UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For the quarterly period ended ~~June~~September 30, 2020


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

For the transition period from to


			Commission file number			001-35968

MIDWESTONE FINANCIAL GROUP, INC.

(Exact name of Registrant as specified in its charter)


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

102 South Clinton Street, Iowa City, IA 52240						(319) 356-5800
(Address of principal executive offices, including zip code)						(Registrant’s telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $1.00 par value

MOFG

The Nasdaq Stock Market LLC

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes ☐ No

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

Large accelerated filer

☐

Accelerated filer

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

As of ~~August 5,~~November 3, 2020, there were ~~16,099,324~~16,096,324 shares of common stock, $1.00 par value per share, outstanding.

Table of Contents

MIDWESTONE FINANCIAL GROUP, INC.

Form 10-Q Quarterly Report

Table of Contents

PART I – FINANCIAL INFORMATION

Glossary of Acronyms, Abbreviations, and Terms

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

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


AFS	Available for Sale	~~FDIC~~FHLB	Federal ~~Deposit Insurance Corporation~~Home Loan Bank
ACL	Allowance for Credit Losses	~~FHLB~~	~~Federal Home Loan Bank~~
~~AOCI~~	~~Accumulated Other Comprehensive Income~~	FHLBDM	Federal Home Loan Bank of Des Moines
~~ASC~~AOCI	~~Accounting Standards Codification~~Accumulated Other Comprehensive Income	FHLBC	Federal Home Loan Bank of Chicago
~~ASU~~ASC	Accounting Standards ~~Update~~Codification	FHLMC	Federal Home Loan Mortgage Corporation
ASU	Accounting Standards Update	FRB	Board of Governors of the Federal Reserve System
ABTW	American Bank and Trust-Wisconsin of Cuba City, Wisconsin	~~FRB~~FNMA	~~Board of Governors of the~~ Federal ~~Reserve System~~National Mortgage Association
ATM	Automated Teller Machine	~~FNMA~~GAAP	~~Federal National Mortgage Association~~U.S. Generally Accepted Accounting Principles
ATSB	American Trust & Savings Bank of Dubuque, Iowa	~~GAAP~~GLBA	~~U.S. Generally Accepted Accounting Principles~~Gramm-Leach-Bliley Act of 1999
Basel III Rules	A comprehensive capital framework and rules for U.S. banking organizations approved by the FRB and the FDIC in 2013	~~GLBA~~GNMA	~~Gramm-Leach-Bliley Act of 1999~~Government National Mortgage Association
BHCA	Bank Holding Company Act of 1956, as amended	~~GNMA~~HTM	~~Government National Mortgage Association~~Held to Maturity
BOLI	Bank Owned Life Insurance	~~HTM~~ICS	~~Held to Maturity~~Insured Cash Sweep
CARES Act	Coronavirus Aid, Relief and Economic Security Act	~~ICS~~LIBOR	~~Insured Cash Sweep~~The London Inter-bank Offered Rate
CDARS	Certificate of Deposit Account Registry Service	~~LIBOR~~MBS	~~The London Inter-bank Offered Rate is an interest-rate average calculated from estimates submitted by the leading banks in London~~Mortgage-Backed Securities
CECL	Current Expected Credit Loss	~~MBS~~OTTI	~~Mortgage-Backed Securities~~Other-Than-Temporary Impairment
CMO	Collateralized Mortgage Obligations	~~OTTI~~	~~Other-Than-Temporary Impairment~~
~~COVID-19~~	~~Coronavirus Disease 2019~~	PCD	Purchased Financial Assets with Credit Deterioration
COVID-19	Coronavirus Disease 2019	PCI	Purchased Credit Impaired
CRA	Community Reinvestment Act	~~PCI~~PPP	~~Purchased Credit Impaired~~Paycheck Protection Program
CRE	Commercial Real Estate	RRE	Residential Real Estate
DCF	Discounted cash flows	ROU	Right-of-Use
Dodd-Frank Act	Dodd-Frank Wall Street Reform and Consumer Protection Act	RPA	Credit Risk Participation Agreement
ECL	Expected Credit Losses	~~SEC~~SBA	U.S. ~~Securities and Exchange Commission~~Small Business Administration
EVE	Economic Value of Equity	~~TDR~~SEC	~~Troubled Debt Restructuring~~U.S. Securities and Exchange Commission
FASB	Financial Accounting Standards Board	TDR	Troubled Debt Restructuring
FDIC	Federal Deposit Insurance Corporation

Table of Contents

Item 1. Financial Statements.

MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


		June 30, 2020		December 31, 2019			September 30, 2020		December 31, 2019
(dollars in thousands)	(dollars in thousands)	(unaudited)				(dollars in thousands)	(unaudited)
ASSETS	ASSETS					ASSETS
Cash and due from banks	Cash and due from banks	$	65,863	$	67,174	Cash and due from banks	$	71,901	$	67,174
Interest earning deposits in banks	Interest earning deposits in banks	45,018		6,112		Interest earning deposits in banks	55,421		6,112
Federal funds sold	Federal funds sold	6,329		198		Federal funds sold	7,540		198
Total cash and cash equivalents	Total cash and cash equivalents	117,210		73,484		Total cash and cash equivalents	134,862		73,484
Debt securities available for sale at fair value	Debt securities available for sale at fair value	1,187,455		785,977		Debt securities available for sale at fair value	1,366,344		785,977
Loans held for sale	Loans held for sale	12,048		5,400		Loans held for sale	13,096		5,400
Gross loans held for investment	Gross loans held for investment	3,618,675		3,469,236		Gross loans held for investment	3,555,969		3,469,236
Unearned income, net	Unearned income, net	(21,636)		(17,970)		Unearned income, net	(18,537)		(17,970)
Loans held for investment, net of unearned income	Loans held for investment, net of unearned income	3,597,039		3,451,266		Loans held for investment, net of unearned income	3,537,432		3,451,266
Allowance for credit losses	Allowance for credit losses	(55,644)		(29,079)		Allowance for credit losses	(58,500)		(29,079)
Total loans held for investment, net	Total loans held for investment, net	3,541,395		3,422,187		Total loans held for investment, net	3,478,932		3,422,187
Premises and equipment, net	Premises and equipment, net	88,929		90,723		Premises and equipment, net	87,955		90,723
Goodwill	Goodwill	93,977		91,918		Goodwill	62,477		91,918
Other intangible assets, net	Other intangible assets, net	28,443		32,218		Other intangible assets, net	26,811		32,218
Foreclosed assets, net	Foreclosed assets, net	965		3,706		Foreclosed assets, net	724		3,706
Other assets	Other assets	160,541		147,960		Other assets	159,507		147,960
Total assets	Total assets	$	5,230,963	$	4,653,573	Total assets	$	5,330,708	$	4,653,573

LIABILITIES AND SHAREHOLDERS' EQUITY	LIABILITIES AND SHAREHOLDERS' EQUITY					LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest bearing deposits	Noninterest bearing deposits	$	867,637	$	662,209	Noninterest bearing deposits	$	864,504	$	662,209
Interest bearing deposits	Interest bearing deposits	3,397,798		3,066,446		Interest bearing deposits	3,469,137		3,066,446
Total deposits	Total deposits	4,265,435		3,728,655		Total deposits	4,333,641		3,728,655
Short-term borrowings	Short-term borrowings	162,224		139,349		Short-term borrowings	183,893		139,349
Long-term debt	Long-term debt	189,973		231,660		Long-term debt	245,481		231,660
Other liabilities	Other liabilities	92,550		44,927		Other liabilities	68,612		44,927
Total liabilities	Total liabilities	4,710,182		4,144,591		Total liabilities	4,831,627		4,144,591

Shareholders' equity	Shareholders' equity					Shareholders' equity
Preferred stock, 0 par value; authorized 500,000 shares; 0 shares issued and outstanding	Preferred stock, 0 par value; authorized 500,000 shares; 0 shares issued and outstanding	—		—		Preferred stock, 0 par value; authorized 500,000 shares; 0 shares issued and outstanding	0		0
Common stock, $1.00 par value; authorized 30,000,000 shares; issued shares of 16,581,017 and 16,581,017; outstanding shares of 16,099,324 and 16,162,176	Common stock, $1.00 par value; authorized 30,000,000 shares; issued shares of 16,581,017 and 16,581,017; outstanding shares of 16,099,324 and 16,162,176	16,581		16,581		Common stock, $1.00 par value; authorized 30,000,000 shares; issued shares of 16,581,017 and 16,581,017; outstanding shares of 16,099,324 and 16,162,176	16,581		16,581
Additional paid-in capital	Additional paid-in capital	299,542		297,390		Additional paid-in capital	299,939		297,390
Retained earnings	Retained earnings	198,382		201,105		Retained earnings	175,017		201,105
Treasury stock at cost, 481,693 and 418,841 shares	Treasury stock at cost, 481,693 and 418,841 shares	(12,272)		(10,466)		Treasury stock at cost, 481,693 and 418,841 shares	(12,272)		(10,466)
Accumulated other comprehensive income	Accumulated other comprehensive income	18,548		4,372		Accumulated other comprehensive income	19,816		4,372
Total shareholders' equity	Total shareholders' equity	520,781		508,982		Total shareholders' equity	499,081		508,982
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	5,230,963	$	4,653,573	Total liabilities and shareholders' equity	$	5,330,708	$	4,653,573

See accompanying notes to consolidated financial statements.

Table of Contents

MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME


		Three Months Ended						Six Months Ended							Three Months Ended				Nine Months Ended
		June 30,						June 30,							September 30,				September 30,
(unaudited) (dollars in thousands, except per share amounts)	(unaudited) (dollars in thousands, except per share amounts)	2020		2019		2020		2019		(unaudited) (dollars in thousands, except per share amounts)	2020		2019		2020		2019
Interest income	Interest income									Interest income
Loans, including fees	Loans, including fees	$	40,214	$	40,053	$	82,226	$	69,088	Loans, including fees	$	38,191	$	49,169	$	120,417	$	118,257
Taxable investment securities	Taxable investment securities	4,646		3,289		8,363		6,216		Taxable investment securities	4,574		3,376		12,937		9,592
Tax-exempt investment securities	Tax-exempt investment securities	1,858		1,424		3,370		2,830		Tax-exempt investment securities	2,360		1,401		5,730		4,231
Other	Other	40		185		204		205		Other	29		130		233		335
Total interest income	Total interest income	46,758		44,951		94,163		78,339		Total interest income	45,154		54,076		139,317		132,415
Interest expense	Interest expense									Interest expense
Deposits	Deposits	6,409		7,743		14,358		13,438		Deposits	5,296		8,238		19,654		21,676
Short-term borrowings	Short-term borrowings	263		500		597		957		Short-term borrowings	175		522		772		1,479
Long-term debt	Long-term debt	1,374		1,876		3,090		3,136		Long-term debt	1,874		2,058		4,964		5,194
Total interest expense	Total interest expense	8,046		10,119		18,045		17,531		Total interest expense	7,345		10,818		25,390		28,349
Net interest income	Net interest income	38,712		34,832		76,118		60,808		Net interest income	37,809		43,258		113,927		104,066
Credit loss expense	Credit loss expense	4,685		696		26,418		2,290		Credit loss expense	4,992		4,264		31,410		6,554
Net interest income after credit loss expense	Net interest income after credit loss expense	34,027		34,136		49,700		58,518		Net interest income after credit loss expense	32,817		38,994		82,517		97,512
Noninterest income	Noninterest income									Noninterest income
Investment services and trust activities	Investment services and trust activities	2,217		1,890		4,753		3,280		Investment services and trust activities	2,361		2,339		7,114		5,619
Service charges and fees	Service charges and fees	1,290		1,870		3,116		3,312		Service charges and fees	1,491		2,068		4,607		5,380
Card revenue	Card revenue	1,237		1,799		2,602		2,797		Card revenue	1,600		1,655		4,202		4,452
Loan revenue	Loan revenue	1,910		648		3,033		1,041		Loan revenue	3,252		991		6,285		2,032
Bank-owned life insurance	Bank-owned life insurance	635		470		1,155		862		Bank-owned life insurance	530		514		1,685		1,376
Insurance commissions	Insurance commissions	—		314		—		734		Insurance commissions	0		0		0		734

Investment securities gains, net	Investment securities gains, net	6		32		48		49		Investment securities gains, net	106		23		154		72
Other	Other	974		1,773		3,717		2,131		Other	230		414		3,947		2,545
Total noninterest income	Total noninterest income	8,269		8,796		18,424		14,206		Total noninterest income	9,570		8,004		27,994		22,210
Noninterest expense	Noninterest expense									Noninterest expense
Compensation and employee benefits	Compensation and employee benefits	15,682		16,409		32,299		28,988		Compensation and employee benefits	16,460		17,426		48,759		46,414
Occupancy expense of premises, net	Occupancy expense of premises, net	2,253		2,127		4,594		4,006		Occupancy expense of premises, net	2,278		2,294		6,872		6,300
Equipment	Equipment	2,010		1,914		3,890		3,285		Equipment	1,935		2,181		5,825		5,466
Legal and professional	Legal and professional	1,382		3,291		2,917		4,256		Legal and professional	1,184		1,996		4,101		6,252
Data processing	Data processing	1,240		1,008		2,594		1,853		Data processing	1,308		1,234		3,902		3,087
Marketing	Marketing	910		869		1,972		1,475		Marketing	857		1,167		2,829		2,642
Amortization of intangibles	Amortization of intangibles	1,748		930		3,776		1,382		Amortization of intangibles	1,631		2,583		5,407		3,965
FDIC insurance	FDIC insurance	445		434		893		804		FDIC insurance	470		(42)		1,363		762
Communications	Communications	449		377		906		719		Communications	428		489		1,334		1,208
Foreclosed assets, net	Foreclosed assets, net	34		84		172		142		Foreclosed assets, net	13		265		185		407
Goodwill impairment										Goodwill impairment	31,500		0		31,500		0
Other	Other	1,885		1,597		4,026		2,747		Other	1,875		1,849		5,901		4,596
Total noninterest expense	Total noninterest expense	28,038		29,040		58,039		49,657		Total noninterest expense	59,939		31,442		117,978		81,099
Income before income tax expense		14,258		13,892		10,085		23,067
(Loss) income before income tax expense										(Loss) income before income tax expense	(17,552)		15,556		(7,467)		38,623
Income tax expense	Income tax expense	2,546		3,218		348		5,108		Income tax expense	2,272		3,256		2,620		8,364
Net income		$	11,712	$	10,674	$	9,737	$	17,959
Net (loss) income										Net (loss) income	$	(19,824)	$	12,300	$	(10,087)	$	30,259

Per common share information	Per common share information									Per common share information
Earnings - basic		$	0.73	$	0.72	$	0.60	$	1.33
Earnings - diluted		$	0.73	$	0.72	$	0.60	$	1.33
Earnings (loss) - basic										Earnings (loss) - basic	$	(1.23)	$	0.76	$	(0.63)	$	2.10
Earnings (loss) - diluted										Earnings (loss) - diluted	$	(1.23)	$	0.76	$	(0.63)	$	2.09
Dividends paid	Dividends paid	$	0.2200	$	0.2025	$	0.4400	$	0.4050	Dividends paid	$	0.2200	$	0.2025	$	0.6600	$	0.6075

See accompanying notes to consolidated financial statements.

Table of Contents

MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


		Three Months Ended						Six Months Ended							Three Months Ended				Nine Months Ended
		June 30,						June 30,							September 30,				September 30,
(unaudited) (dollars in thousands)	(unaudited) (dollars in thousands)	2020		2019		2020		2019		(unaudited) (dollars in thousands)	2020		2019		2020		2019
Net income		$	11,712	$	10,674	$	9,737	$	17,959
Net (loss) income										Net (loss) income	$	(19,824)	$	12,300	$	(10,087)	$	30,259

Other comprehensive income, net of tax:	Other comprehensive income, net of tax:									Other comprehensive income, net of tax:
Unrealized gain from debt securities available for sale:	Unrealized gain from debt securities available for sale:									Unrealized gain from debt securities available for sale:
Unrealized net holding gains on debt securities available for sale arising during the period	Unrealized net holding gains on debt securities available for sale arising during the period	15,866		5,777		20,191		9,905		Unrealized net holding gains on debt securities available for sale arising during the period	1,726		1,999		21,917		11,904
Reclassification adjustment for gains included in net income	Reclassification adjustment for gains included in net income	(6)		(32)		(48)		(49)		Reclassification adjustment for gains included in net income	(106)		(19)		(154)		(68)
Income tax expense	Income tax expense	(4,139)		(1,499)		(5,257)		(2,572)		Income tax expense	(423)		(517)		(5,680)		(3,089)
Unrealized net gains on debt securities available for sale, net of reclassification adjustment	Unrealized net gains on debt securities available for sale, net of reclassification adjustment	11,721		4,246		14,886		7,284		Unrealized net gains on debt securities available for sale, net of reclassification adjustment	1,197		1,463		16,083		8,747
Unrealized loss from cash flow hedging instruments:
Unrealized net holding loss in cash flow hedging instruments arising during the period		(129)		—		(1,017)		—
Unrealized gain (loss) from cash flow hedging instruments:										Unrealized gain (loss) from cash flow hedging instruments:
Unrealized net holding gains (losses) in cash flow hedging instruments arising during the period										Unrealized net holding gains (losses) in cash flow hedging instruments arising during the period	8		0		(1,009)		0
Reclassification adjustment for net losses in cash flow hedging instruments included in income	Reclassification adjustment for net losses in cash flow hedging instruments included in income	62		—		57		—		Reclassification adjustment for net losses in cash flow hedging instruments included in income	88		0		145		0
Income tax benefit		17		—		250		—
Unrealized net losses on cash flow hedge instruments, net of reclassification adjustment		(50)		—		(710)		—
Income tax (expense) benefit										Income tax (expense) benefit	(25)		0		225		0
Unrealized net gains (losses) on cash flow hedge instruments, net of reclassification adjustment										Unrealized net gains (losses) on cash flow hedge instruments, net of reclassification adjustment	71		0		(639)		0
Other comprehensive income, net of tax	Other comprehensive income, net of tax	11,671		4,246		14,176		7,284		Other comprehensive income, net of tax	1,268		1,463		15,444		8,747
Comprehensive income		$	23,383	$	14,920	$	23,913	$	25,243
Comprehensive (loss) income										Comprehensive (loss) income	$	(18,556)	$	13,763	$	5,357	$	39,006

See accompanying notes to consolidated financial statements.

Table of Contents

MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY


		Common Stock															Common Stock
(unaudited) (dollars in thousands, except per share amounts)	(unaudited) (dollars in thousands, except per share amounts)	Par Value		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total		(unaudited) (dollars in thousands, except per share amounts)	Par Value		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total
Balance at December 31, 2018	Balance at December 31, 2018	$	12,463	$	187,813	$	168,951	$	(6,499)	$	(5,661)	$	357,067	Balance at December 31, 2018	$	12,463	$	187,813	$	168,951	$	(6,499)	$	(5,661)	$	357,067
Net income	Net income	—		—		7,285		—		—		7,285		Net income	—		—		7,285		—		—		7,285
Other comprehensive income	Other comprehensive income	—		—		—		—		3,038		3,038		Other comprehensive income	—		—		—		—		3,038		3,038
Release/lapse of restriction on RSUs (24,550 shares)	Release/lapse of restriction on RSUs (24,550 shares)	—		(570)		—		501		—		(69)		Release/lapse of restriction on RSUs (24,550 shares)	—		(570)		—		501		—		(69)
Repurchase of common stock (49,216 shares)	Repurchase of common stock (49,216 shares)	—		—		—		(1,299)		—		(1,299)		Repurchase of common stock (49,216 shares)	—		—		—		(1,299)		—		(1,299)
Share-based compensation	Share-based compensation	—		292		—		—		—		292		Share-based compensation	—		292		—		—		—		292
Dividends paid on common stock ($0.2025 per share)	Dividends paid on common stock ($0.2025 per share)	—		—		(2,465)		—		—		(2,465)		Dividends paid on common stock ($0.2025 per share)	—		—		(2,465)		—		—		(2,465)
Balance at March 31, 2019	Balance at March 31, 2019	12,463		187,535		173,771		(7,297)		(2,623)		363,849		Balance at March 31, 2019	12,463		187,535		173,771		(7,297)		(2,623)		363,849
Issuance of common stock due to business combination (4,117,536 shares), net of expenses of $323	Issuance of common stock due to business combination (4,117,536 shares), net of expenses of $323	4,118		109,228		—		—		—		113,346		Issuance of common stock due to business combination (4,117,536 shares), net of expenses of $323	4,118		109,228		—		—		—		113,346
Net income	Net income	—		—		10,674		—		—		10,674		Net income	—		—		10,674		—		—		10,674
Other comprehensive income	Other comprehensive income	—		—		—		—		4,246		4,246		Other comprehensive income	—		—		—		—		4,246		4,246
Release/lapse of restriction on RSUs (8,260 shares, net)	Release/lapse of restriction on RSUs (8,260 shares, net)	—		(196)		—		177		—		(19)		Release/lapse of restriction on RSUs (8,260 shares, net)	—		(196)		—		177		—		(19)
Repurchase of common stock (56,985 shares)	Repurchase of common stock (56,985 shares)	—		—		—		(1,596)		—		(1,596)		Repurchase of common stock (56,985 shares)	—		—		—		(1,596)		—		(1,596)
Share-based compensation	Share-based compensation	—		312		—		—		—		312		Share-based compensation	—		312		—		—		—		312
Dividends paid on common stock ($0.2025 per share)	Dividends paid on common stock ($0.2025 per share)	—		—		(2,461)		—		—		(2,461)		Dividends paid on common stock ($0.2025 per share)	—		—		(2,461)		—		—		(2,461)
Balance at June 30, 2019	Balance at June 30, 2019	$	16,581	$	296,879	$	181,984	$	(8,716)	$	1,623	$	488,351	Balance at June 30, 2019	$	16,581	$	296,879	$	181,984	$	(8,716)	$	1,623	$	488,351
Net income														Net income	—		—		12,300		—		—		12,300
Acquisition accounting adjustment for restricted shares														Acquisition accounting adjustment for restricted shares	—		8		—		—		—		8
Dividends paid on common stock ($0.2025 per share)														Dividends paid on common stock ($0.2025 per share)	—		—		(3,277)		—		—		(3,277)
Release/lapse of restriction on RSUs (0 shares, net)														Release/lapse of restriction on RSUs (0 shares, net)	—		—		—		—		—		—
Repurchase of common stock (41,426 shares)														Repurchase of common stock (41,426 shares)	—		—		—		(1,217)		—		(1,217)
Share-based compensation														Share-based compensation	—		257		—		—		—		257
Other comprehensive income														Other comprehensive income	—		—		—		—		1,463		1,463
Balance at September 30, 2019														Balance at September 30, 2019	$	16,581	$	297,144	$	191,007	$	(9,933)	$	3,086	$	497,885

Balance at December 31, 2019		$	16,581	$	297,390	$	201,105	$	(10,466)	$	4,372	$	508,982
Cumulative effect of change in accounting principle⁽¹⁾		—		—		(5,362)		—		—		(5,362)
Net loss		—		—		(1,975)		—		—		(1,975)
Other comprehensive income		—		—		—		—		2,505		2,505
Acquisition fair value finalization⁽²⁾		—		2,355		—		—		—		2,355
Release/lapse of restriction on RSUs (22,946 shares, net)		—		(679)		—		552		—		(127)
Repurchase of common stock (95,340 shares)		—		—		—		(2,604)		—		(2,604)
Share-based compensation		—		346		—		—		—		346
Dividends paid on common stock ($0.22 per share)		—		—		(3,556)		—		—		(3,556)
Balance at March 31, 2020		16,581		299,412		190,212		(12,518)		6,877		500,564
Net Income		—		—		11,712		—		—		11,712
Other comprehensive income		—		—		—		—		11,671		11,671
Release/lapse of restriction on RSUs (9,542 shares, net)		—		(258)		—		246		—		(12)

Share-based compensation		—		388		—		—		—		388
Dividends paid on common stock ($0.22 per share)		—		—		(3,542)		—		—		(3,542)
Balance at June 30, 2020		$	16,581	$	299,542	$	198,382	$	(12,272)	$	18,548	$	520,781

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	Common Stock
(unaudited) (dollars in thousands, except per share amounts)	Par Value		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total
Balance at December 31, 2019	$	16,581	$	297,390	$	201,105	$	(10,466)	$	4,372	$	508,982
Cumulative effect of change in accounting principle(1)	—		—		(5,362)		—		—		(5,362)
Net loss	—		—		(1,975)		—		—		(1,975)
Other comprehensive income	—		—		—		—		2,505		2,505
Acquisition fair value finalization(2)	—		2,355		—		—		—		2,355
Release/lapse of restriction on RSUs (22,946 shares, net)	—		(679)		—		552		—		(127)
Repurchase of common stock (95,340 shares)	—		—		—		(2,604)		—		(2,604)
Share-based compensation	—		346		—		—		—		346
Dividends paid on common stock ($0.22 per share)	—		—		(3,556)		—		—		(3,556)
Balance at March 31, 2020	16,581		299,412		190,212		(12,518)		6,877		500,564
Net income	—		—		11,712		—		—		11,712
Other comprehensive income	—		—		—		—		11,671		11,671
Release/lapse of restriction on RSUs (9,542 shares, net)	—		(258)		—		246		—		(12)
Repurchase of common stock (0 shares)	—		—		—		—		—		0
Share-based compensation	—		388		—		—		—		388
Dividends paid on common stock ($0.22 per share)	—		—		(3,542)		—		—		(3,542)
Balance at June 30, 2020	$	16,581	$	299,542	$	198,382	$	(12,272)	$	18,548	$	520,781
Net loss	—		—		(19,824)		—		—		(19,824)
Other comprehensive income	—		—		—		—		1,268		1,268
Release/lapse of restriction on RSUs (0 shares, net)	—		0		—				—		0
Repurchase of common stock (0 shares)	—		—		—		—		—		—
Share-based compensation	—		397		—		—		—		397
Dividends paid on common stock ($0.22 per share)	—		—		(3,541)		—		—		(3,541)
Balance at September 30, 2020	$	16,581	$	299,939	$	175,017	$	(12,272)	$	19,816	$	499,081

(1) Reclassification pursuant to adoption of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. See Note 2. Effect of New Financial Accounting Standards for additional information.

(2) Relates to the finalization of the purchase accounting adjustments for the ATBancorp acquisition. This purchase accounting adjustment had a $2.06 million impact on goodwill, $296 thousand impact on deferred income taxes, with the offsetting impact being to additional paid-in capital. See Note 6 .6. Goodwill and Intangible Assets for additional information.

See accompanying notes to consolidated financial statements.

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MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS


		Six Months Ended June 30,							Nine Months Ended September 30,
(unaudited) (dollars in thousands)	(unaudited) (dollars in thousands)	2020		2019		(unaudited) (dollars in thousands)	2020		2019
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income		$	9,737	$	17,959
Adjustments to reconcile net income to net cash provided by operating activities:
Net (loss) income						Net (loss) income	$	(10,087)	$	30,259
Adjustments to reconcile net (loss) income to net cash provided by operating activities:						Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Credit loss expense	Credit loss expense	26,418		2,290		Credit loss expense	31,410		6,554
Goodwill impairment						Goodwill impairment	31,500		0
Depreciation, amortization, and accretion	Depreciation, amortization, and accretion	2,342		4,473		Depreciation, amortization, and accretion	4,054		8,877
Net loss on sale of premises and equipment	Net loss on sale of premises and equipment	61		40		Net loss on sale of premises and equipment	55		55
Share-based compensation	Share-based compensation	734		604		Share-based compensation	1,131		861
Net gain on sale or call of debt securities available for sale	Net gain on sale or call of debt securities available for sale	(48)		(49)		Net gain on sale or call of debt securities available for sale	(132)		(68)

Net gain on call of debt securities held to maturity						Net gain on call of debt securities held to maturity	0		(4)
Net (gain) loss on sale of foreclosed assets, net	Net (gain) loss on sale of foreclosed assets, net	(45)		1		Net (gain) loss on sale of foreclosed assets, net	(39)		25
Writedown of foreclosed assets	Writedown of foreclosed assets	164		—		Writedown of foreclosed assets	164		170
Net gain on sale of loans held for sale	Net gain on sale of loans held for sale	(2,696)		(821)		Net gain on sale of loans held for sale	(5,519)		(1,553)
Origination of loans held for sale	Origination of loans held for sale	(179,415)		(50,900)		Origination of loans held for sale	(286,551)		(87,369)
Proceeds from sales of loans held for sale	Proceeds from sales of loans held for sale	175,463		49,429		Proceeds from sales of loans held for sale	284,374		83,030
Increase in cash surrender value of bank-owned life insurance	Increase in cash surrender value of bank-owned life insurance	(786)		(862)		Increase in cash surrender value of bank-owned life insurance	(1,317)		(1,376)
Increase in deferred income taxes, net		(6,680)		(76)
(Increase) decrease in deferred income taxes, net						(Increase) decrease in deferred income taxes, net	(7,105)		752
Change in:	Change in:					Change in:
Other assets	Other assets	(9,761)		1,028		Other assets	(8,393)		9,222
Other liabilities	Other liabilities	13,226		(4,866)		Other liabilities	8,495		(10,016)
Net cash provided by operating activities	Net cash provided by operating activities	28,714		18,250		Net cash provided by operating activities	42,040		39,419
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:

Proceeds from sales of debt securities available for sale	Proceeds from sales of debt securities available for sale	22,146		125,414		Proceeds from sales of debt securities available for sale	27,020		125,433
Proceeds from maturities and calls of debt securities available for sale	Proceeds from maturities and calls of debt securities available for sale	78,311		49,699		Proceeds from maturities and calls of debt securities available for sale	169,210		66,940
Purchases of debt securities available for sale	Purchases of debt securities available for sale	(452,716)		(112,256)		Purchases of debt securities available for sale	(746,101)		(170,660)
Proceeds from sales of debt securities held to maturity						Proceeds from sales of debt securities held to maturity	0		1,381
Proceeds from maturities and calls of debt securities held to maturity	Proceeds from maturities and calls of debt securities held to maturity	—		3,117		Proceeds from maturities and calls of debt securities held to maturity	0		4,540
Net increase in loans, net of unearned income		(142,475)		(5,482)
Net (increase) decrease in loans held for investment						Net (increase) decrease in loans held for investment	(81,867)		4,043
Purchases of premises and equipment	Purchases of premises and equipment	(803)		(1,242)		Purchases of premises and equipment	(1,514)		(1,242)
Proceeds from sale of foreclosed assets	Proceeds from sale of foreclosed assets	2,637		763		Proceeds from sale of foreclosed assets	2,922		1,321
Proceeds from sale of premises and equipment	Proceeds from sale of premises and equipment	2		—		Proceeds from sale of premises and equipment	49		312
Net cash acquired in business acquisition	Net cash acquired in business acquisition	—		37,054		Net cash acquired in business acquisition	0		37,054
Proceeds from sale of intangible assets	Proceeds from sale of intangible assets	—		99		Proceeds from sale of intangible assets	0		99

Net cash (used in) provided by investing activities	Net cash (used in) provided by investing activities	(492,898)		97,166		Net cash (used in) provided by investing activities	(630,281)		69,221
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Net increase (decrease) in:	Net increase (decrease) in:					Net increase (decrease) in:
Deposits	Deposits	536,589		33,449		Deposits	604,699		17,688
Short-term borrowings	Short-term borrowings	22,875		(38,354)		Short-term borrowings	44,544		(37,082)
Long-term debt		(41,713)		(27,250)

Proceeds from issuance of subordinated debt						Proceeds from issuance of subordinated debt	65,000		0
Payments of subordinated debt issuance costs						Payments of subordinated debt issuance costs	(1,248)		0
Payments on finance lease liability						Payments on finance lease liability	(94)		(83)
Proceeds from Federal Home Loan Bank borrowings						Proceeds from Federal Home Loan Bank borrowings	0		31,400
Payments of Federal Home Loan Bank borrowings						Payments of Federal Home Loan Bank borrowings	(44,400)		(94,400)
Proceeds from other long-term debt						Proceeds from other long-term debt	0		35,000
Payments of other long-term debt						Payments of other long-term debt	(5,500)		(7,250)

Taxes paid relating to the release/lapse of restriction on RSUs	Taxes paid relating to the release/lapse of restriction on RSUs	(139)		(88)		Taxes paid relating to the release/lapse of restriction on RSUs	(139)		(88)
Dividends paid	Dividends paid	(7,098)		(4,926)		Dividends paid	(10,639)		(8,203)

Payment of stock issuance costs	Payment of stock issuance costs	—		(323)		Payment of stock issuance costs	0		(323)
Repurchase of common stock	Repurchase of common stock	(2,604)		(2,895)		Repurchase of common stock	(2,604)		(4,112)
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	507,910		(40,387)		Net cash provided by (used in) financing activities	649,619		(67,453)
Net increase in cash and cash equivalents	Net increase in cash and cash equivalents	43,726		75,029		Net increase in cash and cash equivalents	61,378		41,187
Cash and cash equivalents:	Cash and cash equivalents:					Cash and cash equivalents:
Beginning of Period	Beginning of Period	73,484		45,480		Beginning of Period	73,484		45,480
Ending balance	Ending balance	$	117,210	$	120,509	Ending balance	$	134,862	$	86,667

Table of Contents


(unaudited) (dollars in thousands)	(unaudited) (dollars in thousands)	Six Months Ended June 30,							(unaudited) (dollars in thousands)	Nine Months Ended September 30,
		2020		2019			2020			2019
Supplemental disclosures of cash flow information:	Supplemental disclosures of cash flow information:					Supplemental disclosures of cash flow information:
Cash paid during the period for interest	Cash paid during the period for interest	$	18,039	$	15,493	Cash paid during the period for interest	$	25,478		$	26,910
Cash paid during the period for income taxes	Cash paid during the period for income taxes	3,505		1,405		Cash paid during the period for income taxes	8,970			1,915
Supplemental schedule of non-cash investing and financing activities:	Supplemental schedule of non-cash investing and financing activities:					Supplemental schedule of non-cash investing and financing activities:
Transfer of loans to foreclosed assets, net	Transfer of loans to foreclosed assets, net	$	15	$	1,384	Transfer of loans to foreclosed assets, net	$	65		$	2,256
Investment securities purchased but not settled	Investment securities purchased but not settled	30,192		—		Investment securities purchased but not settled	10,690			0
Initial recognition of operating lease right of use asset	Initial recognition of operating lease right of use asset	—		2,892		Initial recognition of operating lease right of use asset	0			2,892
Initial recognition of operation lease liability		—		2,892
Initial recognition of operating lease liability						Initial recognition of operating lease liability	0			2,892

Supplemental schedule of non-cash investing activities from acquisition:	Supplemental schedule of non-cash investing activities from acquisition:					Supplemental schedule of non-cash investing activities from acquisition:
Noncash assets acquired:	Noncash assets acquired:					Noncash assets acquired:
Debt securities available for sale	Debt securities available for sale	$	—	$	99,056	Debt securities available for sale	$	0		$	99,056
Loans	Loans	—		1,137,880		Loans	0			1,138,928
Premises and equipment	Premises and equipment	—		19,213		Premises and equipment	0			18,623
Goodwill	Goodwill	—		28,722		Goodwill	0			28,604
Core deposit intangible	Core deposit intangible	—		28,230		Core deposit intangible	0			23,539
Trust customer list intangible						Trust customer list intangible	0			4,285
Bank-owned life insurance	Bank-owned life insurance	—		18,759		Bank-owned life insurance	0			18,759
Foreclosed assets	Foreclosed assets	—		3,767		Foreclosed assets	0			3,091
Other assets	Other assets	—		17,657		Other assets	0			20,677
Total noncash assets acquired	Total noncash assets acquired	—		1,353,284		Total noncash assets acquired	0			1,355,562

Liabilities assumed:	Liabilities assumed:					Liabilities assumed:
Deposits	Deposits	—		1,079,094		Deposits	0			1,079,094
Short-term borrowing	Short-term borrowing	—		60,761		Short-term borrowing	0			100,761
FHLB borrowings	FHLB borrowings	—		82,771		FHLB borrowings	0			42,770
Junior subordinated notes issued to capital trusts	Junior subordinated notes issued to capital trusts	—		17,557		Junior subordinated notes issued to capital trusts	0			17,555
Subordinated debentures	Subordinated debentures	—		10,873		Subordinated debentures	0			10,909
Other liabilities	Other liabilities	—		25,613		Other liabilities	0			27,850
Total liabilities assumed	Total liabilities assumed	$	—	$	1,276,669	Total liabilities assumed	$	0		$	1,278,939

See accompanying notes to consolidated financial statements.

Table of Contents

MidWestOne Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

1. Summary of Significant Accounting Policies

Nature of Business

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

The Company owns all of the outstanding common stock of MidWestOne Bank, an Iowa state non-member bank chartered in 1934 with its main office in Iowa City, ~~Iowa, and, until its dissolution in December 2019,~~Iowa. The Company previously owned all of the common stock of MidWestOne Insurance Services, Inc., Oskaloosa, ~~Iowa.~~Iowa, until that entity dissolved in December 2019. We operate primarily through MidWestOne Bank, our bank subsidiary.

On May 1, 2019, the Company acquired ATBancorp, a bank holding company whose wholly-owned banking subsidiaries were ATSB and ABTW, community banks headquartered in Dubuque, Iowa, and Cuba City, Wisconsin, respectively. As consideration for the merger, we issued 4,117,536 shares of our common stock with a value of $116 million, and paid cash in the amount of $34.8 million.

On June 30, 2019, the Company sold substantially all of the assets used by its wholly owned subsidiary, MidWestOne Insurance Services, Inc. to sell insurance products. The Company recognized a pre-tax gain of $1.1 million from the sale, which was reported in “Other” noninterest income on the Company’s consolidated statements of income.

Basis of Presentation

The accompanying interim condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934. Accordingly, certain disclosures accompanying annual consolidated financial statements are omitted. In the opinion of management, all significant intercompany accounts and transactions have been eliminated and adjustments, consisting solely of normal recurring accruals and considered necessary for the fair presentation of financial statements for the interim periods, have been included. The current period's results of operations are not necessarily indicative of the results that ultimately may be achieved for the year. The interim condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Form 10-K for the year ended December 31, 2019, filed with the SEC on March 6, 2020.

Risks and Uncertainties

The outbreak of COVID-19 has adversely impacted a broad range of industries in which the Company’s customers operate and could impair their ability to fulfill their financial obligations to the Company. The World Health Organization declared COVID-19 to be a global pandemic, indicating that almost all public commerce and related business activities must be, to varying degrees, curtailed with the goal of decreasing the rate of new infections. The spread of the outbreak has caused significant disruptions in the U.S. economy and has disrupted banking and other financial activity in the areas in which the Company operates. While there has been no material impact to the Company’s employees to date, COVID-19 could also potentially create widespread business continuity issues for the Company.

Congress, the President, and the FRB have taken several actions designed to cushion the economic fallout. Most notably, the CARES Act was signed into law at the end of March 2020 as a $2 trillion legislative package. The goal of the CARES Act was to prevent a severe economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors. The package also includes extensive emergency funding for hospitals and healthcare providers. In addition to the general impact of COVID-19, certain provisions of the CARES Act as well as other recent legislative and regulatory relief efforts are expected to have a material impact on the Company’s operations.

The Company’s business is dependent upon the willingness and ability of its employees and customers to conduct banking and other financial transactions. If the global response to contain COVID-19 escalates further or is unsuccessful, the Company could experience a material adverse effect on its business, financial condition, results of operations and cash flows. While it is not possible to know the full universe or extent that the impact of COVID-19, and resulting measures to curtail its spread, will have on the Company’s operations, the Company discloses in this report potentially material items of which it is aware at the time this report is filed with the SEC.

Table of Contents

Financial position and results of operations

The Company’s interest income could be reduced due to COVID-19. In accordance with CARES Act provisions and regulatory guidance, the Company is actively working with COVID-19 affected borrowers to defer their payments, interest, and fees. While interest and fees will still accrue to income, through normal GAAP accounting, should eventual credit losses on these deferred payments emerge, interest income and fees accrued would need to be reversed. In such a scenario, interest income in future periods could be negatively impacted. At this time, the Company is unable to project the materiality of such an impact, but recognizes the breadth of the economic impact of COVID-19 may affect its borrowers’ ability to repay in future periods.

The Company’s fee income could be reduced due to COVID-19. In keeping with guidance from regulators, the Company iscontinues to actively ~~working~~work with COVID-19 affected ~~customers to waive~~customers. During the second and third quarters of 2020, we waived fees from a variety of sources, such as, but not limited to, insufficient funds and overdraft fees, ATM fees, account maintenance fees, etc. These reductions in fees are thought, at this time, to be temporary in conjunction with the length of the expected COVID-19 related economic crisis. At this time, the Company is unable to project the materiality of such an impact, but recognizes the breadth of the economic impact of COVID-19 is likely to impact its fee income in future periods.

