UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549




	FORM 10-Q



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

For the quarterly period ended ~~September 30, 2013~~March 31, 2014



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

For the transition period from to



	Commission file number 001-35968

MIDWESTONE FINANCIAL GROUP, INC.

(Exact name of Registrant as specified in its charter)



Iowa	42-1206172
(State or other jurisdiction of ~~Incorporation)~~incorporation or organization)	(I.R.S. Employer Identification No.)

102 South Clinton Street

Iowa City, IA 52240

(Address of principal executive offices, including zip code)

319-356-5800

(Registrant's telephone number, including area code)

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 o 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). x Yes o 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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer	o	Accelerated filer	x
Non-accelerated filer	o (Do not check if a smaller reporting company)	Smaller reporting company	o

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

As of ~~October~~April 30, ~~2013~~2014, there were ~~8,470,058~~8,475,291 shares of common stock, $1.00 par value per share, outstanding.

Table of Contents

MIDWESTONE FINANCIAL GROUP, INC.

Form 10-Q Quarterly Report

Table of Contents



		Page No.
PART I

Item 1.	Financial Statements	1

	Consolidated Balance Sheets	1

	Consolidated Statements of Operations	2

	Consolidated Statements of Comprehensive Income	3

	Consolidated Statements of Shareholders' Equity	4

	Consolidated Statements of Cash Flows	5

	Notes to Consolidated Financial Statements	6

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	3230

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	5445

Item 4.	Controls and Procedures	5747

Part II

Item 1.	Legal Proceedings	5949

Item 1A.	Risk Factors	5949

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5949

Item 3.	Defaults Upon Senior Securities	5949

Item 4.	Mine Safety Disclosures	5949

Item 5.	Other Information	5949

Item 6.	Exhibits	6050

	Signatures	6151

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	September 30, 2013			December 31, 2012			March 31, 2014			December 31, 2013
(dollars in thousands)	(unaudited)
(dollars in thousands, except per share amounts)							(unaudited)
ASSETS
Cash and due from banks	$	25,288		$	30,197		$	25,571		$	24,516
Interest-bearing deposits in banks	778			16,242			9,504			374
Federal funds sold	—			752			181			—
Cash and cash equivalents	26,066			47,191			35,256			24,890
Investment securities:
Available for sale	490,148			557,541			496,918			498,561
Held to maturity (fair value of $30,743 as of September 30, 2013 and $32,920 as of December 31, 2012)	32,825			32,669
Held to maturity (fair value of $32,304 as of March 31, 2014 and $30,191 as of December 31, 2013)							33,963			32,625
Loans held for sale	206			1,195			89			357
Loans	1,076,837			1,035,284			1,072,951			1,088,412
Allowance for loan losses	(16,505		)	(15,957		)	(16,425		)	(16,179		)
Net loans	1,060,332			1,019,327			1,056,526			1,072,233
Loan pool participations, net	28,071			35,650			23,400			25,533
Premises and equipment, net	26,535			25,609			29,885			27,682
Accrued interest receivable	10,554			10,292			9,289			10,409
Intangible assets, net	8,971			9,469			8,669			8,806
Bank-owned life insurance	29,367			28,676			29,827			29,598
Other real estate owned	1,917			3,278			1,996			1,770
Assets held for sale	—			764
Deferred income taxes	7,217			776			4,165			8,194
Other assets	16,316			20,382			15,930			14,560
Total assets	$	1,738,525		$	1,792,819		$	1,745,913		$	1,755,218
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest-bearing demand	$	201,886		$	190,491		$	206,037		$	222,359
Interest-bearing checking	576,318			582,283			620,027			592,673
Savings	94,043			91,603			101,816			94,559
Certificates of deposit under $100,000	270,275			312,489			243,727			256,283
Certificates of deposit $100,000 and over	179,129			222,867			204,069			209,068
Total deposits	1,321,651			1,399,733			1,375,676			1,374,942
Federal funds purchased	8,395			—			—			5,482
Securities sold under agreements to repurchase	58,663			68,823			52,293			61,183
Federal Home Loan Bank borrowings	145,187			120,120			108,900			106,900
Deferred compensation liability	3,492			3,555			3,447			3,469
Long-term debt	15,464			15,464			15,464			15,464
Accrued interest payable	1,267			1,475			700			765
Other liabilities	8,872			9,717			6,290			8,997
Total liabilities	1,562,991			1,618,887			1,562,770			1,577,202
Shareholders' equity:
Preferred stock, no par value; authorized 500,000 shares; no shares issued and outstanding at September 30, 2013 and December 31, 2012	$	—		$	—
Common stock, $1.00 par value; authorized 15,000,000 shares at September 30, 2013 and December 31, 2012; issued 8,690,398 shares at September 30, 2013 and December 31, 2012; outstanding 8,470,058 shares at September 30, 2013 and 8,480,488 shares at December 31, 2012	8,690			8,690
Preferred stock, no par value; authorized 500,000 shares; no shares issued and outstanding at March 31, 2014 and December 31, 2013							$	—		$	—
Common stock, $1.00 par value; authorized 15,000,000 shares at March 31, 2014 and December 31, 2013; issued 8,690,398 shares at March 31, 2014 and December 31, 2013; outstanding 8,471,761 shares at March 31, 2014 and 8,481,799 shares at December 31, 2013							8,690			8,690
Additional paid-in capital	80,314			80,383			80,338			80,506
Treasury stock at cost, 220,340 shares as of September 30, 2013 and 209,910 shares at December 31, 2012	(3,796		)	(3,316		)
Treasury stock at cost, 218,637 shares as of March 31, 2014 and 208,599 shares at December 31, 2013							(4,080		)	(3,702		)
Retained earnings	88,110			77,125			95,218			91,473
Accumulated other comprehensive income	2,216			11,050			2,977			1,049
Total shareholders' equity	175,534			173,932			183,143			178,016
Total liabilities and shareholders' equity	$	1,738,525		$	1,792,819		$	1,745,913		$	1,755,218

See accompanying notes to consolidated financial statements.

Table of Contents

MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS


(unaudited) (dollars in thousands, except per share amounts)	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2013			2012			2013			2012			2014		2013
Interest income:
Interest and fees on loans	$	12,215		$	12,760		$	36,606		$	38,639		$	11,940	$	12,114
Interest and discount on loan pool participations	226			886			1,916			1,741			280		1,080
Interest on bank deposits	2			7			8			29			4		5
Interest on federal funds sold	—			—			—			1
Interest on investment securities:
Taxable securities	2,395			2,654			7,571			8,224			2,316		2,630
Tax-exempt securities	1,278			1,279			3,973			3,744			1,381		1,361
Total interest income	16,116			17,586			50,074			52,378			15,921		17,190
Interest expense:
Interest on deposits:
Interest-bearing checking	544			691			1,815			2,281			545		671
Savings	34			36			105			105			36		36
Certificates of deposit under $100,000	987			1,433			3,347			4,519			697		1,239
Certificates of deposit $100,000 and over	493			715			1,695			2,242			445		633
Total interest expense on deposits	2,058			2,875			6,962			9,147			1,723		2,579
Interest on federal funds purchased	10			6			37			11			1		9
Interest on securities sold under agreements to repurchase	31			43			96			145			30		36
Interest on Federal Home Loan Bank borrowings	671			767			2,068			2,353			562		692
Interest on notes payable	7			8			22			26
Interest on other borrowings													6		8
Interest on long-term debt	74			168			224			503			72		75
Total interest expense	2,851			3,867			9,409			12,185			2,394		3,399
Net interest income	13,265			13,719			40,665			40,193			13,527		13,791
Provision for loan losses	250			575			1,050			1,729			450		200
Net interest income after provision for loan losses	13,015			13,144			39,615			38,464			13,077		13,591
Noninterest income:
Trust, investment, and insurance fees	1,297			1,294			4,069			3,767			1,518		1,349
Service charges and fees on deposit accounts	786			846			2,236			2,424			628		707
Mortgage origination and loan servicing fees	1,083			919			2,844			2,514			437		1,044
Other service charges, commissions and fees	406			303			1,574			1,636			619		572
Bank-owned life insurance income	230			225			691			676			229		231
Impairment losses on investment securities	—			(337		)	—			(337		)
Gain on sale or call of available for sale securities (Includes $84 reclassified from accumulated other comprehensive income for net gains on available for sale securities for the nine months ended September 30, 2013)	—			8			84			741
Gain on sale or call of available for sale securities (Includes $783 and $80 reclassified from accumulated other comprehensive income for net gains on available for sale securities for the three months ended March 31, 2014 and 2013, respectively)													783		80
Gain (loss) on sale of premises and equipment	(2		)	—			(4		)	4,205			3		(2		)
Total noninterest income	3,800			3,258			11,494			15,626			4,217		3,981
Noninterest expense:
Salaries and employee benefits	6,099			6,207			18,565			24,167			6,134		6,293
Net occupancy and equipment expense	1,580			1,537			4,806			4,741			1,605		1,688
Professional fees	615			612			2,016			2,137			575		683
Data processing expense	364			443			1,092			1,258			424		391
FDIC insurance expense	255			326			845			929			243		294
Amortization of intangible assets	166			195			498			584			137		166
Other operating expense	1,204			1,393			4,040			4,280			1,274		1,479
Total noninterest expense	10,283			10,713			31,862			38,096			10,392		10,994
Income before income tax expense	6,532			5,689			19,247			15,994			6,902		6,578
Income tax expense (Includes $32 income tax expense reclassified from accumulated other comprehensive income for the nine months ended September 30, 2013)	1,668			1,451			5,062			3,812
Income tax expense (Includes $305 and $31 income tax expense reclassified from accumulated other comprehensive income for the three months ended March 31, 2014 and 2013, respectively)													1,929		1,788
Net income	$	4,864		$	4,238		$	14,185		$	12,182		$	4,973	$	4,790
Share and Per share information:
Share and per share information:
Ending number of shares outstanding	8,470,058			8,487,518			8,470,058			8,487,518			8,471,761		8,498,484
Average number of shares outstanding	8,468,755			8,483,918			8,478,928			8,484,404			8,475,593		8,493,376
Diluted average number of shares	8,517,645			8,534,908			8,524,451			8,526,161			8,507,973		8,536,495
Earnings per common share - basic	$	0.57		$	0.50		$	1.67		$	1.44		$	0.59	$	0.56
Earnings per common share - diluted	0.57			0.50			1.66			1.43			0.58		0.56
Dividends paid per common share	0.13			0.10			0.38			0.27			0.145		0.125

See accompanying notes to consolidated financial statements.

Table of Contents

MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


(unaudited) (dollars in thousands)	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2013			2012			2013			2012			2014			2013
Net income	$	4,864		$	4,238		$	14,185		$	12,182		$	4,973		$	4,790

Other comprehensive income (loss), available for sale securities:
Unrealized holding gains (losses) arising during period	(1,045		)	1,790			(14,013		)	4,205			3,888			(1,410		)
Reclassification adjustment for gains included in net income	—			(8		)	(84		)	(741		)	(783		)	(80		)
Income tax (expense) benefit	387			(665		)	5,263			(1,295		)	(1,177		)	559
Other comprehensive income (loss) on available for sale securities	(658		)	1,117			(8,834		)	2,169			1,928			(931		)

Other comprehensive income, pension plan:
Reclassification of pension plan expense due to plan settlement	—			—			—			5,968
Income tax benefit	—			—			—			(2,226		)
Defined benefit pension plans	—			—			—			3,742
Other comprehensive income (loss), net of tax	(658		)	1,117			(8,834		)	5,911			1,928			(931		)
Comprehensive income	$	4,206		$	5,355		$	5,351		$	18,093		$	6,901		$	3,859

See accompanying notes to consolidated financial statements.

Table of Contents

MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(unaudited)
(dollars 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, 2011    $ —
   $ 8,690
   $ 80,333
$ (2,312 ) $ 63,646
$ 6,137
$ 156,494
Net income    —
   —

—

—

12,182

—

12,182
Dividends paid on common stock ($0.265 per share)    —
—
—
—
(2,250 ) —

(2,250 )
Stock options exercised (38,204 shares) —
—
(21 ) 442
—
—
421
Release/lapse of restriction on RSUs (15,810 shares)    —
—
(201 ) 213
—
—

12
Repurchase of common stock (86,083 shares) —
—
—
(1,445 ) —
—
(1,445 )
Stock compensation    —
—
199
—
—
—

199
Other comprehensive income, net of tax —
—
—
—
—
5,911
5,911
Balance at September 30, 2012    $ —
$ 8,690
$ 80,310
$ (3,102 ) $ 73,578
$ 12,048
$ 171,524
Balance at December 31, 2012    $ —
   $ 8,690
   $ 80,383
$ (3,316 ) $ 77,125
$ 11,050
$ 173,932
Net income    —
   —
   —
—
14,185
—
14,185
Dividends paid on common stock ($0.375 per share)    —
   —
   —
—
(3,200 ) —
(3,200 )
Stock options exercised (30,678 shares)    —
   —
   (76 ) 202
—
—
126
Release/lapse of restriction on RSUs (19,585 shares)    —
   —
   (267 ) 285
—
—
18
Repurchase of common stock (40,713 shares) —
—
—
(967 ) —
—
(967 )
Stock compensation    —
   —
   274
—
—
—
274
Other comprehensive loss, net of tax —
—
—
—
—
(8,834 ) (8,834 )
Balance at September 30, 2013    $ —
   $ 8,690
   $ 80,314
$ (3,796 ) $ 88,110
$ 2,216
$ 175,534



(unaudited) (dollars 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, 2012	$	—	$	8,690	$	80,383		$	(3,316	)	$	77,125		$	11,050		$	173,932
Net income	—		—		—			—			4,790			—			4,790
Dividends paid on common stock ($0.125 per share)	—		—		—			—			(1,063		)	—			(1,063		)
Stock options exercised (1,875 shares)	—		—		1			30			—			—			31
Release/lapse of restriction on RSUs (17,295 shares)	—		—		(211		)	247			—			—			36
Stock compensation	—		—		70			—			—			—			70
Other comprehensive loss, net of tax	—		—		—			—			—			(931		)	(931		)
Balance at March 31, 2013	$	—	$	8,690	$	80,243		$	(3,039	)	$	80,852		$	10,119		$	176,865
Balance at December 31, 2013	$	—	$	8,690	$	80,506		$	(3,702	)	$	91,473		$	1,049		$	178,016
Net income	—		—		—			—			4,973			—			4,973
Dividends paid on common stock ($0.145 per share)	—		—		—			—			(1,228		)	—			(1,228		)
Stock options exercised (2,310 shares)	—		—		(1		)	42			—			—			41
Release/lapse of restriction on RSUs (19,111 shares)	—		—		(276		)	296			—			—			20
Repurchase of common stock (29,466 shares)	—		—		—			(716		)	—			—			(716		)
Stock compensation	—		—		109			—			—			—			109
Other comprehensive income, net of tax	—		—		—			—			—			1,928			1,928
Balance at March 31, 2014	$	—	$	8,690	$	80,338		$	(4,080	)	$	95,218		$	2,977		$	183,143

See accompanying notes to consolidated financial statements.

Table of Contents

MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS


(unaudited) (dollars in thousands)	Nine Months Ended September 30,						Three Months Ended March 31,
	2013			2012			2014			2013
Cash flows from operating activities:
Net income	$	14,185		$	12,182		$	4,973		$	4,790
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	1,050			1,729			450			200
Depreciation, amortization and accretion	3,976			4,047			1,149			1,366
(Gain) loss on sale of premises and equipment	4			(4,205		)	(3		)	2
Deferred income taxes	(1,178		)	503			2,852			48
Stock-based compensation	274			199			109			70
Net gain on sale or call of available for sale securities	(84		)	(741		)	(783		)	(80		)
Net (gain) loss on sale of other real estate owned	169			(95		)
Net gain on sale of other real estate owned							(5		)	(45		)
Net gain on sale of loans held for sale	(1,123		)	(1,466		)	(76		)	(545		)
Writedown of other real estate owned	33			326			—			33
Other-than-temporary impairment of investment securities	—			337
Origination of loans held for sale	(73,405		)	(112,979		)	(4,184		)	(26,892		)
Proceeds from sales of loans held for sale	75,517			114,744			4,528			27,760
Recognition of previously deferred expense related to pension plan settlement	—			3,002
Pension plan contribution	—			(3,031		)
Increase in accrued interest receivable	(262		)	(770		)
Decrease in accrued interest receivable							1,120			849
Increase in cash surrender value of bank-owned life insurance	(691		)	(677		)	(229		)	(231		)
(Increase) decrease in other assets	4,066			(260		)
Increase in other assets							(1,370		)	(1,397		)
Decrease in deferred compensation liability	(63		)	(68		)	(22		)	(22		)
Decrease in accrued interest payable, accounts payable, accrued expenses, and other liabilities	(1,053		)	(263		)	(2,772		)	(3,047		)
Net cash provided by operating activities	21,415			12,514			5,737			2,859
Cash flows from investing activities:
Proceeds from sales of available for sale securities	12,205			16,232			3,250			1,080
Proceeds from maturities and calls of available for sale securities	83,241			97,424			13,368			19,265
Purchases of available for sale securities	(43,637		)	(87,255		)	(11,529		)	(37,236		)
Proceeds from maturities and calls of held to maturity securities	1,029			556			228			126
Purchase of held to maturity securities	(1,185		)	(24,429		)	(1,564		)	—
Increase in loans	(42,228		)	(28,258		)
Decrease (increase) in loans							15,029			(6,460		)
Decrease in loan pool participations, net	7,579			12,150			2,133			3,271
Purchases of premises and equipment	(2,785		)	(2,777		)	(2,775		)	(436		)
Proceeds from sale of other real estate owned	1,332			2,274			7			329
Proceeds from sale of premises and equipment	15			5,220			3			4
Proceeds from sale of assets held for sale	764			—
Net cash provided by (used in) investing activities	16,330			(8,863		)	18,150			(20,057		)
Cash flows from financing activities:
Net increase (decrease) in deposits	(78,082		)	22,001			734			(26,088		)
Increase (decrease) in federal funds purchased	8,395			(8,920		)	(5,482		)	1,569
Increase (decrease) in securities sold under agreements to repurchase	(10,160		)	14,153
Decrease in securities sold under agreements to repurchase							(8,890		)	(14,546		)
Proceeds from Federal Home Loan Bank borrowings	151,000			20,000			12,000			40,000
Repayment of Federal Home Loan Bank borrowings	(126,000		)	(30,000		)	(10,000		)	(8,000		)
Stock options exercised	144			433			61			67
Dividends paid	(3,200		)	(2,250		)	(1,228		)	(1,063		)
Repurchase of common stock	(967		)	(1,445		)	(716		)	—
Net cash (used in) provided by financing activities	(58,870		)	13,972
Net (decrease) increase in cash and cash equivalents	(21,125		)	17,623
Net cash (used in) financing activities							(13,521		)	(8,061		)
Net increase (decrease) in cash and cash equivalents							10,366			(25,259		)
Cash and cash equivalents at beginning of period	47,191			32,623			24,890			47,191
Cash and cash equivalents at end of period	$	26,066		$	50,246		$	35,256		$	21,932
Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	9,617		$	12,071		$	2,459		$	3,382
Cash paid during the period for income taxes	$	6,070		$	4,455		$	150		$	1,800
Supplemental schedule of non-cash investing activities:
Transfer of loans to other real estate owned	$	173		$	1,589		$	228		$	64
Transfer of property to assets held for sale	$	—		$	764

See accompanying notes to consolidated financial statements.

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MidWestOne Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

1.Principles of Consolidation and Presentation

MidWestOne Financial Group, Inc. (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 MidWestOne Bank, 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., Oskaloosa, 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.

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all the information and notes necessary for complete financial statements in conformity with U.S. generally accepted accounting principles. The information in this Quarterly Report on Form 10-Q is written with the presumption that the users of the interim financial statements have read or have access to the most recent Annual Report on Form 10-K of the Company, which contains the latest audited financial statements and notes thereto, together with Management's Discussion and Analysis of Financial Condition and Results of Operations as of December 31, ~~2012~~2013 and for the year then ended. 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, 2013~~March 31, 2014, and the results of operations and cash flows for the three ~~and nine~~ months ended ~~September 30, 2013~~March 31, 2014 and ~~2012~~2013. All significant intercompany accounts and transactions have been eliminated in consolidation.

The preparation of financial statements in conformity with U.S. ~~generally accepted accounting principles~~ Generally Accepted Accounting Principles ("GAAP")requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. These estimates are based on information available to management at the time the estimates are made. Actual results could differ from those estimates. The results for the three ~~and nine~~ months ended ~~September 30, 2013~~March 31, 2014 may not be indicative of results for the year ending December 31, ~~2013~~2014, or for any other period.

During the quarter ended June 30, 2013, the Company identified an immaterial error in its accounting for other-than-temporary impairment on its portfolio of collateralized debt obligations. This error related to the identification of credit-related impairments subsequent to the Company's adoption of Financial Accounting Standards Board (FASB) Staff Position (FSP) No. FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” as of April 1, 2009.

As a result, the Company has adjusted prior period amounts for the immaterial error. Specifically, on the Company's consolidated statement of shareholders' equity the balance of retained earnings was reduced by ~~$2,653,000, from~~ ~~$66,299,000~~ to ~~$63,646,000, and accumulated other comprehensive income was increased by~~ ~~$2,653,000, from~~ ~~$3,484,000~~ to ~~$6,137,000~~, as of December 31, 2011, to reflect the effect of the error in the years ended December 31, 2009, 2010, and 2011. On the Company's consolidated balance sheets, retained earnings and accumulated other comprehensive income as of December 31, 2012, were decreased and increased, respectively, by ~~$2,870,000. Of the adjustment amounts as of December 31, 2011 and 2012,~~ ~~$2,322,000~~ relates to the after-tax effect of credit impairments that should have been recognized in the Company's consolidated statements of operations for the year ended December 31, 2009. Downward adjustments of ~~$212,000~~ ~~to the Company's net income in the consolidated statements of operations for the three- and nine-month periods ended September 30, 2012 were necessary as a result of this correction.~~

The correction will also result in the following adjustments to historical amounts which will be part of comparative amounts in future filings: (i) on the Company's consolidated statement of shareholders' equity, the balance of retained earnings will be reduced by ~~$2,647,000, from~~ ~~$55,619,000~~ to ~~$52,972,000, and accumulated other comprehensive income will be increased by~~ ~~$2,647,000, from~~ ~~$(1,826,000)~~ to ~~$821,000~~, as of December 31, 2010, to reflect the effect of the error in the years ended December 31, 2009 and 2010; (ii) on the Company's consolidated statements of operations, net income for the year ended December 31, 2011 will be reduced ~~$6,000, from~~ ~~$13,317,000~~ to ~~$13,311,000~~, with no change in the reported basic or diluted earnings per share for such time period; (iii) on the Company's consolidated statements of operations, net income for the year ended December 31, 2012 will be reduced ~~$217,000, from~~ ~~$16,751,000~~ to

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~~$16,534,000, with basic earnings per share decreasing from~~ ~~$1.97~~ to ~~$1.95~~ ~~and diluted earnings per share decreasing from~~ ~~$1.96~~ to ~~$1.94~~ during such period; (iv) corresponding adjustments to the Company's comprehensive income will be made for the years ended December 31, 2012 and 2011; and (v) amounts in relevant footnotes for all periods to be presented will be corrected for the effects of this immaterial error.

All significant accounting policies followed in the preparation of the quarterly financial statements are disclosed in the ~~December 31, 2012~~Annual Report on Form ~~10-K.~~10-K for the year ended December 31, 2013. 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.

2.Shareholders' Equity

Preferred Stock: The number of authorized shares of preferred stock for the Company is 500,000. As of ~~September 30, 2013~~March 31, 2014, none were issued or outstanding.

Common Stock: As of ~~September 30, 2013~~March 31, 2014, the number of authorized shares of common stock for the Company was 15,000,000.

~~On October 18, 2011, our Board of Directors amended the Company's existing~~ ~~$1.0 million~~ ~~share repurchase program, originally authorized on July 26, 2011, by increasing the remaining amount of authorized repurchases to~~ ~~$5.0 million, and extending the expiration of the program to December 31, 2012.~~

On January 15, 2013, the Company's board of directors announced the renewal of the Company's share repurchase program, extending the expiration of the program to December 31, 2014 and increasing the remaining amount of authorized repurchases under the program to $5.0 million from the approximately $2.4 million of authorized repurchases that had previously remained. Pursuant to the program, the Company may continue to repurchase shares from time to time in the open market, and the method, timing and amounts of repurchase will be solely in the discretion of the Company's management. The repurchase program does not require the Company to acquire a specific number of shares. Therefore, the amount of shares repurchased pursuant to the program will depend on several factors, including market conditions, capital and liquidity requirements, and alternative uses for cash available. As of ~~September 30, 2013~~March 31, 2014 the remaining amount available for share repurchases under the program was $~~4.0~~3.3 million.

3.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. Diluted earnings per share~~per-share amounts are computed by dividing net income (the numerator) by the ~~weighted average~~weighted-average number of common shares outstanding ~~and~~(the denominator). Diluted per share amounts assume issuance of all ~~dilutive potential shares outstanding during~~common stock issuable

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upon conversion or exercise of other securities, unless the ~~period.~~effect is to reduce the loss or increase the income per common share from continuing operations.

The following table presents the computation of earnings per common share for the respective periods:

Three Months Ended September 30, Nine Months Ended September 30,
(dollars in thousands, except per share amounts) 2013 2012 2013 2012
Basic earnings per common share computation
Numerator:
Net income $ 4,864
$ 4,238
$ 14,185
$ 12,182

Denominator:
Weighted average shares outstanding 8,468,755
8,483,918
8,478,928
8,484,404
Basic earnings per common share $ 0.57
$ 0.50
$ 1.67
$ 1.44

Diluted earnings per common share computation
Numerator:
Net income $ 4,864
$ 4,238
$ 14,185
$ 12,182

Denominator:
Weighted average shares outstanding, included all dilutive potential shares 8,517,645
8,534,908
8,524,451
8,526,161
Diluted earnings per common share $ 0.57
$ 0.50
$ 1.66
$ 1.43



	Three Months Ended March 31,
(dollars in thousands, except per share amounts)	2014		2013
Basic earnings per common share computation
Numerator:
Net income	$	4,973	$	4,790

Denominator:
Weighted average shares outstanding	8,475,593		8,493,376
Basic earnings per common share	$	0.59	$	0.56

Diluted earnings per common share computation
Numerator:
Net income	$	4,973	$	4,790

Denominator:
Weighted average shares outstanding, included all dilutive potential shares	8,507,973		8,536,495
Diluted earnings per common share	$	0.58	$	0.56

4.Investment Securities

The amortized cost and fair value of investment securities available for sale, with gross unrealized gains and losses, are as follows:



	As of March 31, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
(in thousands)
U.S. Government agencies and corporations	$	49,782	$	461	$	747	$	49,496
State and political subdivisions	205,439		6,480		1,485		210,434
Mortgage-backed securities	35,111		1,669		—		36,780
Collateralized mortgage obligations	164,597		936		3,018		162,515
Corporate debt securities	34,549		259		191		34,617
Total debt securities	489,478		9,805		5,441		493,842
Other equity securities	2,666		458		48		3,076
Total	$	492,144	$	10,263	$	5,489	$	496,918



	As of December 31, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
(in thousands)
U.S. Government agencies and corporations	$	45,279	$	527	$	867	$	44,939
State and political subdivisions	207,734		5,625		2,563		210,796
Mortgage-backed securities	37,593		1,692		—		39,285
Collateralized mortgage obligations	171,714		1,003		3,494		169,223
Collateralized debt obligations	2,111		190		984		1,317
Corporate debt securities	29,802		284		142		29,944
Total debt securities	494,233		9,321		8,050		495,504
Other equity securities	2,659		453		55		3,057
Total	$	496,892	$	9,774	$	8,105	$	498,561

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4.~~Investment Securities~~

~~A summary of investment securities available for sale is as follows:~~

As of September 30, 2013

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair Value
(in thousands)
U.S. Government agencies and corporations $ 51,202
   $ 587
   $ 778
$ 51,011
State and political subdivisions 200,133
   6,143
   2,486
203,790
Mortgage-backed securities and collateralized mortgage obligations 203,679
   3,247
   2,384
204,542
Corporate debt securities 28,925
   276
   1,291
27,910
Total debt securities 483,939
   10,253
   6,939
487,253
Other equity securities 2,652
   282
   39
2,895
Total $ 486,591
   $ 10,535
   $ 6,978
$ 490,148

As of December 31, 2012

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair Value
(in thousands)
U.S. Government agencies and corporations $ 68,707
   $ 1,132
   $ 56
$ 69,783
State and political subdivisions 206,392
   11,752
   125
218,019
Mortgage-backed securities and collateralized mortgage obligations 236,713
   6,433
   28
243,118
Corporate debt securities 26,438
   360
   1,858
24,940
Total debt securities 538,250
   19,677
   2,067
555,860
Other equity securities 1,637
   109
   65
1,681
Total $ 539,887
   $ 19,786
   $ 2,132
$ 557,541

~~A summary~~The amortized cost and fair value of investment securities held to maturity, iswith gross unrealized gains and losses, are as follows:

As of September 30, 2013

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair Value
(in thousands)
State and political subdivisions $ 19,894
   $ —
   $ 1,278
   $ 18,616
Mortgage-backed securities 9,670
   3
   752
   8,921
Corporate debt securities 3,261
   —
   55
   3,206
Total $ 32,825
   $ 3
   $ 2,085
   $ 30,743



	As of March 31, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
(in thousands)
State and political subdivisions	$	21,441	$	1	$	869	$	20,573
Mortgage-backed securities	27		4		—		31
Collateralized mortgage obligations	9,232		—		533		8,699
Corporate debt securities	3,263		—		262		3,001
Total	$	33,963	$	5	$	1,664	$	32,304

As of December 31, 2012

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair Value
(in thousands)
State and political subdivisions $ 19,278
   $ 199
   $ 57
   $ 19,420
Mortgage-backed securities 10,133
   121
   —
   10,254
Corporate debt securities 3,258
   —
   12
   3,246
Total $ 32,669
   $ 320
   $ 69
   $ 32,920



	As of December 31, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
(in thousands)
State and political subdivisions	$	19,888	$	—	$	1,326	$	18,562
Mortgage-backed securities	28		3		—		31
Collateralized mortgage obligations	9,447		—		834		8,613
Corporate debt securities	3,262		—		277		2,985
Total	$	32,625	$	3	$	2,437	$	30,191

The summary of investment securities shows that some of the securities in the available for sale and held to maturity investment portfolios had unrealized losses, or were temporarily impaired, as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013. This temporary impairment represents the estimated amount of loss that would be realized if the securities were sold on the valuation date.

