.51	%

In September 2005 and June 2006, the Company formed wholly owned subsidiary business trusts, County Bancorp Statutory Trust II (“Trust II”) and County Bancorp Statutory Trust III (“Trust III”) (together, the “Trusts”), which are both Delaware statutory trusts, for the purpose of issuing capital securities which qualify as Tier 1 capital of the Company. Trust II issued at par $6.0 million of floating rate capital securities in an exempt offering. The capital securities are nonvoting, mandatorily redeemable in 2035, and guaranteed by the Company. Trust III issued at par $6.0 million of floating rate capital securities in an exempt offering. The capital securities are nonvoting, mandatorily redeemable in 2036, and guaranteed by the Company.

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

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

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

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

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

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

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

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

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

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

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

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

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

Under the Company’s 2016 Long Term Incentive Plan (the “Plan”), the Company may grant options to purchase shares of common stock and issue restricted stock to its directors, officers, and employees. Both qualified and non-qualified stock options and restricted stock may be granted and issued, respectively, under the Plan. As of June 30, ~~2019, 175,703~~2020, 60,974 options or shares of restricted stock remained available under the Plan.

The exercise price of each option equals the market price of the Company’s stock on the date of grant and an option’s maximum term is ten years. Vesting periods range from one to five years from the date of grant. The restricted stock vesting periods range from one to five years from the date of ~~issuance.~~issuance.

The status of the Plan as of June 30, ~~2019~~2020 and changes in the Plan during the six months ended June 30, ~~2019~~2020 were as follows:

	June 30, 2019							June 30, 2020
	Number of Options			Weighted-Average Exercise Price		Aggregate Intrinsic Value ⁽¹⁾		Number of Options			Weighted-Average Exercise Price		Aggregate Intrinsic Value ⁽¹⁾
	(dollars in thousands except option and per share data)							(dollars in thousands except option and per share data)
Outstanding, beginning of year		208,988		$	18.15				214,904		$	18.94
Granted		14,237			18.06				54,746			19.51
Exercised		(5,000	)		12.00				(14,590	)		13.38
Forfeited/expired		(3,355	)		19.88				—			—
Outstanding, end of period		214,870		$	18.26	$	847		255,060		$	19.38	$	677
Options exercisable at period-end		173,836		$	17.27	$	713		162,623		$	18.82	$	493
Weighted-average fair value of options granted during the period ⁽²⁾				$	6.31						$	6.01

Activity in restricted stock awards and restricted stock units for the six months ended June 30, ~~2019~~2020 was as follows:

	June 30, 2019					June 30, 2020
	Restricted Stock Awards			Weighted Average Grant Price		Restricted Stock Awards⁽¹⁾			Weighted Average Grant Price
Outstanding, beginning of year		28,701		$	21.02		20,668		$	21.86
Granted		—			—		—			—
Vested		(11,552	)		19.19		(14,369	)		20.57
Forfeited/expired		(226	)		27.15		—			—
Outstanding, end of period		16,923		$	22.19		6,299		$	24.80

	June 30, 2019					June 30, 2020
	Restricted Stock Units			Weighted Average Grant Price		Restricted Stock Units			Weighted Average Grant Price
Outstanding, beginning of year		11,772		$	27.15		32,125		$	19.80
Granted		24,382			17.54		43,725			18.66
Vested and common shares issued		(3,654	)		27.42
Vested							(14,615	)		19.37
Forfeited/expired		(375	)		18.11		—			—
Outstanding, end of period		32,125		$	21.91		61,235		$	19.07
Restricted shares vested not yet issued, end of period							5,257		$	25.39

For the ~~six~~three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, share-based compensation expense, including options and restricted stock awards and units, applicable to the Plan was ~~$262 thousand~~$0.3 million and ~~$259 thousand,~~$0.2 million, respectively. For the six months ended June 30, 2020 and 2019, share-based compensation expense, including options and restricted stock awards and units, applicable to the Plan was $0.5 million and $0.3 million, respectively.

As of June 30, ~~2019,~~2020, unrecognized share-based compensation expense related to nonvested ~~options and restricted stock awards~~share-based compensation instruments amounted to ~~$0.7~~$1.1 million and is expected to be recognized over a weighted average period of ~~1.98~~2.05 years.

The Company (on a consolidated basis) and Bank isare each subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s and Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action (applicable only to the Bank), the Company and Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios (set forth in the following table) of ~~total,~~Total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined in the regulations), of Tier 1 capital (as defined in the regulations) to average assets (as defined in the regulations), and of Tier 1 Common Equity ~~capital to risk-weighted assets, and of Tier 1 capital to average assets, as such terms are~~(as defined in the ~~regulations.~~regulations) to risk-weighted assets. Management believed, as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, that the Company and the Bank met all capital adequacy requirements to which they were subject.

As a result of the recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies are required to develop a “Community Bank Leverage Ratio” (the ratio of a bank’s tangible equity capital to average total consolidated assets) for financial institutions with assets of less than $10 billion. A “qualifying community bank” that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered “well capitalized” under Prompt Corrective Action statutes. The federal banking agencies may consider a financial institution’s risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The federal banking agencies must set the minimum capital for the new Community Bank Leverage Ratio at not less than 8% and not more than 10%. The Bank has not elected to be subject to this new definition.

As of June 30, ~~2019,~~2020, the Bank’s capital ratios met those required to be considered as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based, Tier 1 Common Equity risk-based, and Tier 1 leverage ratios as set forth in the following table.

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

	Actual					Minimum For Capital Adequacy Purposes ^(a):					Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions:					Actual					Minimum For Capital Adequacy Purposes:					Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions:
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
	(dollars in thousands)															(dollars in thousands)
June 30, 2019
Total Capital (to risk weighted assets)	$	209,648		16.62	%	$	132,462		10.50	%	$	126,154		10.00	%
Tier 1 Capital (to risk weighted assets)		193,871		15.37	%		107,231		8.50	%		100,923		8.00	%
Tier 1 Capital (to average assets)		193,871		13.12	%		59,124		4.00	%		73,905		5.00	%
Tier 1 Common Equity Ratio (to risk weighted assets)		193,871		15.37	%		88,308		7.00	%		82,000		6.50	%

December 31, 2018
June 30, 2020
Total Capital (to risk weighted assets):
Consolidated	$	210,768		15.81	%	$	131,664		9.875	%	Not applicable					$	237,743		20.42	%	$	122,222		10.50	%	Not applicable			10.00	%
Bank		204,327		15.35	%		131,488		9.875	%	$	133,153		10.00	%		207,319		17.88	%		121,773		10.50	%	$	115,974		10.00	%
Tier 1 Capital (to risk weighted assets):
Consolidated		164,675		12.35	%		104,998		7.875	%	Not applicable						176,966		15.20	%	$	98,942		8.50	%	Not applicable			8.00	%
Bank		187,679		14.09	%		104,858		7.875	%		106,522		8.00	%		192,772		16.62	%		98,578		8.50	%		92,779		8.00	%
Tier 1 Capital (to average assets):
Consolidated		164,675		11.09	%		59,374		4.00	%	Not applicable						176,966		12.69	%		55,795		4.00	%	Not applicable			5.00	%
Bank		187,679		12.44	%		60,330		4.00	%		75,413		5.00	%		192,772		13.88	%		55,538		4.00	%		69,423		5.00	%
Tier 1 Common Equity Ratio (to risk weighted assets):
Consolidated		141,085		10.58	%		84,999		6.375	%	Not applicable						176,966		15.20	%	$	81,482		7.00	%	Not applicable			6.50	%
Bank		187,679		14.09	%		84,885		6.375	%		86,549		6.50	%		192,772		16.62	%		81,182		7.00	%		75,383		6.50	%

December 31, 2019
Total Capital (to risk weighted assets):
Consolidated																$	225,094		19.41	%	$	121,746		10.500	%	Not applicable
Bank																	216,198		18.70	%		121,396		10.500	%	$	115,615		10.00	%
Tier 1 Capital (to risk weighted assets):
Consolidated																	180,620		15.58	%		98,557		8.500	%	Not applicable
Bank																	201,735		17.45	%		98,273		8.500	%		92,492		8.00	%
Tier 1 Capital (to average assets):
Consolidated																	180,620		12.42	%		58,182		4.00	%	Not applicable
Bank																	201,735		14.68	%		54,962		4.00	%		68,702		5.00	%
Tier 1 Common Equity Ratio (to risk weighted assets):
Consolidated																	156,969		13.54	%		81,164		7.000	%	Not applicable
Bank																	201,735		17.45	%		80,930		7.000	%		75,150		6.50	%

~~The rules of the~~ Basel III ~~regulatory capital framework~~Rule implemented a capital conservation buffer, ~~that~~equal to 2.5% of Tier 1 Common Equity, which is added to the minimum requirements for capital adequacy purposes. ~~The~~As of June 30, 2020 and December 31, 2019, the ratios for the Company and the Bank exceeded the 2.5% capital conservation buffer. Failure to exceed the capital conservation buffer ~~was subject~~would result in limitations on certain capital distributions, including dividend payments, and certain discretionary bonus payment to ~~a three year phase-in period that began on January 1, 2016 and was fully phased in on January 1, 2019 at 2.5%. The ratios for the Bank are sufficient to meet the conservation buffer.~~executive officers.

ASC 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability is not adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are independent, knowledgeable, and both able and willing to transact.

ASC 820-10 requires the use of valuation techniques that are consistent with the market approach, the income approach, and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be

required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, ASC 820-10 establishes a fair value hierarchy for valuation inputs that gives

the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1—Valuation is based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2—Valuation is based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

Level 3—Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value requires significant management judgment or estimation.

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

The following methods and assumptions were used by the Company in estimating the fair value disclosures for financial instruments recorded at fair value on a recurring basis:

Where quoted prices are available in an active market, the Company classifies the securities within Level 1 of the valuation hierarchy. Securities are defined as both long and short positions. Level 1 securities include highly liquid government bonds and exchange-traded equities.

If quoted market prices are not available, the Company estimates fair values using pricing models and discounted cash flows that consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes and credit spreads.

Examples of such instruments, which would generally be classified within Level 2 of the valuation hierarchy, include U.S. government and agency securities, corporate bonds and other securities. Mortgage-backed securities are included in Level 2 if observable inputs are available. In certain cases where there is limited activity or less transparency around inputs to the valuation, the Company classifies those securities in Level 3.

The Company’s loan servicing rights do not trade in an active, open market with readily observable prices. Accordingly, fair value is estimated using discounted cash flow models having significant inputs of discount rate, prepayment speed, and default rate. Due to the nature of the valuation inputs, loan servicing rights are classified in Level 3 of the valuation hierarchy.

The Company's derivative instruments consist of interest rate swaps, which are accounted for as cash flow hedges. The Company's derivative positions are classified within Level 2 of the fair value hierarchy and are valued using models generally accepted in the financial services industry and that use actively quoted or observable market input values from external market data providers and/or non-binding broker-dealer quotations. The fair value of the derivatives is determined using discounted cash flow models. These models’ key assumptions include the contractual terms of the respective contract along with significant observable inputs, including interest rates, yield curves, nonperformance risk and volatility.

Assets and liabilities measured at fair value on a recurring basis are summarized below:

	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
	(dollars in thousands)								(dollars in thousands)
June 30, 2019
June 30, 2020
Securities available for sale:
U.S. government and agency securities	$	—	$	3,699	$	—	$	3,699	$	—	$	15,603	$	—	$	15,603
U.S. treasury securities		—		2,507		—		2,507
Asset backed securities										—		16,566		—		16,566
Municipal securities										—		51,640		—		51,640
Mortgage-backed securities										—		143,162		—		143,162
Loan servicing rights⁽¹⁾										—		—		16,486		16,486
Total assets at fair value									$	—	$	226,971	$	16,486	$	243,457
Derivative instruments, interest rate swaps										—		2,226		—		2,226
Total liabilities at fair value									$	—	$	2,226	$	—	$	2,226
December 31, 2019
Securities available for sale:
U.S. government and agency securities									$	—	$	3,458	$	—	$	3,458
U.S. treasury Securities										—		2,506		—		2,506
Mortgage-backed securities		—		152,355		—	$	152,355		—		152,769		—		152,769
Total assets at fair value	$	—	$	158,561	$	—	$	158,561	$	—	$	158,733	$	—	$	158,733
Derivative instruments, interest rate swaps		—		1,316		—	$	1,316		—		972		—		972
Total liabilities at fair value	$	—	$	1,316	$	—	$	1,316	$	—	$	972	$	—	$	972
December 31, 2018
Securities available for sale:
U.S. government and agency securities	$	—	$	4,331	$	—	$	4,331
U.S. treasury Securities		—		2,491		—		2,491
Municipal securities		—		34,520		—		34,520
Mortgage-backed securities		—		154,603		—	$	154,603
Total assets at fair value	$	—	$	195,945	$	—	$	195,945
Derivative instruments, interest rate swaps		—		179		—	$	179
Total liabilities at fair value	$	—	$	179	$	—	$	179

Certain assets are measured at fair value on a nonrecurring basis; that is, they are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The following table presents the financial instruments carried on the consolidated balance sheet by caption and by level in the fair value hierarchy for which a nonrecurring change in fair value has been recorded:

