MOFG 10-Q Quarterly Report Sept. 30, 2023

MIDWESTONE FINANCIAL GROUP, INC.

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mofg-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For the quarterly period ended September 30, 2023


☐			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						( 319 ) 356-5800
(Address of principal executive offices, including zip code)						(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $1.00 par value

MOFG

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). x Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

As of November 1, 2023, there were 15,691,738 shares of common stock, $1.00 par value per share, outstanding.

Table of Contents

MIDWEST ONE FINANCIAL GROUP, INC.

Form 10-Q Quarterly Report

Table of Contents

Page No.

PART I

Item 1.

Financial Statements (unaudited)

Consolidated Balance Sheets

Consolidated Statements of Income

Consolidated Statements of Comprehensive Income

Consolidated Statements of Shareholders' Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Item 4.

Controls and Procedures

Part II

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

Item 5.

Other Information

Item 6.

Exhibits

Signatures

Table of Contents

PART I – FINANCIAL INFORMATION

Glossary of Acronyms, Abbreviations, and Terms

As used in this report, references to "MidWest One ", "we", "our", "us", the "Company", and similar terms refer to the consolidated entity consisting of MidWest One Financial Group, Inc. and its wholly-owned subsidiaries. MidWest One Bank or the "Bank" refers to MidWest One 's bank subsidiary, MidWest One Bank.

The acronyms, abbreviations, and terms listed below are used in various sections of this Quarterly Report on Form 10-Q ("Form 10-Q"), including "Item 1. Financial Statements" and "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations."


ACL	Allowance for Credit Losses	FHLB	Federal Home Loan Bank
AFS	Available for Sale	FHLBC	Federal Home Loan Bank of Chicago
AOCI	Accumulated Other Comprehensive Income	FHLBDM	Federal Home Loan Bank of Des Moines
ASC	Accounting Standards Codification	FHLMC	Federal Home Loan Mortgage Corporation
ASU	Accounting Standards Update	FNBF	First National Bank in Fairfield
ATM	Automated Teller Machine	FNBM	First National Bank of Muscatine
Basel III Rules	A comprehensive capital framework and rules for U.S. banking organizations approved by the FRB and the FDIC in 2013	FNMA	Federal National Mortgage Association
BHCA	Bank Holding Company Act of 1956, as amended	FRB	Board of Governors of the Federal Reserve System
BOLI	Bank Owned Life Insurance	GAAP	U.S. Generally Accepted Accounting Principles
CAA	Consolidated Appropriations Act, 2021	GLBA	Gramm-Leach-Bliley Act of 1999
CARES Act	Coronavirus Aid, Relief and Economic Security Act	GNMA	Government National Mortgage Association
CDARS	Certificate of Deposit Account Registry Service	ICS	Insured Cash Sweep
CECL	Current Expected Credit Loss	IOFB	Iowa First Bancshares Corp.
CMO	Collateralized Mortgage Obligations	LIBOR	The London Inter-bank Offered Rate
COVID-19	Coronavirus Disease 2019	MBS	Mortgage-Backed Securities
CRA	Community Reinvestment Act	PCD	Purchase Credit Deteriorated
CRE	Commercial Real Estate	PPP	Paycheck Protection Program
DCF	Discounted Cash Flows	ROU	Right-of-Use
DNVB	Denver Bankshares, Inc.	RPA	Credit Risk Participation Agreement
Dodd-Frank Act	Dodd-Frank Wall Street Reform and Consumer Protection Act	RRE	Residential Real Estate
ECL	Expected Credit Losses	SBA	U.S. Small Business Administration
EVE	Economic Value of Equity	SEC	U.S. Securities and Exchange Commission
FASB	Financial Accounting Standards Board	SOFR	Secured Overnight Financing Rate
FDIC	Federal Deposit Insurance Corporation	TDR	Troubled Debt Restructuring

Table of Contents

Item 1. Financial Statements (unaudited).

MIDWEST ONE FINANCIAL GROUP, INC.

CONSOLIDATED BALANCE SHEETS


	September 30, 2023		December 31, 2022
(unaudited) (dollars in thousands, except per share amounts)
ASSETS
Cash and due from banks	$	71,015	$	83,990
Interest earning deposits in banks	3,773		2,445

Total cash and cash equivalents	74,788		86,435
Debt securities available for sale at fair value	872,770		1,153,547
Held to maturity securities at amortized cost	1,085,751		1,129,421
Total securities	1,958,521		2,282,968
Loans held for sale	2,528		612
Gross loans held for investment	4,078,060		3,854,791
Unearned income, net	( 12,091 )		( 14,267 )
Loans held for investment, net of unearned income	4,065,969		3,840,524
Allowance for credit losses	( 51,600 )		( 49,200 )
Total loans held for investment, net	4,014,369		3,791,324
Premises and equipment, net	85,589		87,125
Goodwill	62,477		62,477
Other intangible assets, net	25,510		30,315
Foreclosed assets, net	—		103
Other assets	244,036		236,517
Total assets	$	6,467,818	$	6,577,876

LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest bearing deposits	$	924,213	$	1,053,450
Interest bearing deposits	4,439,111		4,415,492
Total deposits	5,363,324		5,468,942
Short-term borrowings	373,956		391,873
Long-term debt	124,526		139,210
Other liabilities	100,601		85,058
Total liabilities	5,962,407		6,085,083

Shareholders' equity
Preferred stock, no par value; authorized 500,000 shares; no shares issued and outstanding	—		—
Common stock, $ 1.00 par value; authorized 30,000,000 shares; issued shares of 16,581,017 and 16,581,017 ; outstanding shares of 15,691,738 and 15,623,977	16,581		16,581
Additional paid-in capital	301,889		302,085
Retained earnings	295,862		289,289
Treasury stock at cost, 889,279 and 957,040 shares	( 24,315 )		( 26,115 )
Accumulated other comprehensive loss	( 84,606 )		( 89,047 )
Total shareholders' equity	505,411		492,793
Total liabilities and shareholders' equity	$	6,467,818	$	6,577,876

See accompanying notes to consolidated financial statements.

Table of Contents

MIDWEST ONE FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(unaudited) (dollars in thousands, except per share amounts)	2023		2022		2023		2022
Interest income
Loans, including fees	$	51,870	$	40,451	$	148,086	$	104,515
Taxable investment securities	9,526		10,635		29,704		28,334
Tax-exempt investment securities	1,802		2,326		5,751		7,076
Other	374		9		686		77
Total interest income	63,572		53,421		184,227		140,002
Interest expense
Deposits	23,128		5,035		58,564		11,118
Short-term borrowings	3,719		767		7,623		1,115
Long-term debt	2,150		1,886		6,427		4,975
Total interest expense	28,997		7,688		72,614		17,208
Net interest income	34,575		45,733		111,613		122,794
Credit loss expense	1,551		638		4,081		3,920
Net interest income after credit loss expense	33,024		45,095		107,532		118,874
Noninterest income
Investment services and trust activities	3,004		2,876		9,056		8,557
Service charges and fees	2,146		2,075		6,201		5,449
Card revenue	1,817		1,898		5,412		5,426
Loan revenue	1,462		1,722		3,791		9,538
Bank-owned life insurance	626		579		1,844		1,668


Investment securities gains (losses), net	79		( 163 )		( 13,093 )		272
Other	727		3,601		1,350		5,669
Total noninterest income	9,861		12,588		14,561		36,579
Noninterest expense
Compensation and employee benefits	18,558		20,046		58,551		57,665
Occupancy expense of premises, net	2,405		2,577		7,725		7,609
Equipment	2,123		2,358		6,729		6,366
Legal and professional	1,678		2,012		5,096		6,800
Data processing	1,504		1,731		4,388		4,199
Marketing	782		1,139		2,910		3,325
Amortization of intangibles	1,460		1,789		4,806		4,299
FDIC insurance	783		415		2,394		1,255
Communications	206		302		727		840
Foreclosed assets, net	2		42		( 32 )		( 66 )

Other	2,043		2,212		6,488		6,056
Total noninterest expense	31,544		34,623		99,782		98,348
Income before income tax expense	11,341		23,060		22,311		57,105
Income tax expense	2,203		4,743		4,182		12,272
Net income	$	9,138	$	18,317	$	18,129	$	44,833

Per common share information
Earnings - basic	$	0.58	$	1.17	$	1.16	$	2.86
Earnings - diluted	$	0.58	$	1.17	$	1.15	$	2.86
Dividends paid	$	0.2425	$	0.2375	$	0.7275	$	0.7125

See accompanying notes to consolidated financial statements.

Table of Contents

MIDWEST ONE FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(unaudited) (dollars in thousands)	2023		2022		2023		2022
Net income	$	9,138	$	18,317	$	18,129	$	44,833

Other comprehensive income (loss), net of tax:
Unrealized loss from AFS debt securities:
Unrealized net loss on debt securities AFS	( 4,578 )		( 42,935 )		( 13,658 )		( 121,179 )
Reclassification adjustment for losses (gains) included in net income	( 79 )		163		13,093		( 272 )
Reclassification of the change in fair value of AFS debt securities attributable to change in hedged risk	454		—		454		—
Income tax benefit	1,065		10,823		27		31,358
Unrealized net loss on AFS debt securities, net of reclassification adjustments	( 3,138 )		( 31,949 )		( 84 )		( 90,093 )
Reclassification of AFS debt securities to HTM:
Amortization of the net unrealized loss from the reclassification of AFS debt securities to HTM	586		746		1,768		3,152
Income tax expense	( 148 )		( 189 )		( 447 )		( 817 )
Amortization of net unrealized loss from the reclassification of AFS debt securities to HTM, net	438		557		1,321		2,335
Unrealized gain from cash flow hedging instruments:
Unrealized net gains in cash flow hedging instruments	1,829		—		5,288		—
Reclassification adjustment for net gain in cash flow hedging instruments included in income	( 761 )		—		( 999 )		—
Income tax expense	( 270 )		—		( 1,085 )		—
Unrealized net gains on cash flow hedge instruments, net of reclassification adjustment	798		—		3,204		—
Other comprehensive income (loss), net of tax	( 1,902 )		( 31,392 )		4,441		( 87,758 )
Comprehensive income (loss)	$	7,236	$	( 13,075 )	$	22,570	$	( 42,925 )

See accompanying notes to consolidated financial statements.

Table of Contents

MIDWEST ONE FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY


Three Months Ended September 30,
	Common Stock
(unaudited) (dollars in thousands, except per share amounts)	Par Value		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total














Balance at June 30, 2022	$	16,581	$	300,859	$	262,395	$	( 25,772 )	$	( 65,231 )	$	488,832
Net Income	—		—		18,317		—		—		18,317
Other comprehensive loss	—		—		—		—		( 31,392 )		( 31,392 )
Release/lapse of restriction on RSUs ( 2,280 shares, net)	—		( 81 )		( 4 )		58		—		( 27 )
Repurchase of common stock ( 14,586 shares)	—		—		—		( 431 )		—		( 431 )
Share-based compensation	—		640		—		—		—		640
Dividends paid on common stock ($ 0.2375 per share)	—		—		( 3,710 )		—		—		( 3,710 )
Balance at September 30, 2022	$	16,581	$	301,418	$	276,998	$	( 26,145 )	$	( 96,623 )	$	472,229















Balance at June 30, 2023	$	16,581	$	301,424	$	290,548	$	( 24,508 )	$	( 82,704 )	$	501,341
Net Income	—		—		9,138		—		—		9,138
Other comprehensive loss	—		—		—		—		( 1,902 )		( 1,902 )
Release/lapse of restriction on RSUs ( 6,615 shares, net)	—		( 227 )		( 19 )		193		—		( 53 )

Share-based compensation	—		692		—		—		—		692
Dividends paid on common stock ($ 0.2425 per share)	—		—		( 3,805 )		—		—		( 3,805 )
Balance at September 30, 2023	$	16,581	$	301,889	$	295,862	$	( 24,315 )	$	( 84,606 )	$	505,411

Nine Months Ended September 30,
	Common Stock
(unaudited) (dollars in thousands, except per share amounts)	Par Value		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total
Balance at December 31, 2021	$	16,581	$	300,940	$	243,365	$	( 24,546 )	$	( 8,865 )	$	527,475
Net income	—		—		44,833		—		—		44,833
Other comprehensive loss	—		—		—		—		( 87,758 )		( 87,758 )
Release/lapse of restriction on RSUs ( 43,079 shares, net)	—		( 1,359 )		( 42 )		1,131		—		( 270 )
Repurchase of common stock ( 91,401 shares)	—		—		—		( 2,730 )		—		( 2,730 )
Share-based compensation	—		1,837		—		—		—		1,837
Dividends paid on common stock ($ 0.7125 per share)	—		—		( 11,158 )		—		—		( 11,158 )
Balance at September 30, 2022	$	16,581	$	301,418	$	276,998	$	( 26,145 )	$	( 96,623 )	$	472,229

Balance at December 31, 2022	$	16,581	$	302,085	$	289,289	$	( 26,115 )	$	( 89,047 )	$	492,793
Net income	—		—		18,129		—		—		18,129
Other comprehensive income	—		—		—		—		4,441		4,441
Release/lapse of restriction on RSUs ( 67,761 shares, net)	—		( 2,261 )		( 146 )		1,800		—		( 607 )

Share-based compensation	—		2,065		—		—		—		2,065
Dividends paid on common stock ($ 0.7275 per share)	—		—		( 11,410 )		—		—		( 11,410 )
Balance at September 30, 2023	$	16,581	$	301,889	$	295,862	$	( 24,315 )	$	( 84,606 )	$	505,411

Table of Contents

MIDWEST ONE FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Nine Months Ended September 30,
(unaudited) (dollars in thousands)	2023		2022
Operating Activities:
Net income	$	18,129	$	44,833
Adjustments to reconcile net income to net cash provided by operating activities:
Credit loss expense	4,081		3,920

Depreciation, amortization, and accretion	9,420		7,511


Net change in premises and equipment due to writedown or sale	68		500
Share-based compensation	2,065		1,837
Net loss (gain) on sale or call of debt securities available for sale	13,093		( 272 )



Net change in foreclosed assets due to writedown or sale	( 29 )		( 71 )
Net gain on sale of loans held for sale	( 912 )		( 1,705 )
Origination of loans held for sale	( 41,650 )		( 81,490 )
Proceeds from sales of loans held for sale	40,646		93,792
Increase in cash surrender value of bank-owned life insurance	( 1,844 )		( 1,668 )
(Increase) decrease in deferred income taxes, net	( 75 )		4,082
Bargain purchase gain	—		( 1,257 )
Change in:
Other assets	( 2,701 )		( 34,484 )
Other liabilities	15,543		36,791
Net cash provided by operating activities	$	55,834	$	72,319
Investing Activities:

Purchases of equity securities	$	( 750 )	$	( 1,250 )
Proceeds from sales of debt securities available for sale	218,667		129,823
Proceeds from maturities and calls of debt securities available for sale	101,194		133,018
Purchases of debt securities available for sale	( 54,690 )		( 386,278 )

Proceeds from maturities and calls of debt securities held to maturity	43,963		108,180
Net increase in loans held for investment	( 224,068 )		( 215,738 )
Purchases of premises and equipment	( 2,280 )		( 1,980 )
Proceeds from sale of foreclosed assets	135		345
Proceeds from sale of premises and equipment	880		23
Net cash acquired in business acquisition	—		31,375


Net cash provided by (used in) investing activities	$	83,051	$	( 202,482 )
Financing Activities:
Net (decrease) increase in:
Deposits	$	( 105,713 )	$	( 101,501 )
Short-term borrowings	( 17,917 )		121,627


Payments on finance lease liability	( 135 )		( 121 )

Payments of Federal Home Loan Bank borrowings	( 11,000 )		( 21,000 )
Proceeds from other long-term debt	—		25,000
Payments of other long-term debt	( 3,750 )		( 5,000 )

Taxes paid relating to the release/lapse of restriction on RSUs	( 607 )		( 270 )
Dividends paid	( 11,410 )		( 11,158 )


Repurchase of common stock	—		( 2,730 )
Net cash (used in) provided by financing activities	$	( 150,532 )	$	4,847
Net change in cash and cash equivalents	$	( 11,647 )	$	( 125,316 )
Cash and cash equivalents at beginning of period	86,435		203,830
Cash and cash equivalents at end of period	$	74,788	$	78,514

Table of Contents


	Nine Months Ended September 30,
(unaudited) (dollars in thousands)	2023		2022
Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	65,992	$	17,628
Cash paid during the period for income taxes, net of refunds	1,456		8,229
Supplemental schedule of non-cash investing and financing activities:
Transfer of loans to foreclosed assets, net	$	3	$	20


Transfer of premises and equipment to assets held for sale	—		1,349
Transfer of debt securities available for sale to debt securities held to maturity	—		1,253,179
Supplemental schedule of non-cash investing activities from acquisition:
Non-cash assets acquired:
Investment securities	$	—	$	119,820
Total loans held for investment, net	—		281,326
Premises and equipment	—		7,363
Core deposit intangible	—		16,500
Bank-owned life insurance	—		7,862
Other assets	—		3,766
Total non-cash assets acquired	$	—	$	436,637
Liabilities assumed:
Deposits	$	—	$	463,638
Short-term borrowings	—		1,541
FHLB borrowings	—		250
Other liabilities	—		1,326
Total liabilities assumed	$	—	$	466,755

See accompanying notes to consolidated financial statements.

Table of Contents

MidWest One Financial Group, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

1. Nature of Business and Significant Accounting Policies

Nature of Business

MidWest One Financial Group, Inc. (the "Company"), an Iowa corporation formed in 1983, is a bank holding company under the BHCA and a financial holding company under the GLBA. Our principal executive offices are located at 102 South Clinton Street, Iowa City, Iowa 52240.

The Company owns all of the outstanding common stock of MidWest One Bank, an Iowa state non-member bank chartered in 1934 with its main office in Iowa City, Iowa. We operate primarily through MidWest One Bank, our bank subsidiary.

On June 9, 2022, the Company acquired Iowa First Bancshares Corp., a bank holding company whose wholly-owned banking subsidiaries were First National Bank of Muscatine and First National Bank in Fairfield, community banks located in Muscatine and Fairfield, Iowa, respectively. Immediately following the completion of the acquisition, First National Bank of Muscatine and First National Bank in Fairfield were merged with and into the Bank. As consideration for the merger, we paid cash in the amount of $ 46.7 million.

Basis of Presentation

The accompanying interim condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934. Accordingly, certain disclosures accompanying annual consolidated financial statements are omitted. In the opinion of management, all significant intercompany accounts and transactions have been eliminated and adjustments, consisting solely of normal recurring accruals and considered necessary for the fair presentation of financial statements for the interim periods, have been included. The current period's results of operations are not necessarily indicative of the results that ultimately may be achieved for the year. The interim condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Form 10-K for the year ended December 31, 2022, filed with the SEC on March 13, 2023.

Use of Estimates

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 months ended September 30, 2023 may not be indicative of results for the year ending December 31, 2023, or for any other period.

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, 2022, filed with the SEC on March 13, 2023.

Segment Reporting

The Company’s activities are considered to be one reportable segment for financial reporting purposes. The Company is engaged in the business of commercial and retail banking and trust and investment management services with operations throughout central and eastern Iowa, the Minneapolis/St. Paul metropolitan area of Minnesota, southwestern Wisconsin, Naples and Fort Myers, Florida, and Denver, Colorado. Substantially all income is derived from a diverse base of commercial, mortgage and retail lending activities, and investments.

Effect of New Financial Accounting Standards

Accounting Guidance Pending Adoption at September 30, 2023

On March 12, 2020, the FASB issued ASU 2020-04, Reference Rate Reform (ASC 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting . ASC 848 contains optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform. Certain optional expedients and exceptions for contract modifications and hedging relationships were amended in ASU 2021-01, Reference Rate Reform (Topic 848): Scope Refinement , issued on January 7, 2021. In addition, ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset

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Date of Topic 848 , deferred the sunset date of Topic 848 from December 31, 2022 to December 31, 2024, after which time entities will no longer be permitted to apply the relief in Topic 848. The adoption of ASU 2020-04 is not expected to have a material impact on the Company’s consolidated financial statements.

Accounting Guidance Adopted at September 30, 2023

On March 31, 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. For creditors that have adopted the CECL accounting guidance within ASU 2016-13, the amendments eliminate the accounting guidance for TDRs within ASC 310-40, while also enhancing the disclosure requirements for certain loan refinancings and restructurings when a borrower is experiencing financial difficulty. In addition, public business entities must also disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC 326-20. The amendments are effective for fiscal years beginning after December 15, 2022 and should be applied prospectively, with an option to apply a modified retrospective transition approach for the recognition and measurement of TDRs. The adoption of ASU 2022-02 was applied prospectively and did not have a material impact on the Company's consolidated financial statements.

2. Business Combinations

On June 9, 2022, the Company acquired 100 % of the equity of IOFB through a merger and acquired its wholly-owned subsidiaries FNBM and FNBF for cash consideration of $ 46.7 million. The primary reasons for the acquisition were to enter the Muscatine, Iowa market and increase our presence in Fairfield, Iowa. Immediately following the completion of the acquisition, FNBM and FNBF were merged with and into the Bank.

