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~~June 30, ~~2016~~2017



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 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, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated ~~filer”~~filer,” “smaller reporting company,” and ~~“smaller reporting~~“emerging growth 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☐
		Emerging growth company	☐

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

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

As of ~~November~~August 1, ~~2016~~2017, there were ~~11,435,860~~12,218,528 shares of common stock, $1.00 par value per share, outstanding.

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	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	3635

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	58

Item 4.	Controls and Procedures	6160

Part II

Item 1.	Legal Proceedings	6361

Item 1A.	Risk Factors	6361

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6361

Item 3.	Defaults Upon Senior Securities	6361

Item 4.	Mine Safety Disclosures	6361

Item 5.	Other Information	6361

Item 6.	Exhibits	6462

	Signatures	6563

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	September 30, 2016			December 31, 2015			June 30, 2017			December 31, 2016
(dollars in thousands, except per share amounts)	(unaudited)						(unaudited)
ASSETS
Cash and due from banks	$	45,612		$	44,199		$	46,234		$	41,464
Interest-bearing deposits in banks	6,341			2,731			3,164			1,764
Federal funds sold	5			167
Cash and cash equivalents	51,958			47,097			49,398			43,228
Investment securities:
Available for sale	436,239			427,241			442,958			477,518
Held to maturity (fair value of $153,474 as of September 30, 2016 and $118,234 as of December 31, 2015)	151,110			118,423
Held to maturity (fair value of $183,296 as of June 30, 2017 and $164,792 as of December 31, 2016)							182,478			168,392
Loans held for sale	2,742			3,187			1,636			4,241
Loans	2,141,832			2,151,942			2,197,503			2,165,143
Allowance for loan losses	(21,395		)	(19,427		)	(22,510		)	(21,850		)
Net loans	2,120,437			2,132,515			2,174,993			2,143,293
Premises and equipment, net	75,127			76,202			74,711			75,043
Accrued interest receivable	13,139			13,736			12,606			13,871
Goodwill	64,654			64,548			64,654			64,654
Other intangible assets, net	16,095			19,141			13,518			15,171
Bank-owned life insurance	46,905			46,295			47,877			47,231
Other real estate owned	3,452			8,834			1,486			2,097
Deferred income taxes	1,231			947			5,482			6,523
Other assets	18,885			21,809			19,248			18,313
Total assets	$	3,001,974		$	2,979,975		$	3,091,045		$	3,079,575
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest-bearing demand	$	493,820		$	559,586		$	476,031		$	494,586
Interest-bearing checking	1,114,536			1,064,350			1,131,151			1,136,282
Savings	196,426			189,489			203,967			197,698
Certificates of deposit under $100,000	332,194			348,268			325,847			326,832
Certificates of deposit $100,000 and over	308,956			301,828			356,713			325,050
Total deposits	2,445,932			2,463,521			2,493,709			2,480,448
Federal funds purchased	19,309			1,500			45,319			35,684
Securities sold under agreements to repurchase	63,469			67,463			60,182			82,187
Federal Home Loan Bank borrowings	100,000			87,000			90,000			115,000
Junior subordinated notes issued to capital trusts	23,667			23,587			23,743			23,692
Long-term debt	18,750			22,500			15,000			17,500
Deferred compensation liability	5,209			5,132			5,224			5,180
Accrued interest payable	1,552			1,507			1,551			1,472
Other liabilities	14,502			11,587			13,445			12,956
Total liabilities	2,692,390			2,683,797			2,748,173			2,774,119
Shareholders' equity:
Preferred stock, no par value; authorized 500,000 shares; no shares issued and outstanding at September 30, 2016 and December 31, 2015	$	—		$	—
Common stock, $1.00 par value; authorized 15,000,000 shares at September 30, 2016 and December 31, 2015; issued 11,713,481 shares at September 30, 2016 and at December 31, 2015; outstanding 11,435,860 shares at September 30, 2016 and 11,408,773 shares at December 31, 2015	11,713			11,713
Preferred stock, no par value; authorized 500,000 shares; no shares issued and outstanding at June 30, 2017 and December 31, 2016							$	—		$	—
Common stock, $1.00 par value; authorized 30,000,000 shares at June 30, 2017 and 15,000,000 shares at December 31, 2016; issued 12,463,481 shares at June 30, 2017 and 11,713,481 shares at December 31, 2016; outstanding 12,218,528 shares at June 30, 2017 and 11,436,360 shares at December 31, 2016							12,463			11,713
Additional paid-in capital	163,492			163,487			187,062			163,667
Treasury stock at cost, 277,621 shares as of September 30, 2016 and 304,708 shares at December 31, 2015	(5,776		)	(6,331		)
Treasury stock at cost, 244,953 shares as of June 30, 2017 and 277,121 shares as of December 31, 2016							(5,141		)	(5,766		)
Retained earnings	134,935			123,901			147,015			136,975
Accumulated other comprehensive income	5,220			3,408
Accumulated other comprehensive income (loss)							1,473			(1,133		)
Total shareholders' equity	309,584			296,178			342,872			305,456
Total liabilities and shareholders' equity	$	3,001,974		$	2,979,975		$	3,091,045		$	3,079,575

See accompanying notes to consolidated financial statements.

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 June 30,					Six Months Ended June 30,
	2016			2015			2016			2015			2017		2016			2017		2016
Interest income:
Interest and fees on loans	$	24,343		$	26,697		$	74,094		$	60,959		$	25,650	$	24,635		$	49,929	$	49,751
Interest and discount on loan pool participations	—			—			—			798
Interest on bank deposits	63			13			141			29			26		70			31		78
Interest on federal funds sold	3			—			4			—			1		1			1		1
Interest on investment securities:
Taxable securities	2,088			1,914			5,924			5,721			2,590		1,912			5,308		3,836
Tax-exempt securities	1,394			1,365			4,251			4,149			1,587		1,420			3,152		2,857
Total interest income	27,891			29,989			84,414			71,656			29,854		28,038			58,421		56,523
Interest expense:
Interest on deposits:
Interest-bearing checking	810			706			2,346			1,903			912		776			1,710		1,536
Savings	50			48			216			128			51		60			102		166
Certificates of deposit under $100,000	801			641			2,089			1,758			886		719			1,745		1,288
Certificates of deposit $100,000 and over	813			1,090			2,171			2,083			995		719			1,912		1,358
Total interest expense on deposits	2,474			2,485			6,822			5,872			2,844		2,274			5,469		4,348
Interest on federal funds purchased	5			19			30			33			25		—			71		25
Interest on securities sold under agreements to repurchase	36			51			121			124			34		32			72		85
Interest on Federal Home Loan Bank borrowings	469			334			1,387			1,086			404		467			847		918
Interest on other borrowings	4			6			16			16			3		6			6		12
Interest on junior subordinated notes issued to capital trusts	215			191			608			399			240		196			461		393
Interest on subordinated notes	—			—			—			162
Interest on long-term debt	107			144			354			240			113		123			223		247
Total interest expense	3,310			3,230			9,338			7,932			3,663		3,098			7,149		6,028
Net interest income	24,581			26,759			75,076			63,724			26,191		24,940			51,272		50,495
Provision for loan losses	1,005			2,141			3,241			3,642			1,240		1,171			2,281		2,236
Net interest income after provision for loan losses	23,576			24,618			71,835			60,082			24,951		23,769			48,991		48,259
Noninterest income:
Trust, investment, and insurance fees	1,306			1,428			4,244			4,642			1,528		1,440			3,140		2,938
Service charges and fees on deposit accounts	1,346			1,297			3,887			3,098			1,257		1,283			2,540		2,541
Loan origination and servicing fees	1,162			1,025			2,636			2,096			718		855			1,520		1,474
Other service charges and fees	1,307			1,342			4,115			3,155			1,497		1,378			2,955		2,808
Bank-owned life insurance income	324			344			1,040			964			318		332			646		716
Gain on sale or call of available for sale securities	—			—			467			1,011			20		223			20		467
Loss on sale of premises and equipment	(37		)	(5		)	(53		)	(15		)
Other gain (loss)	306			29			1,378			(396		)
Gain on sale of held to maturity securities													—		—			43		—
Gain (loss) on sale of premises and equipment													8		(40		)	6		(251		)
Other gain													37		124			50		1,307
Total noninterest income	5,714			5,460			17,714			14,555			5,383		5,595			10,920		12,000
Noninterest expense:
Salaries and employee benefits	11,641			12,191			37,607			29,054			11,789		13,321			23,673		25,966
Net occupancy and equipment expense	3,293			2,719			9,870			6,585			3,033		3,326			6,337		6,577
Professional fees	1,014			959			3,181			3,868			1,036		1,221			2,058		2,167
Data processing expense	599			928			3,981			2,028			548		809			1,259		3,382
FDIC insurance expense	412			431			1,231			1,058			352		398			719		819
Amortization of intangible assets	970			800			3,046			2,136			804		1,015			1,653		2,076
Other operating expense	2,510			2,314			7,784			6,638			2,402		2,725			4,600		5,274
Total noninterest expense	20,439			20,342			66,700			51,367			19,964		22,815			40,299		46,261
Income before income tax expense	8,851			9,736			22,849			23,270			10,370		6,549			19,612		13,998
Income tax expense	2,629			2,121			6,328			6,390			3,136		1,794			5,665		3,699
Net income	$	6,222		$	7,615		$	16,521		$	16,880		$	7,234	$	4,755		$	13,947	$	10,299
Share and per share information:
Ending number of shares outstanding	11,435,860			11,406,431			11,435,860			11,406,431			12,218,528		11,435,860			12,218,528		11,435,860
Average number of shares outstanding	11,435,860			11,406,132			11,428,063			10,010,926			12,200,689		11,431,252			11,855,108		11,424,122
Diluted average number of shares	11,461,108			11,434,186			11,451,958			10,038,093			12,219,238		11,453,831			11,878,315		11,448,677
Earnings per common share - basic	$	0.54		$	0.67		$	1.45		$	1.69		$	0.59	$	0.42		$	1.18	$	0.90
Earnings per common share - diluted	0.54			0.67			1.44			1.68			0.59		0.42			1.17		0.90
Dividends paid per common share	0.16			0.15			0.48			0.45			0.165		0.16			0.33		0.32

See accompanying notes to consolidated financial statements.

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 June 30,						Six Months Ended June 30,
	2016			2015			2016			2015			2017			2016			2017			2016
Net income	$	6,222		$	7,615		$	16,521		$	16,880		$	7,234		$	4,755		$	13,947		$	10,299

Other comprehensive income, available for sale securities:
Unrealized holding gains (losses) arising during period	(304		)	2,196			3,565			(78		)
Unrealized holding gains arising during period													2,745			891			4,312			3,869
Reclassification adjustment for gains included in net income	—			—			(467		)	(1,011		)	(20		)	(223		)	(20		)	(467		)
Income tax (expense) benefit	119			(833		)	(1,286		)	403
Other comprehensive income (loss) on available for sale securities	(185		)	1,363			1,812			(686		)
Other comprehensive income (loss), net of tax	(185		)	1,363			1,812			(686		)
Income tax expense													(1,070		)	(389		)	(1,686		)	(1,405		)
Other comprehensive income on available for sale securities													1,655			279			2,606			1,997
Other comprehensive income, net of tax													1,655			279			2,606			1,997
Comprehensive income	$	6,037		$	8,978		$	18,333		$	16,194		$	8,889		$	5,034		$	16,553		$	12,296

See accompanying notes to consolidated financial statements.

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			Preferred Stock		Common Stock		Additional Paid-in Capital			Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balance at December 31, 2014	$	—	$	8,690	$	80,537		$	(6,945	)	$	105,127		$	5,322		$	192,731
Net income	—		—		—			—			16,880			—			16,880
Issuance of common stock due to business combination (2,723,083 shares)	—		2,723		75,172			—			—			—			77,895
Issuance of common stock - private placement (300,000 shares), net of expenses	—		300		7,600			—			—			—			7,900
Dividends paid on common stock ($0.45 per share)	—		—		—			—			(4,633		)	—			(4,633		)
Stock options exercised (5,769 shares)	—		—		(32		)	120			—			—			88
Release/lapse of restriction on RSUs (23,123 shares)	—		—		(416		)	445			—			—			29
Stock compensation	—		—		462			—			—						462
Other comprehensive income, net of tax	—		—		—			—			—			(686		)	(686		)
Balance at September 30, 2015	$	—	$	11,713	$	163,323		$	(6,380	)	$	117,374		$	4,636		$	290,666
Balance at December 31, 2015	$	—	$	11,713	$	163,487		$	(6,331	)	$	123,901		$	3,408		$	296,178		$	—	$	11,713	$	163,487		$	(6,331	)	$	123,901		$	3,408		$	296,178
Net income	—		—		—			—			16,521			—			16,521			—		—		—			—			10,299			—			10,299
Dividends paid on common stock ($0.48 per share)	—		—		—			—			(5,487		)	—			(5,487		)
Dividends paid on common stock ($0.32 per share)																				—		—		—			—			(3,657		)	—			(3,657		)
Stock options exercised (2,900 shares)	—		—		(22		)	60			—			—			38			—		—		(22		)	60			—			—			38
Release/lapse of restriction on RSUs (25,633 shares)	—		—		(520		)	495			—			—			(25		)	—		—		(520		)	495			—			—			(25		)
Stock compensation	—		—		547			—			—			—			547			—		—		365			—			—						365
Other comprehensive income, net of tax	—		—		—			—			—			1,812			1,812			—		—		—			—			—			1,997			1,997
Balance at September 30, 2016	$	—	$	11,713	$	163,492		$	(5,776	)	$	134,935		$	5,220		$	309,584
Balance at June 30, 2016																				$	—	$	11,713	$	163,310		$	(5,776	)	$	130,543		$	5,405		$	305,195
Balance at December 31, 2016																				$	—	$	11,713	$	163,667		$	(5,766	)	$	136,975		$	(1,133	)	$	305,456
Net income																				—		—		—			—			13,947			—			13,947
Issuance of common stock (750,000 shares), net of expenses of $1,328,000																				—		750		23,610			—			—			—			24,360
Dividends paid on common stock ($0.33 per share)																				—		—		—			—			(3,907		)	—			(3,907		)
Stock options exercised (8,250 shares)																				—		—		(81		)	172			—			—			91
Release/lapse of restriction on RSUs (26,875 shares)																				—		—		(560		)	453			—			—			(107		)
Stock compensation																				—		—		426			—			—			—			426
Other comprehensive income, net of tax																				—		—		—			—			—			2,606			2,606
Balance at June 30, 2017																				$	—	$	12,463	$	187,062		$	(5,141	)	$	147,015		$	1,473		$	342,872

See accompanying notes to consolidated financial statements.

MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS


(unaudited) (dollars in thousands)	Nine Months Ended September 30,						Six Months Ended June 30,
	2016			2015			2017			2016
Cash flows from operating activities:
Net income	$	16,521		$	16,880		$	13,947		$	10,299
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	3,241			3,642			2,281			2,236
Depreciation, amortization and accretion	7,726			5,952
Loss on sale of premises and equipment	53			15
Depreciation of premises and equipment							2,058			2,297
Amortization of other intangibles							1,653			2,076
Amortization of premiums and discounts on investment securities, net							650			916
(Gain) loss on sale of premises and equipment							(6		)	251
Deferred income taxes	(1,676		)	(169		)	(554		)	(468		)
Excess tax benefit from share-based award activity							(91		)	(13		)
Stock-based compensation	547			462			426			365
Net gain on sale or call of available for sale securities	(467		)	(1,011		)	(20		)	(467		)
Net gain on sale or call of held to maturity securities							(43		)	—
Net gain on sale of other real estate owned	(750		)	(108		)	(30		)	(601		)
Net gain on sale of loans held for sale	(2,160		)	(1,240		)	(799		)	(993		)
Writedown of other real estate owned	546			—			23			—
Origination of loans held for sale	(89,005		)	(99,302		)	(41,284		)	(47,588		)
Proceeds from sales of loans held for sale	91,610			97,232			44,688			46,720
Decrease in accrued interest receivable	597			339			1,265			1,565
Increase in cash surrender value of bank-owned life insurance	(1,040		)	(964		)	(646		)	(716		)
Decrease in other assets	2,924			4,734
(Increase) decrease in other assets							(935		)	342
Increase in deferred compensation liability	77			94			44			58
Increase (decrease) in accrued interest payable, accounts payable, accrued expenses, and other liabilities	2,960			(4,489		)
Increase in accrued interest payable, accounts payable, accrued expenses, and other liabilities							568			3,973
Net cash provided by operating activities	31,704			22,067			23,195			20,252
Cash flows from investing activities:
Proceeds from sales of available for sale securities	23,384			112,054			9,999			23,384
Proceeds from maturities and calls of available for sale securities	68,180			64,921			41,162			51,873
Purchases of available for sale securities	(98,108		)	(11		)	(12,841		)	(15,818		)
Proceeds from sales of held to maturity securities							1,153			—
Proceeds from maturities and calls of held to maturity securities	10,662			3,077			2,998			9,259
Purchase of held to maturity securities	(43,482		)	(12,394		)	(18,292		)	(16,821		)
Net (increase) decrease in loans	7,054			(89,521		)
Decrease in loan pool participations, net	—			19,332
Net increase in loans							(34,188		)	(17,610		)
Purchases of premises and equipment	(4,594		)	(11,558		)	(1,697		)	(3,964		)
Proceeds from sale of other real estate owned	7,369			2,812			825			6,252
Proceeds from sale of premises and equipment	2,260			33			28			1,233
Proceeds of principal and earnings from bank-owned life insurance	430			—			—			430
Net cash paid in business acquisition (Note 2)	—			(35,596		)
Net cash provided by (used in) investing activities	(26,845		)	53,149			(10,853		)	38,218
Cash flows from financing activities:
Net increase (decrease) in deposits	(17,589		)	10,369
Net increase in deposits							13,261			40
Increase (decrease) in federal funds purchased	17,809			(17,408		)	9,635			(1,500		)
Decrease in securities sold under agreements to repurchase	(3,994		)	(7,717		)	(22,005		)	(7,005		)
Proceeds from Federal Home Loan Bank borrowings	30,000			24,000			50,000			30,000
Repayment of Federal Home Loan Bank borrowings	(17,000		)	(30,000		)	(75,000		)	(10,000		)
Proceeds and effect of tax from share-based compensation	13			117
Redemption of subordinated note	—			(12,669		)
Proceeds from long-term debt	—			25,000
Proceeds from stock options exercised							1			38
Excess tax benefit from share-based award activity							91			13
Taxes paid relating to net share settlement of equity awards							(108		)	(38		)
Payments on long-term debt	(3,750		)	(1,250		)	(2,500		)	(2,500		)
Dividends paid	(5,487		)	(4,633		)	(3,907		)	(3,657		)
Issuance of common stock, net of expenses	—			7,900
Proceeds from issuance of common stock							25,688			—
Payment of stock issuance costs							(1,328		)	—
Net cash provided by (used in) financing activities	2			(6,291		)	(6,172		)	5,391
Net increase in cash and cash equivalents	4,861			68,925			6,170			63,861
Cash and cash equivalents at beginning of period	47,097			23,409			43,228			47,097
Cash and cash equivalents at end of period	$	51,958		$	92,334		$	49,398		$	110,958

(unaudited) (dollars in thousands) Nine Months Ended September 30,
2016 2015
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 9,293
$ 7,646
Cash paid during the period for income taxes $ 5,965
$ 4,650
Supplemental schedule of non-cash investing activities:
Transfer of loans to other real estate owned $ 1,783
$ 667

Supplemental Schedule of non-cash Investing Activities from Acquisition:
Noncash assets acquired:
Investment securities $ —
160,775
Loans —
916,973
Premises and equipment —
27,908
Goodwill —
64,654
Core deposit intangible —
12,773
Trade name intangible —
1,380
FDIC indemnification asset —
3,753
Other real estate owned —
8,420
Other assets —
14,482
Total noncash assets acquired —
1,211,118

Liabilities assumed:
Deposits —
1,049,167
Short-term borrowings —
16,124
Junior subordinated notes issued to capital trusts —
8,050
Subordinated note payable —
12,669
Other liabilities —
11,617
Total liabilities assumed —
1,097,627



(unaudited) (dollars in thousands)	Six Months Ended June 30,
	2017		2016
Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	7,070	$	5,915
Cash paid during the period for income taxes	$	5,975	$	4,225
Supplemental schedule of non-cash investing activities:
Transfer of loans to other real estate owned	$	207	$	960

See accompanying notes to consolidated financial statements.

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, as amended, 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 all of the 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 all of the common stock of MidWestOne Insurance Services, Inc., Oskaloosa, Iowa. We operate primarily through ~~our bank subsidiary,~~ MidWestOne Bank, our bank subsidiary, and MidWestOne Insurance Services, Inc., our wholly-owned subsidiary that operates an insurance agency business through six offices located in central and east-central Iowa.

On May 1, 2015, the Company completed its merger with Central Bancshares, Inc. (“Central”), pursuant to which Central was merged with and into the Company. In connection with the merger, Central Bank, a Minnesota-chartered commercial bank and wholly-owned subsidiary of Central, became a wholly-owned subsidiary of the Company. On April 1, 2016, Central Bank merged with and into MidWestOne Bank.

The Company issued 2,723,083 shares of common stock and paid $64.0 million in cash, for total consideration of $141.9 million, in connection with the holding company merger. The results of operations acquired from Central have been included in the Company’s results of operations for the time period since the date of acquisition.

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~~generally accepted accounting principles (“GAAP”). 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, ~~2015~~2016 and for the year then ended. Management believes that the disclosures in this Form 10-Q 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 Company’s financial position as of ~~September~~June 30, ~~2016~~2017, and the results of operations and cash flows for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016. All significant intercompany accounts and transactions have been eliminated in consolidation.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect: (1) the reported amounts of assets and liabilities, (2) the disclosure of contingent assets and liabilities at the date of the financial statements, and (3) the reported amounts 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~~six months ended ~~September~~June 30, ~~2016~~2017 may not be indicative of results for the year ending December 31, ~~2016,~~2017, or for any other period.

The Company adopted ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting," on January 1, 2017. The Company elected to account for forfeitures when they occur and recognize them in compensation cost at that time. There was no effect due to this accounting policy election on the Company’s consolidated financial statements.

The Company adopted ASU 2017-08, “Premium Amortization on Purchased Callable Debt Securities” during the second quarter of 2017. Since the Company was already amortizing premiums on callable investment securities between the date of purchase and the first call date, there was no cumulative effect adjustment necessary to the Company’s consolidated financial statements.

All significant accounting policies followed in the preparation of the quarterly financial statements are disclosed in the Annual Report on Form 10-K for the year ended December 31, ~~2015~~2016.

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.

Certain reclassifications have been made to prior periods’ consolidated financial statements to present them on a basis comparable with the current period’s consolidated financial statements.

2. ~~Business Combination~~

On May 1, 2015, the Company acquired all of the voting equity interests of Central, a bank holding company and the parent company of Central Bank, a commercial bank headquartered in Golden Valley, Minnesota, through the merger of Central with and into the Company. Among other things, this transaction provided the Company with the opportunity to expand its business into new markets and grow the size of the business. At the effective time of the merger, each share of common stock of Central converted into a pro rata portion of (1) 2,723,083 shares of common stock of the Company, and (2) $64.0 million in cash.

This business combination was accounted for under the acquisition method of accounting. Accordingly, the results of operations of Central have been included in the Company’s results of operations since the date of acquisition. Under this method of accounting, assets and liabilities acquired are recorded at their estimated fair values. The excess cost over fair value of net assets acquired is recorded as goodwill. As the consideration paid for Central exceeded the net assets acquired, goodwill of $64.7 million has been recorded on the acquisition. Goodwill recorded in this transaction reflects the entry into the geographically new markets served by Central. Goodwill recorded in the transaction is not tax deductible. The amounts recognized for the business combination in the financial statements have been determined to be final as of March 31, 2016.

~~Estimated fair values of assets acquired and liabilities assumed in the Central transaction, as of the closing date of the transaction, were as follows:~~

(in thousands) May 1, 2015
ASSETS
Cash and due from banks $ 28,404
Investment securities 160,775
Loans 916,973
Premises and equipment 27,908
Goodwill 64,654
Core deposit intangible 12,773
Trade name intangible 1,380
FDIC indemnification asset 3,753
Other real estate owned 8,420
Other assets 14,482
Total assets 1,239,522
LIABILITIES
Deposits 1,049,167
Short-term borrowings 16,124
Junior subordinated notes issued to capital trusts 8,050
Subordinated notes payable 12,669
Accrued expenses and other liabilities 11,617
Total liabilities 1,097,627
Total identifiable net assets 141,895

Consideration:
Market value of common stock at $29.31 per share at May 1, 2015 (2,723,083 shares of common stock issued), net of stock illiquidity discount due to restrictions 77,895
Cash paid 64,000
Total fair value of consideration $ 141,895

Purchased loans acquired in a business combination are recorded and initially measured at their estimated fair value as of the acquisition date. Credit discounts are included in the determination of fair value. An allowance for loan losses is not carried over. These purchased loans are segregated into two types: purchased credit impaired loans and purchased non-credit impaired loans without evidence of significant credit deterioration.

~~Purchased credit impaired loans are accounted for in accordance with ASC 310-30~~ ~~“Loans and Debt Securities Acquired with Deteriorated Credit Quality”~~ as they display significant credit deterioration since origination and it is probable, as of the acquisition date, that the Company will be unable to collect all contractually required payments from the borrower.

~~Purchased non-credit impaired loans are accounted for in accordance with ASC 310-20 “Nonrefundable Fees and Other Costs” as these loans do not have evidence of significant credit deterioration since origination and it is probable all contractually required payments will be received from the borrower.~~

For purchased non-credit impaired loans, the difference between the estimated fair value of the loans (computed on a loan-by-loan basis) and the principal outstanding is accreted over the remaining life of the loans.

For purchased credit impaired loans the difference between contractually required payments at acquisition and the cash flows expected to be collected is referred to as the non-accretable difference. Further, any excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable yield and is recognized into interest income over the expected remaining life of the loan if the timing and amount of the future cash flows are reasonably estimable. Subsequent to the purchase date, increases in cash flows over those expected at the purchase date are recognized as interest income prospectively. The present value of any decreases in expected cash flows after the purchase date is recognized by recording an allowance for credit losses and a provision for loan losses.

~~The following table presents the purchased loans as of the acquisition date:~~

(in thousands) Purchased Credit Impaired Loans Purchased Non-Credit Impaired Loans
Contractually required principal payments $ 36,886
$ 905,314
Nonaccretable difference (6,675 ) —
Principal cash flows expected to be collected 30,211
905,314

Accretable discount⁽¹⁾
(1,882 ) (16,670 )
Fair value of acquired loans $ 28,329
$ 888,644

~~(1) Included in the accretable discount for purchased non-credit impaired loans is approximately $10.4 million of estimated undiscounted principal losses.~~

Disclosures required by ASC 805-20-50-1(a) concerning the Federal Deposit Insurance Corporation (the ”FDIC”) indemnification assets have not been included due to the immateriality of the amount involved. See Note 6. “Loans Receivable and the Allowance for Loan Losses” to our consolidated financial statements for additional information related to the FDIC indemnification asset.

ASC 805-30-30-7 requires that the consideration transfered in a business combination should be measured at fair value. Since the common shares issued as part of the consideration of the merger included a restriction on their sale, pledge or other disposition, an illiquidity discount has been assigned to the shares based upon the volatility of the underlying shares’ daily returns and the period of restriction.

The Company recorded $0.2 million and $0.2 million in pretax merger-related expenses for the three months ended September 30, 2016 and 2015, respectively, and $4.2 million and $3.4 million for the nine months ended September 30, 2016 and 2015, respectively. For the three months ended September 30, 2016 these expenses included data processing fees of $0.1 million. This amount is included in data processing fees in the Company’s consolidated statements of operations. For the three months ended September 30, 2015, the expenses included professional and legal fees of $0.2 million. This amount is included in professional fees in the Company’s consolidated statements of operations. For the nine months ended September 30, 2016 and 2015, respectively, merger-related expenses included $0.3 million and $1.9 million of professional and legal fees, $1.7 million and $0.5 million of retention and severance compensation costs, and $1.9 million of data processing service contract termination costs for the nine months ended September 30, 2016, which are included in data processing expense.

The following table provides the unaudited pro forma information for the results of operations for the three and nine months ended September 30, 2015, as if the acquisition had occurred January 1, 2015. The pro forma results combine the historical results of Central into the Company’s consolidated statement of income including the impact of certain purchase accounting adjustments, including loan discount accretion, investment securities discount accretion, intangible assets amortization, deposit premium accretion and borrowing discount amortization. The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the results that would have been obtained had the acquisition actually occurred on January 1, 2015. No assumptions have been applied to the pro forma results of operations regarding possible revenue enhancements, expense efficiencies or asset dispositions. Net income in the table below includes merger expenses.

Pro Forma
Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2015 2015
Total revenues (net interest income plus noninterest income) $ 31,258
$ 95,175
Net income $ 6,455
$ 17,052

~~The pro forma information above excludes the impact of any provision recorded related to renewing Central loans.~~

~~Revenues and earnings of the acquired company for the current period have not been disclosed as it is not practicable because Central Bank was merged into MidWestOne~~ ~~Bank on April 1, 2016, and separate financial information is not readily available.~~

3. Shareholders’ Equity

Preferred Stock: The number of authorized shares of preferred stock for the Company is 500,000. As of ~~September~~June 30, ~~2016~~2017, none were issued or outstanding.

Common Stock: As of ~~September~~June 30, ~~2016~~2017, the number of authorized shares of common stock for the Company was ~~15,000,000~~30,000,000. At the Company’s 2017 annual meeting of shareholders, the Company’s shareholders approved an increase in the number of authorized shares of common stock to 30,000,000, which became effective on April 21, 2017. As of ~~September~~June 30, ~~2016~~2017, ~~11,435,860~~12,218,528 shares were outstanding.

On ~~May 1, 2015, in connection with the Central merger, the Company issued 2,723,083 shares of its common stock. On June 22, 2015,~~March 17, 2017, the Company entered into ~~a Securities Purchase Agreement with certain institutional accredited investors, pursuant~~an underwriting agreement to ~~which, on June 23, 2015, the Company sold~~offer and sell, through an ~~aggregate of 300,000~~underwriter, up to 750,000 newly issued shares of the Company’s common stock, $1.00 par value per share, at a public purchase price of ~~$28.00~~$34.25 per share. ~~Each~~This included 250,000 shares of the ~~purchasers was an existing shareholder~~Company’s common stock granted as a 30-day option to purchase to cover over-allotments, if any. On April 6, 2017, the underwriter purchased the full amount of ~~the Company.~~its over-allotment option of 250,000 shares.

On July 21, 2016, the board of directors of the Company approved a share repurchase program, allowing for the repurchase of up to $5.0 million of stock through December 31, 2018. During the ~~third~~second quarter of ~~2016~~2017 the Company repurchased no common stock. Of the $5.0 million of stock authorized under the repurchase plan, $5.0 million remained available for possible future repurchases as of ~~September~~June 30, ~~2016.~~2017.

