Citizens Community Bancorp Inc. - Quarter Report: 2021 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended September 30, 2021


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

For the transition period from to

Commission file number 001-33003

CITIZENS COMMUNITY BANCORP, INC.

(Exact name of registrant as specified in its charter)


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

2174 EastRidge Center

Eau Claire, WI 54701

(Address and Zip Code of principal executive offices)

715-836-9994

(Registrant’s telephone number, including area code)

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


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

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

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

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

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☐

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS

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

At November 8, 2021 there were 10,502,442 shares of the registrant’s common stock, par value $0.01 per share, outstanding.

CITIZENS COMMUNITY BANCORP, INC.

FORM 10-Q

September 30, 2021

INDEX


			Page Number
Part I – FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Consolidated Balance Sheets as of September 30, 2021 (Unaudited) and December 31, 2020	5
		Consolidated Statements of Operations (Unaudited) for the three and nine months ended September 30, 2021 and 2020	6
		Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended September 30, 2021 and 2020	7
		Consolidated Statement of Changes in Stockholders’ Equity (Unaudited) for the nine months ended September 30, 2021 and the year ended December 31, 2020	8
		Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2021 and 2020	10
		Condensed Notes to Consolidated Financial Statements (Unaudited)	12
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	53
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	76
	Item 4.	Controls and Procedures	78
Part II – OTHER INFORMATION			78
	Item 1.	Legal Proceedings	78
	Item 1A.	Risk Factors	79
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	79
	Item 3.	Defaults Upon Senior Securities	79
	Item 4.	Mine Safety Disclosures	79
	Item 5.	Other Information	79
	Item 6.	Exhibits	80
SIGNATURES			81

PART 1 – FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

CITIZENS COMMUNITY BANCORP, INC.

Consolidated Balance Sheets

September 30, 2021 (unaudited) and December 31, 2020

(derived from audited financial statements)

(in thousands, except share and per share data)


	September 30, 2021		December 31, 2020
Assets
Cash and cash equivalents	$	102,341	$	119,440
Other interest bearing deposits	1,512		3,752
Securities available for sale "AFS"	234,425		144,233
Securities held to maturity "HTM"	67,739		43,551
Equity securities with readily determinable fair value	327		200
Other investments	14,965		14,948
Loans receivable	1,248,654		1,237,581
Allowance for loan losses	(16,832)		(17,043)
Loans receivable, net	1,231,822		1,220,538
Loans held for sale	1,675		3,075
Mortgage servicing rights, net	4,082		3,252
Office properties and equipment, net	21,730		21,165
Accrued interest receivable	4,882		5,652
Intangible assets	4,297		5,494
Goodwill	31,498		31,498
Foreclosed and repossessed assets, net	4		197
Bank owned life insurance ("BOLI")	24,149		23,684

Other assets	8,029		8,416
TOTAL ASSETS	$	1,753,477	$	1,649,095


Liabilities and Stockholders’ Equity
Liabilities:
Deposits	$	1,408,315	$	1,295,256
Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) advances	111,512		123,498
Other borrowings	58,400		58,328
Other liabilities	9,324		11,449
Total liabilities	1,587,551		1,488,531

Stockholders’ Equity:

Common stock—$0.01 par value, authorized 30,000,000; 10,518,885 and 11,056,349 shares issued and outstanding, respectively	105		111
Additional paid-in capital	119,929		126,154
Retained earnings	44,660		32,809

Accumulated other comprehensive income	1,232		1,490
Total stockholders’ equity	165,926		160,564
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,753,477	$	1,649,095

See accompanying condensed notes to unaudited consolidated financial statements.

CITIZENS COMMUNITY BANCORP, INC.

Consolidated Statements of Operations (unaudited)

Three and Nine Months Ended September 30, 2021 and 2020

(in thousands, except per share data)


	Three Months Ended				Nine Months Ended
	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
Interest and dividend income:
Interest and fees on loans	$	14,537	$	14,154	$	43,014	$	44,300
Interest on investments	1,638		1,064		4,260		3,712
Total interest and dividend income	16,175		15,218		47,274		48,012
Interest expense:
Interest on deposits	1,354		2,255		4,589		8,042
Interest on FHLB and FRB borrowed funds	389		430		1,183		1,386
Interest on other borrowed funds	744		624		2,217		1,701
Total interest expense	2,487		3,309		7,989		11,129
Net interest income before provision for loan losses	13,688		11,909		39,285		36,883
Provision for loan losses	—		1,500		—		5,250
Net interest income after provision for loan losses	13,688		10,409		39,285		31,633
Non-interest income:
Service charges on deposit accounts	463		431		1,256		1,336
Interchange income	600		556		1,776		1,509
Loan servicing income	842		1,144		2,560		3,144
Gain on sale of loans	1,014		1,987		4,131		4,585
Loan fees and service charges	118		320		547		1,041
Insurance commission income	—		—		—		474
Net gains (losses) on investment securities	73		(1)		344		97

Net gain on sale of acquired business lines	—		180		—		432
Settlement proceeds	—		—		—		131
Other	338		445		801		929
Total non-interest income	3,448		5,062		11,415		13,678
Non-interest expense:
Compensation and related benefits	5,733		5,538		16,802		16,881
Occupancy	1,313		1,396		3,943		4,106

Data processing	1,558		1,331		4,296		3,735
Amortization of intangible assets	399		399		1,197		1,223
Mortgage servicing rights expense, net	37		603		28		2,330
Advertising, marketing and public relations	220		260		576		802
FDIC premium assessment	148		188		395		436
Professional services	347		434		1,250		1,391
Gain on repossessed assets, net	(3)		(105)		(150)		(195)
Other	568		680		1,670		2,138
Total non-interest expense	10,320		10,724		30,007		32,847
Income before provision for income tax	6,816		4,747		20,693		12,464
Provision for income taxes	1,819		1,267		5,484		3,309
Net income attributable to common stockholders	$	4,997	$	3,480	$	15,209	$	9,155
Per share information:
Basic earnings	$	0.47	$	0.31	$	1.41	$	0.82
Diluted earnings	$	0.47	$	0.31	$	1.41	$	0.82
Cash dividends paid	$	—	$	—	$	0.23	$	0.21

See accompanying condensed notes to unaudited consolidated financial statements.

CITIZENS COMMUNITY BANCORP, INC.

Consolidated Statements of Comprehensive Income (unaudited)

Three and Nine months ended September 30, 2021 and 2020

(in thousands)


	Three Months Ended				Nine Months Ended
	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
Net income attributable to common stockholders	$	4,997	$	3,480	$	15,209	$	9,155
Other comprehensive (loss) income, net of tax:
Securities available for sale
Net unrealized (losses) gains arising during period	(797)		885		(201)		1,488
Reclassification adjustment for net gains included in net income, net of tax	(31)		—		(57)		(113)

Other comprehensive (loss) income, net of tax	(828)		885		(258)		1,375



Comprehensive income	$	4,169	$	4,365	$	14,951	$	10,530

See accompanying condensed notes to unaudited consolidated financial statements.

CITIZENS COMMUNITY BANCORP, INC.

Consolidated Statement of Changes in Stockholders’ Equity (unaudited)

Nine Months Ended September 30, 2021

(in thousands, except shares and per share data)


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




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


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

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

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

Balance at June 30, 2021	10,696,075	107		121,732		40,117		2,060		164,016
Net income	—	—		—		4,997		—		4,997
Other comprehensive loss, net of tax	—	—		—		—		(828)		(828)

Surrender of restricted shares of common stock	(222)	—		(3)		—		—		(3)

Common stock options exercised	3,800	—		35		—		—		35
Common stock repurchased	(180,768)	(2)		(2,058)		(454)		—		(2,514)



Stock option expense	—	—		2		—		—		2
Amortization of restricted stock	—	—		221		—		—		221



Balance, September 30, 2021	10,518,885	$	105	$	119,929	$	44,660	$	1,232	$	165,926

See accompanying condensed notes to unaudited consolidated financial statements.

CITIZENS COMMUNITY BANCORP, INC.

Consolidated Statement of Changes in Stockholders’ Equity (unaudited)

Twelve Months Ended December 31, 2020

(in thousands, except shares and per share data)


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

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


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


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

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





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



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

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




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



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


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

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



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

See accompanying condensed notes to unaudited consolidated financial statements.

CITIZENS COMMUNITY BANCORP, INC.

Consolidated Statements of Cash Flows (unaudited)

Nine Months Ended September 30, 2021 and 2020

(in thousands)


	Nine Months Ended
	September 30, 2021		September 30, 2020
Cash flows from operating activities:
Net income attributable to common stockholders	$	15,209	$	9,155
Adjustments to reconcile net income to net cash provided by operating activities:
Premium amortization, net of discount accretion on investment securities	59		156
Depreciation expense	1,669		1,436
Provision for loan losses	—		5,250
Net realized (gain) loss on equity securities and other investments	(266)		59
Net realized gain on debt securities	(78)		(156)
Increase in MSR assets resulting from transfers of financial assets	(858)		(1,546)
Mortgage servicing rights expense, net	28		2,330
Amortization of intangible assets	1,197		1,223
Amortization of restricted stock	614		462
Net stock based compensation expense	7		11
Loss on sale of office properties and equipment	22		30
Deferred income taxes	726		(1,299)
Increase in cash surrender value of life insurance	(465)		(451)
Net gain from disposals of foreclosed and repossessed assets	(150)		(195)


Gain on sale of loans held for sale, net	(4,131)		(4,585)
Net originations of loans held for sale	5,531		5,540
Decrease (increase) in accrued interest receivable and other assets	529		(1,934)
(Decrease) increase in other liabilities	(2,023)		836
Net gain on sale of insurance agency	—		(252)
Total adjustments	2,411		6,915
Net cash provided by operating activities	17,620		16,070
Cash flows from investing activities:

Net decrease in other interest-bearing deposits	2,240		992
Purchase of available for sale securities	(123,756)		(20,956)
Proceeds from principal payments and sale of available for sale securities	33,307		52,083
Purchase of held to maturity securities	(34,114)		(15,147)
Proceeds from principal payments, calls and maturities of held to maturity securities	9,846		1,051
Net sales (purchases) of other investments	122		(70)
Proceeds from sales of foreclosed and repossessed assets	507		2,098
Net increase in loans	(11,374)		(54,748)
Net capital expenditures	(2,368)		(1,975)

Proceeds from disposal of office properties and equipment	38		8
Net proceeds from sale of insurance agency	—		1,128
Net cash used in investing activities	(125,552)		(35,536)


Cash flows from financing activities:

Net decrease in short-term Federal Home Loan Bank advances	—		(41,000)
Amortization of fair value adjustments for acquired Federal Home Loan Bank advances	14		20
Long-term Federal Home Loan Bank advances	—		66,500
Federal Home Loan Bank advance termination payments	(8,102)		—
Federal Home Loan Bank maturities	(4,000)		(32,000)
Amortization of debt issuance costs	72		60
Proceeds from other borrowings, net of origination costs	—		14,677


Net increase in deposits	113,059		75,076


Repurchase shares of common stock	(7,723)		(1,838)
Surrender of restricted shares of common stock	(28)		(23)
Common stock options exercised	52		—
Cash dividends paid	(2,511)		(2,372)
Net cash provided by financing activities	90,833		79,100
Net (decrease) increase in cash and cash equivalents	(17,099)		59,634
Cash and cash equivalents at beginning of period	119,440		55,840
Cash and cash equivalents at end of period	$	102,341	$	115,474


Supplemental cash flow information:
Cash paid during the period for:
Interest on deposits	$	4,725	$	8,066
Interest on borrowings	$	3,664	$	2,999
Income taxes	$	5,250	$	4,820
Supplemental noncash disclosure:
Transfers from loans receivable to other real estate owned ("OREO")	$	45	$	1,057


Transfers from office properties and equipment to OREO	$	79	$	—

See accompanying condensed notes to unaudited consolidated financial statements.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(UNAUDITED)

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

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

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

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

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

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

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

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

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

Use of Estimates –Preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future. Estimates are used in accounting for, among other items, fair value of financial instruments, the allowance for loan losses, mortgage servicing rights, foreclosed and repossessed assets, valuation of intangible assets arising from acquisitions, useful lives for depreciation and amortization, valuation of goodwill and long-lived assets, stock based compensation, deferred tax assets, uncertain income tax positions and contingencies. Management does not anticipate any material changes to estimates made herein in the near term. Factors that may cause sensitivity to the aforementioned estimates include but are not limited to: those items described under the caption “Risk Factors” in Item 1A of the annual report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 8, 2021; the matters described in “Risk Factors” in Item 1A of the quarterly reports on Form 10-Q for the quarters ended March 31, 2021 and June 30, 2021, filed with the SEC on May 6, 2021 and August 5, 2021, respectively; the matters described in “Risk Factors” in Item 1A of this Form 10-Q; external market factors such as market interest rates and unemployment rates; changes to operating policies and procedures and changes in applicable banking regulations. Actual results may ultimately differ from estimates, although management does not generally believe such differences would materially affect the consolidated financial statements in any individual reporting period.

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

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

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

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

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

Management’s evaluation for impairment of these other investments, includes consideration of the financial condition and other available relevant information of the issuer. Based on management’s quarterly evaluation, no impairment has been recorded on these securities. Other investments totaling $14,965 at September 30, 2021 consisted of $7,925 of FHLB stock, $5,193 of Federal Reserve Bank stock and $1,847 of Bankers’ Bank stock. Other investments totaling $14,948 at December 31, 2020 consisted of $8,103 of FHLB stock and $5,170 of Federal Reserve Bank stock and $1,675 of Bankers’ Bank stock.

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

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

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

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

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

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

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

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

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

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

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

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

Loans acquired with deteriorated credit quality are accounted for in accordance with Accounting Standards Codification (“ASC”) 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (ASC 310-30) if, at acquisition, the loans have evidence of credit quality deterioration since origination and it is probable that all contractually required payments will not be collected. At acquisition, the Company considers several factors as indicators that an acquired loan has evidence of deterioration in credit quality. These factors include, but are not limited to: loans 90 days or more past due, loans with an internal risk grade of substandard or below, loans classified as non-accrual by the acquired institution, and loans that have been previously modified in a troubled debt restructuring.

