Citizens Community Bancorp Inc. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The following discussion sets forth management’s discussion and analysis of our results of operations for the year ended December 31, 2021 and December 31, 2020, and our financial position as of December 31, 2021 and December 31, 2020, respectively. The MD&A should be read in conjunction with our consolidated financial statements, related notes, the selected financial data and the statistical information presented elsewhere in this Annual Report on Form 10-K for a more complete understanding of the following discussion and analysis. Unless otherwise noted, years refer to the Company’s fiscal years ended December 31, 2021 and December 31, 2020. PERFORMANCE SUMMARY The following is a brief summary of some of the significant factors that affected our operating results for the twelve months ended December 31, 2021 and 2020. In 2021, net interest income was favorably impacted by the following: (1) income realized from the origination of the Small Business Administration Paycheck Protection Program (“SBA PPP”) loans; (2) loan growth and related growth in loan interest income; (3) growth in the investment securities portfolio; (4) lower deposit costs due to the lower interest rate environment, and partially offset by; (5) lower accretion of discounts associated with the paydown of purchased credit impaired loans; and (6) lower interest income on loans and cash and cash equivalents due to the lower interest rate environment. The Company recorded no provision for loan losses in 2021 largely due to qualitative factor decreases to reflect greater certainty and improvement in current general economic conditions, offsetting the impact of organic loan growth. In 2021’s higher interest rate and tight housing supply environment, the Company experienced fewer mortgage loans originated for sale, which decreased gain on sale and income recorded in loan servicing income from the capitalization of mortgage servicing rights, partially offset by a reversal of mortgage servicing rights impairment and a decrease in variable compensation tied to mortgage loan production. When comparing, year over year results, changes in net interest income, provision for loan losses, non-interest income and non-interest expense are primarily due to the items discussed above. See the remainder of this section for a more thorough discussion. Unless otherwise stated, all monetary amounts in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, other than share, per share and capital ratio amounts, are stated in thousands. We reported net income of $21.27 million for the twelve months ended December 31, 2021, compared to net income of $12.73 million for the twelve months ended December 31, 2020. Diluted earnings per share were $1.98 for the twelve months ended December 31, 2021, compared to $1.14 for the twelve months ended December 31, 2020. Return on average assets for the twelve months ended December 31, 2021, was 1.23%, compared to 0.80% for the twelve months ended December 31, 2020. The return on average equity was 12.97% for the twelve months ended December 31, 2021, and 8.29% for the comparable period in 2020. 22 CRITICAL ACCOUNTING ESTIMATES Our consolidated financial statements have been prepared in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”). In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amount of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. Some of these estimates are more critical than others. Below is a discussion of our critical accounting estimates. Allowance for Loan Losses. We maintain an allowance for loan losses to absorb probable and inherent losses in our loan portfolio. The allowance is based on ongoing, quarterly assessments of the estimated probable incurred losses in our loan portfolio. In evaluating the level of the allowance for loan losses, we consider the types of loans and the amount of loans in our loan portfolio, historical loss experience, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, prevailing economic conditions and other relevant factors determined by management. We follow all applicable regulatory guidance, including the “Interagency Policy Statement on the Allowance for Loan and Lease Losses,” issued by the Federal Financial Institutions Examination Council (FFIEC). We believe that the Bank’s Allowance for Loan Losses Policy conforms to all applicable regulatory requirements. However, based on periodic examinations by regulators, the amount of the allowance for loan losses recorded during a particular period may be adjusted. Our determination of the allowance for loan losses is based on (1) specific allowances for specifically identified and evaluated impaired loans and their corresponding estimated loss based on likelihood of default, payment history and net realizable value of underlying collateral. Specific allocations for collateral dependent loans are based on fair value of the underlying collateral relative to the unpaid principal balance of individually impaired loans. For loans that are not collateral dependent, the specific allocation is based on the present value of expected future cash flows discounted at the loan’s original effective interest rate through the repayment period; and (2) a general allowance on loans not specifically identified in (1) above, based on historical loss ratios, which are adjusted for qualitative and general economic factors. We continue to refine our allowance for loan losses methodology, with an increased emphasis on historical performance adjusted for applicable economic and qualitative factors. Assessing the allowance for loan losses is inherently subjective as it requires making material estimates, including the amount and timing of future cash flows expected to be received on impaired loans, any of which estimates may be susceptible to significant change. In our opinion, the allowance, when taken as a whole, reflects estimated probable loan losses in our loan portfolio Loans acquired in connection with acquisitions are recorded at their acquisition-date fair value with no carryover of related allowance for loan losses. Any allowance for loan loss on these pools reflects only losses incurred after the acquisition (meaning the present value of all cash flows expected at acquisition that ultimately are not to be collected). Goodwill and Other Intangible Assets. We account for goodwill and other intangible assets in accordance with ASC Topic 350, “Intangibles - Goodwill and Other.” The Company records the excess of the cost of acquired entities over the fair value of identifiable tangible and intangible assets acquired, less liabilities assumed, as goodwill. The Company amortizes acquired intangible assets with definite useful economic lives over their useful economic lives utilizing the straight-line method. On a periodic basis, management assesses whether events or changes in circumstances indicate that the carrying amounts of the intangible assets may be impaired. The Company does not amortize goodwill, but reviews goodwill for impairment at a reporting unit level on an annual basis, or when events or changes in circumstances indicate that the carrying amounts may be impaired. A reporting unit is defined as any distinct, separately identifiable component of the Company’s one operating segment for which complete, discrete financial information is available and reviewed regularly by the segment’s management. The Company has one reporting unit as of December 31, 2021, which is related to its banking activities. The impairment testing process is conducted by assigning net assets and goodwill to the Company’s reporting unit. An initial qualitative evaluation is made to assess the likelihood of impairment and determine whether further quantitative testing to calculate the fair value is necessary. When the qualitative evaluation indicates that impairment is more likely than not, quantitative testing is required whereby the fair value of the Company’s reporting unit is calculated and compared to the recorded book value, “step one.” If the calculated fair value of the Company’s reporting unit exceeds its carrying value, goodwill is not considered impaired, and “step two” is not considered necessary. If the carrying value of the company’s reporting unit exceeds its calculated fair value, the impairment test continues (“step two”) by comparing the carrying value of the Company’s reporting unit’s goodwill to the implied fair value of goodwill. An impairment charge is recognized if the carrying value of goodwill exceeds the implied fair value of goodwill. 23 In 2021, the Company performed quarterly reviews to determine if a triggering event had occurred that would require impairment testing. These quarterly reviews determined that no triggering event occurred during 2021. The Company performed its required annual goodwill impairment test as of December 31, 2021, and determined that goodwill was not impaired. Fair Value Measurements and Valuation Methodologies. We apply various valuation methodologies to assets and liabilities which often involve a significant degree of judgment, particularly when liquid markets do not exist for the particular items being valued. Quoted market prices are referred to when estimating fair values for certain assets, such as most investment securities. However, for those items for which an observable liquid market does not exist, management utilizes significant estimates and assumptions to value such items. Examples of these items include loans, deposits, borrowings, goodwill, core deposit intangible assets, other assets and liabilities obtained or assumed in business combinations, and certain other financial instruments. These valuations require the use of various assumptions, including, among others, discount rates, rates of return on assets, repayment rates, cash flows, default rates, and liquidation values. The use of different assumptions could produce significantly different results, which could have material positive or negative effects on the Company’s results of operations, financial condition or disclosures of fair value information. In addition to valuation, the Company must assess whether there are any declines in value below the carrying value of assets that should be considered other than temporary or otherwise require an adjustment in carrying value and recognition of a loss in the consolidated statement of operations. Examples include but are not limited to: loans, investment securities, goodwill, core deposit intangible assets and deferred tax assets, among others. Specific assumptions, estimates and judgments utilized by management are discussed in detail herein in management’s discussion and analysis of financial condition and results of operations and in notes 1, 2, 3, 4, 5, 6, 13 and 14 of Notes to Consolidated Financial Statements. Income Taxes. Amounts provided for income tax expenses are based on income reported for financial statement purposes and do not necessarily represent amounts currently payable under tax laws. Deferred income tax assets and liabilities, which arise principally from temporary differences between the amounts reported in the financial statements and the tax basis of certain assets and liabilities, are included in the amounts provided for income taxes. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and tax planning strategies which will create taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and if necessary, tax planning strategies in making this assessment. The assessment of tax assets and liabilities involves the use of estimates, assumptions, interpretations, and judgments concerning certain accounting pronouncements and application of specific provisions of Federal and state tax codes. There can be no assurance that future events, such as court decisions or positions of Federal and state taxing authorities, will not differ from management’s current assessment, the impact of which could be material to our consolidated results of operations and reported earnings. We believe that the deferred tax assets and liabilities are adequate and properly recorded in the accompanying consolidated financial statements. As of December 31, 2021, management does not believe a valuation allowance related to the realizability of its deferred tax assets is necessary. 24 STATEMENT OF OPERATIONS ANALYSIS Twelve months ended December 31, 2021 vs. Twelve months ended December 31, 2020 Net Interest Income. Net interest income represents the difference between the dollar amount of interest earned on interest bearing assets and the dollar amount of interest paid on interest bearing liabilities. The interest income and expense of financial institutions are significantly affected by general economic conditions, competition, policies of regulatory authorities and other factors. Interest rate spread and net interest margin are used to measure and explain changes in net interest income. Interest rate spread is the difference between the yield on interest earning assets and the rate paid for interest bearing liabilities that fund those assets. Net interest margin is expressed as the percentage of net interest income to average interest earning assets. Net interest margin exceeds interest rate spread because non-interest-bearing sources of funds (“net free funds”), principally demand deposits and stockholders’ equity, also support interest earning assets. The narrative below discusses net interest income, interest rate spread, and net interest margin. Net interest income was $53.7 million for 2021 compared to $50.3 million for 2020. The increase is largely due to an increase in SBA PPP accretion, which increased $4.1 million. The net interest margin for 2021 was 3.34% compared to 3.40% for 2020. The decrease in the net interest margin percentage was due to the following factors: 1) a decrease in the accretion of discounts associated with the paydown of purchased credit impaired loans; 2) a full year of interest expense on the Company’s issuance of 6% subordinated debt in August 2020; 3) the increase in lower yielding cash and investment securities as a percentage of interest-earning assets; and 4) lower interest income on loans, securities and cash and cash equivalents due to the lower interest rate environment.These decreases were partially offset by: 1) higher income SBA PPP accretion and 2) lower deposit costs due to a decrease in interest rates in 2020 and the Company’s action to reduce higher costing certificates of deposits. Accretion on purchased credit impaired loans recognized due to loan payoffs or significant reductions in loan balances was $0.4 million in 2021, which was a decrease of $2.3 million from accretion recognized in 2020 or $2.7 million. In 2021, the Bank recognized $6.2 million of accretion of net origination fees and contractual interest income of $0.7 million in 2021 and $2.1 million of accretion of net origination fees and contractual interest income of $1.0 million in 2020. Remaining deferred SBA PPP fees were approximately $0.3 million at December 31, 2021. Interest expense on liabilities decreased $3.9 million in 2021 due to the lower interest rate environment and actions taken by the Bank to reduce interest rates paid. The Bank has approximately $179 million of certificates of deposit maturing in 2022, at a weighted average cost of approximately 1.35%. Of these, $64 million mature in the first quarter of 2022, with a weighted average cost of 1.50%. $73 million mature in the second quarter of 2022 with a weighted average cost of approximately 1.50%. These favorable items were offset by the negative impacts of a lower interest rate environment resulting in lower yields on loans, investments and cash and cash equivalents. 25 Average Balances, Net Interest Income, Yields Earned and Rates Paid. The following table shows interest income from average interest earning assets, expressed in dollars and yields, and interest expense on average interest-bearing liabilities, expressed in dollars and rates. Also presented is the weighted average yield on interest earning assets on a tax-equivalent basis, rates paid on interest bearing liabilities and the resultant spread at December 31, 2021 and December 31, 2020. Non-accruing loans average balances are included in the table with the loans carrying a zero yield. Twelve months ended December 31, 2021 Twelve months ended December 31, 2020 Average Balance Interest Income/ Expense Average Yield/ Rate Average Balance Interest Income/ Expense Average Yield/ Rate Average interest earning assets: Cash and cash equivalents $ 99,839 $ 122 0.12 % $ 52,016 $ 162 0.31 % Loans 1,216,244 58,172 4.78 % 1,234,732 59,763 4.84 % Interest-bearing deposits 2,047 45 2.20 % 3,914 96 2.45 % Investment securities (1) 271,715 5,009 1.84 % 174,396 3,789 2.17 % Other investments 15,025 687 4.57 % 15,081 717 4.75 % Total interest earning assets (1) $ 1,604,870 $ 64,035 3.99 % $ 1,480,139 $ 64,527 4.36 % Average interest bearing liabilities: Savings accounts $ 212,867 $ 369 0.17 % $ 174,184 $ 435 0.25 % Demand deposits 367,103 1,047 0.29 % 268,311 1,065 0.40 % Money market 269,620 783 0.29 % 244,632 1,446 0.59 % CD’s 224,708 3,200 1.42 % 316,264 6,325 2.00 % IRA’s 39,699 451 1.14 % 42,039 729 1.73 % Total deposits $ 1,113,997 $ 5,850 0.53 % $ 1,045,430 $ 10,000 0.96 % FHLB Advances and other borrowings 173,029 4,518 2.61 % 186,724 4,272 2.29 % Total interest bearing liabilities $ 1,287,026 $ 10,368 0.81 % $ 1,232,154 $ 14,272 1.16 % Net interest income $ 53,667 $ 50,255 Interest rate spread 3.18 % 3.20 % Net interest margin (1) 3.34 % 3.40 % Average interest earning assets to average interest bearing liabilities 1.25 % 1.20 % (1) Fully taxable equivalent (FTE). The average yield on tax exempt securities is computed on a tax equivalent basis using a tax rate of 21% for the twelve months ended December 31, 2021 and 2020. The FTE adjustment to net interest income included in the rate calculations totaled $3 thousand and $1 thousand for the twelve month periods ended December 31, 2021 and 2020, respectively. 26 Rate/Volume Analysis. The following table presents the dollar amount of changes in interest income and interest expense for the components of interest earning assets and interest-bearing liabilities that are presented in the preceding table. For each category of interest earning assets and interest-bearing liabilities, information is provided on changes attributable to 1) changes in volume, which are changes in the average outstanding balances multiplied by the prior period rate (i.e., holding the initial rate constant); and 2) changes in rate, which are changes in average interest rates multiplied by the prior period volume (i.e., holding the initial balance constant). Twelve months ended December 31, 2021 v. 2020 increase (decrease) due to Volume (1) Rate (1) Total Increase / (Decrease) Interest income: Cash and cash equivalents $ 109 $ (149) $ (40) Loans (889) (702) (1,591) Interest-bearing deposits (42) (9) (51) Investment securities 1,889 (669) 1,220 Other investments (3) (27) (30) Total interest earning assets $ 1,064 $ (1,556) $ (492) Interest expense: Savings accounts $ 86 $ (152) $ (66) Demand deposits 338 (356) (18) Money market accounts 136 (799) (663) CD’s (1,522) (1,603) (3,125) IRA’s (39) (239) (278) Total deposits (1,001) (3,149) (4,150) FHLB Advances and other borrowings (329) 575 246 Total interest bearing liabilities (1,330) (2,574) (3,904) Net interest income $ 2,394 $ 1,018 $ 3,412 (1) the change in interest due to both rate and volume has been allocated in proportion to the relationship to the dollar amounts of the change in each. Provision for Loan Losses. We determine our provision for loan losses (“provision”, or “PLL”) to provide an adequate allowance for loan losses (“ALL”) to reflect probable and inherent credit losses in our loan portfolio. There was no provision for loan losses recorded in 2021 compared to $7.8 million for 2020. In 2021, the impact of growth in the originated loan portfolio and modest charge-offs were offset by a reduction in Q-Factors related to economic qualitative factor decreases to reflect reduced uncertainty in current general economic conditions and a modest reduction in the unallocated reserve. In 2020, the provision allocated for originated loan growth was approximately $1.2 million for 2020 and provision related to charge-offs and changes in specific reserves was approximately $1.2 million. The remaining provision in 2020 related to qualitative factor increases to reflect uncertainty in current general economic conditions and a modest increase in unallocated ALL. Management believes that the provisions for the year ended December 31, 2021 and 2020, are both adequate in view of the present condition of the Bank’s loan portfolio and the sufficiency of collateral supporting non-performing loans. We are continually monitoring non-performing loan relationships and will make provisions, as necessary, if the facts and circumstances change. In addition, a decline in the quality of our loan portfolio as a result of general economic conditions, factors affecting particular borrowers or our market areas, or other factors could all affect the adequacy of our ALL. If there are significant charge-offs against the ALL, or we otherwise determine that the ALL is inadequate, we will need to record an additional PLL in the future. See Note 1, “Nature of Business and Summary of Significant Accounting Policies - Allowance for Loan Losses ” of “Notes to Consolidated Financial Statements and Supplementary Data” to this Form 10-K, for further analysis of the provision for loan losses. 