	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
	(dollars in thousands)						(dollars in thousands)
June 30, 2019
June 30, 2020
Impaired loans	$	—	$	—	$	57,720	$	—	$	—	$	47,138
Other real estate owned		—		—		8,693		—		—		2,629
Total assets at fair value	$	—	$	—	$	66,413	$	—	$	—	$	49,767
December 31, 2018
December 31, 2019
Impaired loans	$	—	$	—	$	30,995	$	—	$	—	$	44,657
Other real estate owned		—		—		6,568		—		—		5,521
Total assets at fair value	$	—	$	—	$	37,563	$	—	$	—	$	50,178

The significant inputs used in the fair value measurements for Level 3 assets measured at fair value on a nonrecurring basis ~~are~~were as follows:

The estimated fair values, and related carrying or notional amounts, of the Company’s financial instruments were as follows:

	June 30,				December 31,					June 30,				December 31,
	2019				2018					2020				2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Input Level	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Input Level
	(dollars in thousands)									(dollars in thousands)
Financial assets:
Cash and cash equivalents	$	116,251	$	116,251	$	61,087	$	61,087	1	$	127,016	$	127,016	$	108,457	$	108,457	1
Interest earning cash at other financial institutions											416		416		20,554		20,554	1
FHLB Stock											5,758		5,758		1,628		1,628	2
Securities available for sale		158,561		158,561		195,945		195,945	2		226,971		226,971		158,733		158,733	2
FHLB Stock		2,178		2,178		2,978		2,978	2
Loans, net of allowance for loan losses		1,131,574		1,136,362		1,190,790		1,187,330	3		1,068,955		1,080,610		1,020,506		1,024,062	3
Loans held for sale		7,448		7,448		2,949		2,949	3		11,847		11,847		2,151		2,151	3
Accrued interest receivable		3,821		3,821		3,878		3,878	2		3,222		3,222		2,571		2,571	2
Loan servicing rights		9,621		14,057		9,047		13,198	3		16,486		16,486		12,509		15,921	3
Financial liabilities:
Deposits:
Time		773,843		778,769		805,240		801,267	2		525,982		526,560		640,925		635,558	2
Other deposits		431,334		431,334		418,107		418,107	1		547,071		547,071		460,517		460,517	1
Other borrowings		809		809		827		827	3		101,847		101,847		794		794	3
Advances from FHLB		59,400		59,537		89,400		88,725	2		93,400		94,926		44,400		44,578	2
Subordinated debentures		44,781		44,781		44,703		44,703	3		61,910		61,910		44,858		44,858	3
Accrued interest payable		5,026		5,026		4,013		4,013	2		3,101		3,101		4,769		4,769	2
Derivative instruments, interest rate swaps		1,316		1,316		179		179	2		2,226		2,226		972		972	2

	For the Three Months Ended						For the Six Months Ended						For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,						June 30,						June 30,
		2019			2018			2019			2018			2020			2019			2020			2019
	(dollars in thousands)												(dollars in thousands)
Balance, beginning of period	$	5,019		$	9,379		$	6,568		$	4,962		$	3,247		$	5,019		$	5,521		$	6,568
Assets foreclosed		4,145			1,687			5,292			6,104			—			4,145			—			5,292
Write-down of other real estate owned		(250	)		(104	)		(250	)		(104	)		—			(250	)		(1,360	)		(250	)
Net gain on sales of other real estate owned		(9	)		149			127			149
Net gain (loss) on sales of other real estate owned														—			(9	)		(4	)		127
Proceeds from sale of other real estate owned		(212	)		(2,107	)		(3,044	)		(2,107	)		(618	)		(212	)		(1,528	)		(3,044	)
Balance, end of period	$	8,693		$	9,004		$	8,693		$	9,004		$	2,629		$	8,693		$	2,629		$	8,693

~~Income (expenses)~~Expenses applicable to other real estate owned included in non-interest expense included the following:

	For the Three Months Ended						For the Six Months Ended						For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,						June 30,						June 30,
		2019			2018			2019			2018			2020			2019			2020			2019
	(dollars in thousands)												(dollars in thousands)
Net gain (loss) on sales of other real estate owned	$	(9	)	$	149		$	127		$	149		$	—		$	(9	)	$	(4	)	$	127
Write-down of other real estate owned		(250	)		(104	)		(250	)		(104	)		—			(250	)		(1,360	)		(250	)
Operating expenses, net of rental income		(85	)		(108	)		(110	)		(216	)		(50	)		(85	)		(166	)		(110	)
	$	(344	)	$	(63	)	$	(233	)	$	(171	)	$	(50	)	$	(344	)	$	(1,530	)	$	(233	)

On June 15, 2018, the Company executed an interest rate swap to manage interest rate risk on ~~two~~2 sets of its trust preferred securities. This derivative contract involves the receipt of floating rate interest from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreement, without the exchange of the underlying notional value. This instrument is designated as a cash flow hedge as the receipt of floating rate interest from the counterparty is used to manage interest rate risk associated with three month LIBOR advances. The change in the fair value of this hedging instrument is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged transaction affects earnings.

The Company had ~~two~~2 outstanding interest rate swaps designated as a cash flow hedge each with an aggregate notional value of $6.0 million at June 30, ~~2019~~2020 and December 31, ~~2018.~~2019. Both interest rate swaps mature on June 15, 2028. A pre-tax unrealized loss ~~(gain)~~ of ~~$1.1~~$1.3 and ~~($0.1)~~$1.1 million was recognized in accumulated other comprehensive income for the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively and there was no0 ineffective portion of this hedge.

The Company is exposed to credit risk in the event of nonperformance by the interest rate swaps counterparty. The Company minimizes this risk by entering into derivative contracts with only large, stable financial institutions, and the Company has not experienced, and does not expect, any losses from counterparty nonperformance on the interest rate swaps. The Company monitors counterparty risk in accordance with the provisions of FASB ASC 815. In addition, the interest rate swap agreements ~~contains~~contain language outlining collateral-pledging requirements for each counterparty. Collateral must be posted when the market value exceeds certain threshold limits. Derivative contracts are executed with a Credit Support Annex, which is a bilateral ratings-sensitive agreement that requires collateral postings at established credit threshold levels. These agreements protect the interests of the Company and its counterparties should either party suffer a credit rating deterioration. The Company was required to pledge ~~$1.0~~$2.4 million of cash as collateral to the counterparty as of June 30, ~~2019.~~2020.

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

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

There were other no significant events or transactions occurring after June 30, ~~2019,~~2020, but prior to August ~~8, 2019,~~7, 2020, that provided additional evidence about conditions that existed at June 30, ~~2019.~~2020.

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

The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this Form 10-Q. This report contains statements that constitute forward-looking statements within the meaning of the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the use of words such as “estimate,” “project,” “predict,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “may,” “might,” “should,” “indicate,” “will,” “would,” “could,” “contemplate,” “continue,” “intend,” “target” and words of similar meaning. These forward-looking statements are not historical facts and include statements of our goals, intentions, expectations, business plans, and operating strategies.

Forward-looking statements are subject to significant risks and uncertainties, and our actual results may differ materially from the results discussed in such forward-looking statements. The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

These statements are only current predictions and are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from those anticipated by the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Forward-looking statements are made only as of the date of this report, and the Company undertakes no obligation to update any forward-looking statements contained in this report to reflect new information or events or conditions after the date hereof.

County Bancorp, Inc. is a Wisconsin corporation founded in May 1996 and is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended. Our primary activities consist of operating through our wholly owned subsidiary bank, Investors Community Bank, headquartered in Manitowoc, Wisconsin, and providing a wide range of banking and related business services through the Bank and our other subsidiaries.

In addition to the Bank, we have three ~~wholly-owned~~wholly owned subsidiaries, County Bancorp Statutory Trust II, County Bancorp Statutory Trust III, and Fox River Valley Capital Trust I, which are Delaware statutory trusts. The Bank is the sole member of Investors Insurance Services, LLC and ABS 1, LLC, which are both Wisconsin limited liability companies.

Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans, and the interest we pay on interest-bearing liabilities, such as deposits. We generate most of our revenue from interest on loans and investments and loan- and deposit-related fees. Our loan portfolio consists of a mix of agricultural, commercial real estate, commercial, and residential real estate loans. Our primary source of funding is deposits. Our largest expenses are interest on these deposits and salaries and related employee benefits. We measure our performance through various metrics, including our pre-tax net income, net interest margin, net overhead ratio, return on average assets, earnings per share, and ratio of non-performing assets to total assets. We also utilize non-GAAP metrics, such as adjusted diluted earnings per share, efficiency ratio, return on average common shareholders’ equity, tangible book value per share, ratio of tangible common equity to tangible assets, and adverse classified asset ratio, to evaluate the Company’s performance. We are required to maintain appropriate regulatory leverage and risk-based capital ratios.

As of and for

As of and for

As of and for

Three Months Ended

Six Months Ended

Year Ended

June 30, 2019

June 30, 2018

June 30, 2019

June 30, 2018

December 31, 2018

(unaudited)

(unaudited)

(Dollars in thousands, except per share data)

Selected Income Statement Data:

Interest income

$
17,208

$
15,763

$
34,334

$
30,456

$
64,217

Interest expense

6,776

5,425

13,342

9,848

22,262

Net interest income

10,432

10,338

20,992

20,608

41,955

Provision for loan losses

876

533

1,628

630

3,195

Net interest income after provision for loan losses

9,556

9,805

19,364

19,978

38,760

Non-interest income

2,887

2,316

5,637

4,356

8,833

Non-interest expense

7,446

6,937

14,751

13,722

28,283

Income tax expense

1,293

1,334

2,784

2,708

5,059

Net income

$
3,704

$
3,850

$
7,466

$
7,904

$
14,251

Per Common Share Data:

Basic earnings per common share

$
0.53

$
0.56

$
1.07

$
1.15

$
2.06

Diluted earnings per common share

$
0.53

$
0.55

$
1.07

$
1.14

$
2.04

Cash dividends per common share

$
0.05

$
0.07

$
0.10

$
0.14

$
0.28

Book value per share, end of period

$
23.03

$
20.63

$
23.03

$
20.63

$
21.50

Tangible book value per share, end of period ⁽¹⁾

$
22.23

$
19.77

$
22.23

$
19.77

$
20.65

Weighted average common shares - basic

6,745,635

6,690,568

6,735,725

6,684,399

6,712,551

Weighted average common shares - diluted

6,766,366

6,769,936

6,756,895

6,961,917

6,757,667

Common shares outstanding, end of period

6,717,908

6,693,447

6,717,908

6,693,447

6,709,480

Selected Balance Sheet Data:

Total assets

$
1,484,646

$
1,518,877

$
1,484,646

$
1,518,877

$
1,521,027

Securities available-for-sale

158,561

187,505

158,561

187,505

195,945

Total loans

1,147,832

1,181,524

1,147,832

1,181,524

1,207,295

Allowance for loan losses

(16,258
)

(15,129
)

(16,258
)

(15,129
)

(16,505
)
Total deposits

1,205,177

1,210,431

1,205,177

1,210,431

1,223,347

Other borrowings and FHLB advances

60,209

109,041

60,209

109,041

90,227

Subordinated debentures

44,781

44,725

44,781

44,725

44,703

Total shareholders' equity

162,724

146,082

162,724

146,082

152,284

Performance Ratios:

Return on average assets (annualized)

1.00
%

1.04
%

1.00
%

1.09
%

0.96
%
Return on average shareholders' equity (annualized)

9.24
%

10.96
%

9.48
%

11.39
%

7.58
%
Return on average common shareholders' equity ⁽¹⁾

9.41
%

10.96
%

9.68
%

11.39
%

9.74
%
Equity to assets ratio

10.96
%

9.62
%

10.96
%

9.62
%

10.00
%
Net interest margin

2.92
%

2.87
%

2.93
%

2.91
%

2.91
%
Interest rate spread

2.59
%

2.61
%

2.61
%

2.67
%

2.62
%
Non-interest income to average assets (annualized)

0.78
%

0.62
%

0.76
%

0.60
%

0.58
%
Non-interest expense to average assets (annualized)

2.01
%

1.86
%

1.99
%

1.89
%

1.87
%
Net overhead ratio (annualized) ⁽²⁾

1.23
%

1.24
%

1.22
%

1.29
%

1.29
%
Efficiency ratio ⁽¹⁾

55.38
%

55.18
%

55.65
%

55.15
%

54.42
%
Dividend payout ratio

9.43
%

12.73
%

9.35
%

12.28
%

13.73
%

Asset Quality Ratios:

Adverse classified asset ratio ⁽¹⁾

53.21
%

47.34
%

53.21
%

47.34
%

57.12
%
Non-performing loans to total loans ⁽³⁾

1.75
%

2.23
%

1.75
%

2.23
%

1.90
%
Allowance for loan losses to:

