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. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ¨ Yes ¨ No

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

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

As of ~~November 5, 2009,~~May 4, 2010, there were ~~8,605,333~~8,612,582 shares of common stock, $1.00 par value per share, outstanding.

MIDW~~EST~~MIDWESTONEONE F~~INANCIAL~~ G~~ROUP, I~~NC. FINANCIAL GROUP, INC.


	September 30, 2009			December 31, 2008			March 31, 2010			December 31, 2009
(dollars in thousands)	(unaudited)						(unaudited)
ASSETS
Cash and due from banks	$	23,421		$	32,383		$	18,185		$	25,452
Interest-bearing deposits in banks		3,849			543			18,587			2,136
Federal funds sold								5,226			—

Cash and cash equivalents		27,270			32,926			41,998			27,588

Investment securities:
Available for sale		354,697			272,380			375,174			362,903
Held to maturity (fair value of $7,641 as of September 30, 2009 and $8,120 as of December 31, 2008)		7,512			8,125
Held to maturity (fair value of $6,299 as of March 31, 2010 and $8,118 as of December 31, 2009)								6,186			8,009
Loans held for sale		1,115			5,279			759			1,208
Loans		973,468			1,014,814			954,689			966,998
Allowance for loan losses		(13,506	)		(10,977	)		(14,553	)		(13,957	)

Net loans		959,962			1,003,837			940,136			953,041

Loan pool participations, net		88,707			92,932			81,518			83,052
Premises and equipment, net		29,515			28,748			28,656			28,969
Accrued interest receivable		12,382			11,736			10,515			11,534
Other intangible assets, net		12,485			13,424			11,916			12,172
Bank-owned life insurance		17,917			17,340			18,285			18,118
Other real estate owned		2,608			996			2,547			3,635
Deferred income taxes		2,409			5,595			4,861			5,163
Other assets		13,097			15,644			19,510			19,391

Total assets	$	1,529,676		$	1,508,962		$	1,542,061		$	1,534,783


LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Non-interest bearing demand	$	125,009		$	123,558
Noninterest bearing demand							$	133,171		$	133,990
Interest-bearing checking		392,485			389,227			423,666			401,264
Savings		59,077			59,133			62,528			62,989
Certificates of deposit under $100,000		403,654			402,950			390,328			394,369
Certificates of deposit $100,000 and over		172,589			153,321			183,592			187,256

Total deposits		1,152,814			1,128,189			1,193,285			1,179,868
Federal funds purchased		-			13,050			—			1,875
Securities sold under agreements to repurchase		50,397			44,249			39,565			43,098
Federal Home Loan Bank borrowings		137,000			158,782			127,700			130,200
Deferred compensation liabilities		3,839			1,586
Deferred compensation liability								3,810			3,832
Long-term debt		15,601			15,640			15,576			15,588
Accrued interest payable		2,795			2,770			2,071			2,248
Other liabilities		15,320			14,354			5,896			5,866

Total liabilities		1,377,766			1,378,620			1,387,903			1,382,575


Shareholders’ equity:
Preferred stock, no par value, with a liquidation preference of $1,000 per share; authorized 500,000 shares; issued and outstanding 16,000 shares as of September 30, 2009; no shares authorized or issued at December 31, 2008	$	15,683		$	-
Common stock, $1 par value; authorized 15,000,000 shares at September 30, 2009 and 10,000,000 shares at December 31, 2008; issued 8,690,398 shares at September 30, 2009 and December 31, 2008; outstanding 8,605,333 shares at September 30, 2009 and 8,603,055 at December 31, 2008		8,690			8,690
Preferred stock, no par value, with a liquidation preference of $1,000 per share; authorized 500,000 shares; issued 16,000 shares as of March 31, 2010 and December 31, 2009							$	15,716		$	15,699
Common stock, $1 par value; authorized 15,000,000 shares at March 31, 2010 and December 31, 2009; issued 8,690,398 shares at March 31, 2010 and December 31, 2009; outstanding 8,609,804 shares at March 31, 2010 and 8,605,333 shares at December 31, 2009								8,690			8,690
Additional paid-in capital		81,122			80,757			81,183			81,179
Treasury stock at cost, 85,065 shares as of September 30, 2009 and 87,343 shares at December 31, 2008		(1,183	)		(1,215	)
Treasury stock at cost, 80,594 shares as of March 31, 2010 and 85,065 shares at December 31, 2009								(1,121	)		(1,183	)
Retained earnings		47,109			43,683			49,436			48,079
Accumulated other comprehensive income (loss)		489			(1,573	)		254			(256	)

Total shareholders’ equity		151,910			130,342			154,158			152,208

Total liabilities and shareholders’ equity	$	1,529,676		$	1,508,962		$	1,542,061		$	1,534,783


(unaudited) (dollars in thousands, except per share amounts)	Three Months Ended September 30,					Nine Months Ended September 30,						Three Months Ended March 31,
	2009			2008		2009			2008			2010			2009
Interest income:
Interest and fees on loans	$	14,669		$	14,842	$	44,365		$	38,238		$	13,704		$	14,911
Interest and discount on loan pool participations		28			1,228		1,707			3,145			899			1,015
Interest on bank deposits		3			23		4			26			10			—
Interest on federal funds sold		6			70		44			298			—			9
Interest on investment securities:
Taxable securities		2,307			2,212		6,429			6,286			2,225			1,975
Tax-exempt securities		1,018			1,063		2,988			3,021			990			970

Total interest income		18,031			19,438		55,537			51,014			17,828			18,880


Interest expense:
Interest on deposits:
Interest-bearing checking		1,078			2,125		3,450			3,174			1,070			1,137
Savings		49			109		174			1,295			36			62
Certificates of deposit under $100,000		2,909			3,744		9,255			9,731			2,543			3,179
Certificates of deposit $100,000 and over		1,266			474		3,905			3,125			967			1,309

Total interest expense on deposits		5,302			6,452		16,784			17,325			4,616			5,687
Interest on federal funds purchased		1			29		11			60			1			10
Interest on securities sold under agreements to repurchase		97			292		348			814			76			124
Interest on Federal Home Loan Bank advances		1,533			1,528		4,115			3,812
Interest on Federal Home Loan Bank borrowings													1,207			916
Interest on notes payable		13			1		49			110			13			3
Interest on long-term debt		158			187		505			433			148			186

Total interest expense		7,104			8,489		21,812			22,554			6,061			6,926

Net interest income		10,927			10,949		33,725			28,460			11,767			11,954
Provision for loan losses		2,125			838		5,975			1,666			1,500			2,350

Net interest income after provision for loan losses		8,802			10,111		27,750			26,794			10,267			9,604


Noninterest income:
Trust and investment fees		1,050			1,217		3,121			3,290			1,234			1,107
Service charges and fees on deposit accounts		1,074			1,224		2,975			3,068			864			911
Mortgage origination and loan servicing fees		613			187		2,244			817			500			771
Other service charges, commissions and fees		568			266		1,603			1,648			584			525
Bank-owned life insurance income		154			121		576			354			167			224
Investment securities gains (losses), net
Investment securities losses, net:
Impairment losses on investment securities		(1,388	)		-		(2,002	)		(567	)		(189	)		—
Less noncredit-related losses		-			-		-			-			—			—

Net impairment losses		(1,388	)		-		(2,002	)		(567	)		(189	)		—
Gain on sale of available for sale securities		491			-		491			206			237			—
Gain (loss) on sale of fixed assets		(9	)		9		(3	)		9
Loss on sale of premises and equipment													(77	)		—

Total noninterest income		2,553			3,024		9,005			8,825			3,320			3,538


Noninterest expense:
Salaries and employee benefits		5,863			5,815		17,463			14,918			5,790			5,753
Net occupancy and equipment expense		1,729			2,234		5,083			4,737			1,776			1,707
Professional fees		727			348		2,651			927			749			1,082
Data processing expense		438			339		1,445			1,253			457			516
FDIC Insurance expense		615			292		2,568			334			692			898
Other operating expense		1,785			1,926		5,195			4,220			1,584			1,967

Total noninterest expense		11,157			10,954		34,405			26,389			11,048			11,923

Income before income tax expense		198			2,181		2,350			9,230			2,539			1,219
Income tax expense (benefit)		(636	)		477		(443	)		2,288
Income tax expense													535			43

Net income	$	834		$	1,704	$	2,793		$	6,942		$	2,004		$	1,176

Less: Preferred stock dividends and discount accretion	$	216		$	-	$	563		$	-		$	217		$	131

Net income available to common shareholders	$	618		$	1,704	$	2,230		$	6,942		$	1,787		$	1,045


Share and Per share information:
Ending number of shares outstanding		8,605,333			8,646,328		8,605,333			8,646,328			8,609,804			8,603,055
Average number of shares outstanding		8,605,312			8,646,328		8,604,531			7,707,301			8,607,853			8,603,055
Diluted average number of shares		8,605,732			8,646,328		8,604,557			7,707,301			8,611,511			8,603,548
Earnings per common share - basic	$	0.07		$	0.20	$	0.26		$	0.90		$	0.21		$	0.12
Earnings per common share - diluted		0.07			0.20		0.26			0.90			0.21			0.12
Dividends paid per common share		0.05			0.15		0.25			0.31			0.05			0.15

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND OTHER COMPREHENSIVE INCOME (LOSS)

MidWestOne Financial Group, Inc. (“MidWestOne” or the “Company,” which is also referred to herein as “we,” “our” or “us”) is an Iowa corporation incorporated in 1983, a bank holding company under the Bank Holding Company Act of 1956 and a financial holding company under the Gramm-Leach-Bliley Act of 1999. Our principal executive offices are located at 102 South Clinton Street, Iowa City, Iowa 52240.

The Company owns 100% of the outstanding common stock of MidWestOneBank, an Iowa state non-member bank chartered in 1934 with its main office in Iowa City, Iowa, (the “Bank”) and 100% of the common stock of MidWestOne Insurance Services, Inc., Pella, Iowa. We operate primarily through our bank subsidiary, MidWestOne Bank, and MidWestOne Insurance Services, Inc., our wholly-owned subsidiary that operates an insurance agency business through three offices located in central and east-central Iowa.

On March 14, 2008, we consummated a merger-of-equals transaction with the former MidWestOne Financial Group, Inc., Oskaloosa, Iowa (“Former MidWestOne”) ~~merged with~~, pursuant to and ~~into ISB Financial Corp.~~ in accordance with the Agreement and Plan of Merger dated as of September 11, ~~2007.~~2007 (the “Merger”). Prior to the Merger, we operated under the name “ISB Financial Corp.” As a result of the ~~merger,~~Merger, Former MidWestOne merged with and into the Company and ceased to exist as a legal entity, and we changed our name from ISB Financial Corp. ~~survived the merger and changed its name~~ to ~~“MidWest~~MidWestOne Financial Group, Inc.~~” The surviving organization is referred to~~ All references in this document ~~as the “Company.”~~

~~Prior~~ to the ~~merger, ISB Financial Corp’s wholly-owned bank subsidiaries were Iowa State Bank & Trust Co.~~“Company” and ~~First State Bank. Subsequent~~“MidWestOne” refer to the ~~merger,~~surviving organization in the ~~Company added MidWest~~~~One~~ ~~Bank, MidWest~~~~One~~ ~~Investment Services, Inc. and MidWest~~~~One~~ ~~Insurance Services, Inc. as wholly-owned subsidiaries. On August 9, 2008, the three bank subsidiaries were merged with the resulting bank known as MidWest~~~~One~~ ~~Bank headquartered in Iowa City, IA. On December 31, 2008, MidWest~~~~One~~ ~~Investment Services, Inc. was merged into MidWest~~~~One~~ ~~Bank.~~

The results of operations for the three-month and nine-month periods ended September 30, 2008 include the Company’s operations for such three-month and nine-month periods as well as the operations of Former MidWest~~One~~ for the period beginning March 15, 2008 through September 30, 2008. The results of operations for the three-month and nine-month periods ended September 30, 2009, however, include the operations of the combined Company for the entire period. The Company’s consolidated balance sheet as of December 31, 2008 includes information for both the Company and Former MidWest~~One~~ ~~as a consolidated entity.~~Merger.

The accompanying consolidated statements of operations for the three months ~~and nine months~~ ended ~~September 30,~~March 31, 2010 and 2009 include the accounts and transactions of the Company and its wholly-owned subsidiaries ~~MidWestOne~~MidWestOne Bank and ~~MidWestOne~~MidWestOne Insurance Services, Inc. All material intercompany balances and transactions have been eliminated in consolidation.

The accompanying consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U. S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. Management believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, the accompanying consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of ~~September 30, 2009,~~March 31, 2010, and the results of operations and cash flows for the three months ended March 31, 2010 and ~~nine months ended September 30, 2009 and 2008.~~2009.

The results for the three months ~~and nine months~~ ended ~~September 30, 2009~~March 31, 2010 may not be indicative of results for the year ending December 31, ~~2009,~~2010, or for any other period.

Certain amounts in the consolidated financial statements have been reclassified to conform to current year presentations.

In the consolidated statements of cash flows, cash and cash equivalents include cash and due from banks, interest-bearing deposits in banks, and federal funds sold.

Federal income tax expense for the three months ended March 31, 2010 and ~~nine months ended September 30,~~ 2009 ~~and 2008~~ was computed using the consolidated effective federal tax rate. The Company also recognized income tax expense pertaining to state franchise taxes payable by the subsidiary bank.

Preferred Stock: On January 23, 2009, the shareholders of the Company approved a proposal to amend the Company’s articles of incorporation to authorize the issuance of up to 500,000 shares of preferred stock.

On February 6, 2009, the Company issued 16,000 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, together with a ten-year warrant to acquire 198,675 shares of common stock, to the U.S. Department of the Treasury (the “Treasury”) under the Capital Purchase Program (the “CPP”) for an aggregate purchase price of $16.0 million. ~~We recorded~~Upon issuance, the fair values of the senior preferred stock ~~at $15.64 million, which represents~~and the ~~$16.0 million of cash received net of~~common stock warrants were computed as if the ~~fair~~securities were issued on a stand-alone basis. The value of the ~~warrant.~~senior preferred stock was estimated based on the net present value of the future senior preferred stock cash flows using a discount rate of 12%. The allocated carrying value of the senior preferred stock and common stock warrants on the date of issuance (based on their relative fair values) were $15.6 million and $0.4 million, respectively. The preferred stock discount, $358,000, is being accreted on a 5% level yield basis over 60 months. The senior preferred stock has no par value per share and a liquidation preference of $1,000 per share, or $16.0 million in the aggregate. Dividends are payable quarterly at the rate of 5% per annum until the fifth anniversary date of the issuance and at a rate of 9% per annum thereafter. The dividends are computed on the basis of a 360-day year consisting of twelve 30-day months. The dividends are payable quarterly in arrears on February 15, May 15, August 15, and November 15 of each year.

The senior preferred stock is non-voting, other than class voting rights on any authorization or issuance of shares ranking senior to the senior preferred stock, any amendment to the rights of senior preferred stock, or any merger, exchange, or similar transaction that would adversely affect the rights of the senior preferred stock. If dividends are not paid in full for six dividend periods, whether or not consecutive, the Treasury will have the right to elect two directors to the Company’s Board. The right to elect directors would end when full dividends have been paid for four consecutive dividend periods.

Effective February 17, 2009, the American Recovery and Reinvestment Act of 2009 (“ARRA”) eliminated the restrictions on a CPP participant’s ability to repay the Treasury’s investment until the third anniversary of the date of the Treasury’s investment. Prior to ARRA, CPP participants were prohibited from redeeming the Treasury’s senior preferred stock except with the proceeds of an offering of qualifying Tier 1 capital. ARRA now allows CPP participants, such as the Company, the option to repay the Treasury’s investment under the CPP at any time without regard to whether the Company has raised new capital, subject to consultation with the Federal Reserve and the Federal Deposit Insurance Corporation (the “FDIC”). If the Company were to repay the Treasury’s investment, it would be permitted to redeem the warrant issued to Treasury for fair market value.

The CPP requires that the Company be subject to specified standards for executive compensation and corporate governance as long as any obligation arising from financial assistance provided under the statute remains outstanding. The U.S. Congress and the Treasury may create additional provisions that could become retroactively applicable to the senior preferred stock.

Common ~~Stock:~~Stock: On January 23, 2009, the shareholders of the Company approved a proposal to amend the Company’s articles of incorporation to increase the number of authorized shares of common stock from 10,000,000 to 15,000,000.

Common Stock Warrant: In connection with the CPP described above, a warrant exercisable for 198,675 shares of Company common stock was issued to the Treasury. The warrant entitles the Treasury to purchase 198,675 shares of common stock at $12.08 per share at any time on or before February 6, 2019. ~~If the Company issues common stock, or another security that qualifies as Tier 1 capital, for aggregate gross proceeds of at least $16.0 million prior to December 31, 2009, the~~

~~number of common shares underlying the warrant will be reduced by one-half to 99,338 shares.~~ As noted above, under ARRA, if the Company repays the Treasury’s investment in full, the Company would be permitted to redeem the warrant issued to Treasury at its then current fair market value. If the warrant is not redeemed at such time, however, it will remain outstanding and transferable by the Treasury.

As holder of the common stock warrant, the Treasury is not entitled to vote, to receive dividends, or to exercise any other rights of common shareholders for any purpose until such warrants have been duly exercised. The Treasury has agreed not to exercise voting power with respect to any shares of common stock issued upon exercise. The Company has filed and will maintain at all times during the period the senior preferred stock is outstanding and during the period the warrant is exercisable, a “shelf” registration statement relating to the issuance of common shares underlying the warrant for the benefit of the warrant holder.

The fair value of the warrants was calculated using the Binomial Option Pricing Model. The inputs to the model are consistent with those utilized by the ~~company~~Company for a 10-year employee stock option.


Number of warrants granted		198,675			198,675
Exercise price	$	12.08		$	12.08
Grant date fair market value	$	7.32		$	7.32
Estimated forfeiture rate		-			0	%
Risk-free interest rate		2.93	%		2.93	%
Expected life, in years		10			10
Expected volatility		40.7	%		40.7	%
Expected dividend yield		3.86	%		3.86	%
Estimated fair value per warrant	$	1.39		$	1.39

Earnings per Common Share: Basic earnings per common share computations are based on the weighted average number of shares of common stock actually outstanding during the period. The weighted average number of shares outstanding for the three months ended ~~September 30,~~March 31, 2010 and 2009 was 8,607,853 and ~~2008 was 8,605,312 and 8,646,328, respectively. The weighted average number of shares outstanding for the nine months ended September 30, 2009 and 2008 was 8,604,531 and 7,707,301~~8,603,055, respectively. Diluted earnings per share amounts are computed by dividing net income available to common shareholders by the weighted average number of shares outstanding and all dilutive potential shares outstanding during the period. The computation of diluted earnings per share used a weighted average diluted number of shares outstanding of ~~8,605,732~~8,611,511 and ~~8,646,328~~8,603,548 for the three months ended ~~September 30,~~March 31, 2010 and 2009, ~~and 2008, respectively, and 8,604,557 and 7,707,301 for the nine months ended September 30, 2009 and 2008,~~ respectively. The following table presents the computation of earnings per common share for the respective periods:


	As of September 30, 2009									As of March 31, 2010
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(in thousands)

(in thousands)
U.S. Government agencies and corporations	$	78,247	$	2,049	$	(33	)	$	80,263	$	70,308	$	1,540	$	—		$	71,848
State and political subdivisions		152,924		4,941		(367	)		157,498		154,752		5,144		(76	)		159,820
Mortgage-backed securities and collateralized mortgage obligations		94,620		2,857		-			97,477		124,593		2,785		(315	)		127,063
Corporate debt securities		17,155		484		(165	)		17,474		15,529		447		(1,185	)		14,791

											365,182		9,916		(1,576	)		373,522
Common stocks		1,856		304		(175	)		1,985		1,572		278		(198	)		1,652

Total	$	344,802	$	10,635	$	(740	)	$	354,697	$	366,754	$	10,194	$	(1,774	)	$	375,174


	As of December 31, 2008
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(in thousands)

U.S. Government agencies and corporations	$	70,447	$	3,153	$	-		$	73,600
State and political subdivisions		114,261		827		(1,245	)		113,843
Mortgage-backed securities and collateralized mortgage obligations		71,618		1,607		(148	)		73,077
Corporate debt securities		12,263		6		(2,831	)		9,438
Common stocks		2,656		-		(234	)		2,422

Total	$	271,245	$	5,593	$	(4,458	)	$	272,380


A summary of investment securities held to maturity is as follows:

	As of September 30, 2009
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(in thousands)

Mortgage-backed securities	$	72	$	5	$	-		$	77
State and political subdivisions		7,440		124		-			7,564

Total	$	7,512	$	129	$	-		$	7,641


	As of December 31, 2008
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(in thousands)

Mortgage-backed securities	$	96	$	3	$	-		$	99
State and political subdivisions		8,029		1		(9	)		8,021

Total	$	8,125	$	4	$	(9	)	$	8,120

The summary of ~~available-for-sale~~available for sale investment securities shows that some of the securities in the ~~available-for-sale~~available for sale investment portfolio had unrealized losses, or were temporarily impaired, as of ~~September 30, 2009~~March 31, 2010 and December 31, ~~2008.~~2009. This temporary impairment represents the estimated amount of loss that would be realized if the securities were sold on the valuation date. Securities which were temporarily impaired are shown below, along with the length of the impairment period.

