UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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 March 31, 2021

OR

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

For the transition period from _________ to __________

Commission File Number: 001-36808

COUNTY BANCORP, INC.

(Exact Name of Registrant as Specified in its Charter)

Wisconsin	39-1850431
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2400 South 44th Street Manitowoc, WI	54221
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (920) 686-9998

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, $0.01 par value	ICBK	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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

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

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

As of May 7, 2021, the registrant had 6,078,216 shares of common stock, $0.01 par value per share, outstanding.

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Consolidated Balance Sheets	1
	Consolidated Statements of Operations	2
	Consolidated Statements of Comprehensive Income	3
	Consolidated Statements of Shareholders’ Equity	4
	Consolidated Statements of Cash Flows	5
	Notes to Unaudited Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.	Controls and Procedures	45
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	46
Item 1A.	Risk Factors	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 3.	Defaults Upon Senior Securities	46
Item 4.	Mine Safety Disclosures	46
Item 5.	Other Information	46
Item 6.	Exhibits	47
Signatures		48

i

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

COUNTY BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

March 31, 2021 and December 31, 2020

	March 31, 2021			December 31, 2020
	(unaudited)
	(dollars in thousands except per share data)
ASSETS
Cash and cash equivalents	$	17,404		$	19,084
Interest earning cash at other financial institutions		416			416
Securities available-for-sale, at fair value		385,240			352,854
FHLB Stock		5,875			5,758
Loans held for sale		5,788			35,976
Loans, net of allowance for loan losses of $15,082 as of March 31, 2021;    $14,808 as of December 31, 2020		996,582			981,477
Premises and equipment, net		17,177			14,898
Loan servicing rights		18,864			18,396
Other real estate owned, net		739			1,077
Cash surrender value of bank owned life insurance		31,475			31,275
Core deposit intangible, net of accumulated amortization of $1,772 as    of March 31, 2021; $1,747 as of December 31, 2020		29			54
Accrued interest receivable and other assets		11,739			11,093
Total assets	$	1,491,328		$	1,472,358
LIABILITIES
Deposits:
Noninterest-bearing	$	139,838		$	163,202
Interest-bearing		958,690			877,624
Total deposits		1,098,528			1,040,826
Other borrowings		48,674			49,006
Advances from FHLB		100,000			129,000
Subordinated debentures		67,179			67,111
Deferred tax liability, net		324			2,302
Accrued interest payable and other liabilities		10,286			12,337
Total liabilities		1,324,991			1,300,582
SHAREHOLDERS' EQUITY
Preferred stock- $1,000 stated value; 15,000 shares authorized; 8,000 shares issued		8,000			8,000
Common stock - $0.01 par value; 50,000,000 authorized; 7,226,232 shares issued    and 6,094,450 shares outstanding as of March 31, 2021; 7,212,727 shares issued    and 6,197,965 shares outstanding as of December 31, 2020		29			29
Surplus		55,691			55,346
Retained earnings		121,939			118,712
Treasury stock, at cost; 1,131,782  shares at March 31, 2021; 1,014,762 shares at    December 31, 2020		(20,119	)		(17,606	)
Accumulated other comprehensive income		797			7,295
Total shareholders' equity		166,337			171,776
Total liabilities and shareholders' equity	$	1,491,328		$	1,472,358

See accompanying notes to unaudited consolidated financial statements.

1

COUNTY BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended March 31, 2021 and 2020

(Unaudited)

	For the Three Months Ended March 31,
	2021			2020*
	(dollars in thousands except per share data)
INTEREST AND DIVIDEND INCOME
Loans, including fees	$	11,523		$	12,582
Taxable securities		1,887			1,282
Tax-exempt securities		246			6
Federal funds sold and other		59			225
Total interest and dividend income		13,715			14,095
INTEREST EXPENSE
Deposits		2,070			4,347
FHLB advances and other borrowed funds		321			244
Subordinated debentures		1,106			706
Total interest expense		3,497			5,297
Net interest income		10,218			8,798
Provision for loan losses		242			2,218
Net interest income after provision for loan losses		9,976			6,580
NON-INTEREST INCOME
Services charges		119			113
Crop insurance commission		301			229
Gain on sale of loans		1,680			543
Loan servicing fees, net		1,039			1,615
Other		573			203
Total non-interest income		3,712			2,703
NON-INTEREST EXPENSE
Employee compensation and benefits		5,582			5,260
Occupancy		279			354
Information processing		661			670
Professional fees		802			401
Writedown of other real estate owned		—			1,360
Goodwill impairment		—			5,038
Other		1,440			1,935
Total non-interest expense		8,764			15,018
Income (loss) before income taxes		4,924			(5,735	)
Income tax expense (benefit)		996			(547	)
NET INCOME (LOSS)	$	3,928		$	(5,188	)
Less: Cash dividends declared on preferred stock		(81	)		(108	)
NET INCOME (LOSS) ATTRIBUTABLE TO    COMMON SHAREHOLDERS	$	3,847		$	(5,296	)
NET INCOME (LOSS) PER SHARE:
Basic	$	0.62		$	(0.79	)
Diluted	$	0.62		$	(0.78	)
Dividends paid per share	$	0.10		$	0.07

*Amounts reclassed to current classifications from original presentation

See accompanying notes to unaudited consolidated financial statements.

2

COUNTY BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Three Months Ended March 31, 2021 and 2020

(Unaudited)

	For the Three Months Ended March 31,
	2021			2020
	(dollars in thousands)
Net income (loss)	$	3,928		$	(5,188	)
Other comprehensive income:
Unrealized gain (loss) on securities available-for-sale		(9,668	)		3,447
Income tax benefit (expense)		2,633			(939	)
Total other comprehensive income (loss) on securities     available-for-sale		(7,035	)		2,508
Unrealized gain (loss) on derivatives arising during the period		738			(1,194	)
Income tax benefit (expense)		(201	)		325
Total other comprehensive income (loss) on derivatives		537			(869	)
Total other comprehensive income (loss)		(6,498	)		1,639
Comprehensive loss	$	(2,570	)	$	(3,549	)

See accompanying notes to unaudited consolidated financial statements.

3

COUNTY BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For the Three Months Ended March 31, 2021 and 2020

(Unaudited)

	Preferred Stock		Common Stock		Surplus		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income			Total Shareholders' Equity
	(dollars in thousands except share data)
Balance at January 1, 2020	$	8,000	$	28	$	54,122	$	115,595		$	(5,030	)	$	1,798		$	174,513
Net loss		—		—		—		(5,188	)		—			—			(5,188	)
Other comprehensive income		—		—		—		—			—			1,639			1,639
Stock compensation expense		—		—		314		—			—			—			314
Cash dividends declared on common stock		—		—		—		(466	)		—			—			(466	)
Cash dividends declared on preferred stock		—		—		—		(108	)		—			—			(108	)
Treasury stock purchases (255,650 shares)		—		—		—		—			(5,853	)		—			(5,853	)
Proceeds from exercise of common stock       options (14,590 shares)		—		—		195		—			—			—			195
Balance at March 31, 2020	$	8,000	$	28	$	54,631	$	109,833		$	(10,883	)	$	3,437		$	165,046
Balance at December 31, 2020	$	8,000	$	29	$	55,346	$	118,712		$	(17,606	)	$	7,295		$	171,776
Net Income		—		—		—		3,928			—			—			3,928
Other comprehensive loss		—		—		—		—			—			(6,498	)		(6,498	)
Stock compensation expense		—		—		273		—			—			—			273
Cash dividends declared on common stock		—		—		—		(620	)		—			—			(620	)
Cash dividends declared on preferred stock		—		—		—		(81	)		—			—			(81	)
Treasury stock purchases (117,020 shares)		—		—		—		—			(2,513	)		—			(2,513	)
Proceeds from exercise of common stock       options (6,206 shares)		—		—		72		—			—			—			72
Balance at March 31, 2021	$	8,000	$	29	$	55,691	$	121,939		$	(20,119	)	$	797		$	166,337

See accompanying notes to unaudited consolidated financial statements

4

COUNTY BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended March 31, 2021 and 2020

(Unaudited)

	March 31, 2021			March 31, 2020
	(dollars in thousands)
Cash flows from operating activities
Net income (loss)	$	3,928		$	(5,188	)
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization of premises and equipment		309			345
Amortization of core deposit intangible		25			54
Amortization of subordinated debentures discount		68			38
Impairment of goodwill		—			5,038
Provision for loan losses		242			2,218
Realized loss (gain) on sales of premises and equipment		(5	)		350
Realized loss on sales of other real estate owned		17			4
Writedown of other real estate owned		—			1,360
Increase in cash surrender value of bank owned life insurance		(200	)		(156	)
Deferred income tax expense (benefit)		656			(253	)
Stock compensation expense		273			314
Net amortization of securities		488			171
Net change in:
Accrued interest receivable and other assets		(646	)		(1,103	)
Loans held for sale		30,188			(12,237	)
Loan servicing rights		(468	)		(1,218	)
Accrued interest payable and other liabilities		(1,514	)		(2,314	)
Net cash provided by (used in) operating activities		33,361			(12,577	)
Cash flows from investing activities
Proceeds from maturities, principal repayments, and call of securities available-for-sale		7,961			5,315
Purchases of securities available-for-sale		(50,504	)		(89,455	)
Purchase of FHLB stock		(117	)		(3,275	)
Purchase of bank owned life insurance		—			(10,000	)
Loan originations and principal collections, net		(15,347	)		23,399
Proceeds from sales of premises and equipment		18			1,381
Purchases of premises and equipment		(2,601	)		(1,849	)
Proceeds from sales of other real estate owned		321			910
Net cash used in investing activities		(60,269	)		(73,574	)
Cash flows from financing activities
Net increase (decrease) in demand and savings deposits		83,691			(33,756	)
Net decrease in certificates of deposits		(25,989	)		(47,726	)
Net change in other borrowings		(332	)		1,399
Proceeds from FHLB advances		162,000			255,000
Repayment of FHLB advances		(191,000	)		(190,000	)
Payments to acquire treasury stock		(2,513	)		(5,853	)
Proceeds from issuance of common stock		72			195
Dividends paid on common stock		(620	)		(466	)
Dividends paid on preferred stock		(81	)		(108	)
Net cash provided by (used in) financing activities		25,228			(21,315	)
Net change in cash and cash equivalents		(1,680	)		(107,466	)
Cash and cash equivalents, beginning of period		19,500			129,011
Cash and cash equivalents, end of period	$	17,820		$	21,545
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	3,458		$	3,774
Income taxes	$	—		$	—
Noncash investing activities:
Transfer from loans to other real estate owned	$	—		$	—
Loans charged off	$	—		$	—

See accompanying notes to unaudited consolidated financial statements.

5

County Bancorp, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

NOTE 1 – BASIS OF PRESENTATION

The unaudited consolidated financial statements of County Bancorp, Inc. (“we,” “us,” ”our,” or the “Company”) and its subsidiaries, including Investors Community Bank (the “Bank”), have been prepared, in the opinion of management, to reflect all adjustments necessary for a fair presentation of the financial position, results of operations, and cash flows as of and for the three and three months ended March 31, 2021.  The results of operations for the three months ended March 31, 2021 may not necessarily be indicative of the results to be expected for the year ending December 31, 2021, or for any other period.

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

These unaudited interim financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”).  Certain information in footnote disclosure normally included in financial statements prepared in accordance with GAAP has been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 12, 2021.

New Accounting Pronouncements

On December 27, 2020, the Consolidated Appropriations Act (“CAA”), 2021, was signed into law which extended the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) which expired on December 31, 2020.  The CAA included a $900.0 billion COVID-19 relief package that included an additional $284.5 billion in PPP funding.  In March 2021, President Biden signed the American Rescue Plan Act of 2021, a $1.9 trillion economic stimulus package that includes cash payments to individuals, supplemental unemployment insurance, and modifications and expansion of the PPP.  In March 2021, President Biden also signed the PPP Extension Act of 2021, which extended the PPP application deadline to May 31, 2021. Section 4013 of the CARES Act allows financial institutions to elect to suspend troubled debt restructuring accounting under certain circumstances when the temporary restructuring is related to the Coronavirus Disease 2019 (COVID-19) pandemic.  The Company has elected to implement Section 4013, and at March 31, 2021, loan balances totaling $6.1 million were still participating in the payment deferral program.