4.3. Earnings per Share

Basic per-share amounts are computed by dividing net income (the numerator) by the weighted-average number of common shares outstanding (the denominator). Diluted per-share amounts assume issuance of all common stock issuable upon conversion or exercise of other securities, unless the 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) 2016 2015 2016 2015
Basic earnings per common share computation
Numerator:
Net income $ 6,222
$ 7,615
$ 16,521
$ 16,880
Denominator:
Weighted average shares outstanding 11,435,860
11,406,132
11,428,063
10,010,926
Basic earnings per common share $ 0.54
$ 0.67
$ 1.45
$ 1.69

Diluted earnings per common share computation
Numerator:
Net income $ 6,222
$ 7,615
$ 16,521
$ 16,880
Denominator:
Weighted average shares outstanding, including all dilutive potential shares 11,461,108
11,434,186
11,451,958
10,038,093
Diluted earnings per common share $ 0.54
$ 0.67
$ 1.44
$ 1.68



	Three Months Ended June 30,				Six Months Ended June 30,
(dollars in thousands, except per share amounts)	2017		2016		2017		2016
Basic earnings per common share computation
Numerator:
Net income	$	7,234	$	4,755	$	13,947	$	10,299
Denominator:
Weighted average shares outstanding	12,200,689		11,431,252		11,855,108		11,424,122
Basic earnings per common share	$	0.59	$	0.42	$	1.18	$	0.90

Diluted earnings per common share computation
Numerator:
Net income	$	7,234	$	4,755	$	13,947	$	10,299
Denominator:
Weighted average shares outstanding, including all dilutive potential shares	12,219,238		11,453,831		11,878,315		11,448,677
Diluted earnings per common share	$	0.59	$	0.42	$	1.17	$	0.90

5.4. 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 September 30, 2016

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair Value
(in thousands)
U.S. Government agencies and corporations $ 5,958
$ 86
$ —
$ 6,044
State and political subdivisions 158,902
6,910
3
165,809
Mortgage-backed securities 42,592
980
3
43,569
Collateralized mortgage obligations 172,031
789
648
172,172
Corporate debt securities 46,902
493
29
47,366
Total debt securities 426,385
9,258
683
434,960
Other equity securities 1,257
42
20
1,279
Total $ 427,642
$ 9,300
$ 703
$ 436,239



	As of June 30, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
(in thousands)
U.S. Government agencies and corporations	$	5,768	$	10	$	—	$	5,778
State and political subdivisions	147,392		4,474		27		151,839
Mortgage-backed securities	53,654		490		29		54,115
Collateralized mortgage obligations	167,130		118		2,858		164,390
Corporate debt securities	64,331		326		155		64,502
Total debt securities	438,275		5,418		3,069		440,624
Other equity securities	2,263		101		30		2,334
Total	$	440,538	$	5,519	$	3,099	$	442,958

As of December 31, 2015

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair Value
(in thousands)
U.S. Treasury securities $ 6,931
$ —
$ 21
$ 6,910
U.S. Government agencies and corporations 26,600
99
46
26,653
State and political subdivisions 176,794
6,662
72
183,384
Mortgage-backed securities 56,950
569
457
57,062
Collateralized mortgage obligations 107,613
321
1,530
106,404
Corporate debt securities 45,602
50
86
45,566
Total debt securities 420,490
7,701
2,212
425,979
Other equity securities 1,250
50
38
1,262
Total $ 421,740
$ 7,751
$ 2,250
$ 427,241



	As of December 31, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
(in thousands)
U.S. Government agencies and corporations	$	5,895	$	10	$	—	$	5,905
State and political subdivisions	162,145		3,545		418		165,272
Mortgage-backed securities	61,606		315		567		61,354
Collateralized mortgage obligations	175,506		148		4,387		171,267
Corporate debt securities	72,979		76		602		72,453
Total debt securities	478,131		4,094		5,974		476,251
Other equity securities	1,259		66		58		1,267
Total	$	479,390	$	4,160	$	6,032	$	477,518

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

As of September 30, 2016

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair Value
(in thousands)
State and political subdivisions $ 92,224
$ 1,917
$ 173
$ 93,968
Mortgage-backed securities 2,752
54
—
2,806
Collateralized mortgage obligations 27,110
213
23
27,300
Corporate debt securities 29,024
669
293
29,400
Total $ 151,110
$ 2,853
$ 489
$ 153,474



	As of June 30, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
(in thousands)
State and political subdivisions	$	121,162	$	1,577	$	657	$	122,082
Mortgage-backed securities	2,202		7		5		2,204
Collateralized mortgage obligations	24,076		3		357		23,722
Corporate debt securities	35,038		601		351		35,288
Total	$	182,478	$	2,188	$	1,370	$	183,296

As of December 31, 2015

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair Value
(in thousands)
State and political subdivisions $ 66,454
$ 928
$ 110
$ 67,272
Mortgage-backed securities 3,920
4
38
3,886
Collateralized mortgage obligations 30,505
1
459
30,047
Corporate debt securities 17,544
—
515
17,029
Total $ 118,423
$ 933
$ 1,122
$ 118,234



	As of December 31, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
(in thousands)
State and political subdivisions	$	107,941	$	156	$	2,713	$	105,384
Mortgage-backed securities	2,398		5		34		2,369
Collateralized mortgage obligations	26,036		—		598		25,438
Corporate debt securities	32,017		149		565		31,601
Total	$	168,392	$	310	$	3,910	$	164,792

Investment securities with a carrying value of ~~$164.6~~$172.0 million and ~~$321.6~~$212.1 million at ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015~~2016, respectively, were pledged on public deposits, securities sold under agreements to repurchase and for other purposes, as required or permitted by law.

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~~June 30, ~~2016~~2017 and December 31, ~~2015~~2016. This temporary impairment represents the estimated amount of loss that would be realized if the securities were sold on the valuation date.

The following tables present information pertaining to securities with gross unrealized losses as of ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015~~2016, aggregated by investment category and length of time that individual securities have been in a continuous loss position:

As of September 30, 2016

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)
State and political subdivisions 1
$ —
$ —
$ 453
$ 3
$ 453
$ 3
Mortgage-backed securities 5
215
2
88
1
303
3
Collateralized mortgage obligations 13
89,323
348
18,162
300
107,485
648
Corporate debt securities 2
12,139
29
—
—
12,139
29
Other equity securities 1
—
—
980
20
980
20
Total 22
$ 101,677
$ 379
$ 19,683
$ 324
$ 121,360
$ 703



		As of June 30, 2017
	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)
State and political subdivisions	11	$	9,175	$	24	$	451	$	3	$	9,626	$	27
Mortgage-backed securities	11	11,495		28		23		1		11,518		29
Collateralized mortgage obligations	29	112,364		1,857		27,948		1,001		140,312		2,858
Corporate debt securities	4	18,769		155		—		—		18,769		155
Other equity securities	1	—		—		1,970		30		1,970		30
Total	56	$	151,803	$	2,064	$	30,392	$	1,035	$	182,195	$	3,099

As of December 31, 2015

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. Treasury securities 1
$ 6,910
$ 21
$ —
$ —
$ 6,910
$ 21
U.S. Government agencies and corporations 1
4,890
46
—
—
4,890
46
State and political subdivisions 22
8,419
24
3,177
48
11,596
72
Mortgage-backed securities 27
   37,753
   457
   —
   —
   37,753
   457
Collateralized mortgage obligations 23
56,447
420
31,253
1,110
87,700
1,530
Corporate debt securities 8
30,496
86
—
—
30,496
86
Other equity securities 1
—
—
962
38
962
38
Total 83
$ 144,915
$ 1,054
$ 35,392
$ 1,196
$ 180,307
$ 2,250



		As of December 31, 2016
	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	63	$	24,574	$	389	$	427	$	29	$	25,001	$	418
Mortgage-backed securities	20	40,752		566		23		1		40,775		567
Collateralized mortgage obligations	29	140,698		3,544		16,776		843		157,474		4,387
Corporate debt securities	11	54,891		602		—		—		54,891		602
Other equity securities	1	—		—		942		58		942		58
Total	124	$	260,915	$	5,101	$	18,168	$	931	$	279,083	$	6,032

As of September 30, 2016

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 34
$ 14,646
$ 173
$ —
$ —
$ 14,646
$ 173
Collateralized mortgage obligations 1
—
—
6,889
23
6,889
23
Corporate debt securities 3
2,383
2
2,598
291
4,981
293
Total 38
$ 17,029
$ 175
$ 9,487
$ 314
$ 26,516
$ 489



		As of June 30, 2017
	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	77	$	29,935	$	581	$	1,943	$	76	$	31,878	$	657
Mortgage-backed securities	3	1,155		5		—		—		1,155		5
Collateralized mortgage obligations	6	11,787		220		6,105		137		17,892		357
Corporate debt securities	4	3,416		4		2,544		347		5,960		351
Total	90	$	46,293	$	810	$	10,592	$	560	$	56,885	$	1,370

As of December 31, 2015

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 32
$ 9,345
$ 93
$ 2,040
$ 17
$ 11,385
$ 110
Mortgage-backed securities 5
3,723
38
—
—
3,723
38
Collateralized mortgage obligations 7
22,571
320
7,416
139
29,987
459
Corporate debt securities 6
15,606
309
680
206
16,286
515
Total 50
$ 51,245
$ 760
$ 10,136
$ 362
$ 61,381
$ 1,122



		As of December 31, 2016
	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	180	$	65,174	$	2,713	$	—	$	—	$	65,174	$	2,713
Mortgage-backed securities	5	2,246		34		—		—		2,246		34
Collateralized mortgage obligations	7	18,964		369		6,435		229		25,399		598
Corporate debt securities	11	19,198		187		2,512		378		21,710		565
Total	203	$	105,582	$	3,303	$	8,947	$	607	$	114,529	$	3,910

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~~June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, the Company’s mortgage-backed securities and collateralized mortgage obligations portfolios 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: the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, and the Government National Mortgage Association. 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 and collateralized mortgage obligations do not expose the Company to credit-related losses.

At ~~September~~June 30, ~~2016,~~2017, approximately ~~58%~~56% of the municipal bonds held by the Company were Iowa-based, and approximately 21% were Minnesota-based. The Company does not intend to sell these municipal obligations, and it is more likely than not that the Company will not be required to sell them until the recovery of their 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 conditions and other objective evidence, the Company ~~believes~~believed that the municipal obligations identified in the tables above were temporarily impaired as of ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015.~~2016.

At ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, all but one of the Company’s corporate bonds held an investment grade rating from Moody’s, S&P or Kroll, or carried a guarantee from an agency of the US government. We have evaluated financial statements of the company issuing the non-investment grade bond and found the company’s earnings and equity position to be satisfactory and in line with industry norms. Therefore, we believe the low market value of this investment is temporary and expect to receive all contractual payments. The internal evaluation of the non-investment grade bond along with the investment grade ratings on the remainder of the corporate portfolio lead us to conclude that all of the corporate bonds in our portfolio will continue to pay according to their contractual terms. Since the Company has the ability and intent to hold securities until price recovery, we believe that there is no other-than-temporary-impairment of in the corporate bond portfolio.

As of ~~September~~June 30, ~~2016,~~2017, the Company also owned ~~$0.3~~$0.4 million of equity securities in banks and financial service-related companies, and ~~$1.0~~$2.0 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. 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 ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and the full year of ~~2015,~~2016, 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.

During the first quarter of 2017 as part of the Company’s annual review and analysis of municipal investments, $1.2 million of municipal bonds from a single issuer in the held to maturity portfolio, which did not carry a credit rating from one of the major statistical rating agencies, were identified as having an elevated level of credit risk. While the instruments were currently making payments as agreed, certain financial trends were identified that provided material doubt as to the ability of the entity to continue to service the debt in the future. The investment securities were classified as “watch,” and the Company’s asset and liability management committee were notified of the situation. In early March 2017 the Company learned of a potential buyer for the investments and a bid to purchase was received and accepted. Investment securities designated as held to maturity may generally not be sold without calling into question the Company’s stated intention to hold other debt securities to maturity in the future (“tainting”), unless certain conditions are met that provide for an exception to accounting policy. One of these exceptions, as outlined under Accounting Standards Codification (“ASC”) 320-10-25-6(a), allows for the sale of an investment that is classified as held to maturity due to significant deterioration of the issuer’s creditworthiness. Since the bonds had been internally classified as “watch” due to credit deterioration, the Company believes that the sale was in accordance with the allowable provisions of ASC 320-10-25-6(a), and as such, does not “taint” the remainder of the held to maturity portfolio. A small gain was realized on the sale.

It is reasonably possible that the fair values of the Company’s investment securities could decline in the future if interest rates increase or the overall economy or the financial conditions of the issuers deteriorate. As a result, there is a risk that OTTI may be recognized in the future, and any such amounts could be material to the Company’s consolidated statements of operations.

The contractual maturity distribution of investment debt securities at ~~September~~June 30, ~~2016~~2017, 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 $ 11,122
$ 11,190
$ 2,385
$ 2,383
Due after one year through five years 95,185
97,648
9,154
9,317
Due after five years through ten years 95,093
99,660
62,172
63,958
Due after ten years 10,362
10,721
47,537
47,710
Debt securities without a single maturity date 214,623
215,741
29,862
30,106
Total $ 426,385
$ 434,960
$ 151,110
$ 153,474



	Available For Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
(in thousands)
Due in one year or less	$	12,458	$	12,566	$	2,385	$	2,385
Due after one year through five years	121,620		123,272		18,752		18,941
Due after five years through ten years	75,303		78,015		79,287		80,684
Due after ten years	8,110		8,266		55,776		55,360
Debt securities without a single maturity date	220,784		218,505		26,278		25,926
Total	$	438,275	$	440,624	$	182,478	$	183,296

Mortgage-backed securities and collateralized mortgage obligations are collateralized by mortgage loans and guaranteed by U.S. government agencies. Our 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 $~~1.3~~2.3 million and a fair value of $~~1.3~~2.3 million are also excluded from this table.

Proceeds from the sales of investment securities available for sale during the ~~nine~~six months ended ~~September~~June 30, 2017 and June 30, 2016 ~~and September 30, 2015~~ were ~~$23.4~~$10.0 million and ~~$112.1~~$23.4 million, respectively.

Realized gains and losses on sales are determined on the basis of specific identification of investments based on the trade date. ~~Realized~~Gross realized gains on ~~investments~~fixed maturity available for sale investment securities for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016 ~~are as follows:~~were $20,000 and $467,000, respectfully, while gross realized gains on fixed maturity held to maturity investment securities were $43,000 and zero, respectfully.

Three Months Ended September 30, Nine Months Ended September 30,
2016 2015 2016 2015
(in thousands)
Available for sale fixed maturity securities:
Gross realized gains $ —
$ —
$ 467
$ 1,265
Gross realized losses —
—
—
(442 )
Other-than-temporary impairment —
—
—
—
—
—
467
823
Equity securities:
Gross realized gains —
—
—
188
Gross realized losses —
—
—
—
Other-than-temporary impairment —
—
—
—
—
—
—
188
Total net realized gains and losses $ —
$ —
$ 467
$ 1,011

6.5. Loans Receivable and the Allowance for Loan Losses

The composition of allowance for loan losses and loans by portfolio segment and based on impairment method are as follows:

Allowance for Loan Losses and Recorded Investment in Loan Receivables
As of September 30, 2016 and December 31, 2015
(in thousands) Agricultural Commercial and Industrial Commercial Real Estate Residential Real Estate Consumer Total
September 30, 2016
Allowance for loan losses:
Individually evaluated for impairment $ 351
$ 1,023
$ 2,541
$ 237
$ —
$ 4,152
Collectively evaluated for impairment 2,151
4,288
7,305
2,680
365
16,789
Purchased credit impaired loans —
—
177
277
—
454
Total $ 2,502
$ 5,311
$ 10,023
$ 3,194
$ 365
$ 21,395
Loans receivable
Individually evaluated for impairment $ 3,120
$ 9,048
$ 10,845
$ 3,954
$ —
$ 26,967
Collectively evaluated for impairment 118,505
467,530
992,505
477,049
36,935
2,092,524
Purchased credit impaired loans —
150
16,296
5,895
—
22,341
Total $ 121,625
$ 476,728
$ 1,019,646
$ 486,898
$ 36,935
$ 2,141,832



	Allowance for Loan Losses and Recorded Investment in Loan Receivables
	As of June 30, 2017 and December 31, 2016
(in thousands)	Agricultural		Commercial and Industrial		Commercial Real Estate		Residential Real Estate		Consumer		Total
June 30, 2017
Allowance for loan losses:
Individually evaluated for impairment	$	400	$	2,125	$	697	$	236	$	—	$	3,458
Collectively evaluated for impairment	2,266		5,834		7,969		1,958		222		18,249
Purchased credit impaired loans	—		—		347		456		—		803
Total	$	2,666	$	7,959	$	9,013	$	2,650	$	222	$	22,510
Loans receivable
Individually evaluated for impairment	$	3,044	$	11,700	$	16,697	$	3,752	$	—	$	35,193
Collectively evaluated for impairment	104,607		473,896		1,052,889		474,273		34,666		2,140,331
Purchased credit impaired loans	—		41		15,977		5,961		—		21,979
Total	$	107,651	$	485,637	$	1,085,563	$	483,986	$	34,666	$	2,197,503

(in thousands) Agricultural Commercial and Industrial Commercial Real Estate Residential Real Estate Consumer Unallocated Total
December 31, 2015
Allowance for loan losses:
Individually evaluated for impairment $ 51
$ 489
$ 2,786
$ 387
$ 1
$ —
$ 3,714
Collectively evaluated for impairment 1,366
4,962
5,718
3,539
408
(374 ) 15,619
Purchased credit impaired loans —
—
52
42
—
—
94
Total $ 1,417
$ 5,451
$ 8,556
$ 3,968
$ 409
$ (374 ) $ 19,427
Loans receivable
Individually evaluated for impairment $ 3,072
$ 7,718
$ 23,697
$ 5,725
$ 26
$ —
$ 40,238
Collectively evaluated for impairment 118,642
461,275
950,207
517,482
38,506
—
2,086,112
Purchased credit impaired loans —
256
18,037
7,299
—
—
25,592
Total $ 121,714
$ 469,249
$ 991,941
$ 530,506
$ 38,532
$ —
$ 2,151,942



(in thousands)	Agricultural		Commercial and Industrial		Commercial Real Estate		Residential Real Estate		Consumer		Total
December 31, 2016
Allowance for loan losses:
Individually evaluated for impairment	$	62	$	2,066	$	1,924	$	299	$	—	$	4,351
Collectively evaluated for impairment	1,941		4,199		7,692		2,791		255		16,878
Purchased credit impaired loans	—		9		244		368		—		621
Total	$	2,003	$	6,274	$	9,860	$	3,458	$	255	$	21,850
Loans receivable
Individually evaluated for impairment	$	5,339	$	11,434	$	11,450	$	3,955	$	—	$	32,178
Collectively evaluated for impairment	108,004		449,380		1,036,049		480,143		36,591		2,110,167
Purchased credit impaired loans	—		156		16,744		5,898		—		22,798
Total	$	113,343	$	460,970	$	1,064,243	$	489,996	$	36,591	$	2,165,143

Included above as of ~~September~~June 30, ~~2016,~~2017, are loans with a contractual balance of ~~$79.7~~$27.6 million and a recorded balance of ~~$76.5~~$27.2 million, which are covered under loss sharing agreements with the FDIC. The agreements cover certain losses and expenses and expire at various dates through October 7, 2021. The related FDIC indemnification asset is reported separately in Note 8.7. “Other ~~Assets”~~Assets.” The FDIC loss sharing agreement was terminated on July 14, 2017, at which time the loans were reclassified to non-covered assets (see Note 15. “Subsequent Events”).

As of ~~September~~June 30, ~~2016,~~2017, the gross purchased credit impaired loans included above ~~are $27.1~~were $24.5 million, ~~net of~~with a discount of ~~$4.8~~$2.6 million.

Loans with unpaid principal in the amount of ~~$509.8~~$485.0 million and ~~$558.8~~$498.3 million at ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015~~2016, respectively, were pledged to the Federal Home Loan Bank (the “FHLB”) as collateral for borrowings.

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

Allowance for Loan Loss Activity
For the Three Months Ended September 30, 2016 and 2015
(in thousands) Agricultural Commercial and Industrial Commercial Real Estate Residential Real Estate Consumer Unallocated Total
2016
Beginning balance $ 2,354
$ 5,385
$ 10,628
$ 2,463
$ 367
$ —
$ 21,197
Charge-offs (140 ) (520 ) (29 ) (195 ) (42 ) —
(926 )
Recoveries 20
19
8
69
3
—
119
Provision 268
427
(584 ) 857
37
—
1,005
Ending balance $ 2,502
$ 5,311
$ 10,023
$ 3,194
$ 365
$ —
$ 21,395
2015
Beginning balance $ 1,480
$ 5,425
$ 5,766
$ 3,224
$ 337
$ 935
$ 17,167
Charge-offs —
(106 ) (239 ) (93 ) (24 ) —
(462 )
Recoveries —
10
—
10
5
—
25
Provision 154
342
1,094
1,048
66
(563 ) 2,141
Ending balance $ 1,634
$ 5,671
$ 6,621
$ 4,189
$ 384
$ 372
$ 18,871




	Allowance for Loan Loss Activity
	For the Three Months Ended June 30, 2017 and 2016
(in thousands)	Agricultural			Commercial and Industrial			Commercial Real Estate			Residential Real Estate			Consumer			Unallocated		Total
2017
Beginning balance	$	2,460		$	6,021		$	9,751		$	3,764		$	221		$	—	$	22,217
Charge-offs	(347		)	(464		)	(45		)	(52		)	(135		)	—		(1,043		)
Recoveries	4			83			5			—			4			—		96
Provision	549			2,319			(698		)	(1,062		)	132			—		1,240
Ending balance	$	2,666		$	7,959		$	9,013		$	2,650		$	222		$	—	$	22,510
2016
Beginning balance	$	2,235		$	4,680		$	9,713		$	3,429		$	188		$	—	$	20,245
Charge-offs	—			—			(1		)	(354		)	(77		)	—		(432		)
Recoveries	1			60			127			13			12			—		213
Provision	118			645			789			(625		)	244			—		1,171
Ending balance	$	2,354		$	5,385		$	10,628		$	2,463		$	367		$	—	$	21,197

Allowance for Loan Loss Activity
For the Nine Months Ended September 30, 2016 and 2015
(in thousands) Agricultural Commercial and Industrial Commercial Real Estate Residential Real Estate Consumer Unallocated Total
2016
Beginning balance $ 1,417
$ 5,451
$ 8,556
$ 3,968
$ 409
$ (374 ) $ 19,427
Charge-offs (265 ) (530 ) (70 ) (708 ) (169 ) —
(1,742 )
Recoveries 27
91
188
146
17
—
469
Provision 1,323
299
1,349
(212 ) 108
374
3,241
Ending balance $ 2,502
$ 5,311
$ 10,023
$ 3,194
$ 365
$ —
$ 21,395
2015
Beginning balance $ 1,506
$ 5,780
$ 4,399
$ 3,167
$ 323
$ 1,188
$ 16,363
Charge-offs —
(397 ) (430 ) (641 ) (76 ) —
(1,544 )
Recoveries —
361
6
22
21
—
410
Provision 128
(73 ) 2,646
1,641
116
(816 ) 3,642
Ending balance $ 1,634
$ 5,671
$ 6,621
$ 4,189
$ 384
$ 372
$ 18,871




	Allowance for Loan Loss Activity
	For the Six Months Ended June 30, 2017 and 2016
(in thousands)	Agricultural			Commercial and Industrial			Commercial Real Estate			Residential Real Estate			Consumer			Unallocated			Total
2017
Beginning balance	$	2,003		$	6,274		$	9,860		$	3,458		$	255		$	—		$	21,850
Charge-offs	(884		)	(529		)	(106		)	(80		)	(160		)	—			(1,759		)
Recoveries	14			102			15			—			7			—			138
Provision	1,533			2,112			(756		)	(728		)	120			—			2,281
Ending balance	$	2,666		$	7,959		$	9,013		$	2,650		$	222		$	—		$	22,510
2016
Beginning balance	$	1,417		$	5,451		$	8,556		$	3,968		$	409		$	(374	)	$	19,427
Charge-offs	(125		)	(10		)	(41		)	(513		)	(127		)	—			(816		)
Recoveries	7			72			180			77			14			—			350
Provision	1,055			(128		)	1,933			(1,069		)	71			374			2,236
Ending balance	$	2,354		$	5,385		$	10,628		$	2,463		$	367		$	—		$	21,197

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 largest 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, a decline in the U.S. economy could harm or continue to harm the businesses of 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 other 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 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 other loans, and the repayment of the loans generally is dependent, in large 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 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.

Purchased Loans Policy

All purchased loans (nonimpaired and impaired) are initially measured at fair value as of the acquisition date in accordance with applicable authoritative accounting guidance. Credit discounts are included in the determination of fair value. An allowance for loan losses is not recorded at the acquisition date for loans purchased.

Individual loans acquired through the completion of a transfer, including loans that have evidence of deterioration of credit quality since origination and for which it is probable, at acquisition, that the Company will be unable to collect all contractually required payments receivable, are referred to herein as “purchased credit impaired loans.” In determining the acquisition date fair value and estimated credit losses of purchased credit impaired loans, and in subsequent accounting, the Company accounts for loans individually. Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition, or the “nonaccretable difference,” are not recognized as a yield adjustment or as a loss accrual or valuation allowance. Expected cash flows at the purchase date in excess of the fair value of loans, if any, are recorded as interest income over the expected life of the loans if the timing and amount of future cash flows are reasonably estimable. Subsequent to the ~~purchased~~purchase date, increases in cash flows over those expected at the purchase date are recognized as interest income prospectively. The present value of any decreases in expected cash flows after the purchase date is recognized by recording an allowance for loan losses and a provision for loan losses. If the Company does not have the information necessary to reasonably estimate cash flows to be expected, it may use the cost-recovery method or cash-basis method of income recognition.

Charge-off Policy

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

~~The~~ Allowance for Loan and Lease Losses

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 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 inexactness. Given the inherently imprecise nature of calculating the necessary ALLL, the Company’s policy permits the actual ALLL to be between 20% above and 5% below the “indicated reserve.”

As part of the merger between MidWestOne Bank and Central Bank, management developed a single methodology for determining the amount of the ALLL that would be needed at the combined bank. The new methodology is a hybrid of the methods used at MidWestOne Bank and Central Bank prior to the bank merger, and the results from the new ALLL model are consistent with the results that the two banks calculated individually. The refined allowance calculation allocates the portion of allowance that was previously deemed to be unallocated to instead be included in management’s determination of appropriate qualitative factors. These qualitative factors include (i) national and local economic conditions, (ii) the quality and experience of lending staff and management, (iii) changes in lending policies and procedures, (iv) changes in volume and severity of past due loans, classified loans and non-performing loans, (v) potential impact of any concentrations of credit, (vi) changes in the nature and terms of loans such as growth rates and utilization rates, (vii) changes in the value of underlying collateral for collateral-dependent loans, considering the Company’s disposition bias, and (viii) the effect of other external factors such as the legal and regulatory environment. The Company may also consider other qualitative factors for additional allowance allocations, including changes in the Company’s loan review process. Changes in the criteria used in this evaluation or the availability of new information could cause the allowance to be increased or decreased in future periods. In addition, bank regulatory agencies, as part of their examination process, may require adjustments to the allowance for loan losses based on their judgments and estimates.

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 of the three measurements require no assignment of reserves from the ALLL.

A loan modification is a change in an existing loan contract that has been agreed to by the borrower and the Bank, which may or may not be a troubled debt restructure or “TDR.” All loans deemed TDR are considered impaired. A loan is considered a TDR when, for economic or legal reasons related to a borrower’s financial difficulties, a concession is granted to the borrower that would not otherwise be considered. Both financial distress on the part of the borrower and the Bank’s granting of a concession, which are detailed further below, must be present in order for the loan to be considered a TDR.

All of the following factors are indicators that the debtor is experiencing financial difficulties (one or more items may be present):

The debtor is currently in default on any of its debt.

The debtor has declared or is in the process of declaring bankruptcy.

There is significant doubt as to whether the debtor will continue to be a going concern.

Currently, the debtor has securities being held as collateral that have been delisted, are in the process of being delisted, or are under threat of being delisted from an exchange.

Based on estimates and projections that only encompass the current business capabilities, the debtor forecasts that its entity-specific cash flows will be insufficient to service the debt (both interest and principal) in accordance with the contractual terms of the existing agreement through maturity.

Absent the current modification, the debtor cannot obtain funds from sources other than the existing creditors at an effective interest rate equal to the current market interest rate for similar debt for a non-troubled debtor.

The following factors are potential indicators that a concession has been granted (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 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.

The following table sets forth information on the Company’s TDRs by class of loan occurring during the stated periods:

Three Months Ended September 30,
2016 2015
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 real estate:
Construction and development
Other 1
$ 1,000
$ 700
—
$ —
$ —
Residential real estate:
One- to four- family first liens
Interest rate reduction 1
290
290
1
236
236
Total 2
$ 1,290
$ 990
1
$ 236
$ 236



	Three Months Ended June 30,
	2017					2016
	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 real estate:
Farmland
Extended maturity date	2	$	176	$	176	—	$	—	$	—
Commercial real estate-other
Other	1	10,546		10,923		—	—		—
Total	3	$	10,722	$	11,099	—	$	—	$	—

Nine Months Ended September 30,
2016 2015
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⁾:

Agricultural
Extended maturity date 1
$ 25
$ 25
—
$ —
$ —
Commercial real estate:
Construction and development
Other 1
1,000
700
—
—
—
Residential real estate:
One- to four- family first liens
Interest rate reduction 2
394
394
1
236
236
One- to four- family junior liens
Interest rate reduction 1
71
71
—
—
—
Total 5
$ 1,490
$ 1,190
1
$ 236
$ 236




	Six Months Ended June 30,
	2017					2016
	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⁾:
Agricultural
Extended maturity date	—	$	—	$	—	1	$	25	$	25
Commercial and industrial
Extended maturity date	6	2,037		2,083		—	—		—
Commercial real estate:
Farmland
Extended maturity date	2	176		176		—	—		—
Commercial real estate-other
Extended maturity date	1	968		968		—	—		—
Other	1	10,546		10,923		—	—		—
Residential real estate:
One- to four- family first liens
Interest rate reduction	—	—		—		1	104		104
One- to four- family junior liens
Interest rate reduction	—	—		—		1	71		71
Total	10	$	13,727	$	14,150	3	$	200	$	200

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

Loans by class modified as TDRs within 12 months of modification and for which there was a payment default during the stated periods were as follows:

Three Months Ended September 30, Nine Months Ended September 30,
2016 2015 2016 2015
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⁽¹⁾ That Subsequently Defaulted:

Total —
$ —
—
$ —
—
$ —
—
$ —



	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
	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⁽¹⁾ That Subsequently Defaulted:
Commercial and industrial
Extended maturity date	1	$	550	—	$	—	4	$	1,504	—	$	—
Commercial real estate:
Commercial real estate-other
Extended maturity date	1	968		—	—		1	968		—	—
Total	2	$	1,518	—	$	—	5	$	2,472	—	$	—

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

Loans Reviewed Collectively for Impairment

All loans not evaluated individually for impairment will be separated into homogeneous pools to be collectively evaluated. Loans will be first grouped into the various loan types (i.e. commercial, agricultural, consumer, etc.) and further segmented within each subset by risk classification (i.e. pass, special mention/watch, and substandard). Homogeneous loans past due 60-89 days and 90 days and over are classified special mention/watch and substandard, respectively, for allocation purposes.

The Company’s historical loss experience for each group segmented by loan type is calculated for the prior 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 national and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments.

Changes in the quality and experience of lending staff and management.

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 the volume and severity of past due loans, classified loans and non-performing loans.

The existence and potential impact of any concentrations of credit.

Changes in the nature and terms of loans such as growth rates and utilization rates.

Changes in the value of underlying collateral for collateral-dependent loans, considering the Company’s disposition bias.

The effect of other external factors such as the legal and regulatory environment.

The Company may also consider other qualitative factors for additional allowance allocations, including changes in the Company’s loan review process. Changes in the criteria used in this evaluation or the availability of new information could cause the allowance to be increased or decreased in future periods. In addition, bank regulatory agencies, as part of their examination process, may require adjustments to the allowance for loan losses based on their judgments and estimates.

The items listed above are used to determine the pass percentage for loans evaluated under ASC 450, and as such, are applied to the loans risk rated pass. Due to the inherent risks associated with special mention/watch ~~risk rated~~risk-rated loans (i.e. early stages of financial deterioration, technical exceptions, etc.), this subset is reserved at a level that will cover losses above a pass allocation for loans that had a loss in the last 20 quarters in which the loan was ~~risk rated~~risk-rated special mention/watch at the time of the loss. Substandard loans carry greater risk than special mention/watch loans, and as such, this subset is reserved at a level that will cover losses above a pass allocation for loans that had a loss in the last 20 quarters in which the loan was ~~risk rated~~risk-rated substandard at the time of the loss. Ongoing analysis will be performed to support these factor multiples.