Capital and liquidity

While the Company believes that it has sufficient capital to withstand an extended economic recession brought about by COVID-19, its reported and regulatory capital ratios could be adversely impacted by further credit losses. On July 28, 2020, the Company completed the private placement of $65.0 million of its subordinated ~~notes with registration rights.~~notes. The 5.75% fixed-to-floating rate subordinated notes are due July 30, 2030. For regulatory capital purposes, the subordinated notes have been structured to qualify initially as Tier 2 Capital for the Company. The Company relies on cash on hand as well as dividends from its subsidiary bank to service its debt. If the Company’s capital deteriorates such that its subsidiary bank is unable to pay dividends to it for an extended period of time, the Company may not be able to service its debt. If an extended recession causes large numbers of the Company’s deposit customers to withdraw their funds, the Company might become more reliant on volatile or more expensive sources of funding.

Asset valuation

Currently, the Company does not expect COVID-19 to affect its ability to account timely for the assets on its balance sheet; however, this could change in future periods. While certain valuation assumptions and judgments will change to account for pandemic-related circumstances such as widening credit spreads, the Company does not anticipate significant changes in methodology used to determine the fair value of assets measured in accordance with GAAP.

Due to the economic impact that COVID-19 has had on the Company, management concluded that factors, such as the decline in macroeconomic conditions and a sustained decrease in share price, have led to the occurrence of a triggering event and therefore an interim impairment test over goodwill was performed as of June 30, 2020. As part of this interim impairment assessment, in the event that the Company concluded that all or a portion of its goodwill is impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital. Based upon the results of our interim goodwill assessment, we have concluded that an impairment did not exist as of the time of the assessment.

It is possible that the lingering effects of COVID-19 could cause the occurrence of what management would deem to be subsequent triggering events that could, under certain circumstances, cause us to perform a goodwill or intangible asset impairment test and result in an impairment charge being recorded for that period. In the event that the Company concludes that all or a portion of its goodwill or intangible assets are impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory ~~capital.~~capital, cash flows or liquidity position.

In the third quarter 2020, due to the continued economic impact that COVID-19 has had on the Company, management concluded that factors, such as the decline in macroeconomic conditions and a sustained decrease in share price, have led to the occurrence of a triggering event and therefore an interim impairment test over goodwill was performed as of September 30, 2020. Based upon the interim impairment assessment, we concluded that a portion of our goodwill was impaired as our estimated fair value was less than our book value on this date. The Company recorded a goodwill impairment charge of $31.5 million, which was reflected within "Noninterest expense" in the Consolidated Statements of Income. See Note 6. Goodwill and Intangible Assets for additional information.

Processes, controls and business continuity plan

The Company ~~has invoked its~~maintains a Business Continuity Plan, ~~that includes~~which was enacted upon the World Health Organization declaration of COVID-19 to be a global pandemic. Shortly after enacting the plan, the Company deployed a successful remote working strategy. The Company ~~does not anticipate incurring additional material costs related~~also implemented a number of other safety protocols, as well as initiated strategies for monitoring and responding to ~~its continued deployment~~COVID-19 in our market areas, including customer relief efforts. As of September 30, 2020, the ~~remote working strategy. No~~majority of our employees have returned to work in our branch offices with no disruption to our operations. To date, no material operational or internal control challenges or risks have been ~~identified~~identified. We have also not incurred additional material cost related to ~~date. The~~our remote working strategy to date, nor do we anticipate incurring material cost in future periods. Further, as of September 30, 2020 the Company also does not anticipate significant challenges toin its ability to maintain its systems and controls in light of the measures the Company has taken to prevent the spread of COVID-19. The Company does not currently face any material resource constraint through the implementation of its business continuity plans.

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Credit

The Company is working with customers directly affected by COVID-19. The Company ~~is prepared~~has offered and continues to offer short-term assistance in accordance with regulatory guidelines. As a result of the current economic environment caused by the COVID-19 virus, the Company is engaging in more frequent communication with borrowers to better understand their situation and the

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challenges faced, allowing it to respond proactively as needs and issues arise. Should economic conditions worsen, the Company could experience further increases in its required ACL and record additional credit loss expense. It is possible that the Company’s asset quality measures could worsen at future measurement periods if the effects of COVID-19 are prolonged.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect: (1) the reported amounts of assets and liabilities, (2) the disclosure of contingent assets and liabilities at the date of the financial statements, and (3) the reported amounts of revenues and expenses during the reporting period. These estimates are based on information available to management at the time the estimates are made. Actual results could differ from those estimates. The results for the ~~six~~nine months ended ~~June~~September 30, 2020 may not be indicative of results for the year ending December 31, 2020, or for any other period.

All significant accounting policies followed in the preparation of the quarterly financial statements are disclosed in the Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 6, 2020.

Segment Reporting

The Company’s activities are considered to be 1 reportable segment. The Company is engaged in the business of commercial and retail banking, and investment management with operations throughout Iowa, the Minneapolis/St. Paul metropolitan area of Minnesota, western Wisconsin, Naples and Fort Myers, Florida, and Denver, Colorado. Substantially all income is derived from a diverse base of commercial, mortgage and retail lending activities, and investments.

Allowance for Credit Losses

Debt Securities Available for Sale

For available for sale debt securities in an unrealized loss position, the Company evaluates the securities to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors. Any impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes. Credit-related impairment is recognized as an allowance for credit losses related to debt securities AFS on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings. Both the ACL and the adjustment to net income may be reversed if conditions change. However, if the Company intends to sell an impaired available for sale debt security or more likely than not will be required to sell such a security before recovering its amortized cost basis, the entire impairment amount must be recognized in earnings with a corresponding adjustment to the security’s amortized cost basis. Because the security’s amortized cost basis is adjusted to fair value, there is no ACL in this situation.

In evaluating available for sale debt securities in unrealized loss positions for impairment and the criteria regarding its intent or requirement to sell such securities, the Company considers the extent to which fair value is less than amortized cost, whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuers’ financial condition, among other factors.

Changes in the allowance for credit losses are recorded as credit loss expense (or reversal of credit loss expense). Losses are charged against the ACL when management believes the uncollectability of an available for sale debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Accrued interest receivable is excluded from the estimate of credit losses.

Loans Held for Investment

Under the current expected credit loss model, the allowance for credit losses is a valuation account estimated at each balance sheet date and deducted from the amortized cost basis of loans held for investment to present the net amount expected to be collected.

The Company estimates the ACL based on the underlying assets’ amortized cost basis, which is the amount at which the financing receivable is originated or acquired, adjusted for collection of cash and charge-offs, as well as applicable accretion or amortization of premium, discount, and net deferred fees or costs. In the event that collection of principal becomes uncertain,

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the Company has policies in place to reverse accrued interest in a timely manner. Therefore, the Company has made a policy election to exclude accrued interest from the measurement of ACL.

Expected credit losses are reflected in the allowance for credit losses through a charge to credit loss expense. When the Company deems all or a portion of a financial asset to be uncollectible, the appropriate amount is written off and the ACL is reduced by the same amount. The Company applies judgment to determine when a financial asset is deemed uncollectible;

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however, generally speaking, an asset will be considered uncollectible no later than when all efforts at collection have been exhausted. Subsequent recoveries, if any, are credited to the ACL when received.

The Company measures expected credit losses of financial assets on a collective (pool) basis when the financial assets share similar risk characteristics. Depending on the nature of the pool of financial assets with similar risk characteristics, the Company uses a DCF method or a loss-rate method to estimate expected credit losses.

The Company’s methodologies for estimating the ACL consider available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. The methodologies apply historical loss information, adjusted for asset-specific characteristics, economic conditions at the measurement date, and forecasts about future economic conditions expected to exist through the contractual lives of the financial assets that are reasonable and supportable, to the identified pools of financial assets with similar risk characteristics for which the historical loss experience was observed. The Company’s methodologies revert back to historical loss driver information on a straight-line basis over four quarters when it can no longer develop reasonable and supportable forecasts. The Company adjusted in the first quarter of 2020 the reversion period from the previously disclosed six quarters to four quarters based upon current forecasted conditions.

Discounted Cash Flow Method

The Company uses the DCF method to estimate expected credit losses for the agricultural, commercial and industrial, CRE - construction and development, CRE - farmland, CRE - multifamily, CRE - other, RRE - owner-occupied one-to-four family first liens, RRE - nonowner-occupied one-to-four family first liens, RRE - one-to-four family junior liens, and consumer loan pools. For each of these pools, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, curtailments, time to recovery, probability of default, and loss given default. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on historical internal data.

The Company uses regression analysis of historical internal and peer data to determine which variables are best suited to be economic variables utilized when modeling lifetime probability of default and loss given default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the economic variables. For the loan pools utilizing the DCF method, management utilizes one or multiple of the following economic variables: Midwest unemployment, national retail sales, CRE index, US rental vacancy rate, US gross domestic product, and national home price index (HPI).

For all DCF models, management has determined that four quarters represents a reasonable and supportable forecast period and reverts back to a historical loss rate over four quarters on a straight-line basis. Management leverages economic projections from a reputable and independent third party to inform its loss driver forecasts over the four quarter forecast period. Other internal and external indicators of economic forecasts are also considered by management when developing the forecast metrics.

The combination of adjustments for credit expectations (default and loss) and timing expectations (prepayment, curtailment, and time to recovery) produces an expected cash flow stream at the instrument level. Instrument effective yield is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce an instrument-level net present value of expected cash flows (“NPV”). An ACL is established for the difference between the instrument’s NPV and amortized cost basis. In addition, management utilizes qualitative factors to adjust the calculated ACL as appropriate. Qualitative factors are based on management's judgment of company, market, industry or business specific data, changes in underlying loan composition of specific portfolios, trends relating to credit quality, delinquency, non-performing and adversely rated loans, and reasonable and supportable forecasts of economic conditions.

Loss-Rate Method

The Company uses a loss-rate method to estimate expected credit losses for the credit card and overdraft pools. For each of these pools, the Company applies an expected loss ratio based on internal and peer historical losses, adjusted as appropriate for qualitative factors. Qualitative loss factors are based on management's judgment of company, market, industry or business

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specific data, changes in underlying loan composition of specific portfolios, trends relating to credit quality, delinquency, non-performing and adversely rated loans, and reasonable and supportable forecasts of economic conditions.

Collateral Dependent Financial Assets

Loans that do not share risk characteristics are evaluated on an individual basis. For collateral dependent financial assets where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial

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difficulty and the Company expects repayment of the financial asset to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date. When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the present value of expected cash flows from the operation of the collateral. When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized costs basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The ACL may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset.

The Company’s estimate of the ACL reflects losses expected over the remaining contractual life of the assets. The contractual term does not consider extensions, renewals or modifications unless the Company has identified an expected TDR.

A loan that has been modified or renewed is considered a TDR when two conditions are met: 1) the borrower is experiencing financial difficulty and 2) concessions are made for the borrower's benefit that would not otherwise be considered for a borrower or transaction with similar credit risk characteristics. The Company’s ACL reflects all effects of a TDR when an individual asset is specifically identified as a reasonably expected TDR. The Company has determined that a TDR is reasonably expected no later than the point when the lender concludes that modification is the best course of action and it is at least reasonably possible that the troubled borrower will accept some form of concession from the lender to avoid a default. Reasonably expected TDRs and executed non-performing TDRs are evaluated individually to determine the required ACL. TDRs performing in accordance with their modified contractual terms for a reasonable period of time may be included in the Company’s existing pools based on the underlying risk characteristics of the loan to measure the ACL.

Guidance on Non-TDR Loan Modifications due to COVID-19

Section 4013 of the CARES Act, “Temporary Relief From Troubled Debt Restructurings,” allows financial institutions the option to temporarily suspend certain requirements under ~~U.S.~~ GAAP related to TDRs for a limited period of time during the COVID-19 pandemic. Under Section 4013 of the CARES Act, loan modifications that qualify for such suspension are those where the borrower was not more than 30 days past due as of December 31, 2019. In addition, the loan modification being made in response to the COVID-19 pandemic must include a deferral or delay in the payment of principal or interest, or change in the interest rate on the loan. In March 2020, various regulatory agencies, including the FRB and the FDIC, issued an interagency statement, effective immediately, on loan modifications and reporting for financial institutions working with customers affected by COVID-19. The agencies confirmed with the staff of the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not to be considered TDRs. This includes short-term (e.g., six months) modifications, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented.

Liability for Off-Balance Sheet Credit Losses

Financial instruments include off-balance sheet credit losses, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.

The Company recognizes a liability for off-balance sheet credit losses, unless the commitments to extend credit are unconditionally cancellable, through a charge to credit loss expense for off-balance sheet credit losses included in credit loss expense in the Company’s consolidated statements of income. The liability for off-balance sheet credit losses is estimated by loan segment at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur, and is included in other liabilities on the Company’s consolidated balance sheets.

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2. Effect of New Financial Accounting Standards

Accounting Guidance Adopted in ~~2019~~2020

On January 1, 2020, the Company adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables. It is also applied to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases. In addition, ASC 326 made changes to the accounting for AFS debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on AFS debt securities that management does not intend to sell or believes that it is more likely than not they will be required to sell.

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The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance-sheet credit exposures. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a net decrease to retained earnings of $5.4 million as of January 1, 2020 for the cumulative effect of adopting ASC 326. The transition adjustment includes a $4.0 million impact due to the increase in ACL related to loans, a $3.4 million impact due the establishment of the allowance for unfunded commitments, and a $1.9 million impact on deferred taxes.

The Company adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration that were previously classified as PCI and accounted for under ASC 310-30. In accordance with the standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. On January 1, 2020, the amortized cost basis of the PCD assets were adjusted to reflect the addition of $119 thousand to the ACL. The remaining noncredit discount will be accreted into interest income at the effective interest rate as of January 1, 2020.

The following table illustrates the impact of ASC 326 on the allowance for credit losses on loans and the liability for off-balance sheet credit exposures:


		January 1, 2020											January 1, 2020
		Pre-ASC 326 Adoption		Impact of ASC 326 Adoption		As Reported Under ASC 326			Pre-ASC 326 Adoption		Impact of ASC 326 Adoption		As Reported Under ASC 326
		(in thousands)											(in thousands)
Assets:	Assets:							Assets:
Loans	Loans							Loans
Agricultural	Agricultural	$	3,748	$	(2,557)	$	1,191	Agricultural	$	3,748	$	(2,557)	$	1,191
Commercial and industrial	Commercial and industrial	8,394		2,728		11,122		Commercial and industrial	8,394		2,728		11,122
Commercial real estate	Commercial real estate	13,804		1,300		15,104		Commercial real estate	13,804		1,300		15,104
Residential real estate	Residential real estate	2,685		2,050		4,735		Residential real estate	2,685		2,050		4,735
Consumer	Consumer	448		463		911		Consumer	448		463		911
Allowance for credit losses on loans	Allowance for credit losses on loans	$	29,079	$	3,984	$	33,063	Allowance for credit losses on loans	$	29,079	$	3,984	$	33,063

Liabilities:	Liabilities:							Liabilities:
Liability for off-balance sheet credit exposures	Liability for off-balance sheet credit exposures	$	—	$	3,433	$	3,433	Liability for off-balance sheet credit exposures	$	0	$	3,433	$	3,433

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, including the consideration of costs and benefits. Four disclosure requirements were removed, three were modified, and two were added. In addition, the amendments eliminate “at a minimum” from the phrase “an entity shall disclose at a minimum” to promote the appropriate exercise of discretion by entities when considering fair value measurement disclosures and to clarify that materiality is an appropriate consideration of entities and their auditors when evaluating disclosure requirements. The amendments in this update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.

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Accounting Guidance Pending Adoption at ~~June~~September 30, 2020

On March 12, 2020, the FASB issued ASU 2020-04, Reference Rate Reform (ASC 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASC 848 contains optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform. Entities may apply the provision as of the beginning of the reporting period when the election is made and are available until December 31, 2022. The Company is currently evaluating the impact of ASU 2020-04.

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3. Debt Securities

The amortized cost and fair value of investment debt securities AFS, with gross unrealized gains and losses, were as follows:


		As of June 30, 2020																			As of September 30, 2020
(in thousands)	(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Loss related to Debt Securities		Estimated Fair Value		(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Loss related to Debt Securities		Estimated Fair Value

U.S. Government agencies and corporations	U.S. Government agencies and corporations	$	402	$	8	$	—	$	—	$	410	U.S. Government agencies and corporations	$	378	$	8	$	0	$	0	$	386
State and political subdivisions	State and political subdivisions	424,935		10,317		1,206		—		434,046		State and political subdivisions	499,922		11,875		1,314		0		510,483
Mortgage-backed securities	Mortgage-backed securities	77,944		1,742		1		—		79,685		Mortgage-backed securities	106,997		1,759		123		0		108,633
Collateralized mortgage obligations	Collateralized mortgage obligations	352,318		8,148		438		—		360,028		Collateralized mortgage obligations	395,772		7,599		478		0		402,893
Corporate debt securities	Corporate debt securities	305,797		8,387		898		—		313,286		Corporate debt securities	335,596		8,928		575		0		343,949
Total debt securities	Total debt securities	$	1,161,396	$	28,602	$	2,543	$	—	$	1,187,455	Total debt securities	$	1,338,665	$	30,169	$	2,490	$	0	$	1,366,344


		As of December 31, 2019															As of December 31, 2019
(in thousands)	(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value

U.S. Government agencies and corporations	U.S. Government agencies and corporations	$	439	$	2	$	—	$	441	U.S. Government agencies and corporations	$	439	$	2	$	0	$	441
State and political subdivisions	State and political subdivisions	253,750		3,803		348		257,205		State and political subdivisions	253,750		3,803		348		257,205
Mortgage-backed securities	Mortgage-backed securities	43,009		536		15		43,530		Mortgage-backed securities	43,009		536		15		43,530
Collateralized mortgage obligations	Collateralized mortgage obligations	293,911		1,000		1,965		292,946		Collateralized mortgage obligations	293,911		1,000		1,965		292,946
Corporate debt securities	Corporate debt securities	188,952		3,018		115		191,855		Corporate debt securities	188,952		3,018		115		191,855
Total debt securities	Total debt securities	$	780,061	$	8,359	$	2,443	$	785,977	Total debt securities	$	780,061	$	8,359	$	2,443	$	785,977

Investment securities with a carrying value of ~~$377.8~~$434.5 million and $264.8 million at ~~June~~September 30, 2020 and December 31, 2019, respectively, were pledged on public deposits, securities sold under agreements to repurchase and for other purposes, as required or permitted by law.

The following table presents debt securities AFS in an unrealized loss position for which an allowance for credit losses has not been recorded at ~~June~~September 30, 2020, aggregated by investment category and length of time in a continuous loss position:


			As of June 30, 2020																																				As of September 30, 2020
		Number of Securities	Less than 12 Months									12 Months or More										Total								Number of Securities			Less than 12 Months						12 Months or More			Total
Available for Sale	Available for Sale				Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses		Available for Sale	Number of Securities			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses
(in thousands, except number of securities)	(in thousands, except number of securities)																			(in thousands, except number of securities)

State and political subdivisions	State and political subdivisions	63	$	41,403		$	1,206		$	—		$	—		$	41,403		$	1,206	State and political subdivisions	68			$	90,190		$	1,314		$	—		$	0		$	90,190		$	1,314
Mortgage-backed securities	Mortgage-backed securities	5	286			1			16			—			302			1		Mortgage-backed securities	7			25,209			123			16			0			25,225			123
Collateralized mortgage obligations	Collateralized mortgage obligations	3	31,044			438			—			—			31,044			438		Collateralized mortgage obligations	5			60,760			249			9,444			229			70,204			478
Corporate debt securities	Corporate debt securities	20	42,034			796			4,820			102			46,854			898		Corporate debt securities	18			44,417			488			1,316			87			45,733			575
Total	Total	91	$	114,767		$	2,441		$	4,836		$	102		$	119,603		$	2,543	Total	98			$	220,576		$	2,174		$	10,776		$	316		$	231,352		$	2,490

As of ~~June~~September 30, 2020, 6368 state and political subdivisions securities with total unrealized losses of ~~$1.2~~$1.3 million were held by the Company. Management evaluated these securities by considering the yield spread to treasury securities, credit agency ratings, and payment history. In addition, management evaluated the most recent financial information available for certain of these securities. Based on this evaluation, management concluded that the decline in fair value was not attributable to credit losses.

As of ~~June~~September 30, 2020, 57 mortgage-backed securities and 35 collateralized mortgage obligations with unrealized losses totaling $0.6 million were held by the Company. Management evaluated the payment history of these securities. In addition, management considered the implied U.S. government guarantee of these agency securities and the level of credit enhancement for non-agency securities. Based on this evaluation, management concluded that the decline in fair value was not attributable to credit losses.

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As of ~~June~~September 30, 2020, 2018 corporate debt securities with total unrealized losses of ~~$0.9~~$0.6 million were held by the Company. Management evaluated these securities by considering credit agency ratings and payment history. In addition, management evaluated the most recent financial information available for certain of these securities. Based on this evaluation, management concluded that the decline in fair value was not attributable to credit losses.

Accrued interest receivable on available for sale debt securities, which is recorded within 'Other Assets,' totaled ~~$5.6~~$6.1 million at ~~June~~September 30, 2020 and is excluded from the estimate of credit losses.

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The following table presents information pertaining to debt securities with gross unrealized losses as of December 31, 2019, aggregated by investment category and length of time that individual securities have been in a continuous loss position:


		As of December 31, 2019
Available for Sale	Number of Securities	Less than 12 Months				12 Months or More				Total
		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
(in thousands, except number of securities)


State and political subdivisions	47	$	27,161	$	322	$	2,112	$	26	$	29,273	$	348
Mortgage-backed securities	7	963		12		1,365		3		2,328		15
Collateralized mortgage obligations	33	103,395		719		65,604		1,246		168,999		1,965
Corporate debt securities	7	7,012		14		8,788		101		15,800		115
Total	94	$	138,531	$	1,067	$	77,869	$	1,376	$	216,400	$	2,443

Proceeds and gross realized gains and losses on debt securities available for sale for the three months and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019 were as follows:


		Three Months Ended						Six Months Ended							Three Months Ended				Nine Months Ended
(in thousands)	(in thousands)	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019		(in thousands)	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Proceeds from sales of debt securities available for sale	Proceeds from sales of debt securities available for sale	$	—	$	118,134	$	22,140	$	125,414	Proceeds from sales of debt securities available for sale	$	4,885	$	19	$	27,020	$	125,433

Gross realized gains from sales of debt securities available for sale	Gross realized gains from sales of debt securities available for sale	—		79		155		105		Gross realized gains from sales of debt securities available for sale	105		18		255		124
Gross realized losses from sales of debt securities available for sale	Gross realized losses from sales of debt securities available for sale	—		(45)		(113)		(54)		Gross realized losses from sales of debt securities available for sale	(10)		(1)		(123)		(56)
Net realized gain from sales of debt securities available for sale	Net realized gain from sales of debt securities available for sale	$	—	$	34	$	42	$	51	Net realized gain from sales of debt securities available for sale	$	95	$	17	$	132	$	68

The contractual maturity distribution of investment debt securities at ~~June~~September 30, 2020, is shown below. Expected maturities of MBS and CMO may differ from contractual maturities because the mortgages underlying the securities may be called or prepaid without any penalties. Therefore, these securities are not included in the maturity categories in the following summary.


		Available For Sale							Available For Sale
(in thousands)	(in thousands)	Amortized Cost		Fair Value		(in thousands)	Amortized Cost		Fair Value
Due in one year or less	Due in one year or less	$	56,816	$	57,396	Due in one year or less	$	52,185	$	52,578
Due after one year through five years	Due after one year through five years	250,000		257,274		Due after one year through five years	252,498		260,915
Due after five years through ten years	Due after five years through ten years	206,548		211,367		Due after five years through ten years	220,385		225,480
Due after ten years	Due after ten years	217,770		221,705		Due after ten years	310,828		315,845
		$	731,134	$	747,742		$	835,896	$	854,818
Mortgage-backed securities	Mortgage-backed securities	77,944		79,685		Mortgage-backed securities	106,997		108,633
Collateralized mortgage obligations	Collateralized mortgage obligations	352,318		360,028		Collateralized mortgage obligations	395,772		402,893
Total	Total	$	1,161,396	$	1,187,455	Total	$	1,338,665	$	1,366,344

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4. Loans Receivable and the Allowance for Credit Losses

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


		As of							As of
(in thousands)	(in thousands)	June 30, 2020		December 31, 2019		(in thousands)	September 30, 2020		December 31, 2019
Agricultural	Agricultural	$	140,837	$	140,446	Agricultural	$	129,453	$	140,446
Commercial and industrial	Commercial and industrial	1,084,527		835,236		Commercial and industrial	1,103,102		835,236
Commercial real estate:	Commercial real estate:					Commercial real estate:
Construction & development	Construction & development	199,950		298,077		Construction & development	191,423		298,077
Farmland	Farmland	161,897		181,885		Farmland	152,362		181,885
Multifamily	Multifamily	247,403		227,407		Multifamily	235,241		227,407
Commercial real estate-other	Commercial real estate-other	1,155,489		1,107,490		Commercial real estate-other	1,128,009		1,107,490
Total commercial real estate	Total commercial real estate	1,764,739		1,814,859		Total commercial real estate	1,707,035		1,814,859
Residential real estate:	Residential real estate:					Residential real estate:
One- to four- family first liens	One- to four- family first liens	377,100		407,418		One- to four- family first liens	371,390		407,418
One- to four- family junior liens	One- to four- family junior liens	155,814		170,381		One- to four- family junior liens	150,180		170,381
Total residential real estate	Total residential real estate	532,914		577,799		Total residential real estate	521,570		577,799
Consumer	Consumer	74,022		82,926		Consumer	76,272		82,926
Loans held for investment, net of unearned income	Loans held for investment, net of unearned income	3,597,039		3,451,266		Loans held for investment, net of unearned income	3,537,432		3,451,266
Allowance for credit losses	Allowance for credit losses	(55,644)		(29,079)		Allowance for credit losses	(58,500)		(29,079)
Total loans held for investment, net	Total loans held for investment, net	$	3,541,395	$	3,422,187	Total loans held for investment, net	$	3,478,932	$	3,422,187

Loans with unpaid principal in the amount of ~~$889.3~~$858.1 million and $945.9 million at ~~June~~September 30, 2020 and December 31, 2019, respectively, were pledged to the FHLB as collateral for borrowings.

Non-accrual and Delinquent Status

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

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

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

As of ~~June~~September 30, 2020, the Company had 0 commitments to lend additional funds to borrowers who have a nonaccrual loan.

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The following table presents the amortized cost basis of loans based on delinquency status:


				Age Analysis of Past-Due Financial Assets															90 Days or More Past Due And Accruing					Age Analysis of Past-Due Financial Assets									90 Days or More Past Due And Accruing
(in thousands)	(in thousands)	Current		30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or More Past Due		Total				90 Days or More Past Due And Accruing		(in thousands)	Current			30 - 59 Days Past Due			60 - 89 Days Past Due			90 Days or More Past Due			Total			90 Days or More Past Due And Accruing
June 30, 2020
September 30, 2020														September 30, 2020
Agricultural	Agricultural	$	138,409	$	522	$	351	$	1,555	$	140,837	$	—	Agricultural	$	127,448		$	390		$	339		$	1,276		$	129,453		$	0
Commercial and industrial	Commercial and industrial	1,078,603		245		1,134		4,545		1,084,527		35		Commercial and industrial	1,098,272			1,027			105			3,698			1,103,102			5
Commercial real estate:	Commercial real estate:													Commercial real estate:
Construction and development	Construction and development	194,965		3,663		707		615		199,950		—		Construction and development	188,115			1,774			825			709			191,423			0
Farmland	Farmland	151,530		388		1,221		8,758		161,897		—		Farmland	142,470			114			353			9,425			152,362			0
Multifamily	Multifamily	247,403		—		—		—		247,403		—		Multifamily	235,241			0			0			0			235,241			0
Commercial real estate-other	Commercial real estate-other	1,147,912		1,432		—		6,145		1,155,489		—		Commercial real estate-other	1,121,100			996			3			5,910			1,128,009			0
Total commercial real estate	Total commercial real estate	1,741,810		5,483		1,928		15,518		1,764,739		—		Total commercial real estate	1,686,926			2,884			1,181			16,044			1,707,035			0
Residential real estate:	Residential real estate:													Residential real estate:
One- to four- family first liens	One- to four- family first liens	368,201		2,142		1,740		5,017		377,100		3,197		One- to four- family first liens	364,393			1,856			1,271			3,870			371,390			2,588
One- to four- family junior liens	One- to four- family junior liens	154,769		552		259		234		155,814		—		One- to four- family junior liens	149,374			603			46			157			150,180			0
Total residential real estate	Total residential real estate	522,970		2,694		1,999		5,251		532,914		3,197		Total residential real estate	513,767			2,459			1,317			4,027			521,570			2,588
Consumer	Consumer	73,768		136		13		105		74,022		6		Consumer	76,078			78			23			93			76,272			0
Total	Total	$	3,555,560	$	9,080	$	5,425	$	26,974	$	3,597,039	$	3,238	Total	$	3,502,491		$	6,838		$	2,965		$	25,138		$	3,537,432		$	2,593

December 31, 2019	December 31, 2019													December 31, 2019
Agricultural	Agricultural	$	137,715	$	975	$	—	$	1,756	$	140,446	$	—	Agricultural	$	137,715		$	975		$	0		$	1,756		$	140,446		$	0
Commercial and industrial	Commercial and industrial	828,842		846		270		5,278		835,236		—		Commercial and industrial	828,842			846			270			5,278			835,236			0
Commercial real estate:	Commercial real estate:													Commercial real estate:
Construction and development	Construction and development	294,995		2,256		621		205		298,077		—		Construction and development	294,995			2,256			621			205			298,077			0
Farmland	Farmland	175,281		362		—		6,242		181,885		—		Farmland	175,281			362			0			6,242			181,885			0
Multifamily	Multifamily	227,013		394		—		—		227,407		—		Multifamily	227,013			394			0			0			227,407			0
Commercial real estate-other	Commercial real estate-other	1,102,504		1,965		347		2,674		1,107,490		—		Commercial real estate-other	1,102,504			1,965			347			2,674			1,107,490			0
Total commercial real estate	Total commercial real estate	1,799,793		4,977		968		9,121		1,814,859		—		Total commercial real estate	1,799,793			4,977			968			9,121			1,814,859			0
Residential real estate:	Residential real estate:													Residential real estate:
One- to four- family first liens	One- to four- family first liens	402,471		2,579		857		1,511		407,418		99		One- to four- family first liens	402,471			2,579			857			1,511			407,418			99
One- to four- family junior liens	One- to four- family junior liens	169,592		518		108		163		170,381		25		One- to four- family junior liens	169,592			518			108			163			170,381			25
Total residential real estate	Total residential real estate	572,063		3,097		965		1,674		577,799		124		Total residential real estate	572,063			3,097			965			1,674			577,799			124
Consumer	Consumer	82,558		150		80		138		82,926		12		Consumer	82,558			150			80			138			82,926			12
Total	Total	$	3,420,971	$	10,045	$	2,283	$	17,967	$	3,451,266	$	136	Total	$	3,420,971		$	10,045		$	2,283		$	17,967		$	3,451,266		$	136

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The following table presents the amortized cost basis of loans on non-accrual status, loans past due 90 days or more and still accruing by class of loan and related interest income recognized:


										Three Months Ended June 30,		Six Months Ended June 30,											Three Months Ended September 30,		Nine Months Ended September 30,
(in thousands)	(in thousands)	Beginning of Period Nonaccrual		End of Period Nonaccrual		Nonaccrual with no Allowance for Credit Losses		90 Days or More Past Due And Accruing		Interest Income Recognized on Nonaccrual		Interest Income Recognized on Nonaccrual		(in thousands)	Beginning of Period Nonaccrual		End of Period Nonaccrual		Nonaccrual with no Allowance for Credit Losses		90 Days or More Past Due And Accruing		Interest Income Recognized on Nonaccrual		Interest Income Recognized on Nonaccrual
As of and for the Three and Six Months Ended June 30, 2020
As of and for the Three and Nine Months Ended September 30, 2020														As of and for the Three and Nine Months Ended September 30, 2020
Agricultural	Agricultural	$	2,894	$	3,187	$	1,611	$	—	$	16	$	80	Agricultural	$	2,894	$	2,787	$	1,576	$	0	$	14	$	94
Commercial and industrial	Commercial and industrial	13,276		10,041		5,104		35		45		101		Commercial and industrial	13,276		8,725		4,825		5		49		150
Commercial real estate:	Commercial real estate:													Commercial real estate:
Construction and development	Construction and development	1,494		879		701		—		6		41		Construction and development	1,494		1,387		1,007		0		5		46
Farmland	Farmland	10,402		14,178		12,593		—		9		93		Farmland	10,402		13,693		12,385		0		23		116
Multifamily	Multifamily	—		—		—		—		—		1		Multifamily	0		0		0		0		0		1
Commercial real estate-other	Commercial real estate-other	10,141		9,980		3,099		—		3		24		Commercial real estate-other	10,141		9,783		2,850		0		8		32
Total commercial real estate	Total commercial real estate	22,037		25,037		16,393		—		18		159		Total commercial real estate	22,037		24,863		16,242		0		36		195
Residential real estate:	Residential real estate:													Residential real estate:
One- to four- family first liens	One- to four- family first liens	2,557		2,293		207		3,197		33		41		One- to four- family first liens	2,557		1,999		207		2,588		21		62
One- to four- family junior liens	One- to four- family junior liens	513		583		1		—		6		7		One- to four- family junior liens	513		552		1		0		9		16
Total residential real estate	Total residential real estate	3,070		2,876		208		3,197		39		48		Total residential real estate	3,070		2,551		208		2,588		30		78
Consumer	Consumer	206		162		13		6		6		8		Consumer	206		145		13		0		1		9
Total	Total	$	41,483	$	41,303	$	23,329	$	3,238	$	124	$	396	Total	$	41,483	$	39,071	$	22,864	$	2,593	$	130	$	526

Credit Quality Information

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

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

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

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

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

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

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The following table sets forth the amortized cost basis of loans by class of receivable by credit quality indicator and vintage based on the most recent analysis performed, as of ~~June~~September 30, 2020. As of ~~June~~September 30, 2020, there were no 'loss' rated credits.

Term Loans by Origination Year Revolving Loans
June 30, 2020
(in thousands)
2020 2019 2018 2017 2016 Prior Total
Agricultural
Pass $ 21,013 $ 11,300 $ 4,898 $ 2,906 $ 2,753 $ 3,067 $ 71,689 $ 117,626
Special mention / watch 5,905 1,422 125 113 600 1,253 6,206 15,624
Substandard 1,093 1,282 2 191 131 227 4,661 7,587
Doubtful — — — — — — — —
Total $ 28,011 $ 14,004 $ 5,025 $ 3,210 $ 3,484 $ 4,547 $ 82,556 $ 140,837
Commercial and industrial
Pass $ 486,629 $ 114,316 $ 70,083 $ 77,159 $ 44,088 $ 114,435 $ 125,003 $ 1,031,713
Special mention / watch 5,018 1,309 1,953 4,243 906 3,356 18,615 35,400
Substandard 3,036 2,569 752 974 624 4,416 5,043 17,414
Doubtful — — — — — — — —
Total $ 494,683 $ 118,194 $ 72,788 $ 82,376 $ 45,618 $ 122,207 $ 148,661 $ 1,084,527
CRE - Construction and development
Pass $ 50,048 $ 76,696 $ 25,444 $ 8,655 $ 1,932 $ 1,308 $ 26,494 $ 190,577
Special mention / watch 4,159 1,688 775 — 14 34 — 6,670
Substandard 735 1,919 — — — 49 — 2,703
Doubtful — — — — — — — —
Total $ 54,942 $ 80,303 $ 26,219 $ 8,655 $ 1,946 $ 1,391 $ 26,494 $ 199,950
CRE - Farmland
Pass $ 37,140 $ 32,227 $ 14,315 $ 15,023 $ 10,590 $ 18,171 $ 2,257 $ 129,723
Special mention / watch 2,244 4,584 1,290 1,953 1,237 587 353 12,248
Substandard 2,732 3,632 4,339 1,729 449 6,051 994 19,926
Doubtful — — — — — — — —
Total $ 42,116 $ 40,443 $ 19,944 $ 18,705 $ 12,276 $ 24,809 $ 3,604 $ 161,897
CRE - Multifamily
Pass $ 109,637 $ 17,948 $ 18,346 $ 37,740 $ 16,722 $ 32,726 $ 12,788 $ 245,907
Special mention / watch 348 — — — 78 — — 426
Substandard 716 354 — — — — — 1,070
Doubtful — — — — — — — —
Total $ 110,701 $ 18,302 $ 18,346 $ 37,740 $ 16,800 $ 32,726 $ 12,788 $ 247,403
CRE - other
Pass $ 385,335 $ 129,669 $ 84,625 $ 106,504 $ 81,037 $ 147,048 $ 50,888 $ 985,106
Special mention / watch 85,815 24,505 6,821 6,526 4,537 5,671 199 134,074
Substandard 24,446 1,480 6,296 1,246 604 2,101 136 36,309
Doubtful — — — — — — — —
Total $ 495,596 $ 155,654 $ 97,742 $ 114,276 $ 86,178 $ 154,820 $ 51,223 $ 1,155,489
RRE - One- to four- family first liens
Performing $ 71,419 $ 61,180 $ 52,230 $ 47,208 $ 43,567 $ 85,959 $ 10,046 $ 371,609
Nonperforming 17 67 588 1,092 930 2,797 — 5,491
Total $ 71,436 $ 61,247 $ 52,818 $ 48,300 $ 44,497 $ 88,756 $ 10,046 $ 377,100
RRE - One- to four- family junior liens
Performing $ 3,687 $ 12,453 $ 16,629 $ 8,207 $ 4,343 $ 7,568 $ 102,345 $ 155,232
Nonperforming — — — 32 250 229 71 582
Total $ 3,687 $ 12,453 $ 16,629 $ 8,239 $ 4,593 $ 7,797 $ 102,416 $ 155,814
Consumer
Performing $ 12,933 $ 19,438 $ 14,079 $ 6,857 $ 3,607 $ 6,203 $ 10,743 $ 73,860
Nonperforming — 38 49 24 14 37 — 162
Total $ 12,933 $ 19,476 $ 14,128 $ 6,881 $ 3,621 $ 6,240 $ 10,743 $ 74,022