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

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

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

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

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

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

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

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

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

Goodwill and other intangible assets—The Company accounts for goodwill and other intangible assets in accordance with ASC Topic 350, “Intangibles - Goodwill and Other.” The Company records the excess of the cost of acquired entities over the fair value of identifiable tangible and intangible assets acquired, less liabilities assumed, as goodwill. On a periodic basis, management assesses whether events or changes in circumstances indicate that the carrying amounts of the intangible assets may be impaired. Goodwill is not amortized but, instead, is subject to impairment tests on at least an annual basis, and more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. A reporting unit is defined as any distinct, separately identifiable component of the Company’s one operating segment for which complete, discrete financial information is available and reviewed regularly by the segment’s management. The Company has one reporting unit as of September 30, 2021 which is related to its banking activities. The impairment testing process is conducted by assigning net assets and goodwill to the Company’s reporting unit. An initial qualitative evaluation is made to assess the likelihood of impairment and determine whether further quantitative testing to calculate the fair value is necessary. When the qualitative evaluation indicates that impairment is more likely than not, quantitative testing is required whereby the fair value of the Company’s reporting unit is calculated and compared to the recorded book value, “step one.” If the calculated fair value of the Company’s reporting unit exceeds its carrying value, goodwill is not considered impaired and “step two” is not considered necessary. If the carrying value of the company’s reporting unit exceeds its calculated fair value, the impairment test continues (“step two”) by comparing the carrying value of the Company’s reporting unit’s goodwill to the implied fair value of goodwill. An impairment charge is recognized if the carrying value of goodwill exceeds the implied fair value of goodwill. The Company has performed the required goodwill impairment test and has determined that goodwill was not impaired as of December 31, 2020.

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

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

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

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

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

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

The Company regularly reviews the carrying amount of its net deferred tax assets to determine if the establishment of a valuation allowance is necessary. If based on the available evidence, it is more likely than not that all or a portion of the Company’s net deferred tax assets will not be realized in future periods, a deferred tax valuation allowance would be

established. Consideration is given to various positive and negative factors that could affect the realization of the deferred tax assets. In evaluating this available evidence, management considers, among other things, historical performance, expectations of future earnings, the ability to carry back losses to recoup taxes previously paid, the length of statutory carry forward periods, any experience with utilization of operating loss and tax credit carry forwards not expiring, tax planning strategies and timing of reversals of temporary differences. Significant judgment is required in assessing future earnings trends and the timing of reversals of temporary differences. Accordingly, the Company’s evaluation is based on current tax laws as well as management’s expectations of future performance.

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

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

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

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

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

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

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

Recent Accounting Pronouncements—Adopted

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

ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40)—The ASU was issued to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement), by providing guidance for determining when the arrangement includes a software license. The amendments align the requirements

for capitalizing implementation costs incurred in a hosting arrangement that is a service contract, with similar costs to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments. This guidance became effective for the Company beginning in the first quarter of 2020. Adoption of this ASU had no material impact on its consolidated financial statements.

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

Recently Issued, But Not Yet Effective Accounting Pronouncements

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

NOTE 2 – INVESTMENT SECURITIES

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


Available for sale securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
September 30, 2021
U.S. government agency obligations	$	27,862	$	553	$	5	$	28,410
Obligations of states and political subdivisions	140		—		—		140
Mortgage-backed securities	120,684		738		620		120,802

Corporate debt securities	40,676		720		178		41,218
Corporate asset-based securities	34,522		150		57		34,615
Trust preferred securities	8,841		399		—		9,240
Total available for sale securities	$	232,725	$	2,560	$	860	$	234,425

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

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


Held to maturity securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
September 30, 2021

Obligations of states and political subdivisions	$	4,600	$	1	$	2	$	4,599
Mortgage-backed securities	63,139		152		2,023		61,268
Total held to maturity securities	$	67,739	$	153	$	2,025	$	65,867

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

As of September 30, 2021, the Bank has pledged U.S. Government Agency securities with a carrying value of $519 and mortgage-backed securities with a carrying value of $3,552 as collateral against specific municipal deposits. At September 30, 2021, the Bank has pledged mortgage-backed securities with a carrying value of $936 as collateral against a borrowing line of credit with the Federal Reserve Bank. However, as of September 30, 2021, there were no borrowings outstanding on this Federal Reserve Bank line of credit. As of September 30, 2021, the Bank also has mortgage-backed securities with a carrying value of $312 pledged as collateral to the Federal Home Loan Bank of Des Moines.

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

For the three and nine month periods ended September 30, 2021 gross sales of available for sale securities were $7,153 and $9,118, respectively. Gross gains on sale of available for sale securities for the three and nine months ended September 30, 2021 were $56 and $92, respectively. Gross losses on sale of available for sale securities for the three and nine months ended September 30, 2021 were $14 and $14, respectively. Gross sales of available for sale securities were $0 and $10,841 for the three and nine month periods ended September 30, 2020, respectively. Gross gains on sale of available for sale securities for the three and nine months ended September 30, 2020 were $0 and $157, respectively. Gross losses on sale of available for sale securities for the three and nine months ended September 30, 2020 were $0 and $1, respectively.

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


	September 30, 2021				December 31, 2020
Available for sale securities	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	$	140	$	140	$	—	$	—
Due after one year through five years	6,413		6,705		3,833		4,095
Due after five years through ten years	50,890		51,832		44,405		44,880
Due after ten years	54,598		54,946		54,485		54,267
Total securities with contractual maturities	$	112,041	$	113,623	$	102,723	$	103,242
Mortgage-backed securities	120,684		120,802		39,454		40,991

Total available for sale securities	$	232,725	$	234,425	$	142,177	$	144,233


	September 30, 2021				December 31, 2020
Held to maturity securities	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value

Due after one year through five years	$	4,300	$	4,301	$	200	$	200
Due after five years through ten years	300		298		400		402

Total securities with contractual maturities	4,600		4,599		600		602
Mortgage-backed securities	63,139		61,268		42,951		43,182
Total held to maturity securities	$	67,739	$	65,867	$	43,551	$	43,784

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


	Less than 12 Months				12 Months or More				Total
Available for sale securities	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
September 30, 2021
U.S. government agency obligations	$	—	$	—	$	1,309	$	5	$	1,309	$	5

Mortgage-backed securities	82,600		620		—		—		82,600		620

Corporate debt securities	12,417		96		1,418		82		13,835		178
Corporate asset-based securities	15,038		57		—		—		15,038		57
Trust preferred securities	—		—		—		—		—		—
Total	$	110,055	$	773	$	2,727	$	87	$	112,782	$	860
December 31, 2020
U.S. government agency obligations	$	7,654	$	17	$	6,834	$	53	$	14,488	$	70



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


	Less than 12 Months				12 Months or More				Total
Held to maturity securities	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
September 30, 2021

Obligations of states and political subdivisions	$	398	$	2	$	—	$	—	$	398	$	2
Mortgage-backed securities	54,515		1,874		3,288		149		57,803		2,023
Total	$	54,913	$	1,876	$	3,288	$	149	$	58,201	$	2,025
December 31, 2020

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

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

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

Portfolio Segments:

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

Commercial and industrial (“C&I”) loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. These cash flows, however, may not be as expected and the value of collateral securing the loans may fluctuate. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee. Agricultural operating loans are generally comprised of term loans to fund the purchase of equipment, livestock and seasonal operating lines. Operating lines are typically written for one year and secured by the crop and other farm assets or other business assets, as considered necessary. Agricultural loans carry significant credit risks as they may involve larger balances concentrated with single borrowers or groups of related borrowers. In addition, repayment of such loans depends on the successful operation or management of the farm property securing the loan or for which an operating loan is utilized. Farming operations may be affected by adverse weather conditions such as drought, hail or floods that can severely limit crop yields. SBA PPP loan balances are 100% guaranteed under the Small Business Association’s Paycheck Protection Program and may be forgiven in full, depending on use of funds and eligibility. These SBA-backed loans helped businesses keep their workforce employed during the COVID-19 crisis. Eligible borrowers, who qualify for full loan forgiveness during the eight to twenty four week period following loan disbursement, can apply for forgiveness, once all proceeds for which the borrower requested forgiveness has been used. Borrowers can apply for forgiveness any time up to the maturity date of the loan.

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

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

Credit Quality/Risk Ratings:

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

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

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

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

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

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

8 - Doubtful. A “Doubtful” loan has all the weaknesses inherent in a Substandard loan with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

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

Below is a summary of originated and acquired loans by type and risk rating as of September 30, 2021:


	1 to 5		6		7		8		9		TOTAL
Originated Loans:
Commercial/Agricultural real estate:
Commercial real estate	$	507,305	$	300	$	935	$	—	$	—	$	508,540
Agricultural real estate	48,053		378		651		—		—		49,082
Multi-family real estate	149,802		292		—		—		—		150,094
Construction and land development	76,366		—		8,033		—		—		84,399
C&I/Agricultural operating:
Commercial and industrial	87,481		16		3,084		—		—		90,581
Agricultural operating	23,744		22		1,624		—		—		25,390
Residential mortgage:
Residential mortgage	65,733		—		3,253		—		—		68,986
Purchased HELOC loans	3,756		—		165		—		—		3,921
Consumer installment:
Originated indirect paper	17,511		—		178		—		—		17,689

Other consumer	9,344		—		70		—		—		9,414
Originated loans before SBA PPP loans	989,095		1,008		17,993		—		—		1,008,096
SBA PPP loans	31,301		—		—		—		—		31,301
Total originated loans	$	1,020,396	$	1,008	$	17,993	$	—	$	—	$	1,039,397
Acquired Loans:
Commercial/Agricultural real estate:
Commercial real estate	$	126,472	$	1,342	$	1,970	$	—	$	—	$	129,784
Agricultural real estate	22,517		—		5,035		—		—		27,552
Multi-family real estate	5,928		—		—		—		—		5,928
Construction and land development	949		190		—		—		—		1,139
C&I/Agricultural operating:
Commercial and industrial	16,243		8		303		—		—		16,554
Agricultural operating	4,251		—		290		—		—		4,541
Residential mortgage:
Residential mortgage	29,253		—		1,542		—		—		30,795
Consumer installment:
Other consumer	512		—		4		—		—		516
Total acquired loans	$	206,125	$	1,540	$	9,144	$	—	$	—	$	216,809
Total Loans:
Commercial/Agricultural real estate:
Commercial real estate	$	633,777	$	1,642	$	2,905	$	—	$	—	$	638,324
Agricultural real estate	70,570		378		5,686		—		—		76,634
Multi-family real estate	155,730		292		—		—		—		156,022
Construction and land development	77,315		190		8,033		—		—		85,538
Commercial/Agricultural non-real estate:
Commercial and industrial	103,724		24		3,387		—		—		107,135
Agricultural operating	27,995		22		1,914		—		—		29,931
Residential mortgage:
Residential mortgage	94,986		—		4,795		—		—		99,781
Purchased HELOC loans	3,756		—		165		—		—		3,921
Consumer installment:
Originated indirect paper	17,511		—		178		—		—		17,689

Other Consumer	9,856		—		74		—		—		9,930
Gross loans before SBA PPP Loans	1,195,220		2,548		27,137		—		—		1,224,905
SBA PPP loans	31,301		—		—		—		—		$	31,301
Gross loans	$	1,226,521	$	2,548	$	27,137	$	—	$	—	$	1,256,206
Less:
Unearned net deferred fees and costs and loans in process											(3,486)
Unamortized discount on acquired loans											(4,066)
Allowance for loan losses											(16,832)
Loans receivable, net											$	1,231,822

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


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

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

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

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

The following table summarizes SBA PPP loans at September 30, 2021 and December 31, 2020:


	2020 Originations				2021 Originations				Total
	Balance		Net Deferred Fee Income		Balance		Net Deferred Fee Income		Balance		Net Deferred Fee Income
SBA PPP loans, December 31, 2020	$	123,702	$	2,991	$	—	$	—	$	123,702	$	2,991
2021 SBA PPP loan originations	—		—		47,467		1,770		47,467		1,770
Less: 2021 SBA PPP loan forgiveness and fee accretion	(52,238)		(1,706)		—		(44)		(52,238)		(1,750)
SBA PPP loans, March 31, 2021	71,464		1,285		47,467		1,726		118,931		3,011
2021 SBA PPP loan originations	—		—		8,323		1,715		8,323		1,715
Less: 2021 SBA PPP loan forgiveness and fee accretion	(50,057)		(977)		(2,272)		(332)		(52,329)		(1,309)
SBA PPP loans, June 30, 2021	21,407		308		53,518		$	3,109	74,925		3,417
2021 SBA PPP loan originations	—		—		64		9		64		9
Less: 2021 SBA PPP loan forgiveness and fee accretion	(18,286)		(279)		(25,402)		(1,599)		(43,688)		(1,878)
SBA PPP loans, September 30, 2021	$	3,121	$	29	$	28,180	$	1,519	$	31,301	$	1,548

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

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

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

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


	Commercial/Agricultural Real Estate		C&I/Agricultural operating		Residential Mortgage		Consumer Installment		Unallocated		Total
Three months ended September 30, 2021
Allowance for Loan Losses:
Beginning balance, July 1, 2021	$	10,890	$	2,182	$	771	$	362	$	855	$	15,060
Charge-offs	—		—		—		(12)		—		(12)
Recoveries	4		10		—		5		—		19
Provision	1,004		(218)		(185)		(80)		(83)		438

Total allowance on originated loans	11,898		1,974		586		275		772		15,505
Purchased credit impaired loans	—		—		—		—		—		—
Other acquired loans:
Beginning balance, July 1, 2021	1,468		81		231		5		—		1,785
Charge-offs	—		—		—		(24)		—		(24)
Recoveries	—		3		1		—		—		4
Provision	(371)		(10)		(106)		49		—		(438)

Total allowance on other acquired loans	1,097		74		126		30		—		1,327
Total allowance on acquired loans	1,097		74		126		30		—		1,327
Ending balance, September 30, 2021	$	12,995	$	2,048	$	712	$	305	$	772	$	16,832


	Commercial/Agricultural Real Estate		C&I/Agricultural operating		Residential Mortgage		Consumer Installment		Unallocated		Total
Nine months ended September 30, 2021
Allowance for Loan Losses:
Beginning balance, January 1, 2021	$	10,271	$	2,112	$	1,041	$	489	$	906	$	14,819
Charge-offs	(51)		—		—		(49)		—		(100)
Recoveries	10		48		9		36		—		103
Provision	1,668		(186)		(464)		(201)		(134)		683

Total allowance on originated loans	11,898		1,974		586		275		772		15,505
Purchased credit impaired loans	—		—		—		—		—		—
Other acquired loans:
Beginning balance, January 1, 2021	1,684		141		335		64		—		2,224
Charge-offs	(200)		(7)		—		(27)		—		(234)
Recoveries	—		13		3		4		—		20
Provision	(387)		(73)		(212)		(11)		—		(683)