The following tables set forth the risk category of loans by class of loans and credit quality indicator based on the most recent analysis performed, as of ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015:~~2016:

Pass Special Mention/ Watch Substandard Doubtful Loss Total
(in thousands)
September 30, 2016
Agricultural $ 105,464
$ 13,019
$ 3,142
$ —
$ —
$ 121,625
Commercial and industrial 441,377
13,530
20,286
9
—
475,202
Credit cards 1,526
—
—
—
—
1,526
Commercial real estate:
Construction and development 121,171
2,700
2,644
—
—
126,515
Farmland 85,078
7,442
2,618
—
—
95,138
Multifamily 117,135
360
897
—
—
118,392
Commercial real estate-other 639,197
22,654
17,750
—
—
679,601
Total commercial real estate 962,581
33,156
23,909
—
—
1,019,646
Residential real estate:
One- to four- family first liens 355,615
3,165
10,827
—
—
369,607
One- to four- family junior liens 113,693
1,635
1,963
—
—
117,291
Total residential real estate 469,308
4,800
12,790
—
—
486,898
Consumer 36,750
2
144
39
—
36,935
Total $ 2,017,006
$ 64,507
$ 60,271
$ 48
$ —
$ 2,141,832



	Pass		Special Mention/ Watch		Substandard		Doubtful		Loss		Total
(in thousands)
June 30, 2017
Agricultural	$	84,851	$	21,111	$	1,689	$	—	$	—	$	107,651
Commercial and industrial⁽¹⁾	443,739		25,041		16,849		8		—		485,637
Commercial real estate:
Construction and development	132,112		1,230		2,387		—		—		135,729
Farmland	79,096		10,192		562		—		—		89,850
Multifamily	135,222		1,792		492		—		—		137,506
Commercial real estate-other	668,602		25,464		28,412		—		—		722,478
Total commercial real estate	1,015,032		38,678		31,853		—		—		1,085,563
Residential real estate:
One- to four- family first liens	356,547		3,025		10,757		—		—		370,329
One- to four- family junior liens	110,606		1,145		1,906		—		—		113,657
Total residential real estate	467,153		4,170		12,663		—		—		483,986
Consumer	34,538		—		94		34		—		34,666
Total	$	2,045,313	$	89,000	$	63,148	$	42	$	—	$	2,197,503

Pass Special Mention/ Watch Substandard Doubtful Loss Total
(in thousands)
December 31, 2015
Agricultural $ 111,361
$ 8,536
$ 1,817
$ —
$ —
$ 121,714
Commercial and industrial 436,857
12,893
17,652
10
—
467,412
Credit cards 1,354
19
4
—
—
1,377
Overdrafts 1,168
100
215
—
—
1,483
Commercial real estate:
Construction and development 114,640
2,406
3,707
—
—
120,753
Farmland 82,442
2,408
4,234
—
—
89,084
Multifamily 119,139
371
2,253
—
—
121,763
Commercial real estate-other 609,651
19,402
31,288
—
—
660,341
Total commercial real estate 925,872
24,587
41,482
—
—
991,941
Residential real estate:
One- to four- family first liens 410,143
4,813
13,042
235
—
428,233
One- to four- family junior liens 96,223
1,782
4,209
59
—
102,273
Total residential real estate 506,366
6,595
17,251
294
—
530,506
Consumer 37,184
6
278
41
—
37,509
Total $ 2,020,162
$ 52,736
$ 78,699
$ 345
$ —
$ 2,151,942



	Pass		Special Mention/ Watch		Substandard		Doubtful		Loss		Total
(in thousands)
December 31, 2016
Agricultural	$	95,103	$	14,089	$	4,151	$	—	$	—	$	113,343
Commercial and industrial	429,392		11,065		19,016		8		—		459,481
Credit cards	1,489		—		—		—		—		1,489
Commercial real estate:
Construction and development	121,982		2,732		1,971		—		—		126,685
Farmland	83,563		8,986		2,430		—		—		94,979
Multifamily	134,975		548		480		—		—		136,003
Commercial real estate-other	666,767		20,955		18,854		—		—		706,576
Total commercial real estate	1,007,287		33,221		23,735		—		—		1,064,243
Residential real estate:
One- to four- family first liens	359,029		2,202		11,002		—		—		372,233
One- to four- family junior liens	114,233		1,628		1,902		—		—		117,763
Total residential real estate	473,262		3,830		12,904		—		—		489,996
Consumer	36,419		1		134		37		—		36,591
Total	$	2,042,952	$	62,206	$	59,940	$	45	$	—	$	2,165,143

(1) As of the first quarter of 2017, the Company no longer considered credit cards a separate class of loans, and these balances are now included in commercial and industrial loans.

Included within the special mention/watch, substandard, and doubtful categories at ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015~~2016 are purchased credit impaired loans totaling ~~$16.8~~$13.9 million and ~~$23.7~~$15.3 million, respectively.

Below are descriptions of the risk classifications of our loan portfolio.

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.

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

Loss - Loans classified as 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.

The following table presents loans individually evaluated for impairment, excluding purchased credit impaired loans, by class of loan, as of ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015:~~2016:

September 30, 2016 December 31, 2015
Recorded Investment Unpaid Principal Balance Related Allowance Recorded Investment Unpaid Principal Balance Related Allowance
(in thousands)
With no related allowance recorded:
Agricultural $ 1,266
$ 1,766
$ —
$ 1,512
$ 2,084
$ —
Commercial and industrial 5,063
5,107
—
6,487
6,752
—
Credit cards —
—
—
—
—
—
Commercial real estate:
Construction and development —
—
—
321
448
—
Farmland 2,414
2,564
—
2,711
2,870
—
Multifamily —
—
—
1,632
1,798
—
Commercial real estate-other 2,586
2,783
—
12,230
12,642
—
Total commercial real estate 5,000
5,347
—
16,894
17,758
—
Residential real estate:
One- to four- family first liens 2,840
2,850
—
2,494
2,533
—
One- to four- family junior liens —
—
—
1,297
1,308
—
Total residential real estate 2,840
2,850
—
3,791
3,841
—
Consumer —
—
—
17
33
—
Total $ 14,169
$ 15,070
$ —
$ 28,701
$ 30,468
$ —
With an allowance recorded:
Agricultural $ 1,854
$ 1,858
$ 351
$ 1,560
$ 1,560
$ 51
Commercial and industrial 3,985
3,985
1,023
1,231
1,258
489
Credit cards —
—
—
—
—
—
Commercial real estate:
Construction and development 270
270
28
34
34
34
Farmland —
—
—
69
69
3
Multifamily 159
159
41
224
224
73
Commercial real estate-other 5,416
5,416
2,472
6,476
6,478
2,676
Total commercial real estate 5,845
5,845
2,541
6,803
6,805
2,786
Residential real estate:
One- to four- family first liens 1,114
1,114
237
1,919
2,056
383
One- to four- family junior liens —
—
—
15
15
4
Total residential real estate 1,114
1,114
237
1,934
2,071
387
Consumer —
—
—
9
9
1
Total $ 12,798
$ 12,802
$ 4,152
$ 11,537
$ 11,703
$ 3,714
Total:
Agricultural $ 3,120
$ 3,624
$ 351
$ 3,072
$ 3,644
$ 51
Commercial and industrial 9,048
9,092
1,023
7,718
8,010
489
Credit cards —
—
—
—
—
—
Commercial real estate:
Construction and development 270
270
28
355
482
34
Farmland 2,414
2,564
—
2,780
2,939
3
Multifamily 159
159
41
1,856
2,022
73
Commercial real estate-other 8,002
8,199
2,472
18,706
19,120
2,676
Total commercial real estate 10,845
11,192
2,541
23,697
24,563
2,786
Residential real estate:
One- to four- family first liens 3,954
3,964
237
4,413
4,589
383
One- to four- family junior liens —
—
—
1,312
1,323
4
Total residential real estate 3,954
3,964
237
5,725
5,912
387
Consumer —
—
—
26
42
1
Total $ 26,967
$ 27,872
$ 4,152
$ 40,238
$ 42,171
$ 3,714



	June 30, 2017						December 31, 2016
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
(in thousands)
With no related allowance recorded:
Agricultural	$	1,192	$	1,692	$	—	$	3,673	$	4,952	$	—
Commercial and industrial	4,781		4,791		—		6,211		6,259		—
Commercial real estate:
Construction and development	360		360		—		445		1,170		—
Farmland	524		524		—		2,230		2,380		—
Multifamily	—		—		—		—		—		—
Commercial real estate-other	3,359		3,359		—		2,224		2,384		—
Total commercial real estate	4,243		4,243		—		4,899		5,934		—
Residential real estate:
One- to four- family first liens	2,371		2,375		—		2,429		2,442		—
One- to four- family junior liens	13		13		—		—		—		—
Total residential real estate	2,384		2,388		—		2,429		2,442		—
Consumer	—		—		—		—		—		—
Total	$	12,600	$	13,114	$	—	$	17,212	$	19,587	$	—
With an allowance recorded:
Agricultural	$	1,852	$	1,852	$	400	$	1,666	$	1,669	$	62
Commercial and industrial	6,919		6,919		2,125		5,223		5,223		2,066
Commercial real estate:
Construction and development	738		1,464		163		263		270		21
Farmland	—		—		—		—		—		—
Multifamily	—		—		—		—		—		—
Commercial real estate-other	11,716		11,716		534		6,288		6,344		1,903
Total commercial real estate	12,454		13,180		697		6,551		6,614		1,924
Residential real estate:
One- to four- family first liens	1,368		1,368		236		1,526		1,526		299
One- to four- family junior liens	—		—		—		—		—		—
Total residential real estate	1,368		1,368		236		1,526		1,526		299
Consumer	—		—		—		—		—		—
Total	$	22,593	$	23,319	$	3,458	$	14,966	$	15,032	$	4,351
Total:
Agricultural	$	3,044	$	3,544	$	400	$	5,339	$	6,621	$	62
Commercial and industrial	11,700		11,710		2,125		11,434		11,482		2,066
Commercial real estate:
Construction and development	1,098		1,824		163		708		1,440		21
Farmland	524		524		—		2,230		2,380		—
Multifamily	—		—		—		—		—		—
Commercial real estate-other	15,075		15,075		534		8,512		8,728		1,903
Total commercial real estate	16,697		17,423		697		11,450		12,548		1,924
Residential real estate:
One- to four- family first liens	3,739		3,743		236		3,955		3,968		299
One- to four- family junior liens	13		13		—		—		—		—
Total residential real estate	3,752		3,756		236		3,955		3,968		299
Consumer	—		—		—		—		—		—
Total	$	35,193	$	36,433	$	3,458	$	32,178	$	34,619	$	4,351

The following table presents the average recorded investment and interest income recognized for loans individually evaluated for impairment, excluding purchased credit impaired loans, by class of loan, during the stated periods:

Three Months Ended September 30, Nine Months Ended September 30,
2016 2015 2016 2015
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 $ 1,266
$ 14
$ 1,516
$ 13
$ 1,285
$ 41
$ 1,534
$ 47
Commercial and industrial 5,115
34
1,318
26
5,233
39
1,665
79
Credit cards —
—
—
—
—
—
—
—
Commercial real estate:
Construction and development —
—
325
3
—
—
326
4
Farmland 2,414
29
2,730
35
2,426
78
2,749
93
Multifamily —
—
1,839
26
—
—
1,849
43
Commercial real estate-other 2,594
9
12,327
147
2,865
8
12,374
250
Total commercial real estate 5,008
38
17,221
211
5,291
86
17,298
390
Residential real estate:
One- to four- family first liens 2,843
32
2,354
17
2,867
88
2,345
27
One- to four- family junior liens —
—
773
9
—
—
775
15
Total residential real estate 2,843
32
3,127
26
2,867
88
3,120
42
Consumer —
—
20
1
—
—
21
1
Total $ 14,232
$ 118
$ 23,202
$ 277
$ 14,676
$ 254
$ 23,638
$ 559
With an allowance recorded:
Agricultural $ 1,854
$ 12
$ 1,561
$ 12
$ 1,870
$ 32
$ 1,575
$ 36
Commercial and industrial 3,988
16
1,103
12
3,789
26
1,144
32
Credit cards —
—
—
—
—
—
—
—
Commercial real estate:
Construction and development 270
—
151
1
271
3
151
2
Farmland —
—
69
1
—
—
70
2
Multifamily 159
—
158
1
158
—
160
5
Commercial real estate-other 5,416
—
431
5
5,416
—
432
13
Total commercial real estate 5,845
—
809
8
5,845
3
813
22
Residential real estate:
One- to four- family first liens 1,118
8
1,369
7
1,123
22
1,375
27
One- to four- family junior liens —
—
15
—
—
—
15
—
Total residential real estate 1,118
8
1,384
7
1,123
22
1,390
27
Consumer —
—
9
—
—
—
9
—
Total $ 12,805
$ 36
$ 4,866
$ 39
$ 12,627
$ 83
$ 4,931
$ 117
Total:
Agricultural $ 3,120
$ 26
$ 3,077
$ 25
$ 3,155
$ 73
$ 3,109
$ 83
Commercial and industrial 9,103
50
2,421
38
9,022
65
2,809
111
Credit cards —
—
—
—
—
—
—
—
Commercial real estate:
Construction and development 270
—
476
4
271
3
477
6
Farmland 2,414
29
2,799
36
2,426
78
2,819
95
Multifamily 159
—
1,997
27
158
—
2,009
48
Commercial real estate-other 8,010
9
12,758
152
8,281
8
12,806
263
Total commercial real estate 10,853
38
18,030
219
11,136
89
18,111
412
Residential real estate:
One- to four- family first liens 3,961
40
3,723
24
3,990
110
3,720
54
One- to four- family junior liens —
—
788
9
—
—
790
15
Total residential real estate 3,961
40
4,511
33
3,990
110
4,510
69
Consumer —
—
29
1
—
—
30
1
Total $ 27,037
$ 154
$ 28,068
$ 316
$ 27,303
$ 337
$ 28,569
$ 676



	Three Months Ended June 30,								Six Months Ended June 30,
	2017				2016				2017				2016
	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	$	1,192	$	66	$	1,266	$	13	$	1,216	$	79	$	1,291	$	27
Commercial and industrial	4,787		67		3,777		10		4,143		90		3,927		—
Commercial real estate:
Construction and development	360		—		—		—		360		—		—		—
Farmland	1,686		36		2,568		28		2,073		69		2,580		49
Multifamily	—		—		—		—		—		—		—		—
Commercial real estate-other	3,118		71		1,979		3		3,040		103		2,009		12
Total commercial real estate	5,164		107		4,547		31		5,473		172		4,589		61
Residential real estate:
One- to four- family first liens	2,409		46		2,200		23		2,417		70		2,209		44
One- to four- family junior liens	13		—		—		—		13		—		—		—
Total residential real estate	2,422		46		2,200		23		2,430		70		2,209		44
Consumer	—		—		—		—		—		—		—		—
Total	$	13,565	$	286	$	11,790	$	77	$	13,262	$	411	$	12,016	$	132
With an allowance recorded:
Agricultural	$	1,855	$	53	$	1,856	$	7	$	1,875	$	67	$	1,878	$	20
Commercial and industrial	4,444		14		3,863		14		3,495		37		3,724		10
Commercial real estate:
Construction and development	809		—		—		—		832		—		—		—
Farmland	—		—		—		—		—		—		—		—
Multifamily	—		—		158		—		—		—		158		—
Commercial real estate-other	6,294		16		5,416		—		4,410		—		2,415		—
Total commercial real estate	7,103		16		5,574		—		5,242		—		2,573		—
Residential real estate:
One- to four- family first liens	1,372		17		1,351		11		1,389		26		1,357		19
One- to four- family junior liens	—		—		—		—		—		—		—		—
Total residential real estate	1,372		17		1,351		11		1,389		26		1,357		19
Consumer	—		—		—		—		—		—		—		—
Total	$	14,774	$	100	$	12,644	$	32	$	12,001	$	130	$	9,532	$	49
Total:
Agricultural	$	3,047	$	119	$	3,122	$	20	$	3,091	$	146	$	3,169	$	47
Commercial and industrial	9,231		81		7,640		24		7,638		127		7,651		10
Commercial real estate:
Construction and development	1,169		—		—		—		1,192		—		—		—
Farmland	1,686		36		2,568		28		2,073		69		2,580		49
Multifamily	—		—		158		—		—		—		158		—
Commercial real estate-other	9,412		87		7,395		3		7,450		103		4,424		12
Total commercial real estate	12,267		123		10,121		31		10,715		172		7,162		61
Residential real estate:
One- to four- family first liens	3,781		63		3,551		34		3,806		96		3,566		63
One- to four- family junior liens	13		—		—		—		13		—		—		—
Total residential real estate	3,794		63		3,551		34		3,819		96		3,566		63
Consumer	—		—		—		—		—		—		—		—
Total	$	28,339	$	386	$	24,434	$	109	$	25,263	$	541	$	21,548	$	181

The following table presents the contractual aging of the recorded investment in past due loans by class of loans at ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015:~~2016:

30 - 59 Days Past Due 60 - 89 Days Past Due 90 Days or More Past Due Total Past Due Current Total Loans Receivable
(in thousands)
September 30, 2016
Agricultural $ 376
$ —
$ 520
$ 896
$ 120,729
$ 121,625
Commercial and industrial 2,204
2,264
7,435
11,903
463,299
475,202
Credit cards —
—
—
—
1,526
1,526
Commercial real estate:
Construction and development 319
—
584
903
125,612
126,515
Farmland —
118
167
285
94,853
95,138
Multifamily —
90
226
316
118,076
118,392
Commercial real estate-other 1,929
182
7,049
9,160
670,441
679,601
Total commercial real estate 2,248
390
8,026
10,664
1,008,982
1,019,646
Residential real estate:
One- to four- family first liens 2,134
1,119
1,520
4,773
364,834
369,607
One- to four- family junior liens 650
94
663
1,407
115,884
117,291
Total residential real estate 2,784
1,213
2,183
6,180
480,718
486,898
Consumer 59
20
19
98
36,837
36,935
Total $ 7,671
$ 3,887
$ 18,183
$ 29,741
$ 2,112,091
$ 2,141,832

Included in the totals above are the following purchased credit impaired loans $ 779
$ 359
$ 654
$ 1,792
$ 20,878
$ 22,670

December 31, 2015
Agricultural $ 19
$ 190
$ 169
$ 378
$ 121,336
$ 121,714
Commercial and industrial 1,046
710
644
2,400
465,012
467,412
Credit cards 2
17
4
23
1,354
1,377
Overdrafts 175
8
31
214
1,269
1,483
Commercial real estate:
Construction and development —
—
415
415
120,338
120,753
Farmland 120
—
80
200
88,884
89,084
Multifamily —
—
224
224
121,539
121,763
Commercial real estate-other 1,190
754
1,636
3,580
656,761
660,341
Total commercial real estate 1,310
754
2,355
4,419
987,522
991,941
Residential real estate:
One- to four- family first liens 2,611
1,293
1,772
5,676
422,557
428,233
One- to four- family junior liens 168
120
317
605
101,668
102,273
Total residential real estate 2,779
1,413
2,089
6,281
524,225
530,506
Consumer 62
6
17
85
37,424
37,509
Total $ 5,393
$ 3,098
$ 5,309
$ 13,800
$ 2,138,142
$ 2,151,942

Included in the totals above are the following purchased credit impaired loans $ 473
$ 799
$ 989
$ 2,261
$ 23,331
$ 25,592



	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans Receivable
(in thousands)
June 30, 2017
Agricultural	$	101	$	—	$	430	$	531	$	107,120	$	107,651
Commercial and industrial⁽¹⁾	981		1,920		2,253		5,154		480,483		485,637
Commercial real estate:
Construction and development	254		90		1,098		1,442		134,287		135,729
Farmland	127		121		317		565		89,285		89,850
Multifamily	—		—		—		—		137,506		137,506
Commercial real estate-other	1,214		643		1,399		3,256		719,222		722,478
Total commercial real estate	1,595		854		2,814		5,263		1,080,300		1,085,563
Residential real estate:
One- to four- family first liens	1,902		336		2,021		4,259		366,070		370,329
One- to four- family junior liens	232		245		21		498		113,159		113,657
Total residential real estate	2,134		581		2,042		4,757		479,229		483,986
Consumer	55		20		2		77		34,589		34,666
Total	$	4,866	$	3,375	$	7,541	$	15,782	$	2,181,721	$	2,197,503

Included in the totals above are the following purchased credit impaired loans	$	114	$	306	$	354	$	774	$	21,205	$	21,979

December 31, 2016
Agricultural	$	44	$	—	$	399	$	443	$	112,900	$	113,343
Commercial and industrial	2,615		293		9,654		12,562		446,919		459,481
Credit cards	—		—		—		—		1,489		1,489
Commercial real estate:
Construction and development	630		—		297		927		125,758		126,685
Farmland	373		—		91		464		94,515		94,979
Multifamily	—		129		—		129		135,874		136,003
Commercial real estate-other	1,238		763		6,655		8,656		697,920		706,576
Total commercial real estate	2,241		892		7,043		10,176		1,054,067		1,064,243
Residential real estate:
One- to four- family first liens	2,851		1,143		1,328		5,322		366,911		372,233
One- to four- family junior liens	437		151		150		738		117,025		117,763
Total residential real estate	3,288		1,294		1,478		6,060		483,936		489,996
Consumer	50		23		33		106		36,485		36,591
Total	$	8,238	$	2,502	$	18,607	$	29,347	$	2,135,796	$	2,165,143

Included in the totals above are the following purchased credit impaired loans	$	965	$	489	$	549	$	2,003	$	20,795	$	22,798

(1) As of the first quarter of 2017, the Company no longer considered credit cards a separate class of loans, and these balances are now included in commercial and industrial loans.

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.

Once a TDR has gone 90 days or more past due or is placed on nonaccrual status, it is included in the 90 days or more past due or nonaccrual totals.

The following table sets forth the composition of the Company’s recorded investment in loans on nonaccrual status and past due 90 days or more and still accruing by class of loans, excluding purchased credit impaired loans, as of ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015:~~2016:

September 30, 2016 December 31, 2015
Non-Accrual Loans Past Due 90 Days or More and Still Accruing Non-Accrual Loans Past Due 90 Days or More and Still Accruing
(in thousands)
Agricultural $ 401
$ —
$ 172
$ —
Commercial and industrial 5,966
—
575
—
Credit cards —
—
—
—
Commercial real estate:
Construction and development 343
248
95
—
Farmland 228
—
20
80
Multifamily 226
—
224
—
Commercial real estate-other 6,994
60
1,452
—
Total commercial real estate 7,791
308
1,791
80
Residential real estate:
One- to four- family first liens 1,102
448
1,182
199
One- to four- family junior liens 105
186
281
—
Total residential real estate 1,207
634
1,463
199
Consumer 12
—
11
5
Total $ 15,377
$ 942
$ 4,012
$ 284



	June 30, 2017				December 31, 2016
	Non-Accrual		Loans Past Due 90 Days or More and Still Accruing		Non-Accrual		Loans Past Due 90 Days or More and Still Accruing
(in thousands)
Agricultural	$	494	$	—	$	2,690	$	—
Commercial and industrial	2,161		147		8,358		—
Commercial real estate:
Construction and development	1,110		—		780		95
Farmland	364		89		227		—
Multifamily	—		—		—		—
Commercial real estate-other	12,095		—		7,360		—
Total commercial real estate	13,569		89		8,367		95
Residential real estate:
One- to four- family first liens	1,364		702		1,127		375
One- to four- family junior liens	115		—		116		15
Total residential real estate	1,479		702		1,243		390
Consumer	37		—		10		—
Total	$	17,740	$	938	$	20,668	$	485

Not included in the loans above as of ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015~~2016 were purchased credit impaired loans with an outstanding balance of ~~$2.8~~$0.4 million and ~~$4.1~~$2.6 million, net of a discount of ~~$0.9~~$0.1 million and ~~$1.4~~$0.5 million, respectively.

As of ~~September~~June 30, ~~2016,~~2017, the Company had no commitments to lend additional funds to any borrowers who have had a TDR.

Purchased Loans

Purchased non-credit impaired loans are accounted for in accordance with ASC 310-20 “Nonrefundable Fees and Other Costs” as these loans do not have evidence of significant credit deterioration since origination and it is probable all contractually required payments will be received from the borrower.

Purchased credit impaired loans are accounted for in accordance with ASC 310-30 “Loans and Debt Securities Acquired with Deteriorated Credit Quality” as they display significant credit deterioration since origination and it is probable, as of the acquisition date, that the Company will be unable to collect all contractually required payments from the borrower.

For purchased non-credit impaired loans the accretable discount is the discount applied to the expected cash flows of the portfolio to account for the differences between the interest rates at acquisition and rates currently expected on similar portfolios in the marketplace. As the accretable discount is accreted to interest income over the expected average life of the portfolio, the result will be interest income on loans at the estimated current market rate. We anticipate recording a provision for the acquired portfolio in future quarters as the former Central loans renew and the discount is accreted.

This discount includes an adjustment on loans that are not accruing or paying contractual interest so that interest income will be recognized at the estimated current market rate.

Subsequent to the purchase date, increases in cash flows over those expected at the purchase date are recognized as interest income prospectively. The present value of any decreases in expected cash flows after the purchase date is recognized by recording an allowance for credit losses and a provision for loan losses.

Changes in the accretable yield for loans acquired and accounted for under ASC 310-30 were as follows for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015:~~2016:

Three Months Ended September 30, Nine Months Ended September 30,
2016 2015 2016 2015
(in thousands)
Balance at beginning of period $ 3,544
$ 1,839
$ 1,446
$ —
Purchases —
—
—
1,882
Accretion (1,167 ) (184 ) (2,277 ) (227 )
Reclassification from nonaccretable difference 595
—
3,803
—
Balance at end of period $ 2,972
$ 1,655
$ 2,972
$ 1,655



	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
(in thousands)
Balance at beginning of period	$	1,633		$	845		$	1,961		$	1,446
Accretion	(475		)	(509		)	(891		)	(1,110		)
Reclassification from nonaccretable difference	213			3,208			301			3,208
Balance at end of period	$	1,371		$	3,544		$	1,371		$	3,544

7.6. Goodwill and Intangible Assets

The excess of the cost of an acquisition over the fair value of the net assets acquired, including core deposit, trade name, and client relationship intangibles, consists of goodwill. Under ASC Topic 350, goodwill and the non-amortizing portion of the trade name intangible are subject to at least annual assessments for impairment by applying a fair value based test. The Company reviews goodwill and the non-amortizing portion of the trade name intangible at the reporting unit level to determine potential impairment annually on October 1, or more frequently if events or changes in circumstances indicate that the carrying value may not be recoverable, by comparing the carrying value of the reporting unit with the fair value of the reporting unit. No impairment was recorded on either the goodwill or the trade name intangible assets during the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017. The carrying amount of goodwill was $64.7 million at ~~September~~June 30, ~~2016 and $64.6 million~~2017, the same as at December 31, ~~2015. The increase of $0.1 million in goodwill was due to the finalization of merger accounting issues related to the Central merger.~~

~~In addition to goodwill, the Company recognized a $12.7 million core deposit intangible, and a $1.4 million trade name intangible in 2015 due to the Central merger.~~2016.

The following table presents the changes in the carrying amount of intangibles (excluding goodwill), gross carrying amount, accumulated amortization, and net book value as of and for the ~~nine~~six months ended ~~September~~June 30, ~~2016:~~2017:

Insurance Agency Intangible Core Deposit Intangible Indefinite-Lived Trade Name Intangible Finite-Lived Trade Name Intangible Customer List Intangible Total
(in thousands)
September 30, 2016
Balance, beginning of period $ 275
$ 10,480
$ 7,040
$ 1,203
$ 143
$ 19,141
Additions from business combination —
—
—
—
—
—
Amortization expense (54 ) (2,791 ) —
(185 ) (16 ) (3,046 )
Balance at end of period $ 221
$ 7,689
$ 7,040
$ 1,018
$ 127
$ 16,095

Gross carrying amount $ 1,320
$ 18,206
$ 7,040
$ 1,380
$ 330
$ 28,276
Accumulated amortizations (1,099 ) (10,517 ) —
(362 ) (203 ) (12,181 )
Net book value $ 221
$ 7,689
$ 7,040
$ 1,018
$ 127
$ 16,095



	Insurance Agency Intangible			Core Deposit Intangible			Indefinite-Lived Trade Name Intangible		Finite-Lived Trade Name Intangible			Customer List Intangible			Total
(in thousands)
June 30, 2017
Balance, beginning of period	$	203		$	6,846		$	7,040	$	960		$	122		$	15,171
Amortization expense	(27		)	(1,506		)	—		(111		)	(9		)	(1,653		)
Balance at end of period	$	176		$	5,340		$	7,040	$	849		$	113		$	13,518

Gross carrying amount	$	1,320		$	18,206		$	7,040	$	1,380		$	330		$	28,276
Accumulated amortizations	(1,144		)	(12,866		)	—		(531		)	(217		)	(14,758		)
Net book value	$	176		$	5,340		$	7,040	$	849		$	113		$	13,518

8.7. Other Assets

The components of the Company’s other assets were as follows:

September 30, 2016 December 31, 2015
(in thousands)
Federal Home Loan Bank Stock $ 11,614
$ 9,832
FDIC indemnification asset, net 1,530
4,274
Prepaid expenses 2,172
2,271
Mortgage servicing rights 1,838
2,249
Federal & state income taxes receivable, current —
1,079
Accounts receivable & other miscellaneous assets 1,731
2,104
$ 18,885
$ 21,809



	June 30, 2017		December 31, 2016
(in thousands)
Federal Home Loan Bank Stock	$	12,181	$	12,800
FDIC indemnification asset, net	—		479
Prepaid expenses	1,874		1,760
Mortgage servicing rights	2,136		1,951
Accounts receivable & other miscellaneous assets	3,057		1,323
	$	19,248	$	18,313

The Bank is a member of the FHLB of Des Moines, and ownership of FHLB stock is a requirement for such membership. The amount of FHLB stock the Bank is required to hold is directly related to the amount of FHLB advances borrowed. Because this security is not readily marketable and 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. No impairment was recorded on FHLB stock in the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 or in the year ended December 31, ~~2015.~~2016.

As part of the Central merger, the Company became a party to certain loss-share agreements with the FDIC from previous Central-related acquisitions. These agreements cover realized losses on loans and foreclosed real estate for specified periods. These loss-share assets are measured separately from the loan portfolios because they are not contractually embedded in the loans and are not transferable with the loans should the Company choose to dispose of them. Fair values at the acquisition dates were estimated based on projected cash flows available for loss-share based on the credit adjustments estimated for each loan. The loss-share assets are recorded within other assets on the balance sheet. On July 14, 2017, the Bank, entered into an agreement with the FDIC that terminated all of the Bank's loss sharing agreements related to the former Central Bank. See Note 15. “Subsequent Events” to our consolidated financial statements for additional information related to our termination of the loss-share agreements.

Mortgage servicing rights are recorded at fair value based on assumptions provided by 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.

9.8. Short-Term Borrowings

Short-term borrowings were as follows as of ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015:~~2016:

September 30, 2016 December 31, 2015
(in thousands) Weighted Average Cost Balance Weighted Average Cost Balance
Federal funds purchased 0.45 % $ 19,309
0.34 % $ 1,500
Securities sold under agreements to repurchase 0.22
63,469
0.31
67,463
Total 0.27 % $ 82,778
0.31 % $ 68,963



	June 30, 2017				December 31, 2016
(in thousands)	Weighted Average Cost		Balance		Weighted Average Cost		Balance
Federal funds purchased	1.31	%	$	45,319	0.83	%	$	35,684
Securities sold under agreements to repurchase	0.23		60,182		0.22		82,187
Total	0.69	%	$	105,501	0.40	%	$	117,871

At ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, the Company had no borrowings through the Federal Reserve Discount Window, while the borrowing capacity was ~~$11.9~~$11.7 million as of ~~September~~June 30, ~~2016 and $11.8 million~~2017, the same as of December 31, ~~2015.~~2016. As of ~~September~~both June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, the Bank had municipal securities pledged with a market value of ~~$13.2~~$13.0 million, ~~and $13.1 million pledged, respectively,~~ to the Federal Reserve to secure potential borrowings. The Company also has various other unsecured federal funds agreements with correspondent banks. As of ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, there were ~~$19.3~~$45.3 million and ~~$1.5~~$35.7 million of borrowings through these correspondent bank federal funds agreements, respectively.