	Term Loans by Origination Year												Revolving Loans
September 30, 2020 (in thousands)	2020		2019		2018		2017		2016		Prior				Total
Agricultural
Pass	$	18,711	$	9,402	$	3,467	$	2,612	$	1,607	$	2,392	$	66,182		$	104,373
Special mention / watch	5,268		1,456		125		113		593		1,110		7,885			16,550
Substandard	3,830		874		272		187		130		227		3,009			8,529
Doubtful	0		—		—		—		—		1		—			1
Total	$	27,809	$	11,732	$	3,864	$	2,912	$	2,330	$	3,730	$	77,076		$	129,453
Commercial and industrial
Pass	$	552,011	$	113,602	$	61,017	$	71,706	$	40,276	$	96,039	$	130,932		$	1,065,583
Special mention / watch	3,770		679		1,437		2,395		869		1,272		6,065			16,487
Substandard	3,846		1,651		609		841		538		4,301		9,242			21,028
Doubtful	0		—		—		1		—		2		1			4
Total	$	559,627	$	115,932	$	63,063	$	74,943	$	41,683	$	101,614	$	146,240		$	1,103,102
CRE - Construction and development
Pass	$	86,471	$	47,688	$	20,154	$	4,356	$	929	$	1,165	$	21,666		$	182,429
Special mention / watch	4,570		461		546		—		11		33		—			5,621
Substandard	1,053		1,497		220		—		—		38		565			3,373
Doubtful	0		—		—		—		—		—		—			0
Total	$	92,094	$	49,646	$	20,920	$	4,356	$	940	$	1,236	$	22,231		$	191,423
CRE - Farmland
Pass	$	39,115	$	28,158	$	11,528	$	11,938	$	8,493	$	16,116	$	1,740		$	117,088
Special mention / watch	7,976		4,709		1,040		667		1,212		239		353			16,196
Substandard	2,656		4,163		4,509		1,729		204		5,767		50			19,078
Doubtful	0		—		—		—		—		—		—			0
Total	$	49,747	$	37,030	$	17,077	$	14,334	$	9,909	$	22,122	$	2,143		$	152,362
CRE - Multifamily
Pass	$	131,319	$	18,505	$	18,183	$	17,687	$	16,004	$	21,446	$	10,612		$	233,756
Special mention / watch	346		—		—		—		70		—		—			416
Substandard	1,069		—		—		—		—		—		—			1,069
Doubtful	0		—		—		—		—		—		—			0
Total	$	132,734	$	18,505	$	18,183	$	17,687	$	16,074	$	21,446	$	10,612		$	235,241
CRE - other
Pass	$	423,851	$	130,751	$	69,359	$	90,154	$	75,302	$	104,107	$	41,301		$	934,825
Special mention / watch	79,206		16,202		12,061		4,865		4,054		4,159		885			121,432
Substandard	44,915		7,767		7,021		1,233		586		9,231		999			71,752
Doubtful	0		—		—		—		—		—		—			0
Total	$	547,972	$	154,720	$	88,441	$	96,252	$	79,942	$	117,497	$	43,185		$	1,128,009
RRE - One- to four- family first liens
Performing	$	98,719	$	54,993	$	46,672	$	41,713	$	39,818	$	75,091	$	9,796		$	366,802
Nonperforming	67		66		561		812		522		2,560		0			4,588
Total	$	98,786	$	55,059	$	47,233	$	42,525	$	40,340	$	77,651	$	9,796		$	371,390
RRE - One- to four- family junior liens
Performing	$	15,090	$	8,971	$	14,175	$	6,994	$	3,821	$	6,773	$	93,804		$	149,628
Nonperforming	0		0		0		32		117		233		170			552
Total	$	15,090	$	8,971	$	14,175	$	7,026	$	3,938	$	7,006	$	93,974		$	150,180
Consumer
Performing	$	21,940	$	16,255	$	12,000	$	5,796	$	3,033	$	6,450	$	10,653		$	76,127
Nonperforming	0		34		46		18		12		35		0			145
Total	$	21,940	$	16,289	$	12,046	$	5,814	$	3,045	$	6,485	$	10,653		$	76,272

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Term Loans by Origination Year Revolving Loans
2020 2019 2018 2017 2016 Prior Total
Total by Credit Quality Indicator Category
Pass $ 1,089,802 $ 382,156 $ 217,711 $ 247,987 $ 157,122 $ 316,755 $ 289,119 $ 2,700,652
Special mention / watch 103,489 33,508 10,964 12,835 7,372 10,901 25,373 204,442
Substandard 32,758 11,236 11,389 4,140 1,808 12,844 10,834 85,009
Doubtful — — — — — — — —
Performing 88,039 93,071 82,938 62,272 51,517 99,730 123,134 600,701
Nonperforming 17 105 637 1,148 1,194 3,063 71 6,235
Total $ 1,314,105 $ 520,076 $ 323,639 $ 328,382 $ 219,013 $ 443,293 $ 448,531 $ 3,597,039


	Term Loans by Origination Year												Revolving Loans
	2020		2019		2018		2017		2016		Prior				Total
Total by Credit Quality Indicator Category
Pass	$	1,251,478	$	348,106	$	183,708	$	198,453	$	142,611	$	241,265	$	272,433		$	2,638,054
Special mention / watch	101,136		23,507		15,209		8,040		6,809		6,813		15,188			176,702
Substandard	57,369		15,952		12,631		3,990		1,458		19,564		13,865			124,829
Doubtful	0		—		—		1		—		3		1			5
Performing	135,749		80,219		72,847		54,503		46,672		88,314		114,253			592,557
Nonperforming	67		100		607		862		651		2,828		170			5,285
Total	$	1,545,799	$	467,884	$	285,002	$	265,849	$	198,201	$	358,787	$	415,910		$	3,537,432

The following table sets forth the risk category of loans by class of loans and credit quality indicator used on the most recent analysis performed as of December 31, 2019:


2019 (in thousands)		Pass		Special Mention / Watch		Substandard		Doubtful		Loss		Total
December 31, 2019 (in thousands)														December 31, 2019 (in thousands)	Pass		Special Mention / Watch		Substandard		Doubtful		Loss		Total
Agricultural	Agricultural	$	117,374	$	13,292	$	9,780	$	—	$	—	$	140,446	Agricultural	$	117,374	$	13,292	$	9,780	$	0	$	0	$	140,446
Commercial and industrial	Commercial and industrial	794,526		19,038		21,635		1		36		835,236		Commercial and industrial	794,526		19,038		21,635		1		36		835,236
Commercial real estate:	Commercial real estate:													Commercial real estate:
Construction and development	Construction and development	283,921		11,423		2,733		—		—		298,077		Construction and development	283,921		11,423		2,733		0		0		298,077
Farmland	Farmland	141,107		21,307		19,471		—		—		181,885		Farmland	141,107		21,307		19,471		0		0		181,885
Multifamily	Multifamily	226,124		90		1,193		—		—		227,407		Multifamily	226,124		90		1,193		0		0		227,407
Commercial real estate-other	Commercial real estate-other	1,036,418		50,691		20,381		—		—		1,107,490		Commercial real estate-other	1,036,418		50,691		20,381		0		0		1,107,490
Total commercial real estate	Total commercial real estate	1,687,570		83,511		43,778		—		—		1,814,859		Total commercial real estate	1,687,570		83,511		43,778		0		0		1,814,859
Residential real estate:	Residential real estate:													Residential real estate:
One- to four- family first liens	One- to four- family first liens	396,175		4,547		6,532		164		—		407,418		One- to four- family first liens	396,175		4,547		6,532		164		0		407,418
One- to four- family junior liens	One- to four- family junior liens	168,229		1,282		870		—		—		170,381		One- to four- family junior liens	168,229		1,282		870		0		0		170,381
Total residential real estate	Total residential real estate	564,404		5,829		7,402		164		—		577,799		Total residential real estate	564,404		5,829		7,402		164		0		577,799
Consumer	Consumer	82,650		39		218		19		—		82,926		Consumer	82,650		39		218		19		0		82,926
Total	Total	$	3,246,524	$	121,709	$	82,813	$	184	$	36	$	3,451,266	Total	$	3,246,524	$	121,709	$	82,813	$	184	$	36	$	3,451,266

Allowance for Credit Losses

At ~~June~~September 30, 2020, the economic forecast used by the Company showed ~~continued increases~~a decline in Midwest unemployment over the next ~~three~~four forecasted ~~quarters, with improvements starting in the fourth quarter;~~quarters; increases in national retail sales over the next ~~four~~three forecasted ~~quarters;~~quarters, with a decline in the fourth quarter; decreases in the CRE index over the next two forecasted quarters, with improvements beginning in the third quarter; increases in U.S. GDP over the next three forecasted quarters, with a decline in the fourth quarter; decreases in the national home price index over the next three forecasted quarters, with improvements beginning in the fourth quarter; ~~decreases in U.S. GDP over the next two forecasted quarters, with improvements starting in the third quarter; decreases in the national home price index;~~ and ~~increases~~a decline in the U.S. rental vacancy rate through the second forecasted quarter, with ~~improvements starting~~an improvement in the third forecasted quarter, and then a decline beginning in the fourth forecasted quarter. ~~Consistent with~~These loss drivers saw improvements when compared to the prior quarter, ~~these loss drivers~~however are consistently worse when compared to recent historical trends over the past several years, largely as a result of the COVID-19 pandemic.

We have made a policy election to report interest receivable as a separate line on the balance sheet. Accrued interest receivable, which is recorded within 'Other Assets' totaled ~~$15.3~~$14.8 million at ~~June~~September 30, 2020 and is excluded from the estimate of credit losses.

1920

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The changes in the allowance for credit losses by portfolio segment were as follows:

For the Three Months Ended June 30, 2020 and 2019
(in thousands) Agricultural Commercial and Industrial Commercial Real Estate Residential Real Estate Consumer Total
For the Three Months June 30, 2020
Beginning balance $ 1,146 $ 19,309 $ 23,138 $ 6,425 $ 1,169 $ 51,187
Charge-offs (109) (902) (792) (103) (197) (2,103)
Recoveries 1 166 11 8 50 236
Credit loss expense⁽¹⁾
370 136 5,864 (256) 210 6,324
Ending balance $ 1,408 $ 18,709 $ 28,221 $ 6,074 $ 1,232 $ 55,644
For the Three Months Ended June 30, 2019
Beginning balance $ 3,691 $ 7,594 $ 14,798 $ 3,272 $ 297 $ 29,652
Charge-offs (16) (1,759) (310) (1) (101) (2,187)
Recoveries 2 100 257 8 163 530
Credit loss expense 43 1,698 �� (1,090) 98 (53) 696
Ending balance $ 3,720 $ 7,633 $ 13,655 $ 3,377 $ 306 $ 28,691
For the Six Months Ended June 30, 2020 and 2019
(in thousands) Agricultural Commercial and Industrial Commercial Real Estate Residential Real Estate Consumer Total
For the Six Months Ended June 30, 2020
Beginning balance, prior to adoption of ASC 326 $ 3,748 $ 8,394 $ 13,804 $ 2,685 $ 448 $ 29,079
Day 1 transition adjustment from adoption of ASC 326 (2,557) 2,728 1,300 2,050 463 3,984
Charge-offs (193) (1,373) (1,512) (103) (419) (3,600)
Recoveries 26 379 19 15 96 535
Credit loss expense⁽¹⁾
384 8,581 14,610 1,427 644 25,646
Ending balance $ 1,408 $ 18,709 $ 28,221 $ 6,074 $ 1,232 $ 55,644
For the Six Months Ended June 30, 2019
Beginning balance $ 3,637 $ 7,478 $ 15,635 $ 2,349 $ 208 $ 29,307
Charge-offs (150) (2,113) (960) (50) (269) (3,542)
Recoveries 9 148 265 17 197 636
Credit loss expense 224 2,120 (1,285) 1,061 170 2,290
Ending balance $ 3,720 $ 7,633 $ 13,655 $ 3,377 $ 306 $ 28,691
(1) The difference in the credit loss expense reported herein as compared to the Consolidated Statements of Income is associated with the credit loss expense of $(1.6) million and $772 thousand related to off-balance sheet credit exposures for the three months and six months ended June 30, 2020, respectively.



	For the Three Months Ended September 30, 2020 and 2019
(in thousands)	Agricultural		Commercial and Industrial		Commercial Real Estate		Residential Real Estate		Consumer		Total
For the Three Months September 30, 2020
Beginning balance	$	1,408	$	18,709	$	28,221	$	6,074	$	1,232	$	55,644
Charge-offs	(746)		(983)		(275)		(83)		(101)		(2,188)
Recoveries	103		180		9		14		41		347
Credit loss expense(1)	649		(1,267)		2,966		2,273		76		4,697
Ending balance	$	1,414	$	16,639	$	30,921	$	8,278	$	1,248	$	58,500

For the Three Months Ended September 30, 2019
Beginning balance	$	3,720	$	7,633	$	13,655	$	3,377	$	306	$	28,691
Charge-offs	(986)		(328)		—		(121)		(200)		(1,635)
Recoveries	22		9		8		49		124		212
Credit loss expense	1,372		1,680		1,808		(742)		146		4,264
Ending balance	$	4,128	$	8,994	$	15,471	$	2,563	$	376	$	31,532

	For the Nine Months Ended September 30, 2020 and 2019
(in thousands)	Agricultural		Commercial and Industrial		Commercial Real Estate		Residential Real Estate		Consumer		Total
For the Nine Months Ended September 30, 2020
Beginning balance, prior to adoption of ASC 326	$	3,748	$	8,394	$	13,804	$	2,685	$	448	$	29,079
Day 1 transition adjustment from adoption of ASC 326	(2,557)		2,728		1,300		2,050		463		3,984
Charge-offs	(939)		(2,356)		(1,787)		(186)		(520)		(5,788)
Recoveries	129		559		28		29		137		882
Credit loss expense(1)	1,033		7,314		17,576		3,700		720		30,343
Ending balance	$	1,414	$	16,639	$	30,921	$	8,278	$	1,248	$	58,500

For the Nine Months Ended September 30, 2019
Beginning balance	$	3,637	$	7,478	$	15,635	$	2,349	$	208	$	29,307
Charge-offs	(1,137)		(2,441)		(960)		(171)		(469)		(5,178)
Recoveries	31		158		272		67		321		849
Credit loss expense	1,597		3,799		524		318		316		6,554
Ending balance	$	4,128	$	8,994	$	15,471	$	2,563	$	376	$	31,532
(1) The difference in the credit loss expense reported herein as compared to the Consolidated Statements of Income is associated with the credit loss expense of $0.3 million and $1.1 million related to off-balance sheet credit exposures for the three months and nine months ended September 30, 2020, respectively.

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


		As of June 30, 2020																							As of September 30, 2020
(in thousands)	(in thousands)	Agricultural		Commercial and Industrial		Commercial Real Estate		Residential Real Estate		Consumer		Total		(in thousands)	Agricultural		Commercial and Industrial		Commercial Real Estate		Residential Real Estate		Consumer		Total
Loans held for investment, net of unearned income	Loans held for investment, net of unearned income													Loans held for investment, net of unearned income
Individually evaluated for impairment	Individually evaluated for impairment	$	2,747	$	8,593	$	23,714	$	204	$	8	$	35,266	Individually evaluated for impairment	$	2,161	$	7,774	$	23,412	$	204	$	7	$	33,558
Collectively evaluated for impairment	Collectively evaluated for impairment	138,090		1,075,934		1,741,025		532,710		74,014		3,561,773		Collectively evaluated for impairment	127,292		1,095,328		1,683,623		521,366		76,265		3,503,874
Total	Total	$	140,837	$	1,084,527	$	1,764,739	$	532,914	$	74,022	$	3,597,039	Total	$	129,453	$	1,103,102	$	1,707,035	$	521,570	$	76,272	$	3,537,432
Allowance for credit losses:	Allowance for credit losses:													Allowance for credit losses:
Individually evaluated for impairment	Individually evaluated for impairment	$	490	$	1,774	$	915	$	—	$	—	$	3,179	Individually evaluated for impairment	$	55	$	504	$	675	$	—	$	—	$	1,234
Collectively evaluated for impairment	Collectively evaluated for impairment	918		16,935		27,306		6,074		1,232		52,465		Collectively evaluated for impairment	1,359		16,135		30,246		8,278		1,248		57,266
Total	Total	$	1,408	$	18,709	$	28,221	$	6,074	$	1,232	$	55,644	Total	$	1,414	$	16,639	$	30,921	$	8,278	$	1,248	$	58,500

2021

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		As of December 31, 2019																							As of December 31, 2019
(in thousands)	(in thousands)	Agricultural		Commercial and Industrial		Commercial Real Estate		Residential Real Estate		Consumer		Total		(in thousands)	Agricultural		Commercial and Industrial		Commercial Real Estate		Residential Real Estate		Consumer		Total
Loans held for investment, net of unearned income	Loans held for investment, net of unearned income													Loans held for investment, net of unearned income
Individually evaluated for impairment	Individually evaluated for impairment	$	4,312	$	12,242	$	16,082	$	838	$	21	$	33,495	Individually evaluated for impairment	$	4,312	$	12,242	$	16,082	$	838	$	21	$	33,495
Collectively evaluated for impairment	Collectively evaluated for impairment	135,246		822,939		1,781,306		572,865		82,864		3,395,220		Collectively evaluated for impairment	135,246		822,939		1,781,306		572,865		82,864		3,395,220
Purchased credit impaired loans	Purchased credit impaired loans	888		55		17,471		4,096		41		22,551		Purchased credit impaired loans	888		55		17,471		4,096		41		22,551
Total	Total	$	140,446	$	835,236	$	1,814,859	$	577,799	$	82,926	$	3,451,266	Total	$	140,446	$	835,236	$	1,814,859	$	577,799	$	82,926	$	3,451,266
Allowance for loan losses:	Allowance for loan losses:													Allowance for loan losses:
Individually evaluated for impairment	Individually evaluated for impairment	$	212	$	2,198	$	1,180	$	73	$	—	$	3,663	Individually evaluated for impairment	$	212	$	2,198	$	1,180	$	73	$	—	$	3,663
Collectively evaluated for impairment	Collectively evaluated for impairment	3,536		6,194		11,836		2,152		448		24,166		Collectively evaluated for impairment	3,536		6,194		11,836		2,152		448		24,166
Purchased credit impaired loans	Purchased credit impaired loans	—		2		788		460		—		1,250		Purchased credit impaired loans	0		2		788		460		0		1,250
Total	Total	$	3,748	$	8,394	$	13,804	$	2,685	$	448	$	29,079	Total	$	3,748	$	8,394	$	13,804	$	2,685	$	448	$	29,079

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


		As of June 30, 2020																	As of September 30, 2020
(in thousands)	(in thousands)	Primary Type of Collateral																(in thousands)	Primary Type of Collateral
		Real Estate		Equipment		Other		Total		ACL Allocation			Real Estate		Equipment		Other		Total		ACL Allocation
Agricultural	Agricultural	$	124	$	2,011	$	612	$	2,747	$	490	Agricultural	$	767	$	741	$	653	$	2,161	$	55
Commercial and industrial	Commercial and industrial	1,230		4,066		3,297		8,593		1,774		Commercial and industrial	682		4,151		2,941		7,774		504
Commercial real estate:	Commercial real estate:											Commercial real estate:
Construction and development	Construction and development	700		—		—		700		—		Construction and development	1,006		0		0		1,006		0
Farmland	Farmland	13,646		—		—		13,646		283		Farmland	11,826		1,345		0		13,171		88
Multifamily	Multifamily	—		—		—		—		—		Multifamily	0		0		0		0		0
Commercial real estate-other	Commercial real estate-other	9,368		—		—		9,368		632		Commercial real estate-other	8,794		441		0		9,235		587
Residential real estate:	Residential real estate:											Residential real estate:
One- to four- family first liens	One- to four- family first liens	204		—		—		204		—		One- to four- family first liens	204		0		0		204		0
One- to four- family junior liens	One- to four- family junior liens	—		—		—		—		—		One- to four- family junior liens	0		0		0		0		0
Consumer	Consumer	—		8		—		8		—		Consumer	7		0		0		7		0
Total	Total	$	25,272	$	6,085	$	3,909	$	35,266	$	3,179	Total	$	23,286	$	6,678	$	3,594	$	33,558	$	1,234

Troubled Debt Restructurings

TDRs totaled ~~$8.9~~$9.4 million and $11.0 million as of ~~June~~September 30, 2020 and December 31, 2019, respectively. The following table sets forth information on the Company's TDRs by class of financing receivable occurring during the stated periods. TDRs ~~may~~

~~Table of Contents~~

include multiple concessions, and the disclosure classifications in the table are based on the primary concession provided to the borrower.

Three Months Ended June 30,
2020 2019
Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment
(dollars in thousands)
CONCESSION - Extended maturity date
One- to four- family first liens 2 $ 145 $ 145 3 $ 240 $ 239
One- to four- family junior liens — — — 1 25 25
CONCESSION - Other
Agricultural 1 208 208 — — —
Farmland 2 354 354 — — —
Total 5 $ 707 $ 707 4 $ 265 $ 264

Table of Contents


	Three Months Ended September 30,
	2020					2019
	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
(dollars in thousands)
CONCESSION - Interest rate reduction

Commercial and industrial	1	$	143	$	143	—	$	—	$	—








CONCESSION - Extended maturity date
Agricultural	—	—		—		7	341		341
Commercial and industrial	—	—		—		1	1,863		1,863

Farmland	—	—		—		1	158		158


One- to four- family first liens	1	128		132		—	—		—
One- to four- family junior liens	—	—		—		1	5		5


CONCESSION - Other
Agricultural	1	59		69		—	—		—


Farmland	1	150		161		—	—		—





Total	4	$	480	$	505	10	$	2,367	$	2,367

Six Months Ended June 30,
2020 2019
Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment
(dollars in thousands)
CONCESSION - Extended maturity date
Commercial real estate-other 3 $ 759 $ 808 — $ — $ —
One- to four- family first liens 2 145 145 3 240 239
One- to four- family junior liens — — — 2 76 76
CONCESSION - Other
Agricultural 1 208 208 — — —
Farmland 2 354 354 — — —
Total 8 $ 1,466 $ 1,515 5 $ 316 $ 315


	Nine Months Ended September 30,
	2020					2019
	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
(dollars in thousands)
CONCESSION - Interest rate reduction

Commercial and industrial	1	$	143	$	143	—	$	—	$	—








CONCESSION - Extended maturity date
Agricultural	—	—		—		7	341		341
Commercial and industrial	—	—		—		1	1,863		1,863

Farmland	—	—		—		1	158		158

Commercial real estate-other	3	759		808		—	—		—
One- to four- family first liens	3	274		278		3	240		239
One- to four- family junior liens	—	—		—		3	81		81


CONCESSION - Other
Agricultural	2	267		278		—	—		—


Farmland	3	504		514		—	—		—





Total	12	$	1,947	$	2,021	15	$	2,683	$	2,682

For the three months and ~~six~~nine months ended ~~June~~September 30, 2020, the Company had 04 TDRs, totaling $412 thousand that redefaulted within 12 months subsequent to restructure. These TDRs that redefaulted within 12 months subsequent to ~~restructure.~~ restructure consisted of the following for the three and nine months ended September 30, 2020: 1 agricultural contract totaling $59 thousand, 1 farmland contract totaling $150 thousand, and 2 one-to four-family first lien contracts totaling $203 thousand.

For the three and ~~six~~nine months ended ~~June~~September 30, 2019, the Company had 012 TDRs, totaling $742 thousand that redefaulted within 12 months subsequent to restructure. These TDRs that redefaulted within 12 months subsequent to ~~restructure.~~restructure consisted of the following for the three and nine months ended September 30, 2019: 6 agricultural contracts totaling $315 thousand, 1 farmland contract totaling $158 thousand, 3 one-to four-family first lien contracts totaling $239 thousand, and 2 one-to four-family junior lien contracts totaling $30 thousand.

Table of Contents

Modifications in response to COVID-19:

The Company began offering short-term loan modifications to assist borrowers during the COVID-19 pandemic. The CARES Act along with a joint interagency statement issued by the federal banking agencies provides that short-term modifications made in response to COVID-19 do not need to be accounted for as a TDR. Accordingly, the Company does not account for such loan modifications as TDRs. The Company's loan modifications allow for the initial deferral of three months of principal and / or interest. The deferred interest is due and payable at the end of the deferral period and the deferred principal is due and payable on the maturity date. At ~~June~~September 30, 2020, we had granted short-term payment deferrals on ~~$462.2~~$115.3 million of loans. The program is ongoing and additional loans continue to be granted deferrals.

~~Table of Contents~~

Pre-ASC 326 Adoption Impaired Loan Disclosures

The following table presents loans individually evaluated for impairment by class of receivable as of December 31, ~~2019:~~2019, which was prior to the adoption of ASC 326:


	December 31, 2019
(in thousands)		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Agricultural		$	2,383	$	2,913	$	—
Commercial and industrial		7,391		10,875		—
Commercial real estate:
Construction and development		1,181		1,218		—
Farmland		4,306		4,331		—
Multifamily		—		—		—
Commercial real estate-other		5,709		5,854		—
Total commercial real estate		11,196		11,403		—
Residential real estate:
One- to four- family first liens		577		578		—
One- to four- family junior liens		—		—		—
Total residential real estate		577		578		—
Consumer		21		21		—
Total		$	21,568	$	25,790	$	—
With an allowance recorded:
Agricultural		$	1,929	$	1,930	$	212
Commercial and industrial		4,851		5,417		2,198
Commercial real estate:
Construction and development		135		135		135
Farmland		1,109		1,148		347
Multifamily		—		—		—
Commercial real estate-other		3,642		4,229		698
Total commercial real estate		4,886		5,512		1,180
Residential real estate:
One- to four- family first liens		261		262		73
One- to four- family junior liens		—		—		—
Total residential real estate		261		262		73
Consumer		—		—		—
Total		$	11,927	$	13,121	$	3,663
Total:
Agricultural		$	4,312	$	4,843	$	212
Commercial and industrial		12,242		16,292		2,198
Commercial real estate:
Construction and development		1,316		1,353		135
Farmland		5,415		5,479		347
Multifamily		—		—		—
Commercial real estate-other		9,351		10,083		698
Total commercial real estate		16,082		16,915		1,180
Residential real estate:
One- to four- family first liens		838		840		73
One- to four- family junior liens		—		—		—
Total residential real estate		838		840		73
Consumer		21		21		—
Total		$	33,495	$	38,911	$	3,663

2324

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The following table presents the average recorded investment and interest income recognized for loans individually evaluated for impairment by class of receivable, during the stated ~~period:~~periods, which were prior to the adoption of ASC 326:


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,					Nine Months Ended September 30,
		2019						2019					2019			2019
(in thousands)	(in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		(in thousands)	Average Recorded Investment		Interest Income Recognized			Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:	With no related allowance recorded:									With no related allowance recorded:
Agricultural	Agricultural	$	2,632	$	47	$	2,227	$	12	Agricultural	$	2,260	$	11		$	1,962	$	—
Commercial and industrial	Commercial and industrial	4,347		—		4,610		—		Commercial and industrial	5,199		2			4,961		—
Commercial real estate:	Commercial real estate:									Commercial real estate:
Construction and development	Construction and development	—		—		—		—		Construction and development	—		—			—		—
Farmland	Farmland	3,001		32		2,011		—		Farmland	2,410		—			1,710		—
Multifamily	Multifamily	—		—		—		—		Multifamily	—		—			—		—
Commercial real estate-other	Commercial real estate-other	920		10		857		20		Commercial real estate-other	1,541		7			1,361		20
Total commercial real estate	Total commercial real estate	3,921		42		2,868		20		Total commercial real estate	3,951		7			3,071		20
Residential real estate:	Residential real estate:									Residential real estate:
One- to four- family first liens	One- to four- family first liens	497		—		332		—		One- to four- family first liens	347		—			260		—
One- to four- family junior liens	One- to four- family junior liens	75		—		50		—		One- to four- family junior liens	—		—			—		—
Total residential real estate	Total residential real estate	572		—		382		—		Total residential real estate	347		—			260		—
Consumer	Consumer	21		—		14		—		Consumer	21		—			16		—
Total	Total	$	11,493	$	89	$	10,101	$	32	Total	$	11,778	$	20		$	10,270	$	20
With an allowance recorded:	With an allowance recorded:									With an allowance recorded:
Agricultural	Agricultural	$	2,363	$	53	$	2,279	$	60	Agricultural	$	1,527	$	—		$	1,378	$	31
Commercial and industrial	Commercial and industrial	4,271		—		4,042		—		Commercial and industrial	4,577		16			3,386		—
Commercial real estate:	Commercial real estate:									Commercial real estate:
Construction and development	Construction and development	—		—		—		—		Construction and development	—		—			—		—
Farmland	Farmland	86		5		57		5		Farmland	649		—			586		5
Multifamily	Multifamily	—		—		—		—		Multifamily	��		—			—		—
Commercial real estate-other	Commercial real estate-other	2,044		10		1,931		12		Commercial real estate-other	2,507		82			1,834		93
Total commercial real estate	Total commercial real estate	2,130		15		1,988		17		Total commercial real estate	3,156		82			2,420		98
Residential real estate:	Residential real estate:									Residential real estate:
One- to four- family first liens	One- to four- family first liens	526		6		440		8		One- to four- family first liens	265		2			266		7
One- to four- family junior liens	One- to four- family junior liens	—		—		—		—		One- to four- family junior liens	—		—			—		—
Total residential real estate	Total residential real estate	526		6		440		8		Total residential real estate	265		2			266		7
Consumer	Consumer	—		—		—		—		Consumer	—		—			—		—
Total	Total	$	9,290	$	74	$	8,749	$	85	Total	$	9,525	$	100		$	7,450	$	136
Total:	Total:									Total:
Agricultural	Agricultural	$	4,995	$	100	$	4,506	$	72	Agricultural	$	3,787	$	11		$	3,340	$	31
Commercial and industrial	Commercial and industrial	8,618		—		8,652		—		Commercial and industrial	9,776		18			8,347		—
Commercial real estate:	Commercial real estate:									Commercial real estate:
Construction and development	Construction and development	—		—		—		—		Construction and development	—		—			—		—
Farmland	Farmland	3,087		37		2,068		5		Farmland	3,059		—			2,296		5
Multifamily	Multifamily	—		—		—		—		Multifamily	—		—			—		—
Commercial real estate-other	Commercial real estate-other	2,964		20		2,788		32		Commercial real estate-other	4,048		89			3,195		113
Total commercial real estate	Total commercial real estate	6,051		57		4,856		37		Total commercial real estate	7,107		89			5,491		118
Residential real estate:	Residential real estate:									Residential real estate:
One- to four- family first liens	One- to four- family first liens	1,023		6		772		8		One- to four- family first liens	612		2			526		7
One- to four- family junior liens	One- to four- family junior liens	75		—		50		—		One- to four- family junior liens	—		—			—		—
Total residential real estate	Total residential real estate	1,098		6		822		8		Total residential real estate	612		2			526		7
Consumer	Consumer	21		—		14		—		Consumer	21		—			16		—
Total	Total	$	20,783	$	163	$	18,850	$	117	Total	$	21,303	$	120		$	17,720	$	156

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Purchased Credit Impaired Loans (Pre-ASC 326 Adoption)

The following table summarizes the outstanding balance and carrying amount of our PCI loans that were identified prior to the adoption of ASC 326:


	December 31, 2019
(in thousands)
Agricultural	$	904
Commercial and industrial	147
Commercial real estate	17,803
Residential real estate	4,136
Consumer	57
Outstanding balance	23,047
Carrying amount	22,551
Allowance for credit losses	1,250
Carrying amount, net of allowance for credit losses	$	21,301

5. Derivatives, Hedging Activities and Balance Sheet Offsetting

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

The fair values of the Company's derivative instrument assets and liabilities are summarized as follows:


		As of June 30, 2020												As of December 31, 2019																		As of September 30, 2020									As of December 31, 2019
		Notional Amount		Fair Value								Notional Amount		Fair Value										Notional Amount				Fair Value								Notional Amount				Fair Value
(in thousands)	(in thousands)					Assets			Liabilities					Assets			Liabilities		(in thousands)	Notional Amount								Liabilities				Notional Amount								Liabilities
Designated as hedging instruments	Designated as hedging instruments															Designated as hedging instruments
Fair value hedges	Fair value hedges															Fair value hedges
Interest rate swaps	Interest rate swaps	$	25,927	$	—		$	3,106		$	16,734	$	—	$	1,113	Interest rate swaps		$	25,744			$	0			$	2,926			$	16,734			$	0			$	1,113
Cash flow hedges	Cash flow hedges															Cash flow hedges
Interest rate swaps	Interest rate swaps	30,000		—			960			—		—		—		Interest rate swaps		30,000		0				864				0				0				0
Total	Total	$	55,927	$	—		$	4,066		$	16,734	$	—	$	1,113	Total		$	55,744	$	0			$	3,790			$	16,734			$	0			$	1,113

Not designated as hedging instruments:	Not designated as hedging instruments:															Not designated as hedging instruments:
Interest rate swaps	Interest rate swaps	$	340,444	$	14,388		$	14,440		$	113,632	$	1,824	$	1,999	Interest rate swaps		$	342,670	$	13,550			$	13,692			$	113,632			$	1,824			$	1,999
RPAs - protection sold	RPAs - protection sold	4,589		3			—			4,702		24		—		RPAs - protection sold		4,530		10				0				4,702				24				0
RPAs - protection purchased	RPAs - protection purchased	9,920		—			11			10,009		—		130		RPAs - protection purchased		9,873		0				21				10,009				0				130
Total	Total	$	354,953	$	14,391		$	14,451		$	128,343	$	1,848	$	2,129	Total		$	357,073	$	13,560			$	13,713			$	128,343			$	1,848			$	2,129

Derivatives Designated as Hedging Instruments

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

Fair Value Hedges - Derivatives are designated as fair value hedges to limit the Company's exposure to changes in the fair value of assets or liabilities due to movements in interest rates. The Company entered into pay-fixed receive-floating interest rate swaps to manage its exposure to changes in fair value in certain fixed-rate assets. The gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in interest income.

Cash Flow Hedges - Derivatives are designated as cash flow hedges in order to minimize the variability in cash flows of earning assets or forecasted transactions caused by movement in interest rates. In February 2020, the Company entered into a pay-fixed receive-variable interest rate swap with a notional amount of $30.0 million to hedge against adverse fluctuations in interest rates by reducing exposure to variability in cash flows relating to interest payments on the Company's variable rate debt. ~~The~~

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The interest rate swap is designated as a cash flow hedge. The gain or loss on the derivative is recorded in accumulated other comprehensive income and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings. During 2020, the Company estimates that an additional ~~$356~~$358 thousand will be reclassified to interest expense.

The table below presents the effect of cash flow hedge accounting on AOCI for three months and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019.


		Amount of Gain (Loss) Recognized in AOCI on Derivative					Location of Gain (Loss) Reclassified from AOCI into Income		Amount of Gain (Loss) Reclassified from AOCI into Income							Amount of Gain (Loss) Recognized in AOCI on Derivative			Location of Gain (Loss) Reclassified from AOCI into Income		Amount of Gain (Loss) Reclassified from AOCI into Income
		Three Months Ended June 30,							Three Months Ended June 30,							Three Months Ended September 30,					Three Months Ended September 30,
(in thousands)	(in thousands)	2020		2019			2020		2019		(in thousands)	2020		2019			2020		2019
Interest rate swaps	Interest rate swaps	$	(129)	$	—	Interest Expense	$	(62)	$	—	Interest rate swaps	$	8	$	0	Interest Expense	$	(88)	$	0

		Amount of Gain (Loss) Recognized in AOCI on Derivative					Location of Gain (Loss) Reclassified from AOCI into Income		Amount of Gain (Loss) Reclassified from AOCI into Income							Amount of Gain (Loss) Recognized in AOCI on Derivative			Location of Gain (Loss) Reclassified from AOCI into Income		Amount of Gain (Loss) Reclassified from AOCI into Income
		Six Months Ended June 30,							Six Months Ended June 30,							Nine Months Ended September 30,					Nine Months Ended September 30,
(in thousands)	(in thousands)	2020		2019			2020		2019		(in thousands)	2020		2019			2020		2019
Interest rate swaps	Interest rate swaps	$	(1,017)	$	—	Interest Expense	$	(57)	$	—	Interest rate swaps	$	(1,009)	$	0	Interest Expense	$	(145)	$	0

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


		Location and Amount of Gain or Loss Recognized in Income on Fair Value and Cash Flow Hedging Relationships																															Location and Amount of Gain or Loss Recognized in Income on Fair Value and Cash Flow Hedging Relationships
		For the Three Months Ended June 30,														For the Six Months Ended June 30,															For the Three Months Ended September 30,					For the Nine Months Ended September 30,
		2020						2019						2020								2019					2020				2019				2020	2019
(in thousands)	(in thousands)	Interest Income		Interest Expense		Interest Income		Interest Expense		Interest Income		Interest Expense		Interest Income		Interest Expense		(in thousands)	Interest Income		Interest Expense		Interest Income		Interest Expense		Interest Income		Interest Expense		Interest Income		Interest Expense
Total amounts of income and expense line items presented in the consolidated statements of income in which the effects of fair value or cash flow hedges are recorded	Total amounts of income and expense line items presented in the consolidated statements of income in which the effects of fair value or cash flow hedges are recorded	$	(80)	$	—	$	—	$	—	$	(127)	$	—	$	(1)	$	—	Total amounts of income and expense line items presented in the consolidated statements of income in which the effects of fair value or cash flow hedges are recorded	$	(102)	$	0	$	(1)	$	0	$	(229)	$	0	$	(2)	$	0

The effects of fair value and cash flow hedging:	The effects of fair value and cash flow hedging:																	The effects of fair value and cash flow hedging:
Gain (loss) on fair value hedging relationships in subtopic 815-20:	Gain (loss) on fair value hedging relationships in subtopic 815-20:																	Gain (loss) on fair value hedging relationships in subtopic 815-20:
Interest contracts:	Interest contracts:																	Interest contracts:
Hedged items	Hedged items	237		—		491		—		1,988		—		795		—		Hedged items	(174)		0		617		0		1,814		0		1,412		0
Derivative designated as hedging instruments	Derivative designated as hedging instruments	(232)		—		(491)		—		(1,993)		—		(796)		—		Derivative designated as hedging instruments	180				(618)		0		(1,813)		0		(1,414)		0

Income statement effect of cash flow hedging relationships in subtopic 815-20:	Income statement effect of cash flow hedging relationships in subtopic 815-20:																	Income statement effect of cash flow hedging relationships in subtopic 815-20:
Interest contracts:	Interest contracts:																	Interest contracts:
Amount reclassified from AOCI into income	Amount reclassified from AOCI into income	—		62		—		—		—		57		—		—		Amount reclassified from AOCI into income	0		88		—		—		—		145		0		0

As of ~~June~~September 30, 2020, 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

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

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

29,035

3,099

Loans

28,679

2,924

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Derivatives Not Designated as Hedging Instruments

Interest Rate Swaps - The Company has also entered into interest rate swap contracts. The derivative contracts related to transactions in which the Company enters into an interest rate swap with a customer, while simultaneously entering into an offsetting interest rate swap with an institutional counterparty.

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

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


		Location in the Consolidated Statements of Income	For the Three Months Ended June 30,									For the Six Months Ended June 30,									Location in the Consolidated Statements of Income			For the Three Months Ended September 30,						For the Nine Months Ended September 30,
(in thousands)	(in thousands)				2020			2019			2020			2019	(in thousands)		Location in the Consolidated Statements of Income			2020			2019			2020			2019
Interest rate swaps	Interest rate swaps	Other income	$	(18)		$	(108)		$	123		$	(130)	Interest rate swaps		Other income		$	(90)		$	(96)		$	33		$	(226)
RPAs	RPAs	Other income	(6)			(107)			97			(124)		RPAs		Other income		(3)			(24)			94			(148)
Total	Total		$	(24)		$	(215)		$	220		$	(254)	Total				$	(93)		$	(120)		$	127		$	(374)

Offsetting of Derivatives

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

The following table below presents gross derivatives and the respective collateral received or pledged in the form of other financial instruments as of ~~June~~September 30, 2020 and December 31, 2019, which are generally marketable securities and/or cash. The collateral amounts in the table below are limited to the outstanding balances of the related asset or liability (after netting is applied); thus instances of ~~overcollateralization~~over-collateralization are not shown. Further, the net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the consolidated balance sheets.


										Gross Amounts Not Offset in the Balance Sheet																Gross Amounts Not Offset in the Balance Sheet
(in thousands)	(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 Pledged		Net Assets (Liabilities)		(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 Pledged			Net Assets (Liabilities)
As of June 30, 2020
As of September 30, 2020															As of September 30, 2020
Asset Derivatives	Asset Derivatives	$	14,391	$	—	$	14,391	$	—		$	—	$	14,391	Asset Derivatives	$	13,560	$	0	$	13,560	$	0	$	0		$	13,560
Liability Derivatives	Liability Derivatives	(18,517)		—		(18,517)		—			(18,517)		—		Liability Derivatives	(17,503)		0		(17,503)		0		(17,503)			0

As of December 31, 2019	As of December 31, 2019														As of December 31, 2019
Asset Derivatives	Asset Derivatives	$	1,848	$	—	$	1,848	$	—		$	—	$	1,848	Asset Derivatives	$	1,848	$	0	$	1,848	$	0	$	0		$	1,848
Liability Derivatives	Liability Derivatives	(3,242)		—		(3,242)		—			(3,242)		—		Liability Derivatives	(3,242)		0		(3,242)		0		(3,242)			0

Credit-risk-related Contingent Features

The Company has an unsecured federal funds line with its institutional derivative counterparty. The Company has an agreement with its institutional 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~~September 30, 2020, 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 ~~$18.7~~$17.7 million. As of ~~June~~September 30, 2020, the Company had minimum collateral posting thresholds with certain of its derivative counterparties and has posted ~~$14.4~~$13.6 million of collateral related to these agreements. If the Company had breached any of these provisions at ~~June~~September 30, 2020, it could have been required to settle its obligations under the agreements at their termination value of ~~$18.7~~$17.7 million.

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6. Goodwill and Intangible Assets

Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations accounted for as acquisitions. Under ASC Topic 350, goodwill of a reporting unit is tested for impairment on an annual basis, or between annual tests if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying amount. The Company's annual assessment is done at the reporting unit level, which the Company has concluded is at the consolidated level. Due to the continued economic impact that COVID-19 has had on the Company, management concluded that factors, such as the decline in macroeconomic conditions and a sustained decrease in share price, have led to the occurrence of a triggering event and therefore an interim impairment test over goodwill was performed as of September 30, 2020.