Total loans

1.42
%

1.28
%

1.42
%

1.28
%

1.37
%
Non-performing loans

80.90
%

57.51
%

80.90
%

57.51
%

71.81
%
Net charge-offs (recoveries) to average loans

0.18
%

0.00
%

0.16
%

(0.11
)%

(0.01
)%
Non-performing assets to total assets ⁽³⁾

1.94
%

2.30
%

1.94
%

2.30
%

1.94
%

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

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

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

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

	As of and for the						As of and for the						As of and for the
	Three Months Ended						Six Months Ended						Year Ended
	June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019			December 31, 2019
	(unaudited)						(unaudited)
	(Dollars in thousands, except per share data)
Selected Income Statement Data:
Interest income	$	13,686		$	17,208		$	27,781		$	34,334		$	66,332
Interest expense		4,800			6,776			10,097			13,342			25,550
Net interest income		8,886			10,432			17,684			20,992			40,782
Provision for loan losses		1,142			876			3,360			1,628			423
Net interest income after provision for loan losses		7,744			9,556			14,324			19,364			40,359
Non-interest income		3,380			2,887			6,083			5,637			13,393
Non-interest expense		7,465			7,446			22,482			14,751			32,684
Income tax expense		926			1,293			379			2,784			4,616
Net income (loss)	$	2,733		$	3,704		$	(2,454	)	$	7,466		$	16,452

Per Common Share Data:
Basic earnings (loss) per common share	$	0.40		$	0.53		$	(0.40	)	$	1.07		$	2.37
Diluted earnings (loss) per common share	$	0.40		$	0.53		$	(0.40	)	$	1.07		$	2.36
Adjusted diluted earnings per common share⁽¹⁾	$	0.40		$	0.53		$	0.36		$	1.07		$	2.36
Cash dividends per common share	$	0.07		$	0.05		$	0.14		$	0.10		$	0.20
Book value per share, end of period	$	25.18		$	23.03		$	25.18		$	23.03		$	24.32
Tangible book value per share, end of period ⁽¹⁾	$	25.16		$	22.23		$	25.16		$	22.23		$	23.54
Weighted average common shares - basic		6,504,898			6,745,635			6,604,187			6,735,725			6,747,581
Weighted average common shares - diluted		6,533,409			6,766,366			6,643,735			6,756,895			6,768,925
Common shares outstanding, end of period		6,375,150			6,717,908			6,375,150			6,717,908			6,734,132

Selected Balance Sheet Data:
Total assets	$	1,513,917		$	1,484,646		$	1,513,917		$	1,484,646		$	1,378,779
Securities available-for-sale		226,971			158,561			226,971			158,561			158,733
Total loans		1,087,524			1,147,832			1,087,524			1,147,832			1,035,773
Allowance for loan losses		(18,569	)		(16,258	)		(18,569	)		(16,258	)		(15,267	)
Total deposits		1,073,053			1,205,177			1,073,053			1,205,177			1,101,442
Other borrowings and FHLB advances		195,247			60,209			195,247			60,209			45,194
Subordinated debentures		61,910			44,781			61,910			44,781			44,858
Total shareholders' equity		168,525			162,724			168,525			162,724			172,029

Performance Ratios:
Return on average assets (annualized)		0.74	%		1.00	%		(0.23	)%		1.00	%		1.13	%
Return on average shareholders' equity (annualized)		6.55	%		9.24	%		(2.88	)%		9.48	%		10.10	%
Return on average common shareholders' equity ⁽¹⁾		6.63	%		9.41	%		(3.28	)%		9.68	%		10.31	%
Equity to assets ratio		11.13	%		10.96	%		11.13	%		10.96	%		12.46	%
Net interest margin		2.54	%		2.92	%		2.63	%		2.93	%		2.93	%
Interest rate spread		2.24	%		2.59	%		2.30	%		2.61	%		2.58	%
Non-interest income to average assets (annualized)		0.92	%		0.78	%		0.86	%		0.76	%		0.92	%
Non-interest expense to average assets (annualized)		2.03	%		2.01	%		3.19	%		1.99	%		2.25	%
Net overhead ratio (annualized) ⁽²⁾		1.11	%		1.23	%		2.32	%		1.22	%		1.33	%
Efficiency ratio ⁽¹⁾		63.83	%		55.38	%		69.32	%		55.65	%		59.92	%
Dividend payout ratio		17.50	%		9.43	%		(35.00	)%		9.35	%		8.47	%

Asset Quality Ratios:
Adverse classified asset ratio ⁽¹⁾		41.73	%		53.21	%		41.73	%		53.21	%		39.85	%
Non-performing loans to total loans ⁽³⁾		3.26	%		1.75	%		3.26	%		1.75	%		2.99	%
Allowance for loan losses to:
Total loans		1.71	%		1.42	%		1.71	%		1.42	%		1.47	%
Non-performing loans		52.37	%		80.90	%		52.37	%		80.90	%		49.30	%
Net charge-offs to average loans		0.01	%		0.18	%		0.01	%		0.16	%		0.15	%
Non-performing assets to total assets ⁽³⁾		2.52	%		1.94	%		2.52	%		1.94	%		2.65	%

“Efficiency ratio” is defined as non-interest expense, excluding goodwill impairment, and gains and losses on sales and write-downs of other real estate owned, divided by operating revenue, which is equal to net interest income plus non-interest income excluding gains and losses on sales of securities. In our judgment, the adjustments made to non-interest expense allow investors to better assess our operating expenses in relation to our core operating revenue by removing the volatility that is associated with certain one-time items and other discrete items that are unrelated to our core business.

	Three Months Ended						Six Months Ended						Year Ended			Three Months Ended						Six Months Ended						Year Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018			December 31, 2018			June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019			December 31, 2019
	(dollars in thousands)															(dollars in thousands)
Efficiency Ratio GAAP to Non-GAAP reconciliation:
Non-interest expense	$	7,446		$	6,937		$	14,751		$	13,722		$	28,283		$	7,465		$	7,446		$	22,482		$	14,751		$	32,684
Plus (less): net gain (loss) on sales and write-downs of OREO		(259	)		45			(123	)		45			(642	)
Less: goodwill impairment																	—			—			(5,038	)		—			—
Less: net loss on sales and write-downs of OREO																	—			(259	)		(1,364	)		(123	)		(586	)
Adjusted non-interest expense (non-GAAP)	$	7,187		$	6,982		$	14,628		$	13,767		$	27,641		$	7,465		$	7,187		$	16,080		$	14,628		$	32,098

Net interest income	$	10,432		$	10,338		$	20,992		$	20,608		$	41,955		$	8,886		$	10,432		$	17,684		$	20,992		$	40,782
Non-interest income		2,887			2,316			5,637			4,356			8,833			3,380			2,887			6,083			5,637			13,393
Less: net loss (gain) on sales of securities		(341	)		—			(341	)		—			—
Less: net gain on sales of securities																	(570	)		(341	)		(570	)		(341	)		(341	)
Operating revenue	$	12,978		$	12,654		$	26,288		$	24,964		$	50,788		$	11,696		$	12,978		$	23,197		$	26,288		$	53,834
Efficiency ratio		55.38	%		55.18	%		55.65	%		55.15	%		54.42	%		63.83	%		55.38	%		69.32	%		55.65	%		59.62	%

Return on average common shareholders’ equity is a non-GAAP based financial measure calculated using non-GAAP based amounts. The most directly comparable GAAP based measure is return on average shareholders’ equity. We calculate return on average common shareholders’ equity by excluding the average preferred shareholders’ equity and the related dividends. Management uses the return on average common shareholders’ equity in order to review our core operating results and our performance.

	Three Months Ended						Six Months Ended						Year Ended			Three Months Ended						Six Months Ended						Year Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018			December 31, 2018			June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019			December 31, 2019
Return on Average Common Shareholders' Equity GAAP to Non-GAAP reconciliation:
Return on average shareholders' equity		9.24	%		10.63	%		9.48	%		11.02	%		9.50	%		6.55	%		9.24	%		(2.88	)%		9.48	%		10.10	%
Effect of excluding average preferred shareholders' equity		0.17	%		0.33	%		0.20	%		0.37	%		0.24	%		0.08	%		0.17	%		(0.40	)%		0.20	%		0.21	%
Return on average common shareholders' equity		9.41	%		10.96	%		9.68	%		11.39	%		9.74	%		6.63	%		9.41	%		(3.28	)%		9.68	%		10.31	%

Tangible book value per share and ratio of tangible common equity to tangible assets are non-GAAP financial measures based on GAAP amounts. In our judgment, the adjustments made to book value, equity and assets allow investors to better assess our capital adequacy and net worth by removing the effect of goodwill and intangible assets that are unrelated to our core business.

	June 30, 2019			June 30, 2018			December 31, 2018			June 30, 2020			June 30, 2019			December 31, 2019
	(dollars in thousands, except per share data)									(dollars in thousands, except per share data)
Tangible book value per share and tangible common equity to tangible assets reconciliation:
Common equity	$	154,724		$	138,082		$	144,284		$	160,525		$	154,724		$	163,763
Less: Goodwill		5,038			5,038			5,038			—			5,038			5,038
Less: Core deposit intangible, net of amortization		354			701			513			125			354			225
Tangible common equity	$	149,332		$	132,343		$	138,733		$	160,400		$	149,332		$	158,500
Common shares outstanding		6,717,908			6,693,447			6,673,381			6,375,150			6,717,908			6,734,132
Tangible book value per share	$	22.23		$	19.77		$	20.79		$	25.16		$	22.23		$	23.54

Total assets	$	1,484,646		$	1,518,877		$	1,521,027		$	1,513,917		$	1,484,646		$	1,378,514
Less: Goodwill		5,038			5,038			5,038			—			5,038			5,038
Less: Core deposit intangible, net of amortization		354			701			513			125			354			225
Tangible assets	$	1,479,254		$	1,513,138		$	1,515,476		$	1,513,792		$	1,479,254		$	1,373,251
Tangible common equity to tangible assets		10.10	%		8.75	%		9.15	%		10.60	%		10.10	%		11.54	%

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

Adverse classified asset ratio is a non-GAAP financial measure based on GAAP amounts. In our judgment, the adjustments made to non-performing assets allow management to better assess asset quality and monitor the amount of capital coverage necessary for non-performing assets.

	June 30, 2019			June 30, 2018			December 31, 2018			June 30, 2020			June 30, 2019			December 31, 2019
	(dollars in thousands, except per share data)									(dollars in thousands, except per share data)
Adverse classified asset ratio:
Substandard loans	$	117,766		$	93,833		$	120,887			88,679			109,489			85,992
Less: Impaired performing restructured loans		(8,277	)		(2,081	)		(5,078	)
Net substandard loans		109,489			91,752			115,809
Other real estate owned		8,093			8,607			6,568			2,629			8,693			5,521
Substandard unused commitments		1,458			959			1,625			3,230			1,458			2,849
Less: Substandard government guarantees		(7,821	)		(8,356	)		(7,111	)		(6,336	)		(7,821	)		(7,892	)
Total adverse classified assets (non-GAAP)	$	111,219		$	92,962		$	116,891
�� Total adverse classified assets (non-GAAP)										$	88,202		$	111,819		$	86,470

Total equity (Bank)	$	196,036		$	177,911		$	185,458		$	201,507		$	196,036		$	204,240
Accumulated other comprehensive loss (gain) on available-for-sale securities		(2,166	)		2,795			2,221			(8,734	)		(2,166	)		(2,505	)
Allowance for loan losses		16,258			15,129			16,505			18,569			16,258			15,267
Allowance for unused commitments		—			522			475
Adjusted total equity (non-GAAP)	$	210,128		$	196,357		$	204,659		$	211,342		$	210,128		$	217,002
Adverse classified asset ratio		52.93	%		47.34	%		57.12	%		41.73	%		53.21	%		39.85	%

Our operating revenue is comprised of interest income and non-interest income. Net interest income ~~increased~~decreased by ~~0.9%~~14.8% to ~~$10.4~~$8.9 million for the three months ended June 30, ~~2019~~2020 compared to the three months ended June 30, ~~2018,~~2019, primarily attributable to a 34$78.7 million, or 6.7%, decrease in average loan balance and an 84 basis point ~~improvement~~decrease in loan yield between the two periods. The decrease in average ~~yield~~loan balance is primarily the result of ~~securities available-for-sale. Year-over-year average loan yields improved by 42 basis points; however this was partially offset by a 42 basis point~~the $69.4 million increase in average loans sold and serviced, and the ~~average~~decrease in loan yield is primarily the result of the $106.0 million of PPP loans that were closed during the second quarter of 2020 with a 1.0% loan yield, in addition to the overall drop in interest rate ~~paid on interest-bearing deposits.~~environment.

Interest income ~~increased~~decreased to $13.7 million for the second quarter of 2020 compared to $17.2 million for the second quarter of 2019, ~~compared to $15.8 million for the second quarter of 2018. Despite~~which resulted from a ~~decline~~decrease in average loan balance ~~the increase in interest income was primarily as the result of an increase~~and a decline in loan ~~yield~~yields from ~~4.84% for the second quarter of 2018 to~~ 5.26% for the second quarter of 2019. In addition, dividend income from the securities portfolio and interest income due from other banks increased $0.3 million year-over-year. The increase in interest income was partially offset by an increase in interest expense from $5.4 million2019 to 4.42% for the second quarter of ~~2018~~2020. In addition, average yields on investment securities and interest bearing deposits due from other banks declined from the first quarter of 2019 to the first quarter of 2020 by 42 basis points and 183 basis points, respectively. The decreases in yields on all interest-earning assets was primarily the result of the Federal Reserve’s decreases to the target federal funds rate by a total of 75 basis points in the second half of 2019 and by a total of 150 basis points in March 2020, in addition to the low yield on PPP loans discussed above.