The following presents information pertaining to securities with gross unrealized losses as of ~~September 30, 2009~~March 31, 2010 and December 31, ~~2008,~~2009, aggregated by investment category and length of time that individual securities have been in a continuous loss position:


	Number of Securities		As of September 30, 2009																				As of March 31, 2010
		Less than 12 Months						12 Months or More						Total						Number of Securities		Less than 12 Months						12 Months or More					Total
		Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses				Fair Value			Unrealized Losses			Fair Value			Unrealized Losses		Fair Value			Unrealized Losses
		(In Thousands)																			Fair Value									Unrealized Losses		Fair Value			Unrealized Losses
(in thousands, except number of securities)																								Unrealized Losses
U.S. Government agencies and corporations		2		$	4,808		$	33		$	-		$	-		$	4,808		$		33		—		$	—	Fair Value		$	—	$	—		$	—	$	—	$	—
State and political subdivisions	49			11,833			344			2,020			23			13,853			367		22			4,462			43			3,951		33			8,413		76
Mortgage-backed securities and collateralized mortgage obligations	-			-			-			-			-			-			-		7			54,400			315			—		—			54,400		315
Corporate debt securities	4			1,792			165			-			-			1,792			165		4			—			—			587		1,185			587		1,185
Common stocks	6			502			175			-			-			502			175		3			198			198			—		—			198		198

Total	61		$	18,935		$	717		$	2,020		$	23		$	20,955		$	740		36		$	59,060		$	556		$	4,538	$	1,218		$	63,598	$	1,774


	Number of Securities		As of December 31, 2008																				As of December 31, 2009
		Less than 12 Months						12 Months or More						Total						Number of Securities		Less than 12 Months						12 Months or More					Total
		Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses				Fair Value			Unrealized Losses			Fair Value			Unrealized Losses		Fair Value			Unrealized Losses
		(In Thousands)																			Fair Value									Unrealized Losses		Fair Value			Unrealized Losses
(in thousands, except number of securities)																								Unrealized Losses
U.S. Government agencies and corporations		-		$	-		$	-		$	-		$	-		$	-		$		-		3		$	10,120	Fair Value		$	101	$	—		$	—	$	10,120	$	101
State and political subdivisions	264			47,187			1,015			7,379			239			54,566			1,254		65			11,709			116			4,616		89			16,325		205
Mortgage-backed securities and collateralized mortgage obligations	19			14,983			148			-			-			14,983			148		1			4,972			49			—		—			4,972		49
Corporate debt securities	14			6,653			2,509			730			322			7,383			2,831		4			—			—			857		1,104			857		1,104
Common stocks	12			2,422			234			-			-			2,422			234		4			218			77			—		—			218		77

Total	309		$	71,245		$	3,906		$	8,109		$	561		$	79,354		$	4,467		77		$	27,019		$	343		$	5,473	$	1,193		$	32,492	$	1,536

The Company’s assessment of ~~other than temporary~~other-than-temporary impairment (“OTTI”) is based on its reasonable judgment of the specific facts and circumstances impacting each individual security at the time such assessments are made. The Company reviews and considers factual information, including expected cash flows, the structure of the security, the credit quality of the underlying assets and the current and anticipated market conditions. As of April 1, 2009 the Company adopted the amended provisions of FASB ASC Topic 320. This changed the accounting for ~~other than temporary~~other-than-temporary impairments of debt securities and separates the impairment into credit-related and other factors. In accordance with the new guidance, the noncredit-related portion of ~~other-than-temporary~~other than temporary impairment losses recognized in prior year earnings was reclassified as a cumulative effect adjustment that increased retained earnings and

decreased accumulated other comprehensive income at the beginning of the quarter ended June 30, 2009. In 2008, $6.2 million in ~~other-than-temporary~~other than temporary impairment charges were recognized, of which $5.2 million related to noncredit-related impairment on debt securities. Therefore, the cumulative effect adjustment to retained earnings totaled $5.2 million, or $3.3 million net of tax.

The receipt of principal, at par, and interest on mortgage-backed securities is guaranteed by the respective government-sponsored agency guarantor, such that the Company believes that its mortgage-backed securities do not expose the Company to credit-related losses. The Company’s mortgage-backed securities portfolio consisted of securities predominantly underwritten to the standards of and guaranteed by the government-sponsored agencies of FHLMC, FNMA and GNMA.

The Company believes that the decline in the value of certain municipal obligations was primarily related to an overall widening of market spreads for many types of fixed income products ~~during~~since 2008, ~~and 2009,~~ reflecting, among other things, reduced liquidity and the downgrades on the underlying credit default insurance providers. At ~~September 30, 2009,~~March 31, 2010, approximately ~~74%~~71% of the municipal obligations held by the Company were Iowa based. The Company does not intend to sell these municipal obligations, and it is more likely than not that the Company will not be required to sell them until the recovery of its cost. Due to the issuers’ continued satisfaction of their obligations under the securities in accordance with their contractual terms and the expectation that they will continue to do so, management’s intent and ability to hold these securities for a period of time sufficient to allow for any anticipated recovery in fair value, as well as the evaluation of the fundamentals of the issuers’ financial condition and other objective evidence, the Company believes that the municipal obligations identified in the tables above were temporarily depressed as of ~~September 30, 2009~~March 31, 2010 and December 31, ~~2008.~~2009.

At ~~September 30, 2009,~~March 31, 2010, the Company owned six collateralized debt obligations backed by pools of trust preferred securities with an original cost basis of $9.75 million. The book value of these securities as of this date totaled $2.1 million after other than temporary impairment (“OTTI”) charges of $6.2 million during 2008, and $1.3 million during the third quarter of 2009. All of the Company’s trust preferred collateralized debt obligations are in mezzanine tranches and are currently rated less than investment grade by Moody’s Investor Services. They are secured by trust preferred securities of banks and insurance companies throughout the United States, and were rated as investment grade securities when purchased between March 2006 and December 2007. However, as the banking climate ~~has eroded during 2008 and 2009,~~deteriorated over the past several years, the securities ~~have~~ experienced cash flow problems and a pre-tax ~~charge to earnings~~OTTI charges of $6.2 million ~~was recorded in~~during 2008, $1.6 million during 2009, and $0.2 million during the ~~fourth~~first quarter of ~~2008. Due to continued market deterioration in~~2010. The book value of these securities ~~an additional pre-tax charge to earnings~~as of ~~$1.3 million was recorded~~this date totaled $1.8 million. All of the Company’s trust preferred collateralized debt obligations are in ~~the third quarter of 2009.~~mezzanine tranches and are currently rated less than investment grade by Moody’s Investor Services. The market for these securities is considered to be inactive according to the guidance issued in FASB ASC Topic 820,“Fair Value Measurements and Disclosures,” which the Company adopted as of April 1, 2009. The Company used a discounted cash flow model to determine the estimated fair value of its pooled trust preferred collateralized debt obligations and to assess ~~other than temporary impairment.~~OTTI. The discounted cash flow analysis was performed in accordance with FASB ASC Topic 325. The assumptions used in preparing the discounted cash flow model include the following: estimated discount rates (using yields of comparable traded instruments adjusted for illiquidity and other risk factors), estimated deferral and default rates on collateral, and estimated cash flows. ~~The~~As part of its analysis of the collateralized debt obligations, the Company ~~also reviewed~~subjects the securities to a stress ~~test~~scenario which involves a level of ~~these securities to determine the additional~~ deferrals or defaults in the collateral pool in excess of what the Company believes is ~~likely, before the payments on the individual securities are negatively impacted.~~likely.

As of September 30, 2009 the Company also owns $1.9 million of equity securities in banks and financial service-related companies. An impairment charge of $69,000 was recorded during the third quarter of 2009, as the affected equity securities were deemed impaired due to their depressed market price, in relation to the Company’s original purchase price.

At ~~September 30, 2009,~~March 31, 2010, the analysis of ~~four~~five of the Company’s six investments in pooled trust preferred securities indicated that the unrealized loss was temporary and that it is more likely than not that the Company would be able to recover the cost basis of these securities. However, the Company determined that a portion of the unrealized loss on the remaining ~~two investments~~investment in ~~$2.75~~$1.5 million of pooled trust preferred securities was ~~other than temporary.~~other-than-temporary. The amount of actual and projected deferrals and/or defaults by the financial institutions underlying these pooled trust preferred securities increased significantly since the beginning of ~~2009.~~2010. The increase in nonperforming collateral resulted in an ~~other than temporary~~other-than-temporaryother-than-temporary impairment of ~~these two securities.~~this security. The Company follows the provisions of FASB ASC Topic 320 in determining the amount of the ~~other than temporary impairment~~OTTI recorded to earnings. The Company performed a discounted cash flow analysis, using the factors noted above, to determine the amount of the ~~other than temporary impairment~~OTTI that was applicable to either credit losses or other factors. The amount associated with credit losses, ~~$1.3 million,~~$189,000, was then realized through an impairment loss charged to earnings for the ~~nine~~three months ended ~~September 30, 2009.~~March 31, 2010.

The following table provides a roll forward of credit losses on fixed maturity securities recognized in net ~~income~~income:


(In Thousands)	Three months ending September 30, 2009		Nine months ending September 30, 2009
(in thousands)					Three months ending March 31, 2010
Beginning balance	$	-	$	-	$	—
Additional credit losses:
Securities with no previous other than temporary impairment		-		-		—
Securities with previous other than temporary impairments		1,319		1,319		189

Ending balance	$	1,319	$	1,319	$	189

It is reasonably possible that the fair values of the Company’s investment securities could decline in the future if the overall economy and the financial condition of some of the issuers continue to deteriorate and the liquidity of these securities remains low. As a result, there is a risk that additional ~~other than temporary~~other-than-temporary impairments may occur in the future and any such amounts could be material to the Company’s consolidated statements of ~~earnings.~~operations.

A summary of the contractual maturity distribution of debt investment securities at ~~September 30, 2009~~March 31, 2010 is as follows:


	Available For Sale				Held to Maturity				Available For Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In Thousands)				(In Thousands)

(in thousands)
Due in one year or less	$	25,019	$	25,559	$	1,555	$	1,562	$	46,558	$	47,089	$	1,405	$	1,414
Due after one year through five years		131,549		135,018		5,581		5,683		101,820		105,167		3,550		3,634
Due after five years through ten years		67,192		69,465		304		319		64,324		66,726		296		311
Due after ten years		24,566		25,193		-		-		27,887		27,477		865		865
Mortgage-backed and collateralized mortgage obligations, and common stock		96,476		99,462		72		77
Mortgage-backed and collateralized mortgage obligations										124,593		127,063		70		75

Total	$	344,802	$	354,697	$	7,512	$	7,641	$	365,182	$	373,522	$	6,186	$	6,299

For mortgage-backed securities, actual maturities will differ from contractual maturities because borrowers have the right to prepay obligations with or without prepayment penalties.

Other investment securities include investments in Federal Home Loan Bank (“FHLB”) stock. The carrying value of the FHLB stock at ~~September 30, 2009~~March 31, 2010 and December 31, ~~2008~~2009 was ~~$9.4~~$8.9 million and ~~$9.1~~$9.0 million, respectively. This security is not readily marketable and ownership of FHLB stock is a requirement for membership in the FHLB Des Moines. The amount of FHLB stock the bank is required ~~for regulatory purposes and borrowing availability.~~to hold is directly related to the amount of FHLB advances borrowed. Because there are no available market values, this security is carried at cost. Redemption of this investment is at the option of the FHLB.

Realized gains and losses on sales are determined on the basis of specific identification of investments based on the trade date. Realized gains (losses) on investments, including impairment losses for the ~~three~~three-months ended March 31, 2010 and ~~nine-months ended September 30,~~ 2009, ~~and 2008,~~ are as follows:


	Three Months Ended September 30,					Nine Months Ended September 30,						Three Months Ended March 31,
(dollars in thousands)	2009			2008		2009			2008
												2010			2009
(in thousands)
Available for sale fixed maturity securities:
Gross realized gains	$	466		$	-	$	466		$	68		$	197		$	—
Gross realized losses		(1,319	)		-		(1,319	)		-			(189	)		—

		(853	)		-		(853	)		68			8			—

Equity securities:
Gross realized gains		25			-		25			138			49			—
Gross realized losses		(69	)		-		(683	)		(567	)		(9	)		—

		(44	)		-		(658	)		(429	)		40			—

	$	(897	)	$	-	$	(1,511	)	$	(361	)	$	48		$	—

Effective January 1, 2008, the Company adopted the ~~amended~~ provisions of FASB ASC ~~Topic~~ 820,“Fair Value Measurements ~~and Disclosures,”~~for non-financial assets and liabilities. These include foreclosed real estate, long-lived assets and other intangibles, which are recorded at fair value only upon impairment. FASB ASC Topic 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements.

FASB ASC Topic 820 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 (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.

FASB ASC Topic 820 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, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions

about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, FASB ASC Topic 820 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:

It is the Company’s policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements. Recent market conditions have led to diminished, and in some cases, non-existent trading in certain of the financial asset classes. The Company is required to use observable inputs, to the extent available, in the fair value estimation process unless that data results from forced liquidations or distressed sales. Despite the Company’s best efforts to maximize the use of relevant observable inputs, the current market environment has diminished the observability of trades and assumptions that have historically been available. A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets and liabilities carried at fair value effective January 1, 2008.

Valuation methods for instruments measured at fair value on a recurring basis.

Securities Available for Sale – The Company’s investment securities classified as ~~available-for-sale~~available for sale include: debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies, debt securities issued by state and political subdivisions, mortgage-backed securities, collateralized mortgage obligations, corporate debt securities, and equity securities. Quoted exchange prices are available for equity securities, which are classified as Level 1. Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies and mortgage-backed obligations are priced utilizing industry-standard models that consider various assumptions, including time value, yield curves, volatility factors, prepayment speeds, default rates, loss severity, current market and contractual prices for the underlying financial instruments, as well as other relevant economic measures. Substantially all of

these assumptions are observable in the marketplace, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace and are classified as Level 2. Municipal securities are valued using a type of matrix, or grid, pricing in which securities are benchmarked against the treasury rate based on credit rating. These model and matrix measurements are classified as Level 2 in the fair value hierarchy.

The Company classifies its pooled trust preferred collateralized debt obligations as Level 3. The portfolio consists of six investments in collateralized debt obligations backed by pools of trust preferred securities issued by financial institutions and insurance companies. The Company has determined that the observable market data associated with these assets do not represent orderly transactions in accordance with FASB ASC Topic 820 and reflect forced liquidations or distressed sales. Based on the lack of observable market data, the Company estimated fair value based on the observable data available and reasonable unobservable market data. The Company estimated fair value based on a discounted cash flow model which used appropriately adjusted discount rates reflecting credit and liquidity risks.

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of ~~September 30, 2009,~~March 31, 2010, segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value:


	Fair Value Measurement at September 30, 2009 Using								Fair Value Measurement at March 31, 2010 Using
(in thousands)	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Securities available for sale	$	354,697	$	1,521	$	351,071	$	2,105
Available for sale debt securities:
U.S. Government agencies and corporations									$	71,848	$	—	$	71,848	$	—
State and policitical subdivisions										159,820		—		159,820		—
Residential mortgage-backed securities										69,477		—		69,477		—
Commercial mortgage-backed securities										57,586		—		57,586		—
Corporate debt securities										14,204		—		14,204		—
Collateralized debt obligations										587		—		—		587

Total available for sale debt securities										373,522		—		372,935		587

Available for sale equity securities:
Financial services industry										1,652		1,652		—		—

Total available for sale equity securities:										1,652		1,652		—		—

Total securities available for sale									$	375,174	$	1,652	$	372,935	$	587


	Fair Value Measurement at December 31, 2008 Using								Fair Value Measurement at December 31, 2009 Using
(in thousands)	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Securities available for sale	$	272,380	$	1,958	$	266,870	$	3,552
Available for sale debt securities:
U.S. Government agencies and corporations									$	81,191	$	—	$	81,191	$	—
State and policitical subdivisions										155,224		—		155,224		—
Residential mortgage-backed securities										108,576		—		108,576		—
Corporate debt securities										15,305		—		15,305		—
Collateralized debt obligations										857		—		—		857

Total available for sale debt securities										361,153		—		360,296		857

Available for sale equity securities:
Financial services industry										1,750		1,750		—		—

Total available for sale equity securities:										1,750		1,750		—		—

Total securities available for sale									$	362,903	$	1,750	$	360,296	$	857

The following table presents additional information about assets measured at fair market value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value:


	Collateralized Debt Obligations
(in thousands)
Level 3 fair value at December 31, 2009	$	857
Transfers into Level 3		—
Transfers out of Level 3		—
Total gains (losses):
Included in earnings		(189	)
Included in other comprehensive income		(81	)
Purchases, issuances, sales, and settlements:
Purchases		—
Issuances		—
Sales		—
Settlements		—

Level 3 fair value at March 31, 2010	$	587

Changes in the fair value of ~~available-for-sale~~available for sale securities are included in other comprehensive income to the extent the changes are not considered ~~other than temporary~~other-than-temporary impairments. ~~Other than temporary~~Other-than-temporary impairment tests are performed on a quarterly basis and any decline in the fair value of an individual security below its cost that is deemed to be ~~other than temporary~~other-than-temporary results in a write-down that is reflected directly in the Company’s ~~income statement.~~consolidated statements of operations.

Valuation methods for instruments measured at fair value on a nonrecurring ~~basis.~~basis

Impaired Loans – From time to time, a loan is considered impaired and an allowance for credit losses is established. The specific reserves for collateral dependent impaired loans are based on the fair value of the collateral less estimated costs to sell. The fair value

of collateral was determined based on appraisals. In some cases, adjustments were made to the appraised values dues to various factors including age of the appraisal, age of comparables included in the appraisal, and known changes in the market and in the collateral. Because many of these inputs are unobservable the valuations are classified as Level 3.

Loans Held for Sale – Loans held for sale are carried at the lower of cost or fair value. The fair value of loans held for sale is based on what secondary markets are currently offering for portfolios with similar characteristics. As such, the Company classifies loans held for sale subjected to nonrecurring fair value adjustments as Level 2.

Federal Home Loan Bank Stock– Stock held in the Federal Home Loan Bank of Des Moines (“FHLB”), which is held for regulatory purposes, is carried in other assets. This investment generally has restrictions on the sale and/or liquidation of stock and the carrying value is approximately equal to fair value. Fair value measurements for this security are classified as Level 3 because of its undeliverable nature and related credit risk. ~~The carrying value of the Company’s FHLB stock was $9.4 million at September 30, 2009.~~

Loans held for sale are carried at the lower of cost or fair value. The fair value of loans held for sale is based on what secondary markets are currently offering for portfolios with similar characteristics. As such, the Company classifies loans held for sale subjected to nonrecurring fair value adjustments as Level 2.

