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MidWestOne Financial Group
MOFG
#5960
Rank
$1.01 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$49.31
Share price
2.35%
Change (1 day)
91.57%
Change (1 year)
๐Ÿฆ Banks๐Ÿ’ณ Financial services
Categories
  1. MidWestOne Financial Group
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2022 Q3

MidWestOne Financial Group - 10-Q quarterly report FY2022 Q3


Text size:
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
☐
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)
 
Iowa42-1206172
(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 classTrading Symbol(s)Name of each exchange on which registered
Common stock, $1.00 par valueMOFGThe 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
x
Non-accelerated filer☐Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     ☐  Yes    x  No

As of November 1, 2022, there were 15,623,530 shares of common stock, $1.00 par value per share, outstanding.


Table of Contents
MIDWESTONE FINANCIAL GROUP, INC.
Form 10-Q Quarterly Report
Table of Contents
Page No.
PART I
Item 1.
1
1
2
3
4
5
7
Item 2.
33
Item 3.
54
Item 4.
57
Part II
Item 1.
58
Item 1A.
58
Item 2.
58
Item 3.
58
Item 4.
58
Item 5.
58
Item 6.
59
60


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 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."
ACLAllowance for Credit LossesFHLBCFederal Home Loan Bank of Chicago
AFSAvailable for SaleFHLBDMFederal Home Loan Bank of Des Moines
AOCIAccumulated Other Comprehensive IncomeFHLMCFederal Home Loan Mortgage Corporation
ASCAccounting Standards CodificationFNBFFirst National Bank in Fairfield
ASUAccounting Standards UpdateFNBMFirst National Bank of Muscatine
ATMAutomated Teller MachineFNMAFederal National Mortgage Association
Basel III RulesA comprehensive capital framework and rules for U.S. banking organizations approved by the FRB and the FDIC in 2013FRBBoard of Governors of the Federal Reserve System
BHCABank Holding Company Act of 1956, as amendedGAAPU.S. Generally Accepted Accounting Principles
BOLIBank Owned Life InsuranceGLBAGramm-Leach-Bliley Act of 1999
CAAConsolidated Appropriations Act, 2021GNMAGovernment National Mortgage Association
CARES ActCoronavirus Aid, Relief and Economic Security ActICSInsured Cash Sweep
CDARSCertificate of Deposit Account Registry ServiceIOFBIowa First Bancshares Corp.
CECLCurrent Expected Credit LossLIBORThe London Inter-bank Offered Rate
CMOCollateralized Mortgage ObligationsMBSMortgage-Backed Securities
COVID-19Coronavirus Disease 2019PCDPurchase Credit Deteriorated
CRACommunity Reinvestment ActPPPPaycheck Protection Program
CRECommercial Real EstateROURight-of-Use
DCFDiscounted Cash FlowsRPACredit Risk Participation Agreement
Dodd-Frank ActDodd-Frank Wall Street Reform and Consumer Protection ActRREResidential Real Estate
ECLExpected Credit LossesSBAU.S. Small Business Administration
EVEEconomic Value of EquitySECU.S. Securities and Exchange Commission
FASBFinancial Accounting Standards BoardSOFRSecured Overnight Financing Rate
FDICFederal Deposit Insurance CorporationTDRTroubled Debt Restructuring
FHLBFederal Home Loan Bank


Table of Contents
Item 1.   Financial Statements (unaudited).

MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 September 30, 2022 December 31, 2021
(unaudited) (dollars in thousands, except per share amounts) 
ASSETS
Cash and due from banks$77,513 $42,949 
Interest earning deposits in banks1,001 160,881 
Total cash and cash equivalents78,514 203,830 
Debt securities available for sale at fair value1,153,304 2,288,110 
Held to maturity securities at amortized cost1,146,583 — 
Total securities2,299,887 2,288,110 
Loans held for sale2,320 12,917 
Gross loans held for investment3,761,664 3,252,194 
Unearned income, net(15,375)(7,182)
Loans held for investment, net of unearned income3,746,289 3,245,012 
Allowance for credit losses(52,100)(48,700)
Total loans held for investment, net3,694,189 3,196,312 
Premises and equipment, net87,732 83,492 
Goodwill62,477 62,477 
Other intangible assets, net32,086 19,885 
Foreclosed assets, net103 357 
Other assets233,753 157,748 
Total assets$6,491,061 $6,025,128 
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing deposits$1,139,694 $1,005,369 
Interest-bearing deposits4,337,088 4,109,150 
Total deposits5,476,782 5,114,519 
Short-term borrowings304,536 181,368 
Long-term debt154,190 154,879 
Other liabilities83,324 46,887 
Total liabilities6,018,832 5,497,653 
Shareholders' equity
Preferred stock, no par value; authorized 500,000 shares; no shares issued and outstanding
— — 
Common stock, $1.00 par value; authorized 30,000,000 shares; issued shares of 16,581,017 and 16,581,017; outstanding shares of 15,622,825 and 15,671,147
16,581 16,581 
Additional paid-in capital301,418 300,940 
Retained earnings276,998 243,365 
Treasury stock at cost, 958,192 and 909,870 shares
(26,145)(24,546)
Accumulated other comprehensive loss(96,623)(8,865)
Total shareholders' equity472,229 527,475 
Total liabilities and shareholders' equity$6,491,061 $6,025,128 
See accompanying notes to consolidated financial statements.  
1
Table of Contents
MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
 
Three Months EndedNine Months Ended
September 30,September 30,
(unaudited) (dollars in thousands, except per share amounts)2022 202120222021
Interest income 
Loans, including fees$40,451  $36,115 $104,515 $107,393 
Taxable investment securities10,635  6,655 28,334 18,231 
Tax-exempt investment securities2,326  2,428 7,076 7,532 
Other9 21 77 54 
Total interest income53,421  45,219 140,002 133,210 
Interest expense 
Deposits5,035  3,150 11,118 10,167 
Short-term borrowings767  132 1,115 421 
Long-term debt1,886  1,597 4,975 5,160 
Total interest expense7,688  4,879 17,208  15,748 
Net interest income45,733  40,340 122,794 117,462 
Credit loss expense (benefit)638  (1,080)3,920 (7,958)
Net interest income after credit loss expense (benefit)45,095  41,420 118,874 125,420 
Noninterest income 
Investment services and trust activities2,876  2,915 8,557 8,560 
Service charges and fees2,075  1,613 5,449 4,575 
Card revenue1,898  1,820 5,426 5,269 
Loan revenue1,722  1,935 9,538 9,816 
Bank-owned life insurance579  532 1,668 1,612 
Investment securities gains, net(163) 36 272 105 
Other3,601 331 5,669 1,287 
Total noninterest income12,588  9,182 36,579 31,224 
Noninterest expense 
Compensation and employee benefits20,046  17,350 57,665 51,671 
Occupancy expense of premises, net2,577  2,547 7,609 7,063 
Equipment2,358 1,973 6,366 5,627 
Legal and professional2,012 1,272 6,800 3,430 
Data processing1,731 1,406 4,199 4,005 
Marketing1,139 1,022 3,325 2,901 
Amortization of intangibles1,789  1,264 4,299 4,112 
FDIC insurance415  435 1,255 1,192 
Communications302  275 840 1,055 
Foreclosed assets, net42 43 (66)226 
Other2,212  2,191 6,056 4,866 
Total noninterest expense34,623  29,778 98,348 86,148 
Income before income tax expense23,060  20,824 57,105 70,496 
Income tax expense 4,743  4,513 12,272 15,266 
Net income $18,317  $16,311 $44,833 $55,230 
Per common share information 
Earnings - basic$1.17  $1.03 $2.86 $3.47 
Earnings - diluted$1.17  $1.03 $2.86 $3.46 
Dividends paid$0.2375  $0.2250 $0.7125 $0.6750 
See accompanying notes to consolidated financial statements.
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MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
Three Months EndedNine Months Ended
September 30,September 30,
(unaudited) (dollars in thousands)2022202120222021
Net income$18,317 $16,311 $44,833 $55,230 
Other comprehensive loss, net of tax:
Unrealized loss from available for sale debt securities:
Unrealized net holding loss on debt securities available for sale arising during the period
(42,935)(8,591)(121,179)(28,501)
Reclassification adjustment for losses (gains) included in net income
163 (36)(272)(105)
Income tax benefit
10,823 2,251 31,358 7,466 
Unrealized net loss on available for sale debt securities, net of reclassification adjustments
(31,949)(6,376)(90,093)(21,140)
Reclassification of available for sale debt securities to held to maturity:
Amortization of the net unrealized loss from the reclassification of available for sale debt securities to held to maturity
746 — 3,152 — 
Income tax expense
(189)— (817)— 
Amortization of net unrealized loss from the reclassification of available for sale debt securities to held to maturity, net 557 — 2,335 — 
Other comprehensive loss, net of tax(31,392)(6,376)(87,758)(21,140)
Comprehensive (loss) income $(13,075)$9,935 $(42,925)$34,090 
See accompanying notes to consolidated financial statements.

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MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Three Months Ended September 30,
Common Stock
(unaudited)
(dollars in thousands, except per share amounts)
Par Value
Additional
Paid-in
Capital
Retained Earnings Treasury Stock
Accumulated
Other
Comprehensive
Income (Loss)
Total
Balance at June 30, 2021$16,581 $299,888 $219,884 $(15,888)$9,828 $530,293 
Net Income— — 16,311 — — 16,311 
Other comprehensive loss— — — — (6,376)(6,376)
Release/lapse of restriction on RSUs (1,260 shares, net)
— (32)(1)33 — — 
Repurchase of common stock (235,277 shares)
— — — (6,880)— (6,880)
Share-based compensation— 471 — — — 471 
Dividends paid on common stock ($0.2250 per share)
— — (3,555)— — (3,555)
Balance at September 30, 2021$16,581 $300,327 $232,639 $(22,735)$3,452 $530,264 
Balance at June 30, 2022$16,581 $300,859 $262,395 $(25,772)$(65,231)$488,832 
Net Income— — 18,317 — — 18,317 
Other comprehensive loss— — — — (31,392)(31,392)
Release/lapse of restriction on RSUs (2,280 shares, net)
— (81)(4)58 — (27)
Repurchase of common stock (14,586 shares)
— — — (431)— (431)
Share-based compensation— 640 — — — 640 
Dividends paid on common stock ($0.2375 per share)
— — (3,710)— — (3,710)
Balance at September 30, 2022$16,581 $301,418 $276,998 $(26,145)$(96,623)$472,229 
Nine Months Ended September 30,
Common Stock
(unaudited)
(dollars in thousands, except per share amounts)
Par Value
Additional
Paid-in
Capital
Retained EarningsTreasury Stock
Accumulated
Other
Comprehensive
Income (Loss)
Total
Balance at December 31, 2020$16,581 $300,137 $188,191 $(14,251)$24,592 $515,250 
Net income— — 55,230 — — 55,230 
Other comprehensive loss— — — — (21,140)(21,140)
Release/lapse of restriction on RSUs (49,311 shares, net)
— (1,332)(29)1,243 — (118)
Repurchase of common stock (336,640 shares)
— — — (9,727)— (9,727)
Share-based compensation— 1,522 — — — 1,522 
Dividends paid on common stock ($0.6750 per share)
— — (10,753)— — (10,753)
Balance at September 30, 2021$16,581 $300,327 $232,639 $(22,735)$3,452 $530,264 
Balance at December 31, 2021$16,581 $300,940 $243,365 $(24,546)$(8,865)$527,475 
Net income— — 44,833 — — 44,833 
Other comprehensive loss— — — — (87,758)(87,758)
Release/lapse of restriction on RSUs (43,079 shares, net)
— (1,359)(42)1,131 — (270)
Repurchase of common stock (91,401 shares)
— — — (2,730)— (2,730)
Share-based compensation— 1,837 — — — 1,837 
Dividends paid on common stock ($0.7125 per share)
— — (11,158)— — (11,158)
Balance at September 30, 2022$16,581 $301,418 $276,998 $(26,145)$(96,623)$472,229 

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MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Nine Months Ended September 30,
(unaudited) (dollars in thousands)2022 2021
Cash flows from operating activities:
Net income
$44,833  $55,230 
Adjustments to reconcile net income to net cash provided by operating activities:
 
Credit loss expense (benefit)
3,920  (7,958)
Depreciation, amortization, and accretion
7,511  71 
         Net change in premises and equipment due to writedown or sale500 295 
Share-based compensation
1,837  1,522 
Net gain on sale or call of debt securities available for sale
(272) (105)
Net change in foreclosed assets due to writedown or sale(71)163 
Net gain on sale of loans held for sale(1,705)(6,696)
Origination of loans held for sale
(81,490) (236,326)
Proceeds from sales of loans held for sale
93,792 244,299 
Increase in cash surrender value of bank-owned life insurance(1,668)(1,339)
Decrease in deferred income taxes, net4,082 2,013 
         Bargain purchase gain(1,257)— 
Change in:
Other assets
(34,484) 7,514 
Other liabilities
36,791 (11,494)
Net cash provided by operating activities
$72,319  $47,189 
Cash flows from investing activities: 
Purchases of equity securities$(1,250)$— 
Proceeds from sales of debt securities available for sale
129,823  42,193 
Proceeds from maturities and calls of debt securities available for sale
133,018  304,443 
Purchases of debt securities available for sale
(386,278) (856,739)
Proceeds from maturities and calls of debt securities held to maturity
108,180  — 
Net (increase) decrease in loans held for investment
(215,738) 225,479 
Purchases of premises and equipment
(1,980) (1,477)
Proceeds from sale of foreclosed assets
345 1,983 
Proceeds from sale of premises and equipment
23  16 
         Net cash acquired in business acquisition31,375 — 
Net cash used in investing activities
$(202,482) $(284,102)
Cash flows from financing activities: 
Net (decrease) increase in:
Deposits
$(101,501) $410,598 
Short-term borrowings
121,627 (43,281)
         Payments of subordinated debt issuance costs— (9)
         Redemption of subordinated debentures— (10,835)
         Payments on finance lease liability(121)(107)
Payments of Federal Home Loan Bank borrowings
(21,000)(43,000)
Proceeds from other long-term debt
25,000 — 
Payments of other long-term debt(5,000)— 
Taxes paid relating to the release/lapse of restriction on RSUs
(270)(118)
Dividends paid
(11,158) (10,753)
Repurchase of common stock
(2,730)(9,727)
Net cash provided by financing activities
$4,847  $292,768 
Net (decrease) increase in cash and cash equivalents
$(125,316) $55,855 
Cash and cash equivalents:
        Beginning of Period203,830  82,659 
        Ending balance$78,514  $138,514 
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Nine Months Ended September 30,
(unaudited) (dollars in thousands)2022 2021
Supplemental disclosures of cash flow information: 
Cash paid during the period for interest
$17,628  $17,500 
Cash paid during the period for income taxes
8,229  14,300 
Supplemental schedule of non-cash investing and financing activities:
Transfer of loans to foreclosed assets, net
$20  $284 
Investment securities purchased but not settled — 1,835 
Transfer of premises and equipment to assets held for sale1,349 — 
Transfer of debt securities available for sale to debt securities held to maturity    1,253,179 — 
Supplemental schedule of non-cash investing activities from acquisition:
Non-cash assets acquired:
      Investment securities$119,820 $— 
      Total loans held for investment, net281,326 — 
      Premises and equipment7,363 — 
      Core deposit intangible16,500 — 
      Bank-owned life insurance7,862 — 
      Other assets3,766 — 
              Total non-cash assets acquired$436,637 $— 
Liabilities assumed:
      Deposits$463,638 $— 
      Short-term borrowings1,541 — 
      FHLB borrowings250 — 
      Other liabilities1,326 — 
             Total liabilities assumed$466,755 $— 
See accompanying notes to consolidated financial statements.
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MidWestOne Financial Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

1.    Nature of Business and Significant Accounting Policies
Nature of Business
MidWestOne Financial Group, Inc. (the "Company"), an Iowa corporation formed in 1983, is a bank holding company under the BHCA and a financial holding company under the GLBA. Our principal executive offices are located at 102 South Clinton Street, Iowa City, Iowa 52240.
The Company owns all of the outstanding common stock of MidWestOne Bank, an Iowa state non-member bank chartered in 1934 with its main office in Iowa City, Iowa. We operate primarily through MidWestOne Bank, our bank subsidiary.
On June 9, 2022, the Company acquired Iowa First Bancshares Corp., a bank holding company whose wholly-owned banking subsidiaries were First National Bank of Muscatine and First National Bank in Fairfield, community banks located in Muscatine and Fairfield, Iowa, respectively. Immediately following the completion of the acquisition, First National Bank of Muscatine and First National Bank in Fairfield were merged with and into the Bank. As consideration for the merger, we paid cash in the amount of $46.7 million.
Basis of Presentation
The accompanying interim condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934. Accordingly, certain disclosures accompanying annual consolidated financial statements are omitted. In the opinion of management, all significant intercompany accounts and transactions have been eliminated and adjustments, consisting solely of normal recurring accruals and considered necessary for the fair presentation of financial statements for the interim periods, have been included. The current period's results of operations are not necessarily indicative of the results that ultimately may be achieved for the year. The interim condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Form 10-K for the year ended December 31, 2021, filed with the SEC on March 10, 2022.
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 nine months ended September 30, 2022 may not be indicative of results for the year ending December 31, 2022, 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, 2021, filed with the SEC on March 10, 2022, except for the policies related to held to maturity debt securities and acquired loans.
Held to Maturity Debt Securities - Certain debt securities that the Company has the positive intent and ability to hold to maturity are classified as held to maturity and recorded at amortized cost.
A debt security is placed on nonaccrual status at the time any principal or interest payments become 90 days delinquent. Interest accrued but not received for a security placed on nonaccrual is reversed against interest income.
The Company evaluates debt securities held to maturity for current expected credit losses. Held-to-maturity securities are evaluated on a quarterly basis using historical probability of default and loss given default information specific to the investment category. If this evaluation determines that credit losses exist, an allowance for credit loss is recorded and included in earnings as a component of credit loss expense. The Company's mortgage-backed securities and collateralized mortgage obligations are issued by U.S. government agencies and U.S. government-sponsored enterprises and are implicitly guaranteed by the U.S. government, and as such are excluded from the credit loss evaluation.

Accrued interest receivable on held to maturity debt securities is recorded within 'Other Assets,' and is excluded from the estimate of credit losses.
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Acquired Loans - Acquired loans are separated into two categories based on the credit risk characteristics of the underlying borrowers as either PCD, for loans which have experienced more than insignificant credit deterioration since origination, or loans with no credit deterioration (non-PCD). At the date of acquisition, an ACL on PCD loans is determined and added to the amortized cost basis of the individual loans. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. The ACL on PCD loans is recorded in the acquisition accounting and no provision for credit losses is recognized at the acquisition date. Subsequent changes to the ACL are recorded through provision expense. For non-PCD loans, an ACL is established immediately after the acquisition through a charge to the provision for credit losses.

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

Accounting Guidance Pending Adoption at September 30, 2022

On March 12, 2020, the FASB issued ASU 2020-04, Reference Rate Reform (ASC 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASC 848 contains optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform. Certain optional expedients and exceptions for contract modifications and hedging relationships were amended in ASU 2021-01, Reference Rate Reform (Topic 848): Scope Refinement, issued on January 7, 2021. 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 adoption of ASU ASU 2020-04 is not expected to have a material impact on the Company’s consolidated financial statements.

On March 31, 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. For creditors that have adopted the CECL accounting guidance within ASU 2016-13, the amendments eliminate the accounting guidance for TDRs within ASC 310-40, while also enhancing the disclosure requirements for certain loan refinancings and restructurings when a borrower is experiencing financial difficulty. In addition, public business entities must also disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC 326-20. The amendments are effective for fiscal years beginning after December 15, 2022 and should be applied prospectively, with an option to apply a modified retrospective transition approach for the recognition and measurement of TDRs. The Company is currently evaluating the impact of ASU 2022-02.