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

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses, to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.  The amendment replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.  Entities should apply this amendment by a modified-retrospective approach, through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective.  The Company has engaged a third-party software consultant and is currently testing the model’s methodology in parallel to current loss model calculations.  At this time, the effect this ASU will have on its consolidated financial statements is still being quantified as the Company ensures data, assumptions, and methods all comply with the requirements of ASU 2016-13.  In October 2019, the FASB voted to delay the effective date for the credit losses standard to January 2023 for certain entities, including SEC filers that qualify as smaller reporting companies and private companies.  As a smaller reporting company, the Company is eligible for the delay and will be deferring adoption.  Management will continue to progress on its implementation project plan and improve the Company’s approach throughout the deferral period.   

6

NOTE 2 – EARNINGS PER SHARE

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

	For the Three Months Ended
	March 31,
	2021		2020
	(dollars in thousands)
Net income (loss) from continuing operations	$	3,928	$	(5,188	)
Less:  preferred stock dividends		81		108
Income (loss) available to common shareholders for basic earnings    per common share	$	3,847	$	(5,296	)
Weighted average number of common shares issued		7,218,358		7,182,945
Less: weighted average treasury shares		1,080,089		518,740
Plus: weighted average of participating restricted stock units		63,991		39,785
Weighted average number of common shares and participating    securities outstanding		6,202,260		6,703,990
Effect of dilutive options		34,465		49,072
Weighted average number of common shares outstanding    used to calculate diluted earnings per common share		6,236,725		6,753,062
Weighted average of anti-dilutive options		54,831		55,764

NOTE 3 – SECURITIES AVAILABLE-FOR-SALE

The amortized cost and fair value of securities available-for-sale as of March 31, 2021 and December 31, 2020 were as follows:

	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(dollars in thousands)
March 31, 2021
U.S. government and agency securities	$	13,453	$	—	$	(138	)	$	13,315
Municipal securities		162,639		2,602		(5,145	)		160,096
Mortgage-backed securities		148,422		6,244		(1,266	)		153,400
Corporate bonds		42,000		253		(440	)		41,813
Asset-backed securities		16,456		165		(5	)		16,616
	$	382,970	$	9,264	$	(6,994	)	$	385,240
December 31, 2020
U.S. government and agency securities	$	14,745	$	—	$	(152	)	$	14,593
Municipal securities		149,203		4,736		(285	)		153,654
Mortgage-backed securities		127,804		7,872		(298	)		135,378
Corporate bonds		32,500		21		(10	)		32,511
Asset-backed securities		16,664		55		(1	)		16,718
	$	340,916	$	12,684	$	(746	)	$	352,854

7

The amortized cost and fair value of securities at March 31, 2021 and December 31, 2020, by contractual maturity, are shown below.  Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized		Fair
	Cost		Value
	(dollars in thousands)
March 31, 2021
Due in one year or less	$	—	$	—
Due from one to five years		—		—
Due from five to ten years		62,187		61,758
Due after ten years		155,905		153,466
Asset-backed securities		16,456		16,616
Mortgage-backed securities		148,422		153,400
	$	382,970	$	385,240
December 31, 2020
Due in one year or less	$	—	$	—
Due from one to five years		—		—
Due from five to ten years		55,024		55,120
Due after ten years		141,424		145,638
Asset-backed securities		16,664		16,718
Mortgage-backed securities		127,804		135,378
	$	340,916	$	352,854

There were no security sales for the three months ended March 31, 2021 and 2020, respectively.

At March 31, 2021 and December 31, 2020, there were $41.4 million and $23.0 million, respectively, of securities pledged at the Federal Reserve Bank to secure municipal customer deposits.

Federal Home Loan Bank (FHLB) advances were secured by $5.9 million and $5.8 million FHLB stock at March 31, 2021 and December 31, 2020, respectively.

The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to be other-than-temorarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2021 and December 31, 2020:

	Less Than 12 Months					12 Months or Greater					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
	(dollars in thousands)
March 31, 2021
U.S. government and agency securities	$	—	$	—		$	13,315	$	(138	)	$	13,315	$	(138	)
Municipal securities		118,771		(5,145	)		—		—			118,771		(5,145	)
Mortgage-backed securities		34,945		(1,266	)		—		—			34,945		(1,266	)
Corporate bonds		28,060		(440	)		—		—			28,060		(440	)
Asset-backed securities		1,576		(5	)		—		—			1,576		(5	)
	$	183,352	$	(6,856	)	$	13,315	$	(138	)	$	196,667	$	(6,994	)
December 31, 2020
U.S. government and agency securities	$	12,217	$	(134	)	$	2,376	$	(18	)	$	14,593	$	(152	)
Municipal securities		30,849		(285	)		—		—			30,849		(285	)
Mortgage-backed securities		7,781		(298	)		—		—			7,781		(298	)
Corporate bonds		7,990		(10	)		—		—			7,990		(10	)
Asset-backed securities		3,817		(1	)		—		—			3,817		(1	)
	$	62,654	$	(728	)	$	2,376	$	(18	)	$	65,030	$	(746	)

The unrealized losses on the investments at March 31, 2021 and December 31, 2020 were due to market conditions as well as normal fluctuations and pricing inefficiencies.  The contractual terms of the investments do not permit the issuers to settle the securities at a price less than the amortized cost basis of the investment.  Because the Company does not intend to sell the investments

8

and it is not more-likely-than-not that the Company will be required to sell the investments before recovery of the amortized cost basis, which may be maturity, the Company did not consider these investments to be other-than-temporarily impaired at March 31, 2021 and December 31, 2020.

NOTE 4 – LOANS

The components of loans were as follows:  

	March 31,			December 31,
	2021			2020
	(dollars in thousands)
Agricultural loans	$	609,482		$	606,881
Commercial real estate loans		244,791			235,969
Commercial loans		119,083			115,087
Residential real estate loans		38,063			38,084
Installment and consumer other		245			264
Total gross loans		1,011,664			996,285
Allowance for loan losses		(15,082	)		(14,808	)
Net loans	$	996,582		$	981,477

Net unamortized deferred costs totalling $0.5 million and $0.3 million as of March 31, 2021 and December 31, 2020, respectivley, are included in the total gross loans above.

Changes in the allowance for loan losses by portfolio segment for the three months ended March 31, 2021 and 2020 were as follows: 

	For the Three Months Ended March 31, 2021
	Beginning Balance		Provision for Loan Losses			Loans Charged Off		Loan Recoveries		Ending Balance
	(dollars in thousands)
Agricultural loans	$	10,859	$	668		$	—	$	—	$	11,527
Commercial real estate loans		3,139		(282	)		—		1		2,858
Commercial loans		805		(145	)		—		31		691
Residential real estate loans		5		—			—		—		5
Installment and consumer other		—		1			—		—		1
Total	$	14,808	$	242		$	—	$	32	$	15,082
	For the Three Months Ended March 31, 2020
	Beginning Balance		Provision for Loan Losses			Loans Charged Off		Loan Recoveries		Ending Balance
	(dollars in thousands)
Agricultural loans	$	11,737	$	948		$	—	$	—	$	12,685
Commercial real estate loans		1,913		603			—		61		2,577
Commercial loans		1,599		573			—		1		2,173
Residential real estate loans		15		97			—		—		112
Installment and consumer other		3		(3	)		—		—		—
Total	$	15,267	$	2,218		$	—	$	62	$	17,547

9

The following tables present the balances in the allowance for loan losses and the recorded balance in loans by portfolio segment and based on impairment method as of  March 31, 2021 and December 31, 2020: 

	March 31, 2021
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total
	(dollars in thousands)
Allowance for loan losses:
Agricultural loans	$	4,340	$	7,187	$	11,527
Commercial real estate loans		192		2,666		2,858
Commercial loans		88		603		691
Residential real estate loans		—		5		5
Installment and consumer other		—		1		1
Total ending allowance for loan losses		4,620		10,462		15,082
Loans:
Agricultural loans		54,495		554,987		609,482
Commercial real estate loans		7,074		237,717		244,791
Commercial loans		2,786		116,297		119,083
Residential real estate loans		58		38,005		38,063
Installment and consumer other		—		245		245
Total loans		64,413		947,251		1,011,664
Net loans	$	59,793	$	936,789	$	996,582
	December 31, 2020
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total
	(dollars in thousands)
Allowance for loan losses:
Agricultural loans	$	3,504	$	7,355	$	10,859
Commercial real estate loans		672		2,467		3,139
Commercial loans		86		719		805
Residential real estate loans		—		5		5
Installment and consumer other		—		—		—
Total ending allowance for loan losses		4,262		10,546		14,808
Loans:
Agricultural loans		63,777		543,104		606,881
Commercial real estate loans		7,077		228,892		235,969
Commercial loans		2,818		112,269		115,087
Residential real estate loans		59		38,025		38,084
Installment and consumer other		—		264		264
Total loans		73,731		922,554		996,285
Net loans	$	69,469	$	912,008	$	981,477

10

The following tables present loans individually evaluated for impairment by class of loans at March 31, 2021 and December 31, 2020:

	March 31, 2021
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
	(dollars in thousands)
With no related allowance:
Agricultural loans	$	7,599	$	7,219	$	—
Commercial real estate loans		5,209		4,328		—
Commercial loans		2,244		2,237		—
Residential real estate loans		61		58		—
	$	15,113	$	13,842	$	—
With an allowance recorded:
Agricultural loans	$	51,856	$	47,276	$	4,340
Commercial real estate loans		4,582		2,746		192
Commercial loans		580		549		88
Residential real estate loans		—		—		—
	$	57,018	$	50,571	$	4,620
Total	$	72,131	$	64,413	$	4,620
	December 31, 2020
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
	(dollars in thousands)
With no related allowance:
Agricultural loans	$	20,245	$	20,120	$	—
Commercial real estate loans		288		288		—
Commercial loans		2,504		2,481		—
Residential real estate loans		61		59		—
	$	23,098	$	22,948	$	—
With an allowance recorded:
Agricultural loans	$	47,971	$	43,657	$	3,504
Commercial real estate loans		8,245		6,790		672
Commercial loans		357		336		86
Residential real estate loans		—		—		—
	$	56,573	$	50,783	$	4,262
Total	$	79,671	$	73,731	$	4,262

11

The following table presents the aging of the recorded investment in past due loans at March 31, 2021 and December 31, 2020:

	30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Total Past Due		Loans Not Past Due		Total Loans
	(dollars in thousands)
March 31, 2021
Agricultural loans	$	1,658	$	—	$	4,745	$	6,403	$	603,079	$	609,482
Commercial real estate loans		—		—		4,328		4,328		240,463		244,791
Commercial loans		—		—		56		56		119,027		119,083
Residential real estate loans		—		—		—		—		38,063		38,063
Installment and consumer other		—		—		—		—		245		245
Total	$	1,658	$	—	$	9,129	$	10,787	$	1,000,877	$	1,011,664
December 31, 2020
Agricultural loans	$	47	$	—	$	5,041	$	5,088	$	601,793	$	606,881
Commercial real estate loans		82		—		4,283		4,365		231,604		235,969
Commercial loans		—		—		96		96		114,991		115,087
Residential real estate loans		4		—		—		4		38,080		38,084
Installment and consumer other		—		—		—		—		264		264
Total	$	133	$	—	$	9,420	$	9,553	$	986,732	$	996,285

The following table presents the recorded investment in nonaccrual loans by class of loan:

	March 31,		December 31,
	2021		2020
	(dollars in thousands)
Agricultural loans	$	37,416	$	35,067
Commercial real estate loans		6,099		6,093
Commercial loans		400		405
Residential real estate loans		58		59
Total	$	43,973	$	41,624

The following tables present the average recorded investment and interest income recognized on impaired loans by portfolio segment for the three months ended March 31, 2021 and 2020:

	As of and for the Three Months Ended March 31, 2021
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized
	(dollars in thousands)
Agricultural loans	$	59,455	$	54,495	$	4,340	$	59,136	$	926
Commercial real estate loans		9,791		7,074		192		7,076		37
Commercial loans		2,824		2,786		88		2,802		40
Residential real estate loans		61		58		—		58		1
Total	$	72,131	$	64,413	$	4,620	$	69,072	$	1,004
	As of and for the Three Months Ended March 31, 2020
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized
	(dollars in thousands)
Agricultural loans	$	63,876	$	60,234	$	3,678	$	59,533	$	1,310
Commercial real estate loans		3,674		3,640		802		3,661		25
Commercial loans		2,154		1,837		1,310		1,850		48
Residential real estate loans		61		60		—		61		1
Total	$	69,765	$	65,771	$	5,790	$	65,105	$	1,384

12

Impaired loans include nonaccrual loans, troubled debt restructured loans, and loans that are 90 days or more past due and still accruing.  For nonaccrual loans included in impaired loans, the interest income that would have been recognized had those loans been performing in accordance with their original terms would have been approximately $0.6 million and $0.7 million for the three months ended March 31, 2021 and 2020, respectively.  