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The following presents information pertaining to securities with gross unrealized losses as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, aggregated by investment category and length of time that individual securities have been in a continuous loss position:

   As of September 30, 2013

Number
of
Securities
   Less than 12 Months    12 Months or More    Total
Available for Sale
Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses
(in thousands, except number of securities)
U.S. Government agencies and corporations 3
   $ 22,083
   $ 778
   $ —
   $ —
   $ 22,083
   $ 778
State and political subdivisions 134
   43,345
   2,486
   —
   —
   43,345
   2,486
Mortgage-backed securities and collateralized mortgage obligations 14
   95,204
   2,384
   —
   —
   95,204
   2,384
Corporate debt securities 8
   14,266
   180
   1,260
   1,111
   15,526
   1,291
Other equity securities 1
   960
   39
   —
   —
   960
   39
Total 160
   $ 175,858
   $ 5,867
   $ 1,260
   $ 1,111
   $ 177,118
   $ 6,978



		As of March 31, 2014
	Number of Securities	Less than 12 Months				12 Months or More				Total
Available for Sale	Number of Securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
(in thousands, except number of securities)
U.S. Government agencies and corporations	4	$	26,962	$	747	$	—	$	—	$	26,962	$	747
State and political subdivisions	118	34,552		1,078		4,902		407		39,454		1,485
Collateralized mortgage obligations	18	90,698		1,851		21,285		1,167		111,983		3,018
Corporate debt securities	5	13,420		90		3,720		101		17,140		191
Other equity securities	1	952		48		—		—		952		48
Total	146	$	166,584	$	3,814	$	29,907	$	1,675	$	196,491	$	5,489

   As of December 31, 2012

Number
of
Securities
   Less than 12 Months    12 Months or More    Total

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses
(in thousands, except number of securities)
U.S. Government agencies and corporations 2
   $ 15,359
   $ 56
   $ —
   $ —
   $ 15,359
   $ 56
State and political subdivisions 27
   7,221
   125
   —
   —
   7,221
   125
Mortgage-backed securities and collateralized mortgage obligations 2
   10,919
   28
   —
   —
   10,919
   28
Corporate debt securities 9
   14,672
   242
   755
   1,616
   15,427
   1,858
Other equity securities 1
   754
   65
   —
   —
   754
   65
Total 41
   $ 48,925
   $ 516
   $ 755
   $ 1,616
   $ 49,680
   $ 2,132



		As of December 31, 2013
	Number of Securities	Less than 12 Months				12 Months or More				Total
	Number of Securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
(in thousands, except number of securities)
U.S. Government agencies and corporations	3	$	21,977	$	867	$	—	$	—	$	21,977	$	867
State and political subdivisions	171	54,153		2,331		1,799		232		55,952		2,563
Collateralized mortgage obligations	18	110,142		3,164		5,047		330		115,189		3,494
Collateralized debt obligations	3	—		—		934		984		934		984
Corporate debt securities	3	7,430		93		1,561		49		8,991		142
Other equity securities	1	945		55		—		—		945		55
Total	199	$	194,647	$	6,510	$	9,341	$	1,595	$	203,988	$	8,105

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		As of March 31, 2014
	Number of Securities	Less than 12 Months				12 Months or More				Total
Held to Maturity	Number of Securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
(in thousands, except number of securities)
State and political subdivisions	31	$	18,070	$	769	$	1,772	$	100	$	19,842	$	869
Collateralized mortgage obligations	1	8,699		533		—		—		8,699		533
Corporate debt securities	2	3,001		262		��		—		3,001		262
Total	34	$	29,770	$	1,564	$	1,772	$	100	$	31,542	$	1,664

   As of September 30, 2013

Number
of
Securities
   Less than 12 Months    12 Months or More    Total
Held to Maturity
Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses
(in thousands, except number of securities)
State and political subdivisions 30
   $ 18,616
   $ 1,278
   $ —
   $ —
   $ 18,616
   $ 1,278
Mortgage-backed securities and collateralized mortgage obligations 1
   8,883
   752
   —
   —
   8,883
   752
Corporate debt securities 1
   2,329
   55
   —
   —
   2,329
   55
Total 32
   $ 29,828
   $ 2,085
   $ —
   $ —
   $ 29,828
   $ 2,085

   As of December 31, 2012

Number
of
Securities
   Less than 12 Months    12 Months or More    Total

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses
(in thousands, except number of securities)
State and political subdivisions 11
$ 3,672
$ 57
$ —
$ —
   $ 3,672
   $ 57
Corporate debt securities 1
2,371
12
—
—
   2,371
   12
Total 12
   $ 6,043
   $ 69
   $ —
   $ —
   $ 6,043
   $ 69



		As of December 31, 2013
	Number of Securities	Less than 12 Months				12 Months or More				Total
	Number of Securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
(in thousands, except number of securities)
State and political subdivisions	30	$	17,420	$	1,195	$	1,142	$	131	$	18,562	$	1,326
Collateralized mortgage obligations	1	8,613		834		—		—		8,613		834
Corporate debt securities	2	2,984		277		—		—		2,984		277
Total	33	$	29,017	$	2,306	$	1,142	$	131	$	30,159	$	2,437

The Company's assessment of 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 creditworthiness of the issuer, the type of underlying assets and the current and anticipated market conditions.

At ~~September 30, 2013, approximately~~ ~~60%~~ of the municipal bonds held by the Company were Iowa based. The Company does not intend to sell these municipal obligations, and it is not more likely than not that the Company will be required to sell them before the recovery of its cost. Due to the issuers' continued satisfaction of their obligations under the securities

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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, 2013~~March 31, 2014 and December 31, ~~2012~~.

At ~~September 30,~~ 2013 ~~and~~ ~~December 31, 2012~~, the Company's mortgage-backed securities portfolio consisted of securities predominantly backed by one- to four- family mortgage loans and underwritten to the standards of and guaranteed by the following government-sponsored agencies: FHLMC, FNMA and GNMA. 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.

At ~~September 30,~~March 31, 2014, approximately 62% of the municipal bonds held by the Company were Iowa based. The Company does not intend to sell these municipal obligations, and it is not more likely than not that the Company will be required to sell them before 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 March 31, 2014 and December 31, 2013.

At December 31, 2013, the Company owned ~~six~~five collateralized debt obligations backed by pools of trust preferred securities with an original cost basis of $~~9.8~~8.8 million. The ~~book value~~amortized cost of these securities as of ~~September 30,~~December 31, 2013 totaled $~~2.4~~2.1 million, after OTTI charges ~~have~~had been recognized. ~~All of~~During 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 betweenquarter ended March 2006 and December 2007. However, as the banking climate eroded during 2008, the securities experienced cash flow problems. Due to continued market deterioration in these securities, additional pre-tax charges to earnings were recorded from 2009 to 2012. The market for these securities is considered to be inactive according to the guidance issued in ASC Topic 820, “Fair Value Measurements and Disclosures.” The Company uses a discounted cash flow model to determine the estimated fair value of its pooled trust preferred collateralized debt obligations and to assess OTTI. The discounted cash flow analysis was performed in accordance with 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 Company also reviewed a stress test of these securities to determine the additional deferrals or defaults in the collateral pool in excess of what31, 2014, the Company ~~believes is probable, before the payments on the individual~~sold these investment securities ~~are negatively impacted.~~at a net gain of $0.8 million.

As of ~~September 30, 2013~~March 31, 2014, the Company also owned $~~1.9~~2.1 million of equity securities in banks and financial service-related companies, and $1.0 million of mutual funds invested in debt securities and other debt instruments that will cause units of the fund to be deemed to be qualified under the Community Reinvestment ~~Act (the "CRA").~~Act. Equity securities are considered to have OTTI whenever they have been in a loss position, compared to current book value, for twelve consecutive months, and the Company does not expect them to recover to their original cost basis. For the ~~first nine~~three months ofended ~~2013~~March 31, 2014 and the full year of ~~2012~~2013, no impairment charges were recorded, as the affected equity securities were not deemed impaired due to stabilized market prices in relation to the Company's original purchase price.

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

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2013 2012 2013 2012
(in thousands)
Beginning balance $ 7,379
$ 7,034
$ 7,379
$ 7,034
Additional credit losses:
Securities with no previous other than temporary impairment —
—
—
—
Securities with previous other than temporary impairments —
337
—
337
Ending balance $ 7,379

$ 7,371
$ 7,379
$ 7,371



	For the Three Months Ended March 31,
	2014			2013
(in thousands)
Beginning balance	$	6,639		$	7,379
Reductions to credit losses:
Securities with other than temporary impairment, due to sale	(6,639		)	—
Ending balance	$	—		$	7,379

It is reasonably possible that the fair values of the Company's investment securities could decline in the future if the overall economy or the financial condition of the issuers deteriorate or the liquidity of certain securities remains depressed. As a result, there is a risk that ~~OTTIs~~additional OTTI may ~~occur~~be recognized in the future and any such amounts could be material to the Company's consolidated statements of operations.

~~Table of Contents~~

~~A summary of the~~The contractual maturity distribution of investment debt ~~investment~~ securities at ~~September 30, 2013~~March 31, 2014, is summarized as follows:

Available For Sale    Held to Maturity

Amortized
Cost
   Fair Value
Amortized
Cost
   Fair Value
(in thousands)
Due in one year or less $ 15,706
   $ 15,910
   $ 185
   $ 184
Due after one year through five years 105,380
   108,449
   2,574
   2,517
Due after five years through ten years 104,048
   105,438
   7,587
   7,370
Due after ten years 55,126
   52,914
   12,809
   11,751
Mortgage-backed securities and collateralized mortgage obligations 203,679
   204,542
   9,670
   8,921
Total $ 483,939
   $ 487,253
   $ 32,825
   $ 30,743



	Available For Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
(in thousands)
Due in one year or less	$	25,143	$	25,414	$	185	$	185
Due after one year through five years	103,167		105,580		2,574		2,539
Due after five years through ten years	107,538		109,924		8,548		8,365
Due after ten years	53,922		53,629		13,397		12,485
Debt securities without a single maturity date	199,708		199,295		9,259		8,730
Total	$	489,478	$	493,842	$	33,963	$	32,304

Mortgage-backed securities and collateralized mortgage obligations are collateralized by mortgage loans guaranteed by U.S. government agencies. Experience has indicated that principal payments will be collected sooner than scheduled because of prepayments. Therefore, these securities are not scheduled in the maturity categories indicated above. Equity securities available for sale with an amortized cost of $2.7 million and a fair value of $~~2.9~~3.1 million are also excluded from this table.

Other investment securities include investments in Federal Home Loan Bank (“FHLB”) stock. The carrying value of the FHLB stock at both ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013 was $~~10.8~~9.2 million ~~and~~ ~~$11.1 million~~, ~~respectively,~~ which is included in the Other Assets line of the consolidated balance sheets. This security is not readily marketable and ownership of FHLB stock is a requirement for membership in the ~~FHLB Des~~FHLB-Des Moines. The amount of FHLB stock the Bank is required 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 and evaluated for potential impairment each quarter. 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 on investments for the three ~~and nine~~ months ended ~~September 30, 2013~~March 31, 2014 and ~~2012~~2013 are as follows:

Three Months Ended September 30, Nine Months Ended September 30,
2013 2012 2013 2012
(in thousands)
Available for sale fixed maturity securities:
Gross realized gains $ —
$ 8
$ 144
$ 360
Gross realized losses —
—
(60 ) —
Other-than-temporary impairment —
(337 ) —
(337 )
—
(329 ) 84
23
Equity securities:
Gross realized gains —
—
—
381
Gross realized losses —
—
—
—
Other-than-temporary impairment —
—
—
—
—
—
—
381
$ —
$ (329 ) $ 84
$ 404



	Three Months Ended March 31,
	2014			2013
(in thousands)
Available for sale fixed maturity securities:
Gross realized gains	$	929		$	80
Gross realized losses	(146		)	—
Other-than-temporary impairment	—			—
	783			80
Equity securities:
Gross realized gains	—			—
Gross realized losses	—			—
Other-than-temporary impairment	—			—
	—			—
Total net realized gains and losses	$	783		$	80

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5.Loans Receivable and the Allowance for Loan Losses

The composition of allowance for loan losses, loans, and loan pool participations by portfolio segment are as follows:

Allowance for Loan Losses and Recorded Investment in Loan Receivables
As of September 30, 2013 and December 31, 2012
(in thousands) Agricultural Commercial and Industrial Commercial Real Estate Residential Real Estate Consumer Unallocated Total
September 30, 2013
Allowance for loan losses:
Individually evaluated for impairment $ 140
$ 217
$ 653
$ 214
$ 18
$ —
$ 1,242
Collectively evaluated for impairment 918
4,462
5,334
3,178
321
1,050
15,263
Total $ 1,058
$ 4,679
$ 5,987
$ 3,392
$ 339
$ 1,050
$ 16,505
Loans acquired with deteriorated credit quality (loan pool participations) $ 3
$ 66
$ 700
$ 124
$ 5
$ 1,236
$ 2,134
Loans receivable
Individually evaluated for impairment $ 3,164
$ 2,078
$ 5,008
$ 1,569
$ 72
$ —
$ 11,891
Collectively evaluated for impairment 87,858
261,206
428,628
268,355
18,899
—
1,064,946
Total $ 91,022
$ 263,284
$ 433,636
$ 269,924
$ 18,971
$ —
$ 1,076,837
Loans acquired with deteriorated credit quality (loan pool participations) $ 53
$ 1,563
$ 19,912
$ 4,013
$ 60
$ 4,604
$ 30,205



	Allowance for Loan Losses and Recorded Investment in Loan Receivables
	As of March 31, 2014 and December 31, 2013
(in thousands)	Agricultural		Commercial and Industrial		Commercial Real Estate		Residential Real Estate		Consumer		Unallocated		Total
March 31, 2014
Allowance for loan losses:
Individually evaluated for impairment	$	176	$	770	$	292	$	254	$	2	$	—	$	1,494
Collectively evaluated for impairment	858		4,634		4,198		2,735		292		2,214		14,931
Total	$	1,034	$	5,404	$	4,490	$	2,989	$	294	$	2,214	$	16,425
Loans acquired with deteriorated credit quality (loan pool participations)	$	3	$	58	$	613	$	89	$	9	$	1,362	$	2,134
Loans receivable
Individually evaluated for impairment	$	3,108	$	3,757	$	4,994	$	1,817	$	29	$	—	$	13,705
Collectively evaluated for impairment	85,046		269,504		417,753		268,312		18,631		—		1,059,246
Total	$	88,154	$	273,261	$	422,747	$	270,129	$	18,660	$	—	$	1,072,951
Loans acquired with deteriorated credit quality (loan pool participations)	$	47	$	1,200	$	16,420	$	3,669	$	14	$	4,184	$	25,534

(in thousands) Agricultural Commercial and Industrial Commercial Real Estate Residential Real Estate Consumer Unallocated Total
December 31, 2012
Allowance for loan losses:
Individually evaluated for impairment $ 159
$ 295
$ 293
$ 136
$ 6
$ —
$ 889
Collectively evaluated for impairment 867
4,304
5,474
2,871
350
1,202
15,068
Total $ 1,026
$ 4,599
$ 5,767
$ 3,007
$ 356
$ 1,202
$ 15,957
Loans acquired with deteriorated credit quality (loan pool participations) $ 4
$ 77
$ 673
$ 240
$ 15
$ 1,125
$ 2,134
Loans receivable
Individually evaluated for impairment $ 3,323
$ 1,806
$ 5,342
$ 886
$ 37
$ —
$ 11,394
Collectively evaluated for impairment 81,403
236,810
434,642
251,990
19,045
—
1,023,890
Total $ 84,726
$ 238,616
$ 439,984
$ 252,876
$ 19,082
$ —
$ 1,035,284
Loans acquired with deteriorated credit quality (loan pool participations) $ 76
$ 2,379
$ 24,346
$ 4,788
$ 67
$ 6,128
$ 37,784



(in thousands)	Agricultural		Commercial and Industrial		Commercial Real Estate		Residential Real Estate		Consumer		Unallocated		Total
December 31, 2013
Allowance for loan losses:
Individually evaluated for impairment	$	125	$	559	$	513	$	220	$	6	$	—	$	1,423
Collectively evaluated for impairment	1,233		4,421		4,781		2,965		269		1,087		14,756
Total	$	1,358	$	4,980	$	5,294	$	3,185	$	275	$	1,087	$	16,179
Loans acquired with deteriorated credit quality (loan pool participations)	$	3	$	64	$	627	$	88	$	6	$	1,346	$	2,134
Loans receivable
Individually evaluated for impairment	$	3,146	$	3,521	$	5,079	$	1,664	$	50	$	—	$	13,460
Collectively evaluated for impairment	94,021		260,130		429,345		272,462		18,994		—		1,074,952
Total	$	97,167	$	263,651	$	434,424	$	274,126	$	19,044	$	—	$	1,088,412
Loans acquired with deteriorated credit quality (loan pool participations)	$	49	$	1,302	$	18,168	$	3,823	$	18	$	4,307	$	27,667

The changes in the allowance for loan losses by portfolio segment are as follows:

Allowance for Loan Loss Activity
For the Three Months Ended September 30, 2013 and 2012
(in thousands) Agricultural Commercial and Industrial Commercial Real Estate Residential Real Estate Consumer Unallocated Total
2013
Beginning balance $ 995
$ 4,774
$ 5,664
$ 3,334
$ 279
$ 1,532
$ 16,578
Charge-offs —
(99 ) (115 ) (87 ) (47 ) —
(348 )
Recoveries —
20
—
2
3
—
25
Provision 63
(16 ) 438
143
104
(482 ) 250
Ending balance $ 1,058
$ 4,679
$ 5,987
$ 3,392
$ 339
$ 1,050
$ 16,505
2012
Beginning balance $ 954
$ 4,946
$ 4,602
$ 2,894
$ 365
$ 1,976
$ 15,737
Charge-offs —
(607 ) (23 ) (168 ) (9 ) —
(807 )
Recoveries —
310
11
—
1
—
322
Provision 59
118
1,264
154
(101 ) (919 ) 575
Ending balance $ 1,013
$ 4,767
$ 5,854
$ 2,880
$ 256
$ 1,057
$ 15,827



	Allowance for Loan Loss Activity
	For the Three Months Ended March 31, 2014 and 2013
(in thousands)	Agricultural			Commercial and Industrial			Commercial Real Estate			Residential Real Estate			Consumer			Unallocated		Total
2014
Beginning balance	$	1,358		$	4,980		$	5,294		$	3,185		$	275		$	1,087	$	16,179
Charge-offs	—			(170		)	(73		)	(62		)	(23		)	—		(328		)
Recoveries	5			113			—			3			3			—		124
Provision	(329		)	481			(731		)	(137		)	39			1,127		450
Ending balance	$	1,034		$	5,404		$	4,490		$	2,989		$	294		$	2,214	$	16,425
2013
Beginning balance	$	1,026		$	4,599		$	5,767		$	3,007		$	356		$	1,202	$	15,957
Charge-offs	(39		)	(173		)	—			(112		)	(49		)	—		(373		)
Recoveries	5			9			457			2			3			—		476
Provision	(21		)	(39		)	(330		)	187			(52		)	455		200
Ending balance	$	971		$	4,396		$	5,894		$	3,084		$	258		$	1,657	$	16,260

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Allowance for Loan Loss Activity
For the Nine Months Ended September 30, 2013 and 2012
(in thousands) Agricultural Commercial and Industrial Commercial Real Estate Residential Real Estate Consumer Unallocated Total
2013
Beginning balance $ 1,026
$ 4,599
$ 5,767
$ 3,007
$ 356
$ 1,202
$ 15,957
Charge-offs (39 ) (475 ) (203 ) (267 ) (118 ) —
(1,102 )
Recoveries 36
59
462
25
18
—
600
Provision 35
496
(39 ) 627
83
(152 ) 1,050
Ending balance $ 1,058
$ 4,679
$ 5,987
$ 3,392
$ 339
$ 1,050
$ 16,505
2012
Beginning balance $ 1,209
$ 5,380
$ 5,171
$ 3,501
$ 167
$ 248
$ 15,676
Charge-offs —
(1,891 ) (129 ) (481 ) (43 ) —
(2,544 )
Recoveries 507
407
24
12
16
—
966
Provision (703 ) 871
788
(152 ) 116
809
1,729
Ending balance $ 1,013
$ 4,767
$ 5,854
$ 2,880
$ 256
$ 1,057
$ 15,827

Loan Portfolio Segment Risk Characteristics

Agricultural - Agricultural loans, most of which are secured by crops, livestock, and machinery, are provided to finance capital improvements and farm operations as well as acquisitions of livestock and machinery. The ability of the borrower to repay may be affected by many factors outside of the borrower's control including adverse weather conditions, loss of livestock due to disease or other factors, declines in market prices for agricultural products and the impact of government regulations. The ultimate repayment of agricultural loans is dependent upon the profitable operation or management of the agricultural entity. Collateral for these loans generally includes accounts receivable, inventory, equipment and real estate. However, depending on the overall financial condition of the borrower, some loans are made on an unsecured basis. The collateral securing these loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business.

Commercial and Industrial - Commercial and industrial loans are primarily made based on the reported cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. The collateral support provided by the borrower for most of these loans and the probability of repayment are based on the liquidation of the pledged collateral and enforcement of a personal guarantee, if any exists. The primary repayment risks of commercial and industrial loans are that the cash flows of the borrower may be unpredictable, and the collateral securing these loans may fluctuate in value. The size of the loans the Company can offer to commercial customers is less than the size of the loans that competitors with larger lending limits can offer. This may limit the Company's ability to establish relationships with the ~~area's~~ largest ~~businesses.~~businesses in the areas in which the Company operates. As a result, the Company may assume greater lending risks than financial institutions that have a lesser concentration of such loans and tend to make loans to larger businesses. Collateral for these loans generally includes accounts receivable, inventory, equipment and real estate. However, depending on the overall financial condition of the borrower, some loans are made on an unsecured basis. The collateral securing these loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business. In addition, if the ~~United States~~U.S. economy does not ~~meaningfully~~continue to improve, this could harm or continue to harm the businesses of ~~our~~the Company's commercial and industrial customers and reduce the value of the collateral securing these loans.

Commercial Real Estate - The Company offers mortgage loans to commercial and agricultural customers for the acquisition of real estate used in their businesses, such as offices, warehouses and production facilities, and to real estate investors for the acquisition of apartment buildings, retail centers, office buildings and other commercial buildings. The market value of real estate securing commercial real estate loans can fluctuate significantly in a short period of time as a result of market conditions in the geographic area in which the real estate is located. Adverse developments affecting real estate values in one or more of the Company's markets could increase the credit risk associated with its loan portfolio. Additionally, real estate lending typically involves higher loan principal amounts than non-real estate loans, and the repayment of the loans generally is dependent, in large part, on sufficient income from the properties securing the loans to cover operating expenses and debt service. Economic events or governmental regulations outside of the Company's control or that of the borrower ~~or lender~~ could negatively impact the future cash flow and market values of the affected properties.

Residential Real Estate - The Company generally retains short-term residential mortgage loans that are originated for its own portfolio but sells most long-term loans to other parties while retaining servicing rights on the majority of those loans. The market value of real estate securing residential real estate loans can fluctuate as a result of market conditions in the geographic area in which the real estate is located. Adverse developments affecting real estate values in one or more of the Company's markets could increase the credit risk associated with its loan portfolio. Additionally, real estate lending typically involves higher loan principal amounts than non-real estate loans, and the repayment of the loans generally is dependent, in large

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part, on the borrower's continuing financial stability, and is therefore more likely to be affected by adverse personal circumstances.

Consumer - Consumer loans typically have shorter terms, lower balances, higher yields and higher risks of ~~default.~~default than real estate related loans. Consumer loan collections are dependent on the borrower's continuing financial stability, and are therefore more likely to be affected by adverse personal circumstances. Collateral for these loans generally includes automobiles, boats, recreational vehicles, mobile homes, and real estate. However, depending on the overall financial condition of the borrower, some loans are made on an unsecured basis. The collateral securing these loans may depreciate over time, may be difficult to recover and may fluctuate in value based on condition. In addition, a decline in the United States economy could result in reduced employment, impacting the ability of customers to repay their obligations.

Loans acquired with deteriorated credit quality (loan pool participations) - The underlying loans in the loan pool participations include both fixed-rate and variable-rate instruments. No amounts for interest due are reflected in the carrying value of the loan pool participations. Based on historical experience, the average period of collectibility for loans underlying loan pool participations, many of which have exceeded contractual maturity dates, is approximately three to

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five years. Loan pool balances are affected by the payment and refinancing activities of the borrowers resulting in pay-offs of the underlying loans and reduction in the balances. Collections from the individual borrowers are managed by the loan pool servicer and are affected by the borrower's financial ability and willingness to pay, foreclosure and legal action, collateral value, and the economy in general.

Charge-off Policy

The Company requires a loan to be charged-off as soon as it becomes apparent that some loss will be incurred, or when its collectability is sufficiently questionable that it no longer is considered a bankable asset. The primary considerations when determining if and how much of a loan should be charged-off are as follows: (1) the potential for future cash flows; (2) the value of any collateral; and (3) the strength of any co-makers or guarantors.

When it is determined that a loan requires partial or full charge-off, a request for approval of a charge-off is submitted to the Bank's President, Executive Vice President and Chief Credit Officer, and the Senior Regional Loan officer. The Bank's ~~Board~~board of ~~Directors~~directors formally approves all loan charge-offs. Once a loan is charged-off, it cannot be restructured and returned to the Bank's books.

The Allowance for Loan and Lease Losses - Bank Loans

The Company requires the maintenance of an adequate allowance for loan and lease losses (“ALLL”) in order to cover estimated probable losses without eroding the Company's capital base. Calculations are done at each quarter end, or more frequently if warranted, to analyze the collectability of loans and to ensure the adequacy of the allowance. In line with ~~FDIC~~Federal Deposit Insurance Corporation (the "FDIC") directives, the ALLL calculation does not include consideration of loans held for sale or off-balance-sheet credit exposures (such as unfunded letters of credit). Determining the appropriate level for the ALLL relies on the informed judgment of management, and as such, is subject to inaccuracy. Given the inherently imprecise nature of calculating the necessary ALLL, the Company's policy permits an "unallocated" allowance between 15% above and 5% below the “indicated reserve.” These unallocated amounts are due to those overall factors impacting the ALLL that are not captured in detailed loan category calculations.

Loans Reviewed Individually for Impairment

The Company identifies loans to be reviewed and evaluated individually for impairment based on current information and events and the probability that the borrower will be unable to repay all amounts due according to the contractual terms of the loan agreement. Specific areas of consideration include: size of credit exposure, risk rating, delinquency, nonaccrual status, and loan classification.

The level of individual impairment is measured using one of the following methods: (1) the fair value of the collateral less costs to sell; (2) the present value of expected future cash flows, discounted at the loan's effective interest rate; or (3) the loan's observable market price. Loans that are deemed fully collateralized or have been charged down to a level corresponding with any ~~three~~ of the three measurements require no assignment of reserves from the ALLL.

All loans deemed troubled debt restructure or “TDR” are considered impaired. A loan is considered a TDR when the Bank, for economic or legal reasons related to a borrower's financial difficulties, grants a concession to the borrower that the Bank would not otherwise consider. All of the following factors are potential indicators that the Bank has granted a concession (one or multiple items may be present):

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The borrower receives a reduction of the stated interest rate for the remaining original life of the debt.

The borrower receives an extension of the maturity date or dates at a stated interest rate lower that the current market interest rate for new debt with similar risk characteristics.

The borrower receives a reduction of the face amount or maturity amount of the debt as stated in the instrument or other agreement.

The borrower receives a deferral of required payments (principal and/or interest).

The borrower receives a reduction of the accrued interest.

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The following tables set forth information on the Company's TDRs⁽¹⁾ by class of financing receivable occurring during the stated periods:

Three Months Ended September 30,
2013 2012
Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment
(dollars in thousands)
Troubled Debt Restructurings:
Residential real estate:
One- to four- family first liens
Amortization or maturity date change 1 66
69
0 —
—
Total 1 $ 66
$ 69
0 $ —
$ —

Nine Months Ended September 30,
2013 2012
Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment
(dollars in thousands)
Troubled Debt Restructurings:
Commercial and industrial
Amortization or maturity date change 1 158
158
0 —
—
Commercial real estate:
Farmland
Interest rate reduction 0 —
—
2 2,475
2,475
Commercial real estate-other
Amortization or maturity date change 2 165
136
0 —
—
Residential real estate:
One- to four- family first liens
Interest rate reduction 2 164
169
0 —
—
Amortization or maturity date change 1 66
69
0 —
—
One- to four- family junior liens
Interest rate reduction 1 8
13
0 —
—
Total 7 $ 561
$ 545
2 $ 2,475
$ 2,475



	Three Months Ended March 31,
	2014					2013
	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
(dollars in thousands)
Troubled Debt Restructurings⁽¹⁾:
Commercial and industrial
Amortization or maturity date change	0	$	—	$	—	1	$	158	$	158
Commercial real estate:
Commercial real estate-other
Amortization or maturity date change	0	—		—		2	165		136
Residential real estate:
One- to four- family first liens
Interest rate reduction	0	—		—		1	109		112
One- to four- family junior liens
Interest rate reduction	0	—		—		1	8		13
Total	0	$	—	$	—	5	$	440	$	419

(1) - TDRs may include multiple concessions and the disclosure classifications are based on the primary concession provided to the borrower.