2.    Business Combinations
On June 9, 2022, the Company acquired 100% of the equity of IOFB through a merger and acquired its wholly-owned subsidiaries FNBM and FNBF for cash consideration of $46.7 million. The primary reasons for the acquisition were to enter the Muscatine, Iowa market and increase our presence in Fairfield, Iowa. Immediately following the completion of the acquisition, First National Bank of Muscatine and First National Bank in Fairfield were merged with and into the Bank.
The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting. The assets and liabilities, both tangible and intangible, were recorded at their fair values as of the June 9, 2022 acquisition date net of any applicable tax effects using a methodology similar to the Company's legacy assets and liabilities (refer to Note 14. Fair Value of Financial Instruments and Fair Value Measurements for additional information regarding the fair value methodology). Initial accounting for the assets acquired and liabilities assumed was incomplete at September 30, 2022. Thus, such amounts recognized in the financial statements have been determined to be provisional. The bargain purchase gain, which is recorded in 'Other' noninterest income, was generated as a result of the estimated fair value of identifiable net assets acquired exceeding the merger consideration, based on provisional fair values. The revenue and earnings amount specific to IOFB since the acquisition date that are included in the consolidated results for the three and nine months ended September 30, 2022 are not readily determinable. The disclosures of these amounts are impracticable due to the merging of certain processes and systems at the acquisition date.
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The table below summarizes the amounts recognized as of the acquisition date for each major class of assets acquired and liabilities assumed, including the fair value purchase accounting adjustments that were recorded in the third quarter of 2022, as the accounting for the assets acquired and liabilities assumed was incomplete.
(in thousands)June 9, 2022
As Reported at June 30, 2022Fair Value AdjustmentsAs Reported at September 30, 2022
Merger consideration
Cash consideration
46,672 — 46,672 
Identifiable net assets acquired, at fair value
Assets acquired
Cash and due from banks
10,192 — 10,192 
Interest earning deposits in banks
67,855 — 67,855 
Debt securities
119,230 590 119,820 
Loans held for investment
281,470 (143)281,326 
Premises and equipment
7,363 — 7,363 
Core deposit intangible
16,500 — 16,500 
Other assets
12,218 (590)11,628 
Total assets acquired
514,828 (143)514,684 
Liabilities assumed
Deposits
(463,638)— (463,638)
Other liabilities
(3,117)— (3,117)
Total liabilities assumed
(466,755)— (466,755)
Identifiable net assets acquired, at fair value48,073 47,929 
Bargain Purchase Gain1,401 (143)1,257 

Of the $281.3 million net loans acquired, $11.0 million exhibited credit deterioration on the date of purchase. The following table provides a summary of these PCD loans at acquisition:
(in thousands)June 9, 2022
Par value of PCD loans acquired
$15,396 
PCD ACL at acquisition
(3,371)
Non-credit discount on PCD loans
(1,005)
Purchase price of PCD loans
$11,020 
For illustrative purposes only, the following table presents certain unaudited pro forma information for the three and nine months ended September 30, 2022 and 2021. This unaudited, estimated pro forma information was calculated as if IOFB had been acquired as of the beginning of the year prior to the date of acquisition. This unaudited pro forma information combines the historical results of IOFB and the Company and includes adjustments for the estimated impact of certain fair value purchase accounting, interest expense, acquisition-related expenses, and income tax expense for the respective periods. The pro forma information is not indicative of what would have occurred had the acquisition occurred as of the beginning of the year prior to the acquisition. Additionally, MidWestOne expects to achieve further operating cost savings and other business synergies, including revenue growth as a result of the acquisition, which are not reflected in the pro forma amounts that follow. As a result, actual amounts would have differed from the unaudited pro forma information presented.
Three Months EndedNine Months Ended
September 30,September 30,
(in thousands, except per share amounts)2022202120222021
Total revenues$55,954 $56,205 $165,053 $165,616 
Net Income$17,111 $17,723 $46,663 $55,356 
EPS - basic$1.10 $1.12 $2.98 $3.47 
EPS - diluted$1.09 $1.12 $2.97 $3.47 
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The following table summarizes the IOFB acquisition-related expenses, which are included in the respective income statement line items, for the periods indicated:
Three Months EndedNine Months Ended
September 30,September 30,
(in thousands)2022202120222021
Noninterest Expense
Compensation and employee benefits$132 $— $282 $— 
Occupancy expense of premises, net— — 1 — 
Equipment14 — 25 — 
Legal and professional193 — 894 — 
Data processing304 — 380 — 
Marketing90 — 162 — 
Communications— — 3 — 
Other30 — 45 — 
Total IOFB acquisition-related expenses
$763 $— $1,792 $— 

3.    Debt Securities
On January 1, 2022, the Company transferred, at fair value, $1.25 billion of mortgage-backed securities, collateralized mortgage obligations, and securities issued by state and political subdivisions from the available for sale classification to the held to maturity classification. The net unrealized after tax loss of $11.5 million associated with those re-classified securities remained in accumulated other comprehensive loss and will be amortized over the remaining life of the securities. At September 30, 2022, there was $9.1 million of net unrealized after tax loss remaining in accumulated other comprehensive loss. No gains or losses were recognized in earnings at the time of the transfer.

The following tables summarize the amortized cost, gross unrealized gains and losses and the resulting fair value of debt securities for the periods indicated. There were no held to maturity debt securities as of December 31, 2021.
 As of September 30, 2022
(in thousands)
Amortized
Cost (1)
Gross
Unrealized
Gains		Gross
Unrealized
Losses		Allowance for Credit Loss related to Debt SecuritiesFair Value
Available for Sale
U.S. Government agencies and corporations$7,560 $— $221 $— $7,339 
State and political subdivisions307,415 4 23,906 — 283,513 
Mortgage-backed securities
6,320 9 246 — 6,083 
Collateralized mortgage obligations177,474 — 24,386 — 153,088 
Corporate debt securities772,241 262 69,222 — 703,281 
Total available for sale debt securities
$1,271,010 $275 $117,981 $— $1,153,304 
Held to Maturity
State and political subdivisions$540,221 $— $106,460 $— $433,761 
Mortgage-backed securities
82,858 — 14,118 — 68,740 
Collateralized mortgage obligations523,504 — 100,434 — 423,070 
Total held to maturity debt securities
$1,146,583 $— $221,012 $— $925,571 
(1) Amortized cost for the held to maturity securities includes $0.3 million of unamortized gain in state and political subdivisions, $29 thousand of unamortized losses in mortgage-backed securities and $12.6 million of unamortized losses in collateralized mortgage obligations related to the re-classification of securities from available for sale to held to maturity on January 1, 2022.
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 As of December 31, 2021
(in thousands)
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Allowance for Credit Loss related to Debt Securities
Fair Value
Available for Sale
U.S. Government agencies and corporations$265 $1 $— $— $266 
State and political subdivisions760,894 10,484 5,636 — 765,742 
Mortgage-backed securities
100,325 932 631 — 100,626 
Collateralized mortgage obligations785,945 1,274 18,320 — 768,899 
Corporate debt securities652,677 6,305 6,405 — 652,577 
Total debt securities
$2,300,106 $18,996 $30,992 $— $2,288,110 
 
Investment securities with a fair value of $649.6 million and $582.2 million at September 30, 2022 and December 31, 2021, respectively, were pledged on public deposits, securities sold under agreements to repurchase and for other purposes, as required or permitted by law.

Accrued interest receivable on available for sale debt securities and held to maturity debt securities is recorded within 'Other Assets,' and is excluded from the estimate of credit losses. At September 30, 2022 the accrued interest receivable on available for sale debt securities and held to maturity debt securities totaled $7.9 million and $3.8 million, respectively. At December 31, 2021 the accrued interest receivable on available for sale debt securities totaled $9.5 million. There was no accrued interest receivable on held to maturity debt securities at December 31, 2021.
The following table presents debt securities AFS in an unrealized loss position for which an allowance for credit losses has not been recorded at September 30, 2022, aggregated by investment category and length of time in a continuous loss position:
  As of September 30, 2022
Number
of
Securities
Less than 12 Months12 Months or MoreTotal
Available for Sale
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
(in thousands, except number of securities) 
U.S. Government agencies and corporations
8 $7,339 $221 $— $— $7,339 $221 
State and political subdivisions421 266,471 21,464 11,000 2,442 277,471 23,906 
Mortgage-backed securities
25 5,503 245 46 1 5,549 246 
Collateralized mortgage obligations
20 82,403 6,497 70,685 17,889 153,088 24,386 
Corporate debt securities158 533,326 48,999 123,017 20,223 656,343 69,222 
Total
632 $895,042 $77,426 $204,748 $40,555 $1,099,790 $117,981 

As of September 30, 2022, 8 U.S. Government agencies and corporations securities with total unrealized losses of $0.2 million were held by the Company. Management considered the implied U.S. government guarantee of these agency and corporation securities. In addition, management may evaluate securities by considering the yield spread to treasury securities and the most recent financial information available. Based on this evaluation, management concluded that the decline in fair value was not attributable to credit losses.
As of September 30, 2022, 421 state and political subdivisions securities with total unrealized losses of $23.9 million were held by the Company. Management evaluated these securities through a process that included consideration of credit agency ratings and payment history. In addition, management may evaluate securities by considering the yield spread to treasury securities and the most recent financial information available. Based on this evaluation, management concluded that the decline in fair value was not attributable to credit losses.
As of September 30, 2022, 25 mortgage-backed securities and 20 collateralized mortgage obligations with unrealized losses totaling $24.6 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.
As of September 30, 2022, 158 corporate debt securities with total unrealized losses of $69.2 million were held by the Company. Management evaluated these securities by considering credit agency ratings and payment history. In addition, management may evaluate securities by considering the yield spread to treasury securities and the most recent financial
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information available. Based on this evaluation, management concluded that the decline in fair value was not attributable to credit losses.
The following table presents debt securities AFS in an unrealized loss position for which an allowance for credit losses has not been recorded at December 31, 2021, aggregated by investment category and length of time in a continuous loss position:
  As of December 31, 2021
Available for Sale
Number
of
Securities
Less than 12 Months12 Months or MoreTotal
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
(in thousands, except number of securities) 
State and political subdivisions136 $311,960 $5,216 $15,343 $420 $327,303 $5,636 
Mortgage-backed securities
6 43,319 631 80 — 43,399 631 
Collateralized mortgage obligations44 605,729 15,693 61,984 2,627 667,713 18,320 
Corporate debt securities52 303,750 4,567 27,071 1,838 330,821 6,405 
Total
238 $1,264,758 $26,107 $104,478 $4,885 $1,369,236 $30,992 

The Company evaluates debt securities held to maturity for current expected credit losses. There were no debt securities held to maturity classified as nonaccrual or past due as of September 30, 2022. Held-to-maturity securities are evaluated on a quarterly basis using historical probability of default and loss given default information specific to the investment category. If this evaluation determines that credit losses exist, an allowance for credit loss is recorded and included in earnings as a component of credit loss expense. Based on this evaluation, management concluded that no allowance for credit loss for these securities was required.
Proceeds and gross realized gains and losses on debt securities available for sale for the three and nine months ended September 30, 2022 and 2021, were as follows:
Three Months EndedNine Months Ended
(in thousands)September 30, 2022September 30, 2021September 30, 2022September 30, 2021
Proceeds from sales of debt securities available for sale$17,570 $782 $129,823 $42,193 
Gross realized gains from sales of debt securities available for sale— 32 — 856 
Gross realized losses from sales of debt securities available for sale(167)— (167)(791)
Net realized gain from sales of debt securities available for sale(1)
$(167)$32 $(167)$65 
(1) The difference in investment security gains, net reported herein as compared to the Consolidated Statements of Income is associated with the net realized gain from the call or maturity of debt securities of $4 thousand and $439 thousand for the three and nine months ended September 30, 2022, respectively, and $4 thousand and $40 thousand for the three and nine months ended September 30, 2021, respectively.
The contractual maturity distribution of investment debt securities at September 30, 2022, 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 SaleHeld to Maturity
(in thousands)Amortized CostFair ValueAmortized CostFair Value
Due in one year or less$60,695 $60,639 $5,423 $5,332 
Due after one year through five years717,493 658,337 88,646 78,298 
Due after five years through ten years262,787 235,708 212,757 175,456 
Due after ten years46,241 39,449 233,395 174,675 
$1,087,216 $994,133 $540,221 $433,761 
Mortgage-backed securities6,320 6,083 82,858 68,740 
Collateralized mortgage obligations177,474 153,088 523,504 423,070 
Total$1,271,010 $1,153,304 $1,146,583 $925,571 

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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
(in thousands)September 30, 2022December 31, 2021
Agricultural$116,229 $103,417 
Commercial and industrial1,041,662 902,314
Commercial real estate:
Construction & development276,941 172,160
Farmland183,581 144,673
Multifamily222,592 244,503
Commercial real estate-other1,226,983 1,143,205
Total commercial real estate1,910,097 1,704,541
Residential real estate:
One- to four- family first liens446,373 333,308
One- to four- family junior liens157,276 133,014
Total residential real estate603,649 466,322
Consumer74,652 68,418
Loans held for investment, net of unearned income3,746,289 3,245,012
Allowance for credit losses(52,100)(48,700)
Total loans held for investment, net$3,694,189 $3,196,312 

Loans with unpaid principal in the amount of $843.9 million and $816.0 million at September 30, 2022 and December 31, 2021, 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.

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The following table presents the amortized cost basis of loans based on delinquency status:
Age Analysis of Past-Due Financial Assets90 Days or More Past Due And Accruing
(in thousands)Current30 - 59 Days Past Due60 - 89 Days Past Due90 Days or More Past DueTotal
September 30, 2022
Agricultural
$115,372 $150 $34 $673 $116,229 $— 
Commercial and industrial
1,037,526 536 193 3,407 1,041,662 — 
Commercial real estate:
Construction and development
276,918 — 23 — 276,941 — 
Farmland
182,171 268 — 1,142 183,581 — 
Multifamily
221,204 12 — 1,376 222,592 — 
Commercial real estate-other
1,217,329 5,534 180 3,940 1,226,983 — 
Total commercial real estate
1,897,622 5,814 203 6,458 1,910,097 — 
Residential real estate:
One- to four- family first liens
440,206 3,684 353 2,130 446,373 936 
One- to four- family junior liens
156,074 253 56 893 157,276 — 
Total residential real estate
596,280 3,937 409 3,023 603,649 936 
Consumer
74,443 117 67 25 74,652 — 
Total
$3,721,243 $10,554 $906 $13,586 $3,746,289 $936 
December 31, 2021
Agricultural
$102,352 $244 $— $821 $103,417 $— 
Commercial and industrial
899,423 529 134 2,228 902,314 — 
Commercial real estate:
Construction and development
171,169 396 — 595 172,160 — 
Farmland
141,814 116 — 2,743 144,673 — 
Multifamily
243,117 — 1,386 — 244,503 — 
Commercial real estate-other
1,129,073 8,417 306 5,409 1,143,205 — 
Total commercial real estate
1,685,173 8,929 1,692 8,747 1,704,541 — 
Residential real estate:
One- to four- family first liens
330,992 1,057 1,057 202 333,308 — 
One- to four- family junior liens
132,392 261 135 226 133,014 — 
Total residential real estate
463,384 1,318 1,192 428 466,322 — 
Consumer
68,326 66 14 12 68,418 — 
Total
$3,218,658 $11,086 $3,032 $12,236 $3,245,012 $— 

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The following table presents the amortized cost basis of loans on non-accrual status, amortized cost basis of loans on non-accrual status with no allowance for credit losses recorded, and loans past due 90 days or more and still accruing by class of loan:
NonaccrualNonaccrual with no Allowance for Credit Losses90 Days or More Past Due And Accruing
(in thousands)September 30, 2022December 31, 2021September 30, 2022December 31, 2021September 30, 2022December 31, 2021
Agricultural
$1,089 $2,090 $794 $1,341 $— $— 
Commercial and industrial
4,545 3,803 408 1,341 — — 
Commercial real estate:
Construction and development
— 595 — 595 — — 
Farmland
3,674 5,499 3,385 4,156 — — 
Multifamily
2,308 987 1,676 323 — — 
Commercial real estate-other
10,019 16,544 8,487 1,063 — — 
Total commercial real estate
16,001 23,625 13,548 6,137 — — 
Residential real estate:
One- to four- family first liens
2,105 1,275 624 345 936 — 
One- to four- family junior liens
1,201 713 — — — — 
Total residential real estate
3,306 1,988 624 345 936 — 
Consumer
86 34 — — — — 
Total
$25,027 $31,540 $15,374 $9,164 $936 $— 
The interest income recognized on loans that were on nonaccrual for the three months ended September 30, 2022 and September 30, 2021 was $70 thousand and $268 thousand, respectively. The interest income recognized on loans that were on nonaccrual for the nine months ended September 30, 2022 and September 30, 2021 was $345 thousand and $446 thousand, respectively.