Total allowance on other acquired loans	1,097		74		126		30		—		1,327
Total allowance on acquired loans	1,097		74		126		30		—		1,327
Ending balance, September 30, 2021	$	12,995	$	2,048	$	712	$	305	$	772	$	16,832







Allowance for Loan Losses at September 30, 2021:
Amount of allowance for loan losses arising from loans individually evaluated for impairment	$	1,033	$	271	$	59	$	—	$	—	$	1,363
Amount of allowance for loan losses arising from loans collectively evaluated for impairment	$	11,962	$	1,777	$	653	$	305	$	772	$	15,469
Loans Receivable as of September 30, 2021:											—
Ending balance of originated loans	$	792,115	$	147,272	$	72,907	$	27,103	$	—	$	1,039,397
Ending balance of purchased credit-impaired loans	9,183		1,219		1,097		—		—		11,499
Ending balance of other acquired loans	155,220		19,876		29,698		516		—		205,310
Ending balance of loans	$	956,518	$	168,367	$	103,702	$	27,619	$	—	$	1,256,206
Ending balance: individually evaluated for impairment	$	22,744	$	6,451	$	7,705	$	291	$	—	$	37,191
Ending balance: collectively evaluated for impairment	$	933,774	$	161,916	$	95,997	$	27,328	$	—	$	1,219,015


	Commercial/Agricultural Real Estate		C&I/Agricultural operating		Residential Mortgage		Consumer Installment		Unallocated		Total
Three months ended September 30, 2020
Allowance for Loan Losses:
Beginning balance, July 1, 2020	$	8,297	$	1,778	$	980	$	480	$	574	$	12,109
Charge-offs	—		(103)		(4)		(10)		—		(117)
Recoveries	74		—		2		18		—		94
Provision	430		188		(15)		64		56		723

Total allowance on originated loans	8,801		1,863		963		552		630		12,809
Purchased credit impaired loans	—		—		—		—		—		—
Other acquired loans:
Beginning balance, July 1, 2020	746		334		112		72		—		1,264
Charge-offs	—		—		(47)		—		—		(47)
Recoveries	1		30		—		2		—		33
Provision	623		(58)		199		13		—		777

Total allowance on other acquired loans	1,370		306		264		87		—		2,027
Total allowance on acquired loans	1,370		306		264		87		—		2,027
Ending balance, September 30, 2020	$	10,171	$	2,169	$	1,227	$	639	$	630	$	14,836


	Commercial/Agricultural Real Estate		C&I/Agricultural operating		Residential Mortgage		Consumer Installment		Unallocated		Total
Nine months ended September 30, 2020
Allowance for Loan Losses:
Beginning balance, January 1, 2020	$	6,205	$	1,643	$	879	$	467	$	357	$	9,551
Charge-offs	—		(632)		(4)		(124)		—		(760)
Recoveries	74		—		7		55		—		136
Provision	2,522		852		81		154		273		3,882

Total allowance on originated loans	$	8,801	$	1,863	$	963	$	552	$	630	$	12,809
Purchased credit impaired loans	—		—		—		—		—		—
Other acquired loans
Beginning balance, January 1, 2020	526		27		163		53		—		769
Charge-offs	—		(159)		(74)		(2)		—		(235)
Recoveries	77		30		14		4		—		125
Provision	767		408		161		32		—		1,368

Total allowance on other acquired loans	1,370		306		264		87		—		2,027
Total allowance on acquired loans	1,370		306		264		87		—		2,027
Ending balance, September 30, 2020	$	10,171	$	2,169	$	1,227	$	639	$	630	$	14,836
Allowance for Loan Losses at September 30, 2020:
Amount of allowance for loan losses arising from loans individually evaluated for impairment	$	772	$	159	$	249	$	1	$	—	$	1,181
Amount of allowance for loan losses arising from loans collectively evaluated for impairment	$	9,399	$	2,010	$	978	$	638	$	630	$	13,655
Loans Receivable as of September 30, 2020
Ending balance of originated loans	$	535,698	$	243,449	$	96,647	$	41,756	$	—	$	917,550
Ending balance of purchased credit-impaired loans	21,453		2,077		1,553		—		—		25,083
Ending balance of other acquired loans	215,671		31,970		50,201		1,409		—		299,251
Ending balance of loans	$	772,822	$	277,496	$	148,401	$	43,165	$	—	$	1,241,884
Ending balance: individually evaluated for impairment	$	33,596	$	7,894	$	9,833	$	366	$	—	$	51,689
Ending balance: collectively evaluated for impairment	$	739,226	$	269,602	$	138,568	$	42,799	$	—	$	1,190,195


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

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


	Commercial/Agricultural Real Estate Loans				C&I/Agricultural Operating				Residential Mortgage				Consumer Installment				Totals
	September 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020
Performing loans
Performing TDR loans	$	4,711	$	4,695	$	3,685	$	3,836	$	2,883	$	3,142	$	44	$	49	$	11,323	$	11,722
Performing loans other	942,813		786,533		163,308		266,975		99,147		131,470		27,484		38,856		1,232,752		1,223,834
Total performing loans	947,524		791,228		166,993		270,811		102,030		134,612		27,528		38,905		1,244,075		1,235,556

Nonperforming loans (1)
Nonperforming TDR loans	3,337		4,691		600		1,287		426		777		3		—		4,366		6,755
Nonperforming loans other	5,657		1,220		774		942		1,246		2,257		88		159		7,765		4,578
Total nonperforming loans	8,994		5,911		1,374		2,229		1,672		3,034		91		159		12,131		11,333
Total loans	$	956,518	$	797,139	$	168,367	$	273,040	$	103,702	$	137,646	$	27,619	$	39,064	$	1,256,206	$	1,246,889

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

As of September 30, 2021 the Company had $320,105 in unused commitments, compared to $247,324 in unused commitments as of December 31, 2020.

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


	30-59 Days Past Due and Accruing		60-89 Days Past Due and Accruing		Greater Than 89 Days Past Due and Accruing		Total Past Due and Accruing		Nonaccrual Loans		Total Past Due Accruing and Nonaccrual Loans		Current		Total Loans
September 30, 2021
Commercial/Agricultural real estate:
Commercial real estate	$	5,613	$	—	$	—	$	5,613	$	872	$	6,485	$	631,839	$	638,324
Agricultural real estate	345		—		—		345		3,567		3,912		72,722		76,634
Multi-family real estate	—		—		—		—		—		—		156,022		156,022
Construction and land development	48		—		—		48		4,555		4,603		80,935		85,538
C&I/Agricultural operating:
Commercial and industrial	21		—		—		21		311		332		106,803		107,135
C&I SBA PPP loans	—		—		—		—		—		—		31,301		31,301
Agricultural operating	199		—		—		199		1,063		1,262		28,669		29,931
Residential mortgage:
Residential mortgage	2,085		782		409		3,276		1,098		4,374		95,407		99,781
Purchased HELOC loans	232		—		—		232		165		397		3,524		3,921
Consumer installment:
Originated indirect paper	105		1		14		120		51		171		17,518		17,689

Other Consumer	37		4		2		43		24		67		9,863		9,930
Total	$	8,685	$	787	$	425	$	9,897	$	11,706	$	21,603	$	1,234,603	$	1,256,206
December 31, 2020
Commercial/Agricultural real estate:
Commercial real estate	$	9,568	$	467	$	—	$	10,035	$	679	$	10,714	$	496,961	$	507,675
Agricultural real estate	411		48		—		459		5,084		5,543		63,252		68,795
Multi-family real estate	308		—		—		308		148		456		121,696		122,152
Construction and land development	3,898		—		—		3,898		—		3,898		94,619		98,517
C&I/Agricultural operating:
Commercial and industrial	436		491		—		927		357		1,284		115,269		116,553
SBA PPP loans	—		—		—		—		—		—		123,702		123,702
Agricultural operating	1,499		200		—		1,699		1,872		3,571		29,214		32,785
Residential mortgage:
Residential mortgage	2,238		372		516		3,126		2,217		5,343		126,043		131,386
Purchased HELOC loans	338		94		67		499		234		733		5,527		6,260
Consumer installment:
Originated indirect paper	90		37		—		127		133		260		25,591		25,851

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

At September 30, 2021, the Company individually evaluated loans for impairment with a recorded investment of $37,191, consisting of (1) $11,499 purchased credit impaired (“PCI”) loans, with a carrying amount of $10,813; (2) $13,198 TDR loans, net of TDR PCI loans; and (3) $12,494 of substandard non-TDR, non-PCI loans. The $37,191 total of loans individually evaluated for impairment includes $11,323 of performing TDR loans. At December 31, 2020, the Company individually evaluated loans for impairment with a recorded investment of $43,397, consisting of (1) $17,946 PCI loans, with a carrying amount of $16,859; (2) $15,634 TDR loans, net of TDR PCI loans; and (3) $9,817 of substandard non-TDR, non-PCI loans. The $43,397 total of loans individually evaluated for impairment includes $11,722 of performing TDR loans. A loan is identified as impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. Performing TDRs consist of loans that have been modified and are performing in accordance with the modified terms for a sufficient length of time, generally six months, or loans that were modified on a proactive basis.

A summary of the Company’s loans individually evaluated for impairment as of September 30, 2021, December 31, 2020 and September 30, 2020 was as follows:


							Three Months Ended				Nine Months Ended
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
September 30, 2021
With No Related Allowance Recorded:
Commercial/Agricultural real estate	$	16,820	$	16,820	$	—	$	19,618	$	172	$	20,417	$	663
C&I/Agricultural operating	3,451		3,451		—		3,484		29		4,893		119
Residential mortgage	7,291		7,291		—		7,498		79		7,917		240
Consumer installment	291		291		—		284		3		324		9
Total	$	27,853	$	27,853	$	—	$	30,884	$	283	$	33,551	$	1,031
With An Allowance Recorded:
Commercial/Agricultural real estate	$	5,924	$	5,924	$	1,033	$	3,558	$	—	$	4,107	$	62
C&I/Agricultural operating	3,000		3,000		271		3,041		41		1,891		82
Residential mortgage	414		414		59		547		2		747		17
Consumer installment	—		—		—		—		—		1		—
Total	$	9,338	$	9,338	$	1,363	$	7,146	$	43	$	6,746	$	161
September 30, 2021 Totals:
Commercial/Agricultural real estate	$	22,744	$	22,744	$	1,033	$	23,176	$	172	$	24,524	$	725
C&I/Agricultural operating	6,451		6,451		271		6,525		70		6,784		201
Residential mortgage	7,705		7,705		59		8,045		81		8,664		257
Consumer installment	291		291		—		284		3		325		9
Total	$	37,191	$	37,191	$	1,363	$	38,030	$	326	$	40,297	$	1,192


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


							Three Months Ended				Nine Months Ended
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
September 30, 2020
With No Related Allowance Recorded:
Commercial/Agricultural real estate	$	30,419	$	30,419	$	—	$	30,344	$	454	$	35,467	$	1,374
C&I/Agricultural operating	6,860		6,860		—		7,070		35		8,169		188
Residential mortgage	8,715		8,715		—		8,668		107		8,705		356
Consumer installment	363		363		—		363		6		371		23
Total	$	46,357	$	46,357	$	—	$	46,445	$	602	$	52,712	$	1,941
With An Allowance Recorded:
Commercial/Agricultural real estate	$	3,177	$	3,177	$	772	$	3,597	$	48	$	2,660	$	73
C&I/Agricultural operating	1,034		1,034		159		669		—		762		12
Residential mortgage	1,118		1,118		249		970		7		1,275		36
Consumer installment	3		3		1		9		—		35		—
Total	$	5,332	$	5,332	$	1,181	$	5,245	$	55	$	4,732	$	121
September 30, 2020 Totals:
Commercial/Agricultural real estate	$	33,596	$	33,596	$	772	$	33,941	$	502	$	38,127	$	1,447
C&I/Agricultural operating	7,894		7,894		159		7,739		35		8,931		200
Residential mortgage	9,833		9,833		249		9,638		114		9,980		392
Consumer installment	366		366		1		372		6		406		23
Total	$	51,689	$	51,689	$	1,181	$	51,690	$	657	$	57,444	$	2,062

Troubled Debt Restructuring – A TDR includes a loan modification where a borrower is experiencing financial difficulty, and the Bank grants a concession to that borrower that the Bank would not otherwise consider, except for the borrower’s financial difficulties. Concessions may include: extension of the loan’s term, renewals of existing balloon loans, reductions in interest rates and consolidating existing Bank loans at modified terms. A TDR may be either on accrual or nonaccrual status based upon the performance of the borrower and management’s assessment of collectability. If a TDR is placed on nonaccrual status, it remains there until a sufficient period of performance under the restructured terms has occurred at which time it is returned to accrual status. There was one delinquent accruing TDR loan greater than 60 days past due with a recorded investment of $42 at September 30, 2021, compared to one such loan with a recorded investment of $20 at December 31, 2020.

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


	September 30, 2021		December 31, 2020
Troubled debt restructure loans:
Accrual status	$	11,365	$	11,742
Non-accrual status	4,324		6,735
Total	$	15,689	$	18,477

There were two loan commitments totaling $160 meeting our TDR criteria as of September 30, 2021 and no loan commitments meeting our TDR criteria as of December 31, 2020. There were unused lines of credit totaling $51 and $15 meeting our TDR criteria as of September 30, 2021 and December 31, 2020, respectively.