The Company performed a market capitalization approach, a guideline public company approach and a discounted cash flow approach, to determine the fair value of the Company. As a result of this interim assessment, the Company recorded a goodwill impairment charge of $31.5 million as its estimated fair value was less than its book value on that date. This non-cash charge was reflected within "Noninterest expense" in the Consolidated Statements of Income and had no impact on the Company's regulatory capital ratios, cash flows and liquidity position.

The following table presents the changes in the carrying amount of goodwill for the ~~periods~~period indicated:


	~~Six~~Nine Months Ended ~~June~~September 30,
(in thousands)	2020
Goodwill, beginning of period	$	91,918
Fair value adjustment(1)	2,059
Goodwill impairment	(31,500)
Total goodwill, end of period	$	~~93,977~~62,477

(1) Goodwill adjustments consisted of the ATBancorp acquisition purchase accounting adjustments, which were finalized in the first quarter of 2020.

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


		As of June 30, 2020										As of December 31, 2019											As of September 30, 2020				As of December 31, 2019
(in thousands)	(in thousands)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		(in thousands)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Core deposit intangible	Core deposit intangible	$	41,745	$	(23,932)	$	17,813	$	41,745	$	(21,032)	$	20,713	Core deposit intangible	$	41,745	$	(25,208)	$	16,537	$	41,745	$	(21,032)	$	20,713
Customer relationship intangible	Customer relationship intangible	5,265		(2,000)		3,265		5,265		(1,195)		4,070		Customer relationship intangible	5,265		(2,324)		2,941		5,265		(1,195)		4,070
Other	Other	2,700		(2,375)		325		2,700		(2,305)		395		Other	2,700		(2,407)		293		2,700		(2,305)		395
		$	49,710	$	(28,307)	$	21,403	$	49,710	$	(24,532)	$	25,178		$	49,710	$	(29,939)	$	19,771	$	49,710	$	(24,532)	$	25,178

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

The following table provides the ~~estimate~~estimated future amortization expense for the remaining ~~six~~three months ending December 31, 2020 and the succeeding annual periods:


		Core Deposit Intangible		Customer Relationship Intangible			Other		Total			Core Deposit Intangible		Customer Relationship Intangible		Other		Total
Estimated Amortization Expense for the Year Ending December 31,
Estimated Remaining Amortization Expense for the Year Ending December 31,											Estimated Remaining Amortization Expense for the Year Ending December 31,
2020	2020	$	2,507	$	630		$	63	$	3,200	2020	$	1,231	$	306	$	31	$	1,568
2021	2021	4,190		1,062			106		5,358		2021	4,190		1,062		106		5,358
2022	2022	3,487		797		��	79		4,363		2022	3,487		797		79		4,363
2023	2023	2,833		518			51		3,402		2023	2,833		518		51		3,402
2024	2024	2,180		239			24		2,443		2024	2,180		239		24		2,443
Thereafter	Thereafter	2,616		19			2		2,637		Thereafter	2,616		19		2		2,637
Total	Total	$	17,813	$	3,265		$	325	$	21,403	Total	$	16,537	$	2,941	$	293	$	19,771

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7. Other Assets

The components of the Company's other assets as of ~~June~~September 30, 2020 and December 31, 2019 were as follows:

(in thousands) June 30, 2020 December 31, 2019
Bank-owned life insurance $ 82,411 $ 81,625
Interest receivable 21,082 18,525
FHLB stock 12,858 15,381
Mortgage servicing rights 5,833 7,026
Operating lease ROU assets, net 4,067 4,499
Federal & state taxes, current — 2,318
Federal & state taxes, deferred 7,435 3,530
Derivative assets 14,391 1,848
Other receivables/assets 12,464 13,208
$ 160,541 $ 147,960

~~Table of Contents~~


(in thousands)	September 30, 2020		December 31, 2019

Bank-owned life insurance	$	82,942	$	81,625
Interest receivable	21,112		18,525
FHLB stock	12,246		15,381
Mortgage servicing rights	5,274		7,026
Operating lease right-of-use assets, net	3,860		4,499
Federal and state income taxes, current	725		2,318
Federal and state income taxes, deferred	7,413		3,530
Derivative assets	13,560		1,848
Other receivables/assets	12,375		13,208
	$	159,507	$	147,960

8. Deposits

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


(in thousands)	(in thousands)	As of June 30, 2020		As of December 31, 2019		(in thousands)	As of September 30, 2020		As of December 31, 2019
Noninterest bearing deposits	Noninterest bearing deposits	$	867,637	$	662,209	Noninterest bearing deposits	$	864,504	$	662,209
Interest checking deposits	Interest checking deposits	1,153,697		962,830		Interest checking deposits	1,230,146		962,830
Money market deposits	Money market deposits	811,368		763,028		Money market deposits	871,336		763,028
Savings deposits	Savings deposits	463,262		387,142		Savings deposits	486,876		387,142
Time deposits under $250,000	Time deposits under $250,000	656,723		682,232		Time deposits under $250,000	617,229		682,232
Time deposits of $250,000 or more	Time deposits of $250,000 or more	312,748		271,214		Time deposits of $250,000 or more	263,550		271,214
Total deposits	Total deposits	$	4,265,435	$	3,728,655	Total deposits	$	4,333,641	$	3,728,655

The Company had ~~$5.2~~$6.2 million and $6.6 million in brokered time deposits through the CDARS program as of ~~June~~September 30, 2020 and December 31, 2019, respectively. Included in money market deposits at ~~June~~September 30, 2020 and December 31, 2019 were ~~$12.6~~$16.1 million and $10.1 million, respectively, of brokered deposits through the ICS program.

As of ~~June~~September 30, 2020 and December 31, 2019, the Company had public entity deposits that were collateralized by investment securities of ~~$130.7~~$138.8 million and $96.6 million, respectively.

9. Short-Term Borrowings

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


		June 30, 2020						December 31, 2019							September 30, 2020				December 31, 2019
(in thousands)	(in thousands)	Weighted Average Rate		Balance		Weighted Average Rate		Balance		(in thousands)	Weighted Average Rate		Balance		Weighted Average Rate		Balance
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	0.41	%	$	152,224	1.06	%	$	117,249	Securities sold under agreements to repurchase	0.35	%	$	183,893	1.06	%	$	117,249
Federal Home Loan Bank advances	Federal Home Loan Bank advances	—		—		1.73		22,100		Federal Home Loan Bank advances	0		0		1.73		22,100

Unsecured line of credit	Unsecured line of credit	1.94		10,000		—		—		Unsecured line of credit	0		0		0		0
Total	Total	0.51	%	$	162,224	1.17	%	$	139,349	Total	0.35	%	$	183,893	1.17	%	$	139,349

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.

The Bank has a secured line of credit with the FHLBDM. Advances from the FHLBDM are collateralized primarily by one- to four-family residential, commercial and agricultural real estate first mortgages equal to various percentages of the total outstanding notes. See Note 4 .4. Loans Receivable and the Allowance for Credit Losses of the notes to the consolidated financial statements.

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The Bank has unsecured federal funds lines totaling $145.0 million from multiple correspondent banking relationships. There were 0 borrowings from such lines at either ~~June~~September 30, 2020 or December 31, 2019.

At ~~June~~September 30, 2020 and December 31, 2019, the Company had 0 Federal Reserve Discount Window borrowings, while the financing capacity was ~~$65.6~~$67.9 million as of ~~June~~September 30, 2020 and $12.7 million as of December 31, 2019. As of ~~June~~September 30, 2020 and December 31, 2019, the Bank had municipal securities with a market value of ~~$70.2~~$71.9 million and $13.0 million, respectively, pledged to the Federal Reserve Bank of Chicago to secure potential borrowings.

On April 30, 2015, the Company entered into a credit agreement with a correspondent bank under which the Company could borrow up to $5.0 million from an unsecured revolving credit facility. Interest was payable at a rate of one-month LIBOR plus 2.00%. The credit agreement was amended on April 29, 2019 such that, commencing May 1, 2019, the revolving commitment amount was increased to $10.0 million with interest payable at a rate of one-month LIBOR plus 1.75%. The credit agreement was amended again on April 24, 2020 to extend the maturity date to November 30, 2020. The Company had ~~$10.0 million~~no balance outstanding under this revolving credit facility as of ~~June~~both September 30, 2020 and ~~0thing outstanding as of~~ December 31, 2019.

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10. Long-Term Debt

Junior Subordinated Notes Issued to Capital Trusts

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


(in thousands)	(in thousands)	Face Value		Book Value		Interest Rate	Rate		Maturity Date	Callable Date	(in thousands)	Face Value		Book Value		Interest Rate	Rate		Maturity Date	Callable Date
June 30, 2020
September 30, 2020											September 30, 2020
ATBancorp Statutory Trust I	ATBancorp Statutory Trust I	$	7,732	$	6,832	Three-month LIBOR + 1.68%	1.99	%	06/15/2036	06/15/2011	ATBancorp Statutory Trust I	$	7,732	$	6,841	Three-month LIBOR + 1.68%	1.93	%	06/15/2036	06/15/2011
ATBancorp Statutory Trust II	ATBancorp Statutory Trust II	12,372		10,821		Three-month LIBOR + 1.65%	1.96	%	06/15/2037	06/15/2012	ATBancorp Statutory Trust II	12,372		10,836		Three-month LIBOR + 1.65%	1.90	%	09/15/2037	06/15/2012
Barron Investment Capital Trust I	Barron Investment Capital Trust I	2,062		1,750		Three-month LIBOR + 2.15%	2.46	%	09/23/2036	09/23/2011	Barron Investment Capital Trust I	2,062		1,758		Three-month LIBOR + 2.15%	2.37	%	09/23/2036	09/23/2011
Central Bancshares Capital Trust II	Central Bancshares Capital Trust II	7,217		6,808		Three-month LIBOR + 3.50%	3.81	%	03/15/2038	03/15/2013	Central Bancshares Capital Trust II	7,217		6,820		Three-month LIBOR + 3.50%	3.75	%	03/15/2038	03/15/2013
MidWestOne Statutory Trust II	MidWestOne Statutory Trust II	15,464		15,464		Three-month LIBOR + 1.59%	1.90	%	12/15/2037	12/15/2012	MidWestOne Statutory Trust II	15,464		15,464		Three-month LIBOR + 1.59%	1.84	%	12/15/2037	12/15/2012
Total	Total	$	44,847	$	41,675						Total	$	44,847	$	41,719

December 31, 2019	December 31, 2019										December 31, 2019
ATBancorp Statutory Trust I	ATBancorp Statutory Trust I	$	7,732	$	6,814	Three-month LIBOR + 1.68%	3.57	%	06/15/2036	06/15/2011	ATBancorp Statutory Trust I	$	7,732	$	6,814	Three-month LIBOR + 1.68%	3.57	%	06/15/2036	06/15/2011
ATBancorp Statutory Trust II	ATBancorp Statutory Trust II	12,372		10,794		Three-month LIBOR + 1.65%	3.54	%	09/15/2037	06/15/2012	ATBancorp Statutory Trust II	12,372		10,794		Three-month LIBOR + 1.65%	3.54	%	09/15/2037	06/15/2012
Barron Investment Capital Trust I	Barron Investment Capital Trust I	2,062		1,732		Three-month LIBOR + 2.15%	4.08	%	09/23/2036	09/23/2011	Barron Investment Capital Trust I	2,062		1,732		Three-month LIBOR + 2.15%	4.08	%	09/23/2036	09/23/2011
Central Bancshares Capital Trust II	Central Bancshares Capital Trust II	7,217		6,783		Three-month LIBOR + 3.50%	5.39	%	03/15/2038	03/15/2013	Central Bancshares Capital Trust II	7,217		6,783		Three-month LIBOR + 3.50%	5.39	%	03/15/2038	03/15/2013
MidWestOne Statutory Trust II	MidWestOne Statutory Trust II	15,464		15,464		Three-month LIBOR + 1.59%	3.48	%	12/15/2037	12/15/2012	MidWestOne Statutory Trust II	15,464		15,464		Three-month LIBOR + 1.59%	3.48	%	12/15/2037	12/15/2012
Total	Total	$	44,847	$	41,587						Total	$	44,847	$	41,587

Subordinated Debentures

On May 1, 2019, with the acquisition of ATBancorp, the Company assumed $10.9 million of subordinated debentures (the "ATB Debentures"). ~~These debentures~~The ATB Debentures have a stated maturity of May 31, 2023, and bear interest at a fixed annual rate of 6.50%, with interest payable semi-annually on March 15th and September 15th. The Company has the option to redeem the debentures, in whole or part, at any time on or after May 31, 2021. On July 28, 2020, the Company completed the private placement offering of $65.0 million of its subordinated notes, ~~with registration rights.~~of which $63.75 million have been exchanged for subordinated notes registered under the Securities Act of 1933. The 5.75% fixed-to-floating rate subordinated notes are due July 30, 2030.

The ~~debentures~~ATB Debentures and subordinated notes constitute Tier 2 capital under the rules and regulations of the Federal Reserve applicable to the capital status of the subordinated debt of bank holding companies. The ~~debentures~~ATB Debentures and subordinated notes are phased out of Tier 2 capital by 20% of the amount of the debentures or subordinated notes in each of the five years beginning on the fifth anniversary preceding the maturity date of each debenture. At ~~June~~September 30, 2020, we were permitted to treat 40% of the ATB Debentures as Tier 2 capital.

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Other Long-Term Debt

Long-term borrowings were as follows as of ~~June~~September 30, 2020 and December 31, 2019:


		June 30, 2020						December 31, 2019							September 30, 2020				December 31, 2019
(in thousands)	(in thousands)	Weighted Average Rate		Balance		Weighted Average Rate		Balance		(in thousands)	Weighted Average Rate		Balance		Weighted Average Rate		Balance
Finance lease payable	Finance lease payable	8.89	%	$	1,162	8.89	%	$	1,224	Finance lease payable	8.89	%	$	1,130	8.89	%	$	1,224
FHLB borrowings	FHLB borrowings	1.92		108,246		2.25		145,700		FHLB borrowings	1.89		101,222		2.25		145,700
Notes payable to unaffiliated bank	Notes payable to unaffiliated bank	1.93		28,000		3.44		32,250		Notes payable to unaffiliated bank	1.91		26,750		3.44		32,250
Total	Total	1.98	%	$	137,408	2.51	%	$	179,174	Total	1.96	%	$	129,102	2.51	%	$	179,174

As a member of the FHLBDM, the Bank may borrow funds from the FHLB in amounts up to 45% of the Bank’s total assets, provided the Bank is able to pledge an adequate amount of qualified assets to secure the borrowings. Advances from the FHLB are collateralized primarily by one- to four-family residential, commercial and agricultural real estate first mortgages equal to various percentages of the total outstanding notes. See Note 4 .4. Loans Receivable and the Allowance for Credit Losses of the notes to the consolidated financial statements. At ~~June~~September 30, 2020, FHLB long-term borrowings included advances from the FHLBC, which were collateralized by investment securities. See Note 3 .3. Debt Securities 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. ~~As of~~The Company drew $25.0 million on the note prior to June 30, ~~2020,~~2015, at which time the ability to obtain additional advances ceased. The note was paid ~~off.~~off on June 30, 2020.

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On April 30, 2019, the Company entered into a $35.0 million unsecured note payable with a correspondent bank with a maturity date of April 30, 2024. Quarterly principal and interest payments began June 30, 2019 and, as of ~~June~~September 30, 2020, ~~$28.0~~$26.8 million of that note was outstanding.

11. Income Taxes

Income tax expense (benefit) based on statutory rate for the three months and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019 varied from the amount computed by applying the maximum effective federal income tax rate of 21%, 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,																For the Three Months Ended September 30,					For the Nine Months Ended September 30,
		2020						2019						2020								2019						2020				2019				2020	2019
(in thousands)	(in thousands)	Amount		% of Pretax Income		Amount		% of Pretax Income		Amount		% of Pretax Income		Amount		% of Pretax Income		(in thousands)	Amount		% of Pretax Income			Amount		% of Pretax Income		Amount		% of Pretax Income		Amount		% of Pretax Income
Income tax based on statutory rate	Income tax based on statutory rate	$	2,994	21.0	%	$	2,917	21.0	%	$	2,118	21.0	%	$	4,844	21.0	%	Income tax based on statutory rate	$	(3,686)	21.0		%	$	3,267	21.0	%	$	(1,568)	21.0	%	$	8,111	21.0	%
Tax-exempt interest	Tax-exempt interest	(703)		(4.9)		(472)		(3.4)		(1,346)		(13.3)		(940)		(4.1)		Tax-exempt interest	(801)		4.6			(791)		(5.1)		(2,147)		28.7		(1,732)		(4.5)
Bank-owned life insurance	Bank-owned life insurance	(133)		(0.9)		(99)		(0.7)		(242)		(2.4)		(181)		(0.8)		Bank-owned life insurance	(111)		0.6			(108)		(0.7)		(353)		4.7		(289)		(0.7)
State income taxes, net of federal income tax benefit	State income taxes, net of federal income tax benefit	736		5.2		744		5.4		545		5.4		1,231		5.3		State income taxes, net of federal income tax benefit	735		(4.2)			833		5.4		1,280		(17.1)		2,063		5.3
Goodwill Impairment																		Goodwill Impairment	6,615		(37.7)			0		0		6,615		(88.6)		0		0
Non-deductible acquisition expenses	Non-deductible acquisition expenses	—		—		136		1.0		—		—		162		0.7		Non-deductible acquisition expenses	0		0			5		0		0		0		167		0.5
General business credits	General business credits	(388)		(2.7)		(14)		(0.1)		(771)		(7.6)		(28)		(0.1)		General business credits	(551)		3.2			41		0.3		(1,322)		17.7		13		0
Other	Other	40		0.2		6		—		44		0.4		20		0.1		Other	71		(0.4)			9		0		115		(1.5)		31		0.1
Total income tax expense	Total income tax expense	$	2,546	17.9	%	$	3,218	23.2	%	$	348	3.5	%	$	5,108	22.1	%	Total income tax expense	$	2,272	(12.9)		%	$	3,256	20.9	%	$	2,620	(35.1)	%	$	8,364	21.7	%

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12. Earnings per Share

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

Three Months Ended June 30, Six Months Ended June 30,
(dollars in thousands, except per share amounts) 2020 2019 2020 2019
Basic Earnings Per Share:
Net income $ 11,712 $ 10,674 $ 9,737 $ 17,959
Weighted average shares outstanding 16,094,084 14,893,854 16,117,792 13,536,646
Basic earnings per common share $ 0.73 $ 0.72 $ 0.60 $ 1.33
Diluted Earnings Per Share:
Net income 11,712 $ 10,674 $ 9,737 $ 17,959
Weighted average shares outstanding, including all dilutive potential shares 16,099,682 14,900,057 16,125,375 13,545,290
Diluted earnings per common share $ 0.73 $ 0.72 $ 0.60 $ 1.33


	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands, except per share amounts)	2020		2019		2020		2019
Basic (Loss) Earnings Per Share:
Net (loss) income	$	(19,824)	$	12,300	$	(10,087)	$	30,259
Weighted average shares outstanding	16,099,324		16,200,667		16,111,591		14,434,411
Basic (loss) earnings per common share	$	(1.23)	$	0.76	$	(0.63)	$	2.10

Diluted (Loss) Earnings Per Share:
Net (loss) income	$	(19,824)	$	12,300	$	(10,087)	$	30,259
Weighted average shares outstanding, including all dilutive potential shares	16,099,324		16,214,562		16,111,591		14,444,732
Diluted (loss) earnings per common share	$	(1.23)	$	0.76	$	(0.63)	$	2.09

The weighted average shares that have an antidilutive effect in the calculation of diluted earnings per common share and have been excluded from the computation above were as follows:


	Three Months Ended September 30,	Nine Months Ended September 30,
	2020	2020
Dilutive shares (1)	7,132	6,820
(1) Dilutive potential shares that were excluded from the computation of diluted earnings per common share for the three and nine months ended September 30, 2020 as a result of the reported net loss available to common shareholders.

13. Regulatory Capital Requirements and Restrictions on Subsidiary Cash

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

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A comparison of the Company's and the Bank's capital with the corresponding minimum regulatory requirements in effect as of ~~June~~September 30, 2020 and December 31, 2019, is presented below:


		Actual			For Capital Adequacy Purposes With Capital Conservation Buffer(1)					To Be Well Capitalized Under Prompt Corrective Action Provisions			Actual		For Capital Adequacy Purposes With Capital Conservation Buffer(1)	To Be Well Capitalized Under Prompt Corrective Action Provisions
(dollars in thousands)	(dollars in thousands)	Amount	Ratio	Amount	Ratio	Amount	Ratio	(dollars in thousands)	Amount		Ratio	Amount	Ratio	Amount	Ratio
At June 30, 2020
At September 30, 2020								At September 30, 2020
Consolidated:	Consolidated:							Consolidated:
Total capital/risk weighted assets	Total capital/risk weighted assets	$485,309	11.72%	$434,970	10.50%	N/A	N/A	Total capital/risk weighted assets	$562,015		13.56%	$435,338	10.50%	N/A	N/A
Tier 1 capital/risk weighted assets	Tier 1 capital/risk weighted assets	434,207	10.48	352,118	8.50	N/A	N/A	Tier 1 capital/risk weighted assets	444,772		10.73	352,416	8.50	N/A	N/A
Common equity tier 1 capital/risk weighted assets	Common equity tier 1 capital/risk weighted assets	392,532	9.48	289,980	7.00	N/A	N/A	Common equity tier 1 capital/risk weighted assets	403,053		9.72	290,225	7.00	N/A	N/A
Tier 1 leverage capital/average assets	Tier 1 leverage capital/average assets	434,207	8.72	199,225	4.00	N/A	N/A	Tier 1 leverage capital/average assets	444,772		8.52	208,864	4.00	N/A	N/A
MidWestOne Bank:	MidWestOne Bank:							MidWestOne Bank:
Total capital/risk weighted assets	Total capital/risk weighted assets	$513,922	12.47%	$432,647	10.50%	$412,045	10.00%	Total capital/risk weighted assets	$531,541		12.95%	$431,130	10.50%	$410,600	10.00%
Tier 1 capital/risk weighted assets	Tier 1 capital/risk weighted assets	467,154	11.34	350,238	8.50	329,636	8.00	Tier 1 capital/risk weighted assets	482,406		11.75	349,010	8.50	328,480	8.00
Common equity tier 1 capital/risk weighted assets	Common equity tier 1 capital/risk weighted assets	467,154	11.34	288,431	7.00	267,829	6.50	Common equity tier 1 capital/risk weighted assets	482,406		11.75	287,420	7.00	266,890	6.50
Tier 1 leverage capital/average assets	Tier 1 leverage capital/average assets	467,154	9.39	198,967	4.00	248,709	5.00	Tier 1 leverage capital/average assets	482,406		9.26	208,318	4.00	260,398	5.00

At December 31, 2019	At December 31, 2019							At December 31, 2019
Consolidated:	Consolidated:							Consolidated:
Total capital/risk weighted assets	Total capital/risk weighted assets	$463,601	11.34%	$429,077	10.50%	N/A	N/A	Total capital/risk weighted assets	$463,601		11.34%	$429,077	10.50%	N/A	N/A
Tier 1 capital/risk weighted assets	Tier 1 capital/risk weighted assets	428,021	10.47	347,348	8.50	N/A	N/A	Tier 1 capital/risk weighted assets	428,021		10.47	347,348	8.50	N/A	N/A
Common equity tier 1 capital/risk weighted assets	Common equity tier 1 capital/risk weighted assets	386,434	9.46	286,051	7.00	N/A	N/A	Common equity tier 1 capital/risk weighted assets	386,434		9.46	286,051	7.00	N/A	N/A
Tier 1 leverage capital/average assets	Tier 1 leverage capital/average assets	428,021	9.48	180,529	4.00	N/A	N/A	Tier 1 leverage capital/average assets	428,021		9.48	180,529	4.00	N/A	N/A
MidWestOne Bank:	MidWestOne Bank:							MidWestOne Bank:
Total capital/risk weighted assets	Total capital/risk weighted assets	$482,106	11.83%	$427,877	10.50%	$407,502	10.00%	Total capital/risk weighted assets	$482,106		11.83%	$427,877	10.50%	$407,502	10.00%
Tier 1 capital/risk weighted assets	Tier 1 capital/risk weighted assets	453,027	11.12	346,377	8.50	326,002	8.00	Tier 1 capital/risk weighted assets	453,027		11.12	346,377	8.50	326,002	8.00
Common equity tier 1 capital/risk weighted assets	Common equity tier 1 capital/risk weighted assets	453,027	11.12	285,251	7.00	264,876	6.50	Common equity tier 1 capital/risk weighted assets	453,027		11.12	285,251	7.00	264,876	6.50
Tier 1 leverage capital/average assets	Tier 1 leverage capital/average assets	453,027	10.06	180,209	4.00	231,166	5.00	Tier 1 leverage capital/average assets	453,027		10.06	180,209	4.00	231,166	5.00

(1) Includes a capital conservation buffer of 2.50% ~~at June 30, 2020 and December 31, 2019.~~.

~~The Bank for the period as~~As of December 31, 2019, the Bank was required to maintain reserve balances in cash on hand or on deposit with Federal Reserve Banks, of which these reserve amounts totaled $24.1 million. There was no such requirement to maintain such reserve balances as of ~~June~~September 30, 2020, and therefore the total amount held in reserve was ~~$0.0 million.~~0 dollars.

14. Commitments and Contingencies

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

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


		June 30, 2020		December 31, 2019			September 30, 2020		December 31, 2019
(in thousands)	(in thousands)					(in thousands)
Commitments to extend credit	Commitments to extend credit	$	892,199	$	859,212	Commitments to extend credit	$	893,147	$	859,212
Commitments to sell loans	Commitments to sell loans	12,048		5,400		Commitments to sell loans	13,096		5,400
Standby letters of credit	Standby letters of credit	30,809		36,192		Standby letters of credit	25,864		36,192
Total	Total	$	935,056	$	900,804	Total	$	932,107	$	900,804

The Bank's exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent a future ~~requirements.~~requirement. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation of the party.

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Collateral held varies, but may include accounts receivable, crops, livestock, inventory, property and equipment, residential real estate and income-producing commercial properties.

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

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

Liability for Off-Balance Sheet Credit Losses: The Company records a liability for off-balance sheet credit losses through a charge to credit loss expense (or a reversal of credit loss expense) on the Company's consolidated statements of income and other liabilities on the Company's consolidated balance sheets. At ~~June~~September 30, 2020, the liability for off-balance-sheet credit losses totaled ~~$4.2~~$4.5 million, whereas the total amount recorded within credit loss expense for the ~~six~~nine months ended September 30, 2020 was ~~$772 thousand.~~$1.1 million. NaN liability was recorded in the prior year.

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

Concentrations of credit risk: Substantially all of the Bank’s loans, commitments to extend credit and standby letters of credit have been granted to customers in the Bank’s market areas. Although the loan portfolio of the Bank is diversified, approximately ~~64%~~63% of the loans are real estate loans and approximately 8% are agriculturally related. The concentrations of credit by type of loan are set forth in Note 4 .4. Loans Receivable and the Allowance for Credit Losses. Commitments to extend credit are primarily related to commercial loans and home equity loans. Standby letters of credit were granted primarily to commercial borrowers. Investments in securities issued by state and political subdivisions involve certain governmental entities within Iowa and Minnesota. The carrying value of investment securities of Iowa and Minnesota political subdivisions totaled ~~34%~~26% and ~~20%~~18%, respectively, as of ~~June~~September 30, 2020.

15. Fair Value of Financial Instruments and Fair Value Measurements

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

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

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

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

For information regarding the valuation methodologies used to measure ~~our~~the Company's assets recorded at fair value (under ASC Topic 820), and for estimating fair value for financial instruments not recorded at fair value (under ASC Topic 825, as amended by ASU 2016-01 and ASU 2018-03), see Note 1. Nature of Business and Significant Accounting Policies and Note 20. Estimated Fair Value of Financial Instruments and Fair Value Measurements to the consolidated financial statements in the Company's 2019 Annual Report on Form 10-K, filed with the SEC on March 6, 2020.

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

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Recurring Basis

Assets and liabilities measured at fair value on a recurring basis comprise the following as of the dates indicated:


		Fair Value Measurement at June 30, 2020 Using															Fair Value Measurement at September 30, 2020 Using
(in thousands)	(in thousands)	Total		Level 1		Level 2		Level 3		(in thousands)	Total		Level 1		Level 2		Level 3
Assets:	Assets:									Assets:
Available for sale debt securities:	Available for sale debt securities:									Available for sale debt securities:
U.S. Government agencies and corporations	U.S. Government agencies and corporations	$	410	$	—	$	410	$	—	U.S. Government agencies and corporations	$	386	$	—	$	386	$	—
State and political subdivisions	State and political subdivisions	434,046		—		434,046		—		State and political subdivisions	510,483		—		510,483		—
Mortgage-backed securities	Mortgage-backed securities	79,685		—		79,685		—		Mortgage-backed securities	108,633		—		108,633		—
Collateralized mortgage obligations	Collateralized mortgage obligations	360,028		—		360,028		—		Collateralized mortgage obligations	402,893		—		402,893		—
Corporate debt securities	Corporate debt securities	313,286		—		313,286		—		Corporate debt securities	343,949		—		343,949		—
Derivative assets	Derivative assets	14,391		—		14,391		—		Derivative assets	13,560		0		13,560		0

Liabilities:	Liabilities:									Liabilities:
Derivative liabilities	Derivative liabilities	$	18,517	$	—	$	18,517	$	—	Derivative liabilities	$	17,503	$	0	$	17,503	$	0


		Fair Value Measurement at December 31, 2019 Using															Fair Value Measurement at December 31, 2019 Using
(in thousands)	(in thousands)	Total		Level 1		Level 2		Level 3		(in thousands)	Total		Level 1		Level 2		Level 3
Assets:	Assets:									Assets:
Debt securities available for sale:	Debt securities available for sale:									Debt securities available for sale:
U.S. Government agencies and corporations	U.S. Government agencies and corporations	$	441	$	—	$	441	$	—	U.S. Government agencies and corporations	$	441	$	0	$	441	$	0
State and political subdivisions	State and political subdivisions	257,205		—		257,205		—		State and political subdivisions	257,205		0		257,205		0
Mortgage-backed securities	Mortgage-backed securities	43,530		—		43,530		—		Mortgage-backed securities	43,530		0		43,530		0
Collateralized mortgage obligations	Collateralized mortgage obligations	292,946		—		292,946		—		Collateralized mortgage obligations	292,946		0		292,946		0
Corporate debt securities	Corporate debt securities	191,855		—		191,855		—		Corporate debt securities	191,855		0		191,855		0
Derivative assets	Derivative assets	1,848		—		1,848		—		Derivative assets	1,848		0		1,848		0

Liabilities:	Liabilities:									Liabilities:
Derivative liabilities	Derivative liabilities	$	3,242	$	—	$	3,242	$	—	Derivative liabilities	$	3,242	$	0	$	3,242	$	0

There were no transfers of assets between Level 3 and other levels of the fair value hierarchy during the ~~six~~nine months ended ~~June~~September 30, 2020 or the year ended December 31, 2019.

Changes in the fair value of available for sale debt securities are included in other comprehensive income.

Nonrecurring Basis

The following tables present assets measured at fair value on a nonrecurring basis as of the dates indicated:


		Fair Value Measurement at June 30, 2020 Using															Fair Value Measurement at September 30, 2020 Using
(in thousands)	(in thousands)	Total		Level 1		Level 2		Level 3		(in thousands)	Total		Level 1		Level 2		Level 3
Collateral dependent impaired loans		$	8,798	$	—	$	—	$	8,798
Collateral dependent individually analyzed loans										Collateral dependent individually analyzed loans	$	32,324	$	—	$	—	$	32,324
Foreclosed assets, net	Foreclosed assets, net	965		—		—		965		Foreclosed assets, net	724		—		—		724


	Fair Value Measurement at December 31, 2019 Using
(in thousands)	Total		Level 1		Level 2		Level 3
Collateral dependent impaired loans	$	6,749	$	—	$	—	$	6,749
Foreclosed assets, net	3,706		—		—		3,706

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


		Fair Value at																	Fair Value at
(dollars in thousands)	(dollars in thousands)	June 30, 2020		December 31, 2019		Valuation Techniques(s)	Unobservable Input	Range of Inputs									Weighted Average	(dollars in thousands)	September 30, 2020		December 31, 2019	Valuation Techniques(s)	Unobservable Input			Range of Inputs				Weighted Average
Collateral dependent impaired loans	Collateral dependent impaired loans	$	8,798	$	6,749	Fair value of collateral	Valuation adjustments	—	%	-	90	%	31	%	Collateral dependent impaired loans	$	32,324		$	6,749	Fair value of collateral	Valuation adjustments	0	%	-	75	%	22	%

Foreclosed assets, net	Foreclosed assets, net	$	965	3,706		Fair value of collateral	Valuation adjustments	8	%	-	47	%	27	%	Foreclosed assets, net	$	724		3,706		Fair value of collateral	Valuation adjustments	12	%	-	55	%	31	%

The carrying amount and estimated fair value of financial instruments at ~~June~~September 30, 2020 and December 31, 2019 were as follows:


		June 30, 2020																			September 30, 2020
(in thousands)	(in thousands)	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3		(in thousands)	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
Financial assets:	Financial assets:											Financial assets:
Cash and cash equivalents	Cash and cash equivalents	$	117,210	$	117,210	$	117,210	$	—	$	—	Cash and cash equivalents	$	134,862	$	134,862	$	134,862	$	0	$	0
Debt securities available for sale	Debt securities available for sale	1,187,455		1,187,455		—		1,187,455		—		Debt securities available for sale	1,366,344		1,366,344		0		1,366,344		0
Loans held for sale	Loans held for sale	12,048		12,401		—		12,401		—		Loans held for sale	13,096		13,433		0		13,433		0
Loans held for investment, net	Loans held for investment, net	3,541,395		3,597,325		—		—		3,597,325		Loans held for investment, net	3,478,932		3,530,722		0		0		3,530,722
Interest receivable	Interest receivable	21,082		21,082		—		21,082		—		Interest receivable	21,112		21,112		0		21,112		—
Federal Home Loan Bank stock	Federal Home Loan Bank stock	12,858		12,858		—		12,858		—		Federal Home Loan Bank stock	12,246		12,246		0		12,246		—
Derivative assets	Derivative assets	14,391		14,391		—		14,391		—		Derivative assets	13,560		13,560		0		13,560		0
Financial liabilities:	Financial liabilities:											Financial liabilities:
Non-interest bearing deposits	Non-interest bearing deposits	867,637		867,637		867,637		—		—		Non-interest bearing deposits	864,504		864,504		864,504		0		0
Interest-bearing deposits	Interest-bearing deposits	3,397,798		3,405,414		2,428,327		977,087		—		Interest-bearing deposits	3,469,137		3,474,719		2,588,358		886,361		0
Short-term borrowings	Short-term borrowings	162,224		162,224		162,224		—		—		Short-term borrowings	183,893		183,893		183,893		0		—
Finance leases payable	Finance leases payable	1,162		1,162		—		1,162		—		Finance leases payable	1,130		1,130		0		1,130		0
Federal Home Loan Bank borrowings	Federal Home Loan Bank borrowings	108,246		111,902		—		111,902		—		Federal Home Loan Bank borrowings	101,222		104,618		0		104,618		0
Junior subordinated notes issued to capital trusts	Junior subordinated notes issued to capital trusts	41,675		34,546		—		34,546		—		Junior subordinated notes issued to capital trusts	41,719		33,848		0		33,848		0
Subordinated debentures	Subordinated debentures	10,890		11,123		—		11,123		—		Subordinated debentures	74,660		76,651		0		76,651		0
Other long-term debt	Other long-term debt	28,000		28,000		—		28,000		—		Other long-term debt	26,750		26,750		0		26,750		0
Derivative liabilities	Derivative liabilities	18,517		18,517		—		18,517		—		Derivative liabilities	17,503		17,503		0		17,503		0


		December 31, 2019																			December 31, 2019
(in thousands)	(in thousands)	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3		(in thousands)	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
Financial assets:	Financial assets:											Financial assets:
Cash and cash equivalents	Cash and cash equivalents	$	73,484	$	73,484	$	73,484	$	—	$	—	Cash and cash equivalents	$	73,484	$	73,484	$	73,484	$	0	$	0

Debt securities available for sale	Debt securities available for sale	785,977		785,977		—		785,977		—		Debt securities available for sale	785,977		785,977		0		785,977		0

Loans held for sale	Loans held for sale	5,400		5,476		—		5,476		—		Loans held for sale	5,400		5,476		0		5,476		0
Loans held for investment, net	Loans held for investment, net	3,422,187		3,427,952		—		—		3,427,952		Loans held for investment, net	3,422,187		3,427,952		0		0		3,427,952
Interest receivable	Interest receivable	18,525		18,525		—		18,525		—		Interest receivable	18,525		18,525		0		18,525		0
Federal Home Loan Bank stock	Federal Home Loan Bank stock	15,381		15,381		—		15,381		—		Federal Home Loan Bank stock	15,381		15,381		0		15,381		0
Derivative assets	Derivative assets	1,848		1,848		—		1,848		—		Derivative assets	1,848		1,848		0		1,848		0
Financial liabilities:	Financial liabilities:											Financial liabilities:
Non-interest bearing deposits	Non-interest bearing deposits	662,209		662,209		662,209		—		—		Non-interest bearing deposits	662,209		662,209		662,209		0		0
Interest-bearing deposits	Interest-bearing deposits	3,066,446		3,066,427		2,113,000		953,427		—		Interest-bearing deposits	3,066,446		3,066,427		2,113,000		953,427		0
Short-term borrowings	Short-term borrowings	139,349		139,349		139,349		—		—		Short-term borrowings	139,349		139,349		139,349		0		0
Finance leases payable	Finance leases payable	1,224		1,224		—		1,224		—		Finance leases payable	1,224		1,224		0		1,224		0
Federal Home Loan Bank borrowings	Federal Home Loan Bank borrowings	145,700		146,913		—		146,913		—		Federal Home Loan Bank borrowings	145,700		146,913		0		146,913		0
Junior subordinated notes issued to capital trusts	Junior subordinated notes issued to capital trusts	41,587		39,391		—		39,391		—		Junior subordinated notes issued to capital trusts	41,587		39,391		0		39,391		0
Subordinated debentures	Subordinated debentures	10,899		11,083		—		11,083		—		Subordinated debentures	10,899		11,083		0		11,083		0
Other long-term debt	Other long-term debt	32,250		32,250		—		32,250		—		Other long-term debt	32,250		32,250		0		32,250		0
Derivative liabilities	Derivative liabilities	3,242		3,242		—		3,242		—		Derivative liabilities	3,242		3,242		0		3,242		0

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16. Leases

A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. The Company adopted FASB Topic 842 on January 1, 2019.

Substantially all of the leases in which the Company is the lessee are comprised of real estate property for branches and office space with terms extending through 2025. We do not have any subleased properties. Substantially all of our leases are classified as operating leases, and therefore, were previously not recognized on the Company’s consolidated balance sheets. The Company has one existing finance lease (previously referred to as a capital lease) for a branch location with a lease term through 2025.

Supplemental balance sheet information related to leases was as follows:


(in thousands)	(in thousands)	Classification	June 30, 2020			December 31, 2019			(in thousands)	Classification	September 30, 2020			December 31, 2019
Lease Right-of-Use Assets	Lease Right-of-Use Assets								Lease Right-of-Use Assets
Operating lease right-of-use assets	Operating lease right-of-use assets	Other assets	$	4,067		$	4,499		Operating lease right-of-use assets	Other assets	$	3,860		$	4,499
Finance lease right-of-use asset	Finance lease right-of-use asset	Premises and equipment, net	589			637			Finance lease right-of-use asset	Premises and equipment, net	573			637
Total right-of-use assets	Total right-of-use assets		$	4,656		$	5,136		Total right-of-use assets		$	4,433		$	5,136

Lease Liabilities	Lease Liabilities								Lease Liabilities
Operating lease liability	Operating lease liability	Other liabilities	$	5,036		$	5,430		Operating lease liability	Other liabilities	$	4,830		$	5,430
Finance lease liability	Finance lease liability	Long-term debt	1,162			1,224			Finance lease liability	Long-term debt	1,130			1,225
Total lease liabilities	Total lease liabilities		$	6,198		$	6,654		Total lease liabilities		$	5,960		$	6,655

Weighted-average remaining lease term	Weighted-average remaining lease term								Weighted-average remaining lease term
Operating leases	Operating leases		8.22 years			8.90 years			Operating leases		8.78 years			8.90 years
Finance lease	Finance lease		6.17 years			6.67 years			Finance lease		5.92 years			6.67 years
Weighted-average discount rate	Weighted-average discount rate								Weighted-average discount rate
Operating leases	Operating leases		3.58		%	3.78		%	Operating leases		3.87		%	3.78		%
Finance lease	Finance lease		8.89		%	8.89		%	Finance lease		8.89		%	8.89		%

The calculated amount of the right-of-use assets and lease liabilities in the table above are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. The Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability. Regarding the discount rate, Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term. For operating leases existing prior to January 1, 2019, the rate for the remaining lease term as of January 1, 2019 was used. For finance leases, the Company utilizes the rate implicit in the lease.