Credit Quality Information
The Company aggregates loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as: current financial information, historical payment experience, credit documentation, and other factors. The Company analyzes loans individually to classify the loans as to credit risk. This analysis includes non-homogenous loans, such as agricultural, commercial and industrial, 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 and loans greater than 90 days past due and on accrual.
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The following table sets forth the amortized cost basis of loans by class of receivable by credit quality indicator and vintage based on the most recent analysis performed, as of September 30, 2022. As of September 30, 2022, there were no 'loss' rated credits.
Term Loans by Origination YearRevolving Loans
September 30, 2022
(in thousands)
20222021202020192018PriorTotal
Agricultural
Pass$16,714 $14,661 $5,835 $3,097 $1,036 $1,142 $63,727 $106,212 
Special mention / watch241 905 139 163 — 607 2,419 4,474 
Substandard298 649 774 118 191 310 3,203 5,543 
Doubtful— — — — — — — — 
Total$17,253 $16,215 $6,748 $3,378 $1,227 $2,059 $69,349 $116,229 
Commercial and industrial
Pass$228,482 $238,257 $160,159 $52,391 $29,047 $121,704 $167,813 $997,853 
Special mention / watch3,338 3,512 2,846 391 3,065 17,829 1,469 32,450 
Substandard568 83 2,426 1,029 1,048 3,591 2,614 11,359 
Doubtful— — — — — — — — 
Total$232,388 $241,852 $165,431 $53,811 $33,160 $143,124 $171,896 $1,041,662 
CRE - Construction and development
Pass$108,284 $109,184 $37,144 $2,218 $1,483 $1,853 $15,031 $275,197 
Special mention / watch38 505 — — — — — 543 
Substandard1,194 — — — — 7 — 1,201 
Doubtful— — — — — — — — 
Total$109,516 $109,689 $37,144 $2,218 $1,483 $1,860 $15,031 $276,941 
CRE - Farmland
Pass$43,681 $53,774 $30,467 $8,911 $8,549 $14,414 $3,145 $162,941 
Special mention / watch2,831 2,259 1,524 — 615 84 2,335 9,648 
Substandard335 1,991 2,634 2,462 1,542 2,028 — 10,992 
Doubtful— — — — — — — — 
Total$46,847 $58,024 $34,625 $11,373 $10,706 $16,526 $5,480 $183,581 
CRE - Multifamily
Pass$23,929 $66,582 $87,045 $17,281 $2,577 $6,039 $1,369 $204,822 
Special mention / watch— — — 206 5,957 1,201 — 7,364 
Substandard300 8,395 1,711 — — — — 10,406 
Doubtful— — — — — — — — 
Total$24,229 $74,977 $88,756 $17,487 $8,534 $7,240 $1,369 $222,592 
CRE - other
Pass$245,620 $316,315 $319,946 $79,653 $32,736 $82,887 $52,542 $1,129,699 
Special mention / watch9,326 2,649 6,052 4,231 10,314 13,769 435 46,776 
Substandard610 1,080 22,733 19,472 1,738 4,778 97 50,508 
Doubtful— — — — — — — — 
Total$255,556 $320,044 $348,731 $103,356 $44,788 $101,434 $53,074 $1,226,983 
RRE - One- to four- family first liens
Performing$122,746 $107,385 $65,596 $27,284 $24,040 $84,019 $12,262 $443,332 
Nonperforming— 103 5 42 302 2,589 — 3,041 
Total$122,746 $107,488 $65,601 $27,326 $24,342 $86,608 $12,262 $446,373 
RRE - One- to four- family junior liens
Performing$29,804 $24,315 $9,618 $3,111 $4,067 $6,830 $78,329 $156,074 
Nonperforming— 24 — 204 757 117 100 1,202 
Total$29,804 $24,339 $9,618 $3,315 $4,824 $6,947 $78,429 $157,276 
Consumer
Performing$25,966 $22,714 $9,384 $4,126 $2,101 $6,462 $3,812 $74,565 
Nonperforming— — 60 12 8 7 — 87 
Total$25,966 $22,714 $9,444 $4,138 $2,109 $6,469 $3,812 $74,652 
Total by Credit Quality Indicator Category
Pass$666,710 $798,773 $640,596 $163,551 $75,428 $228,039 $303,627 $2,876,724 
Special mention / watch15,774 9,830 10,561 4,991 19,951 33,490 6,658 101,255 
Substandard3,305 12,198 30,278 23,081 4,519 10,714 5,914 90,009 
Doubtful— — — — — — — — 
Performing178,516 154,414 84,598 34,521 30,208 97,311 94,403 673,971 
Nonperforming— 127 65 258 1,067 2,713 100 4,330 
Total$864,305 $975,342 $766,098 $226,402 $131,173 $372,267 $410,702 $3,746,289 
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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 December 31, 2021. As of December 31, 2021, there were no 'loss' rated credits.
Term Loans by Origination YearRevolving Loans
December 31, 2021
(in thousands)
20212020201920182017PriorTotal
Agricultural
Pass$20,145 $8,604 $4,367 $1,260 $885 $947 $58,119 $94,327 
Special mention / watch1,255 148 245 — 17 993 1,685 4,343 
Substandard649 827 126 221 4 278 2,642 4,747 
Doubtful— — — — — — — — 
Total$22,049 $9,579 $4,738 $1,481 $906 $2,218 $62,446 $103,417 
Commercial and industrial
Pass$297,285 $199,324 $56,258 $35,522 $60,294 $75,342 $132,323 $856,348 
Special mention / watch4,268 2,342 781 470 4,304 14,274 6,938 33,377 
Substandard8 1,772 1,255 772 37 2,922 5,823 12,589 
Doubtful— — — — — — — — 
Total$301,561 $203,438 $58,294 $36,764 $64,635 $92,538 $145,084 $902,314 
CRE - Construction and development
Pass$90,662 $37,098 $4,942 $1,611 $1,543 $578 $33,197 $169,631 
Special mention / watch874 — 169 — — — — 1,043 
Substandard— 879 596 — — 11 — 1,486 
Doubtful— — — — — — — — 
Total$91,536 $37,977 $5,707 $1,611 $1,543 $589 $33,197 $172,160 
CRE - Farmland
Pass$51,682 $33,870 $18,674 $5,105 $5,060 $10,240 $1,812 $126,443 
Special mention / watch3,105 3,824 — 734 292 223 — 8,178 
Substandard1,580 2,004 1,681 2,562 1,667 558 — 10,052 
Doubtful— — — — — — — — 
Total$56,367 $39,698 $20,355 $8,401 $7,019 $11,021 $1,812 $144,673 
CRE - Multifamily
Pass$97,188 $96,389 $19,234 $2,754 $4,555 $3,813 $273 $224,206 
Special mention / watch7,871 — — 6,000 1,859 544 — 16,274 
Substandard663 2,049 — — — 1,311 — 4,023 
Doubtful— — — — — — — — 
Total$105,722 $98,438 $19,234 $8,754 $6,414 $5,668 $273 $244,503 
CRE - other
Pass$325,902 $384,591 $94,449 $37,960 $60,890 $60,543 $45,910 $1,010,245 
Special mention / watch5,302 26,239 5,172 11,243 2,557 1,905 1,768 54,186 
Substandard4,182 48,885 12,497 5,401 973 6,836 — 78,774 
Doubtful— — — — — — — — 
Total$335,386 $459,715 $112,118 $54,604 $64,420 $69,284 $47,678 $1,143,205 
RRE - One- to four- family first liens
Performing$115,539 $77,086 $27,279 $24,697 $16,425 $65,676 $5,331 $332,033 
Nonperforming352 20 45 295 — 563 — 1,275 
Total$115,891 $77,106 $27,324 $24,992 $16,425 $66,239 $5,331 $333,308 
RRE - One- to four- family junior liens
Performing$29,904 $13,335 $4,295 $5,109 $3,574 $5,104 $70,980 $132,301 
Nonperforming31 — 156 198 16 207 105 713 
Total$29,935 $13,335 $4,451 $5,307 $3,590 $5,311 $71,085 $133,014 
Consumer
Performing$33,124 $14,386 $5,917 $4,080 $1,686 $5,778 $3,412 $68,383 
Nonperforming— — 15 — 13 7 — 35 
Total$33,124 $14,386 $5,932 $4,080 $1,699 $5,785 $3,412 $68,418 
Total by Credit Quality Indicator Category
Pass$882,864 $759,876 $197,924 $84,212 $133,227 $151,463 $271,634 $2,481,200 
Special mention / watch22,675 32,553 6,367 18,447 9,029 17,939 10,391 117,401 
Substandard7,082 56,416 16,155 8,956 2,681 11,916 8,465 111,671 
Doubtful— — — — — — — — 
Performing178,567 104,807 37,491 33,886 21,685 76,558 79,723 532,717 
Nonperforming383 20 216 493 29 777 105 2,023 
Total$1,091,571 $953,672 $258,153 $145,994 $166,651 $258,653 $370,318 $3,245,012 





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Allowance for Credit Losses
At September 30, 2022, the economic forecast used by the Company showed the following: (1) Midwest unemployment – increases over the next four forecasted quarters; (2) Year-to-year change in national retail sales - increases over the next four forecasted quarters; (3) Year-to-year change in CRE Index - increases over the next four forecasted quarters; (4) Year-to-year change in U.S. GDP - decline in the first forecasted quarter, with increases in the next three forecasted quarters; (5) Year-to-year change in National Home Price Index – increases over the next two forecasted quarters, with a decline in the third and fourth forecasted quarter; and (6) Rental Vacancy - increases over the next four forecasted quarters. The increase in the ACL between the nine months ended September 30, 2021 and the nine months ended September 30, 2022 is primarily driven by the initial allowance for credit losses of $3.4 million recorded for the PCD loans acquired, as well as $3.1 million related to the acquired non-PCD loans, coupled with the additional reserve taken to support loan growth. Net loan charge-offs were $0.6 million for the three-months ended September 30, 2022 as compared to net loan recoveries of $0.9 million for the three-months ended September 30, 2021. Net loan charge-offs were $3.1 million for the nine months ended September 30, 2022 as compared to net loan recoveries of $0.2 million for the nine months ended September 30, 2021.

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 $14.5 million at September 30, 2022 and $10.4 million at December 31, 2021 and is excluded from the estimate of credit losses. The changes in the allowance for credit losses by portfolio segment were as follows:

For the Three Months Ended September 30, 2022 and 2021
(in thousands)AgriculturalCommercial and IndustrialCommercial Real EstateResidential Real EstateConsumerTotal
For the Three Months Ended September 30, 2022
Beginning balance$987 $21,166 $24,399 $5,174 $624 $52,350 
Charge-offs
(248)(280)(135)(52)(255)(970)
Recoveries
1 295 6 48 32 382 
Credit loss expense (benefit)(1)
241 3,075 (3,322)138 206 338 
Ending balance$981 $24,256 $20,948 $5,308 $607 $52,100 
For the Three Months Ended September 30, 2021
Beginning balance$1,013 $13,787 $28,516 $4,076 $608 $48,000 
Charge-offs
(16)(24)(37)(1)(156)(234)
Recoveries
19 954 76 25 40 1,114 
Credit loss expense (benefit) (1)
44 1,058 (2,226)5 139 (980)
Ending balance$1,060 $15,775 $26,329 $4,105 $631 $47,900 
(1) The difference in the credit loss expense reported herein as compared to the Consolidated Statements of Income is associated with the credit loss expense (benefit) of $0.3 million and $(0.1) million related to off-balance sheet credit exposures for the three months ended September 30, 2022 and September 30, 2021, respectively.

For the Nine Months Ended September 30, 2022 and 2021
(in thousands)AgriculturalCommercial and IndustrialCommercial Real EstateResidential Real EstateConsumerTotal
For the Nine Months Ended September 30, 2022
Beginning balance$667 $17,294 $26,120 $4,010 $609 $48,700 
PCD allowance established in acquisition512 1,473 1,227 159 — $3,371 
Charge-offs(249)(843)(2,319)(90)(540)(4,041)
Recoveries9 613 154 68 106 950 
Credit loss expense (benefit)(1)
42 5,719 (4,234)1,161 432 3,120 
Ending balance$981 $24,256 $20,948 $5,308 $607 $52,100 
For the Nine Months Ended September 30, 2021
Beginning balance$1,346 $15,689 $32,640 $4,882 $943 $55,500 
Charge-offs(170)(885)(453)(107)(462)(2,077)
Recoveries67 1,560 391 81 136 2,235 
Credit loss (benefit) expense(1)
(183)(589)(6,249)(751)14 (7,758)
Ending balance$1,060 $15,775 $26,329 $4,105 $631 $47,900 
(1) The difference in the credit loss expense reported herein as compared to the Consolidated Statements of Income is associated with the credit loss expense (benefit) of $0.8 million and $(0.2) million related to off-balance sheet credit exposures for the nine months ended September 30, 2022 and September 30, 2021, respectively.

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The composition of allowance for credit losses by portfolio segment based on evaluation method were as follows:
As of September 30, 2022
(in thousands)AgriculturalCommercial and IndustrialCommercial Real EstateResidential Real EstateConsumerTotal
Loans held for investment, net of unearned income
Individually evaluated for impairment
$3,239 $3,978 $24,509 $1,898 $— $33,624 
Collectively evaluated for impairment
112,990 1,037,684 1,885,588 601,751 74,652 3,712,665 
Total
$116,229 $1,041,662 $1,910,097 $603,649 $74,652 $3,746,289 
Allowance for credit losses:
Individually evaluated for impairment
$483 $1,998 $1,368 $244 $— $4,093 
Collectively evaluated for impairment
498 22,258 19,580 5,064 607 48,007 
Total
$981 $24,256 $20,948 $5,308 $607 $52,100 
As of December 31, 2021
(in thousands)AgriculturalCommercial and IndustrialCommercial Real EstateResidential Real EstateConsumerTotal
Loans held for investment, net of unearned income
Individually evaluated for impairment
$1,341 $3,005 $23,118 $570 $— $28,034 
Collectively evaluated for impairment
102,076 899,309 1,681,423 465,752 68,418 3,216,978 
Total
$103,417 $902,314 $1,704,541 $466,322 $68,418 $3,245,012 
Allowance for credit losses:
Individually evaluated for impairment
$— $681 $2,193 $224 $— $3,098 
Collectively evaluated for impairment
667 16,613 23,927 3,786 609 45,602 
Total
$667 $17,294 $26,120 $4,010 $609 $48,700 
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 September 30, 2022

(in thousands)		Primary Type of Collateral
Real EstateEquipmentOtherTotalACL Allocation
Agricultural$581 $2,658 $— $3,239 $483 
Commercial and industrial1,410 1,819 749 3,978 1,998 
Commercial real estate:
     Construction and development905 — — 905 268 
      Farmland6,197 — — 6,197 — 
      Multifamily2,308 — — 2,308 356 
      Commercial real estate-other14,824 — 275 15,099 744 
Residential real estate:
     One- to four- family first liens1,177 — — 1,177 64 
     One- to four- family junior liens— — 721 721 180 
Consumer— — — — — 
        Total$27,402 $4,477 $1,745 $33,624 $4,093 

As of December 31, 2021

(in thousands)		Primary Type of Collateral
Real EstateEquipmentOtherTotalACL Allocation
Agricultural$916 $425 $— $1,341 $— 
Commercial and industrial408 374 2,223 3,005 681 
Commercial real estate:
     Construction and development595 — — 595 — 
      Farmland5,185 — — 5,185 22 
      Multifamily987 — — 987 387 
      Commercial real estate-other16,130 — 221 16,351 1,784 
Residential real estate:
     One- to four- family first liens410 — — 410 64 
     One- to four- family junior liens— — 160 160 160 
Consumer— — — — — 
        Total$24,631 $799 $2,604 $28,034 $3,098 
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Troubled Debt Restructurings
TDRs totaled $9.1 million and $20.0 million as of September 30, 2022 and December 31, 2021, respectively. As of September 30, 2022, the Company had $9 thousand of commitments to lend additional funds to borrowers with loans classified as TDR.
The following table sets forth information on the Company's TDRs by class of financing receivable occurring during the stated periods. TDRs include multiple concessions, and the disclosure classifications in the table are based on the primary concession provided to the borrower.
Three Months Ended September 30,
20222021
Number of ContractsPre-Modification Outstanding Recorded InvestmentPost-Modification Outstanding Recorded InvestmentNumber of ContractsPre-Modification Outstanding Recorded InvestmentPost-Modification Outstanding Recorded Investment
(dollars in thousands)
CONCESSION - Extended maturity date
Commercial real estate-other3 $894 $894 2 $9,717 $9,623 
Total3$894 $894 2 $9,717 $9,623 

Nine Months Ended September 30,
20222021
Number of ContractsPre-Modification Outstanding Recorded InvestmentPost-Modification Outstanding Recorded InvestmentNumber of ContractsPre-Modification Outstanding Recorded InvestmentPost-Modification Outstanding Recorded Investment
(dollars in thousands)
CONCESSION - Interest rate reduction
Farmland—$— $— 2$1,982 $1,982 
One- to four- family first liens—— — 1171 171 
CONCESSION - Extended maturity date
Agricultural112 12 —— — 
Commercial and industrial4512 502 —— — 
Farmland4988 888 —— — 
Commercial real estate-other3894 894 29,717 9,623 
One- to four- family first liens—— — 2178 178 
CONCESSION - Other
Agricultural1140 140 —— — 
Farmland31,529 1,529 —— — 
Commercial real estate-other—— — 144 44 
One- to four- family first liens—— — 1150 150 
Total16$4,075 $3,965 9$12,242 $12,148 
Loans by class of financing receivable modified as TDRs that redefaulted within 12 months subsequent to restructure during the stated periods were as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Number of ContractsRecorded InvestmentNumber of ContractsRecorded InvestmentNumber of ContractsRecorded InvestmentNumber of ContractsRecorded Investment
(dollars in thousands)
CONCESSION - Extended maturity date
Commercial and industrial—$— —$— 1$403 —$— 
Farmland—— —— 3490 —— 
Commercial real estate-other2432 —— 37,820 —— 
Total2$432 —$— 7$8,713 —$— 


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

The fair values of the Company's derivative instrument assets and liabilities are summarized as follows:
As of September 30, 2022As of December 31, 2021
Notional
Amount
Fair Value
Notional
Amount
Fair Value
(in thousands)AssetsLiabilitiesAssetsLiabilities
Designated as hedging instruments:
Fair value hedges:
Interest rate swaps
$24,217 $2,690 $— $24,802 $424 $1,400 
Total$24,217 $2,690 $— $24,802 $424 $1,400 
Not designated as hedging instruments:
Interest rate swaps
$332,073 $22,093 $22,095 $356,636 $5,352 $5,363 
RPAs - protection sold4,040 — — 4,229 — — 
RPAs - protection purchased
9,474 — — 9,629 — 2 
Interest rate lock commitments3,685 — 37 17,438 330 — 
Interest rate forward loan sales contracts4,450 87 — 22,710 — (24)
Total$353,722 $22,180 $22,132 $410,642 $5,682 $5,341 

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.
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 Hedging Relationships
For the Three Months Ended September 30,For the Nine Months Ended September 30,
2022202120222021
(in thousands)Interest IncomeOther IncomeInterest IncomeOther IncomeInterest IncomeOther IncomeInterest IncomeOther Income
Total amounts of income and expense line items presented in the consolidated statements of income in which the effects of fair value hedges are recorded
$24 $— $(110)$— $(147)$— $(329)$— 
Gain (loss) on fair value hedging relationships in subtopic 815-20:
Interest contracts:
Hedged items(1,149)— (199)— (3,665)— (1,254)— 
Derivative designated as hedging instruments
1,175 — 157 — 3,519 — 910 — 


As of September 30, 2022, the following amounts were recorded on the balance sheet related to cumulative basis adjustment for fair value hedges:
Line Item in the Balance
Sheet in Which the
Hedged Item is Included
Carrying Amount of the
Hedged Assets
Cumulative Amount of Fair Value
Hedging Adjustment Included in the Carrying Amount of the Hedged Asset
(in thousands)
Loans$21,557 $(2,687)

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Derivatives Not Designated as Hedging Instruments
Interest Rate Swaps - The Company periodically enters into commercial loan interest rate swap agreements in order to provide commercial loan customers with the ability to convert from variable to fixed interest rates. These derivative contracts relate to transactions in which the Company enters into an interest rate swap with a customer, while simultaneously entering into an offsetting interest rate swap with an institutional counterparty.

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.

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

The following table presents the net gains (losses) recognized on the consolidated statements of income related to the derivatives not designated as hedging instruments for the periods indicated:
Location in the Consolidated Statements of IncomeFor the Three Months Ended September 30,For the Nine Months Ended September 30,
(in thousands)2022202120222021
Interest rate swapsOther income$2 $5 $10 $40 
RPAsOther income— 1 1 2 
Interest rate lock commitmentsLoan revenue(149)316 (367)316 
Interest rate forward loan sales contractsLoan revenue91 (107)63 (107)
                Total$(56)$215 $(293)$251 

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

The table below presents gross derivatives and the respective collateral received or pledged in the form of other financial instruments as of September 30, 2022 and December 31, 2021, which are generally marketable securities and/or cash. The collateral amounts in the table below are limited to the outstanding balances of the related asset or liability (after netting is applied); thus instances of over-collateralization are not shown. Further, the net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the consolidated balance sheets.
Gross Amounts Not Offset in the Balance Sheet
(in thousands)Gross Amounts RecognizedGross Amounts Offset in the Balance SheetNet Amounts presented in the Balance SheetFinancial InstrumentsCash Collateral Received / PaidNet Assets /Liabilities
As of September 30, 2022
Asset Derivatives$24,870 $— $24,870 $— $20,518 $4,352 
Liability Derivatives22,132 — 22,132 — 3,330 18,802 
As of December 31, 2021
Asset Derivatives$6,106 $— $6,106 $— $— $6,106 
Liability Derivatives6,741 — 6,741 — 3,250 3,491 

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 September 30, 2022, the Company had no derivatives with a fair value in a net liability position with its institutional derivative counterparties.
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6.    Goodwill and Intangible Assets
The carrying amount of goodwill was $62.5 million at September 30, 2022 and December 31, 2021.
As indicated in Note 2. Business Combinations, the Company acquired a core deposit intangible on June 9, 2022 with an estimated fair value of $16.5 million, which will be amortized over its estimated useful life of 10 years. The following table presents the gross carrying amount, accumulated amortization, and net carrying amount of other intangible assets at the dates indicated:
As of September 30, 2022As of December 31, 2021
(in thousands)Gross Carrying AmountAccumulated AmortizationNet Carrying AmountGross Carrying AmountAccumulated AmortizationNet Carrying Amount
Core deposit intangible$58,245 $(34,244)$24,001 $41,745 $(30,629)$11,116 
Customer relationship intangible5,265 (4,314)951 5,265 (3,692)1,573 
Other
2,700 (2,606)94 2,700 (2,544)156 
$66,210 $(41,164)$25,046 $49,710 $(36,865)$12,845 
Indefinite-lived trade name intangible$7,040 $7,040 

The following table provides the estimated future amortization expense for the remaining three months ending December 31, 2022 and the succeeding annual periods:
(in thousands)Core Deposit IntangibleCustomer Relationship IntangibleOtherTotal
2022$1,578 $175 $17 $1,770 
20235,677 518 51 6,246 
20244,705 239 24 4,968 
20253,751 19 2 3,772 
20262,797 — — 2,797 
Thereafter5,493 — — 5,493 
Total$24,001 $951 $94 $25,046 

7.    Other Assets
The components of the Company's other assets as of September 30, 2022 and December 31, 2021 were as follows:
(in thousands)September 30, 2022December 31, 2021
Bank-owned life insurance$94,902 $85,372 
Interest receivable26,362 20,117 
FHLB stock16,961 10,157 
Mortgage servicing rights13,329 6,532 
Operating lease right-of-use assets, net2,738 2,840 
Federal and state income taxes, current— 178 
Federal and state income taxes, deferred40,862 13,893 
Derivative assets24,870 6,106 
Other receivables/assets13,729 12,553 
$233,753 $157,748 

The acquisition of IOFB on June 9, 2022 by the Company resulted in an increase in the cash surrender value of bank-owned life insurance, the fair value of the Company's mortgage servicing rights, and interest receivable. See Note 2. Business Combinations for further details.