The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting. The assets and liabilities, both tangible and intangible, were recorded at their fair values as of the June 9, 2022 acquisition date net of any applicable tax effects using a methodology similar to the Company's legacy assets and liabilities (refer to Note 14. Fair Value of Financial Instruments and Fair Value Measurements for additional information regarding the fair value methodology). The bargain purchase gain, which is recorded in 'Other' noninterest income, was generated as a result of the estimated fair value of identifiable net assets acquired exceeding the merger consideration. Bargain purchase gains are recorded net of deferred taxes and are treated as permanent differences, resulting in lower effective tax rate in the period recorded. The revenue and earnings amount specific to IOFB since the acquisition date that are included in the consolidated results for the three and nine months ended September 30, 2022 are not readily determinable. The disclosures of these amounts are impracticable due to the merging of certain processes and systems at the acquisition date.

The table below summarizes the amounts recognized as of the acquisition date for each major class of assets acquired and liabilities assumed:


(in thousands)	June 9, 2022

Merger consideration
Cash consideration	$	46,672
Identifiable net assets acquired, at fair value
Assets acquired
Cash and due from banks	$	10,192
Interest earning deposits in banks	67,855
Debt securities	119,820
Loans held for investment	281,326
Premises and equipment	7,363
Core deposit intangible	16,500
Other assets	14,140
Total assets acquired	517,196
Liabilities assumed
Deposits	$	( 463,638 )
Other liabilities	( 3,117 )
Total liabilities assumed	( 466,755 )
Identifiable net assets acquired, at fair value	50,441
Bargain Purchase Gain	$	3,769

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Of the $ 281.3 million net loans acquired, $ 11.0 million exhibited credit deterioration on the date of purchase. The following table provides a summary of these PCD loans at acquisition:


(in thousands)	June 9, 2022

Par value of PCD loans acquired	$	15,396
PCD ACL at acquisition	( 3,371 )
Non-credit discount on PCD loans	( 1,005 )
Purchase price of PCD loans	$	11,020

For illustrative purposes only, the following table presents certain unaudited pro forma information for the three and nine months ended September 30, 2022. This unaudited, estimated pro forma information was calculated as if IOFB had been acquired as of the beginning of the year prior to the date of acquisition. This unaudited pro forma information combines the historical results of IOFB and the Company and includes adjustments for the estimated impact of certain fair value purchase accounting, interest expense, acquisition-related expenses, and income tax expense for the respective periods. The pro forma information is not indicative of what would have occurred had the acquisition occurred as of the beginning of the year prior to the acquisition. Additionally, MidWest One expects to achieve further operating cost savings and other business synergies, including revenue growth as a result of the acquisition, which are not reflected in the pro forma amounts that follow. As a result, actual amounts would have differed from the unaudited pro forma information presented.


	Three Months Ended			Nine Months Ended
	September 30,			September 30,
(in thousands, except per share amounts)		2022		2022
Total revenues		$	55,954	$	165,053
Net Income		$	17,111	$	46,663
EPS - basic		$	1.10	$	2.98
EPS - diluted		$	1.09	$	2.97

The Company announced during the third quarter of 2023 the execution of a definitive merger agreement for the acquisition of DNVB, the parent company for the Bank of Denver.

The following table summarizes the DNVB and IOFB acquisition-related expenses, which are included in the respective income statement line items, for the periods indicated:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2023		2022		2023		2022
Noninterest Expense
Compensation and employee benefits	$	—	$	132	$	70	$	282
Occupancy expense of premises, net	—		—		—		1
Equipment	—		14		—		25
Legal and professional	11		193		11		894
Data processing	—		304		65		380
Marketing	—		90		—		162
Communications	—		—		—		3
Other	—		30		1		45
Total acquisition-related expenses	$	11	$	763	$	147	$	1,792

3. Debt Securities

On January 1, 2022, the Company transferred, at fair value, $ 1.25 billion of mortgage-backed securities, collateralized mortgage obligations, and securities issued by state and political subdivisions from the available for sale classification to the held to maturity classification. The net unrealized after tax loss of $ 11.5 million associated with those re-classified securities remained in accumulated other comprehensive loss and will be amortized over the remaining life of the securities. At September 30, 2023, there was $ 7.4 million of net unrealized after tax loss remaining in accumulated other comprehensive loss. No gains or losses were recognized in earnings at the time of the transfer.

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The following tables summarize the amortized cost, gross unrealized gains and losses and the resulting fair value of debt securities as of the dates indicated:


	As of September 30, 2023
(in thousands)	Amortized Cost (1)		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Loss related to Debt Securities		Fair Value
Available for Sale
State and political subdivisions	$	177,300	$	1	$	14,833	$	—	$	162,468
Mortgage-backed securities	5,574		—		247		—		5,327
Collateralized loan obligations	52,697		6		250		—		52,453
Collateralized mortgage obligations	159,344		—		27,421		—		131,923
Corporate debt securities	586,612		60		66,073		—		520,599
Total available for sale debt securities	$	981,527	$	67	$	108,824	$	—	$	872,770

Held to Maturity
State and political subdivisions	$	532,885	$	—	$	100,821	$	—	$	432,064
Mortgage-backed securities	76,310		—		15,863		—		60,447
Collateralized mortgage obligations	476,556		—		120,704		—		355,852
Total held to maturity debt securities	$	1,085,751	$	—	$	237,388	$	—	$	848,363
(1) Amortized cost for the held to maturity securities includes $ 223 thousand of unamortized gain in state and political subdivisions, $ 35 thousand of unamortized gains in mortgage-backed securities and $ 10.2 million of unamortized losses in collateralized mortgage obligations related to the re-classification of securities from available for sale to held to maturity on January 1, 2022.


	As of December 31, 2022
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Loss related to Debt Securities		Fair Value
Available for Sale
U.S. Government agencies and corporations	$	7,598	$	—	$	253	$	—	$	7,345
State and political subdivisions	303,573		27		18,244		—		285,356
Mortgage-backed securities	6,165		11		232		—		5,944
Collateralized mortgage obligations	172,568		—		25,375		—		147,193
Corporate debt securities	771,836		125		64,252		—		707,709
Total available for sale debt securities	$	1,261,740	$	163	$	108,356	$	—	$	1,153,547

Held to Maturity

State and political subdivisions	$	538,746	$	—	$	88,349	$	—	$	450,397
Mortgage-backed securities	81,032		—		12,851		—		68,181

Collateralized mortgage obligations	509,643		—		103,327		—		406,316

Total held to maturity debt securities	$	1,129,421	$	—	$	204,527	$	—	$	924,894

Investment securities with a fair value of $ 1.27 billion and $ 690.2 million at September 30, 2023 and December 31, 2022, respectively, were pledged on public deposits, securities sold under agreements to repurchase and for other purposes, as required or permitted by law.

Accrued interest receivable on available for sale debt securities and held to maturity debt securities is recorded within 'Other Assets,' and is excluded from the estimate of credit losses. At September 30, 2023 the accrued interest receivable on available for sale debt securities and held to maturity debt securities totaled $ 6.8 million and $ 3.5 million, respectively. At December 31, 2022 the accrued interest receivable on available for sale debt securities and held to maturity debt securities totaled $ 7.6 million and $ 3.7 million, respectively.

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The following table presents debt securities AFS in an unrealized loss position for which an allowance for credit losses has not been recorded as of September 30, 2023, aggregated by investment category and length of time in a continuous loss position:


		As of September 30, 2023
	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	200	$	17,776	$	969	$	141,021	$	13,864	$	158,797	$	14,833
Mortgage-backed securities	29	376		6		4,910		241		5,286		247
Collateralized loan obligations	4	39,870		250		—		—		39,870		250
Collateralized mortgage obligations	20	6,628		27		125,295		27,394		131,923		27,421
Corporate debt securities	142	4,130		75		493,017		65,998		497,147		66,073
Total	395	$	68,780	$	1,327	$	764,243	$	107,497	$	833,023	$	108,824

As of September 30, 2023, 200 state and political subdivisions securities with total unrealized losses of $ 14.8 million were held by the Company. Management evaluated these securities through a process that included consideration of credit agency ratings and payment history. In addition, management evaluated securities by considering the yield spread to treasury securities and the most recent financial information available. Based on this evaluation, management concluded that the decline in fair value was not attributable to credit losses.

As of September 30, 2023, 29 mortgage-backed securities, and 20 collateralized mortgage obligations with unrealized losses totaling $ 27.7 million were held by the Company. Management evaluated the payment history of these securities. In addition, management considered the implied U.S. government guarantee of these agency securities and the level of credit enhancement for non-agency securities. Based on this evaluation, management concluded that the decline in fair value was not attributable to credit losses.

As of September 30, 2023, 4 collateralized loan obligations with unrealized losses of $ 0.3 million were held by the Company. Management evaluated these securities through a process that included consideration of credit agency ratings, priority of cash flows and the amount of over-collateralization. In addition, management may evaluate securities by considering the yield spread to treasury securities and the most recent financial information available. Based on this evaluation, management concluded that the decline in fair value was not attributable to credit losses.

As of September 30, 2023, 142 corporate debt securities with total unrealized losses of $ 66.1 million were held by the Company. Management evaluated these securities by considering credit agency ratings and payment history. In addition, management evaluated securities by considering the yield spread to treasury securities and the most recent financial information available. Based on this evaluation, management concluded that the decline in fair value was not attributable to credit losses.

The following table presents debt securities AFS in an unrealized loss position for which an allowance for credit losses has not been recorded as of December 31, 2022, aggregated by investment category and length of time in a continuous loss position:


		As of December 31, 2022
Available for Sale	Number of Securities	Less than 12 Months				12 Months or More				Total
		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
(in thousands, except number of securities)
U.S. Government agencies and corporations	8	$	7,345	$	253	$	—	$	—	$	7,345	$	253
State and political subdivisions	380	248,339		14,553		20,631		3,691		268,970		18,244
Mortgage-backed securities	27	5,323		231		45		1		5,368		232

Collateralized mortgage obligations	20	75,041		7,121		72,152		18,254		147,193		25,375
Corporate debt securities	159	369,441		21,679		288,329		42,573		657,770		64,252
Total	594	$	705,489	$	43,837	$	381,157	$	64,519	$	1,086,646	$	108,356

The Company evaluates debt securities held to maturity for current expected credit losses. There were no debt securities held to maturity classified as nonaccrual or past due as of September 30, 2023. Held-to-maturity securities are evaluated on a quarterly basis using historical probability of default and loss given default information specific to the investment category. If this evaluation determines that credit losses exist, an allowance for credit loss is recorded and included in earnings as a component of credit loss expense. Based on this evaluation, management concluded that no allowance for credit loss for these securities was required.

Proceeds and gross realized gains and losses on debt securities available for sale for the three and nine months ended September 30, 2023 and 2022, were as follows:

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	Three Months Ended				Nine Months Ended
(in thousands)	September 30, 2023		September 30, 2022		September 30, 2023		September 30, 2022
Proceeds from sales of debt securities available for sale	$	—	$	17,570	$	218,667	$	129,823


Gross realized losses from sales of debt securities available for sale	—		( 167 )		( 13,170 )		( 167 )
Net realized loss from sales of debt securities available for sale (1)	$	—	$	( 167 )	$	( 13,170 )	$	( 167 )

(1) The difference in investment security gains, net reported herein as compared to the Consolidated Statements of Income is associated with the net realized gain from the call of debt securities of $ 79 thousand and $ 77 thousand for the three and nine months ended September 30, 2023 and $ 4 thousand and $ 439 thousand for the three and nine months ended September 30, 2022.

The contractual maturity distribution of investment debt securities at September 30, 2023, is shown below. Expected maturities of MBS, CLO and CMO may differ from contractual maturities because the mortgages underlying the securities may be called or prepaid without any penalties. Therefore, these securities are not included in the maturity categories in the following summary.


	Available for Sale				Held to Maturity
(in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	53,730	$	52,581	$	2,563	$	2,495
Due after one year through five years	522,893		473,528		132,842		117,757
Due after five years through ten years	158,373		133,485		232,569		186,814
Due after ten years	28,916		23,473		164,911		124,998
	$	763,912	$	683,067	$	532,885	$	432,064
Mortgage-backed securities	5,574		5,327		76,310		60,447
Collateralized loan obligations	52,697		52,453		—		—
Collateralized mortgage obligations	159,344		131,923		476,556		355,852
Total	$	981,527	$	872,770	$	1,085,751	$	848,363

4. Loans Receivable and the Allowance for Credit Losses

The composition of loans by class of receivable was as follows:


	As of
(in thousands)	September 30, 2023		December 31, 2022
Agricultural	$	111,950	$	115,320
Commercial and industrial	1,078,773		1,055,162
Commercial real estate:
Construction & development	331,868		270,991
Farmland	182,621		183,913
Multifamily	337,509		252,129
Commercial real estate-other	1,324,019		1,272,985
Total commercial real estate	2,176,017		1,980,018
Residential real estate:
One- to four- family first liens	456,771		451,210
One- to four- family junior liens	173,275		163,218
Total residential real estate	630,046		614,428
Consumer	69,183		75,596
Loans held for investment, net of unearned income	4,065,969		3,840,524
Allowance for credit losses	( 51,600 )		( 49,200 )
Total loans held for investment, net	$	4,014,369	$	3,791,324

Loans with unpaid principal in the amount of $ 1.14 billion and $ 1.01 billion at September 30, 2023 and December 31, 2022, respectively, were pledged to the FHLB as collateral for borrowings.

Non-accrual and Delinquent Status

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 for all loan types, except owner occupied residential real estate, which are moved to non-accrual at 120 days or more past due, 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.

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A non-accrual loan 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.

Loans are considered past due or delinquent when the contractual principal or interest due in accordance with the terms of the loan agreement or any portion thereof remains unpaid after the due date of the scheduled payment.

The following tables present the amortized cost basis of loans based on delinquency status:


			Age Analysis of Past-Due Financial Assets								90 Days or More Past Due And Accruing
(in thousands)	Current		30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or More Past Due		Total
September 30, 2023
Agricultural	$	111,713	$	—	$	13	$	224	$	111,950	$	—
Commercial and industrial	1,077,276		616		31		850		1,078,773		—
Commercial real estate:
Construction and development	331,868		—		—		—		331,868		—
Farmland	181,352		30		—		1,239		182,621		—
Multifamily	337,509		—		—		—		337,509		—
Commercial real estate-other	1,319,503		29		—		4,487		1,324,019		—
Total commercial real estate	2,170,232		59		—		5,726		2,176,017		—
Residential real estate:
One- to four- family first liens	449,842		3,609		2,286		1,034		456,771		100
One- to four- family junior liens	172,936		202		23		114		173,275		—
Total residential real estate	622,778		3,811		2,309		1,148		630,046		100
Consumer	68,869		275		36		3		69,183		—
Total	$	4,050,868	$	4,761	$	2,389	$	7,951	$	4,065,969	$	100























			Age Analysis of Past-Due Financial Assets								90 Days or More Past Due And Accruing
(in thousands)	Current		30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or More Past Due		Total
December 31, 2022
Agricultural	$	114,922	$	100	$	—	$	298	$	115,320	$	—
Commercial and industrial	1,052,406		922		111		1,723		1,055,162		—
Commercial real estate:
Construction and development	270,905		86		—		—		270,991		—
Farmland	182,115		729		—		1,069		183,913		—
Multifamily	252,129		—		—		—		252,129		—
Commercial real estate-other	1,266,874		5,574		45		492		1,272,985		—
Total commercial real estate	1,972,023		6,389		45		1,561		1,980,018		—
Residential real estate:
One- to four- family first liens	446,066		3,177		954		1,013		451,210		565
One- to four- family junior liens	161,989		301		78		850		163,218		—
Total residential real estate	608,055		3,478		1,032		1,863		614,428		565
Consumer	75,443		110		17		26		75,596		—
Total	$	3,822,849	$	10,999	$	1,205	$	5,471	$	3,840,524	$	565

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The following table presents the amortized cost basis of loans on non-accrual status, amortized cost basis of loans on non-accrual status with no allowance for credit losses recorded, and loans past due 90 days or more and still accruing by class of loan:


	Nonaccrual				Nonaccrual with no Allowance for Credit Losses				90 Days or More Past Due And Accruing
(in thousands)	September 30, 2023		December 31, 2022		September 30, 2023		December 31, 2022		September 30, 2023		December 31, 2022

Agricultural	$	240	$	377	$	224	$	281	$	—	$	—
Commercial and industrial	18,472		2,728		12,585		1,049		—		—
Commercial real estate:
Construction and development	—		—		—		—		—		—
Farmland	1,736		2,278		1,590		1,997		—		—
Multifamily	—		—		—		—		—		—
Commercial real estate-other	5,117		6,397		369		5,647		—		—
Total commercial real estate	6,853		8,675		1,959		7,644		—		—
Residential real estate:
One- to four- family first liens	2,339		2,275		546		928		100		565
One- to four- family junior liens	969		1,165		—		—		—		—
Total residential real estate	3,308		3,440		546		928		100		565
Consumer	14		36		—		—		—		—
Total	$	28,887	$	15,256	$	15,314	$	9,902	$	100	$	565

The interest income recognized on loans that were on nonaccrual for the three months ended September 30, 2023 and September 30, 2022 was $ 93 thousand and $ 70 thousand, respectively. The interest income recognized on loans that were on nonaccrual for the nine months ended September 30, 2023 and September 30, 2022 was $ 186 thousand and $ 345 thousand, respectively.

Credit Quality Information

The Company aggregates loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as: current financial information, historical payment experience, credit documentation, and other factors. The Company analyzes loans individually to classify the loans as to credit risk. This analysis includes non-homogenous loans, such as agricultural, commercial and industrial, commercial real estate and non-owner occupied residential real estate loans. Loans not meeting the criteria described below that are analyzed individually are considered to be pass-rated. The Company uses the following definitions for risk ratings:

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 affected in the future.

Homogenous loans, including owner occupied residential real estate and consumer loans, are not individually risk rated. Instead, these loans are categorized based on performance: performing and nonperforming. Nonperforming loans include those loans on nonaccrual and loans greater than 90 days past due and on accrual.

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The following table sets forth the amortized cost basis of loans by class of receivable by credit quality indicator, and vintage, in addition to the current period gross write-offs by class of receivable and vintage, based on the most recent analysis performed, as of September 30, 2023. As of September 30, 2023, there were no 'loss' rated credits.