Loans by class of financing receivable modified as TDRs⁽¹⁾ within the previous 12 months and for which there was a payment default during the stated periods were:

Three Months Ended September 30, Nine Months Ended September 30,
2013 2012 2013 2012
Number of Contracts Recorded Investment Number of Contracts Recorded Investment Number of Contracts Recorded Investment Number of Contracts Recorded Investment
(dollars in thousands)
Troubled Debt Restructurings That Subsequently Defaulted:
Total 0 $ —
0 $ —
0 $ —
0 $ —



	Three Months Ended March 31,
	2014			2013
	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
(dollars in thousands)
Troubled Debt Restructurings⁽¹⁾ That Subsequently Defaulted:
Commercial and industrial
Amortization or maturity date change	0	$	—	2	$	688
Consumer
Amortization or maturity date change	0	—		1	23
Total	0	$	—	3	$	711

(1) - TDRs may include multiple concessions and the disclosure classifications are based on the primary concession provided to the borrower.

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Loans Reviewed Collectively for Impairment

All loans not evaluated individually for impairment are grouped together by type (i.e. commercial, agricultural, consumer, etc.) and further segmented within each subset by risk classification (i.e. pass, special mention, and substandard). Homogeneous loans past due 60-89 days and 90+ days, are classified special mention and substandard, respectively, for allocation purposes.

The Company's historical loss experience for each loan type is calculated using the fiscal quarter-end data for the most recent 20 quarters as a starting point for estimating losses. In addition, other prevailing qualitative or environmental factors likely to cause probable losses to vary from historical data are incorporated in the form of adjustments to increase or decrease the loss rate applied to each group. These adjustments are documented and fully explain how the current information, events, circumstances, and conditions impact the historical loss measurement assumptions.

Although not a comprehensive list, the following are considered key factors and are evaluated with each calculation of the ALLL to determine if adjustments to historical loss rates are warranted:

Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses.

Changes in international, national, regional, and local economic and business conditions and developments that

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affect the collectability of the portfolio, including the condition of various market segments.

Changes in the nature and volume of the portfolio and in the terms of loans.

Changes in the experience, ability and depth of lending management and other relevant staff.

Changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans.

Changes in the quality of our loan review system.

Changes in the value of underlying collateral for collateral-dependent loans.

The existence and effect of any concentrations of credit, and changes in the level of such concentrations.

The effect of other external factors, such as competition and legal and regulatory requirements, on the level of estimated credit losses in the Bank's existing portfolio.

The items listed above are used to determine the pass percentage for loans evaluated collectively and, as such, are applied to the loans risk rated pass. Due to the inherent risks associated with special mention risk rated loans (i.e. early stages of financial deterioration, technical exceptions, etc.), this subset is reserved at two times the pass allocation factor to reflect this increased risk exposure. In addition, non-impaired loans classified as substandard loans carry greater risk than special mention loans, and as such, this subset is reserved at six times the pass allocation. Further, non-impaired loans less than $0.2 million that are past due 60 - 89 days or 90 days and over, are respectively classified as special mention or substandard. They are given an increased loan loss allocation of 25% or 50%, respectively, above the five year historical loss rate of the specific loan type.

The Allowance for Loan and Lease Losses - Loan Pool Participations

The Company requires that the loan pool participation ALLL will be at least sufficient to cover the next quarter's estimated charge-offs as presented by the servicer. Currently, charge-offs are netted against the income the Company receives, thus the balance in the loan pool participation reserve is not affected and remains stable. In essence, a provision for loan losses is made that is equal to the quarterly charge-offs, which is deducted from income received from the loan pool participations. By maintaining a sufficient reserve to cover the next quarter's charge-offs, the Company will have sufficient reserves in place should no income be collected from the loan pool participations during the quarter. In the event the estimated charge-offs provided by the servicer are greater than the loan pool participation ALLL, an additional provision is made to cover the difference between the current ALLL and the estimated charge-offs provided by the servicer.

Loans Reviewed Individually for Impairment

The loan servicer reviews the portfolio quarterly on a loan-by-loan basis, and loans that are deemed to be impaired are charged-down to their estimated value. All loans that are to be charged-down are reserved against in the ALLL adequacy calculation. Loans that continue to have an investment basis that have been charged-down are monitored, and if additional impairment is noted, the reserve requirement is increased on the individual loan.

Loans Reviewed Collectively for Impairment

The Company utilizes the annualized average of portfolio loan (not loan ~~pool)~~pool participations) historical loss per risk category over a two-year period of time. Supporting documentation for the technique used to develop the historical loss rate for each group of loans is required to be maintained. It is management's assessment that the two-year rate is most reflective of the probable credit losses in the current loan pool portfolio.

1615

Table of Contents

The following table sets forth the composition of each class of the Company's loans by internally assigned credit quality indicators at ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013:

Pass Special Mention/ Watch Substandard Doubtful Loss Total
(in thousands)
September 30, 2013
Agricultural $ 87,008
$ 429
$ 3,585
$ —
$ —
$ 91,022
Commercial and industrial 239,934
9,578
12,461
—
—
261,973
Credit cards 1,107
54
1
—
—
1,162
Overdrafts 450
134
71
—
—
655
Commercial real estate:
Construction and development 55,137
10,507
2,195
—
—
67,839
Farmland 79,986
3,547
2,346
—
—
85,879
Multifamily 53,492
196
—
—
—
53,688
Commercial real estate-other 211,061
12,865
2,304
—
—
226,230
Total commercial real estate 399,676
27,115
6,845
—
—
433,636
Residential real estate:
One- to four- family first liens 210,589
4,564
2,161
—
—
217,314
One- to four- family junior liens 52,288
111
211
—
—
52,610
Total residential real estate 262,877
4,675
2,372
—
—
269,924
Consumer 18,308
72
85
—
—
18,465
Total $ 1,009,360
$ 42,057
$ 25,420
$ —
$ —
$ 1,076,837
Loans acquired with deteriorated credit quality (loan pool participations) $ 15,382
$ —
$ 14,819
$ —
$ 4
$ 30,205



	Pass		Special Mention/ Watch		Substandard		Doubtful		Loss		Total
(in thousands)
March 31, 2014
Agricultural	$	83,726	$	2,902	$	1,526	$	—	$	—	$	88,154
Commercial and industrial	242,676		14,841		13,907		—		—		271,424
Credit cards	1,261		5		13		—		—		1,279
Overdrafts	489		220		54		—		—		763
Commercial real estate:
Construction and development	61,580		9,851		1,313		—		—		72,744
Farmland	78,331		526		2,296		—		—		81,153
Multifamily	53,073		2,102		—		—		—		55,175
Commercial real estate-other	199,037		12,647		1,991		—		—		213,675
Total commercial real estate	392,021		25,126		5,600		—		—		422,747
Residential real estate:
One- to four- family first liens	210,663		3,951		3,007		—		—		217,621
One- to four- family junior liens	52,330		—		178		—		—		52,508
Total residential real estate	262,993		3,951		3,185		—		—		270,129
Consumer	18,400		20		35		—		—		18,455
Total	$	1,001,566	$	47,065	$	24,320	$	—	$	—	$	1,072,951
Loans acquired with deteriorated credit quality (loan pool participations)	$	11,280	$	—	$	14,245	$	—	$	9	$	25,534

Pass Special Mention/ Watch Substandard Doubtful Loss Total
(in thousands)
December 31, 2012
Agricultural $ 80,657
$ 579
$ 3,490
$ —
$ —
$ 84,726
Commercial and industrial 211,344
12,473
13,376
—
—
237,193
Credit cards 967
4
30
—
—
1,001
Overdrafts 452
181
126
—
—
759
Commercial real estate:
Construction and development 72,916
9,493
4,385
—
—
86,794
Farmland 76,023
2,684
2,356
—
—
81,063
Multifamily 46,272
1,486
—
—
—
47,758
Commercial real estate-other 209,143
13,745
1,481
—
—
224,369
Total commercial real estate 404,354
27,408
8,222
—
—
439,984
Residential real estate:
One- to four- family first liens 191,712
4,478
1,552
—
—
197,742
One- to four- family junior liens 54,606
229
299
—
—
55,134
Total residential real estate 246,318
4,707
1,851
—
—
252,876
Consumer 18,604
70
71
—
—
18,745
Total $ 962,696
$ 45,422
$ 27,166
$ —
$ —
$ 1,035,284
Loans acquired with deteriorated credit quality (loan pool participations) $ 21,251
$ —
$ 16,518
$ —
$ 15
$ 37,784



	Pass		Special Mention/ Watch		Substandard		Doubtful		Loss		Total
(in thousands)
December 31, 2013
Agricultural	$	93,187	$	460	$	3,520	$	—	$	—	$	97,167
Commercial and industrial	239,485		11,097		11,786		—		—		262,368
Credit cards	1,010		1		17		—		—		1,028
Overdrafts	326		123		88		—		—		537
Commercial real estate:
Construction and development	56,112		14,984		1,493		—		—		72,589
Farmland	80,044		3,091		2,340		—		—		85,475
Multifamily	53,315		1,732		396		—		—		55,443
Commercial real estate-other	205,914		12,994		2,009		—		—		220,917
Total commercial real estate	395,385		32,801		6,238		—		—		434,424
Residential real estate:
One- to four- family first liens	213,815		3,994		2,859		—		—		220,668
One- to four- family junior liens	53,225		38		195		—		—		53,458
Total residential real estate	267,040		4,032		3,054		—		—		274,126
Consumer	18,643		57		62		—		—		18,762
Total	$	1,015,076	$	48,571	$	24,765	$	—	$	—	$	1,088,412
Loans acquired with deteriorated credit quality (loan pool participations)	$	13,569	$	—	$	14,093	$	—	$	5	$	27,667

Special Mention/Watch - A special mention/watch asset has potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Company's credit position at some future date. Special mention/watch assets are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

Substandard - Substandard loans are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

1716

Table of Contents

~~deficiencies are not corrected.~~

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

Loss - Loans classified loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be effected in the future.

1817

Table of Contents

The following table sets forth the amounts and categories of the Company's impaired loans as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013:

September 30, 2013 December 31, 2012
Recorded Investment Unpaid Principal Balance Related Allowance Recorded Investment Unpaid Principal Balance Related Allowance
(in thousands)
With no related allowance recorded:
Agricultural $ 1,482
$ 1,982
$ —
$ 1,600
$ 2,100
$ —
Commercial and industrial 956
1,057
—
775
1,524
—
Credit cards —
—
—
—
—
—
Overdrafts —
—
—
—
—
—
Commercial real estate:
Construction and development 49
176
—
149
299
—
Farmland 97
110
—
75
88
—
Multifamily —
—
—
—
—
—
Commercial real estate-other 1,125
1,354
—
1,722
1,887
—
Total commercial real estate 1,271
1,640
—
1,946
2,274
—
Residential real estate:
One- to four- family first liens 416
551
—
136
203
—
One- to four- family junior liens 121
121
—
41
41
—
Total residential real estate 537
672
—
177
244
—
Consumer 1
1
—
14
30
—
Total $ 4,247
$ 5,352
$ —
$ 4,512
$ 6,172
$ —
With an allowance recorded:
Agricultural $ 1,682
$ 1,682
$ 140
$ 1,723
$ 1,723
$ 159
Commercial and industrial 1,122
1,177
217
1,031
1,031
295
Credit cards —
—
—
—
—
—
Overdrafts —
—
—
—
—
—
Commercial real estate:
Construction and development 447
447
342
525
525
105
Farmland 2,316
2,466
160
2,316
2,466
47
Multifamily —
—
—
—
—
—
Commercial real estate-other 974
1,074
151
555
555
141
Total commercial real estate 3,737
3,987
653
3,396
3,546
293
Residential real estate:
One- to four- family first liens 955
963
174
642
642
89
One- to four- family junior liens 77
77
40
67
67
47
Total residential real estate 1,032
1,040
214
709
709
136
Consumer 71
87
18
23
23
6
Total $ 7,644
$ 7,973
$ 1,242
$ 6,882
$ 7,032
$ 889
Total:
Agricultural $ 3,164
$ 3,664
$ 140
$ 3,323
$ 3,823
$ 159
Commercial and industrial 2,078
2,234
217
1,806
2,555
295
Credit cards —
—
—
—
—
—
Overdrafts —
—
—
—
—
—
Commercial real estate:
Construction and development 496
623
342
674
824
105
Farmland 2,413
2,576
160
2,391
2,554
47
Multifamily —
—
—
—
—
—
Commercial real estate-other 2,099
2,428
151
2,277
2,442
141
Total commercial real estate 5,008
5,627
653
5,342
5,820
293
Residential real estate:
One- to four- family first liens 1,371
1,514
174
778
845
89
One- to four- family junior liens 198
198
40
108
108
47
Total residential real estate 1,569
1,712
214
886
953
136
Consumer 72
88
18
37
53
6
Total $ 11,891
$ 13,325
$ 1,242
$ 11,394
$ 13,204
$ 889



	March 31, 2014						December 31, 2013
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
(in thousands)
With no related allowance recorded:
Agricultural	$	1,410	$	1,910	$	—	$	1,475	$	1,975	$	—
Commercial and industrial	1,870		2,008		—		1,919		2,020		—
Credit cards	—		—		—		—		—		—
Overdrafts	—		—		—		—		—		—
Commercial real estate:
Construction and development	90		283		—		132		601		—
Farmland	90		103		—		93		107		—
Multifamily	—		—		—		—		—		—
Commercial real estate-other	550		575		—		587		612		—
Total commercial real estate	730		961		—		812		1,320		—
Residential real estate:
One- to four- family first liens	641		760		—		622		741		—
One- to four- family junior liens	84		84		—		50		50		—
Total residential real estate	725		844		—		672		791		—
Consumer	9		25		—		10		26		—
Total	$	4,744	$	5,748	$	—	$	4,888	$	6,132	$	—
With an allowance recorded:
Agricultural	$	1,698	$	1,697	$	176	$	1,671	$	1,671	$	125
Commercial and industrial	1,887		1,942		770		1,602		1,657		559
Credit cards	—		—		—		—		—		—
Overdrafts	—		—		—		—		—		—
Commercial real estate:
Construction and development	—		—		—		7		7		3
Farmland	2,418		2,418		12		2,311		2,461		219
Multifamily	—		—		—		—		—		—
Commercial real estate-other	1,846		2,061		280		1,949		2,164		291
Total commercial real estate	4,264		4,479		292		4,267		4,632		513
Residential real estate:
One- to four- family first liens	1,004		1,004		215		902		902		170
One- to four- family junior liens	88		88		39		90		90		50
Total residential real estate	1,092		1,092		254		992		992		220
Consumer	20		20		2		40		40		6
Total	$	8,961	$	9,230	$	1,494	$	8,572	$	8,992	$	1,423
Total:
Agricultural	$	3,108	$	3,607	$	176	$	3,146	$	3,646	$	125
Commercial and industrial	3,757		3,950		770		3,521		3,677		559
Credit cards	—		—		—		—		—		—
Overdrafts	—		—		—		—		—		—
Commercial real estate:
Construction and development	90		283		—		139		608		3
Farmland	2,508		2,521		12		2,404		2,568		219
Multifamily	—		—		—		—		—		—
Commercial real estate-other	2,396		2,636		280		2,536		2,776		291
Total commercial real estate	4,994		5,440		292		5,079		5,952		513
Residential real estate:
One- to four- family first liens	1,645		1,764		215		1,524		1,643		170
One- to four- family junior liens	172		172		39		140		140		50
Total residential real estate	1,817		1,936		254		1,664		1,783		220
Consumer	29		45		2		50		66		6
Total	$	13,705	$	14,978	$	1,494	$	13,460	$	15,124	$	1,423

1918

Table of Contents

The following table sets forth the average recorded investment and interest income recognized for each category of the Company's impaired loans during the stated periods:

Three Months Ended September 30, Nine Months Ended September 30,
2013 2012 2013 2012
Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized
(in thousands)
With no related allowance recorded:
Agricultural $ 1,482
$ 13
$ 1,600
$ 16
$ 1,555
$ 45
$ 1,600
$ 44
Commercial and industrial 966
3
736
6
1,079
27
852
46
Credit cards —
—
—
—
—
—
—
—
Overdrafts —
—
—
—
—
—
—
—
Commercial real estate:
Construction and development 49
—
288
—
49
—
358
—
Farmland 99
2
79
2
103
6
85
6
Multifamily —
—
—
—
—
—
—
—
Commercial real estate-other 1,104
(5 ) 1,755
13
1,094
19
1,782
59
Total commercial real estate 1,252
(3 ) 2,122
15
1,246
25
2,225
65
Residential real estate:
One- to four- family first liens 451
1
285
1
475
7
289
2
One- to four- family junior liens 122
(1 ) 55
1
123
3
57
2
Total residential real estate 573
—
340
2
598
10
346
4
Consumer 1
—
15
—
1
—
16
—
Total $ 4,274
$ 13
$ 4,813
$ 39
$ 4,479
$ 107
$ 5,039
$ 159
With an allowance recorded:
Agricultural $ 1,682
$ 13
1,723
13
$ 1,695
$ 37
2,433
36
Commercial and industrial 1,132
10
1,685
24
1,152
35
1,376
30
Credit cards —
—
—
—
—
—
—
—
Overdrafts —
—
—
—
—
—
—
—
Commercial real estate:
Construction and development 447
6
525
7
447
20
335
22
Farmland 2,466
28
2,517
28
2,466
82
280
85
Multifamily —
—
—
—
—
—
—
—
Commercial real estate-other 972
7
1,326
15
974
21
2,989
46
Total commercial real estate 3,885
41
4,368
50
3,887
123
3,604
153
Residential real estate:
One- to four- family first liens 957
9
626
8
960
27
973
25
One- to four- family junior liens 78
—
68
1
79
—
19
2
Total residential real estate 1,035
9
694
9
1,039
27
992
27
Consumer 72
1
24
1
74
2
120
2
Total $ 7,806
$ 74
$ 8,494
$ 97
$ 7,847
$ 224
$ 8,525
$ 248
Total:
Agricultural $ 3,164
$ 26
3,323
29
$ 3,250
$ 82
4,033
80
Commercial and industrial 2,098
13
2,421
30
2,231
62
2,228
76
Credit cards —
—
—
—
—
—
—
—
Overdrafts —
—
—
—
—
—
—
—
�� Commercial real estate:
Construction and development 496
6
813
7
496
20
693
22
Farmland 2,565
30
2,596
30
2,569
88
365
91
Multifamily —
—
—
—
—
—
—
—
Commercial real estate-other 2,076
2
3,081
28
2,068
40
4,771
105
Total commercial real estate 5,137
38
6,490
65
5,133
148
5,829
218
Residential real estate:
One- to four- family first liens 1,408
10
911
9
1,435
34
1,262
27
One- to four- family junior liens 200
(1 ) 123
2
202
3
76
4
Total residential real estate 1,608
9
1,034
11
1,637
37
1,338
31
Consumer 73
1
39
1
75
2
136
2
Total $ 12,080
$ 87
$ 13,307
$ 136
$ 12,326
$ 331
$ 13,564
$ 407



	Three Months Ended March 31,
	2014					2013
	Average Recorded Investment		Interest Income Recognized			Average Recorded Investment		Interest Income Recognized
(in thousands)
With no related allowance recorded:
Agricultural	$	1,416	$	14		$	1,594	$	15
Commercial and industrial	1,874		20			682		6
Credit cards	—		—			—		—
Overdrafts	—		—			—		—
Commercial real estate:
Construction and development	90		1			149		—
Farmland	91		2			106		2
Multifamily	—		—			—		—
Commercial real estate-other	551		(7		)	843		2
Total commercial real estate	732		(4		)	1,098		4
Residential real estate:
One- to four- family first liens	645		4			287		—
One- to four- family junior liens	85		—			261		2
Total residential real estate	730		4			548		2
Consumer	9		—			33		—
Total	$	4,761	$	34		$	3,955	$	27
With an allowance recorded:
Agricultural	$	1,738	$	12		$	1,697	$	12
Commercial and industrial	1,910		17			1,465		17
Credit cards	—		—			—		—
Overdrafts	—		—			—		—
Commercial real estate:
Construction and development	—		—			524		7
Farmland	2,440		26			2,466		27
Multifamily	—		—			—		—
Commercial real estate-other	1,852		8			555		4
Total commercial real estate	4,292		34			3,545		38
Residential real estate:
One- to four- family first liens	1,005		1			911		7
One- to four- family junior liens	89		—			80		—
Total residential real estate	1,094		1			991		7
Consumer	20		1			27		1
Total	$	9,054	$	65		$	7,725	$	75
Total:
Agricultural	$	3,154	$	26		$	3,291	$	27
Commercial and industrial	3,784		37			2,147		23
Credit cards	—		—			—		—
Overdrafts	—		—			—		—
Commercial real estate:
Construction and development	90		1			673		7
Farmland	2,531		28			2,572		29
Multifamily	—		—			—		—
Commercial real estate-other	2,403		1			1,398		6
Total commercial real estate	5,024		30			4,643		42
Residential real estate:
One- to four- family first liens	1,650		5			1,198		7
One- to four- family junior liens	174		—			341		2
Total residential real estate	1,824		5			1,539		9
Consumer	29		1			60		1
Total	$	13,815	$	99		$	11,680	$	102

2019

Table of Contents

The following table sets forth the composition and past due ~~and nonaccrual~~ status of the Company's loans at ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013:

30 - 59 Days Past Due 60 - 89 Days Past Due 90 Days or More Past Due Total Past Due Current Total Loans Receivable Recorded Investment > 90 Days Past Due and Accruing
(in thousands)
September 30, 2013
Agricultural $ 17
$ 59
$ 11
$ 87
$ 90,935
$ 91,022
$ —
Commercial and industrial 510
999
596
2,105
259,868
261,973
243
Credit cards 22
32
1
55
1,107
1,162
1
Overdrafts 63
5
5
73
582
655
—
Commercial real estate:
Construction and development —
67
49
116
67,723
67,839
—
Farmland —
—
—
—
85,879
85,879
—
Multifamily —
—
—
—
53,688
53,688
—
Commercial real estate-other 832
90
1,639
2,561
223,669
226,230
216
Total commercial real estate 832
157
1,688
2,677
430,959
433,636
216
Residential real estate:
One- to four- family first liens 1,544
1,658
669
3,871
213,443
217,314
390
One- to four- family junior liens 325
73
198
596
52,014
52,610
50
Total residential real estate 1,869
1,731
867
4,467
265,457
269,924
440
Consumer 38
72
58
168
18,297
18,465
8
Total $ 3,351
$ 3,055
$ 3,226
$ 9,632
$ 1,067,205
$ 1,076,837
$ 908
December 31, 2012
Agricultural $ 96
$ —
$ —
$ 96
$ 84,630
$ 84,726
$ —
Commercial and industrial 289
70
85
444
236,749
237,193
85
Credit cards 4
—
30
34
967
1,001
30
Overdrafts 82
6
39
127
632
759
—
Commercial real estate:
Construction and development 448
—
—
448
86,346
86,794
—
Farmland —
—
—
—
81,063
81,063
—
Multifamily —
—
—
—
47,758
47,758
—
Commercial real estate-other 892
295
67
1,254
223,115
224,369
67
Total commercial real estate 1,340
295
67
1,702
438,282
439,984
67
Residential real estate:
One- to four- family first liens 2,210
1,185
311
3,706
194,036
197,742
311
One- to four- family junior liens 233
189
75
497
54,637
55,134
75
Total residential real estate 2,443
1,374
386
4,203
248,673
252,876
386
Consumer 70
72
4
146
18,599
18,745
4
Total $ 4,324
$ 1,817
$ 611
$ 6,752
$ 1,028,532
$ 1,035,284
$ 572



	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans Receivable		Recorded Investment > 90 Days Past Due and Accruing
(in thousands)
March 31, 2014
Agricultural	$	116	$	—	$	26	$	142	$	88,012	$	88,154	$	—
Commercial and industrial	418		833		848		2,099		269,325		271,424		146
Credit cards	2		3		13		18		1,261		1,279		13
Overdrafts	37		74		2		113		650		763		—
Commercial real estate:
Construction and development	—		41		49		90		72,654		72,744		—
Farmland	126		—		—		126		81,027		81,153		—
Multifamily	—		395		—		395		54,780		55,175		—
Commercial real estate-other	506		—		1,766		2,272		211,403		213,675		—
Total commercial real estate	632		436		1,815		2,883		419,864		422,747		—
Residential real estate:
One- to four- family first liens	2,245		217		881		3,343		214,278		217,621		209
One- to four- family junior liens	381		—		149		530		51,978		52,508		—
Total residential real estate	2,626		217		1,030		3,873		266,256		270,129		209
Consumer	37		20		11		68		18,387		18,455		3
Total	$	3,868	$	1,583	$	3,745	$	9,196	$	1,063,755	$	1,072,951	$	371
December 31, 2013
Agricultural	$	65	$	23	$	52	$	140	$	97,027	$	97,167	$	—
Commercial and industrial	610		876		960		2,446		259,922		262,368		213
Credit cards	—		1		17		18		1,010		1,028		17
Overdrafts	40		1		48		89		448		537		—
Commercial real estate:
Construction and development	84		—		56		140		72,449		72,589		—
Farmland	—		—		—		—		85,475		85,475		—
Multifamily	—		—		395		395		55,048		55,443		395
Commercial real estate-other	604		190		1,740		2,534		218,383		220,917		164
Total commercial real estate	688		190		2,191		3,069		431,355		434,424		559
Residential real estate:
One- to four- family first liens	1,891		869		984		3,744		216,924		220,668		540
One- to four- family junior liens	316		38		175		529		52,929		53,458		49
Total residential real estate	2,207		907		1,159		4,273		269,853		274,126		589
Consumer	17		62		36		115		18,647		18,762		7
Total	$	3,627	$	2,060	$	4,463	$	10,150	$	1,078,262	$	1,088,412	$	1,385

Non-accrual and Delinquent Loans

Loans are placed on non-accrual when (1) payment in full of principal and interest is no longer expected or (2) principal or interest has been in default for 90 days or more (unless the loan is both well secured with marketable collateral and in the process of collection). All loans rated doubtful or worse, and certain loans rated substandard, are placed on non-accrual.

A non-accrual asset may be restored to an accrual status when (1) all past due principal and interest has been paid (excluding renewals and modifications that involve the capitalizing of interest) or (2) the loan becomes well secured with marketable collateral and is in the process of collection. An established track record of performance is also considered when determining accrual status.

Delinquency status of a loan is determined by the number of days that have elapsed past the loan's payment due date, using the following classification groupings: 30-59 days, 60-89 days and 90 days or more. Loans shown in the 30-59 days and 60-89 days columns in the table above reflect contractual delinquency status of loans not considered nonperforming due to classification as a TDR or being placed on non-accrual.

2120

Table of Contents

The following table sets forth the composition of the Company's recorded investment in loans on nonaccrual status as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013:

September 30, 2013 December 31, 2012
(in thousands)
Agricultural $ 70
$ 64
Commercial and industrial 756
757
Credit cards —
—
Overdrafts —
—
Commercial real estate:
Construction and development 49
149
Farmland 30
33
Multifamily —
—
Commercial real estate-other 1,552
1,128
Total commercial real estate 1,631
1,310
Residential real estate:
One- to four- family first liens 386
550
One- to four- family junior liens 148
223
Total residential real estate 534
773
Consumer 50
34
Total $ 3,041
$ 2,938



	March 31, 2014		December 31, 2013
(in thousands)
Agricultural	$	81	$	52
Commercial and industrial	702		746
Credit cards	—		—
Overdrafts	—		—
Commercial real estate:
Construction and development	90		139
Farmland	28		29
Multifamily	—		—
Commercial real estate-other	1,765		1,576
Total commercial real estate	1,883		1,744
Residential real estate:
One- to four- family first liens	667		543
One- to four- family junior liens	149		126
Total residential real estate	816		669
Consumer	9		29
Total	$	3,491	$	3,240

As of ~~September 30, 2013~~March 31, 2014, the Company had no commitments to lend additional funds to any borrowers who have had a ~~troubled debt restructure.~~TDR.

Loan Pool Participations

ASC Topic 310 addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investor's initial investment in loans or debt securities acquired in a transfer if those differences are attributable, at least in part, to credit quality. The loans underlying the loan pool participations were evaluated individually when purchased for application of ASC Topic 310, utilizing various criteria including: past-due status, late payments, legal status of the loan (not in foreclosure, judgment against the borrower, or referred to legal counsel), frequency of payments made, collateral adequacy and the borrower's financial condition. If all the criteria were met, the individual loan utilized the accounting treatment required by ASC Topic 310 with the accretable yield difference between the expected cash flows and the purchased basis accreted into income on the level yield basis over the anticipated life of the loan. If any of the six criteria were not met at the time of purchase, the loan was accounted for on the cash basis of accounting.

The loan servicer reviews the portfolio quarterly on a loan-by-loan basis, and loans that are deemed to be impaired are charged down to their estimated value. As of ~~September 30, 2013~~March 31, 2014, approximately ~~64%~~67% of the loans were contractually current or less than 90 days past due, while ~~36%~~33% were contractually past due 90 days or more. Many of the loans were acquired in a contractually past due status, which was reflected in the discounted purchase price of the loans. Performance status is monitored on a monthly basis. The ~~36%~~33% of loans contractually past due includes loans in litigation and foreclosed property.

6.Income Taxes

Federal income tax expense for the three ~~and nine~~ months ended ~~September 30, 2013~~March 31, 2014 and ~~2012~~2013 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.

