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


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


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

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

For purchased credit impaired loans the difference between contractually required payments at acquisition and the cash flows expected to be collected is referred to as the non-accretable difference. Further, any excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable yield and is recognized into interest income over the expected remaining life of the loan if the timing and amount of the future cash flows are reasonably estimable.

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

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

Changes in the accretable yield for loans acquired and accounted for under ASC 310-30 were as follows for the three and six months ended June 30, ~~2017~~2018 and ~~2016:~~2017:



	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2018			2017			2018			2017
Balance at beginning of period	$	608		$	1,633		$	840		$	1,961
Accretion	(373		)	(475		)	(650		)	(891		)
Reclassification from nonaccretable difference	76			213			121			301
Balance at end of period	$	311		$	1,371		$	311		$	1,371

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

5. Derivatives and Hedging Activities

FASB ASC 815, Derivatives and Hedging (“ASC 815”), provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how the entity accounts for derivative instruments and related hedged items, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Further, qualitative disclosures are required that explain the Company’s objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.

As required by ASC 815, the Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.

The Company does not use derivatives for trading or speculative purposes.

In accordance with the FASB’s fair value measurement guidance, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s loans and borrowings.

The following table presents the total notional and gross fair value of the Company’s derivatives as of June 30, 2018 and December 31, 2017. 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.



	As of June 30, 2018						As of December 31, 2017
			Fair Value						Fair Value
(in thousands)	Notional Amount		Derivative Assets		Derivative Liabilities		Notional Amount		Derivative Assets		Derivative Liabilities
Derivatives designated as hedging instruments:
Fair value hedges:
Interest rate swaps	$	5,605	$	—	$	26	$	—	$	—	$	—

Derivatives not designated as hedging instruments:
Interest rate swaps	10,720		113		132		—		—		—

Derivatives Designated as Hedging Instruments

The Company is exposed to changes in the fair value of certain of its fixed-rate assets due to changes in benchmark interest rates. The Company uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate, LIBOR. Interest rate swaps designated as fair value hedges involve the payment of fixed-rate amounts to a counterparty in exchange for the Company receiving variable-rate payments over the life of the agreements without the exchange of the underlying notional amount. For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in interest income.

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 three and six months ended June 30, 2018 and June 30, 2017:



	Location and Amount of Gain or Loss Recognized in Income on Fair Value Hedging Relationships
	For the Three Months Ended June 30,									For the Six Months Ended June 30,
	2018					2017				2018					2017
(in thousands)	Interest Income (Expense)			Other Gain (Loss)		Interest Income (Expense)		Other Gain (Loss)		Interest Income (Expense)			Other Gain (Loss)		Interest Income (Expense)		Other Gain (Loss)
Total amounts of income and expense line items presented in the Consolidated Statements of Income in which the effects of fair value hedges are recorded	$	(1	)	$	—	$	—	$	—	$	(1	)	$	—	$	—	$	—

The effects of fair value hedging:
Loss on fair value hedging relationships in subtopic 815-20:
Interest contracts:
Hedged items	135			—		—		—		135			—		—		—
Derivative designated as hedging instruments	(136		)	—		—		—		(136		)	—		—		—

As of June 30, 2018, 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	$	5,630	$	25

Derivatives Not Designated as Hedging Instruments

The Company enters into interest rate derivatives, including interest rate swaps with its customers, to allow them to hedge against the risk of rising interest rates by providing fixed rate loans. To economically hedge against the interest rate risks in the products offered to its customers, the Company enters into mirrored interest rate contracts with institutional counterparties, with one designated as a central counterparty. As of June 30, 2018, the total amount of interest rate swaps, including mirrored transactions with institutional counterparties and the Company’s customers, totaled $5.4 million for derivatives that were in an asset valuation position, and $5.4 million for derivatives that were in a liability valuation position. As of December 31, 2017, the total notional amounts of interest rate swaps, including mirrored transactions with institutional counterparties and the Company’s customers, totaled zero for derivatives that were in an asset valuation position, and zero for derivatives that were in a liability valuation position. The fair value of interest rate swaps with institutional counterparties and the Company’s customers amounted to a $0.1 million asset and a $0.1 million liability, as of June 30, 2018. The fair value of interest rate swaps with institutional counterparties and the Company’s customers amounted to a zero asset and a zero liability, as of December 31, 2017.

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 three and six months ended June 30, 2018 and June 30, 2017:



	Location in the Consolidated Statements of Income	For the Three Months Ended June 30,					For the Six Months Ended June 30,
(in thousands)	Location in the Consolidated Statements of Income	2018			2017		2018			2017
Interest rate swaps	Other gain (loss)	$	(19	)	$	—	$	(19	)	$	—

Offsetting of Derivatives

The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of June 30, 2018 and December 31, 2017. 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 of Recognized Assets (Liabilities)			Gross Amounts Offset in the Balance Sheet		Net Amounts of Assets (Liabilities) presented in the Balance Sheet			Financial Instruments		Cash Collateral Received (Paid)		Net Assets (Liabilities)
As of June 30, 2018
Asset Derivatives	$	113		$	—	$	113		$	—	$	—	$	113

Liability Derivatives	(158		)	—		(158		)	—		—		(158		)


As of December 31, 2017
Derivatives	—			—		—			—		—		—

Liability Derivatives	—			—		—			—		—		—

Credit-risk-related Contingent Features

The Company has an unsecured federal funds line with its derivative counterparty.The Company has an agreement with its derivative counterparty 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 counterparty 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 June 30, 2018, the 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 $163,000. As of June 30, 2018, the Company has minimum collateral posting thresholds with certain of its derivative counterparties, and has not posted any collateral related to these agreements. If the Company had breached any of these provisions at June 30, 2018, it could have been required to settle its obligations under the agreements at their termination value of $163,000.

6. Goodwill and Intangible Assets

The excess of the cost of an acquisition over the fair value of the net assets acquired, including core deposit, trade name, and client relationship intangibles, consists of goodwill. Under ASC Topic 350, goodwill and the non-amortizing portion of the trade name intangible are subject to at least annual assessments for impairment by applying a fair value based test. The Company reviews goodwill and the non-amortizing portion of the trade name intangible at the reporting unit level to determine potential impairment annually on October 1, or more frequently if events or changes in circumstances indicate that the carrying value may not be recoverable, by comparing the carrying value of the reporting unit with the fair value of the reporting unit. No impairment was recorded on either the goodwill or the trade name intangible assets during the six months ended June 30, ~~2017.~~2018. The carrying amount of goodwill was $64.7 million at June 30, ~~2017,~~2018, the same as at December 31, ~~2016.~~2017.

During the second quarter of 2018, the Company recognized a $125,000 customer list intangible due to the purchase of a registered investment adviser in the Denver, Colorado, area.

The following table presents the changes in the carrying amount of intangibles (excluding goodwill), gross carrying amount, accumulated amortization, and net book value as of and for the six months ended June 30, ~~2017:~~2018:



(in thousands)	Insurance Agency Intangible			Core Deposit Intangible			Indefinite-Lived Trade Name Intangible		Finite-Lived Trade Name Intangible			Customer List Intangible			Total
June 30, 2018
Balance, beginning of period	$	148		$	4,011		$	7,040	$	744		$	103		$	12,046
Finite-lived intangible assets acquired	—			—			—		—			125			125
Amortization expense	(19		)	(1,119		)	—		(97		)	(11		)	(1,246		)
Balance at end of period	$	129		$	2,892		$	7,040	$	647		$	217		$	10,925

Gross carrying amount	$	1,320		$	18,206		$	7,040	$	1,380		$	455		$	28,401
Accumulated amortization	(1,191		)	(15,314		)	—		(733		)	(238		)	(17,476		)
Net book value	$	129		$	2,892		$	7,040	$	647		$	217		$	10,925

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

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

7. Other Assets

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



(in thousands)	June 30, 2018		December 31, 2017
Federal Home Loan Bank Stock	$	14,748	$	11,324
Prepaid expenses	1,954		2,992
Mortgage servicing rights	2,589		2,316
Federal & state income taxes receivable, current	—		3,120
Accounts receivable & other miscellaneous assets	7,722		3,009
	$	27,013	$	22,761

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

TheBank is a member of the FHLB of Des Moines, and ownership of FHLB stock is a requirement for such membership. The amount of FHLB stock the Bank is required to hold is directly related to the amount of FHLB advances borrowed. Because this security is not readily marketable and there are no available market values, this security is carried at cost and evaluated for potential impairment each quarter. Redemption of this investment is at the option of the FHLB. No impairment was recorded on FHLB stock in the six months ended June 30, ~~2017~~2018 or in the year ended December 31, ~~2016.~~

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

Mortgage servicing rights are recorded at fair value based on assumptions provided by a third-party valuation service. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the servicing cost per loan, the discount rate, the escrow float rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses.

8. Short-Term Borrowings

Short-term borrowings were as follows as of June 30, ~~2017~~2018 and December 31, ~~2016:~~2017:



	June 30, 2018				December 31, 2017
(in thousands)	Weighted Average Cost		Balance		Weighted Average Cost		Balance
Federal funds purchased	2.10	%	$	52,421	1.77	%	$	1,000
Securities sold under agreements to repurchase	0.91		75,046		0.71		96,229
Total	1.40	%	$	127,467	0.73	%	$	97,229

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

At June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the Company had no borrowings through the Federal Reserve Discount Window, while the borrowing capacity was ~~$11.7~~$11.4 million as of June 30, ~~2017, the same as of December 31, 2016. As of both June 30, 2017~~2018 and December 31, ~~2016,~~2017. As of June 30, 2018 and December 31, 2017, the Bank had municipal securities pledged with a market value of ~~$13.0~~$12.7 million and $12.8 million, respectively, to the Federal Reserve to secure potential borrowings. The Company also has various other unsecured federal funds agreements with correspondent ~~banks.~~banks as well as the FHLB. As of June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, there were ~~$45.3~~$52.4 million and ~~$35.7~~$1.0 million of borrowings through these correspondent bank federal funds agreements, respectively.

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

On April 30, 2015, the Company entered into a $5.0 million unsecured line of credit with a correspondent bank. Interest is payable at a rate of one-month LIBOR plus 2.00%. The line was renewed in May ~~2017,~~2018, and ~~is now scheduled to mature~~matures on April ~~28, 2018.~~30, 2019. The Company had no balance outstanding under this agreement as of June 30, ~~2017.~~2018.

9. Junior Subordinated Notes ~~Payable~~Issued to Capital Trusts

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

The table below summarizes the outstanding junior subordinated notes and the related trust preferred securities issued by each trust as of June 30, ~~2017~~2018 and December 31, ~~2016:~~2017:

Face Value Book Value Interest Rate Interest Rate at Maturity Date Callable Date
(in thousands) 6/30/2017
June 30, 2017

Central Bancshares Capital Trust II^{(1) (2)}
$ 7,217
$ 6,644
Three-month LIBOR + 3.50% 4.75 % 03/15/2038 03/15/2013

Barron Investment Capital Trust I^{(1) (2)}
2,062
1,635
Three-month LIBOR + 2.15% 3.44 % 09/23/2036 09/23/2011

MidWestOne Statutory Trust II⁽¹⁾
15,464
15,464
Three-month LIBOR + 1.59% 2.84 % 12/15/2037 12/15/2012
Total $ 24,743
$ 23,743



	Face Value		Book Value		Interest Rate	Interest Rate at		Maturity Date	Callable Date
(in thousands)	Face Value		Book Value		Interest Rate	6/30/2018		Maturity Date	Callable Date
June 30, 2018
Central Bancshares Capital Trust II^{(1) (2)}	$	7,217	$	6,702	Three-month LIBOR + 3.50%	5.84	%	03/15/2038	03/15/2013
Barron Investment Capital Trust I^{(1) (2)}	2,062		1,675		Three-month LIBOR + 2.15%	4.49	%	09/23/2036	09/23/2011
MidWestOne Statutory Trust II⁽¹⁾	15,464		15,464		Three-month LIBOR + 1.59%	3.93	%	12/15/2037	12/15/2012
Total	$	24,743	$	23,841

Face Value Book Value Interest Rate Interest Rate at Maturity Date Callable Date
(in thousands) 12/31/2016
December 31, 2016

Central Bancshares Capital Trust II^{(1) (2)}
$ 7,217
$ 6,614
Three-month LIBOR + 3.50% 4.46 % 03/15/2038 03/15/2013

Barron Investment Capital Trust I^{(1) (2)}
2,062
1,614
Three-month LIBOR + 2.15% 3.15 % 09/23/2036 09/23/2011

MidWestOne Statutory Trust II⁽¹⁾
15,464
15,464
Three-month LIBOR + 1.59% 2.55 % 12/15/2037 12/15/2012
Total $ 24,743
$ 23,692