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


		Three Months Ended						Six Months Ended							Three Months Ended				Nine Months Ended
		June 30,						June 30,							September 30,				September 30,
(in thousands)	(in thousands)	2020		2019		2020		2019		(in thousands)	2020		2019		2020		2019
Lease Costs	Lease Costs									Lease Costs
Operating lease cost	Operating lease cost	$	409	$	257	$	728	$	450	Operating lease cost	$	209	$	303	$	937	$	755
Variable lease cost	Variable lease cost	109		13		147		40		Variable lease cost	42		52		189		118
Short-term lease cost	Short-term lease cost	—		—		—		—		Short-term lease cost	0		0		0		0
Interest on lease liabilities ⁽¹⁾	Interest on lease liabilities ⁽¹⁾	26		28		52		57		Interest on lease liabilities (1)	25		28		78		85
Amortization of right-of-use assets	Amortization of right-of-use assets	24		24		48		48		Amortization of right-of-use assets	24		24		72		72
Net lease cost	Net lease cost	$	568	$	322	$	975	$	595	Net lease cost	$	300	$	407	$	1,276	$	1,030

Other Information	Other Information									Other Information
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:									Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	Operating cash flows from operating leases	$	651	$	455	$	1,154	$	838	Operating cash flows from operating leases	$	443	$	524	$	1,598	$	1,354
Operating cash flows from finance lease	Operating cash flows from finance lease	26		41		52		83		Operating cash flows from finance lease	25		41		78		124
Finance cash flows from finance lease	Finance cash flows from finance lease	31		28		62		55		Finance cash flows from finance lease	32		28		94		83

Right-of-use assets obtained in exchange for new operating lease liabilities	Right-of-use assets obtained in exchange for new operating lease liabilities	94		1,599		94		1,599		Right-of-use assets obtained in exchange for new operating lease liabilities	39		49		132		5,319
Right-of-use assets obtained in exchange for new finance lease liabilities	Right-of-use assets obtained in exchange for new finance lease liabilities	—		—		—		—		Right-of-use assets obtained in exchange for new finance lease liabilities	0		0		0		0

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

Future minimum payments for finance leases and operating leases with initial or remaining terms of one year or more as of ~~June~~September 30, 2020 were as follows:


(in thousands)	(in thousands)	Finance Leases		Operating Leases		(in thousands)	Finance Leases		Operating Leases
Twelve Months Ended:	Twelve Months Ended:					Twelve Months Ended:
December 31, 2020	December 31, 2020	$	116	$	554	December 31, 2020	$	58	$	287
December 31, 2021	December 31, 2021	235		1,093		December 31, 2021	235		1,112
December 31, 2022	December 31, 2022	240		993		December 31, 2022	240		993
December 31, 2023	December 31, 2023	245		932		December 31, 2023	245		932
December 31, 2024	December 31, 2024	250		702		December 31, 2024	250		702
Thereafter	Thereafter	426		2,138		Thereafter	426		2,139
Total undiscounted lease payment	Total undiscounted lease payment	$	1,512	$	6,412	Total undiscounted lease payment	$	1,454	$	6,165
Amounts representing interest	Amounts representing interest	(350)		(1,376)		Amounts representing interest	(324)		(1,335)
Lease liability	Lease liability	$	1,162	$	5,036	Lease liability	$	1,130	$	4,830

17. Subsequent Events

On ~~July 29,~~October 20, 2020, the board of directors of the Company authorized resuming repurchases under the Company's share repurchase program. The Company previously announced the temporary suspension of its share repurchase program in light of market conditions associated with the COVID-19 pandemic.

On October 28, 2020, the board of directors of the Company declared a cash dividend of $0.22 per share payable on ~~September~~December 15, 2020 to shareholders of record as of the close of business on ~~September~~December 1, ~~2020.~~

On July 28, 2020, the Company completed a private placement offering of $65.0 million of subordinated debt with registration rights. The 5.75% fixed-to-floating rate subordinated notes are due July 2030. For regulatory capital purposes, the subordinated notes have been structured to qualify initially as Tier 2 Capital for the Company.

~~On July 28, 2020, the Company paid, with interest, the total amount that was outstanding under the Company's revolving credit facility, which was $10.0 million as of June 30,~~ 2020.

Effective October 28, 2020, the Company plans to consolidate its branch office in Newport, Minnesota into its nearby branch office in South St. Paul, Minnesota. This branch consolidation is part of the Company's strategy to improve operating efficiency. The Company estimates the branch consolidation will reduce its annual operating expenses by approximately $360 thousand.

~~Table of Contents~~

The Company has evaluated events that have occurred subsequent to ~~June~~September 30, 2020 and has concluded there are no other subsequent events that would require recognition in the accompanying consolidated financial statements.

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

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-Q contains certain “forward-looking statements” within the meaning of such term in the Private Securities Litigation Reform Act of 1995. We and our representatives may, from time to time, make written or oral statements that are “forward-looking” and provide information other than historical information. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from any results, levels of activity, performance or achievements expressed or implied by any forward-looking statement. These factors include, among other things, the factors listed below. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of our management and on information currently available to management, are generally identifiable by the use of words such as “believe,” “expect,” “anticipate,” “should,” “could,” “would,” “plans,” “intend,” “project,” “estimate,” “forecast,” “may” or similar expressions. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in, or implied by, these statements. Readers are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Additionally, we undertake no obligation to update any statement in light of new information or future events, except as required under federal securities law.

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

•the effects of the COVID-19 pandemic, including its effects on the economic environment, our customers, and our operations, as well as any changes to federal, state, or local government laws, regulations, or orders in connection with the pandemic;

•government intervention in the U.S. financial system in response to the COVID-19 pandemic, including the effects of recent legislative, tax, accounting and regulatory actions and reforms including the ~~Coronavirus Aid, Relief, and Economic Security~~CARES Act;

•the impact of the COVID-19 pandemic on our financial results, including possible lost revenue and increased expenses (including the cost of capital), as well as possible goodwill impairment charges;

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

•the effects of interest rates, including on our net income and the value of our securities portfolio;

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

•fluctuations in the value of our investment securities;

•governmental monetary and fiscal policies;

•changes in and uncertainty related to benchmark interest rates used to price our loans and deposits, including the expected elimination of LIBOR;

•legislative and regulatory changes, including changes in banking, securities, consumer protection, trade and tax laws and regulations and their application by our regulators;

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

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

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

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

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

•the failure of assumptions underlying the establishment of the allowance for credit losses and estimation of values of collateral and various financial assets and liabilities;

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

•volatility of rate-sensitive deposits;

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

•asset/liability matching risks and liquidity risks;

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

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

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

•war or terrorist activities, widespread disease or pandemics, such as the COVID-19 pandemic, or other adverse external events, which may cause deterioration in the economy or cause instability in credit markets;

•the effects of cyber-attacks;

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

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

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

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OVERVIEW

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

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

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

The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes and the statistical information and financial data appearing in this report as well as our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 6, 2020. Results of operations for the ~~six~~nine months ended ~~June~~September 30, 2020 are not necessarily indicative of results to be attained for any other period.

COVID-19 Update

The COVID-19 pandemic in the United States has had an adverse impact on our financial condition and results of operations as of and for the ~~six~~nine months ended ~~June~~September 30, 2020, and is expected to have a complex and significant adverse impact on the economy, the banking industry and the Company in future fiscal periods, all subject to a high degree of uncertainty.

Effects on Our Market Areas.

COVID-19 Response in our Markets: Our commercial and consumer banking products and services are offered primarily in Iowa, Minnesota, Wisconsin, Florida and Colorado, where individual and governmental responses to the COVID-19 pandemic led to a broad curtailment of economic activity beginning in March 2020. More recently, we've seen in our markets a variety of responses to the COVID-19 pandemic as the economy ~~has begun~~continues to re-open, which have included social distancing protocols, limitations of social gathering sizes, safety practices for the at-risk and elderly, as well as other safeguarding practices.

~~In Iowa,~~•Iowa: On October 16, 2020, the Governor issued an order ~~on July 24, 2020~~ that is effective unless otherwise modified until ~~August 23,~~November 15, 2020 that includes social distancing requirements, in addition to encouraging all vulnerable Iowans, including those with pre-existing medical conditions and the elderly, to continue to limit their activities outside of their home. ~~A similar proclamation was made in Minnesota by~~

•Minnesota: On October 12, 2020, the Governor ~~that extends previous~~extended the protocols enacted in prior orders, which included social distancing protocols, limitations of social gatherings, ~~and~~requirement for face coverings in certain settings, in addition to other similar requirements, and is effective through ~~August~~November 12, 2020. ~~The Wisconsin Supreme Court lifted the prior stay at home order requirements on May 13,~~

•Wisconsin: On October 6, 2020 ~~that were previously enacted by~~ the Governor ~~and were set to expire on May 26,~~issued a proclamation that limited the size of public gatherings, which is in effect until November 6, 2020. In addition, an order from September 22, 2020 ~~which allowed~~contained provisions for the ~~State to begin to re-open~~requirement of face coverings when outside the home, with ~~the ability of local authorities to establish their own~~other social distancing ~~requirements.~~protocols still in effect.

•Florida: On ~~July 7,~~September 25, 2020, the Governor of Florida ~~extended~~issued an executive order that contains certain provisions as part of Phase 3 of the plan to re-open, which included the removal of certain restrictions that were previously imposed on residents' ability to work and operate a business and restaurant capacity, among other provisions. Any prior ~~state~~social distancing protocols or requirements as part of ~~emergency and also stated that all other previous actions, including the state's step-by-step plans for re-opening,~~Phase 2 remain in effect, unless otherwise modified. ~~The state of Florida is currently working under Phase 2 of the plan, which includes social distancing protocols, limitations of social gatherings, and other similar requirements. In Colorado,~~

•Colorado: On October 21, 2020, the Governor issued various orders ~~on July 21, 2020 and July 23, 2020~~ that both amended and extended prior orders that were issued that contained social distancing protocols for the state. ~~These~~In addition, prior orders from the month of October 2020 also imposed additional restrictions such as the requirement to wear face coverings in certain settings, among

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other social distancing requirements that are similar to those of other ~~states,~~states. On October 27, 2020, the Mayor of Denver placed additional capacity restrictions on locations such as, but not limited to, restaurants, churches, and ~~include provisions for the protection~~retail centers as part of the ~~at-risk population.~~shift from the Safer at Home: Level 2 to the more restrictive Safer at Home: Level 3. In addition, this recent mandate also contained limitations for schools, gathering at indoor and outdoor events, among other social distancing protocols.

The Bank's branches have remained open during these orders because the Bank is deemed to be an essential business. Based on the current environment, it is unclear how the states in our market areas will continue to change or relax their stay at home and social distancing ~~policies.~~policies in the future and the impact of these policies on our customers located in and the economies of these states.

COVID-19 Impact - National: The U.S. has experienced a substantial decline nationally in economic condition, ~~as indicated by the~~although it experienced an annualized ~~32.9%~~33.1% GDP ~~contraction~~rebound in the ~~second~~third quarter of 2020, recovering a portion of the ground that the GDP lost earlier in 2020. In addition, the national unemployment rate in ~~June~~September 2020 of ~~11.1% is~~7.9% has declined 3.2% from June 2020; however this rate remains substantially higher than the national unemployment rate of 3.5% in ~~June~~September 2019 ~~which had a national unemployment rate of 3.7%~~ per the U.S. Department of Labor.

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Policy and Regulatory Developments

Federal, state, and local governments and regulatory authorities have enacted and issued a range of policy responses to the COVID-19 pandemic, including the following:

•The Federal Reserve decreased the range for the federal funds target rate by 0.5% on March 3, 2020, and by another 1.0% on March 16, 2020, reaching a current range of 0.0 – 0.25%.

•On March 27, 2020, President Trump signed the ~~Coronavirus Aid, Relief and Economic Security Act, or~~ CARES Act, which established a $2.0 trillion economic stimulus package, including cash payments to individuals, supplemental unemployment insurance benefits and a $349 billion PPP loan program administered through the U.S. Small Business Administration ("SBA"), referred to as the Paycheck Protection Program ("PPP"). Under the PPP, small businesses, sole proprietorships, independent contractors and self-employed individuals may apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility criteria.SBA. The Bank iswas a participating ~~as a~~ lender in the PPP. The provisions of the PPP were modified on June 5, 2020 by the Paycheck Protection Program Flexibility Act of 2020. In addition, the CARES Act provides financial institutions the option to temporarily suspend certain requirements under GAAP related to TDRs for a limited period of time to account for the effects of COVID-19. See Note 4 .4. Loans Receivable and the Allowance for Credit Losses for additional information on TDRs. The PPP closed on August 8, 2020, and the SBA is no longer accepting PPP applications from participating lenders.

•On April 7, 2020, federal banking regulators issued a revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions, which, among other things, encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19, and stated that institutions generally do not need to categorize COVID-19-related modifications as TDRs and that the agencies will not direct supervised institutions to automatically categorize all COVID-19 related loan modifications as TDRs. See Note 4 .4. Loans Receivable and the Allowance for Credit Losses for additional information on TDRs.

•On April 9, 2020, the FRB announced additional measures aimed at supporting small and mid-sized business, as well as state and local governments impacted by COVID-19. The FRB announced the Main Street Business Lending Program, which establishes two new loan facilities intended to facilitate lending to small and mid-sized businesses: (1) the Main Street New Loan Facility ("MSNLF"), and (2) the Main Street Expanded Loan Facility ("MSELF"). MSNLF loans are unsecured term loans originated on or after April 8, 2020, while MSELF loans are provided as upsized tranches of existing loans originated before April 8, 2020. The combined size of the program ~~will be~~is authorized up to $600 billion. The program is designed for businesses with up to 10,000 employees or $2.5 billion in 2019 revenues. In addition, the FRB created a Municipal Liquidity Facility ("MLF") to support state and local governments with up to $500 billion in lending, with the Treasury Department backing $35 billion for the facility using funds appropriated by the CARES Act. The facility will make short-term financing available to cities with a population of more than one million or counties with a population of greater than two million. The FRB expanded both the size and scope its Primary and Secondary Market Corporate Credit Facilities to support up to $750 billion in credit to corporate debt issuers. This will allow companies that were investment grade before the onset of COVID-19 but then subsequently downgraded after March 22, 2020 to gain access to the facility. Finally, the FRB announced that its Term Asset-Backed Securities Loan Facility will be scaled up in scope to include the triple A-rated tranche of commercial mortgage-backed securities and newly issued collateralized loan obligations. The size of the facility is $100 billion.

•On ~~April 27,~~August 3, 2020, the ~~FRB made~~FFIEC issued a joint statement on Additional Loan Accommodations Related to COVID-19, which, among other things, encouraged financial institutions to consider prudent additional ~~revisions~~loan accommodation options when borrowers are unable to ~~the MLF. These revisions expand the population thresholds that will~~meet their obligations due to continuing financial challenges. Accommodation options should be ~~able to borrow from the MLF as compared to the initial plan that was announced~~based on ~~April 9, 2020. In addition, as part of these revisions, the term of the notes~~prudent risk management and corresponding termination date of the MLF were both extended. Specifically, the initial term of the notes was extended from 24 months to 36 months from the date of issuance, and the termination date of the MLF is now December 31, 2020.consumer protection principles.

•In addition to the policy responses described above, the federal bank regulatory agencies, along with their state counterparts, have issued a stream of guidance in response to the COVID-19 pandemic and have taken a number of unprecedented steps to help banks navigate the pandemic and mitigate its impact. These include, without limitation: requiring banks to focus on business continuity and pandemic planning; adding pandemic scenarios to stress testing; encouraging bank use of capital buffers and reserves in lending programs; permitting certain regulatory reporting extensions; reducing margin requirements on swaps; permitting certain otherwise prohibited investments in investment

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funds; issuing guidance to encourage banks to work with customers affected by the pandemic and encourage loan workouts; and providing credit under the ~~Community Reinvestment Act (“CRA”)~~CRA for certain pandemic-related loans, investments and public service. Moreover, because of the need for social distancing measures, the agencies revamped

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the manner in which they conducted periodic examinations of their regulated institutions, including making greater use of off-site reviews. The FRB also issued guidance encouraging banking institutions to utilize its discount window for loans and intraday credit extended by its Reserve Banks to help households and businesses impacted by the pandemic and announced numerous funding facilities. The FDIC has also acted to mitigate the deposit insurance assessment effects of participating in the PPP and the Federal Reserve’s PPP Liquidity Facility and Money Market Mutual Fund Liquidity Facility.

Effects on Our Business.

~~We currently expect that the~~The COVID-19 pandemic and the specific developments referred to above have had and will continue to have a significant impact on our business. In particular, we anticipate that a significant portion of the Bank’s borrowers in the non-essential retail, restaurants, hotels, CRE-retail, and arts, entertainment & gaming industries, which represents approximately 14% of our loan portfolio, will endure significant economic distress which will adversely affect their ability to repay existing indebtedness. These developments, together with economic conditions generally, are also expected to impact the value of certain collateral securing our loans. As a result, we anticipate that our financial condition, capital levels and results of operations will be significantly adversely affected, as described in further detail below.

Our Response.

The Company ~~has invoked its~~maintains a Business Continuity Plan, ~~that includes~~which was enacted upon the World Health Organization declaration of COVID-19 to be a global pandemic. Shortly after enacting the plan, the Company deployed a successful remote working strategy. As of September 30, 2020, the majority of our employees have returned to work in our branch offices with no disruption to our operations. Our response to COVID-19 iscontinues to be focused on how we can best serve our employees, customers, and communities. The Bank has ~~continued serving its customers through~~utilized a combination of digital banking, voice, branch drive-thru and other ~~channels. We began re-opening selected branch lobbies on June 1, 2020 and are actively managing lobby access based on local COVID-19 community spread conditions.~~channels in order to meet the needs of our customers. In addition, we have implemented additional safety measures to achieve appropriate social distancing for both customers and employees throughout our locations, with all of our locations having capacity restrictions and requirements to wear protective face coverings, among other social distancing requirements for both customers and employees. We have also increased our cleaning services and implemented business travel restrictions.

We continue to work with our customers to ~~determine~~understand the level of impact to their business operations as the pandemic continues to determine how best to serve them in these unprecedented times. We also continue to lend to qualified businesses for working capital and general business purposes, while also meeting the needs of our individual customers. Further, we implemented a loan payment deferral program and assisted our clients through the PPP, including ~~2,534~~2,682 for existing and new customers in the aggregate loan amount of ~~$345.4~~$348.6 million, and the CARES Act SBA payment forgiveness program. We have committed an additional $150,000 to our annual charitable giving. ~~Further, we recently~~In addition, we've partnered with other local banks in the Iowa City area in the Holding our Own program. This program encourages the community to shop local, with a goal of motivating over $1.0 million of local spending. ~~Despite this challenging environment, MidWestOne~~ ~~remains open for business.~~

Financial Condition & Results of Operations.

Net Interest Income. The Company's interest income on loans could be reduced due to COVID-19 and due to reductions in the targeted federal funds rate. In keeping with guidance from regulators, the Company is actively working with COVID-19 affected borrowers to defer their payments, interest, and fees. While interest and fees will still accrue to income, through normal GAAP accounting, should eventual credit losses on these deferred payments emerge, interest income and fees accrued would need to be reversed. In such a scenario, interest income in future periods could be negatively impacted. At this time, the Company is unable to project the materiality of such an impact, but recognizes the breadth of the economic impact from COVID-19 may affect its borrowers’ ability to repay in future periods. In addition, the Company's interest income on investment securities could be reduced due to COVID-19. A severe and sustained economic downturn could impact the debt securities issuers' ability to make payments on debt or to raise additional funds to continue operations, which could result in an increased credit loss expense. In addition, the Company's interest expense could be impacted by COVID-19 due to changes in funding mix. An extended recession could cause large numbers of our deposit customers to withdraw their funds, which could increase our reliance on more volatile or expensive funding sources.

Credit Loss Expense. The Company's credit loss expense is impacted by COVID-19. Pertaining to our ~~June~~September 30, 2020 financial condition and results of operations, COVID-19, ~~continued to~~as well as other factors, such as changes in our modeling assumptions, had an impact on our ACL. While we have not yet experienced any charge-offs related to COVID-19, our ACL calculation and credit loss expense are significantly impacted by changes in forecasted economic conditions. ~~Throughout the first and second quarters of 2020, the COVID-19 pandemic has continued to drive a significant increase in credit loss expense due to the worsening of forecasted conditions.~~ Significant worsening of forecasted conditions is possible and would result in further increases in the ACL and credit loss expense in future periods.

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Noninterest Income. The Company’s fee income could be reduced due to COVID-19. For example, in keeping with guidance from regulators, during the second and third quarters of 2020, the Company ~~is actively working~~has continued to work with COVID-19 affected customers ~~to waive~~and has waived fees from a variety of sources, such as, but not limited to, insufficient funds and overdraft fees, ATM fees, account maintenance fees, etc. These reductions in

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fees are expected, at this time, to be temporary in conjunction with the length of the expected COVID-19 related economic ~~crisis.~~crisis as we are working to help our customers during this time. At this time, the Company is unable to project the materiality of such an impact, but recognizes the breadth of the economic impact from COVID-19 is likely to impact its fee income in future periods.

Noninterest Expense. We anticipate increases in noninterest expenses that are a result of COVID-19 for additional cleaning services, protective equipment, supplies, and expanded IT equipment and network/information services. We also anticipate employee productivity will also decline due to pandemic-related absences and normal challenges associated with working remotely. We also anticipate that the PPP ~~loan program~~ will impact noninterest expense by impacting the timing of compensation and benefit expense as PPP loan origination costs are deferred and ~~due~~amortized over the life of the loan to which they relate. In addition, we also anticipate the PPP will also lead to increased information service expenses.

Credit Administration. Section 4013 of the CARES Act, “Temporary Relief From Troubled Debt Restructurings,” allows financial institutions the option to temporarily suspend certain requirements under ~~U.S.~~ GAAP related to TDRs for a limited period of time during the COVID-19 pandemic. In March 2020, various regulatory agencies, including the FRB and the FDIC, issued an interagency statement, effective immediately, on loan modifications and reporting for financial institutions working with customers affected by COVID-19. The agencies confirmed with the staff of the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not to be considered TDRs. This includes short-term (e.g., six months) modifications, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. As of ~~June~~September 30, 2020, the total amount of the eligible loans in deferral (deferral of principal and/or interest) that met the requirements set forth under the interagency statement and therefore were not considered TDRs was 113 loans, totaling $115.3 million as compared to 832 loans totaling $462.2 ~~million.~~million as of June 30, 2020. We anticipate that the current and future economic conditions will continue to have an impact on the initial modifications that were made that qualified under such criteria. As such, we expect the Company's financial statements will be materially impacted by the CARES Act and the interagency guidance, of which at this time the total impact cannot be quantified.

The ~~Company is actively~~Bank was a participating lender in ~~assisting its customers with applications for resources through~~ the PPP. The PPP loans have a two-year term and earn interest at 1%. Loans funded through the PPP program are fully guaranteed by the U.S. government if certain criteria are met. The Company believes that the majority of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. As of ~~June~~September 30, 2020, the Company had ~~$327.6~~$331.7 million in outstanding PPP ~~loans. Loans funded through~~loans, with $8.1 million of unamortized net loan origination fees. In addition, as of September 30, 2020, certain of the Company's PPP ~~program are fully guaranteed~~loan customers had initiated the loan forgiveness process, but no PPP loans submitted to the SBA by the ~~U.S. government if certain criteria are met.~~Company had yet been forgiven. Should those circumstances change, the Company could be required to establish additional allowance for credit loss through additional credit loss expense charged to earnings.

Loan Portfolio.

We anticipate that loan growth will be impacted in the future as a result of COVID-19 and the related decline in economic conditions in our market areas. While all industries have and will continue to experience adverse impacts as a result of the COVID-19 pandemic, we had exposures in the following industries that we considered to be "vulnerable" to significant impact as of ~~June~~September 30, 2020.


		Balance		% of Gross Loans Held for Investment			Balance		% of Gross Loans Held for Investment
(in thousands)
(dollars in thousands)						(dollars in thousands)
Non-essential retail	Non-essential retail	$	107,878	3.00	%	Non-essential retail	$	101,229	2.86	%
Restaurant	Restaurant	60,668		1.69	%	Restaurant	52,720		1.49	%
Hotel	Hotel	122,623		3.41	%	Hotel	121,078		3.42	%
CRE - Retail	CRE - Retail	208,423		5.79	%	CRE - Retail	199,958		5.65	%
Arts, entertainment, and gaming	Arts, entertainment, and gaming	21,550		0.60	%	Arts, entertainment, and gaming	25,915		0.73	%
		$	521,142	14.49	%		$	500,900	14.15	%

Goodwill and Other Intangible Assets. ~~The Company's~~Due to the economic impact that COVID-19 has had on the Company, management concluded that factors, such as the decline in macroeconomic conditions and a sustained decrease in share price, have led to the occurrence of a triggering event for goodwill and other intangible assets could be impacted by the COVID-19 pandemic. A sustained economic downturn could impact the Company's asset valuation or results of operations, which could result in an impairment of goodwill or other intangible assets.impairment. The Company completed an interim goodwill assessment as of September 30, 2020 that ~~contemplates~~contemplated a single reporting ~~unit as of June 30, 2020.~~unit. Based upon our interim assessment, we ~~concluded that no~~recorded a goodwill impairment ~~existed at that time. The~~charge of $31.5 million, as our estimated fair value was less than our book value on that date. This non-cash charge

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was reflected within "Noninterest expense" in the ~~reporting unit equaled approximately $540.6 million, which exceeded the carrying value by approximately $19.8 million.~~Consolidated Statements of Income and had no impact on our regulatory capital ratios, cash flows or liquidity position.

Capital and liquidity.

As of ~~June~~September 30, 2020, all of our capital ratios, and ~~our subsidiary bank’s~~the Bank’s capital ratios, were in excess of all regulatory requirements. While we believe that we have sufficient capital to withstand an extended economic recession brought about by COVID-19, our reported and regulatory capital ratios could be adversely impacted by further credit losses. On July 28, 2020,

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the Company completed the private placement of $65.0 million of its subordinated notes, ~~with registration rights.~~of which $63.75 million have been exchanged for subordinated notes registered under the Securities Act of 1933. The 5.75% fixed-to-floating rate subordinated notes are due July 30, 2030. For regulatory capital purposes, the subordinated notes have been structured to qualify initially as Tier 2 Capital for the Company. We rely on cash on hand as well as dividends from our subsidiary bank to service our debt. If our capital deteriorates such that our ~~subsidiary bank~~Bank is unable to pay dividends to us for an extended period of time, we may not be able to service our debt. If an extended recession ~~caused~~causes large numbers of our deposit customers to withdraw their funds, we might become more reliant on volatile or more expensive sources of funding.

~~We discontinued~~In March 2020, the Company temporarily suspended its share repurchase program in light of market conditions associated with the COVID-19 pandemic. Subsequent to September 30, 2020, the Company's board of directors authorized resuming repurchases ~~of our stock in mid-March 2020 and have no near-term plans to resume repurchases until we have more clarity on~~under the ~~economic outlook.~~Company's share repurchase program.

Processes, controls and business continuity plan

The Company has invoked its Business Continuity Plan that includes a remote working strategy. The Company does not anticipate incurring additional material ~~cost~~costs related to its continued deployment of the remote working strategy. No material operational or internal control challenges or risks have been identified to date as a result of the contingencies we have had to deal with as a result of COVID-19. The Company does not anticipate significant challenges to its ability to maintain its systems and controls in light of the measures the Company has taken to prevent the spread of COVID-19. The Company does not currently face any material resource constraint through the implementation of its ~~business continuity plans.~~Business Continuity Plan.

Critical Accounting Estimates

Management has identified the accounting policies related to the ACL, accounting for business combinations, and goodwill and other intangible assets as critical accounting estimates. 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, 2019, filed with the SEC on March 6, 2020.

RESULTS OF OPERATIONS

Comparison of Operating Results for the Three Months Ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019

Summary

On May 1, 2019, we completed the acquisition of ATBancorp. The effects of this acquisition are one of the primary causes of the changes in our operating results for the three months ended June 30, 2020 compared to the three months ended June 30, 2019, unless otherwise noted.

For the three months ended ~~June~~September 30, 2020, we ~~earned~~incurred a net loss of $19.8 million, which was a decrease of $32.1 million from net income of ~~$11.7 million, which was an increase of $1.0 million from $10.7~~$12.3 million for the three months ended ~~June~~September 30, 2019. The ~~increase~~decrease in net income was due primarily to ~~a $3.9~~an increase of $28.5 million, or ~~11.1%~~90.6%, ~~increase~~in noninterest expense, a $5.4 million, or 12.6%, decrease in net interest income, ~~combined with a decrease of $1.0 million, or 3.5%,~~ in ~~noninterest expense. Offsetting these amounts was~~addition to an increase in credit loss expenses of ~~$4.0 million, in addition to a $0.5~~$0.7 million, or ~~6.0%~~17.1%. Noninterest expense increased primarily as a result of the $31.5 million goodwill impairment that was recorded in the third quarter of 2020. Offsetting these amounts was an increase of $1.6 million, or 19.6%, ~~decrease~~ in noninterest income between the two comparable ~~periods.~~periods and a decrease in income tax expense of $1.0 million. Both basic and diluted loss per common share for the three months ended September 30, 2020 were $1.23 as compared with both basic and diluted earnings per common share of $0.76 for the three months ended September 30, 2019. Excluding the goodwill impairment, core earnings for the three months ended September 30, 2020 were lower at $11.7 million, or $0.73 per diluted common share (a non-GAAP financial measure - see "Non-GAAP Financial Measures" for a reconciliation to the most comparable GAAP equivalent) compared to net income of $12.3 million for the three months ended September 30, 2019. Our annualized return on average shareholders' equity was (14.88)% for the three months ended September 30, 2020 compared with 9.92% for the three months ended September 30, 2019. Our annualized return on average tangible equity was 12.56% for the three months ended September 30, 2020 compared with 15.57% for the three months ended September 30, 2019 (a non-GAAP financial measure - see "Non-GAAP Financial Measures" for a reconciliation to the most comparable GAAP equivalent).

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The following table presents selected financial results and measures as of and for the quarters ended ~~June~~September 30, 2020 and 2019.


		As of and for the Three Months Ended June 30,										As of and for the Three Months Ended September 30,
(dollars in thousands, except per share amounts)	(dollars in thousands, except per share amounts)	2020			2019			(dollars in thousands, except per share amounts)	2020			2019
Net Income		$	11,712		$	10,674
Pre-tax, Pre-provision Net Revenue⁽¹⁾		18,943			14,588
Net (Loss) Income								Net (Loss) Income	$	(19,824)		$	12,300

Average Assets	Average Assets	5,098,847			4,230,447			Average Assets	5,311,386			4,620,531
Average Shareholders’ Equity	Average Shareholders’ Equity	511,239			443,114			Average Shareholders’ Equity	529,857			491,750
Return on Average Assets	Return on Average Assets	0.92		%	1.01		%	Return on Average Assets	(1.48)		%	1.06		%
Return on Average Equity	Return on Average Equity	9.21			9.66			Return on Average Equity	(14.88)			9.92
Return on Average Tangible Equity⁽¹⁾	Return on Average Tangible Equity⁽¹⁾	13.50			13.41			Return on Average Tangible Equity(1)	12.56			15.57
Efficiency Ratio⁽¹⁾	Efficiency Ratio⁽¹⁾	54.80			56.24			Efficiency Ratio(1)	55.37			50.46
Equity to Assets Ratio (end of period)	Equity to Assets Ratio (end of period)	9.96			10.47			Equity to Assets Ratio (end of period)	9.36			10.71
Tangible Common Equity Ratio (end of period)⁽¹⁾	Tangible Common Equity Ratio (end of period)⁽¹⁾	7.80			7.91			Tangible Common Equity Ratio (end of period)(1)	7.82			8.21
Book Value per Share	Book Value per Share	$	32.35		$	30.11		Book Value per Share	$	31.00		$	30.77
Tangible Book Value per Share⁽¹⁾	Tangible Book Value per Share⁽¹⁾	24.74			22.09			Tangible Book Value per Share(1)	25.45			22.93
(1) A non-GAAP financial measure. See "Non-GAAP Financial Measures" for a reconciliation to the most comparable GAAP equivalents.	(1) A non-GAAP financial measure. See "Non-GAAP Financial Measures" for a reconciliation to the most comparable GAAP equivalents.												(1) A non-GAAP financial measure. See "Non-GAAP Financial Measures" for a reconciliation to the most comparable GAAP equivalents.

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Net Interest Income

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


		Three Months Ended June 30,																							Three Months Ended September 30,
		2020										2019											2020				2019
		Average Balance		Interest Income/ Expense		Average Yield/ Cost		Average Balance		Interest Income/ Expense		Average Yield/ Cost			Average Balance		Interest Income/ Expense		Average Yield/ Cost		Average Balance		Interest Income/ Expense		Average Yield/ Cost
(dollars in thousands)	(dollars in thousands)													(dollars in thousands)
ASSETS	ASSETS													ASSETS
Loans, including fees ^(1)(2)(3)	Loans, including fees ^(1)(2)(3)	$	3,633,695	$	40,721	4.51	%	$	3,183,138	$	40,495	5.10	%	Loans, including fees (1)(2)(3)	$	3,576,642	$	38,727	4.31	%	$	3,526,149	$	49,712	5.59	%
Taxable investment securities	Taxable investment securities	731,699		4,646		2.55		458,438		3,289		2.88		Taxable investment securities	864,864		4,574		2.10		471,180		3,376		2.84
Tax-exempt investment securities ⁽²⁾⁽⁴⁾	Tax-exempt investment securities ⁽²⁾⁽⁴⁾	285,758		2,340		3.29		203,179		1,794		3.54		Tax-exempt investment securities (2)(4)	405,517		2,968		2.91		200,533		1,765		3.49
Total securities held for investment ⁽²⁾	Total securities held for investment ⁽²⁾	1,017,457		6,986		2.76		661,617		5,083		3.08		Total securities held for investment (2)	1,270,381		7,542		2.36		671,713		5,141		3.04
Other	Other	67,429		40		0.24		36,031		185		2.06		Other	88,152		29		0.13		17,609		130		2.93
Total interest earning assets ⁽²⁾	Total interest earning assets ⁽²⁾	$	4,718,581	$	47,747	4.07	%	$	3,880,786	$	45,763	4.73	%	Total interest earning assets (2)	$	4,935,175	$	46,298	3.73	%	$	4,215,471	$	54,983	5.17	%
Other assets	Other assets	380,266						349,661						Other assets	376,211						405,060
Total assets	Total assets	$	5,098,847					$	4,230,447					Total assets	$	5,311,386					$	4,620,531

LIABILITIES AND SHAREHOLDERS' EQUITY	LIABILITIES AND SHAREHOLDERS' EQUITY													LIABILITIES AND SHAREHOLDERS' EQUITY
Interest checking deposits	Interest checking deposits	$	1,091,565	$	1,113	0.41	%	$	731,973	$	1,021	0.56	%	Interest checking deposits	$	1,174,033	$	1,049	0.36	%	$	877,470	$	1,398	0.63	%
Money market deposits	Money market deposits	829,826		885		0.43		880,973		2,491		1.13		Money market deposits	847,059		622		0.29		809,264		1,904		0.93
Savings deposits	Savings deposits	439,592		365		0.33		328,694		182		0.22		Savings deposits	473,000		351		0.30		392,298		463		0.47
Time deposits	Time deposits	990,797		4,046		1.64		874,619		4,049		1.86		Time deposits	931,655		3,274		1.40		939,480		4,473		1.89
Total interest bearing deposits	Total interest bearing deposits	3,351,780		6,409		0.77		2,816,259		7,743		1.10		Total interest bearing deposits	3,425,747		5,296		0.62		3,018,512		8,238		1.08
Short-term borrowings	Short-term borrowings	159,157		263		0.66		123,586		500		1.62		Short-term borrowings	165,840		175		0.42		139,458		522		1.49
Long-term debt	Long-term debt	201,240		1,374		2.75		229,152		1,876		3.28		Long-term debt	231,406		1,874		3.22		249,226		2,058		3.28
Total borrowed funds	Total borrowed funds	360,397		1,637		1.83		352,738		2,376		2.70		Total borrowed funds	397,246		2,049		2.05		388,684		2,580		2.63
Total interest bearing liabilities	Total interest bearing liabilities	$	3,712,177	$	8,046	0.87	%	$	3,168,997	$	10,119	1.28	%	Total interest bearing liabilities	$	3,822,993	$	7,345	0.76	%	$	3,407,196	$	10,818	1.26	%

Noninterest bearing deposits	Noninterest bearing deposits	813,794						574,720						Noninterest bearing deposits	891,425						674,003
Other liabilities	Other liabilities	61,637						43,616						Other liabilities	67,111						47,582
Shareholders’ equity	Shareholders’ equity	511,239						443,114						Shareholders’ equity	529,857						491,750
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	5,098,847					$	4,230,447					Total liabilities and shareholders’ equity	$	5,311,386					$	4,620,531
Net interest income ⁽²⁾	Net interest income ⁽²⁾			$	39,701					$	35,644			Net interest income (2)			$	38,953					$	44,165
Net interest spread⁽²⁾	Net interest spread⁽²⁾					3.20	%					3.45	%	Net interest spread(2)					2.97	%					3.91	%
Net interest margin⁽²⁾	Net interest margin⁽²⁾					3.38	%					3.68	%	Net interest margin(2)					3.14	%					4.15	%

Total deposits⁽⁵⁾	Total deposits⁽⁵⁾	$	4,165,574	$	6,409	0.62	%	$	3,390,979	$	7,743	0.92	%	Total deposits(5)	$	4,317,172	$	5,296	0.49	%	$	3,692,515	$	8,238	0.89	%
Cost of funds⁽⁶⁾	Cost of funds⁽⁶⁾					0.72	%					1.08	%	Cost of funds(6)					0.62	%					1.05	%


(1)			Average balance includes nonaccrual loans.
(2)			Tax equivalent. The federal statutory tax rate utilized was 21%.
(3)			Interest income includes net loan fees, loan purchase discount accretion and tax equivalent adjustments. Net loan fees were ~~$748 thousand~~$1.1 million and ~~$(202)~~$(353) thousand for the three months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, respectively. Loan purchase discount accretion was ~~$2.6~~$1.9 million and ~~$2.2~~$7.2 million for the three months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, respectively. Tax equivalent adjustments were ~~$507~~$536 thousand and ~~$442~~$543 thousand for the three months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, respectively. The federal statutory tax rate utilized was 21%.
(4)			Interest income includes tax equivalent adjustments of ~~$482~~$608 thousand and ~~$370~~$364 thousand for the three months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, respectively. The federal statutory tax rate utilized was 21%.
(5)			Total deposits is the sum of total interest-bearing deposits and noninterest bearing deposits. The cost of total deposits is calculated as annualized interest expense on deposits divided by average total deposits.
(6)			Cost of funds is calculated as annualized total interest expense divided by the sum of average total deposits and borrowed funds.

4547

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The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. Changes attributable to the combined effect of volume and interest rates have been allocated proportionately to the changes due to volume and the changes due to interest rates.