7.~~Defined Benefit Pension Plan~~

~~Prior to the Company's merger with the Former MidWestOne~~, the Bank sponsored a noncontributory defined benefit pension plan for substantially all its employees. Effective December 31, 2007, the Bank elected to curtail the plan by limiting this employee benefit to those employees vested as of December 31, 2007. During the second quarter of 2012, the Company completed the liquidation of plan assets and full termination of the plan, including full benefit payout to plan participants. The total amount of the Company's required contribution to fully fund the plan for liquidation was ~~$6.1 million, pre-tax, which is included in Salaries and Employee Benefits on the consolidated statements of operations.~~

~~Table of Contents~~

8.Fair Value Measurements

~~ASC Topic 820 defines fair~~Fair value asis the price that would be received ~~to sell~~in selling an asset or paid ~~to transfer~~in transferring 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.

~~ASC Topic 820~~

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

Level 1 Inputs – Unadjusted quoted prices for identical assets or liabilities in active markets that the reporting entity has the ability to access at the measurement date.

Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.

Level 3 Inputs – Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity's own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

It is the ~~Company's~~Company’s policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements. ~~Recent market~~Market conditions in recent years 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.

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

Securities Available for Sale - The ~~Company's~~Company’s investment securities classified as 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. The Company utilizes an independent pricing service to obtain the fair value of debt securities. On a quarterly basis, the Company selects a sample of 30 securities from its primary pricing service and compares them to a secondary independent pricing service to validate value. In addition, the Company periodically reviews the pricing methodology utilized by the primary independent service for reasonableness. 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

~~Table of Contents~~

treasury rate based on credit ~~characteristics.~~rating. These model and matrix measurements are classified as Level 2 in the fair value hierarchy. On an annual basis, a group of selected municipal securities are priced by a securities dealer and that price is used to verify the primary independent ~~service's~~service’s valuation.

The Company ~~classifies~~classified its pooled trust preferred collateralized debt obligations as Level 3.3 until such securities were sold in the first quarter of 2014. The portfolio ~~consists~~consisted of ~~six~~five investments in collateralized debt obligations backed by pools of trust preferred securities issued by financial institutions and insurance companies. The Company ~~has~~had determined that the observable market data associated with these assets dodid not represent orderly transactions ~~in accordance with ASC Topic 820~~ and ~~reflect~~reflected 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.

Mortgage Servicing Rights - The Company recognizes the rights to service mortgage loans for others on residential real estate loans internally originated and then sold. Mortgage servicing rights are recorded at fair value based on assumptions through a third-party valuation service. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the servicing cost per loan, the discount rate, the escrow float rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. Because many of these inputs are unobservable, the valuations are classified as Level 3.

The following table summarizes assets measured at fair value on a recurring basis as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013. There were no liabilities subject to fair value measurement as of these dates. The assets are segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value:

Fair Value Measurement at September 30, 2013 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:
Available for sale debt securities:
U.S. Government agencies and corporations $ 51,011
$ —
$ 51,011
$ —
State and political subdivisions 203,790
—
203,790
—
Mortgage-backed securities and collateralized mortgage obligations 204,542
—
204,542
—
Corporate debt securities 26,649
—
26,649
—
Collateralized debt obligations 1,261
—
—
1,261
Total available for sale debt securities 487,253
—
485,992
1,261
Available for sale equity securities:
Other equity securities 2,895
2,895
—
—
Total available for sale equity securities 2,895
2,895
—
—
Total securities available for sale $ 490,148
$ 2,895
$ 485,992
$ 1,261

Mortgage servicing rights $ 2,324
$ —
$ —
$ 2,324



	Fair Value Measurement at March 31, 2014 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:
Available for sale debt securities:
U.S. Government agencies and corporations	$	49,496	$	—	$	49,496	$	—
State and political subdivisions	210,434		—		210,434		—
Mortgage-backed securities	36,780		—		36,780		—
Collateralized mortgage obligations	162,515		—		162,515		—
Corporate debt securities	34,617		—		34,617		—
Total available for sale debt securities	493,842		—		493,842		—
Available for sale equity securities:
Other equity securities	3,076		3,076		—		—
Total available for sale equity securities	3,076		3,076		—		—
Total securities available for sale	$	496,918	$	3,076	$	493,842	$	—

Mortgage servicing rights	$	2,389	$	—	$	—	$	2,389

~~Table of Contents~~

Fair Value Measurement at December 31, 2012 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:
Available for sale debt securities:
U.S. Government agencies and corporations $ 69,783
$ —
$ 69,783
$ —
State and political subdivisions 218,019
—
218,019
—
Mortgage-backed securities and collateralized mortgage obligations 243,118
—
243,118
—
Corporate debt securities 24,185
—
24,185
—
Collateralized debt obligations 755
—
—
755
Total available for sale debt securities 555,860
—
555,105
755
Available for sale equity securities:
Other equity securities 1,681
1,681
—
—
Total available for sale equity securities 1,681
1,681
—
—
Total securities available for sale $ 557,541
$ 1,681
$ 555,105
$ 755

Mortgage servicing rights $ 1,484
$ —
$ —
$ 1,484



	Fair Value Measurement at December 31, 2013 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:
Available for sale debt securities:
U.S. Government agencies and corporations	$	44,939	$	—	$	44,939	$	—
State and political subdivisions	210,796		—		210,796		—
Mortgage-backed securities	39,285		—		39,285		—
Collateralized mortgage obligations	169,223		—		169,223		—
Collateralized debt obligations	1,317		—		—		1,317
Corporate debt securities	29,944		—		29,944		—
Total available for sale debt securities	495,504		—		494,187		1,317
Available for sale equity securities:
Other equity securities	3,057		3,057		—		—
Total available for sale equity securities	3,057		3,057		—		—
Total securities available for sale	$	498,561	$	3,057	$	494,187	$	1,317

Mortgage servicing rights	$	2,298	$	—	$	—	$	2,298

There were no transfers of assets between levels of the fair value hierarchy during the three ~~and nine~~ months ended ~~September 30, 2013~~March 31, 2014 and ~~2012~~2013.

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 for the ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014 and ~~2012~~2013:

2013 2012

Collateralized
Debt
Obligations

Mortgage
Servicing
Rights

Collateralized
Debt
Obligations

Mortgage
Servicing
Rights
(in thousands)
Beginning balance    $ 755
$ 1,484
$ 806
$ 1,265
Transfers into Level 3    —
—
—
—
Transfers out of Level 3    —
—
—
—
Total gains (losses):
Included in earnings    —
378
—
(373 )
Included in other comprehensive income    506
—
(1 ) —
Purchases, issuances, sales, and settlements:
Purchases    —
—
—
—
Issuances    —
462
—
543
Sales    —
—
—
—
Settlements    —
—
—
—
Ending balance    $ 1,261
$ 2,324
$ 805
$ 1,435



	For the Three Months Ended March 31,
	2014					2013
	Collateralized Debt Obligations			Mortgage Servicing Rights		Collateralized Debt Obligations		Mortgage Servicing Rights
(in thousands)
Beginning balance	$	1,317		$	2,298	$	755	$	1,484
Transfers into Level 3	—			—		—		—
Transfers out of Level 3	—			—		—		—
Total gains (losses):
Included in earnings	782			51		—		(6		)
Included in other comprehensive income	794			—		314		—
Purchases, issuances, sales, and settlements:
Purchases	—			—		—		—
Issuances	—			40		—		206
Sales	(2,893		)	—		—		—
Settlements	—			—		—		—
Ending balance	$	—		$	2,389	$	1,069	$	1,684

~~Table of Contents~~

The following table presents the amount of gains and losses included in earnings and other comprehensive income for the ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014 and ~~2012~~2013 that are attributable to the change in unrealized gains and losses relating to those assets still held, and the line item in the consolidated financial statements in which they are included:

2013 2012

Collateralized
Debt
Obligations

Mortgage
Servicing
Rights

Collateralized
Debt
Obligations

Mortgage
Servicing
Rights
(in thousands)
Total gains for the period in earnings*    $ —
$ 840
$ —
$ 170

Change in unrealized gains (losses) for the period included in other comprehensive income    506
—
(1 ) —



	For the Three Months Ended March 31,
	2014				2013
	Collateralized Debt Obligations		Mortgage Servicing Rights		Collateralized Debt Obligations		Mortgage Servicing Rights
(in thousands)
Total gains for the period in earnings*	$	782	$	91	$	—	$	200

Change in unrealized gains (losses) for the period included in other comprehensive income	794		—		314		—

*Gains on collateralized debt obligations are included in gain on sale or call of available for sale securities, while gains on mortgage servicing rights are included in mortgage origination and loan servicing fees, both in the consolidated statements of ~~operations.~~operations.

Changes in the fair value of available for sale securities are included in other comprehensive income to the extent the changes are not considered ~~OTTIs.~~OTTI. OTTI 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 results in a write-down that is reflected directly in the Company's consolidated statements of operations.

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

Collateral Dependent 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 is determined based on appraisals. In some cases, adjustments are made to the appraised values due 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.

Other Real Estate Owned ("OREO") - OREO represents property acquired through foreclosures and settlements of loans. Property acquired is carried at the lower of the carrying amount of the loan at the time of acquisition, 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 real estate brokers 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.

~~Table of Contents~~

The following table discloses the Company's estimated fair value amounts of its assets recorded at fair value on a nonrecurring basis. It is management's belief that the fair values presented below are reasonable based on the valuation techniques and data available to the Company as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, as more fully described ~~previously.~~above.

Fair Value Measurement at September 30, 2013 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:
Agricultural $ 65
   $ —
   $ —
   $ 65
Commercial and industrial 1,528
—
—
1,528
Commercial real estate:
Construction and development 154
—
—
154
Farmland 97
—
—
97
Multifamily —
—
—
—
Commercial real estate-other 1,949
—
—
1,949
Total commercial real estate 2,200
—
—
2,200
Residential real estate:
One- to four- family first liens 512
—
—
512
One- to four- family junior liens 112
—
—
112
Total residential real estate 624
—
—
624
Consumer 53
—
—
53
Collateral dependent impaired loans $ 4,470
$ —
$ —
$ 4,470
Other real estate owned $ 1,917
   $ —
   $ —
   $ 1,917



	Fair Value Measurement at March 31, 2014 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:
Agricultural	$	22	$	—	$	—	$	22
Commercial and industrial	1,124		—		—		1,124
Commercial real estate:
Construction and development	90		—		—		90
Farmland	62		—		—		62
Multifamily	—		—		—		—
Commercial real estate-other	1,695		—		—		1,695
Total commercial real estate	1,847		—		—		1,847
Residential real estate:
One- to four- family first liens	377		—		—		377
One- to four- family junior liens	39		—		—		39
Total residential real estate	416		—		—		416
Consumer	27		—		—		27
Collateral dependent impaired loans	$	3,436	$	—	$	—	$	3,436
Other real estate owned	$	1,996	$	—	$	—	$	1,996

Fair Value Measurement at December 31, 2012 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:
Agricultural $ —
   $ —
   $ —
   $ —
Commercial and industrial 1,106
—
—
1,106
Commercial real estate:
Construction and development 496
—
—
496
Farmland —
—
—
—
Multifamily —
—
—
—
Commercial real estate-other 501
—
—
501
Total commercial real estate 997
—
—
997
Residential real estate:
One- to four- family first liens 114
—
—
114
One- to four- family junior liens 19
—
—
19
Total residential real estate 133
—
—
133
Consumer 32
—
—
32
Collateral dependent impaired loans $ 2,268
$ —
$ —
$ 2,268
Other real estate owned $ 3,278
   $ —
   $ —
   $ 3,278



	Fair Value Measurement at December 31, 2013 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:
Agricultural	$	—	$	—	$	—	$	—
Commercial and industrial	1,043		—		—		1,043
Commercial real estate:
Construction and development	136		—		—		136
Farmland	65		—		—		65
Multifamily	—		—		—		—
Commercial real estate-other	1,786		—		—		1,786
Total commercial real estate	1,987		—		—		1,987
Residential real estate:
One- to four- family first liens	186		—		—		186
One- to four- family junior liens	30		—		—		30
Total residential real estate	216		—		—		216
Consumer	44		—		—		44
Collateral dependent impaired loans	$	3,290	$	—	$	—	$	3,290
Other real estate owned	$	1,770	$	—	$	—	$	1,770

2725

~~Table of Contents~~

The following presents the carrying amount and estimated fair value of the financial instruments held by the Company at ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013. The information presented is subject to change over time based on a variety of factors. The operations of the Company are managed on a going concern basis and not a liquidation basis. As a result, the ultimate value realized from 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.

September 30, 2013

Carrying
Amount

Estimated
Fair Value
Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs
(Level 3)
(in thousands)
Financial assets:
Cash and cash equivalents $ 26,066
   $ 26,066
$ 26,066
$ —
$ —
Investment securities:
Available for sale 490,148
490,148
2,895
485,992
1,261
Held to maturity 32,825
30,743
—
30,743
—
Total investment securities 522,973
520,891
2,895
516,735
1,261
Loans held for sale 206
   213
—
—
213
Loans, net:
Agricultural 89,875
89,859
—
—
89,859
Commercial and industrial 257,068
256,685
—
—
256,685
Credit cards 1,132
1,132
—
—
1,132
Overdrafts 485
485
—
—
485
Commercial real estate:
Construction and development 66,206
66,405
—
—
66,405
Farmland 84,757
85,676
—
—
85,676
Multifamily 53,214
53,350
—
—
53,350
Commercial real estate-other 223,049
224,542
—
—
224,542
Total commercial real estate 427,226
429,973
—
—
429,973
Residential real estate:
One- to four- family first liens 214,217
214,781
—
—
214,781
One- to four- family junior liens 52,052
52,896
—
—
52,896
Total residential real estate 266,269
267,677
—
—
267,677
Consumer 18,277
18,300
—
—
18,300
Total loans, net 1,060,332
1,064,111
—
—
1,064,111
Loan pool participations, net 28,071
   28,071
—
—
28,071
Accrued interest receivable 10,554
   10,554
10,554
—
—
Federal Home Loan Bank stock 10,768
   10,768
—
10,768
—
Financial liabilities:
Deposits:
Non-interest bearing demand 201,886
201,886
201,886
—
—
Interest-bearing checking 576,318
576,318
576,318
—
—
Savings 94,043
94,043
94,043
—
—
Certificates of deposit under $100,000 270,275
270,982
—
270,982
—
Certificates of deposit $100,000 and over 179,129
179,722
—
179,722
—
Total deposits 1,321,651
1,322,951
872,247
450,704
—
Federal funds purchased and securities sold under agreements to repurchase 67,058
   67,058
67,058
—
—
Federal Home Loan Bank borrowings 145,187
   145,992
—
—
145,992
Long-term debt 15,464
   9,846
—
—
9,846
Accrued interest payable 1,267
   1,267
1,267
—
—



	March 31, 2014
	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
(in thousands)
Financial assets:
Cash and cash equivalents	$	35,256	$	35,256	$	35,256	$	—	$	—
Investment securities:
Available for sale	496,918		496,918		3,076		493,842		—
Held to maturity	33,963		32,304		—		32,304		—
Total investment securities	530,881		529,222		3,076		526,146		—
Loans held for sale	89		93		—		—		93
Loans, net:
Agricultural	86,938		87,004		—		—		87,004
Commercial and industrial	265,508		266,055		—		—		266,055
Credit cards	1,228		1,228		—		—		1,228
Overdrafts	605		605		—		—		605
Commercial real estate:
Construction and development	71,666		71,824		—		—		71,824
Farmland	80,329		81,023		—		—		81,023
Multifamily	54,631		54,647		—		—		54,647
Commercial real estate-other	210,759		211,848		—		—		211,848
Total commercial real estate	417,385		419,342		—		—		419,342
Residential real estate:
One- to four- family first liens	214,627		216,207		—		—		216,207
One- to four- family junior liens	51,956		52,133		—		—		52,133
Total residential real estate	266,583		268,340		—		—		268,340
Consumer	18,279		18,303		—		—		18,303
Total loans, net	1,056,526		1,060,877		—		—		1,060,877
Loan pool participations, net	23,400		23,400		—		—		23,400
Accrued interest receivable	9,289		9,289		9,289		—		—
Federal Home Loan Bank stock	9,195		9,195		—		9,195		—
Financial liabilities:
Deposits:
Non-interest bearing demand	206,037		206,037		206,037		—		—
Interest-bearing checking	620,027		620,027		620,027		—		—
Savings	101,816		101,816		101,816		—		—
Certificates of deposit under $100,000	243,727		244,069		—		244,069		—
Certificates of deposit $100,000 and over	204,069		204,630		—		204,630		—
Total deposits	1,375,676		1,376,579		927,880		448,699		—
Federal funds purchased and securities sold under agreements to repurchase	52,293		82,293		82,293		—		—
Federal Home Loan Bank borrowings	108,900		109,154		—		—		109,154
Long-term debt	15,464		9,903		—		—		9,903
Accrued interest payable	700		700		700		—		—

2826

~~Table of Contents~~

December 31, 2012

Carrying
Amount

Estimated
Fair Value
Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs
(Level 3)
(in thousands)
Financial assets:
Cash and cash equivalents $ 47,191
   $ 47,191
$ 47,191
$ —
$ —
Investment securities:
Available for sale 557,541
557,541
1,681
555,105
755
Held to maturity 32,669
32,920
—
32,920
—
Total investment securities 590,210
590,461
1,681
588,025
755
Loans held for sale 1,195
   1,224
—
—
1,224
Loans, net:
Agricultural 83,602
83,180
—
—
83,180
Commercial and industrial 232,337
230,615
—
—
230,615
Credit cards 982
982
—
—
982
Overdrafts 562
562
—
—
562
Commercial real estate:
Construction and development 84,645
84,335
—
—
84,335
Farmland 80,425
79,931
—
—
79,931
Multifamily 47,407
47,450
—
—
47,450
Commercial real estate-other 221,229
222,421
—
—
222,421
Total commercial real estate 433,706
434,137
—
—
434,137
Residential real estate:
One- to four- family first liens 195,126
193,906
—
—
193,906
One- to four- family junior liens 54,449
54,808
—
—
54,808
Total residential real estate 249,575
248,714
—
—
248,714
Consumer 18,563
18,631
—
—
18,631
Total loans, net 1,019,327
1,016,821
—
—
1,016,821
Loan pool participations, net 35,650
35,650
—
—
35,650
Accrued interest receivable 10,292
10,292
10,292
—
—
Federal Home Loan Bank stock 11,087
11,087
—
11,087
—
Financial liabilities:
Deposits:
Non-interest bearing demand 190,491
190,491
190,491
—
—
Interest-bearing checking 582,283
582,283
582,283
—
—
Savings 91,603
91,603
91,603
—
—
Certificates of deposit under $100,000 312,489
314,978
—
314,978
—
Certificates of deposit $100,000 and over 222,867
224,311
—
224,311
—
Total deposits 1,399,733
1,403,666
864,377
539,289
—
Federal funds purchased and securities sold under agreements to repurchase 68,823
68,823
68,823
—
—
Federal Home Loan Bank borrowings 120,120
123,202
—
—
123,202
Long-term debt 15,464
9,939
—
—
9,939
Accrued interest payable 1,475
1,475
1,475
—
—



	December 31, 2013
	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
(in thousands)
Financial assets:
Cash and cash equivalents	$	24,890	$	24,890	$	24,890	$	—	$	—
Investment securities:
Available for sale	498,561		498,561		3,057		494,187		1,317
Held to maturity	32,625		30,191		—		30,191		—
Total investment securities	531,186		528,752		3,057		524,378		1,317
Loans held for sale	357		367		—		—		367
Loans, net:
Agricultural	95,712		95,609		—		—		95,609
Commercial and industrial	257,153		256,257		—		—		256,257
Credit cards	998		998		—		—		998
Overdrafts	415		415		—		—		415
Commercial real estate:
Construction and development	71,433		71,569		—		—		71,569
Farmland	84,387		85,058		—		—		85,058
Multifamily	54,883		54,953		—		—		54,953
Commercial real estate-other	217,993		219,213		—		—		219,213
Total commercial real estate	428,696		430,793		—		—		430,793
Residential real estate:
One- to four- family first liens	217,765		218,257		—		—		218,257
One- to four- family junior liens	52,903		53,798		—		—		53,798
Total residential real estate	270,668		272,055		—		—		272,055
Consumer	18,591		18,638		—		—		18,638
Total loans, net	1,072,233		1,074,765		—		—		1,074,765
Loan pool participations, net	25,533		25,533		—		—		25,533
Accrued interest receivable	10,409		10,409		10,409		—		—
Federal Home Loan Bank stock	9,226		9,226		—		9,226		—
Financial liabilities:
Deposits:
Non-interest bearing demand	222,359		222,359		222,359		—		—
Interest-bearing checking	592,673		592,673		592,673		—		—
Savings	94,559		94,559		94,559		—		—
Certificates of deposit under $100,000	256,283		256,549		—		256,549		—
Certificates of deposit $100,000 and over	209,068		209,543		—		209,543		—
Total deposits	1,374,942		1,375,683		909,591		466,092		—
Federal funds purchased and securities sold under agreements to repurchase	66,665		66,665		66,665		—		—
Federal Home Loan Bank borrowings	106,900		107,356		—		—		107,356
Long-term debt	15,464		9,872		—		—		9,872
Accrued interest payable	765		765		765		—		—

Cash and cash equivalents, ~~non-interest-bearing demand deposits,~~ federal funds purchased, securities sold under repurchase agreements, and accrued interest are instruments with carrying values that approximate fair value.

Investment securities available for sale are measured at fair value on a recurring basis. Held to maturity securities are carried at amortized cost. Fair value is based upon quoted prices, if available. If a quoted price is not available, the fair value is obtained from benchmarking the security against similar securities by using a third-party pricing service.

Loans held for sale are carried at the lower of cost or fair value, with fair value being based on recent observable loan sales. The portfolio has historically consisted primarily of residential real estate loans.

For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values for other loans are determined using estimated future cash flows, discounted

2927

~~Table of Contents~~

at the interest rates currently being offered for loans with similar terms to borrowers with similar credit quality. The Company does record nonrecurring fair value adjustments to loans to reflect (1) partial write-downs and allowances 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.

Loan pool participation carrying values represent the discounted price paid by us to acquire our participation interests in the various loan pool participations purchased, which approximates fair value.

The fair value of Federal Home Loan Bank stock is estimated at its carrying value and redemption price of $100 per share.

Deposit liabilities are carried at historical cost. The fair value of demand deposits, savings accounts and certain money market account deposits is the amount payable on demand at the reporting date. The fair value of fixed maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. If the fair value of the fixed maturity certificates of deposit is calculated at less than the carrying amount, the carrying value of these deposits is reported as the fair value.

Federal Home Loan Bank borrowings and long-term debt are recorded at historical cost. The fair value of these items is estimated using discounted cash flow analysis, based on the Company's current incremental borrowing rates for similar types of borrowing arrangements.

The following presents the valuation technique(s), observable inputs, and quantitative information about the unobservable inputs used for fair value measurements of the financial instruments held by the Company at ~~September 30, 2013~~March 31, 2014, categorized within Level 3 of the fair value hierarchy:

Quantitative Information About Level 3 Fair Value Measurements
(dollars in thousands) Fair Value at September 30, 2013 Valuation Techniques(s) Unobservable Input Range of Inputs Weighted Average
Collateralized debt obligations $ 1,261
Discounted cash flows Pretax discount rate 15.00 % - 15.00 % 15.00 %
Actual defaults 14.01 % - 20.94 % 16.21 %
Actual deferrals 4.73 % - 16.01 % 9.09 %
Collateral dependent impaired loans:
Agricultural 65
Modified appraised value Third party appraisal NM *
NM *
NM *
Appraisal discount NM *
NM *
NM *
Commercial and industrial 1,528
Modified appraised value Third party appraisal NM *
NM *
NM *
Appraisal discount NM *
NM *
NM *
Construction & development 154
Modified appraised value Third party appraisal NM *
NM *
NM *
Appraisal discount NM *
NM *
NM *
Farmland 97
Modified appraised value Third party appraisal NM *
NM *
NM *
Appraisal discount NM *
NM *
NM *
Commercial Real Estate-other 1,949
Modified appraised value Third party appraisal NM *
NM *
NM *
Appraisal discount NM *
NM *
NM *
Residential real estate one- to four- 512
Modified appraised value Third party appraisal NM *
NM *
NM *
family first liens Appraisal discount NM *
NM *
NM *
Residential real estate one- to four- 112
Modified appraised value Third party appraisal NM *
NM *
NM *
family junior liens
Appraisal discount NM *
NM *
NM *
Consumer 53
Modified appraised value Third party appraisal NM *
NM *
NM *
Appraisal discount NM *
NM *
NM *
Mortgage servicing rights 2,324
Discounted cash flows Constant prepayment rate 7.73 % - 17.26 % 7.99 %

Pretax discount rate 10.15 % - 13.00 % 10.17 %
Other real estate owned 1,917
Modified appraised value Third party appraisal NM *
NM *
NM *
Appraisal discount NM *
NM *
NM *

Quantitative Information About Level 3 Fair Value Measurements

(dollars in thousands)

Fair Value at March 31, 2014

Valuation Techniques(s)

Unobservable Input

Range of Inputs

Weighted Average

Collateral dependent impaired loans:

Agricultural

Modified appraised value

Third party appraisal

NM *

Appraisal discount

NM *

Commercial and industrial

1,124

Modified appraised value

Third party appraisal

NM *

Appraisal discount

NM *

Construction & development

Modified appraised value

Third party appraisal

NM *

Appraisal discount

NM *

Farmland

Modified appraised value

Third party appraisal

NM *

Appraisal discount

NM *

Commercial real estate-other

1,695

Modified appraised value

Third party appraisal

NM *

Appraisal discount

NM *

Residential real estate one- to four-

377

Modified appraised value

Third party appraisal

NM *

family first liens

Appraisal discount

NM *

Residential real estate one- to four-

Modified appraised value

Third party appraisal

NM *

family junior liens

Appraisal discount

NM *

Consumer

Modified appraised value

Third party appraisal

NM *

Appraisal discount

NM *

Mortgage servicing rights

2,389

Discounted cash flows

Constant prepayment rate

6.76

17.12

7.80

Pretax discount rate

10.00

13.00

10.16

Other real estate owned

1,996

Modified appraised value

Third party appraisal

NM *

Appraisal discount

NM *

* Not Meaningful. Third party appraisals are obtained as to the value of the underlying asset, but disclosure of this information would not provide meaningful information, as the range will vary widely from loan to loan. Types of discounts considered include age of the appraisal, local market conditions, current condition of the property, and estimated sales costs. These discounts will also vary from loan to loan, thus providing a range would not be meaningful.

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

3028

Table of Contents

9.8.Variable Interest Entities

Loan Pool Participations

The Company has invested in certain participation certificates of loan pools which are purchased, held and serviced by a third-party independent servicing corporation. The Company's portfolio holds approximately 95% of the participation interests in the pools of loans owned and serviced by States Resources Corporation (“SRC”), a third-party loan servicing organization located in Omaha, Nebraska, in which the Company participates. SRC's owner holds the ~~rest.~~remaining interest. The Company does not have any ownership interest in or exert any control over SRC, and thus it is not included in the consolidated financial statements.

These pools of loans were purchased from large nonaffiliated banking organizations and from the FDIC acting as receiver of failed banks and savings associations. As loan pools were put out for bid (generally in a sealed bid auction), SRC's due diligence teams evaluated the loans and determined their interest in bidding on the pool. After the due diligence, the Company's management reviewed the status and decided if it wished to continue in the process. If the decision to consider a bid was made, SRC conducted additional analysis to determine the appropriate bid price. This analysis involved discounting loan cash flows with adjustments made for expected losses, changes in collateral values as well as targeted rates of return. A cost or investment basis was assigned to each individual loan ~~at cents per dollar~~on a cents-per-dollar (discounted price) basis based on SRC's assessment of the recovery potential of each loan.

Once a bid was awarded to SRC, the Company assumed the risk of profit or loss but on a non-recourse basis so the risk is limited to its initial investment. The extent of the risk is also dependent upon: the debtor or guarantor's financial condition, the possibility that a debtor or guarantor may file for bankruptcy protection, SRC's ability to locate any collateral and obtain possession, the value of such collateral, and the length of time it takes to realize the recovery either through collection procedures, legal process, or resale of the loans after a restructure.

Loan pool participations are shown on the Company's consolidated balance sheets as a separate asset category. The original carrying value or investment basis of loan pool participations is the discounted price paid by the Company to acquire its interests, which, as noted, is less than the face amount of the underlying loans. The Company's investment basis is reduced as SRC recovers principal on the loans and remits its share to the Company or as loan balances are written off as uncollectible.

~~10.~~9.Effect of New Financial Accounting Standards

In July ~~2012, the FASB issued Accounting Standards Update No. 2012-02,~~ ~~Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment~~. This update permits an entity to make a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset, other than goodwill, is impaired. Under this update, if an entity concludes, based on an evaluation of all relevant qualitative factors, that it is not more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount, it will not be required to perform the quantitative impairment test for that asset. The update became effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012.The adoption of this amendment did not have a material effect on the Company's consolidated financial statements.