The Company does not value its loan portfolio at fair value; however, adjustments are recorded on certain loans to reflect the impaired value on the underlying collateral. Collateral values are generally reviewed on a loan-by-loan basis through independent appraisals. Appraised values may be discounted based on management’s historical knowledge, changes in market conditions and/or management’s expertise and knowledge of the client and the client’s business. Because many of these inputs are unobservable, the valuations are classified as Level 3. The carrying value of the Company’s impaired loans was $14.5 million at September 30, 2009.

Other Real Estate Owned (OREO)– Other real estate represents property acquired through foreclosures and settlements of loans. Property acquired is carried at the lower of the ~~principal~~carrying amount of the loan ~~outstanding~~ at the time of acquisition, ~~plus any acquisition costs,~~ or the estimated fair value of the property, less disposal costs. The Company considers third party appraisals as well as independent fair value assessments from realtors or persons involved in selling OREO in determining the fair value of particular properties. Accordingly, the valuation of OREO is subject to significant external and internal judgment. The Company also periodically reviews OREO to determine whether the property continues to be carried at the lower of its recorded book value or fair value of the property, less disposal costs. Because many of these inputs are unobservable the valuations are classified as Level 3.

~~Disclosure of fair value information about financial instruments, whether or not recognized in~~The following table discloses the ~~consolidated statement of condition, for which it is practicable to estimate their value, is summarized below. The aggregate~~Company’s estimated fair value amounts of its financial instruments recorded at fair value on a nonrecurring basis. It is management’s belief that the fair values presented ~~do not represent~~below are reasonable based on the ~~underlying value~~valuation techniques and data available to the Company as of March 31, 2010 and December 31, 2009, as more fully described below. The operations of the ~~Company.~~Company are managed from a going concern basis and not a liquidation basis. As a result, the ultimate value realized for the financial instruments presented could be substantially different when actually recognized over time through the normal course of operations. Additionally, a substantial portion of the Company’s inherent value is the Bank’s capitalization and franchise value. Neither of these components has been given consideration in the presentation of fair values below.

The following presents the carrying ~~or face~~ amount and estimated fair value of the financial instruments ~~were as follows:~~held by the Company at March 31, 2010 and December 31, 2009. The information presented is subject to change over time based on a variety of factors.


	September 30, 2009				December 31, 2008				March 31, 2010				December 31, 2009
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(In Thousands)				(In Thousands)

(in thousands)
Financial assets:
Cash and cash equivalents	$	27,270	$	27,270	$	32,926	$	32,926	$	41,998	$	41,998	$	27,588	$	27,588
Investment securities		362,209		362,338		280,505		280,500		381,360		381,473		370,912		371,021
Loans held for sale		1,115		1,115		5,279		5,279		759		759		1,208		1,208
Loans, net		959,962		960,905		1,003,837		1,006,905		940,136		940,602		953,041		953,647
Loan pool participations		88,707		88,707		92,932		92,932		81,518		81,518		83,052		83,052
Other real estate owned		2,608		2,608		996		996		2,547		2,547		3,635		3,635
Accrued interest receivable		12,382		12,382		11,736		11,736		10,515		10,515		11,534		11,534
Federal Home Loan Bank stock										8,901		8,901		8,973		8,973

Financial liabilities:
Deposits	$	1,152,814	$	1,159,841	$	1,128,189	$	1,130,628		1,193,285		1,197,263		1,179,868		1,185,450
Federal funds purchased and securities sold under agreements to repurchase		50,397		50,397		57,299		57,359		39,565		39,565		44,973		44,973
Federal Home Loan Bank borrowings		137,000		141,005		158,782		163,224		127,700		130,553		130,200		133,098
Long-term debt		15,601		16,379		15,640		16,481		15,576		10,046		15,588		10,070
Accrued interest payable		2,795		2,795		2,770		2,770		2,071		2,071		2,248		2,248

For variable-rate loans that reprice frequently and ~~cash equivalents, loans held for sale, loan pool participations, Federal funds purchased and securities sold under agreements to repurchase, and accrued interest receivable and payable. Securities~~with no significant change in credit risk, fair values are based on ~~quotes received from a third-party pricing source and discounted cash flow analysis models.~~carrying values. The fair values for ~~variable-rate and fixed-rate~~other loans are determined using estimated ~~using~~future cash flows, discounted ~~cash flow analyses. Cash flows are adjusted for estimated prepayments where appropriate and are discounted using~~at the interest rates currently being offered for loans with similar terms ~~and collateral~~ to borrowers ofwith similar credit quality. The Company does record nonrecurring fair value adjustments to loans to reflect (1) partial write-downs that are based on the observable market price or appraised value of the collateral or (2) the full charge-off of the loan carrying value.

Changes in assumptions or estimation methodologies may have a material effect on these estimated fair values.

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries of loans previously charged-off, if any, are credited to the allowance when realized. The allowance for loan losses is evaluated on a quarterly basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.

The following is an analysis of activity in the allowance for loan ~~losses:~~losses for the periods indicated:

The following table sets forth the amounts and categories of the Company’s nonperforming assets at the dates indicated:

The allowance for loan losses related to nonperforming loans at March 31, 2010 and December 31, 2009 was $1,230,000 and $727,000, respectively. Nonperforming loans of $3.7 million and $1.2 million at March 31, 2010 and December 31, 2009, respectively, were not subject to a related allowance for credit losses because the net realizable value of loan collateral, guarantees and other factors exceed the loan carrying value.

In December 2007, the FASB issued an accounting standard update to require significant changes in the accounting and reporting for business acquisitions and the reporting of a noncontrolling interest in a subsidiary. Among the many changes, an acquirer will record 100% of all assets and liabilities at fair value at the acquisition date with changes possibly recognized in earnings, and acquisition related costs will be expensed rather than capitalized. The changes established new accounting and reporting standards for the noncontrolling interest in a subsidiary. Key changes under the standard are that noncontrolling interests in a subsidiary will be reported as part of equity, losses allocated to a noncontrolling interest can result in a deficit balance, and changes in ownership interests that do not result in a change of control are accounted for as equity transactions and upon a loss of control, gain or loss is recognized and the remaining interest is remeasured at fair value on the date control is lost. The updates apply prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Early adoption is not permitted. The Company adopted these statements on January 1, 2009, which were subsequently codified in ASC Topic 805~~“Business Combinations”~~ ~~and ASC Topic 810~~~~“Consolidation”~~~~. The adoption of this accounting standard did not have any material impact on the Company’s consolidated financial statements.~~

In March 2008, the FASB issued an accounting standard update to require companies with derivative instruments to disclose information that should enable financial-statement users to understand how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for, and how derivative instruments and related hedged items affect a company’s financial position, financial performance and cash flows. This change is effective for financial statements issued for fiscal years beginning after November 15, 2008. The Company adopted this guidance effective January 1, 2009, which was subsequently codified into ASC Topic 815~~“Derivatives and Hedging”. The Company adopted this guidance effective January 1, 2009, and the adoption did not have a material impact on its financial condition or results of operations.~~

In April 2008, the FASB issued an accounting standard which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. The objective of the change is to improve the consistency between the useful life of a recognized intangible asset and the period of expected cash flows. This change is effective for the Company beginning January 1, 2009. The Company adopted this guidance effective January 1, 2009, which was subsequently codified into ASC Topic 350,~~“Intangibles – Goodwill and Other”.~~~~The adoption of this accounting standard did not have any material impact on the Company’s consolidated financial statements.~~

In April 2009, the FASB issued an accounting standard which provided guidance on estimating fair value when the volume and level of activity for an asset or liability have significantly decreased and in identifying transactions that are not orderly. In such instances, the accounting standard provides that management may determine that further analysis of the transactions or quoted prices is required, and a significant adjustment to the transactions or quoted prices may be necessary to estimate fair value in accordance with GAAP. The Company adopted this accounting standard, which was subsequently codified into ASC Topic 820,~~“Fair Value Measurements and Disclosures,”~~ ~~on April 1, 2009, and applied it to its collateralized debt obligations backed by pools of trust preferred securities.~~

In April 2009, the FASB issued an accounting standard related to disclosures about the fair value of financial instruments in interim reporting periods of publicly traded companies that were previously only required to be disclosed in annual financial statements. The Company adopted this accounting standard in preparing the Consolidated Financial Statements for the period ended June 30, 2009. As this accounting standard amended only the disclosure requirements about the fair value of financial instruments in interim periods, the adoption had no impact on the Company’s statements of income and condition. See Note 8 for the disclosures required under this accounting standard, which was subsequently codified into ASC Topic 825,~~“Financial Instruments.”~~

In April 2009, the FASB issued an accounting standard which amended other-than-temporary impairment (“OTTI”) guidance in GAAP for debt securities by requiring a write-down when fair value is below amortized cost in circumstances where: (1) an entity has the intent to sell a security; (2) it is more likely than not that an entity will be required to sell the security before recovery of its amortized cost basis; or (3) an entity does not expect to recover the entire amortized cost basis of the security. If an entity intends to sell a security or if it is more likely than not that the entity will be required to sell the security before recovery, an OTTI write-down is recognized in earnings equal to the entire difference between the security’s amortized cost basis and its fair value. If an entity does not intend to sell the security or it is not more likely than not that it will be required to sell the security before recovery, the OTTI write-down is separated into an amount representing credit loss, which is recognized in earnings, and an amount related to all other factors, which is recognized in other comprehensive income. This accounting standard does not amend existing recognition and measurement guidance related to OTTI write-downs of equity securities. This accounting standard also extends disclosure requirements related to debt and equity securities to interim reporting periods. The Company adopted this position effective April 1, 2009 and applied the guidance to its other than temporary impairment analysis during the second quarter of 2009, including the collateralized debt obligations backed by pools of trust preferred securities. In accordance with the new guidance, the $5.2 million noncredit related portion of the $6.2 million other-than-temporary impairment losses recognized in 2008 earnings was reclassified as a cumulative effect adjustment that increased retained earnings and decreased accumulated other comprehensive income at the beginning of the quarter ended June 30, 2009. See Note 7 for the disclosures required under this accounting standard, which was subsequently codified into ASC Topic 320,~~“Investments — Debt and Equity Securities.”~~

In May 2009, the FASB issued an accounting standard to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires entities to disclose the date through which it has evaluated subsequent events and the basis for that date. This change is effective for interim and annual periods ending after June 15, 2009, and was effective for the Company as of June 30, 2009. This accounting standard was subsequently codified into ASC Topic 855~~“Subsequent Events”, and the adoption of the amendment did not have a material impact on our financial condition, results of operations, or disclosures.~~

In June 2009, the FASB issued an accounting standard which ~~amends~~amended current GAAP related to the accounting for transfers and servicing of financial assets and extinguishments of liabilities, including

the removal of the concept of a qualifying special-purpose entity from GAAP. This new accounting standard also ~~clarifies~~clarified that a transferor must evaluate whether it has maintained effective control of a financial asset by considering its continuing direct or indirect involvement with the transferred financial asset. This accounting standard iswas effective for financial asset transfers occurring after December 31, 2009. The adoption of this accounting standard isdid not ~~anticipated to~~ have ~~any~~a material impact on ~~the Company’s consolidated~~our financial ~~statements.~~condition, results of operations, or disclosures.

In June 2009, the FASB issued an accounting standard which ~~will require~~requires a qualitative rather than a quantitative analysis to determine the primary beneficiary of a variable interest entity (“VIE”) for consolidation purposes. The primary beneficiary of a VIE is the enterprise that has: (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (2) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits of the VIE that could potentially be significant to the VIE. The amendments ~~are~~were effective for the Company as of ~~the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009~~January 1, 2010 and ~~for all interim reporting periods after that and is~~it did not ~~anticipated to~~ have ~~any~~a material ~~impact~~effect on ~~the Company’s~~its consolidated financial statements.

In ~~June~~December 2009, the FASB issued ~~an accounting~~FASB ASU 2009-16,Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets. The guidance enhances information reported to users of financial statements by providing greater transparency about transfers of financial assets, including securitization transactions, and where companies have continuing exposure to the risks related to transferred financial assets. This standard which established the Codification to become the single source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities, with the exception of guidance issued by the U.S. Securities and Exchange Commission (the “SEC”) and its staff. All guidance contained in the Codification carries an equal level of authority. The Codification is not intended to change GAAP, but rather is expected to simplify accounting research by reorganizing current GAAP into approximately 90 accounting topics. The Company adopted this accounting standard in preparing the Consolidated Financial Statementseffective for the ~~period ended September 30, 2009.~~Company as of January 1, 2010 with adoption applied prospectively for transfers that occur on or after that date. The adoption of this accounting standard ~~which was subsequently codified into ASC Topic 105, “Generally Accepted Accounting Principles,” had no~~did not have a material impact on ~~the Company’s consolidated~~our financial ~~statements.~~condition, results of operations, or disclosures.

In ~~August 2009,~~January 2010, the FASB issued ~~Accounting Standards Update (“ASU”) No. 2009-05, Measuring Liabilities at Fair Value, which is codified into ASC Topic 820,~~~~“Fair Value Measurements and Disclosures,”~~ ~~This Update provides amendments to Topic 820-10, “~~FASB ASU 2010-06,Fair Value Measurements and Disclosures ~~– Overall~~(Topic 820): Improving Disclosures about Fair Value Measurements,” which clarifies and expands disclosure requirements related to fair value measurements. Disclosures are required for significant transfers between levels in the fair value ~~measurement of liabilities. This Update provides clarification that~~hierarchy. Activity in ~~circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure~~Level 3 fair value ~~using~~measurements is to be presented on a ~~valuation technique~~gross, rather than net, basis. The update clarifies how the appropriate level of disaggregation should be determined and emphasizes that uses the quoted price of the identical liability when traded as an asset, quoted prices for similar liabilities or similar liabilities when traded as assets, or that is consistent with the principles of Topic 820. The amendments in this Update also clarify that when estimating theinformation sufficient to permit reconciliation between fair value ~~of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to~~measurements and line items on the ~~existence of a restriction that prevents transfer of the liability.~~financial statements should be provided. The amendments in this Update also clarify that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 fair value measurements. The guidance provided in this Updateupdate is effective for ~~the first~~interim and annual reporting ~~period (including interim periods)~~periods beginning after ~~issuance.~~December 15, 2009 except for the expanded disclosures related to activity in Level 3 fair value measurements which are effective one year later. The ~~adoption of this Update~~Company adopted ASU 2010-06 for the period beginning January 1, 2010 and it did not have a ~~significant impact to the Company’s~~material effect on its consolidated financial statements.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Significant estimates that are particularly sensitive to change are the allowance for loan losses and the fair value of available for sale securities.

Management evaluated subsequent events through ~~November 6, 2009,~~ the date the consolidated financial statements were available to be issued. Events or transactions occurring after ~~September 30, 2009~~March 31, 2010 but prior to ~~November 6, 2009~~the date the consolidated financial statements were available to be issued that provided additional evidence about conditions that existed at ~~September 30, 2009~~March 31, 2010 have been recognized in the consolidated financial statements for the period ended ~~September 30, 2009.~~March 31, 2010. Events or transactions that provided evidence about conditions that did not exist at ~~September 30, 2009~~March 31, 2010 but arose before the consolidated financial statements were available to be issued have not been recognized in the consolidated financial statements for the period ended ~~September 30, 2009.~~March 31, 2010.

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

~~On March 14, 2008,~~The Company provides financial services to individuals, businesses, governmental units and institutional customers in east central Iowa. The Bank has office locations in Belle Plaine, Burlington, Cedar Falls, Conrad, Coralville, Davenport, Fairfield, Fort Madison, Hudson, Melbourne, North English, North Liberty, Oskaloosa, Ottumwa, Parkersburg, Pella, Sigourney, Waterloo and West Liberty, Iowa. MidWestOne Insurance Services, Inc. provides personal and business insurance services in Pella, Melbourne and Oskaloosa, Iowa. The Bank is actively engaged in many areas of commercial banking, including: acceptance of demand, savings and time deposits; making commercial, real estate, agricultural and consumer loans, and other banking services tailored for its individual customers. The Wealth Management Division of the ~~Company (which was at such time named ISB Financial Corp.) consummated its merger~~Bank administers estates, personal trusts, conservatorships, pension and profit-sharing accounts along with providing other management services to customers.

We operate as an independent community bank that offers a broad range of customer-focused financial services as an alternative to large regional and multi-state banks in our market area. Management has invested in the ~~Former MidWestOne. The~~infrastructure and staffing to support our strategy of serving the financial needs of businesses, individuals and municipalities in our market area. We focus our efforts on core deposit generation, especially transaction accounts, and quality loan growth with emphasis on growing commercial loan balances. We seek to maintain a disciplined pricing strategy on deposit generation that will allow us to compete for high quality loans while maintaining an appropriate spread over funding costs.

Our results of operations ~~for~~depend primarily on our net interest income, which is the ~~quarter ended September 30, 2008 includes~~difference between the ~~results~~interest income on our earning assets, such as loans and securities, and the interest expense paid on our deposits and borrowings. Results of operations are also affected by non-interest income and expense, the provision for ~~the combined Company for the entire period. The results~~loan losses and income tax expense. Results of operations ~~for the nine-month period ended September 30, 2008 include the Company’s operations for such nine-month period~~are also significantly affected by general economic and competitive conditions, as well as ~~the operations~~changes in market interest rates, government policies and actions of Former MidWestOne for the period beginning March 15, 2008 through September 30, 2008. The results of operations for the three and nine-month periods ended September 30, 2009, however, include the operations of the combined Company for the entire period. Accordingly, the comparison of the Company’s results of operations for the nine-month period ended September 30, 2009 to the nine-month period ended September 30, 2008 often shows significant changes, many of which are largely attributable to the merger and the resulting larger entity.regulatory authorities.

The comparison of the Company’s financial condition as of September 30, 2009 to its financial condition at December 31, 2008 is not similarly impacted by the merger because the Company’s consolidated balance sheet as of December 31, 2008 includes information for both the Company and Former MidWest~~One~~ ~~as a combined entity.~~

~~Quarter~~Comparison of Operating Results for the Three Months Ended ~~September 30,~~March 31, 2010 and March 31, 2009

~~The Company~~We earned net income of ~~$834,000~~$2.0 million, of which $1.8 million was available to common shareholders, for the quarter ended ~~September 30, 2009,~~March 31, 2010, compared with ~~$1.7~~$1.2 million, of which $1.0 million was available to common shareholders, for the quarter ended ~~September 30, 2008, a decrease~~March 31, 2009, an increase of ~~50.9%. Net income for the quarter ended September 30, 2009 was affected by “other than temporary impairment” charges on securities of $1.4 million.~~70.4% and 71.0%, respectively. Basic and diluted earnings per common share for the ~~third~~first quarter of ~~2009~~2010 were ~~$0.07~~$0.21 versus ~~$0.20~~$0.12 for the ~~third~~first quarter of ~~2008. The Company’s~~2009. Our return on average assets for the ~~third~~first quarter of ~~2009~~2010 was ~~0.21%~~0.53% compared with a return of ~~0.44%~~0.32% for the same period in ~~2008. The Company’s~~2009. Our return on average shareholders’ equity was ~~2.21%~~5.28% for the quarter ended ~~September 30, 2009~~March 31, 2010 versus ~~4.23%~~3.38% for the quarter ended ~~September 30, 2008.~~March 31, 2009. The return on average tangible common equity was ~~2.02%~~5.76% for the ~~third~~first quarter of ~~2009~~2010 compared with ~~5.46%~~3.58% for the same period in ~~2008.~~2009.

The following table presents selected financial results and measures for the ~~third~~first quarter of ~~2009~~2010 and ~~2008.~~2009.