	Face Value		Book Value		Interest Rate	Interest Rate at		Maturity Date	Callable Date
(in thousands)	Face Value		Book Value		Interest Rate	12/31/2017		Maturity Date	Callable Date
December 31, 2017
Central Bancshares Capital Trust II^{(1) (2)}	$	7,217	$	6,674	Three-month LIBOR + 3.50%	5.09	%	03/15/2038	03/15/2013
Barron Investment Capital Trust I^{(1) (2)}	2,062		1,655		Three-month LIBOR + 2.15%	3.82	%	09/23/2036	09/23/2011
MidWestOne Statutory Trust II⁽¹⁾	15,464		15,464		Three-month LIBOR + 1.59%	3.18	%	12/15/2037	12/15/2012
Total	$	24,743	$	23,793

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

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

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

10. Federal Home Loan Bank Borrowings and Long-Term ~~Borrowings~~Debt

~~Long-term~~Federal Home Loan Bank borrowings and long-term debt were as follows as of June 30, ~~2017~~2018 and December 31, ~~2016:~~2017:



	June 30, 2018				December 31, 2017
(in thousands)	Weighted Average Cost		Balance		Weighted Average Cost		Balance
FHLB Borrowings	2.12	%	$	143,000	1.72	%	$	115,000
Note payable to unaffiliated bank	3.75		10,000		3.32		12,500
Total	2.23	%	$	153,000	1.88	%	$	127,500

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

The Company utilizes FHLB borrowings as a supplement to customer deposits to fund interest-earning assets and to assist in managing interest rate risk. As a member of the Federal Home Loan Bank of Des Moines, the Bank may borrow funds from the FHLB in amounts up to 35% of the Bank’s total assets, provided the Bank is able to pledge an adequate amount of qualified assets to secure the borrowings. Advances from the FHLB are collateralized primarily by one- to four-family residential, commercial and agricultural real estate first mortgages equal to various percentages of the total outstanding notes. See Note 54 “Loans Receivable and the Allowance for Loan Losses” of the notes to the consolidated financial statements.

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

ability to obtain additional advances ceased. Payments of principal and interest are payable quarterly, which began on September 30, ~~2015.~~2015. As of June 30, ~~2017, $15.0~~2018, $10.0 million of that note was outstanding.

11. Income Taxes

~~The income~~Income tax ~~provisions~~expense for the three and six months ended June 30, ~~2017~~2018 and ~~2016~~ ~~were~~2017 was less than the ~~amounts~~amount computed by applying the maximum effective federal income tax rate of 21% and 35%, respectively, to the income before income taxes, because of the following items:



	For the Three Months Ended June 30,										For the Six Months Ended June 30,
	2018					2017					2018					2017
(in thousands)	Amount			% of Pretax Income		Amount			% of Pretax Income		Amount			% of Pretax Income		Amount			% of Pretax Income
Income tax based on statutory rate	$	2,160		21.0	%	$	3,629		35.0	%	$	4,213		21.0	%	$	6,864		35.0	%
Tax-exempt interest	(501		)	(4.9	)	(795		)	(7.7	)	(991		)	(4.9	)	(1,581		)	(8.1	)
Bank-owned life insurance	(82		)	(0.8	)	(110		)	(1.1	)	(173		)	(0.9	)	(225		)	(1.1	)
State income taxes, net of federal income tax benefit	566			5.5		443			4.3		1,095			5.4		848			4.3
General business credits	7			(1.0	)	(19		)	(0.2	)	(40		)	(0.7	)	(40		)	(0.2	)
Other	(19		)	0.9		(12		)	(0.1	)	11			0.6		(201		)	(1.0	)
Total income tax expense	$	2,131		20.7	%	$	3,136		30.2	%	$	4,115		20.5	%	$	5,665		28.9	%

For the Three Months Ended June 30, For the Six Months Ended June 30,
2017 2016 2017 2016
(in thousands) Amount % of Pretax Income Amount % of Pretax Income Amount % of Pretax Income Amount % of Pretax Income
Expected provision $ 3,629
35.0 % $ 2,292
35.0 % $ 6,864
35.0 % $ 4,899
35.0 %
Tax-exempt interest (795 ) (7.7 ) (745 ) (11.4 ) (1,581 ) (8.1 ) (1,499 ) (10.7 )
Bank-owned life insurance (110 ) (1.1 ) (115 ) (1.8 ) (225 ) (1.1 ) (249 ) (1.8 )
State income taxes, net of federal income tax benefit 443
4.3
327
5.0
848
4.3
647
4.6
Non-deductible acquisition expenses —
—
28
0.4
—
—
53
0.4
General business credits (19 ) (0.2 ) (14 ) (0.2 ) (40 ) (0.2 ) (153 ) (1.1 )
Other (12 ) (0.1 ) 21
0.4
(201 ) (1.0 ) 1
—
Total income tax provision $ 3,136
30.2 % $ 1,794
27.4 % $ 5,665
28.9 % $ 3,699
26.4 %
In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118), which provides guidance regarding how a company is to reflect provisional amounts when necessary information is not yet available, prepared or analyzed sufficiently to complete its accounting for the effect of the changes in Public Law 115-97, commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). During the first quarter of 2018, the income tax expense recorded during the fourth quarter of 2017 was determined to be final.

12. Earnings per Share

Basic per-share amounts are computed by dividing net income (the numerator) by the weighted-average number of common shares outstanding (the denominator). Diluted per-share amounts assume issuance of all common stock issuable upon conversion or exercise of other securities, unless the effect is to reduce the loss or increase the income per common share from continuing operations.

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



	Three Months Ended June 30,				Six Months Ended June 30,
(dollars in thousands, except per share amounts)	2018		2017		2018		2017
Basic earnings per common share computation
Numerator:
Net income	$	8,156	$	7,234	$	15,949	$	13,947
Denominator:
Weighted average shares outstanding	12,218,240		12,200,689		12,220,453		11,855,108
Basic earnings per common share	$	0.67	$	0.59	$	1.31	$	1.18

Diluted earnings per common share computation
Numerator:
Net income	$	8,156	$	7,234	$	15,949	$	13,947
Denominator:
Weighted average shares outstanding, including all dilutive potential shares	12,229,940		12,219,238		12,235,405		11,878,315
Diluted earnings per common share	$	0.67	$	0.59	$	1.30	$	1.17

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

Fair value is the exchange price that would be received ~~in selling~~for an asset or paid to transfer a liability (exit price) in ~~transferring a~~the principal or most advantageous market for the asset or liability in an orderly transaction between market ~~participants. A fair value~~participants on the measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The pricedate. Market participants are defined as buyers and sellers in the principal (or most advantageous) market ~~used to measure the fair value of~~for the asset or liability ~~is not adjusted for~~that have all of the following characteristics: 1) an unrelated party; 2) knowledgeable (having a reasonable understanding about the asset or liability and the transaction ~~costs. An orderly transaction is a transaction~~based on all available information; including

information that ~~assumes exposure to the market for a period prior to the measurement date to allow for marketing activities~~might be obtained through due diligence efforts that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (1) independent, (2) knowledgeable, (3)or customary); 3) able to ~~transact~~transact; and ~~(4)~~4) willing to ~~transact.~~transact (motivated but not forced or otherwise compelled to do so).

~~GAAP requires the use of valuation~~The FASB states “valuation techniques that are appropriate in the circumstances and for which sufficient data are available shall be used to measure fair value.” The valuation techniques for measuring fair value are consistent with the three traditional approaches to value: the market approach, the income approach, ~~and/or~~and the cost ~~approach. The market approach uses prices and other relevant information generated by market transactions involving identical~~ or ~~comparable assets and liabilities. The income approach uses~~asset approach.

In applying valuation techniques, ~~to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is~~the use of relevant inputs (both observable and unobservable) based on the ~~amount that currently would~~facts and circumstances must be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, GAAP establishesused. The FASB has defined a fair value hierarchy for ~~valuation~~these inputs ~~that gives~~which prioritizes the ~~highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:~~inputs into three broad levels:

~~Level 1 Inputs~~ ~~– Unadjusted quoted~~


•	Level 1 Inputs – Quoted prices (unadjusted) for identical assets or liabilities ~~in active markets that the reporting entity has the ability to access at the measurement date.~~ ~~Level 2 Inputs~~ ~~– Inputs other than quoted prices included~~ in active markets.


•	Level 2 Inputs – Inputs other than quoted prices within Level 1 that are observable for assets or liabilities, either directly or indirectly.


•	Level 3 Inputs – Unobservable inputs for the asset or liability.

Unobservable inputs should be used only to the extent that relevant observable inputs are not available; this allows for situations where there is little, if any, market activity for the asset or liability either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable forat the ~~asset (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.~~

~~Level 3 Inputs~~ –measurement date. Unobservable inputs ~~for determining~~should reflect the ~~fair values of assets or liabilities that reflect an~~reporting entity’s own assumptions about the assumptions that market participants would use in pricing the ~~assets~~asset or ~~liabilities.~~

liability, including assumptions about risk.

It is the Company’s policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements. The Company is required to use observable inputs, to the extent available, in the fair value estimation process unless that data results from forced liquidations or distressed sales. ~~A description of~~The Company used the ~~valuation methodologies used for instruments measured at~~following methods and significant assumptions to estimate fair value:

Investment Securities - The fair value ~~as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.~~

V~~aluation methods~~ for ~~instruments measured at fair value on a recurring basis.~~

~~Securities Available for Sale~~ ~~- The Company’s~~ investment securities ~~classified as~~are determined by quoted market prices, if available for sale include: debt securities issued by the U.S. Treasury and other U.S. Government agencies and corporations, debt securities issued by state and political subdivisions, mortgage-backed securities, collateralized mortgage obligations, corporate debt securities, and equity securities. Quoted exchange prices are available for equity securities, which are classified as Level 1.(Level 1). The Company utilizes an independent pricing service to obtain the fair value of debt securities. On a quarterly basis, the Company selects a sample of 30 securities from its primary pricing service and compares them to a secondary independent pricing service to validate value. In addition, the Company periodically reviews the pricing methodology utilized by the primary independent service for reasonableness. Debt securities issued by the U.S. Treasury and other U.S. Government agencies and corporations, mortgage-backed securities, and collateralized mortgage obligations are priced utilizing industry-standard models that consider various assumptions, including time value, yield curves, volatility factors, prepayment speeds, default rates, loss severity, current market and contractual prices for the underlying financial instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace ~~and are classified as Level 2.~~(Level 2). Municipal securities are valued using a type of matrix, or grid, pricing in which securities are benchmarked against the treasury rate based on credit ~~rating. These model and matrix measurements are classified as Level 2 in the fair value hierarchy.~~rating (Level 2). On an annual basis, a group of selected municipal securities have their credit rating evaluated by a securities dealer and that information is used to verify the primary independent service’s rating and pricing.

~~The following table summarizes assets measured~~Loans Held for Sale - Loans held for sale are carried at the lower of cost or fair value, ~~on a recurring basis as of June 30, 2017 and December 31, 2016. There were no liabilities subject to~~with fair value ~~measurement as~~being based on binding contracts from third party investors (Level 2). The portfolio has historically consisted primarily of ~~these dates.~~residential real estate loans.