Troubled Debt Restructurings

The Company allocated approximately $4.6 million and $3.8 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings (“TDR”) at March 31, 2021 and December 31, 2020, respectively.  The Company had no additional lending commitments at March 31, 2021 or December 31, 2020 to customers with outstanding loans that were classified as TDRs.

A TDR on nonaccrual status is classified as a nonaccrual loan until evaluation supports reasonable assurance of repayment and there has been a satisfactory period of performance according to the modified terms of the loan.  Once this assurance is reached, the TDR is returned to accrual status.  The following table presents the TDRs and related allowance for loan losses by loan class at March 31, 2021 and December 31, 2020:

	Non-Accrual		Restructured and Accruing		Total		Allowance for Loan Losses Allocated
	(dollars in thousands)
March 31, 2021
Agricultural loans	$	26,382	$	10,630	$	37,012	$	4,273
Commercial real estate loans		1,772		975		2,747		192
Commercial loans		66		1,890		1,956		88
Total	$	28,220	$	13,495	$	41,715	$	4,553
December 31, 2020
Agricultural loans	$	27,223	$	15,690	$	42,913	$	3,494
Commercial real estate loans		1,810		984		2,794		315
Commercial loans		68		1,918		1,986		4
Total	$	29,101	$	18,592	$	47,693	$	3,813

 The following table provides the number of loans modified in a troubled debt restructuring investment by class for the three months ended March 31, 2021 and 2020:

	For the Three Months Ended
	March 31, 2021				March 31, 2020
	Number of Loans		Recorded Investment		Number of Loans		Recorded Investment
	(dollars in thousands)
Troubled debt restructurings:
Agricultural loans		1	$	299		2	$	232
Total		1	$	299		2	$	232

The following table provides the troubled debt restructurings for the three months ended March 31, 2021 and 2020 grouped by type of concession:

	For the Three Months Ended
	March 31, 2021				March 31, 2020
	Number of Loans		Recorded Investment		Number of Loans		Recorded Investment
	(dollars in thousands)
Agricultural loans
Term concessions		—	$	—		1	$	49
Extension of interest-only payments		1		299		—		—
Combination of extension of term and interest rate      concessions		—		—		1		183
Total		1	$	299		2	$	232

13

No troubled debt restructurings defaulted within twelve months of the restructure date during the three ended March 31, 2021 and March 31, 2020.

The CAA extended Section 4013 of the CARES Act which allows financial institutions to elect to suspend troubled debt restructuring accounting under certain circumstances when the temporary restructuring is related to the COVID-19 pandemic. The Company has elected to implement Section 4013, the balance of those loans modified under Section 4103 was $6.1 million at March 31, 2021.

Credit Quality Indicators

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

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

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

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

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

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

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

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

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

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

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

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

14

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

Based on the most recent analysis performed by management, the risk category of loans by class of loans was as follows as of March 31, 2021 and December 31, 2020: 

	As of  March 31, 2021
	Sound/ Acceptable/ Satisfactory/ Low Satisfactory		Watch		Special Mention		Substandard Performing		Substandard Impaired		Total Loans
	(dollars in thousands)
Agricultural loans	$	402,735	$	129,840	$	—	$	34,310	$	42,597	$	609,482
Commercial real estate loans		210,260		26,113		—		2,319		6,099		244,791
Commercial loans		106,172		9,614		605		2,331		361		119,083
Residential real estate loans		37,749		256		—		—		58		38,063
Installment and consumer other		245		—		—		—		—		245
Total	$	757,161	$	165,823	$	605	$	38,960	$	49,115	$	1,011,664
	As of December 31, 2020
	Sound/ Acceptable/ Satisfactory/ Low Satisfactory		Watch		Special Mention		Substandard Performing		Substandard Impaired		Total Loans
	(dollars in thousands)
Agricultural loans	$	374,595	$	155,546	$	1,854	$	34,452	$	40,434	$	606,881
Commercial real estate loans		200,208		26,266		—		3,402		6,093		235,969
Commercial loans		103,488		8,022		647		2,566		364		115,087
Residential real estate loans		37,758		267		—		—		59		38,084
Installment and consumer other		264		—		—		—		—		264
Total	$	716,313	$	190,101	$	2,501	$	40,420	$	46,950	$	996,285

NOTE 5 – LOAN SERVICING RIGHTS

Loans serviced for others are not included in the accompanying consolidated balance sheets.  The risks inherent in servicing assets relate primarily to changes in prepayments that result from shifts in interest rates.  The unpaid principal balances of loans serviced for others were approximately $841.9 million and $812.6 million at March 31, 2021 and December 31, 2020, respectively.  The fair value of these rights were approximately $18.9 million and $18.4 million at March 31, 2021 and December 31, 2020.  

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

The fair value of servicing rights at March 31, 2021 was determined using an assumed discount rate of 14.7% percent and a weighted average run-off rate of 16.24%, ranging from 15.67% to 24.42%, depending upon loan type, the stratification of the specific right, and nominal credit losses.  The fair value of servicing rights at December 31, 2020 was determined using an assumed discount rate of 14.3% and weighted average run-off rate of 16.59%, ranging from 16.02% to 24.72%, depending upon the stratification of the specific right, and nominal credit losses.

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

15

The following tables summarize servicing rights capitalized, along with the aggregate activity in related valuation allowances for periods indicated.

	For the Three Months Ended
	March 31, 2021
	(dollars in thousands)
Balance at December 31, 2020	$	18,396
Additions, net		1,587
Fair value changes:
Decay due to increases in principal paydowns or runoff		(271	)
Due to changes in valuation inputs or assumptions		(848	)
Balance, March 31, 2021	$	18,864
	For the Three Months Ended
	March 31, 2020
	(dollars in thousands)
Balance at January 1, 2020	$	15,921
Additions, net		505
Fair value changes:
Decay due to increases in principal paydowns or runoff		(265	)
Due to changes in valuation inputs or assumptions		50
Balance, March 31, 2020	$	16,211

NOTE 6 – DEPOSITS

Deposits are summarized as follows at March 31, 2021 and December 31, 2020:

	March 31,		December 31,
	2021		2020
	(dollars in thousands)
Demand deposits	$	139,838	$	163,202
NOW and interest checking		95,591		96,624
Savings		8,430		7,367
Money market accounts		390,742		344,250
Certificates of deposit		278,591		304,580
National time deposits		26,302		44,347
Brokered deposits		159,034		80,456
Total deposits	$	1,098,528	$	1,040,826

16

NOTE 7—ADVANCES FROM FHLB AND OTHER BORROWINGS

The Bank had advances outstanding from the FHLB in the amount of $100.0 million and $129.0 million on March 31, 2021 and December 31, 2020, respectively. These advances, rates, and maturities were as follows:

					March 31,		December 31,
	Maturity	Rate			2021		2020
					(dollars in thousands)
Fixed rate, fixed term	01/04/2021		0.23	%	$	—	$	29,000
Fixed rate, fixed term	04/12/2021		1.92	%		8,000		8,000
Fixed rate, fixed term	05/03/2021		0.00	%		4,000		4,000
Fixed rate, fixed term	06/15/2021		1.39	%		5,000		5,000
Fixed rate, fixed term	08/16/2021		2.29	%		3,000		3,000
Fixed rate, fixed term	12/30/2021		2.29	%		2,000		2,000
Fixed rate, fixed term	03/18/2022		1.03	%		15,000		15,000
Fixed rate, fixed term	03/25/2022		0.75	%		10,000		10,000
Fixed rate, fixed term	11/16/2022		0.38	%		20,000		20,000
Fixed rate, putable, 2 years no call	01/12/2023		2.03	%		8,000		8,000
Fixed rate, fixed term	03/23/2023		1.26	%		10,000		10,000
Fixed rate, fixed term	03/27/2023		0.82	%		15,000		15,000
					$	100,000	$	129,000

The terms of security agreements with the FHLB require the Bank to pledge collateral for its borrowings. The collateral consists of qualifying first mortgage loans and stock of the FHLB.  At March 31, 2021 and December 31, 2020, the Bank had pledged qualifying mortgage loans of $390.6 million and $367.6 million, respectively.

As of March 31, 2021 and December 31, 2020, the Bank also had a line-of-credit available with the Federal Reserve Bank of Chicago.  Borrowings under this line of credit are limited by the amount of collateral pledged by the Bank, which totaled $109.3 million and $111.5 million in loans at March 31, 2021 and December 31, 2020, respectively.  The borrowings available to the Company were $82.0 million and $83.3 million, as of March 31, 2021 and December 31, 2020, respectively.  There were no outstanding advances included in other borrowings at March 31, 2021 and December 31, 2020.

Other borrowings are borrowings as a result of sold loans that do not qualify for sale accounting. These agreements are recorded as financing transactions as the Bank maintains effective control over the transferred loans. The dollar amount of the loans underlying the sale agreements continues to be carried in the Bank’s loan portfolio, and the transfer is reported as a secured borrowing with pledge of collateral.  At March 31, 2021 and December 31, 2020, the amounts of these borrowings were $0.1 million and $0.2 million, respectively.

Also included in other borrowings is the financing lease for our full-service banking location in Manitowoc, Wisconsin.  This branch location was owned by the Bank and was sold to a third party in March 2020.  The Bank is leasing back a portion of the building for its full-service branch.  Under the terms of the current lease which began on March 2, 2020, the Company is obligated to pay monthly rent of $16 thousand with an initial lease term of ten years with two renewal options of five years each.  As of March 31, 2021 and December 31, 2020, the liability remaining under the financing lease was $1.3 million.  

Company largely funded the Small Business Administration’s Paycheck Protection Program (“PPP”) loans through the Federal Reserve’s PPP Liquidity Facility, which allowed for 12-month advances collateralized by PPP loans at an interest rate of 0.35%.  The balance of these advances was $47.3 million and $47.5 million at March 31, 2021 and December 31, 2020, respectively, and were secured by PPP loans of the same amount.  

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

	March 31,			December 31,
	2021			2020
	(dollars in thousands)
Balance outstanding at end of period	$	48,674		$	49,006
Average amount outstanding during the period		51,220			61,483
Maximum amount outstanding at any month-end		56,299			93,709
Weighted average interest rate during the period		0.38	%		0.42	%
Weighted average interest rate at end of period		0.39	%		0.39	%

17

NOTE 8 — SUBORDINATED DEBENTURES

The following is a summary of the carrying values, including unamortized issuance costs, of the Company’s subordinated debt as of the dates indicated:

	As of March 31, 2021								As of December 31, 2020
	Balance Outstanding		Interest Rate			Interest Reset Date	Call Date	Maturity Date	Balance Outstanding
	(dollars in thousands)
Junior subordinated notes issued    to County Bancorp Statutory    Trust II (1)(2)	$	6,186		1.71	%	06/15/2021	N/A	09/15/2035	$	6,186
Junior subordinated notes issued    to County Bancorp Statutory    Trust III (1)(3)		6,186		1.87	%	06/15/2021	N/A	06/15/2036		6,186
Junior subordinated notes issued to    Fox River Valley Capital Trust I (4)		3,348		6.40	%	11/30/2023	N/A	05/30/2033		3,336
5.875% Fixed-to-Floating rate    subordinated notes (5)		29,592		5.875	%	06/01/2023	06/01/2023	06/01/2028		29,545
7.00% Fixed-to-Floating rate    subordinated notes (6)		21,867		7.00	%	06/30/2025	06/30/2025	06/30/2030		21,858
Total subordinated debentures	$	67,179							$	67,111

(1) The company formed wholly owned subsidiary business trusts County Bancorp Statutory Trust II (“Trust II”) and County Bancorp Statutory Trust III (“Trust III”) (together, the “Trusts”), which are both Delaware statutory trusts.  The Company owns all of the outstanding common securities of Trust II and Trust III, which qualify as Tier 1 capital for regulatory purposes. The Trusts used the proceeds from the issuance of their capital securities to buy floating rate junior subordinated deferrable interest debentures (“debentures”) issued by the Company. These debentures are the Trusts’ only assets, and interest payments from these debentures finance the distributions paid on the capital securities. These debentures are unsecured, rank junior, and are subordinate in the right of payment to all senior debt of the Company.  