($ amounts in thousands)	Quarter Ended September 30,
($ amounts in thousands)					Quarter Ended March 31,
($ amounts in thousands)	2009		2008		2010			2009
($ amounts in thousands)	$	834	$	1,704	$	2,004		$	1,176
Average Assets		1,550,847		1,532,809		1,527,170			1,504,685
Average Shareholders’ Equity		149,769		160,320		153,798			141,152
Return on Average Assets		0.21%		0.44%		0.53	%		0.32	%
Return on Average Shareholders’ Equity		2.21%		4.23%		5.28	%		3.38	%
Return on Average Tangible Common Equity		2.02%		5.46%		5.76	%		3.58	%
Total Equity to Assets (end of period)		9.93%		10.66%		10.00	%		9.53	%
Tangible Common Equity to Tangible Assets (end of period)		8.15%		8.48%		8.26	%		7.73	%

We have traditionally disclosed certain non-GAAP ratios to evaluate and measure our financial condition, including our return on average tangible common equity. We believe these ratios provide investors with information regarding our financial condition and how we evaluate our financial condition internally. The following table provides a reconciliation of the non-GAAP measure to the most comparable GAAP equivalent.

Net interest income is ~~computed by subtracting total~~the difference between interest income and fees earned on earning assets and interest expense ~~from total~~incurred on interest-bearing liabilities. Interest rate levels and volume fluctuations within earning assets and interest-bearing liabilities impact net interest income. ~~Fluctuations in net interest~~

Certain assets with tax favorable treatment are evaluated on a tax-equivalent basis. Tax-equivalent basis assumes a federal income ~~can result from changes~~tax rate of 34%. Tax favorable assets generally have lower contractual pre-tax yields than fully taxable assets. A tax-equivalent analysis is performed by adding the tax savings to the earnings on tax favorable assets. After factoring in the ~~volumes~~tax favorable effects of these assets, ~~and liabilities as well as changes in interest rates. The Company’s~~the yields may be more appropriately evaluated against alternative earning assets. In addition to yield, various other risks are factored into the evaluation process.

Our net interest income for the quarter ended ~~September 30, 2009 remained flat at $10.9~~March 31, 2010 declined $0.2 million ~~decreasing only $22,000~~to $11.8 million compared to $12.0 million for the quarter ended ~~September 30, 2008. Total~~March 31, 2009. Our total interest income of $17.8 million was ~~$1.4~~$1.1 million lower in the ~~third~~first quarter of ~~2009~~2010 compared with the same period in ~~2008.~~2009. Most of the decrease in interest income was due to reduced interest on loans and loan pool participations. The decrease in interest income was largely offset by reduced interest expense on ~~deposits and borrowed funds.~~deposits. Total interest expense for the ~~third~~first quarter of ~~2009~~ 2010

decreased ~~$1.4~~$0.9 million, or ~~16.3%~~12.5%, compared with the same period in ~~2008~~2009 due primarily to lower interest rates in ~~2009. The Company’s~~2010. Our net interest margin on a tax-equivalent basis for the ~~third~~first quarter of ~~2009~~2010 decreased to ~~3.13%~~3.50% compared with ~~3.26%~~3.60% in the ~~third~~first quarter of ~~2008.~~2009. Net interest margin is a measure of the net return on interest-earning assets and is computed by dividing annualized net interest income on a tax-equivalent basis by the average of total interest-earning assets for the period. ~~The Company’s~~Our overall yield on earning assets declined to ~~5.05%~~5.22% for the ~~third~~first quarter of ~~2009~~2010 from ~~5.67%~~5.58% for the ~~third~~first quarter of ~~2008.~~2009. The average cost of interest-bearing liabilities decreased in the ~~third~~first quarter of ~~2009~~2010 to ~~2.25%~~2.01% from ~~2.83%~~2.29% for the ~~third~~first quarter of ~~2008.~~2009.

The following ~~tables present a comparison of~~table shows the consolidated average balance sheets, detailing the major categories of ~~earning~~ assets and liabilities, the interest income earned on interest-earning assets, the interest expense paid for the interest-bearing liabilities, and the related interest ~~income and expense, and average yields and costs~~rates for the quarters ended ~~September 30, 2009~~March 31, 2010 and ~~2008. Interest income on tax-exempt securities and loans is reported on a fully tax-equivalent basis assuming a 34% tax rate.~~2009. Dividing annualized income or expense by the average balances of assets or liabilities results in average yields or costs. Average information is provided on a daily average basis.


	Quarter ended September 30,												Three Months Ended March 31,
(in thousands)	2009						2008
(in thousands)	Average Balance		Interest Income (2) / Expense		Average Rate/ Yield		Average Balance		Interest Income/ Expense		Average Rate/ Yield
													2010								2009
													Average Balance			Interest Income/ Expense		Average Rate/ Yield			Average Balance			Interest Income/ Expense		Average Rate/ Yield
(dollars in thousands)
Average earning assets:
Loans (tax equivalent) (1)	$	983,999	$	14,744	5.94	%	$	997,948	$	14,842	5.92	%
Loan pool participations		89,942		28	0.12	%		92,787		1,228	5.27	%
Investment securities (tax equivalent)		378,758		3,872	4.06	%		291,352		3,690	5.04	%
Loans (tax equivalent) (1)(2)(3)													$	959,568		$	13,789	5.83	%		$	1,014,703		$	15,008	6.00	%
Loan pool participations (4)														84,267			899	4.33				96,731			1,015	4.26
Investment securities:
Taxable investments														260,356			2,225	3.47				180,712			1,975	4.43
Tax exempt investments (2)														118,290			1,523	5.22		��		110,316			1,493	5.49

Total investment securities														378,646			3,748	4.01				291,028			3,468	4.83

Federal funds sold and interest-bearing balances		13,127		9	0.27	%		22,199		238	4.27	%		11,369			10	0.36				15,553			9	0.23

Total earning assets	$	1,465,826	$	18,653	5.05	%	$	1,404,286	$	19,998	5.67	%	$	1,433,850		$	18,446	5.22	%		$	1,418,015		$	19,500	5.58	%


Cash and due from banks														20,008								27,226
Premises and equipment														28,949								29,177
Allowance for loan losses														(16,552	)							(14,093	)
Other assets														60,915								44,360

Total assets													$	1,527,170							$	1,504,685


Average interest-bearing liabilities:
Savings and interest-bearing demand deposits	$	461,467	$	1,127	0.97	%	$	403,960	$	2,234	2.20	%	$	468,409		$	1,106	0.96	%		$	434,879			1,199	1.12	%
Time certificates of deposit		585,892		4,175	2.83	%		555,027		4,218	3.02	%
Time Certificates of deposit														569,336			3,510	2.50				562,659			4,488	3.23

Total deposits		1,047,359		5,302	2.01	%		958,987		6,452	2.68	%		1,037,745			4,616	1.80				997,538			5,687	2.31

Federal funds purchased and repurchase agreements		42,462		98	0.92	%		58,900		321	2.17	%		40,661			77	0.77				50,978			134	1.07
Federal Home Loan Bank advances		146,418		1,533	4.15	%		158,310		1,528	3.84	%
Federal Home Loan Bank borrowings														128,689			1,207	3.80				159,321			916	2.33
Long-term debt and other		16,510		171	4.11	%		15,792		188	4.74	%		16,446			161	3.97				16,590			189	4.62

Total interest-bearing liabilities	$	1,252,749	$	7,104	2.25	%	$	1,191,989	$	8,489	2.83	%	$	1,223,541		$	6,061	2.01	%		$	1,224,427		$	6,926	2.29	%


Net interest income			$	11,549					$	11,509
Net interest spread																		3.21	%							3.28	%

Net interest margin (3)					3.13	%					3.26	%

Demand deposits														135,771								130,826
Other liabilities														14,060								8,280
Shareholders’ equity														153,798								141,152

Total liabilities and shareholders’ equity													$	1,527,170							$	1,504,685


Interest income/earning assets (2)													$	1,433,850		$	18,446	5.22	%		$	1,418,015		$	19,500	5.58	%
Interest expense/earning assets													$	1,433,850		$	6,061	1.71	%		$	1,418,015		$	6,926	1.98	%

Net interest margin (2)(5)																$	12,385	3.50	%					$	12,574	3.60	%


Non-GAAP to GAAP Reconciliation:
Tax Equivalent Adjustment:
Loans																$	85							$	97
Securities																	533								523

Total tax equivalent adjustment																	618								620

Net Interest Income																$	11,767							$	11,954

The following table sets forth an analysis of volume and rate changes in interest income and interest expense on ~~the Company’s~~our average earning assets and average interest-bearing liabilities reported on a fully tax-equivalent basis assuming a 34% tax rate. The table distinguishes between the changes related to average outstanding balances (changes in volume holding the initial interest rate constant) and the changes related to average interest rates (changes in average rate holding the initial outstanding balance constant). The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. ~~As the table below shows, the small increase in net interest income was nearly equally split between volume and rate components.~~

Interest income and fees on loans on a tax-equivalent basis decreased ~~$98,000,~~$1.2 million, or ~~0.7%~~8.1%, in the ~~third~~first quarter of ~~2009~~2010 compared to the same period in ~~2008.~~2009. Average loans were ~~$13.9~~$55.1 million, or ~~1.4%~~5.4%, lower in the ~~third~~first quarter of ~~2009~~2010 compared with ~~2008.~~2009. The decrease in average loan volume was ~~partially~~ attributable to the volume of refinancing activity, which resulted in a ~~slowing in~~large amount of adjustable rate residential real estate ~~lending refinance activity.~~loans that were held in our portfolio being refinanced into fixed-rate loans that are sold in the secondary market rather than held in our portfolio. The yield on ~~the Company’s~~our loan portfolio is affected by the amount of nonaccrual loans (which do not earn interest income), the mix of the portfolio (real estate loans generally have a lower overall yield than commercial and agricultural loans), the effects of competition and the interest rate environment on the amounts and volumes of new loan originations, and the mix of variable rate versus fixed rate loans in ~~the Company’s~~our portfolio. The average rate on loans ~~remained virtually unchanged, increasing~~decreased slightly from ~~5.92%~~6.00% in the ~~third~~first quarter of ~~2008~~2009 to ~~5.94%~~5.83% in ~~third~~first quarter of ~~2009.~~2010.

Interest and discount income on loan pool participations was ~~$28,000~~$0.9 million for the ~~third~~first quarter of 2010 compared with $1.0 million for the first quarter of 2009, ~~compared with $1.2 million for the third quarter of 2008,~~ a decrease of ~~$1.2~~$0.1 million. Former ~~MidWestOne~~MidWestOne had engaged in this business since 1988 and ~~the Company~~we continued the business following the merger. These loan pool participations are pools of performing, sub-performing and nonperforming loans purchased at varying discounts from the aggregate outstanding principal amount of the underlying loans. The loan pools are held and serviced by a third-party independent servicing corporation. ~~The Company invests~~We invest in the pools that are purchased by the servicer from nonaffiliated banking organizations and from the FDIC acting as receiver of failed banks and savings associations. ~~The Company has~~We have very minimal exposure in the loan pools to consumer real estate, subprime credit or construction and real estate development loans. Currently, ~~the Company holds $88.7~~we hold $83.7 million in loan pool participations.

Income is derived from this investment in the form of interest collected and the repayment of principal in excess of the purchase cost, which is referred to as “discount recovery.” The loan pool participations were historically a high-yield activity, but this yield has fluctuated from period to period based on the amount of cash collections, discount recovery, and net collection expenses of the servicer in any given period. The net “all-in” yield on loan pool participations was ~~1.39%~~4.98% for the ~~third~~first quarter of ~~2009,~~2010, down from ~~8.41%~~5.48% for the ~~2008 calendar year.~~same period of 2009. The net yield was lower in the ~~third~~first quarter of ~~2009~~2010 than for the ~~third~~first quarter of ~~2008~~2009 primarily due to elevated charge-off levels in the portfolio as well as slowed collections, as borrowers saw their ability to refinance debt decline due to the continued tightness in the credit markets.

The income and yield on loan pool participations may vary in future periods due to the volume and accretable yield on loan pools purchased.

Interest income on investment securities on a tax-equivalent basis ~~increased $182,000, or 4.9%,~~totaled $3.7 million in the ~~third~~first quarter of 2010 compared with $3.5 million for the first quarter of 2009, ~~compared with the third quarter~~an increase of ~~2008~~$280,000, or 8.1%, mainly due to a higher investment balance, and despite a lower yield on investments in ~~2009. Interest income on investment securities totaled $3.9 million in the third quarter of 2009 compared with $3.7 million for the third quarter of 2008.~~2010. The average balance of investments in the ~~third~~first quarter of ~~2009~~2010 was ~~$378.8~~$378.6 million compared with ~~$291.4~~$291.0 million in the ~~third~~first quarter of ~~2008.~~2009. The tax-equivalent yield on ~~the Company’s~~our investment portfolio in the ~~third~~first quarter of ~~2009~~2010 decreased to ~~4.06%~~4.01% from ~~5.04%~~4.83% in the comparable period of ~~2008~~2009 reflecting reinvestment of maturing securities and purchases of new securities at lower market interest rates.

Interest expense on deposits was ~~$1.2~~$1.1 million, or ~~17.8%~~18.8%, lower in the ~~third~~first quarter of ~~2009~~2010 compared with the same period in ~~2008~~2009 mainly due to the decrease in interest rates during 2009. The weighted average rate paid on interest-bearing deposits was ~~2.01%~~1.80% in the ~~third~~first quarter of ~~2009~~2010 compared with ~~2.68%~~2.31% in the ~~third~~first quarter of ~~2008.~~2009. This decline reflects the overall reduction in market interest rates on deposits throughout the markets in which we operate. Average interest-bearing deposits for the ~~third~~first quarter of ~~2009~~2010 were ~~$88.4~~$40.2 million, or 4.0%, greater compared with the same period in ~~2008.~~2009.

Interest expense on borrowed funds was ~~$235,000 lower~~$206,000 higher in the ~~third~~first quarter of ~~2009~~2010 compared with the same period in ~~2008.~~2009. Interest on borrowed funds totaled ~~$1.8~~$1.4 million for the ~~third~~first quarter of ~~2009.~~2010. Average borrowed funds for the ~~third~~first quarter of ~~2009~~2010 were ~~$27.6~~$41.1 million lower compared to the same period in ~~2008.~~2009. The majority of the difference was due to a reduction in the level of federal funds purchased, repurchase agreements, and FHLB ~~advances.~~borrowings. Elimination of the purchase accounting benefit on FHLB ~~advances~~borrowings related to the March 2008 merger in the first quarter of 2009 led to the weighted average rate on borrowed funds increasing ~~marginally~~ to ~~3.51% in~~3.15% for the ~~third~~first quarter of ~~2009~~2010 compared with ~~3.50% in~~2.21% for the ~~third~~first quarter of ~~2008.~~2009.

The ~~Company~~provision for loan losses is a current charge against income and represents an amount which management believes is sufficient to maintain an adequate allowance for known and probable losses. In assessing the adequacy of the allowance for loan losses, management considers the size and quality of the loan portfolio measured against prevailing economic conditions, regulatory guidelines, historical loan loss experience and credit quality of the portfolio. When a determination is made by management to charge off a loan balance, such write-off is charged against the allowance for loan losses.

We recorded a provision for loan losses of ~~$2.1~~$1.5 million in the ~~third~~first quarter of ~~2009~~2010 compared with ~~an $838,000~~a $2.4 million provision in the ~~third~~first quarter of ~~2008.~~2009. Net loans charged off in the ~~third~~first quarter of ~~2009~~2010 totaled ~~$2.1~~$0.9 million compared with net loans charged off of ~~$416,000~~$0.4 million in the ~~third~~first quarter of ~~2008.~~2009. The ~~increase~~decrease in the provision in the ~~third~~first quarter of ~~2009~~2010 compared with the same period in ~~2008~~2009 reflects ~~the higher level of nonperforming loans, increased charge-offs, and general concerns with the overall economic environment. Management determines~~our belief that existing identified potential problem credits have been adequately reserved for. We continue to increase our loan loss allowance by maintaining a provision for loan losses that is greater than out net charge-off activity. We determine an appropriate provision based on ~~its~~our evaluation of the adequacy of the allowance for loan losses in relationship to a continuing review of problem loans, current economic conditions, actual loss experience and industry trends. ~~Management believes~~We believe that the allowance for loan losses was adequate based on the inherent risk in the portfolio as of ~~September 30, 2009;~~March 31, 2010; however, there is no assurance losses will not exceed the allowance and any growth in the loan portfolio, and the uncertainty of the general economy may require that management continue to evaluate the adequacy of the allowance for loan losses and make additional provisions in future periods as deemed necessary.

Sensitive assets include nonaccrual loans, loans on the Bank’s watch loan reports and other loans identified as having more than reasonable potential for loss. We review sensitive assets on at least a quarterly basis for changes in the customers’ ability to pay and changes in valuation of underlying collateral in order to estimate probable losses. We also periodically review a watch loan list which is comprised of loans that have been restructured or involve customers in industries which have been adversely affected by market conditions. The majority of these loans are being repaid in conformance with their contracts.

Total noninterest income ~~results from~~decreased $0.2 million for the first quarter of 2010 compared to the same period for 2009. The decrease in 2010 is largely due to the $0.3 million decline in mortgage origination and servicing fees between the two comparative periods. Other than temporary impairment charges ~~and fees collected~~on investment securities of $0.2 million was more than offset by ~~the Company from its customers for various services performed, miscellaneous other income, and~~ gains ~~from~~of the sale of ~~investment securities held in the~~ available for sale ~~category. Noninterest income for~~investment securities. The impairment charge recognized in 2010 resulted from our investment in collateralized debt obligations backed by groups of trust preferred securities issued by multiple banks and insurance companies.

Mortgage origination and loan servicing fees were $0.5 million in the quarter ~~was $2.6~~ended March 31, 2010, a decline of $0.3 million ~~down $471,000, or 15.6%,~~ from ~~$3.0~~$0.8 million ~~for the third quarter of 2008. This~~at March 31, 2009. The decrease reflects the other than temporary impairment charge mentioned above. The impairment loss was partially offset by a gain on sales of securities available for sale which totaled $482,000 in the third quarter of 2009 as compared to $9,000 in the same period of 2008, and significantly higher mortgage origination fees which were $613,000 for the third quarter of 2009 as compared to $187,000 for the third quarter of 2008, an increase of $426,000, or 227.8%. The increase in mortgage origination fees was attributable to lower refinancing volume of single family residential loans, as the bulk of creditworthy borrowers had already taken advantage of the historically low interest ~~rate environment.~~rates before the start of 2010. Trust and investment fees increased $0.1 million, or 11.5%, to $1.2 million for the three months ended March 31, 2010, compared to $1.1 million for the same period of 2009. The sale of an unused bank office building in Oskaloosa during the first quarter of 2010 resulted in

a net loss of $77,000. Management’s strategic goal is for noninterest income to constitute 30% of total revenues (net interest income plus noninterest expense) over time. As of March 31, 2010 noninterest income comprised 22.0% of total revenues, compared to 22.8% as of March 31, 2009.

Noninterest expense for the ~~third~~first quarter of 2010 was $11.0 million compared with $11.9 million for the first quarter of 2009, ~~was $11.2~~a decrease of $0.9 million, ~~compared with $11.0 million for the third quarter of 2008.~~or 7.3%. Noninterest expense includes salaries and employee benefits, occupancy and equipment expense, FDIC insurance premiums, professional fees and data processing expense. The primary ~~reasons~~reason for the ~~increase~~decrease in noninterest expense ~~were~~was the ~~significantly higher FDIC insurance premiums~~drop in all categories of ~~$615,000 compared to $292,000~~noninterest expense, with the exception of small increases in salaries and employee benefits and net occupancy, for the three months ended ~~September 30,~~March 31, 2010, compared to the same period in 2009. Professional fees decreased by $0.3 million from $1.1 million to $0.8 million for the quarter ended March 31, 2009 and ~~2008,~~2010, respectively, ~~and the increase in professional fees, which were $727,000~~due to lower costs associated with Sarbanes Oxley compliance efforts. FDIC insurance also saw a moderate decline of $0.2 million to $0.7 million from $0.9 million for the ~~third quarter 2009, from $348,000 for the third~~first quarter of ~~2008.~~2010 compared to the same period in 2009. Salaries and employee benefits and net occupancy and equipment expenses both saw small increases between the comparative periods.

We are currently evaluating the potential for restructuring our branch footprint in 2010 and decreasing associated expenses to further reduce operating costs.