~~In February~~ 2013, the FASB issued Accounting Standards Update No. ~~2013-02,~~2013-11, ~~Comprehensive~~ Income Taxes (Topic ~~220)~~740): ~~Reporting~~Presentation of ~~Amounts Reclassified Out~~an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The objective of ~~Accumulated Other Comprehensive Income. This~~this update ~~seeks~~is to ~~improve~~eliminate the ~~reporting of reclassifications out of accumulated other comprehensive income by requiring an entity to report the effect of significant reclassifications out of accumulated other comprehensive income~~diversity in practice on the respective line items in net income, if the amount being reclassified is required to be reclassified in its entirety to net income. For other amounts that are not required to be reclassified in their entirety to net income in the same reporting period,financial statement presentation of an ~~entity is required to cross-reference other disclosures required that provide additional detail about those amounts. This would be the case~~unrecognized tax benefit when a ~~portion of the amount reclassified out of accumulated other comprehensive income is reclassified to~~net operating loss carryforward, a ~~balance sheet account (for example, inventory) instead of directly to income~~similar tax loss, or ~~expense in the same reporting period.~~a tax credit carryforward exists. For public entities, the amendments became effective ~~prospectively~~ for ~~reporting~~fiscal years, and interim periods within those years, beginning after December 15, ~~2012.~~2013, with early adoption permitted. The adoption of this amendment did not have a material effect on the ~~Company's~~Company’s consolidated financial statements.

In January 2014, the FASB issued Accounting Standards Update No. 2014-01, Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects. The objective of this update is to provide guidance on accounting for investments by a reporting entity in flow-through limited liability entities that manage or invest in affordable housing projects that qualify for the low-income housing tax credit. The low-income housing tax credit program is designed to encourage private capital investment in the construction and rehabilitation of low-income housing. This program is an indirect tax subsidy that allows investors in a flow-through limited liability entity, such as limited partnerships or limited liability companies that manage or invest in qualified affordable housing projects, to receive the benefits of the tax credits allocated to the entity that owns the qualified affordable housing project. The tax credits are allowable on the tax return each year over a 10-year period as a result of a sufficient number of units being rented to qualifying tenants and are subject to restrictions on gross rentals paid by those tenants. Those credits are subject to recapture over a 15-year period starting with the first year tax credits are earned. The amendments in this update permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. For public entities, the amendments are to be applied retrospectively to all annual periods and interim reporting periods presented within those annual periods, beginning after December 15, 2014. The adoption of this amendment is not expected to have a material effect on the Company’s consolidated financial statements.

In January 2014, the FASB issued Accounting Standards Update No. 2014-04, Receivables—Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The objective of this update is to reduce diversity by clarifying when an in-substance repossession or

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foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. For public entities, the amendments are effective for reporting periods beginning after December 31, 2014, with early adoption permitted. The adoption of this amendment is not expected to have a material effect on the Company’s consolidated financial statements.

~~11.~~10.Subsequent Events

Management evaluated subsequent events through the date the consolidated financial statements were issued. Events or transactions occurring after ~~September 30, 2013~~March 31, 2014, but prior to the date the consolidated financial statements were issued, that provided additional evidence about conditions that existed at ~~September 30, 2013~~March 31, 2014 have been recognized in the consolidated financial statements for the period ended ~~September 30, 2013~~March 31, 2014. Events or transactions that provided evidence about conditions that did not exist at ~~September 30, 2013~~March 31, 2014, but arose before the consolidated financial statements were issued, have not been recognized in the consolidated financial statements for the period ended ~~September 30, 2013~~March 31, 2014.

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On ~~October 15, 2013~~April 17, 2014, the ~~Board~~board of ~~Directors~~directors of the Company declared a cash dividend of $~~0.125~~0.145 per share payable on ~~December~~June 16, ~~2013~~2014 to shareholders of record as of the close of business on ~~December~~June 1, ~~2013~~2014.

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

OVERVIEW

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, Iowa City, 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,~~Conrad, Melbourne, Oskaloosa, and ~~Oskaloosa,~~Pella, 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 Bank administers estates, personal trusts, conservatorships, and pension and profit-sharing accounts along with providing brokerage and other investment 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 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 an 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 depend primarily on our net interest income, which is the difference between the 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 loan losses and income tax expense. Significant external factors that impact our results of operations include general economic and competitive conditions, as well as changes in market interest rates, government policies, and actions of regulatory authorities.

The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes and with the statistical information and financial data appearing in this report as well as our ~~2012~~2013 Annual Report on Form 10-K. Results of operations for the ~~three- and nine-~~three month period ended ~~September 30, 2013~~March 31, 2014 are not necessarily indicative of results to be attained for any other period.

Critical Accounting Estimates

Critical accounting estimates are those which are both most important to the portrayal of our financial condition and results of operations, and require our management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting estimates relate to the allowance for loan losses, participation interests in loan pools, intangible assets, and fair value of available for sale investment securities, all of which involve significant judgment by our management. Information about our critical accounting estimates is included under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, ~~2012~~2013.

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~~RESULTS OF OPERATIONS~~

Comparison of Operating Results for the Three Months Ended ~~September 30, 2013~~March 31, 2014 and ~~September 30, 2012~~March 31, 2013

Summary

For the ~~quarter~~three months ended ~~September 30, 2013~~March 31, 2014, we earned net income of $~~4.9~~5.0 million, compared with $~~4.2~~4.8 million, for the ~~quarter~~three months ended ~~September 30, 2012~~March 31, 2013, an increase of ~~14.8%~~3.8%. Basic and diluted earnings per common share for the first ~~third~~three months ~~quarter~~ of ~~2013~~2014 were $~~0.57~~0.59 and $0.58, respectively, versus $~~0.50~~0.56 for ~~each~~both in the first ~~third~~three months ~~quarter~~ of ~~2012~~2013. Our annualized Return on Average Assets ("ROAA") for the first ~~third~~three months ~~quarter~~ of ~~2013~~2014 was ~~1.12%~~1.15% ccompared with ~~ompared with a return of~~ ~~0.99%~~1.09% forfor the same period in ~~2012~~2013. Our annualized Return on Average Shareholders' Equity ("ROAE") was ~~11.21%~~11.13% for the three months ended ~~September 30, 2013~~March 31, 2014 versus ~~9.97%~~11.09% for the three months ended ~~September 30, 2012~~March 31, 2013. The annualized Return on Average Tangible Equity ("ROATE") was ~~12.10%~~11.90% for the first ~~third~~three months ~~quarter~~ of ~~2013~~2014 compared with ~~10.91%~~11.98% for the same period in ~~2012~~2013.

~~Table of Contents~~

The following table presents selected financial results and measures for the first ~~third~~three months ~~quarter~~ of ~~2013~~2014 and ~~2012~~2013.


	Three Months Ended September 30,						As of and for the Three Months Ended March 31,
($ amounts in thousands)	2013			2012			2014			2013
Net Income	$	4,864		$	4,238		$	4,973		$	4,790
Average Assets	1,728,168			1,705,300			1,747,027			1,774,931
Average Shareholders' Equity	172,136			169,022			181,274			175,213
Return on Average Assets* (ROAA)	1.12		%	0.99		%	1.15		%	1.09		%
Return on Average Shareholders' Equity* (ROAE)	11.21			9.97			11.13		%	11.09		%
Return on Average Tangible Equity* (ROATE)	12.10			10.91			11.90		%	11.98		%
Total Equity to Assets (end of period)	10.10			9.96			10.49		%	9.90		%
Tangible Equity to Tangible Assets (end of period)	9.63			9.45			10.04		%	9.43		%
* Annualized

We have traditionally disclosed certain non-GAAP ratios to evaluate and measure our financial condition, including our ~~return on average tangible equity~~ROATE and the ratio of our tangible equity to tangible assets. We believe these ratios provide investors with information regarding our financial condition and results of operations and how we evaluate them internally.

The following tables provide a reconciliation of the non-GAAP measures to the most comparable GAAP equivalents.


	For the Three Months Ended September 30,						For the Three Months Ended March 31,
(in thousands)	2013			2012			2014			2013
Net Income:
Net income	$	4,864		$	4,238		$	4,973		$	4,790
Plus: Intangible amortization, net of tax ⁽¹⁾	108			129			89			110
Adjusted net income	$	4,972		$	4,367		$	5,062		$	4,900
Average Tangible Equity:
Average total shareholders' equity	$	172,136		$	169,022		$	181,274		$	175,213
Less: Average intangibles	(9,038		)	(9,742		)	(8,723		)	(9,369		)
Average tangible equity	$	163,098		$	159,280		$	172,551		$	165,844
ROATE (annualized)	12.10		%	10.91		%	11.90		%	11.98		%
(1) Computed on a tax-equivalent basis, assuming a federal income tax rate of 34% for 2012 and 35% for 2013
(1) Computed on a tax-equivalent basis, assuming a federal income tax rate of 35%.


	As of September 30,				As of March 31,
(in thousands)	2013		2012		2014			2013
Tangible Equity:
Total shareholders' equity	175,534		171,524		$	183,143		$	176,865
Less: Intangibles	(8,971	)	(9,663	)	(8,669		)	(9,303		)
Tangible equity	166,563		161,861		$	174,474		$	167,562
Tangible Assets:
Total assets	1,738,525		1,721,630		$	1,745,913		$	1,785,645
Less: Intangibles	(8,971	)	(9,663	)	(8,669		)	(9,303		)
Tangible assets	1,729,554		1,711,967		$	1,737,244		$	1,776,342
Tangible Equity/Tangible Assets	9.63	%	9.45	%	10.04		%	9.43		%

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Net Interest Income

Net interest income is the difference between interest income and fees earned on earning assets and interest expense incurred on interest-bearing liabilities. Interest rate levels and volume fluctuations within earning assets and interest-bearing liabilities impact net interest income. Net interest margin is net interest income as a percentage of average earning assets.

Certain assets with tax favorable treatment are evaluated on a tax-equivalent basis. Tax-equivalent basis assumes a federal income tax rate of ~~34% for 2012 and~~ 35% ~~for 2013.~~. Tax favorable assets generally have lower contractual pretax yields than fully taxable assets. A tax-equivalent analysis is performed by adding the tax savings to the earnings on tax-favorable assets. After

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factoring in the tax-favorable effects of these assets, 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~~three months ended ~~September 30, 2013~~March 31, 2014 ~~declined~~decreased $~~0.4~~0.3 million to $~~13.3~~13.5 million compared with $~~13.7~~13.8 million for the ~~quarter~~three months ended ~~September 30, 2012~~March 31, 2013. Our total interest income of $~~16.1~~15.9 million was $~~1.5~~1.3 million lower in the first ~~third~~three months ~~quarter~~ of ~~2013~~2014 compared with the same period in ~~2012~~2013. Most of the decrease in total interest income was attributable to a decrease in loan pool participation income. Loan pool participation income is accounted for on a cash basis when actual payments are received, which can cause income related to this item to vary widely from quarter to quarter. Income from ~~loan pool participations was~~ ~~$0.2~~loans decreased slightly from $12.1 million ~~for~~ in the ~~third~~first quarter of 2013~~, a decrease of~~ ~~$0.7~~ to $11.9 million ~~compared to~~ in the ~~same period a year ago, on a much lower level of investment in~~ ~~2013, as the Company continues to exit this line of business as balances pay down. Despite increases in loan balances, loan interest income decreased~~ ~~$0.6 million, or~~ ~~4.3%, to~~ ~~$12.2 million~~ ~~for the~~ ~~third~~first quarter of ~~2013~~2014~~, compared to~~ ~~$12.8 million~~ ~~for the same period of~~ ~~2012~~, due to the ~~generally~~general low interest rate environment. ~~Income~~Interest income from investment securities ~~decreased~~also declined slightly due primarily to ~~$3.7 million~~ ~~for the~~ ~~third~~ ~~quarter of~~ ~~2013~~ ~~compared to~~ ~~$3.9 million~~ ~~for the~~ ~~third~~ ~~quarter of~~ ~~2012, due to lower yields and an~~ ~~$11.2 million~~a decrease in the average balance of investment ~~securities between the two comparable periods.~~securities. The decrease in total interest income was partially offset by reduced interest expense on deposits and other interest-bearing liabilities, including long-term and other debt and FHLB borrowings. Total interest expense for the first ~~third~~three months ~~quarter~~ of ~~2013~~2014 decreased $1.0 million, or ~~26.3%~~29.6%, compared with the same period in ~~2012~~2013, due primarily to ~~lower average interest rates in~~ ~~2013~~.the maturity of higher rate certificates of deposit. Our net interest margin on a tax-equivalent basis for the first ~~third~~three months ~~quarter~~ of ~~2013~~2014 ~~decreased~~improved slightly to ~~3.43%~~3.55% compared with ~~3.57%~~3.51% infor the first ~~third~~three months ~~quarter~~ of ~~2012~~2013. 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. Our overall yield on earning assets declined to ~~4.12%~~4.14% for the first ~~third~~three months ~~quarter~~ of ~~2013~~2014 from ~~4.52%~~4.33% for the first ~~third~~three months ~~quarter~~ of ~~2012~~2013. This decline was due primarily to lower ~~rates being received~~average balances and yields on ~~newly originated loans~~loan pool participations, and ~~purchases of investment securities.~~lower yields on loans. The average cost of interest-bearing liabilities decreased in the first ~~third~~three months ~~quarter~~ of ~~2013~~2014 to ~~0.85%~~0.72% from ~~1.14%~~0.98% for the first ~~third~~three months ~~quarter~~ of ~~2012~~2013, due to the continued repricing of new time ~~certificates,~~deposits and other interest-bearing liabilities, including FHLB ~~advances~~borrowings, at lower interest rates.

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The following table shows the consolidated average balance sheets, detailing the major categories of assets and liabilities, the interest income earned on interest-earning assets, the interest expense paid for ~~the~~ interest-bearing liabilities, and the related yields and interest rates for the ~~quarters~~three months ended ~~September 30, 2013~~March 31, 2014 and ~~2012~~2013. 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.

Three Months Ended September 30,
2013 2012

Average
Balance

Interest
Income/
Expense

Average
Rate/
Yield

Average
Balance

Interest
Income/
Expense

Average
Rate/
Yield
(dollars in thousands)
Average Earning Assets:
Loans ^(1)(2)(3)
$ 1,062,615
$ 12,463
4.65 % $ 1,009,332
$ 12,970
5.11 %
Loan pool participations ⁽⁴⁾
31,413
226
2.85
42,404
886
8.31
Investment securities:
Taxable investments 389,674
2,395
2.44
396,100
2,654
2.67
Tax exempt investments ⁽²⁾
152,626
1,952
5.07
157,377
1,861
4.70
Total investment securities 542,300
4,347
3.18
553,477
4,515
3.25
Federal funds sold and interest-bearing balances 3,445
2
0.23
14,047
7
0.20
Total interest-earning assets $ 1,639,773
$ 17,038
4.12 % $ 1,619,260
$ 18,378
4.52 %

Cash and due from banks 20,005
18,535

Premises and equipment 26,336
24,976

Allowance for loan losses (18,781 ) (18,082 )
Other assets 60,835
60,611

Total assets $ 1,728,168
$ 1,705,300

Average Interest-Bearing Liabilities:
Savings and interest-bearing demand deposits $ 670,273
$ 578
0.34 % $ 591,951
$ 727
0.49 %
Certificates of deposit 442,724
1,480
1.33
551,359
2,148
1.55
Total deposits 1,112,997
2,058
0.73
1,143,310
2,875
1.00
Federal funds purchased and repurchase agreements 67,607
41
0.24
59,726
49
0.33
Federal Home Loan Bank borrowings 133,333
671
2.00
134,016
767
2.28
Long-term debt and other 15,990
81
2.01
16,083
176
4.35
Total borrowed funds 216,930
793
1.45
209,825
992
1.88
Total interest-bearing liabilities $ 1,329,927
$ 2,851
0.85 % $ 1,353,135
$ 3,867
1.14 %

Net interest spread⁽²⁾
3.27 % 3.38 %

Demand deposits 212,940
168,185

Other liabilities 13,165
14,958

Shareholders' equity 172,136
169,022

Total liabilities and shareholders' equity $ 1,728,168
$ 1,705,300

Interest income/earning assets ⁽²⁾
$ 1,639,773
$ 17,038
4.12 % $ 1,619,260
$ 18,378
4.52 %
Interest expense/earning assets $ 1,639,773
$ 2,851
0.69 % $ 1,619,260
$ 3,867
0.95 %
Net interest margin ⁽²⁾⁽⁵⁾
$ 14,187
3.43 % $ 14,511
3.57 %

Non-GAAP to GAAP Reconciliation:
Tax Equivalent Adjustment:
Loans $ 248
$ 210

Securities 674
582

Total tax equivalent adjustment 922
792

Net Interest Income $ 13,265
$ 13,719



	Three Months Ended March 31,
	2014							2013
	Average Balance			Interest Income/ Expense		Average Rate/ Yield		Average Balance			Interest Income/ Expense		Average Rate/ Yield
(dollars in thousands)
Average Earning Assets:
Loans ^(1)(2)(3)	$	1,082,467		$	12,213	4.58	%	$	1,034,560		$	12,308	4.82	%
Loan pool participations ⁽⁴⁾	27,061			280		4.20		36,590			1,080		11.97
Investment securities:
Taxable investments	372,166			2,316		2.52		440,320			2,630		2.42
Tax exempt investments ⁽²⁾	168,360			2,110		5.08		166,393			1,965		4.79
Total investment securities	540,526			4,426		3.32		606,713			4,595		3.07
Federal funds sold and interest-bearing balances	6,803			4		0.24		7,738			5		0.26
Total interest-earning assets	$	1,656,857		$	16,923	4.14	%	$	1,685,601		$	17,988	4.33	%

Cash and due from banks	19,585							22,046
Premises and equipment	28,812							25,574
Allowance for loan losses	(18,491		)					(18,388		)
Other assets	60,264							60,098
Total assets	$	1,747,027						$	1,774,931

Average Interest-Bearing Liabilities:
Savings and interest-bearing demand deposits	$	700,697		$	581	0.34	%	$	675,885		$	707	0.42	%
Certificates of deposit	453,911			1,142		1.02		525,957			1,872		1.44
Total deposits	1,154,608			1,723		0.61		1,201,842			2,579		0.87
Federal funds purchased and repurchase agreements	60,354			31		0.21		63,328			45		0.29
Federal Home Loan Bank borrowings	108,389			562		2.10		121,856			692		2.30
Long-term debt and other	15,941			78		1.98		16,038			83		2.10
Total borrowed funds	184,684			671		1.47		201,222			820		1.65
Total interest-bearing liabilities	$	1,339,292		$	2,394	0.72	%	$	1,403,064		$	3,399	0.98	%

Net interest spread⁽²⁾						3.42	%						3.35	%

Demand deposits	215,092							182,453
Other liabilities	11,369							14,201
Shareholders' equity	181,274							175,213
Total liabilities and shareholders' equity	$	1,747,027						$	1,774,931

Interest income/earning assets ⁽²⁾	$	1,656,857		$	16,923	4.14	%	$	1,685,601		$	17,988	4.33	%
Interest expense/earning assets	$	1,656,857		$	2,394	0.59	%	$	1,685,601		$	3,399	0.82	%
Net interest margin ⁽²⁾⁽⁵⁾				$	14,529	3.55	%				$	14,589	3.51	%

Non-GAAP to GAAP Reconciliation:
Tax Equivalent Adjustment:
Loans				$	273						$	194
Securities				729							604
Total tax equivalent adjustment				1,002							798
Net Interest Income				$	13,527						$	13,791



	(1)	Loan fees included in interest income are not material.
	(2)	Computed on a tax-equivalent basis, assuming a federal income tax rate of ~~34% for 2012 and~~ 35% ~~for 2013.~~.
	(3)	Non-accrual loans have been included in average loans, net of unearned discount.
	(4)	Includes interest income and discount realized on loan pool participations.
	(5)	Net interest margin is tax-equivalent net interest income as a percentage of average earning assets.

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The following table sets forth an analysis of volume and rate changes in interest income and interest expense on our average earning assets and average interest-bearing liabilities during the three months ended ~~September 30, 2013~~March 31, 2014, compared to the same period in ~~2012~~2013, reported on a fully tax-equivalent basis assuming a ~~34%~~35% tax ~~rate in 2012 and 35% in 2013.~~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.

Three Months Ended September 30,
2013 Compared to 2012 Change due to
Volume Rate/Yield Net
(in thousands)
Increase (decrease) in interest income:
Loans, tax equivalent $ 3,245
$ (3,752 ) $ (507 )
Loan pool participations (187 ) (473 ) (660 )
Investment securities:
Taxable investments (41 ) (218 ) (259 )
Tax exempt investments (298 ) 389
91
Total investment securities (339 ) 171
(168 )
Federal funds sold and interest-bearing balances (11 ) 6
(5 )
Change in interest income 2,708
(4,048 ) (1,340 )
Increase (decrease) in interest expense:
Savings and interest-bearing demand deposits 491
(640 ) (149 )
Certificates of deposit (388 ) (280 ) (668 )
Total deposits 103
(920 ) (817 )
Federal funds purchased and repurchase agreements 32
(40 ) (8 )
Federal Home Loan Bank borrowings (4 ) (92 ) (96 )
Other long-term debt (1 ) (94 ) (95 )
Total borrowed funds 27
(226 ) (199 )
Change in interest expense 130
(1,146 ) (1,016 )
Increase in net interest income $ 2,578
$ (2,902 ) $ (324 )
Percentage decrease in net interest income over prior period (2.2 )%

~~Interest income and fees on loans~~ ~~on a tax-equivalent basis decreased~~ ~~$0.5 million, or3.9%, in the~~ ~~third~~ ~~quarter of~~ ~~2013~~ ~~compared with the same period in~~ ~~2012. Average loans were~~ ~~$53.3 million, or5.3%, higher in the~~ ~~third~~ ~~quarter of~~ ~~2013~~ ~~compared with~~ ~~2012. We believe the increase in average loan balances was attributable to~~ ~~a gradual improvement in general economic conditions, resulting in the willingness of borrowers to consider incurring more debt to support growth in their businesses.~~ The yield on 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 our portfolio. The average rate on loans decreased from ~~5.11%~~ ~~in the~~ ~~third~~ ~~quarter of~~ ~~2012~~to~~4.65%~~ in ~~third~~ ~~quarter of~~ ~~2013, primarily due to new and renewing loans being made at lower interest rates than those paying down.~~

~~Interest and discount income on loan pool participations~~ ~~was~~ ~~$0.2 million~~ ~~for the~~ ~~third~~ ~~quarter of~~ ~~2013, a decrease of~~ ~~$0.7 million, or~~ ~~74.5%, from~~ ~~$0.9 million~~ ~~in the~~ ~~third~~ ~~quarter of~~ ~~2012. The Company entered into this business upon consummation of its merger with the Former MidWestOne~~ in March 2008. These loan pool participations are investments in pools of performing, subperforming and nonperforming loans purchased at varying discounts to the aggregate outstanding principal amount of the underlying loans. The loan pool participations are held and serviced by a third-party independent servicing corporation, and the amount of income received from them can vary widely due to unpredictable payment collections and loss recoveries. As previously announced, the Company has decided to exit this line of business as current balances pay down. We have minimal exposure in the loan pool participations to consumer real estate, subprime credit or construction and real estate development loans. Average loans pool participations were ~~$11.0 million, or~~ ~~25.9%, lower in the~~ ~~third~~ ~~quarter of~~ ~~2013~~ ~~compared with~~ ~~2012. The decrease in average loan pool volume was due to loan pay downs and charge-offs.~~

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 ~~2.85%~~ ~~for the~~ ~~third~~ ~~quarter of~~

~~Table of Contents~~

~~2013, down from~~ ~~8.31%~~ ~~for the same period of~~ ~~2012. The net yield was lower in the~~ ~~third~~ ~~quarter of~~ ~~2013~~ ~~than for the~~ ~~third~~ ~~quarter of~~ ~~2012~~ primarily due to decreased payment activity and lower gains on the sale of foreclosed real estate properties in the portfolio at a value greater than their net book value, a trend we expect to continue in the future.

~~Interest income on investment securities~~ ~~on a tax-equivalent basis totaled~~ ~~$4.3 million~~ ~~in the~~ ~~third~~ ~~quarter of~~ ~~2013~~ ~~compared with~~ ~~$4.5 million~~ ~~for the same period of~~ ~~2012. The average balance of investments in the~~ ~~third~~ ~~quarter of~~ ~~2013~~ ~~was~~ ~~$542.3 million~~ ~~compared with~~ ~~$553.5 million~~ ~~in the~~ ~~third~~ ~~quarter of~~ ~~2012, a decrease of~~ ~~$11.2 million, or~~ ~~2.0%~~. The decrease in average balance resulted primarily from using proceeds from maturing securities for increased loan originations, and decreased deposit balances. The tax-equivalent yield on our investment portfolio in the ~~third~~ ~~quarter of~~ ~~2013~~ ~~decreased to~~ ~~3.18%from3.25%~~ ~~in the comparable period of~~ ~~2012, reflecting the maturity of higher yielding securities and purchases of new securities at lower market interest rates.~~

~~Interest expense on deposits~~ ~~was~~ ~~$0.8 million, or~~ ~~28.4%~~, ~~lower in the~~ ~~third~~ ~~quarter of~~ ~~2013~~ ~~compared with the same period in~~ ~~2012, mainly due to the decrease in interest rates being paid during~~ ~~2013. The weighted average rate paid on interest-bearing deposits was~~ ~~0.73%in thethird~~ ~~quarter of~~ ~~2013~~ ~~compared with~~ ~~1.00%~~ ~~in the~~ ~~third~~ ~~quarter of~~ ~~2012~~. This decline reflects the overall reduction in interest rates on deposits throughout the markets in which we operate, and the gradual downward repricing of time deposits as higher rate certificates mature. Average interest-bearing deposits for the ~~third~~ ~~quarter of~~ ~~2013~~ ~~decreased~~ ~~$30.3 million, or~~ ~~2.7%, compared with the same period in~~ ~~2012, due to depositors choosing other savings and investing alternatives over lower-yielding deposit accounts.~~

~~Interest expense on borrowed funds~~ of ~~$0.8 million~~ was ~~$0.2 million~~ ~~lower~~ ~~in the~~ ~~third~~ ~~quarter of~~ ~~2013~~ ~~compared with the same period in~~ ~~2012. Average borrowed funds for the~~ ~~third~~ ~~quarter of~~ ~~2013~~ ~~were~~ ~~$7.1 million~~ ~~higher compared with the same period in~~ ~~2012. This increase was due to increases in the level of repurchase agreements, somewhat offset by lower FHLB borrowing and other debt. The weighted average rate on borrowed funds decreased to~~ ~~1.45%~~ ~~for the~~ ~~third~~ ~~quarter of~~ ~~2013~~ ~~compared wi~~th ~~1.88%~~ f~~or the~~ ~~third~~ ~~quarter of~~ ~~2012~~, reflecting the replacement of maturing higher-rate borrowings with those in the current lower-rate environment, and the transition of $7.8 million of our long-term debt from a fixed interest rate of 6.48% to a variable rate, currently ~~1.84%~~.

~~Provision for Loan Losses~~

The 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~~ ~~$0.3 million~~ ~~in the~~ ~~third~~ ~~quarter of~~ ~~2013, a decrease of~~ ~~$0.3 million, or~~ ~~56.5%, from~~ ~~$0.6 million~~ ~~in the~~ ~~third~~ ~~quarter of~~ ~~2012. Net loans charged off in the~~ ~~third~~ ~~quarter of~~ ~~2013~~ ~~totaled~~ ~~$0.3 million~~ ~~compared with net loans charged off of~~ ~~$0.5 million~~i~~n the~~ ~~third~~ ~~quarter of~~ ~~2012~~. We determine an appropriate provision based on 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. We believe that the allowance for loan losses was adequate based on the inherent risk in the portfolio as of ~~September 30, 2013~~; 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 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 higher potential for loss. We review sensitive assets on at least a quarterly basis for changes in the customers' ability to pay and changes in the 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.

~~Table of Contents~~

~~Noninterest Income~~

Three Months Ended September 30,
2013 2012 $ Change % Change
(dollars in thousands)
Trust, investment, and insurance fees $ 1,297
$ 1,294
$ 3
0.2 %
Service charges and fees on deposit accounts 786
846
(60 ) (7.1 )
Mortgage origination and loan servicing fees 1,083
919
164
17.8
Other service charges, commissions and fees 406
303
103
34.0
Bank-owned life insurance income 230
225
5
2.2
Impairment losses on investment securities, net —
(337 ) 337
NM
Gain on sale or call of available for sale securities —
8
(8 ) NM
Loss on sale of premises and equipment (2 ) —
(2 ) NM
Total noninterest income $ 3,800
$ 3,258
$ 542
16.6 %
Noninterest income as a % of total revenue* 22.3 % 20.7 %
NM - Percentage change not considered meaningful.
* Total revenue is net interest income plus noninterest income excluding gain/loss on securities and premises and equipment and impairment of investment securities.

~~Total noninterest income increased~~ ~~$0.5 million~~ ~~for the~~ ~~third~~ ~~quarter of~~ ~~2013~~ ~~compared with the same period for~~ ~~2012. The increase in~~ ~~2013~~ is primarily due to the $0.3 million impairment loss on investment securities in the third quarter of 2012 for which no comparable loss existed in the third quarter of 2013. Mortgage origination and loan servicing fees increased ~~$0.2 million, or~~ ~~17.8%, to~~ ~~$1.1 million~~ ~~for the~~ ~~third~~ ~~quarter of~~ ~~2013, compared to~~ ~~$0.9 million~~ ~~for the same quarter of~~ ~~2012~~. The increase was due to the $0.5 million market value adjustment of retained mortgage servicing rights, an event which we do not expect to recur. Going forward we expect that maintaining this level of fee income will be more dependent on the volume of new loan originations and less on refinance transactions, as many creditworthy borrowers have already taken advantage of the current historically low market rates. This increase was partially offset by a decrease in service charges and fees on deposit accounts of ~~$0.1 million, or~~ ~~7.1%, to~~ ~~$0.8 million~~ ~~during the~~ ~~third~~ ~~quarter of~~ ~~2013, compared with~~ ~~$0.9 million~~ ~~in the~~ ~~third~~ ~~quarter of~~ ~~2012, primarily as a result of decreased NSF check fee income.~~

~~Management's strategic goal is for noninterest income to constitute 30% of total revenues (net interest income plus noninterest income) over time. For the~~ ~~three~~ ~~months ended~~ ~~September 30, 2013, noninterest income comprised~~ ~~22.3%~~ ~~of total revenues, compared with~~ ~~20.7%~~ ~~for the same period in~~ ~~2012~~. While our emphasis on trust, investment, and insurance fees has shown some improvement in this category of noninterest income, the effects of decreased service charges and fees on deposit accounts, and other service charges, commissions and fees, has significantly inhibited material improvement. Management continues to evaluate options for increasing noninterest income. We expect a reduced volume of loans originated and sold on the secondary market in the future to adversely impact mortgage origination fees, providing an additional challenge to increasing overall noninterest income.