(2) The debentures issued to Trust II bear an interest rate of three-month LIBOR plus 1.53% through maturity.

(3) The debentures issued to Trust III bear an interest rate of three-month LIBOR plus 1.69% through maturity.

(4) In connection with the merger with Fox River Valley, the Company acquired all of the common securities of Fox River Valley’s wholly-owned subsidiary, Fox River Valley Capital Trust I, a Delaware statutory trust (the “FRV Trust I”), which qualify as Tier 1 capital for regulatory purposes.  The debentures of the Company owned by FRV Trust I carry an interest rate equal to 5-year LIBOR plus 3.40%, which resets every five years.  

(5) The notes bear interest at a fixed rate of 5.875% per year, from and including May 30, 2018 to, but excluding, June 1, 2023. From and including June 1, 2023 to, but excluding, the maturity date or early redemption date, the interest rate will reset quarterly at a variable rate equal to the then current 3-month LIBOR plus 2.88%.  The notes qualify as Tier II capital of the Company.  Debt issuance costs of $0.9 million are being amortized over the life of the notes.

(6) The notes bear interest at a fixed rate of 7.00% per year, from and including June 30, 2020 to, but excluding, June 30, 2025. From and including June 30, 2025 to, but excluding, the maturity date or early redemption date, the interest rate will reset quarterly at a variable rate equal to the then current three-month term secured overnight financing rate (SOFR) plus 687.5 basis points.  The notes qualify as Tier II capital of the Company.  The Company incurred $0.6 million of costs related to the issuance of the notes.  These costs have been capitalized and are being amortized over the life of the notes.  

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NOTE 9 – EQUITY INCENTIVE PLAN

Under the Company’s 2016 Long Term Incentive Plan (the “Plan”), the Company may grant options to purchase shares of common stock and issue restricted stock to its directors, officers, and employees.  Both qualified and non-qualified stock options and restricted stock may be granted and issued, respectively, under the Plan.  As of March 31, 2021, 25,406 options or shares of restricted stock remained available under the Plan.

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

The status of the Plan as of March 31, 2021 and changes in the Plan during the three months ended March 31, 2021 were as follows:

	March 31, 2021
	Number of Options			Weighted-Average Exercise Price		Aggregate Intrinsic Value (1)
	(dollars in thousands except option and per share data)
Outstanding, beginning of year		249,667		$	19.75
Granted		—			—
Exercised		(6,206	)		13.18
Forfeited/expired		(7,797	)		19.77
Outstanding, end of period		235,664		$	19.92	$	1,601
Options exercisable at period-end		174,691		$	19.87	$	801
Weighted-average fair value of options granted during    the period (2)				$	—

(1) The aggregate intrinsic value of a stock option in the table above represents the total pre-tax intrinsic value (the amount by which the current market value of the underlying stock exceeds the exercise price of the option) that would have been received by the option holders had all option holders exercised their options on March 31, 2021. This amount changes based on changes in the market value of the Company’s stock.

(2) The fair value (present value of the estimated future benefit to the option holder) of each option grant is estimated on the date of grant using the Black-Scholes option pricing model.

Activity in restricted stock awards and restricted stock units for the three months ended March 31, 2021 was as follows:

	March 31, 2021
	Restricted Stock Awards			Weighted Average Grant Price
Outstanding, beginning of year		6,299		$	24.80
Granted		—			—
Vested		(3,500	)		22.90
Forfeited/expired		(493	)		27.15
Outstanding, end of period		2,306		$	27.19

	March 31, 2021
	Restricted Stock Units			Weighted Average Grant Price
Outstanding, beginning of year		66,856		$	19.38
Granted		32,853			22.53
Vested		(11,879	)		19.50
Forfeited/expired		(3,332	)		18.25
Outstanding, end of period		84,498		$	20.63
Restricted shares vested not yet issued, end of period		9,779		$	23.61

For the three months ended March 31, 2021 and 2020, share-based compensation expense, including options and restricted stock awards and units, applicable to the Plan was $0.3 million.

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As of March 31, 2021, unrecognized share-based compensation expense related to nonvested share-based compensation instruments amounted to $1.2 million and is expected to be recognized over a weighted average period of 1.95 years.

NOTE 10 – REGULATORY MATTERS

The Company (on a consolidated basis) and Bank are each subject to various regulatory capital requirements administered by the federal and state banking agencies.  The Basel III rules, a comprehensive capital framework for U.S. banking organizations, includes quantitative measures designed to ensure capital adequacy.  The Basel III rules designed the capital conservation buffer to absorb losses during periods of economic stress and effectively increase the minimum required risk-weighted capital ratios.  The Basel III rules require the Company and the Bank to maintain:

(i) Tier 1 Common Equity ratio to risk weighted assets minimum of 4.50% plus a 2.50% “capital conservation buffer” (effectively resulting in minimum Tier 1 Common Equity ratio of 7.00%);

(ii) Tier 1 Capital ratio to risk weighted assets minimum of 6.00% plus the capital conservation buffer (effectively resulting in a minimum Tier 1 Capital to risk-based capital ratio of 8.50%);

(iii) Total Capital ratio to risk weighted assets minimum of 8.00% plus the capital conservation buffer (effectively resulting in a minimum Total Capital to risk weighted assets ratio of 10.50%); and

(iv) Tier 1 Leverage Capital ratio minimum of 4.00%.   

Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s and Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action (applicable only to the Bank), the Company and Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.  Management believed, as of March 31, 2021 and December 31, 2020, that the Company and Bank met all capital adequacy requirements to which they were subject.

As of March 31, 2021, the most recent notification from the banking regulators categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There were no conditions or events since the notification that management believes have changed the Bank’s category

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

	Actual					Minimum For Capital Adequacy Purposes (including the capital conservation buffer):					Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions:
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(dollars in thousands)
March 31, 2021
Total Capital (to risk weighted assets):
Consolidated	$	247,772		19.11	%	$	136,164		10.50	%	Not applicable
Bank		215,631		16.68	%		135,755		10.50	%	$	129,291		10.00	%
Tier 1 Capital (to risk weighted assets):
Consolidated		181,231		13.98	%	$	110,228		8.50	%	Not applicable
Bank		200,549		15.51	%		109,897		8.50	%		103,433		8.00	%
Tier 1 Capital (to average assets):
Consolidated		181,231		12.69	%		57,125		4.00	%	Not applicable
Bank		200,549		13.88	%		57,790		4.00	%		72,237		5.00	%
Tier 1 Common Equity Ratio (to risk    weighted assets):
Consolidated		157,511		12.15	%	$	90,776		7.00	%	Not applicable
Bank		200,549		15.51	%		90,504		7.00	%		84,039		6.50	%
December 31, 2020
Total Capital (to risk weighted assets):
Consolidated	$	246,275		19.50	%	$	132,603		10.50	%	Not applicable
Bank		211,864		16.83	%		132,174		10.50	%	$	125,880		10.00	%
Tier 1 Capital (to risk weighted assets):
Consolidated		180,135		14.26	%		107,345		8.50	%	Not applicable
Bank		197,056		15.65	%		106,998		8.50	%		100,704		8.00	%
Tier 1 Capital (to average assets):
Consolidated		180,135		13.01	%		55,403		4.00	%	Not applicable
Bank		197,056		14.06	%		56,047		4.00	%		70,059		5.00	%
Tier 1 Common Equity Ratio (to risk    weighted assets):
Consolidated		156,427		12.39	%		88,402		7.00	%	Not applicable
Bank		197,056		15.65	%		88,116		7.00	%		81,822		6.50	%

NOTE 11 – FAIR VALUE MEASUREMENTS

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

ASC 820-10 requires the use of valuation techniques that are consistent with the market approach, the income approach, and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs reflect the reporting entity’s own

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assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, ASC 820-10 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

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

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

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

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

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

Securities Available-for-Sale

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

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

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

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Loan Servicing Rights

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

Derivative Instruments

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

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

	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
	(dollars in thousands)
March 31, 2021
Securities available for sale:
U.S. government and agency securities	$	—	$	13,315	$	—	$	13,315
Municipal securities		—		160,096		—		160,096
Mortgage-backed securities		—		153,400		—		153,400
Corporate bonds		—		41,813		—		41,813
Asset-backed securities		—		16,616		—		16,616
Loan servicing rights (1)		—		—		18,864		18,864
Total assets at fair value	$	—	$	385,240	$	18,864	$	404,104
Derivative instruments, interest rate swaps		—		1,176		—		1,176
Total liabilities at fair value	$	—	$	1,176	$	—	$	1,176
December 31, 2020
Securities available for sale:
U.S. government and agency securities	$	—	$	14,593	$	—	$	14,593
Municipal securities		—		153,654		—		153,654
Mortgage-backed securities		—		135,378		—		135,378
Corporate bonds		—		32,511		—		32,511
Asset-backed securities		—		16,718		—		16,718
Loan servicing rights (1)		—		—		18,396		18,396
Total assets at fair value	$	—	$	352,854	$	18,396	$	371,250
Derivative instruments, interest rate swaps		—		1,914		—		1,914
Total liabilities at fair value	$	—	$	1,914	$	—	$	1,914

(1) See Note 5 for quantitative information on the significant inputs and a rollforward of activity related to the loan servicing rights.

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

	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
	(dollars in thousands)
March 31, 2021
Impaired loans	$	—	$	—	$	45,951
Other real estate owned		—		—		739
Total assets at fair value	$	—	$	—	$	46,690
December 31, 2020
Impaired loans	$	—	$	—	$	46,521
Other real estate owned		—		—		1,077
Total assets at fair value	$	—	$	—	$	47,598

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

March 31, 2021
	Valuation Techniques	Unobservable Inputs	Range (Average)
Impaired loans	Evaluation of collateral	Estimation of value	NM*
Other real estate owned	Appraisal	Appraisal adjustment	6%-7% (7%)
December 31, 2020
	Valuation Techniques	Unobservable Inputs	Range (Average)
Impaired loans	Evaluation of collateral	Estimation of value	NM*
Other real estate owned	Appraisal	Appraisal adjustment	6%-9% (7%)

 * Not Meaningful. Evaluations of the underlying assets are completed for each impaired loan with a specific reserve. The types of collateral vary widely and could include accounts receivable, inventory, a variety of equipment, and real estate. Collateral evaluations are reviewed and discounted as appropriate based on knowledge of the specific type of collateral. In the case of real estate, an independent appraisal may be obtained. Types of discounts considered include aging of receivables, condition of the collateral, potential market for the collateral, and estimated disposal costs. These discounts will vary from loan to loan, thus providing a range would not be meaningful.

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

	March 31,				December 31,
	2021				2020
	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Input Level
	(dollars in thousands)
Financial assets:
Cash and cash equivalents	$	17,404	$	17,404	$	19,084	$	19,084	1
Interest earning cash at other financial institutions		416		416		416		416	1
FHLB Stock		5,875		5,875		5,758		5,758	2
Securities available for sale		385,240		385,240		352,854		352,854	2
Loans, net of allowance for loan losses		996,582		1,004,518		981,477		991,342	3
Loans held for sale		5,788		5,788		35,976		35,976	3
Accrued interest receivable		4,060		4,060		3,240		3,240	2
Loan servicing rights		18,864		18,864		18,396		18,396	3
Financial liabilities:
Deposits:
Time		463,927		457,095		419,542		426,092	2
Other deposits		634,601		634,601		621,284		621,284	1
Other borrowings		48,674		48,674		49,006		49,006	3
Advances from FHLB		100,000		101,068		129,000		130,361	2
Subordinated debentures		67,179		66,179		67,111		67,111	3
Accrued interest payable		2,536		2,536		2,496		2,496	2
Derivative instruments, interest rate swaps		1,176		1,176		1,914		1,914	2

NOTE 12 – OTHER REAL ESTATE OWNED

Changes in other real estate owned were as follows:

	For the Three Months Ended
	March 31,
		2021			2020
	(dollars in thousands)
Balance, beginning of period	$	1,077		$	5,521
Assets foreclosed		—			—
Write-down of other real estate owned		—			(1,360	)
Net loss on sales of other real estate owned		(17	)		(4	)
Proceeds from sale of other real estate owned		(321	)		(910	)
Balance, end of period	$	739		$	3,247

Expenses applicable to other real estate owned included in non-interest expense included the following:

	For the Three Months Ended
	March 31,
		2021			2020
	(dollars in thousands)
Net loss on sales of other real estate owned	$	(17	)	$	(4	)
Write-down of other real estate owned		—			(1,360	)
Operating expenses, net of rental income		(19	)		(116	)
	$	(36	)	$	(1,480	)

NOTE 13 – DERIVATIVE FINANCIAL INSTRUMENTS

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

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The Company had two outstanding interest rate swaps designated as a cash flow hedge each with an aggregate notional value of $6.0 million at March 31, 2021 and December 31, 2020.  Both interest rate swaps mature on June 15, 2028. A pre-tax unrealized gain of $0.7 million was recognized in accumulated other comprehensive income for the three months ended March 31, 2021, and a pre-tax loss of $1.2 million was recognized in accumulated other comprehensive income for the three months ended March 31, 2020.  There was no ineffective portion of this hedge.   