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8.    Deposits
The following table presents the composition of our deposits as of the dates indicated:
(in thousands)September 30, 2022December 31, 2021
Noninterest bearing deposits$1,139,694 $1,005,369 
Interest checking deposits1,705,289 1,619,136 
Money market deposits991,783 939,523 
Savings deposits700,843 628,242 
Time deposits under $250537,616 505,392 
Time deposits of $250 or more401,557 416,857 
Total deposits
$5,476,782 $5,114,519 

The Company had $4.0 million and $3.4 million in reciprocal time deposits as of September 30, 2022 and December 31, 2021, respectively. Included in money market deposits at September 30, 2022 and December 31, 2021 were $39.3 million and $35.4 million, respectively, of reciprocal deposits. These reciprocal deposits are part of the IntraFi Network Deposits program, which is used by financial institutions to spread deposits that exceed the FDIC insurance coverage limits out to numerous institutions in order to provide insurance coverage for all participating deposits.

As of September 30, 2022 and December 31, 2021, the Company had public entity deposits that were collateralized by investment securities of $353.0 million and $303.3 million, respectively.

9.    Short-Term Borrowings
The following table summarizes our short-term borrowings as of the dates indicated:
September 30, 2022December 31, 2021
(in thousands)Weighted Average RateBalanceWeighted Average RateBalance
Securities sold under agreements to repurchase0.82 %$137,536 0.24 %$181,368 
Federal Home Loan Bank advances3.29 167,000 — — 
Total
2.18 %$304,536 0.24 %$181,368 

Securities Sold Under an Agreement to Repurchase - Securities sold under agreements to repurchase are agreements in which the Company acquires funds by selling assets to another party under a simultaneous agreement to repurchase the same assets at a specified price and date. The Company enters into repurchase agreements and also offers a demand deposit account product to customers that sweeps their balances in excess of an agreed upon target amount into overnight repurchase agreements. All securities sold under agreements to repurchase are recorded on the face of the balance sheet.
Federal Home Loan Bank Advances - The Bank has a secured line of credit with the FHLBDM. Advances from the FHLBDM are collateralized primarily by one- to four-family residential, commercial and agricultural real estate first mortgages equal to various percentages of the total outstanding notes. See Note 4. Loans Receivable and the Allowance for Credit Losses of the notes to the consolidated financial statements.
Federal Funds Purchased - The Bank has unsecured federal funds lines totaling $155.0 million from multiple correspondent banking relationships. There were no borrowings from such lines at either September 30, 2022 or December 31, 2021.
Other - At September 30, 2022 and December 31, 2021, the Company had no Federal Reserve Discount Window borrowings, while the financing capacity was $104.3 million as of September 30, 2022 and $60.2 million as of December 31, 2021. As of September 30, 2022 and December 31, 2021, the Bank had municipal securities with a market value of $113.5 million and $65.2 million, respectively, pledged to the Federal Reserve Bank of Chicago to secure potential borrowings.
The Company has a credit agreement with a correspondent bank with a revolving commitment of $25.0 million. The credit agreement was amended on September 30, 2022 such that the revolving commitment matures on September 30, 2023, with no updates made to the fee structure or the interest rates. Fees are paid on the average daily unused revolving commitment in the amount of 0.30% per annum. Interest is payable at a rate equal to the monthly reset term SOFR rate plus 1.55%. The Company had no balance outstanding under this revolving credit facility as of both September 30, 2022 and December 31, 2021.





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10.    Long-Term Debt
Junior Subordinated Notes Issued to Capital Trusts
The table below summarizes the terms of each issuance of junior subordinated notes outstanding as of the dates indicated:
(in thousands)Face ValueBook ValueInterest RateRateMaturity DateCallable Date
September 30, 2022
ATBancorp Statutory Trust I$7,732 $6,918 
Three-month LIBOR + 1.68%
4.97 %06/15/203606/15/2011
ATBancorp Statutory Trust II12,372 10,954 
Three-month LIBOR + 1.65%
4.94 %09/15/203706/15/2012
Barron Investment Capital Trust I2,062 1,824 
Three-month LIBOR + 2.15%
5.75 %09/23/203609/23/2011
Central Bancshares Capital Trust II7,217 6,912 
Three-month LIBOR + 3.50%
6.79 %03/15/203803/15/2013
MidWestOne Statutory Trust II15,464 15,464 
Three-month LIBOR + 1.59%
4.88 %12/15/203712/15/2012
Total
$44,847 $42,072 
December 31, 2021
ATBancorp Statutory Trust I$7,732 $6,888 
Three-month LIBOR + 1.68%
1.88 %06/15/203606/15/2011
ATBancorp Statutory Trust II12,37210,908
Three-month LIBOR + 1.65%
1.85 %09/15/203706/15/2012
Barron Investment Capital Trust I2,062 1,800 
Three-month LIBOR + 2.15%
2.37 %09/23/203609/23/2011
Central Bancshares Capital Trust II7,217 6,880 
Three-month LIBOR + 3.50%
3.70 %03/15/203803/15/2013
MidWestOne Statutory Trust II15,464 15,464 
Three-month LIBOR + 1.59%
1.79 %12/15/203712/15/2012
    Total$44,847 $41,940 

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

Subordinated Debentures
On July 28, 2020, the Company completed the private placement offering of $65.0 million of its subordinated notes, of which $63.75 million have been exchanged for subordinated notes registered under the Securities Act of 1933. The 5.75% fixed-to-floating rate subordinated notes are due July 30, 2030. At September 30, 2022, 100% of the subordinated notes qualified as Tier 2 capital. Per applicable Federal Reserve rules and regulations, the amount of the subordinated notes qualifying as Tier 2 regulatory capital will be phased-out by 20% of the amount of the subordinated notes in each of the five years beginning on the fifth anniversary preceding the maturity date of the subordinated notes.
Other Long-Term Debt

On June 7, 2022, the Company entered into an unsecured note payable with a correspondent bank with a maturity date of June 30, 2027. Payments of principal and interest are payable quarterly, and began on September 30, 2022. Interest is payable at the monthly reset term SOFR plus 1.55%. As of September 30, 2022, $20.0 million of that note was outstanding.

Other long-term borrowings were as follows as of September 30, 2022 and December 31, 2021:
September 30, 2022December 31, 2021
(in thousands)Weighted Average RateBalanceWeighted Average RateBalance
Finance lease payable8.89 %$830 8.89 %$951 
FHLB borrowings2.69 27,314 2.76 48,113 
Note payable to unaffiliated bank4.06 20,000 — — 
Total
3.37 %$48,144 2.88 %$49,064 



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As a member of the FHLBDM, the Bank may borrow funds from the FHLB in amounts up to 45% of the Bank’s total assets, provided the Bank is able to pledge an adequate amount of qualified assets to secure the borrowings. Advances from the FHLB are collateralized primarily by one- to four-family residential, commercial and agricultural real estate first mortgages equal to various percentages of the total outstanding notes. See Note 4. Loans Receivable and the Allowance for Credit Losses of the notes to the unaudited consolidated financial statements. At September 30, 2022, FHLB long-term borrowings included advances from the FHLBC, which were collateralized by investment securities. See Note 3. Debt Securities of the notes to the unaudited consolidated financial statements.
As of September 30, 2022, FHLB borrowings were as follows:
(in thousands)Weighted Average RateAmount
Due in 20222.31 %$10,000 
Due in 20232.79 %11,000 
Due in 20243.11 %6,250 
Total27,250 
Valuation adjustment from acquisition accounting64 
Total$27,314 

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

Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands, except per share amounts)2022202120222021
Basic Earnings Per Share:
Net income$18,317 $16,311 $44,833 $55,230 
Weighted average shares outstanding15,623,498 15,840,769 15,657,917 15,938,889 
Basic earnings per common share$1.17 $1.03 $2.86 $3.47 
Diluted Earnings Per Share:
Net income$18,317 $16,311 $44,833 $55,230 
Weighted average shares outstanding, including all dilutive potential shares
15,654,443 15,863,247 15,686,098 15,963,229 
Diluted earnings per common share$1.17 $1.03 $2.86 $3.46 


12.    Regulatory Capital Requirements and Restrictions on Subsidiary Cash
Regulatory Capital and Reserve Requirement - The Company (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's consolidated financial statements. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
As of September 30, 2022 and December 31, 2021, the Bank was not required to maintain reserve balances in cash on hand or on deposit with Federal Reserve Banks, and therefore the total amount held in reserve for each of these periods was zero dollars.
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A comparison of the Company's and the Bank's capital with the corresponding minimum regulatory requirements in effect as of September 30, 2022 and December 31, 2021, is presented below:
Actual
For Capital Adequacy Purposes With Capital Conservation Buffer(1)
To Be Well Capitalized Under Prompt Corrective Action Provisions
(dollars in thousands)AmountRatioAmountRatioAmountRatio
At September 30, 2022
Consolidated:
Total capital/risk weighted assets$643,36512.10%$558,19510.50%N/AN/A
Tier 1 capital/risk weighted assets529,9609.97451,8728.50N/AN/A
Common equity tier 1 capital/risk weighted assets
487,8889.18372,1307.00N/AN/A
Tier 1 leverage capital/average assets529,9608.24257,1354.00N/AN/A
MidWestOne Bank:
Total capital/risk weighted assets$646,37212.17%$557,47710.50%$530,93110.00%
Tier 1 capital/risk weighted assets597,96711.26451,2918.50424,7448.00
Common equity tier 1 capital/risk weighted assets
597,96711.26371,6517.00345,1056.50
Tier 1 leverage capital/average assets597,9679.31257,0214.00321,2765.00
At December 31, 2021
Consolidated:
Total capital/risk weighted assets$615,06013.09%$493,28310.50%N/AN/A
Tier 1 capital/risk weighted assets508,68710.83399,3248.50N/AN/A
Common equity tier 1 capital/risk weighted assets
466,7479.94328,8557.00N/AN/A
Tier 1 leverage capital/average assets508,6878.67234,7454.00N/AN/A
MidWestOne Bank:
Total capital/risk weighted assets$584,34812.46%$492,43610.50%$468,98710.00%
Tier 1 capital/risk weighted assets542,97511.58398,6398.50375,1898.00
Common equity tier 1 capital/risk weighted assets
542,97511.58328,2917.00304,8416.50
Tier 1 leverage capital/average assets542,9759.25234,6864.00293,3585.00
(1) Includes a capital conservation buffer of 2.50%.
Subordinated Notes - The Company completed a private placement of $65.0 million aggregate principal amount of 5.75% fixed-to-floating rate subordinated notes on July 28, 2020. The subordinated notes are intended to qualify as Tier 2 capital for regulatory purposes.

13.    Commitments and Contingencies
Credit-related financial instruments - The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, commitments to sell loans, and standby letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheets.
The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. The following table summarizes the Bank’s commitments as of the dates indicated:
September 30, 2022December 31, 2021
(in thousands)
Commitments to extend credit$1,159,323 $1,014,397 
Commitments to sell loans2,320 12,917 
Standby letters of credit19,026 16,342 
Total$1,180,669 $1,043,656 
The Bank’s exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the party. Collateral held varies, but may include accounts receivable, crops, livestock, inventory, property and equipment, residential real estate and income-producing commercial properties.
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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 September 30, 2022, the liability for off-balance-sheet credit losses totaled $4.8 million, whereas the total amount of the liability as of December 31, 2021 was $4.0 million. The total amount recorded in credit loss expense (benefit) for the nine months ended September 30, 2022 was an expense of $0.8 million, while a credit loss benefit of $0.2 million was recorded for the nine months ended September 30, 2021.
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 62% of the loans are real estate loans, excluding farmland, and approximately 8% are agriculturally related. The concentrations of credit by type of loan are set forth in Note 4. Loans Receivable and the Allowance for Credit Losses. Commitments to extend credit are primarily related to commercial loans and home equity loans. Standby letters of credit were granted primarily to commercial borrowers. Investments in securities issued by state and political subdivisions involve certain governmental entities within Iowa and Minnesota. The carrying value of investment securities of Iowa and Minnesota political subdivisions totaled 14% and 10%, respectively, as of September 30, 2022.

14.    Fair Value of Financial Instruments and Fair Value Measurements
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  There are three levels of inputs that may be used to measure fair values:
•Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
•Level 2 – Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
•Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

For additional information regarding the valuation methodologies used to measure the Company's assets recorded at fair value, and for estimating fair value for financial instruments not recorded at fair value, see Note 1. Nature of Business and Significant Accounting Policies and Note 20. Estimated Fair Value of Financial Instruments and Fair Value Measurements to the consolidated financial statements in the Company's 2021 Annual Report on Form 10-K, filed with the SEC on March 10, 2022.
The Company uses fair value to measure certain assets and liabilities on a recurring basis, primarily available for sale debt securities, derivatives and mortgage servicing rights. For assets measured at the lower of cost or fair value, the fair value measurement criteria may or may not be met during a reporting period, and such measurements are therefore considered "nonrecurring" for purposes of disclosing the Company's fair value measurements. Fair value is used on a nonrecurring basis to adjust carrying values for collateral dependent individually analyzed loans and other real estate owned.
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Recurring Basis
The following table summarizes assets and liabilities measured at fair value on a recurring basis as of the dates indicated, by level within the fair value hierarchy:
 
Fair Value Measurement at September 30, 2022 Using
(in thousands)Total Level 1 Level 2 Level 3
Assets:   
Available for sale debt securities:
   
U.S. Government agencies and corporations
$7,339  $—  $7,339  $— 
State and political subdivisions
283,513  —  283,513  — 
Mortgage-backed securities
6,083  —  6,083  — 
Collateralized mortgage obligations
153,088 — 153,088 — 
Corporate debt securities
703,281  —  703,281  — 
Derivative assets24,870 — 24,870 — 
     Mortgage servicing rights13,329 — 13,329 — 
Liabilities:
Derivative liabilities
$22,132 $— $22,095 $37 
 
Fair Value Measurement at December 31, 2021 Using
(in thousands)Total Level 1 Level 2 Level 3
Assets:   
Debt securities available for sale:
   
U.S. Government agencies and corporations
$266  $—  $266  $— 
State and political subdivisions
765,742  —  765,742  — 
Mortgage-backed securities
100,626  —  100,626  — 
Collateralized mortgage obligations
768,899 — 768,899 — 
Corporate debt securities
652,577  —  652,577  — 
Derivative assets6,106 — 5,776 330 
Mortgage servicing rights6,532 — 6,532 — 
Liabilities:
Derivative liabilities$6,741 $— $6,741 $— 

There were no transfers of assets between Level 3 and other levels of the fair value hierarchy during the nine months ended September 30, 2022 or the year ended December 31, 2021. Changes in the fair value of available for sale debt securities are included in other comprehensive income.
The following table presents the valuation technique, significant unobservable inputs, and quantitative information about the unobservable inputs used for fair value measurements of the financial instruments held by the Company and categorized within Level 3 of the fair value hierarchy as of the dates indicated:
Fair Value at
(dollars in thousands)September 30, 2022December 31, 2021Valuation Techniques(s)Unobservable InputRange of InputsWeighted Average
Interest rate lock commitments$(37)$330 Quoted or published market prices of similar instruments, adjusted for factors such as pull-through rate assumptionsPull-through rate69%-100%86%
Nonrecurring Basis
The following table presents assets measured at fair value on a nonrecurring basis as of the dates indicated:
 
Fair Value Measurement at September 30, 2022 Using
(in thousands)TotalLevel 1Level 2Level 3
Collateral dependent individually analyzed loans$8,912 $— $— $8,912 
Foreclosed assets, net
103 — — 103 
 
Fair Value Measurement at December 31, 2021 Using
(in thousands)TotalLevel 1Level 2Level 3
Collateral dependent individually analyzed loans$15,772 $— $— $15,772 
Foreclosed assets, net
357 — — 357 
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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 dates indicated:
Fair Value at
(dollars in thousands)September 30, 2022December 31, 2021Valuation Techniques(s)Unobservable InputRange of InputsWeighted Average
Collateral dependent individually analyzed loans$8,912 $15,772 Fair value of collateralValuation adjustments—%-91%45%
Foreclosed assets, net$103 $357 Fair value of collateralValuation adjustments8%-8%8%
Changes in assumptions or estimation methodologies may have a material effect on these estimated fair values.
Carrying Amount and Estimated Fair Value of Financial Instruments
The carrying amount and estimated fair value of financial instruments at September 30, 2022 and December 31, 2021 were as follows:

 September 30, 2022
(in thousands)Carrying
Amount		Estimated
Fair Value		Level 1Level 2Level 3
Financial assets:
Cash and cash equivalents$78,514 $78,514 $78,514 $— $— 
Debt securities available for sale1,153,304 1,153,304 — 1,153,304 — 
Debt securities held to maturity1,146,583 925,571 — 925,571 — 
Loans held for sale2,320 2,014 — 2,014 — 
Loans held for investment, net3,694,189 3,671,008 — — 3,671,008 
Interest receivable26,362 26,362 — 26,362 — 
FHLB stock16,961 16,961 — 16,961 — 
Derivative assets24,870 24,870 — 24,870 — 
Financial liabilities:
Noninterest bearing deposits1,139,694 1,139,694 1,139,694 — — 
Interest bearing deposits4,337,088 4,313,894 3,397,915 915,979 — 
Short-term borrowings304,536 304,536 304,536 — — 
Finance leases payable830 830 — 830 — 
FHLB borrowings27,314 27,021 — 27,021 — 
Junior subordinated notes issued to capital trusts42,072 38,601 — 38,601 — 
Subordinated debentures63,974 63,750 — 63,750 — 
Other long-term debt20,000 20,000 — 20,000 — 
Derivative liabilities22,132 22,132 — 22,095 37 
 December 31, 2021
(in thousands)
Carrying
Amount
Estimated
Fair Value
Level 1Level 2Level 3
Financial assets:
Cash and cash equivalents$203,830 $203,830 $203,830 $— $— 
Debt securities available for sale2,288,110 2,288,110 — 2,288,110 — 
Loans held for sale12,917 12,970 — 12,970 — 
Loans held for investment, net3,196,312 3,207,314 — — 3,207,314 
Interest receivable20,117 20,117 — 20,117 — 
FHLB stock10,157 10,157 — 10,157 — 
Derivative assets6,106 6,106 — 5,776 330 
Financial liabilities:
Noninterest bearing deposits1,005,369 1,005,369 1,005,369 — — 
Interest bearing deposits4,109,150 4,105,858 3,186,901 918,957 — 
Short-term borrowings181,368 181,368 181,368 — — 
Finance leases payable951 951 — 951 — 
FHLB borrowings48,113 48,947 — 48,947 — 
Junior subordinated notes issued to capital trusts41,940 35,545 — 35,545 — 
Subordinated debentures63,875 68,207 — 68,207 — 
Derivative liabilities6,741 6,741 — 6,741 — 

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15.    Leases
Substantially all of the leases in which the Company is the lessee are comprised of real estate property for banking offices and office space. We do not have any subleased properties. Substantially all of our leases are classified as operating leases, with the Company only holding one existing finance lease for a banking office location with a lease term through 2025.
Supplemental balance sheet information related to leases was as follows:
(in thousands)ClassificationSeptember 30, 2022December 31, 2021
Operating lease right-of-use assets
Other assets
$2,738 $2,840 
Finance lease right-of-use asset
Premises and equipment, net
374 446 
Total right-of-use assets
$3,112 $3,286 
Operating lease liability
Other liabilities
$3,620 $3,778 
Finance lease liability
Long-term debt
830 951 
Total lease liabilities
$4,450 $4,729 
Weighted-average remaining lease term
Operating leases
8.98 years9.13 years
Finance lease
3.92 years4.67 years
Weighted-average discount rate
Operating leases
4.15 %4.13 %
Finance lease
8.89 %8.89 %

The following table represents lease costs and other lease information. As the Company elected, for all classes of underlying assets, not to separate lease and non-lease components and instead to account for them as a single lease component, the variable lease cost primarily represents variable payments such as common area maintenance and utilities.
Three Months EndedNine Months Ended
September 30,September 30,
(in thousands)2022 202120222021
Lease Costs
Operating lease cost
$290 $301 $874 $894 
Variable lease cost
7 (3)49 89 
Interest on lease liabilities(1)
19 23 58 69 
Amortization of right-of-use assets
24 24 72 72 
Net lease cost
$340 $345 $1,053 $1,124 
Other Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$553 $553 $1,689 $1,655 
Operating cash flows from finance lease
19 23 58 69 
Finance cash flows from finance lease
41 37 121 107 
     Supplemental non-cash information on lease liabilities:
           Right-of-use assets obtained in exchange for new operating lease liabilities599 232 638 232 
(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.