~~Noninterest Expense~~

Three Months Ended September 30,
2013 2012 $ Change % Change
(dollars in thousands)
Salaries and employee benefits $ 6,099
$ 6,207
$ (108 ) (1.7 )%
Net occupancy and equipment expense 1,580
1,537
43
2.8
Professional fees 615
612
3
0.5
Data processing expense 364
443
(79 ) (17.8 )
FDIC insurance expense 255
326
(71 ) (21.8 )
Amortization of intangible assets 166
195
(29 ) (14.9 )
Other operating expense 1,204
1,393
(189 ) (13.6 )
Total noninterest expense $ 10,283
$ 10,713
$ (430 ) (4.0 )%

~~Noninterest expense for the~~ ~~third~~ ~~quarter of~~ ~~2013~~ ~~was~~ ~~$10.3 million~~ ~~compared with~~ ~~$10.7 million~~ ~~for the~~ ~~third~~ ~~quarter of~~ ~~2012, a decrease of~~ ~~$0.4 million, or~~ ~~4.0%. With the exception of a small increase in both net occupancy and equipment expense and professional fees, all other noninterest expense categories experienced a decline for the~~ ~~third~~ ~~quarter of~~ ~~2013, compared with the~~ ~~third~~ ~~quarter of~~ ~~2012, mainly due to expense control and efficiency initiatives.~~

~~Table of Contents~~

~~Income Tax Expense~~

~~Our effective tax rate, or income taxes divided by income before taxes, was~~ ~~25.5%~~ ~~for the~~ ~~third~~ ~~quarter of~~ ~~2013, the same as the~~ ~~third~~ ~~quarter of~~ ~~2012. Income tax expense increased~~ ~~$0.2 million~~ to ~~$1.7 million~~ i~~n the~~ ~~third~~ ~~quarter of~~ ~~2013~~ ~~compared with~~ ~~$1.5 million~~ ~~income tax expense for the same period of~~ ~~2012~~ ~~primarily due to increased net income.~~

~~Comparison of Operating Results for the~~ ~~Nine~~ ~~Months Ended~~ ~~September 30, 2013~~ ~~and~~ ~~September 30, 2012~~

~~Summary~~

~~For the~~ ~~nine months~~ ~~ended~~ ~~September 30, 2013~~ ~~we earned net income of~~ ~~$14.2 million~~, ~~compared with~~ ~~$12.2 million~~, ~~for the~~ ~~nine months~~ ~~ended~~ ~~September 30, 2012, an increase of~~ ~~16.4%. Basic and diluted earnings per common share for the~~ ~~first nine months~~ of ~~2013~~ ~~were~~ ~~$1.67~~ ~~and~~ ~~$1.66, respectively, versu~~s ~~$1.44~~ ~~and~~ ~~$1.43~~ ~~in the~~ ~~first nine months~~ of ~~2012. Our annualized ROAA for the~~ ~~first nine months~~ of ~~2013~~ ~~was~~ ~~1.08%~~ c~~ompared with a return of~~ ~~0.95%~~ f~~or the same period in~~ ~~2012. Our annualized ROAE was~~ ~~10.84%~~ ~~for the~~ ~~nine months~~ ~~ended~~ ~~September 30, 2013~~ ~~versus~~ ~~9.98%~~ ~~for the~~ ~~nine months~~ ~~ended~~ ~~September 30, 2012. The annualized ROATE was~~ ~~11.70%~~ ~~for the~~ ~~first nine months~~ of ~~2013~~ ~~compared with~~ ~~10.96%~~ ~~for the same period in~~ ~~2012. After excluding a $6.1 million pension liquidation expense and a $4.0 million gain on the sale of the Company's Home Mortgage Center (the "HMC"), adjusted diluted earnings per share for the~~ ~~first nine months~~ of ~~2012~~ ~~were~~ ~~$1.58~~.

~~The following table presents selected financial results and measures for the~~ ~~first nine months~~ of ~~2013~~ ~~and~~ ~~2012~~.

Nine Months Ended September 30,
($ amounts in thousands) 2013 2012
Net Income $ 14,185
$ 12,182
Average Assets 1,758,357
1,706,342
Average Shareholders' Equity 174,975
163,016
Return on Average Assets* (ROAA) 1.08 % 0.95 %
Return on Average Shareholders' Equity* (ROAE) 10.84 % 9.98 %
Return on Average Tangible Equity* (ROATE) 11.70 % 10.96 %
Total Equity to Assets (end of period) 10.10 % 9.96 %
Tangible Equity to Tangible Assets (end of period) 9.63 % 9.45 %
* Annualized

We have traditionally disclosed certain non-GAAP ratios to evaluate and measure our financial condition, including our return on average tangible equity and the ratio of our tangible equity to tangible assets. We believe these ratios provide investors with information regarding our financial condition and results of operations and how we evaluate them internally. In addition, we believe disclosure of these, and certain other financial metrics, exclusive of the gain we experienced on the sale of our Home Mortgage Center and the effects of the pension termination expense in the ~~nine~~ ~~months ended~~ ~~September 30, 2012~~ ~~also provides investors with helpful information about our financial condition and results of operations.~~

~~Table of Contents~~

~~The following tables provide a reconciliation of the non-GAAP measures to the most comparable GAAP equivalents.~~

For the Nine Months Ended September 30,
(in thousands) 2013 2012
Net Income:
Net income $ 14,185
$ 12,182
Plus: Intangible amortization, net of tax ⁽¹⁾
324
385
Adjusted net income $ 14,509
$ 12,567
Plus: Pension termination expense —
6,088
Less: Gain on sale of HMC —
(4,047 )
Net tax effect of above items⁽²⁾
—
(755 )
Adjusted net income, exclusive of pension termination expense and gain on sale of HMC $ 14,509
$ 13,853
Average Tangible Equity:
Average total shareholders' equity $ 174,975
$ 163,016
Less: Average intangibles (9,172 ) (9,900 )
Average tangible equity $ 165,803
$ 153,116
ROATE (annualized) 11.70 % 10.96 %
ROATE, Exclusive of Pension Termination Expense and Gain on Sale of HMC (Annualized) 11.70 % 12.09 %
Earnings Per Common Share-Basic $ 1.67
$ 1.44
Earnings Per Common Share-Diluted 1.66
1.43
Earnings Per Common Share-Basic, Exclusive of Pension Termination Expense and Gain on Sale of HMC 1.67
1.59
Earnings Per Common Share-Diluted, Exclusive of Pension Termination Expense and Gain on Sale of HMC 1.66
1.58
(1) Computed on a tax-equivalent basis, assuming a federal income tax rate of 34% for 2012 and 35% for 2013
(2) Computed assuming a combined state and federal tax rate of 37%

As of September 30,
(in thousands) 2013 2012
Tangible Equity:
Total shareholders' equity 175,534
171,524
Less: Intangibles (8,971 ) (9,663 )
Tangible equity 166,563
161,861
Tangible Assets:
Total assets 1,738,525
1,721,630
Less: Intangibles (8,971 ) (9,663 )
Tangible assets 1,729,554
1,711,967
Tangible Equity/Tangible Assets 9.63 % 9.45 %

~~Table of Contents~~

For the Nine Months Ended September 30,
(in thousands) 2013 2012
Net income:
Net income $ 14,185
$ 12,182
Plus: Pension termination expense —
6,088
Less: Gain on sale of HMC —
(4,047 )
Net tax effect of above items⁽²⁾
—
(755 )
Adjusted net income, exclusive of pension termination expense and gain on sale of HMC 14,185
13,468
ROAA (annualized) 1.08 % 0.95 %
ROAA, exclusive of pension termination expense and gain on sale of HMC (annualized) 1.08 % 1.05 %
ROAE (annualized) 10.84 % 9.98 %
ROAE, exclusive of pension termination expense and gain on sale of HMC (annualized) 10.84 % 11.04 %
(2) Computed assuming a combined federal and state tax rate of 37%

~~Net Interest Income~~

Certain assets with tax favorable treatment are evaluated on a tax-equivalent basis. Tax-equivalent basis assumes a federal income tax rate of 34% for 2012 and 35% for 2013. Tax favorable assets generally have lower contractual pretax 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 tax-favorable effects of these assets, 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~~ ~~nine months~~ ~~ended~~ ~~September 30, 2013~~ ~~increased~~ ~~$0.5 million~~ to ~~$40.7 million~~ ~~compared with~~ ~~$40.2 million~~ ~~for the~~ ~~nine months~~ ~~ended~~ ~~September 30, 2012. Our total interest income of~~ ~~$50.1 million~~ ~~was~~ ~~$2.3 million~~ ~~lower in the~~ ~~first nine months~~ of ~~2013~~ ~~compared with the same period in~~ ~~2012~~. Most of the decrease in total interest income was attributable to a decrease in loan interest income due to the generally low interest rate environment. Income from investment securities declined despite an increase in the average balance of investment securities, reflecting reinvestment of maturing securities and purchases of new securities at lower market interest rates.This decrease was partially offset by increased loan pool participation income due to the payoff of several loans in the portfolio at a value greater than their net book value. The decrease in total interest income was more than offset by reduced interest expense on deposits and other interest-bearing liabilities, including long-term and other debt and FHLB borrowings. Total interest expense for the ~~first nine months~~ of ~~2013~~ ~~decreased~~ ~~$2.8 million, or~~ ~~22.8%, compared with the same period in~~ ~~2012, due primarily to lower average interest rates in~~ ~~2013. Our net interest margin on a tax-equivalent basis for the~~ ~~first nine months~~ of ~~2013~~ ~~was relatively stable at~~ ~~3.48%~~ ~~compared with~~ ~~3.51%~~ ~~in the~~ ~~first nine months~~ of ~~2012~~. 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. Our overall yield on earning assets declined to ~~4.23%~~ ~~for the~~ ~~first nine months~~ of ~~2013~~ ~~from~~ ~~4.52%~~ ~~for the~~ ~~first nine months~~ of ~~2012. This decline was due primarily to lower rates being received on newly originated loans and purchases of investment securities. The average cost of interest-bearing liabilities decreased in the~~ ~~first nine months~~ of ~~2013~~ to ~~0.92%~~ ~~from~~ ~~1.20%~~ ~~for the~~ ~~first nine months~~ of ~~2012, due to the continued repricing of new time deposits and other interest-bearing liabilities, including FHLB borrowings, at lower interest rates.~~

~~Table of Contents~~

The following table shows the consolidated average balance sheets, detailing the major categories of assets and liabilities, the interest income earned on interest-earning assets, the interest expense paid for the interest-bearing liabilities, and the related yields and interest rates for the ~~nine months~~ ~~ended~~ ~~September 30, 2013~~ ~~and~~ ~~2012. 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.~~

Nine Months Ended September 30,
2013 2012

Average
Balance

Interest
Income/
Expense

Average
Rate/
Yield

Average
Balance

Interest
Income/
Expense

Average
Rate/
Yield
(dollars in thousands)
Average Earning Assets:
Loans ^(1)(2)(3)
$ 1,052,200
$ 37,312
4.74 % $ 993,582
$ 39,254
5.28 %
Loan pool participations ⁽⁴⁾
33,875
1,916
7.56
46,302
1,741
5.02
Investment securities:
Taxable investments 418,437
7,571
2.42
406,880
8,224
2.70
Tax exempt investments ⁽²⁾
160,925
6,068
5.04
151,630
5,451
4.80
Total investment securities 579,362
13,639
3.15
558,510
13,675
3.27
Federal funds sold and interest-bearing balances 4,691
8
0.23
17,025
30
0.24
Total interest-earning assets $ 1,670,128
$ 52,875
4.23 % $ 1,615,419
$ 54,700
4.52 %

Cash and due from banks 20,999
21,372

Premises and equipment 25,886
25,520

Allowance for loan losses (18,554 ) (18,090 )
Other assets 59,898
62,121

Total assets $ 1,758,357
$ 1,706,342

Average Interest-Bearing Liabilities:
Savings and interest-bearing demand deposits $ 673,558
$ 1,920
0.38 % $ 590,701
$ 2,386
0.54 %
Certificates of deposit 483,326
5,042
1.39
564,513
6,761
1.60
Total deposits 1,156,884
6,962
0.80
1,155,214
9,147
1.06
Federal funds purchased and repurchase agreements 64,066
133
0.28
54,757
156
0.38
Federal Home Loan Bank borrowings 133,939
2,068
2.06
135,200
2,353
2.32
Long-term debt and other 16,014
246
2.05
16,107
529
4.39
Total borrowed funds 214,019
2,447
1.53
206,064
3,038
1.97
Total interest-bearing liabilities $ 1,370,903
$ 9,409
0.92 % $ 1,361,278
$ 12,185
1.20 %

Net interest spread⁽²⁾
3.31 % 3.32 %

Demand deposits 199,437
165,886

Other liabilities 13,042
16,162

Shareholders' equity 174,975
163,016

Total liabilities and shareholders' equity $ 1,758,357
$ 1,706,342

Interest income/earning assets ⁽²⁾
$ 1,670,128
$ 52,875
4.23 % $ 1,615,419
$ 54,700
4.52 %
Interest expense/earning assets $ 1,670,128
$ 9,409
0.75 % $ 1,615,419
$ 12,185
1.01 %
Net interest margin ⁽²⁾⁽⁵⁾
$ 43,466
3.48 % $ 42,515
3.51 %

Non-GAAP to GAAP Reconciliation:
Tax Equivalent Adjustment:
Loans $ 706
$ 615

Securities 2,095
1,707

Total tax equivalent adjustment 2,801
2,322

Net Interest Income $ 40,665
$ 40,193



	~~(1)~~	~~Loan fees included in interest income are not material.~~
	~~(2)~~	~~Computed on a tax-equivalent basis, assuming a federal income tax rate of 34% for 2012 and 35% for 2013.~~
	~~(3)~~	~~Non-accrual loans have been included in average loans, net of unearned discount.~~
	~~(4)~~	~~Includes interest income and discount realized on loan pool participations.~~
	~~(5)~~	~~Net interest margin is tax-equivalent net interest income as a percentage of average earning assets.~~

~~Table of Contents~~

~~The following table sets forth an analysis of volume and rate changes in interest income and interest expense on our average earning assets and average interest-bearing liabilities during the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2013, compared to the same period in~~ ~~2012~~, reported on a fully tax-equivalent basis assuming a 34% tax rate for 2012 and 35% for 2013. 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.


	Nine Months Ended September 30,									Three Months Ended March 31,
	2013 Compared to 2012 Change due to									2014 Compared to 2013 Change due to
	Volume			Rate/Yield			Net			Volume			Rate/Yield			Net
(in thousands)
Increase (decrease) in interest income:
Loans, tax equivalent	$	3,215		$	(5,157	)	$	(1,942	)	$	2,347		$	(2,442	)	$	(95	)
Loan pool participations	(755		)	930			175			(229		)	(571		)	(800		)
Investment securities:
Taxable investments	349			(1,002		)	(653		)	(943		)	629			(314		)
Tax exempt investments	340			277			617			24			121			145
Total investment securities	689			(725		)	(36		)	(919		)	750			(169		)
Federal funds sold and interest-bearing balances	(21		)	(1		)	(22		)	(1		)	—			(1		)
Change in interest income	3,128			(4,953		)	(1,825		)	1,198			(2,263		)	(1,065		)
Increase (decrease) in interest expense:
Savings and interest-bearing demand deposits	458			(924		)	(466		)	154			(280		)	(126		)
Certificates of deposit	(899		)	(820		)	(1,719		)	(233		)	(497		)	(730		)
Total deposits	(441		)	(1,744		)	(2,185		)	(79		)	(777		)	(856		)
Federal funds purchased and repurchase agreements	34			(57		)	(23		)	(2		)	(12		)	(14		)
Federal Home Loan Bank borrowings	(22		)	(263		)	(285		)	(73		)	(57		)	(130		)
Other long-term debt	(3		)	(280		)	(283		)	—			(5		)	(5		)
Total borrowed funds	9			(600		)	(591		)	(75		)	(74		)	(149		)
Change in interest expense	(432		)	(2,344		)	(2,776		)	(154		)	(851		)	(1,005		)
Change in net interest income	$	3,560		$	(2,609	)	$	951		$	1,352		$	(1,412	)	$	(60	)
Percentage change in net interest income over prior period							2.2		%							(0.4		)%

Interest income and fees on loans on a tax-equivalent basis decreased $~~1.9~~0.1 million, or ~~4.9%~~0.8%, in the first ~~first nine~~three months of ~~2013~~2014 compared to the same period in ~~2012~~2013. Average loans were $~~58.6~~47.9 million, or ~~5.9%~~4.6%, higher in the first ~~first nine~~three months of ~~2013~~2014 compared ~~with~~to the same period in ~~2012~~2013. We believe the increase in average loan balances was attributable to a gradual improvement in general economic conditions, resulting in the willingness of borrowers to consider incurring more debt to support growth in their businesses. The yield on 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 our portfolio. The average rate on loans decreased from ~~5.28%~~4.82% in the first ~~first nine~~three months of ~~2012~~2013 to ~~4.74%~~4.58% in the first ~~first nine~~three months of ~~2013~~2014, primarily due to new and renewing loans being made at lower interest rates than those paying down.

Interest and discount income on loan pool participations was $~~1.9~~0.3 million for the first three months of 2014 compared with $1.1 million for the first ~~nine~~three months of 2013 ~~compared with~~ ~~$1.7 million~~ ~~for the~~ ~~first nine months~~ of ~~2012~~, ~~an increase~~a decrease of $~~0.2~~0.8 million. Average loan pool participations were $~~12.4~~9.5 million, or ~~26.8%~~26.0%, lower in the first ~~first nine~~three months of ~~2013~~2014 compared ~~with~~to the same period in ~~2012~~2013. The decrease in average loan pool volume was due to loan pay downs and charge-offs, and ~~will~~is expected to continue as the Company exits this line of business.

The net “all-in” yield on loan pool participations was ~~7.56%~~4.20% for the first ~~first nine~~three months of ~~2013~~2014, updown from ~~5.02%~~11.97% for the same period of ~~2012~~2013. The net yield was ~~higher~~lower in the first three months of 2014 than for the first ~~nine~~three months of 2013 ~~than for the~~ ~~first nine months~~ of ~~2012~~primarily due to ~~the sale of foreclosed real estate properties in the portfolio at~~loan pool participation income being accounted for on a ~~value greater than their net book value and the payoff of several loans in the portfolio at a value greater than their net book value, a trend we do not expect~~cash basis when actual payments are received, which can cause income related to ~~continue in the future, as~~this item to vary widely from quarter to quarter. As the percentage of creditworthy borrowers in the portfolio ~~decreases.~~continues to decrease, we expect generally lower returns to continue.

Interest income on investment securities on a tax-equivalent basis totaled $~~13.6~~4.4 million in the first ~~first nine~~three months of ~~2013~~2014 compared with $~~13.7~~4.6 million for the same period of ~~2012~~2013. The average balance of investments in the first three months of 2014 was $540.5 millioncompared with$606.7 million in the first ~~nine~~three months of 2013 ~~was~~ ~~$579.4 millioncompared with$558.5 million~~ ~~in the~~ ~~first nine months~~ of ~~2012~~, ~~an increase~~a decrease of $~~20.9~~66.2 million, or ~~3.7%~~10.9%. The ~~increase~~decrease in average balance resulted primarily from ~~our~~the use of proceeds from maturing investment in securities ~~of a portion of the excess liquidity provided by~~to originate loans

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~~decreasing loan pool participations balances.~~and to reduce FHLB borrowings. The tax-equivalent yield on our investment portfolio infor the first ~~first nine~~three months of ~~2013~~2014 ~~decreased~~increased to ~~3.15%~~3.32%from~~3.27%~~3.07% in the comparable period of ~~2012~~2013, reflecting ~~reinvestment~~the sale of ~~maturing securities~~our remaining collateralized debt obligation ("CDO") portfolio holdings in the first quarter of 2014 which had essentially no yield, and ~~purchases~~a greater percentage of ~~new securities at lower market interest rates.~~the portfolio being held in higher yielding tax-exempt securities.

Interest expense on deposits was $~~2.2~~0.9 million, or ~~23.9%~~33.2%, lower in the first ~~first nine~~three months of ~~2013~~2014 compared with the same period in ~~2012~~2013, mainly due to the decrease in interest rates being paid during ~~2013~~2014. The weighted average rate paid on interest-bearing deposits was ~~0.80%~~0.61% infor thefirst ~~nine~~three months of ~~2013~~2014 compared with ~~1.06%~~0.87% infor the first ~~first nine~~three months of ~~2012~~2013. This decline reflects the overall reduction in interest rates on deposits throughout the markets in which we operate, and the gradual downward repricing of time deposits as higher rate certificates mature. Average interest-bearing deposits for the first ~~first nine~~three months of ~~2013~~2014 ~~increased~~decreased $~~1.7~~47.2 million, or ~~0.1%~~3.9%, compared with the same period in ~~2012~~2013.

Interest expense on borrowed funds was $~~0.6~~0.1 million lower in the first ~~first nine~~three months of ~~2013~~2014 compared with the same period in ~~2012~~2013. Interest on borrowed funds totaled $~~2.4~~0.7 million for the first ~~first nine~~three months of ~~2013~~2014. Average borrowed funds for the first ~~first nine~~three months of ~~2013~~2014 were $~~8.0~~16.5 million ~~higher~~lower compared with the same period in ~~2012~~2013. This ~~increase~~decrease was due primarily to ~~an increase~~a decrease in the level of ~~federal funds purchased and repurchase agreements, somewhat offset by a slight decrease in~~ FHLB borrowings. The weighted average rate on borrowed funds decreased to ~~1.53%~~1.47% for the first ~~first nine~~three months of ~~2013~~2014 compared with ~~1.97%~~1.65% for the first ~~first nine~~three months of ~~2012~~2013, reflecting the replacement of maturing higher-rate borrowings with those ~~in the current lower-rate environment, and the transition of $7.8 million of our long-term debt from a fixed interest rate of 6.48% to a variable rate, currently~~ ~~1.84%~~.at lower rates.

Provision for Loan Losses

We recorded a provision for loan losses of $~~1.0~~0.5 million in the first three months of 2014 compared with a $0.2 million provision in the first ~~nine~~three months of 2013 ~~compared with a~~ ~~$1.7 million~~ ~~provision in the~~ ~~first nine months~~ of ~~2012~~, ~~a decrease~~an increase of $~~0.7~~0.3 million, or ~~39.3%~~125.0%. Net loans charged off in the first three months of 2014 totaled $0.2 million compared with net loans recovered of $0.1 millionin the first ~~nine~~three months of 2013 ~~totaled~~ ~~$0.5 million~~ ~~compared with net loans charged off of~~ ~~$1.6 million~~i~~n the~~ ~~first nine months~~ of ~~2012~~. The ~~decreased~~increased provision reflects ~~management’s belief that~~ the ~~regional economy has generally stablized and is showing signs of renewed growth, and the effects~~effect of a significant loan loss recovery ~~during~~in the first quarter of ~~2013.~~2013, an event that was not repeated in 2014. We believe that the allowance for loan losses was appropriate based on the inherent risk in the portfolio as of ~~September 30, 2013~~March 31, 2014; 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


	Nine Months Ended September 30,											Three Months Ended March 31,
	2013			2012			$ Change			% Change		2014			2013			$ Change			% Change
(dollars in thousands)
Trust, investment, and insurance fees	$	4,069		$	3,767		$	302		8.0	%	$	1,518		$	1,349		$	169		12.5	%
Service charges and fees on deposit accounts	2,236			2,424			(188		)	(7.8	)	628			707			(79		)	(11.2	)
Mortgage origination and loan servicing fees	2,844			2,514			330			13.1		437			1,044			(607		)	(58.1	)
Other service charges, commissions and fees	1,574			1,636			(62		)	(3.8	)	619			572			47			8.2
Bank-owned life insurance income	691			676			15			2.2		229			231			(2		)	(0.9	)
Impairment losses on investment securities, net	—			(337		)	337			NM
Gain on sale or call of available for sale securities	84			741			(657		)	(88.7	)	783			80			703			NM
Gain (loss) on sale of premises and equipment	(4		)	4,205			(4,209		)	NM		3			(2		)	5			NM
Total noninterest income	$	11,494		$	15,626		$	(4,132	)	(26.4	)%	$	4,217		$	3,981		$	236		5.9	%
Noninterest income as a % of total revenue*	21.9		%	21.5		%						20.2		%	22.1		%
NM - Percentage change not considered meaningful.
* Total revenue is net interest income plus noninterest income excluding gain/loss on securities and premises and equipment and impairment of investment securities.												* Total revenue is net interest income plus noninterest income excluding gain/loss on securities and premises and equipment and impairment of investment securities.

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Total noninterest income ~~decreased~~increased $~~4.1~~0.2 million for the first ~~first nine~~three months of ~~2013~~2014 compared with the same period for ~~2012~~2013. The ~~decrease~~increase in ~~2013~~2014 was primarily due to ~~the $4.0 million gain on the sale of the Home Mortgage Center location in 2012,~~

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~~for which no comparable gain existed in 2013. Net~~net gains on the sale of available for sale securities for the first ~~first nine~~three months of ~~2013~~2014 ~~decreased~~increasing $~~0.6~~0.7 million to $~~0.1~~0.8 million, from $~~0.7~~0.1 million for the same period of ~~2012~~2013. This increase was primarily due to gains realized on the sale of our remaining CDO investment securities in an improved market environment. Trust, investment, and insurance fees increased by $0.2 million, or 12.5%, to $1.5 million during the first quarter of 2014, compared with $1.3 million in the first quarter of 2013, primarily as a result of increased investment center fee income.

These ~~decreases~~increases were partially offset by ~~the absence in 2013 of~~ a ~~loss comparable to the $0.3 million impairment loss on investment securities realized in the third quarter of 2012, and an increase~~decrease in mortgage origination and loan servicing fees to $~~2.8~~0.4 million, ~~an increase~~a decline of $~~0.3~~0.6 million, or ~~13.1%~~58.1%, from $~~2.5~~1.0 million in the ~~third~~first quarter of ~~2012~~2013, mainly due to a decrease in loans originated for sale on the secondary market, ~~value adjustment of retained~~as the demand for mortgage ~~servicing rights. Trust, investment,~~refinancing continued to decline. Service charges and ~~insurance~~ fees of ~~$4.1~~on deposit accounts declined from $0.7 million for the ~~nine months~~first ~~ended~~quarter of ~~September 30,~~ 2013 to $0.6 million for the first quarter of 2014, ~~was an improvement~~a decrease of ~~$0.3~~$0.1 million, or 11.2%, or ~~8.0%, from~~ ~~$3.8 million~~ ~~for the same period of~~ ~~2012. This increase was primarily attributable~~mainly due to ~~increased trust department fee income.~~lower NSF check fees. Management's strategic goal is for noninterest income to constitute 30% of total revenues (net interest income plus noninterest income) over time. For the ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014, noninterest income comprised ~~21.9%~~20.2% of total revenues, compared with ~~21.5%~~22.1% for the same period in ~~2012~~2013. While our emphasis on trust, investment, and insurance fees has shown some improvement in this category of noninterest income, the effects of decreased origination of mortgage loans for sale on the secondary market and declining service charges and fees on deposit accounts ~~and other service charges, commissions and fees, has~~have significantly inhibited material improvement. Management continues to evaluate options for increasing noninterest income. We expect a reduced volume of loans originated and sold on the secondary market in the future to adversely impact mortgage origination fees, providing an additional challenge to increasing overall noninterest income.

Noninterest Expense


	Nine Months Ended September 30,									Three Months Ended March 31,
	2013		2012		$ Change			% Change		2014		2013		$ Change			% Change
(dollars in thousands)
Salaries and employee benefits	$	18,565	$	24,167	$	(5,602	)	(23.2	)%	$	6,134	$	6,293	$	(159	)	(2.5	)%
Net occupancy and equipment expense	4,806		4,741		65			1.4		1,605		1,688		(83		)	(4.9	)
Professional fees	2,016		2,137		(121		)	(5.7	)	575		683		(108		)	(15.8	)
Data processing expense	1,092		1,258		(166		)	(13.2	)	424		391		33			8.4
FDIC insurance expense	845		929		(84		)	(9.0	)	243		294		(51		)	(17.3	)
Amortization of intangible assets	498		584		(86		)	(14.7	)	137		166		(29		)	(17.5	)
Other operating expense	4,040		4,280		(240		)	(5.6	)	1,274		1,479		(205		)	(13.9	)
Total noninterest expense	$	31,862	$	38,096	$	(6,234	)	(16.4	)%	$	10,392	$	10,994	$	(602	)	(5.5	)%

Noninterest expense for the first ~~first nine~~three months of ~~2013~~2014 was $~~31.9~~10.4 million compared with $~~38.1~~11.0 million for the first ~~first nine~~three months of ~~2012~~2013, a decrease of $~~6.2~~0.6 million, or ~~16.4%~~5.5%. The primary reason for the decrease in noninterest expense was a $6.1 million expense related to the termination and liquidation of the Company's defined benefit pension plan in 2012, reflected in salaries and employee benefits, for which no comparable expense existed in 2013. Absent that event, salaries and employee benefits increased $0.5 million, or 2.7%, primarily due to annual salary increases for employees that were effective at the beginning of 2013. With the exception of ~~a small~~an 8.4% increase in ~~net occupancy and equipment~~data processing expense due to core processing charges, all other noninterest expense categories experienced a decline for the first ~~first nine~~three months of ~~2013~~2014, compared with the same period of ~~2012~~2013, mainly due to continued expense control and efficiency initiatives.