The Company is exposed to credit risk in the event of nonperformance by the interest rate swaps counterparty.  The Company minimizes this risk by entering into derivative contracts with only large, stable financial institutions, and the Company has not experienced, and does not expect, any losses from counterparty nonperformance on the interest rate swaps. The Company monitors counterparty risk in accordance with the provisions of FASB ASC 815.  In addition, the interest rate swap agreements contain language outlining collateral-pledging requirements for each counterparty.  Collateral must be posted when the market value exceeds certain threshold limits.  Derivative contracts are executed with a Credit Support Annex, which is a bilateral ratings-sensitive agreement that requires collateral postings at established credit threshold levels.  These agreements protect the interests of the Company and its counterparties should either party suffer a credit rating deterioration.  The Company was required to pledge $2.4 million of cash as collateral to the counterparty as of March 31, 2021.

NOTE 14 – SUBSEQUENT EVENTS

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

There were no other significant events or transactions occurring after March 31, 2021, but prior to May 7, 2021, that provided additional evidence about conditions that existed at March 31, 2021.

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

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

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

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

• government intervention in the U.S. financial system in response to the COVID-19 pandemic, including the effects of recent legislative, tax, accounting and regulatory actions and reformst;

• adverse changes in the economic conditions of our market area and of the agriculture market generally, dairy in particular;

• adverse changes in the financial services industry and national and local real estate markets (including real estate values);

• competition among depository and other financial institutions, as well as financial technology (FinTech) companies and other non-traditional competitors;

• risks related to a high concentration of dairy-related collateral located in our market area;

• credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and in our     allowance for loan losses and provision for loan losses;

• the failure of assumptions and estimates underlying the establishment of our allowance for loan losses and estimation of values of collateral and various financial assets and liabilities;

• interest rate risks associated with our business;

• fluctuations in the values of the securities held in our securities portfolio;

• changes in U.S. monetary policy, the level and volatility of interest rates, the capital markets and other market conditions that may affect, among other things, our liquidity, our net interest margin, our funding sources and the value of our assets and liabilities;

• our success in introducing new financial products;

• our ability to attract and maintain deposits;

• fluctuations in the demand for loans, which may be affected by numerous factors, including commercial conditions in our market areas and declines in the value of real estate in our market areas;

• changes in consumer spending, borrowing and saving habits that may affect deposit levels;

• costs or difficulties related to the integration of the business of acquired entities and the risk that the anticipated benefits, cost savings and any other savings from such transactions may not be fully realized or may take longer than expected to realize;

• our ability to enter new markets successfully and capitalize on growth opportunities, execute our strategic plan, and manage our growth;

• any negative perception of our reputation or financial strength;

• our ability to raise additional capital on acceptable terms when needed;

• changes in laws or government regulations or policies affecting financial institutions, including changes in banking, consumer protection, securities, trade, and tax laws and regulations, and any increased costs of compliance with such laws and regulations;

• changes in accounting policies and practices, including the implementation of CECL;

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• our ability to retain key members of our senior management team;

• our ability to successfully manage liquidity risk;

• the effectiveness of our risk management framework;

• the occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents and our ability to identify and address such incidents;

• interruptions involving our information technology and telecommunications systems or third-party servicers;

• changes in benchmark interest rates used to price our loans and deposits, including the expected elimination of the London Interbank Offered Rate (“LIBOR”) and the adoption of a substitute;

• the extensive regulatory framework that applies to us and our compliance with governmental and regulatory requirements including the Dodd-Frank Act, the Basel III Rule and others relating to banking, consumer protection, securities and tax matters;

• rapid technological change in the financial services industry;

• the effects of severe weather, natural disasters, acts of war or terrorism, widespread disease or pandemics, including the COVID-19 pandemic, and other external events;

• the impact of any claims, legal actions, litigation, and other legal proceedings and regulatory actions against us, including any effect on our reputation;

• the effect of tariffs, trade agreements, and other domestic or international governmental policies impacting the value of the agricultural or other products of our borrowers; and

• each of the factors and risks identified in the “Risk Factors” section included in this Form 10-Q and under Item 1A of Part I of our most recent Annual Report on Form 10-K.

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

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

Overview

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

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

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

There have been no material changes to the critical accounting policies included in the 2020 Form 10-K filed on March 12, 2021.

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Significant Developments – Impact of COVID-19

The COVID-19 pandemic in the United States has had an adverse impact on our financial condition and results of operations as of and for the three months ended March 31, 2021 and 2020, and has had a complex and adverse impact on the economy and the banking industry and is expected to continue to adversely impact the Company in future fiscal periods, all subject to a high degree of uncertainty.

Effects on Our Market Areas.  Our commercial and consumer banking products and services are offered primarily in Wisconsin, where individual and governmental responses to the COVID-19 pandemic have led to a broad curtailment of economic activity beginning in March 2020.  A stay-at-home order was imposed in March 2020, and on May 13, 2020, businesses and social gatherings began reopening based on local ordinances in a phased-in approach, subject to public health reopening guidelines, including social distancing and limitations on capacity.  

The Bank and its branches remained open during these orders because banks were deemed essential businesses although lobbies were initially closed from March 18, 2020, to June 22, 2020 and again from October 13, 2020 to March 1, 2021.  Based on the current environment, it is unclear how communities in Wisconsin will change, relax, or impose new stay-at-home and social distancing policies, including as a result of the availability of vaccines, and how that will impact the economy and our customers.

Across the United States, as a result of the curtailment of business activities since March 2020, many states have experienced a dramatic increase in unemployment levels. According to the U.S. Bureau of Labor Statistics, the unemployment rate in Wisconsin (on a seasonally adjusted basis) increased from 3.1% in March 2020 to 13.6% in April 2020, and subsequently decreased to 3.8% in March 2021 (based on preliminary numbers).

Policy and Regulatory Developments.  Federal, state and local governments and regulatory authorities have enacted and issued a range of policy responses to the COVID-19 pandemic, including the following:

• The Federal Reserve decreased the range for the federal funds target rate by 0.5% on March 3, 2020, and by another 1.0% on March 16, 2020, reaching the current range of 0.0 – 0.25%.

• On March 27, 2020, President Trump signed the CARES Act, which established a $2.0 trillion economic stimulus package, including cash payments to individuals, supplemental unemployment insurance benefits and a $349 billion loan program administered through the U.S. Small Business Administration (“SBA”), referred to as the PPP.  The Bank participates as a lender in the PPP. After the initial $349 billion in funds for the PPP was exhausted, an additional $310 billion in funding for PPP loans was authorized.  In addition in December 2020, President Trump signed the Consolidated Appropriations Act, 2021, a $900.0 billion COVID-19 relief package that included an additional $284.5 billion in PPP funding.  In March 2021, President Biden signed the American Rescue Plan Act of 2021, a $1.9 trillion economic stimulus package that includes cash payments to individuals, supplemental unemployment insurance, and modifications and expansion of the PPP.  In March 2021, President Biden also signed the PPP Extension Act of 2021, which extended the PPP application deadline to May 31, 2021.

• The CARES Act provides financial institutions the option to temporarily suspend certain requirements under GAAP related to TDRs for a limited period of time to account for the effects of COVID-19.  In addition on April 7, 2020, federal banking regulators issued a revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions, which, among other things, encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19, and stated that institutions generally do not need to categorize COVID-19-related modifications as TDRs and that the agencies will not direct supervised institutions to automatically categorize all COVID-19 related loan modifications as TDRs.  The FDIC and the Board of Governors of the Federal Reserve System, in consultation with state financial regulators, issued a revision to the Interagency Statement on Loan Modifications by Financial Institutions Working with Customers Affected by the Coronavirus issued on March 22, 2020. The revised interagency statement encourages financial institutions to work constructively with borrowers impacted by COVID-19, provides additional information regarding loan modifications, and clarifies the interaction between the interagency statement and related relief provided by the CARES Act.  The Statement provides guidance on handling payment modification requests for impacted borrowers without triggering TDR classifications, by allowing up to 6-months of payment deferrals or interest only to assist our customers at this time.  

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

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

• In response to the interagency statement encouraging financial institutions to work with borrowers impacted by COVID-19, between March 31, 2020 and March 31, 2021, we processed 184 customer payment modification requests for customers who had loan balances of $200.4 million, and at March 31, 2021, five customers remained on payment relief with loan balances totaling $6.1 million,

• The Bank processed 904 PPP loan applications in round one, totaling $106.2 million, and 461 applications in round two totaling $32.6 million in the first quarter of 2021.  These loans are being funded through borrowings from the Federal Reserve’s PPP Liquidity Facility so as not to reduce the Bank’s available liquidity.  As of March 31, 2021, there were $46.3 million of PPP loans (rounds one and two) outstanding.  We are currently working with PPP borrowers to help them through the process of forgiveness of their PPP loans.

• Approximately 80% of the Bank’s employees are working remotely as of March 31, 2021.  In our branch network, the drive thrus are open, and the lobbies reopened to the public on March 1, 2021.

• There are no current plans to suspend our common stock repurchase plan or common stock dividend.  The Board and management will continue to evaluate our capital plans as our credit metrics and capital levels change.  In addition, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, we will not be permitted to make capital distributions (including for dividends and repurchases of stock) or pay discretionary bonuses to executive officers without restriction if we do not maintain greater than 2.5% in Common Equity Tier 1 Capital attributable to a capital conservation buffer.

Operational Overview

• Net income for the three months ended March 31, 2021 was $3.9 million, compared to $4.5 million for the three months ended December 31, 2020, and a net loss of $5.2 million for the three months ended March 31, 2020.  The year-over-year increase was primarily the result of $5.0 million of goodwill impairment during the first quarter of 2020 and $2.0 million decrease in provision for loan losses for the three months ended March 31, 2021.

• Total securities available-for-sale increased $32.4 million, or 9.2% from December 31, 2020 to $385.2 million at March 31, 2021, and increased $139.1 million, or 56.5%, since March 31, 2020.

• Total loans increased $15.4 million, or 1.5%, from December 31, 2020 to $1.0 billion at March 31, 2021, and decreased $0.8 million, or 0.1%, from March 31, 2020.  

• Participated and sold loans that we continue to service totaled $841.9 million at March 31, 2021, an increase of $29.3 million, or 3.6%, since December 31, 2020, and an increase of $94.3 million, or 12.6%, since March 31, 2020.

• Non-performing assets increased $2.0 million, or 4.7%, since December 31, 2020, to $44.7 million at March 31, 2021, and increased $9.4 million, or 26.7%, since March 31, 2020.

• Client deposits (demand, NOW accounts and interest checking, savings, money market accounts, and certificates of deposit) decreased $2.8 million, or 0.3%, since December 31, 2020, to $913.2 million at March 31, 2021, and increased $121.5 million, or 15.3%, since March 31, 2020.

• Cost of funds on interest bearing deposits decreased 22 basis points since the quarter ended December 31, 2020 to 0.91%, and decreased 92 basis points since the quarter ended March 31, 2021.