27 Non-Interest Income . The following table reflects the various components of non-interest income for 2021 and 2020, respectively. Twelve months ended December 31, Change from prior year 2021 2020 2021 over 2020 Non-interest Income: Service charges on deposit accounts $ 1,726 $ 1,832 (5.79)% Interchange income 2,354 2,029 16.02% Loan servicing income 3,322 4,158 (20.11)% Gain on sale of loans 5,399 6,693 (19.33)% Loan fees and service charges 705 1,383 (49.02)% Insurance commission income — 475 N/M Net gains on investment securities 1,224 110 1,012.73% Net gain on sale of acquired business lines — 432 N/M Settlement proceeds — 131 N/M Other 1,094 1,205 (9.21)% Total non-interest income $ 15,824 $ 18,448 (14.22)% N/M means not meaningful Service charges on deposit accounts decreased $106 thousand due to fewer overdrafts attributable to the impact of higher average balances in retail checking accounts. Interchange income increased due to an increase in our customer spending utilizing debit cards. Loan servicing income decreased largely due to decreased capitalized mortgage servicing rights as a result of lower mortgage loan origination sold volumes. The decrease in gain on sale of loans in 2021 is due to lower mortgage loan origination and sale volumes, partially offset by an increase in SBA loans sold. Net gains on investment securities increased in 2021 due to the $573 thousand net gain on sale of primarily senior debt of large bank holding companies and lower yielding trust preferred securities, which helped fund loan growth and decrease 100% risk weighted AFS securities compared to a $156 thousand gain on sale of high premium mortgage-backed certificates in 2020. The net gains on investment securities remaining increase was due to the increase in the market value of our investment in Farmer Mac and Bankers’ Bank stock . The net gain on sale of acquired business lines reflects the sale of Wells Insurance Agency in June 2020 at a net gain of $252 thousand and the Bank’s acquired wealth management business partner exercising their contractual call, which originated prior to the acquisition, resulting in the sale of the Bank’s right to receive income from the wealth management business. The Company recognized $131 thousand of non-interest income related to a cash receipt related to a private mortgage-backed security claim. The cash received represents a supplement to the proceeds received in fiscal 2015 from the private mortgage-backed security, previously owned by the Bank and sold in 2011. 28 Non-Interest Expense. The following table reflects the various components of non-interest expense for 2021 and 2020. Twelve months ended December 31, % Change From prior year 2021 2020 2021 over 2020 Non-interest Expense: Compensation and related benefits $ 22,723 $ 22,256 2.10% Occupancy 5,327 5,523 (3.55)% Data processing 5,560 5,193 7.07% Amortization of intangible assets 1,596 1,622 (1.60)% Mortgage servicing rights expense, net 191 3,050 (93.74)% Advertising, marketing and public relations 986 967 1.96% FDIC premium assessment 551 584 (5.65)% Professional services 1,542 1,757 (12.24)% Gains on repossessed assets, net (199) (259) (23.17)% Other 2,255 2,980 (24.33)% Total non-interest expense $ 40,532 $ 43,673 (7.19)% Non-interest expense (annualized) / Average assets 2.35 % 2.74 % Compensation expense increased in 2021 primarily due to an increase in incentives based on performance, such as commercial loan growth origination. Data processing increases were due to higher loan balances and larger deposit balances. Mortgage servicing rights expense, net benefited from the reversal of previously recorded impairment charges of $1.4 million in 2021 compared to impairment charges of $1.8 million in 2020. This decrease is due to the impact of lower actual and forecasted prepayment rates. The remaining increase is due to higher amortization based on the current interest rate environment and a modestly larger mortgage servicing portfolio. Professional fees decreased in 2021 largely due to less utilization of third parties in completing one-time and ongoing projects. Other non-interest expense decreased in 2021 due to lower origination and branch closure costs in 2020 of $165 thousand. Income Taxes. Income tax provision was $7.7 million in 2021 compared to $4.6 million for 2020 primarily due to the impact of higher pre-tax income. The tax rate remained nearly flat at 26.6% in 2021 and 26.4% in 2020. Income tax expense recorded in the accompanying Consolidated Statements of Operations involves interpretation and application of certain accounting pronouncements and federal and state tax codes and is, therefore, considered a critical accounting policy. We undergo examination by various taxing authorities. Such taxing authorities may require that changes in the amount of tax expense or the amount of the valuation allowance be recognized when their interpretations differ from those of management, based on their judgments about information available to them at the time of their examinations. 29 BALANCE SHEET ANALYSIS Total assets increased $90.5 million to $1.74 billion at December 31, 2021, from $1.65 billion at December 31, 2020. Strong originated loan growth and net purchases in the Bank’s investment portfolio were funded by strong deposit growth and a reduction in cash and cash equivalents. Cash and Cash Equivalents. Cash and cash equivalents decreased from $119.4 million at December 31, 2020, to $47.7 million at December 31, 2021. As noted above, this decrease, along with deposit growth, funded loan and investment portfolio growth. Investment Securities. We manage our securities portfolio to provide liquidity, in an effort to improve interest rate risk, and enhance income. Our investment portfolio is comprised of securities available for sale (“AFS”) and securities held to maturity (“HTM”). Securities AFS (recorded at fair value), which represent the majority of our investment portfolio, increased to $203.1 million at December 31, 2021, compared with $144.2 million at December 31, 2020. This increase was primarily due to purchases of $99 million of agency mortgage-backed securities and purchases of debt issued by bank holding companies, largely subordinated debt of $27 million. In 2021, the sale of trust preferred securities issued by bank holding companies with an amortized cost of $17.4 million and $10.6 million of non-CDFI bank holding company senior debt, reduced the portfolio of these securities to zero. The weighted average coupon of these sales was 2.2%. The sale of these 100% risk-weighted assets partially offset the impact of loan growth on risk-weighted assets and increased the overall yield of interest-earning assets. In addition, the bank sold $9.7 million of other AFS securities, largely U.S. agency mortgage-backed securities. These 2021 sales resulted in net realized gains of $573 thousand, which is included in net gains on investment securities in the Consolidated Statements of Operations During the year ended December 31, 2020, the Bank sold approximately $10.8 million of fixed rate mortgage-backed certificates with a net realized gain of $156 thousand, which is included in net gain on investment securities in the Consolidated Statement of Operations. In 2021, the Bank purchased $39 million of HTM securities, consisting largely of U.S. agency mortgage-backed securities. This growth was offset by principal repayments. The amortized cost and market values of our investment securities by asset categories as of the dates indicated below were as follows: Available for sale securities Amortized Cost Fair Value December 31, 2021 U.S. government agency obligations $ 25,826 $ 26,265 Obligations of states and political subdivisions 140 140 Mortgage-backed securities 107,636 107,167 Corporate debt securities 35,342 35,588 Corporate asset-backed securities 33,902 33,908 Trust preferred securities — — Total available for sale securities $ 202,846 $ 203,068 December 31, 2020 U.S. government agency obligations $ 33,048 $ 33,365 Obligations of states and political subdivisions 140 140 Mortgage-backed securities 39,454 40,991 Corporate debt securities 17,199 17,462 Corporate asset-backed securities 36,039 35,827 Trust preferred securities 16,297 16,448 Total available for sale securities $ 142,177 $ 144,233 30 Held to maturity securities Amortized Cost Fair Value December 31, 2021 Obligations of states and political subdivisions $ 4,600 $ 4,593 Mortgage-backed securities 66,541 64,584 Total held to maturity securities $ 71,141 $ 69,177 December 31, 2020 Obligations of states and political subdivisions $ 600 $ 602 Mortgage-backed securities 42,951 43,182 Total held to maturity securities $ 43,551 $ 43,784 The amortized cost and fair values of our investment securities by maturity, as of December 31, 2021 were as follows: Available for sale securities Amortized Cost Estimated Fair Value Due in one year or less $ 140 $ 140 Due after one year through five years 4,903 4,971 Due after five years through ten years 40,410 40,818 Due after ten years 49,757 49,972 Total securities with contractual maturities 95,210 95,901 Mortgage-backed securities 107,636 