	Term Loans by Origination Year												Revolving Loans
September 30, 2023 (in thousands)	2023		2022		2021		2020		2019		Prior				Total
Agricultural
Pass	$	11,277	$	13,087	$	9,451	$	3,268	$	1,359	$	1,155	$	63,474		$	103,071
Special mention / watch	268		609		801		102		6		523		3,722			6,031
Substandard	394		151		184		214		2		225		1,678			2,848
Doubtful	—		—		—		—		—		—		—			—
Total	$	11,939	$	13,847	$	10,436	$	3,584	$	1,367	$	1,903	$	68,874		$	111,950



Commercial and industrial
Pass	$	111,886	$	243,011	$	212,836	$	129,482	$	27,383	$	119,645	$	161,886		$	1,006,129
Special mention / watch	1,437		766		652		4,646		8,101		7,825		13,751			37,178
Substandard	1,471		2,571		2,440		1,344		717		22,571		4,352			35,466
Doubtful	—		—		—		—		—		—		—			—
Total	$	114,794	$	246,348	$	215,928	$	135,472	$	36,201	$	150,041	$	179,989		$	1,078,773



CRE - Construction and development
Pass	$	69,354	$	198,619	$	47,522	$	3,532	$	833	$	1,118	$	9,754		$	330,732
Special mention / watch	—		—		474		—		—		—		412			886
Substandard	—		249		—		—		—		1		—			250
Doubtful	—		—		—		—		—		—		—			—
Total	$	69,354	$	198,868	$	47,996	$	3,532	$	833	$	1,119	$	10,166		$	331,868



CRE - Farmland
Pass	$	17,318	$	50,872	$	48,074	$	19,438	$	6,703	$	16,056	$	1,866		$	160,327
Special mention / watch	1,237		2,761		2,456		6,104		—		1,180		804			14,542
Substandard	1,592		118		1,545		1,103		1,058		2,306		30			7,752
Doubtful	—		—		—		—		—		—		—			—
Total	$	20,147	$	53,751	$	52,075	$	26,645	$	7,761	$	19,542	$	2,700		$	182,621



CRE - Multifamily
Pass	$	28,961	$	55,115	$	112,033	$	83,413	$	8,800	$	5,654	$	33		$	294,009
Special mention / watch	—		1,244		280		19,112		7,899		7,025		—			35,560
Substandard	—		—		7,611		329		—		—		—			7,940
Doubtful	—		—		—		—		—		—		—			—
Total	$	28,961	$	56,359	$	119,924	$	102,854	$	16,699	$	12,679	$	33		$	337,509



CRE - Other
Pass	$	151,212	$	292,139	$	272,055	$	264,462	$	78,764	$	97,815	$	47,111		$	1,203,558
Special mention / watch	1,520		25,905		21,389		4,639		4,290		3,301		3,947			64,991
Substandard	324		2,104		1,704		20,414		12,067		18,018		839			55,470
Doubtful	—		—		—		—		—		—		—			—
Total	$	153,056	$	320,148	$	295,148	$	289,515	$	95,121	$	119,134	$	51,897		$	1,324,019




RRE - One- to four- family first liens
Pass / Performing	$	52,320	$	128,048	$	94,709	$	55,492	$	20,236	$	84,489	$	11,312		$	446,606
Special mention / watch	470		721		36		633		1,851		323		—			4,034
Substandard / Nonperforming	1,171		463		485		166		167		3,679		—			6,131
Doubtful	—		—		—		—		—		—		—			—
Total	$	53,961	$	129,232	$	95,230	$	56,291	$	22,254	$	88,491	$	11,312		$	456,771







RRE - One- to four- family junior liens
Performing	$	20,458	$	31,327	$	19,622	$	7,643	$	2,449	$	8,322	$	82,485		$	172,306
Nonperforming	—		—		—		26		203		740		—			969
Total	$	20,458	$	31,327	$	19,622	$	7,669	$	2,652	$	9,062	$	82,485		$	173,275



Consumer
Performing	$	21,003	$	18,598	$	11,481	$	5,213	$	1,821	$	6,911	$	4,143		$	69,170
Nonperforming	—		—		—		5		5		3		—			13
Total	$	21,003	$	18,598	$	11,481	$	5,218	$	1,826	$	6,914	$	4,143		$	69,183

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	Term Loans by Origination Year												Revolving Loans
September 30, 2023 (in thousands)	2023		2022		2021		2020		2019		Prior				Total




Total by Credit Quality Indicator Category
Pass	$	442,328	$	980,891	$	796,680	$	559,087	$	144,078	$	325,932	$	295,436		$	3,544,432
Special mention / watch	4,932		32,006		26,088		35,236		22,147		20,177		22,636			163,222
Substandard	4,952		5,656		13,969		23,570		14,011		46,800		6,899			115,857
Doubtful	—		—		—		—		—		—		—			—
Performing	41,461		49,925		31,103		12,856		4,270		15,233		86,628			241,476
Nonperforming	—		—		—		31		208		743		—			982
Total	$	493,673	$	1,068,478	$	867,840	$	630,780	$	184,714	$	408,885	$	411,599		$	4,065,969

Year-to-date Current Period Gross Write-offs
Agricultural	$	—	$	8	$	1	$	17	$	—	$	—	$	—		$	26
Commercial and industrial	30		256		143		115		431		45		—			1,020
CRE - Construction and development	—		—		—		—		—		—		—			—
CRE - Farmland	—		—		—		—		—		—		—			—
CRE - Multifamily	—		—		—		—		—		—		—			—
CRE - Other	—		—		—		—		—		830		—			830
RRE - One-to-four-family first liens	—		—		—		—		—		35		—			35
RRE - One-to-four-family junior liens	—		19		—		—		—		—		—			19
Consumer	—		424		9		3		11		4		—			451
Total Current Period Gross Write-offs	$	30	$	707	$	153	$	135	$	442	$	914	$	—		$	2,381

Table of Contents

The following table sets forth the amortized cost basis of loans by class of receivable by credit quality indicator and vintage based on the most recent analysis performed, as of December 31, 2022. As of December 31, 2022, there were no 'loss' rated credits.


	Term Loans by Origination Year												Revolving Loans
December 31, 2022 (in thousands)	2022		2021		2020		2019		2018		Prior				Total
Agricultural
Pass	$	20,279	$	12,511	$	5,398	$	2,883	$	939	$	1,063	$	65,395		$	108,468
Special mention / watch	143		1,012		115		36		—		604		1,655			3,565
Substandard	48		646		366		4		7		302		1,914			3,287
Doubtful	—		—		—		—		—		—		—			—
Total	$	20,470	$	14,169	$	5,879	$	2,923	$	946	$	1,969	$	68,964		$	115,320
Commercial and industrial
Pass	$	262,500	$	232,263	$	151,567	$	48,199	$	27,680	$	115,877	$	163,205		$	1,001,291
Special mention / watch	3,975		3,574		5,465		592		3,299		1,864		12,299			31,068
Substandard	556		166		1,172		756		556		18,585		1,012			22,803
Doubtful	—		—		—		—		—		—		—			—
Total	$	267,031	$	236,003	$	158,204	$	49,547	$	31,535	$	136,326	$	176,516		$	1,055,162
CRE - Construction and development
Pass	$	144,597	$	73,832	$	19,324	$	989	$	1,058	$	549	$	28,069		$	268,418
Special mention / watch	1,787		499		—		—		—		—		—			2,286
Substandard	281		—		—		—		—		6		—			287
Doubtful	—		—		—		—		—		—		—			—
Total	$	146,665	$	74,331	$	19,324	$	989	$	1,058	$	555	$	28,069		$	270,991
CRE - Farmland
Pass	$	55,251	$	52,802	$	28,744	$	7,266	$	8,406	$	12,895	$	1,946		$	167,310
Special mention / watch	3,058		2,229		1,470		—		225		21		1,693			8,696
Substandard	148		1,974		1,192		1,136		1,459		1,998		—			7,907
Doubtful	—		—		—		—		—		—		—			—
Total	$	58,457	$	57,005	$	31,406	$	8,402	$	10,090	$	14,914	$	3,639		$	183,913
CRE - Multifamily
Pass	$	31,018	$	93,907	$	84,573	$	17,137	$	2,549	$	5,161	$	49		$	234,394
Special mention / watch	1,000		—		1,567		—		5,931		1,178		—			9,676
Substandard	—		7,725		334		—		—		—		—			8,059
Doubtful	—		—		—		—		—		—		—			—
Total	$	32,018	$	101,632	$	86,474	$	17,137	$	8,480	$	6,339	$	49		$	252,129
CRE - Other
Pass	$	322,753	$	314,376	$	296,368	$	79,408	$	31,041	$	81,708	$	51,064		$	1,176,718
Special mention / watch	8,858		3,399		13,245		10,365		1,137		8,122		2,518			47,644
Substandard	752		589		19,702		13,294		10,197		4,089		—			48,623
Doubtful	—		—		—		—		—		—		—			—
Total	$	332,363	$	318,364	$	329,315	$	103,067	$	42,375	$	93,919	$	53,582		$	1,272,985
RRE - One- to four- family first liens
Pass / Performing	$	139,289	$	103,534	$	63,627	$	23,831	$	21,868	$	77,967	$	11,438		$	441,554
Special mention / watch	1,074		611		672		1,920		150		702		—			5,129
Substandard / Nonperforming	175		438		174		175		674		2,891		—			4,527
Doubtful	—		—		—		—		—		—		—			—
Total	$	140,538	$	104,583	$	64,473	$	25,926	$	22,692	$	81,560	$	11,438		$	451,210
RRE - One- to four- family junior liens
Performing	$	37,296	$	22,908	$	8,906	$	3,058	$	3,757	$	6,330	$	79,798		$	162,053
Nonperforming	—		23		31		179		756		76		100			1,165
Total	$	37,296	$	22,931	$	8,937	$	3,237	$	4,513	$	6,406	$	79,898		$	163,218
Consumer
Performing	$	32,584	$	18,979	$	7,966	$	3,489	$	1,646	$	6,641	$	4,255		$	75,560
Nonperforming	—		2		16		9		4		5		—			36
Total	$	32,584	$	18,981	$	7,982	$	3,498	$	1,650	$	6,646	$	4,255		$	75,596

Total by Credit Quality Indicator Category
Pass	$	975,687	$	883,225	$	649,601	$	179,713	$	93,541	$	295,220	$	321,166		$	3,398,153
Special mention / watch	19,895		11,324		22,534		12,913		10,742		12,491		18,165			108,064
Substandard	1,960		11,538		22,940		15,365		12,893		27,871		2,926			95,493
Doubtful	—		—		—		—		—		—		—			—
Performing	69,880		41,887		16,872		6,547		5,403		12,971		84,053			237,613
Nonperforming	—		25		47		188		760		81		100			1,201
Total	$	1,067,422	$	947,999	$	711,994	$	214,726	$	123,339	$	348,634	$	426,410		$	3,840,524

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Allowance for Credit Losses

The following are the economic factors utilized by the Company for its loan credit loss estimation process at September 30, 2023, and the forecast for each factor at that date: (1) Midwest unemployment – increases over the next four forecasted quarters; (2) Year-to-year change in national retail sales - increases over the next four forecasted quarters; (3) Year-to-year change in CRE Index - decreases in the next four forecasted quarters; (4) Year-to-year change in U.S. GDP - increases over the next four forecasted quarters; (5) Year-to-year change in National Home Price Index – increases over the next two forecasted quarters, with declines in the third and fourth forecasted quarters; and (6) Rental Vacancy - increases over the next four forecasted quarters. In addition, management utilized qualitative factors to adjust the calculated ACL as appropriate. Qualitative factors are based on management’s judgment of company, market, industry or business specific data, changes in underlying loan composition of specific portfolios, trends relating to credit quality, delinquency, non-performing and adversely rated loans, and reasonable and supportable forecasts of economic conditions.

The increase in the ACL between September 30, 2023 and December 31, 2022 is primarily driven by reserves related to loans individually evaluated for impairment. Net loan charge-offs were $ 0.5 million for the three months ended September 30, 2023 as compared to net loan charge-offs of $ 0.6 million for the three months ended September 30, 2022. Net loan charge-offs were $ 1.7 million for the nine months ended September 30, 2023 as compared to net loan charge-offs of $ 3.1 million for the nine months ended September 30, 2022.

We have made a policy election to report interest receivable as a separate line on the balance sheet. Accrued interest receivable, which is recorded within 'Other Assets', totaled $ 19.0 million at September 30, 2023 and $ 15.3 million at December 31, 2022 and is excluded from the estimate of credit losses. The changes in the allowance for credit losses by portfolio segment were as follows:



	For the Three Months Ended September 30, 2023 and 2022
(in thousands)	Agricultural		Commercial and Industrial		Commercial Real Estate		Residential Real Estate		Consumer		Total
For the Three Months Ended September 30, 2023
Beginning balance	$	617	$	22,921	$	21,911	$	4,393	$	558	$	50,400

Charge-offs	( 25 )		( 511 )		—		( 21 )		( 178 )		( 735 )
Recoveries	126		79		4		3		72		284
Credit loss expense (benefit) (1)	( 181 )		( 426 )		1,872		268		118		1,651
Ending balance	$	537	$	22,063	$	23,787	$	4,643	$	570	$	51,600

For the Three Months Ended September 30, 2022
Beginning balance	$	987	$	21,166	$	24,399	$	5,174	$	624	$	52,350

Charge-offs	( 248 )		( 280 )		( 135 )		( 52 )		( 255 )		( 970 )
Recoveries	1		295		6		48		32		382
Credit loss expense (benefit) (1)	241		3,075		( 3,322 )		138		206		338
Ending balance	$	981	$	24,256	$	20,948	$	5,308	$	607	$	52,100
(1) The difference in the credit loss expense reported herein as compared to the Consolidated Statements of Income is associated with the credit loss (benefit) expense of $( 0.1 ) million and $ 0.3 million related to off-balance sheet credit exposures for the three months ended September 30, 2023 and September 30, 2022, respectively.


	For the Nine Months Ended September 30, 2023 and 2022
(in thousands)	Agricultural		Commercial and Industrial		Commercial Real Estate		Residential Real Estate		Consumer		Total
For the Nine Months Ended September 30, 2023
Beginning balance	$	923	$	22,855	$	20,123	$	4,678	$	621	$	49,200

Charge-offs	( 26 )		( 1,020 )		( 830 )		( 54 )		( 451 )		( 2,381 )
Recoveries	153		349		15		23		160		700
Credit loss expense (benefit) (1)	( 513 )		( 121 )		4,479		( 4 )		240		4,081
Ending balance	$	537	$	22,063	$	23,787	$	4,643	$	570	$	51,600

For the Nine Months Ended September 30, 2022
Beginning balance	$	667	$	17,294	$	26,120	$	4,010	$	609	$	48,700
PCD allowance established in acquisition	512		1,473		1,227		159		—		3,371
Charge-offs	( 249 )		( 843 )		( 2,319 )		( 90 )		( 540 )		( 4,041 )
Recoveries	9		613		154		68		106		950
Credit loss (benefit) expense (1)	42		5,719		( 4,234 )		1,161		432		3,120
Ending balance	$	981	$	24,256	$	20,948	$	5,308	$	607	$	52,100
(1) The difference in the credit loss expense reported herein as compared to the Consolidated Statements of Income is associated with the credit loss expense (benefit) of $ 0.0 million and $ 0.8 million related to off-balance sheet credit exposures for the nine months ended September 30, 2023 and September 30, 2022, respectively.

Table of Contents

The composition of allowance for credit losses by portfolio segment based on evaluation method was as follows:


	As of September 30, 2023
(in thousands)	Agricultural		Commercial and Industrial		Commercial Real Estate		Residential Real Estate		Consumer		Total
Loans held for investment, net of unearned income
Individually evaluated for impairment	$	224	$	17,687	$	12,759	$	1,167	$	—	$	31,837
Collectively evaluated for impairment	111,726		1,061,086		2,163,258		628,879		69,183		4,034,132
Total	$	111,950	$	1,078,773	$	2,176,017	$	630,046	$	69,183	$	4,065,969
Allowance for credit losses:
Individually evaluated for impairment	$	—	$	2,879	$	1,128	$	46	$	—	$	4,053
Collectively evaluated for impairment	537		19,184		22,659		4,597		570		47,547
Total	$	537	$	22,063	$	23,787	$	4,643	$	570	$	51,600


	As of December 31, 2022
(in thousands)	Agricultural		Commercial and Industrial		Commercial Real Estate		Residential Real Estate		Consumer		Total
Loans held for investment, net of unearned income
Individually evaluated for impairment	$	2,531	$	2,184	$	15,768	$	1,650	$	—	$	22,133
Collectively evaluated for impairment	112,789		1,052,978		1,964,250		612,778		75,596		3,818,391

Total	$	115,320	$	1,055,162	$	1,980,018	$	614,428	$	75,596	$	3,840,524
Allowance for credit losses:
Individually evaluated for impairment	$	500	$	600	$	705	$	180	$	—	$	1,985
Collectively evaluated for impairment	423		22,255		19,418		4,498		621		47,215

Total	$	923	$	22,855	$	20,123	$	4,678	$	621	$	49,200

The following tables present the amortized cost basis of collateral dependent loans, by the primary collateral type, which are individually evaluated to determine expected credit losses, and the related ACL allocated to these loans:


	As of September 30, 2023
(in thousands)	Primary Type of Collateral
	Real Estate		Equipment		Other		Total		ACL Allocation
Agricultural	$	12	$	212	$	—	$	224	$	—
Commercial and industrial	15,992		326		1,369		17,687		2,879
Commercial real estate:
Construction and development	—		—		—		—		—
Farmland	5,582		—		—		5,582		—
Multifamily	—		—		—		—		—
Commercial real estate-other	6,991		—		186		7,177		1,128
Residential real estate:
One- to four- family first liens	546		—		—		546		—
One- to four- family junior liens	—		—		621		621		46
Consumer	—		—		—		—		—
Total	$	29,123	$	538	$	2,176	$	31,837	$	4,053


	As of December 31, 2022
(in thousands)	Primary Type of Collateral
	Real Estate		Equipment		Other		Total		ACL Allocation
Agricultural	$	68	$	2,463	$	—	$	2,531	$	500
Commercial and industrial	856		736		592		2,184		600
Commercial real estate:
Construction and development	—		—		—		—		—
Farmland	4,515		—		—		4,515		—
Multifamily	—		—		—		—		—
Commercial real estate-other	11,006		—		247		11,253		705
Residential real estate:
One- to four- family first liens	929		—		—		929		—
One- to four- family junior liens	—		—		721		721		180
Consumer	—		—		—		—		—
Total	$	17,374	$	3,199	$	1,560	$	22,133	$	1,985

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Loan Modifications to Borrowers Experiencing Financial Difficulty

Occasionally, the Company may modify loans to borrowers who are experiencing financial difficulty. Loan modifications to borrowers experiencing financial difficulty may be in the form of principal forgiveness, term extension, an other-than-insignificant payment delay, interest rate reduction, or combination thereof.

The following table presents the amortized cost basis of loans as of September 30, 2023 that were modified during the three and nine months ended September 30, 2023 and experiencing financial difficulty at the time of the modification by class and by type of modification:


	For the Three Months and Nine Months Ended September 30, 2023
									Combination:
(dollars in thousands)	Principal Forgiveness		Payment Delay		Term Extension		Interest Rate Reduction		Term Extension & Interest Rate Reduction		Principal Forgiveness & Term Extension		Principal Forgiveness, Term Extension, & Interest Rate Reduction		Payment Delay & Term Extension		Total Class of Financing Receivable
Three Months Ended September 30, 2023

Commercial and industrial	$	—	$	—	$	2,062	$	—	$	—	$	—	$	—	$	—	0.19	%



CRE - Other	—		—		1,368		—		—		—		—		—		0.10	%



Total	$	—	$	—	$	3,430	$	—	$	—	$	—	$	—	$	—

Nine Months Ended September 30, 2023
Agricultural	$	—	$	13	$	—	$	—	$	—	$	—	$	—	$	—	0.01	%
Commercial and industrial	—		264		2,820		—		103		302		—		188		0.34	%

CRE - Farmland	—		—		1,823		—		—		—		—		—		1.00	%

CRE - Other	—		158		1,368		—		—		—		—		—		0.12	%
RRE - One- to four- family first liens	—		—		49		—		—		—		—		—		0.01	%


Total	$	—	$	435	$	6,060	$	—	$	103	$	302	$	—	$	188

The Company has no additional commitment to lend amounts to the borrowers included in the previous table as of September 30, 2023. For the three and nine months ended September 30, 2023, the Company had 8 modified loans totaling $ 0.3 million and 12 modified loans totaling $ 1.1 million, respectively, to borrowers experiencing financial difficulty that redefaulted within 12 months subsequent to the modification.

The following table presents the performance as of September 30, 2023 of loans that were modified while the borrower was experiencing financial difficulty at the time of modification in the last 12 months:


	As of September 30, 2023
(in thousands)	Current		30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or More Past Due		Total
Agricultural	$	—	$	—	$	13	$	—	$	13
Commercial and industrial	3,490		188		—		—		3,678

CRE - Farmland	1,823		—		—		—		1,823

CRE - Other	1,525		—		—		—		1,525
RRE - One- to four- family first liens	—		49		—		—		49


Total	$	6,838	$	237	$	13	$	—	$	7,088

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The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the three and nine months ended September 30, 2023:


(dollars in thousands)	Principal Forgiveness		Weighted Average Interest Rate Reduction		Weighted Average Term Extension (Months)
Three Months Ended September 30, 2023

Commercial and industrial	$	—	—	%	9.9



CRE - Other	18		—	%	5.3



Total	$	18	—	%	8.1

Nine Months Ended September 30, 2023

Commercial and industrial	$	63	1.25	%	9.2

CRE - Farmland	—		—	%	0.9

CRE - Other	18		—	%	5.3
RRE - One- to four- family first liens	—		—	%	3.9


Total	$	81	1.25	%	6.1

5. Derivatives, Hedging Activities and Balance Sheet Offsetting

The following table presents the total notional amounts and gross fair values of the Company’s derivatives as of the dates indicated. The derivative asset and liability balances are presented on a gross basis, prior to the application of master netting agreements, as included in other assets and other liabilities, respectively, on the consolidated balance sheets. The fair values of the Company's derivative instrument assets and liabilities are summarized as follows:


	As of September 30, 2023						As of December 31, 2022
	Notional Amount		Fair Value				Notional Amount		Fair Value
(in thousands)			Assets		Liabilities				Assets		Liabilities
Designated as hedging instruments:
Fair value hedges:
Interest rate swaps - loans	$	41,362	$	3,262	$	50	$	24,018	$	2,556	$	—
Interest rate swaps - securities	100,000		449		—		—		—		—
Cash flow hedges
Interest rate swaps	200,000		4,289		—		—		—		—
Total	$	341,362	$	8,000	$	50	$	24,018	$	2,556	$	—

Not designated as hedging instruments:
Interest rate swaps	$	364,153	$	23,408	$	23,438	$	331,197	$	21,084	$	21,087
RPAs - protection sold	186		—		—		—		—		—
RPAs - protection purchased	24,701		—		—		9,421		—		—
Interest rate lock commitments	1,474		18		—		1,372		7		—
Interest rate forward loan sales contracts	3,382		22		—		1,400		8		—
Total	$	393,896	$	23,448	$	23,438	$	343,390	$	21,099	$	21,087

Derivatives Designated as Hedging Instruments

The Company uses derivative instruments to hedge its exposure to economic risks. Certain hedging relationships are formally designated and qualify for hedge accounting under GAAP as fair value or cash flow hedges.

Fair Value Hedges - Derivatives are designated as fair value hedges to limit the Company's exposure to changes in the fair value of assets or liabilities due to movements in interest rates. The Company entered into pay-fixed receive-floating interest rate swaps to manage its exposure to changes in fair value in certain fixed-rate assets. The gain or loss on the loan fair value hedge derivative, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in interest income. The change in the fair value of the available for sale securities attributable to changes in the hedged risk is recorded in accumulated other comprehensive income and subsequently reclassified into interest income, as applicable, in the same period(s) to offset the changes in the fair value of the swap, which is also recognized in interest income.