		Three Months Ended June 30,												Three Months Ended September 30,
		2020 Compared to 2019 Change due to												2020 Compared to 2019 Change due to
		Volume		Yield/Cost		Net				Volume		Yield/Cost		Net
(in thousands)	(in thousands)								(in thousands)
Increase (decrease) in interest income:	Increase (decrease) in interest income:								Increase (decrease) in interest income:
Loans, including fees ⁽¹⁾	Loans, including fees ⁽¹⁾	$	5,263	$	(5,037)	$	226		Loans, including fees (1)	$	688	$	(11,673)	$	(10,985)
Taxable investment securities	Taxable investment securities	1,769		(412)		1,357			Taxable investment securities	2,249		(1,051)		1,198
Tax-exempt investment securities ⁽¹⁾	Tax-exempt investment securities ⁽¹⁾	680		(134)		546			Tax-exempt investment securities (1)	1,537		(334)		1,203
Total securities held for investment ⁽¹⁾	Total securities held for investment ⁽¹⁾	2,449		(546)		1,903			Total securities held for investment (1)	3,786		(1,385)		2,401
Other	Other	90		(235)		(145)			Other	119		(220)		(101)
Change in interest income ⁽¹⁾	Change in interest income ⁽¹⁾	7,802		(5,818)		1,984			Change in interest income (1)	4,593		(13,278)		(8,685)
Increase (decrease) in interest expense:	Increase (decrease) in interest expense:								Increase (decrease) in interest expense:
Interest checking deposits	Interest checking deposits	413		(321)		92			Interest checking deposits	372		(721)		(349)
Money market deposits	Money market deposits	(138)		(1,468)		(1,606)			Money market deposits	84		(1,366)		(1,282)
Savings deposits	Savings deposits	74		109		183			Savings deposits	81		(193)		(112)
Time deposits	Time deposits	504		(507)		(3)			Time deposits	(37)		(1,162)		(1,199)
Total interest-bearing deposits	Total interest-bearing deposits	853		(2,187)		(1,334)			Total interest-bearing deposits	500		(3,442)		(2,942)
Short-term borrowings	Short-term borrowings	115		(352)		(237)			Short-term borrowings	84		(431)		(347)
Long-term debt	Long-term debt	(216)		(286)		(502)			Long-term debt	(146)		(38)		(184)
Total borrowed funds	Total borrowed funds	(101)		(638)		(739)			Total borrowed funds	(62)		(469)		(531)
Change in interest expense	Change in interest expense	752		(2,825)		(2,073)			Change in interest expense	438		(3,911)		(3,473)
Change in net interest income	Change in net interest income	$	7,050	$	(2,993)	$	4,057		Change in net interest income	$	4,155	$	(9,367)	$	(5,212)
Percentage increase (decrease) in net interest income over prior period						11.4		%
Percentage (decrease) increase in net interest income over prior period									Percentage (decrease) increase in net interest income over prior period					(11.8)		%
^{(1) Tax equivalent, using a federal statutory tax rate of 21%.}	^{(1) Tax equivalent, using a federal statutory tax rate of 21%.}								(1) Tax equivalent, using a federal statutory tax rate of 21%.

Net interest income of ~~$38.7~~$37.8 million for the ~~second~~third quarter of 2020 was ~~up $3.9~~down $5.4 million, or ~~11.1%~~12.6%, from ~~$34.8~~$43.3 million for the ~~second~~third quarter of 2019, asdue primarily to net interest margin compression, which was only slightly offset by larger volumes of interest earning ~~assets more than offset net interest margin compression.~~assets. The primary drivers of the ~~increase~~decrease in net interest income ~~were an increase~~was a decrease in interest income of ~~$1.8~~$8.9 million, or ~~4.0%~~16.5%, ~~and decreased~~offset in part by a decline in interest expense of ~~$2.1~~$3.5 million, or ~~20.5%~~32.1%. The ~~increase~~decline in interest income was primarily a result of a decline of $11.0 million in interest income from loans. Partially offsetting this decline was an increase in the interest income earned from investment securities, which was ~~$6.5~~$6.9 million for the ~~second~~third quarter of 2020, up ~~$1.8~~$2.2 million from the ~~second~~third quarter of 2019 ~~while interest income earned on loans~~due to an increased ~~$0.2 million between~~volume of securities, which was a result of the ~~two periods.~~Company's investment of net deposit inflows. The contributing factors for the decrease in interest expense was a decrease of ~~$1.3~~$2.9 million in interest expense on interest-bearing deposits due to lower costs incurred on such deposits that more than offset the increase in ~~addition to~~ the volume of deposits from PPP loan proceeds that were generally deposited into customer accounts at the Bank, coupled with a decrease in the interest expense on borrowed funds of ~~$0.7~~$0.5 million. Loan purchase discount accretion added $1.9 million to net interest income in the third quarter of 2020 as compared to $7.2 million in the third quarter of 2019. Net fee accretion for PPP loans for the third quarter of 2020 was $1.3 million, compared to none in the third quarter of 2019.

The tax equivalent net interest margin for the ~~second~~third quarter of 2020 was ~~3.38%~~3.14%, or 30101 basis points lower than the tax equivalent net interest margin of ~~3.68%~~4.15% for the ~~second quarter of 2019. Loan purchase discount accretion added $2.6 million to net interest income in the second quarter of 2020 as compared to $2.2 million in the second~~third quarter of 2019. The yield on loans decreased 59128 basis points, approximately 1418 basis points of which was attributable to PPP loans, which have a coupon rate of 1%. ~~Net fee accretion for PPP loans for the second quarter of 2020 was $1.1 million.~~ The tax equivalent yield on investment securities decreased by 3268 basis points. Combined, the resulting yield on interest-earning assets for the ~~second~~third quarter of 2020 was 66144 basis points lower than the ~~second~~third quarter of 2019. The cost of interest-bearing deposits decreased 3346 basis points, while the average cost of borrowings was lower by 8758 basis points for the ~~second~~third quarter of 2020, compared to the ~~second~~third quarter of 2019. The FRB decreased the target federal funds interest rate by ~~a total of 75~~25 basis points in each of August, September and October 2019, and an additional 150 basis points in March 2020 in response to the ~~second half of 2019,~~COVID-19 pandemic which contributed to the decreasing interest rates in the ~~second~~third quarter 2020 as compared to the ~~second~~third quarter 2019. ~~In addition, in response to the COVID-19 pandemic, the FRB decreased the target federal funds interest rate by a total of 150 basis points in March 2020.~~ These decreases impact the comparability of net interest income and net interest margin between 2019 and 2020.

Credit Loss Expense

WeDuring the third quarter of 2020, we recorded credit loss expense of ~~$4.7~~$5.0 million, an increase of $0.7 million, or 17.1%, from $4.3 million for the third quarter of 2019. The increased credit loss expense in the ~~second~~third quarter of 2020 ~~an increase~~was attributable to

Table of ~~$4.0 million, or 573.1%, from $0.7 million~~Contents

changes in the economic forecast and changes to modeling assumptions. In addition, upon the Company's adoption of the CECL accounting guidance on January 1, 2020, the methodology for estimating the ~~second quarter~~total amount of ~~2019. Our~~the credit loss expense ~~reflected the impact of the COVID-19 pandemic on current and forecasted economic conditions~~changed. Specifically, for the ~~U.S. and our regional economy.~~third quarter of 2020, we utilized the current expected credit loss methodology, as compared to incurred loss methodology that was utilized in the prior year comparable period. The total amount of net loans charged off in the ~~second~~third quarter of 2020 was ~~slightly~~ higher at ~~$1.9~~$1.8 million, as compared to ~~$1.7~~$1.4 million in the ~~second~~third quarter of 2019.

~~Table of Contents~~

Noninterest Income

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


		Three Months Ended June 30,															Three Months Ended September 30,
		2020		2019		$ Change		% Change			2020		2019		$ Change		% Change
(dollars in thousands)	(dollars in thousands)									(dollars in thousands)
Investment services and trust activities	Investment services and trust activities	$	2,217	$	1,890	$	327	17.3	%	Investment services and trust activities	$	2,361	$	2,339	$	22	0.9	%
Service charges and fees	Service charges and fees	1,290		1,870		(580)		(31.0)		Service charges and fees	1,491		2,068		(577)		(27.9)
Card revenue	Card revenue	1,237		1,799		(562)		(31.2)		Card revenue	1,600		1,655		(55)		(3.3)
Loan revenue	Loan revenue	1,910		648		1,262		194.8		Loan revenue	3,252		991		2,261		228.2
Bank-owned life insurance	Bank-owned life insurance	635		470		165		35.1		Bank-owned life insurance	530		514		16		3.1
Insurance commissions		—		314		(314)		NM

Investment securities gains, net	Investment securities gains, net	6		32		(26)		(81.3)		Investment securities gains, net	106		23		83		360.9
Other	Other	974		1,773		(799)		(45.1)		Other	230		414		(184)		(44.4)
Total noninterest income	Total noninterest income	$	8,269	$	8,796	$	(527)	(6.0)	%	Total noninterest income	$	9,570	$	8,004	$	1,566	19.6	%

Total noninterest income for the ~~second~~third quarter of 2020 ~~decreased $0.5~~increased $1.6 million, or ~~6.0%~~19.6%, to ~~$8.3~~$9.6 million from ~~$8.8~~$8.0 million in the ~~second~~third quarter of 2019. The most notable ~~decreases~~increase in noninterest income ~~were attributable to the sale~~was an increase of $2.3 million in loan revenue, which was driven by increased volume in origination of home mortgage loans as a result of the ~~Company's MidWestOne~~ ~~Insurance subsidiary~~low interest rate environment. Slightly offsetting the increase in ~~the second quarter~~loan revenue was a decrease of 2019, which resulted in a pre-tax gain on the sale of the assets of $1.1 million in the 'Other' category in the 2019 period, as well as a decline in insurance commissions of $0.3 million in the second quarter of 2020 as compared to the same period in 2019. In addition, the decrease was also driven by a $0.5 million ~~decrease~~ in overdraft fees, included in service charges and fees, in the ~~second~~third quarter of 2020 as compared to the same period in 2019, which reflected lower customer overdraft activity coupled with increased waivers of such fees. ~~Offsetting these decreases was an increase of $1.3 million in loan revenue, which was driven by increased volume in home mortgage loans, as a result of the low interest rate environment.~~

Noninterest Expense

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


		Three Months Ended June 30,															Three Months Ended September 30,
		2020		2019		$ Change		% Change			2020		2019		$ Change		% Change
(dollars in thousands)	(dollars in thousands)									(dollars in thousands)
Compensation and employee benefits	Compensation and employee benefits	$	15,682	$	16,409	$	(727)	(4.4)	%	Compensation and employee benefits	$	16,460	$	17,426	$	(966)	(5.5)	%
Occupancy expense of premises, net	Occupancy expense of premises, net	2,253		2,127		126		5.9		Occupancy expense of premises, net	2,278		2,294		(16)		(0.7)
Equipment	Equipment	2,010		1,914		96		5.0		Equipment	1,935		2,181		(246)		(11.3)
Legal and professional	Legal and professional	1,382		3,291		(1,909)		(58.0)		Legal and professional	1,184		1,996		(812)		(40.7)
Data processing	Data processing	1,240		1,008		232		23.0		Data processing	1,308		1,234		74		6.0
Marketing	Marketing	910		869		41		4.7		Marketing	857		1,167		(310)		(26.6)
Amortization of intangibles	Amortization of intangibles	1,748		930		818		88.0		Amortization of intangibles	1,631		2,583		(952)		(36.9)
FDIC insurance	FDIC insurance	445		434		11		2.5		FDIC insurance	470		(42)		512		(1,219.0)
Communications	Communications	449		377		72		19.1		Communications	428		489		(61)		(12.5)
Foreclosed assets, net	Foreclosed assets, net	34		84		(50)		(59.5)		Foreclosed assets, net	13		265		(252)		(95.1)
Other	Other	1,885		1,597		288		18.0		Other	1,875		1,849		26		1.4
Total core noninterest expense										Total core noninterest expense	$	28,439	$	31,442	$	(3,003)	(9.6)	%
Goodwill impairment										Goodwill impairment	31,500		—		31,500		100.0
Total noninterest expense	Total noninterest expense	$	28,038	$	29,040	$	(1,002)	(3.5)	%	Total noninterest expense	$	59,939	$	31,442	$	28,497	90.6	%

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The following table shows the impact of merger-related expenses to the various components of noninterest expense for the periods indicated:


		Three Months Ended June 30,							Three Months Ended September 30,
Merger-related expenses:	Merger-related expenses:	2020		2019		Merger-related expenses:	2020		2019
(dollars in thousands)	(dollars in thousands)					(dollars in thousands)
Compensation and employee benefits	Compensation and employee benefits	$	—	$	1,020	Compensation and employee benefits	$	—	$	1,584
Equipment		7		—

Legal and professional	Legal and professional	—		1,826		Legal and professional	—		163
Data processing	Data processing	—		240		Data processing	—		567
Other	Other	—		48		Other	—		233
Total impact of merger-related expenses to noninterest expense	Total impact of merger-related expenses to noninterest expense	$	7	$	3,134	Total impact of merger-related expenses to noninterest expense	$	—	$	2,547

Noninterest expense for the ~~second~~third quarter of 2020 was ~~$28.0~~$59.9 million, ~~a decrease~~an increase of ~~$1.0~~$28.5 million, or ~~3.5%~~90.6%, from ~~$29.0~~$31.4 million for the ~~second~~third quarter of 2019. The ~~decrease~~increase in noninterest expense was primarily due to a ~~decrease in compensation and employee benefits of $0.7~~$31.5 million ~~in addition to a decrease in legal and professional expenses of $1.9~~goodwill impairment charge. Excluding the goodwill impairment charge, core noninterest expense decreased $3.0 million, ~~for the second quarter of 2020 compared to the second quarter of 2019,~~or 9.6%, primarily as a result of the decline in merger-related ~~expenses. Offsetting these decreases, amortization of intangibles for~~expenses that were incurred in the ~~second quarter of 2020 was $1.7 million, an increase of $0.8 million, or 88.0%, from $0.9 million for the second~~third quarter of 2019 ~~due primarily to additions~~ from the ~~merger.~~acquisition of ATBancorp that was completed on May 1, 2019.

~~Income Tax~~Credit Loss Expense

~~Our effective income tax rate was 17.9% for~~During the ~~second~~third quarter of 2020, ~~which was lower than the effective tax rate~~we recorded credit loss expense of ~~23.2%~~$5.0 million, an increase of $0.7 million, or 17.1%, from $4.3 million for the ~~second~~third quarter of 2019. The ~~Company recorded a net income tax~~increased credit loss expense ~~of $2.5 million~~ in the ~~second~~third quarter of 2020 ~~compared~~was attributable to a net income tax expense of $3.2 million for the same period of 2019. The income tax expense was primarily driven by the net income experienced in the second quarter of 2020, as well as the general business credit and tax-exempt interest income recognized in the second quarter of 2020. See ~~Note 1~~1 ~~. Income Taxes~~ ~~for additional information.~~

~~Comparison of Operating Results for the Six Months Ended June 30, 2020 and June 30, 2019~~

~~Summary~~

On May 1, 2019, we completed the acquisition of ATBancorp. The effects of this acquisition are one of the primary causes of the stated changes in our operating results for the six months ended June 30, 2020 compared to the six months ended June 30, 2019, unless otherwise noted.

~~For the six months ended June 30, 2020, we earned net income of~~ ~~$9.7 million, which was a decrease of $8.2 million from $18.0 million~~ for the six months ended June 30, 2019. The decrease in net income was due primarily to an increase of $24.1 million in credit loss expense, combined with an increase of $8.4 million, or 16.9% in noninterest expense. Offsetting these amounts was a $15.3 million, or 25.2%, increase in net interest income, combined with a $4.2 million, or 29.7%, increase in noninterest income between the two comparable periods.

~~The following table presents selected financial results and measures as of and for the six months ended June 30, 2020 and 2019.~~

As of and for the Six Months Ended June 30,
(dollars in thousands, except per share amounts) 2020 2019
Net Income $ 9,737 $ 17,959
Pre-tax, Pre-provision Net Revenue ⁽¹⁾
36,503 25,357
Average Assets 4,884,285 3,767,729
Average Shareholders’ Equity 513,204 401,490
Return on Average Assets 0.40 % 0.96 %
Return on Average Equity 3.82 9.02
Return on Average Tangible Equity⁽¹⁾
6.48 12.24
Efficiency Ratio ⁽¹⁾
56.24 58.85
Equity to Assets Ratio (end of period) 9.96 10.47
Tangible Common Equity Ratio (end of period)⁽¹⁾
7.80 7.91
Book Value per Share $ 32.35 $ 30.11
Tangible Book Value per Share⁽¹⁾
24.74 22.09
^{(1) A non-GAAP financial measure. See "Non-GAAP Financial Measures" for a reconciliation to the most comparable GAAP equivalents.}

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~~Net Interest~~changes in the economic forecast and changes to modeling assumptions. In addition, upon the Company's adoption of the CECL accounting guidance on January 1, 2020, the methodology for estimating the total amount of the credit loss expense changed. Specifically, for the third quarter of 2020, we utilized the current expected credit loss methodology, as compared to incurred loss methodology that was utilized in the prior year comparable period. The total amount of net loans charged off in the third quarter of 2020 was higher at $1.8 million, as compared to $1.4 million in the third quarter of 2019.

Noninterest Income

The following table ~~shows consolidated average balance sheets, detailing~~presents the ~~major categories~~significant components of ~~assets and liabilities, the interest~~noninterest income ~~earned on interest-earning assets, the interest expense paid for interest-bearing liabilities,~~ and the related ~~yields~~dollar and ~~costs~~percentage change from period to period:


	Three Months Ended September 30,
	2020		2019		$ Change		% Change
(dollars in thousands)
Investment services and trust activities	$	2,361	$	2,339	$	22	0.9	%
Service charges and fees	1,491		2,068		(577)		(27.9)
Card revenue	1,600		1,655		(55)		(3.3)
Loan revenue	3,252		991		2,261		228.2
Bank-owned life insurance	530		514		16		3.1

Investment securities gains, net	106		23		83		360.9
Other	230		414		(184)		(44.4)
Total noninterest income	$	9,570	$	8,004	$	1,566	19.6	%

Total noninterest income for the ~~periods indicated.~~third quarter of 2020 increased $1.6 million, or 19.6%, to $9.6 million from $8.0 million in the third quarter of 2019. The most notable increase in noninterest income was an increase of $2.3 million in loan revenue, which was driven by increased volume in origination of home mortgage loans as a result of the low interest rate environment. Slightly offsetting the increase in loan revenue was a decrease of $0.5 million in overdraft fees, included in service charges and fees, in the third quarter of 2020 as compared to the same period in 2019, which reflected lower customer overdraft activity coupled with increased waivers of such fees.

Six Months Ended June 30,
2020 2019
(dollars in thousands)
Average
Balance
Interest
Income/
Expense

Average
Yield/
Cost

Average
Balance
Interest
Income/
Expense

Average
Yield/
Cost
ASSETS
Loans, including fees ^(1)(2)(3)
$ 3,534,979 $ 83,230 4.73 % $ 2,798,526 $ 69,803 5.03 %
Taxable investment securities 648,678 8,363 2.59 436,832 6,216 2.87
Tax-exempt investment securities ⁽²⁾⁽⁴⁾
254,963 4,247 3.35 202,606 3,566 3.55
Total securities held for investment ⁽²⁾
903,641 12,610 2.81 639,438 9,782 3.08
Other 62,304 204 0.66 19,633 205 2.11
Total interest-earning assets ⁽²⁾
$ 4,500,924 $ 96,044 4.29 % $ 3,457,597 $ 79,790 4.65 %
Other assets 383,361 310,132
Total assets $ 4,884,285 $ 3,767,729

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest checking deposits $ 1,028,321 $ 2,428 0.47 % $ 698,654 $ 1,931 0.56 %
Money market deposits 798,296 2,530 0.64 746,339 3,825 1.03
Savings deposits 416,713 756 0.36 267,068 240 0.18
Time deposits 993,966 8,644 1.75 800,109 7,442 1.88
Total interest-bearing deposits 3,237,296 14,358 0.89 2,512,170 13,438 1.08
Short-term borrowings 140,550 597 0.85 116,795 957 1.65
Long-term debt 213,413 3,090 2.91 204,471 3,136 3.09
Total borrowed funds 353,963 3,687 2.09 321,266 4,093 2.57
Total interest-bearing liabilities $ 3,591,259 $ 18,045 1.01 % $ 2,833,436 $ 17,531 1.25 %
Noninterest bearing deposits 725,499 498,733
Other liabilities 54,323 34,070
Shareholders' equity 513,204 401,490
Total liabilities and shareholders' equity $ 4,884,285 $ 3,767,729
Net interest income ⁽²⁾
$ 77,999 $ 62,259
Net interest spread⁽²⁾
3.28 % 3.40 %
Net interest margin ⁽²⁾
3.48 % 3.63 %
Total deposits⁽⁵⁾
$ 3,962,795 $ 14,358 0.73 % $ 3,010,903 $ 13,438 �� 0.90 %
Cost of funds⁽⁶⁾
0.84 % 1.06 %
Noninterest Expense

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


~~(1)~~			~~Average balance includes nonaccrual loans.~~
~~(2)~~			~~Tax equivalent. The federal statutory tax rate utilized was 21%.~~
~~(3)~~			Interest income includes net loan fees, loan purchase discount accretion and tax equivalent adjustments. Net loan fees were $626 thousand and $(317) thousand for the six months ended June 30, 2020 and June 30, 2019, respectively. Loan purchase discount accretion was $5.6 million and $2.8 million for the six months ended June 30, 2020 and June 30, 2019, respectively. Tax equivalent adjustments were $1.0 million and $715 thousand for the six months ended June 30, 2020 and June 30, 2019, respectively. The federal statutory tax rate utilized was 21%.
~~(4)~~			Interest income includes tax equivalent adjustments of $877 thousand and $736 thousand for the six months ended June 30, 2020 and June 30, 2019, respectively. The federal statutory tax rate utilized was 21%.
~~(5)~~			Total deposits is the sum of total interest-bearing deposits and noninterest bearing deposits. The cost of total deposits is calculated as annualized interest expense on deposits divided by average total deposits.
~~(6)~~			~~Cost of funds is calculated as annualized total interest expense divided by the sum of average total deposits and borrowed funds.~~


	Three Months Ended September 30,
	2020		2019		$ Change		% Change
(dollars in thousands)
Compensation and employee benefits	$	16,460	$	17,426	$	(966)	(5.5)	%
Occupancy expense of premises, net	2,278		2,294		(16)		(0.7)
Equipment	1,935		2,181		(246)		(11.3)
Legal and professional	1,184		1,996		(812)		(40.7)
Data processing	1,308		1,234		74		6.0
Marketing	857		1,167		(310)		(26.6)
Amortization of intangibles	1,631		2,583		(952)		(36.9)
FDIC insurance	470		(42)		512		(1,219.0)
Communications	428		489		(61)		(12.5)
Foreclosed assets, net	13		265		(252)		(95.1)
Other	1,875		1,849		26		1.4
Total core noninterest expense	$	28,439	$	31,442	$	(3,003)	(9.6)	%
Goodwill impairment	31,500		—		31,500		100.0
Total noninterest expense	$	59,939	$	31,442	$	28,497	90.6	%

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The following table ~~presents~~shows the ~~dollar amount~~impact of ~~changes in interest income and interest~~merger-related expenses to the various components of noninterest expense for ~~major components of interest-earning assets and interest-bearing liabilities. Changes attributable to~~ the ~~combined effect of volume and interest rates have been allocated proportionately to the changes due to volume and the changes due to interest rates.~~periods indicated:

Six Months Ended June 30,
2020 Compared to 2019 Change due to
(in thousands) Volume Yield/Cost Net
Increase (decrease) in interest income:
Loans, including fees ⁽¹⁾
$ 17,753 $ (4,326) $ 13,427
Taxable investment securities 2,800 (653) 2,147
Tax-exempt investment securities⁽¹⁾
890 (209) 681
Total securities held for investment⁽¹⁾
3,690 (862) 2,828
Other 215 (216) (1)
Change in interest income ⁽¹⁾
21,658 (5,404) 16,254
Increase (decrease) in interest expense:
Interest checking deposits 837 (340) 497
Money market deposits 248 (1,543) (1,295)
Savings deposits 185 331 516
Time deposits 1,740 (538) 1,202
Total interest-bearing deposits 3,010 (2,090) 920
Short-term borrowings 168 (528) (360)
Long-term debt 137 (183) (46)
Total borrowed funds 305 (711) (406)
Change in interest expense 3,315 (2,801) 514
Change in net interest income $ 18,343 $ (2,603) $ 15,740
Percentage increase (decrease) in net interest income over prior period 25.3 %
_{(1) Tax equivalent, using a federal statutory tax rate of 21%.}


	Three Months Ended September 30,
Merger-related expenses:	2020		2019
(dollars in thousands)
Compensation and employee benefits	$	—	$	1,584

Legal and professional	—		163
Data processing	—		567
Other	—		233
Total impact of merger-related expenses to noninterest expense	$	—	$	2,547

~~Our net interest income~~Noninterest expense for the ~~six months ended June 30,~~third quarter of 2020 was ~~$76.1~~$59.9 million, ~~up $15.3~~an increase of $28.5 million, or ~~25.2%~~90.6%, from ~~$60.8~~$31.4 million for the ~~six months ended June 30, 2019, as larger volumes~~third quarter of interest earning assets more than offset net interest margin compression. The primary driver of the increase in net interest income was an increase in interest income of $15.8 million, or 20.2%, which was partially offset by an increase of $0.5 million, or 2.9%, in interest expense.2019. The increase in ~~interest income~~noninterest expense was primarily due to a ~~result of increased loan interest income, which rose $13.1~~$31.5 million goodwill impairment charge. Excluding the goodwill impairment charge, core noninterest expense decreased $3.0 million, or ~~19.0%~~9.6%, ~~for the first six months of 2020 compared to the first six months of 2019, combined with a $2.7 million, or 29.7%, increase in interest income earned from investment securities. Interest expense rose~~ primarily as a result of the ~~$0.9 million, or 6.8%, increase~~decline in ~~interest expense on interest-bearing deposits for the first six months of 2020 compared to the first six months of 2019.~~

The tax equivalent net interest margin for the six months ended June 30, 2020 was 3.48%, or 15 basis points lower than the tax equivalent net interest margin of 3.63% for the six months ended June 30, 2019. Loan purchase discount accretion added $5.6 million to net interest income for the six months ended June 30, 2020 as compared to $2.8 million for the six months ended June 30, 2019. The yield on loans decreased 30 basis points. The tax equivalent yield on investment securities decreased by 27 basis points. Combined, the resulting yield on interest-earning assets for the six months ended June 30, 2020 was 36 basis points lower than the six months ended June 30, 2019. The cost of interest-bearing deposits decreased 19 basis points, while the average cost of borrowings was lower by 48 basis points for the six months ended June 30, 2020, compared to the six months ended June 30, 2019. The FRB decreased the target federal funds interest rate by a total of 75 basis pointsmerger-related expenses that were incurred in the ~~second half~~third quarter of 2019 ~~which contributed to~~from the ~~decreasing interest rates for the six months ended June 30, 2020 as compared to the six months ended June 30,~~acquisition of ATBancorp that was completed on May 1, 2019. In addition, in response to the COVID-19 pandemic, the FRB decreased the target federal funds interest rate by a total of 150 basis points in March 2020. These decreases impact the comparability of net interest income and net interest margin between 2019 and 2020.

Credit Loss Expense

WeDuring the third quarter of 2020, we recorded credit loss expense of ~~$26.4~~$5.0 million, ~~in the first six months of 2020,~~ an increase of ~~$24.1~~$0.7 million, or ~~1,053.6%~~17.1%, from ~~$2.3~~$4.3 million for the ~~same period~~third quarter of 2019. ~~Our~~The increased credit loss expense ~~reflected~~in the ~~impact~~third quarter of 2020 was attributable to

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changes in the economic forecast and changes to modeling assumptions. In addition, upon the Company's adoption of the ~~COVID-19 pandemic~~CECL accounting guidance on ~~current and forecasted economic conditions~~January 1, 2020, the methodology for estimating the total amount of the credit loss expense changed. Specifically, for the ~~U.S. and our regional economy.~~third quarter of 2020, we utilized the current expected credit loss methodology, as compared to incurred loss methodology that was utilized in the prior year comparable period. The total amount of net loans charged off in the ~~first six months~~third quarter of 2020 ~~were slightly~~was higher at ~~$3.1~~$1.8 million, as compared to ~~$2.9~~$1.4 million in the ~~first six months~~third quarter of 2019.

~~Table of Contents~~

Noninterest Income

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


											Three Months Ended September 30,
		Six Months Ended June 30,															2020		2019	$ Change	% Change
(dollars in thousands)	(dollars in thousands)	2020		2019		$ Change		% Change		(dollars in thousands)
Investment services and trust activities	Investment services and trust activities	$	4,753	$	3,280	$	1,473	44.9	%	Investment services and trust activities	$	2,361	$	2,339	$	22	0.9	%
Service charges and fees	Service charges and fees	3,116		3,312		(196)		(5.9)		Service charges and fees	1,491		2,068		(577)		(27.9)
Card revenue	Card revenue	2,602		2,797		(195)		(7.0)		Card revenue	1,600		1,655		(55)		(3.3)
Loan revenue	Loan revenue	3,033		1,041		1,992		191.4		Loan revenue	3,252		991		2,261		228.2
Bank-owned life insurance	Bank-owned life insurance	1,155		862		293		34.0		Bank-owned life insurance	530		514		16		3.1
Insurance commissions		—		734		(734)		(100.0)

Investment securities gains, net	Investment securities gains, net	48		49		(1)		(2.0)		Investment securities gains, net	106		23		83		360.9
Other	Other	3,717		2,131		1,586		74.4		Other	230		414		(184)		(44.4)
Total noninterest income	Total noninterest income	$	18,424	$	14,206	$	4,218	29.7	%	Total noninterest income	$	9,570	$	8,004	$	1,566	19.6	%

Total noninterest income for the ~~first six months~~third quarter of 2020 increased ~~$4.2~~$1.6 million, or ~~29.7%~~19.6%, to ~~$18.4~~$9.6 million from ~~$14.2~~$8.0 million ~~during~~in the ~~same period~~third quarter of 2019. ~~This increase was due primarily to additional fee income earned as a result of the acquisition, which is reflected within the $1.5 million~~The most notable increase in ~~investment services and trust activities. The increase is also attributable to the increase in income from our commercial loan back-to-back swap program of $2.4 million, as recorded in the 'Other'~~ noninterest income ~~combined with the~~was an increase of $2.3 million in loan revenue, ~~of $2.0 million,~~ which was ~~primarily~~ driven by increased volume in origination of home mortgage loans as a result of the low interest rate environment. ~~Offsetting these increases~~Slightly offsetting the increase in loan revenue was a decrease of $0.5 million in ~~'Other' noninterest income from the pre-tax gain of $1.1 million recognized from the sale of MidWestOne~~ ~~Insurance Services, Inc. assets~~overdraft fees, included in service charges and fees, in the ~~first six months 2019, a decrease in insurance commissions~~third quarter of ~~$0.7 million, in addition to a mortgage servicing rights fair value adjustment of $0.7 million in the first six months of 2019~~2020 as compared to ~~$1.2 million~~the same period in ~~the first six months~~2019, which reflected lower customer overdraft activity coupled with increased waivers of ~~2020, an increase of $0.5 million.~~such fees.

Noninterest Expense

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


											Three Months Ended September 30,
		Six Months Ended June 30,															2020		2019	$ Change	% Change
(dollars in thousands)	(dollars in thousands)	2020		2019		$ Change		% Change		(dollars in thousands)
Compensation and employee benefits	Compensation and employee benefits	$	32,299	$	28,988	$	3,311	11.4	%	Compensation and employee benefits	$	16,460	$	17,426	$	(966)	(5.5)	%
Occupancy expense of premises, net	Occupancy expense of premises, net	4,594		4,006		588		14.7		Occupancy expense of premises, net	2,278		2,294		(16)		(0.7)
Equipment	Equipment	3,890		3,285		605		18.4		Equipment	1,935		2,181		(246)		(11.3)
Legal and professional	Legal and professional	2,917		4,256		(1,339)		(31.5)		Legal and professional	1,184		1,996		(812)		(40.7)
Data processing	Data processing	2,594		1,853		741		40.0		Data processing	1,308		1,234		74		6.0
Marketing	Marketing	1,972		1,475		497		33.7		Marketing	857		1,167		(310)		(26.6)
Amortization of intangibles	Amortization of intangibles	3,776		1,382		2,394		173.2		Amortization of intangibles	1,631		2,583		(952)		(36.9)
FDIC insurance	FDIC insurance	893		804		89		11.1		FDIC insurance	470		(42)		512		(1,219.0)
Communications	Communications	906		719		187		26.0		Communications	428		489		(61)		(12.5)
Foreclosed assets, net	Foreclosed assets, net	172		142		30		21.1		Foreclosed assets, net	13		265		(252)		(95.1)
Other	Other	4,026		2,747		1,279		46.6		Other	1,875		1,849		26		1.4
Total core noninterest expense										Total core noninterest expense	$	28,439	$	31,442	$	(3,003)	(9.6)	%
Goodwill impairment										Goodwill impairment	31,500		—		31,500		100.0
Total noninterest expense	Total noninterest expense	$	58,039	$	49,657	$	8,382	16.9	%	Total noninterest expense	$	59,939	$	31,442	$	28,497	90.6	%

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The following table shows the impact of merger-related expenses to the various components of noninterest expense for the periods indicated:

Six Months Ended June 30,
(dollars in thousands) 2020 2019
Merger-related expenses:
Compensation and employee benefits $ — $ 1,030
Equipment 7 —
Legal and professional — 1,952
Data processing 44 245
Other 10 74
Total impact of merger-related expenses to noninterest expense $ 61 $ 3,301

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	Three Months Ended September 30,
Merger-related expenses:	2020		2019
(dollars in thousands)
Compensation and employee benefits	$	—	$	1,584

Legal and professional	—		163
Data processing	—		567
Other	—		233
Total impact of merger-related expenses to noninterest expense	$	—	$	2,547

Noninterest expense for the ~~six months ended June 30,~~third quarter of 2020 was ~~$58.0~~$59.9 million, an increase of ~~$8.4~~$28.5 million, or ~~16.9%~~90.6%, from ~~$49.7~~$31.4 million for the ~~six months ended June 30,~~third quarter of 2019. The increase in noninterest expense was ~~due~~ primarily ~~to increases in compensation and employee benefits of $3.3 million, which increased~~ due to a $31.5 million goodwill impairment charge. Excluding the ~~merger with ATBancorp, combined with the amortization of intangibles for the six months ended June 30, 2020 of $3.8 million, an increase of $2.4~~goodwill impairment charge, core noninterest expense decreased $3.0 million, or ~~173.2%~~9.6%, ~~due~~ primarily toas a result of the ~~additions from the merger. Offsetting these identified increases was a decrease~~decline in merger-related expenses ~~a primary contributing factor to~~that were incurred in the ~~decline~~third quarter of ~~$1.3 million in legal and professional expenses, as well as an increase~~2019 from the acquisition of ~~$1.6 million, as compared to the six months ended June 30, 2019, in deferred compensation and employee benefits stemming from loan origination costs.~~ATBancorp that was completed on May 1, 2019.

Income Tax Expense

Our effective income tax rate, or income taxes divided by income before taxes, was ~~3.5%~~(12.9)% for the ~~first six months~~third quarter of 2020, ~~which was lower than~~as compared to the effective tax rate of ~~22.1%~~20.9% for the ~~first six months~~third quarter of 2019. Excluding non-deductible goodwill impairment, the effective income tax rate in the third quarter of 2020 was 16.3%, reflecting benefits related to general business and renewable energy tax credits and tax exempt interest. Excluding the non-deductible goodwill impairment, the effective tax rate for the full year of 2020 is currently expected to be in the range of 14-16%. See Note 11. Income Taxes for additional information.

Comparison of Operating Results for the Nine Months Ended September 30, 2020 and September 30, 2019

Summary

On May 1, 2019, we completed the acquisition of ATBancorp. The ~~Company recorded~~effects of this acquisition are one of the primary causes of the stated changes in our operating results for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, unless otherwise noted.

For the nine months ended September 30, 2020, we incurred a net loss of $10.1 million, which was a decrease of $40.3 million from net income of $30.3 million for the nine months ended September 30, 2019. The decrease in net income was due primarily to an increase of $36.9 million, or 45.5% in noninterest expense, coupled with an increase of $24.8 million in credit loss expense. Noninterest expense increased primarily as a result of the $31.5 million goodwill impairment that was recorded in the third quarter of 2020. The increase in credit loss expense reflects the Company's adoption of CECL on January 1, 2020, combined with the impact that the COVID-19 pandemic has had on current and forecasted economic conditions for the U.S. and our regional economies, as well as changes in our modeling assumptions. Offsetting these amounts was a $9.9 million, or 9.5%, increase in net interest income, a $5.8 million, or 26.0%, increase in noninterest income, in addition to a decrease in income tax expense of ~~$0.3~~$5.7 million between the two comparable periods. Both basic and diluted loss per common share for the nine months ended September 30, 2020 were $0.63 as compared with basic and diluted earnings per common share of $2.10 and $2.09 respectively for the nine months ended September 30, 2019. Excluding the goodwill impairment, core earnings for the nine months ended September 30, 2020 were lower at $21.4 million, or $1.33 per diluted common share (a non-GAAP financial measure - see "Non-GAAP Financial Measures" for a reconciliation to the most comparable GAAP equivalent), compared to $30.3 million for the nine months ended September 30, 2019. Our annualized return on average shareholders' equity was (2.60)% for the nine months ended September 30, 2020 compared with 9.37% for the nine months ended September 30, 2019. Our annualized return on average tangible equity was 8.58% for the nine months ended September 30, 2020 compared with 13.48% for the nine months ended September 30, 2019 (a non-GAAP financial measure - see "Non-GAAP Financial Measures" for a reconciliation to the most comparable GAAP equivalent).

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The following table presents selected financial results and measures as of and for the nine months ended September 30, 2020 and 2019.


	As of and for the Nine Months Ended September 30,
(dollars in thousands, except per share amounts)	2020			2019
Net (Loss) Income	$	(10,087)		$	30,259

Average Assets	5,027,692			4,054,731
Average Shareholders’ Equity	518,796			431,907
Return on Average Assets	(0.27)		%	1.00		%
Return on Average Equity	(2.60)			9.37
Return on Average Tangible Equity(1)	8.58			13.48
Efficiency Ratio (1)	55.95			55.45
Equity to Assets Ratio (end of period)	9.36			10.71
Tangible Common Equity Ratio (end of period)(1)	7.82			8.21
Book Value per Share	$	31.00		$	30.77
Tangible Book Value per Share(1)	25.45			22.93

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

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Net Interest Income


	Nine Months Ended September 30,
	2020						2019
(dollars in thousands)	Average Balance		Interest Income/ Expense		Average Yield/ Cost		Average Balance		Interest Income/ Expense		Average Yield/ Cost
ASSETS
Loans, including fees (1)(2)(3)	$	3,548,968	$	121,957	4.59	%	$	3,043,772	$	119,519	5.25	%
Taxable investment securities	721,266		12,937		2.40		448,407		9,592		2.86
Tax-exempt investment securities (2)(4)	305,514		7,215		3.15		201,908		5,331		3.53
Total securities held for investment (2)	1,026,780		20,152		2.62		650,315		14,923		3.07
Other	70,983		233		0.44		18,951		335		2.36
Total interest-earning assets (2)	$	4,646,731	$	142,342	4.09	%	$	3,713,038	$	134,777	4.85	%

Other assets	380,961						341,693
Total assets	$	5,027,692					$	4,054,731

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest checking deposits	$	1,052,816	$	3,477	0.44	%	$	766,343	$	3,329	0.58	%
Money market deposits	814,669		3,152		0.52		760,115		5,729		1.01
Savings deposits	435,612		1,107		0.34		309,270		703		0.30
Time deposits	973,044		11,918		1.64		847,077		11,915		1.88
Total interest-bearing deposits	3,276,141		19,654		0.80		2,682,805		21,676		1.08
Short-term borrowings	149,041		772		0.69		124,433		1,479		1.59
Long-term debt	219,455		4,964		3.02		219,553		5,194		3.16
Total borrowed funds	368,496		5,736		2.08		343,986		6,673		2.59
Total interest-bearing liabilities	$	3,644,637	$	25,390	0.93	%	$	3,026,791	$	28,349	1.25	%

Noninterest bearing deposits	805,641						557,708
Other liabilities	58,618						38,325
Shareholders' equity	518,796						431,907
Total liabilities and shareholders' equity	$	5,027,692					$	4,054,731
Net interest income (2)			$	116,952					$	106,428
Net interest spread(2)					3.16	%					3.60	%









Net interest margin (2)					3.36	%					3.83	%

Total deposits(5)	$	4,081,782	$	19,654	0.64	%	$	3,240,513	$	21,676	0.89	%
Cost of funds(6)					0.76	%					1.06	%


(1)			Average balance includes nonaccrual loans.
(2)			Tax equivalent. The federal statutory tax rate utilized was 21%.
(3)			Interest income includes net loan fees, loan purchase discount accretion and tax equivalent adjustments. Net loan fees were $1.8 million and $(670) thousand for the nine months ended September 30, 2020 and September 30, 2019, respectively. Loan purchase discount accretion was $7.6 million and $10.0 million for the nine months ended September 30, 2020 and September 30, 2019, respectively. Tax equivalent adjustments were $1.5 million and $1.3 million for the nine months ended September 30, 2020 and September 30, 2019, respectively. The federal statutory tax rate utilized was 21%.
(4)			Interest income includes tax equivalent adjustments of $1.5 million and $1.1 million for the nine months ended September 30, 2020 and September 30, 2019, respectively. The federal statutory tax rate utilized was 21%.
(5)			Total deposits is the sum of total interest-bearing deposits and noninterest bearing deposits. The cost of total deposits is calculated as annualized interest expense on deposits divided by average total deposits.
(6)			Cost of funds is calculated as annualized total interest expense divided by the sum of average total deposits and borrowed funds.