107,167 Total available for sale securities $ 202,846 $ 203,068 Held to maturity securities Amortized Cost Estimated Fair Value Due in one year or less $ — $ — Due after one year through five years 4,300 4,298 Due after five years through ten years 300 295 Total securities with contractual maturities 4,600 4,593 Mortgage-backed securities 66,541 64,584 Total held to maturity securities $ 71,141 $ 69,177 The amortized cost and fair values of our investment securities by maturity, as of December 31, 2020 were as follows: Available for sale securities Amortized Cost Estimated Fair Value Due in one year or less $ — $ — Due after one year through five years 3,833 4,095 Due after five years through ten years 44,405 44,880 Due after ten years 54,485 54,267 Total securities with contractual maturities 102,723 103,242 Mortgage-backed securities 39,454 40,991 Total available for sale securities $ 142,177 $ 144,233 31 Held to maturity securities Amortized Cost Estimated Fair Value Due in one year or less $ — $ — Due after one year through five years 200 200 Due after five years through ten years 400 402 Total securities with contractual maturities 600 602 Mortgage-backed securities 42,951 43,182 Total held to maturity securities $ 43,551 $ 43,784 The following tables show the fair value and gross unrealized losses of securities with unrealized losses, as of the dates indicated below, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position: Less than 12 Months 12 Months or More Total Available for sale securities Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses December 31, 2021 U.S. government agency obligations $ 1,169 $ 1 $ — $ — $ 1,169 $ 1 Corporate debt securities 17,240 142 735 15 17,975 157 Corporate asset-backed securities 19,296 127 — — 19,296 127 Trust preferred securities — — — — — — Total available for sale securities $ 126,715 $ 1,148 $ 735 $ 15 $ 127,450 $ 1,163 December 31, 2020 U.S. government agency obligations $ 7,654 $ 17 $ 6,834 $ 53 $ 14,488 $ 70 Corporate debt securities 3,447 27 1,418 82 4,865 109 Corporate asset-backed securities — — 24,310 316 24,310 316 Trust preferred securities 5,612 38 — — 5,612 38 Total available for sale securities $ 16,713 $ 82 $ 32,562 $ 451 $ 49,275 $ 533 Less than 12 Months 12 Months or More Total Held to maturity securities Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses December 31, 2021 Obligations of states and political subdivisions $ 593 $ 7 $ — $ — $ 593 $ 7 Mortgage-backed securities 46,969 1,346 14,716 715 61,685 2,061 Total held to maturity securities $ 47,562 $ 1,353 $ 14,716 $ 715 $ 62,278 $ 2,068 December 31, 2020 Mortgage-backed securities $ 16,538 $ 34 $ — $ — $ 16,538 $ 34 Total held to maturity securities $ 16,538 $ 34 $ — $ — $ 16,538 $ 34 Unrealized losses reflected in the preceding tables have not been included in results of operations because the unrealized loss was not deemed other-than-temporary. Management has determined that more likely than not, the Company neither intends to sell, nor will it be required to sell each debt security before its anticipated recovery, and therefore recovery of cost will occur. 32 The composition of our investment securities portfolio by credit rating as of the periods indicated below was as follows: December 31, December 31, 2021 2020 Available for sale securities Amortized Cost Fair Value Amortized Cost Fair Value U.S. government agency $ 131,115 $ 131,008 $ 72,502 $ 74,356 AAA 9,662 9,710 11,142 11,088 AA 26,727 26,762 25,037 24,879 A 5,700 5,720 8,713 8,925 BBB 29,642 29,868 24,783 24,985 Below investment grade — — — — Non-rated — — — — Total available for sale securities $ 202,846 $ 203,068 $ 142,177 $ 144,233 December 31, December 31, 2021 2020 Held to maturity securities Amortized Cost Fair Value Amortized Cost Fair Value U.S. government agency $ 66,541 $ 64,584 $ 42,951 $ 43,182 AAA — — — — AA 4,000 4,000 — — A 600 593 600 602 BBB — — — — Below investment grade — — — — Non-rated — — — — Total $ 71,141 $ 69,177 $ 43,551 $ 43,784 At December 31, 2021, the Bank has pledged certain of its U.S. Government Agency securities with a carrying value of $3.9 million and mortgage-backed securities with a carrying value of $2.9 million as collateral against specific municipal deposits. At December 31, 2021, the Bank has pledged certain of its U.S. Government Agency securities with a carrying value of $0.9 million as collateral against a borrowing line of credit with the Federal Reserve Bank of Minneapolis. However, at December 31, 2021, there were no borrowings outstanding on this Federal Reserve Bank line of credit. At December 31, 2021, the Bank also has mortgage-backed securities with a carrying value of $0.3 million pledged as collateral to the Federal Home Loan Bank of Des Moines. Loans. Total loans outstanding, net of deferred loan fees and costs, increased to $1.31 billion at December 31, 2021, from $1.24 billion at December 31, 2020. Gross loan growth consisted largely of $191 million in commercial real estate loans and, $56 million of multi-family real estate loans. The portfolio shrinkage in construction and development was largely offset by agricultural and commercial and industrial growth. We also experienced net forgiveness of $115 million of SBA PPP loans. The planned runoff of the residential mortgage portfolio of $43 million and indirect loans of $10 million contributed to reduced growth in the loan portfolio. 33 The following table reflects the composition, or mix, of our loan portfolio at December 31, 2021 and December 31, 2020: December 31, 2021 December 31, 2020 Amount Percent Amount Percent Real Estate Loans: Commercial/Agricultural real estate: Commercial real estate $ 698,465 53.3 % $ 507,675 40.9 % Agricultural real estate 78,495 6.0 % 68,795 5.6 % Multi-family real estate 178,349 13.6 % 122,152 9.9 % Construction and land development 79,520 6.1 % 98,517 8.0 % Residential mortgage: Residential mortgage 90,990 6.9 % 131,386 10.6 % Purchased HELOC loans 3,871 0.3 % 6,260 0.5 % Total real estate loans 1,129,690 86.2 % 934,785 75.5 % C&I/Agricultural operating and Consumer installment loans: C&I/Agricultural operating: Commercial and industrial ("C&I) 122,167 9.3 % 116,553 9.4 % Agricultural operating 31,588 2.4 % 32,785 2.6 % Consumer installment: Originated indirect paper 15,971 1.2 % 25,851 2.1 % Other consumer 8,874 0.7 % 13,213 1.1 % Total C&I/Agricultural operating and Consumer installment loans 178,600 13.6 % 188,402 15.2 % Gross loans before SBA PPP loans 1,308,290 99.8 % 1,123,187 90.7 % SBA PPP Loans 8,755 0.7 % 123,702 10.0 % Gross loans 1,317,045 100.5 % 1,246,889 100.7 % Unearned net deferred fees and costs and loans in process (2,482) (0.2) % (4,245) (0.3) % Unamortized discount on acquired loans (3,600) (0.3) % (5,063) (0.4) % Total loans (net of unearned income and deferred expense) 1,310,963 100.0 % 1,237,581 100.0 % Allowance for Loan losses (16,913) (17,043) Total loans receivable, net $ 1,294,050 $ 1,220,538 Our loan portfolio is diversified by types of borrowers and industry groups within the market areas that we serve. Significant loan concentrations are considered to exist for a financial entity when the amounts of loans to multiple borrowers engaged in similar activities cause them to be similarly impacted by economic or other conditions. As illustrated above, at December 31, 2021, the largest loan concentration we identified was commercial real estate loans which comprised 53% of our total loan portfolio. Approximately 86% of our total gross loans are secured by real estate. 34 The following table sets forth, as of December 31, 2021 and December 31, 2020 respectively the fixed and adjustable-rate loans in our loan portfolio: December 31, 2021 December 31, 2020 Amount Percent Amount Percent Fixed rate loans: Real estate loans: Commercial/Agricultural real estate $ 412,797 31.5 % $ 347,617 28.1 % Residential mortgage 61,964 4.7 % 90,105 7.3 % Total fixed rate real estate loans 474,761 36.2 % 437,722 35.4 % Non-real estate loans: C&I/Agricultural Operating 117,770 9.0 % 237,062 19.2 % Consumer installment 24,828 1.9 % 38,998 3.2 % Total fixed rate non-real estate loans 142,598 10.9 % 276,060 22.3 % Total fixed rate loans 617,359 47.1 % 713,782 57.7 % Adjustable-rate loans: Real estate loans: Commercial/Agricultural real estate 622,032 47.5 % 449,523 36.3 % Residential mortgage 32,897 2.5 % 47,540 3.8 % Total adjustable-rate real estate loans 654,929 50.0 % 497,063 40.2 % Non-real estate loans: C&I/Agricultural operating 44,740 3.4 % 35,978 2.9 % Consumer installment 17 — % 66 — % Total adjustable-rate non-real estate loans 44,757 3.4 % 36,044 2.9 % Total adjustable-rate loans 699,686 53.4 % 533,107 43.1 % Gross loans 1,317,045 1,246,889 Unearned net deferred fees and costs and loans in process (2,482) (0.2) % (4,245) (0.3) % Unamortized discount on acquired loans (3,600) (0.3) % (5,063) (0.9) % Total loans (net of unearned income) 1,310,963 100.0 % 1,237,581 100.0 % Allowance for loan losses (16,913) (17,043) Total loans receivable, net $ 1,294,050 $ 1,220,538 35 Loan amounts, their contractual maturities and weighted average interest rates at December 31, 2021 are shown below. SBA PPP loans at an interest rate of 1% are included in the C&I/agricultural operating segment amounts as follows: (1) $2.1 million is included in the one year or less amounts and (2) $6.7 million is included in the one year to five-year amounts. Real estate Non-real estate Commercial/Agricultural real estate Residential mortgage C&I/Agricultural operating Consumer installment Total Amount Weighted Average Rate Amount Weighted Average Rate Amount Weighted Average Rate Amount Weighted Average Rate Amount Weighted Average Rate Due in one year or less (1) $ 60,102 4.42 % $ 5,234 4.50 % $ 50,573 3.71 % $ 871 6.98 % $ 116,780 4.13 % Due after one year through five years 223,257 3.85 % 10,259 4.52 % 65,031 3.69 % 10,774 5.80 % $ 309,321 3.91 % Due after five years 751,470 3.88 % 79,368 4.69 % 46,906 3.93 % 13,200 5.36 % $ 890,944 3.98 % $ 1,034,829 3.91 % $ 94,861 4.66 % $ 162,510 3.76 % $ 24,845 5.61 % $ 1,317,045 3.98 % (1) Includes loans having no stated maturity and overdraft loans. Loan amounts, their contractual maturities and interest rates at December 31, 2020 are shown below. SBA PPP loans of $123.7 million at an interest rate of 1% are included in the one year to five-year amounts in the C&I/agricultural operating segment. Real estate Non-real estate Commercial/Agricultural real estate Residential mortgage C&I/Agricultural operating Consumer installment Total Amount Weighted Average Rate Amount Weighted Average Rate Amount Weighted Average Rate Amount Weighted Average Rate Amount Weighted Average Rate Due in one year or less (1) $ 90,573 4.31 % $ 13,216 4.40 % $ 65,008 3.82 % $ 1,083 8.54 % $ 169,880 4.16 % Due after one year through five years 209,017 4.41 % 23,152 4.91 % 168,185 1.93 % 14,520 5.79 % $ 414,874 3.48 % Due after five years 497,549 4.28 % 101,278 4.71 % 39,847 4.31 % 23,461 5.34 % $ 662,135 4.39 % $ 797,139 4.32 % $ 137,646 4.71 % $ 273,040 2.73 % $ 39,064 5.60 % $ 1,246,889 4.05 % (1) Includes loans having no stated maturity and overdraft loans. We believe that the critical factors in the overall management of credit or loan quality are sound loan underwriting and administration, systematic monitoring of existing loans and commitments, effective loan review on an ongoing basis, recording an adequate allowance to provide for incurred loan losses, and reasonable non-accrual and charge-off policies. 