The following provides detail, including specific reserve and reasons for modification, related to loans identified as TDRs during the three and nine months ended September 30, 2021 and September 30, 2020:


	Number of Contracts	Maturity Extension		Modified Payment		Modified Under- writing		Other		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Specific Reserve
Three months ended September 30, 2021
TDRs:
Commercial/Agricultural real estate	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
C&I/Agricultural operating	—	—		—		—		—		—		—		—
Residential mortgage	4	186		—		188		—		374		374		—
Consumer installment	—	—		—		—		—		—		—		—
Totals	4	$	186	$	—	$	188	$	—	$	374	$	374	$	—


	Number of Contracts	Maturity Extension		Modified Payment		Modified Under- writing		Other		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Specific Reserve
Nine months ended September 30, 2021
TDRs:
Commercial/Agricultural real estate	3	$	39	$	81	$	—	$	—	$	120	$	120	$	—
C&I/Agricultural operating	1	—		—		240		—		240		240		—
Residential mortgage	6	252		—		202		—		454		454		—
Consumer installment	2	6		—		18		—		24		24		—
Totals	12	$	297	$	81	$	460	$	—	$	838	$	838	$	—


	Number of Contracts	Maturity Extension		Modified Payment		Modified Under- writing		Other		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Specific Reserve
Three months ended September 30, 2020
TDRs:
Commercial/Agricultural real estate	3	$	3,550	$	—	$	276	$	—	$	3,826	$	3,826	$	—
C&I/Agricultural operating	2	3,000		—		—		—		3,000		3,000		—
Residential mortgage	8	59		500		32		—		591		591		—
Consumer installment	—	—		—		—		—		—		—		—
Totals	13	$	6,609	$	500	$	308	$	—	$	7,417	$	7,417	$	—


	Number of Contracts	Maturity Extension		Modified Payment		Modified Under- writing		Other		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Specific Reserve
Nine months ended September 30, 2020
TDRs:
Commercial/Agricultural real estate	12	$	4,442	$	198	$	293	$	—	$	4,933	$	4,933	$	—
C&I/Agricultural operating	5	3,295		78		—		—		3,373		3,373		—
Residential mortgage	13	148		858		117		—		1,123		1,123		—
Consumer installment	2	3		—		4		—		7		7		—
Totals	32	$	7,888	$	1,134	$	414	$	—	$	9,436	$	9,436	$	—

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


	September 30, 2021			September 30, 2020
	Number of Modifications	Recorded Investment		Number of Modifications	Recorded Investment
Troubled debt restructurings:
Commercial/Agricultural real estate	23	$	8,048	34	$	10,517
C&I/Agricultural operating	8	4,285		17	5,358
Residential mortgage	45	3,308		50	3,850
Consumer installment	7	48		7	53
Total troubled debt restructurings	83	$	15,689	108	$	19,778

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


	Three Months Ended
	September 30, 2021			September 30, 2020
	Number of Modifications	Recorded Investment		Number of Modifications	Recorded Investment
Troubled debt restructurings:
Commercial/Agricultural real estate	—	$	—	—	$	—
C&I/Agricultural operating	—	—		1	250
Residential mortgage	—	—		—	—
Consumer installment	—	—		—	—
Total troubled debt restructurings	—	$	—	1	$	250


	Nine Months Ended
	September 30, 2021			September 30, 2020
	Number of Modifications	Recorded Investment		Number of Modifications	Recorded Investment
Troubled debt restructurings:
Commercial/Agricultural real estate	—	$	—	5	$	1,892
C&I/Agricultural operating	—	—		1	250
Residential mortgage	1	19		—	—
Consumer installment	—	—		—	—
Total troubled debt restructurings	1	$	19	6	$	2,142

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


	September 30, 2021		December 31, 2020
Accountable for under ASC 310-30 (Purchased Credit Impaired “PCI” loans)
Outstanding balance	$	11,499	$	17,946
Carrying amount	$	10,813	$	16,859
Accountable for under ASC 310-20 (non-PCI loans)
Outstanding balance	$	205,310	$	268,218
Carrying amount	$	201,930	$	264,242
Total acquired loans
Outstanding balance	$	216,809	$	286,164
Carrying amount	$	212,743	$	281,101

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


	2021		2020
Balance at beginning of period, January 1	$	3,976	$	3,201
Acquisitions	—		—
Reduction due to unexpected early payoffs	(102)		(99)
Reclass from non-accretable difference	298		2,704
Accretion	(792)		(756)
Balance at end of period, September 30	$	3,380	$	5,050

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


	September 30, 2021		December 31, 2020
Balance at beginning of period	$	1,087	$	6,290
Additions to non-accretable difference for acquired purchased credit impaired loans	—		—
Non-accretable difference realized as interest from payoffs of purchased credit impaired loans	(103)		(1,693)
Transfers from non-accretable difference to accretable discount	(298)		(2,754)
Non-accretable difference used to reduce loan principal balance	—		(505)
Non-accretable difference transferred to OREO due to loan foreclosure	—		(251)
Balance at end of period	$	686	$	1,087

NOTE 4 – MORTGAGE SERVICING RIGHTS

Mortgage servicing rights--Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid balances of these loans as of September 30, 2021 and December 31, 2020 were $557,148 and $553,655, respectively, and consisted of one to four family residential real estate loans. These loans are serviced primarily for the Federal Home Loan Mortgage Corporation, Federal Home Loan Bank and the Federal National Mortgage Association. Custodial escrow balances maintained in connection with the foregoing loan servicing, and included in deposits were $6,669 and $2,868 at September 30, 2021 and December 31, 2020, respectively.

Mortgage servicing rights activity for the three and nine month periods ended September 30, 2021 and September 30, 2020 were as follows:


	As of and for the Three Months Ended		As of and for the Three Months Ended		As of and for the Nine Months Ended		As of and for the Nine Months Ended
	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
Mortgage servicing rights:
Mortgage servicing rights, beginning of period	$	4,964	$	4,940	$	5,266	$	4,541

Increase in mortgage servicing rights resulting from transfers of financial assets	256		592		858		1,546
Amortization during the period	(418)		(353)		(1,322)		(908)
Mortgage servicing rights, end of period	4,802		5,179		4,802		5,179
Valuation allowance:
Valuation allowance, beginning of period	(1,102)		(1,431)		(2,014)		(259)
Additions	—		(250)		—		(1,422)
Recoveries	382		—		1,294		—

Valuation allowance, end of period	(720)		(1,681)		(720)		(1,681)
Mortgage servicing rights, net	$	4,082	$	3,498	$	4,082	$	3,498
Fair value of mortgage servicing rights; end of period	$	4,161	$	3,509	$	4,161	$	3,509

The current period change in valuation allowance is included in non-interest expense as mortgage servicing rights expense, net on the consolidated statement of operations. Servicing fees totaled $354 and $353 for the three months ended September 30, 2021 and September 30, 2020, respectively. Servicing fees totaled $1,058 and $1,033 for the nine months ended September 30, 2021 and September 30, 2020, respectively. Late fees and ancillary fees related to loan servicing are not material.

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

NOTE 5 – LEASES

We have operating leases for our corporate offices (1), bank branch offices (5), and an ATM location (1). Our leases have remaining lease terms ranging from approximately 1.50 to 6.75 years, some of which include options to extend the leases for up to 5 additional years. As of September 30, 2021, we have no additional lease commitments that have not yet commenced. The Company also leases a portion of some of its facilities and receives rental income from such lease agreements, all of which are considered operating leases.


	Nine Months Ended
	September 30, 2021			September 30, 2020
The components of total lease cost were as follows:
Operating lease cost	$	418		$	460
Variable lease cost	36			32
Total lease cost	$	454		$	492

The components of total lease income were as follows:
Operating lease income	$	27		$	11

Supplemental cash flow information related to leases was as follows:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	415		$	477
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	2		$	—

	September 30, 2021			December 31, 2020
Supplemental balance sheet information related to leases was as follows:
Operating lease right-of-use assets	$	2,286		$	2,657
Operating lease liabilities	$	2,354		$	2,762

Weighted average remaining lease term in years; operating leases	5.76			6.32
Weighted average discount rate; operating leases	2.72		%	2.70		%

Cash obligations and receipts under lease contracts are as follows:


Fiscal years ending December 31,	Payments		Receipts
2021	$	139	$	9
2022	558		34
2023	506		27
2024	419		10
2025	403
Thereafter	826
Total	2,851		$	80
Less: effects of discounting	(497)
Lease liability recognized	$	2,354

NOTE 6 – DEPOSITS

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


	September 30, 2021		December 31, 2020
Non-interest bearing demand deposits	$	280,611	$	238,348
Interest bearing demand deposits	381,315		301,764
Savings accounts	229,623		196,348
Money market accounts	291,242		245,549
Certificate accounts	225,524		313,247
Total deposits	$	1,408,315	$	1,295,256
Brokered deposits included above:	$	2,520	$	2,516

At September 30, 2021, the scheduled maturities of time deposits were as follows for the year ended, except December 31, 2021 which is the three months ended:


December 31, 2021	$	47,190
December 31, 2022	155,717
December 31, 2023	13,333
December 31, 2024	6,205
December 31, 2025	1,894
After December 31, 2025	1,185
Total	$	225,524

Time deposits of $250 or more were $24,741 and $46,660 at September 30, 2021 and December 31, 2020, respectively.

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

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


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

Subtotal		111,530						123,530
Unamortized discount on acquired notes		(18)						(32)
Federal Home Loan Bank advances, net		$	111,512					$	123,498

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

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

Unamortized debt issuance costs		$	(456)					$	(528)
Total other borrowings		$	58,400					$	58,328

Totals		$	169,912					$	181,826

(1) The FHLB advances bear fixed rates, require interest-only monthly payments, and are collateralized by a blanket lien on pre-qualifying first mortgages, home equity lines, multi-family loans and certain other loans which had a pledged balance of $782,715 and $723,862 at September 30, 2021 and December 31, 2020, respectively. At September 30, 2021, the Bank’s available and unused portion under the FHLB borrowing arrangement was approximately $162,875 compared to $118,391 as of December 31, 2020.

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

(3) The weighted-average interest rates on FHLB borrowings maturing within twelve months as of September 30, 2021 and December 31, 2020 were 2.45% and 1.02%, respectively.

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

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

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

(b) A $5,000 line of credit, maturing in August 2022, that remains undrawn upon.

(6) Subordinated notes resulted from the following:

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

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

Federal Home Loan Bank Letters of Credit

The Bank has an irrevocable Standby Letter of Credit Master Reimbursement Agreement with the Federal Home Loan Bank. This irrevocable standby letter of credit (“LOC”) is supported by loan collateral as an alternative to directly pledging investment securities on behalf of a municipal customer as collateral for their interest bearing deposit balances. These balances were $180,250 and $179,400 at September 30, 2021 and December 31, 2020, respectively.

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

The Bank has originated Small Business Association’s Paycheck Protection Program (“SBA PPP”) loans and has complied with the requirements to pledge these loans to the FRB PPPLF program which provides 100% funding for SBA PPP loans upon request This FRB PPPLF program expired on July 30, 2021. The Bank has no outstanding loan balances under this facility at September 30, 2021 and December 31, 2020. Maximum month-end borrowed amounts outstanding under this agreement were $0 and $25,136, during the nine months ended September 30, 2021 and the twelve months ended December 31, 2020, respectively. In July 2021, the Bank pledged these SBA PPP loans to the FHLB.

NOTE 8 - CAPITAL MATTERS

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

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

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


	Actual				For Capital Adequacy Purposes						To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount			Ratio			Amount			Ratio
As of September 30, 2021
Total capital (to risk weighted assets)	$	181,257	13.6	%	$	106,602	> =	8.0	%		$	133,252	> =	10.0	%
Tier 1 capital (to risk weighted assets)	164,598		12.4	%	$	79,951	> =	6.0	%	10	106,602		> =	8.0	%
Common equity tier 1 capital (to risk weighted assets)	164,598		12.4	%	$	59,963	> =	4.5	%		86,614		> =	6.5	%
Tier 1 leverage ratio (to adjusted total assets)	164,598		9.6	%	68,273		> =	4.0	%		85,342		> =	5.0	%
As of December 31, 2020
Total capital (to risk weighted assets)	$	171,702	14.7	%	$	93,381	> =	8.0	%		$	116,726	> =	10.0	%
Tier 1 capital (to risk weighted assets)	157,081		13.5	%	70,035		> =	6.0	%		93,381		> =	8.0	%
Common equity tier 1 capital (to risk weighted assets)	157,081		13.5	%	52,527		> =	4.5	%		75,872		> =	6.5	%
Tier 1 leverage ratio (to adjusted total assets)	157,081		9.9	%	63,718		> =	4.0	%		79,647		> =	5.0	%

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


	Actual				For Capital Adequacy Purposes
	Amount		Ratio		Amount			Ratio
As of September 30, 2021
Total capital (to risk weighted assets)	$	175,558	13.2	%	106,602		> =	8.0	%
Tier 1 capital (to risk weighted assets)	128,899		9.7	%	79,951		> =	6.0	%
Common equity tier 1 capital (to risk weighted assets)	128,899		9.7	%	59,963		> =	4.5	%
Tier 1 leverage ratio (to adjusted total assets)	128,899		7.6	%	68,273		> =	4.0	%
As of December 31, 2020
Total capital (to risk weighted assets)	$	166,703	14.3	%	$	93,381	> =	8.0	%
Tier 1 capital (to risk weighted assets)	122,082		10.5	%	70,035		> =	6.0	%
Common equity tier 1 capital (to risk weighted assets)	122,082		10.5	%	52,527		> =	4.5	%
Tier 1 leverage ratio (to adjusted total assets)	122,082		7.7	%	63,718		> =	4.0	%

NOTE 9 – STOCK-BASED COMPENSATION

On March 27, 2018, the stockholders of Citizens Community Bancorp, Inc. approved the 2018 Equity Incentive Plan. The aggregate number of shares of common stock reserved and available for issuance under the 2018 Equity Incentive Plan is 350,000 shares. As of September 30, 2021, 163,974 restricted shares had been granted under this plan. As of September 30, 2021, no stock options had been granted under this plan.

In February 2008, the Company’s stockholders approved the Company’s 2008 Equity Incentive Plan for a term of 10 years. Due to the plan’s expiration, no new awards can be granted under this plan. As of September 30, 2021, there are 900 awarded unvested restricted shares and 65,900 awarded unexercised options remaining from the plan. Restricted shares granted under the 2008 Equity Incentive Plan were awarded at no cost to the employee and vest pro rata over a two to five-year period from the grant date. Options granted to date under this plan vest pro rata over a five-year period from the grant date. Unexercised incentive stock options expire within 10 years of the grant date.

Net compensation expense related to restricted stock awards from these plans was $221 and $614 for the three and nine months ended September 30, 2021, compared to $165 and $462 for the three and nine months ended September 30, 2020.

Restricted Common Stock Award


	September 30, 2021			December 31, 2020
	Number of Shares	Weighted Average Grant Price		Number of Shares	Weighted Average Grant Price
Restricted Shares
Unvested and outstanding at beginning of year	57,242	$	12.23	43,457	$	12.76
Granted	64,399	10.78		45,507	11.79
Vested	(18,382)	12.51		(31,722)	12.32
Forfeited	(1,500)	10.78		—	—
Unvested and outstanding at end of year	101,759	$	11.29	57,242	$	12.23

The Company accounts for stock option-based employee compensation related to the Company’s 2008 Equity Incentive Plan and 2018 Equity Incentive Plan using the fair-value-based method. Accordingly, management records compensation expense based on the value of the award as measured on the grant date and then the Company recognizes that cost over the vesting period for the award. The compensation cost recognized for stock option-based employee compensation related to these plans for the three and nine month periods ended September 30, 2021 was $2 and $7, respectively. The compensation cost recognized for stock option-based employee compensation related to these plans for the three and nine month period ended September 30, 2020 was $3 and $11, respectively.