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	Nine Months Ended September 30,
	2020 Compared to 2019 Change due to
(in thousands)	Volume		Yield/Cost		Net
Increase (decrease) in interest income:
Loans, including fees (1)	$	18,502	$	(16,064)	$	2,438
Taxable investment securities	5,088		(1,743)		3,345
Tax-exempt investment securities(1)	2,507		(623)		1,884
Total securities held for investment(1)	7,595		(2,366)		5,229
Other	341		(443)		(102)
Change in interest income (1)	26,438		(18,873)		7,565
Increase (decrease) in interest expense:
Interest checking deposits	1,066		(918)		148
Money market deposits	386		(2,963)		(2,577)
Savings deposits	304		100		404
Time deposits	1,640		(1,637)		3
Total interest-bearing deposits	3,396		(5,418)		(2,022)
Short-term borrowings	251		(958)		(707)
Long-term debt	(2)		(228)		(230)
Total borrowed funds	249		(1,186)		(937)
Change in interest expense	3,645		(6,604)		(2,959)
Change in net interest income	$	22,793	$	(12,269)	$	10,524
Percentage increase in net interest income over prior period					9.9		%
(1) Tax equivalent, using a federal statutory tax rate of 21%.

Our net interest income for the nine months ended September 30, 2020, was $113.9 million, up $9.9 million, or 9.5%, from $104.1 million for the nine months ended September 30, 2019, as larger volumes of interest earning assets more than offset net interest margin compression. The primary drivers of the increase in net interest income were an increase in interest income of $6.9 million, or 5.2%, and a decrease of $3.0 million, or 10.4%, in interest expense. The increase in interest income was primarily a result of a $4.8 million, or 35.0%, increase in interest income earned from investment securities, coupled with increased loan interest income, which rose $2.2 million, or 1.8%, for the first ~~six~~nine months of 2020 compared to the first nine months of 2019. Interest expense declined primarily as a result of the $2.0 million, or 9.3%, decline in interest expense on interest-bearing deposits for the first nine months of 2020 compared to the first nine months of 2019 due to lower costs incurred on such deposits that more than offset the increase in the volume of deposits from PPP loan proceeds that were generally deposited into customer accounts at the Bank. Loan purchase discount accretion added $7.6 million to net interest income for the nine months ended September 30, 2020 as compared to $10.0 million for the nine months ended September 30, 2019. Net fee accretion for PPP loans for the nine months ended September 30, 2020 was $2.3 million, compared to none in the nine months ended September 30, 2019.

The tax equivalent net interest margin for the nine months ended September 30, 2020 was 3.36%, or 47 basis points lower than the tax equivalent net interest margin of 3.83% for the nine months ended September 30, 2019. The yield on loans decreased 66 basis points, approximately 5 basis points of which was attributable to PPP loans, which have a coupon rate of 1%. The tax equivalent yield on investment securities decreased by 45 basis points. Combined, the resulting yield on interest-earning assets for the nine months ended September 30, 2020 was 76 basis points lower than the nine months ended September 30, 2019. The cost of interest-bearing deposits decreased 28 basis points, while the average cost of borrowings was lower by 51 basis points for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019. The FRB decreased the target federal funds interest rate by a total of 25 basis points in each of August, September and October of 2019, and an additional 150 basis points in March 2020 in response to the COVID-19 pandemic, which contributed to the decreasing interest rates for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019. These decreases impact the comparability of net interest income and net interest margin between 2019 and 2020.

Credit Loss Expense

We recorded credit loss expense of ~~$5.1~~$31.4 million in the first nine months of 2020, an increase of $24.8 million, or 379.1%, from $6.6 million for the same period of 2019. Our credit loss expense reflected the impact of the COVID-19 pandemic on current and forecasted economic conditions for the U.S. and our regional economies, in addition to changes to modeling assumptions.

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In addition, upon the Company's adoption of the CECL accounting guidance on January 1, 2020, the methodology for estimating the total amount of the credit loss expense changed. Specifically, for the first nine months of 2020, we utilized the current expected credit loss methodology, as compared to incurred loss methodology that was utilized in the prior year comparable period. The total amount of net loans charged off in the first nine months of 2020 was higher at $4.9 million, as compared to $4.3 million in the first nine months of 2019.

Noninterest Income

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


	Nine Months Ended September 30,
(dollars in thousands)	2020		2019		$ Change		% Change
Investment services and trust activities	$	7,114	$	5,619	$	1,495	26.6	%
Service charges and fees	4,607		5,380		(773)		(14.4)
Card revenue	4,202		4,452		(250)		(5.6)
Loan revenue	6,285		2,032		4,253		209.3
Bank-owned life insurance	1,685		1,376		309		22.5
Insurance commissions	—		734		(734)		(100.0)

Investment securities gains, net	154		72		82		113.9
Other	3,947		2,545		1,402		55.1
Total noninterest income	$	27,994	$	22,210	$	5,784	26.0	%

Total noninterest income for the first nine months of 2020 increased $5.8 million, or 26.0%, to $28.0 million from $22.2 million during the same period of 2019. This increase was due primarily to an increase in loan revenue of $4.3 million, which was primarily driven by increased volume in originations of home mortgage loans as a result of the low interest rate environment, coupled with an increase in income from our commercial loan back-to-back swap program of $2.4 million, as recorded in the 'Other' noninterest income. In addition, the increase in noninterest income was also attributable to the additional fee income earned as a result of the acquisition of ATBancorp, which is reflected within the $1.5 million increase in investment services and trust activities. Partially offsetting these increases was a decrease of $1.1 million from a pre-tax gain that was recognized from the sale of sale of MidWestOne Insurance Services, Inc. assets during the first nine months of 2019 and was recorded in 'Other' noninterest income. In addition, also offsetting in part the identified increases was a decrease of $0.7 million in insurance commissions as a result of the sale of MidWestOne Insurance Services, Inc. in 2019, and a decrease of $0.7 million in overdraft fees, which reflected lower customer overdraft activity coupled with increased waivers of such fees and are recorded within service charges and fees. Further, there was a decrease of $0.4 million in the mortgage servicing rights fair value adjustment, which is recorded in 'Loan revenue' in noninterest income, during the first nine months of 2020 as compared to the same period in 2019.

Noninterest Expense

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


	Nine Months Ended September 30,
(dollars in thousands)	2020		2019		$ Change		% Change
Compensation and employee benefits	$	48,759	$	46,414	$	2,345	5.1	%
Occupancy expense of premises, net	6,872		6,300		572		9.1
Equipment	5,825		5,466		359		6.6
Legal and professional	4,101		6,252		(2,151)		(34.4)
Data processing	3,902		3,087		815		26.4
Marketing	2,829		2,642		187		7.1
Amortization of intangibles	5,407		3,965		1,442		36.4
FDIC insurance	1,363		762		601		78.9
Communications	1,334		1,208		126		10.4
Foreclosed assets, net	185		407		(222)		(54.5)
Other	5,901		4,596		1,305		28.4
Total core noninterest expense	$	86,478	$	81,099	$	5,379	6.6	%
Goodwill impairment	31,500		—		31,500		100.0
Total noninterest expense	$	117,978	$	81,099	$	36,879	45.5	%

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The following table shows the impact of merger-related expenses to the various components of noninterest expense for the periods indicated:


	Nine Months Ended September 30,
(dollars in thousands)	2020		2019
Merger-related expenses:
Compensation and employee benefits	$	—	$	2,614
Equipment	7		—
Legal and professional	—		2,115
Data processing	44		812
Other	10		307
Total impact of merger-related expenses to noninterest expense	$	61	$	5,848

Noninterest expense for the nine months ended September 30, 2020 was $118.0 million, an increase of $36.9 million, or 45.5%, from $81.1 million for the nine months ended September 30, 2019. The increase in noninterest expense was due primarily to a $31.5 million goodwill impairment charge recognized as of September 30, 2020. Excluding the goodwill impairment charge, core noninterest expense increased $5.4 million, or 6.6%. The increase in core noninterest expense was due primarily to increases in compensation and employee benefits of $3.8 million due to the addition of employees resulting from the merger with ATBancorp, offset in part by an increase of $1.5 million in deferred compensation and employee benefits stemming from loan origination cost. In addition, the increase in core noninterest expense was also due to an increase of $1.4 million in the amortization of intangibles resulting from the merger with ATBancorp and an increase in 'Other' noninterest expense, which was primarily due to the recognition of $1.4 million of amortization expense related to the renewable energy tax credit. Offsetting these increases was a decrease in merger-related expenses, a primary contributing factor to the decline of $2.2 million in legal and professional expenses.

Income Tax Expense

Our effective income tax rate, or income taxes divided by income before taxes, was (35.1)% for the first nine months of 2020, as compared to an effective tax rate ~~remains lower than~~of 21.7% for the ~~statutory~~first nine months of 2019. Excluding non-deductible goodwill impairment, the effective income tax rate ~~due~~for the first nine months of 2020 was 10.9%, reflecting benefits related to tax-exempt interest income, bank-owned life insurance, ~~and~~ general business and renewable energy tax credits. Excluding the non-deductible goodwill impairment, the effective tax rate for the full year 2020 is currently expected to be in the range of 14-16%. See Note 1 1 .11. Income Taxes for additional information.

FINANCIAL CONDITION

Following is a table that represents the major categories of the Company's balance sheet:


(dollars in thousands)	(dollars in thousands)	June 30, 2020		December 31, 2019		$ Change		% Change	(dollars in thousands)	September 30, 2020		December 31, 2019		$ Change		% Change
ASSETS	ASSETS								ASSETS
Cash and cash equivalents	Cash and cash equivalents	$	117,210	$	73,484	$	43,726	59.5	Cash and cash equivalents	$	134,862	$	73,484	$	61,378	83.5
Debt securities available for sale	Debt securities available for sale	1,187,455		785,977		401,478		51.1	Debt securities available for sale	1,366,344		785,977		580,367		73.8
Loans held for investment, net of unearned income	Loans held for investment, net of unearned income	3,597,039		3,451,266		145,773		4.2	Loans held for investment, net of unearned income	3,537,432		3,451,266		86,166		2.5
Allowance for credit losses	Allowance for credit losses	(55,644)		(29,079)		(26,565)		91.4	Allowance for credit losses	(58,500)		(29,079)		(29,421)		101.2
Total loans held for investment, net	Total loans held for investment, net	3,541,395		3,422,187		119,208		3.5	Total loans held for investment, net	3,478,932		3,422,187		56,745		1.7
Other assets	Other assets	384,903		371,925		12,978		3.5	Other assets	350,570		371,925		(21,355)		(5.7)
Total assets	Total assets	$	5,230,963	$	4,653,573	$	577,390	12.4	Total assets	$	5,330,708	$	4,653,573	$	677,135	14.6
LIABILITIES AND SHAREHOLDERS' EQUITY	LIABILITIES AND SHAREHOLDERS' EQUITY								LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits	Total deposits	$	4,265,435	$	3,728,655	$	536,780	14.4	Total deposits	$	4,333,641	$	3,728,655	$	604,986	16.2
Total borrowings	Total borrowings	352,197		371,009		(18,812)		(5.1)	Total borrowings	429,374		371,009		58,365		15.7
Other liabilities	Other liabilities	92,550		44,927		47,623		106.0	Other liabilities	68,612		44,927		23,685		52.7
Total shareholders' equity	Total shareholders' equity	520,781		508,982		11,799		2.3	Total shareholders' equity	499,081		508,982		(9,901)		(1.9)
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	5,230,963	$	4,653,573	$	577,390	12.4	Total liabilities and shareholders' equity	$	5,330,708	$	4,653,573	$	677,135	14.6

Debt Securities Available for Sale

Debt securities totaled ~~$1.2~~$1.4 billion at ~~June~~September 30, 2020, or ~~22.7%~~25.6% of total assets, an increase of ~~$401.5~~$580.4 million from $786.0 million, or 16.9% of total assets, as of December 31, ~~2019.~~2019, due to the Company's investment of net deposit inflows. As of ~~June~~

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September 30, 2020, the portfolio consisted mainly of MBS and CMOs ~~(37.0%~~(37.4%), obligations of states and political subdivisions ~~(36.6%~~(37.4%), and corporate debt securities ~~(26.4%~~(25.2%). No debt securities were classified as HTM at ~~June~~September 30, 2020 or December 31, 2019.

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Loans

The composition of loans held for investment, net of unearned income was as follows:


		June 30, 2020						December 31, 2019							September 30, 2020				December 31, 2019
(dollars in thousands)	(dollars in thousands)	Balance		% of Total		Balance		% of Total		(dollars in thousands)	Balance		% of Total		Balance		% of Total
Agricultural	Agricultural	$	140,837	3.9	%	$	140,446	4.1	%	Agricultural
PPP Loans										PPP Loans	$	2,045	0.1	%	$	—	—	%
Non-PPP loans										Non-PPP loans	127,408		3.6		140,446		4.1
Commercial and industrial	Commercial and industrial	1,084,527		30.2		835,236		24.2		Commercial and industrial
PPP Loans										PPP Loans	329,658		9.3		—		—
Non-PPP loans										Non-PPP loans	773,444		21.9		835,236		24.2
Commercial real estate:	Commercial real estate:									Commercial real estate:
Construction and development	Construction and development	199,950		5.6		298,077		8.6		Construction and development	191,423		5.4		298,077		8.6
Farmland	Farmland	161,897		4.4		181,885		5.3		Farmland	152,362		4.2		181,885		5.3
Multifamily	Multifamily	247,403		6.9		227,407		6.6		Multifamily	235,241		6.7		227,407		6.6
Commercial real estate-other	Commercial real estate-other	1,155,489		32.1		1,107,490		32.1		Commercial real estate-other	1,128,009		31.9		1,107,490		32.1
Total commercial real estate	Total commercial real estate	1,764,739		49.0		1,814,859		52.6		Total commercial real estate	1,707,035		48.2		1,814,859		52.6
Residential real estate:	Residential real estate:									Residential real estate:
One- to four-family first liens	One- to four-family first liens	377,100		10.5		407,418		11.8		One- to four-family first liens	371,390		10.5		407,418		11.8
One- to four-family junior liens	One- to four-family junior liens	155,814		4.3		170,381		4.9		One- to four-family junior liens	150,180		4.2		170,381		4.9
Total residential real estate	Total residential real estate	532,914		14.8		577,799		16.7		Total residential real estate	521,570		14.7		577,799		16.7
Consumer	Consumer	74,022		2.1		82,926		2.4		Consumer	76,272		2.2		82,926		2.4
Loans held for investment, net of unearned income	Loans held for investment, net of unearned income	$	3,597,039	100.0	%	$	3,451,266	100.0	%	Loans held for investment, net of unearned income	$	3,537,432	100.0	%	$	3,451,266	100.0	%

Loans held for investment, net of unearned income increased ~~$145.8~~$86.2 million, or ~~4.2%~~2.5%, from a balance of $3.45 billion at December 31, 2019, to ~~$3.60~~$3.54 billion at ~~June~~September 30, 2020 primarily as a result of the Company's participation in the PPP, offset in part by the continued pay downs on loans held for investment. As of ~~June~~September 30, 2020, the amortized cost basis of PPP loans was ~~$327.6~~$331.7 million, and the unamortized net fees were ~~$9.3~~$8.1 million. See Note 4. Loans Receivable and the Allowance for Credit Losses to our consolidated financial statements for additional information related to our loan portfolio.

Deposits

The composition of deposits was as follows:


		As of June 30, 2020						As of December 31, 2019							As of September 30, 2020				As of December 31, 2019
(in thousands)	(in thousands)	Balance		% of Total		Balance		% of Total		(in thousands)	Balance		% of Total		Balance		% of Total
Noninterest bearing deposits	Noninterest bearing deposits	$	867,637	20.3	%	$	662,209	17.8	%	Noninterest bearing deposits	$	864,504	19.9	%	$	662,209	17.8	%
Interest checking deposits	Interest checking deposits	1,153,697		27.0	%	962,830		25.8	%	Interest checking deposits	1,230,146		28.5	%	962,830		25.7	%
Money market deposits	Money market deposits	811,368		19.0	%	763,028		20.5	%	Money market deposits	871,336		20.1	%	763,028		20.5	%
Savings deposits	Savings deposits	463,262		10.9	%	387,142		10.4	%	Savings deposits	486,876		11.2	%	387,142		10.4	%
Time deposits under $250,000	Time deposits under $250,000	656,723		15.4	%	682,232		18.3	%	Time deposits under $250,000	617,229		14.2	%	682,232		18.3	%
Time deposits of $250,000 or more	Time deposits of $250,000 or more	312,748		7.3	%	271,214		7.3	%	Time deposits of $250,000 or more	263,550		6.1	%	271,214		7.3	%
Total deposits	Total deposits	$	4,265,435	100.0	%	$	3,728,655	100.0	%	Total deposits	$	4,333,641	100.0	%	$	3,728,655	100.0	%

Deposits increased ~~$536.8~~$605.0 million from December 31, 2019, or ~~14.4%~~16.2%. The origination of PPP loans during the second ~~quarter~~and third quarters of 2020 resulted in an increase in total deposits, as PPP loan proceeds were generally deposited into customer accounts at the Bank. Approximately ~~77.0%~~79.3% of our total deposits were considered “core” deposits as of ~~June~~September 30, 2020, compared to 74.2% at December 31, 2019. We consider core deposits to be the total of all deposits other than certificates of deposit and brokered money market deposits. See Note 8. Deposits to our consolidated financial statements for additional information related to our deposits.

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Goodwill and Other Intangible Assets

Goodwill was $62.5 million as of September 30, 2020, a decrease of $29.4 million, or 32.0%, from $91.9 million at December 31, 2019 due primarily to the $31.5 goodwill impairment that was recorded in the third quarter of 2020. Other intangible assets were $26.8 million, a decrease of $5.4 million, or 16.8%, from $32.2 million at December 31, 2019 due to the additional amortization of these assets.

Short-Term Borrowings

Federal funds purchased - The Bank purchases federal funds for short-term funding needs from correspondent and regional banks. As of ~~June~~September 30, 2020 and December 31, 2019, the Bank had no federal funds purchased.

Securities Sold Under Agreements to Repurchase - Securities sold under agreements to repurchase rose ~~$35.0~~$66.6 million, or ~~29.8%~~56.8%, to ~~$152.2 milion~~$183.9 million as of ~~June~~September 30, 2020, compared with $117.2 million as of December 31, 2019. Securities sold under agreements to repurchase are agreements in which the Company acquires funds by selling investment securities to another party under a simultaneous agreement to repurchase the same investment securities 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. As such, the balance of these borrowings vary according to the liquidity needs of the customers participating in these sweep accounts.

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Federal Home Loan Bank Advances - The Bank utilizes FHLB short-term advances for short-term funding needs. The Company had no short-term advances as of ~~June~~September 30, 2020, compared with $22.1 million as of December 31, 2019, a decrease of $22.1 million.

Line of Credit - The Bank entered into a credit agreement with a correspondent bank under which the Company is able to borrow up to $10.0 million from an unsecured revolving credit facility. The Company had ~~$10.0 million~~nothing outstanding under this revolving ~~loan~~credit facility as of ~~June~~both September 30, 2020 and ~~nothing outstanding as of~~ December 31, 2019.

See Note 9 .9. Short-Term Borrowings to our unaudited consolidated financial statements for additional information related to short-term borrowings.

Long-Term Debt

Finance Lease Payable - The Company has one existing finance lease for a branch location, with a present value liability balance of ~~$1.2~~$1.1 million as of ~~June~~September 30, 2020, substantially unchanged from December 31, 2019.

Junior Subordinated Notes Issued to Capital Trusts - Junior subordinated notes that have been issued to capital trusts that issued trust preferred securities were $41.7 million as of ~~June~~September 30, 2020, substantially unchanged from December 31, 2019.

Subordinated Debentures - On May 1, 2019, the Company assumed $10.9 million in aggregate principal amount of subordinated debentures as a result of the merger with ATBancorp. ~~The~~In addition, on July 28, 2020, the Company completed the private placement offering of $65.0 million aggregate principal amount of 5.75% fixed-to-floating rate subordinated notes, of which $63.75 million have been exchanged for subordinated notes registered under the Securities Act of 1933. As a result of the offering, the balance ~~was substantially unchanged~~of subordinated debentures increased to $74.7 million as of ~~June~~September 30, 2020, ~~and~~as compared to $10.9 million at December 31, ~~2019, with a recorded amount of $10.9 million.~~2019.

Federal Home Loan Bank Borrowings - FHLB borrowings totaled ~~$108.2~~$101.2 million as of ~~June~~September 30, 2020, compared with $145.7 million as of December 31, 2019, a decrease of ~~$37.5~~$44.5 million, or ~~25.7%.~~30.5%, due to maturities of FHLB advances. We utilize FHLB borrowings as a supplement to customer deposits to fund interest-earning assets and to assist in managing interest rate risk.

Other Long-Term Debt - On April 30, 2019, the Company entered into a $35.0 million unsecured note in connection with the ATBancorp acquisition, ~~$28.0~~$26.8 million of which was outstanding at ~~June~~September 30, ~~2020.~~2020, as compared to $32.3 million outstanding at December 31, 2019.

See Note 1 0 .10. Long-Term Debt to our unaudited consolidated financial statements for additional information related to long-term debt.

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Nonperforming Assets

The following tables set forth information concerning nonperforming loans by class of receivable at ~~June~~September 30, 2020 and December 31, 2019:


		June 30, 2020										December 31, 2019											September 30, 2020				December 31, 2019
(in thousands)	(in thousands)	Nonaccrual		90+ Days Past Due and Still Accruing Interest		Total		Nonaccrual		90+ Days Past Due and Still Accruing Interest		Total		(in thousands)	Nonaccrual		90+ Days Past Due and Still Accruing Interest		Total		Nonaccrual		90+ Days Past Due and Still Accruing Interest		Total

Agricultural	Agricultural	$	3,187	$	—	$	3,187	$	2,894	$	—	$	2,894	Agricultural	$	2,787	$	—	$	2,787	$	2,894	$	—	$	2,894
Commercial and industrial	Commercial and industrial	10,041		35		10,076		13,276		—		13,276		Commercial and industrial	8,725		5		8,730		13,276		—		13,276
Commercial real estate:	Commercial real estate:													Commercial real estate:
Construction and development	Construction and development	879		—		879		1,494		—		1,494		Construction and development	1,387		—		1,387		1,494		—		1,494
Farmland	Farmland	14,178		—		14,178		10,402		—		10,402		Farmland	13,693		—		13,693		10,402		—		10,402
Multifamily	Multifamily	—		—		—		—		—		—		Multifamily	—		—		—		—		—		—
Commercial real estate-other	Commercial real estate-other	9,980		—		9,980		10,141		—		10,141		Commercial real estate-other	9,783		—		9,783		10,141		—		10,141
Total commercial real estate	Total commercial real estate	25,037		—		25,037		22,037		—		22,037		Total commercial real estate	24,863		—		24,863		22,037		—		22,037
Residential real estate:	Residential real estate:													Residential real estate:
One- to four- family first liens	One- to four- family first liens	2,293		3,197		5,490		2,557		99		2,656		One- to four- family first liens	1,999		2,588		4,587		2,557		99		2,656
One- to four- family junior liens	One- to four- family junior liens	583		—		583		513		25		538		One- to four- family junior liens	552		—		552		513		25		538
Total residential real estate	Total residential real estate	2,876		3,197		6,073		3,070		124		3,194		Total residential real estate	2,551		2,588		5,139		3,070		124		3,194
Consumer	Consumer	162		6		168		206		12		218		Consumer	145		—		145		206		12		218
Total ⁽¹⁾	Total ⁽¹⁾	$	41,303	$	3,238	$	44,541	$	41,483	$	136	$	41,619	Total (1)	$	39,071	$	2,593	$	41,664	$	41,483	$	136	$	41,619
⁽¹⁾Starting in the second quarter of 2020, performing troubled debt restructured loans held for investment are no longer considered nonperforming assets. Prior period information has been adjusted to exclude these loans.
(1) Starting in the second quarter of 2020, performing troubled debt restructured loans held for investment are no longer included in nonperforming assets. Prior period information has been adjusted to exclude these loans.														(1) Starting in the second quarter of 2020, performing troubled debt restructured loans held for investment are no longer included in nonperforming assets. Prior period information has been adjusted to exclude these loans.

~~At June~~

The following table sets forth information on our nonperforming assets and performing TDRs at September 30, 2020 ~~net foreclosed assets totaled $1.0 million, down from $3.7 million at~~and December 31, ~~2019 primarily due to the sale of foreclosed assets.~~2019:


	September 30, 2020			December 31, 2019
(in thousands)
Nonaccrual loans held for investment	$	39,071		$	41,483
Accruing loans contractually past due 90 days or more	2,593			136
Foreclosed assets, net	724			3,706
Total nonperforming assets (1)	42,388			45,325

Nonperforming assets ratio (2)	1.20		%	1.31		%

Performing troubled debt restructured loans held for investment	$	2,355		$	4,372

(1) Starting in the second quarter of 2020, performing troubled debt restructured loans held for investment are no longer included in nonperforming assets. Prior period information has been adjusted to exclude these loans.
(2) Nonperforming assets ratio is calculated as total nonperforming assets divided by the sum of loans held for investment, net of unearned income and foreclosed assets, net at the end of the period.

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

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

When a loan officer originates a new loan, based upon proper loan authorization, he or she documents the credit file with an offering sheet summary, supplemental underwriting analysis, relevant financial information and collateral evaluations. All of this information is used in the determination of the initial loan risk rating. The Bank’s loan review department undertakes

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independent credit reviews of relationships based on either criteria established by loan policy, risk-focused sampling, or random sampling. Loan policy requires all ~~lending~~credit relationships with total exposure of $5.0 million or more, as ~~well~~determined semi-annually as of month-end December and June, to be reviewed no less than annually. In addition, all classified (loan grades 6 through 8) and watch (loan grade 5) rated credits over $1.0 million are to be reviewed no less than annually. The individual loan reviews consider such items as: loan type; nature, type and estimated value of collateral; borrower and/or guarantor estimated financial strength; most recently available financial information; related loans and total borrower exposure; and current and anticipated performance of the loan. The results of such reviews are presented to both executive ~~management.~~management and the audit committee of the Company's board of directors.

Through the review of delinquency reports, updated financial statements or other relevant information, the lending officer and/or loan review personnel may determine that a loan relationship has weakened to the point that a watch (loan grade 5) or classified (loan grades 6 through 8) status is warranted. When a loan relationship with total related exposure of $1.0 million or greater is adversely graded (loan grade 5 or above), or is classified as a TDR (regardless of size), the lending officer is then charged with preparing a loan strategy summary worksheet that outlines the background of the credit problem, current repayment status of the loans, current collateral evaluation and a workout plan of action. This plan may include goals to improve the credit rating, assist the borrower in moving the loans to another institution and/or collateral liquidation. All such reports are first presented to regional management and then to the loan strategy committee. Copies of the minutes of these committee meetings are presented to the board of directors of the Bank.

Depending upon the individual facts and circumstances and the result of the classified/watch review process, loan officers and/or loan review personnel may categorize the loan relationship as impaired. Once that determination has occurred, the credit analyst will complete an evaluation of the collateral (for collateral-dependent loans) based upon the estimated collateral value, adjusting for current market conditions and other local factors that may affect collateral value. Loan review personnel may also complete an independent impairment analysis when deemed necessary. These judgmental evaluations may produce an initial specific allowance for placement in the Company’s allowance for credit losses calculation. Impairment analysis for the underlying collateral value is completed in the last month of the quarter. The impairment analysis worksheets are reviewed by the Credit Administration department prior to quarter-end. The board of directors of the Bank on a quarterly basis reviews the classified/watch reports including changes in credit grades of 5 or higher as well as all impaired loans, the related allowances and foreclosed assets, net.

The review process also provides for the upgrade of loans that show improvement since the last review. All requests for an upgrade of a credit are approved by the loan strategy committee before the rating can be changed.

Enhanced Credit Monitoring

In response to the current economic environment, beginning in the second quarter of 2020, we performed an additional risk rating review, which encompassed all loans greater than $1 million from industry groups identified as "vulnerable" to significant impact from COVID-19, in addition to the top 30 largest loan relationships. The additional risk rating review allows us to build on our existing portfolio monitoring processes, while also creating enhanced monitoring procedures to increase the penetration of our portfolio and ultimately the transparency of the risk profile of the portfolio.

~~Restructured Loans~~Loan Modifications

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

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

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

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

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

•The borrower receives a reduction of the accrued interest.

Generally, short-term deferral of required payments would not be considered a concession. Once a restructured loan has gone 90 days or more past due or is placed on nonaccrual status, it is included in the 90 days or more past due or nonaccrual totals.

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During the ~~six~~nine months ended ~~June~~September 30, 2020, the Company modified ~~eight~~twelve loans that were considered TDRs due to granting a concession to a borrower experiencing financial difficulties.

Refer above to the "COVID-19 Update" section for details pertaining to the modifications that were a result of COVID-19 that were not deemed to be TDRs.

Allowance for Credit Losses

CECL Adoption and ACL Framework: The framework requires that management's estimate reflects credit losses over the full remaining expected life of each credit, which includes the acquired loan portfolio that was previously excluded, and considers expected future changes in macroeconomic conditions. The adoption resulted in the recognition on January 1, 2020 of cumulative effect adjustments of $4.0 million related to the allowance for credit losses for loans and $3.4 million related to the liability for off-balance sheet credit exposures. See Note 2. Effect of New Financial Accounting Standards for additional information on the Company's adoption of CECL.

Actual Results: Our ACL as of ~~June~~September 30, 2020 was ~~$55.6~~$58.5 million, which was ~~1.55%~~1.65% of loans held for investment, net of unearned income, as of that date. This compares with an ACL of $29.1 million as of December 31, 2019, which was 0.84% of loans held for investment, net of unearned income, as of that date. The ACL at September 30, 2020 does not include a reserve for the PPP loans as they are fully guaranteed by the SBA. When adjusted for the impact of PPP loans, the ratio of the ACL as a percentage of loans held for investment, net of unearned income as of ~~June~~September 30, 2020 was ~~1.70%~~1.82% (a non-GAAP financial ~~measure. See~~measure - see "Non-GAAP Financial Measures"). ~~Gross charge-offs for the first six months of 2020 totaled $3.6 million, while there were $0.5 million in recoveries of previously charged-off loans.~~ The increase in the ACL is due in part to the adoption of the CECL accounting guidance, which included athe one-time cumulative effect adjustment ~~for credit losses associated with~~previously described. The increase in the ~~acquired loan portfolio that was previously excluded, in addition to~~ACL also reflects changes in current and forecasted conditions due to the COVID-19 ~~pandemic. The framework requires that management's estimate reflects credit losses over the full remaining expected life of each credit and considers expected future~~pandemic, as well as changes ~~in macroeconomic conditions. The adoption resulted in the recognition of a day 1 transition adjustment of $4.0 million related~~ to the allowance for credit losses for loans. In addition, as part of the adoption of CECL, effective January 1, 2020, the Company recognized a day 1 adjustment of $3.4 million related to the recognition of a liability for off-balance sheet credit exposures.modeling assumptions. The liability for off-balance sheet credit exposures totaled ~~$4.2~~$4.5 million as of ~~June~~September 30, 2020 and is included in 'Other liabilities' on the balance sheet. ~~See~~ ~~Note 2. Effect of New Financial Accounting Standards~~ ~~for additional information on the Company's adoption of CECL.~~

The Company recorded credit loss expense related to loans of ~~$25.6~~$30.3 million for the ~~six~~nine months ended ~~June~~September 30, 2020 as compared to ~~$2.3~~$6.6 million for the ~~six~~nine months ended ~~June~~September 30, 2019. Gross charge-offs for the first nine months of 2020 totaled $5.8 million, while there were $0.9 million in recoveries of previously charged-off loans. The ratio of annualized net loan charge offs to average loans for the first ~~six~~nine months of 2020 was ~~0.21%~~0.18% compared to 0.23% for the year ended December 31, 2019. As of ~~June~~September 30, 2020, the ACL was ~~124.9%~~140.4% of nonperforming loans compared with 69.9% as of December 31, 2019. This increase in the ratio of the ACL to nonperforming loans was due to an increased provision that was driven by the deterioration in current and forecasted economic conditions, largely as a result of the COVID-19 pandemic.

Economic Forecast:At September 30, 2020, the economic forecast used by the Company showed a decline in Midwest unemployment over the next four forecasted quarters; increases in national retail sales over the next three forecasted quarters, with a decline in the fourth quarter; decreases in the CRE index over the next two forecasted quarters, with improvements beginning in the third quarter; increases in U.S. GDP over the next three forecasted quarters, with a decline in the fourth quarter; decreases in the national home price index over the next three forecasted quarters, with improvements beginning in the fourth quarter; and a decline in the U.S. rental vacancy rate through the second forecasted quarter, with an improvement in the third forecasted quarter, and then a decline beginning in the fourth forecasted quarter. These loss drivers saw improvements when compared to the prior quarter, however are consistently worse when compared to recent historical trends over the past several years, largely as a result of the COVID-19 pandemic.

Loan Policy: We review all nonaccrual loans greater than $250,000 individually on a quarterly basis to estimate the appropriate allowance due to collateral deficiency or insufficient cash-flow based on a discounted cash-flow analysis. At September 30, 2020, TDRs were not a material portion of the loan portfolio. We review loans 90 days or more past due that are still accruing interest no less than quarterly to determine if the asset is both well secured and in the process of collection. If not, such loans are placed on non-accrual status.

Based on the inherent risk in the loan portfolio, management believed that as of ~~June~~September 30, 2020, the ACL was adequate; however, there is no assurance losses will not exceed the allowance, and any growth in the loan portfolio or uncertainty in the general economy will require that management continue to evaluate the adequacy of the ACL and make additional provisions in future periods as deemed necessary.

At June 30, 2020, a macroeconomic forecast used by the Company showed continued increases in Midwest unemployment over the next three forecasted quarters, with improvements starting in the fourth forecasted quarter; increases in national retail sales over the next four forecasted quarters; decreases in the CRE index over the next three forecasted quarters, with improvements beginning in the fourth forecasted quarter; decreases in U.S. GDP over the next two forecasted quarters, with improvements starting in the third forecasted quarter; decreases in the national home price index; and increases in the U.S. rental vacancy rate through the second forecasted quarter, with improvements starting in the third forecasted quarter. Consistent with the prior quarter, these loss drivers are worse when compared to recent historical trends over the past several years, largely as a result of the COVID-19 pandemic.

We review all nonaccrual loans greater than $250,000 individually on a quarterly basis to estimate the appropriate allowance due to collateral deficiency or insufficient cash-flow based on a discounted cash-flow analysis. At June 30, 2020, TDRs were not a material portion of the loan portfolio. We review loans 90 days or more past due that are still accruing interest no less than quarterly to determine if there is a strong reason that the credit should not be placed on non-accrual.

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See Note 4. Loans Receivable and the Allowance for Credit Losses to our unaudited consolidated financial statements for additional information related to the allowance for credit losses.

Capital Resources

Shareholder's Equity

Total shareholders’ equity was ~~$520.8~~$499.1 million as of ~~June~~September 30, 2020, compared to $509.0 million as of December 31, 2019, ~~an increase~~a decrease of ~~$11.8~~$9.9 million, or ~~2.3%~~1.9%. This ~~increase~~decrease was primarily due to a $14.2 million increase in accumulated other comprehensive income, which is due to to market value adjustments on investment securities AFS and changes in the cash flow hedge. The increase in total shareholders' equity from accumulated other comprehensive income was offset by a decrease of ~~$2.7~~$26.1 million in retained earnings. The decrease in retained earnings was due to a $5.4 million negative adjustment for the cumulative effect of change in accounting principle ~~and~~related to CECL, dividends paid of ~~$7.1~~$10.6 million, ~~offset in part by~~and net ~~income~~loss of ~~$9.7~~$10.1 million for the first ~~six~~nine months of 2020. Partially offsetting this decrease was an increase of $15.4 million in accumulated other comprehensive income, which was due to market value adjustments on investment securities AFS and changes in the cash flow hedge. In addition, there was a $1.8 million increase in treasury stock due to the repurchase of 95,340 shares of Company common stock at a cost of $2.6 million, partially offset by the issuance of 32,488 shares of Company common stock in connection with stock compensation plans during the first ~~six~~nine months of 2020. The total shareholders’ equity to total assets ratio was ~~9.96%~~9.36% at ~~June~~September 30, 2020, down from 10.94% at December 31, 2019. The tangible common equity ~~to tangible assets~~ ratio (a non-GAAP financial ~~measure. See~~measure -see "Non-GAAP Financial Measures") was ~~7.80%~~7.82% at ~~June~~September 30, 2020, compared with 8.50% at December 31, 2019. Book value was ~~$32.35~~$31.00 per share at ~~June~~September 30, 2020, ~~an increase~~a decrease from $31.49 per share at December 31, 2019. Tangible book value per share (a non-GAAP financial ~~measure. See~~measure - see "Non-GAAP Financial Measures") was ~~$24.74~~$25.45 at ~~June~~September 30, 2020, an increase from $23.81 per share at December 31, 2019.

Capital Adequacy

Our Tier 1 capital to risk-weighted assets ratio was ~~10.48%~~10.73% as of ~~June~~September 30, 2020 and was 10.47% as of December 31, 2019. Risk-based capital guidelines require the classification of assets and some off-balance-sheet items in terms of credit-risk exposure and the measuring of capital as a percentage of the risk-adjusted asset totals. Management believed that, as of ~~June~~September 30, 2020, the Company and the Bank met all capital adequacy requirements to which we were subject. As of that date, the Bank was “well capitalized” under regulatory prompt corrective action provisions. See Note 1 3 .13. Regulatory Capital Requirements and Restrictions on Subsidiary Cash to our unaudited consolidated financial statements for additional information related to our capital.

Stock Compensation

Restricted stock units were granted to certain officers and directors of the Company on February 15, 2020, May 15, 2020, and ~~May~~August 15, 2020 in the amounts of 48,066, 17,084, and ~~17,084,~~6,579 respectively. Additionally, during the first ~~six~~nine months of 2020, 37,005 shares of common stock were issued in connection with the vesting of previously awarded grants of restricted stock units, of which 4,517 shares were surrendered by grantees to satisfy tax requirements, and ~~805~~1,396 unvested restricted stock units were forfeited.

Subsequent to September 30, 2020, the Company's board of directors authorized resuming repurchases under of the Company's share repurchase program. The Company previously announced the temporary suspension of its share repurchase program in light of market conditions associated with the COVID-19 pandemic.

Liquidity

Liquidity Management

Liquidity management involves meeting the cash flow requirements of depositors and borrowers. We conduct liquidity management on both a daily and long-term basis, and adjust our investments in liquid assets based on expected loan demand, projected loan maturities and payments, expected deposit flows, yields available on interest-bearing deposits, and the objectives of our asset/liability management program.

We had liquid assets (cash and cash equivalents) of ~~$117.2~~$134.9 million as of ~~June~~September 30, 2020, compared with $73.5 million as of December 31, 2019. Interest-bearing deposits in banks at ~~June~~September 30, 2020, were ~~$45.0~~$55.4 million, an increase of ~~$38.9~~$49.3 million from $6.1 million at December 31, 2019. Debt securities classified as AFS, totaling ~~$1.2~~$1.4 billion and $786.0 million as of ~~June~~September 30, 2020 and December 31, 2019, respectively, could be sold to meet liquidity needs if necessary. Additionally, the Bank maintains unsecured lines of credit with several correspondent banks and secured lines with the Federal Reserve Bank Discount Window and the FHLB that would allow us to borrow funds on a short-term basis, if necessary.

Generally, our principal sources of funds are deposits, advances from the FHLB, principal repayments on loans, proceeds from sale of loans, proceeds from the maturity and sale of investment securities, our federal funds lines, and funds provided by

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operations. While scheduled loan amortization and maturing interest-bearing deposits in banks are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by economic conditions, the general level of interest rates, and competition. We utilize particular sources of funds based on comparative costs and availability.