36 The following table summarizes SBA PPP loans by origination year as of December 31, 2021 and December 31, 2020, respectively. 2020 Originations 2021 Originations Total Balance Net Deferred Fee Income Balance Net Deferred Fee Income Balance Net Deferred Fee Income SBA PPP loans, December 31, 2019 $ — $ — $ — $ — $ — $ — 2020 SBA PPP loan originations 139,310 5,119 — — 139,310 5,119 Less: 2020 SBA PPP loan forgiveness and fee accretion (15,608) (2,128) — — (15,608) (2,128) SBA PPP loans, December 31, 2020 123,702 2,991 — — 123,702 2,991 2021 SBA PPP loan originations — — 55,854 3,494 55,854 3,494 Less: 2021 SBA PPP loan forgiveness and fee accretion (121,574) (2,987) (49,227) (3,201) (170,801) (6,188) SBA PPP loans, December 31, 2021 $ 2,128 $ 4 $ 6,627 $ 293 $ 8,755 $ 297 Risk Management and the Allowance for Loan Losses. The loan portfolio is our primary asset subject to credit risk. To address this credit risk, we maintain an ALL for probable and inherent credit losses through periodic charges to our earnings. These charges are shown in our accompanying Consolidated Statements of Operations as Provision for Loan Losses. See “Statement of Operations Analysis - Provision for Loan Losses ” above. We attempt to control, monitor and minimize credit risk through the use of prudent lending standards, a thorough review of potential borrowers prior to lending and ongoing and timely review of payment performance. Asset quality administration, including early identification of loans performing in a substandard manner, as well as timely and active resolution of problems, further enhances management of credit risk and minimization of loan losses. Any losses that occur and that are charged off against the ALL are periodically reviewed with specific efforts focused on achieving maximum recovery of both principal and interest on the affected loan. At least quarterly, we review the adequacy of the ALL. Based on an estimate computed pursuant to the requirements of ASC 450-10, “ Accounting for Contingencies” and ASC 310-10, “ Accounting by Creditors for Impairment of a Loan” , the analysis of the ALL consists of three components: (i) specific credit allocation established for expected losses relating to specific impaired loans for which the recorded investment in the loan exceeds its fair value; (ii) general portfolio allocation based on historical loan loss experience for significant loan categories; and (iii) general portfolio allocation based on qualitative factors such as economic conditions and other relevant factors specific to the markets in which we operate. We currently segregate loans into pools based on common risk characteristics for purposes of determining the ALL. The additional segmentation of the portfolio is intended to provide a more effective basis for the determination of qualitative factors affecting our ALL. In addition, management continually evaluates our ALL methodology to assess whether modifications in our methodology are appropriate in light of underwriting practices, market conditions, identifiable trends, regulatory pronouncements or other factors. 37 Changes in the ALL by loan portfolio segment for the periods presented were as follows: Commercial/Agricultural Real Estate C&I/Agricultural Operating Residential Mortgage Consumer Installment Unallocated Total Year ended December 31, 2021: Allowance for Loan Losses: Beginning balance, January 1, 2021 $ 10,271 $ 2,112 $ 1,041 $ 489 $ 906 $ 14,819 Charge-offs (51) — — (54) — (105) Recoveries 14 110 9 41 — 174 Provision 2,120 (263) (532) (251) (132) 942 Total Allowance on originated loans $ 12,354 $ 1,959 $ 518 $ 225 $ 774 $ 15,830 Other acquired loans: Beginning balance, January 1, 2021 $ 1,684 $ 141 $ 335 $ 64 $ — $ 2,224 Charge-offs (200) (7) — (27) — (234) Recoveries 14 13 4 4 — 35 Provision (642) (78) (209) (13) — (942) Total allowance on other acquired loans $ 856 $ 69 $ 130 $ 28 $ — $ 1,083 Total allowance on acquired loans $ 856 $ 69 $ 130 $ 28 $ — $ 1,083 Ending balance, December 31, 2021 $ 13,210 $ 2,028 $ 648 $ 253 $ 774 $ 16,913 Commercial/Agricultural Real Estate C&I/Agricultural operating Residential Mortgage Consumer Installment Unallocated Total Year ended December 31, 2020: Allowance for Loan Losses: Beginning balance, January 1, 2020 $ 6,205 $ 1,643 $ 879 $ 467 $ 357 $ 9,551 Charge-offs — (932) (5) (145) — (1,082) Recoveries 75 8 7 69 — 159 Provision 3,991 1,393 160 98 549 6,191 Total Allowance on originated loans $ 10,271 $ 2,112 $ 1,041 $ 489 $ 906 $ 14,819 Other acquired loans: Beginning balance, January 1, 2020 $ 526 $ 27 $ 163 $ 53 $ — $ 769 Charge-offs — (159) (74) (3) — (236) Recoveries 77 33 15 7 — 132 Provision 1,081 240 231 7 — 1,559 Total Allowance on other acquired loans $ 1,684 $ 141 $ 335 $ 64 $ — $ 2,224 Total Allowance on acquired loans $ 1,684 $ 141 $ 335 $ 64 $ — $ 2,224 Ending balance, December 31, 2020 $ 11,955 $ 2,253 $ 1,376 $ 553 $ 906 $ 17,043 The specific credit allocation for the ALL is based on a regular analysis of all originated loans that are considered impaired. In compliance with ASC 310-10, the fair value of the loan is determined based on either the present value of expected cash flows discounted at the loan’s effective interest rate, the market price of the loan, or, if the loan is collateral dependent, the fair value of the underlying collateral less the expected cost of sale for such collateral. At December 31, 2021, the Company had evaluated loans for impairment with a recorded investment of $31.7 million, consisting of $11.2 million PCI loans, with a carrying amount of $10.5 million, $9.9 million of TDR loans, net of TDR PCI loans and $11.3 million of substandard non-TDR non-PCI loans. The $31.7 million total of loans individually evaluated for impairment includes $8.0 million of performing TDR loans. At December 31, 2020, the Company had evaluated loans for impairment with a recorded investment of $42.3 million, consisting of $17.9 million of PCI loans with a carrying amount of $16.9 million, $15.6 million TDR loans, net of TDR PCI loans and $9.8 million of substandard non-TDR, non-PCI loans. The $42.3 million total of loans individually evaluated for impairment includes $11.7 million of performing TDR loans. 38 At December 31, 2021, the allowance for loan losses was $16.9 million or 1.29% of total loans compared to $17.0 million or 1.38% of our total loan portfolio at December 31, 2020. This level was based on our analysis of the loan portfolio risk at each of December 31, 2021, and December 31, 2020, as discussed above. The decrease in allowance dollars is due to modest net charge-offs in 2021. The slight decrease in the allowance for loan losses to total loan portfolio percentage was primarily due to the impact of growth in the originated loan portfolio, largely offset by a reduction in Q-Factors related to economic qualitative factor decreases to reflect reduced uncertainty in current general economic conditions. The percentage of allowance for loan losses was also helped by a decrease in gross acquired loans. The percentage of gross acquired loans to gross loans, excluding SBA PPP loans, decreased to 15% at December 31, 2021, compared to 25% at December 31, 2020. At December 31, 2021, the Bank had $198.6 million in gross acquired loans, which were recorded at fair market value at acquisition. The Bank had $286.2 million in gross acquired loans at December 31, 2020, which were recorded at fair market value at acquisition. Allowance for Loan Losses to Loans, net of SBA PPP Loans December 31, 2021 December 31, 2020 Loans, end of period $ 1,310,963 $ 1,237,581 SBA PPP loans, net of deferred fees (8,457) (120,711) Loans, net of SBA PPP loans and deferred fees $ 1,302,506 $ 1,116,870 Allowance for loan losses $ 16,913 $ 17,043 ALL to loans net of SBA PPP loans and deferred fees 1.30 % 1.53 % ALL to loans, end of period 1.29 % 1.38 % All of the nine factors identified in the FFIEC’s Interagency Policy Statement on the Allowance for Loan and Lease Losses are taken into account in determining the ALL. The impact of the factors in general categories are subject to change; thus, the allocations are management’s estimate of the loan loss categories in which the probable and inherent loss has occurred as of the date of our assessment. Of the nine factors, we believe the following have the greatest impact on our customers’ ability to repay loans and our ability to recover potential losses through collateral sales: (1) lending policies and procedures; (2) economic and business conditions; and (3) the value of the underlying collateral. As loan balances and estimated losses in a particular loan type decrease or increase and as the factors and resulting allocations are monitored by management, changes in the risk profile of the various parts of the loan portfolio may be reflected in the allocated allowance. The general component of our ALL-covers non-impaired loans and is based on historical loss experience adjusted for these and other qualitative factors. In addition, management continues to refine the ALL