Income Tax Expense

Our effective tax rate, or income taxes divided by income before taxes, was ~~26.3%~~27.9% for the first ~~first nine~~three months of ~~2013~~2014, and ~~23.8%~~27.2% for the same period of ~~2012~~2013. The increase in the effective tax rate was the result of a ~~lower proportion~~smaller portion of our income being attributable to interest from tax-exempt ~~bonds and the realization of a tax benefit in the second quarter of 2012 due to the partial release of a valuation allowance on capital losses.~~bonds. Income tax expense increased to $~~5.1~~1.9 million in the first ~~first nine~~three months of ~~2013~~2014 compared with $~~3.8~~1.8 million for the same period of ~~2012~~2013, ~~due to the above named~~primarily as a result of these same factors.

FINANCIAL CONDITION

Our total assets decreased to $~~1.74~~1.75 billion as of ~~September 30, 2013~~March 31, 2014 from $~~1.79~~1.76 billion at December 31, ~~2012~~2013~~. Decreased~~, primarily as a result of decreased loan balances and a decrease in ~~available for sale securities,~~loan pool participations. These decreases were partially offset by an increase in cash and cash equivalents and ~~loan pool participations were offset partially by an increase in loans. Deposit balances~~net premises and ~~repurchase~~equipment. Repurchase agreements and federal funds purchased both decreased, while ~~FHLB~~Federal Home Loan Bank borrowings and ~~Federal Funds purchased increased. Total~~ deposits atboth increased slightly. Repurchase agreements decreased ~~September 30, 2013~~$8.9 million ~~were~~to $~~1.32 billion~~ ~~compared with~~ ~~$1.40 billion~~52.3 million at ~~December~~March 31, ~~2012~~2014, ~~down~~ ~~$78.1 million, or~~ ~~5.6%, primarily due to decreases in certificate of deposit accounts. FHLB borrowings increased~~ ~~$25.1 million~~ from $~~120.1~~61.2 million at December 31, ~~2012, to~~ ~~$145.2 million~~ at ~~September 30,~~ 2013, while ~~repurchase agreements were~~ ~~$58.7~~federal funds purchased decreased from $5.5 million at ~~September 30,~~December 31, 2013 to none at March 31, 2014. Total deposits at March 31, 2014, ~~a decrease~~increased to $1.38 billion, an increase of $~~10.2~~0.7 million, or 0.1%, from ~~$68.8 million~~ at December 31, ~~2012~~2013., and FHLB borrowings increased $2.0 million, or 1.9%, to $108.9 million. The deposit increase was primarily concentrated in interest-bearing checking accounts, while certificate of deposit accounts continued to decline due to the low interest rates being paid on time deposits and depositors choosing other long-term savings and investing alternatives aside from the Company’s deposit account products.

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Investment Securities

Investment securities available for sale totaled $~~490.1~~496.9 million as of ~~September 30, 2013~~March 31, 2014. This was a decrease of $~~67.4~~1.6 million, or ~~12.1%~~0.3%, from December 31, ~~2012~~2013. ~~The decrease was primarily due to investment sales,~~ ~~maturities or calls during the period of~~ ~~$95.4 millionbeing more than security~~ ~~purchases of~~ ~~$43.6 million~~d~~uring the period.~~ Investment securities serve as a source of liquidity, and vary along with fluctuations in levels of deposits and loans. Investment securities classified as held to maturity ~~were relatively unchanged at~~increased slightly to $~~32.8~~34.0 million as of ~~September 30,~~March 31, 2014 from $32.6 million at December 31, 2013. The investment portfolio consists mainly of U.S. government agency securities (~~9.8%~~9.3%), mortgage-backed securities (~~41.0%~~39.3%), and obligations of states and political subdivisions (~~42.8%~~43.7%).

As of ~~September 30,~~December 31, 2013,, we owned collateralized debt obligations with an amortized cost of $~~2.4~~2.1 million 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~~During the quarter ended March 31, 2014, we sold these ~~debt securities. We continue to monitor the values of these debt~~investment securities for ~~purposes~~a net gain of determining OTTI in future periods, and continue to obtain updated cash flow analysis as required. See Note 4 “Investment Securities” to our consolidated financial statements for additional information related to investment securities.$0.8 million.

Loans

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


	September 30, 2013				December 31, 2012				March 31, 2014				December 31, 2013
	Balance		% of Total		Balance		% of Total		Balance		% of Total		Balance		% of Total
(dollars in thousands)
Agricultural	$	91,022	8.5	%	$	84,726	8.2	%	$	88,154	8.2	%	$	97,167	8.9	%
Commercial and industrial	261,973		24.3		237,193		22.9		271,424		25.3		262,368		24.1
Credit cards	1,162		0.1		1,001		0.1		1,279		0.1		1,028		0.1
Overdrafts	655		0.1		759		0.1		763		0.1		537		0.1
Commercial real estate:
Construction and development	67,839		6.3		86,794		8.4		72,744		6.8		72,589		6.6
Farmland	85,879		8.0		81,063		7.8		81,153		7.6		85,475		7.9
Multifamily	53,688		5.0		47,758		4.6		55,175		5.1		55,443		5.1
Commercial real estate-other	226,230		21.0		224,369		21.7		213,675		19.9		220,917		20.3
Total commercial real estate	433,636		40.3		439,984		42.5		422,747		39.4		434,424		39.9
Residential real estate:
One- to four- family first liens	217,314		20.2		197,742		19.1		217,621		20.3		220,668		20.3
One- to four- family junior liens	52,610		4.8		55,134		5.3		52,508		4.9		53,458		4.9
Total residential real estate	269,924		25.0		252,876		24.4		270,129		25.2		274,126		25.2
Consumer	18,465		1.7		18,745		1.8		18,455		1.7		18,762		1.7
Total loans	$	1,076,837	100.0	%	$	1,035,284	100.0	%	$	1,072,951	100.0	%	$	1,088,412	100.0	%

Total bank loans (excluding loan pool participations and loans held for sale) ~~increased~~decreased by $~~41.6~~15.5 million, to $~~1.08~~1.07 billion as of ~~September 30, 2013~~March 31, 2014 as compared to December 31, ~~2012~~2013. This decrease was primarily in agricultural loans, other commercial real estate loans, farmland loans, and one- to four- family first liens. Decreases in these categories were partially offset by an increase in commercial and industrial loans. As of ~~September 30, 2013~~March 31, 2014, our bank loan (excluding loan pool participations) to deposit ratio was ~~81.5%~~78.0% compared with a bank loan to deposit ratio of ~~74.0%~~79.2% at December 31, ~~2012~~2013. We anticipate that the loan to deposit ratio will remain relatively stable or ~~increasing~~increase in future periods, with loans showing overall measured growth and deposits remaining steady or decreasing with interest rates remaining at record lows.

We have minimal direct exposure to subprime mortgages in our loan portfolio. 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 we originate and 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. ~~See Note 5 “Loans Receivable and the Allowance for Loan Losses” to our consolidated financial statements for additional information related to loans.~~

Loan Pool Participations

As of ~~September 30, 2013~~March 31, 2014, we had loan pool participations, net, totaling $~~28.1~~23.4 million, down from $~~35.7~~25.5 million at December 31, ~~2012~~2013. Loan pool participations are participation interests in performing, subperforming and nonperforming loans that have been purchased from various non-affiliated banking organizations. The Company entered into this business upon consummation of its merger with the Former MidWestOne in March 2008. As previously announced, the Company has decided to exit this line of business as current balances pay down. The loan pool investment balances shown as an asset on our consolidated balance sheets represent the discounted purchase cost of the loan pool participations. As of ~~September 30, 2013~~March 31, 2014, the categories of

~~Table of Contents~~

loans by collateral type in the loan pool participations were commercial real estate - ~~66%~~64%, commercial loans - 5%, single-family residential real estate - ~~13%~~14% and other loans - ~~16%~~17%. We have minimal exposure in the loan pool participations to consumer real estate subprime credit or to construction and real estate development loans. ~~See Note 5 “Loans Receivable and the Allowance for Loan Losses” to our consolidated financial statements for additional information related to loan pool participations.~~

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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 ~~September 30, 2013~~March 31, 2014, such cost basis was $~~30.2~~25.5 million, while the contractual outstanding principal amount of the underlying loans as of such date was approximately $~~84.1~~77.3 million, resulting in an investment basis of ~~35.9%~~33.0% of the "face amount" of the underlying loans. 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.

As of ~~September 30, 2013~~March 31, 2014, loans in the southeast region of the United States represented approximately ~~44%~~43% of our loan pool participations. The northeast was the next largest area with ~~32%~~34%, the central region with ~~20%~~21%, the southwest region with 2% and the northwest represented a minimal amount of the portfolio at 1%. The highest concentration of assets was in Florida at approximately ~~20%~~23% of the basis total, with the next highest state level being ~~Ohio at~~ ~~12%, then~~ New Jersey and Ohio, both at approximately ~~10%~~8%. As of ~~September 30, 2013~~March 31, 2014, approximately ~~64%~~67% of the loans were contractually current or less than 90 days past due, while ~~36%~~33% 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 ~~36%~~33% of loans contractually past due includes loans in litigation and foreclosed property. As of ~~September 30, 2013~~March 31, 2014, loans in litigation totaled approximately $~~2.4~~2.5 million, while foreclosed property was approximately $~~4.2~~3.5 million.

Premises and Equipment

As of March 31, 2014, premises and equipment totaled $29.9 million, an increase of $2.2 million, or 8.0%, from $27.7 million at December 31, 2013. This increase was primarily due to two ongoing major construction projects, both in our Iowa City market. In August 2013 we entered into a contract for the restoration and remodeling of the building which serves as the main office of the Bank and headquarters of the Company. The estimated cost of the restoration and remodeling is $13.8 million, and it is anticipated that the project will be completed in April 2016. In December 2013 we entered into a contract for the construction of a new Home Mortgage Center with an estimated cost of design and construction of $16.0 million, and with completion anticipated in 2015. We expect the balance of premises and equipment to continue rising in the future as these projects progress towards completion.

Intangible Assets

Intangible assets decreased to $~~9.0~~8.7 million as of ~~September 30, 2013~~March 31, 2014 from $~~9.5~~8.8 million as of December 31, ~~2012~~2013 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, 2013~~March 31, 2014.


	Gross Carrying Amount		Accumulated Amortization		Unamortized Intangible Assets		Gross Carrying Amount		Accumulated Amortization		Unamortized Intangible Assets
(in thousands)
September 30, 2013
March 31, 2014
Intangible assets:
Insurance agency intangible	$	1,320	$	820	$	500	$	1,320	$	877	$	443
Core deposit premium	5,433		4,192		1,241		5,433		4,427		1,006
Trade name intangible	7,040		—		7,040		7,040		—		7,040
Customer list intangible	330		140		190		330		150		180
Total	$	14,123	$	5,152	$	8,971	$	14,123	$	5,454	$	8,669

Deposits

Total deposits as of ~~September 30, 2013~~March 31, 2014 were $~~1.32~~1.38 billion compared with $~~1.40~~1.37 billion as of December 31, ~~2012~~2013. Interest-bearing checking deposits were the largest category of deposits at ~~September 30, 2013~~March 31, 2014, representing approximately ~~43.6%~~45.1% of total deposits. Total interest-bearing checking deposits were $~~576.3~~620.0 million at ~~September 30, 2013~~March 31, 2014, ~~a decrease~~an increase of $~~6.0~~27.4 million, or ~~1.0%~~4.6%, from $~~582.3~~592.7 million at December 31, ~~2012~~2013. The ~~decreased~~increased balances in non-certificate deposit accounts were primarily in public funds and consumer accounts. Included in interest-bearing checking deposits at ~~September 30, 2013~~March 31, 2014 was $~~20.9~~32.6 million of brokered deposits in the Insured Cash Sweep (ICS) program, ~~an increase~~a decrease of $~~0.1~~3.3 million, or ~~0.9%~~9.2%, from the $~~20.8~~35.9 million at December 31, ~~2012~~2013. Total certificates of deposit were $~~449.4~~447.8 million at ~~September 30, 2013~~March 31, 2014, down $~~86.0~~17.6 million, or ~~16.1%~~3.8%, from $~~535.4~~465.4 million at December 31, ~~2012~~2013, as depositors continue to search for other savings and investing alternatives that deliver a higher return. Included in total certificates of deposit at ~~September 30, 2013~~March 31, 2014 was $~~16.9~~11.7 million of brokered deposits in the Certificate of Deposit Account Registry Service (CDARS) program, a decrease of $~~5.6~~1.2 million, or ~~24.8%~~9.2%, from the $~~22.4~~12.9 million at December 31, ~~2012~~2013. Based on recent experience, management anticipates that many of the maturing certificates of deposit will not be renewed upon maturity. Approximately ~~86.4%~~85.2% of our total deposits were considered “core” deposits as of ~~September 30, 2013~~March 31, 2014.

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Federal Home Loan Bank Borrowings

FHLB borrowings totaled $~~145.2~~108.9 million as of ~~September 30, 2013~~March 31, 2014 compared with $~~120.1~~106.9 million as of December 31, ~~2012~~2013. We utilize FHLB borrowings as a supplement to customer deposits to fund earning assets and to assist in managing interest rate risk. Thus, if deposits decline, FHLB borrowing may increase to provide necessary liquidity.

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Long-term Debt

Long-term debt in the form of junior subordinated debentures that have been issued to a statutory trust that issued trust preferred securities was $15.5 million as of ~~September 30, 2013~~March 31, 2014, unchanged from December 31, ~~2012~~2013. These junior subordinated debentures were assumed by us from Former MidWestOne in the merger. Former MidWestOne had issued these junior subordinated debentures on September 20, 2007, to MidWestOne Capital Trust II. The junior subordinated debentures supporting the trust preferred securities have a maturity date of December 15, ~~2042~~2037, and do not require any principal amortization. They became callable on December 15, 2012 at par, and are callable, in whole or in part, on any interest payment date, at the Company’s option. The interest rate ~~was fixed~~ on~~$7.8 million~~ of the debt ~~until~~ ~~December 15, 2012, at an interest rate of~~ ~~6.48%, after which the rate became variable, as~~ is ~~the case with the remaining balance of the debt. The~~a variable rate is based on the three-month LIBOR rate plus 1.59% with interest payable quarterly. At ~~September 30, 2013~~March 31, 2014, the interest rate was at ~~1.84%~~1.82%.

Nonperforming Assets

The following table sets forth information concerning nonperforming loans by class of financing receivable at ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013:


	90 Days or More Past Due and Still Accruing Interest		Restructured		Nonaccrual		Total		90 Days or More Past Due and Still Accruing Interest		Restructured		Nonaccrual		Total
(in thousands)
September 30, 2013
March 31, 2014
Agricultural	$	—	$	3,093	$	70	$	3,163	$	—	$	3,027	$	81	$	3,108
Commercial and industrial	243		1,000		756		1,999		146		2,336		702		3,184
Credit cards	1		—		—		1		13		—		—		13
Overdrafts	—		—		—		—		—		—		—		—
Commercial real estate:
Construction and development	—		—		49		49		—		—		90		90
Farmland	—		2,316		30		2,346		—		2,269		28		2,297
Multifamily	—		—		—		—		—		—		—		—
Commercial real estate-other	216		386		1,552		2,154		—		308		1,765		2,073
Total commercial real estate	216		2,702		1,631		4,549		—		2,577		1,883		4,460
Residential real estate:
One- to four- family first liens	390		985		386		1,761		209		978		667		1,854
One- to four- family junior liens	50		13		148		211		—		14		149		163
Total residential real estate	440		998		534		1,972		209		992		816		2,017
Consumer	8		21		50		79		3		20		9		32
Total	$	908	$	7,814	$	3,041	$	11,763	$	371	$	8,952	$	3,491	$	12,814

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	90 Days or More Past Due and Still Accruing Interest		Restructured		Nonaccrual		Total		90 Days or More Past Due and Still Accruing Interest		Restructured		Nonaccrual		Total
(in thousands)
December 31, 2012
December 31, 2013
Agricultural	$	—	$	3,323	$	64	$	3,387	$	—	$	3,093	$	52	$	3,145
Commercial and industrial	85		953		757		1,795		213		2,350		746		3,309
Credit cards	30		—		—		30		17		—		—		17
Overdrafts	—		—		—		—		—		—		—		—
Commercial real estate:
Construction and development	—		78		149		227		—		—		139		139
Farmland	—		2,316		33		2,349		—		2,311		29		2,340
Multifamily	—		—		—		—		395		—		—		395
Commercial real estate-other	67		—		1,128		1,195		164		381		1,576		2,121
Total commercial real estate	67		2,394		1,310		3,771		559		2,692		1,744		4,995
Residential real estate:
One- to four- family first liens	311		313		550		1,174		540		982		543		2,065
One- to four- family junior liens	75		138		223		436		49		13		126		188
Total residential real estate	386		451		773		1,610		589		995		669		2,253
Consumer	4		23		34		61		7		21		29		57
Total	$	572	$	7,144	$	2,938	$	10,654	$	1,385	$	9,151	$	3,240	$	13,776

Our nonperforming assets totaled $~~13.7~~14.8 million as of ~~September 30, 2013~~March 31, 2014, a decrease of $~~0.3~~0.7 million, or ~~1.8%~~4.7%, from December 31, ~~2012~~2013. The balance of OREO at ~~September 30, 2013~~March 31, 2014 was $~~1.9~~2.0 million, ~~down~~up from $~~3.3~~1.8 million at December 31, ~~2012~~2013. All of the other real estate property was acquired through foreclosures and we are actively working to sell all properties held as of ~~September 30, 2013~~March 31, 2014. Other real estate is carried at appraised value less estimated cost of disposal at the date of acquisition. Additional discounts could be required to market and sell the properties, resulting in a write down through expense. Nonperforming loans totaled $~~11.8~~12.8 million (~~1.09%~~1.19% of total bank loans) as of ~~September 30, 2013~~March 31, 2014, compared to $~~10.7~~13.8 million (~~1.03%~~1.27% of total bank loans) as of December 31, ~~2012~~2013. ~~See Note 5 “Loans Receivable and the Allowance for Loan Losses” to our consolidated financial statements for additional information related to nonperforming assets.~~

At ~~September 30, 2013~~March 31, 2014, nonperforming loans consisted of $~~3.0~~3.5 million in ~~nonaccrual~~nonaccrual loans, $~~7.8~~9.0 million in troubled debt restructures and $~~0.9~~0.4 million in loans past due 90 days or more and still accruing. This compares with $~~2.9~~3.2 million, $~~7.1~~9.2 million and $~~0.6~~1.4 million, respectively, as ofDecember 31, ~~2012~~2013. Nonaccrual loans increased $~~0.1~~0.3 million, or ~~3.5%~~7.7%, at ~~September 30, 2013~~March 31, 2014 compared to December 31, ~~2012~~2013. The increase in nonaccrual loans was primarily due to normal fluctuations. The Company experienced a $~~0.7~~0.2 million, or ~~9.4%~~2.2%, ~~increase~~decrease in restructured loans, from December 31, ~~2012~~2013 to ~~September 30, 2013~~March 31, 2014, primarily resulting from the ~~addition of seven new loans to TDR status (one commercial, two commercial real estate,~~annual payments collected from three ~~residential real estate first liens and one residential real estate junior lien), along with three previously restructured loans (one commercial and two residential real estate) that were classified as TDRs in 2013 due to payment default.~~TDR-status borrowers. During the same period, loans past due 90 days or more and still accruing interest ~~increased~~decreased ~~0.3~~$1.0 million, or ~~58.7%~~73.2%, from December 31, ~~2012~~2013 to ~~September 30, 2013~~March 31, 2014,. This reduction was due to ~~one commercial loan totaling $0.2~~the net decrease of 13 loans from the 90 days or more and still accruing interest category, with 3 loans with a balance of $0.4 million being placed on nonaccrual, and ~~four real estate loans totaling $0.3 million.~~the remainder either moving to past due 30 to 89 days or being brought current. Additionally, loans past due 30 to 89 days (not included in the nonperforming loan totals) were $~~5.2~~4.7 million as of ~~September 30, 2013~~March 31, 2014 compared with $~~6.1~~4.9 million as of December 31, ~~2012~~2013, a decrease of $~~0.9~~0.2 million or ~~14.6%~~3.2%.

Loan Review and Classification Process for Agricultural, Commercial and Industrial, and Commercial Real Estate Loans:

The Company maintains a loan review and classification process which involves multiple officers of the Company and is designed to assess the general quality of credit underwriting and to promote early identification of potential problem loans. All commercial and agricultural loan officers are charged with the responsibility of risk rating all loans in their portfolios and updating the ratings, positively or negatively, on an ongoing basis as conditions warrant. A monthly loan officer validation worksheet documents this process. Risk ratings are selected from an 8-point scale with ratings as follows: ratings 1- 4 Satisfactory (pass), rating 5 Watch (potential weakness), rating 6 Substandard (well-defined weakness), rating 7 Doubtful, and rating 8 Loss.

When a loan officer originates a new loan, based upon proper loan authorization, he or she documents the credit file with an offering sheet summary, supplemental underwriting analysis, relevant financial information and collateral evaluations. All of this information is used in the determination of the initial loan risk rating. The Company's loan review department undertakes independent credit reviews of relationships based on either criteria established by loan policy, risk-focused sampling, or random sampling. Loan policy requires the top 50 lending relationships by total exposure be reviewed no less than annually as well as all

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classified and Watch rated credits over $250,000. The individual loan reviews consider such items as: loan type; nature, type and estimated value of collateral; borrower and/or guarantor estimated financial strength; most recently available financial information;

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related loans and total borrower exposure; and current/anticipated performance of the loan. The results of such reviews are presented to executive management.

Through the review of delinquency reports, updated financial statements or other relevant information received in the normal course of business, the lending officer and/or loan review personnel may determine that a loan relationship has weakened to the point that a criticized (loan grade 5) or classified (loan grade 6 through 8) status is warranted. When a loan relationship with total related exposure of $1.0 million or greater is adversely graded (5 or above), or is classified as a troubled debt restructure (regardless of size), the lending officer is then charged with preparing a Loan Strategy Summary worksheet that outlines the background of the credit problem, current repayment status of the loans, current collateral evaluation and a workout plan of action. This plan may include goals to improve the credit rating, assisting the borrower in moving the loans to another institution and/or collateral liquidation. All such reports are first presented to regional management and then to the board of directors by the Executive Vice President, Chief Credit Officer (or a designee).

Depending upon the individual facts and circumstances and the result of the Classified/Watch review process, loan officers and/or loan review personnel may categorize the loan relationship as impaired. Once that determination has occurred, the loan officer, in conjunction with regional management, will complete an evaluation of the collateral (for collateral-dependent loans) based upon appraisals on file adjusting for current market conditions and other local factors that may affect collateral value. Loan review personnel may also complete an independent impairment analysis when deemed necessary. These judgmental evaluations may produce an initial specific allowance for placement in the Company's allowance for loan and lease losses calculation. As soon as practical, updated appraisals on the collateral backing that impaired loan relationship are ordered. When the updated appraisals are received, regional management, with assistance from the loan review department, reviews the appraisal and updates the specific allowance analysis for each loan relationship accordingly. The board of directors on a quarterly basis reviews the Classified/Watch reports including changes in credit grades of 5 or higher as well as all impaired loans, the related allowances and OREO.

In general, once the specific allowance has been finalized, regional and executive management will consider a charge-off prior to the calendar quarter-end in which that reserve calculation is finalized.

The review process also provides for the upgrade of loans that show improvement since the last review.

Restructured Loans

We restructure loans for our customers who appear to be able to meet the terms of their loan over the long term, but who may be unable to meet the terms of the loan in the near term due to individual circumstances. We consider the customer's past performance, previous and current credit history, the individual circumstances surrounding the current difficulties and their plan to meet the terms of the loan in the future prior to restructuring the terms of the loan. All of the following factors are indicators that the Bank has granted a concession (one or multiple items may be present):

The borrower receives a reduction of the stated interest rate for the remaining original life of the debt.

The borrower receives an extension of the maturity date or dates at a stated interest rate lower than the current market interest rate for new debt with similar risk characteristics.

The borrower receives a reduction of the face amount or maturity amount of the debt as stated in the instrument or other agreement.

The borrower receives a deferral of required payments (principal and/or interest).

The borrower receives a reduction of the accrued interest.

Generally, loans are restructured through short-term interest rate relief, short-term principal payment relief or short-term principal and interest payment relief. Once a restructured loan has gone 90 days or more past due or is placed on nonaccrual status, it is included in the 90+ day past due or nonaccrual totals in the previous table.

During the ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014, the Company restructured ~~seven~~no loans by granting concessions to borrowers experiencing financial difficulties. A commercial and industrial loan with a balance of $0.2 million and two commercial real estate loans totaling $0.2 million were granted amortization or maturity concessions, while two residential first liens and a residential junior lien totaling $0.2 million were each granted interest rate concessions, and one residential first lien was granted amortization or maturity concessions. Three previously restructured loans (a commercial and industrial loan and two residential first liens totaling $0.6 million) were classified as TDRs in the ~~nine months~~ ~~ended~~ ~~September 30, 2013, due to payment defaults.~~

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We consider all TDRs, regardless of whether they are performing in accordance with ~~the~~their modified terms, to be impaired loans when determining our allowance for loan losses. A summary of restructured loans as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013 is as follows:


	September 30,		December 31,		March 31,		December 31,
	2013		2012		2014		2013
(in thousands)
Restructured Loans (TDRs):
In compliance with modified terms	$	7,814	$	7,144	$	8,952	$	9,151
Not in compliance with modified terms - on nonaccrual status	554		551		611		550
Total restructured loans	$	8,368	$	7,695	$	9,563	$	9,701

Allowance for Loan Losses

Our ALLL as of ~~September 30, 2013~~March 31, 2014 was $~~16.5~~16.4 million, which was 1.53% of total bank loans (excluding loan pool participations) as of that date. This compares with an ALLL of $~~16.0~~16.2 million as of December 31, ~~2012~~2013, which was ~~1.54%~~1.49% of total bank loans as of that date. Gross charge-offs for the first ~~first nine~~three months of ~~2013~~2014 totaled $~~1.1~~0.3 million, while recoveries of previously charged-off loans totaled $~~0.6~~0.1 million. Annualized net loan charge offs to average bank loans for the first ~~nine~~three months of ~~2013~~2014 was ~~0.06%~~0.08% compared to ~~0.21%~~0.11% for the year ended December 31, ~~2012~~2013. As of ~~September 30, 2013~~March 31, 2014, the ALLL was ~~140.3%~~128.2% of nonperforming loans compared with ~~149.8%~~117.4% as of December 31, ~~2012~~2013. Based on the inherent risk in the loan portfolio, we believe that as of ~~September 30, 2013~~March 31, 2014, the ALLL 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 ALLL and make additional provisions in future periods as deemed necessary. ~~See Note 5 “Loans Receivables and the Allowance for Loan Losses” to our consolidated financial statements for additional information related to the allowance for loan losses.~~

There were no changes to our ALLL calculation methodology during the first ~~first nine~~three months of ~~2013~~2014. Classified and impaired loans are reviewed per the requirements of FASB ASC ~~Topics~~Topic 310.

We currently track the loan to value ("LTV") ratio of loans in our portfolio, and those loans in excess of internal and supervisory guidelines are presented to the Bank's board of directors on a quarterly basis. At ~~September 30, 2013~~March 31, 2014, there were ~~six~~7 owner-occupied 1-4 family loans with a LTV ratio of 100% or greater. In addition, there were 3328 home equity loans without credit enhancement that had a LTV ratio of 100% or greater. We have the first lien on 10 of these equity loans and other financial institutions have the first lien on the remaining ~~23.~~18.

We review all impaired and nonperforming loans individually on a quarterly basis to determine their level of impairment due to collateral deficiency or insufficient cash-flow based on a discounted cash-flow analysis. At ~~September 30, 2013~~March 31, 2014, reported TDRs were not a material portion of the loan portfolio. 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.

Capital Resources

Total shareholders’ equity was $~~175.5~~183.1 million as of ~~September 30, 2013~~March 31, 2014, compared to $~~173.9~~178.0 million as of December 31, ~~2012~~2013, an increase of $~~1.6~~5.1 million, or ~~0.9%~~2.9%. This increase was primarily attributable to net income of $~~14.2~~5.0 million for the first ~~nine months~~quarter of ~~2013~~2014, ~~partially offset by the~~and a $~~8.8~~1.9 million ~~decrease~~increase in accumulated other comprehensive income due to market value adjustments on investment securities available for ~~sale,~~sale. These increases were partially offset by the payment of $~~3.2~~1.2 million in common stock dividends, and ~~the~~a $~~0.5~~0.4 million increase in treasury stock due to repurchases.

Total shareholders' equity was ~~10.10%~~10.49% of total assets as of ~~September 30, 2013~~March 31, 2014 and was ~~9.70%~~10.14% as of December 31, ~~2012~~2013. Tangible equity to tangible assets was ~~9.63%~~10.04% as of ~~September 30, 2013~~March 31, 2014 and ~~9.22%~~9.69% as of December 31, ~~2012~~2013. Our Tier 1 capital to risk-weighted assets ratio was ~~13.56%~~13.86% as of ~~September 30, 2013~~March 31, 2014 and was ~~12.56%~~13.36% as of December 31, ~~2012~~2013. 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. We believe that, as of ~~September 30, 2013~~March 31, 2014, the Company and the Bank met all capital adequacy requirements to which we were subject. As of that date, the Bank was “well capitalized” under regulatory prompt corrective action provisions.