Cash Flow Hedges - Derivatives are designated as cash flow hedges in order to minimize the variability in cash flows of earning assets or forecasted transactions caused by movement in interest rates. The Company entered into pay-fixed receive-variable interest rate swaps to hedge against adverse fluctuations in interest rates by reducing exposure to variability in cash

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flows relating to interest payments on the Company's variable rate debt. The gain or loss on the derivatives is recorded in accumulated other comprehensive income and subsequently reclassified into interest expense, as applicable, in the same period(s) during which the hedged transaction affects earnings. During the next 12 months, the Company estimates that an additional $ 3.0 million of income will be reclassified into interest expense.

The table below presents the effect of cash flow hedge accounting on AOCI for the three and nine months ended September 30, 2023 and 2022:


	Amount of Gain (Loss) Recognized in AOCI on Derivative				Location of Gain (Loss) Reclassified from AOCI into Income	Amount of Gain (Loss) Reclassified from AOCI into Income
	Three Months Ended September 30,					Three Months Ended September 30,
(in thousands)	2023		2022			2023		2022
Interest rate swaps	$	1,829	$	—	Interest Expense	$	761	$	—

	Nine Months Ended September 30,					Nine Months Ended September 30,
(in thousands)	2023		2022			2023		2022
Interest rate swaps	$	5,288	$	—	Interest Expense	$	999	$	—

The table below presents the effect of the Company’s derivative financial instruments designated as hedging instruments on the consolidated statements of income for the periods indicated:


	Location and Amount of Gain or Loss Recognized in Income on Hedging Relationships
	For the Three Months Ended September 30,								For the Nine Months Ended September 30,
	2023				2022				2023				2022
(in thousands)	Interest Income		Other Income		Interest Income		Other Income		Interest Income		Other Income		Interest Income		Other Income
Income and expense included in the consolidated statements of income related to the effects of fair value or cash flow hedges are recorded	$	317	$	—	$	24	$	—	$	666	$	—	$	( 147 )	$	—

The effects of fair value and cash flow hedging:
Gain (loss) on fair value hedging relationships in subtopic 815-20:
Interest contracts - loans:
Hedged items	( 747 )		—		( 1,149 )		—		( 212 )		—		( 3,665 )		—
Derivative designated as hedging instruments	964		—		1,175		—		1,219		—		3,519		—

Interest contracts - securities:
Hedged items	( 454 )		—		—		—		( 454 )		—		—		—
Derivative designated as hedging instruments	560		—		—		—		560		—		—		—

Income statement effect of cash flow hedging relationships in subtopic 815-20:
Interest contracts:
Amount reclassified from AOCI into income	761		—		—		—		999		—		—		—

As of September 30, 2023, the following amounts were recorded on the balance sheet related to cumulative basis adjustment for fair value hedges:


Line Item in the Balance Sheet in Which the Hedged Item is Included	Carrying Amount of the Hedged Assets		Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Asset
(in thousands)
Loans	$	38,187	$	( 3,211 )
Securities	$	99,546	$	( 454 )

Derivatives Not Designated as Hedging Instruments

Interest Rate Swaps - The Company periodically enters into commercial loan interest rate swap agreements in order to provide commercial loan customers with the ability to convert from variable to fixed interest rates. These derivative contracts relate to transactions in which the Company enters into an interest rate swap with a customer, while simultaneously entering into an offsetting interest rate swap with an institutional counterparty.

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Credit Risk Participation Agreements -The Company enters into RPAs to manage the credit exposure on interest rate contracts associated with a syndicated loan or participation agreement. The Company may enter into protection purchased RPAs with institutional counterparties to decrease or increase its exposure to a borrower. Under the RPA, the Company will receive or make payment if a borrower defaults on the related interest rate contract. The notional amount of the RPAs reflects the Company’s pro-rata share of the derivative instrument.

Interest Rate Forward Loan Sales Contracts & Interest Rate Lock Commitments - The Company enters into forward delivery contracts to sell residential mortgage loans at specific prices and dates in order to hedge the interest rate risk in its portfolio of mortgage loans held for sale and its residential mortgage interest rate lock commitments.

The following table presents the net gains (losses) recognized on the consolidated statements of income related to the derivatives not designated as hedging instruments for the periods indicated:


	Location in the Consolidated Statements of Income	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands)		2023		2022		2023		2022
Interest rate swaps	Other income	$	( 27 )	$	2	$	( 27 )	$	10
RPAs	Other income	1		—		70		1
Interest rate lock commitments	Loan revenue	( 51 )		( 149 )		11		( 367 )
Interest rate forward loan sales contracts	Loan revenue	( 5 )		91		14		63
Total		$	( 82 )	$	( 56 )	$	68	$	( 293 )

Offsetting of Derivatives

The Company has entered into agreements with certain counterparty financial institutions, which include master netting agreements. However, the Company has elected to account for all derivatives with counterparty institutions on a gross basis. The Company manages the risk of default by its borrower counterparties through its normal loan underwriting and credit monitoring policies and procedures.

The table below presents gross derivatives and the respective collateral received or pledged in the form of other financial instruments as of September 30, 2023 and December 31, 2022, which are generally marketable securities and/or cash. The collateral amounts in the table below are limited to the outstanding balances of the related asset or liability (after netting is applied); thus instances of over-collateralization are not shown. Further, the net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the consolidated balance sheets.


							Gross Amounts Not Offset in the Balance Sheet
(in thousands)	Gross Amounts Recognized		Gross Amounts Offset in the Balance Sheet		Net Amounts presented in the Balance Sheet		Financial Instruments		Cash Collateral Received / Paid		Net Assets /Liabilities
As of September 30, 2023
Asset Derivatives	$	31,448	$	—	$	31,448	$	—	$	22,762	$	8,686
Liability Derivatives	23,488		—		23,488		—		9,420		14,068

As of December 31, 2022
Asset Derivatives	$	23,655	$	—	$	23,655	$	—	$	18,858	$	4,797
Liability Derivatives	21,087		—		21,087		—		3,460		17,627

Credit-risk-related Contingent Features

The Company has an unsecured federal funds line with its institutional derivative counterparties. The Company has an agreement with its institutional derivative counterparties that contains a provision under which if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations. The Company also has an agreement with its derivative counterparties that contains a provision under which the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company’s default on the indebtedness. As of September 30, 2023, fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $ 596 thousand.

6. Goodwill and Intangible Assets

The carrying amount of goodwill was $ 62.5 million as of September 30, 2023 and as of December 31, 2022.

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The following table presents the gross carrying amount, accumulated amortization, and net carrying amount of other intangible assets as of the dates indicated:


	As of September 30, 2023						As of December 31, 2022
(in thousands)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Core deposit intangible	$	58,245	$	( 40,171 )	$	18,074	$	58,245	$	( 35,822 )	$	22,423
Customer relationship intangible	5,265		( 4,905 )		360		5,265		( 4,490 )		775
Other	2,700		( 2,664 )		36		2,700		( 2,623 )		77
	$	66,210	$	( 47,740 )	$	18,470	$	66,210	$	( 42,935 )	$	23,275

Indefinite-lived trade name intangible	$	7,040					$	7,040

The following table provides the estimated future amortization expense for the remaining three months of the year ending December 31, 2023 and the succeeding annual periods:


(in thousands)	Core Deposit Intangible		Customer Relationship Intangible		Other		Total

2023	$	1,328	$	103	$	10	$	1,441
2024	4,705		239		24		4,968
2025	3,751		18		2		3,771
2026	2,797		—		—		2,797
2027	1,843		—		—		1,843
Thereafter	3,650		—		—		3,650
Total	$	18,074	$	360	$	36	$	18,470

7. Other Assets

The components of the Company's other assets as of September 30, 2023 and December 31, 2022 were as follows:


(in thousands)	September 30, 2023		December 31, 2022
Bank-owned life insurance	$	97,383	$	95,539
Interest receivable	30,095		27,090
FHLB stock	14,869		19,248
Mortgage servicing rights	13,438		13,421
Operating lease right-of-use assets, net	2,593		2,492
Federal and state income taxes, current	—		2,366
Federal and state income taxes, deferred	37,641		39,071
Derivative assets	31,448		23,655
Other receivables/assets	16,569		13,635
	$	244,036	$	236,517

8. Deposits

The following table presents the composition of our deposits as of the dates indicated:


(in thousands)	September 30, 2023		December 31, 2022
Noninterest bearing deposits	$	924,213	$	1,053,450
Interest checking deposits	1,334,481		1,624,278
Money market deposits	1,127,287		937,340
Savings deposits	619,805		664,169
Time deposits of $250 and under	923,709		559,466


Time deposits over $250	433,829		630,239
Total deposits	$	5,363,324	$	5,468,942

The Company had $ 10.9 million and $ 4.3 million in reciprocal time deposits as of September 30, 2023 and December 31, 2022, respectively. Included in money market deposits at September 30, 2023 and December 31, 2022 were $ 149.6 million and $ 40.0 million, respectively, of interest-bearing reciprocal deposits. Included in noninterest bearing deposits at September 30, 2023 were $ 70.1 million of noninterest-bearing reciprocal deposits, with no noninterest-bearing reciprocal deposits at December 31, 2022. These reciprocal deposits are part of the IntraFi Network Deposits program, which is used by financial institutions to spread deposits that exceed the FDIC insurance coverage limits out to numerous institutions in order to provide insurance

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coverage for all participating deposits. In addition, the Company had $ 220.1 million as of September 30, 2023 and $ 126.8 million as of December 31, 2022 of brokered deposits.

As of September 30, 2023 and December 31, 2022, the Company had public entity deposits that were collateralized by investment securities of $ 221.4 million and $ 387.8 million, respectively.

9. Short-Term Borrowings

The following table summarizes our short-term borrowings as of the dates indicated:


	September 30, 2023				December 31, 2022
(in thousands)	Weighted Average Rate		Balance		Weighted Average Rate		Balance
Securities sold under agreements to repurchase	0.73	%	$	9,256	1.32	%	$	156,373
Federal Home Loan Bank advances	5.53		139,700		4.48		235,500

Federal Reserve Bank borrowings	5.03		225,000		—		—

Total	5.11	%	$	373,956	3.22	%	$	391,873

Securities Sold Under an Agreement to Repurchase - 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.

Federal Home Loan Bank Advances - The Bank has a secured line of credit with the FHLBDM. Advances from the FHLBDM 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 4. Loans Receivable and the Allowance for Credit Losses of the notes to the consolidated financial statements.

Federal Funds Purchased - The Bank has unsecured federal funds lines totaling $ 155.0 million from multiple correspondent banking relationships. There were no borrowings from such lines at either September 30, 2023 or December 31, 2022.

Other - At September 30, 2023 and December 31, 2022, the Company had no Federal Reserve Discount Window borrowings, while the financing capacity was $ 515.4 million as of September 30, 2023 and $ 105.6 million as of December 31, 2022. At September 30, 2023, the Company had $ 225.0 million Bank Term Funding Program borrowings, with additional borrowing capacity of $ 224.3 million as of September 30, 2023. As of September 30, 2023 and December 31, 2022, the Bank had municipal securities with a market value of $ 880.5 million and $ 115.2 million, respectively, pledged to the Federal Reserve Bank of Chicago to secure potential borrowings.

The Company has a credit agreement with a correspondent bank with a revolving commitment of $ 25.0 million. The credit agreement was amended on September 19, 2023 such that the revolving commitment matures on September 30, 2024, with no updates made to the fee structure or the interest rate. Fees are paid on the average daily unused revolving commitment in the amount of 0.30 % per annum. Interest is payable at a rate equal to the monthly reset term SOFR rate plus 1.55 %. The Company had no balance outstanding under this revolving credit facility as of both September 30, 2023 and December 31, 2022.

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10. Long-Term Debt

Junior Subordinated Notes Issued to Capital Trusts

The table below summarizes the terms of each issuance of junior subordinated notes outstanding as of the dates indicated:


(in thousands)	Face Value		Book Value		Interest Rate	Rate		Maturity Date	Callable Date
September 30, 2023
ATBancorp Statutory Trust I	$	7,732	$	6,959	Three-month CME Term SOFR + 0.26 % Spread + 1.68 % Margin	7.35	%	06/15/2036	06/15/2011
ATBancorp Statutory Trust II	12,372		11,018		Three-month CME Term SOFR + 0.26 % Spread + 1.65 % Margin	7.32	%	09/15/2037	06/15/2012
Barron Investment Capital Trust I	2,062		1,854		Three-month CME Term SOFR + 0.26 % Spread + 2.15 % Margin	7.81	%	09/23/2036	09/23/2011
Central Bancshares Capital Trust II	7,217		6,954		Three-month CME Term SOFR + 0.26 % Spread + 3.50 % Margin	9.17	%	03/15/2038	03/15/2013
MidWestOne Statutory Trust II	15,464		15,464		Three-month CME Term SOFR + 0.26 % Spread + 1.59 % Margin	7.26	%	12/15/2037	12/15/2012
Total	$	44,847	$	42,249

December 31, 2022
ATBancorp Statutory Trust I	$	7,732	$	6,928	Three-month LIBOR + 1.68 %	6.45	%	06/15/2036	06/15/2011
ATBancorp Statutory Trust II	12,372		10,969		Three-month LIBOR + 1.65 %	6.42	%	09/15/2037	06/15/2012
Barron Investment Capital Trust I	2,062		1,832		Three-month LIBOR + 2.15 %	6.88	%	09/23/2036	09/23/2011
Central Bancshares Capital Trust II	7,217		6,923		Three-month LIBOR + 3.50 %	8.27	%	03/15/2038	03/15/2013
MidWestOne Statutory Trust II	15,464		15,464		Three-month LIBOR + 1.59 %	6.36	%	12/15/2037	12/15/2012
Total	$	44,847	$	42,116

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.

Subordinated Debentures

On July 28, 2020, the Company completed the private placement offering of $ 65.0 million of its subordinated notes, of which $ 63.75 million have been exchanged for subordinated notes registered under the Securities Act of 1933. The 5.75 % fixed-to-floating rate subordinated notes are due July 30, 2030. At September 30, 2023, 100 % of the subordinated notes qualified as Tier 2 capital. Per applicable Federal Reserve rules and regulations, the amount of the subordinated notes qualifying as Tier 2 regulatory capital will be phased-out by 20 % of the amount of the subordinated notes in each of the five years beginning on the fifth anniversary preceding the maturity date of the subordinated notes.

Other Long-Term Debt

Other long-term borrowings were as follows as of September 30, 2023 and December 31, 2022:


	September 30, 2023				December 31, 2022
(in thousands)	Weighted Average Rate		Balance		Weighted Average Rate		Balance
Finance lease payable	8.89	%	$	652	8.89	%	$	787
FHLB borrowings	3.11		6,270		2.91		17,301
Note payable to unaffiliated bank	6.88		11,250		5.67		15,000
Total	5.65	%	$	18,172	4.30	%	$	33,088

On June 7, 2022, the Company entered into an unsecured note payable with a correspondent bank with a maturity date of June 30, 2027. Payments of principal and interest are payable quarterly, and began on September 30, 2022. Interest is payable at the monthly reset term SOFR plus 1.55 %.

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As a member of the FHLBDM, the Bank may borrow funds from the FHLB in amounts up to 45 % 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 4. Loans Receivable and the Allowance for Credit Losses of the notes to the unaudited consolidated financial statements.

As of September 30, 2023, FHLB borrowings were as follows:


(in thousands)	Weighted Average Rate		Amount

Due in 2024	3.11	%	6,250





Valuation adjustment from acquisition accounting			20
Total			$	6,270

11. Earnings per Share

The following table present the computation of basic and diluted earnings per common share for the periods indicated:


	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands, except per share amounts)	2023		2022		2023		2022
Basic Earnings Per Share:
Net income	$	9,138	$	18,317	$	18,129	$	44,833
Weighted average shares outstanding	15,688,502		15,623,498		15,672,989		15,657,917
Basic earnings per common share	$	0.58	$	1.17	$	1.16	$	2.86

Diluted Earnings Per Share:
Net income	$	9,138	$	18,317	$	18,129	$	44,833
Weighted average shares outstanding, including all dilutive potential shares	15,711,137		15,654,443		15,696,071		15,686,098
Diluted earnings per common share	$	0.58	$	1.17	$	1.15	$	2.86

12. Regulatory Capital Requirements and Restrictions on Subsidiary Cash

Regulatory Capital and Reserve Requirement - The Company (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's consolidated financial statements. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

As of September 30, 2023 and December 31, 2022, the Bank was not required to maintain reserve balances in cash on hand or on deposit with Federal Reserve Banks, and therefore the total amount held in reserve for each of these periods was zero dollars.

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A comparison of the Company's and the Bank's capital with the corresponding minimum regulatory requirements in effect at September 30, 2023 and December 31, 2022, is presented below:


	Actual		For Capital Adequacy Purposes With Capital Conservation Buffer (1)		To Be Well Capitalized Under Prompt Corrective Action Provisions
(dollars in thousands)	Amount	Ratio	Amount	Ratio	Amount	Ratio
At September 30, 2023
Consolidated:
Total capital/risk weighted assets (1)	$ 668,678	12.45 %	$ 564,137	10.50 %	N/A	N/A
Tier 1 capital/risk weighted assets (1)	553,807	10.31	456,682	8.50	N/A	N/A
Common equity tier 1 capital/risk weighted assets (1)	511,558	9.52	376,091	7.00	N/A	N/A
Tier 1 leverage capital/average assets	553,807	8.58	258,071	4.00	N/A	N/A
MidWest One Bank:
Total capital/risk weighted assets (1)	$ 662,831	12.36 %	$ 563,166	10.50 %	$ 536,348	10.00 %
Tier 1 capital/risk weighted assets (1)	612,960	11.43	455,896	8.50	429,079	8.00
Common equity tier 1 capital/risk weighted assets (1)	612,960	11.43	375,444	7.00	348,626	6.50
Tier 1 leverage capital/average assets	612,960	9.51	257,931	4.00	322,414	5.00

At December 31, 2022
Consolidated:
Total capital/risk weighted assets (1)	$ 653,380	12.07 %	$ 568,452	10.50 %	N/A	N/A
Tier 1 capital/risk weighted assets (1)	544,300	10.05	460,175	8.50	N/A	N/A
Common equity tier 1 capital/risk weighted assets (1)	502,184	9.28	378,968	7.00	N/A	N/A
Tier 1 leverage capital/average assets	544,300	8.35	260,891	4.00	N/A	N/A
MidWest One Bank:
Total capital/risk weighted assets (1)	$ 654,297	12.10 %	$ 567,684	10.50 %	$ 540,652	10.00 %
Tier 1 capital/risk weighted assets (1)	610,217	11.29	459,554	8.50	432,522	8.00
Common equity tier 1 capital/risk weighted assets (1)	610,217	11.29	378,456	7.00	351,424	6.50
Tier 1 leverage capital/average assets	610,217	9.36	260,776	4.00	325,970	5.00

(1) Includes a capital conservation buffer of 2.50 %.

13. Commitments and Contingencies

Credit-related financial instruments - The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, commitments to sell loans, and standby letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheets.

The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. The following table summarizes the Bank’s commitments as of the dates indicated:


	September 30, 2023		December 31, 2022
(in thousands)
Commitments to extend credit	$	1,242,267	$	1,190,607
Commitments to sell loans	2,528		612
Standby letters of credit	9,078		18,398
Total	$	1,253,873	$	1,209,617

The Bank’s exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the party. Collateral held varies, but may include accounts receivable, crops, livestock, inventory, property and equipment, residential real estate and income-producing commercial properties.

Commitments to sell loans are agreements to sell loans held for sale to third parties at an agreed upon price.

Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements and, generally, have terms of one year or

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less. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank holds collateral, which may include accounts receivable, inventory, property, equipment and income-producing properties, that support those commitments, if deemed necessary. In the event the customer does not perform in accordance with the terms of the agreement with the third party, the Bank would be required to fund the commitment. The maximum potential amount of future payments the Bank could be required to make is represented by the contractual amount shown in the summary above. If the commitment is funded, the Bank would be entitled to seek recovery from the customer.

Liability for Off-Balance Sheet Credit Losses - The Company records a liability for off-balance sheet credit losses through a charge to credit loss expense (or a reversal of credit loss expense) on the Company's consolidated statements of income and other liabilities on the Company's consolidated balance sheets. At September 30, 2023 and December 31, 2022, the liability for off-balance-sheet credit losses totaled $ 4.8 million. For the nine months ended September 30, 2023, no credit loss expense was recorded, while a credit loss expense of $ 0.8 million was recorded for the nine months ended September 30, 2022.

Litigation - In the normal course of business, the Company and its subsidiaries have been named, from time to time, as defendants in various legal actions. Certain of the actual or threatened legal actions may include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. Management, after consulting with legal counsel, is of the opinion that the ultimate liability, if any, resulting from these pending or threatened actions and proceedings will not have a material effect on the financial statements of the Company.