estimation process as new information becomes available. These refinements could also cause increases or decreases in the ALL. The unallocated portion of the ALL is intended to account for imprecision in the estimation process or relevant current information that may not have been considered in the process. Loans 30-89 days or more past due decreased $16.7 million at December 31, 2021, compared to December 31, 2020, largely related to decreases in commercial real estate and construction and land development loans 30-59 days delinquent. Nonaccrual loans increased modestly to $11.7 million at December 31, 2021, from $10.7 million at December 31, 2020, primarily due to an increase in commercial real estate due to a $4.5 million loan. Nonaccrual loans related to acquisitions decreased to $5.2 million at December 31, from $7.3 million at December 31, 2020. We believe our credit and underwriting policies continue to support more effective lending decisions by the Bank, which increases the likelihood of maintaining loan quality going forward. Refer to the “Risk Management and the Allowance for Loan Losses” section below for more information related to non-performing loans. For the year ended December 31, 2021, loan charge-offs were $0.339 million compared to $1.318 million for the year ended December 31, 2020, largely due to a decrease in commercial and industrial loans. Certain external factors may result in higher future losses but are not readily determinable at this time, including, but not limited to: unemployment rates, increased taxes and continuing increased regulatory expectations with respect to ALL levels. As a result, our analysis may show a need to increase our ALL as a percentage of total loans and nonperforming loans for the near future. Loans charged-off are subject to periodic review and specific efforts are taken to achieve maximum recovery of principal, accrued interest and related expenses on the loans charged off. COVID-19 Loan Modifications. In response to COVID-19, our banking regulator issued an Interagency Statement encouraging financial institutions to work prudently with borrowers who are or may be unable to meet their contractual 39 obligations due to COVID-19. Additionally, Section 4013 of the CARES Act provides that a qualified loan modification is exempt by law from classification as a TDR as defined by GAAP, from the period beginning March 1, 2020, until the earlier of December 31, 2020, or the date that is 60 days after the date on which the national emergency concerning the COVID-19 outbreak declared by the President of the United States under the National Emergencies Act is terminated. Section 541 of the Consolidated Appropriations Act, 2021 extends this relief to the earlier of January 1, 2022, or 60 days after the national emergency termination date. The Interagency Statement was subsequently revised in April 2020 to clarify the interaction of the original guidance with Section 4013 of the CARES Act. In accordance with this guidance, the Bank instituted a plan to offer modifications to impacted borrowers. The Bank continues to work with borrowers as the pandemic persists and is requiring additional support in exchange for additional modifications beyond the original term. As of December 31, 2021, the Bank’s COVID-19 related modifications under Section 4013 of the CARES Act, totaled $6.6 million, or 0.5% of gross loans versus $61 million, or 5.0% of gross loans at December 31, 2020. At December 31, 2021, hotel industry sector loans represented $6.0 million of the approved deferrals, compared to $51.6 million at December 31, 2020. The Bank has approximately $6.0 million of total payment deferrals expiring in the first quarter of 2022. Nonperforming Loans, Potential Problem Loans and Foreclosed Properties. We employ early identification of non-accrual and problem loans in order to minimize the risk of loss. Non-performing loans are defined as either 90 days or more past due or non-accrual. The accrual of interest income is discontinued according to the following schedules: • Commercial/agricultural real estate loans, past due 90 days or more; • Commercial and industrial/agricultural operating loans past due 90 days or more; • Closed ended consumer installment loans past due 120 days or more; and • Residential mortgage and open ended consumer installment loans past due 180 days or more. When interest accruals are discontinued, interest credited to income is reversed. If collection is in doubt, cash receipts on non-accrual loans are used to reduce principal rather than recorded as interest income. Restructuring a loan typically involves the granting of some concession to the borrower involving a loan modification, such as modifying the payment schedule or making interest rate changes. Restructured loans may involve loans that have had a charge-off taken against the loan to reduce the carrying amount of the loan to fair market value as determined pursuant to ASC 310-10. Restructured loans that comply with the restructured terms are considered performing loans. 40 The following table identifies the various components of non-performing assets and other balance sheet information as of the dates indicated below and changes in the ALL for the periods then ended: December 31, 2021 and twelve months ended December 31, 2020 and twelve months ended Nonperforming assets: Nonaccrual loans Commercial real estate $ 5,374 $ 827 Agricultural real estate 3,490 5,084 Commercial and industrial (“C&I”) 298 357 Agricultural operating 993 1,872 Residential mortgage 1,433 2,451 Consumer installment 77 156 Total nonaccrual loans $ 11,665 $ 10,747 Accruing loans past due 90 days or more 160 586 Total nonperforming loans (“NPLs”) 11,825 11,333 Other real estate owned 1,406 156 Other collateral owned 2 41 Total nonperforming assets (“NPAs”) $ 13,233 $ 11,530 Troubled Debt Restructurings (“TDRs”) $ 12,523 $ 18,477 Nonaccrual TDRs $ 4,539 $ 6,735 Average outstanding loan balance $ 1,216,244 $ 1,234,732 Loans, end of period $ 1,310,963 $ 1,237,581 Total assets, end of period $ 1,739,628 $ 1,649,095 ALL, at beginning of period $ 17,043 $ 10,320 Loans charged off: Commercial/Agricultural real estate (251) — C&I/Agricultural operating (7) (1,091) Residential mortgage — (78) Consumer installment (81) (149) Total loans charged off (339) (1,318) Recoveries of loans previously charged off: Commercial/Agricultural real estate 28 150 C&I/Agricultural operating 123 44 Residential mortgage 13 20 Consumer installment 45 77 Total recoveries of loans previously charged off: 209 291 Net loans charged off (“NCOs”) (130) (1,027) Additions to ALL via provision for loan losses charged to operations — 7,750 ALL, at end of period $ 16,913 $ 17,043 Ratios: ALL to NCOs (annualized) 13,010.00 % 1,659.49 % NCOs (annualized) to average loans 0.01 % 0.08 % ALL to total loans 1.29 % 1.38 % NPLs to total loans 0.90 % 0.92 % NPAs to total assets 0.76 % 0.70 % 41 The following table shows the detail of non-performing assets by originated and acquired portfolios. Nonperforming Originated and Acquired Assets December 31, 2021 December 31, 2020 Nonperforming assets: Originated nonperforming assets: Nonaccrual loans $ 6,448 $ 3,649 Accruing loans past due 90 days or more 63 415 Total originated nonperforming loans (“NPL”) 6,511 4,064 Other real estate owned (“OREO”) — 63 Other collateral owned 2 41 Total originated nonperforming assets (“NPAs”) $ 6,513 $ 4,168 Acquired nonperforming assets: Nonaccrual loans $ 5,217 $ 7,098 Accruing loans past due 90 days or more 97 171 Total acquired nonperforming loans (“NPL”) 5,314 7,269 Other real estate owned (“OREO”) 1,406 93 Other collateral owned — — Total acquired nonperforming assets (“NPAs”) $ 6,720 $ 7,362 Total nonperforming assets (“NPAs”) $ 13,233 $ 11,530 Loans, end of period $ 1,310,963 $ 1,237,581 Total assets, end of period $ 1,739,628 $ 1,649,095 Ratios: Originated NPLs to total loans 0.50 % 0.33 % Acquired NPLs to total loans 0.41 % 0.59 % Originated NPAs to total assets 0.37 % 0.25 % Acquired NPAs to total assets 0.39 % 0.45 % Non-performing assets include non-performing loans, other real estate owned, and other collateral owned. Our non-performing assets were $13.2 million, or 0.76% of total assets, at December 31, 2021, compared to $11.5 million, or 0.70% of total assets, at December 31, 2020. The increase was largely due to an increase in originated nonaccrual loans and the transfer of $1.4 million of a former branch asset to OREO, partially offset by a decrease in acquired nonaccrual loans. Nonaccrual Loans Roll forward Year Ended December 31, 2021 December 31, 2020 Balance, beginning of period $ 10,747 $ 19,056 Additions 6,580 5,346 Charge offs (288) (770) Transfers to OREO (64) (1,057) Return to accrual status (1,017) (1,987) Payments received (4,271) (9,240) Other, net (22) (601) Balance, end of period $ 11,665 $ 10,747 The table below shows the totals of accruing troubled debt restructurings as of December 31, 2021, and December 31, 2020. The 2021 decrease in troubled debt restructurings in dollars was largely due to one C&I loan of $3.0 million that paid in full in 2021. 