Loans, Net - The ~~assets are segregated~~estimated fair value of loans, net, was performed using the income approach, with the market approach used for certain nonperforming loans, resulting in a Level 3 fair value classification. The application of the income approach establishes value by methods that discount or capitalize earnings and/or cash flow, by a discount or capitalization rate that reflects market rate of return expectations, market conditions, and the relative risk of the investment. Generally, this can be accomplished by the ~~level~~discounted cash flow method. For loans that exhibited some characteristics of ~~valuation inputs within~~performance and where it appears that the borrower may have adequate cash flows to service the loan, a discounted cash flow analysis was used. The discounted cash flow analysis was based on the contractual maturity of the loan and market indications of rates, prepayment speeds, defaults and credit risk. For loans with balloon or interest only payment structures, the repayment was extended by assuming a renewal period beyond the current contractual maturity date. For loans analyzed using the asset approach, the fair value ~~hierarchy utilized to measure fair value:~~

Fair Value Measurement at June 30, 2017 Using
(in thousands) Total
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
Assets:
Available for sale debt securities:
U.S. Government agencies and corporations $ 5,778
$ —
$ 5,778
$ —
State and political subdivisions 151,839
—
151,839
—
Mortgage-backed securities 54,115
—
54,115
—
Collateralized mortgage obligations 164,390
—
164,390
—
Corporate debt securities 64,502
—
64,502
—
Total available for sale debt securities 440,624
—
440,624
—
Other equity securities 2,334
2,334
—
—
Total securities available for sale $ 442,958
$ 2,334
$ 440,624
$ —

Fair Value Measurement at December 31, 2016 Using
(in thousands) Total
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
Assets:
Available for sale debt securities:
U.S. Government agencies and corporations $ 5,905
$ —
$ 5,905
$ —
State and political subdivisions 165,272
—
165,272
—
Mortgage-backed securities 61,354
—
61,354
—
Collateralized mortgage obligations 171,267
—
171,267
—
Corporate debt securities 72,453
—
72,453
—
Total available for sale debt securities 476,251
—
476,251
—
Other equity securities 1,267
1,267
—
—
Total securities available for sale $ 477,518
$ 1,267
$ 476,251
$ —

~~There were no transfers of assets between levels~~was determined based on the estimated values of the ~~fair value hierarchy during~~underlying collateral. For impaired loans, the ~~three and six months~~ ~~ended June 30, 2017 or the year ended December 31, 2016.~~

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

~~Changes in~~to determine the fair value of ~~available for sale securities are included in other comprehensive~~the loans when deemed appropriate. The implied sales proceeds value provides a better indication of value than the income ~~to the extent the changes~~stream as these loans are not ~~considered OTTI. OTTI tests are performed on a quarterly basis and any decline in the fair value~~performing or exhibit strong signs indicative of ~~an individual security below its cost that is deemed to be other-than-temporary results in a write-down that is reflected directly in the Company’s consolidated statements of operations.~~nonperformance.

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

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

collateral less estimated costs to ~~sell. The fair value of collateral is determined~~sell, based on appraisals. ~~In some cases, adjustments~~These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made ~~to the appraised values due to various factors, including age of the appraisal, age of comparables included~~ in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and ~~known~~income data available for similar loans and collateral underlying such loans, and resulted in a Level 3 classification for inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the ~~market~~time of valuation, and management’s expertise and knowledge of the client and the client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted in accordance with the ~~collateral. Because many of these inputs are unobservable, the valuations are classified as Level 3.~~allowance policy.

Other Real Estate Owned (“OREO”) - OREO represents property acquired through foreclosures and settlements of loans. Property acquired through or in lieu of foreclosure are initially recorded at fair value less estimated selling cost at the date of foreclosure, establishing a new cost basis. ~~The Company considers third party~~These assets are subsequently accounted for at the lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals which are updated no less frequently than every 18 months. These appraisals may utilize a single valuation approach or a combination of approaches, including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available for similar loans and the collateral underlying such loans, resulting in a Level 3 classification for inputs for determining fair value. Real estate owned properties are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Appraisals for both collateral dependent impaired loans and OREO are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of the Special Assets Department reviews the assumptions and approaches utilized in the appraisal as well as ~~independent~~the overall resulting fair value ~~assessments from real estate brokers~~in comparison with independent data sources such as recent market data or ~~persons involved~~industry-wide statistics.

Interest Rate Swaps - Interest rate swaps are valued by the Company's swap dealers using cash flow valuation techniques with observable market data inputs. The fair values estimated by the Company's swap dealers use interest rates that are observable or that can be corroborated by observable market data and, therefore, are classified within Level 2 of the valuation hierarchy. The Company has entered into collateral agreements with its swap dealers which entitle it to receive collateral to cover market values on derivatives which are in ~~selling OREO~~asset position, thus a credit risk adjustment on interest rate swaps is not warranted.

The following table summarizes assets and liabilities measured at fair value on a recurring basis as of June 30, 2018 and December 31, 2017. The assets and liabilities are segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value:



	Fair Value Measurement at June 30, 2018 Using
(in thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Available for sale debt securities:
U.S. Government agencies and corporations	$	5,543	$	—	$	5,543	$	—
State and political subdivisions	141,715		—		141,715		—
Mortgage-backed securities	54,370		—		54,370		—
Collateralized mortgage obligations	172,010		—		172,010		—
Corporate debt securities	64,674		—		64,674		—
Total available for sale debt securities	$	438,312	$	—	$	438,312	$	—
Derivatives	$	113	$	—	$	113	$	—

Liabilities:
Derivatives	$	158	$	—	$	158	$	—



	Fair Value Measurement at December 31, 2017 Using
(in thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Available for sale debt securities:
U.S. Government agencies and corporations	$	15,626	$	—	$	15,626	$	—
State and political subdivisions	141,839		—		141,839		—
Mortgage-backed securities	48,497		—		48,497		—
Collateralized mortgage obligations	168,196		—		168,196		—
Corporate debt securities	71,166		—		71,166		—
Total available for sale debt securities	$	445,324	$	—	$	445,324	$	—

There were no transfers of assets between Level 3 of the fair value hierarchy during the three and six months ended June 30, 2018 or the year ended December 31, 2017.

Changes in ~~determining~~ the fair value of ~~particular properties. Accordingly,~~available for sale debt securities are included in other comprehensive income, and changes in the valuation of OREO is subject to significant external and internal judgment. The Company also periodically reviews OREO to determine whether the property continues to be carried at the lower of its recorded book value or fair value of ~~the property, less disposal costs. Because many of these inputs~~equity securities are ~~unobservable, the valuations are classified as Level 3.~~included in noninterest income.

The following table discloses the Company’s estimated fair value amounts of its assets recorded at fair value on a nonrecurring basis. It is management’s belief that the fair values presented below are reasonable based on the valuation techniques and data available to the Company as of June 30, ~~2017~~2018 and December 31, ~~2016~~2017, as more fully described above.



	Fair Value Measurement at June 30, 2018 Using
(in thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Collateral dependent impaired loans	$	6,169	$	—	$	—	$	6,169
Other real estate owned	$	676	$	—	$	—	$	676

Fair Value Measurement at June 30, 2017 Using
(in thousands) Total
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
Assets:
Collateral dependent impaired loans $ 1,073
$ —
$ —
$ 1,073
Other real estate owned $ 1,486
$ —
$ —
$ 1,486



	Fair Value Measurement at December 31, 2017 Using
(in thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Collateral dependent impaired loans	$	3,927	$	—	$	—	$	3,927
Other real estate owned	$	2,010	$	—	$	—	$	2,010

Fair Value Measurement at December 31, 2016 Using
(in thousands) Total
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
Assets:
Collateral dependent impaired loans $ 8,774
$ —
$ —
$ 8,774
Other real estate owned $ 2,097
$ —
$ —
$ 2,097

~~The following presents the carrying amount and estimated fair value of the financial instruments held by the Company at~~ ~~June 30, 2017~~ ~~and~~ ~~December 31, 2016~~. The information presented is subject to change over time based on a variety of factors. The operations of the Company are managed on a going concern basis and not a liquidation basis. As a result, the ultimate value realized from the financial instruments presented could be substantially different when actually recognized over time through the normal course of operations. Additionally, a substantial portion of the Company’s inherent value is the capitalization and franchise value of the Bank. Neither of these components has been given consideration in the presentation of fair values below.

June 30, 2017

Carrying
Amount

Estimated
Fair Value
Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs
(Level 3)
(in thousands)
Financial assets:
Cash and cash equivalents $ 49,398
$ 49,398
$ 49,398
$ —
$ —
Investment securities:
Available for sale 442,958
442,958
2,334
440,624
—
Held to maturity 182,478
183,296
—
183,296
—
Total investment securities 625,436
626,254
2,334
623,920
—
Loans held for sale 1,636
1,667
—
—
1,667
Loans, net 2,174,993
2,175,104
—
2,175,104
—
Accrued interest receivable 12,606
12,606
12,606
—
—
Federal Home Loan Bank stock 12,181
12,181
—
12,181
—
Financial liabilities:
Deposits:
Non-interest bearing demand 476,031
476,031
476,031
—
—
Interest-bearing checking 1,131,151
1,131,151
1,131,151
—
—
Savings 203,967
203,967
203,967
—
—
Certificates of deposit under $100,000 325,847
323,885
—
323,885
—
Certificates of deposit $100,000 and over 356,713
355,582
—
355,582
—
Total deposits 2,493,709
2,490,616
1,811,149
679,467
—
Federal funds purchased and securities sold under agreements to repurchase 105,501
105,501
105,501
—
—
Federal Home Loan Bank borrowings 90,000
89,791
—
89,791
—
Junior subordinated notes issued to capital trusts 23,743
19,462
—
19,462
—
Long-term debt 15,000
15,000
—
15,000
—
Accrued interest payable 1,551
1,551
1,551
—
—

December 31, 2016

Carrying
Amount

Estimated
Fair Value
Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs
(Level 3)
(in thousands)
Financial assets:
Cash and cash equivalents $ 43,228
$ 43,228
$ 43,228
$ —
$ —
Investment securities:
Available for sale 477,518
477,518
1,267
476,251
—
Held to maturity 168,392
164,792
—
164,792
—
Total investment securities 645,910
642,310
1,267
641,043
—
Loans held for sale 4,241
4,286
—
—
4,286
Loans, net 2,143,293
2,138,252
—
2,138,252
—
Accrued interest receivable 13,871
13,871
13,871
—
—
Federal Home Loan Bank stock 12,800
12,800
—
12,800
—
Financial liabilities:
Deposits:
Non-interest bearing demand 494,586
494,586
494,586
—
—
Interest-bearing checking 1,136,282
1,136,282
1,136,282
—
—
Savings 197,698
197,698
197,698
—
—
Certificates of deposit under $100,000 326,832
324,978
—
324,978
—
Certificates of deposit $100,000 and over 325,050
324,060
—
324,060
—
Total deposits 2,480,448
2,477,604
1,828,566
649,038
—
Federal funds purchased and securities sold under agreements to repurchase 117,871
117,871
117,871
—
—
Federal Home Loan Bank borrowings 115,000
114,590
—
114,590
—
Junior subordinated notes issued to capital trusts 23,692
19,248
—
19,248
—
Long-term debt 17,500
17,500
—
17,500
—
Accrued interest payable 1,472
1,472
1,472
—
—

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

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

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

For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values for other loans are determined using estimated future cash flows, discounted at the interest rates currently being offered for loans with similar terms to borrowers with similar credit quality. The Company does record nonrecurring fair value adjustments to loans to reflect (1) partial write-downs and allowances that are based on the observable market price or appraised value of the collateral or (2) the full charge-off of the loan carrying value.

~~The fair value of FHLB stock is estimated at its carrying value and redemption price of $100 per share.~~

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

FHLB borrowings, junior subordinated notes issued to capital trusts, and long-term debt are recorded at historical cost. The fair value of these items is estimated using discounted cash flow analysis, based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

The following presents the valuation technique(s), unobservable inputs, and quantitative information about the unobservable inputs used for fair value measurements of the financial instruments held by the Company at June 30, ~~2017~~,2018, categorized within Level 3 of the fair value hierarchy:

~~Quantitative Information About Level 3 Fair Value Measurements~~

~~(dollars in thousands)~~

~~Fair Value at June 30, 2017~~

~~Valuation Techniques(s)~~

~~Unobservable Input~~

~~Range of Inputs~~

~~Weighted Average~~

~~Collateral dependent impaired loans~~

~~1,073~~

~~Modified appraised value~~

~~Third party appraisal~~

NM *

~~Appraisal discount~~

NM *

~~Other real estate owned~~

~~1,486~~

~~Modified appraised value~~

~~Third party appraisal~~

NM *

~~Appraisal discount~~

NM *

Quantitative Information About Level 3 Fair Value Measurements

(dollars in thousands)

Fair Value at June 30, 2018

Valuation Techniques(s)

Unobservable Input

Range of Inputs

Weighted Average

Collateral dependent impaired loans

6,169

Modified appraised value

Third party appraisal

NM *

Appraisal discount

NM *

Other real estate owned

676

Modified appraised value

Third party appraisal

NM *

Appraisal discount

NM *

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

~~Changes~~

Due to the adoption of ASU 2016-01 as of January 1, 2018, the estimated fair value amounts shown for December 31, 2017 are not comparable to those for June 30, 2018, due to a change in ~~assumptions or estimation methodologies may~~the required methodology (“exit price” only) for determining current estimated fair value. The carrying amount and estimated fair value of financial instruments not carried at fair value, at June 30, 2018 and December 31, 2017 are as follows:



	June 30, 2018
(in thousands)	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents	$	43,264	$	43,264	$	43,264	$	—	$	—
Investment securities:
Equity securities	2,809		2,809		2,809		—		—
Debt securities available for sale	438,312		438,312		—		438,312		—
Debt securities held to maturity	192,896		188,407		—		188,407		—
Total investment securities	634,017		629,528		2,809		626,719		—
Loans held for sale	1,528		1,548		—		1,548		—
Loans held for investment, net	2,333,235		2,268,777		—		—		2,268,777
Interest receivable	13,636		13,636		13,636		—		—
Federal Home Loan Bank stock	14,748		14,748		—		14,748		—
Derivative assets	113		113		—		113		—
Financial liabilities:
Deposits:
Non-interest bearing demand	469,862		469,862		469,862		—		—
Interest-bearing checking	1,183,384		1,183,384		1,183,384		—		—
Savings	216,866		216,866		216,866		—		—
Certificates of deposit under $100,000	341,584		336,859		—		336,859		—
Certificates of deposit $100,000 and over	392,505		388,913		—		388,913		—
Total deposits	2,604,201		2,595,884		1,870,112		725,772		—
Federal funds purchased and securities sold under agreements to repurchase	127,467		127,467		127,467		—		—
Federal Home Loan Bank borrowings	143,000		141,069		—		141,069		—
Junior subordinated notes issued to capital trusts	23,841		21,032		—		21,032		—
Long-term debt	10,000		10,000		—		10,000		—
Derivative liabilities	158		158		—		158		—



	December 31, 2017
(in thousands)	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents	$	50,972	$	50,972	$	50,972	$	—	$	—
Investment securities:
Equity securities	2,336		2,336		2,336		—		—
Debt securities available for sale	445,324		445,324		—		445,324		—
Debt securities held to maturity	195,619		194,343		—		194,343		—
Total investment securities	643,279		642,003		2,336		639,667		—
Loans held for sale	856		871		—		—		871
Loans held for investment, net	2,258,636		2,256,726		—		2,256,726		—
Interest receivable	14,732		14,732		14,732		—		—
Federal Home Loan Bank stock	11,324		11,324		—		11,324		—
Financial liabilities:
Deposits:
Non-interest bearing demand	461,969		461,969		461,969		—		—
Interest-bearing checking	1,228,112		1,228,112		1,228,112		—		—
Savings	213,430		213,430		213,430		—		—
Certificates of deposit under $100,000	324,681		321,197		—		321,197		—
Certificates of deposit $100,000 and over	377,127		374,685		—		374,685		—
Total deposits	2,605,319		2,599,393		1,903,511		695,882		—
Federal funds purchased and securities sold under agreements to repurchase	97,229		97,229		97,229		—		—
Federal Home Loan Bank borrowings	115,000		114,945		—		114,945		—
Junior subordinated notes issued to capital trusts	23,793		19,702		—		19,702		—
Long-term debt	12,500		12,500		—		12,500		—

14. Revenue Recognition

On January 1, 2018, the Company adopted ASU No. 2014-09 “Revenue from Contracts with Customers” (Topic 606) and all subsequent ASUs that modified Topic 606. As stated in Note 2. “Effect of New Financial Accounting Standards,” the implementation of the new standard did not have a material impact on the measurement or recognition of revenue; as such, a cumulative effect adjustment to opening retained earnings was not deemed necessary. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting under Topic 605.

Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain noninterest income streams such as fees associated with mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are also not in scope of the new guidance. Topic 606 is applicable to noninterest revenue streams such as trust and asset management fees, service charges on deposit accounts, sales of other real estate, and debit card interchange fees. However, the recognition of these ~~estimated fair values.~~revenue streams did not change significantly upon adoption of Topic 606. Substantially all of the Company’s revenue is generated from contracts with customers. Noninterest revenue streams in-scope of Topic 606 are discussed below.

Trust and Asset Management

Trust and asset management income is primarily comprised of fees earned from the management and administration of trusts and other customer assets. The Company’s performance obligation is generally satisfied over time, and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and the applicable fee rate. Payment is generally received a few days after month end through a direct charge to customers’ accounts. The Company does not earn performance-based incentives. Optional services such as real estate sales and tax return preparation services are also available to existing trust and asset management customers. The Company’s performance obligation for these transactional-based services is generally satisfied, and related revenue recognized, at a point in time (i.e., as incurred). Payment is received shortly after services are rendered.

Service Charges on Deposit Accounts

Service charges on deposit accounts consist of account analysis fees (i.e., net fees earned on analyzed business and public checking accounts), monthly service fees, check orders, and other deposit account related fees. The Company’s performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Check orders and other deposit account related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts.

Fees, Exchange, and Other Service Charges

Fees, exchange, and other service charges are primarily comprised of debit and credit card income, ATM fees, merchant services income, and other service charges. Debit and credit card income is primarily comprised of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as Visa. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees. Other service charges include revenue from processing wire transfers, bill pay service, cashier’s checks, and other services. The Company’s performance obligation for fees, exchange, and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month.

Gains/Losses on Sales of OREO

Gain or loss from the sale of OREO occurs when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain (loss) on sale if a significant financing component is present. OREO sales for the six months ended June 30, 2018 and June 30, 2017 were not financed by the Bank.

Other

Other noninterest income consists of other recurring revenue streams such as safe deposit box rental fees, and other miscellaneous revenue streams. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment. The Company determined that since rentals and renewals occur fairly consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation.

Contract Balances

A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. The Company’s noninterest revenue streams are largely based on transactional activity, or standard month-end revenue accruals such as asset management fees based on month-end market values. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. As of June 30, 2018 and December 31, 2017, the Company did not have any significant contract balances.

Contract Acquisition Costs

In connection with the adoption of Topic 606, an entity is required to capitalize, and subsequently amortize into expense, certain incremental costs of obtaining a contract with a customer if these costs are expected to be recovered. The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained (for example, sales commission). The Company utilizes the practical expedient which allows entities to immediately expense contract acquisition costs when the asset that would have resulted from capitalizing these costs would have been amortized in one year or less. Upon adoption of Topic 606, the Company did not capitalize any contract acquisition cost.

~~13.~~15. Operating Segments

The Company’s activities are considered to be a single industry segment for financial reporting purposes. The Company is engaged in the business of commercial and retail banking, investment management and insurance services with operations throughout central and eastern Iowa, the Twin Cities area of Minnesota and Wisconsin, Florida, and Denver,

Colorado. Substantially all income is derived from a diverse base of commercial, mortgage and retail lending activities, and investments.

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

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

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

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

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

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

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

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

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

longer impact the determination of whether a credit loss exists. As such, it is no longer an other-than-temporary model. Finally, the purchased financial assets with credit deterioration (PCD) model applies to purchased financial assets (measured at amortized cost or AFS) that have experienced more than insignificant credit deterioration since origination. This represents a change from the scope of what are considered purchased credit-impaired assets under today’s model. Different than the accounting for originated or purchased assets that do not qualify as PCD, the initial estimate of expected credit losses for a PCD would be recognized through an allowance for loan and lease losses with an offset to the cost basis of the related financial asset at acquisition. The new standard applies to public business entities that are SEC filers in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted for fiscal years beginning after December 31, 2018, including interim periods within those fiscal years, and is expected to increase the allowance for loan losses upon adoption. The Company has formed a working group to evaluate the impact of the standard’s adoption on the Company’s consolidated financial statements, including viewing demonstrations of the capabilities of outside vendor software systems, and evaluation of the ability of these systems to meet the processing necessary to support the data collection and retention requirements of the Company in implementation of the new standard.

~~In January 2017, the FASB issued Accounting Standards Update No. 2017-04,~~ ~~Intangibles-Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment.~~ The new guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. The update applies to public business entities that are SEC filers in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company early adopted this amendment during the second quarter of 2017, and adoption did not have a significant effect on the Company’s consolidated financial statements.

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

~~15.~~16. Subsequent Events

Management evaluated subsequent events through the date the consolidated financial statements were issued. Events or transactions occurring after June 30, ~~2017~~2018, but prior to the date the consolidated financial statements were issued, that provided additional evidence about conditions that existed at June 30, ~~2017~~2018 have been recognized in the consolidated financial statements for the three and six months ended June 30, ~~2017~~2018. Events or transactions that provided evidence about conditions that did not exist at June 30, ~~2017~~2018, but arose before the consolidated financial statements were issued, have not been recognized in the consolidated financial statements for the three and six months ended June 30, ~~2017~~2018.

In late July 2018, the Company recorded a writedown of approximately $0.5 million due to classifying a former branch facility as held for sale.

On July ~~14, 2017~~17, 2018, the board of directors of the Company declared a cash dividend of $~~0.17~~0.195 per share payable on September ~~15, 2017~~17, 2018 to shareholders of record as of the close of business on September 1, ~~2017~~2018.

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

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

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

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

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

OVERVIEW

The Company provides financial services to individuals, businesses, governmental units and institutional customers located primarily in the upper Midwest through its bank subsidiary, MidWestOne Bank. The Bank has office locations in central and east-central Iowa, the Twin Cities area of Minnesota, Wisconsin, Florida, and Denver, Colorado. The Bank is actively engaged in many areas of commercial banking, including: acceptance of demand, savings and time deposits; making commercial, real estate, agricultural and consumer loans; and other banking services tailored for its individual customers. The Wealth Management Division of theBank administers estates, personal trusts, conservatorships, and pension and profit-sharing accounts along with providing brokerage and other investment management services to customers. MidWestOne Insurance Services, Inc., ~~also~~ a wholly-owned subsidiary of the Company, provides personal and business insurance services in Iowa. During the second quarter of 2018, the Company purchased a registered investment adviser in Denver, Colorado, which operates through the Bank.

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

Our results of operations depend primarily on our net interest income, which is the difference between the interest income on our ~~earning~~interest-earning assets, such as loans and securities, and the interest expense paid on our deposits and borrowings. Results of operations are also affected by non-interest income and expense, the provision for loan losses and income tax expense. Significant external factors that impact our results of operations include general economic and competitive conditions, as well as changes in market interest rates, government policies, and actions of regulatory authorities.

The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes and 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, ~~2016.~~2017. Results of operations for the three and six months ended June 30, ~~2017~~2018 are not necessarily indicative of results to be attained for any other period.

Critical Accounting Policies

Critical accounting estimates are those which are both most important to the portrayal of our financial condition and results of operations, and require our management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting estimates relate to the allowance for loan losses, application of purchase accounting, goodwill and intangible assets, and fair value of available for sale investment securities, all of which involve significant judgment by our management. Information about our critical accounting estimates is included under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

RESULTS OF OPERATIONS

Comparison of Operating Results for the Three Months Ended June 30, ~~2017~~2018 and June 30, ~~2016~~2017

Summary

For the quarter ended June 30, ~~2017,~~2018, we earned net income of ~~$7.2~~$8.2 million, which was an increase of ~~$2.5~~$1.0 million from ~~$4.8~~$7.2 million for the quarter ended June 30, ~~2016.~~2017. The increase in net income was due primarily to ~~decreased~~a $1.0 million, or 32.0%, decrease in income tax expense, stemming from the reduction in the maximum corporate federal income tax rate to 21% for 2018 compared to 35% for 2017, a $0.4 million, or 1.5%, increase in net interest income, due primarily to a $1.8 million increase in interest and fees on loans, and an increase of $0.1 million, or 1.9%, in noninterest income. These increases were partially offset by an increase of $0.6 million, or 2.8%, in noninterest expense, ~~during the three months ended June 30, 2017 compared~~due primarily to ~~the three months ended June 30, 2016.~~increased salaries and employee benefits of $0.4 million, or 3.7%. Both basic and diluted earnings per common share for the second quarter of ~~2017~~2018 were ~~$0.59, versus $0.42 for both~~$0.67, versus $0.59 for the second quarter of ~~2016.~~2017. Our annualized return on average assets for the second quarter of ~~2017~~2018 was 1.01% compared with 0.95% c~~ompared with~~ ~~0.64%~~forfor the same period in ~~2016.~~2017. Our annualized return on average shareholders’ equity was 9.55% for the three months ended June 30, 2018 compared with 8.58% for the three months ended June 30, ~~2017 compared with 6.31% for the three months ended June 30, 2016.~~2017. The annualized return on average tangible equity was ~~11.86%~~12.91% for the second quarter of ~~2017~~2018 compared with ~~9.67%~~11.86% for the same period in ~~2016.~~

2017.

The following table presents selected financial results and measures as of and for the quarters ended June 30, ~~2017~~2018 and ~~2016.~~2017.