Concentrations of credit risk - Substantially all of the Bank’s loans, commitments to extend credit and standby letters of credit have been granted to customers in the Bank’s market areas. Although the loan portfolio of the Bank is diversified, approximately 65 % of the loans are real estate loans, excluding farmland, and approximately 7 % are agriculturally related. The concentrations of credit by type of loan are set forth in Note 4. Loans Receivable and the Allowance for Credit Losses . Commitments to extend credit are primarily related to commercial loans and home equity loans. Standby letters of credit were granted primarily to commercial borrowers. Investments in securities issued by state and political subdivisions involve certain governmental entities within Iowa, California, and Minnesota. The carrying value of investment securities of Iowa, California and Minnesota political subdivisions totaled 13 %, 11 %, and 10 %, respectively, as of September 30, 2023.

14. Fair Value of Financial Instruments and Fair Value Measurements

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

• Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

• Level 2 – Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

• Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

For additional information regarding the valuation methodologies used to measure the Company's assets recorded at fair value, and for estimating fair value for financial instruments not recorded at fair value, see Note 1. Nature of Business and Significant Accounting Policies and Note 20. Estimated Fair Value of Financial Instruments and Fair Value Measurements to the consolidated financial statements in the Company's 2022 Annual Report on Form 10-K, filed with the SEC on March 13, 2023.

The Company uses fair value to measure certain assets and liabilities on a recurring basis, primarily available for sale debt securities, derivatives and mortgage servicing rights. For assets measured at the lower of cost or fair value, the fair value measurement criteria may or may not be met during a reporting period, and such measurements are therefore considered "nonrecurring" for purposes of disclosing the Company's fair value measurements. Fair value is used on a nonrecurring basis to adjust carrying values for collateral dependent individually analyzed loans and other real estate owned.

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Recurring Basis

The following tables summarize assets and liabilities measured at fair value on a recurring basis at the dates indicated, by level within the fair value hierarchy:


	Fair Value Measurement at September 30, 2023 Using
(in thousands)	Total		Level 1		Level 2		Level 3
Assets:
Available for sale debt securities:
State and political subdivisions	$	162,468	$	—	$	162,468	$	—
Mortgage-backed securities	5,327		—		5,327		—
Collateralized loan obligations	52,453		—		52,453		—
Collateralized mortgage obligations	131,923		—		131,923		—
Corporate debt securities	520,599		—		520,599		—
Derivative assets	31,448		—		31,430		18
Mortgage servicing rights	13,438		—		13,438		—

Liabilities:
Derivative liabilities	$	23,488	$	—	$	23,488	$	—


	Fair Value Measurement at December 31, 2022 Using
(in thousands)	Total		Level 1		Level 2		Level 3
Assets:
Debt securities available for sale:
U.S. Government agencies and corporations	$	7,345	$	—	$	7,345	$	—
State and political subdivisions	285,356		—		285,356		—
Mortgage-backed securities	5,944		—		5,944		—

Collateralized mortgage obligations	147,193		—		147,193		—
Corporate debt securities	707,709		—		707,709		—
Derivative assets	23,655		—		23,648		7
Mortgage servicing rights	13,421		—		13,421		—

Liabilities:
Derivative liabilities	$	21,087	$	—	$	21,087	$	—

There were no transfers of assets between Level 3 and other levels of the fair value hierarchy during the nine months ended September 30, 2023 or the year ended December 31, 2022. Changes in the fair value of available for sale debt securities, including the changes attributable to the hedged risk, are included in other comprehensive income.

The following table presents the valuation technique, significant unobservable inputs, and quantitative information about the unobservable inputs used for fair value measurements of the financial instruments held by the Company and categorized within Level 3 of the fair value hierarchy at the dates indicated:


	Fair Value at
(dollars in thousands)	September 30, 2023		December 31, 2022		Valuation Techniques(s)	Unobservable Input	Range of Inputs			Weighted Average
Interest rate lock commitments	$	18	$	7	Quoted or published market prices of similar instruments, adjusted for factors such as pull-through rate assumptions	Pull-through rate	70 %	-	100 %	85 %

Nonrecurring Basis

The following table presents assets measured at fair value on a nonrecurring basis at the dates indicated:


	Fair Value Measurement at September 30, 2023 Using
(in thousands)	Total		Level 1		Level 2		Level 3
Collateral dependent individually analyzed loans	$	8,479	$	—	$	—	$	8,479


	Fair Value Measurement at December 31, 2022 Using
(in thousands)	Total		Level 1		Level 2		Level 3
Collateral dependent individually analyzed loans	$	3,159	$	—	$	—	$	3,159
Foreclosed assets, net	103		—		—		103

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The following table 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 and categorized within Level 3 of the fair value hierarchy at the dates indicated:


	Fair Value at
(dollars in thousands)	September 30, 2023		December 31, 2022		Valuation Techniques(s)	Unobservable Input	Range of Inputs			Weighted Average
Collateral dependent individually analyzed loans	$	8,479	$	3,159	Fair value of collateral	Valuation adjustments	— %	-	55 %	12 %
Foreclosed assets, net	$	—	$	103	Fair value of collateral	Valuation adjustments	N/A (1)

(1) Quantitative disclosures are not provided for foreclosed assets, net because there were no adjustments made to the appraisal values or stated values during the period.

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

Carrying Amount and Estimated Fair Value of Financial Instruments

The carrying amount and estimated fair value of financial instruments at September 30, 2023 and December 31, 2022 were as follows:


	September 30, 2023
(in thousands)	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	74,788	$	74,788	$	74,788	$	—	$	—
Debt securities available for sale	872,770		872,770		—		872,770		—
Debt securities held to maturity	1,085,751		848,363		—		848,363		—
Loans held for sale	2,528		2,564		—		2,564		—
Loans held for investment, net	4,014,369		3,873,341		—		—		3,873,341
Interest receivable	30,095		30,095		—		30,095		—
FHLB stock	14,869		14,869		—		14,869		—
Derivative assets	31,448		31,448		—		31,430		18
Financial liabilities:
Noninterest bearing deposits	924,213		924,213		924,213		—		—
Interest bearing deposits	4,439,111		4,424,216		3,081,572		1,342,644		—
Short-term borrowings	373,956		373,956		373,956		—		—
Finance leases payable	652		652		—		652		—
FHLB borrowings	6,270		6,269		—		6,269		—
Junior subordinated notes issued to capital trusts	42,249		37,900		—		37,900		—
Subordinated debentures	64,105		62,809		—		62,809		—
Other long-term debt	11,250		11,250		—		11,250		—
Derivative liabilities	23,488		23,488		—		23,488		—


	December 31, 2022
(in thousands)	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	86,435	$	86,435	$	86,435	$	—	$	—
Debt securities available for sale	1,153,547		1,153,547		—		1,153,547		—
Debt securities held to maturity	1,129,421		924,894		—		924,894		—
Loans held for sale	612		622		—		622		—
Loans held for investment, net	3,791,324		3,702,527		—		—		3,702,527
Interest receivable	27,090		27,090		—		27,090		—
FHLB stock	19,248		19,248		—		19,248		—
Derivative assets	23,655		23,655		—		23,648		7
Financial liabilities:
Noninterest bearing deposits	1,053,450		1,053,450		1,053,450		—		—
Interest bearing deposits	4,415,492		4,393,315		3,225,787		1,167,528		—
Short-term borrowings	391,873		391,873		391,873		—		—
Finance leases payable	787		787		—		787		—
FHLB borrowings	17,301		17,032		—		17,032		—
Junior subordinated notes issued to capital trusts	42,116		39,023		—		39,023		—
Subordinated debentures	64,006		64,004		—		64,004		—
Other long-term debt	15,000		15,000		—		15,000		—
Derivative liabilities	21,087		21,087		—		21,087		—

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15. Leases

The Company's lease commitments consist primarily of real estate property for banking offices and office space with terms extending through 2045. Substantially all of our leases are classified as operating leases, with the Company only holding one existing finance lease for a banking office location with a lease term through 2025.


(in thousands)	Classification	September 30, 2023			December 31, 2022
Operating lease right-of-use assets	Other assets	$	2,593		$	2,492
Finance lease right-of-use asset	Premises and equipment, net	279			350
Total right-of-use assets		$	2,872		$	2,842

Operating lease liability	Other liabilities	$	3,365		$	3,359
Finance lease liability	Long-term debt	652			787
Total lease liabilities		$	4,017		$	4,146


Weighted-average remaining lease term:	Operating leases	9.78 years			9.23 years
	Finance lease	2.92 years			3.67 years
Weighted-average discount rate:	Operating leases	4.33		%	4.23		%
	Finance lease	8.89		%	8.89		%

The following table represents lease costs and other lease information. As the Company elected, for all classes of underlying assets, not to separate lease and non-lease components and instead to account for them as a single lease component, the variable lease cost primarily represents variable payments such as common area maintenance and utilities.


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2023		2022		2023		2022
Lease Costs
Operating lease cost	$	297	$	290	$	885	$	874
Variable lease cost	4		7		15		49
Interest on lease liabilities (1)	15		19		47		58
Amortization of right-of-use assets	24		24		72		72
Net lease cost	$	340	$	340	$	1,019	$	1,053

Other Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	602	$	553	$	1,799	$	1,689
Operating cash flows from finance lease	15		19		47		58
Finance cash flows from finance lease	46		41		135		121

Supplemental non-cash information on lease liabilities:
Right-of-use assets obtained in exchange for new operating lease liabilities	526		599		857		638

(1) Included in long-term debt interest expense in the Company’s consolidated statements of income. All other lease costs in this table are included in occupancy expense of premises, net.

Future minimum payments for finance leases and operating leases with initial or remaining terms of one year or more for the remaining three-months ending December 31, 2023 and the succeeding annual periods were as follows:


(in thousands)	Finance Leases		Operating Leases
December 31, 2023	$	62	$	318
December 31, 2024	250		1,047
December 31, 2025	254		568
December 31, 2026	172		430
December 31, 2027	—		302
Thereafter	—		1,738
Total undiscounted lease payment	$	738	$	4,403
Amounts representing interest	( 86 )		( 1,038 )
Lease liability	$	652	$	3,365

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16. Subsequent Events

The Company has evaluated events that have occurred subsequent to September 30, 2023 and has concluded there are no other subsequent events that would require recognition in the accompanying consolidated financial statements.

On October 24, 2023, the board of directors of the Company declared a cash dividend of $ 0.2425 per share payable on December 15, 2023 to shareholders of record as of the close of business on December 1, 2023.

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

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-Q 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,” “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:

• the risks of mergers (including with Iowa First Bancshares Corp. and Denver Bankshares, Inc.) or branch sales, 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;

• credit quality deterioration, pronounced and sustained reduction in real estate market values, or other uncertainties, including the impact of inflationary pressures on economic conditions and our business, resulting in an increase in the allowance for credit losses, an increase in the credit loss expense, and a reduction in net earnings;

• the effects of recent and potential additional increases in inflation and interest rates, including on our net income and the value of our securities portfolio;

• 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;

• changes in and uncertainty related to benchmark interest rates used to price loans and deposits;

• legislative and regulatory changes, including changes in banking, securities, trade, and tax laws and regulations and their application by our regulators, including the new 1.0% excise tax on stock buybacks by publicly traded companies and any changes in response to the recent failures of other banks;

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

• the sufficiency of the allowance for credit 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, financial technology companies, and other financial institutions operating in our markets or elsewhere or providing similar services;

• the failure of assumptions underlying the establishment of allowances for credit 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, political, or industry conditions, nationally, internationally or in the communities in which we conduct business, including the risk of a recession;

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

• war or terrorist activities, including the Israeli-Palestinian conflict and the Russian Invasion of Ukraine, widespread disease or pandemic, or other adverse external events, which may cause deterioration in the economy or cause instability in credit markets;

• the occurrence of fraudulent activity, breaches, or failures of our information security controls or cyber-security related incidents, including as a result of sophisticated attacks using artificial intelligence and similar tools;

• the imposition of tariffs or other domestic or international governmental policies impacting the value of the agricultural or other products of our borrowers;

• effects of the ongoing COVID-19 pandemic, including its effects on the economic environment, our customers, employees and supply chain;

• the concentration of large deposits from certain clients who have balances above current FDIC insurance limits;

• the effects of recent developments and events in the financial services industry, including the large-scale deposit withdrawals over a short period of time at other banks that resulted in failure of those institutions; and

• factors and risks described under “Risk Factors” in this Form 10-Q and in other reports we file with the SEC.

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.

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OVERVIEW

The Company provides financial services to individuals, businesses, governmental units and institutional customers located primarily in the upper Midwest through its bank subsidiary, MidWest One Bank. The Bank has locations throughout central and eastern Iowa, the Minneapolis/St. Paul metropolitan area of Minnesota, southwestern Wisconsin, Naples and Fort Myers, Florida, and Denver, Colorado.

On September 25, 2023, the Company announced the execution of a definitive purchase and assumption agreement for the sale of its Florida operations to DFCU Financial. The transaction is an all cash deal and is expected to close in the second quarter of 2024 subject to customary approvals.

On September 27, 2023, the Company announced the execution of a definitive merger agreement for the acquisition of DNVB, the parent company for the Bank of Denver ("Bank of Denver"). This transaction is an all cash deal and is expected to close in the first quarter of 2024 subject to customary approvals.

On June 9, 2022, the Company completed the acquisition of IOFB, a bank holding company headquartered in Muscatine, Iowa, and the parent company of FNBM and FNBF. Immediately following the completion of the acquisition, FNBM and FNBF were merged with and into the Bank. As consideration for the merger, we paid cash of $46.7 million. The acquisition added to the Company's existing presence in Fairfield, Iowa and expanded the Company's footprint into Muscatine, Iowa.

The Bank is focused on delivering relationship-based business and personal banking products and services. The Bank provides commercial loans, real estate loans, agricultural loans, credit card loans, and consumer loans. The Bank also provides deposit products including demand and interest checking accounts, savings accounts, money market accounts, and time deposits. Complementary to our loan and deposit products, the Bank also provides products and services including treasury management, Zelle, online and mobile banking, credit and debit cards, ATMs, and safe deposit boxes. The Bank also has a trust department through which it offers services including the administration of estates, personal trusts, and conservatorships and the management of real property. Finally, the Bank’s investment services department offers financial planning, investment advisory, and retail securities brokerage services (the latter of which is provided through an agreement with a third-party registered broker-dealer).

Our results of operations are significantly affected by our net interest income. Results of operations are also affected by noninterest income and expense, credit loss expense 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 the statistical information and financial data appearing in this report as well as our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 13, 2023. Results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of results to be attained for any other period.

FINANCIAL SUMMARY

The Company reported net income for the three months ended September 30, 2023 of $9.1 million, a decrease of $9.2 million, compared to $18.3 million of net income for the three months ended September 30, 2022, with diluted earnings per share of $0.58 and $1.17, respectively. For the nine months ended September 30, 2023, the Company reported net income of $18.1 million, a decrease of $26.7 million, compared to $44.8 million of net income for the nine months ended September 30, 2022, with diluted earnings per share of $1.15 and $2.86 for the respective annual periods.

The period as of and for the three and nine months ended September 30, 2023 was also highlighted by the following results:

Balance Sheet:

• Total assets decreased to $6.47 billion at September 30, 2023 from $6.58 billion at December 31, 2022, primarily as a result of the sale of $231 million in book value of available for sale debt securities in the first quarter of 2023, coupled with a decline in held to maturity debt securities, and partially offset by an increase in loans held for investment, net of unearned income of $225.4 million.

• At September 30, 2023 the total amount of the held to maturity debt securities was $1.09 billion and the total amount of the debt securities available for sale was $872.8 million. There were $1.13 billion held to maturity debt securities at December 31, 2022, while the total amount of the debt securities available for sale was $1.15 billion.

• Gross loans held for investment increased $223.3 million, from $3.85 billion at December 31, 2022, to $4.08 billion at September 30, 2023. This increase was primarily driven by new loan production.

• The allowance for credit losses was $51.6 million, or 1.27% of total loans at September 30, 2023, compared with $49.2 million, or 1.28% of total loans, at December 31, 2022.

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• Nonperforming assets increased $13.1 million, from $15.9 million at December 31, 2022, to $29.0 million at September 30, 2023, primarily due to the downgrade of a single commercial relationship.

• Total deposits decreased $105.6 million from $5.47 billion at December 31, 2022, to $5.36 billion at September 30, 2023.

• Short-term borrowings declined to $374.0 million at September 30, 2023, from $391.9 million at December 31, 2022, and long-term debt decreased to $124.5 million at September 30, 2023 from $139.2 million at December 31, 2022.

• The Company is well-capitalized with a total risk-based capital ratio of 12.45% at September 30, 2023.

Income Statement:

Three Months Ended:

• Tax equivalent net interest income (a non-GAAP financial measure - see the "Non-GAAP Presentations" section for a reconciliation to the most comparable GAAP equivalent) was $35.7 million for the third quarter of 2023, a decrease of $11.3 million, from $47.0 million in the third quarter of 2022. The decrease in tax equivalent net interest income was due primarily to an increase in interest expense on interest-bearing deposits and borrowed funds of $18.1 million and $3.2 million, respectively, in addition to a decrease of $1.8 million in interest income earned from investment securities. Partially offsetting these identified decreases in tax equivalent net interest income was an increase of $11.5 million in loan interest income.

• Credit loss expense of $1.6 million was recorded during the third quarter of 2023, compared to $0.6 million credit loss expense recorded in the third quarter of 2022. Credit loss expense in the current quarter was primarily attributable to individually evaluated loans.

• Noninterest income decreased $2.7 million, from $12.6 million in the third quarter of 2022 to $9.9 million in the third quarter of 2023, primarily due to the decline of $2.9 million in other revenue stemming from a settlement recognized in the third quarter of 2022 that did not recur in the third quarter of 2023.

• Noninterest expense decreased $3.1 million, from $34.6 million in the third quarter of 2022, to $31.5 million in the third quarter of 2023, due primarily a decline of $1.5 million in compensation and employee benefits related to employee benefits, incentive, and commission expenses, coupled with a $0.8 million decrease in merger-related expenses.

Nine Months Ended:

• Tax equivalent net interest income (a non-GAAP financial measure - see the "Non-GAAP Presentations" section for a reconciliation to the most comparable GAAP equivalent) was $115.2 million for the nine months ended September 30, 2023, a decrease of $11.2 million from the nine months ended September 30, 2022. The decrease was a result of increases in interest expense on interest-bearing deposits and borrowed funds of $47.4 million and $8.0 million, respectively, coupled with a decline in interest income from investment securities of $0.4 million. Partially offsetting these amounts was an increase in loan interest income of $44.0 million, reflecting higher volume and increased yield.

• Credit loss expense of $4.1 million was recorded in the first nine months of 2023, as compared to credit loss expense of $3.9 million for the first nine months of 2022. Credit loss expense in the first nine months of 2023 was primarily attributable to loan growth and individually evaluated loans, while credit loss expense in the first nine months of 2022 reflected $3.1 million related to the acquired IOFB non-PCD loans, $0.2 million related to unfunded loan commitments established in the IOFB acquisition, as well as a reserve taken to support loan growth.

• Noninterest income decreased $22.0 million, from $36.6 million for the first nine months of 2022 to $14.6 million in the first nine months of 2023. The largest driver in the decrease was the $13.2 million investment securities loss related to balance sheet repositioning executed in the first quarter of 2023. An additional significant driver was an MSR fair value adjustment of $17 thousand in the first nine months of 2023, as compared to an adjustment of $5.6 million in the first nine months of 2022. In addition, the decrease also was due to a $4.3 million decline in other revenue, which primarily stemmed from a settlement in 2022 that did not recur and the initial bargain purchase gain of $1.3 million recognized in connection with the IOFB acquisition in 2022.

• Noninterest expense increased $1.4 million, from $98.3 million for the first nine months ended September 30, 2022, to $99.8 million in the first nine months of 2023. The increase in noninterest expense was due to an overall increase in all noninterest expense categories except legal and professional, marketing, and communications. The increases were largely due to a full nine months of operations of IOFB, an increase in severance expense of $0.9 million stemming from a voluntary early retirement program, and normal annual salary and employee benefit increases. Partially offsetting these identified increases was a decline in merger-related expenses associated with the acquisition of IOFB.

Critical Accounting Estimates

Management has identified the accounting policies related to the ACL, fair value of assets acquired and liabilities assumed in a business combination, and the annual impairment testing of goodwill and other intangible assets to be critical accounting policies. 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, 2022, filed with the SEC on March 13, 2023, and there have been no material changes in these critical accounting policies since December 31, 2022.

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RESULTS OF OPERATIONS

Comparison of Operating Results for the Three Months Ended September 30, 2023 and September 30, 2022

Summary


	As of or for the Three Months Ended September 30,
(dollars in thousands, except per share amounts)	2023			2022
Net Interest Income	$	34,575		$	45,733
Noninterest Income	9,861			12,588
Total Revenue, Net of Interest Expense	44,436			58,321
Credit Loss Expense	1,551			638
Noninterest Expense	31,544			34,623
Income Before Income Tax Expense	11,341			23,060
Income Tax Expense	2,203			4,743
Net Income	9,138			18,317
Diluted Earnings Per Share	$	0.58		$	1.17




Return on Average Assets	0.56		%	1.13		%
Return on Average Equity	7.14			14.56
Return on Average Tangible Equity (1)	9.68			19.32
Efficiency Ratio (1)	66.06			53.67
Dividend Payout Ratio	41.81			20.30

Common Equity Ratio	7.81			7.28
Tangible Common Equity Ratio (1)	6.54			5.90
Book Value per Share	$	32.21		$	30.23
Tangible Book Value per Share (1)	26.60			24.17
(1) A non-GAAP financial measure. See "Non-GAAP Financial Measures" for a reconciliation to the most comparable GAAP equivalents.