Interest expense decreased from $6.8 million for the second quarter of 2019 to $4.8 million for the second quarter of 2020, which was primarily the result of ~~increases~~a 14.1% decrease in the average balance of interest-bearing deposits and a decrease in rates paid on ~~deposits~~savings, NOW, money market, and interest checking accounts of 112 basis points. This was partially offset by a five basis point increase in the rate paid on ~~the $30.0 million of subordinated notes that the Company entered into on May 30, 2018.~~

Non-interest income for the three months ended June 30, 2019 increased 24.7% to $2.9 million from $2.3 million for the three months ended June 30, 2018, primarily due to the gain realized on the sale of securities available-for-sale during the second quarter of 2019 (included in other non-interest income) and a $0.3 million increase in loan servicing fees and rights as the result of higher volumes of loans being serviced.

Non-interest expense increased 7.3% to $7.4 million for the three months ended June 30, 2019 compared to $6.9 million for the same period in 2018. This increase was primarily the result of a $0.3 million writedown of other real estate owned that took place during the second quarter of 2019 along with small increases in information processing, professional fees, and business development. time deposits.

For the six months ended June 30, ~~2019,~~2020, net interest income was ~~$21.0~~$17.7 million, ~~an increase~~a decrease of ~~$0.4~~$3.3 million, or ~~1.9%~~15.8%, from the six months ended June 30, ~~2018.~~2019. Interest income ~~increased~~decreased $6.5 million, or 19.1%, to $27.8 million for the first two quarters of 2020, compared to $34.3 million for the first two quarters of 2019, ~~compared to $30.5 million from the first two quarters of 2018,~~ primarily due to ~~improved~~the $106.0 million of PPP loans that were funded during the second quarter of 2020 with a yield of 1.0% and the repricing of loans in a declining rate environment. In addition, due to the federal funds rate cuts during the first quarter of 2020, yields on ~~both loans~~investment securities and ~~securities available-for-sale~~interest bearing deposits at other banks declined 30 basis points and ~~increase average balances of investment securities. Interest expense increased to $13.3 million~~158 basis points, respectively, for the six ~~month~~months ended June 30, ~~2019 from $9.8~~2020 compared to the six months ended June 30, 2019. Interest expense decreased to $10.1 million for the six months ended June 30, ~~2018. The $3.5~~2020 from $13.3 million ~~increase is primarily the result of increased rates paid on deposit balances and $0.9 million increase in interest paid on the subordinated debentures.~~

~~Non-interest income increased $1.2 million, or 29.4%,~~ for the six months ended June 30, ~~2019 to $5.6~~2019. The $3.2 million, ~~compared to the six months ended June 30, 2018,~~or 24.3%, decrease is primarily due to a 33 basis points reduction in the ~~previously discussed increase~~rate paid on interest-bearing deposits, and the 59 basis point reduction in ~~secondary market loan sales, as well as a reduction to~~ the ~~allowance for unused commitments~~rate of $0.5 million that took place during the first quarter of 2019, which increased other non-interest income. The Company evaluated the need for this allowance and concluded that there was no sufficient evidence that represented credit loss inherent in these commitments to substantiate this reserve. The Company will continue to evaluate credit risk on these off-balance sheet commitments going forward.

Non-interest expense increased $1.0 million, or 7.5%, for the six months ended June 30, 2019 to $14.8 million compared to the six months ended June 30, 2018. In addition to previously discussed other real estate owned writedown, the year-over-year increase was primarily due to the increased occupancy costs related to our ~~new headquarters that was purchased in in May 2018 and increased employee compensation and benefits,~~FHLB borrowings, which was ~~primarily~~slightly offset by the ~~result of a 24.1%~~33 basis point increase inon the ~~premium cost of employee benefits.~~rate paid on our subordinated debt.

Net interest income is the largest component of our income and is dependent on the volumes of and yields earned on interest-earning assets as compared to the volumes of and rates paid on interest-bearing liabilities.

As a result of the reductions in the target federal funds interest rate, as well as the impact of the COVID-19 pandemic that we expect to incur, we expect that our net interest income and net interest margin could continue to decrease in future periods.

The following tables reflect the components of net interest income for the three and six months ended June 30, ~~2019~~2020 and ~~2018:~~

	Three Months Ended																Three Months Ended
	June 30, 2019								June 30, 2018								June 30, 2020								June 30, 2019
	Average Balance⁽¹⁾			Income/ Expense		Yields/ Rates			Average Balance⁽¹⁾			Income/ Expense		Yields/ Rates			Average Balance⁽¹⁾			Income/ Expense		Yields/ Rates			Average Balance⁽¹⁾			Income/ Expense		Yields/ Rates
	(dollars in thousands)																(dollars in thousands)
Assets
Investment securities	$	176,237		$	1,259		2.86	%	$	158,260		$	996		2.52	%	$	237,082		$	1,445		2.44	%	$	176,237		$	1,259		2.86	%
Loans ⁽²⁾		1,177,071			15,484		5.26	%		1,187,719			14,366		4.84	%		1,098,327			12,130		4.42	%		1,177,071			15,484		5.26	%
Interest bearing deposits due from other banks		73,769			465		2.52	%		100,646			401		1.59	%		64,142			111		0.69	%		73,769			465		2.52	%
Total interest-earning assets	$	1,427,077		$	17,208		4.82	%	$	1,446,625		$	15,763		4.36	%	$	1,399,551		$	13,686		3.91	%	$	1,427,077		$	17,208		4.82	%

Allowance for loan losses		(17,782	)							(14,918	)							(17,844	)							(17,782	)
Other assets		76,806								57,878								85,716								76,806
Total assets	$	1,486,101							$	1,489,585							$	1,467,423							$	1,486,101

Liabilities
Savings, NOW, money market, interest checking	$	315,940		$	1,316		1.67	%	$	279,958		$	789		1.13	%	$	379,991		$	525		0.55	%	$	315,940		$	1,316		1.67	%
Time deposits		770,554			4,362		2.26	%		819,037			3,811		1.86	%		553,616			3,196		2.31	%		770,554			4,362		2.26	%
Total interest-bearing deposits	$	1,086,494		$	5,678		2.09	%	$	1,098,995		$	4,600		1.67	%	$	933,607		$	3,721		1.59	%	$	1,086,494		$	5,678		2.09	%
Other borrowings		1,204			13		4.47	%		1,167			14		4.79	%		66,910			15		0.09	%		1,204			13		4.47	%
FHLB advances		78,653			402		2.04	%		117,327			473		1.61	%		103,916			328		1.26	%		78,653			402		2.04	%
Junior subordinated debentures		44,762			683		6.10	%		25,547			338		5.29	%		45,090			736		6.52	%		44,762			683		6.10	%
Total interest-bearing liabilities	$	1,211,113		$	6,776		2.24	%	$	1,243,036		$	5,425		1.75	%	$	1,149,523		$	4,800		1.67	%	$	1,211,113		$	6,776		2.24	%

Non-interest bearing deposits		102,432								93,876								134,271								102,432
Other liabilities		12,154								7,829								16,749								12,154
Total liabilities	$	1,325,699							$	1,344,741							$	1,300,543							$	1,325,699

Shareholders' equity		160,402								144,844								166,880								160,402
Total liabilities and equity	$	1,486,101							$	1,489,585							$	1,467,423							$	1,486,101

Net interest income				$	10,432							$	10,338							$	8,886							$	10,432
Interest rate spread ⁽³⁾							2.58	%							2.61	%							2.24	%							2.58	%
Net interest margin ⁽⁴⁾							2.92	%							2.87	%							2.54	%							2.92	%
Ratio of interest-earning assets to interest-bearing liabilities		1.18								1.16								1.22								1.18

	Six Months Ended																Six Months Ended
	June 30, 2019								June 30, 2018								June 30, 2020								June 30, 2019
	Average Balance⁽¹⁾			Income/ Expense		Yields/ Rates			Average Balance⁽¹⁾			Income/ Expense		Yields/ Rates			Average Balance⁽¹⁾			Income/ Expense		Yields/ Rates			Average Balance⁽¹⁾			Income/ Expense		Yields/ Rates
	(dollars in thousands)																(dollars in thousands)
Assets
Investment securities	$	186,076		$	2,620		2.82	%	$	147,553		$	1,785		2.42	%	$	216,718		$	2,733		2.52	%	$	186,076		$	2,620		2.82	%
Loans ⁽²⁾		1,192,073			30,985		5.20	%		1,180,294			28,057		4.75	%		1,063,482			24,712		4.65	%		1,192,073			30,985		5.20	%
Interest bearing deposits due from other banks		55,102			729		2.65	%		87,012			614		1.41	%		62,483			336		1.08	%		55,102			729		2.65	%
Total interest-earning assets	$	1,433,251		$	34,334		4.79	%	$	1,414,859		$	30,456		4.31	%	$	1,342,683		$	27,781		4.14	%	$	1,433,251		$	34,334		4.79	%

Allowance for loan losses		(17,396	)							(14,323	)							(16,593	)							(17,396	)
Other assets		76,613								52,395								85,092								76,613
Total assets	$	1,492,468							$	1,452,931							$	1,411,182							$	1,492,468

Liabilities
Savings, NOW, money market, interest checking	$	307,903		$	2,500		1.62	%	$	278,889		$	1,448		1.04	%	$	357,599		$	1,299		0.73	%	$	307,903		$	2,500		1.62	%
Time deposits		781,672			8,602		2.20	%		783,202			6,948		1.77	%		583,451			6,769		2.32	%		781,672			8,602		2.20	%
Total interest-bearing deposits	$	1,089,575		$	11,102		2.04	%	$	1,062,091		$	8,396		1.58	%	$	941,050		$	8,068		1.71	%	$	1,089,575		$	11,102		2.04	%
Other borrowings		1,025			25		4.80	%		1,226			30		4.94	%		34,084			25		0.15	%		1,025			25		4.80	%
FHLB advances		85,737			854		1.99	%		119,187			941		1.58	%		80,312			562		1.40	%		85,737			854		1.99	%
Junior subordinated debentures		44,742			1,361		6.09	%		20,566			481		4.68	%		44,981			1,442		6.42	%		44,742			1,361		6.09	%
Total interest-bearing liabilities	$	1,221,079		$	13,342		2.19	%	$	1,203,070		$	9,848		1.64	%	$	1,100,427		$	10,097		1.84	%	$	1,221,079		$	13,342		2.19	%

Non-interest bearing deposits		102,050								98,728								123,811								102,050
Other liabilities		11,797								7,698								16,813								11,797
Total liabilities	$	1,334,926							$	1,309,496							$	1,241,051							$	1,334,926

Shareholders' equity		157,542								143,435								170,131								157,542
Total liabilities and equity	$	1,492,468							$	1,452,931							$	1,411,182							$	1,492,468

Net interest income				$	20,992							$	20,608							$	17,684							$	20,992
Interest rate spread ⁽³⁾							2.60	%							2.67	%							2.30	%							2.60	%
Net interest margin ⁽⁴⁾							2.93	%							2.91	%							2.63	%							2.93	%
Ratio of interest-earning assets to interest -bearing liabilities		1.17								1.18								1.22								1.17

The following ~~table presents~~tables present the effects of changing rates and volumes on our net interest income between the periods indicated. The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The net column represents the sum of the volume and rate columns. For purposes of this table, changes attributable to both rate and volume which cannot be segregated have been allocated proportionately ~~based on~~between the changes due to rate and the changes due to volume.

	Three Months Ended June 30, 2019 v. 2018									Three Months Ended June 30, 2020 v. 2019
	Increase (Decrease) Due to Change in Average									Increase (Decrease) Due to Change in Average
	Rate			Volume			Net			Rate			Volume			Net
	(dollars in thousands)									(dollars in thousands)
Interest Income:
Investment securities	$	143		$	120		$	263		$	(138	)	$	323		$	185
Loans		1,246			(128	)		1,118			(2,366	)		(987	)		(3,353	)
Federal funds sold and interest-bearing deposits with banks		118			(54	)		64			(299	)		(54	)		(353	)
Total interest income		1,507			(62	)		1,445			(2,803	)		(718	)		(3,521	)
Interest Expense:
Savings, NOW, money market and interest checking		415			112			527			(1,135	)		344			(791	)
Time deposits		757			(206	)		551			88			(1,254	)		(1,166	)
Other borrowings		(1	)		—			(1	)		—			2			2
FHLB advances		292			(363	)		(71	)		(466	)		392			(74	)
Junior subordinated debentures		59			286			345			48			6			54
Total interest expense		1,522			(171	)		1,351			(1,465	)		(510	)		(1,975	)
Net interest income	$	(15	)	$	109		$	94		$	(1,338	)	$	(208	)	$	(1,546	)

	Six Months Ended June 30, 2019 v. 2018									Six Months Ended June 30, 2020 v. 2019
	Increase (Decrease) Due to Change in Average									Increase (Decrease) Due to Change in Average
	Rate			Volume			Net			Rate			Volume			Net
	(dollars in thousands)									(dollars in thousands)
Interest Income:
Investment securities	$	322		$	513		$	835		$	(196	)	$	309		$	113
Loans		2,645			283			2,928			(3,109	)		(3,164	)		(6,273	)
Federal funds sold and interest-bearing deposits with banks		198			(83	)		115			(508	)		114			(394	)
Total interest income		3,165			713			3,878			(3,813	)		(2,741	)		(6,554	)
Interest Expense:
Savings, NOW, money market and interest checking		888			164			1,052			(1,697	)		496			(1,201	)
Time deposits		1,668			(14	)		1,654			500			(2,332	)		(1,832	)
Other borrowings		(1	)		(4	)		(5	)		—			—			—
FHLB advances		1,253			(1,340	)		(87	)		(242	)		(51	)		(293	)
Junior subordinated debentures		180			700			880			74			7			81
Total interest expense		3,988			(494	)		3,494			(1,365	)		(1,880	)		(3,245	)
Net interest income	$	(823	)	$	1,207		$	384		$	(2,448	)	$	(861	)	$	(3,309	)

Based on our analysis of the components of the allowance for loan losses, management recorded a provision expense for loan losses of ~~$0.9~~$1.1 million for the three months ended June 30, ~~2019~~2020 compared to ~~a provision~~ of ~~$0.5~~$0.8 million for the three months ended June 30, ~~2018.~~2019. The ~~increased~~increase in provision ~~is directly related to~~was the ~~$2.1~~result of a $15.4 million increase in ~~net charge-offs that took place during the second quarter of 2019~~substandard impaired loans, which ~~related~~was offset by a $36.3 million improvement in substandard performing loans, primarily to a ~~commercial real estate relationship that lost its primary tenant, as well as an increase in special mention and substandard loans during the second quarter of 2019.~~watch rating.