	As of and for the Three Months Ended June 30,						As of and for the Three Months Ended June 30,
(dollars in thousands)	2017			2016
(dollars in thousands, except per share amounts)							2018			2017
Net Income	$	7,234		$	4,755		$	8,156		$	7,234
Average Assets	3,056,740			2,984,900			3,246,302			3,056,740
Average Shareholders’ Equity	338,362			303,319			342,712			338,362
Return on Average Assets*	0.95		%	0.64		%	1.01		%	0.95		%
Return on Average Shareholders’ Equity*	8.58			6.31			9.55			8.58
Return on Average Tangible Equity*(1)	11.86			9.67			12.91			11.86
Total Equity to Assets (end of period)	11.09			10.17			10.57			11.09
Tangible Equity to Tangible Assets (end of period)(1)	8.86			7.77			8.48			8.86
Tangible Book Value per Share(1)	$	21.86		$	19.88		$	22.22		$	21.86
* Annualized
(1) A non-GAAP financial measure. See below for a reconciliation to the most comparable GAAP equivalents.							(1) A non-GAAP financial measure. See below for a reconciliation to the most comparable GAAP equivalents.

We have traditionally disclosed certain non-GAAP ratios, including our return on average tangible equity and the ratio of our tangible equity to tangible assets, as well as ~~diluted earnings per common share exclusive of merger-related expenses,~~ adjusted noninterest income as a percentage of total revenue, and tangible book value per share. We believe these ~~ratios~~financial measures provide investors with information regarding our financial condition and results of operations and how we evaluate them ~~internally.~~

internally, such as presenting how management tracks adjusted noninterest income as a percentage of total revenue against its goal of 25%.

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

For the Three Months Ended June 30,
(dollars in thousands, except per share amounts) 2017 2016
Net Income:
Net income $ 7,234
$ 4,755
Plus: Intangible amortization, net of tax ⁽¹⁾
523
660
Adjusted net income $ 7,757
$ 5,415
Average Tangible Equity:
Average total shareholders’ equity $ 338,362
$ 303,319
Less: Average intangibles, net of amortization (78,554 ) (82,268 )
Plus: Average deferred tax liability associated with intangibles 2,581
4,098
Average tangible equity $ 262,389
$ 225,149
Return on Average Tangible Equity (annualized) 11.86 % 9.67 %
Net Income:
Net income $ 7,234
$ 4,755
Plus: Merger-related expenses —
1,799
Net tax effect of merger-related expenses⁽²⁾
—
(670 )
Net income exclusive of merger-related expenses $ 7,234
$ 5,884
Diluted average number of shares 12,219,238
11,453,831
Earnings Per Common Share-Diluted $ 0.59
$ 0.42
Earnings Per Common Share-Diluted, exclusive of merger-related expenses $ 0.59
$ 0.51
(1) Computed on a tax-equivalent basis, assuming a federal income tax rate of 35%.
(2) Computed based on qualifying tax deductible expenses, assuming a federal income tax rate of 35%.
Adjusted Noninterest Income:
Noninterest income $ 5,383
$ 5,595
Less: Gain on sale of available for sale securities (20 ) (223 )
(Gain) loss on sale of premises and equipment (8 ) 40
Other gain (37 ) (124 )
Adjusted noninterest income $ 5,318
$ 5,288
Total Revenue:
Net interest income $ 26,191
$ 24,940
Plus: Noninterest income 5,383
5,595
Less: Gain on sale of available for sale securities (20 ) (223 )
(Gain) loss on sale of premises and equipment (8 ) 40
Other gain (37 ) (124 )
Total Revenue $ 31,509
$ 30,228
Adjusted Noninterest Income as a Percentage of Total Revenue 16.9 % 17.5 %



	For the Three Months Ended June 30,
(dollars in thousands)	2018			2017
Net Income:
Net income	$	8,156		$	7,234
Plus: Intangible amortization, net of tax ⁽¹⁾	465			523
Adjusted net income	$	8,621		$	7,757
Average Tangible Equity:
Average total shareholders’ equity	$	342,712		$	338,362
Plus: Average deferred tax liability associated with intangibles	996			2,581
Less: Average intangibles, net of amortization	(75,780		)	(78,554		)
Average tangible equity	$	267,928		$	262,389
Return on Average Tangible Equity (annualized)	12.91		%	11.86		%
(1) Computed on a tax-equivalent basis, assuming a federal income tax rate of 21% for 2018 and 35%. for 2017.

As of June 30,
(dollars in thousands) 2017 2016
Tangible Equity:
Total shareholders’ equity $ 342,872
$ 305,195
Plus: Deferred tax liability associated with intangibles 2,432
3,860
Less: Intangible assets, net (78,172 ) (81,719 )
Tangible equity $ 267,132
$ 227,336
Tangible Assets:
Total assets $ 3,091,045
$ 3,002,194
Plus: Deferred tax liability associated with intangibles 2,432
3,860
Less: Intangible assets, net (78,172 ) (81,719 )
Tangible assets $ 3,015,305
$ 2,924,335
Common shares outstanding 12,218,528
11,435,860
Tangible Book Value Per Share $ 21.86
$ 19.88
Tangible Equity/Tangible Assets 8.86 % 7.77 %



	For the Three Months Ended June 30,
(dollars in thousands)	2018			2017
Adjusted Noninterest Income:
Noninterest income	$	5,487		$	5,383
Less: Gain on sale of debt securities available for sale	—			(20		)
Loss on sale of held to maturity debt securities	4			—
Loss (gain) on sale of premises and equipment	17			(8		)
Other (gain) loss	72			(37		)
Adjusted noninterest income	$	5,580		$	5,318
Total Revenue:
Net interest income	$	26,581		$	26,191
Plus: Noninterest income	5,487			5,383
Less: Gain on sale of debt securities available for sale	—			(20		)
Loss on sale of held to maturity debt securities	4			—
Loss (gain) on sale of premises and equipment	17			(8		)
Other (gain) loss	72			(37		)
Total Revenue	$	32,161		$	31,509
Adjusted Noninterest Income as a Percentage of Total Revenue⁽¹⁾	17.4		%	16.9		%
(1) This measure tracks management’s strategic goal for this measure to be at 25%.



	As of June 30,
(dollars in thousands, except per share amounts)	2018			2017
Tangible Equity:
Total shareholders’ equity	$	346,201		$	342,872
Plus: Deferred tax liability associated with intangibles	924			2,432
Less: Intangible assets, net	(75,579		)	(78,172		)
Tangible equity	$	271,546		$	267,132
Tangible Assets:
Total assets	$	3,276,277		$	3,091,045
Plus: Deferred tax liability associated with intangibles	924			2,432
Less: Intangible assets, net	(75,579		)	(78,172		)
Tangible assets	$	3,201,622		$	3,015,305
Common shares outstanding	12,221,107			12,218,528
Tangible Book Value Per Share	$	22.22		$	21.86
Tangible Equity/Tangible Assets	8.48		%	8.86		%

Net Interest Income

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

Certain assets with tax favorable treatment are evaluated on a tax-equivalent basis. Tax-equivalent basis assumes a federal income tax rate of 21% for 2018 and 35%~~. Tax favorable~~ for 2017. Tax-favorable assets generally have lower contractual yields than fully taxable assets. A tax-equivalent analysis is performed by adding the tax savings to the earnings on tax-favorable assets. After factoring in the tax-favorable effects of these assets, the yields may be more appropriately evaluated against alternative earning assets. In addition to yield, various other risks are factored into the evaluation process.

Net interest income of $26.6 million for the second quarter of 2018 was up $0.4 million, or 1.5%, from $26.2 million for the second quarter of 2017, ~~increased $1.3 million, or 5.0%, from $24.9 million for the~~ ~~second~~ ~~quarter of 2016,~~ primarily due to an increase of ~~$1.8~~$2.1 million, or ~~6.5%~~7.1%, in interest income. ~~An increase~~A 6 basis point decrease in ~~the merger-related discount accretion of $0.6 million, to $1.3 million for the~~ ~~second~~ ~~quarter of 2017 compared to $0.7 million for the~~ ~~second~~ ~~quarter of 2016, partially~~loan yield was more than offset by a ~~decrease~~$171.4 million increase in average loan balances ~~resulted in~~between the two periods. Merger-related discount accretion saw a decrease of $0.5 million to $0.8 million for the second quarter of 2018, with loan interest income increasing ~~$1.0~~$1.8 million, or ~~4.1%~~7.2%, to ~~$25.7~~$27.5 million for the second quarter of ~~2017~~2018 compared to the second quarter of ~~2016.~~2017. Income from investment securities was $4.5 million for the second quarter of 2018, up from $4.2 million for the second quarter of 2017, ~~up from $3.3 million for the~~ ~~second~~ ~~quarter of 2016,~~ which resulted from an increase of ~~$134.5~~$13.0 million in the average balance, partially offset by a decrease of 1015 basis points in the tax equivalent yield ~~of investment securities~~ between the two comparable periods.

Interest expense increased ~~$0.6~~$1.7 million, or ~~18.2%~~47.2%, to ~~$3.7~~$5.4 million for the second quarter of ~~2017,~~2018, compared to ~~$3.1~~$3.7 million for the same period in ~~2016~~2017, primarily due to an increase in the cost of interest-bearing deposits of 919 basis points ~~on increased average balances of $91.8 million between the~~ ~~second~~ ~~quarter of 2017~~ and ~~the same period in 2016. The merger-related amortization of the purchase accounting premium on certificates of deposit, which acts to reduce interest expense, declined from $0.3 million for the~~ ~~second~~ ~~quarter of 2016, to zero for the same period of 2017. Additionally, the average balance of Federal Home Loan Bank (“FHLB”) borrowings decreased, partially offset by~~ an increase in the average ~~rate paid, resulting in $0.1~~balance of interest-bearing deposits of $128.8 million ~~of reduced expense~~ between the ~~comparable~~two periods. Interest expense on borrowed funds was $1.4 million for the second quarter of 2018, up from $0.8 million for the second quarter of 2017, an increase of $0.6 million, or 68.9%. This increase resulted from an increase of 38 basis points in cost, combined with a higher average balance of borrowed funds of $277.0 million for the second quarter of 2018 compared to $203.2 million for the same period last year, an increase of $73.8 million, or 36.3%, between the comparative periods.

Our net interest margin for the second quarter of ~~2017,~~2018, calculated on a fully tax-equivalent basis, was ~~3.91%~~3.65%, or 826 basis points ~~higher~~lower than the net interest margin of ~~3.83%~~3.91% for the second quarter of ~~2016. A higher~~2017. The yield ~~received~~ on loans ~~combined with higher discount accretion resulted in a 19~~decreased 6 basis ~~point increase in overall loan yield. This increase was partially offset by a 10 basis point decrease in~~points and the yield on investment securities decreased by 15 basis points, primarily due to the reduction in the federal corporate income tax rate, resulting in ~~higher~~the yield on interest-earning assets for the second quarter of ~~2017~~2018 being 6 basis points lower compared to the second quarter of ~~2016.~~2017. The cost of deposits increased 919 basis points, primarily due ~~primarily~~ to ~~the absence of purchase premium amortization in 2017,~~increased market interest rates, while the average cost of borrowings ~~edged~~was higher by 638 basis ~~points.~~points for the second quarter of 2018, compared to the second quarter of 2017, reflecting the increasing interest rate environment. We expect further net interest margin compression pressure in the future.

The following table shows consolidated average balance sheets, detailing the major categories of assets and liabilities, the interest income earned on ~~earning~~interest-earning assets, the interest expense paid for interest-bearing liabilities, and the related yields and interest rates for the quarters ended June 30, 2018 and 2017, reported on a fully tax-equivalent basis assuming a 21% tax rate for 2018 and ~~2016.~~a 35% tax rate for 2017. Dividing annualized income or expense by the average balances of assets or liabilities results in average yields or ~~rates.~~costs. Average information is provided on a daily average basis.