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Future minimum payments for finance leases and operating leases with initial or remaining terms of one year or more for the remaining three-months ending December 31, 2022 and the succeeding annual periods were as follows:
(in thousands)Finance LeasesOperating Leases
December 31, 2022$61 $293 
December 31, 2023245 1,109 
December 31, 2024250 827 
December 31, 2025255 357 
December 31, 2026171 262 
Thereafter— 1,875 
Total undiscounted lease payment$982 $4,723 
Amounts representing interest(152)(1,103)
Lease liability$830 $3,620 


16.    Subsequent Events
The Company has evaluated events that have occurred subsequent to September 30, 2022 and has concluded there are no other subsequent events that would require recognition in the accompanying consolidated financial statements.
On October 18, 2022, the board of directors of the Company declared a cash dividend of $0.2375 per share payable on December 15, 2022 to shareholders of record as of the close of business on December 1, 2022.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

•the risks of mergers (including with IOFB), including, without limitation, the related time and costs of implementing such transactions, integrating operations as part of these transactions and possible failures to achieve expected gains, revenue growth and/or expense savings from such transactions;
•credit quality deterioration or pronounced and sustained reduction in real estate market values, or uncertainties, including the impact of inflationary pressures on economic conditions and our business, resulting in an increase in the allowance for credit losses, an increase in the credit loss expense, and a reduction in net earnings;
•the effects of actual and expected increases in inflation and interest rates, including on our net income and the value of our securities portfolio;
•changes in the economic environment, competition, or other factors that may affect our ability to acquire loans or influence the anticipated growth rate of loans and deposits and the quality of the loan portfolio and loan and deposit pricing;
•fluctuations in the value of our investment securities;
•governmental monetary and fiscal policies;
•changes in and uncertainty related to benchmark interest rates used to price loans and deposits, including the expected elimination of LIBOR, and the adoption of a substitute;
•legislative and regulatory changes, including changes in banking, securities, trade, and tax laws and regulations and their application by our regulators, including the new 1.0% excise tax on stock buybacks by publicly traded companies;
•the ability to attract and retain key executives and employees experienced in banking and financial services;
•the sufficiency of the allowance for credit losses to absorb the amount of actual losses inherent in our existing loan portfolio;
•our ability to adapt successfully to technological changes to compete effectively in the marketplace;
•credit risks and risks from concentrations (by geographic area and by industry) within our loan portfolio;
•the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds, financial technology companies, and other financial institutions operating in our markets or elsewhere or providing similar services;
•the failure of assumptions underlying the establishment of allowances for credit losses and estimation of values of collateral and various financial assets and liabilities;
•volatility of rate-sensitive deposits;
•operational risks, including data processing system failures or fraud;
•asset/liability matching risks and liquidity risks;
•the costs, effects and outcomes of existing or future litigation;
•changes in general economic, political, or industry conditions, nationally, internationally or in the communities in which we conduct business;
•changes in accounting policies and practices, as may be adopted by state and federal regulatory agencies and the FASB;
•war or terrorist activities, including the war in Ukraine, widespread disease or 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 governmental policies impacting the value of the agricultural or other products of our borrowers;
•effects of the ongoing COVID-19 pandemic, including its effects on the economic environment, our customers, employees and supply chain; 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, Naples and Fort Myers, Florida, and Denver, Colorado.
On June 9, 2022, the Company completed the acquisition of IOFB, a bank holding company headquartered in Muscatine, Iowa, and the parent company of FNBM and FNBF. Immediately following the completion of the acquisition, FNBM and FNBF were merged with and into the Bank. As consideration for the merger, we paid cash of $46.7 million. The acquisition added to the Company's existing presence in Fairfield, Iowa and expanded the Company's footprint into Muscatine, Iowa.
The Bank is focused on delivering relationship-based business and personal banking products and services. The Bank provides commercial loans, real estate loans, agricultural loans, credit card loans, and consumer loans. The Bank also provides deposit products including demand and interest checking accounts, savings accounts, money market accounts, and time deposits. Complementary to our loan and deposit products, the Bank also provides products and services including treasury management, Zelle, online and mobile banking, credit and debit cards, ATMs, and safe deposit boxes. The Bank also has a trust department through which it offers services including the administration of estates, personal trusts, and conservatorships and the management of real property. Finally, the Bank’s investment services department offers financial planning, investment advisory, and retail securities brokerage services (the latter of which is provided through an agreement with a third-party registered broker-dealer).
Our results of operations are significantly affected by our net interest income. Results of operations are also affected by noninterest income and expense, credit loss expense and income tax expense. Significant external factors that impact our results of operations include general economic and competitive conditions, as well as changes in market interest rates, government policies, and actions of regulatory authorities.

The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes and the statistical information and financial data appearing in this report as well as our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 10, 2022. Results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of results to be attained for any other period.
FINANCIAL SUMMARY
The Company reported net income for the three months ended September 30, 2022 of $18.3 million, an increase of $2.0 million, compared to $16.3 million of net income for the three months ended September 30, 2021, with diluted earnings per share of $1.17 and $1.03 for the respective annual periods.
The period as of and for the three and nine months ended September 30, 2022 was also highlighted by the following results:

Balance Sheet:
•Total assets increased to $6.49 billion at September 30, 2022 from $6.03 billion at December 31, 2021, with the completion of the IOFB acquisition in the second quarter of 2022 contributing largely to this increase.
•At September 30, 2022 the total amount of the held to maturity debt securities was $1.15 billion and the total amount of the debt securities available for sale was $1.15 billion. There were no held to maturity debt securities at December 31, 2021, while the total amount of the debt securities available for sale was $2.29 billion.
•Gross loans held for investment increased $509.5 million, from $3.25 billion at December 31, 2021, to $3.76 billion at September 30, 2022. This increase was primarily driven by the loans acquired in the IOFB acquisition, coupled with organic loan growth and increased revolving line of credit utilization.
•The allowance for credit losses was $52.1 million, or 1.39% of total loans as of September 30, 2022, compared with $48.7 million, or 1.50% of total loans, at December 31, 2021.
•Nonperforming assets declined $5.8 million, from $31.9 million at December 31, 2021, to $26.1 million at September 30, 2022.
•Total deposits increased $362.3 million from $5.11 billion at December 31, 2021, to $5.48 billion at September 30, 2022. This increase was primarily due to the close of the IOFB acquisition during the second quarter of 2022.
•Short-term borrowings increased to $304.5 million at September 30, 2022, from $181.4 million at December 31, 2021, and long-term debt decreased to $154.2 million at September 30, 2022 from $154.9 million at December 31, 2021.
•The Company is well-capitalized with a total risk-based capital ratio of 12.10% at September 30, 2022.




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Income Statement:

Three Months Ended:

•Tax equivalent net interest income (a non-GAAP financial measure - see the "Non-GAAP Presentations" section for a reconciliation to the most comparable GAAP equivalent) was $47.0 million for the third quarter of 2022, an increase of $5.5 million, from $41.5 million in the third quarter of 2021. The increase in tax equivalent net interest income was due primarily to an increase of $4.5 million in loan interest income and an increase of $3.9 million in interest income earned from investment securities. The increase in loan interest income was reflective of a higher volume of loans, coupled with an increase of $1.2 million in loan purchase discount accretion, and partially offset by a $3.6 million reduction in net PPP fees. The increase in interest income from investment securities reflected both a larger volume of securities and an increase in yield from such securities. Partially offsetting these identified increases in tax equivalent interest income were increases in interest expense on interest-bearing deposits and borrowed funds of $1.9 million and $0.9 million, respectively.
•Credit loss expense of $0.6 million was recorded during the third quarter of 2022, as compared to a credit loss benefit of $1.1 million during the third quarter of 2021. Credit loss expense in the current quarter was primarily attributable to loan growth.
•Noninterest income increased $3.4 million, from $9.2 million in the third quarter of 2021 to $12.6 million in the third quarter of 2022. The increase was primarily due to increases of $3.3 million and $0.5 million in other income and service charges and fees, respectively. The increase in other income stemmed primarily from a one-time settlement and the increase in service charges and fees was primarily attributable to the acquisition of IOFB.
•Noninterest expense increased $4.8 million, from $29.8 million in the third quarter of 2021, to $34.6 million in the third quarter of 2022 due to an overall increase in all noninterest expense categories, except FDIC insurance and foreclosed assets, net. These increases primarily reflected a full quarter of costs associated with the acquisition of IOFB, including merger-related expenses.

Nine Months Ended:

•Tax equivalent net interest income (a non-GAAP financial measure - see the "Non-GAAP Presentations" section for a reconciliation to the most comparable GAAP equivalent) was $126.4 million for the nine months ended September 30, 2022, which was a $5.5 million increase from $120.9 million for the nine months ended September 30, 2021. The increase in tax equivalent net interest income was due primarily to an increase of $9.6 million in interest income from investment securities, which reflected both a larger volume of and increased yield from such securities. Partially offsetting such increase was a decline of $2.7 million in loan interest income that stemmed from reduced net PPP fee accretion, which more than offset the increase in loan volumes and loan purchase discount accretion, in addition to increases in interest expense on interest-bearing deposits and borrowed funds of $1.0 million and $0.5 million, respectively.
•Credit loss expense of $3.9 million was recorded in the first nine months of 2022, as compared to credit loss benefit of $8.0 million for the first nine months of 2021. Credit loss expense in the first nine months of 2022 reflected $3.1 million related to the acquired IOFB non-PCD loans, $0.2 million related to unfunded loan commitments established in the IOFB acquisition, as well as a reserve taken to support loan growth. The credit loss benefit recorded in the first nine months of 2021 was reflective of overall improvements in the forecasted economic conditions due to less economic uncertainty from the COVID-19 pandemic, as well as stabilization in the credit risk profile.
•Noninterest income increased $5.4 million, from $31.2 million for the first nine months of 2021 to $36.6 million in the first nine months of 2022. The increase was primarily due to increases of $4.4 million and $0.9 million in other noninterest income and service charges and fees, respectively. The increase in other noninterest income was primarily due to a one-time settlement and a bargain purchase gain of $1.3 million recognized in connection with the IOFB acquisition. The increase in service charges and fees was primarily attributable to the acquisition of IOFB.
•Noninterest expense increased $12.2 million, from $86.1 million for the first nine months ended September 30, 2021, to $98.3 million in the first nine months of 2022. The increase in noninterest expense was due to an overall increase in all noninterest expense categories, except communications and foreclosed assets, net. These increases primarily reflected costs associated with the acquisition of IOFB, including merger-related expenses, coupled with normal annual salary and employee benefit increases, a decline in the benefit received from loan origination costs, and elevated legal expenses related to litigation, loan legal expenses and executive recruitment.

Critical Accounting Estimates
Management has identified the accounting policies related to the ACL, fair value of assets acquired and liabilities assumed in a business combination, and the annual impairment testing of goodwill and other intangible assets to be critical accounting policies. Information about our critical accounting estimates is included under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021,
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filed with the SEC on March 10, 2022, and there have been no material changes in these critical accounting policies since December 31, 2021.

RESULTS OF OPERATIONS
Comparison of Operating Results for the Three Months Ended September 30, 2022 and September 30, 2021
Summary
As of or for the Three Months Ended September 30,
(dollars in thousands, except per share amounts)2022 2021
Net Interest Income$45,733 $40,340 
Noninterest Income12,588 9,182 
     Total Revenue, Net of Interest Expense58,321 49,522 
Credit Loss Expense (Benefit)638 (1,080)
Noninterest Expense34,623 29,778 
     Income Before Income Tax Expense23,060 20,824 
Income Tax Expense4,743 4,513 
     Net Income 18,317  16,311 
Diluted Earnings Per Share$1.17 $1.03 
Return on Average Assets1.13 % 1.11 %
Return on Average Equity14.56  12.00 
Return on Average Tangible Equity(1)
19.32  15.06 
Efficiency Ratio(1)
53.67 56.34 
Dividend Payout Ratio20.30 21.84 
Common Equity Ratio7.28  9.03 
Tangible Common Equity Ratio(1)
5.90  7.71 
Book Value per Share$30.23 $33.71 
Tangible Book Value per Share(1)
24.17 28.40 
(1) A non-GAAP financial measure. See "Non-GAAP Financial Measures" for a reconciliation to the most comparable GAAP equivalents.
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Net Interest Income
The following table shows consolidated average balance sheets, detailing the major categories of assets and liabilities, the interest income earned on interest-earning assets, the interest expense paid for interest-bearing liabilities, and the related yields and costs for the periods indicated.
 Three Months Ended September 30,
 2022 2021
 Average
Balance		Interest
Income/
Expense		 Average
Yield/
Cost		 Average
Balance		Interest
Income/
Expense		 Average
Yield/
Cost
(dollars in thousands)     
ASSETS   
Loans, including fees (1)(2)(3)
$3,673,379 $41,124  4.44 % $3,356,680 $36,622  4.33 %
Taxable investment securities
1,939,517 10,635  2.18  1,628,605 6,655  1.62 
Tax-exempt investment securities (2)(4)
431,898 2,922  2.68  459,717 3,043  2.63 
Total securities held for investment (2)
2,371,415 13,557  2.27  2,088,322 9,698  1.84 
Other
6,070 9  0.59  44,915 21  0.19 
Total interest earning assets (2)
$6,050,864 $54,690  3.59 % $5,489,917 $46,341  3.35 %
Other assets
406,783   321,311  
Total assets
$6,457,647   $5,811,228  
     
LIABILITIES AND SHAREHOLDERS' EQUITY   
Interest checking deposits
$1,725,000 $1,463 0.34 %$1,434,560 $1,056 0.29 %
Money market deposits
1,016,005 1,268 0.50 955,174 506 0.21 
Savings deposits
710,836 297  0.17  606,449 316  0.21 
Time deposits
913,307 2,007  0.87  890,866 1,272  0.57 
Total interest bearing deposits
4,365,148 5,035  0.46  3,887,049 3,150  0.32 
Securities sold under agreements to repurchase144,628 228 0.63 170,384 104 0.24 
Other short-term borrowings83,086 539 2.57 12,100 28 0.92 
Total short-term borrowings227,714 767  1.34  182,484 132  0.29 
Long-term debt159,125 1,886  4.70  163,817 1,597  3.87 
Total borrowed funds
386,839 2,653 2.72 346,301 1,729 1.98 
Total interest bearing liabilities
$4,751,987 $7,688  0.64 % $4,233,350 $4,879  0.46 %
         
Noninterest bearing deposits
1,142,334   995,786  
Other liabilities
64,063   43,040  
Shareholders’ equity
499,263 539,052 
Total liabilities and shareholders’ equity
$6,457,647   $5,811,228  
Net interest income (2)
 $47,002    $41,462  
Net interest spread(2)
2.95 %2.89 %
Net interest margin(2)
3.08 %3.00 %
Total deposits(5)
$5,507,482 $5,035 0.36 %$4,882,835 $3,150 0.26 %
Cost of funds(6)
0.52 %0.37 %
(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 $35 thousand and $3.5 million for the three months ended September 30, 2022 and September 30, 2021, respectively. Loan purchase discount accretion was $2.0 million and $0.8 million for the three months ended September 30, 2022 and September 30, 2021, respectively. Tax equivalent adjustments were $0.7 million and $0.5 million for the three months ended September 30, 2022 and September 30, 2021, respectively. The federal statutory tax rate utilized was 21%.
(4)
Interest income includes tax equivalent adjustments of $0.6 million and $0.6 million for the three months ended September 30, 2022 and September 30, 2021, respectively. The federal statutory tax rate utilized was 21%.
(5)Total deposits is the sum of total interest-bearing deposits and noninterest bearing deposits. The cost of total deposits is calculated as annualized interest expense on deposits divided by average total deposits.
(6)Cost of funds is calculated as annualized total interest expense divided by the sum of average total deposits and borrowed funds.