Securities sold under agreements to repurchase are agreements in which the Company acquires funds by selling assets to another party under a simultaneous agreement to repurchase the same assets at a specified price and date. The Company enters into repurchase agreements and also offers a demand deposit account product to customers that sweeps their balances in excess of an agreed upon target amount into overnight repurchase agreements. All securities sold under agreements to repurchase are recorded on the face of the balance sheet.

On April 30, 2015, the Company entered into a $5.0 million unsecured line of credit with a correspondent bank. Interest is payable at a rate of one-month LIBOR plus 2.00%. The line was renewed in ~~April 2016,~~May 2017, and is now scheduled to mature on April ~~27, 2017.~~28, 2018. The Company had no balance outstanding under this agreement as of ~~September~~June 30, ~~2016.~~2017.

~~10.~~9. Subordinated Notes Payable

The Company has established three statutory business trusts under the laws of the state of Delaware: Central Bancshares Capital Trust II, Barron Investment Capital Trust I, and MidWestOne Statutory Trust II. The trusts exist for the exclusive purposes of (i) issuing trust securities representing undivided beneficial interests in the assets of the respective trust; (ii) investing the gross proceeds of the trust securities in junior subordinated deferrable interest debentures ~~(subordinated debentures)~~(junior subordinated notes); and (iii) engaging in only those activities necessary or incidental thereto. For regulatory capital purposes, these trust securities qualify as a component of Tier 1 capital.

The table below summarizes the outstanding junior subordinated notes and the related trust preferred securities issued by each trust as of ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015:~~2016:

Face Value Book Value Interest Rate Interest Rate at Maturity Date Callable Date
(in thousands) 9/30/2016
September 30, 2016

Central Bancshares Capital Trust II^{(1) (2)}
$ 7,217
$ 6,599
Three-month LIBOR + 3.50% 4.35 % 03/15/2038 03/15/2013

Barron Investment Capital Trust I^{(1) (2)}
2,062
1,604
Three-month LIBOR + 2.15% 3.01 % 09/23/2036 09/23/2011

MidWestOne Statutory Trust II⁽¹⁾
15,464
15,464
Three-month LIBOR + 1.59% 2.44 % 12/15/2037 12/15/2012
Total $ 24,743
$ 23,667



	Face Value		Book Value		Interest Rate	Interest Rate at		Maturity Date	Callable Date
(in thousands)	Face Value		Book Value		Interest Rate	6/30/2017		Maturity Date	Callable Date
June 30, 2017
Central Bancshares Capital Trust II^{(1) (2)}	$	7,217	$	6,644	Three-month LIBOR + 3.50%	4.75	%	03/15/2038	03/15/2013
Barron Investment Capital Trust I^{(1) (2)}	2,062		1,635		Three-month LIBOR + 2.15%	3.44	%	09/23/2036	09/23/2011
MidWestOne Statutory Trust II⁽¹⁾	15,464		15,464		Three-month LIBOR + 1.59%	2.84	%	12/15/2037	12/15/2012
Total	$	24,743	$	23,743

Face Value Book Value Interest Rate Interest Rate at Maturity Date Callable Date
(in thousands) 12/31/2015
December 31, 2015

Central Bancshares Capital Trust II^{(1) (2)}
$ 7,217
$ 6,552
Three-month LIBOR + 3.50% 4.01 % 03/15/2038 03/15/2013

Barron Investment Capital Trust I^{(1) (2)}
2,062
1,571
Three-month LIBOR + 2.15% 2.74 % 09/23/2036 09/23/2011

MidWestOne Statutory Trust II⁽¹⁾
15,464
15,464
Three-month LIBOR + 1.59% 2.10 % 12/15/2037 12/15/2012
Total $ 24,743
$ 23,587



	Face Value		Book Value		Interest Rate	Interest Rate at		Maturity Date	Callable Date
(in thousands)	Face Value		Book Value		Interest Rate	12/31/2016		Maturity Date	Callable Date
December 31, 2016
Central Bancshares Capital Trust II^{(1) (2)}	$	7,217	$	6,614	Three-month LIBOR + 3.50%	4.46	%	03/15/2038	03/15/2013
Barron Investment Capital Trust I^{(1) (2)}	2,062		1,614		Three-month LIBOR + 2.15%	3.15	%	09/23/2036	09/23/2011
MidWestOne Statutory Trust II⁽¹⁾	15,464		15,464		Three-month LIBOR + 1.59%	2.55	%	12/15/2037	12/15/2012
Total	$	24,743	$	23,692

(1) All distributions are cumulative and paid in cash quarterly.

(2) Central Bancshares Capital Trust II and Barron Investment Capital Trust I were established by Central prior to the Company’s merger with Central, and the junior subordinated notes issued by Central were assumed by the Company.

The trust preferred securities are subject to mandatory redemption, in whole or in part, upon repayment of the junior subordinated notes at the stated maturity date or upon redemption of the junior subordinated notes. Each trust’s ability to pay amounts due on the trust preferred securities is solely dependent upon the Company making payment on the related junior subordinated notes. The Company’s obligation under the junior subordinated notes and other relevant trust agreements, in aggregate, constitutes a full and unconditional guarantee by the Company of each trust’s obligations under the trust preferred securities issued by each trust. The Company has the right to defer payment of interest on the junior subordinated notes and, therefore, distributions on the trust preferred securities, for up to five years, but not beyond the stated maturity date in the table above. During any such deferral period the Company may not pay cash dividends on its stock and generally may not repurchase its stock.

~~11.~~10. Long-Term Borrowings

Long-term borrowings were as follows as of ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015:~~2016:

September 30, 2016 December 31, 2015
(in thousands) Weighted Average Cost Balance Weighted Average Cost Balance
FHLB Borrowings 1.55 % $ 100,000
1.64 % $ 87,000
Note payable to unaffiliated bank 2.27
18,750
2.17
22,500
Total 1.66 % $ 118,750
1.75 % $ 109,500



	June 30, 2017				December 31, 2016
(in thousands)	Weighted Average Cost		Balance		Weighted Average Cost		Balance
FHLB Borrowings	1.61	%	$	90,000	1.56	%	$	115,000
Note payable to unaffiliated bank	2.98		15,000		2.52		17,500
Total	1.81	%	$	105,000	1.69	%	$	132,500

The Company utilizes FHLB borrowings as a supplement to customer deposits to fund ~~earning~~interest-earning assets and to assist in managing interest rate risk. As a member of the Federal Home Loan Bank of Des Moines, the Bank may borrow funds from the FHLB in amounts up to 35% of the Bank’s total assets, provided the Bank is able to pledge an adequate amount of qualified assets to secure the borrowings. Advances from the FHLB are collateralized primarily by one- to four-family residential, commercial and agricultural real estate first mortgages equal to various percentages of the total outstanding notes. See Note 65 “Loans Receivable and the Allowance for Loan Losses” of the notes to the consolidated financial statements.

On April 30, 2015, the Company entered into a $35.0 million unsecured note payable with a correspondent bank with a maturity date of June 30, 2020. The Company drew $25.0 million on the note prior to June 30, 2015, at which time the

ability to obtain additional advances ceased. Payments of principal and interest are payable quarterly, which began on September 30, 2015. As of ~~September~~June 30, ~~2016, $18.8~~2017, $15.0 million of that note was outstanding.

~~12.~~11. Income Taxes

The income tax provisions for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016 were less than the amounts computed by applying the maximum effective federal income tax rate of 35% to the income before income taxes, because of the following items:

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2016 2015 2016 2015
(in thousands) Amount % of Pretax Income Amount % of Pretax Income Amount % of Pretax Income Amount % of Pretax Income
Expected provision $ 3,098
35.0 % $ 3,407
35.0 % $ 7,997
35.0 % $ 8,144
35.0 %
Tax-exempt interest (761 ) (8.6 ) (742 ) (7.6 ) (2,260 ) (9.9 ) (2,077 ) (8.9 )
Bank-owned life insurance (114 ) (1.3 ) (117 ) (1.2 ) (363 ) (1.6 ) (330 ) (1.4 )
State income taxes, net of federal income tax benefit 398
4.5
(35 ) (0.4 ) 1,045
4.6
478
2.1
Non-deductible acquisition expenses 18
0.2
21
0.2
71
0.3
676
2.9
General business credits (15 ) (0.2 ) (423 ) (4.3 ) (168 ) (0.7 ) (439 ) (1.9 )
Other 5
0.1
10
0.1
6
—
(62 ) (0.3 )
Total income tax provision $ 2,629
29.7 % $ 2,121
21.8 % $ 6,328
27.7 % $ 6,390
27.5 %

~~The Company also recognized income tax expense pertaining to state franchise and income taxes payable by the Bank.~~



	For the Three Months Ended June 30,										For the Six Months Ended June 30,
	2017					2016					2017					2016
(in thousands)	Amount			% of Pretax Income		Amount			% of Pretax Income		Amount			% of Pretax Income		Amount			% of Pretax Income
Expected provision	$	3,629		35.0	%	$	2,292		35.0	%	$	6,864		35.0	%	$	4,899		35.0	%
Tax-exempt interest	(795		)	(7.7	)	(745		)	(11.4	)	(1,581		)	(8.1	)	(1,499		)	(10.7	)
Bank-owned life insurance	(110		)	(1.1	)	(115		)	(1.8	)	(225		)	(1.1	)	(249		)	(1.8	)
State income taxes, net of federal income tax benefit	443			4.3		327			5.0		848			4.3		647			4.6
Non-deductible acquisition expenses	—			—		28			0.4		—			—		53			0.4
General business credits	(19		)	(0.2	)	(14		)	(0.2	)	(40		)	(0.2	)	(153		)	(1.1	)
Other	(12		)	(0.1	)	21			0.4		(201		)	(1.0	)	1			—
Total income tax provision	$	3,136		30.2	%	$	1,794		27.4	%	$	5,665		28.9	%	$	3,699		26.4	%

~~13.~~12. Estimated Fair Value of Financial Instruments and Fair Value Measurements

Fair value is the price that would be received in selling an asset or paid 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 (1) independent, (2) knowledgeable, (3) able to transact and (4) willing to transact.

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 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, 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 policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements. 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. 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 investment securities classified as available for sale include: debt securities issued by the U.S. Treasury and other U.S. Government agencies and corporations, 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 agencies and corporations, mortgage-backed securities, and ~~mortgage-backed~~collateralized mortgage obligations are priced utilizing industry-standard models that consider various assumptions, including time value, yield curves, volatility factors, prepayment speeds, default rates, loss severity, current market and contractual prices for the underlying financial instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace and are classified as Level 2. Municipal securities are valued using a type of matrix, or grid, pricing in which securities are benchmarked against the treasury rate based on credit rating. These model and matrix measurements are classified as Level 2 in the fair value hierarchy. On an annual basis, a group of selected municipal securities ~~are priced~~have their credit rating evaluated by a securities dealer and that ~~price~~information is used to verify the primary independent service’s ~~valuation.~~rating and pricing.

The following table summarizes assets measured at fair value on a recurring basis as of ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015.~~2016. 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, 2016 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 $ 6,044
$ —
$ 6,044
$ —
State and political subdivisions 165,809
—
165,809
—
Mortgage-backed securities 43,569
—
43,569
—
Collateralized mortgage obligations 172,172
—
172,172
—
Corporate debt securities 47,366
—
47,366
—
Total available for sale debt securities 434,960
—
434,960
—
Other equity securities 1,279
1,279
—
—
Total securities available for sale $ 436,239
$ 1,279
$ 434,960
$ —



	Fair Value Measurement at June 30, 2017 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	$	5,778	$	—	$	5,778	$	—
State and political subdivisions	151,839		—		151,839		—
Mortgage-backed securities	54,115		—		54,115		—
Collateralized mortgage obligations	164,390		—		164,390		—
Corporate debt securities	64,502		—		64,502		—
Total available for sale debt securities	440,624		—		440,624		—
Other equity securities	2,334		2,334		—		—
Total securities available for sale	$	442,958	$	2,334	$	440,624	$	—

Fair Value Measurement at December 31, 2015 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. Treasury securities $ 6,910
$ —
$ 6,910
$ —
U.S. Government agencies and corporations 26,653
—
26,653
—
State and political subdivisions 183,384
—
183,384
—
Mortgage-backed securities 57,062
—
57,062
—
Collateralized mortgage obligations 106,404
—
106,404
—
Corporate debt securities 45,566
—
45,566
—
Total available for sale debt securities 425,979
—
425,979
—
Other equity securities 1,262
1,262
—
—
Total securities available for sale $ 427,241
$ 1,262
$ 425,979
$ —



	Fair Value Measurement at December 31, 2016 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	$	5,905	$	—	$	5,905	$	—
State and political subdivisions	165,272		—		165,272		—
Mortgage-backed securities	61,354		—		61,354		—
Collateralized mortgage obligations	171,267		—		171,267		—
Corporate debt securities	72,453		—		72,453		—
Total available for sale debt securities	476,251		—		476,251		—
Other equity securities	1,267		1,267		—		—
Total securities available for sale	$	477,518	$	1,267	$	476,251	$	—

There were no transfers of assets between levels of the fair value hierarchy during the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 or the year ended December 31, ~~2015.~~2016.

There have been no changes in valuation techniques used for any assets measured at fair value during the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 or the year ended December 31, ~~2015.~~2016.

Changes in the fair value of available for sale securities are included in other comprehensive income to the extent the changes are not considered 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 through or in lieu of foreclosure are initially recorded at fair value less estimated selling cost at the date of foreclosure, establishing a new cost basis. 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.

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~~June 30, ~~2016~~2017 and December 31, ~~2015~~2016, as more fully described above.

Fair Value Measurement at September 30, 2016 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 $ 7,017
$ —
$ —
$ 7,017
Other real estate owned $ 3,452
$ —
$ —
$ 3,452



	Fair Value Measurement at June 30, 2017 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	$	1,073	$	—	$	—	$	1,073
Other real estate owned	$	1,486	$	—	$	—	$	1,486

Fair Value Measurement at December 31, 2015 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 $ 23,812
$ —
$ —
$ 23,812
Other real estate owned $ 8,834
$ —
$ —
$ 8,834



	Fair Value Measurement at December 31, 2016 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	$	8,774	$	—	$	—	$	8,774
Other real estate owned	$	2,097	$	—	$	—	$	2,097

The following presents the carrying amount and estimated fair value of the financial instruments held by the Company at ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015~~2016. 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 capitalization and franchise value of the Bank. Neither of these components has been given consideration in the presentation of fair values below.

September 30, 2016

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 $ 51,958
$ 51,958
$ 51,958
$ —
$ —
Investment securities:
Available for sale 436,239
436,239
1,279
434,960
—
Held to maturity 151,110
153,474
—
153,474
—
Total investment securities 587,349
589,713
1,279
588,434
—
Loans held for sale 2,742
2,786
—
—
2,786
Loans, net 2,120,437
2,122,937
—
2,122,937
—
Accrued interest receivable 13,139
13,139
13,139
—
—
Federal Home Loan Bank stock 11,614
11,614
—
11,614
—
Financial liabilities:
Deposits:
Non-interest bearing demand 493,820
493,820
493,820
—
—
Interest-bearing checking 1,114,536
1,114,536
1,114,536
—
—
Savings 196,426
196,426
196,426
—
—
Certificates of deposit under $100,000 332,194
332,351
—
332,351
—
Certificates of deposit $100,000 and over 308,956
309,792
—
309,792
—
Total deposits 2,445,932
2,446,925
1,804,782
642,143
—
Federal funds purchased and securities sold under agreements to repurchase 82,778
82,778
82,778
—
—
Federal Home Loan Bank borrowings 100,000
101,019
—
101,019
—
Junior subordinated notes issued to capital trusts 23,667
19,139
—
19,139
—
Long-term debt 18,750
18,750
—
18,750
—
Accrued interest payable 1,552
1,552
1,552
—
—



	June 30, 2017
	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	$	49,398	$	49,398	$	49,398	$	—	$	—
Investment securities:
Available for sale	442,958		442,958		2,334		440,624		—
Held to maturity	182,478		183,296		—		183,296		—
Total investment securities	625,436		626,254		2,334		623,920		—
Loans held for sale	1,636		1,667		—		—		1,667
Loans, net	2,174,993		2,175,104		—		2,175,104		—
Accrued interest receivable	12,606		12,606		12,606		—		—
Federal Home Loan Bank stock	12,181		12,181		—		12,181		—
Financial liabilities:
Deposits:
Non-interest bearing demand	476,031		476,031		476,031		—		—
Interest-bearing checking	1,131,151		1,131,151		1,131,151		—		—
Savings	203,967		203,967		203,967		—		—
Certificates of deposit under $100,000	325,847		323,885		—		323,885		—
Certificates of deposit $100,000 and over	356,713		355,582		—		355,582		—
Total deposits	2,493,709		2,490,616		1,811,149		679,467		—
Federal funds purchased and securities sold under agreements to repurchase	105,501		105,501		105,501		—		—
Federal Home Loan Bank borrowings	90,000		89,791		—		89,791		—
Junior subordinated notes issued to capital trusts	23,743		19,462		—		19,462		—
Long-term debt	15,000		15,000		—		15,000		—
Accrued interest payable	1,551		1,551		1,551		—		—

December 31, 2015

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 $ 47,097
$ 47,097
$ 47,097
$ —
$ —
Investment securities:
Available for sale 427,241
427,241
1,262
425,979
—
Held to maturity 118,423
118,234
—
118,234
—
Total investment securities 545,664
545,475
1,262
544,213
—
Loans held for sale 3,187
3,262
—
—
3,262
Loans, net 2,132,515
2,132,009
—
2,132,009
—
Accrued interest receivable 13,736
13,736
13,736
—
—
Federal Home Loan Bank stock 9,832
9,832
—
9,832
—
Financial liabilities:
Deposits:
Non-interest bearing demand 559,586
559,586
559,586
—
—
Interest-bearing checking 1,064,350
1,064,350
1,064,350
—
—
Savings 189,489
189,489
189,489
—
—
Certificates of deposit under $100,000 348,268
346,875
—
346,875
—
Certificates of deposit $100,000 and over 301,828
301,521
—
301,521
—
Total deposits 2,463,521
2,461,821
1,813,425
648,396
—
Federal funds purchased and securities sold under agreements to repurchase 68,963
68,963
68,963
—
—
Federal Home Loan Bank borrowings 87,000
86,817
—
86,817
—
Junior subordinated notes issued to capital trusts 23,587
18,611
—
18,611
—
Long-term debt 22,500
22,500
—
22,500
—
Accrued interest payable 1,507
1,507
1,507
—
—



	December 31, 2016
	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	$	43,228	$	43,228	$	43,228	$	—	$	—
Investment securities:
Available for sale	477,518		477,518		1,267		476,251		—
Held to maturity	168,392		164,792		—		164,792		—
Total investment securities	645,910		642,310		1,267		641,043		—
Loans held for sale	4,241		4,286		—		—		4,286
Loans, net	2,143,293		2,138,252		—		2,138,252		—
Accrued interest receivable	13,871		13,871		13,871		—		—
Federal Home Loan Bank stock	12,800		12,800		—		12,800		—
Financial liabilities:
Deposits:
Non-interest bearing demand	494,586		494,586		494,586		—		—
Interest-bearing checking	1,136,282		1,136,282		1,136,282		—		—
Savings	197,698		197,698		197,698		—		—
Certificates of deposit under $100,000	326,832		324,978		—		324,978		—
Certificates of deposit $100,000 and over	325,050		324,060		—		324,060		—
Total deposits	2,480,448		2,477,604		1,828,566		649,038		—
Federal funds purchased and securities sold under agreements to repurchase	117,871		117,871		117,871		—		—
Federal Home Loan Bank borrowings	115,000		114,590		—		114,590		—
Junior subordinated notes issued to capital trusts	23,692		19,248		—		19,248		—
Long-term debt	17,500		17,500		—		17,500		—
Accrued interest payable	1,472		1,472		1,472		—		—

Cash and cash equivalents, 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 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.

The fair value of FHLB 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 non-interest bearing demand deposits, savings accounts and certain interest-bearing checking 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.

FHLB borrowings, junior subordinated notes issued to capital trusts, 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), unobservable inputs, and quantitative information about the unobservable inputs used for fair value measurements of the financial instruments held by the Company at ~~September~~June 30, ~~2016~~2017, 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, 2016 Valuation Techniques(s) Unobservable Input Range of Inputs Weighted Average
Collateral dependent impaired loans $ 7,017
Modified appraised value Third party appraisal NM * NM * NM *
Appraisal discount NM * NM * NM *
Other real estate owned $ 3,452
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 June 30, 2017

Valuation Techniques(s)

Unobservable Input

Range of Inputs

Weighted Average

Collateral dependent impaired loans

1,073

Modified appraised value

Third party appraisal

NM *

Appraisal discount

NM *

Other real estate owned

1,486

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.

~~14.~~13. Operating Segments

The Company’s activities are considered to be a single industry segment for financial reporting purposes. The Company is engaged in the business of commercial and retail banking, investment management and insurance services with operations throughout central and eastern Iowa, the Twin Cities area of Minnesota and Wisconsin, Florida, and ~~Florida.~~Denver, Colorado. Substantially all income is derived from a diverse base of commercial, mortgage and retail lending activities, and investments.

~~15. Branch Sale~~

On May 9, 2016, the Bank entered into an agreement to sell its Davenport, Iowa branch to CBI Bank and Trust (“CBI Bank”) headquartered in Muscatine, Iowa, a unit of Central Bancshares, Inc. of Muscatine, Iowa. CBI Bank assumed approximately $12.0 million in deposits and $33.0 million in loans on the sale completion date of August 5, 2016, and the Company realized a net gain of $0.7 million, which is included on the Consolidated Statement of Operations in Other gain (loss).

~~16.~~14. Effect of New Financial Accounting Standards

In May 2014, the ~~FASB~~Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update No. 2014-09, Revenue from Contract with Customers (Topic 606). The guidance in this update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following five steps: 1) identify the contracts(s) with the customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations in the contract; and 5) recognize revenue when (or as) the entity satisfies a performance obligation. The guidance also specifies the accounting for some costs to obtain or fulfill a contract with a customer. For a public entity, the amendments in this update are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. In July 2015, the FASB announced a delay to the effective date of Accounting Standards Update No. 2015-09, Revenue from Contract with Customers (Topic 606). Reporting entities may choose to adopt the standard as of the original date, or take advantage of a one-year delay. For a public entity, the revised effective date is for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is not permitted prior to the original effective date. The ~~adoption~~Company’s revenue is comprised of interest income on financial assets, which is excluded from the scope of this ~~amendment~~new guidance, and noninterest income. The Company expects this new guidance will potentially require it to change how certain recurring revenue streams are recognized within trust and asset management fees, sales of other real estate, credit and debit card interchange fees, and credit card revenue. In addition, the Company continues to stay apprised of certain issues related to implementation of the standard that are relevant to the banking industry which are still pending resolution. The Company is beginning to analyze the expected areas of impact, and currently does not ~~expected to have a material~~expect the effect on the Company’s consolidated financial ~~statements.~~statements to be material. The Company has determined that it will not early-adopt this standard, and plans to utilize the modified retrospective transition method.

In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The amendments in this update provide guidance in GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. In doing so, the amendment should reduce diversity in the timing and content of footnote disclosures. Disclosures are required if it is probable an entity will be unable to meet its obligations within the look-forward period of twelve months after the financial statements are made available. Incremental substantial doubt disclosure is required if the probability

is not mitigated by management’s plans. The new standard applies to all entities for the first annual period ending after December 15, 2016, and interim periods thereafter. The adoption of this standard isdid not ~~expected to~~ have a material effect on the Company’s consolidated financial statements.

~~In July 2015, the FASB announced a delay to the effective date of Accounting Standards Update No. 2015-09,~~ ~~Revenue from Contract with Customers (Topic 606).~~ Reporting entities may choose to adopt the standard as of the original date, or take advantage of a one-year delay. For a public entity, the revised effective date is for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is not permitted prior to the original effective date. The adoption of this amendment is not expected to have a material effect on the Company’s consolidated financial statements.

In January 2016, the FASB issued Accounting Standards Update No. 2016-01, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. The guidance in this update makes changes to the current GAAP model primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the FASB clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The accounting for other financial instruments, such as loans, investments in debt securities, and financial liabilities is largely unchanged. The treatment of gains and losses for all equity securities, including those without a readily determinable market value, is expected to result in additional volatility in the income statement, with the loss of mark to market via equity for these investments. Additionally, changes in the allowable method for determining the fair value of financial instruments in the financial statement footnotes (“exit price” only), will likely require changes to current methodologies of determining these vales, and how they are disclosed in the financial statement footnotes. The new standard applies to public business entities in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. The ~~adoption~~Company is in the process of evaluating the impact of this ~~amendment is not expected~~ASU on its consolidated financial statements, including potential changes to ~~have a material effect on~~ the Company’s ~~consolidated~~note disclosure of the fair value of its financial ~~statements.~~assets and liabilities, and does not expect to early adopt the standard.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842). The guidance in this update is meant to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. All leases create an asset and a liability for the lessee in accordance with FASB Concepts Statement No. 6, Elements of Financial Statements, and, therefore, recognition of those lease assets and lease liabilities represents an improvement over previous GAAP, which did not require lease assets and lease liabilities to be recognized for most leases. Disclosures are required by lessees and lessors to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. To meet that objective, qualitative disclosures along with specific quantitative disclosures are required. The new standard applies to public business entities in fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The Company ~~is still evaluating~~has several lease agreements, such as branch locations, which are currently considered operating leases, and therefore not recognized on the ~~effect~~Company’s consolidated balance sheets. The Company expects the new guidance will require these lease agreements to now be recognized on the consolidated balance sheets as right-of-use assets and a corresponding lease liability. However, the Company continues to evaluate the extent of ~~this~~the potential impact the new guidance will have on the Company’s consolidated financial ~~statements.~~statements and the availability of outside vendor products to assist in the implementation, and does not expect to early adopt the standard.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation - Stock Compensation (Topic 718). The guidance involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The new standard applies to public business entities for annual periods beginning after December 15, 2016, including interim periods within those annual periods, with early adoption permitted. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments were effective January 1, 2017. The Company ~~is still evaluating the~~elected to account for forfeitures as they occur. The effect of this ~~guidance~~election and other amendments did not have an effect on the Company’s consolidated financial statements.

In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments-Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments. The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model

for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The amendment requires the use of a new model covering current expected credit losses (CECL), which will apply to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures. Upon initial recognition of the exposure, the CECL model requires an entity to estimate the credit losses expected over the life of an exposure (or pool of exposures). The estimate of expected credit losses (ECL) should consider historical information, current information, and reasonable and supportable forecasts, including estimates of prepayments. The new guidance also amends the current available for sale (AFS) security OTTI model for debt securities. The new model will require an estimate of ECL only when the fair value is below the amortized cost of the asset. The length of time the fair value of an AFS debt security has been below the amortized cost will no

longer impact the determination of whether a credit loss exists. As such, it is no longer an other-than-temporary model. Finally, the purchased financial assets with credit deterioration (PCD) model applies to purchased financial assets (measured at amortized cost or AFS) that have experienced more than insignificant credit deterioration since origination. This represents a change from the scope of what are considered purchased credit-impaired assets under today’s model.

Different than the accounting for originated or purchased assets that do not qualify as PCD, the initial estimate of expected credit losses for a PCD would be recognized through an allowance for loan and lease losses with an offset to the cost basis of the related financial asset at acquisition. The new standard applies to public business entities that are SEC filers in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted for fiscal years beginning after December 31, 2018, including interim periods within those fiscal ~~years.~~years, and is expected to increase the allowance for loan losses upon adoption. The Company ~~is still evaluating~~has formed a working group to evaluate the ~~effect~~impact of ~~this guidance~~the standard’s adoption on the Company’s consolidated financial statements, ~~but it is expected~~including viewing demonstrations of the capabilities of outside vendor software systems, and evaluation of the ability of these systems to ~~be material.~~meet the processing necessary to support the data collection and retention requirements of the Company in implementation of the new standard.

In ~~August 2016,~~January 2017, the FASB issued Accounting Standards Update No. ~~2016-15,~~2017-04, ~~Statement of Cash Flows~~Intangibles-Goodwill and Other (Topic ~~230)~~350) - ~~Classification of Certain Cash Receipts and Cash Payments, a consensus of~~Simplifying the ~~FASB Emerging Issues Task Force~~Test for Goodwill Impairment.. The new guidance ~~addresses diversity in practice in how certain cash receipts and cash payments are presented and classified in~~removes Step 2 of the ~~statement~~goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of ~~cash flows under Topic 230, Statement of Cash Flows, and~~goodwill. All other ~~topics. This~~goodwill impairment guidance will remain largely unchanged. The update ~~addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The amendments in this update apply~~applies to ~~all entities, including both~~public business ~~entities and not-for-profit~~ entities that are ~~required~~SEC filers in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company early adopted this amendment during the second quarter of 2017, and adoption did not have a significant effect on the Company’s consolidated financial statements.

In March 2017, the FASB issued Accounting Standards Update No. 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20) - Premium Amortization on Purchased Callable Debt Securities. The new guidance requires that the premium amortization period on non-contingently callable securities, end at the earliest call date, rather than the contractual maturity date. The shorter amortization period means that interest income would generally be lower in the periods before the earliest call date and higher thereafter (if the security is not called) compared to ~~present a statement of cash flows under Topic 230.~~current GAAP. The update applies to public business entities in fiscal years beginning after December 15, ~~2017, including~~2018. Early adoption is permitted. If an entity early adopts the amendments in an interim ~~periods within those~~period, any adjustments should be reflected as of the beginning of the fiscal ~~years, with early adoption permitted,~~year that includes that interim period. The Company adopted this update during the second quarter of 2017. Since the Company was already amortizing premiums on callable investment securities between the date of purchase and the ~~Company has elected to adopt~~first call date, there was no effect on the ~~guidance effective September 30, 2016.~~Company’s consolidated financial statements.

~~17. Contingency~~

In the second quarter of 2012, the Bank, terminated its non-contributory defined benefit pension plan. In the normal course of business, the termination of the plan is subject to audit by the Pension Benefit Guaranty Corporation (PBGC), which may result in additional distribution of assets to participants. The Bank has received an initial summary of audit findings and is requesting reconsideration of this initial determination. In addition, the Bank has identified a potential inadvertent drafting issue with the wording of the plan amendment adopted by the Bank in 2005.The Bank has evaluated the likelihood of a potential future liability relating to this amendment issue and determined that while future liability is possible, the amount of the liability cannot be reasonably estimated at this time. As such, no liability relating to this matter has been recorded in the financial statements for the third quarter of 2016.

~~18.~~15. Subsequent Events

Management evaluated subsequent events through the date the consolidated financial statements were issued. Events or transactions occurring after ~~September~~June 30, ~~2016~~2017, but prior to the date the consolidated financial statements were issued, that provided additional evidence about conditions that existed at ~~September~~June 30, ~~2016~~2017 have been recognized in the consolidated financial statements for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017. Events or transactions that provided evidence about conditions that did not exist at ~~September~~June 30, ~~2016~~2017, but arose before the consolidated financial statements were issued, have not been recognized in the consolidated financial statements for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017.

On ~~October 11, 2016~~July 14, 2017, the board of directors of the Company declared a cash dividend of $~~0.16~~0.17 per share payable on ~~December~~September 15, ~~2016~~2017 to shareholders of record as of the close of business on ~~December~~September 1, ~~2016~~2017.

On July 14, 2017, MidWestOne Bank (the “Bank”), entered into an agreement with the Federal Deposit Insurance Corporation (FDIC) that terminated all of the Bank's loss sharing agreements related to the former Central Bank's six FDIC-assisted acquisitions from 2009 through 2011.