	Three Months Ended June 30,														Three Months Ended June 30,
	2017							2016							2018							2017
	Average Balance			Interest Income/ Expense		Average Rate/ Yield		Average Balance			Interest Income/ Expense		Average Rate/ Yield		Average Balance			Interest Income/ Expense		Average Rate/ Yield		Average Balance			Interest Income/ Expense		Average Rate/ Yield
(dollars in thousands)
Average Earning Assets:
Loans ^(1)(2)(3)	$	2,165,776		$	26,052	4.82	%	$	2,176,693		$	25,058	4.63	%	$	2,337,216		$	27,744	4.76	%	$	2,165,776		$	26,052	4.82	%
Investment securities:
Taxable investments	421,255			2,590		2.47		318,253			1,912		2.42		438,569			2,940		2.69		421,255			2,590		2.47
Tax exempt investments ⁽²⁾	219,818			2,428		4.43		188,370			2,170		4.63		215,461			1,929		3.59		219,818			2,428		4.43
Total investment securities	641,073			5,018		3.14		506,623			4,082		3.24		654,030			4,869		2.99		641,073			5,018		3.14
Federal funds sold and interest-bearing balances	10,388			27		1.04		52,517			71		0.54		4,271			19		1.78		10,388			27		1.04
Total interest-earning assets	$	2,817,237		$	31,097	4.43	%	$	2,735,833		$	29,211	4.29	%	$	2,995,517		$	32,632	4.37	%	$	2,817,237		$	31,097	4.43	%

Cash and due from banks	34,992							38,596							35,761							34,992
Premises and equipment	74,944							76,558							78,013							74,944
Allowance for loan losses	(22,567		)					(20,741		)					(30,193		)					(22,567		)
Other assets	152,134							154,654							167,204							152,134
Total assets	$	3,056,740						$	2,984,900						$	3,246,302						$	3,056,740

Average Interest-Bearing Liabilities:
Savings and interest-bearing demand deposits	$	1,337,921		$	963	0.29	%	$	1,280,530		$	836	0.26	%	$	1,431,642		$	1,354	0.38	%	$	1,337,921		$	963	0.29	%
Certificates of deposit	686,238			1,881		1.01		651,824			1,438		0.89		721,293			2,655		1.48		686,238			1,881		1.01
Total deposits	2,024,159			2,844		0.56		1,932,354			2,274		0.47		2,152,935			4,009		0.75		2,024,159			2,844		0.56
Federal funds purchased and repurchase agreements	70,878			59		0.33		58,475			32		0.22		109,752			355		1.30		70,878			59		0.33
Federal Home Loan Bank borrowings	91,044			404		1.78		107,385			467		1.75		130,967			615		1.88		91,044			404		1.78
Long-term debt and other	41,318			356		3.46		46,488			325		2.81		36,321			413		4.56		41,318			356		3.46
Total borrowed funds	203,240			819		1.62		212,348			824		1.56		277,040			1,383		2.00		203,240			819		1.62
Total interest-bearing liabilities	$	2,227,399		$	3,663	0.66	%	$	2,144,702		$	3,098	0.58	%	$	2,429,975		$	5,392	0.89	%	$	2,227,399		$	3,663	0.66	%

Net interest spread⁽²⁾						3.77	%						3.71	%						3.48	%						3.77	%

Demand deposits	470,774							519,059							454,659							470,774
Other liabilities	20,205							17,820							18,956							20,205
Shareholders’ equity	338,362							303,319							342,712							338,362
Total liabilities and shareholders’ equity	$	3,056,740						$	2,984,900						$	3,246,302						$	3,056,740

Interest income/earning assets ⁽²⁾	$	2,817,237		$	31,097	4.43	%	$	2,735,833		$	29,211	4.29	%	$	2,995,517		$	32,632	4.37	%	$	2,817,237		$	31,097	4.43	%
Interest expense/earning assets	$	2,817,237		$	3,663	0.52	%	$	2,735,833		$	3,098	0.46	%	$	2,995,517		$	5,392	0.72	%	$	2,817,237		$	3,663	0.52	%
Net interest margin ⁽²⁾⁽⁴⁾				$	27,434	3.91	%				$	26,113	3.83	%				$	27,240	3.65	%				$	27,434	3.91	%

Non-GAAP to GAAP Reconciliation:
Tax Equivalent Adjustment:
Loans				$	402						$	423						$	258						$	402
Securities				841							750							401							841
Total tax equivalent adjustment				1,243							1,173							659							1,243
Net Interest Income				$	26,191						$	24,940						$	26,581						$	26,191



	(1)	Loan fees included in interest income are not material.
	(2)	Computed on a tax-equivalent basis, assuming a federal income tax rate of 21% for 2018 and 35%. for 2017.
	(3)	Non-accrual loans have been included in average loans, net of unearned discount.
	(4)	Net interest margin is tax-equivalent net interest income as a percentage of average earning assets.



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



Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐ (Do not check if a smaller reporting company)	Smaller reporting company	☐
		Emerging growth company	☐



		Page No.
PART I

Item 1.	Financial Statements	1

	Consolidated Balance Sheets	1

	Consolidated Statements of ~~Operations~~Income	2

	Consolidated Statements of Comprehensive Income	3

	Consolidated Statements of Shareholders' Equity	4

	Consolidated Statements of Cash Flows	5

	Notes to Consolidated Financial Statements	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	3537

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	5861

Item 4.	Controls and Procedures	6064

Part II

Item 1.	Legal Proceedings	6165

Item 1A.	Risk Factors	6165

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6165

Item 3.	Defaults Upon Senior Securities	6165

Item 4.	Mine Safety Disclosures	6165

Item 5.	Other Information	6165

Item 6.	Exhibits	6266

	Signatures	6367


											Three Months Ended					Six Months Ended
											June 30,					June 30,
(unaudited) (dollars in thousands, except per share amounts)	Three Months Ended June 30,					Six Months Ended June 30,					2018			2017		2018			2017
	2017		2016			2017		2016
Interest income:
Interest and fees on loans	$	25,650	$	24,635		$	49,929	$	49,751
Interest on bank deposits	26		70			31		78
Interest on federal funds sold	1		1			1		1
Interest on investment securities:
Loans											$	27,486		$	25,650	$	54,053		$	49,929
Bank deposits											18			26		26			31
Federal funds sold											1			1		1			1
Taxable securities	2,590		1,912			5,308		3,836			2,940			2,590		5,828			5,308
Tax-exempt securities	1,587		1,420			3,152		2,857			1,528			1,587		3,057			3,152
Total interest income	29,854		28,038			58,421		56,523			31,973			29,854		62,965			58,421
Interest expense:
Interest on deposits:
Interest-bearing checking	912		776			1,710		1,536			1,291			912		2,376			1,710
Savings	51		60			102		166			63			51		126			102
Certificates of deposit under $100,000	886		719			1,745		1,288			1,134			886		2,129			1,745
Certificates of deposit $100,000 and over	995		719			1,912		1,358			1,521			995		2,914			1,912
Total interest expense on deposits	2,844		2,274			5,469		4,348			4,009			2,844		7,545			5,469
Interest on federal funds purchased	25		—			71		25
Interest on securities sold under agreements to repurchase	34		32			72		85
Interest on Federal Home Loan Bank borrowings	404		467			847		918
Interest on other borrowings	3		6			6		12
Interest on junior subordinated notes issued to capital trusts	240		196			461		393
Interest on long-term debt	113		123			223		247
Federal funds purchased											211			25		336			71
Securities sold under agreements to repurchase											144			34		278			72
Federal Home Loan Bank borrowings											615			404		1,132			847
Other borrowings											4			3		6			6
Junior subordinated notes issued to capital trusts											307			240		565			461
Long-term debt											102			113		209			223
Total interest expense	3,663		3,098			7,149		6,028			5,392			3,663		10,071			7,149
Net interest income	26,191		24,940			51,272		50,495			26,581			26,191		52,894			51,272
Provision for loan losses	1,240		1,171			2,281		2,236			1,250			1,240		3,100			2,281
Net interest income after provision for loan losses	24,951		23,769			48,991		48,259			25,331			24,951		49,794			48,991
Noninterest income:
Trust, investment, and insurance fees	1,528		1,440			3,140		2,938			1,537			1,528		3,177			3,140
Service charges and fees on deposit accounts	1,257		1,283			2,540		2,541			1,158			1,257		2,326			2,540
Loan origination and servicing fees	718		855			1,520		1,474			906			718		1,847			1,520
Other service charges and fees	1,497		1,378			2,955		2,808			1,582			1,497		2,962			2,955
Bank-owned life insurance income	318		332			646		716			397			318		830			646
Gain on sale or call of available for sale securities	20		223			20		467
Gain on sale of held to maturity securities	—		—			43		—
Gain on sale or call of debt securities available for sale											—			20		9			20
Gain (loss) on sale or call of debt securities held to maturity											(4		)	—		(4		)	43
Gain (loss) on sale of premises and equipment	8		(40		)	6		(251		)	(17		)	8		(18		)	6
Other gain	37		124			50		1,307
Other gain (loss)											(72		)	37		30			50
Total noninterest income	5,383		5,595			10,920		12,000			5,487			5,383		11,159			10,920
Noninterest expense:
Salaries and employee benefits	11,789		13,321			23,673		25,966			12,225			11,789		24,596			23,673
Net occupancy and equipment expense	3,033		3,326			6,337		6,577
Occupancy and equipment, net											3,238			3,033		6,489			6,337
Professional fees	1,036		1,221			2,058		2,167			959			1,036		1,753			2,058
Data processing expense	548		809			1,259		3,382
FDIC insurance expense	352		398			719		819
Amortization of intangible assets	804		1,015			1,653		2,076
Other operating expense	2,402		2,725			4,600		5,274
Data processing											691			548		1,379			1,259
FDIC insurance											392			352		711			719
Amortization of intangibles											589			804		1,246			1,653
Other											2,437			2,402		4,715			4,600
Total noninterest expense	19,964		22,815			40,299		46,261			20,531			19,964		40,889			40,299
Income before income tax expense	10,370		6,549			19,612		13,998			10,287			10,370		20,064			19,612
Income tax expense	3,136		1,794			5,665		3,699			2,131			3,136		4,115			5,665
Net income	$	7,234	$	4,755		$	13,947	$	10,299		$	8,156		$	7,234	$	15,949		$	13,947
Share and per share information:
Ending number of shares outstanding	12,218,528		11,435,860			12,218,528		11,435,860
Average number of shares outstanding	12,200,689		11,431,252			11,855,108		11,424,122
Diluted average number of shares	12,219,238		11,453,831			11,878,315		11,448,677
Per share information:
Earnings per common share - basic	$	0.59	$	0.42		$	1.18	$	0.90		$	0.67		$	0.59	$	1.31		$	1.18
Earnings per common share - diluted	0.59		0.42			1.17		0.90			0.67			0.59		1.30			1.17
Dividends paid per common share	0.165		0.16			0.33		0.32			0.195			0.165		0.390			0.330



(unaudited) (dollars in thousands)	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Net income	$	7,234		$	4,755		$	13,947		$	10,299

Other comprehensive income, available for sale securities:
Unrealized holding gains arising during period	2,745			891			4,312			3,869
Reclassification adjustment for gains included in net income	(20		)	(223		)	(20		)	(467		)
Income tax expense	(1,070		)	(389		)	(1,686		)	(1,405		)
Other comprehensive income on available for sale securities	1,655			279			2,606			1,997
Other comprehensive income, net of tax	1,655			279			2,606			1,997
Comprehensive income	$	8,889		$	5,034		$	16,553		$	12,296



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



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


	June 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
(dollars in thousands, except per share amounts)	(unaudited)
(dollars in thousands)							(unaudited)
ASSETS
Cash and due from banks	$	46,234		$	41,464		$	41,547		$	44,818
Interest-bearing deposits in banks	3,164			1,764
Interest-earning deposits in banks							1,717			5,474
Federal funds sold							—			680
Cash and cash equivalents	49,398			43,228			43,264			50,972
Investment securities:
Available for sale	442,958			477,518
Held to maturity (fair value of $183,296 as of June 30, 2017 and $164,792 as of December 31, 2016)	182,478			168,392
Equity securities, at fair value							2,809			2,336
Debt securities available for sale, at fair value							438,312			445,324
Debt securities held to maturity (fair value of $188,407 as of June 30, 2018 and $194,343 as of December 31, 2017)							192,896			195,619
Loans held for sale	1,636			4,241			1,528			856
Loans	2,197,503			2,165,143
Loans held for investment, net of unearned income							2,364,035			2,286,695
Allowance for loan losses	(22,510		)	(21,850		)	(30,800		)	(28,059		)
Net loans	2,174,993			2,143,293
Loans held for investment, net							2,333,235			2,258,636
Premises and equipment, net	74,711			75,043			78,106			75,969
Accrued interest receivable	12,606			13,871
Interest receivable							13,636			14,732
Goodwill	64,654			64,654			64,654			64,654
Other intangible assets, net	13,518			15,171			10,925			12,046
Bank-owned life insurance	47,877			47,231			60,209			59,831
Other real estate owned	1,486			2,097			676			2,010
Deferred income taxes	5,482			6,523
Deferred income taxes, net							9,014			6,525
Other assets	19,248			18,313			27,013			22,761
Total assets	$	3,091,045		$	3,079,575		$	3,276,277		$	3,212,271
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest-bearing demand	$	476,031		$	494,586		$	469,862		$	461,969
Interest-bearing checking	1,131,151			1,136,282			1,183,384			1,228,112
Savings	203,967			197,698			216,866			213,430
Certificates of deposit under $100,000	325,847			326,832			341,584			324,681
Certificates of deposit $100,000 and over	356,713			325,050			392,505			377,127
Total deposits	2,493,709			2,480,448			2,604,201			2,605,319
Federal funds purchased	45,319			35,684			52,421			1,000
Securities sold under agreements to repurchase	60,182			82,187			75,046			96,229
Federal Home Loan Bank borrowings	90,000			115,000			143,000			115,000
Junior subordinated notes issued to capital trusts	23,743			23,692			23,841			23,793
Long-term debt	15,000			17,500			10,000			12,500
Deferred compensation liability	5,224			5,180			5,267			5,199
Accrued interest payable	1,551			1,472
Interest payable							1,744			1,428
Other liabilities	13,445			12,956			14,556			11,499
Total liabilities	2,748,173			2,774,119			2,930,076			2,871,967
Shareholders' equity:
Preferred stock, no par value; authorized 500,000 shares; no shares issued and outstanding at June 30, 2017 and December 31, 2016	$	—		$	—
Common stock, $1.00 par value; authorized 30,000,000 shares at June 30, 2017 and 15,000,000 shares at December 31, 2016; issued 12,463,481 shares at June 30, 2017 and 11,713,481 shares at December 31, 2016; outstanding 12,218,528 shares at June 30, 2017 and 11,436,360 shares at December 31, 2016	12,463			11,713
Preferred stock, no par value; authorized 500,000 shares; no shares issued and outstanding at June 30, 2018 and December 31, 2017							$	—		$	—
Common stock, $1.00 par value; authorized 30,000,000 shares at June 30, 2018 and December 31, 2017; issued 12,463,481 shares at June 30, 2018 and December 31, 2017; outstanding 12,221,107 shares at June 30, 2018 and 12,219,611 shares at December 31, 2017							12,463			12,463
Additional paid-in capital	187,062			163,667			187,304			187,486
Treasury stock at cost, 244,953 shares as of June 30, 2017 and 277,121 shares as of December 31, 2016	(5,141		)	(5,766		)
Treasury stock at cost, 242,374 shares as of June 30, 2018 and 243,870 shares as of December 31, 2017							(5,474		)	(5,121		)
Retained earnings	147,015			136,975			159,315			148,078
Accumulated other comprehensive income (loss)	1,473			(1,133		)	(7,407		)	(2,602		)
Total shareholders' equity	342,872			305,456			346,201			340,304
Total liabilities and shareholders' equity	$	3,091,045		$	3,079,575		$	3,276,277		$	3,212,271