Common Stock Option Awards


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

Exercised	(5,800)	8.99
Forfeited or expired	(600)	13.76
Outstanding at end of period	65,900	$	11.20	4.86
Exercisable at end of period	59,900	$	10.95	4.75	$	167

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

Exercised	—	—
Forfeited or expired	(5,800)	11.95
Outstanding at end of year	72,300	$	11.05	5.49
Exercisable at end of year	54,100	$	10.82	5.37	$	4

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


	Nine months ended September 30, 2021		Twelve months ended December 31, 2020
Intrinsic value of options exercised	$	28	$	—
Cash received from options exercised	$	52	$	—
Tax benefit realized from options exercised	$	—	$	—

NOTE 10 – FAIR VALUE ACCOUNTING

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

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

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

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

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

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

Assets Measured on a Recurring Basis

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


	Fair Value		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 30, 2021
Investment securities:
U.S. government agency obligations	$	28,410	$	—	$	28,410	$	—
Obligations of states and political subdivisions	140		—		140		—
Mortgage-backed securities	120,802		—		120,802		—

Corporate debt securities	41,218		—		41,218		—
Corporate asset-backed securities	34,615		—		34,615		—
Trust preferred securities	9,240		—		9,240		—
Total	$	234,425	$	—	$	234,425	$	—
December 31, 2020
Investment securities:
U.S. government agency obligations	$	33,365	$	—	$	33,365	$	—
Obligations of states and political subdivisions	140		—		140		—
Mortgage-backed securities	40,991		—		40,991		—

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

Assets Measured on Nonrecurring Basis

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


	Carrying Value		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 30, 2021
Foreclosed and repossessed assets, net	$	4	$	—	$	—	$	4
Impaired loans with allocated allowances	7,976		—		—		7,976
Mortgage servicing rights	4,082		—		—		4,161
Total	$	12,062	$	—	$	—	$	12,141
December 31, 2020
Foreclosed and repossessed assets, net	$	197	$	—	$	—	$	197
Impaired loans with allocated allowances	3,037		—		—		3,037
Mortgage servicing rights	3,252		—		—		3,285
Total	$	6,486	$	—	$	—	$	6,519

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

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

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

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

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

September 30, 2021.


	Fair Value		Valuation Techniques (1)	Significant Unobservable Inputs (2)	Range
September 30, 2021
Foreclosed and repossessed assets, net	$	4	Appraisal value	Estimated costs to sell	10% - 15%
Impaired loans with allocated allowances	$	7,976	Appraisal value	Estimated costs to sell	10% - 15%
Mortgage servicing rights	$	4,161	Discounted cash flows	Discounted rates	9% - 12%
December 31, 2020
Foreclosed and repossessed assets, net	$	197	Appraisal value	Estimated costs to sell	10% - 15%
Impaired loans with allocated allowances	$	3,037	Appraisal value	Estimated costs to sell	10% - 15%
Mortgage servicing rights	$	3,285	Discounted cash flows	Discounted rates	9% - 12%

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

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

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

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

and delinquent property taxes.

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


		September 30, 2021				December 31, 2020
	Valuation Method Used	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial assets:
Cash and cash equivalents	(Level I)	$	102,341	$	102,341	$	119,440	$	119,440
Other interest-bearing deposits	(Level II)	1,512		1,543		3,752		3,818
Securities available for sale “AFS”	(Level II)	234,425		234,425		144,233		144,233
Securities held to maturity “HTM”	(Level II)	67,739		65,867		43,551		43,784
Equity securities with readily determinable fair value	(Level I)	327		327		200		200
Other investments	(Level II)	14,965		14,965		14,948		14,948
Loans receivable, net	(Level III)	1,231,822		1,255,806		1,220,538		1,239,692
Loans held for sale	(Level II)	1,675		1,675		3,075		3,075
Mortgage servicing rights	(Level III)	4,082		4,161		3,252		3,285
Accrued interest receivable	(Level I)	4,882		4,882		5,652		5,652
Financial liabilities:
Deposits	(Level III)	$	1,408,315	$	1,409,779	$	1,295,256	$	1,292,104
FHLB advances	(Level II)	111,512		114,259		123,498		128,282
Other borrowings	(Level I)	58,400		58,400		58,328		58,328
Accrued interest payable	(Level I)	396		396		796		796

NOTE 11—EARNINGS PER SHARE

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


	Three Months Ended				Nine Months Ended
(Share count in thousands)	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020

Basic
Net income attributable to common stockholders	$	4,997	$	3,480	$	15,209	$	9,155
Weighted average common shares outstanding	10,610		11,153		10,788		11,173
Basic earnings per share	$	0.47	$	0.31	$	1.41	$	0.82
Diluted
Net income attributable to common stockholders	$	4,997	$	3,480	$	15,209	$	9,155
Weighted average common shares outstanding	10,610		11,153		10,788		11,173

Add: Dilutive stock options outstanding	13		—		10		—
Average shares and dilutive potential common shares	10,623		11,153		10,798		11,173
Diluted earnings per share	$	0.47	$	0.31	$	1.41	$	0.82
Additional common stock option shares that have not been included due to their antidilutive effect	—		73,100		21,000		69,600

NOTE 12 – OTHER COMPREHENSIVE INCOME (LOSS)

The following tables show the tax effects allocated to each component of other comprehensive income (loss) for the three and nine months ended September 30, 2021 and 2020:


	Three months ended
	September 30, 2021						September 30, 2020
	Before-Tax Amount		Tax Expense		Net-of-Tax Amount		Before-Tax Amount		Tax Expense		Net-of-Tax Amount
Unrealized (losses) gains on securities:
Net unrealized (losses) gains arising during the period	$	(1,099)	$	302	$	(797)	$	1,220	$	(335)	$	885
Reclassification adjustment for gains included in net income	(42)		11		(31)		—		—		—




Other comprehensive (loss) income	$	(1,141)	$	313	$	(828)	$	1,220	$	(335)	$	885


	Nine Months Ended
	September 30, 2021						September 30, 2020
	Before-Tax Amount		Tax Expense		Net-of-Tax Amount		Before-Tax Amount		Tax Expense		Net-of-Tax Amount
Unrealized (losses) gains on securities:
Net unrealized (losses) gains arising during the period	$	(278)	$	77	$	(201)	$	2,052	$	(564)	$	1,488
Reclassification adjustment for gains included in net income	(78)		21		(57)		(156)		43		(113)




Other comprehensive (loss) income	$	(356)	$	98	$	(258)	$	1,896	$	(521)	$	1,375

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


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

Ending balance, December 31, 2020	$	2,056	$	1,490
Current year-to-date other comprehensive loss	(356)		(258)
Ending balance, September 30, 2021	$	1,700	$	1,232

Reclassifications out of accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2021 were as follows:


	Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)
Details about Accumulated Other Comprehensive Income (Loss) Components	Three months ended September 30, 2021		Nine months ended September 30, 2021		(1)	Affected Line Item on the Statement of Operations
Unrealized gains and losses
Sale of securities	$	42	$	78		Net gains (losses) on investment securities
Tax Effect	(11)		(21)			Provision for income taxes
Total reclassifications for the period	$	31	$	57		Net income attributable to common stockholders

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

Reclassifications out of accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2020 were as follows:


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

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

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

FORWARD-LOOKING STATEMENTS

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

Factors that could affect actual results or outcomes include the matters described under the caption “Risk Factors” in Item 1A of our annual report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 8, 2021 (“2020 10-K”), the matters described in “Risk Factors” in Item 1A of our Form 10Q for the quarters ended March 31, 2021 and June 30, 2021, and in Item 1A of this Form 10-Q, and the following:

•conditions in the financial markets and economic conditions generally;

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

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

•interest rate risk;

•lending risk;

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

•the sufficiency of loan allowances;

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

•competitive pressures among depository and other financial institutions;

•our ability to maintain our reputation;

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

•our ability to maintain or increase our market share;

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

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

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

•disintermediation risk;

•our inability to obtain needed liquidity;

•our ability to successfully execute our acquisition growth strategy;

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

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

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

•our ability to attract and retain key personnel;

•our ability to keep pace with technological change;

•cybersecurity risks;

•changes in federal or state tax laws;

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

•restrictions on our ability to pay dividends; and

•the potential volatility of our stock price.

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

GENERAL

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

CRITICAL ACCOUNTING ESTIMATES

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

Allowance for Loan Losses.

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

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

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

Goodwill.

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

defined as any distinct, separately identifiable component of the Company’s one operating segment for which complete, discrete financial information is available and reviewed regularly by the segment’s management. The Company has one reporting unit as of September 30, 2021, which is related to its banking activities. The Company performed the required goodwill impairment test and determined that goodwill was not impaired as of December 31, 2020.

Fair Value Measurements and Valuation Methodologies.

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

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

Income Taxes.

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

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

STATEMENT OF OPERATIONS ANALYSIS

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

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

Net interest income was $13.7 million for the three months ended September 30, 2021, and $39.3 million for the nine months ended September 30, 2021, compared to $11.9 million for the three months ended September 30, 2020 and $36.9 million for the nine months ended September 30, 2020. For the three and nine months ended September 30, 2021, net interest income benefited from: 1) the accretion of $1.9 million and $4.9 million, respectively, of deferred fees related to the SBA Paycheck Protection Program (“SBA PPP”) loans, compared to $0.6 and $1.1 million for the three and nine months ended September 30, 2020, respectively; 2) lower liability costs; and 3) organic loan growth from September 30, 2020. Net interest income for the three and nine months ended September 30, 2021 was negatively impacted by: 1) lower accretion associated with reductions in purchased credit impaired loans; 2) the impact of Federal Reserve actions to offset the impact of the pandemic in March 2020, during which it lowered overnight interest rates by 125 basis points in 6 days; and 3) market reactions to decreasing longer-term interest rates on loans, investments, and cash and cash equivalent security yields.

The net interest margin for the three-month period ended September 30, 2021, was 3.34%, compared to 3.11% for the three-month period ended September 30, 2020. The net interest margin increased due to: 1) a 29 basis point increase in SBA PPP deferred loan fee accretion and 2) 37 basis points of lower deposit costs in the three months ended September 30, 2021, compared to the three months ended September 2020. These increases were partially offset by decreases in net interest margin largely due to: 1) the impact of higher cash and cash equivalent balances, which decreased the interest margin percentage by 10 basis points; 2) 1 basis point of lower accretion associated with reductions in purchased credit impaired loans; and 3) market reactions to decreasing longer-term interest rates and the related impact on yields on loans, investments and cash and cash equivalent security yields.

The net interest margin for the nine-month period ended September 30, 2021, was 3.29%, compared to 3.36% for the nine-month period ended September 30, 2020. The decrease in net interest margin was largely due to: 1) 12 basis points of lower accretion associated with reductions in purchased credit impaired loans; 2) the impact of higher cash and cash equivalent balances, which decreased the interest margin percentage by 15 basis points; 3) the impact of Federal Reserve actions to offset the impact of the pandemic in March 2020, during which it lowered overnight interest rates by 125 basis points in 6 days; and 4) market reactions to lower yields on new originations of loans, purchases of investments and reduced yields on cash and cash equivalents. These decreases were partially offset by lower deposit rates due to management action to reduce interest rates on deposits and a 34 basis point increase in loans due to higher SBA PPP deferred loan fee accretion.

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

NET INTEREST INCOME ANALYSIS ON A TAX EQUIVALENT BASIS

(Dollar amounts in thousands)

Three months ended September 30, 2021 compared to the three months ended September 30, 2020:


	Three months ended September 30, 2021						Three months ended September 30, 2020
	Average Balance		Interest Income/ Expense		Average Yield/ Rate (1)		Average Balance		Interest Income/ Expense		Average Yield/ Rate (1)
Average interest earning assets:
Cash and cash equivalents	$	111,192	$	50	0.18	%	$	77,774	$	18	0.09	%
Loans	1,192,636		14,537		4.84	%	1,258,224		14,154		4.48	%
Interest-bearing deposits	1,512		8		2.10	%	3,752		23		2.44	%
Investment securities (1)	303,325		1,412		1.85	%	166,622		846		2.02	%
Other investments	14,961		168		4.46	%	15,145		177		4.65	%
Total interest earning assets (1)	$	1,623,626	$	16,175	3.95	%	$	1,521,517	$	15,218	3.98	%
Average interest-bearing liabilities:
Savings accounts	$	216,304	$	95	0.17	%	$	183,381	$	98	0.21	%
Demand deposits	392,080		280		0.28	%	285,993		231		0.32	%
Money market	276,582		193		0.28	%	255,160		280		0.44	%
CD’s	207,494		682		1.30	%	297,691		1,469		1.96	%
IRA’s	39,525		104		1.04	%	41,852		177		1.68	%
Total deposits	$	1,131,985	$	1,354	0.47	%	$	1,064,077	$	2,255	0.84	%
FHLB Advances and other borrowings	169,891		1,133		2.65	%	173,758		1,054		2.41	%
Total interest-bearing liabilities	$	1,301,876	$	2,487	0.76	%	$	1,237,835	$	3,309	1.06	%
Net interest income			$	13,688					$	11,909
Interest rate spread					3.19	%					2.92	%
Net interest margin (1)					3.34	%					3.11	%
Average interest earning assets to average interest-bearing liabilities					1.25						1.23

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

NET INTEREST INCOME ANALYSIS ON A TAX EQUIVALENT BASIS

(Dollar amounts in thousands)

Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020:


	Nine months ended September 30, 2021						Nine months ended September 30, 2020
	Average Balance		Interest Income/ Expense		Average Yield/ Rate (1)		Average Balance		Interest Income/ Expense		Average Yield/ Rate (1)
Average interest earning assets:
Cash and cash equivalents	$	118,064	$	107	0.12	%	$	42,946	$	141	0.44	%
Loans	1,197,469		43,014		4.80	%	1,232,678		44,300		4.80	%
Interest-bearing deposits	2,227		37		2.22	%	3,967		73		2.46	%
Investment securities (1)	263,655		3,606		1.83	%	173,595		2,965		2.28	%
Other investments	15,006		510		4.54	%	15,104		533		4.71	%
Total interest earning assets (1)	$	1,596,421	$	47,274	3.96	%	$	1,468,290	$	48,012	4.37	%
Average interest bearing liabilities:
Savings accounts	$	211,320	$	277	0.18	%	$	169,754	$	348	0.27	%
Demand deposits	361,248		788		0.29	%	262,748		865		0.44	%
Money market	263,195		577		0.29	%	244,965		1,240		0.68	%
CD’s	237,706		2,592		1.46	%	326,776		5,021		2.05	%
IRA’s	40,119		355		1.18	%	42,221		568		1.80	%
Total deposits	$	1,113,588	$	4,589	0.55	%	$	1,046,464	$	8,042	1.03	%
FHLB Advances and other borrowings	173,889		3,400		2.61	%	185,256		3087		2.23	%
Total interest bearing liabilities	$	1,287,477	$	7,989	0.83	%	$	1,231,720	$	11,129	1.21	%
Net interest income			$	39,285					$	36,883
Interest rate spread					3.13	%					3.16	%
Net interest margin (1)					3.29	%					3.36	%
Average interest earning assets to average interest bearing liabilities					1.24						1.19

(1) Fully taxable equivalent (FTE). The average yield on tax exempt securities is computed on a tax equivalent basis using a tax rate of 21.0% for the nine months ended September 30, 2021 and September 30, 2020. The FTE adjustment to net interest income included in the rate calculations totaled $3 and $1 thousand for the nine months ended September 30, 2021 and September 30, 2020, respectively.