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Selected Financial Data

	As of and for the						As of and for the
	Three Months Ended						Year Ended
	March 31, 2021			March 31, 2020			December 31, 2020
	(unaudited)
	(Dollars in thousands, except per share data)
Selected Income Statement Data:
Interest income	$	13,715		$	14,095		$	55,475
Interest expense		3,497			5,297			18,499
Net interest income		10,218			8,798			36,976
Provision for loan losses		242			2,218			2,984
Net interest income after provision for loan losses		9,976			6,580			33,992
Non-interest income		3,712			2,703			14,250
Non-interest expense		8,764			15,018			39,645
Income tax expense (benefit)		996			(547	)		3,118
Net income	$	3,928		$	(5,188	)	$	5,479
Per Common Share Data:
Basic earnings (loss) per common share	$	0.62		$	(0.79	)	$	0.79
Diluted earnings (loss) per common share	$	0.62		$	(0.78	)	$	0.79
Adjusted diluted earnings (loss) per common share (1)	$	0.62		$	(0.04	)	$	1.56
Cash dividends per common share	$	0.10		$	0.07		$	0.31
Book value per share, end of period	$	25.99		$	24.17		$	26.42
Tangible book value per share, end of period (1)	$	25.98		$	24.15		$	26.42
Weighted average common shares - basic		6,202,260			6,700,329			6,477,173
Weighted average common shares - diluted		6,236,725			6,749,401			6,505,198
Common shares outstanding, end of period		6,094,450			6,496,790			6,197,965
Selected Balance Sheet Data:
Total assets	$	1,491,328		$	1,354,974		$	1,472,358
Securities available-for-sale		385,240			246,148			352,854
Total loans		1,011,664			1,012,436			996,285
Allowance for loan losses		(15,082	)		(17,547	)		(14,808	)
Total deposits		1,098,528			1,019,960			1,040,826
Other borrowings and FHLB advances		148,674			111,593			178,006
Subordinated debentures		67,179			44,896			67,111
Total shareholders' equity		166,337			165,046			171,776
Performance Ratios:
Return on average assets (annualized)		1.06	%		(1.53	)%		0.38	%
Return on average shareholders' equity (annualized)		9.11	%		(11.97	)%		3.22	%
Return on average common shareholders' equity (1)		9.29	%		(12.81	)%		3.15	%
Equity to assets ratio		11.15	%		12.18	%		11.67	%
Net interest margin		2.95	%		2.74	%		2.68	%
Interest rate spread		2.73	%		2.37	%		2.37	%
Non-interest income to average assets (annualized)		1.00	%		0.80	%		1.19	%
Non-interest expense to average assets (annualized)		2.37	%		4.43	%		2.58	%
Net overhead ratio (annualized) (2)		1.36	%		3.64	%		1.40	%
Efficiency ratio (1)		62.79	%		74.92	%		66.09	%
Dividend payout ratio		16.13	%		(8.97	)%		39.24	%
Asset Quality Ratios:
Adverse classified asset ratio (1)		39.61	%		32.35	%		39.43	%
Non-performing loans to total loans (3)		4.35	%		3.17	%		4.18	%
Allowance for loan losses to:
Total loans		1.49	%		1.73	%		1.49	%
Non-performing loans		34.30	%		54.75	%		35.58	%
Net charge-offs to average loans		0.00	%		(0.01	)%		0.32	%
Non-performing assets to total assets (3)		3.00	%		2.61	%		2.90	%

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(1) Adjusted diluted earnings per common share, tangible book value per share, return on average common shareholders’ equity, efficiency ratio, and adverse classified asset ratio are not recognized under GAAP and are therefore considered to be non-GAAP financial measures.  See below for reconciliations of these financial measures to their most comparable GAAP measures.

(2) Net overhead ratio represents the difference between noninterest expense and noninterest income, divided by average assets.

(3) Non-performing loans consist of nonaccrual loans.  Non-performing assets consist of nonaccrual loans and other real estate owned.  

	As of
	March 31, 2021			March 31, 2020
	(unaudited)
Capital Ratios:
Shareholders' common equity to assets		10.62	%		11.59	%
Total capital to risk-weighted assets (Bank)		16.68	%		17.95	%
Tangible common equity to tangible assets (1)		10.62	%		11.58	%

(1) Tangible common equity to tangible assets is not recognized under GAAP and is therefore considered to be a non-GAAP financial measure.  See below for reconciliations of this financial measure to its most comparable GAAP measure.

Non-GAAP Financial Measures

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

	Three Months Ended						Year Ended
	March 31, 2021			March 31, 2020			December 31, 2020
	(dollars in thousands)
Efficiency Ratio GAAP to Non-GAAP reconciliation:
Non-interest expense	$	8,764		$	15,018		$	39,645
Less: goodwill impairment		—			(5,038	)		(5,038	)
Less: historical tax credit investment    impairment		—			(1,364	)		—
Less: net loss on sales and write-downs of    OREO		(17	)		—			(1,195	)
Adjusted non-interest expense (non-GAAP)	$	8,747		$	8,616		$	33,412
Net interest income	$	10,218		$	8,798		$	36,976
Non-interest income		3,712			2,703			14,250
Less: net gain on sales of securities		—			—			(671	)
Operating revenue	$	13,930		$	11,501		$	50,555
Efficiency ratio		62.79	%		74.92	%		66.09	%

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

	Three Months Ended						Year Ended
	March 31, 2021			March 31, 2020			December 31, 2020
Return on Average Common Shareholders' Equity    GAAP to Non-GAAP reconciliation:
Return on average shareholders' equity		9.11	%		(11.97	)%		3.22	%
Effect of excluding average preferred     shareholders' equity		0.18	%		(0.84	)%		(0.07	)%
Return on average common shareholders'     equity		9.29	%		(12.81	)%		3.15	%

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

	March 31, 2021			March 31, 2020			December 31, 2020
	(dollars in thousands, except per share data)
Tangible book value per share and tangible common    equity to tangible assets reconciliation:
Common equity	$	158,338		$	157,046		$	163,776
Less: Core deposit intangible, net of amortization		29			171			54
Tangible common equity	$	158,309		$	156,875		$	163,722
Common shares outstanding		6,094,450			6,496,790			6,197,965
Tangible book value per share	$	25.98		$	24.15		$	26.42
Total assets	$	1,491,328		$	1,354,974		$	1,472,358
Less: Core deposit intangible, net of amortization		29			171			54
Tangible assets	$	1,491,299		$	1,354,803		$	1,472,304
Tangible common equity to tangible assets		10.62	%		11.58	%		11.12	%

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

	Three Months Ended						Year Ended
	March 31, 2021			March 31, 2020			December 31, 2020
	(dollars in thousands, except per share data)
Adjusted diluted earnings per share:
Net income from continuing operations	$	3,928		$	(5,188	)	$	5,479
Less:  preferred stock dividends		(81	)		(108	)		(367	)
Plus: goodwill impairment		—			5,038			5,038
Adjusted income available to common shareholders         for basic earnings per common share	$	3,847		$	(258	)	$	10,150
Weighted average number of common shares         outstanding		6,202,260			6,703,990			6,477,173
Effect of dilutive options		34,465			49,072			28,025
Weighted average number of common shares         outstanding used to calculate diluted earnings         per common share		6,236,725			6,753,062			6,505,198
Adjusted diluted earnings per share	$	0.62		$	(0.04	)	$	1.56

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

	March 31, 2021			March 31, 2020
	(dollars in thousands, except per share data)
Adverse classified asset ratio:
Substandard loans		88,075			71,694
Other real estate owned		739			3,247
Substandard unused commitments		5,091			2,840
Less: Substandard government guarantees		(8,485	)		(7,699	)
Total adverse classified assets (non-GAAP)	$	85,420		$	70,082
Total equity (Bank)	$	202,200		$	204,089
Accumulated other comprehensive gain on available-for-sale         securities		(1,651	)		(5,012	)
Allowance for loan losses		15,082			17,547
Adjusted total equity (non-GAAP)	$	215,631		$	216,624
Adverse classified asset ratio		39.61	%		32.35	%

Results of Operations

Our operating revenue is comprised of interest income and non-interest income.  Net interest income increased by 16.1% to $10.2 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily attributable to a 92 basis point decrease in rates paid on interest bearing deposits that contributed to the decrease in interest expense by $2.3 million.  The decrease in cost of funds was coupled with a $1.1 million decrease in interest income on loans which was primarily attributable to a 28 basis point decrease in loan yield on an average balance that was $15.1 million lower than the comparable quarter.  

Interest income decreased $0.4 million to $13.7 million for the first quarter of 2021 compared to $14.1 million for the first quarter of 2020, which resulted mainly from a decrease in average loan balance and a decline in loan yields from 4.89% for the first quarter of 2020 to 4.61% for the first quarter of 2021, which was only partially offset by a net increase of $0.7 million in interest income from investment securities and interest-bearing deposits due from other banks from the first quarter of 2020.  

PPP loans contributed $1.0 million in interest and related SBA fee income for the three months ended March 31, 2021.  There was no PPP income for the three months ended March 31, 2020.  The following table shows the accretive effect the SBA PPP loans had on net interest margin for the three months ended March 31, 2021:

	For the Three Months Ended
	March 31, 2021
Net interest margin excluding PPP loans		2.74	%
Accretion related to PPP loans:
Yield on PPP loans		(0.06	)%
Yield on PPP loan SBA fees		0.29	%
Interest expense on PPP Liquidity Facility    programs		(0.02	)%
Total accretion related to PPP loans		0.21	%
Total net interest margin		2.95	%

Interest expense decreased from $5.3 million for the first quarter of 2020 to $3.5 million for the first quarter of 2021, which was primarily the result of a 79 basis point decrease in the rate paid on interest-bearing liabilities.  The decline in average rate was primarily the result of the Federal Reserve’s decrease to the target federal funds rate in March 2020 and our focused efforts to increase customer transactional deposits which have a lower rate than time deposits.  Rates paid on savings, NOW, money market, and interest checking accounts decreased from 0.92% for the quarter ended March 31, 2020 to 0.32% for the quarter ended March 31, 2021, and the average balance increased by $0.1 million between the two periods.  Rates paid on time deposits decreased from 2.33% for the quarter ended March 31, 2020 to 1.55% for the quarter ended March 31, 2021, and the average balance decreased by $0.2 million between the same periods.

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Analysis of Net Interest Income

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

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

The following tables reflect the components of net interest income for the three months ended March 31, 2021 and 2020:

	Three Months Ended
	March 31, 2021								March 31, 2020
	Average Balance (1)			Income/ Expense		Yields/ Rates			Average Balance (1)			Income/ Expense		Yields/ Rates
	(dollars in thousands)
Assets
Investment securities	$	372,235		$	2,187		2.38	%	$	196,353		$	1,289		2.63	%
Loans excluding PPP loans(2)		969,429			10,479		4.38	%		1,028,637			12,582		4.89	%
PPP loans - round 1 (2)		27,252			961		14.30	%		—			—		—
PPP loans - round 2 (2)		16,857			83		2.01	%		—			—		—
Total loans (2)		1,013,538			11,523		4.61	%		1,028,637			12,582		4.89	%
Interest bearing deposits due from other banks		19,949			5		0.10	%		60,825			225		1.48	%
Total interest-earning assets	$	1,405,722		$	13,715		3.96	%	$	1,285,815		$	14,096		4.39	%
Allowance for loan losses		(14,932	)							(15,330	)
Other assets		90,109								84,461
Total assets	$	1,480,899							$	1,354,946
Liabilities
Savings, NOW, money market, interest checking	$	477,159		$	380		0.32	%	$	334,740		$	774		0.92	%
Time deposits		442,626			1,690		1.55	%		613,753			3,574		2.33	%
Total interest-bearing deposits	$	919,785		$	2,070		0.91	%	$	948,493		$	4,348		1.83	%
Other borrowings		51,220			48		0.38	%		1,259			11		3.49	%
FHLB advances		116,311			273		0.95	%		56,708			233		1.65	%
Junior subordinated debentures		67,123			1,106		6.68	%		44,871			706		6.29	%
Total interest-bearing liabilities	$	1,154,439		$	3,497		1.23	%	$	1,051,331		$	5,298		2.02	%
Non-interest-bearing deposits		138,814								113,351
Other liabilities		15,190								16,877
Total liabilities	$	1,308,443							$	1,181,559
Shareholders' equity		172,456								173,387
Total liabilities and equity	$	1,480,899							$	1,354,946
Net interest income				$	10,218							$	8,798
Interest rate spread (3)							2.73	%							2.37	%
Net interest margin (4)							2.95	%							2.74	%
Ratio of interest-earning assets to interest-bearing    liabilities		1.22								1.22

(1) Average balances are calculated on amortized cost.

(2) Includes loan fee income, nonaccruing loan balances, and interest received on such loans.