(unaudited) (dollars in thousands, except per share amounts)	Preferred Stock		Common Stock		Additional Paid-in Capital			Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total			Preferred Stock		Common Stock		Additional Paid-in Capital			Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balance at December 31, 2015	$	—	$	11,713	$	163,487		$	(6,331	)	$	123,901		$	3,408		$	296,178
Net income	—		—		—			—			10,299			—			10,299
Dividends paid on common stock ($0.32 per share)	—		—		—			—			(3,657		)	—			(3,657		)
Stock options exercised (2,900 shares)	—		—		(22		)	60			—			—			38
Release/lapse of restriction on RSUs (25,633 shares)	—		—		(520		)	495			—			—			(25		)
Stock compensation	—		—		365			—			—						365
Other comprehensive income, net of tax	—		—		—			—			—			1,997			1,997
Balance at June 30, 2016	$	—	$	11,713	$	163,310		$	(5,776	)	$	130,543		$	5,405		$	305,195
Balance at December 31, 2016	$	—	$	11,713	$	163,667		$	(5,766	)	$	136,975		$	(1,133	)	$	305,456		$	—	$	11,713	$	163,667		$	(5,766	)	$	136,975		$	(1,133	)	$	305,456
Net income	—		—		—			—			13,947			—			13,947			—		—		—			—			13,947			—			13,947
Issuance of common stock (750,000 shares), net of expenses of $1,328,000	—		750		23,610			—			—			—			24,360
Issuance of common stock (750,000 shares), net of expenses of $1,328																				—		750		23,610			—			—			—			24,360
Dividends paid on common stock ($0.33 per share)	—		—		—			—			(3,907		)	—			(3,907		)	—		—		—			—			(3,907		)	—			(3,907		)
Stock options exercised (8,250 shares)	—		—		(81		)	172			—			—			91			—		—		(81		)	172			—			—			91
Release/lapse of restriction on RSUs (26,875 shares)	—		—		(560		)	453			—			—			(107		)	—		—		(560		)	453			—			—			(107		)
Stock compensation	—		—		426			—			—			—			426			—		—		426			—			—						426
Other comprehensive income, net of tax	—		—		—			—			—			2,606			2,606			—		—		—			—			—			2,606			2,606
Balance at June 30, 2017	$	—	$	12,463	$	187,062		$	(5,141	)	$	147,015		$	1,473		$	342,872		$	—	$	12,463	$	187,062		$	(5,141	)	$	147,015		$	1,473		$	342,872
Balance at December 31, 2017																				$	—	$	12,463	$	187,486		$	(5,121	)	$	148,078		$	(2,602	)	$	340,304
Cumulative effect of changes in accounting principles⁽¹⁾																				—		—		—			—			57			(57		)	—
Net income																				—		—		—			—			15,949			—			15,949
Dividends paid on common stock ($0.39 per share)																				—		—		—			—			(4,769		)	—			(4,769		)
Stock options exercised (9,700 shares)																				—		—		(69		)	204			—			—			135
Release/lapse of restriction on RSUs (28,525 shares)																				—		—		(609		)	525			—			—			(84		)
Repurchase of common stock (33,998 shares)																				—		—		—			(1,082		)	—			—			(1,082		)
Stock compensation																				—		—		496			—			—			—			496
Other comprehensive loss, net of tax																				—		—		—			—			—			(4,748		)	(4,748		)
Balance at June 30, 2018																				$	—	$	12,463	$	187,304		$	(5,474	)	$	159,315		$	(7,407	)	$	346,201



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



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



		As of June 30, 2018
	Number of Securities	Less than 12 Months				12 Months or More				Total
Available for Sale	Number of Securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
(in thousands, except number of securities)
U.S. Government agencies and corporations	2	$	5,543	$	51	$	—	$	—	$	5,543	$	51
State and political subdivisions	73	35,538		471		2,757		70		38,295		541
Mortgage-backed securities	27	53,518		1,447		6,176		175		59,694		1,622
Collateralized mortgage obligations	43	46,904		958		120,274		6,901		167,178		7,859
Corporate debt securities	12	54,441		1,183		8,440		240		62,881		1,423
Total	157	$	195,944	$	4,110	$	137,647	$	7,386	$	333,591	$	11,496



	Available For Sale				Held to Maturity
(in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	39,542	$	39,518	$	520	$	521
Due after one year through five years	107,415		106,371		23,357		23,016
Due after five years through ten years	62,298		62,685		94,804		93,529
Due after ten years	3,354		3,358		42,386		41,002
Debt securities without a single maturity date	235,726		226,380		31,829		30,339
Total	$	448,335	$	438,312	$	192,896	$	188,407



	Allowance for Loan Losses and Recorded Investment in Loan Receivables
	As of June 30, 2018 and December 31, 2017
(in thousands)	Agricultural		Commercial and Industrial		Commercial Real Estate		Residential Real Estate		Consumer		Total
June 30, 2018
Allowance for loan losses:
Individually evaluated for impairment	$	287	$	3,093	$	3,950	$	163	$	—	$	7,493
Collectively evaluated for impairment	2,369		5,464		12,053		2,353		256		22,495
Purchased credit impaired loans	—		—		338		474		—		812
Total	$	2,656	$	8,557	$	16,341	$	2,990	$	256	$	30,800
Loans receivable
Individually evaluated for impairment	$	8,056	$	12,865	$	20,477	$	3,756	$	—	$	45,154
Collectively evaluated for impairment	95,373		499,438		1,209,911		459,045		36,936		2,300,703
Purchased credit impaired loans	—		54		13,506		4,618		—		18,178
Total	$	103,429	$	512,357	$	1,243,894	$	467,419	$	36,936	$	2,364,035



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




	FORM 10-Q



	Commission file number 001-35968




	Allowance for Loan Loss Activity
	For the Three Months Ended June 30, 2018 and 2017
(in thousands)	Agricultural			Commercial and Industrial			Commercial Real Estate			Residential Real Estate			Consumer			Total
2018
Beginning balance	$	3,153		$	8,362		$	14,997		$	2,877		$	282		$	29,671
Charge-offs	(268		)	(3		)	—			(3		)	(17		)	(291		)
Recoveries	9			103			40			15			3			170
Provision	(238		)	95			1,304			101			(12		)	1,250
Ending balance	$	2,656		$	8,557		$	16,341		$	2,990		$	256		$	30,800
2017
Beginning balance	$	2,460		$	6,021		$	9,751		$	3,764		$	221		$	22,217
Charge-offs	(347		)	(464		)	(45		)	(52		)	(135		)	(1,043		)
Recoveries	4			83			5			—			4			96
Provision	549			2,319			(698		)	(1,062		)	132			1,240
Ending balance	$	2,666		$	7,959		$	9,013		$	2,650		$	222		$	22,510




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




	Allowance for Loan Loss Activity
	For the Six Months Ended June 30, 2018 and 2017
(in thousands)	Agricultural			Commercial and Industrial			Commercial Real Estate			Residential Real Estate			Consumer			Total
2018
Beginning balance	$	2,790		$	8,518		$	13,637		$	2,870		$	244		$	28,059
Charge-offs	(268		)	(90		)	(264		)	(107		)	(38		)	(767		)
Recoveries	15			182			116			77			18			408
Provision	119			(53		)	2,852			150			32			3,100
Ending balance	$	2,656		$	8,557		$	16,341		$	2,990		$	256		$	30,800
2017
Beginning balance	$	2,003		$	6,274		$	9,860		$	3,458		$	255		$	21,850
Charge-offs	(884		)	(529		)	(106		)	(80		)	(160		)	(1,759		)
Recoveries	14			102			15			—			7			138
Provision	1,533			2,112			(756		)	(728		)	120			2,281
Ending balance	$	2,666		$	7,959		$	9,013		$	2,650		$	222		$	22,510




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



(in thousands)	Pass		Special Mention/ Watch		Substandard		Doubtful		Loss		Total
June 30, 2018
Agricultural	$	76,987	$	17,723	$	8,719	$	—	$	—	$	103,429
Commercial and industrial	473,717		21,118		17,517		5		—		512,357
Commercial real estate:
Construction and development	203,880		1,216		1,173		—		—		206,269
Farmland	70,237		8,514		10,010		—		—		88,761
Multifamily	127,072		1,406		1,181		—		—		129,659
Commercial real estate-other	754,866		45,300		19,039		—		—		819,205
Total commercial real estate	1,156,055		56,436		31,403		—		—		1,243,894
Residential real estate:
One- to four- family first liens	340,610		3,104		6,567		—		—		350,281
One- to four- family junior liens	115,160		706		1,272		—		—		117,138
Total residential real estate	455,770		3,810		7,839		—		—		467,419
Consumer	36,772		133		3		28		—		36,936
Total	$	2,199,301	$	99,220	$	65,481	$	33	$	—	$	2,364,035



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



(in thousands)	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans Receivable
June 30, 2018
Agricultural	$	503	$	—	$	280	$	783	$	102,646	$	103,429
Commercial and industrial	1,144		185		6,006		7,335		505,022		512,357
Commercial real estate:
Construction and development	11		—		83		94		206,175		206,269
Farmland	515		—		141		656		88,105		88,761
Multifamily	—		—		—		—		129,659		129,659
Commercial real estate-other	189		62		3,646		3,897		815,308		819,205
Total commercial real estate	715		62		3,870		4,647		1,239,247		1,243,894
Residential real estate:
One- to four- family first liens	1,412		1,170		872		3,454		346,827		350,281
One- to four- family junior liens	120		67		440		627		116,511		117,138
Total residential real estate	1,532		1,237		1,312		4,081		463,338		467,419
Consumer	56		23		19		98		36,838		36,936
Total	$	3,950	$	1,507	$	11,487	$	16,944	$	2,347,091	$	2,364,035

Included in the totals above are the following purchased credit impaired loans	$	203	$	160	$	—	$	363	$	17,815	$	18,178

December 31, 2017
Agricultural	$	95	$	118	$	168	$	381	$	105,131	$	105,512
Commercial and industrial	1,434		1,336		1,576		4,346		499,278		503,624
Commercial real estate:
Construction and development	57		97		82		236		165,040		165,276
Farmland	217		—		373		590		87,278		87,868
Multifamily	—		25		—		25		134,481		134,506
Commercial real estate-other	74		—		1,852		1,926		782,395		784,321
Total commercial real estate	348		122		2,307		2,777		1,169,194		1,171,971
Residential real estate:
One- to four- family first liens	3,854		756		1,019		5,629		346,597		352,226
One- to four- family junior liens	325		770		271		1,366		115,838		117,204
Total residential real estate	4,179		1,526		1,290		6,995		462,435		469,430
Consumer	79		15		29		123		36,035		36,158
Total	$	6,135	$	3,117	$	5,370	$	14,622	$	2,272,073	$	2,286,695