~~The Company realized an~~Our effective tax rate, or income ~~tax benefit of $636,000~~taxes divided by income before taxes, was 21.1% for the first quarter ~~ended September 30, 2009 compared with a $477,000 expense~~of 2010, and 3.5% for the same period of 2009. The increase in ~~2008, for a net effect of $1.1 million. The~~the effective ~~income tax rates as a percentage of income before taxes for the three months ended September 30, 2009 and 2008 were -321.2% and 21.9%, respectively.~~

~~The effective tax~~ rate ~~varies from the statutory rate~~in 2010 was primarily due to ~~state taxes,~~ the ~~result~~relative amount of tax-exempt income on tax-exempt bonds ~~and~~to total net income. Income tax expense increased $492,000 to $535,000 in the ~~recognition~~first quarter of ~~a tax benefit of approximately $330,000 on certain merger related expenses. Combined, these items drove the effective tax rate lower than~~2010 compared to $43,000 for the same period ~~in 2008.~~

On ~~September 29,~~November 12, 2009, the FDIC ~~issued~~adopted a ~~proposal to amend its assessment regulations to require~~final rule that required insured depository institutions to prepay on December 30, 2009, their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011, and 2012. ~~This proposal indicates that depository institutions are to prepay their assessments on~~On December ~~30, 2009. Should this proposed rule become final,~~31, 2009, the ~~Company estimates its~~Bank paid the FDIC $9.2 million in prepaid assessments. The FDIC determined each institution’s prepaid assessment ~~to be approximately $9.9 million.~~

~~The Company earned net income of $2.8 million for~~based on the ~~nine months ended~~institution’s: (i) actual September 30, 2009 ~~compared with $6.9 million for~~assessment base, increased quarterly by a five percent annual growth rate through the ~~nine months ended September 30, 2008, a decrease~~fourth quarter of ~~59.8%. Basic~~2012; and ~~diluted earnings per common share for the first three quarters of 2009 were $0.26 versus $0.90 for the first three quarters of 2008. The Company’s return~~(ii) total base assessment rate in effect on average assets for the first nine months of 2009 was 0.24% compared with a return of 0.70% for the same period in 2008. The Company’s return on average shareholders’ equity was 2.56% for the nine months ended September 30, 2009 versus 6.61% for the nine months ended September 30, 2008. The return on average tangible common equity was 2.49% for the nine months ended September 30, 2009, compared with 8.91% for the same period in 2008.

~~The following table presents selected financial results and measures for the first nine months of 2009 and 2008.~~

~~The Company’s net interest income for the nine months ended~~ September 30, 2009, increased ~~$5.3 million, or 18.5%,~~by an annualized three basis points beginning in 2011. The FDIC began to $33.7 million from $28.5 million from the nine months ended September 30, 2008. Total interest income was $4.5 million greater in the nine months ended September 30, 2009, compared with the same period in 2008. Mostoffset prepaid assessments on March 31, 2010, representing payment of the ~~increase in interest income was due to increased interest and fees on loans, which was mainly attributable to increased volumes resulting from the merger. Total interest expense~~regular quarterly risk-based deposit insurance assessment for the ~~nine months ended September~~fourth quarter of 2009. Any prepaid assessment not exhausted after collection of the amount due on June 30, ~~2009, decreased $742,000, or 3.3%, compared with the same period in 2008 due primarily~~2013, will be returned to the overall decline in market interest rates between the periods. The Company’s net interest margin on a tax-equivalent basis for the nine months ended September 30, 2009, decreased to 3.27% compared with 3.31% in the nine months ended September 30, 2008. Net interest margin is a measure of the net return on interest-earning assets and is computed by dividing annualized net interest income on a tax-equivalent basis by the average of total interest-earning assets for the period. The Company’s overall yield on earning assets declined to 5.27% for the nine months ended September 30, 2009, from 5.83% for the nine months ended September 30, 2008. The average cost of interest-bearing liabilities decreased in the nine months ended September 30, 2009, to 2.33% from 2.49% for the nine months ended September 30, 2008.

The following tables present a comparison of the average balance of earning assets, interest-bearing liabilities, interest income and expense, and average yields and costs for the nine months ended September 30, 2009 and 2008. Interest income on tax-exempt securities and loans is reported on a fully tax-equivalent basis assuming a 34% tax rate. Dividing annualized income or expense by the average balances of assets or liabilities results in average yields or costs.

   Nine months ended September 30,
(in thousands)    2009 2008
   Average
Balance    Interest
Income (2) /
Expense    Average
Rate/
Yield Average
Balance    Interest
Income/
Expense    Average
Rate/
Yield
Average earning assets:

Loans (tax equivalent) (1)
   $ 999,313    $ 44,633    5.97 % $ 828,823    $ 38,238    6.16 %
Loan pool participations
   93,716    1,707    2.44 % 65,138    3,145    6.45 %
Investment securities (tax equivalent)
   333,561    11,024    4.42 % 286,429    10,413    4.86 %
Federal funds sold and interest-bearing balances
   29,412    48    0.22 % 14,506    324    2.98 %

Total earning assets
   $ 1,456,002    $ 57,412    5.27 % $ 1,194,896    $ 52,120    5.83 %

Average interest-bearing liabilities:

Savings and interest-bearing demand deposits
   $ 454,578    $ 3,624    1.07 % $ 423,578    $ 4,469    1.41 %
Time certificates of deposit
   579,437    13,160    3.04 % 557,997    12,856    3.08 %

Total deposits
   1,034,015    16,784    2.17 % 981,575    17,325    2.36 %

Federal funds purchased and repurchase agreements
   46,634    359    1.03 % 62,618    874    1.86 %
Federal Home Loan Bank advances
   154,047    4,115    3.57 % 153,914    3,812    3.31 %
Long-term debt and other
   16,549    554    4.48 % 10,718    543    6.77 %

Total interest-bearing liabilities
   $ 1,251,245    $ 21,812    2.33 % $ 1,208,825    $ 22,554    2.49 %

Net interest income
      $ 35,600       $ 29,566

Net interest margin (3)
         3.27 %       3.31 %

The following table sets forth an analysis of volume and rate changes in interest income and interest expense on the Company’s average earning assets and average interest-bearing liabilities reported on a fully tax-equivalent basis assuming a 34% tax rate. The table distinguishes between the changes related to average outstanding balances (changes in volume holding the initial interest rate constant) and the changes related to average interest rates (changes in average rate holding the initial outstanding balance constant). The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. As the table below shows, the increase in net interest income was predominantly volume related.

~~Interest income and fees on loans~~ on a tax-equivalent basis increased $6.4 million, or 16.7%, over the first nine months of 2009, compared to the same period of 2008. Average loans were $170.5 million, or 20.6%, higher over the first nine months of 2009 compared with 2008, which contributed to the growth in interest income. The increase in average loan volume was primarily attributable to the merger. The yield on the Company’s loan portfolio is affected by the amount of nonaccrual loans (which do not earn interest income), the mix of the portfolio (real estate loans generally have a lower overall yield than commercial and agricultural loans), the effects of competition and the interest rate environment on the amounts and volumes of new loan originations, and the mix of variable rate versus fixed rate loans in the Company’s portfolio. The average rate on loans over the first nine months of 2009 was 5.97%, decreasing from 6.16% from the same period of 2008.

~~Interest and discount income on loan pool participations~~ was $1.7 million for the first nine months of 2009 compared with $3.1 million for the same period of 2008. The net yield was lower in the first three quarters of 2009 than for 2008 primarily due to the increased average balance attributable to the merger and elevated charge-off levels in the portfolio as well as slowed collections, as borrowers saw their ability to refinance debt decline due to the continued tightness in the credit markets.

~~Interest income on investment securities~~ on a tax-equivalent basis increased $611,000, or 5.9%, in the first three quarters of 2009 compared with the same period of 2008 mainly due to higher volume of securities in the portfolio as a result of the merger, offset in part by a lower yield in 2009. Interest income on investment securities totaled $11.0 million in the first nine months of 2009 compared with $10.4 million for the same period of 2008. The average balance for the first nine months of 2009 was $333.6 million versus $286.4 million for the same period in 2008. The tax-equivalent yield for the first nine months of 2009 was 4.42%, a decrease from 4.86% in the comparable period of 2008, reflecting reinvestment of maturing securities and purchases of new securities at lower market interest rates.

~~Interest expense on deposits~~ was $541,000, or 3.1%, lower in the first nine months of 2009 compared with the same period in 2008 mainly due to the overall reduction in market interest rates on deposits throughout the markets in which we operate. The weighted average rate paid on interest-bearing deposits was 2.17% in the first three quarters of 2009 compared with 2.36% in the first three quarters of 2008. Average interest-bearing deposits for the first nine months of 2009 were $52.4 million greater compared with the same period in 2008 largely as a result of the merger.

~~Interest expense on borrowed funds~~ was $201,000 lower in the nine months ended September 30, 2009 compared with the same period in 2008. Interest on borrowed funds totaled $5.0 million for the first nine months of 2009. Average borrowed funds for the first three quarters of 2009 were $10.0 million lower compared to the same period in 2008. The majority of the difference was due to interest paid on Federal Funds advances. Elimination of the purchase accounting benefit on FHLB advances related to the March 2008 merger in the first quarter of 2009 led to the weighted average rate on borrowed funds increasing marginally to 3.09% for the first three quarters of 2009 compared with 3.07% in the first three quarters of 2008.

The Company recorded a provision for loan losses of $6.0 million for the first nine months of 2009 compared with a $1.7 million provision for the same period of 2008. Net loans charged off in the first three quarters of 2009 totaled $3.4 million compared with net loans charged off of $1.6 million in the first three quarters of 2008. The increase in the provision in the first nine months of 2009 compared with the same period in 2008 reflects the higher level of nonperforming loans, increased charge-offs, and general concerns with the overall economic environment. Management determines an appropriate provision based on its evaluation of the adequacy of the allowance for loan losses in relationship to a continuing review of problem loans, the current economic conditions, actual loss experience and industry trends. Management believes that the allowance for loan losses was adequate based on the inherent risk in the portfolio as of September 30, 2009; however, there is no assurance losses will not exceed the allowance and any growth in the loan portfolio and the uncertainty of the general economy may require that management continue to evaluate the adequacy of the allowance for loan losses and make additional provisions in future periods as deemed necessary.

Noninterest income results from the charges and fees collected by the Company from its customers for various services performed, miscellaneous other income, and gains from the sale of investment securities held in the available for sale category. Total noninterest income was $180,000, or 2.0%, greater in the first three quarters of 2009 compared with the same period in 2008. The majority of the change between the periods is due to the merger, although mortgage origination fees increased by $1.4 million, or 174.7%, to $2.2 million through September 30, 2009 compared with $817,000 through September 30, 2008. Many of the loans originated during the first three quarters of 2009 were sold in the secondary market with servicing rights retained. This increase was partially offset by an increase of $1.4 million, or 253.1%, to $2.0 million from $567,000 for the nine months ended September 30, 2009 and September 30, 2008, respectively, in other than temporary impairment losses on certain investment securities. Management’s strategic goal is for noninterest income to constitute 30% of total revenues over time.

Noninterest expense for the nine months ended September 30, 2009 was $34.4 million, an increase of $8.0 million over the same period for 2008, primarily due to the merger, which led to significant increases in all noninterest expense categories. Salaries and benefits increased from $14.9 million during the nine months ended September 30, 2008, to $17.5 million during the nine months ended September 30, 2009, while occupancy and equipment expenses increased from $4.7 million during the nine months ended September 30, 2008, to $5.1 million during the nine months ended September 30, 2009. In addition to the proportionate increases attributable to the merger, the Company experienced a disproportionate increase in the FDIC expected assessment fee which increased from $334,000 for the nine months ended September 30, 2008, to $2.6 million for the nine months ended September 30, 2009. Professional fees increased from $927,000 to $2.6 million due to the transition of the Company from a privately-held company to an SEC-registered and NASDAQ listed company in connection with the merger.

The Company realized an income tax benefit of $443,000 for the nine months ended September 30, 2009 compared with a $2.3 million income tax expense for the same period in 2008. The effective income tax rates as a percentage of income before taxes for the nine months ended September 30, 2009 and 2008 were - -18.9% and 24.8%, respectively.

The effective tax rate varies from the statutory rate due to state taxes, the result of tax-exempt income on tax-exempt bonds, and the recognition of a tax benefit of approximately $330,000 on certain merger related expenses. Combined, these items drove the effective tax rate lower than for the same period in 2008.institution.

~~Total~~Our total assets ~~of the Company~~ increased slightly to ~~$1.53~~$1.54 billion as of ~~September 30, 2009~~March 31, 2010 from ~~$1.51~~$1.53 billion on December 31, ~~2008.~~2009. This ~~modest increase~~growth resulted primarily from increased interest-bearing deposits in ~~assets resulted from~~banks and investment in securities, somewhat offset by a decrease in loans due to refinancing activity of portfolio loans, mostly consisting of single family residential loans that are then sold on the secondary market. The asset growth was funded by an increase in investment securities partially offset by reductions in loans and loan pool participations. The increase was partially funded by the receipt of a $16.0 million investment from the Treasury pursuant to the CPP, which closed on February 6, 2009.deposits. Total deposits ~~as of September 30, 2009~~at March 31, 2010 were ~~$1.15~~$1.19 billion compared with ~~$1.13~~$1.18 billion ~~as of~~at December 31, ~~2008, an increase of $24.6~~2009, up $13.4 million, or 1.1%, primarily due to increased consumer ~~deposits as a result of continued sales efforts by our associates.~~and public fund deposits.

Investment securities available for sale totaled ~~$354.7~~$375.2 million as of ~~September 30, 2009.~~March 31, 2010. This was an increase of ~~$82.3~~$12.3 million, or 3.4%, from December 31, ~~2008.~~2009. The increase was primarily due to net purchases of ~~$70.0~~$12.0 million during the period. Investment securities classified as held to maturity decreased to ~~$7.5~~$6.2 million as of ~~September 30, 2009~~March 31, 2010 as a result of security maturities. The investment portfolio consists mainly of U.S. government agency securities, mortgage-backed securities and obligations of states and political subdivisions.

As of ~~September 30, 2009, the Company~~March 31, 2010, we owned ~~$2.1~~$1.8 million of collateralized debt obligations that were backed by pools of trust preferred securities issued by various commercial banks (approximately 80%) and insurance companies (approximately 20%). No real estate holdings secure these debt securities. These debt securities had an original purchase cost of approximately $9.7 million and were rated investment grade securities when purchased between March 2006 and December 2007. However, as the banking climate has deteriorated during 2008 and 2009, these debt securities have experienced cashflow problems, resulting in a significant decline in estimated market value and little to no pricing information available. Accordingly, at December 31, 2008, the Company performed an analysis that determined that $6.2 million of the original value was other than temporarily impaired, and the resulting charge was taken in the fourth quarter of 2008. In accordance with the Company’s April 1, 2009 adoption of the changes to FASB ASC Topic 320-10-65, the $5.2 million noncredit related portion of other-than-temporary impairment losses recognized in 2008 earnings ($3.3 million net of tax adjustments) was reclassified as a cumulative effect adjustment that increased retained earnings and decreased accumulated other comprehensive income at the beginning of the quarter ended June 30, 2009. Due to continued credit deterioration in these securities, an additional pre-tax charge to earnings of $1.3 million was recorded in the third quarter of 2009. Management continuesWe continue to monitor the values of these debt securities for purposes of determining ~~other than temporary~~other-than-temporary impairment in future periods given the instability in the financial markets and ~~continues~~continue to obtain updated cash flow analysis as required.

The following table shows the composition of the bank loans (before deducting the allowance for loan losses), as of the periods shown:

Total bank loans (excluding loan pool participations and loans held for sale) decreased by ~~$41.3~~$12.3 million, to ~~$973.5~~$954.7 million as of ~~September 30, 2009~~March 31, 2010 as compared to December 31, ~~2008. The Company~~2009. We experienced a ~~$3.6~~$4.8 million, or ~~1.2%~~1.6%, decrease in the commercial, financial and agricultural ~~sector~~sectors, along with a ~~$27.5~~$4.9 million, or ~~4.7%~~0.9%, decrease in real estate mortgage loans, which resulted primarily from the ~~significant~~continued refinancing activity seen ~~during~~due to historically low interest rates, which resulted in adjustable rate residential real estate loans that were held in our portfolio being refinanced into fixed-rate loans that are sold in the ~~first three quarters of 2009.~~secondary market rather than held in our portfolio. Additionally, construction real estate decreased ~~$4.5~~$2.0 million, or ~~4.5%, and~~2.5%; loans to individuals decreased ~~$0.9~~$0.2 million, or ~~3.7%~~0.8%, and; and obligations of state and political subdivisions declined $0.5 million, or 2.9%. As of ~~September 30, 2009 the Company’s~~March 31, 2010, our bank loan (excluding loan pool participations) to deposit ratio was ~~84.4%~~80.0% compared with a year-end ~~2008~~2009 bank loan to deposit ratio of ~~89.9%~~82.0%. ~~Management anticipates~~We anticipate that the loan to deposit ratio will continue to decline in future ~~periods.~~periods, as loans continue to pay down and deposits remain steady or increase. As of ~~September 30, 2009, the Company’s~~March 31, 2010, our largest category of bank loans was commercial real estate, ~~which comprised 43%~~comprising 42% of the ~~loan portfolio.~~portfolio, of which 9% was farmland, 8% construction, and 3% multifamily. Residential real estate loans was the next largest category at ~~26% of the portfolio,~~24%, commercial loans ~~were 19% and~~23%, agricultural loans ~~were~~ 9% ~~of total loans. The remainder of the portfolio consisted of~~, and consumer loans ~~which were 3% of total loans.~~2%. All of these percentages

relate to our direct loans and do not include loan pool participations. ~~Included in commercial real estate are construction and development loans totaling approximately $70.6 million, or 7.2% of total loans, and $90.4 million, or 9.3% of total loans, related to farmland.~~

~~The Company has~~We have minimal direct exposure to subprime mortgages in ~~its~~our loan portfolio. ~~The Company’s~~Our loan policy provides a guideline that real estate mortgage borrowers have a Beacon score of 640 or greater. Exceptions to this guideline have been noted but the overall exposure is deemed minimal by management. Mortgages ~~originated by the Company~~we originate and ~~sold~~sell on the secondary market are typically underwritten according to the guidelines of secondary market investors. These mortgages are sold on a non-recourse basis.

As of ~~September 30, 2009, the Company~~March 31, 2010, we had loan pool participations, net, totaling ~~$88.7~~$81.5 million, down from ~~$92.9~~$83.1 million at December 31, ~~2008.~~2009. Loan pools are participation interests in performing, sub-performing and nonperforming loans that have been purchased from various non-affiliated banking organizations. Former ~~MidWestOne~~MidWestOne had engaged in this activity since 1988, and ~~the Company~~we continued this line of business following the merger. ~~Management has~~We have identified a ~~target range~~maximum for loan pool participation balances of ~~between $90.0 million and~~not more than $110.0 ~~million, and continues to be active in bidding on new pools as they become available.~~million. The most recently purchased pools have performed well and ~~management believes~~we believe the business still has merit over the long term. The loan pool investment ~~balance~~balances shown as an asset on ~~the Company’s Statement of Condition represents~~our Consolidated Balance Sheets represent the discounted purchase cost of the loan pool participations. ~~The Company~~We acquired ~~one~~no new loan pool ~~participation~~participations during the ~~third~~first quarter of ~~2009 in the amount of $6.2 million.~~2010. As of ~~September 30, 2009,~~March 31, 2010, the categories of loans by collateral type in the loan pools were commercial real estate - ~~55%~~54%, commercial loans - 8%11%, agricultural and agricultural real estate – ~~11%~~10%, single-family residential real estate - ~~12%~~11% and other loans - 14%. ~~The Company has~~We have minimal exposure in the loan pools to consumer real estate subprime credit or to construction and real estate development loans.