42 Troubled Debt Restructurings in Accrual Status December 31, 2021 December 31, 2020 Number of Modifications Recorded Investment Number of Modifications Recorded Investment Troubled debt restructurings: Accrual Status Commercial/Agricultural real estate 11 $ 4,618 16 $ 4,695 C&I/Agricultural Operating 3 649 4 3,836 Residential mortgage 36 2,681 43 3,162 Consumer installment 6 36 8 49 Total loans 56 $ 7,984 71 $ 11,742 The table below shows the totals of special mention, substandard and the total of these, known as criticized loans as of December 31, 2021, and 2020. The decrease in criticized loans in 2021 was largely due to decreases in acquired substandard loans and a reduction in originated accruing TDR loans, nonperforming and other substandard loans. December 31, 2021 December 31, 2020 Special mention loan balances $ 4,536 $ 6,672 Substandard loan balances 22,817 28,541 Criticized loans, end of period $ 27,353 $ 35,213 The table below shows the changes in the Bank’s non-accretable difference on purchased credit impaired loans. The Bank has transferred the non-accretable difference on purchased credit impaired loans to accretable discount as collateral coverage improved sufficiently, due to a combination of principal paydowns and/or improving collateral positions. This transferred non-accretable difference to accretable discount is accreted over the remaining maturity of the loan or until payoff, whichever is shorter. Non-accretable difference: Year Ended December 31, 2021 December 31, 2020 Non-accretable difference, beginning of period $ 1,087 $ 6,290 Additions to non-accretable difference for acquired purchased credit impaired loans — — Non-accretable difference realized as interest from payoffs of purchased credit impaired loans (105) (1,693) Transfers from non-accretable difference to accretable discount. (329) (2,754) Non-accretable difference used to reduce loan principal balance — (505) Non-accretable difference transferred to OREO due to loan foreclosure — (251) Non-accretable difference, end of period $ 653 $ 1,087 Accretable difference: 43 The table below shows scheduled accretion by year for the accretable difference recognized due to fair value purchase accounting on recent whole bank acquisitions. In addition, the Company has $1.61 million of accretable discount from purchased impaired loans with the original non-accretable discount transferred to accretable discount. The scheduled accretion on this balance is estimated to be $100 per year; however, large balance payoffs, as seen in 2021 and 2020, would accelerate this accretion. Fiscal years ending December 31, Purchase Accounting Accretable Discount 2022 $ 828 2023 279 2024 131 2025 96 Total 1,334 Mortgage Servicing Rights . The Company continues to sell loans to investors in the secondary market and generally retains the rights to service mortgage loans sold to others. MSR assets are initially measured at fair value by a third party; assessed at least quarterly for impairment; carried at the lower of the initial capitalized amount, net of accumulated amortization, or estimated fair value. MSR assets are amortized in proportion to and over the period of estimated net servicing income, with the amortization recorded in non-interest expense in the consolidated statement of operations. The valuation of MSRs and related amortization thereon are based on numerous factors, assumptions and judgments, such as those for: changes in the mix of loans, interest rates, prepayment speeds, and default rates. Changes in these factors, assumptions and judgments may have a material effect on the valuation and amortization of MSRs. Although management believes that the assumptions used to evaluate the MSRs for impairment are reasonable, future adjustment may be necessary if future economic conditions differ substantially from the economic assumptions used to determine the value of MSRs. The fair market value of the Company’s MSR asset increased to $4.3 million at December 31, 2021, from $3.3 million at December 31, 2020. This increase was primarily due to $1.4 million of impairment reversal recorded in 2021 on the MSR impairment which reduced the impairment to $0.6 million at December 31, 2021. This was partially offset by a reduction in the gross MSR balance of $0.5 million, which was due to amortization of $1.6 million and additions from originations of $1.1 million. The unpaid balances of one- to four-family residential real estate loans serviced for others as of December 31, 2021, and December 31, 2020, were $556.1 million and $553.7 million, respectively. The fair market value of the Company’s MSR asset as a percentage of its servicing portfolio at December 31, 2021 and December 31, 2020 was 0.78% and 0.59%, respectively. Intangible Assets. We have intangible assets of $3.9 million at December 31, 2021, compared to $5.5 million at December 31, 2020. The intangible assets are comprised of core deposit intangible assets arising from various acquisitions from 2016 through 2019. Amortization of these intangibles was $1.6 million in 2021. Foreclosed and repossessed assets. Included in foreclosed and repossessed assets, net is a closed branch location that is being held for sale. The excess property was created when the Bank constructed a new, smaller facility on a portion of the site that better supports the Bank’s needs. The property is being held at $1,360, which was its carrying value prior to its reclassification as held for sale, as the bank has a signed purchase agreement from a non-financial institution in excess of its carrying value. As such, no gain or loss was recognized on the reclassification. The Bank expects to complete the sale in the first half of 2022. Deposits. Deposits are our largest source of funds. Total deposits increased to $1.39 billion at December 31, 2021, from $1.30 billion at December 31, 2020. The increase in deposits, largely attributable to the growth in non-maturity deposits, allowed the Company to reduce reliance on higher cost certificates of deposit. This non-maturity deposit growth was partially offset by a $110.2 million reduction of retail certificates of deposits, as the Company chose not to match higher rates offered by local retail certificate of deposit competitors. Brokered and institutional deposits decreased to $0.0 million at December 31, 2021, from $2.5 million at December 31, 2020. The Bank believes these markets are available to the Bank if the need arises. 44 The following is a summary of deposits by type at December 31, 2021 and December 31, 2020, respectively: December 31, 2021 December 31, 2020 Non interest bearing demand deposits $ 276,631 $ 238,348 Interest bearing demand deposits 396,231 301,764 Savings accounts 222,674 196,348 Money market accounts 288,985 245,549 Certificate accounts 203,014 313,247 Total deposits $ 1,387,535 $ 1,295,256 45 Federal Home Loan Bank (FHLB) advances and other borrowings. A summary of Federal Home Loan Bank (FHLB) advances and other borrowings at December 31, 2021 and December 31, 2020 is as follows: December 31, 2021 2020 Stated Maturity Amount Range of Stated Rates Amount Range of Stated Rates Federal Home Loan Bank advances (1), (2), (3), (4) 2021 $ — — % — % $ 8,000 — % 2.16 % 2022 11,000 2.45 % 2.45 % 15,000 2.34 % 2.45 % 2023 20,000 1.43 % 1.44 % 20,000 1.43 % 1.44 % 2024 20,530 0.00 % 1.45 % 20,530 0.00 % 1.45 % 2025 5,000 1.45 % 1.45 % 5,000 1.45 % 1.45 % 2029 42,500 1.00 % 1.13 % 42,500 1.00 % 1.13 % 2030 12,500 0.52 % 0.86 % 12,500 0.52 % 0.86 % Subtotal 111,530 123,530 Unamortized discount on acquired notes (3) (32) Federal Home Loan Bank advances, net $ 111,527 $ 123,498 Other borrowings: Senior notes (5) 2031 $ 28,856 3.00 % 3.50 % $ 28,856 3.25 % 3.50 % Subordinated notes (6) 2027 $ 15,000 6.75 % 6.75 % $ 15,000 6.75 % 6.75 % 2030 15,000 6.00 % 6.00 % 15,000 6.00 % 6.00 % $ 30,000 $ 30,000 Unamortized debt issuance costs (430) (528) Total other borrowings $ 58,426 $ 58,328 Totals $ 169,953 $ 181,826 (1) The FHLB advances bear fixed rates, require interest-only monthly payments, and are collateralized by a blanket lien on pre-qualifying first mortgages, home equity lines, multi-family loans and certain other loans which had pledged balances of $861,900 and $723,862 at December 31, 2021 and 2020, respectively. At December 31, 2021, the Bank’s available and unused portion under the FHLB borrowing arrangement was approximately $204,271 compared to $118,391 as of December 31, 2020. (2) Maximum month-end borrowed amounts outstanding under this borrowing agreement were $123,530 and $162,530, during the twelve months ended December 31, 2021 and December 31, 2020, respectively. (3) The weighted-average interest rates on FHLB borrowings, with maturities less than twelve months, outstanding as of December 31, 2021 and December 31, 2020 were 2.45% and 1.02%, respectively. (4) FHLB term notes totaling $55,000, with various maturity dates in 2029 and 2030, can be called or replaced by the FHLB on a quarterly basis. (5) Senior notes, entered into by the Company in June 2019 consist of the following: (a) A term note which was subsequently refinanced in October 2020 and modified in 2021, requiring quarterly interest-only payments through June 2022, and quarterly principal and interest payments thereafter. Interest is variable, based on US Prime rate with a floor rate of 3.00%, due to the modification in October 2021. (b) A $5,000 line of credit, maturing in August 2021, that remains undrawn upon. (6) Subordinated notes resulted from the following: (a) The Company’s private sale in August 2017, which bears a fixed interest rate of 6.75% for five years. In August 2022, they convert to a three-month LIBOR plus 4.90% rate, and the interest rate will reset quarterly thereafter. The note is callable by the Bank when, and anytime after, the floating rate is initially set. Interest-only payments are due quarterly. 46 (b) The Company’s Subordinated Note Purchase Agreement entered into with certain purchasers in August 2020, which bears a fixed interest rate of 6.00% for five years. In September 2025, the fixed interest rate will be reset quarterly to equal the three-month term Secured Overnight Financing Rate plus 591 basis points. The note is callable by the Bank when, and anytime after, the floating rate is initially set. Interest-only payments are due semi-annually each year during the fixed interest period and quarterly during the floating interest period. Federal Home Loan Bank (FHLB) advances and other borrowings We utilize advances and other borrowings, as necessary, to supplement core deposits to meet our funding and liquidity needs and we evaluate all options for funding securities. FHLB advances decreased to $111.5 million at December 31, 2021, from $123.5 million at December 31, 2020. An $11 million advance matures in 2022, with additional fixed-rate advances of $45.5 million maturing in 2023 through 2025. There are $55 million of advances with a stated maturity in 2029 and 2030, that are callable quarterly by the Federal Home Loan Bank. In the first quarter of 2021, the Bank terminated $8 million of advances at a pre-tax cost of approximately $100 thousand. Stockholders’ Equity. Total stockholders’ equity was $170.9 million at December 30, 2021, compared to $160.6 million at December 31, 2020. The increase in stockholders’ equity was due to the Company’s net income of $21.3 million and restricted stock amortization of $0.8 