(3) Interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(4) Net interest margin represents net interest income divided by average total interest-earning assets.

Rate/Volume Analysis

The following table presents the effects of changing rates and volumes on our net interest income between the periods indicated.  The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The net column represents the sum of the

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volume and rate columns. For purposes of this table, changes attributable to both rate and volume which cannot be segregated have been allocated proportionately between the changes due to rate and the changes due to volume.

	Three Months Ended March 31, 2021 v. 2020
	Increase (Decrease) Due to Change in Average
	Rate			Volume			Net
	(dollars in thousands)
Interest Income:
Investment securities	$	(105	)	$	1,003		$	898
Loans (excluding PPP)		(1,351	)		(752	)		(2,103	)
PPP loans - round 1		1,639			(678	)		961
PPP loans - round 2		(1,130	)		1,213			83
Total loans		(842	)		(217	)		(1,059	)
Federal funds sold and interest-bearing deposits with    banks		(128	)		(92	)		(220	)
Total interest income		(1,075	)		694			(381	)
Interest Expense:
Savings, NOW, money market and interest checking		(1,144	)		750			(394	)
Time deposits		(1,030	)		(854	)		(1,884	)
Other borrowings		(1	)		38			37
FHLB advances		(28	)		68			40
Junior subordinated debentures		45			355			400
Total interest expense		(2,158	)		357			(1,801	)
Net interest income	$	1,083		$	337		$	1,420

Provision for Loan Losses

Based on our analysis of the components of the allowance for loan losses, management recorded a provision expense for loan losses of $0.2 million for the three months ended March 31, 2021, compared to $2.2 million for the three months ended March 31, 2020.  The decrease in provision was primarily the result of a $2.0 million qualitative factor for industries that were deemed to be high-risk due to the COVID-19 pandemic for the three months ended March 31, 2020, and the economic uncertainty at that time.  As of March 31, 2021, only $0.5 million of this qualitative factor remained.

The specific reserve related to impaired loans was $4.6 million at March 31, 2021, which was an increase of $0.4 million, or 8.4%, from December 31, 2020, which was the result of an additional impairment on an agricultural relationship that was already impaired.  During the first quarter of 2021, watch and worse rated loans decreased by $25.5 million, or 9.3%, compared to December 31, 2020, primarily as the result of eight dairy customers upgraded to a low satisfactory rating.  This improvement in asset quality is expected to continue in the second quarter of 2021 as we complete the annual review process.  

As of March 31, 2021, there were five customer relationships with loans in payment deferral associated with COVID-19 customer support programs totaling $6.1 million, or 0.6% of total loans, which is a decrease of $16.8 million, or 63.5%, since December 31, 2020

Other than the qualitative factor for COVID-19 discussed above, there have been no substantive changes to our methodology for estimating the appropriate level of allowance for loan losses from what was previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.  Based upon this methodology, which includes actively monitoring the asset quality and inherent risks within the loan and lease portfolio, management concluded that an allowance for loan losses of $15.1 million, or 1.49% of total loans, was appropriate as of March 31, 2021.  This is compared to an allowance for loan losses of $17.5 million, or 1.73% of total loans, at March 31, 2020, and $14.8 million, or 1.49% of total loans, at December 31, 2020.  

Non-Interest Income

Non-interest income for the three months ended March 31, 2021 increased by 36.5% to $3.7 million from $2.7 million for the three months ended March 31, 2020.  The $1.0 million increase was primarily the result of $0.3 million and $0.2 million increases in loan servicing fees and net loan servicing right income, respectively, which was the result of $94.3 million additional loans

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serviced for the three months ended March 31, 2021 compared to the same period in the previous year.  In addition, referral fee income increased $0.3 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

The following table reflects the components of non-interest income for the three months ended March 31, 2021 and 2020:

	Three Months Ended
	March 31, 2021			March 31, 2020
	(dollars in thousands)
Service charges	$	119		$	113
Crop insurance commission		301			229
Gain on sale of residential loans		93			38
Gain on sale of service-retained loans		1,587			505
Total gain on sale of loans		1,680			543
Loan servicing fees		2,158			1,830
Decay due to increases in principal paydowns or runoff		(271	)		(265	)
Changes in valuation inputs or assumptions		(848	)		50
Total loan servicing fees, net		1,039			1,615
Referral fees		319			17
Other		254			186
Total non-interest income	$	3,712		$	2,703

Non-Interest Expense

Non-interest expense for the three months ended March 31, 2021 decreased $6.3 million, or 41.6%, to $8.8 million compared to the three months ended March 31, 2020, primarily due to the $5.0 million goodwill impairment and a $1.4 million OREO writedown that took place the first quarter of 2020.  Small increases in employee compensation and benefits and professional fees for the three months ended March 31, 2021 were offset by decreases in occupancy, OREO, and other non-interest expenses.  

The following table reflects the components of our non-interest expense for the three months ended March 31, 2021 and 2020:

	Three Months Ended
	March 31, 2021		March 31, 2020
	(dollars in thousands)
Employee compensation and benefits	$	5,582	$	5,260
Occupancy		279		354
Information processing		661		670
Professional fees		802		401
Business development		307		366
Other real estate owned expenses		23		116
Write-down of other real estate owned		—		1,360
Net loss on other real estate owned		17		4
Depreciation and amortization		257		301
Goodwill impairment		—		5,038
Other		836		1,148
Total non-interest expense	$	8,764	$	15,018

Income taxes

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

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

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

The Company files income tax returns in the U.S. federal jurisdiction and in the state of Wisconsin. The Company is no longer subject to U.S. federal or state income tax examinations by tax authorities for years before 2017.

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

Income tax expense (benefit) for the three months ended March 31, 2021 and 2020, was $1.0 million and $(0.5) million, respectively, which represents an effective tax rate of 20.2% and 9.5%, respectively.  The increase in the effective tax rate for the 2021 period compared to the 2020 period was primarily the result of the non-deductible goodwill impairment that took place during the first quarter of 2020.

Financial Condition

Total assets increased $19.0 million, or 1.3%, from December 31, 2020 to $1.5 billion at March 31, 2021.  Total loans increased by $15.4 million, or 1.5%, since December 31, 2020, primarily as the result of the $32.6 million of second round PPP loans that were funded in the first quarter of 2021 which were partially offset by the forgiveness from the SBA of $24.1 million of first round PPP loans during the same period.  In addition, commercial real estate loans increased $8.8 million as of March 31, 2021, which were partially offset by normal pay-downs.

Total liabilities increased $24.4 million, or 1.9%, from December 31, 2020 to $1.3 billion at March 31, 2021.  This increase was primarily attributable to a $60.5 million increase in wholesale deposits that was used to purchase securities as part of our long-term leverage strategy and to paydown FHLB borrowings.  We funded the second round of PPP loans discussed above with advances received through the Federal Reserve Bank’s Paycheck Protection Program Liquidity Facility (“PPPLF”).  PPPLF borrowings bear an interest rate of 0.35%.  The balance of the PPPLF was $47.3 million at March 31, 2021, compared to $47.5 million at December 31, 2020 due to payments made against the facility when forgiveness was received from the SBA for the first round of PPP loans.

Shareholders’ equity decreased $5.5 million, or 3.2%, to $166.3 million at March 31, 2021 from $171.8 million at December 31, 2020.  This decrease was due primarily to $6.4 million of unrealized losses in our securities portfolio during the first quarter of 2021, which was partially offset by net income for the three months ended March 31, 2021 of $3.9 million.  In addition, the Company repurchased 117,020 shares of its common stock, totaling $2.5 million, during the three months ended March 31, 2021.  Total shareholders’ equity was also reduced by the payment of $0.7 million of dividends on common and preferred stock during the three months ended March 31, 2021.  

Net Loans

Net loans increased by $15.1 million, or 1.5%, to $1.0 billion at March 31, 2021 from December 31, 2020.  This increase was primarily the result of $32.6 million of second round PPP loans that were funded in the first quarter of 2021, which were partially offset by the forgiveness from the SBA of $24.1 million of first round PPP loans during the same period.  In addition, commercial real estate loans increased $8.8 million as of March 31, 2021, which were partially offset by normal pay-downs.

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

	March 31, 2021						December 31, 2020
	Amount			Percent			Amount			Percent
	(dollars in thousands)
Agriculture loans	$	609,482			60.2	%	$	606,881			60.9	%
Commercial real estate loans		244,791			24.2	%		235,969			23.7	%
Commercial loans		72,834			7.2	%		77,297			7.8	%
PPP loans		46,249			4.6	%		37,790			3.8	%
Residential real estate loans		38,063			3.8	%		38,084			3.8	%
Installment and consumer other		245			0.0	%		264			0.0	%
Total gross loans	$	1,011,664			100.0	%	$	996,285			100.0	%
Allowance for loan losses		(15,082	)					(14,808	)
Loans, net	$	996,582					$	981,477

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

	March 31, 2021							December 31, 2020
	# of Loans		Balance			Deferred Fee Income		# of Loans		Balance			Deferred Fee Income
	(dollars in thousands)
PPP 1oans - Round 1		127	$	13,674		$	301		456	$	37,790		$	1,191
PPP loans - Round 2		461		32,595			1,479		—		—			—
Total PPP loans		588	$	46,269		$	1,780		456	$	37,790		$	1,191
% of Total loans				4.57	%						3.79	%

Allowance for Loan Losses

The allowance for loan losses is established through a provision for loan losses charged to expense, which affects our earnings directly. Loans are charged against the allowance for loan losses when management believes that the collectability of all or some of the principal is unlikely. Subsequent recoveries are added to the allowance. The allowance is an amount that reflects management’s estimate of the level of probable incurred losses in the loan portfolio. Factors considered by management in determining the adequacy of the allowance include, but are not limited to, past loan loss experience, the nature of the portfolio, economic conditions, information about specific borrower situations, and estimated collateral values. Our board of directors reviews the recommendations of management regarding the appropriate level for the allowance for loan losses based upon these factors.

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

We continually refine our methodology for determining the allowance for loan losses by comparing historical loss ratios utilized to actual experience and by classifying loans for analysis based on similar risk characteristics. Cash receipts for accruing loans are applied to principal and interest under the contractual terms of the loan agreements; however, cash receipts on impaired and nonaccrual loans for which the accrual of interest has been discontinued are applied to principal and interest income depending upon the overall risk of principal loss to us. We mitigate this risk by actively using government guarantee programs.  12.1% of our substandard loans are partially guaranteed by the U.S. Farm Services Agency (“FSA”) or the SBA.  The amount of the guarantee can range from 80% to 95% of unpaid principal for FSA guaranteed loans and 50% to 100% for SBA guaranteed loans.  

At March 31, 2021 and December 31, 2020, the allowance for loan losses was $15.1 million and $14.8 million, respectively, which resulted in a ratio of the allowance to total loans of 1.49% for each period.  

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Charge-offs and recoveries by loan category for the three months ended March 31, 2021 and 2020 were as follows:

	Three Months Ended
	March 31, 2021			March 31, 2020
	(dollars in thousands)
Balance, beginning of period	$	14,808		$	15,267
Loans charged off:
Agriculture loans		—			—
Commercial real estate loans		—			—
Commercial loans		—			—
Residential real estate loans		—			—
Installment and consumer other		—			—
Total loans charged off	$	—		$	—
Recoveries:
Agriculture loans		—			—
Commercial real estate loans		1			61
Commercial loans		31			1
Residential real estate loans		—			—
Installment and consumer other		—			—
Total recoveries		32			62
Net loans recovered	$	(32	)	$	(62	)
Provision for loan losses		242			2,218
Allowance for loan losses, end of period	$	15,082		$	17,547
Selected loan quality ratios:
Net charge offs to average loans		0.00	%		(0.01	)%
Allowance for loan losses to total loans (end of period)		1.49	%		1.73	%
Allowance for loan losses to non-performing loans and    performing troubled debt restructurings (end of period)		26.24	%		30.70	%

As provided in the interagency statement, the Company has been working with its borrowers impacted by COVID-19.  As of March 31, 2021, loans with COVID-19 payment modifications were $6.1 million, or 0.6% of total loans.  We will continue to evaluate the impacts of these payment modification requests on our allowance for loan losses.