Our overall cost basis in the loan pool participations represents a discount from the aggregate outstanding principal amount of the loans underlying the pools. For example, as of March 31, 2010, such cost basis was $83.2 million, while the contractual outstanding principal amount of the underlying loans as of such date was approximately $177.3 million. The discounted cost basis inherently reflects the assessed collectability of the underlying loans. We do not include any amounts related to the loan pool participations in our totals of nonperforming loans.

The loans in the pools provide some geographic diversification to ~~the Company’s~~our balance sheet. As of ~~September 30, 2009,~~March 31, 2010, loans in the southeast region of the United States represented approximately ~~39%~~40% of the total. The northeast was the next largest area with ~~33%~~32%, the central region with 19%, the southwest region with 8% and northwest represented a minimal amount of the portfolio at 1%. The highest concentration of assets is in Florida at approximately 18% of the basis total, with the next highest state level being Ohio at ~~12% and~~11%, then Pennsylvania at

approximately 7%, followed by Colorado and ~~Pennsylvania~~New Jersey both at ~~approximately 7%~~6%. As of ~~September 30, 2009,~~March 31, 2010, approximately ~~54%~~56% of the loans were contractually current or less than 90 days past-due, while ~~46%~~44% were contractually past-due 90 days or more. It should be noted that many of the loans were acquired in a contractually past due status, which is reflected in the discounted purchase price of the loans. Performance status is monitored on a monthly basis. The ~~46%~~44% contractually past-due includes loans in litigation and foreclosed property. As of ~~September 30, 2009,~~March 31, 2010, loans in litigation totaled approximately ~~$16.0~~$17.6 million, while foreclosed property was approximately ~~$9.3~~$11.4 million. As of ~~September 30, 2009, the Company’s~~March 31, 2010, our investment basis in ~~its~~our loan pool participations was approximately ~~48.7%~~46.9% of the “face” amount of the underlying loans.

Other intangible assets decreased to ~~$12.5~~$11.9 million as of ~~September 30, 2009~~March 31, 2010 from ~~$13.4~~$12.2 million as of December 31, ~~2008~~2009 as a result of normal amortization. Amortization of intangible assets is recorded using an accelerated method based on the estimated life of the intangible. The following table summarizes the amounts and carrying values of intangible assets as of ~~September 30, 2009.~~March 31, 2010.


	Gross Carrying Amount		Accumulated Amortization		Unamortized Intangible Assets
(in thousands)

March 31, 2010
Other intangible assets:
Insurance agency intangible		1,320		292		1,028
Core deposit premium		5,433		1,858		3,575
Trade name intangible		7,040		—		7,040
Customer list intangible		330		57		273


Total	$	14,123	$	2,207	$	11,916

Total deposits as of ~~September 30, 2009~~March 31, 2010 were ~~$1.15~~$1.19 billion compared with ~~$1.13~~$1.18 billion as of December 31, ~~2008,~~2009, an increase of ~~$24.6~~$13.4 million. Certificates of deposit were the largest category of deposits at ~~September 30, 2009~~March 31, 2010, representing approximately ~~50.0%~~48.1% of total deposits. Total certificates of deposit were ~~$576.2~~$573.9 million at ~~September 30, 2009, up $20.0~~March 31, 2010, down $7.7 million, or ~~3.6%~~1.3%, from ~~$556.3~~$581.6 million at December 31, ~~2008.~~2009. Included in total certificates of deposit at ~~September 30, 2009~~March 31, 2010 was ~~$26.9~~$23.9 million of brokered deposits in the Certificate of Deposit Account Registry Service (CDARS) program, ~~an increase~~a decrease of ~~$8.7~~$0.5 million, or ~~47.8%~~2.0%, from the ~~$18.2~~$24.4 million at December 31, ~~2008.~~2009. Based on historical experience, management anticipates that many of the maturing certificates of deposit will be renewed upon maturity. Maintaining competitive market interest rates will facilitate ~~the Company’s~~our retention of certificates of deposit. Interest-bearing checking deposits were $423.7 million at March 31, 2010, an increase of $22.4 million, or 5.6%, from $401.3 million at December 31, 2009. The increased balances were primarily in our “Power Checking” account product. Approximately ~~82.7%~~84.6% of ~~the Company’s~~our total deposits are considered “core” deposits.

FHLB ~~advances~~borrowings totaled ~~$137.0~~$127.7 million as of ~~September 30, 2009~~March 31, 2010 compared with ~~$158.8~~$130.2 million as of December 31, ~~2008. The Company utilizes~~2009. We utilize FHLB ~~advances~~borrowings as a supplement to customer deposits to fund earning assets and to assist in managing interest rate risk.

Long-term debt in the form of junior subordinated debentures that have been issued to a statutory trust that issued trust preferred securities was $15.6 million as of ~~September 30, 2009,~~March 31, 2010, unchanged from December 31, ~~2008.~~2009. These junior subordinated debentures were assumed by ~~the Company~~us from Former MidWestOne in the merger. Former ~~MidWestOne~~MidWestOne had issued these junior subordinated debentures on September 20, 2007, to MidWestOne Capital Trust II. The junior subordinated debentures mature on December 15, 2037, do not require any principal amortization and are callable at par at ~~the Company’s~~our option on the fifth anniversary of the date of issuance. The interest rate is fixed at 6.48% for five years on $7.7 million of the issuance and is variable quarterly at the three month LIBOR plus 1.59% on the remainder.

~~The Company’s~~Our nonperforming assets totaled ~~$19.1~~$18.9 million as of ~~September 30, 2009,~~March 31, 2010, up ~~$2.9~~$1.4 million compared to December 31, ~~2008.~~2009. This increase was due to ~~increases~~an increase in nonperforming loans of $2.5 million coupled with a decrease in other real estate owned of ~~$1.6 million coupled with an increase in nonperforming loans of $1.2~~$1.1 million. The balance of other real estate owned at ~~September 30, 2009~~March 31, 2010 was ~~$2.6~~$2.5 million compared to ~~$1.0~~$3.6 million at year-end ~~2008.~~2009. Nonperforming loans totaled ~~$16.5~~$16.3 million ~~(1.69%~~(1.71% of total bank loans) as of ~~September 30, 2009,~~March 31, 2010, compared to ~~$15.2~~$13.9 million ~~(1.50%~~(1.44% of total bank loans) as of December 31, ~~2008. All~~2009. See Note 8 “Allowance for Loan Losses and Nonperforming Assets” for additional information related to nonperforming loan totals and related ratios exclude the loan pool participations. The following table presents the categories of nonperforming loans and nonperforming assets as of September 30, 2009 compared with December 31, 2008:assets.

The nonperforming loans consisted of ~~$12.3~~$10.8 million in nonaccrual loans, ~~$2.2~~$3.6 million in troubled debt restructures and $2.0 million in loans past due 90 days or more and still accruing. This compares with ~~$11.8~~$9.9 million, ~~$0.4~~$2.6 million and ~~$3.0~~$1.4 million, respectively, as of December 31, ~~2008.~~2009. The Company experienced a ~~$1.8~~$1.0 million increase in restructured loans, which grew from ~~$0.4~~$2.6 million at December 31, ~~2008~~2009 to ~~$2.2~~$3.6 million at ~~September 30, 2009.~~March 31, 2010. This increase stems from the restructuring of ~~nine customer loans, two commercial loans totaling $0.5 million,~~ one consumer loan, three residential real estate ~~loan~~loans totaling ~~$0.1~~$0.4 million and ~~five~~two commercial real estate loans totaling ~~$1.6~~$0.5 million. During the same period, ~~however,~~ loans and leases past due 90 days or more and still accruing interest ~~decreased~~increased by ~~$1.0~~$0.6 million from ~~$3.0~~$1.4 million at December 31, ~~2008~~2009 to $2.0 million at ~~September 30, 2009.~~ March 31, 2010.

Additionally, loans past-due 30 to 89 days (not included in the nonperforming loan totals) were ~~$11.2~~$11.1 million as of ~~September 30, 2009~~March 31, 2010 compared with ~~$10.8~~$10.1 million as of December 31, ~~2008.~~2009. Other real estate owned totaled ~~$2.6~~$2.5 million as of ~~September 30, 2009~~March 31, 2010 and ~~$1.0~~$3.6 million at December 31, ~~2008.~~2009.

All of the other real estate property was acquired through foreclosures and ~~the Company is~~we are actively working to sell all properties held as of ~~September 30, 2009.~~March 31, 2010. Other real estate is carried at appraised value less estimated cost of disposal at date of acquisition. Additional discounts could be required to market and sell the properties, resulting in a write down through expense.

~~The Company’s~~Our allowance for loan losses as of ~~September 30, 2009~~March 31, 2010 was ~~$13.5~~$14.6 million, which was ~~1.39%~~1.52% of total bank loans (excluding loan pools) as of that date. This compares with an allowance for loan losses of ~~$11.0~~$14.0 million as of December 31, ~~2008,~~2009, which was ~~1.08%~~1.44% of total bank loans. Gross charge-offs for the first ~~three quarters~~quarter of ~~2009~~2010 totaled ~~$3.6~~$1.1 million, while recoveries of previously charged-off loans totaled ~~$165,000.~~$0.2 million. Annualized net loan charge offs to average bank loans as of ~~September 30, 2009~~March 31, 2010 was ~~0.47%~~0.38% compared to ~~0.50%~~0.48% for the year ended December 31, ~~2008.~~2009. As of ~~September 30, 2009,~~March 31, 2010, the allowance for loan losses was ~~80.6%~~89.1% of nonperforming bank loans compared with ~~72.1%~~100.6% as of December 31, ~~2008.~~2009. While nonperforming loan levels increased during the first quarter, the increase has been primarily in credits that our management had already identified as weak and for which we believe adequate provisions already had been made. Based on the inherent risk in the loan portfolio, ~~management believes~~we believe that as of ~~September 30, 2009,~~March 31, 2010, the allowance for loan losses was adequate; however, there is no assurance losses will not exceed the allowance and any growth in the loan portfolio and the uncertainty of the general economy may require that management continue to evaluate the adequacy of the allowance for loan losses and make additional provisions in future periods as deemed necessary.

~~Changes in~~ See Note 8 “Allowance for Loan Losses and Nonperforming Assets” for additional information related to the allowance for loan ~~losses for~~losses.

During the ~~nine months ended September 30, 2009 and twelve months ended December 31, 2008 were as follows:~~

~~The Company changed the economic factor portion~~first quarter of 2010, we updated the Allowance for Loan Losses (“ALLL”) calculation to reflect current historical net charge-offs. We use a five year average percentage in the ~~third quarter~~historical charge-off portion of ~~2009. We noted that our annualized year-to-date charge-off history in~~ the ~~commercial, consumer and residential/home equity loan types was higher than our historical five year average.~~ALLL calculation. The historical charge-off portion is one of six factors used in ~~making up~~establishing our pass percentage factor for each loan type. ~~In order~~There were no changes to ~~compensate for~~ the ~~increased charge-off~~other five factors ~~for~~during the ~~loan types noted above, the Company increased the economic factor component~~first quarter of ~~the commercial and consumer loan types by 10 basis points and the residential/home equity loan types by 5 basis points.~~2010. Classified loans are reviewed per the requirements of FASB ASC Topics 310 and ~~450 (FAS 114 and FAS 5).~~450. All classified loans are reviewed for impairment per FASB ASC Topic ~~310 (FAS 114).~~310.

~~The Company~~We currently ~~tracks~~track the loan to value (LTV) ratio of loans in ~~its~~our portfolio, and those loans in excess of internal and supervisory guidelines are presented to ~~MidWestOne~~the Bank’s Board of Directors on a quarterly basis. At ~~September 30, 2009~~March 31, 2010, there were ~~nine~~six owner occupied 1-4 family loans with a LTV of 100% or greater. In addition, there are 5044 home equity lines of credit without credit enhancement that have LTV of 100% or greater. ~~The Company has~~We have the first lien on 11three of these equity lines and other financial institutions have the first lien on the remaining ~~39.~~41.

~~The Company monitors~~We monitor and ~~reports its~~report our troubled debt restructuring on a quarterly basis. At ~~September 30, 2009,~~March 31, 2010, reported troubled debt restructurings ~~are~~were not a material portion of the loan portfolio. ~~Management reviews~~We review loans 90+ days past due that are still accruing interest no less than quarterly to determine if there is a strong reason that the credit should not be placed on non-accrual. All commercial and agricultural lenders are required to review their portfolios on a monthly basis and document that either no downgrades are necessary or report credits that they feel warrant a downgrade to loan review for inclusion in the allowance for loan loss calculation.

Total shareholders’ equity was ~~9.93%~~10.00% of total assets as of ~~September 30, 2009~~March 31, 2010 and was ~~8.64%~~9.92% as of

December 31, ~~2008.~~2009. Tangible common equity to tangible assets was ~~8.15%~~8.26% as of ~~September 30, 2009~~March 31, 2010 and ~~7.81%~~8.16% as of December 31, ~~2008. The Company’s~~2009. Our Tier 1 capital to risk-weighted assets ratio was ~~12.50%~~13.06% as of ~~September 30, 2009~~March 31, 2010 and was ~~10.24%~~12.66% as of December 31, ~~2008.~~2009. Risk-based capital guidelines require the classification of assets and some off-balance-sheet items in terms of credit-risk exposure and the measuring of capital as a percentage of the risk-adjusted asset totals. ~~Tier 1 capital is the Company’s total common shareholders’ equity plus the trust preferred security. Management believed~~We believe that, as of ~~September 30, 2009,~~March 31, 2010, the Company and ~~its subsidiary bank~~the Bank met all capital adequacy requirements to which ~~they~~we are subject. As of that date, the ~~bank subsidiary~~Bank was “well capitalized” under regulatory prompt corrective action provisions.

We have traditionally disclosed certain non-GAAP ratios to evaluate and measure our financial condition, including our tangible common equity to tangible assets and Tier 1 capital to risk-weighted assets ratios. We believe these ratios provide investors with information regarding our financial condition and how we evaluate our financial condition internally. The following table provides a reconciliation of the Company approved a proposal to amend the Company’s articles of incorporation to authorize the issuance of up to 500,000 shares of preferred stock. On February 6, 2009, the Company issued 16,000 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A,non-GAAP measure to the ~~U.S. Treasury pursuant to the Capital Purchase Program (‘CPP’).~~ most comparable GAAP equivalent.

The preferred stock has no par value per share and a liquidation preference of $1,000 per share, or $16.0 million in the aggregate. The senior preferred stock is non-voting, other than class voting rights on any authorization or issuance of shares ranking senior to the senior preferred stock, any amendment to the rights of senior preferred stock, or any merger, exchange, or similar transaction that would adversely affect the rights of the senior preferred stock. If dividends are not paid in full for six dividend periods, whether or not consecutive, the U.S. Treasury will have the right to elect two directors to the Company’s Board. The right to elect directors would end when full dividends have been paid for four consecutive dividend periods.

In ~~connection with the CPP, the Company also~~addition, on February 6, 2009, we issued to the U.S. Treasury a warrant ~~exercisable for 198,675 shares of Company common stock. The warrant entitles the U.S. Treasury~~ to purchase 198,675 shares of our common stock at a strike price of $12.08 per share at any time on or before February 6, 2019. If the Company issues common stock, or another security that qualifies as Tier 1 capital, in exchange for aggregate gross proceeds of at least $16.0 million or more prior to December 31, 2009, the number of common shares underlying the warrant will be reduced by one-half to 99,338 shares. If the Company repayswe repay the U.S. Treasury’s investment in full, ~~the Company~~we would be permitted to redeem the warrant issued to the U.S. Treasury at its then current fair market value. If the warrant is not redeemed at such time, however, it will remain outstanding and transferable by the U.S. Treasury. All of the capital from Treasury was treated as Tier 1 capital for regulatory purposes.

On January ~~22, 2009, options for 26,000 shares were granted to certain directors and officers while 9,900~~21, 2010, 33,000 restricted stock units were ~~also~~ granted to certain directors and officers. During the ~~third~~first quarter of ~~2009, 131~~2010, 2,546 shares were issued in connection with the vesting of previously awarded grants of restricted stock ~~units.~~ units, of which 20 shares were surrendered by a grantee to satisfy tax requirements. In addition, 1,945 shares were issued in connection with the exercise of previously issued stock options.

On ~~October~~February 11, 2010, we filed a universal shelf-registration statement registering for future sale up to $25.0 million of securities from time to time in one or more offerings. Given the growth opportunities and the difficult credit market, we believe that it is prudent to have all options available to raise additional capital. On April 22, ~~2009,~~2010, the Company’s Board of Directors declared a quarterly dividend for the ~~fourth~~second quarter of ~~2009~~2010 of $0.05 per common share, which is consistent with the dividend per common share paid in the ~~third~~first quarter of ~~2009.~~2010.


	Actual				Minimum Required for Capital Adequacy Purposes				Minimum Required to be Well Capitalized				Actual				Minimum Required for Capital Adequacy Purposes				Minimum Required to be Well Capitalized
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
September 30, 2009:
Total capital to risk weighted assets
Consolidated	$	167,851	13.76	%	$	97,607	8.00	%		N/A	N/A
MidWestOneBank		154,288	12.68	%		97,314	8.00	%	$	121,642	10.00	%
Tier 1 capital to risk weighted assets
(dollars in thousands)
March 31, 2010:
Total capital to risk-weighted assets:
Consolidated		152,470	12.50	%		48,804	4.00	%		N/A	N/A		$	154,158	12.92	%	$	95,482	8.00	%		N/A	N/A
MidWestOne Bank		139,077	11.43	%		48,657	4.00	%		72,985	6.00	%		157,281	13.46	%		93,460	8.00	%	$	116,825	10.00	%
Tier 1 capital to average assets
Tier 1 capital to risk-weighted assets:
Consolidated														155,817	13.06	%		47,741	4.00	%		N/A	N/A
MidWestOne Bank														144,137	12.34	%		46,730	4.00	%		70,095	6.00	%
Tier 1 capital to average assets:
Consolidated		152,470	9.91	%		61,534	4.00	%		N/A	N/A			155,817	10.28	%		60,615	4.00	%		N/A	N/A
MidWestOne Bank		139,077	9.09	%		61,231	4.00	%		76,538	5.00	%		144,137	9.56	%		60,325	4.00	%		75,407	5.00	%

December 31, 2008:
Total capital to risk weighted assets
Consolidated	$	144,011	11.27	%	$	102,250	8.00	%		N/A	N/A
MidWestOneBank		127,092	10.05	%		101,168	8.00	%	$	126,460	10.00	%
Tier 1 capital to risk weighted assets
December 31, 2009:
Total capital to risk-weighted assets:
Consolidated		130,896	10.24	%		51,125	4.00	%		N/A	N/A		$	169,149	13.92	%	$	97,219	8.00	%		N/A	N/A
MidWestOne Bank		113,977	9.01	%		50,584	4.00	%		75,876	6.00	%		156,413	12.94	%		96,727	8.00	%	$	120,909	10.00	%
Tier 1 capital to average assets
Tier 1 capital to risk-weighted assets:
Consolidated		130,896	8.72	%		60,044	4.00	%		N/A	N/A			153,881	12.66	%		48,610	4.00	%		N/A	N/A
MidWestOne Bank		113,977	7.60	%		59,988	4.00	%		74,985	5.00	%		141,287	11.69	%		48,363	4.00	%		72,545	6.00	%
Tier 1 capital to average assets:
Consolidated														153,881	10.01	%		61,505	4.00	%		N/A	N/A
MidWestOne Bank														141,287	9.23	%		61,215	4.00	%		76,518	5.00	%

Liquidity management involves meeting the cash flow requirements of depositors and borrowers. ~~The Company conducts~~We conduct liquidity management on both a daily and long-term basis; and ~~it adjusts its~~adjust our investments in liquid assets based on expected loan demand, projected loan maturities and payments, estimated cash flows from the loan pool participations, expected deposit flows, yields available on interest-bearing deposits, and the objectives of its asset/liability management program. ~~The Company~~We had liquid assets (cash and cash equivalents) of ~~$27.3~~$42.0 million as of ~~September 30, 2009,~~March 31, 2010, compared with ~~$32.9~~$27.6 million as of December 31, ~~2008.~~2009. Investment securities classified as available for sale, totaling ~~$354.7~~$375.2 million and ~~$272.4~~$362.9 million as of ~~September 30, 2009~~March 31, 2010 and December 31, ~~2008,~~2009, respectively, could be sold to meet liquidity needs if necessary. Additionally, ~~the~~our bank subsidiary maintains unsecured lines of credit with several correspondent banks and secured lines with the Federal Reserve Bank discount window and the Federal Home Loan Bank of Des Moines that would allow it to borrow federal funds on a short-term basis, if necessary. Management believes that the Company had sufficient liquidity as of ~~September 30, 2009~~March 31, 2010 to meet the needs of borrowers and depositors.