million. This increase was partially offset by 1) the repurchase of approximately 620 thousand shares of its common stock, which reduced equity by $8.0 million; 2) the payment of the annual cash dividend, paid in February 2021, to common stockholders of $0.23 per share or $2.5 million; and 3) a decrease in the unrealized gain on available for sale securities of $1.3 million. In November 2020, the Board of Directors authorized a 5% or 557 thousand share repurchase program. The Company repurchased all remaining authorized shares of the Company’s stock under the November 2020 share repurchase program not previously repurchased in 2020 during the year ended December 31, 2021. On July 23, 2021, the Board of Directors adopted a new share repurchase program. Under this new share repurchase program, approximately 160 thousand shares, were repurchased during the year ended December 31, 2021. The Company is authorized to repurchase an additional 373 thousand shares under this July 2021 share repurchase program Liquidity and Asset / Liability Management. Liquidity management refers to our ability to ensure cash is available in a timely manner to meet loan demand, depositors’ needs, and meet other financial obligations as they become due without undue cost, risk or disruption to normal operating activities. We manage and monitor our short-term and long-term liquidity positions and needs through a regular review of maturity profiles, funding sources, and loan and deposit forecasts to minimize funding risk. A key metric we monitor is our liquidity ratio, calculated as cash and investments with maturities less than one-year divided by deposits with maturities less than or equal to one-year. At December 31, 2021, our liquidity ratio increased to 17.0% percent from 16.5% at December 31, 2020. This was largely due to the growth in AFS and HTM securities portfolio, which was mostly offset by a reduction in interest-bearing cash. Our primary sources of funds are deposits; amortization, prepayments and maturities of outstanding loans; other short-term investments; and funds provided from operations. We use our sources of funds primarily to meet ongoing commitments, to pay maturing certificates of deposit and savings withdrawals, and to fund loan commitments. While scheduled payments from the amortization of loans and maturing short-term investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. Although $178.8 million of our $203.0 million (88%) CD portfolio will mature within the next 12 months, we have historically retained a majority of our maturing CD’s. However, due to strategic pricing decisions regarding rate matching and branch closures, our retention rate decreased in 2021 and may remain at lower than historical levels in 2022 based on management’s current pricing strategy, which reflects the Bank’s current strong on-balance sheet liquidity ratio. Through new deposit product offerings to our branch and commercial customers, we are currently attempting to strengthen customer relationships to attract additional non-rate sensitive deposits. Based on interest rates on scheduled maturities and lower current market interest rates, this should also improve our cost of funds. We maintain access to additional sources of funds including FHLB borrowings and lines of credit with the Federal Reserve Bank, and our correspondent banks. We utilize FHLB borrowings to leverage our capital base, to provide funds for our lending and investment activities, and to manage our interest rate risk. Our borrowing arrangement with the FHLB calls for pledging certain qualified real estate, commercial and industrial loans, and borrowing up to 75% of the value of those loans, not to exceed 35% of the Bank’s total assets. Currently, we have approximately $204.2 million available to borrow under this arrangement, supported by loan collateral as of December 31, 2021. At December 31, 2021, the Bank had no borrowing capacity under the Federal Reserve SAB PPP Liquidity Facility, as the program expired on July 30, 2021. We also maintain lines of credit of $0.9 million with the Federal Reserve Bank and $25 million of uncommitted federal funds purchased lines 47 with correspondent banks as part of our contingency funding plan. In addition, the Company maintains a $5.0 million revolving line of credit which is available as needed for general liquidity purposes. While the Bank does not have formal brokered certificate lines of credit with counter parties at December 31, 2021, we believe that the Bank could access this market, which provides an additional potential source of liquidity. See Note 9, “Federal Home Loan Bank and Other Borrowings” of “Notes to Consolidated Financial Statements” which are included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Form 10-K, for further detail. In reviewing the adequacy of our liquidity, we review and evaluate historical financial information, including information regarding general economic conditions, current ratios, management goals and the resources available to meet our anticipated liquidity needs. Management believes that our liquidity is adequate, and to management’s knowledge, there are no known events or uncertainties that will result or are likely to reasonably result in a material increase or decrease in our liquidity. Off-Balance Sheet Arrangements . In the ordinary course of business, the Bank has entered into off-balance sheet financial instruments, issued to meet customer financial needs. Such financial instruments are recorded in the financial statements when they become payable. These instruments include unused commitments for lines of credit, overdraft protection lines of credit and home equity lines of credit, as well as commitments to extend credit. As of December 31, 2021, the Company had approximately $271.0 million in unused loan commitments, compared to approximately $247.3 million in unused commitments as of December 31, 2020. In addition, there are $5.0 million in contribution of capital for SBIC and an investment company at December 31, 2021, with no such commitments at December 31, 2020. See Note 11, “Commitments and Contingencies”; “Financial Instruments with Off-Balance Sheet Risk” of “Notes to Consolidated Financial Statements” which are included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Form 10-K, for further detail. Capital Resources. As of the dates indicated below, our Tier 1 and Risk-based capital levels exceeded levels necessary to be considered “Well Capitalized” under Prompt Corrective Action provisions for the Bank. Below are the amounts and ratios for our capital levels as of the dates noted below for the Bank. Actual For Capital Adequacy Purposes To Be Well Capitalized Under Prompt Corrective Action Provisions Amount Ratio Amount Ratio Amount Ratio As of December 31, 2021 Total capital (to risk weighted assets) $ 187,783 13.4 % $ 111,694 > = 8.0 % $ 139,618 > = 10.0 % Tier 1 capital (to risk weighted assets) 170,870 12.2 % 83,771 > = 6.0 % 111,694 > = 8.0 % Common equity tier 1 capital (to risk weighted assets) 170,870 12.2 % 62,828 > = 4.5 % 90,752 > = 6.5 % Tier 1 leverage ratio (to adjusted total assets) 170,870 10.0 % 68,323 > = 4.0 % 85,403 > = 5.0 % As of December 31, 2020 Total capital (to risk weighted assets) $ 171,702 14.7 % $ 93,381 > = 8.0 % $ 116,726 > = 10.0 % Tier 1 capital (to risk weighted assets) 157,081 13.5 % 70,035 > = 6.0 % 93,381 > = 8.0 % Common equity tier 1 capital (to risk weighted assets) 157,081 13.5 % 52,527 > = 4.5 % 75,872 > = 6.5 % Tier 1 leverage ratio (to adjusted total assets) 157,081 9.9 % 63,718 > = 4.0 % 79,647 > = 5.0 % At December 31, 2021, the Bank was categorized as “Well Capitalized” under Prompt Corrective Action Provisions, as determined by the OCC, our primary regulator. 48 Below are the amounts and ratios for our capital levels as of the dates noted below for the Company. Actual For Capital Adequacy Purposes Amount Ratio Amount Ratio As of December 31, 2021 Total capital (to risk weighted assets) $ 182,242 13.1 % $ 111,694 > = 8.0 % Tier 1 capital (to risk weighted assets) 135,329 9.7 % 83,771 > = 6.0 % Common equity tier 1 capital (to risk weighted assets) 135,329 9.7 % 62,828 > = 4.5 % Tier 1 leverage ratio (to adjusted total assets) 135,329 7.9 % 68,323 > = 4.0 % As of December 31, 2020 Total capital (to risk weighted assets) $ 166,703 14.3 % $ 93,381 > = 8.0 % Tier 1 capital (to risk weighted assets) 122,082 10.5 % 70,035 > = 6.0 % Common equity tier 1 capital (to risk weighted assets) 122,082 10.5 % 52,527 > = 4.5 % Tier 1 leverage ratio (to adjusted total assets) 122,082 7.7 % 63,718 > = 4.0 % 49 Selected Quarterly Financial Data The following is selected financial data summarizing the results of operations for each quarter as of the periods indicated below: Year ended December 31, 2021: March 31, 2021 June 30, 2021 September 30, 2021 December 31, 2021 Interest income $ 15,620 $ 15,478 $ 16,175 $ 16,762 Interest expense 2,856 2,647 2,487 2,378 Net interest income 12,764 12,831 13,688 14,384 Provision for loan losses — — — — Net interest income after provision for loan losses 12,764 12,831 13,688 14,384 Non-interest income 4,176 3,793 3,448 4,407 Non-interest expense 9,489 10,198 10,320 10,525 Income before income tax expense 7,451 6,426 6,816 8,266 Provision (benefit) for income tax 1,945 1,720 1,819 2,209 Net income $ 5,506 $ 4,706 $ 4,997 $ 6,057 Basic earnings per share $ 0.50 $ 0.44 $ 0.47 $ 0.58 Diluted earnings per share $ 0.50 $ 0.44 $ 0.47 $ 0.58 Dividends paid $ 0.23 $ — $ — $ — Year ended December 31, 2020: March 31, 2020 June 30, 2020 September 30, 2020 December 31, 2020 Interest income $ 16,908 $ 15,886 $ 15,218 $ 16,515 Interest expense 4,237 3,583 3,309 3,143 Net interest income 12,671 12,303 11,909 13,372 Provision for loan losses 2,000 1,750 1,500 2,500 Net interest income after provision for loan losses 10,671 10,553 10,409 10,872 Non-interest income 3,603 5,013 5,062 4,770 Non-interest expense 10,731 11,392 10,724 10,826 Income before income tax expense 3,543 4,174 4,747 4,816 Provision (benefit) for income tax 937 1,105 1,267 1,246 Net income $ 2,606 $ 3,069 $ 3,480 $ 3,570 Basic earnings per share $ 0.23 $ 0.28 $ 0.31 $ 0.32 Diluted earnings per share $ 0.23 $ 0.28 $ 0.31 $ 0.32 Dividends paid $ 0.21 $ — $ — $ —