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Net Interest Income

The following table shows consolidated average balance sheets, detailing the major categories of assets and liabilities, the interest income earned on interest-earning assets, the interest expense paid for interest-bearing liabilities, and the related yields and costs for the periods indicated:


	Three Months Ended September 30,
	2023						2022
	Average Balance		Interest Income/ Expense		Average Yield/ Cost		Average Balance		Interest Income/ Expense		Average Yield/ Cost
(dollars in thousands)
ASSETS
Loans, including fees (1)(2)(3)	$	4,019,852	$	52,605	5.19	%	$	3,673,379	$	41,124	4.44	%
Taxable investment securities	1,637,259		9,526		2.31		1,939,517		10,635		2.18
Tax-exempt investment securities (2)(4)	341,330		2,234		2.60		431,898		2,922		2.68
Total securities held for investment (2)	1,978,589		11,760		2.36		2,371,415		13,557		2.27
Other	34,195		374		4.34		6,070		9		0.59
Total interest earning assets (2)	$	6,032,636	$	64,739	4.26	%	$	6,050,864	$	54,690	3.59	%
Other assets	420,179						406,783
Total assets	$	6,452,815					$	6,457,647

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest checking deposits	$	1,354,597	$	2,179	0.64	%	$	1,725,000	$	1,463	0.34	%
Money market deposits	1,112,149		7,402		2.64		1,016,005		1,268		0.50
Savings deposits	603,628		749		0.49		710,836		297		0.17
Time deposits	1,403,504		12,798		3.62		913,307		2,007		0.87
Total interest bearing deposits	4,473,878		23,128		2.05		4,365,148		5,035		0.46
Securities sold under agreements to repurchase	66,020		85		0.51		144,628		228		0.63

Other short-term borrowings	277,713		3,634		5.19		83,086		539		2.57
Total short-term borrowings	343,733		3,719		4.29		227,714		767		1.34
Long-term debt	125,737		2,150		6.78		159,125		1,886		4.70
Total borrowed funds	469,470		5,869		4.96		386,839		2,653		2.72
Total interest bearing liabilities	$	4,943,348	$	28,997	2.33	%	$	4,751,987	$	7,688	0.64	%

Noninterest bearing deposits	905,993						1,142,334
Other liabilities	95,408						64,063
Shareholders’ equity	508,066						499,263
Total liabilities and shareholders’ equity	$	6,452,815					$	6,457,647
Net interest income (2)			$	35,742					$	47,002
Net interest spread (2)					1.93	%					2.95	%
Net interest margin (2)					2.35	%					3.08	%

Total deposits (5)	$	5,379,871	$	23,128	1.71	%	$	5,507,482	$	5,035	0.36	%
Cost of funds (6)					1.97	%					0.52	%


(1)			Average balance includes nonaccrual loans.
(2)			Tax equivalent. The federal statutory tax rate utilized was 21%.
(3)			Interest income includes net loan fees, loan purchase discount accretion and tax equivalent adjustments. Net loan fees were $141 thousand and $35 thousand for the three months ended September 30, 2023 and September 30, 2022, respectively. Loan purchase discount accretion was $791 thousand and $2.0 million for the three months ended September 30, 2023 and September 30, 2022, respectively. Tax equivalent adjustments were $735 thousand and $673 thousand for the three months ended September 30, 2023 and September 30, 2022, respectively. The federal statutory tax rate utilized was 21%.
(4)			Interest income includes tax equivalent adjustments of $432 thousand and $596 thousand for the three months ended September 30, 2023 and September 30, 2022, respectively. The federal statutory tax rate utilized was 21%.
(5)			Total deposits is the sum of total interest-bearing deposits and noninterest bearing deposits. The cost of total deposits is calculated as annualized interest expense on deposits divided by average total deposits.
(6)			Cost of funds is calculated as annualized total interest expense divided by the sum of average total deposits and borrowed funds.

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The following table shows changes to tax equivalent net interest income attributable to (i) changes in volume and (ii) changes in rate. Changes attributable to both rate and volume have been allocated proportionately to the change due to volume and the change due to rate.


	Three Months Ended September 30,
	2023 Compared to 2022
	Change due to
(in thousands)	Volume		Yield/Cost		Net
Increase (decrease) in interest income:
Loans, including fees (1)	$	4,113	$	7,368	$	11,481
Taxable investment securities	(1,722)		613		(1,109)
Tax-exempt investment securities (1)	(602)		(86)		(688)
Total securities held for investment (1)	(2,324)		527		(1,797)
Other	155		210		365
Change in interest income (1)	1,944		8,105		10,049
Increase (decrease) in interest expense:
Interest checking deposits	(370)		1,086		716
Money market deposits	133		6,001		6,134
Savings deposits	(52)		504		452
Time deposits	1,566		9,225		10,791
Total interest-bearing deposits	1,277		16,816		18,093
Securities sold under agreements to repurchase	(106)		(37)		(143)

Other short-term borrowings	2,156		939		3,095
Total short-term borrowings	2,050		902		2,952
Long-term debt	(452)		716		264
Total borrowed funds	1,598		1,618		3,216
Change in interest expense	2,875		18,434		21,309
Change in net interest income	$	(931)	$	(10,329)	$	(11,260)
Percentage increase in net interest income over prior period					(24.0)		%
(1) Tax equivalent, using a federal statutory tax rate of 21%.

Our tax equivalent net interest income for the third quarter of 2023 was $35.7 million, a decrease of $11.3 million, or 24.0%, as compared to $47.0 million for the third quarter of 2022. The decrease in tax equivalent net interest income in the third quarter of 2023 as compared to the third quarter of 2022 was due primarily to an increase in interest expense on interest bearing deposits and borrowed funds of $18.1 million and $3.2 million, respectively, due to higher costs and volumes. The decrease in tax equivalent net interest income was also due to a decrease of $1.8 million, or 13.3%, in interest income earned from investment securities, which stemmed from lower volumes. Partially offsetting these decreases was an increase of $11.5 million, or 27.9%, in loan interest income due to organic loan growth and an increase in loan yield.

The tax equivalent net interest margin for the third quarter of 2023 declined to 2.35% from 3.08% for the third quarter of 2022, driven by higher funding costs and volumes, partially offset by higher interest earning asset yields. The cost of interest bearing liabilities increased 169 bps to 2.33%, due to interest bearing deposit costs of 2.05%, short-term borrowing costs of 4.29%, and long-term debt costs of 6.78%, which increased 159 bps, 295 bps and 208 bps, respectively from the third quarter of 2022. Total interest earning assets yield increased 67 bps from the third quarter of 2022, primarily as a result of an increase in loan and securities yields of 75 bps and 9 bps, respectively.

Credit Loss Expense

Credit loss expense of $1.6 million was recorded during the third quarter of 2023, with $0.6 million credit loss expense recorded in the third quarter of 2022. Credit loss expense in the current quarter was primarily attributable to individually evaluated loans. Net charge-offs were $0.5 million in the third quarter of 2023 as compared to net charge-offs of $0.6 million in the third quarter of 2022. The estimation model utilized by the Company is sensitive to changes in the following forecast inputs: (1) Midwest unemployment, (2) year-to-year change in national retail sales, (3) year-to-year change in the CRE Index, (4) year-to-year change in U.S. GDP, (5) year-to-year change in the National Home Price Index, and (6) Rental Vacancy. In addition, management utilized qualitative factors to adjust the calculated ACL as appropriate. Qualitative factors are based on management’s judgment of company, market, industry or business specific data, changes in underlying loan composition of specific portfolios, trends relating to credit quality, delinquency, non-performing and adversely rated loans, and reasonable and supportable forecasts of economic conditions.

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Noninterest Income

The following table presents significant components of noninterest income and the related dollar and percentage change from period to period:


	Three Months Ended September 30,
(dollars in thousands)	2023		2022		$ Change		% Change
Investment services and trust activities	$	3,004	$	2,876	$	128	4.5	%
Service charges and fees	2,146		2,075		71		3.4
Card revenue	1,817		1,898		(81)		(4.3)
Loan revenue	1,462		1,722		(260)		(15.1)
Bank-owned life insurance	626		579		47		8.1

Investment securities gains (losses), net	79		(163)		242		(148.5)
Other	727		3,601		(2,874)		(79.8)
Total noninterest income	$	9,861	$	12,588	$	(2,727)	(21.7)	%

Total noninterest income for the third quarter of 2023 decreased $2.7 million, or 21.7%, to $9.9 million from $12.6 million in the third quarter of 2022, primarily due to the decline of $2.9 million in other revenue stemming from a settlement recognized in the third quarter of 2022 that did not recur in the third quarter of 2023.

Noninterest Expense

The following tables present significant components of noninterest expense and the related dollar and percentage change from period to period:


	Three Months Ended September 30,
(dollars in thousands)	2023		2022		$ Change		% Change
Compensation and employee benefits	$	18,558	$	20,046	$	(1,488)	(7.4)	%
Occupancy expense of premises, net	2,405		2,577		(172)		(6.7)
Equipment	2,123		2,358		(235)		(10.0)
Legal and professional	1,678		2,012		(334)		(16.6)
Data processing	1,504		1,731		(227)		(13.1)
Marketing	782		1,139		(357)		(31.3)
Amortization of intangibles	1,460		1,789		(329)		(18.4)
FDIC insurance	783		415		368		88.7
Communications	206		302		(96)		(31.8)
Foreclosed assets, net	2		42		(40)		(95.2)
Other	2,043		2,212		(169)		(7.6)


Total noninterest expense	$	31,544	$	34,623	$	(3,079)	(8.9)	%

The following table summarizes the DNVB and IOFB acquisition-related expenses, which are included in the respective income statement line items, for the periods indicated:


	Three Months Ended September 30,
Merger-related expenses:	2023		2022
(dollars in thousands)
Compensation and employee benefits	$	—	$	132

Equipment	—		14
Legal and professional	11		193
Data processing	—		304
Marketing	—		90

Other	—		30
Total merger-related expenses	$	11	$	763

Noninterest expense for the third quarter of 2023 decreased $3.1 million, or 8.9%, to $31.5 million from $34.6 million for the third quarter of 2022, with overall decreases in all noninterest expense categories except FDIC insurance. These decreases primarily reflected a $1.5 million decline in compensation and employee benefits related to employee benefits, incentive, and commission expenses, coupled with a $0.8 million decrease in merger-related expenses.

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Income Tax Expense

Our effective income tax rate, or income taxes divided by income before taxes, was 19.4% for the three months ended September 30, 2023, as compared to an effective tax rate of 20.6% for the three months ended September 30, 2022. The effective tax rate for the full year 2023 is expected to be in the range of 18% to 20%.

Comparison of Operating Results for the Nine Months Ended September 30, 2023 and September 30, 2022

Summary


	As of and for the Nine Months Ended September 30,
(dollars in thousands, except per share amounts)	2023			2022
Net Interest Income	$	111,613		$	122,794
Noninterest Income	14,561			36,579
Total Revenue, Net of Interest Expense	126,174			159,373
Credit Loss Expense	4,081			3,920
Noninterest Expense	99,782			98,348
Income Before Income Tax Expense	22,311			57,105
Income Tax Expense	4,182			12,272
Net Income	18,129			44,833
Diluted Earnings Per Share	$	1.15		$	2.86




Return on Average Assets	0.37		%	0.97		%
Return on Average Equity	4.81			11.81
Return on Average Tangible Equity (1)	7.03			15.28
Efficiency Ratio (1)	66.40			56.70
Dividend Payout Ratio	62.72			24.91

Common Equity Ratio	7.81			7.28
Tangible Common Equity Ratio (1)	6.54			5.90
Book Value per Share	$	32.21		$	30.23
Tangible Book Value per Share (1)	26.60			24.17

(1) A non-GAAP financial measure. See "Non-GAAP Financial Measures" for a reconciliation to the most comparable GAAP equivalents.

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Net Interest Income


	Nine Months Ended September 30,
	2023						2022
(dollars in thousands)	Average Balance		Interest Income/ Expense		Average Yield/ Cost		Average Balance		Interest Income/ Expense		Average Yield/ Cost
ASSETS
Loans, including fees (1)(2)(3)	$	3,964,119	$	150,250	5.07	%	$	3,416,600	$	106,297	4.16	%
Taxable investment securities	1,714,912		29,704		2.32		1,899,907		28,334		1.99
Tax-exempt investment securities (2)(4)	361,254		7,136		2.64		440,542		8,895		2.70
Total securities held for investment (2)	2,076,166		36,840		2.37		2,340,449		37,229		2.13
Other	22,741		686		4.03		25,972		77		0.40
Total interest-earning assets (2)	$	6,063,026	$	187,776	4.14	%	$	5,783,021	$	143,603	3.32	%

Other assets	417,610						369,369
Total assets	$	6,480,636					$	6,152,390

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest checking deposits	$	1,429,804	$	5,999	0.56	%	$	1,642,849	$	3,713	0.30	%
Money market deposits	1,014,708		15,970		2.10		991,338		2,338		0.32
Savings deposits	620,011		1,309		0.28		671,917		863		0.17
Time deposits	1,437,122		35,286		3.28		877,923		4,204		0.64
Total interest-bearing deposits	4,501,645		58,564		1.74		4,184,027		11,118		0.36
Securities sold under agreements to repurchase	123,512		958		1.04		152,663		435		0.38

Other short-term borrowings	174,448		6,665		5.11		42,952		680		2.12
Total short-term borrowings	297,960		7,623		3.42		195,615		1,115		0.76
Long-term debt	133,375		6,427		6.44		148,053		4,975		4.49
Total borrowed funds	431,335		14,050		4.36		343,668		6,090		2.37
Total interest-bearing liabilities	$	4,932,980	$	72,614	1.97	%	$	4,527,695	$	17,208	0.51	%

Noninterest bearing deposits	958,104						1,062,156
Other liabilities	85,650						54,775
Shareholders' equity	503,902						507,764
Total liabilities and shareholders' equity	$	6,480,636					$	6,152,390
Net interest income (2)			$	115,162					$	126,395
Net interest spread (2)					2.17	%					2.81	%









Net interest margin (2)					2.54	%					2.92	%

Total deposits (5)	$	5,459,749	$	58,564	1.43	%	$	5,246,183	$	11,118	0.28	%
Cost of funds (6)					1.65	%					0.41	%


(1)			Average balance includes nonaccrual loans.
(2)			Tax equivalent. The federal statutory tax rate utilized was 21%.
(3)			Interest income includes net loan fees, loan purchase discount accretion and tax equivalent adjustments. Net loan fees were $315 million and $678 thousand for the nine months ended September 30, 2023 and September 30, 2022, respectively. Loan purchase discount accretion was $3.0 million and $3.3 million for the nine months ended September 30, 2023 and September 30, 2022, respectively. Tax equivalent adjustments were $2.2 million and $1.8 million for the nine months ended September 30, 2023 and September 30, 2022, respectively. The federal statutory tax rate utilized was 21%.
(4)			Interest income includes tax equivalent adjustments of $1.4 million and $1.8 million for the nine months ended September 30, 2023 and September 30, 2022, respectively. The federal statutory tax rate utilized was 21%.
(5)			Total deposits is the sum of total interest-bearing deposits and noninterest bearing deposits. The cost of total deposits is calculated as annualized interest expense on deposits divided by average total deposits.
(6)			Cost of funds is calculated as annualized total interest expense divided by the sum of average total deposits and borrowed funds.

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	Nine Months Ended September 30,
	2023 Compared to 2022
	Change due to
(in thousands)	Volume		Yield/Cost		Net
Increase (decrease) in interest income:
Loans, including fees (1)	$	18,585	$	25,368	$	43,953
Taxable investment securities	(2,962)		4,332		1,370
Tax-exempt investment securities (1)	(1,565)		(194)		(1,759)
Total securities held for investment (1)	(4,527)		4,138		(389)
Other	(11)		620		609
Change in interest income (1)	14,047		30,126		44,173
Increase (decrease) in interest expense:
Interest checking deposits	(534)		2,820		2,286
Money market deposits	58		13,574		13,632
Savings deposits	(70)		516		446
Time deposits	4,158		26,924		31,082
Total interest-bearing deposits	3,612		43,834		47,446
Securities sold under agreements to repurchase	(98)		621		523

Other short-term borrowings	4,097		1,888		5,985
Total short-term borrowings	3,999		2,509		6,508
Long-term debt	(533)		1,985		1,452
Total borrowed funds	3,466		4,494		7,960
Change in interest expense	7,078		48,328		55,406
Change in net interest income	$	6,969	$	(18,202)	$	(11,233)
Percentage (decrease) increase in net interest income over prior period					(8.9)		%
(1) Tax equivalent, using a federal statutory tax rate of 21%.

Our tax equivalent net interest income for the nine months ended September 30, 2023 was $115.2 million, a decrease of $11.2 million, or 8.9%, as compared to $126.4 million for the nine months ended September 30, 2022. This decrease in net interest income was due primarily to an increase in interest expense on interest bearing deposits and borrowed funds of $47.4 million and $8.0 million, respectively, due to higher costs and volumes. The decrease in tax equivalent net interest income was also due to a decrease of $0.4 million, or 1.0%, in interest income earned from investment securities, which stemmed from lower volumes. Partially offsetting these decreases was an increase of $44.0 million, or 41.3%, in loan interest income due to organic loan growth and an increase in loan yield.

The tax equivalent net interest margin for the nine months ended September 30, 2023 was 2.54%, or 38 basis points lower than the tax equivalent net interest margin of 2.92% for the nine months ended September 30, 2022. The cost of interest-bearing deposits increased 138 basis points for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, while the cost of borrowed funds increased 199 basis points for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022. The increase in the cost of interest-bearing liabilities was a result of higher market interest rates, which reflect increases in the target federal funds rate. Partially offsetting these identified decreases to tax equivalent net interest margin were increases in the tax equivalent yield on loans and the tax equivalent yield on investment securities of 91 basis points and 24 basis points, respectively. Combined, the resulting yield on interest-earning assets for the nine months ended September 30, 2023 was 82 basis points higher than the nine months ended September 30, 2022, which primarily reflected new loan production originated at higher yields and the shift in earning asset mix to a greater proportion of loans, which generally have higher yields than investment securities.

Credit Loss Expense

Credit loss expense of $4.1 million was recorded in the first nine months of 2023, as compared to credit loss expense of $3.9 million for the first nine months of 2022, an increase of $0.2 million, or 4.1%. Credit loss expense in the first nine months of 2023 was primarily attributable to loan growth and individually evaluated loans. The credit loss expense recorded in the first nine months of 2022 primarily reflected $3.1 million related to the acquired IOFB non-PCD loans, $0.2 million related to unfunded loan commitments established in the IOFB acquisition, as well as a reserve taken to support loan growth. Net charge-offs in the first nine months of 2023 were $1.7 million, as compared to net charge-offs of $3.1 million in the first nine months of 2022. The estimation model utilized by the Company is sensitive to changes in the following forecast inputs: (1) Midwest

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unemployment, (2) year-to-year change in national retail sales, (3) year-to-year change in the CRE Index, (4) year-to-year change in U.S. GDP, (5) year-to-year change in the National Home Price Index, and (6) Rental Vacancy. In addition, management utilized qualitative factors to adjust the calculated ACL as appropriate. Qualitative factors are based on management’s judgment of company, market, industry or business specific data, changes in underlying loan composition of specific portfolios, trends relating to credit quality, delinquency, non-performing and adversely rated loans, and reasonable and supportable forecasts of economic conditions.

Noninterest Income

The following table presents the significant components of noninterest income and the related dollar and percentage change from period to period:


	Nine Months Ended September 30,
(dollars in thousands)	2023		2022		$ Change		% Change
Investment services and trust activities	$	9,056	$	8,557	$	499	5.8	%
Service charges and fees	6,201		5,449		752		13.8
Card revenue	5,412		5,426		(14)		(0.3)
Loan revenue	3,791		9,538		(5,747)		(60.3)
Bank-owned life insurance	1,844		1,668		176		10.6

Investment securities gains (losses), net	(13,093)		272		(13,365)		n/m
Other	1,350		5,669		(4,319)		(76.2)
Total noninterest income	$	14,561	$	36,579	$	(22,018)	(60.2)	%

NM - Percentage change not considered meaningful.

Total noninterest income for the first nine months of 2023 decreased $22.0 million, or 60.2%, to $14.6 million from $36.6 million during the same period of 2022. The largest driver in the decrease was the $13.2 million investment securities loss related to balance sheet repositioning executed in the first quarter of 2023. Also contributing to the decline in noninterest income was a decrease of $5.7 million in loan revenue, primarily driven by the MSR fair value adjustment of $17 thousand in the first nine months of 2023, as compared to an adjustment of $5.6 million in the first nine months of 2022. In addition, the decrease was driven by the $4.3 million decline in other revenue, which stemmed from a settlement in 2022 that did not recur and the initial bargain purchase gain of $1.3 million recognized in connection with the IOFB acquisition in 2022.