~~The Company’s~~Our principal sources of funds were deposits, FHLB ~~advances,~~borrowings, principal repayments on loans, proceeds from the sale of loans, proceeds from the maturity and sale of investment securities, and funds provided by operations. While scheduled loan amortization and maturing interest-bearing deposits are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by economic conditions, the general level of interest rates, and competition. ~~The Company~~We utilized particular sources of funds based on comparative costs and availability. This included fixed-rate FHLB ~~advances~~borrowings that were obtained at a more favorable cost than deposits. ~~The Company~~We generally managed the pricing of ~~its~~our deposits to maintain a steady deposit base but had from time to time decided not to pay rates on deposits as high as its competition.

As of ~~September 30, 2009, the Company~~March 31, 2010, we had $15.6 million of long-term debt outstanding. This amount represents indebtedness payable under junior subordinated debentures issued to a subsidiary trust that issued trust preferred securities in a pooled offering. The junior subordinated debentures have a 35-year term. One-half of the balance has a fixed interest rate of 6.48 percent until December 15, 2012; the other one-half has a variable rate of three-month LIBOR plus 1.59 percent.

~~The Company has~~We have identified ~~three~~the following critical accounting policies and practices relative to the ~~financial condition and~~reporting of our results of ~~operation.~~operation and financial condition. These ~~three~~ accounting policies relate to the allowance for loan losses, participation interests in loan pools, application of purchase accounting, goodwill and intangible assets, and fair value of available for sale investment securities.

The allowance for loan losses is based on ~~management’s~~our estimate. We believe the allowance for loan losses is adequate to absorb probable losses in the existing portfolio. In evaluating the portfolio, ~~management takes~~we take into consideration numerous factors, including current economic conditions, prior loan loss experience, the composition of the loan portfolio, and management’s estimate of probable credit losses. The allowance for loan losses is established through a provision for loss based on ~~management’s~~our evaluation of the risk inherent in the loan portfolio, the composition of the portfolio, specific impaired loans, and current economic conditions. Such evaluation, which includes a review of all loans on which full collectability may not be reasonably assured, considers, among other matters, the estimated net realizable value or the fair value of the

underlying collateral, economic conditions, historical loss experience, and other factors that warrant recognition in providing for an adequate allowance for loan losses. ~~Management establishes an allowance for loan losses that it believes is adequate to absorb probable losses in the existing portfolio.~~ In the event that ~~management’s~~our evaluation of the level of the allowance for loan losses is inadequate, ~~the Company~~we would need to increase ~~its~~our provision for loan losses.

The loan pool accounting practice relates to ~~management’s~~our estimate that the investment amount reflected on ~~the Company’s~~our financial statements does not exceed the estimated net realizable value or the fair value of the underlying collateral securing the purchased loans. In evaluating the purchased loan ~~portfolio, management takes~~pool, we take into consideration many factors, including the borrowers’ current financial situation, the underlying collateral, current economic conditions, historical collection experience, and other factors relative to the collection process. If the estimated net realizable value of the loan pool participations is overstated, ~~the Company’s~~our yield on the loan pools would be reduced.

During 2008, we completed the acquisition of the Former MidwestOne Financial Group, Inc., which generated significant amounts of goodwill and intangible assets and related amortization. The values assigned to goodwill and intangibles, as well as their related useful lives, are subject to judgment and estimation by our management. Goodwill and intangibles related to acquisitions are determined and based on purchase price allocations. Valuation of intangible assets is generally based on the estimated cash flows related to those assets, while the initial value assigned to goodwill is the residual of the purchase price over the fair value of all identifiable assets acquired and liabilities assumed. If the carrying value of the goodwill exceeded the implied fair value of the goodwill, an impairment loss would be recorded in an amount equal to that excess. Performing such a discounted cash flow analysis involves the use of estimates and assumptions. Useful lives are determined based on the expected future period of the benefit of the asset, the assessment of which considers various characteristics of the asset, including the historical cash flows. Due to the number of estimates involved related to the allocation of purchase price and determining the appropriate useful lives of intangible assets, we have identified purchase accounting as a critical accounting policy.

Goodwill and intangible assets arise from purchase business combinations. During 2008, we completed our merger with the Former MidWestOne. We were deemed to be the purchaser for accounting purposes and thus recognized goodwill and other intangible assets in connection with the merger. The goodwill was assigned to our one reporting unit, banking. As a general matter, goodwill and other intangible assets generated from purchase business combinations and deemed to have indefinite lives are not subject to amortization and are instead tested for impairment at least annually. Core deposit and customer relationship intangibles arising from acquisitions are being amortized over their estimated useful lives of up to 10 years.

In 2008, the extreme volatility in the banking industry that first started to surface in the latter part of 2007 had a significant impact on banking companies and the price of banking stocks, including our common stock. At December 31, 2008, our market capitalization was less than our total shareholders’ equity, providing an indication that goodwill may be impaired as of such date. Thus, we performed an impairment analysis as a result of the significant decline in our stock price. Based on this analysis, we wrote off $27.3 million of goodwill in the fourth quarter of 2008, which represented all of the goodwill that resulted from the Merger. Such charge had no effect on the Company’s or the Bank’s cash balances or liquidity. In addition, because goodwill and other intangible assets are not included in the calculation of regulatory capital, the Company’s and the Bank’s December 31, 2008 regulatory ratios were not adversely affected by this non-cash expense and exceeded the minimum amounts required to be considered “well-capitalized.”

Our other intangible assets are core deposit premium, insurance agency, trade name, and customer list intangibles. The establishment and subsequent amortization of these intangible assets involves the use of significant estimates and assumptions. These estimates and assumptions include, among other things, the estimated cost to service deposits acquired discount rates, estimated attrition rates and useful lives, future economic and market conditions, comparison of our market value to book value and determination of appropriate market comparables. Actual future results may differ from those estimates. We assess these intangible assets for impairment annually or more often if conditions indicate a possible impairment. Each quarter we evaluate the estimated useful lives of intangible assets and whether events or changes in circumstances warrant a revision to the remaining periods of amortization. In accordance with FASB ASC 350,Accounting for the Impairment or Disposal of Long-Lived Assets, recoverability of these assets is measured by comparison of the carrying amount of the asset to the future undiscounted cash flows the asset is expected to generate. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset.

Securities available for sale are reported at fair value, with unrealized gains and losses reported as a separate component of accumulated other comprehensive income, net of deferred income taxes. Declines in fair value of individual securities, below their amortized cost, are evaluated by management to determine whether the decline is temporary or ~~“other than temporary.~~“other-than-temporary.” Declines in the fair value of available for sale ~~equity~~ securities below their cost that are deemed ~~“other than temporary”~~“other-than-temporary” are reflected in earnings as impairment ~~losses, while other than temporary impairments of debt securities are separated into credit-related and other factors. For debt securities, the amount of other than temporary~~losses. In determining whether other-than-temporary impairment ~~related to credit losses is recognized in earnings while the amount related to other factors is recorded in other comprehensive income. In estimating “other than temporary” impairment losses,~~exists, management considers ~~a number of factors including~~whether: (1) we have the ~~length of time and extent~~intent to ~~which~~sell the ~~fair value has been less~~security, (2) it is more likely than ~~cost, (2)~~not that we will be required to sell the ~~financial condition and near-term prospects~~security before recovery of the ~~issuer,~~amortized cost basis and (3) we do not expect to recover the ~~intent and ability~~entire amortized cost basis of the ~~Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.~~security.

~~The Company is~~We are a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of ~~its~~our customers, which include commitments to extend credit. ~~The Company’s~~Our exposure to credit loss in the event of nonperformance by the other party to the commitments to extend credit is represented by the contractual amount of those instruments. ~~The Company uses~~We use the same credit policies in making commitments as ~~it does~~we do for on-balance-sheet instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any conditions established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. ~~The Company evaluates~~We evaluate each customer’s creditworthiness on a case-by-case basis. As of ~~September 30, 2009,~~March 31, 2010, outstanding commitments to extend credit totaled approximately ~~$174.8~~$175.0 million.

Commitments under standby and performance letters of credit outstanding aggregated ~~$4.3~~$3.9 million as of ~~September 30, 2009. The Company does~~March 31, 2010. We do not anticipate any losses as a result of these transactions.

In general, market risk is the risk of change in asset values due to movements in underlying market rates and prices. Interest rate risk is the risk to earnings and capital arising from movements in interest rates. Interest rate risk is the most significant market risk affecting ~~MidWestOne~~MidWestOne as other types of market risk, such as foreign currency exchange rate risk and commodity price risk, do not arise in the normal course of our business activities.

In addition to interest rate risk, the current challenging economic environment, particularly the severe dislocations in the credit markets that prevailed throughout 2008 and 2009, and continued during the first ~~three quarters~~quarter of ~~2009,~~2010, has made liquidity risk (namely, funding liquidity risk) a more prevalent concern among financial institutions. In general, liquidity risk is the risk of being unable to fund an entity’s obligations to creditors (including, in the case of banks, obligations to depositors) as such obligations become due and/or fund its acquisition of assets.

Liquidity refers to ~~the Company’s~~our ability to fund operations, to meet depositor withdrawals, to provide for ~~its~~our customers’ credit needs, and to meet maturing obligations and existing commitments. ~~The~~Our liquidity ~~of the Company~~ principally depends on cash flows from operating activities, investment in and maturity of assets, changes in balances of deposits and borrowings, and ~~its~~our ability to borrow funds.

Net cash inflows from operating activities were ~~$16.7~~$6.3 million in the first ~~three quarters~~quarter of ~~2009,~~2010, compared with ~~$5.8~~$6.9 million in the first ~~three quarters~~quarter of ~~2008.~~2009. Proceeds from sale of loans held for sale, net of funds used to originate loans held for sale, were a source of inflow for the first ~~three quarters~~quarter of ~~2009,~~2010, as was a net change in ~~other assets~~accrued interest receivable of ~~$2.5~~$1.0 million.

Net cash ~~outflows~~inflows from investing activities were ~~$32.5~~$3.2 million in the ~~nine~~three months ended ~~September 30, 2009,~~March 31, 2010, compared to net cash outflows of ~~$33.4~~$7.8 million in the comparable ~~nine-month~~three-month period of ~~2008.~~2009. In the first ~~nine~~three months of ~~2009,~~2010, securities transactions accounted for a net outflow of ~~$69.4~~$10.2 million, and net principal received on loans accounted for net inflows of ~~$35.7~~$11.3 million. Cash inflows for loan pool participations were ~~$4.2~~$1.5 million during the first three ~~quarters~~months of ~~2009~~2010 compared to a ~~$10.0~~$2.3 million outflow during the same period of ~~2008.~~2009.

Net cash provided by financing activities in the first ~~nine~~three months of 2010 was $4.9 million. The largest cash outflow from financing activities in the first quarter of 2010 consisted of $3.5 million in net decrease in securities sold under agreements to repurchase. The largest financing cash inflow during the three months ended March 31, 2010 was the $13.4 million increase in deposits. Cash inflows from financing activities in the first quarter of 2009 ~~was $10.1 million. Included in this amount is~~were $35.0 million, which included the $16.0 million that we received from our issuance of shares of senior preferred stock and a warrant to purchase common stock to the U.S. Treasury pursuant to the Capital Purchase Program. ~~The~~

~~largest cash outflow from financing activities in the first three quarters of 2009 consisted of $21.0 million in~~In addition, net repayment of Federal Home Loan Bank advances. The largest financing cash inflow during the nine months ended September 30, 2009 was the $24.6 million increase in deposits. Cash inflows from financing activities in the first three quarters of 2008 were $20.6 million, which included net increases occurred in deposits and ~~FHLB advances~~securities sold under agreements to repurchase of ~~$7.5~~$22.0 million and ~~$15.6~~$10.3 million, respectively. ~~In the same period of 2008, Fed Funds purchased increased $3.8 million.~~

To further mitigate liquidity risk, the ~~Company’s subsidiary bank~~Bank has several sources of liquidity in place to maximize funding availability and increase the diversification of funding sources. The criteria for evaluating the use of these sources include - - volume concentration (percentage of liabilities), cost, volatility, and the fit with the current Asset/Liability management plan. These acceptable sources of liquidity include:

Routine liquidity requirements are met by fluctuations in the ~~subsidiary bank’s~~Bank’s Fed Funds position. The principal function of these funds is to maintain short-term liquidity. Unsecured Fed Funds purchased lines are viewed as a volatile liability and are not used as a long-term funding solution, especially when used to fund long-term assets. Multiple correspondent relationships are preferable and Fed Funds sold exposure to any one customer is continuously monitored. The current Fed Funds purchased limit is 10% of total assets, or the amount of established Fed Funds lines, whichever is smaller. Currently, ~~the~~our subsidiary bank has unsecured Fed Fund lines totaling ~~$30~~$55 million, which ~~lines~~ are tested annually to ensure availability.

FHLB ~~advances~~borrowings provide both a source of liquidity and long-term funding for the ~~subsidiary bank.~~Bank. Use of this type of funding is coordinated with both the strategic balance sheet growth projections and the current and future interest rate risk profile of the ~~subsidiary bank.~~Bank. Factors that are taken into account when contemplating use of FHLB ~~advances~~borrowings are the effective interest rate, the collateral requirements, community investment program credits, and the implications and cost of having to purchase incremental FHLB stock. The current FHLB advance limit is 25% of total assets. Currently, the ~~subsidiary bank~~Bank has a ~~$256.7~~$205.2 million advance limit with ~~$137.0~~$127.7 million in outstanding ~~advances,~~borrowings, leaving ~~$119.7~~$77.5 million available for liquidity needs. These ~~advances~~borrowings are secured by various real estate loans (residential, commercial and agricultural).

Brokered repurchase agreements may be established with approved brokerage firms and banks. Repurchase agreements create rollover risk (the risk that a broker will discontinue the relationship due to market factors) and are not used as a long-term funding solution, especially when used to fund long-term assets. Collateral requirements and availability are evaluated and monitored. The current policy limit for brokered repurchase agreements is 10% of total assets. There were no outstanding brokered repurchase agreements at ~~September 30, 2009.~~March 31, 2010.

The FRB Discount Window is another source of liquidity, particularly during difficult economic times. The ~~subsidiary bank~~Bank has a borrowing capacity with the Federal Reserve Bank of Chicago limited only by the amount of municipal securities pledged against the line. Currently, the ~~subsidiary bank~~Bank owns municipal securities with an approximate market value of ~~$14.2~~$13.5 million available for liquidity purposes.

The nature of the banking business, which involves paying interest on deposits at varying rates and terms and charging interest on loans at other rates and terms, creates interest rate risk. As ~~part~~a result, net interest margin and earnings and the market value of ~~its normal operations, the Company is~~assets and liabilities are subject to ~~interest-rate~~fluctuations arising from the movement of interest rates. We manage several forms of interest rate risk, onincluding asset/liability mismatch, basis risk and prepayment risk. A key management objective is to maintain a risk profile in which variations in net interest income stay within the ~~assets it invests in (primarily loans~~limits and securities) and the liabilities it funds with (primarily customer deposits and borrowed funds), as well as its ability to manage such risk. Fluctuations in interest rates may result in changes in the fair

~~market values~~guidelines of the ~~Company’s financial instruments, cash flows, and net interest income. Like most financial institutions, the Company has an exposure to changes in both short-term and long-term interest rates.~~Bank’s Asset/Liability Management Policy.

Like most financial institutions, ~~the Company’s~~our net income can be significantly influenced by a variety of external factors, including: overall economic conditions, policies and actions of regulatory authorities, the amounts of and rates at which assets and liabilities reprice, variances in prepayment of loans and securities other than those that are assumed, early withdrawal of deposits, exercise of call options on borrowings or securities, competition, a general rise or decline in interest rates, changes in the slope of the yield-curve, changes in historical relationships between indices (such as LIBOR and prime), and balance sheet growth or contraction. ~~The Company’s~~Our asset and liability committee (ALCO) seeks to manage interest rate risk under a variety of rate environments by structuring ~~the Company’s~~our balance sheet and off-balance sheet positions. The risk is monitored and managed within approved policy limits.

~~The Company uses~~We use a third-party computer software simulation modeling program to measure ~~its~~our exposure to potential interest rate changes. For various assumed hypothetical changes in market interest rates, numerous other assumptions are made, such as prepayment speeds on loans and securities backed by mortgages, the slope of the Treasury yield curve, the rates and volumes of ~~the Company’s~~our deposits, and the rates and volumes of ~~its~~our loans. This analysis measures the estimated change in net interest income in the event of hypothetical changes in interest rates. The following table presents ~~the Company’s~~our projected changes in net interest income for the various interest rate shock levels at ~~September 30, 2009.~~March 31, 2010.


													Immediate Change in Rates
													-200			-100			+100			+200
(dollars in thousands)	Immediate Change in Rates
	-200			-100			+100			+200
September 30, 2009
March 31, 2010
Dollar change	$	1,374		$	1,499		$	(718	)	$	(1,403	)	$	835		$	1,125		$	(1,716	)	$	(2,366	)
Percent change		2.84	%		3.10	%		-1.49	%		-2.90	%		1.7	%		2.3	%		-3.5	%		-4.9	%

December 31, 2008
December 31, 2009
Dollar change	$	847		$	762		$	(351	)	$	(864	)	$	885		$	1,373		$	(1,995	)	$	(3,310	)
Percent change		1.67	%		1.50	%		-0.70	%		-1.71	%		1.8	%		2.8	%		-4.1	%		-6.8	%

As shown above, at ~~September 30, 2009,~~March 31, 2010, the effect of an immediate and sustained 200 basis point increase in interest rates would decrease ~~the Company’s~~our net interest income by approximately ~~$1.4~~$2.4 million. The effect of ~~a ramped~~an immediate and sustained 200 basis point decrease in rates would increase ~~the Company’s~~our net interest income by approximately ~~$1.4~~$0.8 million. An increase in interest rates would cause ~~more of the Company’s~~our interest-bearing liabilities to reprice more quickly than interest-earning assets, thus reducing net interest income. AConversely, a decrease in interest rates would cause an increase in net interest income as interest-bearing liabilities would decline more rapidly than interest-earning assets. ~~However, in this~~In the current low interest rate environment, ~~many~~model results of ~~the interest-bearing liabilities could not be decreased by another~~a 200 basis ~~points, thereby causing a decrease~~point drop in ~~net~~ interest ~~income~~rates are of questionable value as many interest bearing liabilities and interest earning ~~asset yields fall. To mitigate this effect, interest rate floors have been placed on many of the loans.~~assets cannot re-price significantly lower than current levels.

Computations of the prospective effects of hypothetical interest rate changes were based on numerous assumptions. Actual values may differ from those projections set forth above. Further, the computations do not contemplate any actions ~~the Company~~we could have undertaken in response to changes in interest rates.

Under supervision and with the participation of certain members of ~~the Company’s~~our management, including the chief executive officer and the chief financial officer, ~~the Company~~we completed an evaluation of the effectiveness of the design and operation of ~~its~~our disclosure controls and procedures (as defined in SEC Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of ~~September 30, 2009.~~March 31, 2010. Based on this evaluation, ~~the Company’s~~our chief executive officer and chief financial officer believe that the disclosure controls and procedures were effective as of the end of the period covered by this Report with respect to timely communication to them and other members of management responsible for preparing periodic reports and material information required to be disclosed in this Report as it relates to the Company and ~~its~~our consolidated subsidiaries.