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The following table shows changes to tax equivalent net interest income attributable to (i) changes in volume and (ii) changes in rate. Changes attributable to both rate and volume have been allocated proportionately to the change due to volume and the change due to rate.
 Three Months Ended September 30,
 2022 Compared to 2021 Change due to
(in thousands)Volume Yield/Cost Net
Increase (decrease) in interest income:  
Loans, including fees (1)
$3,547  $955  $4,502 
Taxable investment securities
1,416  2,564  3,980 
Tax-exempt investment securities (1)
(180) 59  (121)
Total securities held for investment (1)
1,236  2,623  3,859 
Other
(30) 18  (12)
Change in interest income (1)
4,753  3,596  8,349 
Increase (decrease) in interest expense:  
Interest checking deposits
220 187 407 
Money market deposits
33 729 762 
Savings deposits
49  (68) (19)
Time deposits
33  702  735 
Total interest-bearing deposits
335  1,550  1,885 
    Securities sold under agreements to repurchase(18)142 124 
    Other short-term borrowings392 119 511 
       Total short-term borrowings374  261  635 
Long-term debt
(47) 336  289 
Total borrowed funds
327  597  924 
Change in interest expense
662  2,147  2,809 
Change in net interest income$4,091  $1,449  $5,540 
Percentage (decrease) in net interest income over prior period  13.4 %
(1) Tax equivalent, using a federal statutory tax rate of 21%.
Our tax equivalent net interest income for the third quarter of 2022 was $47.0 million, an increase of $5.5 million, or 13.4%, as compared to $41.5 million for the third quarter of 2021. The increase in tax equivalent net interest income in the third quarter of 2022 as compared to the third quarter of 2021 was due primarily to an increase of $8.3 million, or 18.0%, in interest income, which more than offset the increase of $2.8 million, or 57.6%, in interest expense. The change in interest income was due primarily to an increase of $4.5 million, or 12.3%, in loan interest income, and an increase of $3.9 million, or 39.8%, in interest income from investment securities. The increase in loan interest income reflected a higher volume of loans stemming from the IOFB acquisition and organic loan growth, coupled with an increase of $1.2 million in loan purchase discount accretion, and partially offset by a $3.6 million reduction in net PPP fees due to loan forgiveness. The increase in interest income from investment securities reflected both a larger volume of and increased yield from such securities. The increase in interest expense was due to increases of $1.9 million, or 59.8%, and $0.9 million, or 53.4%, in interest expense on interest-bearing deposits and borrowed funds, respectively.
The tax equivalent net interest margin for the third quarter of 2022 was 3.08%, or 8 basis points higher than the tax equivalent net interest margin of 3.00% for the third quarter of 2021 as the change in interest-earning asset yields outpaced the change in funding costs. The yield on interest-earning assets for the third quarter of 2022 was 24 basis points higher than the third quarter of 2021 as the tax equivalent yield on investment securities increased 43 basis points and the tax equivalent yield on loans increased 11 basis points. The cost of average interest-bearing deposits increased 14 basis points in the third quarter of 2022, compared to the third quarter of 2021 while the cost of average borrowed funds was 74 basis point higher for the third quarter of 2022, compared to the third quarter of 2021. The increase in the cost of average borrowed funds was a result of higher market interest rates, which reflected recent increases in the target federal funds rate.
Credit Loss Expense (Benefit)
Credit loss expense of $0.6 million was recorded during the third quarter of 2022, as compared to a credit loss benefit of $1.1 million during the third quarter of 2021. Credit loss expense in the current quarter was primarily attributable to loan growth. Net loan charge-offs were $0.6 million in the third quarter of 2022 as compared to net loan recoveries of $0.9 million in the third quarter of 2021. The economic forecast factors utilized by the Company for its loan credit loss estimation process are: (1) Midwest unemployment, (2) year-to-year change in national retail sales, (3) year-to-year change in the CRE Index, (4) year-to-year change in U.S. GDP, (5) year-to-year change in the National Home Price Index, and (6) Rental Vacancy.
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Noninterest Income
The following table presents significant components of noninterest income and the related dollar and percentage change from period to period:

 Three Months Ended September 30,
(dollars in thousands)2022 2021$ Change% Change
Investment services and trust activities$2,876  $2,915 $(39)(1.3)%
Service charges and fees2,075  1,613 462 28.6 
Card revenue1,898  1,820 78 4.3 
Loan revenue1,722 1,935 (213)(11.0)
Bank-owned life insurance579  532 47 8.8 
Investment securities gains, net(163) 36 (199)(552.8)
Other3,601 331 3,270 987.9 
Total noninterest income
$12,588  $9,182 $3,406 37.1 %
Total noninterest income for the third quarter of 2022 increased $3.4 million, or 37.1%, to $12.6 million from $9.2 million in the third quarter of 2021. The increase in noninterest income was primarily due increases of $3.3 million and $0.5 million in other income and service charges and fees, respectively. The increase in other income stemmed primarily from a one-time settlement and the increase in service charges and fees was primarily attributable to the acquisition of IOFB. Partially offsetting the increases above was a $0.2 million reduction in loan revenue, which reflected a decline in the volume of mortgage originations due to increased mortgage rates, which resulted in less gain on sale revenue, partially offset by an increase in the fair value of our mortgage servicing rights.
Noninterest Expense
The following table presents significant components of noninterest expense and the related dollar and percentage change from period to period:
 Three Months Ended September 30,
(dollars in thousands)20222021$ Change% Change
Compensation and employee benefits$20,046 $17,350 $2,696 15.5 %
Occupancy expense of premises, net2,577 2,547 30 1.2 
Equipment2,358 1,973 385 19.5 
Legal and professional2,012 1,272 740 58.2 
Data processing1,731 1,406 325 23.1 
Marketing1,139 1,022 117 11.4 
Amortization of intangibles1,789 1,264 525 41.5 
FDIC insurance415 435 (20)(4.6)
Communications302 275 27 9.8 
Foreclosed assets, net42 43 (1)(2.3)
Other2,212 2,191 21 1.0 
Total noninterest expense
$34,623 $29,778 $4,845 16.3 %
Three Months Ended September 30,
Merger-related expenses:20222021
(dollars in thousands)
Compensation and employee benefits$132 $— 
Equipment14 — 
Legal and professional193 — 
Data processing304 — 
Marketing90 — 
Other30 — 
Total impact of merger-related expenses to noninterest expense
$763 $— 
Noninterest expense for the third quarter of 2022 increased $4.8 million, or 16.3%, to $34.6 million from $29.8 million for the third quarter of 2021. The increase in noninterest expense was due to an overall increase in all noninterest expense categories, except FDIC insurance and foreclosed assets, net. These increases primarily reflected costs associated with the acquisition of IOFB, including merger-related expenses. Also contributing to the increase in compensation and employee benefits was normal annual salary and employee benefit increases. In addition to the identified increases above, legal and professional expense reflected elevated legal expenses related to litigation, loan legal expenses, and executive recruitment. Partially offsetting the increases identified above was a decline of $0.4 million in operating losses, which are recorded in other noninterest expense.
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Income Tax Expense
Our effective income tax rate, or income taxes divided by income before taxes, was 20.6% for the three months ended September 30, 2022, as compared to an effective tax rate of 21.7% for the three months ended September 30, 2021. The effective tax rate for the full year 2022 is expected to be in the range of 20-22%.

Comparison of Operating Results for the Nine Months Ended September 30, 2022 and September 30, 2021
Summary

 As of and for the Nine Months Ended September 30,
(dollars in thousands, except per share amounts)2022 2021
Net Interest Income$122,794 $117,462 
Noninterest Income36,579 31,224 
     Total Revenue, Net of Interest Expense159,373 148,686 
Credit Loss Expense (Benefit)3,920 (7,958)
Noninterest Expense98,348 86,148 
     Income Before Income Tax Expense57,105 70,496 
Income Tax Expense12,272 15,266 
     Net Income44,833  55,230 
Diluted Earnings Per Share$2.86 $3.46 
Return on Average Assets0.97 % 1.29 %
Return on Average Equity11.81  14.03 
Return on Average Tangible Equity(1)
15.28  17.69 
Efficiency Ratio (1)
56.70 53.95 
Dividend Payout Ratio24.91 19.45 
Common Equity Ratio7.28  9.03 
Tangible Common Equity Ratio(1)
5.90  7.71 
Book Value per Share$30.23 $33.71 
Tangible Book Value per Share(1)
24.17 28.40 
(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.
 Nine Months Ended September 30,
 2022 2021
(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)
$3,416,600 $106,297  4.16 % $3,394,066 $108,950  4.29 %
Taxable investment securities
1,899,907 28,334  1.99  1,501,252 18,231  1.62 
Tax-exempt investment securities (2)(4)
440,542 8,895  2.70  466,209 9,442  2.71 
Total securities held for investment (2)
2,340,449 37,229  2.13  1,967,461 27,673  1.88 
Other
25,972 77  0.40  43,250 54  0.17 
Total interest-earning assets (2)
$5,783,021 $143,603  3.32 % $5,404,777 $136,677  3.38 %
Other assets
369,369   324,045  
Total assets
$6,152,390   $5,728,822  
     
LIABILITIES AND SHAREHOLDERS' EQUITY   
Interest checking deposits
$1,642,849 $3,713 0.30 %$1,418,339 $3,142 0.30 %
Money market deposits
991,338 2,338 0.32 936,932 1,486 0.21 
Savings deposits
671,917 863  0.17  585,334 926  0.21 
Time deposits
877,923 4,204  0.64  875,027 4,613  0.70 
Total interest-bearing deposits
4,184,027 11,118  0.36  3,815,632 10,167  0.36 
Securities sold under agreements to repurchase152,663 435 0.38 171,848 321 0.25 
Other short-term borrowings42,952 680 2.12 20,235 100 0.66 
              Total short-term borrowings195,615 1,115  0.76  192,083 421  0.29 
Long-term debt
148,053 4,975  4.49  186,323 5,160  3.70 
Total borrowed funds
343,668 6,090 2.37 378,406 5,581 1.97 
Total interest-bearing liabilities
$4,527,695 $17,208  0.51 % $4,194,038 $15,748  0.50 %
Noninterest bearing deposits1,062,156 962,852 
Other liabilities54,775 45,671 
Shareholders' equity507,764 526,261 
Total liabilities and shareholders' equity$6,152,390     $5,728,822    
Net interest income (2)
$126,395 $120,929 
Net interest spread(2)
 2.81 %  2.88 %
Net interest margin (2)
 2.92 %  2.99 %
Total deposits(5)
$5,246,183 $11,118 0.28 %$4,778,484 $10,167 0.28 %
Cost of funds(6)
0.41 %0.41 %
 
(1)Average balance includes nonaccrual loans.
(2)Tax equivalent. The federal statutory tax rate utilized was 21%.
(3)
Interest income includes net loan fees, loan purchase discount accretion and tax equivalent adjustments. Net loan fees were $0.7 million and $9.3 million for the nine months ended September 30, 2022 and September 30, 2021, respectively. Loan purchase discount accretion was $3.3 million and $2.7 million for the nine months ended September 30, 2022 and September 30, 2021, respectively. Tax equivalent adjustments were $1.8 million and $1.6 million for the nine months ended September 30, 2022 and September 30, 2021, respectively. The federal statutory tax rate utilized was 21%.
(4)
Interest income includes tax equivalent adjustments of $1.8 million and $1.9 million for the nine months ended September 30, 2022 and September 30, 2021, respectively. The federal statutory tax rate utilized was 21%.
(5)Total deposits is the sum of total interest-bearing deposits and noninterest bearing deposits. The cost of total deposits is calculated as annualized interest expense on deposits divided by average total deposits.
(6)Cost of funds is calculated as annualized total interest expense divided by the sum of average total deposits and borrowed funds.




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The following table shows changes to tax equivalent net interest income attributable to (i) changes in volume and (ii) changes in rate. Changes attributable to both rate and volume have been allocated proportionately to the change due to volume and the change due to rate.
 Nine Months Ended September 30,
 2022 Compared to 2021 Change due to
(in thousands)Volume Yield/Cost Net
Increase (decrease) in interest income:  
Loans, including fees (1)
$709  $(3,362) $(2,653)
Taxable investment securities
5,431  4,672  10,103 
Tax-exempt investment securities(1)
(513) (34) (547)
Total securities held for investment(1)
4,918  4,638  9,556 
Other
(29) 52  23 
Change in interest income (1)
5,598  1,328  6,926 
Increase (decrease) in interest expense:  
Interest checking deposits
571 — 571 
Money market deposits
85 767 852 
Savings deposits
126  (189) (63)
Time deposits
14  (423) (409)
Total interest-bearing deposits
796  155  951 
    Securities sold under agreements to repurchase(39)153 114 
    Other short-term borrowings195 385 580 
       Total short-term borrowings156  538  694 
Long-term debt
(1,170) 985  (185)
Total borrowed funds
(1,014) 1,523  509 
Change in interest expense
(218) 1,678  1,460 
Change in net interest income$5,816  $(350) $5,466 
Percentage (decrease) increase in net interest income over prior period  4.5 %
(1) Tax equivalent, using a federal statutory tax rate of 21%.

Our tax equivalent net interest income for the nine months ended September 30, 2022 was $126.4 million, which was a $5.5 million increase from $120.9 million for the nine months ended September 30, 2021. The increase in tax equivalent net interest income during the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, was due to the $6.9 million increase in interest income, which more than offset the increase in interest expense of $1.5 million. Contributing to the interest income increase was a $9.6 million, or 34.5%, increase in interest income from investment securities, which reflected both a larger volume of and increased yield from such securities. Partially offsetting the higher interest income from investment securities was a decline of $2.7 million, or (2.4)%, in loan interest income that stemmed primarily from the $8.8 million reduction in net PPP fee accretion that more than offset the loan volume increase and the $0.6 million increase in loan purchase discount accretion. The increase in interest expense was due to increases of $1.0 million, or 9.4%, and $0.5 million, or 9.1%, in interest expense on interest-bearing deposits and borrowed funds, respectively.

The tax equivalent net interest margin for the nine months ended September 30, 2022 was 2.92%, or 7 basis points lower than the tax equivalent net interest margin of 2.99% for the nine months ended September 30, 2021. The tax equivalent yield on loans decreased 13 basis points, which was partially offset by an increased tax equivalent yield on investment securities of 25 basis points. Combined, the resulting yield on interest-earning assets for the nine months ended September 30, 2022 was 6 basis points lower than the nine months ended September 30, 2021, which primarily reflected lower loan fee accretion and the shift in earning asset mix to a greater proportion of investment securities, which generally have lower yields than loans. The cost of average borrowed funds was higher by 40 basis points for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, with no change in the cost of interest-bearing deposits. The increase in the cost of average borrowed funds was a result of higher market interest rates which reflect the recent increases in the target federal funds rate, which was in the range of 3.00% - 3.25% at September 30, 2022.






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Credit Loss Expense (Benefit)
Credit loss expense of $3.9 million was recorded in the first nine months of 2022, as compared to credit loss benefit of $8.0 million for the first nine months of 2021, an increase of $11.9 million, or 149.1%. Credit loss expense in the first nine months of 2022 reflected $3.1 million related to the acquired IOFB non-PCD loans, $0.2 million related to unfunded loan commitments established in the IOFB acquisition, as well as a reserve taken to support loan growth. The credit loss benefit recorded in the first nine months of 2021 was reflective of overall improvements in the forecasted economic conditions due to less economic uncertainty from the COVID-19 pandemic, as well as stabilization in the credit risk profile. Net loan charge-offs in the first nine months of 2022 were $3.1 million, as compared to net loan recoveries of $0.2 million in the first nine months of 2021. The economic forecast utilized by the Company is sensitive to changes in the following loss drivers: (1) Midwest unemployment, (2) year-to-year change in national retail sales, (3) year-to-year change in the CRE Index, (4) year-to-year change in U.S. GDP, (5) year-to-year change in the National Home Price Index, and (6) Rental Vacancy.
Noninterest Income
The following table presents the significant components of noninterest income and the related dollar and percentage change from period to period:
 Nine Months Ended September 30,
(dollars in thousands)2022 2021$ Change% Change
Investment services and trust activities$8,557  $8,560 $(3)— %
Service charges and fees5,449  4,575 874 19.1 
Card revenue5,426  5,269 157 3.0 
Loan revenue9,538  9,816 (278)(2.8)
Bank-owned life insurance1,668 1,612 56 3.5 
Investment securities gains, net272  105 167 159.0 
Other5,669 1,287 4,382 340.5 
Total noninterest income
$36,579  $31,224 $5,355 17.2 %
Total noninterest income for the first nine months of 2022 increased $5.4 million, or 17.2%, to $36.6 million from $31.2 million during the same period of 2021. The increase in noninterest income was primarily due to increases of $4.4 million and $0.9 million in other noninterest income and service charges and fees, respectively. The increase in other noninterest income was primarily due to a one-time settlement and a bargain purchase gain of $1.3 million recognized in connection with the IOFB acquisition. The increase in service charges and fees was primarily attributable to the acquisition of IOFB. Partially offsetting the increases above was a $0.3 million reduction in loan revenue, which reflected a decline in the volume of mortgage originations, partially offset by an increase in the fair value of our mortgage servicing rights.
Noninterest Expense
The following table presents the significant components of noninterest expense and the related dollar and percentage change from period to period:
 Nine Months Ended September 30,
(dollars in thousands)20222021$ Change% Change
Compensation and employee benefits$57,665 $51,671 $5,994 11.6 %
Occupancy expense of premises, net7,609 7,063 546 7.7 
Equipment6,366 5,627 739 13.1 
Legal and professional6,800 3,430 3,370 98.3 
Data processing4,199 4,005 194 4.8 
Marketing3,325 2,901 424 14.6 
Amortization of intangibles4,299 4,112 187 4.5 
FDIC insurance1,255 1,192 63 5.3 
Communications840 1,055 (215)(20.4)
Foreclosed assets, net(66)226 (292)(129.2)
Other6,056 4,866 1,190 24.5 
Total noninterest expense
$98,348 $86,148 $12,200 14.2 %
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Nine Months Ended September 30,
Merger-related expenses:20222021
(dollars in thousands)
Compensation and employee benefits$282 $— 
Occupancy expense of premises, net1 — 
Equipment25 — 
Legal and professional894 — 
Data processing380 — 
Marketing162 — 
Communications3 — 
Other45 — 
Total impact of merger-related expenses to noninterest expense
$1,792 $— 
Noninterest expense for the nine months ended September 30, 2022 was $98.3 million, an increase of $12.2 million, or 14.2%, from $86.1 million for the nine months ended September 30, 2021. The increase in noninterest expense was due to an overall increase in all noninterest expense categories, except communications and foreclosed assets, net. These increases primarily reflected costs associated with the acquisition of IOFB, including merger-related expenses. Also contributing to the increase in compensation and employee benefits was normal annual salary and employee benefit increases, coupled with a decline of $1.4 million in the benefit received from loan origination costs, which are deferred and amortized over the life of the loan to which they relate. In addition to the identified increases above, occupancy expense also reflected an increase of $0.3 million from the write-down of fixed assets transferred to held for sale, while legal and professional expense reflected elevated legal expenses related to litigation, loan legal expenses, and executive recruitment.
Income Tax Expense
Our effective income tax rate, or income taxes divided by income before taxes, was 21.5% for the first nine months of 2022, as compared to an effective tax rate of 21.7% for the first nine months of 2021. The effective tax rate for the full year 2022 is expected to be in the range of 20-22%.