For the six months ended June 30, ~~2019,~~2020, the provision for loan losses was ~~$1.6~~$3.4 million compared to ~~$0.6~~$1.6 million for the six months ended June 30, ~~2018, as~~2019. The $1.7 million increase in provision expense was due to the ~~result~~additional qualitative factor of ~~$1.9~~$2.0 million ~~in net charge-offs during~~related to customers that are at a higher risk of being impacted by the ~~first six months of 2019 compared to $1.3 million in net recoveries during the first six months of 2018.~~COVID-19 pandemic.

The specific reserve related to impaired loans was ~~$3.7~~$7.5 million at June 30, ~~2019,~~2020, which was an increase of ~~$0.1~~$1.9 million, or ~~1.7%~~34.6%, from ~~June 30, 2018, due to a 30.5% increase in substandard~~December 31, 2019. Substandard impaired loans increased $4.7 million, or 13.0%, from ~~$47.1~~$36.2 million at December 31, 2019 to $40.9 million at June 30, ~~2018 to $61.4 million at June 30, 2019. Non-performing assets decreased $6.1 million since June 30, 2018 to $28.8 million at June 30, 2019.~~2020. The ~~increase in substandard loans~~increased specific reserve was the result of one commercial customer that was downgraded as it is affected by the ~~prolonged strain of Wisconsin’s~~COVID-19 pandemic. Four agricultural ~~economy; however, we are actively managing~~customers were downgraded to substandard impaired, but these ~~credits, and we are optimistic about the industry’s outlook as there~~loans had sufficient collateral so that no specific reserve was ~~a 6.5% increase in the 12-month future price of class III milk on the~~required. The Chicago Mercantile Exchange Class III futures milk price began to rebound during the second quarter of ~~2019. Despite~~2020 from the ~~recent increase in class III~~$12 to $13 cwt range to $16 to $21 cwt range for June and the remainder of 2020. We are optimistic that milk prices ~~we anticipate some additional stress in~~at this level for a sustained period of time will help our agricultural ~~portfolio will continue throughout 2019 due to~~customers recover from the ~~length~~effects of the depressed prices that our agricultural borrowers endured; however, management believes this increased risk is adequately captured by the existing agriculture qualitative factors in our allowance for loan losses methodology. COVID-19 pandemic.

There have been no substantive changes to our methodology for estimating the appropriate level of allowance for loan losses from what was previously disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019 other than the qualitative factor for COVID-19 discussed above. Based upon this methodology, which includes actively monitoring the asset quality and inherent risks within the loan and lease portfolio, management concluded that an allowance for loan losses of $~~16.3~~18.6 million, or ~~1.42%~~1.71% of total loans, was appropriate as of June 30, ~~2019.~~2020. This is compared to an allowance for loan losses of ~~$15.1~~$16.3 million, or ~~1.28%~~1.42% of total loans, at June 30, ~~2018,~~2019, and ~~$16.5~~$15.3 million, or ~~1.37%~~1.47% of total loans, at December 31, ~~2018.~~2019.

Non-interest income for the three months ended June 30, ~~2019~~2020 increased by ~~24.7%~~17.1% to ~~$2.9~~$3.4 million from ~~$2.3~~$2.9 million for the three months ended June 30, ~~2018.~~2019. The ~~$0.6~~$0.5 million increase was primarily the result of ~~continued reduction in the valuation allowance on its loan servicing rights portfolio which resulted in an~~a $0.4 million increase ~~of $0.1 million of loan servicing rights, which are included~~ in loan servicing fees which resulted from the $69.4 million increase in ~~our consolidated statement of operations. The reduction of~~average loans serviced between the ~~valuation allowance is expected to continue throughout the remaining quarters of 2019.~~two periods. In addition, ~~loan servicing fees increased by $0.1~~during the three months ended June 30, 2020, the Company sold $27.8 million ~~in the second quarter of 2019 as a result of higher volumes of loans being serviced, and the sale~~ of securities ~~available-for-sale resulted~~resulting in a gain of $0.6 million compared to the gain of $0.3 million ~~gain~~on $29.4 million of securities sold during the ~~second quarter of~~three months ended June 30, 2019.

For the six months ended June 30, ~~2019,~~2020, non-interest income increased ~~$1.2~~$0.5 million, or ~~29.4%~~7.9%, to ~~$5.6~~$6.1 million from ~~$4.4~~$5.6 million for the six months ended June 30, ~~2018,~~2019, primarily ~~to the~~as a result of the reduction to valuation allowance in the loan servicing rights portfolio discussed above. Also during the first quarter of 2019, the Company eliminated the allowance for unused commitments of $0.5 million after concluding that there was no longer sufficient evidence of credit loss inherent in these commitments to substantiate the necessity of this reserve. The elimination of this reserve resulted in an increase of ~~other non-interest income. The Company will continue to evaluate credit risk on these off-balance sheet commitments going forward and make appropriate adjustments to an allowance as necessary.~~ $0.6 million in loan servicing fees from the previously discussed increase in average loans serviced.

The following table reflects the components of non-interest income for the three and six months ended June 30, ~~2019~~2020 and ~~2018:~~

	Three Months Ended				Six Months Ended				Three Months Ended				Six Months Ended
	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018		June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
	(dollars in thousands)								(dollars in thousands)
Service charges	$	407	$	445	$	760	$	810	$	368	$	407	$	710	$	760
Gain on sale of loans, net		26		45		25		77		4		26		42		25
Loan servicing fees		1,563		1,486		3,082		2,938		1,923		1,563		3,754		3,082
Loan servicing right origination		346		127		574		137
Loan servicing rights recognized from transfers of financial assets										274		346		564		574
Income on other real estate owned		40		45		66		77		3		40		3		66
Gain on sale of securities		341		—		341		—		570		341		570		341
Other		164		168		789		317		238		164		440		789
Total non-interest income	$	2,887	$	2,316	$	5,637	$	4,356	$	3,380	$	2,887	$	6,083	$	5,637

Non-interest expense increased ~~7.3%~~0.3% for the three months ended June 30, ~~2019~~2020 to ~~$7.4~~$7.5 million compared to ~~$6.9~~$7.4 million for the three months ended June 30, ~~2018.~~2019. The $0.4 million increase ~~is primarily~~in employee compensation and benefits related to a 7.1% increase in headcount and was partially offset by the ~~result of a $0.3 million writedown of~~one-time other real estate owned writedown that

~~occurred~~ took place during the second quarter of 2019. ~~In addition, 2018 benefited from sales of other real estate owned that resulted in net gains, and 2019 was negatively impacted by a net loss on the sale of other real estate owned.~~

For the six months ended June 30, ~~2019,~~2020, non-interest expense increased by ~~$1.0~~$7.7 million, or ~~7.5%~~52.4%, to ~~$14.7~~$22.5 million from ~~$13.7~~$14.8 million for the six months ended June 30, ~~2018.~~2019. In addition to the items noted above, the year-over-year increase ~~is primarily due to increased occupancy costs related to our new headquarters that was purchased in May 2018 and increased employee compensation and benefits which~~ is primarily the result of a ~~24.1% increase~~$5.0 million goodwill impairment during the first quarter of 2020 due to the anticipated reduction in future earnings and a decrease in the ~~premium cost~~trading multiples of ~~employee benefits.~~the Company’s stock in relation to COVID-19. In addition, in the first quarter of 2020 there was a $1.4 million write-down of a retail shopping center that is in other real estate owned and a $0.3 million loss recognized on the sale-leaseback of our Manitowoc branch. These increases in non-interest expense were partially offset by reduced travel and education expenses as the result of the COVID-19 pandemic.

The following table reflects the components of our non-interest expense for the three and six months ended June 30, ~~2019~~2020 and ~~2018:~~2019:

	Three Months Ended					Six Months Ended						Three Months Ended				Six Months Ended
	June 30, 2019		June 30, 2018			June 30, 2019			June 30, 2018			June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
	(dollars in thousands)											(dollars in thousands)
Employee compensation and benefits	$	4,199	$	4,114		$	8,681		$	8,332		$	4,594	$	4,199	$	9,854	$	8,681
Occupancy		283		278			672			482			305		283		659		672
Information processing		591		529			1,154			994			663		591		1,333		1,154
Professional fees		417		359			816			674			480		417		881		816
Business development		347		260			672			559			333		347		699		672
Other real estate owned expenses		121		152			172			292			44		121		160		172
Write-down of other real estate owned		250		104			250			104			—		250		1,360		250
Net loss (gain) on other real estate owned		9		(149	)		(127	)		(149	)		—		9		4		(127	)
Depreciation and amortization		328		324			665			638			303		328		603		665
Goodwill impairment													—		—		5,038		—
Other		901		966			1,796			1,796			743		901		1,891		1,796
Total non-interest expense	$	7,446	$	6,937		$	14,751		$	13,722		$	7,465	$	7,446	$	22,482	$	14,751

The Company accounts for income taxes in accordance with income tax accounting guidance, which sets out a consistent framework to determine the appropriate level of tax reserves to maintain for uncertain tax positions.

The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.

Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term “more likely than not” means a likelihood of more than 50%; the terms “examined” and “upon examination” also include resolution of the related appeals or litigation processes, if any. A tax position that meets the “more likely than not” recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the “more likely than not” recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of the deferred tax asset will not be realized.

The Company files income tax returns in the U.S. federal jurisdiction and in the state of Wisconsin. The Company is no longer subject to U.S. federal or state income tax examinations by tax authorities for years before ~~2015.~~2016.

The Company recognizes interest and penalties on income taxes, if any, as a component of other non-interest expense.

Income tax expense for the three months ended June 30, 2020 and 2019, was $0.9 million and ~~2018, was~~ $1.3 million, respectively, which represents an effective tax rate of ~~25.9%~~25.3% and ~~25.7%~~25.9%, respectively. Income tax expense for the six months ended June 30, 2020 and 2019, ~~and 2018,~~ was ~~$2.8~~$0.4 million and ~~$2.7~~$2.8 million, respectively, which represents an effective tax rate of ~~27.2%~~18.3% and ~~25.5%~~27.2%, respectively. The ~~increase~~decrease in the effective tax rate ~~year-over-year is~~for the 2020 periods compared to the 2019 periods was primarily the result of the ~~exercise~~non-deductible goodwill impairment that took place during the first quarter of ~~stock options that resulted in additional tax deductions in 2018. There were no stock option exercises resulting in additional tax deductions during 2019.~~2020.

Total assets ~~decreased $36.3~~increased $135.1 million, or ~~2.4%~~9.8%, from December 31, ~~2018~~2019 to $1.5 billion at June 30, ~~2019.~~2020. Total loans ~~decreased~~increased by ~~$59.5~~$51.8 million, or ~~4.9%~~5.0%, since December 31, ~~2018~~2019 primarily as the result of the $106.0 million of PPP loans that were funded in the

second quarter of 2020, which were partially offset by normal pay-downs, ~~and~~ an increase of ~~$34.3~~$9.7 million in ~~loan sales~~loans held for sale, and ~~participations.~~$10.3 million increase in loans sold on the secondary market.

Total liabilities ~~decreased $46.8~~increased $138.6 million, or ~~3.4%~~11.5%, from ~~$1.4 billion at~~ December 31, ~~2018~~2019 to $1.3 billion at June 30, ~~2019.~~2020. This ~~decrease is~~increase was primarily attributed to $99.7 million of advances received through the Federal Reserve Bank’s Paycheck Protection Program Liquidity Facility (“PPPLF”) to fund PPP loans. PPPLF borrowings bear an interest rate of 0.35%. In addition, during the first six months of 2020, the Company increased its FHLB borrowings by $49.0 million, or 11.5%, to take advantage of the low interest rates on FHLB borrowings as a result of the Federal Reserve’s decreases in the target federal funds interest rate. The FHLB borrowings bear an average interest rate of 0.89%. The Company’s overall focus remains on funding loan growth with client deposits; however, these borrowings help reduce interest rate risk and lower the cost of funds. The increases in PPPLF and FHLB borrowings were offset by an intentional decrease in brokered ~~deposits~~ and national ~~certificates of~~ deposits of ~~$62.9~~$86.3 million during the first two quarters of 2020.