The effectiveness of the Company’s or any system of disclosure controls and procedures is subject to certain limitations, including the exercise of judgment in designing, implementing, and evaluating the controls and

procedures, the assumptions used in identifying the likelihood of future events, and the inability to eliminate misconduct completely. As a result, there can be no assurance that ~~the Company’s~~our disclosure controls and procedures will prevent all errors or fraud or ensure that all material information will be made known to appropriate management in a timely fashion. By their nature, ~~the Company’s~~our or any system of disclosure controls and procedures can provide only reasonable assurance regarding management’s control objectives.

There was no change in ~~the Company’s~~our internal control over financial reporting during the ~~Company’s~~ last fiscal quarter that has materially affected, or is reasonably likely to materially affect, ~~the Company’s~~our internal control over financial reporting.

Statements made in this report, other than those concerning historical financial information, may be considered forward-looking statements, which speak only as of the date of this document and are based on current expectations and involve a number of assumptions. These include, among other things, statements regarding future results or expectations. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and is including this statement for purposes of these safe harbor provisions. The Company’s ability to predict results, or the actual effect of future plans or strategies, is inherently uncertain. Factors that could cause actual results to differ from those set forth in the forward-looking statements or that could have a material effect on the operations and future prospects of the Company include, but are not limited to: (1) the strength of the local and national economy; (2) changes in interest rates, legislative/regulatory changes, monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Federal Reserve Board; (3) the loss of key executives or employees; (4) changes in the quality and composition of the Company’s loan and securities portfolios; demand for loan products; deposit flows; competition; demand for financial services in the Company’s respective market areas; implementation of new technologies; ability to develop and maintain secure and reliable electronic systems; and accounting principles, policies, and guidelines; (5) expected revenue synergies and cost savings from the merger may not be fully realized or realized within the expected time frame; and (6) other risk factors detailed from time to time in filings made by the Company with the SEC.

The Company and its subsidiaries are from time to time parties to various legal actions arising in the normal course of business. The Company believes that there are no threatened or pending proceedings against the Company or its subsidiaries, which, if determined adversely, would have a material adverse effect on the business or financial condition of the Company.

There have been no material changes from the risk factors set forth in Part ~~II,~~I, Item 1A, “Risk Factors” of ~~the Company’s~~our Form ~~10-Q~~10-K for the ~~quarterly~~annual period ended ~~March~~December 31, 2009. Please refer to that section of ~~the Company’s~~our Form ~~10-Q~~10-K for disclosures regarding the risks and uncertainties related to ~~the Company’s~~our business.

~~The Company~~We did not repurchase any of ~~its~~our equity securities during the quarter covered by this report. As of ~~September 30, 2009, the Company~~March 31, 2010, we did not have in effect an approved share repurchase program.

As discussed above, on February 6, 2009, ~~the Company~~we consummated the sale of $16.0 million of senior preferred stock to ~~the United States Department of~~ the Treasury pursuant to the Capital Purchase Program. The terms of the senior preferred stock place certain restrictions on ~~the Company’s~~our ability to pay dividends on ~~its~~ our

common stock. First, no dividends on ~~the Company’s~~our common stock may be paid unless all accrued dividends on Treasury’s senior preferred stock have been paid in full. Second, until the third anniversary of the date of Treasury’s investment, ~~the Company~~we may not increase the dividends paid on its common stock beyond $0.1525 per share without first obtaining the consent of Treasury.

Item 4. ~~Submission of Matters to a Vote of Security Holders.~~[Removed and Reserved].

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.


Iowa		42-1206172
(State of Incorporation)		(I.R.S. Employer Identification No.)


			Page No.

PART I

Item 1.	Financial Statements	31

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2018

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3330

Item 4.	Controls and Procedures	3532

PART II

Item 1.	Legal Proceedings	3632

Item 1A.	Risk Factors	3632

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3732

Item 3.	Defaults Upon Senior Securities	3733

Item 4.	~~Submission of Matters to a Vote of Security Holders~~[Removed and Reserved]	3733

Item 5.	Other Information	3733

Item 6.	Exhibits	3733

	Signatures	34


(unaudited) (in thousands, except per share amounts)	Preferred Stock		Common Stock		Additional Paid-in Capital			Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Income (loss)			Total

Balance at December 31, 2007	$	-	$	5,165	$	100		$	-		$	72,333		$	(206	)	$	77,392


Comprehensive income:
Net income		-		-		-			-			6,942			-			6,942
Unrealized losses arising during the period on securities available for sale		-		-		-			-			-			(2,871	)		(2,871	)
Reclassification for realized losses on securities available for sale, net of tax		-		-		-			-			-			211			211

Total comprehensive income		-		-		-			-			6,942			(2,660	)		4,282

Dividends paid ($0.15 per share)												(2,641	)					(2,641	)
Stock options exercised (5,302 shares)		-		5		40			11			-			-			56
Treasury stock purchased (60,000 shares)									(883	)								(883	)
Fractional shares paid out in merger		-		-		(3	)		-			-			-			(3	)
Shares issued in merger (3,519,788 shares)		-		3,520		78,245			-			-			-			81,765
Stock option value allocated to transaction purchase price		-		-		2,365			-			-			-			2,365
Cumulative effect adjustment for postretirement split dollar life insurance benefits		-		-		-			-			(133	)		-			(133	)


Balance at September 30, 2008	$	-	$	8,690	$	80,747		$	(872	)	$	76,501		$	(2,866	)	$	162,200


Balance at December 31, 2008	$	-	$	8,690	$	80,757		$	(1,215	)	$	43,683		$	(1,573	)	$	130,342


Cumulative effect of FASB ASC 320, net of tax		-		-		-			-			3,266			(3,266	)		-
Comprehensive income:
Net income		-		-		-			-			2,793			-			2,793
Change in unrealized gain on all other available for sale securities, net of tax		-		-		-			-			-			5,328			5,328

Total comprehensive income		-		-		-			-			6,059			2,062			8,121

Dividends paid on common stock ($0.25 per share)		-		-		-			-			(2,172	)		-			(2,172	)
Dividends paid on preferred stock												(420	)					(420	)
Release/lapse of restriction on 2,278 RSUs						(32	)		32									-
Issuance of preferred shares (16,000 shares)		15,642		-		-			-			-			-			15,642
Common warrants issued		-		-		358			-			-			-			358
Preferred stock discount accretion		41		-		-			-			(41	)		-			-
Stock compensation		-		-		39			-			-			-			39

Balance at September 30, 2009	$	15,683	$	8,690	$	81,122		$	(1,183	)	$	47,109		$	489		$	151,910


(unaudited) (dollars in thousands)	Nine Months Ended September 30,
	2009			2008

Cash flows from operating activities:
Net income	$	2,793		$	6,942
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,176			1,735
Provision for loan losses		5,975			1,666
Deferred income taxes		1,800			(247	)
Gain on sale of available for sale investment securities		(491	)		(206	)
Impairment losses on investment securities		2,002			567
(Gain) Loss sale of premises and equipment		3			(9	)
Loss sale of other real estate owned		9			20
Write-down of other real estate owned		230			-
Amortization of investment securities and loan premiums		1,268			509
Accretion of investment securities and loan discounts		(116	)		(191	)
Stock-based compensation		39			-
Decrease in loans held for sale		4,164			-
Increase in accrued interest receivable		(646	)		(1,380	)
Decrease in other assets		2,547			4,087
(Decrease) increase in accrued interest payable		25			(1,771	)
Decrease in other liabilities		(5,049	)		(5,964	)

Net cash provided by operating activities		16,729			5,758


Cash flows from investing activities:
Investment securities available for sale:
Proceeds from sales		34,741			10,550
Proceeds from maturities		60,938			45,190
Purchases		(165,677	)		(40,006	)
Investment securities held to maturity:
Proceeds from maturities		1,522			1,967
Purchases		(950	)		-
Net decrease (increase) in loans		35,727			(60,399	)
Net decrease (increase) in loan pool participations		4,225			(10,038	)
Purchases of premises and equipment		(2,776	)		(667	)
Proceeds from sale of premises and equipment		28			7
Proceeds from sale of other real estate owned		322			-
Activity in bank-owned life insurance:
Purchases		-			(63	)
Increase in cash value		(577	)		(305	)
Acquisition of net assets in merger		-			20,351

Net cash used in investing activities		(32,477	)		(33,413	)


Cash flows from financing activities:
Net increase in deposits		24,625			7,480
Net decrease in federal funds purchased		(13,050	)		(3,750	)
Net increase in securities sold under agreements to repurchase		6,148			4,695
Proceeds from Federal Home Loan Bank advances		24,000			45,000
Repayment of Federal Home Loan Bank advances		(45,000	)		(29,404	)
Net increase in notes payable		-			6
Payments on long-term debt		(39	)		-
Dividends paid		(2,592	)		(2,641	)
Proceeds from exercise of stock options		-			56
Repurchase of common stock		-			(883	)
Issuance of preferred stock and warrants		16,000			-

Net cash provided by financing activities		10,092			20,559


Net decrease in cash and cash equivalents		(5,656	)		(7,096	)
Cash and cash equivalents at beginning of period		32,926			34,220

Cash and cash equivalents at end of period	$	27,270		$	27,124

		-

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	24,607		$	24,451

Income taxes	$	846		$	4,052


Supplemental disclosure of non-cash investing activities:
Transfer of loans to other real estate owned	$	2,173		$	1,452


Earnings per Share Information	Three Months Ended September 30,					Nine Months Ended September 30,
(dollars in thousands)	2009			2008		2009			2008
Weighted average number of shares outstanding during the period		8,605,312			8,646,328		8,604,531			7,707,301

Weighted average number of shares outstanding during the period including all dilutive potential shares		8,605,732			8,646,328		8,604,557			7,707,301

Net Income	$	834		$	1,704	$	2,793		$	6,942
Preferred stock dividends and discount accretion		(216	)		-		(563	)		-

Net income available to common stockholders	$	618		$	1,704	$	2,230		$	6,942

Earnings per common share - basic	$	0.07		$	0.20	$	0.26		$	0.90

Earnings per common share - diluted	$	0.07		$	0.20	$	0.26		$	0.90


Earnings per Share Information	Three Months Ended March 31,
(dollars in thousands, except per share amounts)	2010			2009
Weighted average number of shares outstanding during the period		8,607,853			8,603,055

Weighted average number of shares outstanding during the period including all dilutive potential shares		8,611,511			8,603,548

Net income	$	2,004		$	1,176
Preferred stock dividend accrued and discount accretion		(217	)		(131	)

Net income available to common stockholders	$	1,787		$	1,045


Earnings per share - basic	$	0.21		$	0.12

Earnings per share - diluted	$	0.21		$	0.12


(in thousands)	Securities Available For Sale

Level 3 fair value at December 31, 2008	$	3,552
Transfers into Level 3		-
Total gains (losses):
Included in earnings		(1,319	)
Included in other comprehensive income		(128	)

Level 3 fair value at September 30, 2009	$	2,105


	Fair Value Measurements at March 31, 2010 Using
(in thousands)	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Collateral dependent impaired loans	$	4,291	$	—	$	—	$	4,291
Loans held for sale	$	759	$	—	$	759	$	—
Federal Home Loan Bank stock	$	8,901	$	—	$	—	$	8,901
Other real estate owned	$	2,547	$	—	$	—	$	2,547

	Fair Value Measurements at December 31, 2009 Using
(in thousands)	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Collateral dependent impaired loans	$	2,818	$	—	$	—	$	2,818
Loans held for sale	$	1,208	$	—	$	1,208	$	—
Federal Home Loan Bank stock	$	8,973	$	—	$	—	$	8,973
Other real estate owned	$	3,635	$	—	$	—	$	3,635


	March 31, 2010					December 31, 2009
	Non- Accrual		Troubled Debt Restructures			Non- Accrual		Troubled Debt Restructures
(in thousands)
Nonperforming loans:
Agricultural	$	5,195	$	—		$	3,498	$	—
Commercial and financial		2,259		597			2,386		676
Real estate:
Construction, one- to four- family residential		461		—			463		—
Construction, land development and commercial		—		426			—		434
Mortgage, farmland		197		—			43		—
Mortgage, one- to four- family first liens		1,965		315			2,073		49
Mortgage, one- to four- family junior liens		104		52			157		—
Mortgage, multifamily		—		—			—		—
Mortgage, commercial		545		2,147			1,168		1,368
Loans to individuals		64		28			97		28
Obligations of state and political subdivisions		—		—			—		—

	$	10,790	$	3,565		$	9,885	$	2,555

Total impaired loans			$	14,355				$	12,440


90 days or more past due and still accruing:
Agricultural				625					—
Commercial and financial				320					256
Real estate:
Construction, one- to four- family residential				—					138
Construction, land development and commercial				123					—
Mortgage, farmland				301					—
Mortgage, one- to four- family first liens				487					927
Mortgage, one- to four- family junior liens				48					85
Mortgage, multifamily				—					—
Mortgage, commercial				—					—
Loans to individuals				81					33
Obligations of state and political subdivisions				—					—

Total 90 days or more past due and still accruing			$	1,985				$	1,439


Total nonperforming loans			$	16,340				$	13,879


Other real estate owned and repossessed assets				2,547					3,635


Total nonperforming loans and nonperforming other assets			$	18,887				$	17,514


Ratios:
Nonperforming loans to loans, before allowance for loan losses				1.71	%				1.44	%
Nonperforming loans and nonperforming other assets to loans, before allowance for loan losses				1.98	%				1.81	%


		For the Three Months Ended March 31,
*(in thousands)*		2010			2009

Tangible Common Equity:
Average total shareholders’ equity		$	153,798		$	141,152
Less:	Average preferred stock		(15,708	)		(9,601	)
	Average goodwill and intangibles		(12,371	)		(13,244	)


Average tangible common equity			125,719			118,307


Net income available to common shareholders			1,787			1,045


Return on average tangible common equity			5.76	%		3.58	%


	Quarter ended September 30, 2009 Compared to 2008 Increase/ (Decrease) Due to
	Volume			Rate			Net
	(in thousands)
Interest income from average earning assets:
Loans (tax equivalent)	$	(167	)	$	69		$	(98	)
Loan pool participations		(34	)		(1,166	)		(1,200	)
Investment securities (tax equivalent)		1,120			(938	)		182
Federal funds sold and interest-bearing balances		(97	)		(132	)		(229	)

Total income from earning assets		822			(2,167	)		(1,345	)


Interest expense from average interest-bearing liabilities:
Savings and interest-bearing demand deposits		325			(1,432	)		(1,107	)
Time certificates of deposit		247			(290	)		(43	)

Total deposits		572			(1,722	)		(1,150	)

Federal funds purchased and repurchase agreements		(89	)		(134	)		(223	)
Federal Home Loan Bank advances		(111	)		116			5
Long-term debt and other		9			(26	)		(17	)

Total expense from interest-bearing liabilities		381			(1,766	)		(1,385	)

Net interest income	$	441		$	(401	)	$	40


	Three Months Ended March 31,
	2010 Compared to 2009 Change due to
	Volume			Rate/Yield			Net
(in thousands)
Increase (decrease) in interest income
Loans (tax equivalent)	$	(800	)	$	(419	)	$	(1,219	)
Loan pool participations		(133	)		17			(116	)
Investment securities:
Taxable investments		495			(245	)		250
Tax exempt investments		92			(62	)		30

Total investment securities		587			(307	)		280

Federal funds sold and interest-bearing balances		(1	)		2			1

Change in interest income		(347	)		(707	)		(1,054	)


Increase (decrease) in interest expense
Savings and interest-bearing demand deposits		108			(201	)		(93	)
Time Certificates of deposit		54			(1,032	)		(978	)

Total deposits		162			(1,233	)		(1,071	)

Federal funds purchased and repurchase agreements		(24	)		(33	)		(57	)
Federal Home Loan Bank borrowings		(127	)		418			291
Other long-term debt		(2	)		(26	)		(28	)

Change in interest expense		9			(874	)		(865	)

Increase (decrease) in net interest income	$	(356	)	$	167		$	(189	)


Percentage decrease in net interest income over prior period								(1.50	)


($ amounts in thousands)	Nine Months Ended September 30,
	2009		2008
Net Income	$	2,793	$	6,942
Average Assets		1,541,141		1,322,393
Average Shareholders’ Equity		145,997		140,297
Return on Average Assets		0.24%		0.70%
Return on Average Shareholders’ Equity		2.56%		6.61%
Return on Average Tangible Common Equity		2.49%		8.91%
Total Equity to Assets (end of period)		9.93%		10.66%
Tangible Common Equity to Tangible Assets (end of period)		8.15%		8.48%


	Nine Months ended September 30, 2009 Compared to 2008 Increase/ (Decrease) Due to
	Volume			Rate			Net
	(in thousands)

Interest income from average earning assets:
Loans (tax equivalent)	$	7,823		$	(1,428	)	$	6,395
Loan pool participations		1,376			(2,814	)		(1,438	)
Investment securities (tax equivalent)		1,702			(1,091	)		611
Federal funds sold and interest-bearing balances		332			(608	)		(276	)

Total income from earning assets		11,233			(5,941	)		5,292


Interest expense from average interest-bearing liabilities:
Savings and interest-bearing demand deposits		323			(1,168	)		(845	)
Time certificates of deposit		482			(178	)		304

Total deposits		805			(1,346	)		(541	)

Federal funds purchased and repurchase agreements		(224	)		(291	)		(515	)
Federal Home Loan Bank advances		-			303			303
Long-term debt and other		295			(284	)		11

Total expense from interest-bearing liabilities		876			(1,618	)		(742	)

Net interest income	$	10,357		$	(4,323	)	$	6,034


	March 31, 2010				December 31, 2009
	Balance		% of Total		Balance		% of Total
(in thousands)
Agricultural	$	89,825	9.4	%	$	92,727	9.6	%
Commercial and financial		201,637	21.1			203,539	21.0
Real estate:
Construction, one- to four- family residential		21,063	2.2			20,785	2.1
Construction, land development and commercial		56,389	5.9			58,652	6.1
Mortgage, farmland		87,947	9.2			88,747	9.2
Mortgage, one- to four- family first liens		157,005	16.4			161,065	16.7
Mortgage, one- to four- family junior liens		71,733	7.5			73,665	7.6
Mortgage, multifamily		31,745	3.3			32,455	3.4
Mortgage, commercial		198,667	20.8			196,025	20.3
Loans to individuals		23,074	2.4			23,262	2.4
Obligations of state and political subdivisions		15,604	1.6			16,076	1.7

Total loans	$	954,689	100.0	%	$	966,998	100.0	%


		At March 31,			At December 31,
*(in thousands)*		2010			2009

Tangible Common Equity:
Total shareholders’ equity		$	154,158		$	152,208
Less:	Preferred stock		(15,716	)		(15,699	)
	Goodwill and intangibles		(12,016	)		(12,272	)


Tangible common equity			126,426			124,237


Tangible Assets:
Total assets		$	1,542,061		$	1,534,783
Less:	Goodwill and intangibles		(12,016	)		(12,272	)


Tangible assets			1,530,045			1,522,511


Tangible common equity to tangible assets			8.26	%		8.16	%

		At March 31,			At December 31,
*(in thousands)*		2010			2009

Tier 1 capital
Total shareholders’ equity		$	154,158		$	152,208
Plus:	Long term debt (qualifying restricted core capital)		15,464			15,464

Less:	Net unrealized gains on securities available for sale		(2,016	)		(1,505	)
	Disallowed goodwill and intangibles		(11,789	)		(12,286	)


Tier 1 capital			155,817			153,881


Risk-weighted assets			1,193,520			1,215,240


Tier 1 capital to risk-weighted assets			13.06	%		12.66	%


Exhibit Number	Description	Incorporated by Reference to:

31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a)	Filed herewith

31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a)	Filed herewith

32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith

32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith


	*MIDWESTONE* FINANCIAL GROUP, INC.**

Dated: ~~November 6, 2009~~May 5, 2010	By:	/S/s/ CHARLES N. FUNK
		Charles N. Funk
		President and Chief Executive Officer

	By:	/S/s/ GARY J. ORTALE
		Gary J. Ortale
		Executive Vice President and Chief Financial Officer

Large accelerated filer

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