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FINANCIAL CONDITION
The table below presents the major categories of the Company's balance sheet as of the dates indicated:
(dollars in thousands)September 30, 2022December 31, 2021$ Change% Change
ASSETS
Cash and cash equivalents$78,514 $203,830 $(125,316)(61.5)%
Loans held for sale2,320 12,917 (10,597)(82.0)
Debt securities available for sale at fair value1,153,304 2,288,110 (1,134,806)(49.6)
Held to maturity securities at amortized cost1,146,583 — 1,146,583 
nm(1)
Loans held for investment, net of unearned income3,746,289 3,245,012 501,277 15.4 
Allowance for credit losses(52,100)(48,700)(3,400)7.0 
Total loans held for investment, net3,694,189 3,196,312 497,877 15.6 
Other assets416,151 323,959 92,192 28.5 
Total assets$6,491,061 $6,025,128 $465,933 7.7 %
LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits$5,476,782 $5,114,519 $362,263 7.1 %
Total borrowings458,726 336,247 122,479 36.4 
Other liabilities83,324 46,887 36,437 77.7 
Total shareholders' equity472,229 527,475 (55,246)(10.5)
Total liabilities and shareholders' equity$6,491,061 $6,025,128 $465,933 7.7 %
(1) Percentage change is not meaningful.
Debt Securities
The composition of debt securities available for sale and held to maturity as of the dates indicated was as follows:
 September 30, 2022 December 31, 2021
(dollars in thousands)Balance% of Total Balance% of Total
Available for Sale
U.S. Government agencies and corporations$7,339 0.6 %$266 — %
States and political subdivisions
283,513 24.6 765,742 33.5 
Mortgage-backed securities
6,083 0.5  100,626 4.4 
Collateralized mortgage obligations
153,088 13.3  768,899 33.6 
Corporate debt securities
703,281 61.0 652,577 28.5 
Fair value of debt securities available for sale
$1,153,304 100.0 % $2,288,110 100.0 %
Held to Maturity
States and political subdivisions
$540,221 47.1 $— — %
Mortgage-backed securities
82,858 7.2 — — %
Collateralized mortgage obligations
523,504 45.7 — — %
Amortized cost of debt securities held to maturity
$1,146,583 100.0 %$— — %
On January 1, 2022, the Company re-classified, at fair value, from available for sale to held to maturity, $1.25 billion of mortgage-backed securities, collateralized mortgage obligations, and securities issued by state and political subdivisions. The net unrealized after tax loss of $11.5 million associated with those re-classified securities remained in accumulated other comprehensive loss and will be amortized over the remaining life of the securities. No gains or losses were recognized in earnings at the time of the transfer.
As of September 30, 2022, there were $0.3 million of gross unrealized gains and $118.0 million of gross unrealized losses in our debt securities available for sale portfolio for a net unrealized loss of $117.7 million. As of September 30, 2022 there were no gross unrealized gains and there was $221.0 million of gross unrealized losses in our held to maturity debt securities for a net unrealized loss of $221.0 million.
See Note 3. Debt Securities to our consolidated financial statements for additional information related to debt securities.
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Loans
The composition of our loan portfolio by type of loan was as follows:
 September 30, 2022 December 31, 2021
(dollars in thousands)Balance% of Total Balance% of Total
Agricultural$116,229 3.1 %$103,417 3.2 %
Commercial and industrial
1,041,662 27.8 902,314 27.8 
Commercial real estate
1,910,097 51.0  1,704,541 52.5 
Residential real estate
603,649 16.1  466,322 14.4 
Consumer
74,652 2.0  68,418 2.1 
     Loans held for investment, net of unearned income
$3,746,289 100.0 %$3,245,012 100.0 %
     Loans held for sale$2,320 $12,917 
Loans held for investment, net of unearned income at September 30, 2022, increased $501.3 million, or 15.4%, from December 31, 2021 to $3.75 billion, driven primarily by the loans acquired in the IOFB acquisition, coupled with organic loan growth and increased revolving line of credit utilization, partially offset by PPP loan forgiveness. As of September 30, 2022, 10 PPP loans totaling $0.2 million, including $17.0 thousand of unamortized net fees, were outstanding, as compared to 217 PPP loans totaling, $30.8 million, including $0.9 million of unamortized net fees that were outstanding as of December 31, 2021. See Note 4. Loans Receivable and the Allowance for Credit Losses to our consolidated financial statements for additional information related to our loan portfolio and Note 2. Business Combinations for additional information regarding the IOFB acquired loans.
Commitments under standby letters of credit, unused lines of credit and other conditionally approved credit lines totaled approximately $1.2 billion and $1.0 billion as of September 30, 2022 and December 31, 2021, respectively.
Our loan to deposit ratio increased to 68.40% as of September 30, 2022 as compared to 63.45% as of December 31, 2021. The loan to deposit ratio increased when compared to the prior year-end due to the loans acquired in the IOFB acquisition, organic loan growth and increased revolving line of credit utilization, which more than offset the increase in total deposits.
Nonperforming Assets
The following table sets forth information concerning nonperforming loans by class of receivable and our nonperforming assets at September 30, 2022 and December 31, 2021:
(in thousands)September 30, 2022December 31, 2021
Nonaccrual loans held for investment$25,027 $31,540 
Accruing loans contractually past due 90 days or more936 — 
     Total nonperforming loans25,963 31,540 
Foreclosed assets, net103 357 
     Total nonperforming assets26,066 31,897 
Nonaccrual loans ratio (1)
0.67 %0.97 %
Nonperforming loans ratio (2)
0.69 %0.97 %
Nonperforming assets ratio (3)
0.40 %0.53 %
(1) Nonaccrual loans ratio is calculated as nonaccrual loans divided by loans held for investment, net of unearned income, at the end of the period.
(2) Nonperforming loans ratio is calculated as total nonperforming loans divided by loans held for investment, net of unearned income, at the end of the period.
(3) Nonperforming assets ratio is calculated as total nonperforming assets divided by total assets at the end of the period.
When compared to December 31, 2021, overall asset quality was improved. The nonperforming loans ratio declined 28 basis points from the prior year-end to 0.69%, while the nonperforming assets ratio declined 13 basis points from the prior year-end to 0.40%.
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.
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When a loan officer originates a new loan, based upon proper loan authorization, they document the credit file with an offering sheet summary, supplemental underwriting analysis, relevant financial information and collateral evaluations. This information is used in the determination of the initial loan risk rating. The Bank’s loan review department undertakes independent credit reviews of relationships based on either criteria established by loan policy, risk-focused sampling, or random sampling. Credit relationships with larger exposure may pose incrementally higher risks. As a result, the Bank's loan review department is required to review all credit relationships with total exposure of $5.0 million or more at least annually. In addition, the individual loan reviews consider such items as: loan type; nature, type and estimated value of collateral; borrower and/or guarantor estimated financial strength; most recently available financial information; related loans and total borrower exposure; and current and anticipated performance of the loan. The results of such reviews are presented to both executive management and the audit committee of the Company's board of directors.
Through the review of delinquency reports, updated financial statements or other relevant information, the lending officer and/or loan review personnel may determine that a loan relationship has weakened to the point that a watch (loan grade 5) or classified (loan grades 6 through 8) status is warranted. At least quarterly, the loan strategy committee will meet to discuss loan relationships with total related exposure of $1.0 million or above that are Watch rated credits, loan relationships with total related exposure of $500 thousand and above that are Substandard or worse rated credits, as well as loan relationships with total related exposure of $250 thousand and above that are on non-accrual. Credits below these designated thresholds are reviewed upon request. The lending officer is charged with preparing a loan strategy summary worksheet that outlines the background of the credit problem, current repayment status of the loans, current collateral evaluation and a workout plan of action. This plan may include goals to improve the credit rating, assist the borrower in moving the loans to another institution and/or collateral liquidation. All such reports are presented to the loan strategy committee. 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 a loan relationship as requiring an individual analysis. Once that determination has occurred, the credit analyst will complete an individually analyzed worksheet that contains an evaluation of the collateral (for collateral-dependent loans) based upon the estimated collateral value, adjusting for current market conditions and other local factors that may affect collateral value. Loan review personnel may also complete an independent individual analysis when deemed necessary. These judgmental evaluations may produce an initial specific allowance for placement in the Company’s allowance for credit losses calculation. An analysis for the underlying collateral value of each individually analyzed loan relationship is completed in the last month of the quarter. The individually analyzed worksheets are reviewed by the Credit Administration department prior to quarter-end. The board of directors of the Bank on a quarterly basis reviews the classified/watch reports including changes in credit grades of 5 or higher as well as all individually analyzed loans, the related allowances and foreclosed assets, net.

The review process also provides for the upgrade of loans that show improvement since the last review. All requests for an upgrade of a credit are approved by the proper authority based upon the aggregate credit exposure before the rating can be changed.

Loan Modifications

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

•The borrower receives a reduction of the stated interest rate for the remaining original life of the debt.
•The borrower receives an extension of the maturity date or dates at a stated interest rate lower than the current market interest rate for new debt with similar risk characteristics.
•The borrower receives a reduction of the face amount or maturity amount of the debt as stated in the instrument or other agreement.
•The borrower receives a deferral of required payments (principal and/or interest).
•The borrower receives a reduction of the accrued interest.
Generally, short-term deferral of required payments would not be considered a concession. During the three and nine months ended September 30, 2022, the Company classified three and sixteen loans, respectively, as TDRs, due to the Company granting a concession to a borrower experiencing financial difficulty. The aggregate post-modification outstanding recorded
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investment of the loans classified as TDRs during three and nine months ended September 30, 2022 was $0.9 million and $4.0 million, respectively.
Allowance for Credit Losses
The following table sets forth the allowance for credit losses by loan portfolio segments compared to the percentage of loans to total loans by loan portfolio segment for the periods indicated:
September 30, 2022December 31, 2021
(dollars in thousands)Allowance for Credit Losses% of Loans in Each Segment to Total LoansAllowance for Credit Losses% of Loans in Each Segment to Total Loans
Agricultural$981 3.1 %$667 3.2 %
Commercial and industrial24,256 27.8 %17,294 27.8 %
Commercial real estate20,948 51.0 %26,120 52.5 %
Residential real estate5,308 16.1 %4,010 14.4 %
Consumer607 2.0 %609 2.1 %
Total$52,100 100.0 %$48,700 100.0 %
Allowance for credit losses ratio(1)
1.39 %1.50 %
Adjusted allowance for credit losses ratio(2)
1.39 %1.52 %
Allowance for credit losses to nonaccrual loans ratio(3)
208.18 %154.41 %
(1) Allowance for credit losses ratio is calculated as allowance for credit losses divided by loans held for investment, net of unearned income at the end of the period.
(2) Non-GAAP financial measure. See the “Non-GAAP Presentations” section for a reconciliation to the most comparable GAAP equivalent.
(3) Allowance for credit losses to nonaccrual loans ratio is calculated as allowance for credit losses divided by nonaccrual loans at the end of the period.
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The following table sets forth the net (charge-offs) recoveries by loan portfolio segments for the periods indicated:
For the Three Months Ended September 30, 2022 and 2021
(in thousands)AgriculturalCommercial and IndustrialCommercial Real EstateResidential Real EstateConsumerTotal
For the Three Months Ended September 30, 2022
Charge-offs
$(248)$(280)$(135)$(52)$(255)$(970)
Recoveries
1 295 6 48 32 382 
     Net (charge-offs) recoveries$(247)$15 $(129)$(4)$(223)$(588)
Net (charge-off) recovery ratio(1)
(0.03)%— %(0.01)%— %(0.02)%(0.06)%
For the Three Months Ended September 30, 2021
Charge-offs
$(16)$(24)$(37)$(1)$(156)$(234)
Recoveries
19 954 76 25 40 1,114 
     Net (charge-offs) recoveries$3 $930 $39 $24 $(116)$880 
Net (charge-off) recovery ratio(1)
— %0.11 %— %— %(0.01)%0.10 %
For the Nine Months Ended September 30, 2022 and 2021
(in thousands)AgriculturalCommercial and IndustrialCommercial Real EstateResidential Real EstateConsumerTotal
For the Nine Months Ended September 30,
Charge-offs
$(249)$(843)$(2,319)$(90)$(540)$(4,041)
Recoveries
9 613 154 68 106 950 
Net (charge-offs) recoveries$(240)$(230)$(2,165)$(22)$(434)$(3,091)
Net (charge-off) recovery ratio(1)
(0.01)%(0.01)%(0.08)%— %(0.02)%(0.12)%
For the Nine Months Ended September 30, 2021
Charge-offs
$(170)$(885)$(453)$(107)$(462)$(2,077)
Recoveries
67 1,560 391 81 136 2,235 
Net (charge-offs) recoveries$(103)$675 $(62)$(26)$(326)$158 
Net (charge-off) recovery ratio(1)
— %0.03 %— %— %(0.01)%0.01 %
(1) Net (charge-off) recovery ratio is calculated as the annualized net (charge-offs) recoveries divided by average loans held for investment, net of unearned income and average loans held for sale, during the period.
Actual Results: Our ACL as of September 30, 2022 was $52.1 million, which was 1.39% of loans held for investment, net of unearned income as of that date. This compares with an ACL of $48.7 million as of December 31, 2021, which was 1.50% of loans held for investment, net of unearned income. The ACL at September 30, 2022 and December 31, 2021 does not include a reserve for the PPP loans as they are fully guaranteed by the SBA. The increase in the ACL primarily reflected $3.1 million of credit loss expense related to the acquired IOFB non-PCD loans, in addition to the initial allowance for credit losses of $3.4 million recorded for the IOFB PCD loans acquired, as well as a reserve taken to support loan growth. The liability for off-balance sheet credit exposures totaled $4.8 million, which included $0.2 million of unfunded loan commitments that were established in the IOFB acquisition, as of September 30, 2022 as compared to $4.0 million at December 31, 2021 and is included in 'Other liabilities' on the balance sheet.
The Company recorded a credit loss expense related to loans of $3.1 million for the nine months ended September 30, 2022 as compared to a credit loss benefit related to loans of $7.8 million for the nine months ended September 30, 2021. Gross charge-offs for the first nine months of 2022 totaled $4.0 million, while there were $1.0 million in gross recoveries of previously charged-off loans. The ratio of annualized net charge-offs to average loans for the first nine months of 2022 was 0.12% compared to a net recovery ratio of 0.01% for the nine months ended September 30, 2021.
Economic Forecast: At September 30, 2022, the economic forecast used by the Company showed the following: (1) Midwest unemployment – increases over the next four forecasted quarters; (2) Year-to-year change in national retail sales - increases over the next four forecasted quarters; (3) Year-to-year change in CRE Index - increases over the next four forecasted quarters; (4) Year-to-year change in U.S. GDP - decline in the first forecasted quarter, with increases in the next three forecasted quarters; (5) Year-to-year change in National Home Price Index – increases over the next two forecasted quarters, with a decline in the third and fourth forecasted quarter; and (6) Rental Vacancy - increases over the next four forecasted quarters.
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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. In addition, PCD loans, reasonably expected TDRs and executed non-performing TDRs greater than $250,000 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. We review loans 90 days or more past due that are still accruing interest no less than quarterly to determine if the asset is both well secured and in the process of collection. If not, such loans are placed on non-accrual status.
Based on the inherent risk in the loan portfolio, management believed that as of September 30, 2022, the ACL was adequate; however, there is no assurance losses will not exceed the ACL. In addition, growth in the loan portfolio or general economic deterioration may require the recognition of additional credit loss expense in future periods. See Note 4. Loans Receivable and the Allowance for Credit Losses to our unaudited consolidated financial statements for additional information related to the allowance for credit losses.
Deposits

The composition of deposits was as follows:
As of September 30, 2022As of December 31, 2021
(in thousands)Balance% of TotalBalance% of Total
Noninterest bearing deposits$1,139,694 20.8 %$1,005,369 19.6 %
Interest checking deposits1,705,289 31.2 1,619,136 31.6 
Money market deposits991,783 18.1 939,523 18.4 
Savings deposits700,843 12.8 628,242 12.3 
    Total non-maturity deposits4,537,609 82.9 4,192,270 81.9 
Time deposits of $250 and under537,616 9.8 505,392 9.9 
Time deposits of over $250401,557 7.3 416,857 8.2 
    Total time deposits939,173 17.1 922,249 18.1 
Total deposits
$5,476,782 100.0 %$5,114,519 100.0 %
Deposits increased $362.3 million from December 31, 2021, or 7.1%, reflecting growth from the acquisition of IOFB, partially offset primarily by a reduction in public time deposits greater than $250k. Approximately 92.7% of our total deposits were considered “core” deposits as of September 30, 2022, compared to 91.8% at December 31, 2021. We consider core deposits to be the total of all deposits other than time deposits greater than $250k and non-reciprocal brokered money market deposits. See Note 8. Deposits to our consolidated financial statements for additional information related to our deposits and Note 2. Business Combinations for additional information related to the IOFB deposits assumed.

Short-Term Borrowings and Long-Term Debt
The following table sets forth the composition of short-term borrowings and long-term debt for the periods presented.
(dollars in thousands)September 30, 2022December 31, 2021
Securities sold under agreements to repurchase$137,536 $181,368 
Federal home loan bank advances167,000 — 
     Total short-term borrowings$304,536 $181,368 
Junior subordinated notes issued to capital trusts42,072 41,940 
Subordinated debentures63,974 63,875 
Finance lease payable830 951 
Federal home loan bank borrowings27,314 48,113 
Other long-term debt20,000 — 
     Total long-term debt$154,190 $154,879 
See Note 9. Short-Term Borrowings and Note 10. Long-Term Debt to our unaudited consolidated financial statements for additional information related to short-term borrowings and long-term debt.
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Capital Resources
Shareholder's Equity and Capital Adequacy
The following table summarizes certain equity capital ratios and book value per share amounts of the Company as of or for the periods presented:
September 30, 2022December 31, 2021
Total shareholders’ equity to total assets ratio7.28 %8.75 %
Tangible common equity ratio(1)
5.90 %7.49 %
Total risk-based capital ratio12.10 %13.09 %
Tier 1 risk-based capital ratio9.97 %10.83 %
Common equity tier 1 risk-based capital ratio9.18 %9.94 %
Tier 1 leverage ratio8.24 %8.67 %
Book value per share$30.23 $33.66 
Tangible book value per share(1)
$24.17 $28.40 
(1)A non-GAAP financial measure - see the “Non-GAAP Presentations” section for a reconciliation to the most comparable GAAP equivalent.
Shareholders' Equity: Total shareholders’ equity was $472.2 million as of September 30, 2022, compared to $527.5 million as of December 31, 2021, a decrease of $55.2 million, or 10.5%, primarily due to a decrease in AOCI that was largely a result of the unrealized loss on available for sale debt securities, which was partially offset by an increase in retained earnings.
Capital Adequacy: Risk-based capital guidelines require the classification of assets and some off-balance-sheet items in terms of credit-risk exposure and the measuring of capital as a percentage of the risk-adjusted asset totals. Management believed that, as of September 30, 2022, the Company and the Bank met all capital adequacy requirements to which we were subject. As of that date, the Bank was “well capitalized” under regulatory prompt corrective action provisions. See Note 12. Regulatory Capital Requirements and Restrictions on Subsidiary Cash to our unaudited consolidated financial statements for additional information related to our capital.
Stock Compensation
Restricted stock units were granted to certain officers and directors of the Company on February 15, 2022, May 15, 2022, and August 15, 2022 in the aggregate amount of 67,608, 9,615, and 4,509, respectively. Additionally, during the first nine months of 2022, 51,713 shares of common stock were issued in connection with the vesting of previously awarded grants of restricted stock units, of which 8,634 shares were surrendered by grantees to satisfy tax requirements, and 1,074 unvested restricted stock units were forfeited.
Liquidity
Liquidity management involves meeting the cash flow requirements of depositors and borrowers. We conduct liquidity management on both a daily and long-term basis, and adjust our investments in liquid assets based on expected loan demand, projected loan maturities and payments, expected deposit flows, yields available on interest-bearing deposits, and the objectives of our asset/liability management program. Excess liquidity is invested generally in short-term U.S. government and agency securities, short- and medium-term state and political subdivision securities, and other investment securities. Our most liquid assets are cash and due from banks, interest-bearing bank deposits, and federal funds sold. The balances of these assets are dependent on our operating, investing, and financing activities during any given period.
Cash and cash equivalents are summarized in the table below. Since December 31, 2021, interest-bearing deposits have been used to fund loan growth.
(dollars in thousands)As of September 30, 2022As of December 31, 2021
Cash and due from banks$77,513 $42,949 
Interest-bearing deposits1,001 160,881 
      Total$78,514 $203,830 
Generally, our principal sources of funds are deposits, advances from the FHLB, principal repayments on loans, proceeds from the sale of loans, proceeds from the maturity and sale of investment securities, our federal funds lines, and funds provided by operations. While scheduled loan amortization and maturing interest-bearing deposits are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by economic conditions, the general level of interest rates, and competition. We utilized particular sources of funds based on comparative costs and availability. The Bank maintains
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unsecured lines of credit with several correspondent banks and secured lines with the Federal Reserve Bank of Chicago and the FHLB that would allow us to borrow funds on a short-term basis, if necessary. We also hold debt securities classified as available for sale that could be sold to meet liquidity needs if necessary.
Net cash provided by operations was another major source of liquidity. The net cash provided by operating activities was $72.3 million for the nine months ended September 30, 2022 and $47.2 million for the nine months ended September 30, 2021.
Inflation
The effects of price changes and inflation can vary substantially for most financial institutions. While management believes that inflation affects the growth of total assets, it is difficult to assess its overall impact on the Company. The price of one or more of the components of the Consumer Price Index may fluctuate considerably and thereby influence the overall Consumer Price Index without having a corresponding effect on interest rates or upon the cost of those goods and services normally purchased by us. Inflation and related increases in market rates by the Federal Reserve generally decrease the market value of investments and loans held and may adversely affect liquidity, earnings and shareholders' equity. Ongoing higher inflation levels and higher interest rates could have a negative impact on both our consumer and commercial borrowers. We anticipate our noninterest income may be adversely affected in future periods as a result of increasing interest rates and inflationary pressure, which has begun to and will continue to adversely affect mortgage originations and mortgage banking revenue. Additionally, the economic impact of the recent rise in inflation and rising interest rates could place increased demand on our liquidity if we experience significant credit deterioration and as we meet borrowers' needs. There is also a risk that interest rate increases to fight inflation could lead to a recession.
Off-Balance-Sheet Arrangements
During the normal course of business, we are a party to financial instruments with off-balance-sheet risk in order to meet the financing needs of our customers. These financial instruments include commitments to extend credit, commitments to sell loans, and standby letters of credit. We follow the same credit policy (including requiring collateral, if deemed appropriate) to make such commitments as is followed for those loans that are recorded in our financial statements.
Our exposure to credit losses in the event of nonperformance is represented by the contractual amount of the commitments. Management does not expect any significant losses as a result of these commitments, and also expects to have sufficient liquidity available to cover these off-balance-sheet instruments. Off-balance-sheet transactions are more fully discussed in Note 13. Commitments and Contingencies to our unaudited consolidated financial statements.
Contractual Obligations
There have been no material changes to the Company's contractual obligations existing at December 31, 2021, as disclosed in the Annual Report on Form 10-K, filed with the SEC on March 10, 2022.