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

RATE / VOLUME ANALYSIS

(Dollar amounts in thousands)

Three months ended September 30, 2021 compared to the three months ended September 30, 2020.


	Increase (decrease) due to
	Volume		Rate		Net
Interest income:
Cash and cash equivalents	$	10	$	22	$	32
Loans	(764)		1,147		383
Interest-bearing deposits	(12)		(3)		(15)
Investment securities	646		(80)		566
Other investments	(2)		(7)		(9)
Total interest earning assets	(122)		1,079		957
Interest expense:
Savings accounts	16		(19)		(3)
Demand deposits	79		(30)		49
Money market accounts	22		(109)		(87)
CD’s	(362)		(425)		(787)
IRA’s	(9)		(64)		(73)
Total deposits	(254)		(647)		(901)
FHLB Advances and other borrowings	(24)		103		79
Total interest bearing liabilities	(278)		(544)		(822)
Net interest income	$	156	$	1,623	$	1,779

Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.


	Increase (decrease) due to
	Volume		Rate		Net
Interest income:
Cash and cash equivalents	$	163	$	(197)	$	(34)
Loans	(1,265)		(21)		(1,286)
Interest-bearing deposits	(29)		(7)		(36)
Investment securities	1,344		(703)		641
Other investments	(3)		(20)		(23)
Total interest earning assets	210		(948)		(738)
Interest expense:
Savings accounts	74		(145)		(71)
Demand deposits	275		(352)		(77)
Money market accounts	87		(750)		(663)
CD’s	(1,144)		(1,285)		(2,429)
IRA’s	(27)		(186)		(213)
Total deposits	(735)		(2,718)		(3,453)
FHLB Advances and other borrowings	(198)		511		313
Total interest bearing liabilities	(933)		(2,207)		(3,140)
Net interest income	$	1,143	$	1,259	$	2,402

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

Total provision for loan losses for both the three and nine months ended September 30, 2021, was $0. The ALL and related need for provision for loan losses for both the three and nine months ended September 30, 2021, was positively impacted by reductions in both the second and third quarter in the allocation of the allowance for loan losses for general economic conditions and the impact of lower loan deferral balances associated with Section 4013 of the Cares Act, which offset increases. These positive impacts were offset by the allocation of the allowance for loan losses due to loan growth, increases in specific reserve and modest net loan charge offs. Note that in discussing ALL allocations, the entire ALL balance is available for any loan that, in management’s judgment, should be charged off. The provision for loans losses for the three and nine months ended September 30, 2020, of $1.50 million and $5.25 million, respectively, was due to loan growth, the impact of net charge-offs and increase in Q-Factors due to uncertain market conditions. Pandemic-related adverse economic impacts, including various “Stay-at-Home Orders”, were beginning to result in temporary business closures, reduced operating capacity and uncertainty regarding potential future revenue and cash flows for certain businesses, including bank borrowers.

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

Non-interest Income. The following table reflects the various components of non-interest income for the three and nine month periods ended September 30, 2021 and 2020, respectively.


	Three months ended September 30,						Nine months ended September 30,
	2021		2020		% Change		2021		2020		% Change
Non-interest Income:
Service charges on deposit accounts	$	463	$	431	7.42	%	$	1,256	$	1,336	(5.99)	%
Interchange income	600		556		7.91	%	1,776		1,509		17.69	%
Loan servicing income	842		1,144		(26.40)	%	2,560		3,144		(18.58)	%
Gain on sale of loans	1,014		1,987		(48.97)	%	4,131		4,585		(9.90)	%
Loan fees and service charges	118		320		(63.13)	%	547		1,041		(47.45)	%
Insurance commission income	—		—		N/M		—		474		N/M
Net gains (losses) on investment securities	73		(1)		N/M		344		97		254.64	%

Net gain on sale of acquired business lines	—		180		N/M		—		432		N/M
Settlement proceeds	—		—		N/M		—		131		N/M
Other	338		445		(24.04)	%	801		929		(13.78)	%
Total non-interest income	$	3,448	$	5,062	(31.88)	%	$	11,415	$	13,678	(16.54)	%

Service charges on deposit accounts increased modestly to $463 for the three months ended September 30, 2021, from $431 for the prior year quarter due to higher customer spending activity during the quarter. For the nine months ended September 30, 2021, service charges decreased to $1,256, compared to $1,336 in the comparable prior year period, due to higher average deposit balances.

Interchange income increased to $600 and $1,776 for the three and nine months ended September 30, 2021, compared to $556 and $1,509, respectively, for the similar prior year periods. Customer spending activity increased due to a stronger general economy, as our regional economies benefited from lower unemployment and were less impacted by business shutdowns as a result of the pandemic.

Loan servicing income decreased with reduced capitalization of mortgage servicing rights due to lower mortgage loan origination fees in the three- and nine-month periods ended September 30, 2021.

Gain on sale of loans decreased in the current three-month period ended September 30, 2021, compared to September 30, 2020, due to lower mortgage loan origination volumes, partially offset by a modest increase on the gain on sale of SBA loans. For the nine-month period ended September 30, 2021, gain on sale of loans decreased $454 thousand largely due to lower mortgage loan origination volumes, partially offset by gains on sale of SBA and FSA loans.

The change in loan fees and service charges for the three and nine months ended September 30, 2021, is largely due to decreases in commercial loan customer activity.

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

The net gains on investment securities in the three- and nine-month periods ended September 30, 2021, is largely due to unrealized gains on equity securities with readily determinable fair value recorded in the first quarter of 2021, a net realized $36 gain on sale of trust-preferred security in the second quarter of 2021, and a $42 net gain on the sale of trust-preferred securities and bank subordinated debt realized in the third quarter of 2021. In 2020, the gains in the nine-month period ended September 30, 2020, were due to the sale of $10.8 million of fixed-rate mortgage-backed securities (“MBS”) in the first quarter of 2020 and unrealized gain on equity security valuations in the second quarter of 2020.

In the third quarter of 2020, the bank recognized a $180 gain on the sale of a previously acquired wealth management business. Non-interest income for the nine-months ended September 30, 2020, also included the $252 gain on sale of Wells Insurance Agency in June 2020.

During the quarter ended June 30, 2020, the Company recognized $131 of non-interest income related to a private mortgage-backed security claim. The $131 distribution represented a supplement to the proceeds received in March, 2017 from this security, previously owned by the Bank, and sold in 2011.

Non-interest Expense. The following table reflects the various components of non-interest expense for the three- and nine-month periods ended September 30, 2021 and 2020, respectively.


	Three months ended September 30,								Nine months ended September 30,
	2021			2020			% Change		2021			2020			% Change
Non-interest Expense:
Compensation and related benefits	$	5,733		$	5,538		3.52	%	$	16,802		$	16,881		(0.47)	%
Occupancy	1,313			1,396			(5.95)	%	3,943			4,106			(3.97)	%

Data processing	1,558			1,331			17.05	%	4,296			3,735			15.02	%
Amortization of intangible assets	399			399			—	%	1,197			1,223			(2.13)	%
Mortgage servicing rights expense, net	37			603			(93.86)	%	28			2,330			(98.80)	%
Advertising, marketing and public relations	220			260			(15.38)	%	576			802			(28.18)	%
FDIC premium assessment	148			188			(21.28)	%	395			436			(9.40)	%
Professional services	347			434			(20.05)	%	1,250			1,391			(10.14)	%
Gains on repossessed assets, net	(3)			(105)			97.14	%	(150)			(195)			23.08	%
Other	568			680			(16.47)	%	1,670			2,138			(21.89)	%
Total non-interest expense	$	10,320		$	10,724		(3.77)	%	$	30,007		$	32,847		(8.65)	%

Non-interest expense (annualized) / Average assets	2.34		%	2.62		%	(10.60)	%	2.34		%	2.78		%	(15.80)	%

Compensation expense for the three-month period ended September 30, 2021, was higher than the comparable prior year period primarily due to higher incentive compensation based on performance metrics, including items such as net income and loan growth which more than offset lower variable mortgage production compensation. Compensation expense for the nine-month period ended September 30, 2021, was lower than the comparable prior year period due to: 1) lower variable mortgage production compensation related to lower mortgage loan origination activity; 2) lower compensation due to fewer FTEs, including those related to the sale of Wells Insurance Agency in June of 2020; and 3) the closure of three branches in November 2020, partially offset by higher accrued incentive compensation as discussed above.

Data processing expense increases from the prior year quarter and year-to- date periods were due primarily to the impact of larger loan and deposit balances, and the impact of additional costs for new products offered to our customers.

Mortgage servicing rights expense, net, decreased during the three and nine months ended September 30, 2021, compared to the comparable prior year periods. This decrease is primarily due to the reversal of previously recognized impairment charges of $1.3 million, resulting largely from the impact of lower future forecasted prepayment rates. 30% of this impairment reversal occurred in the third quarter of 2021 and 70% in the first quarter of 2021. The Bank recorded MSR impairment charges of $0.3 million and $1.4 million for the three- and nine-month periods ended September 30, 2020, respectively. The remaining change is due to higher amortization in 2021.

Advertising, marketing and public relations expense decreased in both the three- and nine-month periods ended September 30, 2021, from the same periods in 2020 largely due to the pandemic related charitable contributions made in the second and third quarters of 2020 to local non-profit organizations.

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

Other expenses for the three- and nine-month periods ended September 30, 2021, decreased from the comparable prior year periods, largely due to lower loan origination and collection expenses, recognized in the similar periods in 2020.

Income Taxes. Income tax expense was $1.8 million and $5.5 million for the three and nine months ended September 30, 2021, respectively, compared to $1.3 million and $3.3 million for the three and nine months ended September 30, 2020. The effective tax rate was 26.7% and 26.5% for the three and nine-month periods ended September 30, 2021 compared to 26.7% and 26.5% for the comparable prior year periods.

BALANCE SHEET ANALYSIS

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

Securities available for sale, which represent the majority of our investment portfolio, were $234.4 million at September 30, 2021, compared with $144.2 million at December 31, 2020. The increase in the available for sale portfolio is due to purchases of mortgage-backed securities and corporate debt securities, which consisted of bank holding company-issued subordinated debt. The Bank sold $7.2 million of trust preferred securities and bank subordinated debt at a gain of $42 in the third quarter of 2021.

Securities held to maturity increased to $67.7 million at September 30, 2021, compared to $43.6 million at December 31, 2020. This increase was largely due to the purchase of agency mortgage-backed securities.

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


Available for sale securities	Amortized Cost		Fair Value
September 30, 2021
U.S. government agency obligations	$	27,862	$	28,410
Obligations of states and political subdivisions	140		140
Mortgage-backed securities	120,684		120,802
Corporate debt securities	40,676		41,218
Corporate asset-backed securities	34,522		34,615
Trust preferred securities	8,841		9,240
Totals	$	232,725	$	234,425
December 31, 2020
U.S. government agency obligations	$	33,048	$	33,365
Obligations of states and political subdivisions	140		140
Mortgage-backed securities	39,454		40,991
Corporate debt securities	17,199		17,462
Corporate asset-backed securities	36,039		35,827
Trust preferred securities	16,297		16,448
Totals	$	142,177	$	144,233

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


Held to maturity securities	Amortized Cost		Fair Value
September 30, 2021

Obligations of states and political subdivisions	$	4,600	$	4,599
Mortgage-backed securities	63,139		61,268
Totals	$	67,739	$	65,867
December 31, 2020
Obligations of states and political subdivisions	$	600	$	602
Mortgage-backed securities	42,951		43,182
Totals	$	43,551	$	43,784

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


	September 30, 2021				December 31, 2020
Available for sale securities	Amortized Cost		Fair Value		Amortized Cost		Fair Value
U.S. government agency	$	146,179	$	146,736	$	72,502	$	74,356
AAA	9,706		9,840		11,142		11,088
AA	27,323		27,391		25,037		24,879
A	13,997		14,202		8,713		8,925
BBB	35,520		36,256		24,783		24,985

Non-rated	—		—		—		—
Total available for sale securities	$	232,725	$	234,425	$	142,177	$	144,233

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


	September 30, 2021				December 31, 2020
Held to maturity securities	Amortized Cost		Fair Value		Amortized Cost		Fair Value
U.S. government agency	$	63,139	$	61,268	$	42,951	$	43,182
AAA	—		—		—		—
AA	4,000		4,000		—		—
A	600		599		600		602



Total	$	67,739	$	65,867	$	43,551	$	43,784

As of September 30, 2021, the Bank has pledged U.S. Government Agency securities with a carrying value $0.5 million and mortgage-backed securities with a carrying value of $3.6 million as collateral against specific municipal deposits. At September 30, 2021, the Bank has pledged mortgage-backed securities with a carrying value of $0.9 million as collateral against a borrowing line of credit with the Federal Reserve Bank. However, as of September 30, 2021, there were no borrowings outstanding on this Federal Reserve Bank line of credit. As of September 30, 2021, the Bank also has mortgage-backed securities with a carrying value of $0.3 million pledged as collateral to the Federal Home Loan Bank of Des Moines.