The agreement required the Bank to pay $0.3 million to the FDIC to settle all outstanding items related to the terminated loss sharing agreements. As a result of entering into the agreement, assets that were covered by the terminated loss sharing agreements, including covered loans in the amount of $27.2 million on June 30, 2017, have been reclassified as non-covered assets, effective July 14, 2017.

Accordingly, in the third quarter of 2017, the Company expects to realize a one-time pre-tax gain of approximately $0.2 million, inclusive of the write-off of the remaining indemnification asset, other receivables from the FDIC and the Bank's clawback liabilities due to the FDIC. The termination of the loss sharing agreements will not impact the yields for the loans that were previously covered under this agreement and is not expected to impact the allowance for loan losses. All

future recoveries, gains, losses and expenses related to these previously covered assets will now be recognized entirely by the Bank since the FDIC will no longer be sharing in such gains or losses. Accordingly, the Company's future earnings will be positively impacted to the extent the Company recognizes gains on any sales or recoveries in excess of the carrying value of such assets. Similarly, the Company's future earnings will be negatively impacted to the extent the Company recognizes expenses, losses or charge-offs related to such assets.

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 located primarily in the ~~Upper~~upper Midwest through its bank subsidiary, MidWestOne Bank. The Bank has office locations in central and east-central Iowa, the Twin Cities area of Minnesota, Wisconsin, Florida, and ~~Florida.~~Denver, Colorado. 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 ~~MidWest~~the~~One~~ Bank administers estates, personal trusts, conservatorships, and pension and profit-sharing accounts along with providing brokerage and other investment management services to customers. MidWestOne Insurance Services, Inc., also a wholly-owned subsidiary of the Company, provides personal and business insurance services in Iowa.

We operate as an independent community bank that offers a broad range of customer-focused financial services as an alternative to large regional banks in our market areas. Management has invested in infrastructure and staffing to support our strategy of serving the financial needs of businesses, individuals and municipalities in our market areas. 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 ~~2015~~Annual Report on Form ~~10-K.~~10-K for the year ended December 31, 2016. Results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 are not necessarily indicative of results to be attained for any other period.

Critical Accounting Policies

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, application of purchase accounting, goodwill and 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, ~~2015.~~2016.

RESULTS OF OPERATIONS

Comparison of Operating Results for the Three Months Ended ~~September~~June 30, ~~2016~~2017 and ~~September~~June 30, ~~2015~~2016

Summary

For the quarter ended ~~September~~June 30, ~~2016,~~2017, we earned net income of $~~6.2~~7.2 million, which was ~~a decrease~~an increase of ~~$1.4~~$2.5 million from ~~$7.6~~$4.8 million for the quarter ended ~~September~~June 30, ~~2015. Basic~~2016. The increase in net income was due primarily to decreased noninterest expense during the three months ended June 30, 2017 compared to the three months ended June 30, 2016. Both basic and diluted earnings per common share for the ~~third~~second quarter of ~~2016~~2017 were $~~0.54for both,~~0.59, versus ~~$0.67~~$0.42 for both for the ~~third~~second quarter of ~~2015. After excluding the effects of $0.2 million ($0.1 million after tax) of expenses related to the merger of MidWestOne~~ ~~Bank with Central Bank, adjusted diluted earnings per share~~2016. Our annualized return on average assets for the ~~third~~second quarter of 2016 were $0.55, versus $0.68 diluted earnings per share after excluding $0.2 million ($0.2 million after tax) of expenses related to the merger with Central in the third quarter of 2015. Our annualized Return on Average Assets (“ROAA”) for the third quarter of 20162017 was ~~0.83%~~0.95% compared with ~~a ROAA of~~ ~~1.03%~~ 0.64%for the same period in ~~2015.~~2016. Our annualized ~~Return~~return on ~~Average Shareholders’ Equity (“ROAE”)~~average shareholders’ equity was ~~8.06%~~8.58% for the three months ended ~~September~~June 30, ~~2016~~2017 compared with ~~10.55%~~6.31% for the three months ended ~~September~~June 30, ~~2015.~~2016. The annualized ~~Return~~return on ~~Average Tangible Equity (“ROATE”)~~average tangible equity was ~~12.07%~~11.86% for the ~~third~~second quarter of ~~2016~~2017 compared with ~~15.76%~~9.67% for the same period in ~~2015.~~2016.

The following table presents selected financial results and measures as of and for the quarters ended ~~September~~June 30, ~~2016~~2017 and ~~2015.~~2016.


	As of and for the Three Months Ended September 30,						As of and for the Three Months Ended June 30,
(dollars in thousands)	2016			2015			2017			2016
Net Income	$	6,222		$	7,615		$	7,234		$	4,755
Average Assets	2,995,521			2,926,612			3,056,740			2,984,900
Average Shareholders’ Equity	307,005			286,256			338,362			303,319
Return on Average Assets* (ROAA)	0.83		%	1.03		%
Return on Average Shareholders’ Equity* (ROAE)	8.06			10.55
Return on Average Tangible Equity* (ROATE)	12.07			15.76
Return on Average Assets*							0.95		%	0.64		%
Return on Average Shareholders’ Equity*							8.58			6.31
Return on Average Tangible Equity*							11.86			9.67
Total Equity to Assets (end of period)	10.31			9.75			11.09			10.17
Tangible Equity to Tangible Assets (end of period)	7.94			7.33			8.86			7.77
Tangible Book Value per Share							$	21.86		$	19.88
* Annualized

We have traditionally disclosed certain non-GAAP ratios, including our ~~ROATE~~return on average tangible equity and the ratio of our tangible equity to tangible ~~assets.~~assets, as well as diluted earnings per common share exclusive of merger-related expenses, adjusted noninterest income as a percentage of total revenue, and tangible book value per share. 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 June 30,
(dollars in thousands, except per share amounts)	2016			2015			2017			2016
Net Income:
Net income	$	6,222		$	7,615		$	7,234		$	4,755
Plus: Intangible amortization, net of tax ⁽¹⁾	631			520			523			660
Adjusted net income	$	6,853		$	8,135		$	7,757		$	5,415
Average Tangible Equity:
Average total shareholders’ equity	$	307,005		$	286,256		$	338,362		$	303,319
Less: Average intangibles, net of amortization	(81,212		)	(81,486		)	(78,554		)	(82,268		)
Plus: Average deferred tax liability associated with intangibles							2,581			4,098
Average tangible equity	$	225,793		$	204,770		$	262,389		$	225,149
ROATE (annualized)	12.07		%	15.76		%
Return on Average Tangible Equity (annualized)							11.86		%	9.67		%
Net Income:
Net income	$	6,222		$	7,615		$	7,234		$	4,755
Plus: Merger-related expenses	182			225			—			1,799
Net tax effect of merger-related expenses⁽²⁾	(51		)	(57		)	—			(670		)
Net income exclusive of merger-related expenses	$	6,353		$	7,783		$	7,234		$	5,884
Diluted average number of shares	11,461,108			11,434,186			12,219,238			11,453,831
Earnings Per Common Share-Diluted	$	0.54		$	0.67		$	0.59		$	0.42
Earnings Per Common Share-Diluted, exclusive of merger-related expenses	$	0.55		$	0.68		$	0.59		$	0.51
(1) Computed on a tax-equivalent basis, assuming a federal income tax rate of 35%.
(2) Computed based on qualifying tax deductible expenses, assuming a federal income tax rate of 35%.
Adjusted Noninterest Income:
Noninterest income	$	5,714		$	5,460		$	5,383		$	5,595
Less: Impairment losses on investment securities, net	—			—
Gain (loss) on sale of available for sale securities	—			—
Gain (loss) on sale of premises and equipment	(37		)	(5		)
Other gain (loss)	306			29
Less: Gain on sale of available for sale securities							(20		)	(223		)
(Gain) loss on sale of premises and equipment							(8		)	40
Other gain							(37		)	(124		)
Adjusted noninterest income	$	5,445		$	5,436		$	5,318		$	5,288
Total Revenue:
Net interest income	$	24,581		$	26,759		$	26,191		$	24,940
Plus: Noninterest income	5,714			5,460			5,383			5,595
Less: Impairment losses on investment securities, net	—			—
Gain (loss) on sale of available for sale securities	—			—
Gain (loss) on sale of premises and equipment	(37		)	(5		)
Other gain (loss)	306			29
Less: Gain on sale of available for sale securities							(20		)	(223		)
(Gain) loss on sale of premises and equipment							(8		)	40
Other gain							(37		)	(124		)
Total Revenue	$	30,026		$	32,195		$	31,509		$	30,228
Adjusted Noninterest Income as a Percentage of Total Revenue	18.1		%	16.9		%	16.9		%	17.5		%


	As of September 30,						As of June 30,
(dollars in thousands)	2016			2015			2017			2016
Tangible Equity:
Total shareholders’ equity	$	309,584		$	290,666		$	342,872		$	305,195
Less: Intangible assets, net of amortization and associated deferred tax liability	(77,327		)	(77,761		)
Plus: Deferred tax liability associated with intangibles							2,432			3,860
Less: Intangible assets, net							(78,172		)	(81,719		)
Tangible equity	$	232,257		$	212,905		$	267,132		$	227,336
Tangible Assets:
Total assets	$	3,001,974		$	2,981,840		$	3,091,045		$	3,002,194
Less: Intangible assets, net of amortization and associated deferred tax liability	(77,327		)	(77,761		)
Plus: Deferred tax liability associated with intangibles							2,432			3,860
Less: Intangible assets, net							(78,172		)	(81,719		)
Tangible assets	$	2,924,647		$	2,904,079		$	3,015,305		$	2,924,335
Common shares outstanding							12,218,528			11,435,860
Tangible Book Value Per Share							$	21.86		$	19.88
Tangible Equity/Tangible Assets	7.94		%	7.33		%	8.86		%	7.77		%

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 35%. 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.

Net interest income of ~~$24.6~~$26.2 million for the ~~third~~second quarter of 2017 increased $1.3 million, or 5.0%, from $24.9 million for the second quarter of 2016, ~~decreased $2.2 million, or 8.1%, from $26.8 million for the~~ ~~third~~ ~~quarter of 2015,~~ primarily due to ~~a decrease~~an increase of ~~$2.1~~$1.8 million, or ~~7.0%~~6.5%, in interest income. ~~A decrease~~An increase in the merger-related discount accretion of $0.6 million, to ~~$0.6~~$1.3 million for the ~~third~~second quarter of 2017 compared to $0.7 million for the second quarter of 2016, ~~compared to $1.7 million for the~~ ~~third~~ ~~quarter of 2015, and generally lower rates being received on new loans,~~ partially offset by ~~an increase~~a decrease in average loan balances, resulted in loan interest income ~~declining $2.4~~increasing $1.0 million, or ~~8.8%~~4.1%, to ~~$24.3~~$25.7 million for the ~~third~~second quarter of ~~2016~~2017 compared to the ~~third~~second quarter of ~~2015.~~2016. Income from investment securities was ~~$3.5~~$4.2 million for the ~~third~~second quarter of ~~2016,~~2017, up from $3.3 million for the ~~third~~second quarter of ~~2015,~~2016, which resulted from an increase of ~~$19.3~~$134.5 million in the average balance, ~~along with an increase~~partially offset by a decrease of 610 basis points in the yield of investment securities between the two comparable periods.

Interest expense increased ~~$0.1~~$0.6 million, or ~~2.5%~~18.2%, to ~~$3.3~~$3.7 million for the ~~third~~second quarter of ~~2016,~~2017, compared to ~~$3.2~~$3.1 million for the same period in ~~2015,~~2016 primarily due to an increase in ~~both the average balance and rate of FHLB borrowings. This increase was partially offset by decreases in the cost of interest on most other categories of interest-bearing liabilities. The decline in~~ the cost of interest-bearing deposits ~~was despite a decrease~~of 9 basis points on increased average balances of $91.8 million between the second quarter of 2017 and the same period in ~~the~~2016. The merger-related amortization of the purchase accounting premium on certificates of deposit, which acts to reduce interest expense, declined from ~~$0.4~~$0.3 million for the ~~third~~second quarter of ~~2015,~~2016, to ~~$0.2 million~~zero for the same period of ~~2016. Amortization~~2017. Additionally, the average balance of Federal Home Loan Bank (“FHLB”) borrowings decreased, partially offset by an increase in the ~~purchase accounting premium on certificates~~average rate paid, resulting in $0.1 million of ~~deposit acts to decrease deposit interest expense.~~reduced expense between the comparable periods.

Our net interest margin for the second quarter of 2017, calculated on a fully tax-equivalent basis, ~~for the third quarter of 2016 declined to 3.72% compared with~~was 3.91%, or 8 basis points higher than the net interest margin of ~~4.14%~~3.83% for the ~~third~~second quarter of 2015. Net interest margin is a measure of the net return on earning assets and is computed by dividing annualized net interest income on a tax-equivalent basis by the average of total earning assets for the period. Our overall yield on earning assets decreased to 4.20% for the third quarter of 2016 from 4.62% for the third quarter of 2015. This decline was due primarily to a lower2016. A higher yield received on loans, ~~and the effect of lower merger-related~~combined with higher discount accretion resulted in a 19 basis point increase in overall loan yield. This increase was partially offset by a 10 basis point decrease in the ~~third~~yield on investment securities, resulting in higher yield on interest-earning assets for the second quarter of ~~2016 compare~~2017 compared to the ~~third~~second quarter of ~~2015.~~2016. The cost of deposits increased 9 basis points, due primarily to the absence of purchase premium amortization in 2017, while the average cost of ~~interest-bearing liabilities was the same in the third quarter of 2016, at 0.61%, as for the third quarter of 2015.~~borrowings edged higher by 6 basis points.

The following table shows consolidated average balance sheets, detailing the major categories of assets and liabilities, the interest income earned on earning assets, the interest expense paid for interest-bearing liabilities, and the related yields and interest rates for the quarters ended ~~September~~June 30, ~~2016~~2017 and ~~2015.~~2016. Dividing annualized income or expense by the average balances of assets or liabilities results in average yields or rates. Average information is provided on a daily average basis.


	Three Months Ended September 30,														Three Months Ended June 30,
	2016							2015							2017							2016
	Average Balance			Interest Income/ Expense		Average Rate/ Yield		Average Balance			Interest Income/ Expense		Average Rate/ Yield		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)	$	2,150,195		$	24,775	4.58	%	$	2,124,037		$	27,090	5.06	%	$	2,165,776		$	26,052	4.82	%	$	2,176,693		$	25,058	4.63	%
Investment securities:
Taxable investments	360,550			2,088		2.30		355,432			1,914		2.14		421,255			2,590		2.47		318,253			1,912		2.42
Tax exempt investments ⁽²⁾	191,253			2,133		4.44		177,059			2,087		4.68		219,818			2,428		4.43		188,370			2,170		4.63
Total investment securities	551,803			4,221		3.04		532,491			4,001		2.98		641,073			5,018		3.14		506,623			4,082		3.24
Federal funds sold and interest-bearing balances	52,121			66		0.50		15,994			13		0.32		10,388			27		1.04		52,517			71		0.54
Total interest-earning assets	$	2,754,119		$	29,062	4.20	%	$	2,672,522		$	31,104	4.62	%	$	2,817,237		$	31,097	4.43	%	$	2,735,833		$	29,211	4.29	%

Cash and due from banks	35,287							43,145							34,992							38,596
Premises and equipment	75,882							73,364							74,944							76,558
Allowance for loan losses	(21,609		)					(17,519		)					(22,567		)					(20,741		)
Other assets	151,842							155,100							152,134							154,654
Total assets	$	2,995,521						$	2,926,612						$	3,056,740						$	2,984,900

Average Interest-Bearing Liabilities:
Savings and interest-bearing demand deposits	$	1,292,623		$	860	0.26	%	$	1,210,924		$	754	0.25	%	$	1,337,921		$	963	0.29	%	$	1,280,530		$	836	0.26	%
Certificates of deposit	653,462			1,614		0.98		678,470			1,731		1.01		686,238			1,881		1.01		651,824			1,438		0.89
Total deposits	1,946,085			2,474		0.51		1,889,394			2,485		0.52		2,024,159			2,844		0.56		1,932,354			2,274		0.47
Federal funds purchased and repurchase agreements	67,591			41		0.24		70,140			70		0.40		70,878			59		0.33		58,475			32		0.22
Federal Home Loan Bank borrowings	106,239			469		1.76		81,869			334		1.62		91,044			404		1.78		107,385			467		1.75
Long-term debt and other	45,127			326		2.87		50,307			341		2.69		41,318			356		3.46		46,488			325		2.81
Total borrowed funds	218,957			836		1.52		202,316			745		1.46		203,240			819		1.62		212,348			824		1.56
Total interest-bearing liabilities	$	2,165,042		$	3,310	0.61	%	$	2,091,710		$	3,230	0.61	%	$	2,227,399		$	3,663	0.66	%	$	2,144,702		$	3,098	0.58	%

Net interest spread⁽²⁾						3.59	%						4.01	%						3.77	%						3.71	%

Demand deposits	502,611							535,379							470,774							519,059
Other liabilities	20,863							16,267							20,205							17,820
Shareholders’ equity	307,005							286,256							338,362							303,319
Total liabilities and shareholders’ equity	$	2,995,521						$	2,929,612						$	3,056,740						$	2,984,900

Interest income/earning assets ⁽²⁾	$	2,754,119		$	29,062	4.20	%	$	2,672,522		$	31,104	4.62	%	$	2,817,237		$	31,097	4.43	%	$	2,735,833		$	29,211	4.29	%
Interest expense/earning assets	$	2,754,119		$	3,310	0.48	%	$	2,672,522		$	3,230	0.48	%	$	2,817,237		$	3,663	0.52	%	$	2,735,833		$	3,098	0.46	%
Net interest margin ⁽²⁾⁽⁴⁾				$	25,752	3.72	%				$	27,874	4.14	%				$	27,434	3.91	%				$	26,113	3.83	%

Non-GAAP to GAAP Reconciliation:
Tax Equivalent Adjustment:
Loans				$	432						$	393						$	402						$	423
Securities				739							722							841							750
Total tax equivalent adjustment				1,171							1,115							1,243							1,173
Net Interest Income				$	24,581						$	26,759						$	26,191						$	24,940



	(1)	Loan fees included in interest income are not material.
	(2)	Computed on a tax-equivalent basis, assuming a federal income tax rate of 35%.
	(3)	Non-accrual loans have been included in average loans, net of unearned discount.
	(4)	Net interest margin is tax-equivalent net interest income as a percentage of average earning assets.

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~~June 30, ~~2016,~~2017, compared to the same period in ~~2015,~~2016, reported on a fully tax-equivalent basis assuming a 35% tax rate. The table distinguishes between the changes related to average outstanding balances (changes in volume holding the initial interest rate constant) and the changes related to average interest rates (changes in average rate holding the initial outstanding balance constant). The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.


	Three Months Ended September 30,									Three Months Ended June 30,
	2016 Compared to 2015 Change due to									2017 Compared to 2016 Change due to
	Volume			Rate/Yield			Net			Volume			Rate/Yield			Net
(in thousands)
Increase (decrease) in interest income:
Loans, tax equivalent	$	2,077		$	(4,392	)	$	(2,315	)	$	(793	)	$	1,787		$	994
Investment securities:
Taxable investments	28			146			174			637			41			678
Tax exempt investments	546			(500		)	46			804			(546		)	258
Total investment securities	574			(354		)	220			1,441			(505		)	936
Federal funds sold and interest-bearing balances	42			11			53			(264		)	220			(44		)
Change in interest income	2,693			(4,735		)	(2,042		)	384			1,502			1,886
Increase (decrease) in interest expense:
Savings and interest-bearing demand deposits	67			39			106			36			91			127
Certificates of deposit	(65		)	(52		)	(117		)	81			362			443
Total deposits	2			(13		)	(11		)	117			453			570
Federal funds purchased and repurchase agreements	(2		)	(27		)	(29		)	8			19			27
Federal Home Loan Bank borrowings	105			30			135			(115		)	52			(63		)
Other long-term debt	(119		)	104			(15		)	(186		)	217			31
Total borrowed funds	(16		)	107			91			(293		)	288			(5		)
Change in interest expense	(14		)	94			80			(176		)	741			565
Increase in net interest income	$	2,707		$	(4,829	)	$	(2,122	)	$	560		$	761		$	1,321
Percentage decrease in net interest income over prior period							(7.6		)%							5.1		%

Interest income and fees on loans on a tax-equivalent basis in the ~~third~~second quarter of ~~2016 decreased $2.3~~2017 increased $1.0 million, or ~~8.5%~~4.0%, compared with the same period in ~~2015.~~2016. This ~~decrease~~increase includes the effect of the merger-related discount accretion of ~~$0.6~~$1.3 million on loans for the ~~third~~second quarter of ~~2016~~2017 compared to ~~$1.7~~$0.7 million of merger-related discount accretion for the ~~third~~second quarter of ~~2015.~~2016. Average loans were ~~$26.2~~$10.9 million, or ~~1.2%~~0.5%, ~~higher~~lower in the ~~third~~second quarter of 2017 compared with the second quarter of 2016, ~~compared with~~primarily resulting from loan payments and payoffs exceeding new loan demand early in the third quarter of 2015, due primarily to the origination of new loans (primarily commercial real estate and agricultural), and despite the loss of approximately $33.0 million of loans due to the sale of the Company’s Davenport, Iowa branch in early August 2016.second quarter. In addition to purchase accounting adjustments, 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 ~~decrease~~increase in interest income on loans was primarily the result of a ~~decrease~~increase in the average yield on loans from ~~5.06%~~4.63% in the ~~third~~second quarter of ~~2015~~2016 to ~~4.58%~~4.82% in the ~~third~~second quarter of ~~2016,~~2017, which was primarily attributable to purchase accounting adjustments and the general increase in interest rates, partially offset by the ~~higher~~lower average balances in the loan portfolio.

Interest income on investment securities on a tax-equivalent basis totaled ~~$4.2~~$5.0 million in the ~~third~~second quarter of ~~2016~~2017 compared with ~~$4.0~~$4.1 million for the same period of ~~2015,~~2016, including $0.1 million of purchase accounting premium amortization expense in both the 2015 and 2016 periods. The tax-equivalent yield on our investment portfolio in the ~~third~~second quarter of ~~2016 increased~~2017 decreased to ~~3.04%~~3.14% from ~~2.98%~~3.24% in the comparable period of ~~2015.~~2016. The average balance of investments in the ~~third~~second quarter of 2017 was $641.1 million compared with $506.6 million in the second quarter of 2016, ~~was $551.8 million compared with $532.5 million in the third quarter of 2015,~~ an increase of ~~$19.3~~$134.5 million, or ~~3.6%~~26.5%. The increase in average balance resulted primarily from ~~deploying~~redeployment of excess cash ~~available~~held in the second quarter of 2016 and the investment of the proceeds from the sale of newly issued common stock at the end of the ~~prior~~first quarter ~~into new investments.~~and beginning of the second quarter of 2017.

Interest expense on deposits ~~was generally unchanged~~increased $0.6 million, or 25.1%, to $2.8 million in the ~~third~~second quarter of ~~2016~~2017 compared with$2.3 million in the same period of 2016. The increased interest expense on deposits was primarily due to an increase of 9 basis points in the weighted average rate paid on interest-bearing deposits to 0.56% in the second quarter of 2017, compared with 0.47% in the second quarter of 2016. This includes the effect of no merger-related premium amortization on certificates of deposit for

the second quarter of 2017 compared with $0.3 million for the same period in ~~2015 at $2.5 million for both periods. While the Company experienced an~~2016. The premium amortization acted to decrease deposit interest expense. An increase in average balances of interest-bearing deposits for the ~~third~~second quarter of ~~2016~~2017 of ~~$56.7~~$91.8 million compared with the same period in ~~2015, this increase was offset by the weighted average~~2016, also contributed to increased expense. We expect to see some upward movement in deposit rates in future periods, as overall interest rate ~~paid on interest-bearing deposits declining~~increases begin to ~~0.51%~~take hold in ~~the third quarter of 2016, compared with 0.52% in the third quarter of 2015. This decrease includes the effect of the merger-related premium amortization of $0.2 million on certificates of deposit~~

~~for the third quarter of 2016 compared with $0.4 million for the same period in 2015. The premium amortization acts to decrease deposit interest expense.~~our market footprint.

Interest expense on borrowed funds of $0.8 million in the ~~third~~second quarter of ~~2016~~2017 was ~~an increase of $0.1 million, or 12.2%, compared with $0.7 million for~~unchanged from the same period in ~~2015.~~2016. Average borrowed funds for the ~~third~~second quarter of ~~2016~~2017 were ~~$16.6~~$9.1 million ~~higher~~lower compared with the same period in ~~2015. This increase was~~2016. A lower level of borrowed funds, primarily due to the ~~$24.4~~$16.3 million ~~increase~~decrease in the average level of FHLB ~~borrowing. The~~borrowing for the second quarter of 2017 compared to the same period in 2016 , was offset by an increase in the weighted average rate on borrowed funds ~~increased~~ to ~~1.52%~~1.62% for the ~~third~~second quarter of ~~2016~~2017 compared with ~~1.46%~~1.56% for the ~~third~~second quarter of ~~2015,~~2016, primarily reflecting the increased cost of ~~FHLB borrowings.~~all borrowing instruments.

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 the loan portfolio. 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, and historical loan loss experience. 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 ~~$1.0~~$1.2 million in the ~~third~~second quarter of ~~2016, a decrease~~2017, an increase of ~~$1.1~~$0.1 million, from ~~$2.1~~$1.1 million in the ~~third~~second quarter of 2015. The higher provision expense in 2015 was primarily due to the greater volume of acquired loans coming out of purchase accounting and moving into the Company’s standard allowance for loan loss methodology.2016. Net loans charged off in the ~~third~~second quarter of ~~2016~~2017 totaled ~~$0.8~~$0.9 million, compared to ~~$0.4~~$0.2 million net loans charged off in the ~~third~~second quarter of ~~2015.~~2016. 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 believed that the allowance for loan losses was adequate based on the inherent risk in the portfolio as of ~~September~~June 30, ~~2016;~~2017; 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.

Noninterest Income


	Three Months Ended September 30,											Three Months Ended June 30,
	2016			2015			$ Change			% Change		2017			2016			$ Change			% Change
(dollars in thousands)
Trust, investment, and insurance fees	$	1,306		$	1,428		$	(122	)	(8.5	)%	$	1,528		$	1,440		$	88		6.1	%
Service charges and fees on deposit accounts	1,346			1,297			49			3.8		1,257			1,283			(26		)	(2.0	)
Loan origination and servicing fees	1,162			1,025			137			13.4		718			855			(137		)	(16.0	)
Other service charges and fees	1,307			1,342			(35		)	(2.6	)	1,497			1,378			119			8.6
Bank-owned life insurance income	324			344			(20		)	(5.8	)	318			332			(14		)	(4.2	)
Loss on sale of premises and equipment	(37		)	(5		)	(32		)	NM
Other gain (loss)	306			29			277			NM
Gain on sale or call of available for sale securities												20			223			(203		)	(91.0	)
Gain (loss) on sale of premises and equipment												8			(40		)	48			(120.0	)
Other gain												37			124			(87		)	(70.2	)
Total noninterest income	$	5,714		$	5,460		$	254		4.7	%	$	5,383		$	5,595		$	(212	)	(3.8	)%
Noninterest income as a % of total revenue*	18.1		%	16.9		%						16.9		%	17.5		%
NM - Percentage change not considered meaningful.
* See the non-GAAP reconciliation at the beginning of this section for the reconciliation of this non-GAAP measure to its most directly comparable GAAP financial measures.

Total noninterest income for the the ~~third~~second quarter of ~~2016 increased to $5.7 million, up~~2017 decreased $0.2 million, or ~~4.7%~~3.8%, to $5.4 million from ~~$5.5~~$5.6 million in the ~~third~~second quarter of ~~2015.~~2016. The greatest ~~increase~~decrease was in ~~other~~ gain ~~(loss),~~on sale of available for sale securities, which ~~increased $0.3~~decreased $0.2 million to a ~~$0.3~~small gain for the second quarter of 2017, compared to a $0.2 million gain for the ~~third~~second quarter of 2016. Loan origination and servicing fees decreased $0.1 million, or 16.0%, from $0.8 million for the second quarter of 2016 to $0.7 million for the second quarter of 2017. This decrease was due to a decreased level of loans originated and sold on the secondary market in the second quarter of 2017 compared to ~~a negligible gain for~~ the ~~third~~second quarter of ~~2015.~~2016, a result of the general decrease in mortgage activity in our markets. Other gain decreased $0.1 million, or 70.2%, between the second quarter of 2017 and the second quarter of 2016 comparable periods, due primarily to lower gains on the sale of other real estate owned. Other gain (loss) represents gains and losses on the

sale of branch banking offices, other real estate owned, ~~repossessed assets,~~ and ~~branch banking offices. The third quarter of 2016 reflects a net gain on~~ other real estate owned of $0.1 million, a write down of other real estate owned of $0.5 million, and a net gain on the sale of the Bank’s Davenport, Iowa branch of $0.7 million, while the third quarter of 2015 included a small net gain on other real estate owned.assets. These ~~items~~decreases were ~~previously classified as~~partially offset by increases in other service charges and fees, ~~and have now been broken out~~which increased $0.1 million, or 8.6%, from $1.4 million in the second quarter of 2016 to ~~provide additional transparency. Loan origination and servicing fees increased from $1.0~~$1.5 million for the ~~third~~second quarter of ~~2015 to $1.2~~2017, and a $0.1 million, ~~for the third quarter~~

~~of 2016. These increases were partially offset by a decrease~~or 6.1%, increase in trust, investment and insurance ~~fees of $0.1 million, or 8.5%, from $1.4 million for the third quarter of 2015 to $1.3 million for the third quarter of 2016.~~fees.

Management’s strategic goal is for noninterest income to constitute 25% of total revenues (net interest income plus noninterest income excluding gain/loss on securities and premises and equipment and impairment of investment securities) over time. For the three months ended ~~September~~June 30, ~~2016,~~2017, noninterest income comprised ~~18.1%~~16.9% of total revenues, compared with ~~16.9%~~17.5% for the same period in ~~2015. With the recent merger of Central Bank into MidWestOne~~ ~~Bank, management~~2016. Management expects to see gradual improvement in this ratio in future ~~periods.~~periods due to the implementation of new management strategies in the origination of residential real estate loans.