Also during the second quarter of 2020, the Company entered into Subordinated Note Purchase Agreements and ~~a pay-down of $30.0~~sold and issued $17.4 million in ~~FHLB borrowings in~~aggregate principal amount of its 7.0% fixed-to-floating rate subordinated notes that are due June 30, 2030. Management believes this capital raise provided additional capital to allow the ~~first half~~Company to be take advantage of ~~2019. This decrease in wholesale funding was partially offset by~~future market opportunities for its customers and communities. On July 21, 2020, the Company sold an ~~increase~~additional $5.0 million of ~~$44.7 million, or 5.9%, in client deposits, defined as~~ ~~demand, NOW accounts and interest checking, savings,~~ ~~money market accounts, and certificates of deposit since December 31, 2018.~~notes with similar terms.

Shareholders’ equity ~~increased $10.4~~decreased $3.5 million, or ~~6.9%~~2.0%, to ~~$162.7~~$168.5 million at June 30, ~~2019~~2020 from ~~$152.3~~$172.0 million at December 31, ~~2018.~~2019. This ~~increase~~decrease was due primarily to the net ~~income~~loss for the six months ended June 30, ~~2019~~2020 of ~~$7.5~~$2.5 million and a ~~$4.4~~$0.9 million tax-effected decrease in the fair market value of derivatives which was partially offset by a $6.2 million tax-effected increase to the fair market value of the investment portfolio ~~which~~to increase accumulated other comprehensive income. Total shareholders’ equity was ~~partially offset~~also reduced by $8.4 million in purchases of the Company’s stock and the payment of ~~$0.9~~$1.1 million of dividends on common and preferred stock during the six months ended June 30, ~~2019.~~2020.

~~Total net~~Net loans ~~decreased~~increased by ~~$59.5~~$48.4 million, or ~~4.9%~~4.7%, to $1.1 billion at June 30, ~~2019~~2020 from December 31, ~~2018.~~2019. This ~~decrease~~increase was ~~driven~~ primarily as the result of the $106.0 million of PPP loans that were funded in the second quarter of 2020, which were partially offset by normal pay-downs and an increase of ~~$34.3~~$9.7 million ~~of loan sales~~in loans held for sale and ~~participations that took place during~~a $10.3 million increase in loans sold on the first half of 2019. The proceeds from the loan sales and participations were used to pay-off some brokered and national time deposits and reduce our reliance on wholesale funding, which is a long-term strategy of the Company.secondary market.

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

	June 30, 2019						December 31, 2018						June 30, 2020						December 31, 2019
	Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent
	(dollars in thousands)												(dollars in thousands)
Agriculture loans	$	713,602			62.2	%	$	724,508			60.0	%	$	624,339			57.4	%	$	659,725			63.7	%
Commercial real estate loans		268,544			23.4	%		299,212			24.8	%		247,149			22.7	%		235,936			22.8	%
Commercial loans		114,998			10.0	%		116,460			9.7	%		81,220			7.5	%		95,787			9.3	%
Paycheck Protection Plan loans														103,317			9.5	%		—			0.0	%
Residential real estate loans		50,436			4.4	%		66,843			5.5	%		31,414			2.9	%		43,958			4.2	%
Installment and consumer other		252			0.0	%		272			0.0	%		85			0.0	%		367			0.0	%
Total gross loans	$	1,147,832			100.0	%	$	1,207,295			100.0	%	$	1,087,524			100.0	%	$	1,035,773			100.0	%
Allowance for loan losses		(16,258	)					(16,505	)					(18,569	)					(15,267	)
Loans, net	$	1,131,574					$	1,190,790					$	1,068,955					$	1,020,506

The allowance for loan losses is established through a provision for loan losses charged to expense, which affects our earnings directly. Loans are charged against the allowance for loan losses when management believes that the collectability of all or some of the principal is unlikely. Subsequent recoveries are added to the allowance. The allowance is an amount that reflects management’s estimate of the level of probable incurred losses in the loan portfolio. Factors considered by management in determining the adequacy of the allowance include, but are not limited to, detailed reviews of individual loans, historical and current trends in loan charge-offs for the various portfolio segments evaluated, the level of the allowance in relation to total loans and to historical loss levels, levels and trends in non-performing and past due loans, volume and migratory direction of adversely graded loans, external factors including regulation, reputation, and competition, and management’s assessment of economic conditions. Our board of directors reviews the recommendations of management regarding the appropriate level for the allowance for loan losses based upon these factors.

The provision for loan losses is the charge to operating earnings necessary to maintain an adequate allowance for loan losses. We have developed policies and procedures for evaluating the overall quality of our loan portfolio and the timely identification of problem credits. Management continuously reviews these policies and procedures and makes further improvements as needed. The adequacy of our allowance for loan losses and the effectiveness of our internal policies and procedures are also reviewed periodically by our regulators, our auditors, and external loan review personnel. Our regulators may advise us to recognize additions to the allowance based upon their judgments about information available to them at the time of their examination. Such regulatory guidance is taken under consideration by management, and we may recognize additions to the allowance as a result.

We continually refine our methodology for determining the allowance for loan losses by comparing historical loss ratios utilized to actual experience and by classifying loans for analysis based on similar risk characteristics. Cash receipts for accruing loans are applied to principal and interest under the contractual terms of the loan agreements; however, cash receipts on impaired and nonaccrual loans for which the accrual of interest has been discontinued are applied to principal and interest income depending upon the overall risk of principal loss to us. We mitigate this risk by actively using government guarantee programs. ~~15.1%~~14.2% of our substandard loans are partially guaranteed by the U.S. Farm Services Agency (“FSA”) or the ~~U.S. Small Business Administration (“SBA”).~~SBA. The amount of the guarantee can range from 80% to 95% of unpaid principal for FSA guaranteed loans, ~~and~~ 50% ~~- 85%~~to 100% for SBA guaranteed loans.

At June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the allowance for loan losses was ~~$16.3~~$18.6 million and ~~$16.5~~$15.3 million, respectively, which resulted in a ratio of the allowance to total loans of ~~1.42%~~1.71% and ~~1.37%~~1.47%, respectively. The overall increase in the allowance for loan losses as a percentage of total loans was primarily athe result of ~~an $11.7~~the provision expense related to the additional qualitative factor of $2.0 million ~~increase in watch or lower rated loans since December 31, 2018. During~~related to customers that are at a higher risk of being impacted by the first six months of 2019, the Company charged off $3.6 million in loans which was offset in part by $1.7 million in recoveries of previously charged off loans. Of the $3.6 million in charge-offs during the first half of 2019, $2.2 million was a charge-off to a single commercial real estate customer in rural Wisconsin that its anchor tenant when a regional department store filed bankruptcy discontinued operations. COVID-19 pandemic.

Charge-offs and recoveries by loan category for the three and six months ended June 30, ~~2019~~2020 and ~~2018~~2019 were as follows:

	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018			June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019
	(dollars in thousands)												(dollars in thousands)
Balance, beginning of period	$	17,493		$	14,612		$	16,505		$	13,247		$	17,547		$	17,493		$	15,267		$	16,505
Loans charged off:
Agriculture loans		—			—			—			—			—			—			—			—
Commercial real estate loans		2,234			—			2,624			42			—			2,234			—			2,624
Commercial loans		960			—			960			—			144			960			144			960
Residential real estate loans		—			—			—			—			—			—			—			—
Installment and consumer other		—			—			—			—			—			—			—			—
Total loans charged off	$	3,194		$	—		$	3,584		$	42		$	144		$	3,194		$	144		$	3,584
Recoveries:
Agriculture loans		15			—			15			1			23			15			23			15
Commercial real estate loans		967			11			1,592			1,251			1			967			62			1,592
Commercial loans		101			(27	)		102			41			—			101			1			102
Residential real estate loans		—			—			—			—			—			—			—			—
Installment and consumer other		—			—			—			1			—			—			—			—
Total recoveries		1,083			(16	)		1,709			1,294			24			1,083			86			1,709
Net loans charged off (recovered)	$	2,111		$	16		$	1,875		$	(1,252	)
Net loans charged off													$	120		$	2,111		$	58		$	1,875
Provision for loan losses		876			533			1,628			630			1,142			876			3,360			1,628
Allowance for loan losses, end of period	$	16,258		$	15,129		$	16,258		$	15,129		$	18,569		$	16,258		$	18,569		$	16,258

Selected loan quality ratios:
Net charge offs (net recoveries) to average loans		0.18	%		(0.00	)%		0.16	%		(0.11	)%
Net charge offs to average loans														0.01	%		0.18	%		0.01	%		0.16	%
Allowance for loan losses to total loans (end of period)		1.42	%		1.28	%		1.42	%		1.28	%		1.71	%		1.42	%		1.71	%		1.42	%
Allowance for loan losses to non-performing loans and performing troubled debt restructurings (end of period)		28.19	%		32.83	%		28.19	%		32.83	%		32.32	%		28.19	%		32.32	%		28.19	%

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

As part of our growth and risk management strategy, we have actively developed a loan participation and loan sales network. Our ability to sell loan participations and whole loans benefits us by freeing up capital and funding to lend to new customers as well as to increase non-interest income through the recognition of loan sale and servicing revenue. Because we continue to service these loans, we are able to maintain a relationship with the customer. Additionally, we receive a servicing fee that offsets some of the cost of administering the loan, while maintaining the customer relationship.

Servicing assets are recognized as separate assets when rights are acquired through the sale of financial assets. Servicing rights resulting from the sale or securitization of loans originated by the Company are initially measured at fair value at the date of transfer. The Company subsequently measures each class of servicing asset using the amortization method. Under the amortization method,

servicing rights are amortized in proportion to and over the period of estimated net servicing income. The amortized assets are assessed for impairment or increased obligation based on fair value at each reporting date.

~~Fair~~As of January 1, 2020, the Company elected to make an accounting principle change for the valuation of the loan servicing assets from amortized cost to fair market value. Under the amortized cost method, servicing rights were amortized in proportion to and over the period of estimated net servicing income. The amortized cost of these assets was assessed for impairment at each reporting date. Under the fair market value method, the value of the asset is based on market prices for comparable servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the ~~cost to service, the~~ discount rate, the custodial earnings rate, ~~an inflation rate, ancillary income,~~ prepayment speeds and default rates and losses. ~~These variables may have an adverse impact on the value~~ See Note 1–Basis of Presentation of the ~~servicing right and may result~~consolidated financial statements for additional information regarding the change in ~~a reduction to non-interest income.~~

Servicing assets measured using the amortization method are evaluated and measured for impairment. Impairment is determined by stratifying rights into tranches based on predominant characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance for an individual tranche, to the extent that fair value is less than the carrying amount of the servicing assets for that tranche. The valuation allowance is adjusted to reflect changes in the measurement of impairment after the initial measure of the impairment.

Changes in the valuation allowances are reported with loan servicing fees on the Company’s consolidated statements of operations. Fair value in excess of the carrying amount of servicing assets for that stratum is not recognized.accounting principle.

Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned. The amortization of loan servicing rights is netted against loan servicing fee income.

	June 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
	(dollars in thousands)						(dollars in thousands)
Total loans	$	1,147,832		$	1,207,295		$	1,087,524		$	1,035,773
Less: Nonqualified loan sales included below		(809	)		(827	)		(785	)		(794	)
Loans serviced:
Agricultural		639,378			623,725			706,527			692,071
Commercial		48,350			35,832			53,360			52,994
Commercial real estate		7,901			1,700			2,170			6,673
Total loans serviced		695,629			661,257			762,057			751,738
Total loans and loans serviced	$	1,842,652		$	1,867,725		$	1,848,796		$	1,786,717

Our securities portfolio is predominately composed of municipal securities, investment grade mortgage-backed securities, U.S. government and agency securities, ~~and~~ U.S. treasury securities, and asset-backed securities. We classify substantially all of our securities as available for sale. We do not engage in active securities trading in carrying out our investment strategies.

Securities ~~decreased~~increased to ~~$158.6~~$227.0 million at June 30, ~~2019~~2020 from ~~$195.9~~$158.7 million at December 31, ~~2018.~~2019, in an effort to deploy excess cash and mitigate interest rate risk. During the six months ended June 30, ~~2019,~~2020, we recognized unrealized holding gains of ~~$4.4~~$9.1 million before income taxes through other comprehensive income.

During the six months ended June 30, 2020, $27.8 million of municipal securities were sold resulting in a pre-tax gain of $0.6 million. For the six months ended June 30, 2019, $29.4 million of municipal securities were sold resulting in a pre-tax gain of $0.3 million. ~~There were no security sales during the six months ended June 30, 2018.~~

The following table sets forth the amortized cost and fair values of our securities portfolio at June 30, ~~2019~~2020 and December 31, ~~2018:~~2019:

	June 30, 2019				December 31, 2018				June 30, 2020				December 31, 2019
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(dollars in thousands)								(dollars in thousands)
Available for sale:
Securities available-for-sale:
U.S. government and agency securities	$	3,731	$	3,699	$	4,368	$	4,331	$	15,817	$	15,603	$	3,490	$	3,458
U.S. treasury securities		2,498		2,507		2,497		2,491		—		—		2,499		2,506
Asset-backed securities										17,082		16,566		—		—
Municipal securities		—		—		34,985		34,520		48,460		51,640		—		—
Mortgage-backed securities		149,356		152,355		157,147		154,603		133,608		143,162		149,302		152,769
Total available for sale	$	155,585	$	158,561	$	198,997	$	195,945
Total securities available-for-sale									$	214,967	$	226,971	$	155,291	$	158,733

Deposits are the major source of our funds for lending and other investment purposes. Deposits are attracted principally from within our primary market area through the offering of a broad variety of deposit instruments including checking accounts, noninterest-bearing demand accounts, money market accounts, savings accounts, time deposit accounts (including “jumbo” certificates in denominations of $100,000 or more), and retirement savings plans.