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

Loans. Total loans outstanding, net of deferred loan fees and costs and unamortized discount on acquired loans, increased by $11.1 million, to $1.25 billion as of September 30, 2021, from $1.24 billion at December 31, 2020. The originated loan portfolio before SBA PPP loans increased $171.1 million in the nine month period. This increase included the repayment of $5.5 million of draws on a line of credit originated the last business day of December and repaid on the first business day of January. Total SBA PPP loans decreased $92.4 million due to debt forgiveness of $148.3 million, offset by strong new SBA PPP second round loan originations of $55.9 million. Acquired loans decreased by $69.4 million. The following table reflects the composition, or mix of our loan portfolio at September 30, 2021 and December 31, 2020:


	September 30, 2021				December 31, 2020
	Amount		Percent		Amount		Percent
Real estate loans:
Commercial/Agricultural real estate
Commercial real estate	$	638,324	51.1	%	$	507,675	40.9	%
Agricultural real estate	76,634		6.1	%	68,795		5.6	%
Multi-family real estate	156,022		12.5	%	122,152		9.9	%
Construction and land development	85,538		6.9	%	98,517		8.0	%
Residential mortgage
Residential mortgage	99,781		8.0	%	131,386		10.6	%
Purchased HELOC loans	3,921		0.3	%	6,260		0.5	%
Total real estate loans	1,060,220		84.9	%	934,785		75.5	%
C&I/Agricultural operating and Consumer Installment Loans:
C&I/Agricultural operating
Commercial and industrial (“C&I”)	107,135		8.6	%	116,553		9.4	%
Agricultural operating	29,931		2.4	%	32,785		2.6	%
Consumer installment							—	%
Originated indirect paper	17,689		1.4	%	25,851		2.1	%

Other Consumer	9,930		0.8	%	13,213		1.1	%
Total C&I/Agricultural operating and Consumer installment Loans	164,685		13.2	%	188,402		15.2	%
Gross loans before C&I SBA PPP loans	1,224,905		98.1	%	1,123,187		90.7	%
SBA PPP loans	31,301		2.5	%	123,702		10.0	%
Gross loans	$	1,256,206	100.6	%	$	1,246,889	100.7	%
Unearned net deferred fees and costs and loans in process	(3,486)		(0.3)	%	(4,245)		(0.3)	%
Unamortized discount on acquired loans	(4,066)		(0.3)	%	(5,063)		(0.4)	%
Total loans (net of unearned income and deferred expense)	1,248,654		100.0	%	1,237,581		100.0	%
Allowance for loan losses	(16,832)				(17,043)
Total loans receivable, net	$	1,231,822			$	1,220,538

The following table summarizes SBA PPP loans by origination year at September 30, 2021:


	2020 Originations				2021 Originations				Total
	Balance		Net Deferred Fee Income		Balance		Net Deferred Fee Income		Balance		Net Deferred Fee Income
SBA PPP loans, December 31, 2020	$	123,702	$	2,991	$	—	$	—	$	123,702	$	2,991
2021 SBA PPP loan originations	—		—		47,467		1,770		47,467		1,770
Less: 2021 SBA PPP loan forgiveness and fee accretion	(52,238)		(1,750)		—		—		(52,238)		(1,750)
SBA PPP loans, March 31, 2021	71,464		1,241		47,467		1,770		118,931		3,011
2021 SBA PPP loan originations	—		—		8,323		1,715		8,323		1,715
Less: 2021 SBA PPP loan forgiveness and fee accretion	(50,057)		(933)		(2,272)		(376)		(52,329)		(1,309)
SBA PPP loans, June 30, 2021	21,407		308		53,518		$	3,109	74,925		3,417
2021 SBA PPP loan originations	—		—		64		9		64		9
Less: 2021 SBA PPP loan forgiveness and fee accretion	(18,286)		(279)		(25,402)		(1,599)		(43,688)		(1,878)
SBA PPP loans, September 30, 2021	$	3,121	$	29	$	28,180	$	1,519	$	31,301	$	1,548

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

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

The specific credit allocation for the ALL is based on a regular analysis of all loans that are considered impaired. In compliance with ASC 310-10, the fair value of the loan is determined based on either the present value of expected cash flows discounted at the loan’s effective interest rate, the market price of the loan, or, if the loan is collateral dependent, the fair value of the underlying collateral less the expected cost of sale for such collateral. At September 30, 2021, the Company individually evaluated loans for impairment with a recorded investment of $37.2 million, consisting of (1) $11.5 million purchased credit impaired (“PCI”) loans, with a carrying amount of $10.8 million; (2) $13.2 million TDR loans, net of TDR PCI loans; and (3) $12.5 million of substandard non-TDR, non-PCI loans. The $37.2 million total of loans individually evaluated for impairment includes $11.3 million of performing TDR loans. At December 31, 2020, the Company individually evaluated loans for impairment with a recorded investment of $43.4 million, consisting of (1) $17.9 million PCI loans, with a carrying amount of $16.9 million; (2) $15.6 million TDR loans, net of TDR PCI loans; and (3) $9.8 million of substandard non-TDR, non-PCI loans. The $43.4 million total of loans individually evaluated for impairment includes $11.7 million of performing TDR loans. At September 30, 2021, and December 31, 2020, we had 258 and 325 loans individually evaluated for impairment, respectively, all secured by real estate or personal property. Of the originated loans individually evaluated for impairment, there were 9 loans where the estimated fair value was less than their book value (i.e., we deemed impairment to exist) totaling $9.3 million for which $1.4 million in specific ALL was recorded as of September 30, 2021.

The allowance for loan losses modestly decreased to $16.8 million at September 30, 2021, representing 1.38% of loans receivable, less the 100% SBA guaranteed PPP loans. A portion of the current loan portfolio includes loans purchased through whole bank acquisitions in recent years resulting in purchased credit impairments which are not included in the allowance for loan losses. As the originated portfolio grows and the acquired portfolio shrinks, the percentage of originated loans to total loans grows, as does the overall percentage of the allowance to total loans. The allowance for loan losses was $17.0 million at December 31, 2020, representing 1.53% of loans receivable, less the 100% SBA guaranteed PPP loans. The decrease in the allowance at September 30, 2021, was due to modest loan charge-offs.

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

(in thousands, except ratios)


	September 30, 2021			December 31, 2020
Loans, end of period	$	1,248,654		$	1,237,581
SBA PPP loans, net of deferred fees	(29,753)			(120,711)
Loans, net of SBA PPP loans and deferred fees	$	1,218,901		$	1,116,870
Allowance for loan losses	$	16,832		$	17,043
ALL to loans net of SBA PPP loans and deferred fees	1.38		%	1.53		%
ALL to loans, end of period	1.35		%	1.38		%

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

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

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

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

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

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

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

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


	September 30, 2021 and Nine Months Then Ended			December 31, 2020 and Twelve Months Then Ended
Nonperforming assets:
Nonaccrual loans
Commercial real estate	$	5,427		$	827
Agricultural real estate	3,567			5,084
Commercial and industrial	311			357
Agricultural operating	1,063			1,872
Residential mortgage	1,263			2,451
Consumer installment	75			156
Total nonaccrual loans	$	11,706		$	10,747
Accruing loans past due 90 days or more	425			586
Total nonperforming loans (“NPLs”)	12,131			11,333
Other real estate owned	2			156
Other collateral owned	2			41
Total nonperforming assets (“NPAs”)	$	12,135		$	11,530
Troubled Debt Restructurings (“TDRs”)	$	15,689		$	18,477
Accruing TDR's	$	11,365		$	11,742
Nonaccrual TDRs	$	4,324		$	6,735
Average outstanding loan balance	$	1,197,470		$	1,234,732
Loans, end of period	$	1,248,654		$	1,237,581
Total assets, end of period	$	1,753,477		$	1,649,095
ALL, at beginning of period	$	17,043		$	10,320
Loans charged off:
Commercial/Agricultural real estate	(251)			—
C&I/Agricultural operating	(7)			(1,091)
Residential mortgage	—			(78)
Consumer installment	(76)			(149)
Total loans charged off	(334)			(1,318)
Recoveries of loans previously charged off:
Commercial/Agricultural real estate	10			150
C&I/Agricultural operating	61			44
Residential mortgage	12			20
Consumer installment	40			77
Total recoveries of loans previously charged off:	123			291
Net loans charged off (“NCOs”)	(211)			(1,027)
Additions to ALL via provision for loan losses charged to operations	—			7,750
ALL, at end of period	$	16,832		$	17,043
Ratios:
ALL to NCOs (annualized)	3,988.63		%	1,659.49		%
NCOs (annualized) to average loans	0.02		%	0.08		%
ALL to total loans	1.35		%	1.38		%
NPLs to total loans	0.97		%	0.92		%
NPAs to total assets	0.69		%	0.70		%

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

Nonperforming Originated / Acquired Assets

(in thousands, except ratios)


	September 30, 2021			December 31, 2020			September 30, 2020
Nonperforming assets:
Originated nonperforming assets:
Nonaccrual loans	$	6,408		$	3,649		$	3,255
Accruing loans past due 90 days or more	295			415			698
Total originated nonperforming loans (“NPL”)	6,703			4,064			3,953
Other real estate owned (“OREO”)	—			63			352
Other collateral owned	2			41			56
Total originated nonperforming assets (“NPAs”)	$	6,705		$	4,168		$	4,361
Acquired nonperforming assets:
Nonaccrual loans	$	5,298		$	7,098		$	9,899
Accruing loans past due 90 days or more	130			171			252
Total acquired nonperforming loans (“NPL”)	5,428			7,269			10,151
Other real estate owned (“OREO”)	2			93			404
Other collateral owned	—			—			—
Total acquired nonperforming assets (“NPAs”)	$	5,430		$	7,362		$	10,555
Total nonperforming assets (“NPAs”)	$	12,135		$	11,530		$	14,916
Loans, end of period	$	1,248,654		$	1,237,581		$	1,230,139
Total assets, end of period	$	1,753,477		$	1,649,095		$	1,622,593
Ratios:
Originated NPLs to total loans	0.54		%	0.33		%	0.32		%
Acquired NPLs to total loans	0.43		%	0.59		%	0.83		%
Originated NPAs to total assets	0.38		%	0.25		%	0.27		%
Acquired NPAs to total assets	0.31		%	0.45		%	0.65		%

Nonperforming assets increased by $0.6 million to $12.1 million at September 30, 2021 from December 31, 2020. This increase is largely due to a $4.5 million commercial real estate loan secured by a senior living facility, partially offset by reductions in acquired non-performing loans. Refer to the “Allowance for Loan Losses” and “Nonperforming Loans, Potential Problem Loans and Foreclosed Properties” sections above for more information related to nonperforming loans.

Nonaccrual Loans Roll forward:


	Quarter Ended
	September 30, 2021		June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020
Balance, beginning of period	$	8,075	$	8,678	$	10,747	$	13,154	$	14,787
Additions	4,859		863		430		912		716
Acquired nonaccrual loans	—		—		—		—		—
Charge offs	(24)		(58)		(205)		(2)		(141)
Transfers to OREO	—		—		(45)		—		(172)
Return to accrual status	—		(696)		(291)		—		(165)
Payments received	(1,202)		(712)		(1,935)		(3,317)		(1,744)
Other, net	(2)		—		(23)		—		(127)
Balance, end of period	$	11,706	$	8,075	$	8,678	$	10,747	$	13,154

Nonaccrual TDR loans decreased to $4.3 million at September 30, 2021 from $6.7 million at December 31, 2020.


	September 30, 2021			December 31, 2020			September 30, 2020
	Number of Modifications	Recorded Investment		Number of Modifications	Recorded Investment		Number of Modifications	Recorded Investment
Troubled debt restructurings: Accrual Status
Commercial/Agricultural real estate	12	$	4,711	16	$	4,695	19	$	5,480
C&I/Agricultural operating	4	3,685		4	3,836		5	3,868
Residential mortgage	39	2,925		43	3,162		42	3,178
Consumer installment	6	44		8	49		7	53
Total loans	61	$	11,365	71	$	11,742	73	$	12,579

Classified assets decreased to $27.1 million at September 30, 2021, from $28.5 million at December 31, 2020, largely due to the reduction in accruing substandard loans, partially offset by the modest increase in nonperforming assets, which are substandard assets. Nonperforming assets increased to $12.1 million or 0.69% of total assets at September 30, 2021 compared to $11.5 million or 0.70% of total assets at December 31, 2020. Included in nonperforming assets at September 30, 2021 are $5.4 million of nonperforming assets acquired during recent whole-bank acquisitions.

The table below shows a summary of criticized loans for the past five quarters. Substandard loans, largely due to reductions in non-performing loans, have decreased each quarter, except for the current quarter ended September 30, 2021. This increase was largely due to a $4.5 million commercial real estate loan secured by a senior living facility, as noted above. Special mention loans increased during the first and second quarters in 2021 due to a single hotel loan. Due to improving cash flow, this hotel loan was rated a pass loan during the quarter ended September 30, 2021. See Note 3, “Loans, Allowance for Loan Losses and Impaired Loans” for additional information.


	(in thousands)
	September 30, 2021		June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020
Special mention loan balances	$	2,548	$	12,308	$	13,659	$	6,672	$	7,777
Substandard loan balances	27,137		25,890		26,064		28,541		32,922
Criticized loans, end of period	$	29,685	$	38,198	$	39,723	$	35,213	$	40,699

Hotels and restaurants represent our portfolio’s two industry sectors most directly and adversely affected by the recent pandemic and related government actions. These sector loans totaled approximately $109 million and $41 million, respectively, at September 30, 2021. The weighted-average loan-to-value percentage and debt service coverage ratio on these hotel industry

sector loans were 56% and 2.3 times, respectively. Approximately $23.8 million of restaurant sector loans are to franchise quick-service restaurants.

As of September 30, 2021, the Bank had $20.6 million of remaining loan modifications, due to pandemic-related borrower requests. Hotel industry sector loans represent approximately $19.2 million of the approved deferrals at September 30, 2021 and represented the only remaining commercial loan deferrals. Approximately $6.0 million of the hotel modifications are scheduled to resume their regular principal and interest payments in the fourth quarter, with the remaining loan scheduled to resume their regular payment in the first quarter of 2022. The hotel modifications were third deferrals under the CARES ACT. With this third deferral, the customer will make interest only payments which were funded by deposits made with the Bank at the time of modification. While the Company has no indication that any of the modified credits are specifically impaired, additional risk and uncertainty inherent in the current pandemic-affected environment have been considered. See “Allowance for Loan Losses” section above for discussion of pandemic-related qualitative factor, and related provision for loan losses.