Noninterest Expense


	Three Months Ended September 30,									Three Months Ended June 30,
	2016		2015		$ Change			% Change		2017		2016		$ Change			% Change
(dollars in thousands)
Salaries and employee benefits	$	11,641	$	12,191	$	(550	)	(4.5	)%	$	11,789	$	13,321	$	(1,532	)	(11.5	)%
Net occupancy and equipment expense	3,293		2,719		574			21.1		3,033		3,326		(293		)	(8.8	)
Professional fees	1,014		959		55			5.7		1,036		1,221		(185		)	(15.2	)
Data processing expense	599		928		(329		)	(35.5	)	548		809		(261		)	(32.3	)
FDIC insurance expense	412		431		(19		)	(4.4	)	352		398		(46		)	(11.6	)
Amortization of intangible assets	970		800		170			21.3		804		1,015		(211		)	(20.8	)
Other operating expense	2,510		2,314		196			8.5		2,402		2,725		(323		)	(11.9	)
Total noninterest expense	$	20,439	$	20,342	$	97		0.5	%	$	19,964	$	22,815	$	(2,851	)	(12.5	)%

Noninterest expense for the ~~third~~second quarter of ~~2016~~2017 was ~~$20.4~~$20.0 million, ~~up $0.1~~a decrease of $2.9 million, or ~~0.5%~~12.5%, from the ~~third~~second quarter of ~~2015. Net occupancy and equipment~~2016, with all expense ~~increased $0.6 million, or 21.1%,~~line items showing a decrease from ~~$2.7~~the comparative period. The total decrease was primarily due to the absence of merger related expenses for the quarter ended June 30, 2017, compared to $1.8 million for the ~~third~~ quarter ended June 30, 2016 relating to the merger of ~~2015 to $3.3~~Central Bank into MidWestOne Bank. Salaries and employee benefits decreased $1.5 million, or 11.5%, from $13.3 million for the ~~third~~second quarter of 2016 to $11.8 million for the second quarter of 2017 primarily due to the ~~additional depreciation expense associated with the completion~~decrease in merger-related severance expenses of ~~the Company’s new operations center and remodeling of its corporate headquarters.~~$1.3 million. Other operating expense for the ~~third~~second quarter of ~~2016 increased $0.2~~2017 decreased $0.3 million, or ~~8.5%~~11.9%, compared with the third quarter of 2015, and amortization of intangible assets expense increased from $0.8 million for the third quarter of 2015 to $1.0 million for the third quarter of 2016. These increases were partially offset by a decrease in salaries and employee benefits of $0.6 million, or 4.5%, and a decrease in data processing fees of $0.3 million, or 35.5%, both due to merger-related cost savings. Merger-related expenses in the thirdsecond quarter of 2016, ~~were $0.2 million ($0.1 million after tax) relating~~primarily due to ~~the merger of MidWestOne~~ Bank and Central Bank, compared to $0.2 million ($0.2 million after tax) in the third quarter of 2015 relating to the holding company merger. The majority of the third quarter 2016 merger expenses were comprised of data processing expenses from bills received in the third quarter of 2016 relating to the bank merger, which were $0.1 million for the third quarter of 2016 compared to no merger-related data processing expenses in the third quarter of 2015. Merger-related professional fees expense decreased $0.1 million, or 90.7%, for the third quarter of 2016, compared with the third quarter of 2015.lower advertising expenses.

Income Tax Expense

Our effective income tax rate, or income taxes divided by income before taxes, was ~~29.7%~~30.2% for the ~~third~~second quarter of ~~2016,~~2017, which was higher than the effective tax rate of ~~21.8%~~27.4% for the ~~third~~second quarter of ~~2015.~~2016. Income tax expense was ~~$2.6~~$3.1 million in the ~~third~~second quarter of ~~2016~~2017 compared to ~~$2.1~~$1.8 million for the same period of ~~2015.~~2016. The primary reason for the increase in income tax expense was the ~~partial recognition of rehabilitation and historic tax credits on the Company’s headquarters building~~increase in the ~~amount~~level of ~~$1.3 million in~~taxable income between the ~~third quarter of 2015.~~two periods.

Comparison of Operating Results for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016~~2017 and ~~September~~June 30, ~~2015~~2016

Summary

For the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, we earned net income of $~~16.5~~13.9 million, compared with $~~16.9~~10.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2015, a decrease~~2016, an increase of ~~2.1%~~35.4%. The ~~decrease~~increase in net income was due primarily to ~~increased~~decreased noninterest expense during the first ~~nine months 2016~~half of 2017 compared to the first ~~nine months~~half of ~~2015, which included only five months of post-merger operations.~~2016. Basic and diluted earnings per common share for the first ~~nine~~six months of ~~2016~~2017 were ~~$1.45~~$1.18 and ~~$1.44,~~$1.17, respectively, ~~versus $1.69 and $1.68, respectively,~~compared with $0.90 for both for the ~~first nine months~~second quarter of 2015. After excluding the effects of $4.2 million ($2.6 million after tax) of expenses related to the merger with Central Bank, adjusted diluted earnings per share for the nine months ended September 30, 2016 were $1.67, compared to $1.97, after excluding $3.4 million ($2.9 million after tax) of expenses related to the merger with Central, for the same period last year.2016. Our annualized ~~ROAA~~return on average assets for the first ~~nine~~six months of ~~2016~~2017 was ~~0.74%~~0.92% compared with ~~0.85%~~0.69% for the same period in ~~2015~~2016. Our annualized ~~ROAE~~return on average shareholders’ equity was ~~7.28%~~8.70% for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 versus ~~9.29%~~6.88% for the ~~nine~~six months ended ~~September~~June 30, ~~2015.~~2016. The annualized ~~ROATE~~return on average tangible equity was ~~11.19%~~12.25% for the first ~~nine~~six months of ~~2016~~2017 compared with ~~13.52%~~10.51% for the same period in ~~2015~~2016.

The following table presents selected financial results and measures as of and for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015.~~2016.


	As of and for the Nine Months Ended September 30,						As of and for the Six Months Ended June 30,
(dollars in thousands)	2016			2015
(dollars in thousands, except per share amounts)							2017			2016
Net Income	$	16,521		$	16,880		$	13,947		$	10,299
Average Assets	2,984,220			2,640,774			3,058,069			2,978,700
Average Shareholders’ Equity	303,146			242,872			323,423			301,195
Return on Average Assets* (ROAA)	0.74		%	0.85		%
Return on Average Shareholders’ Equity* (ROAE)	7.28			9.29
Return on Average Tangible Equity* (ROATE)	11.19			13.52
Return on Average Assets*							0.92		%	0.69		%
Return on Average Shareholders’ Equity*							8.70			6.88
Return on Average Tangible Equity*							12.25			10.51
Total Equity to Assets (end of period)	10.31			9.75			11.09			10.17
Tangible Equity to Tangible Assets (end of period)	7.94			7.33			8.86			7.77
Tangible Book Value per Share							$	21.86		$	19.88
* Annualized

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


	For the Nine Months Ended September 30,						For the Six Months Ended June 30,
(dollars in thousands, except per share amounts)	2016			2015			2017			2016
Net Income:
Net income	$	16,521		$	16,880		$	13,947		$	10,299
Plus: Intangible amortization, net of tax ⁽¹⁾	1,980			1,388			1,074			1,349
Adjusted net income	$	18,501		$	18,268		$	15,021		$	11,648
Average Tangible Equity:
Average total shareholders’ equity	$	303,146		$	242,872		$	323,423		$	301,195
Less: Average intangibles, net of amortization	(82,237		)	(62,204		)	(78,958		)	(82,773		)
Plus: Average deferred tax liability associated with intangibles							2,740			4,365
Average tangible equity	$	220,909		$	180,668		$	247,205		$	222,787
ROATE (annualized)	11.19		%	13.52		%
Return on Average Tangible Equity (annualized)							12.25		%	10.51		%
Net Income:
Net income	$	16,521		$	16,880		$	13,947		$	10,299
Plus: Merger-related expenses	4,162			3,402			—			3,980
Net tax effect of merger-related expenses⁽²⁾	(1,544		)	(514		)	—			(1,493		)
Net income exclusive of merger-related expenses	$	19,139		$	19,768		$	13,947		$	12,786
Diluted average number of shares	11,451,958			10,038,093			11,878,315			11,448,677
Earnings Per Common Share-Diluted	$	1.44		$	1.68		$	1.17		$	0.90
Earnings Per Common Share-Diluted, exclusive of merger-related expenses	$	1.67		$	1.97		$	1.17		$	1.12
(1) Computed on a tax-equivalent basis, assuming a federal income tax rate of 35%.
(2) Computed based on qualifying tax deductible expenses, assuming a federal income tax rate of 35%.	(2) Computed based on qualifying tax deductible expenses, assuming a federal income tax rate of 35%.						(2) Computed based on qualifying tax deductible expenses, assuming a federal income tax rate of 35%.

For the Nine Months Ended September 30,
(dollars in thousands) 2016 2015
Adjusted Noninterest Income:
Noninterest income $ 17,714
$ 14,555
Less: Impairment losses on investment securities, net —
—
Gain (loss) on sale of available for sale securities 467
1,011
Gain (loss) on sale of premises and equipment (53 ) (15 )
Other gain (loss) 1,378
(396 )
Adjusted noninterest income $ 15,922
$ 13,955
Total Revenue:
Net interest income $ 75,076
$ 63,724
Plus: Noninterest income 17,714
14,555
Less: Impairment losses on investment securities, net —
—
Gain (loss) on sale of available for sale securities 467
1,011
Gain (loss) on sale of premises and equipment (53 ) (15 )
Other gain (loss) 1,378
(396 )
Total Revenue $ 90,998
$ 77,679
Adjusted Noninterest Income as a Percentage of Total Revenue 17.5 % 18.0 %



Adjusted Noninterest Income:
Noninterest income	$	10,920		$	12,000
Less: Gain on sale of available for sale securities	(20		)	(467		)
Gain on sale of held to maturity securities	(43		)	—
(Gain) loss on sale of premises and equipment	(6		)	251
Other gain	(50		)	(1,307		)
Adjusted noninterest income	$	10,801		$	10,477
Total Revenue:
Net interest income	$	51,272		$	50,495
Plus: Noninterest income	10,920			12,000
Less: Gain on sale of available for sale securities	(20		)	(467		)
Gain on sale of held to maturity securities	(43		)	—
(Gain) loss on sale of premises and equipment	(6		)	251
Other gain loss	(50		)	(1,307		)
Total Revenue	$	62,073		$	60,972
Adjusted Noninterest Income as a Percentage of Total Revenue	17.4		%	17.2		%


	As of September 30,						As of June 30,
(dollars in thousands)	2016			2015
(dollars in thousands, except per share amounts)							2017			2016
Tangible Equity:
Total shareholders’ equity	$	309,584		$	290,666		$	342,872		$	305,195
Less: Intangible assets, net of amortization and associated deferred tax liability	(77,327		)	(77,761		)
Plus: Deferred tax liability associated with intangibles							2,432			3,860
Less: Intangible assets, net							(78,172		)	(81,719		)
Tangible equity	$	232,257		$	212,905		$	267,132		$	227,336
Tangible Assets:
Total assets	$	3,001,974		$	2,981,840		$	3,091,045		$	3,002,194
Less: Intangible assets, net of amortization and associated deferred tax liability	(77,327		)	(77,761		)
Plus: Deferred tax liability associated with intangibles							2,432			3,860
Less: Intangible assets, net							(78,172		)	(81,719		)
Tangible assets	$	2,924,647		$	2,904,079		$	3,015,305		$	2,924,335
Common shares outstanding							12,218,528			11,435,860
Tangible Book Value Per Share							$	21.86		$	19.88
Tangible Equity/Tangible Assets	7.94		%	7.33		%	8.86		%	7.77		%

Net Interest Income

Our net interest income for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017, was ~~$75.1~~$51.3 million, up ~~$11.4~~$0.8 million, or ~~17.8%~~1.5%, from ~~$63.7~~$50.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2015,~~2016, primarily due to an increase of ~~$12.8~~$1.9 million, or ~~17.8%~~3.4%, in interest income. Loan interest income increased $13.1 million, or 21.5%, to $74.1 million for the first nine months of 2016 compared to the first nine months of 2015, primarily due to the merger-related increase in average loan balances of $305.0 million, or 16.4%, between the two periods, and despite the effect of a decrease in the merger-related discount accretion to $2.4 million for the nine months ended September 30, 2016, compared to $3.0 million for the nine months ended September 30, 2015. Interest income on investment securities ~~increased $0.3~~rose $1.8 million, or ~~3.1%~~26.4%, to ~~$10.2~~$8.5 million for the first ~~nine~~six months of ~~2016~~2017 compared to the first ~~nine~~six months of ~~2015~~2016 primarily due to an increase of ~~13 basis points on the portfolio’s yield, somewhat offset by a decrease of $7.4~~$127.3 million in the average balance between the comparative periods. ~~There was no~~Loan interest income ~~from loan pool participations in the first nine months of 2016 compared~~increased $0.2 million, or 0.4%, to ~~$0.8 million of income in the first nine months of 2015, as the Company sold its remaining loan pool participations in June 2015.~~

~~Total interest expense was $9.3~~$49.9 million for the ~~nine~~first six months ~~ended September 30, 2016, an increase~~ of ~~$1.4 million, or 17.7%,~~2017 compared to the first ~~nine~~six months of ~~2015.~~2016, primarily due to the 6 basis point increase in average loan yield between the two periods, which included the effect of an increase in the discount accretion related to the merger of the Company with Central, to $2.5 million for the six months ended June 30, 2017, compared to $1.9 million for the six months ended June 30, 2016. The increased loan yield was partially offset by an $8.7 million, or 0.4%, decrease in the average balance of loans between the comparative periods. These income increases were partially offset by an increase of $1.1 million, or 18.6%, in interest expense, to $7.1 million for the six months ended June 30, 2017, compared to $6.0 million for the first six months of 2016. Interest expense on deposits increased ~~$0.9~~$1.1 million, or ~~16.2%~~25.8%, to ~~$6.8~~$5.5 million for the ~~nine~~six months ended ~~September~~June 30, 2017 compared to $4.3 million for the six months ended June 30, 2016, ~~(including $0.8 million in merger-related amortization of~~primarily due to the ~~purchase accounting premium~~interest expense on ~~certificates of deposit), compared to $5.9 million (including $1.0 million in merger-related amortization)~~deposits for the ~~nine~~six months ended ~~September~~June 30, ~~2015.~~

Our net interest margin on a tax-equivalent basis for the first nine months of 2016 increased to 3.83% compared with the net interest margin of 3.69% for the first nine months of 2015. Net interest margin is a measure of the net return on earning assets and is computed by dividing annualized net interest income on a tax-equivalent basis by the average of total earning assets for the period. Our overall yield on earning assets was 4.29% for the first nine months of 2016, an increase of 16 basis points compared to the first nine months of 2015. This increase was despite the inclusion of $2.4 million of merger-related discount accretion income

for loans in the first nine months of 2016, compared to $3.0 million of discount for the first nine months of 2015. The average cost of interest-bearing liabilities increased in the first nine months of 2016 to 0.58% from 0.56% for the first nine months of 2015, due primarily to the higher cost of obtaining deposits during the period and increased rates on FHLB borrowings, despite the inclusion of $0.8 million of2017 including no merger-related amortization of the purchase accounting premium on certificates of deposit, and the interest expense on deposits for the six months ended June 30, 2016 including $0.7 million in merger-related amortization. Interest expense related to borrowings was essentially unchanged between the ~~first nine months~~two periods.

The Company posted a net interest margin of ~~2016, compared to $1.0 million of such amortization~~3.85% for the first ~~nine~~six months of ~~2015.~~2017, down 4 basis points from the net interest margin of 3.89% for the same period in 2016. The decrease was primarily due to a 27 basis point increase in the cost of certificates of deposit due primarily to the aforementioned decrease in deposit premium amortization, and was the primary factor in a 7 basis

point increase in the cost of interest-bearing liabilities. For the first six months of 2017 compared with the same period in 2016, a 6 basis point increase in loan yields and a higher volume of average investment securities, which generally have a lower yield compared to loans, resulted in a 3 basis point increase in the yield on earning assets.

The following table shows consolidated average balance sheets, detailing the major categories of assets and liabilities, the interest income earned on ~~earning~~interest-earning assets, the interest expense paid for interest-bearing liabilities, and the related yields and interest rates for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016. 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,														Six Months Ended June 30,
	2016							2015							2017							2016
	Average Balance			Interest Income/ Expense		Average Rate/ Yield		Average Balance			Interest Income/ Expense		Average Rate/ Yield		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)	$	2,164,740		$	75,379	4.65	%	$	1,859,735		$	62,037	4.46	%	$	2,163,428		$	50,734	4.73	%	$	2,172,092		$	50,601	4.67	%
Loan pool participations ⁽⁴⁾	—			—		—		13,413			798		7.95
Investment securities:
Taxable investments	341,621			5,924		2.32		359,475			5,721		2.13		430,765			5,308		2.48		332,052			3,836		2.32
Tax exempt investments ⁽²⁾	189,712			6,504		4.58		179,297			6,341		4.73		217,519			4,823		4.47		188,933			4,367		4.65
Total investment securities	531,333			12,428		3.12		538,772			12,062		2.99		648,284			10,131		3.15		520,985			8,203		3.17
Federal funds sold and interest-bearing balances	40,813			145		0.47		16,025			29		0.24		6,504			32		0.99		35,097			79		0.45
Total interest-earning assets	$	2,736,886		$	87,952	4.29	%	$	2,427,945		$	74,926	4.13	%	$	2,818,216		$	60,897	4.36	%	$	2,728,174		$	58,883	4.33	%

Cash and due from banks	37,120							36,714							35,031							38,047
Premises and equipment	76,247							62,528							74,960							76,431
Allowance for loan losses	(20,736		)					(18,461		)					(22,408		)					(20,295		)
Other assets	154,703							132,048							152,270							156,343
Total assets	$	2,984,220						$	2,640,774						$	3,058,069						$	2,978,700

Average Interest-Bearing Liabilities:
Savings and interest-bearing demand deposits	$	1,270,067		$	2,562	0.27	%	$	1,076,323		$	2,031	0.25	%	$	1,337,978		$	1,812	0.27	%	$	1,258,665		$	1,702	0.27	%
Certificates of deposit	650,176			4,260		0.88		632,419			3,841		0.81		677,811			3,657		1.09		648,515			2,646		0.82
Total deposits	1,920,243			6,822		0.47		1,708,742			5,872		0.46		2,015,789			5,469		0.55		1,907,180			4,348		0.46
Federal funds purchased and repurchase agreements	74,006			151		0.27		69,077			157		0.30		80,018			143		0.36		77,248			110		0.29
Federal Home Loan Bank borrowings	106,909			1,387		1.73		86,797			1,086		1.67		101,022			847		1.69		107,247			918		1.72
Long-term debt and other	46,452			978		2.81		37,658			817		2.90		41,938			690		3.32		47,122			652		2.78
Total borrowed funds	227,367			2,516		1.48		193,532			2,060		1.42		222,978			1,680		1.52		231,617			1,680		1.46
Total interest-bearing liabilities	$	2,147,610		$	9,338	0.58	%	$	1,902,274		$	7,932	0.56	%	$	2,238,767		$	7,149	0.64	%	$	2,138,797		$	6,028	0.57	%

Net interest spread⁽²⁾						3.71	%						3.57	%						3.72	%						3.76	%

Demand deposits	514,991							450,219							475,702							521,586
Other liabilities	18,473							45,409							20,177							17,122
Shareholders’ equity	303,146							242,872							323,423							301,195
Total liabilities and shareholders’ equity	$	2,984,220						$	2,640,774						$	3,058,069						$	2,978,700

Interest income/earning assets ⁽²⁾	$	2,736,886		$	87,952	4.29	%	$	2,427,945		$	74,926	4.13	%	$	2,818,216		$	60,897	4.36	%	$	2,728,174		$	58,883	4.33	%
Interest expense/earning assets	$	2,736,886		$	9,338	0.46	%	$	2,427,945		$	7,932	0.44	%	$	2,818,216		$	7,149	0.51	%	$	2,728,174		$	6,028	0.44	%
Net interest margin ⁽²⁾⁽⁵⁾				$	78,614	3.83	%				$	66,994	3.69	%
Net interest margin ⁽²⁾⁽⁴⁾																		$	53,748	3.85	%				$	52,855	3.89	%

Non-GAAP to GAAP Reconciliation:
Tax Equivalent Adjustment:
Loans				$	1,285						$	1,078						$	805						$	850
Securities				2,253							2,192							1,671							1,510
Total tax equivalent adjustment				3,538							3,270							2,476							2,360
Net Interest Income				$	75,076						$	63,724						$	51,272						$	50,495



	(1)	Loan fees included in interest income are not material.
	(2)	Computed on a tax-equivalent basis, assuming a federal income tax rate of 35%.
	(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.

The following table sets forth an analysis of volume and rate changes in interest income and interest expense on our average ~~earning~~interest-earning assets and average interest-bearing liabilities during the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, compared to the same period in ~~2015~~2016, reported on a fully tax-equivalent basis assuming a 35% tax rate. The table distinguishes between the changes related to average outstanding balances (changes in volume holding the initial interest rate constant) and the changes related to average interest rates (changes in average rate holding the initial outstanding balance constant). The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.


	Nine Months Ended September 30,									Six Months Ended June 30,
	2016 Compared to 2015 Change due to									2017 Compared to 2016 Change due to
	Volume			Rate/Yield			Net			Volume			Rate/Yield			Net
(in thousands)
Increase (decrease) in interest income:
Loans, tax equivalent	$	10,591		$	2,751		$	13,342		$	(554	)	$	687		$	133
Loan pool participations	(399		)	(399		)	(798		)
Investment securities:
Taxable investments	(416		)	619			203			1,195			277			1,472
Tax exempt investments	453			(290		)	163			905			(449		)	456
Total investment securities	37			329			366			2,100			(172		)	1,928
Federal funds sold and interest-bearing balances	72			44			116			(172		)	125			(47		)
Change in interest income	10,301			2,725			13,026			1,374			640			2,014
Increase (decrease) in interest expense:
Savings and interest-bearing demand deposits	368			163			531			110			—			110
Certificates of deposit	103			316			419			122			889			1,011
Total deposits	471			479			950			232			889			1,121
Federal funds purchased and repurchase agreements	15			(21		)	(6		)	4			29			33
Federal Home Loan Bank borrowings	261			40			301			(55		)	(16		)	(71		)
Other long-term debt	202			(41		)	161			(170		)	208			38
Total borrowed funds	478			(22		)	456			(221		)	221			—
Change in interest expense	949			457			1,406			11			1,110			1,121
Change in net interest income	$	9,352		$	2,268		$	11,620		$	1,363		$	(470	)	$	893
Percentage change in net interest income over prior period							17.3		%							1.7		%

Interest income and fees on loans on a tax-equivalent basis increased ~~$13.3~~$0.1 million, or ~~21.5%~~0.3%, in the first ~~nine~~six months of ~~2016~~2017 compared to the same period in ~~2015.~~2016. This increase reflects the effect of the merger-related discount accretion for loans of ~~$2.4~~$2.5 million in the first ~~nine~~six months of ~~2016,~~2017, compared to ~~$3.0~~$1.9 million of discount accretion in the first ~~nine~~six months of ~~2015.~~2016. The increased income is mainly due to ana 6 basis point increase in ~~average~~yield on loans, ~~balances of $305.0 million, or 16.4%,~~from 4.67% in the first ~~nine~~six months of 2016 ~~compared~~ to ~~the same period in 2015, primarily resulting from the merger. The yield on loans increased from 4.46% in the first nine months of 2015 to 4.65%~~4.73% in the same period of ~~2016.~~2017. 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.

~~Interest and discount income on~~ Average loan ~~pool participations~~ ~~was nothing for the first nine months of 2016,~~balances experienced a decrease of ~~$0.8~~$8.7 million, or 0.4%, in the first six months of 2017 compared to the ~~first nine months of 2015. The Company sold its remaining~~same period in 2016, primarily resulting from loan ~~pool participations~~payments and payoffs exceeding current period new loan demand. Despite the recent increase in overall interest rates, we expect the yield on new and renewing loans to remain relatively flat in the ~~second quarter of 2015.~~markets we serve due to competitive pressures for quality credits.

Interest income on investment securities on a tax-equivalent basis totaled ~~$12.4~~$10.1 million in the first ~~nine~~six months of ~~2016~~2017 compared with ~~$12.1~~$8.2 million for the same period of ~~2015,~~2016, reflecting ~~$0.2~~$0.1 million of purchase accounting premium amortization expense in the first ~~nine~~six months of ~~2016~~2017, compared to $0.2 million of purchase accounting premium amortization in the first ~~nine~~six months of ~~2015.~~2016. The tax-equivalent yield on our investment portfolio for the first ~~nine~~six months of ~~2016 increased~~2017 decreased to ~~3.12%~~3.15% from

~~2.99%~~ 3.17% in the comparable period of ~~2015, with the first nine months of 2016 yield including 7 basis points of decrease attributable to purchase accounting.~~2016. The average balance of investments in the first ~~nine~~six months of ~~2016~~2017 was ~~$531.3~~$648.3 million compared with ~~$538.8~~$521.0 million in the first ~~nine~~six months of ~~2015, a decrease~~2016, an increase of ~~$7.4~~$127.3 million, or ~~1.4%~~24.4%. The increase in average balance resulted primarily from investment of the proceeds from the sale of newly issued common stock at the end of the first quarter and beginning of the second quarter of 2017.

Interest expense on deposits was ~~$6.8~~$5.5 million for the first ~~nine~~six months of ~~2016~~2017 compared with ~~$5.9~~$4.3 million for the same period in ~~2015.~~2016. This increase was ~~in part~~primarily due to ~~average interest-bearing~~interest expense on deposits for the ~~first nine~~six months ~~of 2016 increasing $211.5 million, or 12.4%, compared with the same period in 2015, due primarily to the merger.~~

~~The weighted average rate paid on interest-bearing deposits was 0.47% for the first nine months of 2016 compared with 0.46% for the first nine months of 2015. This increase reflects the~~ended June 30, 2017 including no merger-related amortization of the purchase accounting premium on certificates of deposit and the six months ended June 30, 2016 interest on deposits including $0.7 million in merger-related amortization. Additionally, average interest-bearing deposits for the ~~amount~~first six months of ~~$0.8~~2017 increased $108.6 million, or 5.7%, compared with the same period in 2016, due primarily to an

increased focus by the Company on gathering new deposits. The weighted average rate paid on interest-bearing deposits was 0.55% for the first six months of 2017 compared with 0.46% for the first six months of 2016. This increase reflects the effect of no merger-related amortization of the purchase accounting premium on certificates of deposit for the first six months of 2017 compared with $0.7 million for the first ~~nine~~six months of ~~2016 compared with $1.0 million for the first nine months of 2015. The impact of the amortization~~2016. We expect to see some upward movement in ~~2016 was~~deposit rates in future periods, as overall interest rate increases begin to ~~reduce the average cost of deposits by 6 basis points.~~take hold in our market footprint.

Interest expense on borrowed funds in the first ~~nine~~six months of ~~2016~~2017 was ~~$2.5~~$1.7 million, ~~compared with $2.1 million for~~unchanged from the same period in ~~2015.~~2016. Average borrowed funds for the first ~~nine~~six months of ~~2016~~2017 were ~~$33.8~~$8.6 million ~~higher~~lower compared with the same period in 2015. This increase was primarily due to the borrowing of $25.0 million in new long-term debt as well as $21.6 million of subordinated notes assumed in the merger during the second quarter of 2015, and the $20.1 million increase2016. The decrease in the average level of FHLB borrowings of $6.2 million, or 5.8%, coupled with a $5.2 million, or 11.0%, decrease in long-term debt and junior subordinated notes, was partially offset by an increase in the average balance of federal funds purchased, repurchase agreements, and other short-term borrowings of $2.8 million, or 3.6%, all for the first ~~nine~~six months of ~~2016~~2017 compared to the first ~~nine~~six months of ~~2015.~~2016. The weighted average rate on borrowed funds ~~increased to 1.48%~~ for the first ~~nine~~six months of ~~2016 compared with 1.42%~~2017 was 1.52%, an increase of 6 basis points from 1.46% for the first ~~nine~~six months of ~~2015, reflecting the increased cost of new debt relative to that of pre-merger debt.~~2016.

Provision for Loan Losses

We recorded a provision for loan losses of ~~$3.2~~$2.3 million in the first ~~nine~~six months of ~~2016, $0.4~~2017, marginally higher compared to $2.2 million ~~or 11.0%, less than the $3.6 million provision~~ in the first nine months of 2015. The decreased provision is primarily due to the lower level of loans moving from the purchased accounting portfolio to the Company’s standard allowance for loan loss methodology.2016. Net loans charged off in the first ~~nine~~six months of ~~2016~~2017 totaled ~~$1.3~~$1.6 million compared with ~~$1.1~~$0.5 million in the first ~~nine~~six months of ~~2015.~~2016.

Noninterest Income


	Nine Months Ended September 30,											Six Months Ended June 30,
	2016			2015			$ Change			% Change		2017			2016			$ Change			% Change
(dollars in thousands)
Trust, investment, and insurance fees	$	4,244		$	4,642		$	(398	)	(8.6	)%	$	3,140		$	2,938		$	202		6.9	%
Service charges and fees on deposit accounts	3,887			3,098			789			25.5		2,540			2,541			(1		)	—
Loan origination and servicing fees	2,636			2,096			540			25.8		1,520			1,474			46			3.1
Other service charges and fees	4,115			3,155			960			30.4		2,955			2,808			147			5.2
Bank-owned life insurance income	1,040			964			76			7.9		646			716			(70		)	(9.8	)
Gain on sale or call of available for sale securities	467			1,011			(544		)	(53.8	)	20			467			(447		)	(95.7	)
Loss on sale of premises and equipment	(53		)	(15		)	(38		)	NM
Other gain (loss)	1,378			(396		)	1,774			NM
Gain on sale of held to maturity securities												43			—			43			NM
Gain (loss) on sale of premises and equipment												6			(251		)	257			(102.4	)
Other gain												50			1,307			(1,257		)	(96.2	)
Total noninterest income	$	17,714		$	14,555		$	3,159		21.7	%	$	10,920		$	12,000		$	(1,080	)	(9.0	)%
Adjusted noninterest income as a % of total revenue*	17.5		%	18.0		%						17.4		%	17.2		%
NM - Percentage change not considered meaningful.
* See the non-GAAP reconciliation at the beginning of this section for the reconciliation of this non-GAAP measure to its most directly comparable GAAP financial measures.

Total noninterest income ~~rose to $17.7 million for the first nine months of 2016, an increase of $3.2~~decreased $1.1 million, or ~~21.7%~~9.0%, to $10.9 million from ~~$14.6~~$12.0 million during the same period of ~~2015. The greatest increase~~2016. This decline was primarily due to the $1.3 million decrease in other gains for the ~~nine~~six months ended ~~September~~June 30, ~~2016, was in other gain (loss), which increased $1.8 million to a gain of $1.4 million for the nine months ended September 30, 2016,~~2017, compared to ~~a loss of $0.4 million for~~ the ~~nine months ended September 30, 2015.~~same period in 2016. The first ~~nine~~six months of 2016 ~~reflect~~included a net gain on other real estate owned of ~~$0.8~~$0.6 million and a net gain ~~on the sales~~ of ~~the Rice Lake and Barron, Wisconsin and Davenport, Iowa branches of $1.2 million. The first nine months of 2015 included a net loss~~$0.7 million on ~~other real estate owned of $0.4 million, due primarily~~ the sale of the ~~loan pool participations in June 2015. Other service charges~~Barron and fees rose from $3.2 million for the nine months ended September 30, 2015, to $4.1 million for the nine months ended September 30, 2016, an increase of $0.9 million, or 30.4%. Another significant contributor to the overall increase in noninterest income was service charges and fees on deposit accounts, which increased $0.8 million to $3.9 million for the first nine months of 2016, compared with $3.1 million for the same period of 2015. Loan origination and servicing fees in the first nine months of 2016 increased $0.5 million, or 25.8%, from $2.1 million for the same period in 2015. These increases were partially offset by decreased gainsRice Lake, Wisconsin branch offices. Gains on the sale of available for sale securities ~~of $0.5~~

decreased $0.4 million between the ~~nine months ended September 30,~~comparative 2016 and 2017 periods. These decreases were partially offset by a $0.3 million decline in loss on the ~~same period~~sale of ~~2015. In addition,~~premises and equipment, and the increase of $0.2 million, or 6.9%, in trust, investment, and insurance fees ~~also decreased~~ to ~~$4.2~~$3.1 million for the first ~~nine~~six months of ~~2016, a decline of $0.4 million, or 8.6%, from $4.6~~2017 compared with $2.9 million for the same period in ~~2015.~~2016. Other service charges and fees also increased $0.1 million, or 5.2%, to $2.9 million for the first six months of 2017, from $2.8 million for the same period in 2016.

Management’s strategic goal is for noninterest income to constitute 25% of total revenues (net interest income plus noninterest income excluding gain/loss on securities and premises and equipment and impairment of investment securities) over time. For the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, noninterest income comprised ~~17.5%~~17.4% of total revenues, compared with ~~18.0%~~17.2% for the same period in ~~2015. With~~2016. Management expects to see continued gradual improvement in this ratio in future periods due to the ~~recent~~implementation of new management strategies in the origination of residential real estate loans.