Non-GAAP Financial Measures
Certain ratios and amounts not in conformity with GAAP are provided to evaluate and measure the Company’s operating performance and financial condition, including return on average tangible equity, tangible common equity, tangible book value per share, tangible common equity ratio, net interest margin (tax equivalent), core net interest margin, efficiency ratio, adjusted allowance for credit losses ratio, and core earnings. Management believes these ratios and amounts provide investors with useful information regarding the Company’s profitability, financial condition and capital adequacy, consistent with how management evaluates the Company’s financial performance. The following tables provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.
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Three Months EndedNine Months Ended
Return on Average Tangible EquitySeptember 30, 2022September 30, 2021September 30, 2022September 30, 2021
(Dollars in thousands)
Net income $18,317 $16,311 $44,833 $55,230 
Intangible amortization, net of tax (1)
1,342 948 3,224 3,084 
Tangible net income$19,659  $17,259 $48,057 $58,314 
 
Average shareholders' equity$499,263  $539,052 $507,764 $526,261 
Average intangible assets, net(95,499) (84,288)(87,318)(85,579)
Average tangible equity$403,764  $454,764 $420,446 $440,682 
Return on average equity14.56 %12.00 %11.81 %14.03 %
Return on average tangible equity (2)
19.32 % 15.06 %15.28 %17.69 %
(1) Computed assuming a combined marginal income tax rate of 25%.
(2) Annualized tangible net income divided by average tangible equity.
Tangible Common Equity/Tangible Book Value per Share /
Tangible Common Equity Ratio		September 30, 2022December 31, 2021
(Dollars in thousands, except per share data)
Total shareholders’ equity$472,229 $527,475 
Intangible assets, net (94,563)(82,362)
Tangible common equity$377,666 $445,113 
Total assets$6,491,061 $6,025,128 
Intangible assets, net (94,563)(82,362)
Tangible assets$6,396,498 $5,942,766 
Book value per share$30.23 $33.66 
Tangible book value per share (1)
$24.17 $28.40 
Shares outstanding15,622,825 15,671,147 
Equity to assets ratio7.28 %8.75 %
Tangible common equity ratio (2)
5.90 %7.49 %
(1) Tangible common equity divided by shares outstanding.
(2) Tangible common equity divided by tangible assets.
Three Months EndedNine Months Ended
Net Interest Margin, Tax Equivalent/Core Net Interest MarginSeptember 30, 2022September 30, 2021September 30, 2022September 30, 2021
(dollars in thousands)
Net interest income$45,733 $40,340 $122,794 $117,462 
Tax equivalent adjustments:
Loans (1)
673 507 1,782 1,557 
Securities (1)
596 615 1,819 1,910 
Net interest income, tax equivalent$47,002 $41,462 $126,395 $120,929 
Loan purchase discount accretion(2,015)(774)(3,275)(2,745)
  Core net interest income$44,987 $40,688 $123,120 $118,184 
Net interest margin3.00 %2.92 %2.84 %2.91 %
Net interest margin, tax equivalent (2)
3.08 %3.00 %2.92 %2.99 %
Core net interest margin (3)
2.95 %2.94 %2.85 %2.92 %
Average interest earning assets$6,050,864 $5,489,917 $5,783,021 $5,404,777 
(1) The federal statutory tax rate utilized was 21%.
(2) Annualized tax equivalent net interest income divided by average interest earning assets.
(3) Annualized core net interest income divided by average interest earning assets.
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Three Months EndedNine Months Ended
Efficiency RatioSeptember 30, 2022September 30, 2021September 30, 2022September 30, 2021
(dollars in thousands)
Total noninterest expense$34,623 $29,778 $98,348 $86,148 
Amortization of intangibles(1,789)(1,264)(4,299)(4,112)
Merger-related expenses(763)— (1,792)— 
Noninterest expense used for efficiency ratio$32,071 $28,514 $92,257 $82,036 
Net interest income, tax equivalent(1)
$47,002 $41,462 $126,395 $120,929 
Noninterest income12,588 9,182 36,579 31,224 
Investment security gains, net163 (36)(272)(105)
Net revenues used for efficiency ratio$59,753 $50,608 $162,702 $152,048 
Efficiency ratio(2)
53.67 %56.34 %56.70 %53.95 %
(1) The federal statutory tax rate utilized was 21%.
(2) Noninterest expense adjusted for amortization of intangibles and merger-related expenses divided by the sum of tax equivalent net interest income, noninterest income and net investment securities gains.
Adjusted Allowance for Credit Losses Ratio
September 30, 2022December 31, 2021
(dollars in thousands)
Loans held for investment, net of unearned income$3,746,289 $3,245,012 
PPP loans(195)(30,841)
Core loans$3,746,094 $3,214,171 
Allowance for credit losses$52,100 $48,700 
Allowance for credit losses ratio1.39 %1.50 %
Adjusted allowance for credit losses ratio (1)
1.39 %1.52 %
(1) Allowance for credit losses divided by core loans.


Item 3. Quantitative and Qualitative Disclosures about Market Risk.
In general, market risk is the risk of change in asset values due to movements in underlying market rates and prices. Interest rate risk is the risk to earnings and capital arising from movements in interest rates. Interest rate risk is the most significant market risk affecting us as other types of market risk, such as foreign currency exchange rate risk and commodity price risk, do not arise in the normal course of our business activities.
In addition to interest rate risk, economic conditions in recent years have made liquidity risk (namely, funding liquidity risk) a more prevalent concern among financial institutions. In general, liquidity risk is the risk of being unable to fund an entity’s obligations to creditors (including, in the case of banks, obligations to depositors) as such obligations become due and/or fund its acquisition of assets.

Liquidity Risk
Liquidity refers to our ability to fund operations, to meet depositor withdrawals, to provide for our customers’ credit needs, and to meet maturing obligations and existing commitments. Our liquidity principally depends on cash flows from operating activities, investment in and maturity of assets, changes in balances of deposits and borrowings, and our ability to borrow funds.
Net cash inflows from operating activities were $72.3 million in the first nine months of 2022, compared with $47.2 million in the first nine months of 2021. Net cash outflows from investing activities were $202.5 million in the first nine months of 2022, compared to net cash outflows of $284.1 million in the comparable nine-month period of 2021. Net cash inflows from financing activities in the first nine months of 2022 were $4.8 million, compared with net cash inflows of $292.8 million for the same period of 2021.



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To manage liquidity risk, the Bank has several sources of liquidity in place to maximize funding availability and increase the diversification of funding sources. The criteria for evaluating the use of these sources include volume concentration (percentage of liabilities), cost, volatility, and the fit with the current asset/liability management plan. These acceptable sources of liquidity include:
•Federal Funds Lines
•Federal Reserve Bank Discount Window
•Federal Home Loan Bank Advances
•FHLB Borrowings
•Brokered Deposits
•Brokered Repurchase Agreements
Federal Funds Lines - Routine liquidity requirements are met by fluctuations in the federal funds position of the Bank. The principal function of these funds is to maintain short-term liquidity. Unsecured federal funds purchased lines are viewed as a volatile liability and are not used as a long-term funding solution, especially when used to fund long-term assets. The current federal funds purchased limit is 10% of total assets, or the amount of established federal funds lines, whichever is smaller. As of September 30, 2022, the Bank maintains several unsecured federal funds lines totaling $155.0 million, which lines are tested annually to ensure availability.
Federal Reserve Bank Discount Window - The Federal Reserve Bank Discount Window is another source of liquidity, particularly during periods of economic uncertainty or stress. The Bank has a borrowing capacity with the Federal Reserve Bank of Chicago limited by the amount of municipal securities pledged against the line. As of September 30, 2022, the Bank had municipal securities with an approximate market value of $113.5 million pledged for liquidity purposes, and had a borrowing capacity of $104.3 million. There were no outstanding borrowings through the FRB Discount Window at September 30, 2022.
Federal Home Loan Bank Advances - The Bank has a secured line of credit with the FHLBDM. The principal function of these funds is to maintain short-term liquidity. 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.
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 September 30, 2022, the Bank had $27.3 million in outstanding FHLB borrowings, leaving $357.4 million available for liquidity needs, based on collateral capacity. These borrowings are secured by various real estate loans (residential, commercial and agricultural).

Brokered Deposits and Reciprocal Deposits - The Bank has brokered time deposit and non-maturity deposit relationships available to diversify its funding sources. Brokered deposits offer several benefits relative to other funding sources, such as: maturity structures which cannot be duplicated in the current retail market, deposit gathering which does not cannibalize the existing deposit base, the unsecured nature of these liabilities, and the ability to quickly generate funds. The Bank’s internal policy limits the use of brokered deposits as a funding source to no more than 10% of total assets. Board approval is required to exceed this limit. The Bank 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. The Company did not hold any brokered deposits at September 30, 2022.

Under a final rule that was issued by the FDIC in December 2018, financial institutions that are considered "well capitalized" qualify for the exemption of certain reciprocal deposits from being considered brokered deposits. Such exemption is limited to the lesser of 20 percent of total liabilities or $5 billion, with some exceptions for financial institutions that do not meet such criteria. At September 30, 2022, the Company had $4.0 million of reciprocal time deposits through the CDARS program and $39.3 million of reciprocal non-maturity deposits through the ICS program that qualified for the brokered deposit exemption. These reciprocal deposits are part of the IntraFi Network Deposits program, which is used by financial institutions to spread deposits that exceed the FDIC insurance coverage limits out to numerous institutions in order to provide insurance coverage for all participating deposits.
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Brokered Repurchase Agreements - Brokered repurchase agreements may be established with approved brokerage firms and banks. Repurchase agreements create rollover risk (the risk that a broker will discontinue the relationship due to market factors) and are not used as a long-term funding solution, especially when used to fund long-term assets. Collateral requirements and availability are evaluated and monitored. The current policy limit for brokered repurchase agreements is 10% of total assets. There were no outstanding brokered repurchase agreements at September 30, 2022.

Interest Rate Risk
Interest rate risk is defined as the exposure of net interest income and fair value of financial instruments (interest-earning assets, deposits and borrowings) to movements in interest rates. The Company’s results of operations depend to a large degree on its net interest income and its ability to manage interest rate risk. The Company considers interest rate risk to be a significant market risk. The major sources of the Company’s interest rate risk are timing differences in the maturity and re-pricing characteristics of assets and liabilities, changes in the shape of the yield curve, changes in customer behavior and changes in relationships between rate indices (basis risk). Management measures these risks and their impact in various ways, including through the use of income simulation and valuation analyses. Multiple interest rate scenarios are used in this analysis which include changes in interest rates, spread narrowing and widening, yield curve twists and changes in assumptions about customer behavior in various interest rate scenarios. A mismatch between maturities, interest rate sensitivities and prepayment characteristics of assets and liabilities results in interest-rate risk. Like most financial institutions, we have material interest-rate risk exposure to changes in both short-term and long-term interest rates, as well as variable interest rate indices (e.g., the prime rate, LIBOR, or SOFR).
The Bank’s asset and liability committee meets regularly and is responsible for reviewing its interest rate sensitivity position and establishing policies to monitor and limit exposure to interest rate risk. Our asset and liability committee seeks to manage interest rate risk under a variety of rate environments by structuring our balance sheet and off-balance-sheet positions in such a way that changes in interest rates do not have a large negative impact. The risk is monitored and managed within approved policy limits.

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

Net Interest Income Simulation - Management utilizes net interest income simulation models to estimate the near-term effects of changing interest rates on its net interest income. Net interest income simulation involves projecting net interest income under a variety of scenarios, which include varying the level of interest rates and shifts in the shape of the yield curve. Management exercises its best judgment in making assumptions regarding events that management can influence, such as non-contractual deposit re-pricings, and events outside management’s control, such as customer behavior on loan and deposit activity and the effect that competition has on both loan and deposit pricing. These assumptions are subjective and, as a result, 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.
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The following table presents the anticipated effect on net interest income over a twelve month period if short- and long-term interest rates were to sustain an immediate decrease of 100 basis points or 200 basis points, or an immediate increase of 100 basis points or 200 basis points (the effects of which were not meaningful as of December 31, 2021 in the low interest rate environment):
 Immediate Change in Rates
(dollars in thousands)-200 -100 +100 +200
September 30, 2022   
Dollar change
$1,984  $3,332  $(5,233) $(10,629)
Percent change
1.2 % 2.0 % (3.1)% (6.4)%
December 31, 2021   
Dollar change
N/A N/A $(996) $(2,237)
Percent change
N/A N/A (0.7)% (1.5)%
As of September 30, 2022, 26.7% of the Company’s earning asset balances will reprice or are expected to pay down in the next twelve months, and 51.9% of the Company’s deposit balances are low cost or no cost deposits.
Economic Value of Equity - Management also uses EVE to measure risk in the balance sheet that might not be taken into account in the net interest income simulation analysis. Net interest income simulation highlights exposure over a relatively short time period, while EVE analysis incorporates all cash flows over the estimated remaining life of all balance sheet positions. The valuation of the balance sheet, at a point in time, is defined as the discounted present value of asset cash flows minus the discounted present value of liability cash flows. EVE analysis addresses only the current balance sheet and does not incorporate the run-off replacement assumptions that are used in the net interest income simulation model. As with the net interest income simulation model, EVE analysis is based on key assumptions about the timing and variability of balance sheet cash flows and does not take into account any potential responses by management to anticipated changes in interest rates.
Interest Rate Gap - The interest rate gap is the difference between interest-earning assets and interest-bearing liabilities re-pricing within a given period and represents the net asset or liability sensitivity at a point in time. An interest rate gap measure could be significantly affected by external factors such as loan prepayments, early withdrawals of deposits, changes in the correlation of various interest-bearing instruments, competition, or a rise or decline in interest rates.

Item 4. Controls and Procedures.
Disclosure Controls and Procedures
The Company’s management, including the Chief Executive Officer, the Chief Financial Officer, and the Chief Accounting Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer, the Chief Financial Officer, and the Chief Accounting Officer, to allow timely decisions regarding required disclosure. Based on this evaluation, the Chief Executive Officer, the Chief Financial Officer, and the Chief Accounting Officer, have concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2022.
The effectiveness of our or any system of disclosure controls and procedures is subject to certain limitations, including the exercise of judgment in designing, implementing, and evaluating the controls and procedures, the assumptions used in identifying the likelihood of future events, and the inability to eliminate misconduct completely. As a result, there can be no assurance that our disclosure controls and procedures will prevent all errors or fraud or ensure that all material information will be made known to appropriate management in a timely fashion. By their nature, our or any system of disclosure controls and procedures can provide only reasonable assurance regarding management’s control objectives.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal controls over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2022 that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
We and our subsidiaries are from time to time parties to various legal actions arising in the normal course of business. We believe that there is no threatened or pending proceeding, other than ordinary routine litigation incidental to the Company’s business, against us or our subsidiaries or of which our property is the subject, which, if determined adversely, would have a material adverse effect on our consolidated business or financial condition.

Item 1A. Risk Factors.
There have been no material changes to the risk factors set forth under Part I, Item 1A "Risk Factors" in the Company's Form 10-K for the fiscal year ended December 31, 2021. Please refer to that section of our Form 10-K for disclosures regarding the risks and uncertainties related to our business.

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

Repurchase of Equity Securities

The following table sets forth information about the Company’s purchases of its common stock during the third quarter of 2022:

Total Number of Shares Purchased(1)
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Programs(2)
Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program
July 1 - 31, 202214,586 $29.51 14,586 $3,042,363 
August 1 - 31, 2022833 32.92 — 3,042,363 
September 1 - 30, 2022— — — 3,042,363 
Total15,419 $29.70 14,586 $3,042,363 

(1) Common shares repurchased by the Company during the three months ended September 30, 2022 totaled 14,586 shares repurchased under the share repurchase program, as well as 833 shares surrendered by employees of the Company to pay withholding taxes on vesting of restricted stock unit awards.

(2) On June 22, 2021, the Board of Directors of the Company approved a share repurchase program, allowing for the repurchase of up to $15.0 million of the Company's common stock through December 31, 2023. This new repurchase program replaced the Company’s prior repurchase program, which was due to expire on December 31, 2021. Since June 23, 2021 and through September 30, 2022, the Company repurchased 403,368 shares of common stock for approximately $12.0 million, leaving $3.0 million available to be repurchased.
Pursuant to the Company’s share repurchase program approved on June 22, 2021, the Company has purchased no shares of common stock subsequent to September 30, 2022 and through November 1, 2022 for a total cost of none inclusive of transaction costs, leaving $3.0 million available to be repurchased.



Item 3. Defaults Upon Senior Securities.
None.

Item 4. Mine Safety Disclosures.
Not Applicable.

Item 5. Other Information.
None.

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Item 6. Exhibits.
Exhibit
Number
DescriptionIncorporated by Reference to:
3.1
Amended and Restated Articles of Incorporation of MidWestOne Financial Group, Inc. filed with the Secretary of State of the State of Iowa on March 14, 2008
Exhibit 3.3 to the Company’s Amendment No. 1 to Registration Statement on Form S-4 (File No. 333-147628) filed with the SEC on January 14, 2008
3.2
Articles of Amendment (First Amendment) to the Amended and Restated Articles of Incorporation of MidWestOne Financial Group, Inc. filed with the Secretary of State of the State of Iowa on January 23, 2009
Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 23, 2009
3.3
Articles of Amendment (Second Amendment) to the Amended and Restated Articles of Incorporation of MidWestOne Financial Group, Inc. filed with the Secretary of State of the State of Iowa on February 4, 2009 (containing the Certificate of Designations for the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A)
Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 6, 2009
3.4
Articles of Amendment (Third Amendment) to the Amended and Restated Articles of Incorporation of MidWestOne Financial Group, Inc., filed with the Secretary of State of the State of Iowa on April 21, 2017
Exhibit 3.1 to the Company’s Form 10-Q for the quarter ended March 31, 2017, filed with the SEC on May 4, 2017
3.5
Third Amended and Restated Bylaws, as Amended of MidWestOne Financial Group, Inc. as of October 18, 2022
Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 19, 2022
10.1
Letter Agreement which revises the Amended and Restated Employment Agreement between MidWestOne Financial Group, Inc. and Len D. Devaisher, dated September 27, 2022
Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on September 29, 2022
10.2
Employment Agreement between MidWestOne Financial Group, Inc. and Charles N. Reeves, dated November 1, 2022
Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on October 19, 2022
31.1
Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a)Filed herewith
31.2
Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a)Filed herewith
31.3
Certification of Principal Accounting Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a)Filed herewith
32.1
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002Filed 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 2002Filed herewith
32.3
Certification of Principal Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002Filed herewith
101
The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, 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.SCHInline XBRL Taxonomy Extension Schema DocumentFiled herewith
101.CALInline XBRL Taxonomy Extension Calculation Linkbase DocumentFiled herewith
101.DEFInline XBRL Taxonomy Extension Definition Linkbase DocumentFiled herewith
101.LABInline XBRL Taxonomy Extension Label Linkbase DocumentFiled herewith
101.PREInline XBRL Taxonomy Extension Presentation Linkbase DocumentFiled herewith
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)Filed herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
MIDWESTONE FINANCIAL GROUP, INC.
Dated:November 3, 2022By: /s/ CHARLES N. REEVES
 Charles N. Reeves
 Chief Executive Officer
(Principal Executive Officer)
By: /s/ BARRY S. RAY
 Barry S. Ray
 
Chief Financial Officer
(Principal Financial Officer)
By:/s/ JOHN J. RUPPEL
John J. Ruppel
Chief Accounting Officer
(Principal Accounting Officer)
 
60

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