In July 2013, the U.S. federal banking authorities approved the implementation of the Basel III regulatory capital reforms and issued rules effecting certain changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Basel III Rules”). The Basel III Rules are applicable to all U.S. banks that are subject to minimum capital requirements, as well as to bank and savings and loan holding companies other than “small bank holding companies” (generally bank holding companies with consolidated assets of less than $500 million). The Basel III Rules not only increase most of the required minimum

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regulatory capital ratios, but they also introduce a new Common Equity Tier 1 Capital ratio and the concept of a capital conservation buffer. The Basel III Rules also expand the definition of capital as in effect currently by establishing criteria that instruments must

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meet to be considered Additional Tier 1 Capital (Tier 1 Capital in addition to Common Equity) and Tier 2 Capital. A number of instruments that now generally qualify as Tier 1 Capital will not qualify, or their qualifications will change when the Basel III Rules are fully implemented. The Basel III Rules also permit banking organizations with less than $15.0 billion in assets to retain, through a one-time election, the existing treatment for accumulated other comprehensive income, which currently does not affect regulatory capital. The Basel III Rules have maintained the general structure of the current prompt corrective action framework, while incorporating the increased requirements. The prompt corrective action guidelines were also revised to add the Common Equity Tier 1 Capital ratio. In order to be a “well-capitalized” depository institution under the new regime, a bank and holding company must maintain a Common Equity Tier 1 Capital ratio of 6.5% or more; a Tier 1 Capital ratio of 8% or more; a Total Capital ratio of 10% or more; and a leverage ratio of 5% or more. Generally, financial institutions become subject to the new Basel III Rules on January 1, 2015, with phase-in periods for many of the changes. Management is incontinuing to plan for the ~~process of assessing the effect the~~effects that Basel III Rules may have on the Company's and the Bank's capital ~~positions and will monitor developments in this area.~~positions.

We have traditionally disclosed certain non-GAAP ratios and amounts to evaluate and measure our financial condition, including our Tier 1 capital to risk-weighted assets ratios. We believe this ratio provides investors with information regarding our financial condition and how we evaluate our financial condition internally.

The following ~~tables provide~~table provides a reconciliation of ~~the~~this non-GAAP ~~measures~~measure to the most comparable GAAP ~~equivalents.~~equivalent.


	At September 30,			At December 31,			At March 31,			At December 31,
(in thousands)	2013			2012⁽¹⁾			2014			2013
Tier 1 capital
Total shareholders' equity	$	175,534		$	173,932		$	183,143		$	178,016
Plus: Long term debt (qualifying restricted core capital)	15,464			15,464			15,464			15,464
Net unrealized gains on securities available for sale⁽¹⁾	(2,240		)	(11,050		)
Net unrealized gains on securities available for sale(1)							(2,977		)	(1,049		)
Less: Disallowed Intangibles	(9,203		)	(9,617		)	(8,908		)	(9,036		)
Tier 1 capital	$	179,555		$	168,729		$	186,722		$	183,395
Risk-weighted assets	$	1,324,012		$	1,343,194		$	1,347,009		$	1,372,648
Tier 1 capital to risk-weighted assets	13.56		%	12.56		%	13.86		%	13.36		%
(1) Adjusted to reflect the immaterial correction of an error of prior capital balances. See Note 1 “Principles of Consolidation and Presentation” to our consolidated financial statements for additional information related to the adjustment.

On February 15, ~~2013~~2014, ~~15,700~~20,600 restricted stock units were granted to certain officers of the ~~Company, and on~~ ~~May 15, 2013~~, ~~5,500~~ ~~restricted stock units were granted to the Company's directors. During~~Company. Additionally, during the first ~~nine~~three months of ~~2013~~2014, ~~19,585~~19,111 shares of common stock were issued in connection with the vesting of previously awarded grants of restricted stock units, of which ~~1,199~~1,993 shares were surrendered by grantees to satisfy tax requirements. In addition, ~~30,678~~2,310 shares of common stock were issued in connection with the exercise of previously issued stock options, with ~~18,781~~no shares of stock surrendered in connection with the exercises.

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The following table provides the capital levels and minimum required capital levels for the Company and the Bank:


	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions				Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
(dollars in thousands)
At September 30, 2013
At March 31, 2014
Consolidated:
Total capital/risk based	$	196,242	14.82	%	$	105,921	8.00	%	N/A		N/A		$	203,768	15.13	%	$	107,761	8.00	%	N/A		N/A
Tier 1 capital/risk based	179,555		13.56		52,960		4.00		N/A		N/A		186,722		13.86		53,880		4.00		N/A		N/A
Tier 1 capital/adjusted average	179,555		10.46		68,669		4.00		N/A		N/A		186,722		10.76		69,414		4.00		N/A		N/A
MidWestOne Bank:
Total capital/risk based	$	178,227	13.57	%	$	105,051	8.00	%	$	131,313	10.00	%	$	183,704	13.75	%	$	106,873	8.00	%	$	133,591	10.00	%
Tier 1 capital/risk based	161,783		12.32		52,525		4.00		78,788		6.00		166,980		12.50		53,436		4.00		80,154		6.00
Tier 1 capital/adjusted average	161,783		9.49		68,201		4.00		85,251		5.00		166,980		9.69		68,953		4.00		86,191		5.00
At December 31, 2012
At December 31, 2013
Consolidated:⁽¹⁾
Total capital/risk based	$	185,557	13.80	%	$	107,456	8.00	%	N/A		N/A		$	200,714	14.62	%	$	109,812	8.00	%	N/A		N/A
Tier 1 capital/risk based	168,729		12.56		53,728		4.00		N/A		N/A		183,361		13.36		54,906		4.00		N/A		N/A
Tier 1 capital/adjusted average	168,729		9.65		69,932		4.00		N/A		N/A		183,361		10.55		69,491		4.00		N/A		N/A
MidWestOne Bank:⁽¹⁾
Total capital/risk based	$	166,949	12.55	%	$	106,398	8.00	%	$	132,998	10.00	%	$	183,646	13.49	%	$	108,903	8.00	%	$	136,128	10.00	%
Tier 1 capital/risk based	150,304		11.30		53,199		4.00		79,799		6.00		166,612		12.24		54,451		4.00		81,677		6.00
Tier 1 capital/adjusted average	150,304		8.66		69,386		4.00		86,733		5.00		166,612		9.65		69,063		4.00		86,329		5.00
(1) Adjusted to reflect the immaterial correction of an error of prior capital balances. See Note 1 “Principles of Consolidation and Presentation” to our consolidated financial statements for additional information related to the adjustment.

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Liquidity

Liquidity management involves meeting the cash flow requirements of depositors and borrowers. We conduct liquidity management on both a daily and long-term basis, and 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 our asset/liability management program. We had liquid assets (cash and cash equivalents) of $~~26.1~~35.3 million as of ~~September 30, 2013~~March 31, 2014, compared with $~~47.2~~24.9 million as of December 31, ~~2012~~2013. Investment securities classified as available for sale, totaling $~~490.1~~496.9 million and $~~557.5~~498.6 million as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, respectively, could be sold to meet liquidity needs if necessary. Additionally, our bank subsidiary maintains unsecured lines of credit with several correspondent banks and secured lines with the Federal Reserve Bank discount window and the FHLB that would allow it to borrow funds on a short-term basis, if necessary. Management believes that the Company had sufficient liquidity as of ~~September 30, 2013~~March 31, 2014 to meet the needs of borrowers and depositors.

Our principal sources of funds were proceeds from the maturity and sale of investment securities, loan amortization, FHLB borrowings, ~~federal funds purchased,~~ 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. We utilize particular sources of funds based on comparative costs and availability. This includes fixed-rate FHLB borrowings that can generally be obtained at a more favorable cost than deposits of comparable maturity. We generally manage the pricing of our deposits to maintain a steady deposit base but from time to time may decide, as we have done in the past, not to pay rates on deposits as high as our competition.

As of ~~September 30, 2013~~March 31, 2014, we had $15.5 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 were issued with a ~~35-year~~30-year term. The interest rate on the debt is a variable rate, based on the three-month LIBOR rate plus 1.59%, with interest payable quarterly. At ~~September 30, 2013~~March 31, 2014, the interest rate was at ~~1.84%~~1.82%.

Inflation

The effects of price changes and inflation can vary substantially for most financial institutions. While management believes that inflation affects the growth of total assets, it is difficult to assess its overall impact on the Company. Management believes this to be the case due to the fact that generally neither the timing nor the magnitude of the inflationary changes in the consumer price index (“CPI”) coincides with changes in interest rates. The price of one or more of the components of the CPI may fluctuate considerably and thereby influence the overall CPI without having a corresponding effect on interest rates or upon the cost of

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those goods and services normally purchased by us. In years of high inflation and high interest rates, intermediate and long-term interest rates tend to increase, thereby adversely impacting the market values of investment securities, mortgage loans and other long-term fixed rate loans held by financial institutions. In addition, higher short-term interest rates caused by inflation tend to increase financial institutions' cost of funds. In other years, the reverse situation may occur.

Off-Balance-Sheet Arrangements

We are a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of our customers, which include commitments to extend credit, commitments to originate residential mortgage loans held for sale, commercial letters of credit, and standby letters of credit. Commitments to extend credit are agreements to lend to customers at predetermined interest rates, as long as there is no violation of any condition established in the contracts. 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. We use the same credit policies in making commitments as 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. We evaluate each customer's creditworthiness on a case-by-case basis. As of ~~September 30, 2013~~March 31, 2014, outstanding commitments to extend credit totaled approximately $~~248.1~~275.3 million. We have established a reserve of $0.2 million, which represents our estimate of probable losses as a result of these transactions. This reserve is not part of our allowance for loan losses. Commitments under standby and performance letters of credit outstanding aggregated $~~4.4~~5.1 million as of ~~September 30, 2013~~March 31, 2014. We do not anticipate any losses as a result of these transactions.

Residential mortgage loans sold to others are predominantly conventional residential first lien mortgages originated under our usual underwriting procedures, and are most often sold on a nonrecourse basis. At ~~September 30, 2013~~March 31, 2014, there were approximately $~~2.4~~3.3 million of mandatory commitments with investors to sell not yet originated residential mortgage loans. We do not anticipate any losses as a result of these transactions.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk.

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 the Company as other types of market risk, such as foreign currency exchange rate risk and commodity price risk, play a lesser role in the normal course of our business activities.

In addition to interest rate risk, the ~~recent~~ economic environment in recent years 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 obligations to creditors (including, in the case of banks, obligations to depositors) as such obligations become due and/or fund the acquisition of assets.

Liquidity Risk

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

Net cash inflows from operating activities were $~~21.4~~5.7 million in the first ~~nine~~three months of ~~2013~~2014, compared with $~~12.5~~2.9 million in the first ~~nine~~three months of ~~2012~~2013. Net income before depreciation, amortization, and accretion was the primary contributor for the first ~~nine~~three months of ~~2013~~2014.

Net cash inflows from investing activities were $~~16.3~~18.2 million in the first ~~first nine~~three months of ~~2013~~2014, compared to net cash outflows of $~~8.9~~20.1 million in the comparable ~~nine~~three-month period of ~~2012~~2013. In the first ~~nine~~three months of ~~2013~~2014, investment securities transactions resulted in net cash inflows of $~~51.7~~3.8 million, compared to ~~inflows~~outflows of $~~2.5~~16.8 million during the same period of ~~2012~~2013. Purchases of premises and equipment resulted in a $2.8 million cash outflow in the first three months of 2014, resulting from the two large building projects we currently have underway. The ~~origination~~repayment of ~~new loans net of~~loan principal ~~payments,~~ accounted for net cash ~~outflows~~inflows of $~~42.2~~15.0 million for the first ~~nine~~three months of ~~2013~~2014, compared with $~~28.3~~6.5 million of net outflows for the same period of ~~2012~~2013. Cash inflows from loan pool participations were $~~7.6~~2.1 million during the first ~~nine~~three months of ~~2013~~2014 compared to $~~12.2~~3.3 million during the same period of ~~2012~~2013.

Net cash used in financing activities in the first ~~first nine~~three months of ~~2013~~2014 was $~~58.9~~13.5 million, compared with net cash ~~provided~~used of $~~14.0~~8.1 million for the same period of ~~2012~~2013. The largest financing cash outflows during the ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014 were the $~~78.1 million~~ ~~net decrease in deposits and a~~ ~~$10.2~~8.9 million net decrease in repurchase ~~agreements.~~agreements and the $5.5 million decrease in federal funds purchased. The largest cash

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inflows from financing activities in the first ~~nine~~three months of ~~2013~~2014 consisted of the net increase of $~~25.0~~2.0 million in FHLB borrowings and ana $~~8.4~~0.7 million net increase in ~~Federal Funds purchased.~~deposits.

To further mitigate liquidity risk, the 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 management plan. These acceptable sources of liquidity include:

•Fed Funds Lines

•FHLB Borrowings

•Brokered Deposits

•Brokered Repurchase Agreements

•Federal Reserve Bank Discount Window

Fed Funds Lines:

Routine liquidity requirements are met by fluctuations in the Bank's federal funds position. The principal function of these funds is to maintain short-term liquidity. Unsecured federal 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 federal funds purchased limit is 10% of total assets, or the amount of established federal funds lines, whichever is smaller. Currently, the Bank has unsecured federal ~~fund~~funds lines totaling $55.0 million, which are tested ~~semi-annually~~annually to ensure availability.

FHLB Borrowings:

FHLB borrowings provide both a source of liquidity and long-term funding for the 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 Bank. Factors that are taken into account when contemplating use of FHLB borrowings are the effective interest rate, the collateral

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requirements, community investment program credits, and the implications and cost of having to purchase incremental FHLB stock. As of ~~September 30, 2013~~March 31, 2014, the Bank had $~~258.4~~266.2 million of advance equivalent collateral pledged to the FHLB and $~~145.2~~108.9 million in outstanding borrowings, leaving $~~107.6~~151.3 million available for liquidity needs, based on collateral capacity. These borrowings are secured by various real estate loans (residential, commercial and agricultural).

Brokered Deposits:

The Bank has brokered CD lines/deposit relationships available to help diversify its various funding sources. Brokered deposits offer several benefits relative to other funding sources, such as: maturity structures which cannot be duplicated in the current deposit market, deposit gathering which does not cannibalize the existing deposit base, the unsecured nature of these liabilities, and the ability to quickly generate funds. However, brokered deposits are often viewed as a volatile liability by banking regulators and market participants. This viewpoint, and the desire to not develop a large funding concentration in any one area, is reflected in an internal policy stating that the Bank limit the use of brokered deposits as a funding source to no more than 10% of total ~~liabilities.~~assets. Board approval is required to exceed these limits. The Bank will also have to maintain a “well capitalized” standing to access brokered deposits, as an “adequately capitalized" rating would require an FDIC waiver to do so, and an “undercapitalized” rating would prohibit the Bank from using brokered deposits altogether.

Brokered Repurchase Agreements:

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, 2013~~March 31, 2014.

Federal Reserve Bank Discount Window:

The Federal Reserve Bank Discount Window is another source of liquidity, particularly during difficult economic times. The Bank has a borrowing capacity with the Federal Reserve Bank of Chicago limited ~~only~~ by the amount of municipal securities pledged against the line. As of ~~September 30, 2013~~March 31, 2014, the Bank has municipal securities with an approximate market value of $~~12.7~~12.9 million pledged for liquidity purposes.

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Interest Rate Risk

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 a result, net interest margin and earnings and the market value of assets and liabilities are subject to fluctuations arising from the movement of interest rates. We manage several forms of interest rate risk, including 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 limits and guidelines of the Bank's Asset/Liability Management Policy.

Like most financial institutions, 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. Our asset and liability committee ("ALCO") seeks to manage interest rate risk under a variety of rate environments by structuring our balance sheet and off-balance-sheet positions in such a way that changes in interest rates do not have a large negative impact. The risk is monitored and managed within approved policy limits.

We use a third-party service to model and measure 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 our deposits, and the rates and volumes of 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 our projected changes in net interest income for the various interest rate shock levels at ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013.

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Analysis of Net Interest Income Sensitivity

Immediate Change in Rates
-200 -100 +100 +200
(dollars in thousands)
September 30, 2013
Dollar change $ (145 ) $ (126 ) $ (716 ) $ (1,076 )
Percent change (0.3 )% (0.2 )% (1.3 )% (1.9 )%
December 31, 2012
Dollar change $ 1,750
$ 1,044
$ (859 ) $ (1,251 )
Percent change 3.1 % 1.9 % (1.5 )% (2.3 )%



	Immediate Change in Rates
	-200			-100			+100			+200
(dollars in thousands)
March 31, 2014
Dollar change	$	(990	)	$	(50	)	$	(382	)	$	(555	)
Percent change	(1.8		)%	(0.1		)%	(0.7		)%	(1.0		)%
December 31, 2013
Dollar change	$	(1,060	)	$	(59	)	$	(616	)	$	(914	)
Percent change	(1.8		)%	(0.1		)%	(1.1		)%	(1.6		)%

As shown above, at ~~September 30, 2013~~March 31, 2014, the effect of an immediate and sustained 200 basis point increase in interest rates would decrease our net interest income by approximately $~~1.1~~0.6 million. The effect of an immediate and sustained 200 basis point decrease in rates would decrease our net interest income by approximately $~~0.1~~1.0 million. In a rising rate environment, our interest-bearing liabilities would reprice more quickly than interest-earning assets, thus reducing net interest income. A decrease in interest rates would also result in a decrease in net interest income as the yield on interest-earning assets would decline, but those on interest-bearing liabilities are generally unable to decline materially, as the average rate on our interest-bearing liabilities is already below 1.0%. In the current low interest rate environment, model results of a 200 basis point drop in interest rates are of questionable value as many interest-bearing liabilities and interest-earning assets cannot re-price significantly lower than current levels. As part of a strategy to mitigate net interest margin compression in a low interest rate environment, management has incorporated interest rate floors on most newly originated floating rate loans. While incorporating interest rate floors on loans has been successful in maintaining our net interest margin in the current low rate environment, the coupon rates on these loans will lag when interest rates rise. These loans have floor rates that are between zero and 2.0% above the fully indexed rate. Therefore, interest rates must rise up to 2.0% before some of these loans would experience an increase in the coupon rate.

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 we could have undertaken in response to changes in interest rates.

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Item 4. Controls and Procedures.

Disclosure Controls and Procedures

Under supervision and with the participation of certain members of our management, including our chief executive officer and chief financial officer, we completed an evaluation of the effectiveness of the design and operation of 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 amended) as of ~~September 30, 2013~~March 31, 2014. Based on this evaluation, 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 of material information required to be disclosed in this report as it relates to the Company and our consolidated subsidiaries.

The effectiveness of our 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 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, our or any system of disclosure controls and procedures can provide only reasonable assurance regarding management's control objectives.

Changes in Internal Control over Financial Reporting

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

Cautionary Note Regarding Forward-Looking Statements

~~Statements made in this~~This report ~~contain~~contains certain “forward-looking statements” within the meaning of such term in the Private Securities Litigation Reform Act of 1995. We and our ~~authorized~~ representatives may, from time to time, make written or oral statements that are “forward-looking” and provide information other than historical information. These statements involve known and unknown risks,

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uncertainties and other factors that may cause actual results to be materially different from any results, levels of activity, performance or achievements expressed or implied by any forward-looking statement. These factors include, among other things, the factors listed below.

Forward-looking statements, which may be based upon beliefs, expectations and assumptions of our management and on information currently available to management, are generally identifiable by the use of words such as ~~“believe,” “expect,” “anticipate,” “should,” “could,” “would,” “plans,” “intend,” “project,” “estimate," “forecast,”~~“believe”, “expect”, “anticipate”, “should”, “could”, “would”, “plans”, “intend”, “project”, “estimate”, “forecast”, “may” or similar expressions. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in, or implied by, these statements. Readers are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Additionally, we undertake no obligation to update any statement in light of new information or future events, except as required under federal securities law.

Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors that could ~~cause actual~~have an impact on our ability to achieve operating results, ~~to differ materially from the results anticipated or projected~~growth plan goals and future prospects include, but are not limited to, the following: ~~(1)~~

credit quality deterioration or pronounced and sustained reduction in real estate market values could cause an increase in ~~the~~our allowance for credit losses and a reduction in net earnings; ~~(2)~~

our ~~management's~~management’s ability to reduce and effectively manage interest rate risk and the impact of interest rates in general on the volatility of our net interest income; ~~(3)~~

changes in the economic environment, competition, or other factors that may affect our ability to acquire loans or influence the anticipated growth rate of loans and deposits and the quality of the loan portfolio and loan and deposit pricing; ~~(4)~~

fluctuations in the value of our investment securities; ~~(5)~~

governmental monetary and fiscal policies; ~~(6)~~

legislative and regulatory changes, including changes in banking, securities and tax laws and regulations and their application by our regulators (particularly with respect to the Dodd-Frank ~~Wall Street Reform and Consumer Protection~~ Act and the extensive regulations promulgated and to be promulgated thereunder, as well as the rules ~~recently~~ adopted by the ~~Federal~~federal bank regulatory agencies to implement the Basel III capital accord), and changes in the scope and cost of ~~Federal Deposit Insurance Corporation~~FDIC insurance and other coverages; ~~(7)~~

the ability to attract and retain key executives and employees experienced in banking and financial services; ~~(8)~~

the sufficiency of the allowance for loan losses to absorb the amount of actual losses inherent in our existing loan portfolio; ~~(9)~~

our ability to adapt successfully to technological changes to compete effectively in the marketplace; ~~(10)~~

credit risks and risks from concentrations (by geographic area and by industry) within our loan portfolio; ~~(11)~~

the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds, and other financial institutions operating in our markets or elsewhere or providing similar services; ~~(12)~~

the failure of assumptions underlying the establishment of allowances for loan losses and estimation of values of collateral and various financial assets and liabilities; ~~(13)~~

volatility of rate-sensitive deposits; ~~(14)~~

operational risks, including data processing system failures or fraud; ~~(15)~~

asset/liability matching risks and liquidity risks; ~~(16)~~

the risks of mergers, acquisitions and divestitures,

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including, without limitation, the related time and costs of implementing such transactions, integrating operations as part of these transactions and possible failures to achieve expected gains, revenue growth and/or expense savings from such transactions; ~~(17)~~

the costs, effects and outcomes of existing or future litigation; ~~(18)~~

changes in general economic or industry conditions, nationally or in the communities in which we conduct business; ~~(19)~~

changes in accounting policies and practices, as may be adopted by state and federal regulatory agencies and the Financial Accounting Standards Board; and ~~(20)~~

other ~~risk~~ factors ~~detailed from time to time~~and risks described under “Risk Factors” in ~~SEC filings made~~our Annual Report on Form 10-K for the period ended December 31, 2013.

We qualify all of our forward-looking statements by the ~~Company.~~foregoing cautionary statements. Because of these risks and other uncertainties, our actual future results, performance or achievement, or industry results, may be materially different from the results indicated by these forward-looking statements. In addition, our past results of operations are not necessarily indicative of our future results.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

The Company and its subsidiaries are from time to time parties to various legal actions arising in the normal course of business. We believe that there are no threatened or pending proceedings, other than ordinary routine litigation incidental to the Company's business, 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.

Item 1A. Risk Factors.

There have been no material changes from the risk factors set forth in Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the period ended December 31, ~~2012~~2013. Please refer to that section of our Form 10-K for disclosures regarding the risks and uncertainties related to our business.

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

Period
Total Number of Shares Purchased⁽¹⁾
Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
July 1 - 31, 2013 25
$ 26.85
—
$ 4,033,437
August 1 - 31, 2013 —
—
—
4,033,437
September 1 - 30, 2013 —
—
—
4,033,437
Total 25
$ 26.85
—
$ 4,033,437
(1) Represents shares withheld to satisfy tax withholding obligations upon the vesting of restricted stock units.



Period	Total Number of Shares Purchased (A)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs (B)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Programs
January 1 - 31, 2014	10,066	$	23.28	8,666	$	3,824,032
February 1 - 28, 2014	21,393	24.22		20,800	3,316,940
March 1 - 31, 2014	—	—		—	3,316,940
Total	31,459	$	23.92	29,466	$	3,316,940
The difference in shares purchased between (A) and (B) represents shares withheld to satisfy tax withholding obligations upon the vesting of restricted stock units.

On January 15, 2013, our ~~Board~~board of ~~Directors~~directors announced the renewal of the Company's share repurchase program, extending the expiration of the program to December 31, 2014 and increasing the remaining amount of authorized repurchases under the program to $5.0 million from the approximately $2.4 million of authorized repurchases that had previously remained. Pursuant to the program, we may continue to repurchase shares from time to time in the open market, and the method, timing and amounts of repurchase will be solely in the discretion of the Company's management. The repurchase program does not require us to acquire a specific number of shares. Therefore, the amount of shares repurchased pursuant to the program will depend on several factors, including market conditions, capital and liquidity requirements, and alternative uses for cash available.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits.



Exhibit Number	Description	Incorporated by Reference to:

~~3.1~~	~~Second Amended and Restated Bylaws of MidWestOne~~ ~~Financial Group, Inc.~~	~~Exhibit 3.1 of the Company's Current Report on Form 8-K filed with the SEC on July 17, 2013~~

~~10.1~~	~~Construction Agreement, dated as of August 2, 2013, between MidWestOne~~ ~~Bank and Knutson Construction Services Midwest~~	~~Exhibit 10.1 of the Company's Current Report on Form 8-K filed with the SEC on August 2, 2013~~

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

101.INS	XBRL Instance Document	Filed herewith

101.SCH	XBRL Taxonomy Extension Schema Document	Filed herewith

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	Filed herewith

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	Filed herewith

101.LAB	XBRL Taxonomy Extension Label Linkbase Document	Filed herewith

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	Filed herewith

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SIGNATURES

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



		MIDWESTONE FINANCIAL GROUP, INC.

Dated:	~~October 31, 2013~~May 1, 2014	By:	/s/ CHARLES N. FUNK
			Charles N. Funk
			President and Chief Executive Officer

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

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	As of September 30, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
(in thousands)
U.S. Government agencies and corporations	$	51,202	$	587	$	778	$	51,011
State and political subdivisions	200,133		6,143		2,486		203,790
Mortgage-backed securities and collateralized mortgage obligations	203,679		3,247		2,384		204,542
Corporate debt securities	28,925		276		1,291		27,910
Total debt securities	483,939		10,253		6,939		487,253
Other equity securities	2,652		282		39		2,895
Total	$	486,591	$	10,535	$	6,978	$	490,148



	As of December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
(in thousands)
U.S. Government agencies and corporations	$	68,707	$	1,132	$	56	$	69,783
State and political subdivisions	206,392		11,752		125		218,019
Mortgage-backed securities and collateralized mortgage obligations	236,713		6,433		28		243,118
Corporate debt securities	26,438		360		1,858		24,940
Total debt securities	538,250		19,677		2,067		555,860
Other equity securities	1,637		109		65		1,681
Total	$	539,887	$	19,786	$	2,132	$	557,541



	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2013		2012		2013		2012
(in thousands)
Beginning balance	$	7,379	$	7,034	$	7,379	$	7,034
Additional credit losses:
Securities with no previous other than temporary impairment	—		—		—		—
Securities with previous other than temporary impairments	—		337		—		337
Ending balance	$	7,379	$	7,371	$	7,379	$	7,371



	Allowance for Loan Losses and Recorded Investment in Loan Receivables
	As of September 30, 2013 and December 31, 2012
(in thousands)	Agricultural		Commercial and Industrial		Commercial Real Estate		Residential Real Estate		Consumer		Unallocated		Total
September 30, 2013
Allowance for loan losses:
Individually evaluated for impairment	$	140	$	217	$	653	$	214	$	18	$	—	$	1,242
Collectively evaluated for impairment	918		4,462		5,334		3,178		321		1,050		15,263
Total	$	1,058	$	4,679	$	5,987	$	3,392	$	339	$	1,050	$	16,505
Loans acquired with deteriorated credit quality (loan pool participations)	$	3	$	66	$	700	$	124	$	5	$	1,236	$	2,134
Loans receivable
Individually evaluated for impairment	$	3,164	$	2,078	$	5,008	$	1,569	$	72	$	—	$	11,891
Collectively evaluated for impairment	87,858		261,206		428,628		268,355		18,899		—		1,064,946
Total	$	91,022	$	263,284	$	433,636	$	269,924	$	18,971	$	—	$	1,076,837
Loans acquired with deteriorated credit quality (loan pool participations)	$	53	$	1,563	$	19,912	$	4,013	$	60	$	4,604	$	30,205



	Allowance for Loan Loss Activity
	For the Nine Months Ended September 30, 2013 and 2012
(in thousands)	Agricultural			Commercial and Industrial			Commercial Real Estate			Residential Real Estate			Consumer			Unallocated			Total
2013
Beginning balance	$	1,026		$	4,599		$	5,767		$	3,007		$	356		$	1,202		$	15,957
Charge-offs	(39		)	(475		)	(203		)	(267		)	(118		)	—			(1,102		)
Recoveries	36			59			462			25			18			—			600
Provision	35			496			(39		)	627			83			(152		)	1,050
Ending balance	$	1,058		$	4,679		$	5,987		$	3,392		$	339		$	1,050		$	16,505
2012
Beginning balance	$	1,209		$	5,380		$	5,171		$	3,501		$	167		$	248		$	15,676
Charge-offs	—			(1,891		)	(129		)	(481		)	(43		)	—			(2,544		)
Recoveries	507			407			24			12			16			—			966
Provision	(703		)	871			788			(152		)	116			809			1,729
Ending balance	$	1,013		$	4,767		$	5,854		$	2,880		$	256		$	1,057		$	15,827



Period	Total Number of Shares Purchased⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
July 1 - 31, 2013	25	$	26.85	—	$	4,033,437
August 1 - 31, 2013	—	—		—	4,033,437
September 1 - 30, 2013	—	—		—	4,033,437
Total	25	$	26.85	—	$	4,033,437
(1) Represents shares withheld to satisfy tax withholding obligations upon the vesting of restricted stock units.