Noninterest Expense



	Six Months Ended June 30,
	2017		2016		$ Change			% Change
(dollars in thousands)
Salaries and employee benefits	$	23,673	$	25,966	$	(2,293	)	(8.8	)%
Net occupancy and equipment expense	6,337		6,577		(240		)	(3.6	)
Professional fees	2,058		2,167		(109		)	(5.0	)
Data processing expense	1,259		3,382		(2,123		)	(62.8	)
FDIC insurance expense	719		819		(100		)	(12.2	)
Amortization of intangible assets	1,653		2,076		(423		)	(20.4	)
Other operating expense	4,600		5,274		(674		)	(12.8	)
Total noninterest expense	$	40,299	$	46,261	$	(5,962	)	(12.9	)%

Noninterest expense decreased to $40.3 million for the six months ended June 30, 2017, compared with $46.3 million for the six months ended June 30, 2016, a decrease of $6.0 million, or 12.9%, with all expense line items showing a decrease from the comparative period. The decrease was primarily due to the absence of merger related expenses for the six months ended June 30, 2017, compared to $4.0 million for the six months ended June 30, 2016 relating to the merger of Central Bank into MidWestOne ~~Bank, management expects to see gradual improvement in this ratio in future periods.~~

~~Noninterest Expense~~

Nine Months Ended September 30,
2016 2015 $ Change % Change
(dollars in thousands)
Salaries and employee benefits $ 37,607
$ 29,054
$ 8,553
29.4 %
Net occupancy and equipment expense 9,870
6,585
3,285
49.9
Professional fees 3,181
3,868
(687 ) (17.8 )
Data processing expense 3,981
2,028
1,953
96.3
FDIC insurance expense 1,231
1,058
173
16.4
Amortization of intangible assets 3,046
2,136
910
42.6
Other operating expense 7,784
6,638
1,146
17.3
Total noninterest expense $ 66,700
$ 51,367
$ 15,333
29.8 %

Noninterest expense increased to $66.7 million for the nine months ended September 30, 2016 compared with $51.4 million for the nine months ended September 30, 2015, an increase of $15.3 million, or 29.8%. All categories of noninterest expense increased for the nine months ended September 30, 2016, with the exception of professional fees, which decreased $0.7 million, or 17.8%, due to lower merger-related professional fee expenses of $0.3 million for the first nine months of 2016 compared with $1.9 million for the same period last year.Bank. Salaries and employee benefits ~~increased $8.5~~decreased $2.3 million, or ~~29.4%~~8.8%, from ~~$29.1~~$26.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2015,~~2016, to ~~$37.6~~$23.7 million for the ~~nine~~six months ended ~~September~~June 30, 2017. This decrease included $1.6 million of merger-related expenses for the six months ended June 30, 2016. ~~This increase~~The rest of the decrease in salaries and employee benefits ~~includes $1.7~~was primarily due to decreased staffing levels resulting from restructuring and the sales of branch offices during 2016. Data processing expense declined $2.1 million, ~~of merger-related expenses, mainly severance and retention payments,~~or 62.8%, for the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, compared to ~~$0.5 million for~~ the ~~same period in 2015. Net occupancy and equipment expense rose from $6.6 million for the first nine~~six months ~~of 2015 to $9.9 million for the same period of~~ended June 30, 2016, ~~an increase of $3.3 million, or 49.9%,~~ primarily due to the merger. The increase in data processing expense for the nine months ended September 30, 2016, of $2.0 million, or 96.3%, compared to the same period of 2015, was attributable primarily to contract termination expensesinclusion of $1.9 million in contract termination expense in connection with the bank merger ofin 2016. Other operating expenses decreased $0.7 million, or 12.8%, from $5.3 million for the ~~banks.~~six months ended June 30, 2016, to $4.6 million for the six months ended June 30, 2017, primarily due to lower loan and collection expense.

Income Tax Expense

Our effective tax rate, or income taxes divided by income before taxes, was ~~27.7%~~28.9% for the first ~~nine~~six months of ~~2016,~~2017, and ~~27.5%~~26.4% for the first ~~nine~~six months of ~~2015.~~2016. Income tax expense ~~decreased~~increased to ~~$6.3~~$5.7 million in the first ~~nine~~six months of ~~2016~~2017 compared with ~~$6.4~~$3.7 million for the same period of ~~2015,~~2016, primarily due to the ~~decrease~~increase in the level of ~~taxable~~pre-tax income between the two ~~periods and the non-deductible merger-related expenses incurred in the respective~~ periods.

FINANCIAL CONDITION

Our total assets ~~increased to $3.00~~were $3.09 billion at ~~September~~June 30, ~~2016,~~2017, an increase of $11.5 million, or 0.4% from ~~$2.98~~December 31, 2016. Loans increased $32.4 million, or 1.5%, from $2.17 billion at December 31, ~~2015, mainly attributable~~2016 to ~~an increase in investment securities, which increased $41.7 million, or 7.6%,~~$2.20 billion at June 30, 2017, and cash and cash equivalents ~~which~~ increased ~~$4.9~~$6.2 million, or ~~10.3%~~14.3%, between these two dates. These increases were partially offset by decreases in ~~total loans~~investment securities of ~~$10.1~~$20.5 million, or ~~0.5%~~3.2%, ~~primarily due to the~~loans held for sale of ~~our Rice Lake~~$2.6 million, or 61.4%, other intangible assets of $1.7 million, or 10.9%, accrued interest receivable of $1.3 million, or 9.1%, and ~~Barron, Wisconsin and Davenport, Iowa branch offices, and decreases in~~ other real estate owned of ~~$5.4~~$0.6 million, or ~~60.9%,~~29.1% between December 31, ~~2015~~2016 and ~~September~~June 30, ~~2016.~~2017. Total deposits at ~~September~~June 30, ~~2016,~~2017, were ~~$2.45~~$2.49 billion, ~~a decrease~~an increase of ~~$17.6~~$13.3 million, or ~~0.7%~~0.5%, from December 31, ~~2015, again primarily due to the sale of our Rice Lake and Barron, Wisconsin and Davenport, Iowa branch offices.~~2016. The mix of deposits saw increases between December 31, 2016 and June 30, 2017 of $30.7 million, or 4.71%, in certificates of deposit, and $6.3 million, or 3.2%, in savings deposits. These increases were partially offset by a decrease in non-interest bearing demand deposits of ~~$65.8~~$18.6 million, or ~~11.8%~~3.8%, and ~~a decrease of $8.9~~$5.1 million, or 1.38%, in certificates of deposit between December 31, 2015 and September 30, 2016. These decreases were partially offset by increases between December 31, 2015 and September 30, 2016 of $50.2 million, or 4.7%0.5%, in interest-bearing checking deposits between December 31, 2016, and ~~$6.9 million, or 3.7%, in savings deposits. Federal~~June 30, 2017. Between December 31, 2016 and June 30, 2017, federal funds purchased increased ~~$17.8~~$9.6 million, or 27.0%, to $45.3 million compared to $35.7 million, while FHLB borrowings decreased $25.0 million, or 21.7% to $90.0 million. The decreased borrowings were the result of increases in deposits and cash from ~~$1.5 million at December 31, 2015, to $19.3 million at September~~the sale and maturity of investment securities during the period. At June 30, ~~2016, to help offset the overall decline in deposit balances. At September 30, 2016, the~~2017, long-term ~~borrowings incurred by the Company in connection with the closing of the holding company merger~~debt had an outstanding balance of ~~$18.8~~$15.0 million, a decrease of ~~$3.8~~$2.5 million, or ~~16.7%~~14.3%, from December 31, ~~2015,~~2016, due to normal scheduled repayments. Securities sold under ~~agreement~~agreements to repurchase declined ~~$4.0~~$22.0 million between December 31, ~~2015~~2016 and ~~September~~June 30, ~~2016, while FHLB borrowings~~

~~increased $13.0 million, or 14.9%, between December 31, 2015, and September 30, 2016,~~2017, due to ~~$100.0 million at September 30, 2016.~~normal cash need fluctuations by customers.

Investment Securities

Investment securities totaled ~~$587.3~~$625.4 million at ~~September~~June 30, ~~2016,~~2017, or ~~19.6%~~20.2% of total assets, ~~an increase~~a decrease of ~~$41.7~~$20.5 million ~~or 7.6%,~~ from ~~$545.7~~$645.9 million ~~or 18.3% of total assets,~~ as of December 31, ~~2015.~~2016. A total of ~~$436.2~~$443.0 million of the investment securities were classified as available for sale at ~~September~~June 30, ~~2016,~~2017, compared to ~~$427.2~~$477.5 million at December 31, ~~2015.~~2016. This represents ~~an increase~~a decrease in investment securities available for sale of ~~$9.0~~$34.5 million, or ~~2.1%~~7.2%, from December 31, ~~2015~~2016 to ~~September~~June 30, ~~2016.~~2017. As of ~~September~~June 30, ~~2016,~~2017, the portfolio consisted mainly of obligations of states and political subdivisions ~~(43.9%~~(43.6%), mortgage-backed securities and collateralized mortgage obligations ~~(41.8%~~(39.1%), and obligations of U.S. government agencies ~~(1.0%~~(0.9%). Investment securities held to maturity were ~~$151.1~~$182.5 million at ~~September~~June 30, ~~2016,~~2017, compared to ~~$118.4~~$168.4 million at December 31, ~~2015.~~2016, an increase of $14.1 million, or 8.4%.

Loans

The composition of loans (before deducting the allowance for loan losses) was as follows:


	September 30, 2016				December 31, 2015				June 30, 2017				December 31, 2016
	Balance		% of Total		Balance		% of Total		Balance		% of Total		Balance		% of Total
(dollars in thousands)
Agricultural	$	121,625	5.7	%	$	121,714	5.7	%	$	107,651	4.9	%	$	113,343	5.2	%
Commercial and industrial	475,202		22.2		467,412		21.7		485,637		22.1		459,481		21.2
Credit cards(1)	1,526		0.1		1,377		0.1		—		—		1,489		0.1
Overdrafts¹	—		0.0		1,483		0.1
Commercial real estate:
Construction and development	126,515		5.9		120,753		5.6		135,729		6.2		126,685		5.9
Farmland	95,138		4.4		89,084		4.1		89,850		4.1		94,979		4.4
Multifamily	118,392		5.5		121,763		5.7		137,506		6.2		136,003		6.3
Commercial real estate-other	679,601		31.7		660,341		30.7		722,478		32.9		706,576		32.6
Total commercial real estate	1,019,646		47.5		991,941		46.1		1,085,563		49.4		1,064,243		49.2
Residential real estate:
One- to four-family first liens	369,607		17.3		428,233		19.9		370,329		16.8		372,233		17.2
One- to four-family junior liens	117,291		5.5		102,273		4.7		113,657		5.2		117,763		5.4
Total residential real estate	486,898		22.8		530,506		24.6		483,986		22.0		489,996		22.6
Consumer	36,935		1.7		37,509		1.7		34,666		1.6		36,591		1.7
Total loans	$	2,141,832	100.0	%	$	2,151,942	100.0	%	$	2,197,503	100.0	%	$	2,165,143	100.0	%

(1) As of the first quarter of ~~2016, overdrafts are~~2017, the Company no longer ~~included as~~considered credit cards a separate class of ~~loan.~~loans, and these balances are now included in commercial and industrial loans.

Total loans (excluding loans held for sale) ~~decreased $10.1~~increased $32.4 million, or ~~0.5%~~1.5%, from ~~$2.15~~$2.17 billion at December 31, ~~2015,~~2016 to ~~$2.14~~$2.20 billion at ~~September~~June 30, ~~2016.~~2017, with loan growth concentrated primarily towards the end of the second quarter of 2017. The ~~decrease was~~mix of loans saw increases between December 31, 2016 and June 30, 2017 primarily concentrated in commercial and industrial, commercial real estate-other, construction and development, and multifamily loans. Decreases occurred in residential real estate, ~~loans. This decrease was partially offset by increases in commercial real estate-other, commercial and industrial,~~agricultural, farmland, and ~~construction and development~~consumer loans. As of ~~September~~June 30, ~~2016,~~2017, the largest category of loans was commercial real estate loans, comprising approximately ~~48%~~49% of the portfolio, of which 6% of total loans were multifamily residential mortgages, 6% of total loans were construction and development, and 4% of total loans were farmland. ~~Residential real estate~~Commercial and industrial loans was the next largest category at ~~23%~~22% of total loans, followed by ~~commercial and industrial~~residential real estate loans at 22%, agricultural loans at 6%5%, and consumer loans at 2%. ~~The Company also held $22.3~~Included in these totals are $21.9 million, net of a discount of ~~$4.8~~$2.6 million, or 1.0% of the total loan portfolio, in purchased credit impaired loans as a result of the ~~merger.~~merger between the Company and Central in 2015.

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.

Premises and Equipment

As of ~~September~~June 30, ~~2016,~~2017, premises and equipment totaled ~~$75.1~~$74.7 million, ~~a decrease of $1.1 million, or 1.4%,~~substantially unchanged from ~~$76.2 million at~~ December 31, ~~2015. This decrease was primarily due to normal~~2016. Normal depreciation expense of ~~$3.3~~$2.1 million ~~partially~~was offset by ongoing capital improvement projects. The Company completed the construction of a new Home Mortgage and Operations Center, which was complete at the end of 2015, at a total cost of $16.0 million. The Company also undertook the restoration and remodeling of the building that serves as the main office of the Bank and headquarters of the Company, which was completed in April 2016 at a cost of $13.8 million.

Deposits

Total deposits as of ~~September~~June 30, ~~2016~~2017 were ~~$2.45~~$2.49 billion, ~~a decrease~~an increase of ~~$17.6~~$13.3 million, or ~~0.7%~~0.5% from December 31, ~~2015.~~2016. Interest-bearing checking deposits were the largest category of deposits at ~~September~~June 30, ~~2016,~~2017, representing approximately ~~45.6%~~45.4% of total deposits. Total interest-bearing checking deposits were ~~$1.11~~$1.13 billion at ~~September~~June 30, ~~2016, an increase~~2017, a decrease of ~~$50.2~~$5.1 million, or ~~4.7%~~0.5%, from ~~$1.06~~$1.14 billion at December 31, ~~2015.~~2016. Included in interest-bearing checking deposits at ~~September~~June 30, ~~2016~~2017 were ~~$39.0~~$43.2 million of brokered deposits in the Insured Cash Sweep (ICS) program, an increase of ~~$18.8~~$4.2 million, or ~~92.7%~~10.8%, from ~~$20.3~~$39.0 million at December 31, ~~2015,~~2016, due primarily to the addition of one account holder. Non-interest bearing demand deposits were ~~$493.8~~$476.0 million at ~~September~~June 30, ~~2016,~~2017, a decrease of ~~$65.8~~$18.6 million, or ~~11.8%~~3.8%, from ~~$559.6~~$494.6 million at December 31, ~~2015.~~2016. Savings deposits were ~~$196.4~~$204.0 million at ~~September~~June 30, ~~2016,~~2017, an increase of ~~$6.9~~$6.3 million, or ~~3.7%~~3.2%, from December 31, ~~2015.~~2016. Total certificates of deposit were ~~$641.2~~$682.6 million at ~~September~~June 30, ~~2016, down $8.9~~2017, up $30.7 million, or ~~1.4%~~4.7%, from ~~$650.1~~$651.9 million at December 31, ~~2015.~~2016. Included in total certificates of deposit at ~~September~~June 30, ~~2016~~2017 was ~~$3.0~~$2.4 million of brokered deposits in the Certificate of Deposit Account Registry Service (CDARS) program, ~~an increase~~a decrease of ~~$0.1~~$0.2 million, or ~~5.2%~~9.1%, from December 31, ~~2015.~~2016. Based on recent experience, management anticipates that many of the maturing certificates of deposit will ~~not~~ be renewed upon maturity, ~~due to~~as the ~~current low~~ interest rate ~~environment.~~environment begins to trend upward. Approximately ~~87.4%~~85.7% of our total deposits were considered “core” deposits as of ~~September~~June 30, ~~2016.~~2017.

Goodwill and Other Intangible Assets

Goodwill ~~increased from $64.5 million as of December 31, 2015, to~~was $64.7 million as of ~~September~~June 30, ~~2016 due to~~2017, the ~~finalization of merger accounting amounts related to the Central merger in the first quarter of~~same as at December 31, 2016. Other intangible assets decreased ~~$3.0~~$1.7 million, or ~~15.9%~~10.9%, to ~~$16.1~~$13.5 million at ~~September~~June 30, ~~2016~~2017 compared to ~~$19.1~~$15.2 million at December 31, ~~2015,~~2016, due to normal amortization. See Note 7.6. “Goodwill and Intangible Assets” to our consolidated financial statements for additional information.

Debt

Federal Home Loan Bank Borrowings

FHLB borrowings totaled ~~$100.0~~$90.0 million as of ~~September~~June 30, ~~2016~~2017, compared with ~~$87.0~~$115.0 million as of December 31, ~~2015.~~2016. We utilize FHLB borrowings as a supplement to customer deposits to fund ~~earning~~interest-earning assets and to assist in managing interest rate risk. ~~Thus, when deposits~~The combination of proceeds from the issuance of new shares of common stock with an increase in deposit balances between December 31, 2016 and June 30, 2017, led to the decline in FHLB ~~borrowing may increase to provide necessary liquidity.~~borrowings between December 31, 2016 and June 30, 2017 See Note ~~11.~~10. “Long-Term Borrowings” to our consolidated financial statements for additional information related to our FHLB borrowings.

Junior Subordinated Notes Issued to Capital Trusts

Junior subordinated notes that have been issued to capital trusts that issued trust preferred securities were $23.7 million as of ~~September~~June 30, ~~2016~~2017, ~~an increase of $0.1 million~~substantially unchanged from December 31, ~~2015. This increase was due to the accretion of the purchase accounting discount on the two junior subordinated notes assumed in the Central merger.~~2016. See Note ~~10.~~9. “Subordinated Notes Payable” to our consolidated financial statements for additional information related to our junior subordinated notes.

Long-term Debt

Long-term debt in the form of a $35.0 million unsecured note, of which $25.0 million was drawn upon, payable to a correspondent bank was entered into on April 30, 2015 in connection with the payment of the merger consideration at the closing of the Central merger, of which ~~$18.8~~$15.0 million was outstanding as of ~~September~~June 30, ~~2016.~~2017. See Note ~~11.~~10. “Long-Term Borrowings” to our consolidated financial statements for additional information related to our long-term debt.

Nonperforming Assets

The following tables set forth information concerning nonperforming loans by class of loans at ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015~~2016:


	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, 2016
June 30, 2017
Agricultural	$	—	$	2,795	$	401	$	3,196	$	—	$	2,637	$	494	$	3,131
Commercial and industrial(1)	—		669		5,966		6,635		147		2,247		2,161		4,555
Credit cards	—		—		—		—
Commercial real estate:
Construction and development	248		—		343		591		—				1,110		1,110
Farmland	—		2,174		228		2,402		89		87		364		540
Multifamily	—		—		226		226		—		—		—		—
Commercial real estate-other	60		248		6,994		7,302		—		1,705		12,095		13,800
Total commercial real estate	308		2,422		7,791		10,521		89		1,792		13,569		15,450
Residential real estate:
One- to four- family first liens	448		1,447		1,102		2,997		702		764		1,364		2,830
One- to four- family junior liens	186		13		105		304		—		—		115		115
Total residential real estate	634		1,460		1,207		3,301		702		764		1,479		2,945
Consumer	—		12		12		24		—		—		37		37
Total	$	942	$	7,358	$	15,377	$	23,677	$	938	$	7,440	$	17,740	$	26,118

(1) As of the first quarter of 2017, the Company no longer considered credit cards a separate class of loans, and these balances are now included in commercial and industrial loans.


	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, 2015
December 31, 2016
Agricultural	$	—	$	2,901	$	172	$	3,073	$	—	$	2,770	$	2,690	$	5,460
Commercial and industrial	—		1,122		575		1,697		—		595		8,358		8,953
Credit cards	—		—		—		—		—		—		—		—
Overdrafts	—		—		—		—
Commercial real estate:
Construction and development	—		—		95		95		95		—		780		875
Farmland	80		2,209		20		2,309		—		2,174		227		2,401
Multifamily	—		—		224		224		—		—		—		—
Commercial real estate-other	—		—		1,452		1,452		—		247		7,360		7,607
Total commercial real estate	80		2,209		1,791		4,080		95		2,421		8,367		10,883
Residential real estate:
One- to four- family first liens	199		972		1,182		2,353		375		1,501		1,127		3,003
One- to four- family junior liens	—		13		281		294		15		13		116		144
Total residential real estate	199		985		1,463		2,647		390		1,514		1,243		3,147
Consumer	5		15		11		31		—		12		10		22
Total	$	284	$	7,232	$	4,012	$	11,528	$	485	$	7,312	$	20,668	$	28,465

Not included in the loans above as of ~~September~~June 30, ~~2016,~~2017, were purchased credit impaired loans with an outstanding balance of ~~$2.8~~$0.4 million, net of a discount of ~~$0.9~~$0.1 million.

Our nonperforming assets (which include nonperforming loans and OREO) totaled ~~$27.1~~$27.6 million as of ~~September~~June 30, ~~2016, an increase~~2017, a decrease of ~~$6.8~~$3.0 million, or ~~33.2%~~9.7%, from December 31, ~~2015.~~2016. The balance of OREO at ~~September~~June 30, ~~2016~~2017 was ~~$3.5~~$1.5 million, ~~a decrease of $5.4~~down $0.6 million, from ~~$8.8~~$2.1 million of OREO at December 31, ~~2015.~~2016. During the first six months of 2017, the Company had a net decrease of 14 properties in other real estate owned. All of the OREO property was acquired through foreclosures, and we are actively working to sell all properties held as of ~~September~~June 30, ~~2016.~~2017. OREO 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 ~~increased~~decreased from ~~$11.5~~$28.5 million, or ~~0.54%~~1.31% of total loans, at December 31, ~~2015,~~2016, to ~~$23.7~~$26.1 million, or ~~1.11%~~1.19% of total loans, at ~~September~~June 30, ~~2016.~~2017. At ~~September~~June 30, ~~2016,~~2017, nonperforming loans consisted of ~~$15.4~~$17.7 million in nonaccrual loans, $7.4 million in ~~TDRs~~troubled debt restructures (“TDRs”) and $0.9 million in loans past due 90 days or more and still ~~accruing.~~accruing interest. This compares to nonaccrual loans of ~~$4.0~~$20.7 million, TDRs of ~~$7.2~~$7.3 million, and loans past due 90 days or more and still accruing interest of ~~$0.3~~$0.5 million at December 31, ~~2015.~~2016. Nonaccrual loans ~~increased $11.4~~decreased $2.9 million between December 31, ~~2015,~~2016, and ~~September~~June 30, ~~2016, due primarily to the addition of one commercial loan customer with four loans totaling $10.4 million. The Company is actively working to resolve the issues with these four loans.~~2017. The balance of TDRs increased $0.1 million between these two dates, as the addition of ~~four~~nine loans (representing five lending relationships) totaling ~~$0.5~~$3.6 million ~~were~~was partially offset by payments collected from TDR-status borrowers ~~and~~totaling $2.3 million, the charge-off of two TDRs totaling $0.2 ~~million.~~million, and four loans totaling $1.0 million moving to non-disclosed status. Loans 90 days ~~or more~~ past due and still accruing interest increased ~~$0.7~~$0.5 million between December 31, ~~2015~~2016, and ~~September~~June 30, ~~2016.~~2017, due primarily to a net decrease of four residential real estate loans, with a balance of $0.3 million, and the addition of one commercial and industrial loan in the amount of $0.2 million. Loans past due 30 to 89 days and still accruing interest (not included in the nonperforming loan totals) ~~increased~~decreased to ~~$11.6~~$6.2 million at ~~September~~June 30, ~~2016,~~2017, compared with ~~$8.5~~$7.8 million at December 31, 2015. At September 30, 2016, other real estate owned (not included in nonperforming loans) was $3.5 million, down from $8.8 million of other real estate owned at December 31, 2015. During the first nine months of 2016, the Company had a net decrease of 29 properties in other real estate owned.2016. As of ~~September~~June 30, ~~2016,~~2017, the allowance for loan losses was ~~$21.4~~$22.5 million, or ~~1.00%~~1.02% of total loans, compared with ~~$19.4~~$21.9 million, or ~~0.90%~~1.01% of total loans at December 31, ~~2015.~~2016. The allowance for loan losses represented ~~90.36%~~86.19% of nonperforming loans at ~~September~~June 30, ~~2016,~~2017, compared with ~~168.52%~~76.76% of nonperforming loans at December 31, ~~2015.~~2016. The Company had net loan charge-offs of ~~$1.3~~$1.6 million in the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, or an annualized ~~0.08%~~0.15% of average loans outstanding, compared to net charge-offs of ~~$1.1~~$0.5 million, or an annualized ~~0.08%~~0.04% of average loans outstanding, for the same period of ~~2015.~~2016.

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

The Bank maintains a loan review and classification process which involves multiple officers of the Bank 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 Bank’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 all lending relationships with total exposure of $5.0 million or more as well as all classified (loan grades 6 through 8) and ~~Watch~~watch (loan grade 5) rated credits over $1.0 million be reviewed no less than annually. 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; 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, the lending officer and/or loan review personnel may determine that a loan relationship has weakened to the point that a watch (loan grade 5) or classified (loan grades 6 through 8) status is warranted. When a loan relationship with total related exposure of $1.0 million or greater is adversely graded (loan grade 5 or above), or is classified as a TDR (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, assist 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 loan strategy committee. Copies of the minutes of these ~~Committee~~committee meetings are presented to the board of directors of the Bank.

Depending upon the individual facts and circumstances and the result of the ~~Classified/Watch~~classified/watch review process, loan officers and/or loan review personnel may categorize the loan relationship as impaired. Once that determination has occurred, the credit analyst will complete an evaluation of the collateral (for collateral-dependent loans) based upon the estimated collateral value, 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. Impairment analysis for the underlying collateral value is completed in the last month of the quarter. The impairment analysis worksheets are reviewed by the Credit Administration department prior to quarter-end. The board of directors of the Bank on a quarterly basis reviews the ~~Classified/Watch~~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. All requests for an upgrade of a credit are approved by the loan strategy committee before the rating can be changed.

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. The following factors are indicators that a concession has been granted (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 days ~~and over~~or more past due or nonaccrual totals.

During the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, the Company restructured ~~five~~ten loans by granting concessions to borrowers experiencing financial difficulties.

A loan classified as a troubled debt restructuring will no longer be included in the troubled debt restructuring disclosures in the periods after the restructuring if the loan performs in accordance with the terms specified by the restructuring agreement and the interest rate specified in the restructuring agreement represents a market rate at the time of modification. The specified interest rate is considered a market rate when the interest rate is equal to or greater than the rate the Company is willing to accept at the time of restructuring for a new loan with comparable risk. If there are concerns that the borrower will not be able to meet the modified terms of the loan, the loan will continue to be included in the troubled debt restructuring disclosures.

We consider all TDRs, regardless of whether they are performing in accordance with their modified terms, to be impaired loans when determining our allowance for loan losses. A summary of restructured loans as of ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015~~2016 is as follows:


	September 30,		December 31,		June 30,		December 31,
	2016		2015		2017		2016
(in thousands)
Restructured Loans (TDRs):
In compliance with modified terms	$	7,358	$	7,232	$	7,440	$	7,312
Not in compliance with modified terms - on nonaccrual status	1,092		458
Not in compliance with modified terms - on nonaccrual status or 90 days or more past due and still accruing interest					11,264		1,003
Total restructured loans	$	8,450	$	7,690	$	18,704	$	8,315

Allowance for Loan Losses

Our ALLL as of ~~September~~June 30, ~~2016~~2017 was ~~$21.4~~$22.5 million, which was ~~1.00%~~1.02% of total loans and ~~1.30%~~1.20% of purchased non-credit impaired loans as of that date. This compares with an ALLL of ~~$19.4~~$21.9 million as of December 31, ~~2015,~~2016, which was ~~0.90%~~1.01% of total loans and ~~1.32%~~1.27% of purchased non-credit impaired loans as of that date. Gross charge-offs for the first ~~nine~~six months of ~~2016~~2017 totaled $1.7 million, while there was $0.1 million in recoveries of previously charged-off ~~loans totaled $0.5 million.~~loans. The ratio of annualized net loan charge offs to average loans for the first ~~nine~~six months of ~~2016~~2017 was ~~0.08%~~0.15% compared to ~~0.11%~~0.26% for the year ended December 31, ~~2015.~~2016. As of ~~September~~June 30, ~~2016,~~2017, the ALLL was ~~90.4%~~86.2% of nonperforming loans compared with ~~168.5%~~76.8% as of December 31, ~~2015.~~2016. Based on the inherent risk in the loan portfolio, wemanagement believed that as of ~~September~~June 30, ~~2016,~~2017, the ALLL was adequate; however, there is no assurance losses will not exceed the allowance, and any growth in the loan portfolio or uncertainty in the general economy ~~may~~will require that management continue to evaluate the adequacy of the ALLL and make additional provisions in future periods as deemed necessary.

There were no changes to our ALLL calculation methodology during the first six months of 2017. Classified and impaired loans are reviewed per the requirements of FASB ASC Topic 310.

Non-acquired loans with a balance of ~~$1.61~~$1.79 billion at ~~September~~June 30, ~~2016,~~2017, had ~~$20.9~~$21.5 million of the allowance for loan losses allocated to them, providing an allocated allowance for loan loss to non-acquired loan ratio of ~~1.30%.~~1.20%, compared to balances of $1.68 billion and an an allocated allowance for loan loss to non-acquired loan ratio of 1.27% at December 31, 2016. Non-acquired loans are total loans minus those loans acquired in the Central merger. New loans and loans renewed after the merger are considered non-acquired loans.


	At September 30, 2016												At June 30, 2017
	Gross Loans (A)		Discount (B)		Loans, Net of Discount (A-B)		Allowance (C)		Allowance/Gross Loans (C/A)		Allowance + Discount/Gross Loans ((B+C)/A)		Gross Loans (A)		Discount (B)		Loans, Net of Discount (A-B)		Allowance (C)		Allowance/Gross Loans (C/A)		Allowance + Discount/Gross Loans ((B+C)/A)
Total Non-Acquired Loans	$	1,613,618	$	—	$	1,613,618	$	20,941	1.30	%	1.30	%	$	1,790,982	$	—	$	1,790,982	$	21,522	1.20	%	1.20	%
Total Acquired Loans	543,418		15,204		528,214		454		0.08		2.88		417,384		10,863		406,521		988		0.24		2.84
Total Loans	$	2,157,036	$	15,204	$	2,141,832	$	21,395	1.00	%	1.70	%	$	2,208,366	$	10,863	$	2,197,503	$	22,510	1.02	%	1.51	%

~~As part of the merger between MidWestOne~~



	At December 31, 2016
	Gross Loans (A)		Discount (B)		Loans, Net of Discount (A-B)		Allowance (C)		Allowance/Gross Loans (C/A)		Allowance + Discount/Gross Loans ((B+C)/A)
Total Non-Acquired Loans	$	1,677,935	$	—	$	1,677,935	$	21,229	1.27	%	1.27	%
Total Acquired Loans	500,423		13,215		487,208		621		0.12		2.76
Total Loans	$	2,178,358	$	13,215	$	2,165,143	$	21,850	1.01	%	1.61	%

The Bank ~~and Central Bank, management developed~~uses a ~~single methodology for determining the amount of the ALLL that would be needed at the combined bank. The new methodology is a hybrid of the methods used at MidWestOne~~ ~~Bank and Central Bank prior to the bank merger, and the results from the new ALLL model are consistent with the results that the two banks calculated individually.~~

~~During the first quarter of 2016 we changed the~~rolling 20-quarter annual average historical net charge-off component ~~of the~~for its ALLL ~~calculation to include both Central Bank and MidWest~~calculation. One ~~Bank in the 20-quarter annual average. A separate~~ qualitative factor table is ~~now being maintained~~used for ~~each region MidWestOne~~ ~~Bank services~~the entire bank. Differences in regional (Iowa, Minnesota/Wisconsin, Florida and ~~Florida), all with a similar methodology, but adjusted based on the economic/~~Colorado) economic and business conditions are included in ~~each region. Loans below $250,000 continue to be evaluated solely~~the qualitative factor narrative and the risk is spread over the entire loan portfolios. All pass rated loans, regardless of size, are allocated based on delinquency status, but no longer receive an increased allocation of between 25% and 50% of the loss given default. Instead they receive the normal ASC 450 allocation based on the type of loan and the risk rating. To streamlinestatus. The Bank has streamlined the ALLL process

for a number of low-balance loan types that do not have a material impact on the overall calculation, which are ~~now excluded. As~~applied a reserve amount equal to the overall reserve calculated pursuant to applicable accounting standards to total loan calculated pursuant to applicable accounting standards. The guaranteed portion of ~~the first quarter 2016, overdrafts are no longer~~any government guaranteed loan is included in the ~~ALLL calculation. Additionally, the guaranteed portion of government guaranteed loans is no longer being adjusted out of the~~ calculation and ~~as a result,~~is reserved for according to the ~~entire loan balance is subject to reserve requirements.~~type of loan. Special mention/watch and substandard rated credits not individually reviewed for impairment ~~previously received an allocation of 2 times and 6 times, respectively, of the pass allocation. Due~~are allocated at a higher amount due to the inherent risks associated with ~~special~~these types of loans. Special mention/watch risk rated loans (i.e. early stages of financial deterioration, technical exceptions, etc.)~~, this subset is~~ are reserved at a level that will cover losses above a pass allocation for loans that had a loss in the ~~last 20 quarters~~trailing 20-quarters in which the loan was ~~risk rated~~risk-rated special mention/watch at the time of the loss. Substandard loans carry a greater risk than special mention/watch loans, and as such, this subset is reserved at a level that covers losses above a pass allocation for loans that had a loss in the ~~last 20 quarters~~trailing 20-quarters in which the ~~loan~~loans was ~~risk rated~~risk-rated substandard at the time of the loss. Classified and impaired loans are reviewed per the requirements of ~~FASB ASC Topic 310.~~applicable accounting standards.