Included in the totals above are the following purchased credit impaired loans	$	164	$	756	$	553	$	1,473	$	18,258	$	19,731



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


	Three Months Ended June 30,									Three Months Ended June 30,
	2017 Compared to 2016 Change due to									2018 Compared to 2017 Change due to
	Volume			Rate/Yield			Net			Volume			Rate/Yield			Net
(in thousands)
Increase (decrease) in interest income:
Loans, tax equivalent	$	(793	)	$	1,787		$	994		$	3,708		$	(2,016	)	$	1,692
Investment securities:
Taxable investments	637			41			678			111			239			350
Tax exempt investments	804			(546		)	258			(47		)	(452		)	(499		)
Total investment securities	1,441			(505		)	936			64			(213		)	(149		)
Federal funds sold and interest-bearing balances	(264		)	220			(44		)	(73		)	65			(8		)
Change in interest income	384			1,502			1,886			3,699			(2,164		)	1,535
Increase (decrease) in interest expense:
Savings and interest-bearing demand deposits	36			91			127			72			319			391
Certificates of deposit	81			362			443			100			674			774
Total deposits	117			453			570			172			993			1,165
Federal funds purchased and repurchase agreements	8			19			27			47			249			296
Federal Home Loan Bank borrowings	(115		)	52			(63		)	187			24			211
Other long-term debt	(186		)	217			31			(235		)	292			57
Total borrowed funds	(293		)	288			(5		)	(1		)	565			564
Change in interest expense	(176		)	741			565			171			1,558			1,729
Increase in net interest income	$	560		$	761		$	1,321		$	3,528		$	(3,722	)	$	(194	)
Percentage decrease in net interest income over prior period							5.1		%
Percentage change in net interest income over prior period																(0.7		)%


	As of and for the Six Months Ended June 30,						As of and for the Six Months Ended June 30,
(dollars in thousands, except per share amounts)	2017			2016			2018			2017
Net Income	$	13,947		$	10,299		$	15,949		$	13,947
Average Assets	3,058,069			2,978,700			3,231,320			3,058,069
Average Shareholders’ Equity	323,423			301,195			341,636			323,423
Return on Average Assets*	0.92		%	0.69		%	1.00		%	0.92		%
Return on Average Shareholders’ Equity*	8.70			6.88			9.41			8.70
Return on Average Tangible Equity*(1)	12.25			10.51			12.81			12.25
Total Equity to Assets (end of period)	11.09			10.17			10.57			11.09
Tangible Equity to Tangible Assets (end of period)(1)	8.86			7.77			8.48			8.86
Tangible Book Value per Share(1)	$	21.86		$	19.88		$	22.22		$	21.86
* Annualized
(1) A non-GAAP financial measure. See below for a reconciliation to the most comparable GAAP equivalents.							(1) A non-GAAP financial measure. See below for a reconciliation to the most comparable GAAP equivalents.



	90 Days or More Past Due and Still Accruing Interest		Restructured		Nonaccrual		Total
(in thousands)
June 30, 2017
Agricultural	$	—	$	2,637	$	494	$	3,131
Commercial and industrial⁽¹⁾	147		2,247		2,161		4,555
Commercial real estate:
Construction and development	—				1,110		1,110
Farmland	89		87		364		540
Multifamily	—		—		—		—
Commercial real estate-other	—		1,705		12,095		13,800
Total commercial real estate	89		1,792		13,569		15,450
Residential real estate:
One- to four- family first liens	702		764		1,364		2,830
One- to four- family junior liens	—		—		115		115
Total residential real estate	702		764		1,479		2,945
Consumer	—		—		37		37
Total	$	938	$	7,440	$	17,740	$	26,118


	June 30,		December 31,
	2017		2016		June 30,		December 31,
(in thousands)					2018		2017
Restructured Loans (TDRs):
In compliance with modified terms	$	7,440	$	7,312	$	8,362	$	8,870
Not in compliance with modified terms - on nonaccrual status or 90 days or more past due and still accruing interest	11,264		1,003		3,540		4,778
Total restructured loans	$	18,704	$	8,315	$	11,902	$	13,648


	At June 30, 2017												At June 30, 2018
	Gross Loans (A)		Discount (B)		Loans, Net of Discount (A-B)		Allowance (C)		Allowance/Gross Loans (C/A)		Allowance + Discount/Gross Loans ((B+C)/A)
(dollars in thousands)													Gross Loans (A)		Discount (B)		Loans, Net of Discount (A-B)		Allowance (C)		Allowance/Gross Loans (C/A)		Allowance + Discount/Gross Loans ((B+C)/A)
Total Non-Acquired Loans	$	1,790,982	$	—	$	1,790,982	$	21,522	1.20	%	1.20	%	$	2,097,594	$	—	$	2,097,594	$	29,984	1.43	%	1.43	%
Total Acquired Loans	417,384		10,863		406,521		988		0.24		2.84		273,255		6,814		266,441		816		0.30		2.79
Total Loans	$	2,208,366	$	10,863	$	2,197,503	$	22,510	1.02	%	1.51	%	$	2,370,849	$	6,814	$	2,364,035	$	30,800	1.30	%	1.59	%


	At December 31, 2016												At December 31, 2017
	Gross Loans (A)		Discount (B)		Loans, Net of Discount (A-B)		Allowance (C)		Allowance/Gross Loans (C/A)		Allowance + Discount/Gross Loans ((B+C)/A)
(dollars in thousands)													Gross Loans (A)		Discount (B)		Loans, Net of Discount (A-B)		Allowance (C)		Allowance/Gross Loans (C/A)		Allowance + Discount/Gross Loans ((B+C)/A)
Total Non-Acquired Loans	$	1,677,935	$	—	$	1,677,935	$	21,229	1.27	%	1.27	%	$	1,964,047	$	—	$	1,964,047	$	27,209	1.39	%	1.39	%
Total Acquired Loans	500,423		13,215		487,208		621		0.12		2.76		331,122		8,474		322,648		850		0.26		2.82
Total Loans	$	2,178,358	$	13,215	$	2,165,143	$	21,850	1.01	%	1.61	%	$	2,295,169	$	8,474	$	2,286,695	$	28,059	1.23	%	1.59	%


	At June 30,			At December 31,			At June 30,			At December 31,
(in thousands)	2017			2016			2018			2017
Tier 1 capital
Total shareholders’ equity	$	342,872		$	305,456		$	346,201		$	340,304
Less: Net unrealized gains on securities available for sale	(1,473		)	1,133			7,407			2,602
Disallowed Intangibles	(73,540		)	(71,951		)	(74,607		)	(73,340		)
Common equity tier 1 capital	$	267,859		234,638			$	279,001		269,566
Plus: Junior subordinated notes issued to capital trusts (qualifying restricted core capital)	23,743			23,692			23,841			23,793
Tier 1 capital	$	291,602		$	258,330		$	302,842		$	293,359
Risk-weighted assets	$	2,491,661		$	2,407,661		$	2,777,551		$	2,677,721
Tier 1 capital to risk-weighted assets	11.70		%	10.73		%	10.90		%	10.96		%
Common equity tier 1 capital to risk-weighted assets	10.75		%	9.75		%
Common Equity Tier 1 capital to risk-weighted assets							10.04		%	10.07		%


	Actual				For Capital Adequacy Purposes^*				To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Actual				For Capital Adequacy Purposes^*				To Be Well Capitalized Under Prompt Corrective Action Provisions
(dollars in thousands)													Amount		Ratio		Amount		Ratio		Amount		Ratio
At June 30, 2017
At June 30, 2018
Consolidated:
Total capital/risk based assets	$	314,382	12.62	%	$	230,479	9.250	%	N/A		N/A		$	333,642	12.01	%	$	274,283	9.875	%	N/A		N/A
Tier 1 capital/risk based assets	291,602		11.70		180,645		7.250		N/A		N/A		302,842		10.90		218,732		7.875		N/A		N/A
Common equity tier 1 capital/risk based assets	267,859		10.75		143,271		5.750		N/A		N/A		279,001		10.04		177,069		6.375		N/A		N/A
Tier 1 capital/adjusted average assets	291,602		9.79		119,155		4.000		N/A		N/A		302,842		9.53		127,059		4.000		N/A		N/A
MidWestOne Bank:
Total capital/risk based assets	$	314,136	12.65	%	$	229,790	9.250	%	$	248,422	10.00	%	$	329,301	11.89	%	$	273,491	9.875	%	$	276,953	10.00	%
Tier 1 capital/risk based assets	291,388		11.73		180,106		7.250		198,737		8.00		298,501		10.78		218,101		7.875		221,563		8.00
Common equity tier 1 capital/risk based assets	291,388		11.73		142,842		5.750		161,474		6.50		298,501		10.78		176,558		6.375		180,020		6.50
Tier 1 capital/adjusted average assets	291,388		9.79		119,021		4.000		148,776		5.00		298,501		9.41		126,907		4.000		158,634		5.00
At December 31, 2016
At December 31, 2017
Consolidated:
Total capital/risk based assets	$	280,396	11.65	%	$	207,661	8.625	%	N/A		N/A		$	321,459	12.00	%	$	247,689	9.250	%	N/A		N/A
Tier 1 capital/risk based assets	258,304		10.73		159,508		6.625		N/A		N/A		293,359		10.96		194,135		7.250		N/A		N/A
Common equity tier 1 capital/risk based assets	234,638		9.75		123,393		5.125		N/A		N/A		269,566		10.07		153,969		5.750		N/A		N/A
Tier 1 capital/adjusted average assets	258,304		8.75		118,040		4.000		N/A		N/A		293,359		9.48		123,831		4.000		N/A		N/A
MidWestOne Bank:
Total capital/risk based assets	$	286,959	11.96	%	$	206,892	8.625	%	$	239,875	10.00	%	$	322,679	12.08	%	$	247,010	9.250	%	$	267,038	10.00	%
Tier 1 capital/risk based assets	264,871		11.04		158,917		6.625		191,900		8.00		294,620		11.03		193,603		7.250		213,631		8.00
Common equity tier 1 capital/risk based assets	264,871		11.04		122,936		5.125		155,919		6.50		294,620		11.03		153,547		5.750		173,575		6.50
Tier 1 capital/adjusted average assets	264,871		8.98		118,000		4.000		147,500		5.00		294,620		9.53		123,678		4.000		154,598		5.00
* The ratios for December 31, 2016 include a capital conservation buffer of 0.625%, and the ratios for March 31, 2017 include a capital conservation buffer of 1.25%
* The ratios for December 31, 2017 include a capital conservation buffer of 1.25%, and the ratios for June 30, 2018 include a capital conservation buffer of 1.875%													* The ratios for December 31, 2017 include a capital conservation buffer of 1.25%, and the ratios for June 30, 2018 include a capital conservation buffer of 1.875%



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



	Immediate Change in Rates
(dollars in thousands)	-200			-100			+100			+200
June 30, 2018
Dollar change	$	(244	)	$	(545	)	$	(982	)	$	(2,432	)
Percent change	(0.2		)%	(0.5		)%	(1.0		)%	(2.4		)%
December 31, 2017
Dollar change	$	(2,873	)	$	(729	)	$	55		$	(361	)
Percent change	(2.8		)%	(0.7		)%	0.1		%	(0.4		)%



Exhibit Number	Description	Incorporated by Reference to:

10.1	Employment Agreement between MidWestOne Financial Group, Inc. and Barry S. Ray, effective June 4, 2018	Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 4, 2018

10.2	Employment Agreement between MidWestOne Financial Group, Inc. and Gary L. Sims, effective June 25, 2018	Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 11, 2018

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

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

32.1	Certification of ~~Chief~~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 ~~Chief~~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~~

~~101.INS~~	~~XBRL Instance Document~~	Filed herewith

101.SCH	XBRL Taxonomy Extension Schema Document	Filed herewith

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	Filed herewith

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	Filed herewith

101.LAB	XBRL Taxonomy Extension Label Linkbase Document	Filed herewith

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	Filed herewith



		MIDWESTONE FINANCIAL GROUP, INC.

Dated:	August ~~3, 2017~~2, 2018	By:	/s/ CHARLES N. FUNK
			Charles N. Funk
			President and Chief Executive Officer
			(Principal Executive Officer)

		By:	/s/ K~~ATIE~~ ~~A. LORENSON~~BARRY S. RAY
			~~Katie A. Lorenson~~Barry S. Ray
			Senior Vice President and Chief Financial Officer
			(Principal Financial and Accounting Officer)