As of ~~June~~September 30, 2020, we had ~~$28.0~~$26.8 million of long-term debt outstanding to an unaffiliated banking organization. ~~See~~ ~~Note 1~~0 ~~. Long-Term Debt~~ ~~to our consolidated financial statements for additional information related to our long-term debt.~~ We also have $41.7 million of indebtedness payable under junior subordinated notes issued to subsidiary trusts that issued trust preferred securities in pooled offerings, and ~~$10.9~~$74.7 million payable under subordinated debentures. See Note 1 0 .10. Long-Term Debt to our consolidated financial statements for additional information related to our ~~junior subordinated notes.~~long-term debt.

Dividends

~~Table~~Our ability to pay dividends to our shareholders is affected by both corporate law considerations and policies of ~~Contents~~

the FRB applicable to bank holding companies. The FRB requires notification and must provide approval before any declaration and payment of a dividend can occur in a period in which quarterly and/or cumulative twelve-month net earnings are insufficient to fund the dividend amount, among other requirements. We may not pay a dividend if the FRB objects or until such time as we receive approval from the FRB or we no longer need to provide notice under applicable regulations. Due to the impact of the goodwill impairment charge on our earnings during the third quarter of 2020, we were required to receive approval from the FRB, as described above, prior to declaring a dividend. Such approval was received from the FRB prior to the declaration of a cash dividend of $0.22 per share by the board of directors of the Company on October 28, 2020.

Inflation

The effects of price changes and inflation can vary substantially for most financial institutions. While management believes that inflation affects the growth of total assets, it is difficult to assess its overall impact on the Company. The price of one or more of the components of the Consumer Price Index may fluctuate considerably and thereby influence the overall Consumer Price Index without having a corresponding effect on interest rates or upon the cost of those goods and services normally purchased by us. In years of high inflation and high interest rates, intermediate and long-term interest rates tend to increase, thereby adversely impacting the market values of investment securities, mortgage loans and other long-term fixed rate loans held by financial institutions. In addition, higher short-term interest rates caused by inflation tend to increase financial institutions’ cost of funds. In other years, the reverse situation may occur.

Off-Balance-Sheet Arrangements

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

Our exposure to credit losses in the event of nonperformance is represented by the contractual amount of the commitments. Management does not expect any significant losses as a result of these commitments, and also expects to have sufficient liquidity available to cover these off-balance-sheet instruments. Off-balance-sheet transactions are more fully discussed in Note 1 4 .14. Commitments and Contingencies to our unaudited consolidated financial statements.

Contractual Obligations

There have been no material changes to the contractual obligations existing at December 31, 2019, as disclosed in the Annual Report on Form 10-K, filed with the SEC on March 6, 2020.

Non-GAAP Financial Measures

We disclose certain non-GAAP ratios, including return on average tangible equity, tangible common equity, tangible book value per share, tangible common equity ratio, net interest margin (tax equivalent), core net interest margin, efficiency ratio, ~~pre-tax pre-provision net revenue,~~core earnings, and ~~ACL to~~ adjusted ~~loans held~~allowance for ~~investment, net of unearned income.~~credit losses ratio. Management believes these measures provide investors with useful information regarding the Company's profitability, financial condition and capital adequacy, consistent with how management evaluates the Company's financial performance.

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The following tables provide a reconciliation of the non-GAAP measures to the most comparable GAAP equivalents for the dates or periods indicated:


		For the Three Months Ended June 30,									For the Six Months Ended June 30,										Three Months Ended						Nine Months Ended
Return on Average Tangible Equity	Return on Average Tangible Equity	2020			2019			2020			2019			Return on Average Tangible Equity	September 30, 2020			September 30, 2019			September 30, 2020			September 30, 2019
(Dollars in thousands)	(Dollars in thousands)													(Dollars in thousands)
Net income		$	11,712		$	10,674		$	9,737		$	17,959
Net (loss) income														Net (loss) income	$	(19,824)		$	12,300		$	(10,087)		$	30,259
Intangible amortization, net of tax ⁽¹⁾	Intangible amortization, net of tax ⁽¹⁾	1,311			698			2,832			1,037			Intangible amortization, net of tax (1)	1,223			1,937			4,055			2,974
Goodwill impairment														Goodwill impairment	31,500			—			31,500			—
Tangible net income	Tangible net income	$	13,023		$	11,372		$	12,569		$	18,996		Tangible net income	$	12,899		$	14,237		$	25,468		$	33,233

Average shareholders' equity	Average shareholders' equity	$	511,239		$	443,114		$	513,204		$	401,490		Average shareholders' equity	$	529,857		$	491,750		$	518,796		$	431,907
Average intangible assets, net	Average intangible assets, net	(123,313)			(102,919)			(123,130)			(88,633)			Average intangible assets, net	(121,306)			(128,963)			(122,518)			(102,224)
Average tangible equity	Average tangible equity	$	387,926		$	340,195		$	390,074		$	312,857		Average tangible equity	$	408,551		$	362,787		$	396,278		$	329,683

Return on average equity	Return on average equity	9.21		%	9.66		%	3.82		%	9.02		%	Return on average equity	(14.88)		%	9.92		%	(2.60)		%	9.37		%
Return on average tangible equity ⁽²⁾	Return on average tangible equity ⁽²⁾	13.50		%	13.41		%	6.48		%	12.24		%	Return on average tangible equity (2)	12.56		%	15.57		%	8.58		%	13.48		%

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


Tangible Common Equity/Tangible Book Value per Share / Tangible Common Equity Ratio	September 30, 2020			December 31, 2019
(Dollars in thousands, except per share data)
Total shareholders’ equity	$	499,081		$	508,982
Intangible assets, net	(89,288)			(124,136)
Tangible common equity	$	409,793		$	384,846

Total assets	$	5,330,708		$	4,653,573
Intangible assets, net	(89,288)			(124,136)
Tangible assets	$	5,241,420		$	4,529,437

Book value per share	$	31.00		$	31.49
Tangible book value per share (1)	$	25.45		$	23.81
Shares outstanding	16,099,324			16,162,176

Equity to assets ratio	9.36		%	10.94		%
Tangible common equity ratio (2)	7.82		%	8.50		%

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

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Tangible Common Equity/Tangible Book Value per Share /
Tangible Common Equity Ratio June 30, 2020 December 31, 2019
(Dollars in thousands, except per share data)
Total shareholders’ equity $ 520,781 $ 508,982
Intangible assets, net (122,420) (124,136)
Tangible common equity $ 398,361 $ 384,846
Total assets $ 5,230,963 $ 4,653,573
Intangible assets, net (122,420) (124,136)
Tangible assets $ 5,108,543 $ 4,529,437
Book value per share $ 32.35 $ 31.49
Tangible book value per share ⁽¹⁾
$ 24.74 $ 23.81
Shares outstanding 16,099,324 16,162,176
Equity to assets ratio 9.96 % 10.94 %
Tangible common equity ratio ⁽²⁾
7.80 % 8.50 %
(1) Tangible common equity divided by shares outstanding.
(2) Tangible common equity divided by tangible assets.


	Three Months Ended						Nine Months Ended
Net Interest Margin, Tax Equivalent/Core Net Interest Margin	September 30, 2020			September 30, 2019			September 30, 2020			September 30, 2019
(dollars in thousands)
Net interest income	$	37,809		$	43,258		$	113,927		$	104,066
Tax equivalent adjustments:
Loans (1)	536			543			1,540			1,262
Securities (1)	608			364			1,485			1,100
Net interest income, tax equivalent	$	38,953		$	44,165		$	116,952		$	106,428
Loan purchase discount accretion	(1,923)			(7,207)			(7,556)			(10,040)
Core net interest income	$	37,030		$	36,958		$	109,396		$	96,388

Net interest margin	3.05		%	4.07		%	3.27		%	3.75		%
Net interest margin, tax equivalent (2)	3.14		%	4.15		%	3.36		%	3.83		%
Core net interest margin (3)	2.99		%	3.48		%	3.14		%	3.47		%
Average interest earning assets	$	4,935,175		$	4,215,471		$	4,646,731		$	3,713,038

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

Three Months Ended For the Six Months Ended
Net Interest Margin, Tax Equivalent/Core Net Interest Margin June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019
(dollars in thousands)
Net interest income $ 38,712 $ 34,832 $ 76,118 $ 60,808
Tax equivalent adjustments:
Loans ⁽¹⁾
507 442 1,004 715
Securities ⁽¹⁾
482 370 877 736
Net interest income, tax equivalent $ 39,701 $ 35,644 $ 77,999 $ 62,259
Loan purchase discount accretion (2,610) (2,246) (5,633) (2,832)
Core net interest income $ 37,091 $ 33,398 $ 72,366 $ 59,427
Net interest margin 3.30 % 3.60 % 3.40 % 3.55 %
Net interest margin, tax equivalent ⁽²⁾
3.38 % 3.68 % 3.48 % 3.63 %
Core net interest margin ⁽³⁾
3.16 % 3.45 % 3.23 % 3.47 %
Average interest earning assets $ 4,718,581 $ 3,880,786 $ 4,500,924 $ 3,457,597
(1) The federal statutory tax rate utilized was 21%.
(2) Annualized tax equivalent net interest income divided by average interest earning assets.
(3) Annualized core net interest income divided by average interest earning assets.


		For the Three Months Ended									For the Six Months Ended										Three Months Ended						Nine Months Ended
Efficiency Ratio	Efficiency Ratio	June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019			Efficiency Ratio	September 30, 2020			September 30, 2019			September 30, 2020			September 30, 2019
(dollars in thousands)	(dollars in thousands)													(dollars in thousands)
Total noninterest expense	Total noninterest expense	$	28,038		$	29,040		$	58,039		$	49,657		Total noninterest expense	$	59,939		$	31,442		$	117,978		$	81,099
Amortization of intangibles	Amortization of intangibles	(1,748)			(930)			(3,776)			(1,382)			Amortization of intangibles	(1,631)			(2,583)			(5,407)			(3,965)
Merger-related expenses	Merger-related expenses	(7)			(3,134)			(61)			(3,301)			Merger-related expenses	—			(2,547)			(61)			(5,848)
Goodwill impairment														Goodwill impairment	(31,500)			—			(31,500)			—
Noninterest expense used for efficiency ratio	Noninterest expense used for efficiency ratio	$	26,283		$	24,976		$	54,202		$	44,974		Noninterest expense used for efficiency ratio	$	26,808		$	26,312		$	81,010		$	71,286

Net interest income, tax equivalent⁽¹⁾	Net interest income, tax equivalent⁽¹⁾	$	39,701		$	35,644		$	77,999		$	62,259		Net interest income, tax equivalent(1)	$	38,953		$	44,165		$	116,952		$	106,428
Noninterest income	Noninterest income	8,269			8,796			18,424			14,206			Noninterest income	9,570			8,004			27,994			22,210
Investment security gains, net	Investment security gains, net	(6)			(32)			(48)			(49)			Investment security gains, net	(106)			(23)			(154)			(72)
Net revenues used for efficiency ratio	Net revenues used for efficiency ratio	$	47,964		$	44,408		$	96,375		$	76,416		Net revenues used for efficiency ratio	$	48,417		$	52,146		$	144,792		$	128,566

Efficiency ratio	Efficiency ratio	54.80		%	56.24		%	56.24		%	58.85		%	Efficiency ratio	55.37		%	50.46		%	55.95		%	55.45		%
(1) The federal statutory tax rate utilized was 21%.	(1) The federal statutory tax rate utilized was 21%.													(1) The federal statutory tax rate utilized was 21%.

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For the Three Months Ended For the Six Months Ended
Pre-tax Pre-provision Net Revenue June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019
(dollars in thousands)
Net interest income $ 38,712 $ 34,832 $ 76,118 $ 60,808
Noninterest income 8,269 8,796 18,424 14,206
Noninterest expense (28,038) (29,040) (58,039) (49,657)
Pre-tax Pre-provision Net Revenue $ 18,943 $ 14,588 $ 36,503 $ 25,357


	Three Months Ended				Nine Months Ended
Core Earnings	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
(dollars in thousands, except per share data)
Net (loss) income	$	(19,824)	$	12,300	$	(10,087)	$	30,259
Goodwill impairment	31,500		—		31,500		—
Core earnings	$	11,676	$	12,300	$	21,413	$	30,259

Weighted average diluted common shares outstanding	16,099,324		16,214,562		16,111,591		14,444,732

Earnings (loss) per common share
Earnings per common share - diluted	$	(1.23)	$	0.76	$	(0.63)	$	2.09
Core earnings per common share - diluted(1)	$	0.73	$	0.76	$	1.33	$	2.09

(1) Core earnings divided by weighted average diluted common shares outstanding.


ACL / Loans Held for Investment, Net of Unearned Income		June 30, 2020			December 31, 2019
Adjusted Allowance for Credit Losses Ratio								Adjusted Allowance for Credit Losses Ratio	September 30, 2020			December 31, 2019
(dollars in thousands)	(dollars in thousands)							(dollars in thousands)
Loans held for investment, net of unearned income	Loans held for investment, net of unearned income	$	3,597,039		$	3,451,266		Loans held for investment, net of unearned income	$	3,537,432		$	3,451,266
PPP loans	PPP loans	327,648			—			PPP loans	331,703			—
Adjusted loans held for investment, net of unearned income	Adjusted loans held for investment, net of unearned income	$	3,269,391		$	3,451,266		Adjusted loans held for investment, net of unearned income	$	3,205,729		$	3,451,266
Allowance for credit losses	Allowance for credit losses	$	(55,644)		$	(29,079)		Allowance for credit losses	$	(58,500)		$	(29,079)

ACL to adjusted loans for investment, net of unearned income		1.70		%	0.84		%
Allowance for credit losses ratio								Allowance for credit losses ratio	1.65		%	0.84		%
Adjusted allowance for credit losses ratio (1)								Adjusted allowance for credit losses ratio (1)	1.82		%	0.84		%

(1) Allowance for credit losses divided by adjusted loans held for investment, net of unearned income.								(1) Allowance for credit losses divided by adjusted loans held for investment, net of unearned income.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

In general, market risk is the risk of change in asset values due to movements in underlying market rates and prices. Interest rate risk is the risk to earnings and capital arising from movements in interest rates. Interest rate risk is the most significant market risk affecting the Company as other types of market risk, such as foreign currency exchange rate risk and commodity price risk, play a lesser role in the normal course of our business activities.

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

Liquidity Risk

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

Net cash inflows from operating activities were ~~$28.7~~$42.0 million in the first ~~six~~nine months of 2020, compared with ~~$18.3~~$39.4 million in the first ~~six~~nine months of 2019.

Net cash outflows from investing activities were ~~$492.9~~$630.3 million in the first ~~six~~nine months of 2020, compared to net cash inflows of ~~$97.2~~$69.2 million in the comparable ~~six-month~~nine-month period of 2019. Investment securities transactions resulted in net cash outflows of ~~$352.3~~$549.9 million the first ~~six~~nine months of 2020 compared to inflows of ~~$66.0~~$27.6 million during the same period of 2019. Net cash outflows related to the net increase in loans were ~~$142.5~~$81.9 million for the first ~~six~~nine months of 2020, compared with ~~$5.5~~$4.0 million of net cash ~~outflows~~inflows for the same period of 2019.

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Net cash inflows from financing activities in the first ~~six~~nine months of 2020 were ~~$507.9~~$649.6 million, compared with net cash outflows of ~~$40.4~~$67.5 million for the same period of 2019. Uses of cash in the first ~~six~~nine months of 2020 were highlighted by a net decrease of ~~$41.7~~$50.0 million in long-term debt (excluding the net proceeds from the July 28, 2020 issuance of subordinated debt) and $10.6 million to pay dividends. Net cash provided by financing activities in the first nine months of 2020 were highlighted by a net increase of ~~$22.9~~$63.8 million in proceeds received from the July 28, 2020 subordinated debt issuance, a net increase of $44.5 million in short-term borrowings, ~~and $7.1 million~~in addition to ~~pay dividends. The~~the largest financing cash ~~inflows~~inflow during the ~~six~~nine months ended ~~June~~September 30, 2020 ~~was~~of deposits, which increased ~~$536.6~~$604.7 million.

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

•Federal Funds Lines

•Federal Reserve Bank Discount Window

•FHLB Borrowings

•Brokered Deposits

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•Brokered Repurchase Agreements

Federal Funds Lines: Routine liquidity requirements are met by fluctuations in the federal funds positions of the Bank. The principal function of these funds is to maintain short-term liquidity. Unsecured federal funds purchased are viewed as a volatile liability and are not used as a long-term funding solution, especially when used to fund long-term assets. The current federal funds purchased limit is 10% of total assets, or the amount of established federal funds lines, whichever is smaller. Currently, the Bank has unsecured federal funds lines available totaling $145.0 million, which lines are tested annually to ensure availability.

Federal Reserve Bank Discount Window: The Federal Reserve Bank Discount Window is another source of liquidity, particularly during difficult economic times. The Bank has a borrowing capacity with the Federal Reserve Bank of Chicago limited by the amount of municipal securities pledged against the line. As of ~~June~~September 30, 2020, the Bank had municipal securities with an approximate market value of ~~$70.2~~$71.9 million pledged for liquidity purposes, and had a borrowing capacity of ~~$65.6~~$67.9 million.

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FHLB Borrowings: FHLB borrowings provide both a source of liquidity and long-term funding for the Bank. Use of this type of funding is coordinated with both the strategic balance sheet growth projections and interest rate risk profile of the Bank. Factors that are taken into account when contemplating use of FHLB borrowings are the effective interest rate, the collateral requirements, community investment program credits, and the implications and cost of having to purchase incremental FHLB stock. The current FHLB borrowing limit is 45% of total assets. As of ~~June~~September 30, 2020, the Bank had ~~$108.2~~$101.2 million in outstanding FHLB borrowings, leaving ~~$449.5~~$430.4 million available for liquidity needs, based on collateral capacity. These borrowings are secured by various real estate loans (residential, commercial and agricultural).

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

Brokered Repurchase Agreements: Brokered repurchase agreements may be established with approved brokerage firms and banks. Repurchase agreements create rollover risk (the risk that a broker will discontinue the relationship due to market factors) and are not used as a long-term funding solution, especially when used to fund long-term assets. Collateral requirements and availability are evaluated and monitored. The current policy limit for brokered repurchase agreements is 10% of total assets. There were no outstanding brokered repurchase agreements at ~~June~~September 30, 2020.

Interest Rate Risk

Interest rate risk is defined as the exposure of net interest income and fair value of financial instruments (interest-earning assets, deposits and borrowings) to movements in interest rates. The Company’s results of operations depend to a large degree on its net interest income and its ability to manage interest rate risk. The Company considers interest rate risk to be one of its more significant market risks. The major sources of the Company’s interest rate risk are timing differences in the maturity and re-pricing characteristics of assets and liabilities, changes in the shape of the yield curve, changes in customer behavior and changes in relationships between rate indices (basis risk). Management measures these risks and their impact in various ways, including through the use of income simulation and valuation analyses. The interest rate scenarios used in such analysis may include gradual or rapid changes in interest rates, spread narrowing and widening, yield curve twists and changes in assumptions about customer behavior in various interest rate scenarios. A mismatch between maturities, interest rate sensitivities and prepayment characteristics of assets and liabilities results in interest-rate risk. Like most financial institutions, we have material interest-rate risk exposure to changes in both short-term and long-term interest rates, as well as variable interest rate indices (e.g., the prime rate or LIBOR). There has been no material change in the Company’s interest rate profile between ~~June~~September 30, 2020 and December 31, 2019. The mix of earning assets and interest-bearing liabilities has remained stable over the period.

The Bank’s asset and liability committee meets regularly and is responsible for reviewing its interest rate sensitivity position and establishing policies to monitor and limit exposure to interest rate risk. Our asset and liability committee seeks to manage interest rate risk under a variety of rate environments by structuring our balance sheet and off-balance-sheet positions in

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such a way that changes in interest rates do not have a large negative impact. The risk is monitored and managed within approved policy limits.

We use a third-party service to model and measure our exposure to potential interest rate changes. For various assumed hypothetical changes in market interest rates, numerous other assumptions are made, such as prepayment speeds on loans and securities backed by mortgages, the slope of the Treasury yield-curve, the rates and volumes of our deposits, and the rates and volumes of our loans. There are two primary tools used to evaluate interest rate risk: net interest income simulation and economic value of equity ("EVE"). In addition, interest rate gap is reviewed to monitor asset and liability repricing over various time periods.

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

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

The following table presents the anticipated effect on net interest income over a twelve month period if short- and long-term interest rates were to sustain an immediate decrease of 100 basis points or 200 basis points (the effects of which are not meaningful as of September 30, 2020 in the current low interest rate environment), or an immediate increase of 100 basis points or 200 basis points:

Immediate Change in Rates
(dollars in thousands) -200 -100 +100 +200
June 30, 2020
Dollar change N/A N/A $ 1,860 $ 2,278
Percent change N/A N/A 1.3 % 1.6 %
December 31, 2019
Dollar change $ 1,302 $ 101 $ (638) $ (2,354)
Percent change 0.9 % 0.1 % (0.5) % (1.7) %


	Immediate Change in Rates
(dollars in thousands)	-200			-100			+100			+200
September 30, 2020
Dollar change	N/A			N/A			$	1,719		$	2,029
Percent change	N/A			N/A			1.2		%	1.4		%
December 31, 2019
Dollar change	$	1,302		$	101		$	(638)		$	(2,354)
Percent change	0.9		%	0.1		%	(0.5)		%	(1.7)		%

As of ~~June~~September 30, 2020, ~~50.9%~~50.1% of the Company’s earning asset balances will reprice or are expected to pay down in the next twelve months, and ~~47.4%~~48.3% of the Company’s deposit balances are low cost or no cost deposits.

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

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

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

Under the supervision and with the participation of certain members of our management, including our chief executive officer and chief financial officer, we completed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of ~~June~~September 30, 2020. Based on this evaluation, our chief executive officer and chief financial officer have concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report with respect to timely communication to them and other members of management responsible for preparing periodic reports of material information required to be disclosed in this report as it relates to the Company and our consolidated subsidiaries.

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

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting during the fiscal quarter ended ~~June~~September 30, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We implemented internal controls to ensure we adequately evaluated our contracts and properly assessed the impact of new accounting standards related to the current expected credit loss methodology on our financial statements to facilitate its adoption on January 1, 2020. There were no significant changes to our internal control over financial reporting due to the adoption of the new standard.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors.

In addition to the risk factors set forth under Part I, Item 1A “Risk Factors” in the Company’s Form 10-K for the fiscal year ended December 31, 2019, the following risk factors apply to the Company:

The outbreak of Coronavirus Disease 2019, or COVID-19, has led to an economic recession and other severe disruptions in the U.S. economy and has adversely impacted certain industries in which our clients operate and impaired their ability to fulfill their financial obligations to us. As a result, we are starting to see the impact from COVID-19 on our business, and we believe that it will be significant, adverse and potentially material.

Currently, COVID-19 is spreading through the United States and the world. The spread of COVID-19 has caused severe disruptions in the U.S. economy at large, and for small businesses in particular, which has disrupted our operations. We are ~~starting to see~~seeing the impact from COVID-19 on our business, and we believe that it will be significant, adverse and potentially material. The responses on the part of the U.S. and global governments and populations have created a recessionary environment, reduced economic activity and caused significant volatility in the global stock markets. We expect that we will experience significant disruptions across our business due to these effects, leading to decreased earnings and significant loan defaults and slowdowns in our loan collections. We expect increased unemployment and recessionary concerns will adversely affect loan originations in future periods.

The outbreak of COVID-19 has resulted in a decline in our clients’ businesses, a decrease in consumer confidence, an increase in unemployment and a disruption in the services provided by our vendors. Continued disruptions to our clients’ businesses could result in increased risk of delinquencies, defaults, foreclosures and losses on our loans, negatively impact regional economic conditions, result in declines in local loan demand, liquidity of loan guarantors, loan collateral (particularly in real estate), loan originations and deposit availability and negatively impact the implementation of our growth strategy. Although the U.S. government ~~has~~initially introduced a number of programs designed to soften the impact of COVID-19 on small businesses, ~~once these~~the lack of additional programs ~~expire,~~may cause our borrowers ~~may~~to not be able to satisfy their financial obligations to us.

In addition, COVID-19 has impacted and likely will continue to impact the financial ability of businesses and consumers to borrow money, which would negatively impact loan volumes. Certain of our borrowers are in or have exposure to the non-essential retail, restaurants, hotels, CRE-retail, and arts, entertainment, and gaming industries and are located in areas that are or were quarantined or under stay-at-home orders, and COVID-19 may also have an adverse effect on our commercial real estate and consumer loan portfolios. ~~Any~~As COVID-19 cases have begun to surge in recent months any new or prolonged quarantine or stay-at-home orders would have a negative adverse impact on these borrowers and their revenue streams, which consequently impacts their ability to meet their financial obligations and could result in loan defaults.

The ultimate extent of the COVID-19 pandemic’s effect on our business will depend on many factors, primarily including the speed and extent of any recovery from the related economic recession. Among other things, this will depend on the duration of the COVID-19 pandemic, particularly in our markets, the development and distribution of vaccines, therapies and other public health initiatives to control the spread of the disease, the nature and size of federal economic stimulus and other governmental efforts, and the possibility of additional state lockdown or stay-at-home orders in our markets in response to the recent surge in the number of COVID-19 cases.

As a result of the COVID-19 pandemic we may experience adverse financial consequences due to a number of other factors, including, but not limited to:

•a further and sustained decline in our stock price or the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause management to perform impairment testing on our goodwill and other intangible assets that could result in an impairment charge being recorded for that period, which would adversely impact our results of operations and the ability of the Bank to pay dividends to us;

•the negative effect on earnings resulting from the Bank modifying loans and agreeing to loan payment deferrals due to the COVID-19 crisis;

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•increased demand on our liquidity as we meet borrowers’ needs and cover expenses related to our business continuity plan;

•the potential for reduced liquidity and its negative affect on our capital and leverage ratios;

•increased cyber and payment fraud risk due to increased online and remote activity;

•the modification of our business practices, including with respect to branch operations, employee travel, employee work locations, participation in meetings, events and conferences, and related changes for our vendors and other business partners;

•the disruption of our acquisition strategy due to the uncertainties created by the pandemic and challenges to our own business, which could limit or delay our future growth plans;

•increases in federal and state taxes as a result of the effects of the pandemic and stimulus programs on governmental budgets;

•an increase in FDIC premiums if the agency experiences additional resolution costs relating to bank failures; and

•other operational failures due to changes in our normal business practices because of the pandemic and governmental actions to contain it.

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Overall, we believe that the economic impact from COVID-19 will be severe and could have a material and adverse impact on our business and result in significant losses in our loan portfolio, all of which would adversely and materially impact our earnings and capital. Even after the COVID-19 pandemic has subsided, we may continue to experience materially adverse impacts to our business as a result of the global economic impact of the COVID-19 pandemic, including the availability of credit, adverse impacts on liquidity and any recession that has occurred or may occur in the future. There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and, as a result, the ultimate impact of the pandemic is highly uncertain and subject to change.

The U.S. government and banking regulators, including the ~~Federal Reserve,~~FRB, have taken a number of unprecedented actions in response to the COVID-19 pandemic, which could ultimately have a material adverse effect on our business and results of operations.

On March 27, 2020, President Trump signed into law the ~~Coronavirus Aid, Relief and Economic Security Act, or~~ CARES Act, which established a $2.0 trillion economic stimulus package, including cash payments to individuals, supplemental unemployment insurance benefits and a $349 billion loan program administered through the ~~U.S. Small Business Administration, or~~ SBA referred to as the ~~Paycheck Protection Program, or~~ PPP. In addition to implementing the programs contemplated by the CARES Act, the federal bank regulatory agencies have issued a steady stream of guidance in response to the COVID-19 pandemic and have taken a number of unprecedented steps to help banks navigate the pandemic and mitigate its impact. These include, without limitation:

•requiring banks to focus on business continuity and pandemic planning;

•adding pandemic scenarios to stress testing;

•encouraging bank use of capital buffers and reserves in lending programs;

•permitting certain regulatory reporting extensions;

•reducing margin requirements on swaps;

•permitting certain otherwise prohibited investments in investment funds;

•issuing guidance to encourage banks to work with customers affected by the pandemic and encourage loan workouts; and

•providing credit under the CRA for certain pandemic-related loans, investments and public service.

The COVID-19 pandemic has significantly affected the financial markets, and the ~~Federal Reserve~~FRB has taken a number of actions in response. In March 2020, the ~~Federal Reserve~~FRB dramatically reduced the target federal funds rate and announced a $700 billion quantitative easing program in response to the expected economic downturn caused by the COVID-19 pandemic. In addition, the ~~Federal Reserve~~FRB reduced the interest that it pays on excess reserves. We expect that these reductions in interest rates, especially if prolonged, could adversely affect our net interest income, ~~and margins~~our net interest margin and our profitability. The ~~Federal Reserve~~FRB also launched the Main Street Lending Program, which ~~will offer~~offers deferred interest on four-year loans to small and mid-sized businesses. The full impact of the COVID-19 pandemic on our business activities as a result of new government and regulatory laws, policies, programs and guidelines, as well as market reactions to such activities, remains uncertain but may ultimately have a material adverse effect on our business and results of operations.

COVID-19 has disrupted banking and other financial activities in the areas in which we operate and could potentially create widespread business continuity issues for us.

The COVID-19 pandemic has negatively impacted the ability of our employees and clients to engage in banking and other financial transactions in the geographic areas in which we operate and could create widespread business continuity issues for us. We also could be adversely affected if key personnel or a significant number of employees were to become unavailable due to the effects and restrictions of an outbreak or escalation of the COVID-19 pandemic in our market areas, including because of illness, quarantines, government actions or other restrictions in connection with the COVID-19 pandemic. Although we have

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business continuity plans and other safeguards in place, there is no assurance that such plans and safeguards will be effective. Further, we rely upon our third-party vendors to conduct business and to process, record, and monitor transactions. If any of these vendors are unable to continue to provide us with these services, it could negatively impact our ability to serve our clients.

As a participating lender in the PPP, we are subject to additional risks of litigation from our clients or other parties regarding our processing of loans for the PPP and risks that the SBA may not fund some of or all PPP loan guarantees.

The CARES Act included a $349 billion loan program administered through the SBA referred to as the PPP. Under the PPP, small businesses and other entities and individuals ~~can~~could apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility criteria. The Bank ~~is participating~~participated as a lender in the PPP. The PPP opened on April 3, 2020; however, because of the short timeframe between the passing of the CARES Act and the opening of the PPP, there is some ambiguity in the laws, rules, and guidance regarding the operation of the PPP, which exposes us to risks relating to noncompliance with the PPP. On ~~or about April 16, 2020, the SBA notified lenders that the $349~~

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~~billion earmarked for the PPP was exhausted. On~~ April 24, 2020, an additional $310 billion in funding for PPP loans was authorized, with such funds available for PPP loans beginning on April 27, 2020.

Since the opening of the PPP, several other larger banks have been subject to litigation regarding the process and procedures that such banks used in processing applications for the PPP and claims related to agent fees. If any such litigation is filed against us and is not resolved in a manner favorable to us, it may result in significant financial liability or adversely affect our reputation. In addition, litigation can be costly, regardless of outcome. Any financial liability, ~~litigations~~litigation costs, or reputational damage caused by the PPP related litigation could have a material adverse impact on our business, financial condition, and results of operations.

We also have credit risk on PPP loans if a determination is made by the SBA that there is a deficiency in the manner in which the loan was originated, funded, or serviced by the Bank, such as an issue with the eligibility of a borrower to receive a PPP loan, which may or may not be related to the ambiguity in the laws, rules, and guidance regarding the operation of the PPP. In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there is a deficiency in the manner in which the PPP loan was originated, funded, or serviced by us, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from us.

Our accounting estimates and risk management processes rely on analytical and forecasting models.

The processes that we use to estimate expected credit losses and to measure the fair value of assets carried on the balance sheet at fair value, as well as the processes used to estimate the effects of changing interest rates and other market measures on our financial condition and results of operations, depend upon the use of analytical and forecasting models. These models are complex and reflect assumptions that may not be accurate, particularly in times of market stress or other unforeseen circumstances, such as the COVID-19 pandemic. Although we have processes and procedures in place governing internal valuation models and their testing and calibration, such assumptions are complex as we must make judgments about the effect of matters that are inherently uncertain. Different assumptions could have resulted in significant changes in valuation, which in turn could have a material adverse effect on our financial condition and results of operations.

We face the risk of possible future goodwill impairment.

The Company completed an interim goodwill assessment as of ~~June~~September 30, 2020, and based upon our interim assessment, we concluded that noan impairment ~~existed at that time.~~of goodwill existed. We will be required to perform additional goodwill impairment assessments on at least an annual basis, and perhaps more frequently, which could result in additional goodwill impairment charges. It is possible that the effects of COVID-19 could cause the occurrence of what management would deem to be subsequent triggering events that could, under certain circumstances, cause the Company to perform a goodwill or intangible asset impairment test and result in an additional impairment charge being recorded ~~for~~in that period. Any future goodwill impairment charge on the current goodwill balance, or future goodwill arising out of acquisitions that we are required to take, could have a material adverse effect on our results of operations by reducing our net income or increasing our net losses.

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

On August 20, 2019, the Board of Directors of the Company approved a new share repurchase program, allowing for the repurchase of up to $10.0 million of common stock through December 31, 2021. The new repurchase program replaced the Company’s prior repurchase program, pursuant to which the Company had repurchased 174,702 shares of common stock for approximately $4.7 million since the plan was announced in October 2018. The prior program had authorized the repurchase of $5.0 million of stock and was due to expire on December 31, 2020.

As of ~~June~~September 30, 2020, the total amount available to be repurchased under the Company’s current share repurchase program was $6.4 million. InSubsequent to September 30, 2020, the Company's board of directors authorized resuming repurchases under of the Company's share repurchase program. The Company previously announced the temporary suspension of its share repurchase program in light of market conditions associated with the ~~economic uncertainty, the Company has yet to resume share repurchases since discontinuing such repurchases in mid-March of 2020.~~COVID-19 pandemic.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not Applicable.

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Item 5. Other Information.

None.

6772

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Item 6. Exhibits.

Exhibit

Number

Description

Incorporated by Reference to:

4.1

Indenture, dated July 28, 2020, by and between MidWestOne Financial Group, Inc. and U.S. Bank National Association, as trustee

Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 29, 2020

4.2

Forms of 5.75% Fixed-to-Floating Rate Subordinated Note due 2030 (included as Exhibit A-1 and Exhibit A-2 to the Indenture filed as Exhibit 4.1 hereto)

Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the SEC on July 29, 2020

10.1

Employment Agreement between MidWestOne Financial Group, Inc. and Len D. Devaisher, dated July 6, 2020

Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on July 6, 2020

10.2

Form of Subordinated Note Purchase Agreement, dated July 28, 2020, by and among MidWestOne Financial Group, Inc. and the Purchasers

Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on July 29, 2020

10.3

Form of Registration Rights Agreement, dated July 28, 2020, by and among MidWestOne Financial Group, Inc. and the Purchasers

Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the SEC on July 29, 2020

31.1

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

Filed herewith

31.2

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

Filed herewith

32.1

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

Filed herewith

32.2

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

Filed herewith

101

The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~June~~September 30, 2020, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Shareholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags.

Filed herewith

101.SCH

iXBRL (Inline eXtensible Business Reporting Language) Taxonomy Extension Schema Document

Filed herewith

101.CAL

iXBRL (Inline eXtensible Business Reporting Language) Taxonomy Extension Calculation Linkbase Document

Filed herewith

101.DEF

iXBRL (Inline eXtensible Business Reporting Language) Taxonomy Extension Definition Linkbase Document

Filed herewith

101.LAB

iXBRL (Inline eXtensible Business Reporting Language) Taxonomy Extension Label Linkbase Document

Filed herewith

101.PRE

iXBRL (Inline eXtensible Business Reporting Language) Taxonomy Extension Presentation Linkbase Document

Filed herewith

104

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

Filed herewith

6873

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SIGNATURES

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

MIDWESTONE FINANCIAL GROUP, INC.

Dated:

~~August 6,~~November 5, 2020

By:

/s/ CHARLES N. FUNK

Charles N. Funk

Chief Executive Officer

(Principal Executive Officer)

By:

/s/ BARRY S. RAY

Barry S. Ray

Senior Executive Vice President and Chief Financial Officer

(Principal Financial and Accounting Officer)

6974


	Term Loans by Origination Year																Revolving Loans
June 30, 2020 (in thousands)	2020		2019		2018		2017		2016		Prior				Total
Agricultural
Pass	$	21,013	$	11,300	$	4,898	$	2,906	$	2,753	$	3,067	$	71,689	$	117,626
Special mention / watch	5,905		1,422		125		113		600		1,253		6,206		15,624
Substandard	1,093		1,282		2		191		131		227		4,661		7,587
Doubtful	—		—		—		—		—		—		—		—
Total	$	28,011	$	14,004	$	5,025	$	3,210	$	3,484	$	4,547	$	82,556	$	140,837
Commercial and industrial
Pass	$	486,629	$	114,316	$	70,083	$	77,159	$	44,088	$	114,435	$	125,003	$	1,031,713
Special mention / watch	5,018		1,309		1,953		4,243		906		3,356		18,615		35,400
Substandard	3,036		2,569		752		974		624		4,416		5,043		17,414
Doubtful	—		—		—		—		—		—		—		—
Total	$	494,683	$	118,194	$	72,788	$	82,376	$	45,618	$	122,207	$	148,661	$	1,084,527
CRE - Construction and development
Pass	$	50,048	$	76,696	$	25,444	$	8,655	$	1,932	$	1,308	$	26,494	$	190,577
Special mention / watch	4,159		1,688		775		—		14		34		—		6,670
Substandard	735		1,919		—		—		—		49		—		2,703
Doubtful	—		—		—		—		—		—		—		—
Total	$	54,942	$	80,303	$	26,219	$	8,655	$	1,946	$	1,391	$	26,494	$	199,950
CRE - Farmland
Pass	$	37,140	$	32,227	$	14,315	$	15,023	$	10,590	$	18,171	$	2,257	$	129,723
Special mention / watch	2,244		4,584		1,290		1,953		1,237		587		353		12,248
Substandard	2,732		3,632		4,339		1,729		449		6,051		994		19,926
Doubtful	—		—		—		—		—		—		—		—
Total	$	42,116	$	40,443	$	19,944	$	18,705	$	12,276	$	24,809	$	3,604	$	161,897
CRE - Multifamily
Pass	$	109,637	$	17,948	$	18,346	$	37,740	$	16,722	$	32,726	$	12,788	$	245,907
Special mention / watch	348		—		—		—		78		—		—		426
Substandard	716		354		—		—		—		—		—		1,070
Doubtful	—		—		—		—		—		—		—		—
Total	$	110,701	$	18,302	$	18,346	$	37,740	$	16,800	$	32,726	$	12,788	$	247,403
CRE - other
Pass	$	385,335	$	129,669	$	84,625	$	106,504	$	81,037	$	147,048	$	50,888	$	985,106
Special mention / watch	85,815		24,505		6,821		6,526		4,537		5,671		199		134,074
Substandard	24,446		1,480		6,296		1,246		604		2,101		136		36,309
Doubtful	—		—		—		—		—		—		—		—
Total	$	495,596	$	155,654	$	97,742	$	114,276	$	86,178	$	154,820	$	51,223	$	1,155,489
RRE - One- to four- family first liens
Performing	$	71,419	$	61,180	$	52,230	$	47,208	$	43,567	$	85,959	$	10,046	$	371,609
Nonperforming	17		67		588		1,092		930		2,797		—		5,491
Total	$	71,436	$	61,247	$	52,818	$	48,300	$	44,497	$	88,756	$	10,046	$	377,100
RRE - One- to four- family junior liens
Performing	$	3,687	$	12,453	$	16,629	$	8,207	$	4,343	$	7,568	$	102,345	$	155,232
Nonperforming	—		—		—		32		250		229		71		582
Total	$	3,687	$	12,453	$	16,629	$	8,239	$	4,593	$	7,797	$	102,416	$	155,814
Consumer
Performing	$	12,933	$	19,438	$	14,079	$	6,857	$	3,607	$	6,203	$	10,743	$	73,860
Nonperforming	—		38		49		24		14		37		—		162
Total	$	12,933	$	19,476	$	14,128	$	6,881	$	3,621	$	6,240	$	10,743	$	74,022


	For the Three Months Ended						For the Six Months Ended
Pre-tax Pre-provision Net Revenue	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
(dollars in thousands)
Net interest income	$	38,712	$	34,832	$	76,118	$	60,808
Noninterest income	8,269		8,796		18,424		14,206
Noninterest expense	(28,038)		(29,040)		(58,039)		(49,657)
Pre-tax Pre-provision Net Revenue	$	18,943	$	14,588	$	36,503	$	25,357