Noninterest Expense

The following tables present the significant components of noninterest expense and the related dollar and percentage change from period to period:


	Nine Months Ended September 30,
(dollars in thousands)	2023		2022		$ Change		% Change
Compensation and employee benefits	$	58,551	$	57,665	$	886	1.5	%
Occupancy expense of premises, net	7,725		7,609		116		1.5
Equipment	6,729		6,366		363		5.7
Legal and professional	5,096		6,800		(1,704)		(25.1)
Data processing	4,388		4,199		189		4.5
Marketing	2,910		3,325		(415)		(12.5)
Amortization of intangibles	4,806		4,299		507		11.8
FDIC insurance	2,394		1,255		1,139		90.8
Communications	727		840		(113)		(13.5)
Foreclosed assets, net	(32)		(66)		34		(51.5)
Other	6,488		6,056		432		7.1


Total noninterest expense	$	99,782	$	98,348	$	1,434	1.5	%

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The following table summarizes the DNVB and IOFB acquisition-related expenses, which are included in the respective income statement line items, for the periods indicated:


Merger-related expenses:	Nine Months Ended September 30,
(dollars in thousands)	2023		2022
Compensation and employee benefits	$	70	$	282
Occupancy expense of premises, net	—		1
Equipment	—		25
Legal and professional	11		894
Data processing	65		380
Marketing	—		162
Communications	—		3
Other	1		45
Total impact of merger-related expenses to noninterest expense	$	147	$	1,792

Noninterest expense for the nine months ended September 30, 2023 was $99.8 million, an increase of $1.4 million, or 1.5%, from $98.3 million for the nine months ended September 30, 2022. The increase in noninterest expense was due to an overall increase in all noninterest expense categories except legal and professional, marketing, and communications. The increases were largely due to a full nine months of operations of IOFB. Also contributing to the increase in noninterest expense was an increase in compensation and employee benefits, primarily due to a voluntary early retirement program, which was the primary driver of the $0.9 million increase in severance expense, coupled with normal annual salary and employee benefit increases. Partially offsetting these identified increases was a decline in merger-related expenses associated with the acquisition of IOFB.

Income Tax Expense

Our effective income tax rate, or income taxes divided by income before taxes, was 18.7% for the first nine months of 2023, as compared to an effective tax rate of 21.5% for the first nine months of 2022. The effective tax rate for the full year 2023 is expected to be in the range of 18-20%.

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FINANCIAL CONDITION

The table below presents the major categories of the Company's balance sheet as of the dates indicated:


(dollars in thousands)	September 30, 2023		December 31, 2022		$ Change		% Change
ASSETS
Cash and cash equivalents	$	74,788	$	86,435	$	(11,647)	(13.5)	%
Loans held for sale	2,528		612		1,916		313.1
Debt securities available for sale at fair value	872,770		1,153,547		(280,777)		(24.3)
Held to maturity securities at amortized cost	1,085,751		1,129,421		(43,670)		(3.9)
Loans held for investment, net of unearned income	4,065,969		3,840,524		225,445		5.9
Allowance for credit losses	(51,600)		(49,200)		(2,400)		4.9
Total loans held for investment, net	4,014,369		3,791,324		223,045		5.9
Other assets	417,612		416,537		1,075		0.3
Total assets	$	6,467,818	$	6,577,876	$	(110,058)	(1.7)	%
LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits	$	5,363,324	$	5,468,942	$	(105,618)	(1.9)	%
Total borrowings	498,482		531,083		(32,601)		(6.1)
Other liabilities	100,601		85,058		15,543		18.3
Total shareholders' equity	505,411		492,793		12,618		2.6
Total liabilities and shareholders' equity	$	6,467,818	$	6,577,876	$	(110,058)	(1.7)	%

Debt Securities

The composition of debt securities available for sale and held to maturity as of the dates indicated was as follows:


	September 30, 2023				December 31, 2022
(dollars in thousands)	Balance		% of Total		Balance		% of Total
Available for Sale
U.S. Government agencies and corporations	$	—	—	%	$	7,345	0.6	%
States and political subdivisions	162,468		18.6		285,356		24.7
Mortgage-backed securities	5,327		0.6		5,944		0.5
Collateralized loan obligations	52,453		6.0		—		—
Collateralized mortgage obligations	131,923		15.1		147,193		12.8
Corporate debt securities	520,599		59.7		707,709		61.4
Fair value of debt securities available for sale	$	872,770	100.0	%	$	1,153,547	100.0	%

Held to Maturity

States and political subdivisions	$	532,885	49.1		$	538,746	47.7	%
Mortgage-backed securities	76,310		7.0		81,032		7.2	%
Collateralized mortgage obligations	476,556		43.9		509,643		45.1	%

Amortized cost of debt securities held to maturity	$	1,085,751	100.0	%	$	1,129,421	100.0	%

As of September 30, 2023, there was $67 thousand of gross unrealized gains and $108.8 million of gross unrealized losses in our debt securities available for sale portfolio for a net unrealized loss of $108.8 million. As of September 30, 2023 there were no gross unrealized gains and $237.4 million of gross unrealized losses in our held to maturity debt securities.

During the first quarter of 2023, the Company undertook balance sheet repositioning related to its debt securities portfolio. Specifically, the Company executed the sale of $231 million in book value of its AFS debt securities, with a pre-tax loss of $13.2 million and $220 million of proceeds that were used to pay off short-term borrowings and reinvest in higher yielding, floating rate securities.

See Note 3. Debt Securities to our consolidated financial statements for additional information related to debt securities.

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Loans

The composition of our loan portfolio by type of loan was as follows:


	September 30, 2023				December 31, 2022
(dollars in thousands)	Balance		% of Total		Balance		% of Total
Agricultural	$	111,950	2.8	%	$	115,320	3.0	%
Commercial and industrial	1,078,773		26.5		1,055,162		27.5





Commercial real estate	2,176,017		53.5		1,980,018		51.6



Residential real estate	630,046		15.5		614,428		15.9
Consumer	69,183		1.7		75,596		2.0
Loans held for investment, net of unearned income	$	4,065,969	100.0	%	$	3,840,524	100.0	%
Loans held for sale	$	2,528			$	612

Loans held for investment, net of unearned income at September 30, 2023, increased $225.4 million, or 5.9%, from December 31, 2022 to $4.07 billion, driven primarily by new loan production, draws on construction loans, and higher line of credit usage during 2023. See Note 4. Loans Receivable and the Allowance for Credit Losses to our consolidated financial statements for additional information related to our loan portfolio. Our loan to deposit ratio increased to 75.81% as of September 30, 2023 as compared to 70.22% as of December 31, 2022.

Commitments under standby letters of credit, unused lines of credit and other conditionally approved credit lines totaled approximately $1.25 billion and $1.21 billion as of September 30, 2023 and December 31, 2022, respectively.

Nonperforming Assets

The following table sets forth information concerning nonperforming loans by class of receivable and our nonperforming assets at September 30, 2023 and December 31, 2022:


(in thousands)	September 30, 2023			December 31, 2022

Nonaccrual loans held for investment	$	28,887		$	15,256
Accruing loans contractually past due 90 days or more	100			565
Total nonperforming loans	28,987			15,821
Foreclosed assets, net	—			103
Total nonperforming assets	28,987			15,924

Nonaccrual loans ratio (1)	0.71		%	0.40		%
Nonperforming loans ratio (2)	0.71		%	0.41		%
Nonperforming assets ratio (3)	0.45		%	0.24		%

(1) Nonaccrual loans ratio is calculated as nonaccrual loans divided by loans held for investment, net of unearned income, at the end of the period.
(2) Nonperforming loans ratio is calculated as total nonperforming loans divided by loans held for investment, net of unearned income, at the end of the period.
(3) Nonperforming assets ratio is calculated as total nonperforming assets divided by total assets at the end of the period.

Compared to December 31, 2022, nonperforming loans and asset ratios increased 30 basis points and 21 basis points, respectively, primarily due to the downgrade of a single commercial relationship.

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. 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, they document the credit file with an offering sheet summary, supplemental underwriting analysis, relevant financial information and collateral evaluations. Segregation of owner-occupied and non-owner occupied residential real estate loans is made at the time of origination. 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. Credit relationships with larger exposure may pose incrementally higher risks. As a result, the Bank's loan review department is required to review all credit relationships with total exposure of $5.0 million or more at least annually. In addition, the individual loan reviews consider such items as: loan type; nature, type and estimated value of collateral; borrower and/or

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guarantor estimated financial strength; most recently available financial information; related loans and total borrower exposure; and current and anticipated performance of the loan. The results of such reviews are presented to both executive management and the audit committee of the Company's board of directors.

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 (risk rating 5) or Classified (risk ratings 6 through 8) status is warranted. At least quarterly, the loan strategy committee will meet to discuss loan relationships with total exposure of $1.0 million or above that are Watch rated credits, loan relationships with total exposure of $500 thousand and above that are Substandard or worse rated credits, as well as loan relationships with total exposure of $250 thousand and above that are on non-accrual. Loan relationships outside these designated thresholds are reviewed upon request. The lending officer is 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 presented to the loan strategy committee. The minutes of the loan strategy committee meetings are provided to the board of directors of the Bank.

Depending upon the individual facts and circumstances and the result of the classified/watch review process, loan officers and/or loan review personnel may categorize a loan relationship as requiring an individual analysis. Once that determination has occurred, the credit analyst will complete an individually analyzed worksheet that contains 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 individual analysis when deemed necessary. These judgmental evaluations may produce an initial specific allowance for recognition in the Company’s allowance for credit losses calculation. An analysis for the underlying collateral value of each individually analyzed loan relationship is completed in the last month of the quarter. The individually analyzed 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 reports including changes in credit grades of 5 or higher as well as all individually analyzed loans, the related allowances and foreclosed assets, net.

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 proper authority based upon the aggregate credit exposure before the rating can be changed.

Loan Modifications for Borrowers Experiencing Financial Difficulty

Infrequently, the Company makes modification to certain loans in order to alleviate temporary difficulties in the borrower's financial condition and/or constraints on the borrower's ability to repay a loan, and to minimize potential losses to the Company. GAAP requires that certain types of modifications be reported, including:

• Principal forgiveness.

• Interest rate reduction.

• An other than-insignificant payment delay.

• Term extension.

During the three and nine months ended September 30, 2023, the amortized cost of the loans that were modified to borrowers in financial distress was $3.4 million and $7.1 million, respectively, which represented 0.09% and 0.18% of total loans held for investment, net of unearned income for each respective period.

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Allowance for Credit Losses

The following table sets forth the allowance for credit losses by loan portfolio segments compared to the percentage of loans to total loans by loan portfolio segment for the periods indicated:


	September 30, 2023					December 31, 2022
(dollars in thousands)	Allowance for Credit Losses			% of Loans in Each Segment to Total Loans		Allowance for Credit Losses			% of Loans in Each Segment to Total Loans
Agricultural	$	537		2.8	%	$	923		3.0	%
Commercial and industrial	22,063			26.5	%	22,855			27.5	%
Commercial real estate	23,787			53.5	%	20,123			51.6	%
Residential real estate	4,643			15.5	%	4,678			15.9	%
Consumer	570			1.7	%	621			2.0	%
Total	$	51,600		100.0	%	$	49,200		100.0	%

Allowance for credit losses ratio (1)	1.27		%			1.28		%

Allowance for credit losses to nonaccrual loans ratio (2)	178.63		%			322.50		%

(1) Allowance for credit losses ratio is calculated as allowance for credit losses divided by loans held for investment, net of unearned income at the end of the period.

(2) Allowance for credit losses to nonaccrual loans ratio is calculated as allowance for credit losses divided by nonaccrual loans at the end of the period.

The following tables set forth the net (charge-offs) recoveries by loan portfolio segments for the periods indicated:



	For the Three Months Ended September 30, 2023 and 2022
(in thousands)	Agricultural			Commercial and Industrial			Commercial Real Estate			Residential Real Estate			Consumer			Total
For the Three Months Ended September 30, 2023
Charge-offs	$	(25)		$	(511)		$	—		$	(21)		$	(178)		$	(735)
Recoveries	126			79			4			3			72			284
Net (charge-offs) recoveries	$	101		$	(432)		$	4		$	(18)		$	(106)		$	(451)

Net (charge-off) recovery ratio (1)	0.01		%	(0.04)		%	—		%	—		%	(0.01)		%	(0.04)		%

For the Three Months Ended September 30, 2022
Charge-offs	$	(248)		$	(280)		$	(135)		$	(52)		$	(255)		$	(970)
Recoveries	1			295			6			48			32			382
Net (charge-offs) recoveries	$	(247)		$	15		$	(129)		$	(4)		$	(223)		$	(588)

Net (charge-off) recovery ratio (1)	(0.03)		%	—		%	(0.01)		%	—		%	(0.02)		%	(0.06)		%

	For the Nine Months Ended September 30, 2023 and 2022
(in thousands)	Agricultural			Commercial and Industrial			Commercial Real Estate			Residential Real Estate			Consumer			Total
For the Nine Months Ended September 30, 2023
Charge-offs	$	(26)		$	(1,020)		$	(830)		$	(54)		$	(451)		$	(2,381)
Recoveries	153			349			15			23			160			700
Net (charge-offs) recoveries	$	127		$	(671)		$	(815)		$	(31)		$	(291)		$	(1,681)

Net (charge-off) recovery ratio (1)	—		%	(0.02)		%	(0.03)		%	—		%	(0.01)		%	(0.06)		%

For the Nine Months Ended September 30, 2022
Charge-offs	$	(249)		$	(843)		$	(2,319)		$	(90)		$	(540)		$	(4,041)
Recoveries	9			613			154			68			106			950
Net (charge-offs) recoveries	$	(240)		$	(230)		$	(2,165)		$	(22)		$	(434)		$	(3,091)

Net (charge-off) recovery ratio (1)	(0.01)		%	(0.01)		%	(0.08)		%	—		%	(0.02)		%	(0.12)		%

(1) Net (charge-off) recovery ratio is calculated as the annualized net (charge-offs) recoveries divided by average loans held for investment, net of unearned income and average loans held for sale, during the period.

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Actual Results: Our ACL as of September 30, 2023 was $51.6 million, which was 1.27% of loans held for investment, net of unearned income as of that date. This compares with an ACL of $49.2 million as of December 31, 2022, which was 1.28% of loans held for investment, net of unearned income. The increase in the ACL primarily reflected an additional reserve taken to support loan growth and related to individually evaluated loans. The liability for off-balance sheet credit exposures totaled $4.8 million as of September 30, 2023 and December 31, 2022, and is included in 'Other liabilities' on the balance sheet.

The Company recorded a credit loss expense related to loans of $4.1 million for the nine months ended September 30, 2023 as compared to credit loss expense related to loans of $3.1 million for the nine months ended September 30, 2022. Gross charge-offs for the first nine months of 2023 totaled $2.4 million, while there were $0.7 million in gross recoveries of previously charged-off loans. The ratio of annualized net charge-offs to average loans for the first nine months of 2023 was 0.06% compared to 0.12% for the nine months ended September 30, 2022.

Economic Forecast: At September 30, 2023, the economic forecast used by the Company showed the following: (1) Midwest unemployment – increases over the next four forecasted quarters; (2) Year-to-year change in national retail sales - increases over the next four forecasted quarters; (3) Year-to-year change in CRE Index - decreases in the next four forecasted quarters; (4) Year-to-year change in U.S. GDP - increases over the next four forecasted quarters; (5) Year-to-year change in National Home Price Index – increases over the next two forecasted quarters, with declines in the third and fourth forecasted quarters; and (6) Rental Vacancy - increases over the next four forecasted quarters. In addition, management utilized qualitative factors to adjust the calculated ACL as appropriate. Qualitative factors are based on management’s judgment of company, market, industry or business specific data, changes in underlying loan composition of specific portfolios, trends relating to credit quality, delinquency, non-performing and adversely rated loans, and reasonable and supportable forecasts of economic conditions.

Loan Policy: We review all nonaccrual loans greater than $250,000 individually on a quarterly basis to measure any amount to be recognized in the Company's allowance for credit losses by analyzing the borrower's ability to repay amounts owed, collateral deficiencies, and other relevant factors. In addition, PCD loans greater than $250,000 are evaluated individually to determine the required ACL. Loans modified to borrowers experiencing financial difficulty performing in accordance with their modified contractual terms for a reasonable period of time may be included in the Company’s existing pools based on the underlying risk characteristics of the loan to measure the ACL. Upon the Company's determination that a modified loan (or a portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount. We review loans 90 days or more past due that are still accruing interest no less than quarterly to determine if the asset is both well secured and in the process of collection. If not, such loans are placed on non-accrual status.

Based on the inherent risk in the loan portfolio, management believed that as of September 30, 2023, the ACL was adequate; however, there is no assurance losses will not exceed the ACL. In addition, growth in the loan portfolio or general economic deterioration may require the recognition of additional credit loss expense in future periods. See Note 4. Loans Receivable and the Allowance for Credit Losses to our unaudited consolidated financial statements for additional information related to the allowance for credit losses.

Deposits

The composition of deposits was as follows:


	As of September 30, 2023				As of December 31, 2022
(in thousands)	Balance		% of Total		Balance		% of Total
Noninterest bearing deposits	$	924,213	17.2	%	$	1,053,450	19.3	%
Interest checking deposits	1,334,481		24.9		1,624,278		29.8
Money market deposits	1,127,287		21.0		937,340		17.1
Savings deposits	619,805		11.6		664,169		12.1
Time deposits of $250 and under	703,646		13.1		559,466		10.2
Total core deposits	4,709,432		87.8		4,838,703		88.5
Brokered deposits	220,063		4.1		126,767		2.4
Time deposits over $250	433,829		8.1		503,472		9.1
Total non-core deposits	653,892		12.2		630,239		11.5
Total deposits	$	5,363,324	100.0	%	$	5,468,942	100.0	%

Deposits decreased $105.6 million from December 31, 2022, or 1.9%. Brokered deposits as of September 30, 2023 totaled $220.1 million, compared with $126.8 million as of December 31, 2022. Approximately 87.8% of our total deposits were considered “core” deposits as of September 30, 2023, compared to 88.5% at December 31, 2022. We consider core deposits to be the total of all deposits other than time deposits greater than $250k and non-reciprocal brokered deposits. Deposit inflows and outflows are influenced by prevailing market interest rates, competition, local and national economic conditions, and

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fluctuations in our business customers own liquidity needs and may also be influenced by recent developments in the financial services industry. See Note 8. Deposits to our consolidated financial statements for additional information related to our deposits.

Short-Term Borrowings and Long-Term Debt

The following table sets forth the composition of short-term borrowings and long-term debt as of the dates presented:


(dollars in thousands)	September 30, 2023		December 31, 2022
Securities sold under agreements to repurchase	$	9,256	$	156,373
Federal Home Loan Bank advances	139,700		235,500

Federal Reserve Bank borrowings	225,000		—

Total short-term borrowings	$	373,956	$	391,873

Junior subordinated notes issued to capital trusts	42,249		42,116
Subordinated debentures	64,105		64,006
Finance lease payable	652		787
Federal Home Loan Bank borrowings	6,270		17,301
Other long-term debt	11,250		15,000
Total long-term debt	$	124,526	$	139,210

See Note 9. Short-Term Borrowings and Note 10. Long-Term Debt to our unaudited consolidated financial statements for additional information related to short-term borrowings and long-term debt.

Capital Resources

Shareholders' Equity and Capital Adequacy

The following table summarizes certain equity capital ratios and book value per share amounts of the Company at the dates presented:


	September 30, 2023			December 31, 2022
Common equity ratio	7.81		%	7.49		%
Tangible common equity ratio (1)	6.54		%	6.17		%
Total risk-based capital ratio	12.45		%	12.07		%
Tier 1 risk-based capital ratio	10.31		%	10.05		%
Common equity tier 1 risk-based capital ratio	9.52		%	9.28		%
Tier 1 leverage ratio	8.58		%	8.35		%
Book value per share	$	32.21		$	31.54
Tangible book value per share (1)	$	26.60		$	25.60
(1) A non-GAAP financial measure - see the “Non-GAAP Presentations” section for a reconciliation to the most comparable GAAP equivalent.

Shareholders' Equity: Total shareholders’ equity was $505.4 million as of September 30, 2023, compared to $492.8 million as of December 31, 2022, an increase of $12.6 million, or 2.6%, primarily due to net income and a decrease in the unrealized loss on available for sale debt securities, which decreased the negative balance included in AOCI.

Capital Adequacy: 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. Management believed that, as of September 30, 2023, 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. See Note 12. Regulatory Capital Requirements and Restrictions on Subsidiary Cash to our unaudited consolidated financial statements for additional information related to our capital.