Deposits decreased ~~$18.2~~$28.4 million, or ~~1.5%~~2.6%, from December 31, ~~2018~~2019 to ~~$1.2~~$1.1 billion at June 30, ~~2019,~~2020, due primarily asto a ~~result of a $62.9~~$86.3 million decrease in brokered deposits and national time deposits, ~~since December 31, 2018,~~which was partially offset by a ~~$44.7~~$57.9 million increase in client ~~deposit~~deposits (demand, NOW accounts and interest checking, savings, money market accounts, and certificates of ~~deposit) generation.~~deposit which was primarily driven by customers who participated in the SBA PPP program but had not deployed their funds at June 30, 2020.

~~Reducing our reliance on wholesale funding is a key~~The Company’s overall strategic focus ~~for 2019.~~remains on funding loan growth with client deposits and reducing wholesale funding; however, the Company took advantage of the Federal Reserve’s interest rate decreases in the target federal funds during the first half of 2020 and borrowed an additional $49.0 million from the FHLB at an average rate of 0.89%. In addition, the Company funded $99.7 million of PPP loans with funds from the PPPLF at a rate of 0.35%. These borrowings help reduce interest rate risk and lower the cost of funds. Brokered deposits and national certificates of deposit at June 30, ~~2019~~2020 were ~~$406.0~~$179.5 million, which was a decrease of ~~$62.9~~$86.3 million, or ~~13.4%~~32.5%, from December 31, ~~2018,~~2019, and a decrease of ~~$101.5~~$226.5 million, or ~~20.0%~~55.8%, from June 30, ~~2018. In addition to the reduction in brokered deposits and national certificates of deposit in the first half of 2019, we also decreased FHLB borrowings by $30.0 million since December 31, 2018.~~2019.

As of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the distribution by type of deposit account was as follows:

	June 30, 2019					December 31, 2018					June 30, 2020					December 31, 2019
	Amount		% of Deposits			Amount		% of Deposits			Amount		% of Deposits			Amount		% of Deposits
	(dollars in thousands)										(dollars in thousands)
Demand, noninterest-bearing	$	111,022		9.2	%	$	121,436		9.9	%	$	149,963		14.0	%	$	138,489		12.5	%
NOW accounts and interest checking		54,253		4.5	%		51,779		4.2	%		81,656		7.6	%		67,805		6.2	%
Savings		6,621		0.5	%		5,770		0.5	%		8,369		0.8	%		6,395		0.6	%
Money market accounts		239,337		19.9	%		218,929		18.0	%		307,083		28.6	%		247,828		22.5	%
Certificates of deposit		387,899		32.2	%		356,484		29.1	%		346,482		32.3	%		375,100		34.1	%
Brokered deposits		256,475		21.3	%		308,504		25.2	%		57,997		5.4	%		166,340		15.1	%
National time deposits		149,570		12.4	%		160,445		13.1	%		121,503		11.3	%		99,485		9.0	%
Total deposits	$	1,205,177		100.0	%	$	1,223,347		100.0	%	$	1,073,053		100.0	%	$	1,101,442		100.0	%

~~On June 15, 2018, the Company executed an interest rate swap to manage interest rate risk on two sets of its trust preferred securities.~~ This derivative contract involves the receipt of floating rate interest from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreement, without the exchange of the underlying notional value. This instrument is designated as a cash flow hedge as the receipt of floating rate interest from the counterparty is used to manage interest rate risk associated with three month LIBOR advances. The change in the fair value of this hedging instrument is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged transaction affects earnings.

As of June 30, ~~2019,~~2020, the Company had two outstanding interest rate swaps designated as a cash flow hedge, each with an aggregate notional value of $6.0 million. Both interest rate swaps mature on June 15, 2028. A pre-tax unrealized loss ~~(gain)~~ of ~~$1.1~~$1.3 million and ~~($0.1)~~$1.1 million was recognized in accumulated other comprehensive income during the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, with a corresponding increase reported in accrued interest payable and other liabilities on the consolidated balance sheets. There was no ineffective portion of this hedge.

Liquidity is the ability to meet current and future financial obligations of a short-term and long-term nature including, but not limited to, funding loans and depositor withdrawals. Our primary sources of funds consist of deposit inflows, loan repayments,

maturities and sales of securities and borrowings from the FHLB. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows, calls of investment securities and borrowed funds and prepayments on loans are greatly influenced by general interest rates, economic conditions and competition.

At June 30, ~~2019,~~2020, advances from the FHLB were ~~$59.4~~$93.4 million compared to ~~$89.4~~$44.4 million at December 31, ~~2018.~~2019. At June 30, 2020, there were advances from the Federal Reserve Bank’s PPPLF program totaling $99.7 million. There were no borrowings outstanding at the Federal Reserve Bank of ~~Chicago.~~Chicago on December 31, 2019. The Company also has a credit agreement with U.S. Bank National Association for a ~~$15.0~~$10.0 million revolving line of credit with an interest rate equal to the one-month LIBOR rate plus 2.25%. The line of credit also bears a non-usage fee of 0.275% per annum. The line of credit did not have an outstanding balance as of June 30, ~~2019.~~2020.

On May 30, 2018, the Company entered into a subordinated note purchase agreement to sell and issue $30.0 million of notes to certain institutional investors. The notes carry a fixed interest rate of 5.875% until May 31, 2023, and have a stated maturity of June 1, 2028. As of June 1, 2023, the notes are redeemable in whole or in part, and bear an interest rate of 3-month LIBOR plus 288.4 basis points. The notes are unsecured, subordinated obligations of the Company and rate junior in right of payment to the Company’s current and future senior indebtedness.

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

Management adjusts our investments in liquid assets based upon an assessment of (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities, (4) the objectives of our interest-rate risk and investment policies and (5) the risk tolerance of management and our board of directors.

Our cash flows are composed of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by (used in) operating activities was ~~$4.9~~($5.3) million and ~~$4.2~~$4.9 million for the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Net cash provided by (used in) investing activities, which consists primarily of purchases of and proceeds from the sale, maturities, calls, and principal repayments of securities available for sale, as well as loan originations, net of repayments, was ~~$99.3~~($125.6) million and ~~($104.7)~~$99.3 million for the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Net cash provided by (used in) financing activities, consisting primarily of the activity in deposit accounts and FHLB advances, was ~~($49.0)~~$129.3 million and ~~$114.8~~($49.0) million for the six months ended June 30, 2020 and 2019, respectively.

During the first half of 2020, management began to focus on lengthening a portion of the Bank’s maturing wholesale funding into longer maturities to mitigate liquidity risk. We placed advances with the FHLB totaling $49.0 million with maturities ranging from two to three years. As of June 30, 2020, the Bank had $33.8 million and ~~2018, respectively.~~$83.3 million in borrowing capacity with the FHLB and the Federal Reserve Bank of Chicago, respectively, to mitigate any liquidity needs. The Bank also had $182.2 million in unpledged securities available for sale available for liquidity needs.

At June 30, ~~2019,~~2020, the Bank exceeded all of its regulatory capital requirements, with Tier 1 leverage capital of ~~$193.9~~$192.8 million, or ~~13.12%~~13.88% of adjusted average total assets, which is above the minimum level to be well-capitalized of ~~$73.9~~$69.4 million, or 5.0% of adjusted average total assets, and total risk-based capital of ~~$209.6~~$207.3 million, or ~~16.62%~~17.88% of risk-weighted assets, which is above the minimum level to be well-capitalized of ~~$126.2~~$116.0 million, or 10.0% of risk-weighted assets. In addition, the Company issued $17.4 million of subordinated debt during the second quarter of 2020 that qualifies as Tier II that is available to support the Bank.

At the holding company level, our primary sources of liquidity are dividends from the Bank, investment income and net proceeds from investment sales, borrowings and capital offerings. The main uses of liquidity are the payment of interest to holders of our junior subordinated debentures and subordinated notes and the payment of interest or dividends to common and preferred shareholders. The Bank is subject to certain regulatory limitations regarding its ability to pay dividends to the Company; however, we do not believe that the Company will be adversely affected by these dividend limitations. At June 30, ~~2019,~~2020, there were ~~$106.4~~$104.4 million of retained earnings available for the payment of dividends by the Bank to the Company, but would be limited to the Bank maintaining minimum regulatory capital ratios. Management believed liquidity to be sufficient as of June 30, ~~2019.~~2020.

As of June 30, ~~2019,~~2020, there were no ~~other~~ significant changes to our contractual obligations and off-balance sheet arrangements disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019, filed with the SEC on March 13, 2020. We continue to believe that we have adequate capital and liquidity available from various sources to fund projected obligations and commitments.

General. Market risk refers to potential losses arising from changes in interest rates, commodity prices, such as milk prices, and/or other relevant market rates or prices. We are exposed to market risk as a result of our banking activities. Our market risk is comprised primarily of interest rate risk. As a financial institution, the majority of our assets and liabilities are sensitive to changes in interest rates. Therefore, a principal part of our operations is to manage interest rate risk and limit our exposure to changes in market

interest rates. We manage the interest rate sensitivity of our interest-bearing liabilities and interest-earning assets in an effort to minimize the adverse effects of changes in the interest rate environment.

A major source of interest rate risk is a difference in the repricing of assets and liabilities. First, there are differences in the timing of rate changes reflecting the maturity and/or repricing of assets and liabilities. For example, the rate earned on a commercial real estate loan may be fixed for 10 years, while the rate paid on a certificate of deposit may be fixed only for a few months. Due to these timing differences, net interest income is sensitive to changes in the level and shape of the yield curve. Second, there are differences in the drivers of rate changes of various assets and liabilities known as basis risk. For example, commercial loans may reprice based on one-month LIBOR or prime, while the rate paid on retail money market demand accounts may be only loosely correlated with LIBOR and depend on competitive demand for funds. Due to these basis differences, net interest income is sensitive to changes in spreads between certain indices or repricing rates.

Another important source of interest rate risk relates to the potential exercise of explicit or embedded options for prepayment or withdrawal. For example, most residential real estate loans can be prepaid without penalty, and most consumer deposits can be withdrawn without penalty. The exercise of such options by customers can exacerbate the timing differences discussed above.

Deposit accounts typically react more quickly to changes in market interest rates than loans because of the shorter maturities of deposits. However, given the asset sensitive nature of our balance sheet, a decrease in interest rates may adversely affect our earnings while increases in interest rates may beneficially affect our earnings. To reduce the potential volatility of our earnings, we have sought to improve the match between asset and liability maturities and rates, while maintaining an acceptable interest rate spread. Our strategy for managing interest rate risk emphasizes adjustable-rate loans for retention in our loan portfolio, promoting core deposit products and time deposits, adjusting the maturities of borrowings and adjusting the investment portfolio mix and duration.

We have an asset/liability committee, which includes members of management, to communicate, coordinate and control all aspects involving asset-liability management. The committee establishes and monitors the volume, maturities, pricing and mix of assets and funding sources with the objective of managing assets and funding sources to provide results that are consistent with liquidity, growth, risk limits and profitability goals.

Our goal is to manage asset and liability positions to moderate the effects of interest rate fluctuations on net interest income and net income and control exposure to interest rate risk within policy limits approved by our board of directors. These limits and guidelines reflect our tolerance for interest rate risk over both short-term and long-term horizons. We analyze our sensitivity to changes in interest rates through our net interest income simulation model. Exposures are reported on a monthly basis to the asset and liability committee and at meetings of our board of directors.

Net Interest Income Simulation Analysis. Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest we pay on our interest-bearing liabilities, such as deposits and borrowings.

Income simulation is the primary tool for measuring the interest rate risk inherent in our balance sheet at a given point in time by showing the effect on net interest income, over specified time horizons, under a range of interest rate shock scenarios. These simulations take into account repricing, maturity and prepayment characteristics of individual products. We estimate what our net interest income would be for a one- and two-year horizon based on current interest rates. We then calculate what the net interest income would be for the same period under different interest rate assumptions.

These estimates require us to make certain assumptions, including loan and mortgage-related investment prepayment speeds, reinvestment rates, and deposit maturities and decay rates. These assumptions are inherently uncertain, and, as a result, we cannot

precisely predict the impact of changes in interest rates on our net interest income. Although the net interest income table below provides an indication of our interest rate risk exposure at a particular point in time, such estimates are not intended to, and do not, provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual results.

The following table shows the estimated impact on net interest income for the one- and two-year periods beginning June 30, ~~2019~~2020 resulting from potential changes in interest rates. The net interest income simulation analyses assume a static balance sheet and do not include possible future actions that management might undertake to mitigate this risk.