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~~June 30, ~~2016,~~2017, there were 3132 owner-occupied 1-4 family loans with a LTV ratio of 100% or greater. In addition, there were ~~224~~178 home equity loans without credit enhancement that had a LTV ratio of 100% or greater. We have the first lien on 155 of these equity loans and other financial institutions have the first lien on the remaining ~~209.~~173. Additionally, there were ~~172~~196 commercial real estate loans without credit enhancement that exceeded the supervisory LTV guidelines.

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~~June 30, ~~2016~~,2017, TDRs were not a material portion of the loan portfolio. We review loans 90 days or more 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. The Bank’s board of directors has reviewed these credit relationships and determined that these loans and the risks associated with them were acceptable and did not represent any undue risk.

Capital Resources

Total shareholders’ equity was ~~$309.6~~$342.9 million as of ~~September~~June 30, ~~2016,~~2017, compared to ~~$296.2~~$305.5 million as of December 31, ~~2015,~~2016, an increase of ~~$13.4~~$37.4 million, or ~~4.5%~~12.2%. This increase was primarily attributable to the issuance of 750,000 shares of common stock in a public offering, resulting in $24.4 million of additional capital, net of expenses. Also contributing to the increase in capital was net income of ~~$16.5~~$13.9 million for the first ~~nine~~six months of ~~2016,~~2017, a ~~$1.8~~$2.6 million increase in accumulated other comprehensive income due to market value adjustments on investment securities available for sale, and a $0.6 million decrease in treasury stock due to the issuance of ~~27,067~~32,168 shares of Company common stock in connection with stock compensation plans. These increases were partially offset by the payment of ~~$5.5~~$3.9 million in common stock dividends. No shares of Company common stock were repurchased in the ~~third~~second quarter of ~~2016.~~

~~Total~~2017. The total shareholders’ equity ~~was 10.31% of~~to total assets ~~as of September~~ratio was 11.09% at June 30, ~~2016 and was 9.94% of total assets as of~~2017, up from 9.92% at December 31, ~~2015.~~2016. The ~~ratio of~~ tangible equity to tangible assets ratio was ~~7.94% as of September~~8.86% at June 30, ~~2016 and 7.51% as of~~2017, compared with 7.62% at December 31, ~~2015.~~ 2016. Tangible book value per share was $21.86 at June 30, 2017, an increase from $20.00 per share at December 31, 2016.

Our Tier 1 capital to risk-weighted assets ratio was ~~10.90%~~11.70% as of ~~September~~June 30, ~~2016~~2017 and was ~~10.63%~~10.73% as of December 31, ~~2015.~~2016. 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. WeManagement believed that, as of ~~September~~June 30, ~~2016,~~2017, 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 Company and the ~~U.S. federal banking agencies approved the implementation of~~Bank are subject to the Basel III regulatory capital reforms ~~in pertinent part~~ (the “Basel III Rules”), and ~~at the same time, promulgated rules effecting certain changes required by~~ the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). ~~In contrast to capital requirements historically, which were in the form of guidelines, Basel III was released in the form of regulations by each of the regulatory agencies.~~ The Basel III Rules are applicable to all banking organizations that are subject to minimum capital requirements, including federal and state banks and savings and loan associations, 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 $1 billion which are not publicly traded companies). The Basel III Rules not only increased most of the required minimum regulatory capital ratios, but they also introduced a Common Equity Tier 1 capital ratio and the concept of a capital conservation buffer. The Basel III Rules also expanded the definition of capital as in effect previously by establishing criteria that instruments must 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 previously generally qualified as Tier 1 capital now do not qualify, or their qualifications changed. The Basel III Rules also permitted banking organizations with less than $250.0 billion in assets to retain, through a one-time election, the existing treatment for accumulated other comprehensive income, which previously did not affect regulatory capital. The Company elected to retain this treatment, which reduces the volatility of regulatory capital levels. The Basel III Rules have maintained the general structure of the 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 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. A ~~new~~ capital conservation buffer, comprised of Common Equity Tier 1 capital, is also established above the regulatory minimum capital requirements. This capital conservation buffer is being phased in, which began January 1, 2016, at 0.625% of risk-weighted assets, was 1.25% of risk-weighted assets effective January 1, 2017, and further increases each subsequent year by an additional 0.625% until reaching the final level of 2.5% on January 1, 2019. ~~Generally, financial institutions became subject to the new Basel III Rules on January 1, 2015, with phase-in periods for many of the changes.~~

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 ratio. We believe this ratio provides investors with information regarding our

financial condition and how we evaluate our financial condition internally. The following table provides a reconciliation of this non-GAAP measure to the most comparable GAAP equivalent.


	At September 30,			At December 31,			At June 30,			At December 31,
(in thousands)	2016			2015			2017			2016
Tier 1 capital
Total shareholders’ equity	$	309,584		$	296,178		$	342,872		$	305,456
Less: Net unrealized gains on securities available for sale	(5,220		)	(3,408		)	(1,473		)	1,133
Disallowed Intangibles	(72,247		)	(72,203		)	(73,540		)	(71,951		)
Common equity tier 1 capital	$	232,117		220,567			$	267,859		234,638
Plus: Junior subordinated notes issued to capital trusts (qualifying restricted core capital)	23,667			23,587			23,743			23,692
Tier 1 capital	$	255,784		$	244,154		$	291,602		$	258,330
Risk-weighted assets	$	2,347,320		$	2,296,478		$	2,491,661		$	2,407,661
Tier 1 capital to risk-weighted assets	10.90		%	10.63		%	11.70		%	10.73		%
Common equity tier 1 capital to risk-weighted assets	9.89		%	9.60		%	10.75		%	9.75		%

The following table provides the capital levels and minimum required capital levels for the Company ~~MidWestOne~~ ~~Bank~~ and ~~at December 31, 2015 only, Central~~ theBank:


	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, 2016
At June 30, 2017
Consolidated:
Total capital/risk based assets	$	277,477	11.82	%	$	202,456	8.625	%	N/A		N/A		$	314,382	12.62	%	$	230,479	9.250	%	N/A		N/A
Tier 1 capital/risk based assets	255,784		10.90		155,510		6.625		N/A		N/A		291,602		11.70		180,645		7.250		N/A		N/A
Common equity tier 1 capital/risk based assets	232,118		9.89		120,300		5.125		N/A		N/A		267,859		10.75		143,271		5.750		N/A		N/A
Tier 1 capital/adjusted average assets	255,784		8.76		116,846		4.000		N/A		N/A		291,602		9.79		119,155		4.000		N/A		N/A
MidWestOne Bank:
Total capital/risk based assets	$	284,339	12.15	%	$	201,827	8.625	%	$	234,002	10.00	%	$	314,136	12.65	%	$	229,790	9.250	%	$	248,422	10.00	%
Tier 1 capital/risk based assets	262,656		11.22		155,026		6.625		140,401		8.00		291,388		11.73		180,106		7.250		198,737		8.00
Common equity tier 1 capital/risk based assets	262,656		11.22		119,926		5.125		152,101		6.50		291,388		11.73		142,842		5.750		161,474		6.50
Tier 1 capital/adjusted average assets	262,656		8.99		116,872		4.000		146,090		5.00		291,388		9.79		119,021		4.000		148,776		5.00
At December 31, 2015
At December 31, 2016
Consolidated:
Total capital/risk based assets	$	263,717	11.48	%	$	183,718	8.00	%	N/A		N/A		$	280,396	11.65	%	$	207,661	8.625	%	N/A		N/A
Tier 1 capital/risk based assets	244,154		10.63		137,789		6.00		N/A		N/A		258,304		10.73		159,508		6.625		N/A		N/A
Common equity tier 1 capital/risk based assets	220,567		9.60		103,342		4.50		N/A		N/A		234,638		9.75		123,393		5.125		N/A		N/A
Tier 1 capital/adjusted average assets	244,154		8.34		117,123		4.00		N/A		N/A		258,304		8.75		118,040		4.000		N/A		N/A
MidWestOne Bank:
Total capital/risk based assets	$	171,583	12.53	%	$	109,578	8.00	%	$	136,972	10.00	%	$	286,959	11.96	%	$	206,892	8.625	%	$	239,875	10.00	%
Tier 1 capital/risk based assets	154,726		11.30		82,183		6.00		109,578		8.00		264,871		11.04		158,917		6.625		191,900		8.00
Common equity tier 1 capital/risk based assets	154,726		11.30		61,638		4.50		89,032		6.50		264,871		11.04		122,936		5.125		155,919		6.50
Tier 1 capital/adjusted average assets	154,726		8.90		69,501		4.00		86,876		5.00		264,871		8.98		118,000		4.000		147,500		5.00
Central Bank:
Total capital/risk based assets	$	102,718	11.14	%	$	73,792	8.00	%	$	92,240	10.00	%
Tier 1 capital/risk based assets	100,017		10.84		55,344		6.00		73,792		8.00
Common equity tier 1 capital/risk based assets	100,017		10.84		41,508		4.50		59,956		6.50
Tier 1 capital/adjusted average assets	100,017		8.44		47,412		4.00		59,265		5.00
* The ratios for September 30, 2016 include a capital conservation buffer of 0.625%
* The ratios for December 31, 2016 include a capital conservation buffer of 0.625%, and the ratios for March 31, 2017 include a capital conservation buffer of 1.25%													* The ratios for December 31, 2016 include a capital conservation buffer of 0.625%, and the ratios for March 31, 2017 include a capital conservation buffer of 1.25%

On February 15, ~~2016~~2017, ~~30,200~~25,400 restricted stock units were granted to certain officers of the Company, and on May 15, 2017, 7,600 restricted stock units were granted to members of the board of directors of the Company. Additionally, during the first ~~nine~~six months of ~~2016~~2017, ~~25,633~~26,875 shares of common stock were issued in connection with the vesting of previously awarded grants of restricted stock units, of which ~~1,466~~2,957 shares were surrendered by grantees to satisfy tax requirements, and ~~6,875~~no nonvested restricted stock units were forfeited. In the first six months of 2017, ~~2,900~~8,250 shares of common stock were issued in connection with the exercise of previously issued stock options, and ~~950~~no options were forfeited.

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, 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 ~~$52.0~~$49.4 million as of ~~September~~June 30, ~~2016,~~2017, compared with ~~$47.1~~$43.2 million as of December 31, ~~2015.~~2016. Interest-bearing deposits in banks at ~~September~~June 30, ~~2016, increased to $6.3~~2017, were $3.2 million, an increase of ~~$3.6~~$1.4 million from $1.8 million at December 31, ~~2015.~~2016. Investment securities classified as available for sale, totaling ~~$436.2~~$443.0 million and ~~$427.2~~$477.5 million as of ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, respectively, could be sold to meet liquidity needs if necessary. Additionally, the Bank 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 us to borrow funds on a short-term basis, if necessary. Management believed that the Company had sufficient liquidity as of ~~September~~June 30, ~~2016~~2017 to meet the needs of borrowers and depositors.

Our principal sources of funds between December 31, ~~2015~~2016 and ~~September~~June 30, ~~2016~~2017 were proceeds proceeds from the maturity and sale of investment securities and ~~FHLB borrowings.~~the issuance of common stock. While scheduled loan amortization and maturing interest-bearing deposits in banks 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~~June 30, ~~2016,~~2017, we had ~~$18.8~~$15.0 million of long-term debt outstanding to an unaffiliated banking organization. See Note ~~11.~~10. “Long-Term Borrowings” to our consolidated financial statements for additional information related to our long-term debt. We also have $23.7 million of indebtedness payable under junior subordinated debentures issued to subsidiary trusts that issued trust preferred securities in pooled offerings. See Note ~~10.~~9. “Subordinated Notes Payable” to our consolidated financial statements for additional information related to our junior subordinated notes.

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. The price of one or more of the components of the Consumer Price Index (“CPI”) may fluctuate considerably and thereby influence the overall CPI without having a corresponding effect on interest rates or upon the cost of 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, standby and performance letters of credit, and commitments to originate residential mortgage loans held for sale. 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 off-balance-sheet commitments as we do for on-balance-sheet instruments.

Commitments to extend credit 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~~June 30, ~~2016,~~2017, outstanding commitments to extend credit totaled approximately ~~$439.1~~$517.2 million. We have established a reserve of ~~$0.3~~$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 ~~totalled $12.7~~totaled $11.6 million as of ~~September~~June 30, ~~2016.~~2017. 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~~June 30, ~~2016~~2017, there were approximately $~~2.7~~1.6 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.

Special Cautionary Note Regarding Forward-Looking Statements

This report contains certain “forward-looking statements” within the meaning of such term in the Private Securities Litigation Reform Act of 1995. We and our 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, 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,” “goals,” “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 have an impact on our ability to achieve operating results, growth plan goals and future prospects include, but are not limited to, the following:

credit quality deterioration or pronounced and sustained reduction in real estate market values that cause an increase in our allowance for credit losses and a reduction in net earnings;

our 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;

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;

fluctuations in the value of our investment securities;

governmental monetary and fiscal policies;

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 Basel III Rules and changes in the scope and cost of FDIC insurance and other coverages);

the ability to attract and retain key executives and employees experienced in banking and financial services;

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

our ability to adapt successfully to technological changes to compete effectively in the marketplace;

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

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;

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

the risks of mergers, 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;

volatility of rate-sensitive deposits;

operational risks, including data processing system failures or fraud;

asset/liability matching risks and liquidity risks;

the costs, effects and outcomes of existing or future litigation;

changes in general economic or industry conditions, internationally, nationally or in the communities in which we conduct business;

changes in accounting policies and practices, as may be adopted by state and federal regulatory agencies and the FASB;

war or terrorist activities which may cause further deterioration in the economy or cause instability in credit markets;

the effects of cyber-attacks; and

other factors and risks described under “Risk Factors” in our Annual Report on Form 10-K for the period ended December 31, 2016 and otherwise in our reports and filings with the Securities and Exchange Commission.

We qualify all of our forward-looking statements by the 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.

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, economic conditions in recent years have made liquidity risk (in particular, funding liquidity risk) a more prevalent concern among financial institutions. In general, liquidity risk is the risk of being unable to fund an entity’s obligations to creditors (including, in the case of banks, obligations to depositors) as such obligations become due ~~and/~~or fund its acquisition of assets.

Liquidity 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 ~~$31.7~~$23.2 million in the first ~~nine~~six months of ~~2016,~~2017, compared with ~~$22.1~~$20.3 million in the first ~~nine~~six months of ~~2015.~~2016. Net income before depreciation, amortization, and accretion is generally the primary contributor for net cash inflows from operating activities.

Net cash outflows from investing activities were ~~$26.8~~$10.9 million in the first ~~nine~~first six months of ~~2016,~~2017, compared to net cash inflows of ~~$53.1~~$38.2 million in the comparable ~~nine-month~~six-month period of ~~2015.~~2016. In the first ~~nine~~six months of ~~2016,~~2017, investment securities transactions resulted in net cash ~~outflows~~inflows of ~~$39.4~~$24.2 million, compared to inflows of ~~$155.8~~$51.9 million during the same period of ~~2015. The sale of our Rice Lake and Barron, Wisconsin and Davenport, Iowa branch offices contributed to net~~2016. Net cash ~~inflows~~outflows related to the net ~~decrease~~increase in loans ~~of $7.1~~were $34.2 million for the first ~~nine~~six months of ~~2016,~~2017, compared with ~~$89.5~~$17.6 million of net cash outflows related to the net increase in loans for the same period of ~~2015.~~2016. Purchases of premises and equipment resulted in ~~$4.6~~$1.7 million cash outflows in the first ~~nine~~six months of ~~2016,~~2017, compared to outflows of ~~$11.6~~$4.0 million in the comparable period of 2015, reflecting the finalization of the construction of a new Home Mortgage and Operations Center, which was complete at the end of 2015, at a total cost of $16.0 million, and the restoration and remodeling of the building that serves as the main office of the Bank and headquarters of the Company, which was completed in April 2016 at a cost of $13.8 million. There were no cash inflows from loan pool participations during the first nine months of 2016 compared to $19.3 million during the same period of 2015, as we sold our interest in these instruments in the second quarter of 2015.2016.

Net cash ~~inflows~~outflows from financing activities in the first ~~nine~~six months of ~~2016 was $2.0 thousand,~~2017 were $6.2 million, compared with net cash ~~outflows~~inflows of ~~$6.3~~$5.4 million for the same period of ~~2015.~~2016. The largest financing cash outflows during the ~~nine~~six months ended ~~September~~June 30, ~~2016 was~~2017 were a net decrease of ~~$17.6~~$25.0 million in ~~deposits, the use of $5.5~~FHLB borrowings, a $22.0 million ~~to pay dividends, a $4.0 million and~~ decrease in securities sold under agreement to repurchase, the use of $3.9 million to pay dividends, and ~~$3.8~~$2.5 million of payments on long-term debt. Sources of cash inflows during the first ~~nine~~six months of ~~2016~~2017 were $24.4 million of proceeds, net of expenses, from the issuance of common stock, an increase of ~~$17.8~~$13.3 million in deposits, and an increase of $9.6 million in federal funds ~~purchased, and a net increase of $13.0 million in FHLB borrowings.~~purchased.

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 asset/liability management plan. These acceptable sources of liquidity include:

•Federal Funds Lines

•FHLB Borrowings

•Brokered Deposits

•Brokered Repurchase Agreements

•Federal Reserve Bank Discount Window

Federal Funds Lines:

Routine liquidity requirements are met by fluctuations in the federal funds position of the Bank. 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 federal 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 funds lines totaling ~~$95.0~~$110.0 million, which lines are tested 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 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 requirements, community investment program credits, and the implications and cost of having to purchase incremental FHLB stock. ~~The current FHLB borrowing limit is 35% of total assets.~~ As of ~~September~~June 30, ~~2016~~2017, the Bank had $~~100.0~~90.0 million in outstanding FHLB borrowings, leaving $~~226.5~~193.0 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 certificate of deposit ~~lines/~~lines and 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 outside of the Bank’s core market 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 assets. Board approval is required to exceed this limit. ~~the~~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 it 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~~June 30, ~~2016~~2017.

Federal Reserve Bank Discount Window:

The Federal Reserve Bank Discount Window is another source of liquidity, particularly during difficult economic times. ~~the~~The Bank has a borrowing capacity with the Federal Reserve Bank of Chicago limited by the amount of municipal securities pledged against the line. As of ~~September~~June 30, ~~2016~~2017, the Bank had municipal securities with an approximate market value of $~~13.2~~13.0 million pledged for liquidity ~~purposes.~~purposes, and had a borrowing capacity of $11.7 million.

Interest Rate Risk

Interest rate risk is defined as the exposure of net interest income and fair value of financial instruments (interest-earning assets, deposits and borrowings) to movements in interest rates. The Company’s results of operations depend to a large degree on its net interest income and its ability to manage interest rate risk. The Company considers interest rate risk to be one of its more significant market risks. The major sources of the Company's interest rate risk are timing differences in the maturity and re-pricing characteristics of assets and liabilities, changes in the shape of the yield curve, changes in customer behavior and changes in relationships between rate indices (basis risk). Management measures these risks and their impact in various ways, including through the use of income simulation and valuation analyses. The interest rate scenarios used in such analysis may include gradual or rapid changes in interest rates, spread narrowing and widening, yield curve twists and changes in assumptions about customer behavior in various interest rate scenarios. A mismatch between maturities, interest rate sensitivities and prepayment characteristics of assets and liabilities results in interest-rate risk. Like most financial institutions, we have material interest-rate risk exposure to changes in both short-term and long-term interest rates, as well as variable interest rate indices (e.g., the prime rate or LIBOR). There has been ~~very little~~no material change in the Company’s interest rate profile between ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015.~~2016. The mix of earning assets and interest-bearing liabilities has remained stable over the period.

The Bank’s asset and liability committee meets regularly and is responsible for reviewing its interest rate sensitivity position and establishing policies to monitor and limit exposure to interest rate risk. Our asset and liability committee 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. There are two primary tools used to evaluate interest rate risk: net interest income simulation and

economic value of equity ("EVE"). In addition, interest rate gap is reviewed to monitor asset and liability repricing over various time periods.

Net Interest Income Simulation:

Management utilizes net interest income simulation models to estimate the near-term effects of changing interest rates on its net interest income. Net interest income simulation involves forecasting net interest income under a variety of scenarios, which include varying the level of interest rates and the shape of the yield curve. Management exercises its best judgment in making assumptions regarding events that management can influence, such as non-contractual deposit re-pricings, and events outside management's control, such as customer behavior on loan and deposit activity and the effect that competition has on both loan

and deposit pricing. These assumptions are subjective and, as a result, net interest income simulation results will differ from actual results due to the timing, magnitude and frequency of interest rate changes, changes in market conditions, customer behavior and management strategies, among other factors. We perform various sensitivity analyses on assumptions of deposit attrition and deposit re-pricing.

The following table presents the anticipated effect on net interest income over a twelve month period if short- and long-term interest rates were to sustain an immediate decrease of 100 basis points, or an immediate increase of 100 basis points ~~and~~or 200 basis points:

Immediate Change in Rates
+100 +200
(dollars in thousands)
September 30, 2016
Dollar change $ 766
$ 1,848

Percent change 0.8 % 1.9 %
December 31, 2015
Dollar change $ 636
$ 1,616

Percent change 0.7 % 1.7 %



	Immediate Change in Rates
	-100			+100			+200
(dollars in thousands)
June 30, 2017
Dollar change	$	(945	)	$	130		$	(68	)
Percent change	(1.0		)%	0.1		%	(0.1		)%
December 31, 2016
Dollar change	$	(1,276	)	$	157		$	453
Percent change	(1.3		)%	0.2		%	0.5		%

As of ~~September~~June 30, ~~2016, 40.3%~~2017, 38.1% of the Company’s earning asset balances will reprice or are expected to pay down in the next twelve months, and ~~45.6%~~64.4% of the Company’s deposit balances are low cost or no cost deposits.

Economic Value of Equity:

Management also uses EVE to measure risk in the balance sheet that might not be taken into account in the net interest income simulation analysis. Net interest income simulation highlights exposure over a relatively short time period, while EVE analysis incorporates all cash flows over the estimated remaining life of all balance sheet positions. The valuation of the balance sheet, at a point in time, is defined as the discounted present value of asset cash flows minus the discounted present value of liability cash flows. EVE analysis addresses only the current balance sheet and does not incorporate the run-off replacement assumptions that are used in the net interest income simulation model. As with the net interest income simulation model, EVE analysis is based on key assumptions about the timing and variability of balance sheet cash flows and does not take into account any potential responses by management to anticipated changes in interest rates.

Interest Rate Gap:

The interest rate gap is the difference between earning assets and interest-bearing liabilities re-pricing within a given period and represents the net asset or liability sensitivity at a point in time. An interest rate gap measure could be significantly affected by external factors such as loan prepayments, early withdrawals of deposits, changes in the correlation of various interest-bearing instruments, competition, or a rise or decline in interest rates.

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 Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of ~~September~~June 30, ~~2016~~2017. Based on this evaluation, our chief executive officer and chief financial officer have concluded 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.

~~Special Cautionary Note Regarding Forward-Looking Statements~~

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

~~our 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;~~

~~fluctuations in the value of our investment securities;~~

~~governmental monetary and fiscal policies;~~

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 Act and the extensive regulations promulgated and to be promulgated thereunder, as well as the Basel III Rules and changes in the scope and cost of FDIC insurance and other coverages);

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

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

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

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

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

~~volatility of rate-sensitive deposits;~~

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

~~asset/liability matching risks and liquidity risks;~~

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

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

~~changes in accounting policies and practices, as may be adopted by state and federal regulatory agencies and the FASB;~~

~~the effects of cyber-attacks; and~~

~~other factors and risks described under “Risk Factors” in our Annual Report on Form 10-K for the period ended December 31, 2015.~~

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 or of which any of their property is the subject, 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, ~~2015~~2016. 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.

We did not repurchase any of our equity securities during the ~~third~~second quarter of ~~2016.~~2017.

On July 21, 2016, the board of directors of the Company approved a new share repurchase program, allowing for the repurchase of up to $5.0 million of stock through December 31, 2018. The new repurchase program replaced the Company’s prior repurchase program, pursuant to which the Company had repurchased $1.2 million of common stock since the plan was announced in July 2014. Pursuant to the repurchase 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. Of the $5.0 million of stock authorized under the repurchase plan, $5.0 million remained available for possible future repurchases as of ~~September~~June 30, ~~2016.~~2017.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.



Exhibit Number	Description		Incorporated by Reference to:

~~10.1~~		~~Employment Agreement between MidWestOne~~ ~~Financial Group, Inc. and Kurt Weise, dated December 12, 2014~~		~~Current Report on Form 8-K filed October 3, 2016~~

~~10.2~~		~~Letter of Amendment to Employment Agreement between MidWestOne~~ ~~Financial Group, Inc. and Kurt Weise, effective as of September 30, 2016~~		~~Current Report on Form 8-K filed October 3, 2016~~

~~10.3~~		~~Employment Agreement between MidWestOne~~ ~~Financial Group, Inc. and Kevin Kramer, effective October 4, 2016~~		~~Current Report on Form 8-K filed October 4, 2016~~

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

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:	~~November~~August 3, ~~2016~~2017	By:	/s/ CHARLES N. FUNK
			Charles N. Funk
			President and Chief Executive Officer
			(Principal Executive Officer)

		By:	/s/ KATIE A. LORENSON
			Katie A. Lorenson
			Senior Vice President and Chief Financial Officer
			(Principal Financial Officer)

6563



(in thousands)	May 1, 2015
ASSETS
Cash and due from banks	$	28,404
Investment securities	160,775
Loans	916,973
Premises and equipment	27,908
Goodwill	64,654
Core deposit intangible	12,773
Trade name intangible	1,380
FDIC indemnification asset	3,753
Other real estate owned	8,420
Other assets	14,482
Total assets	1,239,522
LIABILITIES
Deposits	1,049,167
Short-term borrowings	16,124
Junior subordinated notes issued to capital trusts	8,050
Subordinated notes payable	12,669
Accrued expenses and other liabilities	11,617
Total liabilities	1,097,627
Total identifiable net assets	141,895

Consideration:
Market value of common stock at $29.31 per share at May 1, 2015 (2,723,083 shares of common stock issued), net of stock illiquidity discount due to restrictions	77,895
Cash paid	64,000
Total fair value of consideration	$	141,895



(in thousands)	Purchased Credit Impaired Loans			Purchased Non-Credit Impaired Loans
Contractually required principal payments	$	36,886		$	905,314
Nonaccretable difference	(6,675		)	—
Principal cash flows expected to be collected	30,211			905,314
Accretable discount⁽¹⁾	(1,882		)	(16,670		)
Fair value of acquired loans	$	28,329		$	888,644



	Pro Forma
	Three Months Ended September 30,		Nine Months Ended September 30,
	Three Months Ended September 30,		Nine Months Ended September 30,
(in thousands)	2015		2015
Total revenues (net interest income plus noninterest income)	$	31,258	$	95,175
Net income	$	6,455	$	17,052



	As of September 30, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
(in thousands)
U.S. Government agencies and corporations	$	5,958	$	86	$	—	$	6,044
State and political subdivisions	158,902		6,910		3		165,809
Mortgage-backed securities	42,592		980		3		43,569
Collateralized mortgage obligations	172,031		789		648		172,172
Corporate debt securities	46,902		493		29		47,366
Total debt securities	426,385		9,258		683		434,960
Other equity securities	1,257		42		20		1,279
Total	$	427,642	$	9,300	$	703	$	436,239



	As of December 31, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
(in thousands)
U.S. Treasury securities	$	6,931	$	—	$	21	$	6,910
U.S. Government agencies and corporations	26,600		99		46		26,653
State and political subdivisions	176,794		6,662		72		183,384
Mortgage-backed securities	56,950		569		457		57,062
Collateralized mortgage obligations	107,613		321		1,530		106,404
Corporate debt securities	45,602		50		86		45,566
Total debt securities	420,490		7,701		2,212		425,979
Other equity securities	1,250		50		38		1,262
Total	$	421,740	$	7,751	$	2,250	$	427,241



	Allowance for Loan Losses and Recorded Investment in Loan Receivables
	As of September 30, 2016 and December 31, 2015
(in thousands)	Agricultural		Commercial and Industrial		Commercial Real Estate		Residential Real Estate		Consumer		Total
September 30, 2016
Allowance for loan losses:
Individually evaluated for impairment	$	351	$	1,023	$	2,541	$	237	$	—	$	4,152
Collectively evaluated for impairment	2,151		4,288		7,305		2,680		365		16,789
Purchased credit impaired loans	—		—		177		277		—		454
Total	$	2,502	$	5,311	$	10,023	$	3,194	$	365	$	21,395
Loans receivable
Individually evaluated for impairment	$	3,120	$	9,048	$	10,845	$	3,954	$	—	$	26,967
Collectively evaluated for impairment	118,505		467,530		992,505		477,049		36,935		2,092,524
Purchased credit impaired loans	—		150		16,296		5,895		—		22,341
Total	$	121,625	$	476,728	$	1,019,646	$	486,898	$	36,935	$	2,141,832




	Allowance for Loan Loss Activity
	For the Nine Months Ended September 30, 2016 and 2015
(in thousands)	Agricultural			Commercial and Industrial			Commercial Real Estate			Residential Real Estate			Consumer			Unallocated			Total
2016
Beginning balance	$	1,417		$	5,451		$	8,556		$	3,968		$	409		$	(374	)	$	19,427
Charge-offs	(265		)	(530		)	(70		)	(708		)	(169		)	—			(1,742		)
Recoveries	27			91			188			146			17			—			469
Provision	1,323			299			1,349			(212		)	108			374			3,241
Ending balance	$	2,502		$	5,311		$	10,023		$	3,194		$	365		$	—		$	21,395
2015
Beginning balance	$	1,506		$	5,780		$	4,399		$	3,167		$	323		$	1,188		$	16,363
Charge-offs	—			(397		)	(430		)	(641		)	(76		)	—			(1,544		)
Recoveries	—			361			6			22			21			—			410
Provision	128			(73		)	2,646			1,641			116			(816		)	3,642
Ending balance	$	1,634		$	5,671		$	6,621		$	4,189		$	384		$	372		$	18,871