Stock Compensation

Restricted stock units were granted to certain officers of the Company on February 15, 2023, in the aggregate amount of 80,745. In the second quarter, restricted stock units were granted to directors of the Company and Bank on May 15, 2023, in the aggregate amount of 20,148, while during the third quarter, restricted stock units were granted to certain officers of the Company and the Bank on August 15, 2023, in the aggregate amount of 894. Additionally, during the first nine months of 2023, 88,039 shares of common stock were issued in connection with the vesting of previously awarded grants of restricted stock

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units, of which 20,278 shares were surrendered by grantees to satisfy tax requirements, and 881 unvested restricted stock units 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. Excess liquidity is invested generally in short-term U.S. government and agency securities, short- and medium-term state and political subdivision securities, and other investment securities. Our most liquid assets are cash and due from banks, interest-bearing bank deposits, and federal funds sold. The balances of these assets are dependent on our operating, investing, and financing activities during any given period.

Cash and cash equivalents are summarized in the table below.


(dollars in thousands)	As of September 30, 2023		As of December 31, 2022
Cash and due from banks	$	71,015	$	83,990
Interest-bearing deposits	3,773		2,445

Total	$	74,788	$	86,435

Generally, our principal sources of funds are deposits, advances from the FHLB, principal repayments on loans, proceeds from the sale of loans, proceeds from the maturity and sale of investment securities, our federal funds lines, and funds provided by operations. While scheduled loan amortization and maturing interest-bearing deposits are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by economic conditions, the general level of interest rates, and competition. We utilized particular sources of funds based on comparative costs and availability. The Bank maintains unsecured lines of credit with several correspondent banks and secured lines with the Federal Reserve Bank of Chicago and the FHLB that would allow us to borrow funds on a short-term basis, if necessary. We also hold debt securities classified as available for sale that could be sold to meet liquidity needs if necessary.

Net cash provided by operations was another major source of liquidity. The net cash provided by operating activities was $55.8 million for the nine months ended September 30, 2023 and $72.3 million for the nine months ended September 30, 2022.

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 may fluctuate considerably and thereby influence the overall Consumer Price Index without having a corresponding effect on interest rates or upon the cost of those goods and services normally purchased by us. Inflation and related increases in market rates by the Federal Reserve generally decrease the market value of investments and loans held and may adversely affect liquidity, earnings and shareholders' equity. Ongoing higher inflation levels and higher interest rates could have a negative impact on both our consumer and commercial borrowers. We anticipate our noninterest income may be adversely affected in future periods as a result of increasing interest rates and inflationary pressure, which has begun to and will continue to adversely affect mortgage originations and mortgage banking revenue. Additionally, the economic impact of the recent rise in inflation and rising interest rates could place increased demand on our liquidity if we experience significant credit deterioration and as we meet borrowers' needs. There is also a risk that interest rate increases to fight inflation could lead to a recession.

Off-Balance-Sheet Arrangements

During the normal course of business, we are a party to financial instruments with off-balance-sheet risk in order to meet the financing needs of our customers. These financial instruments include commitments to extend credit, commitments to sell loans, and standby letters of credit. We follow the same credit policy (including requiring collateral, if deemed appropriate) to make such commitments as is followed for those loans that are recorded in our financial statements.

Our exposure to credit losses in the event of nonperformance is represented by the contractual amount of the commitments. Management does not expect any significant losses as a result of these commitments, and also expects to have sufficient liquidity available to cover these off-balance-sheet instruments. Off-balance-sheet transactions are more fully discussed in Note 13. Commitments and Contingencies to our unaudited consolidated financial statements.

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Contractual Obligations

There have been no material changes to the Company's contractual obligations existing at December 31, 2022, as disclosed in the Annual Report on Form 10-K, filed with the SEC on March 13, 2023.

Non-GAAP Financial Measures

Certain ratios and amounts not in conformity with GAAP are provided to evaluate and measure the Company’s operating performance and financial condition, including return on average tangible equity, tangible common equity, tangible book value per share, tangible common equity ratio, efficiency ratio, net interest margin (tax equivalent), and core net interest margin. Management believes these ratios and amounts provide investors with useful information regarding the Company’s profitability, financial condition and capital adequacy, consistent with how management evaluates the Company’s financial performance.

The following tables provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent:


	Three Months Ended						Nine Months Ended
Return on Average Tangible Equity	September 30, 2023			September 30, 2022			September 30, 2023			September 30, 2022
(Dollars in thousands)
Net income	$	9,138		$	18,317		$	18,129		$	44,833
Intangible amortization, net of tax (1)	1,095			1,342			3,605			3,224

Tangible net income	$	10,233		$	19,659		$	21,734		$	48,057

Average shareholders' equity	$	508,066		$	499,263		$	503,902		$	507,764
Average intangible assets, net	(88,699)			(95,499)			(90,308)			(87,318)
Average tangible equity	$	419,367		$	403,764		$	413,594		$	420,446

Return on average equity	7.14		%	14.56		%	4.81		%	11.81		%
Return on average tangible equity (2)	9.68		%	19.32		%	7.03		%	15.28		%

(1) Computed assuming a combined marginal income tax rate of 25%.
(2) Annualized tangible net income divided by average tangible equity.

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Tangible Common Equity/Tangible Book Value per Share / Tangible Common Equity Ratio	September 30, 2023			December 31, 2022
(Dollars in thousands, except per share data)
Total shareholders’ equity	$	505,411		$	492,793
Intangible assets, net	(87,987)			(92,792)
Tangible common equity	$	417,424		$	400,001

Total assets	$	6,467,818		$	6,577,876
Intangible assets, net	(87,987)			(92,792)
Tangible assets	$	6,379,831		$	6,485,084

Book value per share	$	32.21		$	31.54
Tangible book value per share (1)	$	26.60		$	25.60
Shares outstanding	15,691,738			15,623,977

Equity to assets ratio	7.81		%	7.49		%
Tangible common equity ratio (2)	6.54		%	6.17		%

(1) Tangible common equity divided by shares outstanding.
(2) Tangible common equity divided by tangible assets.


	Three Months Ended						Nine Months Ended
Efficiency Ratio	September 30, 2023			September 30, 2022			September 30, 2023			September 30, 2022
(dollars in thousands)
Total noninterest expense	$	31,544		$	34,623		$	99,782		$	98,348
Amortization of intangibles	(1,460)			(1,789)			(4,806)			(4,299)
Merger-related expenses	(11)			(763)			(147)			(1,792)

Noninterest expense used for efficiency ratio	$	30,073		$	32,071		$	94,829		$	92,257

Net interest income, tax equivalent (1)	$	35,742		$	47,002		$	115,162		$	126,395
Noninterest income	9,861			12,588			14,561			36,579
Investment security losses (gains), net	(79)			163			13,093			(272)
Net revenues used for efficiency ratio	$	45,524		$	59,753		$	142,816		$	162,702

Efficiency ratio (2)	66.06		%	53.67		%	66.40		%	56.70		%
(1) The federal statutory tax rate utilized was 21%.
(2) Noninterest expense adjusted for amortization of intangibles and merger-related expenses divided by the sum of tax equivalent net interest income, noninterest income and net investment securities gains.


	Three Months Ended						Nine Months Ended
Net Interest Margin, Tax Equivalent/Core Net Interest Margin	September 30, 2023			September 30, 2022			September 30, 2023			September 30, 2022
(dollars in thousands)
Net interest income	$	34,575		$	45,733		$	111,613		$	122,794
Tax equivalent adjustments:
Loans (1)	735			673			2,164			1,782
Securities (1)	432			596			1,385			1,819
Net interest income, tax equivalent	$	35,742		$	47,002		$	115,162		$	126,395
Loan purchase discount accretion	(791)			(2,015)			(2,964)			(3,275)
Core net interest income	$	34,951		$	44,987		$	112,198		$	123,120

Net interest margin	2.27		%	3.00		%	2.46		%	2.84		%
Net interest margin, tax equivalent (2)	2.35		%	3.08		%	2.54		%	2.92		%
Core net interest margin (3)	2.30		%	2.95		%	2.47		%	2.85		%
Average interest earning assets	$	6,032,636		$	6,050,864		$	6,063,026		$	5,783,021

(1) The federal statutory tax rate utilized was 21%.
(2) Annualized tax equivalent net interest income divided by average interest earning assets.
(3) Annualized core net interest income divided by average interest earning assets.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk.

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

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

Liquidity 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 $55.8 million in the first nine months of 2023, compared with $72.3 million in the first nine months of 2022. Net cash inflows from investing activities were $83.1 million in the first nine months of 2023, compared to net cash outflows of $202.5 million in the comparable nine-month period of 2022. Net cash outflows from financing activities in the first nine months of 2023 were $150.5 million, compared with net cash inflows of $4.8 million for the same period of 2022.

To manage 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

• Federal Reserve Bank Discount Window/Bank Term Funding Program

• Federal Home Loan Bank Advances

• Brokered Deposits

• Brokered Repurchase Agreements

Federal Funds Lines - Federal funds positions provide a source of short-term liquidity funding for the Bank. 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. The current federal funds purchased limit is 10% of total assets, or the amount of established federal funds lines, whichever is smaller. As of September 30, 2023, the Bank maintains several unsecured federal funds lines totaling $155.0 million, which lines are tested annually to ensure availability.

Federal Reserve Bank Discount Window and Bank Term Funding Program - The Federal Reserve Bank Discount Window and the Bank Term Funding Program are additional sources of liquidity, particularly during periods of economic uncertainty or stress. 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 30, 2023, the Bank had municipal securities with an approximate market value of $880.5 million pledged for liquidity purposes and had additional borrowing capacity of $739.7 million. There were no outstanding borrowings through the FRB Discount Window at September 30, 2023. There were $225.0 million of Bank Term Funding Program borrowings outstanding at September 30, 2023.

Federal Home Loan Bank Advances - FHLB advances provide both a source of liquidity and long-term funding for the Bank. Advances from the FHLBDM 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. The current FHLB borrowing limit is 45% of total assets. As of September 30, 2023, the Bank had $139.7 million of short-term FHLB advances and $6.3 million in long-term FHLB borrowings and additional borrowing capacity of $673.3 million.

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Brokered Deposits and Reciprocal Deposits - The Bank has brokered time deposit and non-maturity deposit relationships available to diversify its funding sources. Brokered deposits offer several benefits relative to other funding sources, such as: maturity structures which cannot be duplicated in the current retail market, deposit gathering which does not cannibalize the existing deposit base, the unsecured nature of these liabilities, and the ability to quickly generate funds. The Bank’s internal policy limits 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 Bank must maintain a “well capitalized” rating to access brokered deposits without FDIC waiver. An “adequately capitalized” rating requires an FDIC waiver to access brokered deposits and an “undercapitalized” rating prohibits the Bank from using brokered deposits. The Company had brokered deposits of $220.1 million as of September 30, 2023 and $126.8 million as of December 31, 2022.

Under a final rule that was issued by the FDIC in December 2018, financial institutions that are considered "well capitalized" qualify for the exemption of certain reciprocal deposits from being considered brokered deposits. Such exemption is limited to the lesser of 20 percent of total liabilities or $5 billion, with some exceptions for financial institutions that do not meet such criteria. At September 30, 2023, the Company had $10.9 million of reciprocal time deposits, $149.6 million of reciprocal interest bearing non-maturity deposits, and $70.1 million non-interest bearing non-maturity deposits that qualified for the brokered deposit exemption. These reciprocal deposits are part of the IntraFi Network Deposits program, which is used by financial institutions to spread deposits that exceed the FDIC insurance coverage limits out to numerous institutions in order to provide insurance coverage for all participating deposits.

Brokered Repurchase Agreements - Brokered repurchase agreements may be established with approved brokerage firms and banks. Repurchase agreements create rollover risk (the risk that a broker will discontinue the relationship due to market factors) and are not used as a long-term funding solution, especially when used to fund long-term assets. Collateral requirements and availability are evaluated and monitored. The current policy limit for brokered repurchase agreements is 10% of total assets. There were no outstanding brokered repurchase agreements at September 30, 2023.

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 a significant market risk. 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. Multiple interest rate scenarios are used in this analysis which include 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 SOFR).

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 projecting net interest income under a variety of scenarios, which include varying the level of interest rates and shifts in 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,

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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 200 basis points, or an immediate increase of 100 basis points or 200 basis points:


	Immediate Change in Rates
(dollars in thousands)	-200			-100			+100			+200
September 30, 2023
Dollar change	$	461		$	225		$	(361)		$	(973)
Percent change	0.3		%	0.2		%	(0.3)		%	(0.7)		%
December 31, 2022
Dollar change	$	8,398		$	5,637		$	(6,738)		$	(13,921)
Percent change	5.2		%	3.5		%	(4.2)		%	(8.7)		%

As of September 30, 2023, 29.9% of the Company’s earning asset balances will reprice or are expected to pay down in the next twelve months, and 42.1% 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 interest-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

The Company’s management, including the Chief Executive Officer, the Chief Financial Officer, and the Chief Accounting Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer, the Chief Financial Officer, and the Chief Accounting Officer, to allow timely decisions regarding required disclosure. Based on this evaluation, the Chief Executive Officer, the Chief Financial Officer, and the Chief Accounting Officer, have concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2023.

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 were no changes in the Company’s internal controls over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2023 that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

We and our subsidiaries are from time to time parties to various legal actions arising in the normal course of business. We believe that there is no threatened or pending proceeding, other than ordinary routine litigation incidental to the Company’s business, against us or our subsidiaries or of which our property is the subject, which, if determined adversely, would have a material adverse effect on our consolidated business or financial condition.

Item 1A. Risk Factors.

There have been no material changes to the risk factors set forth under Part I, Item 1A "Risk Factors" in the Company's Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 13, 2023.

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities.

Repurchase of Equity Securities

The following table sets forth information about the Company’s purchases of its common stock during the third quarter of 2023:


	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs (2)	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program
July 1 - 31, 2023	—	$	—	—	$	15,000,000
August 1 - 31, 2023	2,382	22.37		—	15,000,000
September 1 - 30, 2023	—	—		—	15,000,000
Total	2,382	$	22.37	—	$	15,000,000

(1) During the three months ended September 30, 2023, no shares were repurchased by the Company under the current share repurchase program, while 2,382 shares were surrendered by employees of the Company to pay withholding taxes on vesting of restricted stock unit awards.

(2) On June 22, 2021, the Board of Directors of the Company approved a share repurchase program, allowing for the repurchase of up to $15.0 million of the Company's common stock through December 31, 2023. This repurchase program replaced the Company’s prior repurchase program, which was due to expire on December 31, 2021. Since June 23, 2021 and through April 27, 2023, the Company repurchased 403,368 shares of common stock for approximately $12.0 million, leaving $3.0 million available to be repurchased.

On April 27, 2023, the Board of Directors of the Company approved a new share repurchase program, allowing for the repurchase of up to $15.0 million of the Company's common stock through December 31, 2025. This new repurchase program replaced the Company’s prior repurchase program, adopted in June 2021, which was due to expire on December 31, 2023. Since April 28, 2023 and through September 30, 2023, the Company repurchased no shares of common stock, leaving $15.0 million available to be repurchased.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not Applicable.

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Item 5. Other Information.

During the fiscal quarter ended September 30, 2023, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule10b5-1(c) or any "non-Rule 10b5-1 trading arrangement."

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Item 6. Exhibits.

Exhibit

Number

Description

Incorporated by Reference to:

3.1

Amended and Restated Articles of Incorporation of MidWest One Financial Group, Inc. filed with the Secretary of State of the State of Iowa on March 14, 2008

Exhibit 3.3 to the Company’s Amendment No. 1 to Registration Statement on Form S-4 (File No. 333-147628) filed with the SEC on January 14, 2008

3.2

Articles of Amendment (First Amendment) to the Amended and Restated Articles of Incorporation of MidWest One Financial Group, Inc. filed with the Secretary of State of the State of Iowa on January 23, 2009

Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 23, 2009

3.3

Articles of Amendment (Second Amendment) to the Amended and Restated Articles of Incorporation of MidWest One Financial Group, Inc. filed with the Secretary of State of the State of Iowa on February 4, 2009 (containing the Certificate of Designations for the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A)

Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 6, 2009

3.4

Articles of Amendment (Third Amendment) to the Amended and Restated Articles of Incorporation of MidWest One Financial Group, Inc., filed with the Secretary of State of the State of Iowa on April 21, 2017

Exhibit 3.1 to the Company’s Form 10-Q for the quarter ended March 31, 2017, filed with the SEC on May 4, 2017

3.5

Third Amended and Restated Bylaws, as Amended of MidWest One Financial Group, Inc. as of October 18, 2022

Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 19, 2022

4.1

Form of MidWest One Financial Group, Inc. 2023 Equity Incentive Plan Restricted Stock Unit Award Agreement

Exhibit 4.7 to the Company’s Form S-8 filed with the SEC on May 5, 2023

4.2

Form of MidWest One Financial Group, Inc. 2023 Equity Incentive Plan Performance-Based Restricted Stock Unit Award Agreement

Exhibit 4.8 to the Company’s Form S-8 filed with the SEC on May 5, 2023

31.1

Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a)

Filed herewith

31.2

Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a)

Filed herewith

31.3

Certification of Principal Accounting Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a)

Filed herewith

32.1

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

Filed herewith

32.2

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

Filed herewith

32.3

Certification of Principal Accounting 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

The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Shareholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags.

Filed herewith

101.SCH

Inline XBRL Taxonomy Extension Schema Document

Filed herewith

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

Filed herewith

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

Filed herewith

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

Filed herewith

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

Filed herewith

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

Filed herewith

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SIGNATURES

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

M ID W EST O NE F INANCIAL G ROUP , I NC .

Dated:

November 2, 2023

By:

/s/ CHARLES N. REEVES

Charles N. Reeves

Chief Executive Officer

(Principal Executive Officer)

By:

/s/ BARRY S. RAY

Barry S. Ray

Chief Financial Officer

(Principal Financial Officer)

By:

/s/ JOHN J. RUPPEL

John J. Ruppel

Chief Accounting Officer

(Principal Accounting Officer)

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Part I Financial Information Item 1. Financial Statements (unaudited)Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II Other Information Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities, Use Of Proceeds, and Issuer Purchases Of Equity Securities Item 3. Defaults Upon Senior Securities Item 4. Mine Safety Disclosures Item 5. Other Information Item 6. Exhibits

Exhibits

3.1 Amended and Restated Articles of Incorporation of MidWestOneFinancial Group, Inc. filed with the Secretary of State of the State of Iowa on March14, 2008 Exhibit3.3 to the Companys Amendment No.1 to Registration Statement on FormS-4 (File No.333-147628) filed with the SEC on January14, 2008 3.2 Articles of Amendment (First Amendment) to the Amended and Restated Articles of Incorporation of MidWestOneFinancial Group, Inc. filed with the Secretary of State of the State of Iowa on January 23, 2009 Exhibit 3.1 to the Companys Current Report on Form8-K filed with the SEC on January23, 2009 3.3 Articles of Amendment (Second Amendment) to the Amended and Restated Articles of Incorporation of MidWestOneFinancial Group, Inc. filed with the Secretary of State of the State of Iowa on February4, 2009 (containing the Certificate of Designations for the Companys Fixed Rate Cumulative Perpetual Preferred Stock, SeriesA) Exhibit 3.1 to the Companys Current Report on Form8-K filed with the SEC on February 6, 2009 3.4 Articles of Amendment (Third Amendment) to the Amended and Restated Articles of Incorporation of MidWestOneFinancial Group, Inc., filed with the Secretary of State of the State of Iowa on April 21, 2017 Exhibit 3.1 to the Companys Form 10-Q for the quarter ended March 31, 2017, filed with the SEC on May 4, 2017 3.5 Third Amended and Restated Bylaws, as Amended of MidWestOneFinancial Group, Inc. as of October 18, 2022 Exhibit 3.1 to the Companys Current Report on Form 8-K filed with the SEC on October 19, 2022 4.1 Form of MidWestOneFinancial Group, Inc. 2023 Equity Incentive Plan Restricted Stock Unit Award Agreement Exhibit 4.7 to the Companys Form S-8 filed with the SEC on May 5, 2023 4.2 Form of MidWestOneFinancial Group, Inc. 2023 Equity Incentive Plan Performance-Based Restricted Stock Unit Award Agreement Exhibit 4.8 to the Companys Form S-8 filed with the SEC on May 5, 2023 31.1 Certification of Principal Executive Officer pursuant to Rule13a-14(a) and Rule15d-14(a) Filed herewith 31.2 Certification of Principal Financial Officer pursuant to Rule13a-14(a) and Rule15d-14(a) Filed herewith 31.3 Certification of Principal Accounting Officer pursuant to Rule13a-14(a) and Rule15d-14(a) Filed herewith 32.1 Certification of Principal Executive Officer pursuant to 18U.S.C. Section1350, as adopted pursuant to Section906 of the Sarbanes-Oxley Act of 2002 Filed herewith 32.2 Certification of Principal Financial Officer pursuant to 18U.S.C. Section1350, as adopted pursuant to Section906 of the Sarbanes-Oxley Act of 2002 Filed herewith 32.3 Certification of Principal Accounting Officer pursuant to 18U.S.C. Section1350, as adopted pursuant to Section906 of the Sarbanes-Oxley Act of 2002 Filed herewith

MOFG 10-Q Quarter ended Sept. 30, 2023

Exhibits