Loan Servicing Rights

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

Loan servicing rights are recognized as separate assets when rights are acquired through the sale of financial assets. Servicing rights resulting from the sale or securitization of loans originated by the Company are initially measured at fair value at the date of transfer.  Under the fair value method, the value of the asset is based on a discounted cash flow model. The discounted cash flow model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, ancillary income, and run-off rates.  These variables change from quarter-to-quarter as market conditions and projected interest rates change and may have an adverse impact on the value of the servicing right and may result in a reduction to non-interest income.

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

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Information about the loan servicing portfolio is shown below:

	For the Three Months Ended
	March 31, 2021			December 31, 2020
	(dollars in thousands)
Loan servicing rights, end of period	$	18,864		$	18,396
Loans serviced, end of period		841,893			812,560
Loan servicing rights as a % of loans    serviced		2.24	%		2.26	%
Total loan servicing fees	$	2,158		$	1,974
Average loans serviced		827,227			805,190
Annualized loan servicing fees as a    % of average loans serviced		1.04	%		0.98	%

Securities

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

Securities increased to $385.2 million at March 31, 2021 from $352.9 million at December 31, 2020, in an effort to deploy excess cash and mitigate interest rate risk.  During the three months ended March 31, 2021, we recognized unrealized holding losses of $9.7 million before income taxes through other comprehensive income.

The following table sets forth the amortized cost and fair values of our securities portfolio at March 31, 2021 and December 31, 2020:

	March 31, 2021				December 31, 2020
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(dollars in thousands)
Securities available-for-sale:
U.S. government and agency securities		13,453		13,315		14,745		14,593
Municipal securities		162,639		160,096		149,203		153,654
Mortgage-backed securities		148,422		153,400		127,804		135,378
Corporate bonds		42,000		41,813		32,500		32,511
Asset-backed securities		16,456		16,616		16,664		16,718
Total securities available-for-sale	$	382,970	$	385,240	$	340,916	$	352,854

Deposits

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

Total deposits increased $57.7 million, or 5.5%, from December 31, 2020 to $1.1 billion at March 31, 2021, due primarily to a $60.5 million increase in wholesale deposits in order to facilitate investment purchases. The increase in wholesale funding was partially offset by a $2.8 million decrease in client deposits (demand, NOW accounts and interest checking, savings, money market accounts, and certificates of deposit).  This decrease in client deposits was expected due to seasonal attrition.

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As of March 31, 2021 and December 31, 2020, the distribution by type of deposit account was as follows:

	March 31, 2021					December 31, 2020
	Amount		% of Deposits			Amount		% of Deposits
	(dollars in thousands)
Demand, noninterest-bearing	$	139,838		12.7	%	$	163,202		15.6	%
NOW accounts and interest checking		95,591		8.7	%		96,624		9.3	%
Savings		8,430		0.8	%		7,367		0.7	%
Money market accounts		390,742		35.5	%		344,250		33.1	%
Certificates of deposit		278,591		25.4	%		304,580		29.3	%
Brokered deposits		26,302		2.4	%		44,347		4.3	%
National time deposits		159,034		14.5	%		80,456		7.7	%
Total deposits	$	1,098,528		100.0	%	$	1,040,826		100.0	%

Hedging Activities

As of March 31, 2021, the Company had two outstanding interest rate swaps designated as a cash flow hedge, each with an aggregate notional value of $6.0 million. Both interest rate swaps mature on June 15, 2028.  A pre-tax unrealized loss of $1.2 million and $1.9 million was recognized at March 31, 2021 and December 31, 2020, respectively, with a corresponding increase reported in accrued interest payable and other liabilities on the consolidated balance sheets.  There was no ineffective portion of this hedge.  

Liquidity Management and Capital Resources

Liquidity is the ability to meet current and future financial obligations of a short-term and long-term nature including, but not limited to, funding loans and depositor withdrawals. Our primary sources of funds consist of deposit inflows, loan repayments, maturities and sales of securities and borrowings from the FHLB. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows, calls of investment securities and borrowed funds and prepayments on loans are greatly influenced by general interest rates, economic conditions and competition.

At March 31, 2021, advances from the FHLB were $100.0 million compared to $129.0 million at December 31, 2020.  At March 31, 2021, there were advances from the Federal Reserve Bank’s PPPLF program totaling $47.3 million compared to $47.5 million at December 31, 2020.    

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

Our cash flows are composed of three primary classifications: cash flows from operating activities, investing activities, and financing activities.  Net cash provided by (used in) operating activities was $33.4 million and ($12.6) million for the three months ended March 31, 2021 and 2020, respectively.  Net cash used in investing activities, which consists primarily of purchases of and proceeds from the sale, maturities, calls, and principal repayments of securities available for sale, as well as loan originations, net of repayments, was $60.3 million and $73.6 million for the three months ended March 31, 2021 and 2020, respectively.  Net cash provided by (used in) financing activities, consisting primarily of the activity in deposit accounts and FHLB advances, was $25.2 million and ($21.3) million for the three months ended March 31, 2021 and 2020, respectively.

As of March 31, 2021, the Bank had $35.8 million and $82.0 million in borrowing capacity with the FHLB and the Federal Reserve Bank of Chicago, respectively, to mitigate any liquidity needs.  The Bank also had $329.2 million in unpledged securities available for sale available for liquidity needs.

At March 31, 2021, the Bank exceeded all of its regulatory capital requirements, with Tier 1 leverage capital of $200.5 million, or 13.88% of adjusted average total assets, which is above the minimum level to be well-capitalized of $72.2 million, or 5.0% of adjusted average total assets, and total risk-based capital of $215.6 million, or 16.68% of risk-weighted assets, which is above the minimum level to be well-capitalized of $129.3 million, or 10.5% of risk-weighted assets.  In addition, the Company issued $22.4 million of subordinated debt during 2020 that qualifies as Tier 2 capital that is available to support the Bank.

At the holding company level, our primary sources of liquidity are dividends from the Bank, investment income and net proceeds from investment sales, borrowings and capital offerings. The main uses of liquidity are the payment of interest to holders of our junior subordinated debentures and subordinated notes and the payment of interest or dividends to common and preferred shareholders.  The Bank is subject to certain regulatory limitations regarding its ability to pay dividends to the Company; however, we

42

do not believe that the Company will be adversely affected by these dividend limitations.  At March 31, 2021, there were $111.5 million of retained earnings available for the payment of dividends by the Bank to the Company but would be limited to the Bank maintaining minimum regulatory capital ratios.  Management believed liquidity to be sufficient as of March 31, 2021.

At March 31, 2021, the holding company exceeded all of its regulatory capital requirements, with Tier 1 leverage capital of $181.2 million, or 12.69% of adjusted average assets, which is above the minimum level for capital adequacy of $57.1 million, or 4.0% of adjusted average assets, and total risk-based capital of $247.8 million, or 19.11% of risk-weighted assets, which is above the minimum level for capital adequacy of $136.2 million, or 10.0% of risk-weighted assets.  

During the fourth quarter of 2020, the Company began construction on a new branch in Appleton, Wisconsin with an estimated completion of the fourth quarter of 2021.  The remaining contractual obligation related to the construction was $4.8 million at March 31, 2021.

Off-Balance Sheet Arrangements and Contractual Obligations

As of March 31, 2021, there were no significant changes to our contractual obligations and off-balance sheet arrangements disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 12, 2021.  We continue to believe that we have adequate capital and liquidity available from various sources to fund projected obligations and commitments.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

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

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

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

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

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

Our goal is to manage asset and liability positions to moderate the effects of interest rate fluctuations on net interest income and net income and control exposure to interest rate risk within policy limits approved by our board of directors. These limits and guidelines reflect our tolerance for interest rate risk over both short-term and long-term horizons. We analyze our sensitivity to

43

changes in interest rates through our net interest income simulation model. Exposures are reported on a monthly basis to the asset and liability committee and at meetings of our board of directors.

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

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

These estimates require us to make certain assumptions, including loan and mortgage-related investment prepayment speeds, reinvestment rates, and deposit maturities and decay rates. These assumptions are inherently uncertain, and, as a result, we cannot precisely predict the impact of changes in interest rates on our net interest income. Although the net interest income table below provides an indication of our interest rate risk exposure at a particular point in time, such estimates are not intended to, and do not, provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual results.

The following table shows the estimated impact on net interest income for the one- and two-year periods beginning March 31, 2021 resulting from potential changes in interest rates. The net interest income simulation analyses assume a static balance sheet and do not include possible future actions that management might undertake to mitigate this risk.

Rate Shift	Net Interest Income Year 1 Forecast		Year 1 Change from Base			Net Interest Income Year 2 Forecast		Year 2 Change from Base
	(dollars in thousands)					(dollars in thousands)
+400 bps	$	46,700		17.34	%	$	43,500		16.00	%
+200 bps		43,300		8.79	%		41,200		9.87	%
+100 bps		41,400		4.02	%		39,500		5.33	%
Base		39,800		0.00	%		37,500		0.00	%
-100 bps		38,300		-3.77	%		36,500		-2.67	%
-200 bps		37,500		-5.78	%		35,800		-4.53	%

As of March 31, 2021, net interest income simulation indicated that our exposure to changing interest rates was within our internal policy guidelines. As the table illustrates, our balance sheet is asset-sensitive over a one- and two-year time horizon and net interest income would increase as interest rates increase. It should be noted that the magnitude of any possible increase in interest rates is constrained by the low absolute starting levels of rates. While immediate, proportional, and severe shifts in interest rates upward were used as part of this analysis, we believe that any actual shift in interest rates would likely be more gradual and would therefore have a more modest impact.

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

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

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

Our management, with the participation of our President and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of

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1934, as amended (the “Exchange Act”)) as of March 31, 2021. Based on such evaluation, our President and Chief Financial Officer have concluded that, as of March 31, 2021, our disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act.

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

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended March 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors.

There were no material changes to the risk factors set forth in “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2020.

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

Unregistered Sales of Equity Securities

The Company did not issue any unregistered equity securities during the quarter ended March 31, 2021.

Issuer Purchases of Equity Securities

The following table sets forth information regarding the Company’s repurchase of shares of its outstanding common stock during the first quarter of 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 (1)		Maximum Number of Shares that may yet be Purchased under the Plans or Programs (1)
January 1 - 31, 2021		46,566	$	21.69		39,408		62,740
February 1 - 28, 2021		33,475		22.34		33,475		638,265
March 1 - 31, 2021		36,979		24.61		36,979		601,286

(1) On January 29, 2020, the Company announced that its Board of Directors authorized the Company to repurchase up to 673,000 shares of its common stock through January 23, 2023.  Stock repurchases under the program could be made from time to time on the open market, in privately negotiated transactions, or in any manner that complies with applicable securities laws, at the discretion of the Company. As of March 31, 2021, all the authorized shares in this program had been repurchased for a total of $14.9 million.  On February 16, 2021, the Company announced that its Board of Directors extended the stock repurchase program, authorizing the purchase of up to an aggregate of 609,000 additional shares of the Company’s outstanding common stock through February 16, 2024.  The timing of purchases and the number of shares repurchased under the program are dependent upon a variety of factors including price, trading volume, corporate and regulatory requirements and market condition. The repurchase program may be suspended or discontinued at any time without notice.  As of March 31, 2021, $0.2 million, or 7,714 shares, of the Company’s common stock had been repurchased under the program.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits.

Exhibit Number	Description
3.1	Third Amended and Restated Articles of Incorporation of County Bancorp, Inc.  (Incorporated by reference to Exhibit 3.1 of County Bancorp, Inc.’s annual report on Form 10-K filed on March 15, 2018)
3.2	Third Amended and Restated Bylaws of County Bancorp, Inc. as of November 20, 2018 (Incorporated by reference to Exhibit 3.1 of County Bancorp, Inc.’s current report on Form 8-K filed on November 27, 2018)
10.1	Employment Agreement among County Bancorp, Inc., Investors Community Bank, and Glen L. Stiteley (Incorporated by reference to Exhibit 10.1 of County Bancorp Inc.’s current report on Form 8-K filed on July 20, 2017)
31.1	Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	The iXBRL Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document (1)
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) (1) Includes the following financial information included in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) Notes to Unaudited Consolidated Financial Statements

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SIGNATURES

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

	County Bancorp, Inc.
Date:  May 7, 2021	By:	/s/ Timothy J. Schneider
		Timothy J. Schneider
		President (principal executive officer)
Date:  May 7, 2021	By:	/s/ Glen L. Stiteley
		Glen L. Stiteley
		Chief Financial Officer (principal financial and accounting officer)

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