Rate Shift	Net Interest Income Year 1 Forecast		Year 1 Change from Base			Net Interest Income Year 2 Forecast		Year 2 Change from Base			Net Interest Income Year 1 Forecast		Year 1 Change from Base			Net Interest Income Year 2 Forecast		Year 2 Change from Base
	(dollars in thousands)					(dollars in thousands)					(dollars in thousands)					(dollars in thousands)
+400 bps	$	59,400		30.00	%	$	57,300		24.10	%	$	48,300		34.92	%	$	47,100		33.05	%
+200 bps		52,500		14.90	%		51,700		11.80	%		42,100		17.60	%		41,700		17.80	%
+100 bps		49,000		7.20	%		48,900		5.70	%		38,800		8.38	%		38,700		9.32	%
Base		45,700		0.00	%		46,300		0.00	%		35,800		0.00	%		35,400		0.00	%
-100 bps		42,000		(8.10	)%		42,900		(7.40	)%		35,500		-0.84	%		34,500		-2.54	%
-200 bps		37,600		(17.70	)%		37,300		(19.70	)%		34,500		-3.63	%		33,700		-4.80	%

As of June 30, ~~2019,~~2020, net interest income simulation indicated that our exposure to changing interest rates was within our internal policy guidelines. As the table illustrates, our balance sheet is asset-sensitive over a one and two year time horizon and net interest income would increase as interest rates increase. It should be noted that the magnitude of any possible increase in interest rates is constrained by the low absolute starting levels of rates. While immediate, proportional and severe shifts in interest rates upward were used as part of this analysis, we believe that any actual shift in interest rates would likely be more gradual and would therefore have a more modest impact.

Depending on the relationship between long-term and short-term interest rates, market conditions and consumer preference, we may place greater emphasis on maximizing our net interest margin than on strictly matching the interest rate sensitivity of our assets and liabilities. We believe that our level of interest rate risk is acceptable using this approach.

Economic Value of Equity Analysis. We also analyze the sensitivity of our financial condition to changes in interest rates through our economic value of equity model. This analysis measures the difference between predicted changes in the present value of our assets and predicted changes in the present value of our liabilities assuming various changes in current interest rates. As with the net interest income simulation model, the estimates of changes in the economic value of our equity require certain assumptions to be made. These assumptions include loan and mortgage-related investment prepayment speeds, reinvestment rates, and deposit maturities and decay rates. These assumptions are inherently uncertain, and, as a result, we cannot precisely predict the impact of changes in interest rates on the economic value of our equity. Although our economic value of equity analysis provides an indication of our interest rate risk exposure at a particular point in time, such estimates are not intended to, and do not, provide a precise forecast of the effect of changes in market interest rates on the economic value of our equity and will differ from actual results.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of June 30, ~~2019.~~2020. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, ~~2019,~~2020, our disclosure controls and procedures ~~are~~were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act.

There are inherent limitations in the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and circumvention or overriding of controls. Accordingly, even an effective system of disclosure controls and procedures can provide only reasonable assurance with respect to financial statement preparation. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

There was no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended June 30, ~~2019~~2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

We and our subsidiaries may be involved from time to time in ordinary routine litigation incidental to our respective businesses. Neither we nor any of our subsidiaries are currently engaged in, nor is any of our property the subject of, any legal proceedings, other than ordinary routine litigation incidental to the business, that are expected to have a material adverse effect on our results of operations or financial position.

~~There are no material changes~~In addition to the risk factors set forth inunder Part I, Item 1A “Risk Factors” in ~~Item 1A to Part I of our Annual Report on~~the Company’s Form 10-K for the fiscal year ended December 31, ~~2018.~~ 2019, the following risk factor applies to the Company:

The outbreak of Coronavirus Disease 2019 (“COVID-19”) has adversely impacted, and an outbreak of other highly infectious or contagious diseases could adversely impact, certain industries in which the Company’s customers operate and impaired their ability to fulfill their obligations to the Company. Further, the spread of the outbreak is expected to lead to an economic recession and other severe disruptions in the U.S. economy and may disrupt banking and other financial activity in the areas in which the Company operates and could potentially create widespread business continuity issues for the Company.

The spread of highly infectious or contagious diseases could cause, and the spread of COVID-19 has caused, severe disruptions in the U.S. economy at large, and for small businesses in particular, which could disrupt the Company’s operations. We have seen see the impact from COVID-19 on our business, and we believe that it could be significant, adverse and potentially material. Currently, COVID-19 is spreading through the United States and the world. The resulting concerns on the part of the U.S. and global populations have created the threat of a recession, reduced economic activity and caused a significant correction in the global stock markets. We have experienced disruptions across our business due to these effects, leading to decreased earnings and significant slowdowns in our loan collections or loan defaults.

COVID-19 may impact businesses’ and consumers’ financial ability to borrow money, which would negatively impact loan volumes. In addition, certain of our borrowers are in or have exposure to the restaurant, hospitality, retail, and industrial service industries and/or are located in areas that were quarantined or under stay-at-home orders, and COVID-19 may also have an adverse effect on our commercial real estate loan portfolio. The imposition of additional quarantine or stay-at-home orders or a slowdown in the recovery of the economy could have a negative adverse impact on these borrowers and their revenue streams, which consequently impacts their ability to meet their financial obligations and could result in loan defaults.

The outbreak of COVID-19 or an outbreak of other highly infectious or contagious diseases may result in a decrease in our customers’ businesses, a decrease in consumer confidence and business generally, an increase in unemployment or a disruption in the services provided by the Company’s vendors. Disruptions to our customers could result in increased risk of delinquencies, defaults, foreclosures and losses on our loans, negatively impact regional economic conditions, result in declines in local loan demand, liquidity of loan guarantors, loan collateral (particularly in real estate), loan originations and deposit availability and negatively impact the implementation of our growth strategy.

The Company relies upon its third-party vendors to conduct business and to process, record, and monitor transactions. If any of these vendors are unable to continue to provide the Company with these services, it could negatively impact the Company’s ability to serve its customers. Furthermore, the outbreak could negatively impact the ability of the Company’s employees and customers to engage in banking and other financial transactions in the geographic areas in which the Company operates and could create widespread business continuity issues for the Company. The Company also could be adversely affected if key personnel or a significant number of employees were to become unavailable due to the effects and restrictions of a COVID-19 outbreak in our market areas. Although the Company has business continuity plans and other safeguards in place, there is no assurance that such plans and safeguards will be effective.

We believe that the economic impact from COVID-19 could be severe and could have a material and adverse impact on our business and that it could result in significant losses in our loan portfolio, all of which would adversely and materially impact our earnings and capital.

The Company did not issue any unregistered equity securities ~~or repurchase any shares of its common stock~~ during the quarter ended June 30, ~~2019.~~2020.

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

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

Wisconsin	39-1850431
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2400 South 44^th Street Manitowoc, WI	54221
(Address of principal executive offices)	(Zip Code)

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Consolidated Balance Sheets	1
	Consolidated Statements of Operations	2
	Consolidated Statements of Comprehensive Income	3
	Consolidated Statements of Shareholders’ Equity	4
	Consolidated Statements of Cash Flows	5
	Notes to Unaudited Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2730
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4248
Item 4.	Controls and Procedures	4449
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	4551
Item 1A.	Risk Factors	4551
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4552
Item 3.	Defaults Upon Senior Securities	4552
Item 4.	Mine Safety Disclosures	4552
Item 5.	Other Information	4552
Item 6.	Exhibits	4653
Signatures		4754

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

June 30, 2020
	Valuation Techniques	Unobservable Inputs	Range (Average)
Impaired loans	Evaluation of collateral	Estimation of value	NM*
Other real estate owned	Appraisal	Appraisal adjustment	5%-64% (24%)

December 31, 2019
	Valuation Techniques	Unobservable Inputs	Range (Average)
Impaired loans	Evaluation of collateral	Estimation of value	NM*
Other real estate owned	Appraisal	Appraisal adjustment	~~8%-61% (25%~~5%-64% (29%)

~~December 31, 2018~~
	~~Valuation~~ ~~Techniques~~	~~Unobservable~~ ~~Inputs~~	~~Range~~ ~~(Average)~~
~~Impaired loans~~	~~Evaluation of collateral~~	~~Estimation of value~~	NM*
~~Other real estate owned~~	~~Appraisal~~	~~Appraisal adjustment~~	~~16%-54% (32%)~~

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

	As of and for						As of and for						As of and for
	Three Months Ended						Six Months Ended						Year Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018			December 31, 2018
	(unaudited)						(unaudited)
	(Dollars in thousands, except per share data)
Selected Income Statement Data:
Interest income	$	17,208		$	15,763		$	34,334		$	30,456		$	64,217
Interest expense		6,776			5,425			13,342			9,848			22,262
Net interest income		10,432			10,338			20,992			20,608			41,955
Provision for loan losses		876			533			1,628			630			3,195
Net interest income after provision for loan losses		9,556			9,805			19,364			19,978			38,760
Non-interest income		2,887			2,316			5,637			4,356			8,833
Non-interest expense		7,446			6,937			14,751			13,722			28,283
Income tax expense		1,293			1,334			2,784			2,708			5,059
Net income	$	3,704		$	3,850		$	7,466		$	7,904		$	14,251

Per Common Share Data:
Basic earnings per common share	$	0.53		$	0.56		$	1.07		$	1.15		$	2.06
Diluted earnings per common share	$	0.53		$	0.55		$	1.07		$	1.14		$	2.04
Cash dividends per common share	$	0.05		$	0.07		$	0.10		$	0.14		$	0.28
Book value per share, end of period	$	23.03		$	20.63		$	23.03		$	20.63		$	21.50
Tangible book value per share, end of period ⁽¹⁾	$	22.23		$	19.77		$	22.23		$	19.77		$	20.65
Weighted average common shares - basic		6,745,635			6,690,568			6,735,725			6,684,399			6,712,551
Weighted average common shares - diluted		6,766,366			6,769,936			6,756,895			6,961,917			6,757,667
Common shares outstanding, end of period		6,717,908			6,693,447			6,717,908			6,693,447			6,709,480

Selected Balance Sheet Data:
Total assets	$	1,484,646		$	1,518,877		$	1,484,646		$	1,518,877		$	1,521,027
Securities available-for-sale		158,561			187,505			158,561			187,505			195,945
Total loans		1,147,832			1,181,524			1,147,832			1,181,524			1,207,295
Allowance for loan losses		(16,258	)		(15,129	)		(16,258	)		(15,129	)		(16,505	)
Total deposits		1,205,177			1,210,431			1,205,177			1,210,431			1,223,347
Other borrowings and FHLB advances		60,209			109,041			60,209			109,041			90,227
Subordinated debentures		44,781			44,725			44,781			44,725			44,703
Total shareholders' equity		162,724			146,082			162,724			146,082			152,284

Performance Ratios:
Return on average assets (annualized)		1.00	%		1.04	%		1.00	%		1.09	%		0.96	%
Return on average shareholders' equity (annualized)		9.24	%		10.96	%		9.48	%		11.39	%		7.58	%
Return on average common shareholders' equity ⁽¹⁾		9.41	%		10.96	%		9.68	%		11.39	%		9.74	%
Equity to assets ratio		10.96	%		9.62	%		10.96	%		9.62	%		10.00	%
Net interest margin		2.92	%		2.87	%		2.93	%		2.91	%		2.91	%
Interest rate spread		2.59	%		2.61	%		2.61	%		2.67	%		2.62	%
Non-interest income to average assets (annualized)		0.78	%		0.62	%		0.76	%		0.60	%		0.58	%
Non-interest expense to average assets (annualized)		2.01	%		1.86	%		1.99	%		1.89	%		1.87	%
Net overhead ratio (annualized) ⁽²⁾		1.23	%		1.24	%		1.22	%		1.29	%		1.29	%
Efficiency ratio ⁽¹⁾		55.38	%		55.18	%		55.65	%		55.15	%		54.42	%
Dividend payout ratio		9.43	%		12.73	%		9.35	%		12.28	%		13.73	%

Asset Quality Ratios:
Adverse classified asset ratio ⁽¹⁾		53.21	%		47.34	%		53.21	%		47.34	%		57.12	%
Non-performing loans to total loans ⁽³⁾		1.75	%		2.23	%		1.75	%		2.23	%		1.90	%
Allowance for loan losses to:
Total loans		1.42	%		1.28	%		1.42	%		1.28	%		1.37	%
Non-performing loans		80.90	%		57.51	%		80.90	%		57.51	%		71.81	%
Net charge-offs (recoveries) to average loans		0.18	%		0.00	%		0.16	%		(0.11	)%		(0.01	)%
Non-performing assets to total assets ⁽³⁾		1.94	%		2.30	%		1.94	%		2.30	%		1.94	%

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

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


Exhibit Number		Description

~~31.1~~ 4.1		Indenture, dated June 30, 2020, by and between County Bancorp, Inc. and U.S. Bank National Association, as trustee (Incorporated by reference to Exhibit 4.1 of County Bancorp, Inc.’s current report on Form 8-K filed on June 30, 2020)

4.2		Forms of 7.00% Fixed-to-Floating Rate Subordinated Note due 2030 (Incorporated by reference to Exhibit 4.2 of County Bancorp, Inc.’s current report on Form 8-K filed on June 30, 2020)

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

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

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

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

31.1		Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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

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

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

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

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

	County Bancorp, Inc.

Date: August ~~8, 2019~~7, 2020	By:	/s/ Timothy J. Schneider
		Timothy J. Schneider
		President (principal executive officer)

Date: August ~~8, 2019~~7, 2020	By:	/s/ Glen L. Stiteley
		Glen L. Stiteley
		Chief Financial Officer (principal financial and accounting officer)