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

The fair market value of the Company’s MSR asset increased from $3.3 million at December 31, 2020, to $4.2 million at September 30, 2021, primarily due to higher future forecasted interest rates and resulting lower forecasted prepayment. As a result, $1.3 million of previously recorded impairments on the MSR asset was reversed during the nine-month period ended September 30, 2021.

The unpaid balances of one- to four-family residential real estate loans serviced for others as of September 30, 2021, and December 31, 2020, were $557.1 million and $553.7 million, respectively. The fair market value of the Company’s MSR asset as a percentage of its servicing portfolio at September 30, 2021, and December 31, 2020, was 0.75% and 0.59%, respectively.

Deposits. Deposits increased $113.1 million to $1.41 billion at September 30, 2021, from $1.30 billion at December 31, 2020. This growth is due to non-maturity deposit growth, split between both retail and commercial deposits. This growth was partially offset by retail certificates of deposit decreasing by $87.7 million, as the Company chose not to match higher rate local retail certificate competition. Some of the decrease in retail certificates has moved to money markets.

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


	September 30, 2021		December 31, 2020
Non-interest bearing demand deposits	$	280,611	$	238,348
Interest bearing demand deposits	381,315		301,764
Savings accounts	229,623		196,348
Money market accounts	291,242		245,549
Certificate accounts	225,524		313,247
Total deposits	$	1,408,315	$	1,295,256
Brokered deposits included above:	$	2,520	$	2,516

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


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

Subtotal		111,530						123,530
Unamortized discount on acquired notes		(18)						(32)
Federal Home Loan Bank advances, net		$	111,512					$	123,498

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

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

Unamortized debt issuance costs		$	(456)					$	(528)
Total other borrowings		$	58,400					$	58,328

Totals		$	169,912					$	181,826

(3) The weighted-average interest rates on FHLB borrowings maturing within twelve months as of September 30, 2021 and December 31, 2020 were 2.45% and 1.02%, respectively.

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

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

(b) A $5,000 line of credit, maturing in August 2022, that remains undrawn upon.

(6) Subordinated notes resulted from the following:

FHLB advances decreased $12.0 million to $111.5 million as of September 30, 2021, compared to $123.5 million as of December 31, 2020. The Bank terminated $8.0 million of advances in the quarter ended March 31, 2021, incurring a $0.1 million prepayment penalty, as we modestly reduced excess liquidity. In the second quarter of 2021, a $4 million advance matured. The Bank has an irrevocable Standby Letter of Credit Master Reimbursement Agreement with the Federal Home Loan Bank. This irrevocable standby letter of credit (“LOC”) is supported by loan collateral as an alternative to directly pledging investment securities on behalf of a municipal customer as collateral for their interest-bearing deposit balances. The Bank’s current unused borrowing capacity, supported by loan collateral as of September 30, 2021, is approximately $162.9 million.

The Bank’s origination of SBA PPP loans allowed the Bank to gain access to the Federal Reserve’s PPPLF facility, whereby the Bank could pledge SBA PPP loans, by date of origination, up to the contractual maturity of the Bank’s SBA PPP loans with no collateral haircut. This FRB PPPLF program expired on July 30, 2021. Due to the program expiration and the strong growth in non-maturity deposits discussed above, the Bank had no outstanding borrowings under this facility at, or at any time during the quarters ended September 30, 2021, or December 31, 2020, respectively or nine months ended September 30, 2021. In July 2021, the Bank pledged these SBA PPP loans to the FHLB.

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

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

At September 30, 2021, the Bank has pledged $782.7 million of loans to secure the current FHLB outstanding advances and letters of credit and to provide the unused borrowing capacity, compared to $723.9 million of loans pledged at December 31, 2020.

Stockholders’ Equity. Total stockholders’ equity was $165.9 million at September 30, 2021, compared to $160.6 million at December 31, 2020. The increase in stockholder’s equity was due to the Company’s net income of $15.2 million. This increase was partially offset by: 1) the repurchase of approximately 604 thousand shares of its common stock, which reduced equity by $7.7 million; 2) the payment of the annual cash dividend paid in February to common stockholders of $0.23 per share or $2.5 million; and 3) a decrease in the unrealized gain on available for sale securities of $0.26 million.

The Company repurchased all remaining authorized shares of the Company’s stock under the November 2020 share repurchase program during the three months ended September 30, 2021. On July 23, 2021, the Board of Directors adopted a new share repurchase program. Under this new share repurchase program, approximately 144 thousand shares, were repurchased during the quarter ended September 30, 2021. The Company is authorized to repurchase an additional 389 thousand shares under this July 2021 share repurchase program.

Liquidity and Asset / Liability Management. Our primary sources of funds are deposits; amortization, prepayments and maturities of outstanding loans; short-term investments; and borrowings. We use our sources of funds primarily to meet ongoing commitments, to pay non-renewing, maturing certificates of deposit and savings withdrawals, and to fund loan commitments. We have enhanced our liquidity monitoring and updated what we consider to be sources of on-balance sheet cash. We consider our interest-bearing cash and unpledged investment securities to be our sources of on-balance sheet liquidity. At September 30, 2021, our on-balance sheet liquidity ratio was 20.7%. While scheduled payments from the amortization of loans and maturing short-term investments are relatively predictable sources of funds, deposit flows and loan prepayments are

influenced by factors partially outside of the Bank’s control, including general interest rates, economic conditions and competition. Although $198.4 million of our $225.5 million (87.99%) September 30, 2021 CD portfolio matures within the next 12 months, we have historically retained a majority of our maturing CDs. Due to strategic pricing decisions regarding rate matching based on currently liquidity levels, our retention rate may decrease in the future, although some deposits may be retained and moved to money market accounts. At September 30, 2021, the Bank had approximately $47.2 million of certificate of deposit accounts maturing in the fourth quarter of 2021, with a weighted average cost of approximately 0.8%, and approximately $155.7 million of certificate of deposit accounts maturing in 2022, with a weighted average cost of approximately 1.5%. Approximately 80% of the 2022 maturities occur in the first half of 2022. The approximate weighted average cost of new certificates in the first three quarter of 2021 was below 0.50%. Through new deposit product offerings to our branch and commercial customers, we are currently attempting to strengthen customer relationships to attract additional non-rate sensitive deposits. In our present interest rate environment, and based on maturing yields, this is intended to also reduce our cost of funds.

We maintain access to additional sources of funds including FHLB borrowings and lines of credit with the Federal Reserve Bank and correspondent banks. We utilize FHLB borrowings to leverage our capital base, to provide funds for our lending and investment activities, and to manage our interest rate risk. Our borrowing arrangement with the FHLB calls for pledging certain qualified real estate loans and borrowing up to 75% of the value of those loans, not to exceed 35% of the Bank’s total assets. As of September 30, 2021, we had approximately $162.9 million available under this arrangement, supported by loan collateral, as compared to $118.4 million at December 31, 2020. In the quarter ended June 30, 2020, the Bank’s origination of SBA PPP loans allowed the Bank to gain access to the Federal Reserve’s PPPLF facility, whereby the Bank could pledge SBA PPP loans, by date of origination, up to the contractual maturity of the Bank’s SBA PPP loans with no collateral haircut. This FRB PPPLF program expired on July 30, 2021. Due to the program expiration and the strong growth in non-maturity deposits discussed above, the Bank had no outstanding borrowings under this facility at, or at any time during the quarters ended September 30, 2021, or December 31, 2020, respectively or nine months ended September 30, 2021. In July 2021, the Bank pledged these SBA PPP loans to the FHLB. As the SBA PPP loans are forgiven, the collateral will reduce and our borrowing capacity under this facility will be reduced.

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

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

Off-Balance Sheet Liabilities. Some of our financial instruments have off-balance sheet risk. These instruments include unused commitments for lines of credit, overdraft protection lines of credit and home equity lines of credit, as well as commitments to extend credit. As of September 30, 2021, the Company had $320.1 million in unused commitments, compared to $247.3 million in unused commitments as of December 31, 2020.

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

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


	Actual				For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount			Ratio		Amount			Ratio
As of September 30, 2021 (Unaudited)
Total capital (to risk weighted assets)	$	181,257	13.6	%	$	106,602	> =	8.0	%	$	133,252	> =	10.0	%
Tier 1 capital (to risk weighted assets)	164,598		12.4	%	79,951		> =	6.0	%	106,602		> =	8.0	%
Common equity tier 1 capital (to risk weighted assets)	164,598		12.4	%	59,963		> =	4.5	%	86,614		> =	6.5	%
Tier 1 leverage ratio (to adjusted total assets)	164,598		9.6	%	68,273		> =	4.0	%	85,342		> =	5.0	%
As of December 31, 2020 (Audited)
Total capital (to risk weighted assets)	$	171,702	14.7	%	$	93,381	> =	8.0	%	$	116,726	> =	10.0	%
Tier 1 capital (to risk weighted assets)	157,081		13.5	%	70,035		> =	6.0	%	93,381		> =	8.0	%
Common equity tier 1 capital (to risk weighted assets)	157,081		13.5	%	52,527		> =	4.5	%	75,872		> =	6.5	%
Tier 1 leverage ratio (to adjusted total assets)	157,081		9.9	%	63,718		> =	4.0	%	79,647		> =	5.0	%

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

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


	Actual				For Capital Adequacy Purposes
	Amount		Ratio		Amount			Ratio
As of September 30, 2021 (Unaudited)
Total capital (to risk weighted assets)	$	175,558	13.2	%	$	106,602	> =	8.0	%
Tier 1 capital (to risk weighted assets)	128,899		9.7	%	79,951		> =	6.0	%
Common equity tier 1 capital (to risk weighted assets)	128,899		9.7	%	59,963		> =	4.5	%
Tier 1 leverage ratio (to adjusted total assets)	128,899		7.6	%	68,273		> =	4.0	%
As of December 31, 2020 (Audited)
Total capital (to risk weighted assets)	$	166,703	14.3	%	$	93,381	> =	8.0	%
Tier 1 capital (to risk weighted assets)	122,082		10.5	%	70,035		> =	6.0	%
Common equity tier 1 capital (to risk weighted assets)	122,082		10.5	%	52,527		> =	4.5	%
Tier 1 leverage ratio (to adjusted total assets)	122,082		7.7	%	63,718		> =	4.0	%

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

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

In managing our assets and liabilities to achieve desired levels interest rate risk, we have focused our strategies on:

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

•originating variable rate commercial and agricultural loans;

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

•originating balloon mortgage loans with a term of seven years or less;

•managing our funding needs growing core deposits;

•utilize brokered certificate of deposits and borrowings as appropriate, which may have fixed rates with varying maturities;

•purchasing investment securities to modify our interest rate risk profile

At times, depending on the level of general interest rates, the relationship between long- and short-term interest rates, market conditions and competitive factors, the ALCO may determine to increase the Bank’s interest rate risk position somewhat in order to maintain or improve its net interest margin. With the growth in the investment securities portfolio, largely due to the purchase of mortgage-backed securities, the Company’s planned actions reduced asset sensitivity in the first quarter of 2021. In addition, the Company originated loan growth, which reduce overnight interest-bearing cash and the reduction in short-term SBA PPP loans, also reduce asset sensitivity. As such, the Company is now modestly liability sensitive.

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


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

+300 bp	(3)	%	15	%
+200 bp	(2)	%	11	%
+100 bp	(1)	%	7	%
-100 bp	6	%	—	%

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

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


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

+300 bp	(7)	%	3	%
+200 bp	(4)	%	3	%
+100 bp	(2)	%	2	%
-100 bp	1	%	(1)	%

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

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

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

ITEM 4.CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that the information required to be disclosed in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

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

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

PART II – OTHER INFORMATION

Item 1.LEGAL PROCEEDINGS

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

Item 1A.RISK FACTORS

The information in this Form 10-Q should be read in conjunction with the risk factors described in “Risk Factors” in Item 1A of our 2020 10-K and in “Risk Factors” in Item 1A of our Form 10Q for the quarter ended March 31, 2021 and the information under “Forward-Looking Statements” in this Form 10-Q, our Form 10Q for the quarters ended March 31, 2021 and June 30, 2021 and in our 2020 10-K.

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

(a)Not applicable.

(b)Not applicable.

(c)Issuer Purchases of Equity Securities.

On November 30, 2020, the Board of Directors adopted a stock repurchase program. Under this program the Company was authorized to repurchase up to approximately 5% of the outstanding shares of its common stock as of November 30, 2020, or 557,728 shares, from time to time. The 36 thousand shares remaining under this authorization as of the beginning of the quarter ended September 30, 2021 were repurchased during the quarter.

On July 23, 2021, the Board of Directors adopted a new share repurchase program. Under this new share repurchase program, the Company may repurchase up to approximately 5% of the outstanding shares of its common stock as of July 23,2021, or 532,962 shares, from time to time. During the quarter ended September 30, 2021, approximately 144 thousand shares were repurchased under this authorization. The table below shows information about our repurchases of our common stock during the three months ended September 30, 2021.


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
July 1, 2021 - July 31, 2021	13,568	$	13.63	13,568	556,228
August 1, 2021 - August 31, 2021	130,000	$	13.90	130,000	426,228
September 1, 2021 - September 30, 2021	37,200	$	13.77	37,200	389,028
Total	180,768	$	13.85	180,768

Item 3.DEFAULTS UPON SENIOR SECURITIES

Not applicable.

Item 4.MINE SAFETY DISCLOSURES

Not applicable.

Item 5.OTHER INFORMATION

Not applicable.

Item 6.EXHIBITS

(a) Exhibits


3.1						Amendment to the Bylaws of Citizens Community Bancorp, Inc. dated June 10, 2021 (incorporated by reference to Exhibit 3.1 to the Company’s current report on Form 8-K filed on June 10, 2021 (File No. 001-33003)).
10.1						Business Note Renewal , dated August 1, 2021, issued by Citizens Community Bancorp, Inc. to Chippewa Valley Bank (filed herewith).
31.1						Rule 13a-14(a) Certification of the Company’s Chief Executive Officer
31.2						Rule 13a-14(a) Certification of the Company’s Chief Financial Officer
32.1*						Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).
101						The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
104						Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)


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

SIGNATURES

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

CITIZENS COMMUNITY BANCORP, INC.

Date: November 8, 2021

By:

/s/ Stephen M. Bianchi

Stephen M. Bianchi

Chief Executive Officer

Date: November 8, 2021

By:

/s/ James S. Broucek

James S. Broucek

Chief Financial Officer