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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, 2021
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)
 
Iowa 42-1206172
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
102 South Clinton Street, Iowa City, IA 52240
(319) 356-5800
(Address of principal executive offices, including zip code) (Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common stock, $1.00 par value MOFG The Nasdaq Stock Market LLC
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ☐  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    x  Yes    ☐  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer
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 2, 2021, there were 15,691,751 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.
Financial Statements (unaudited)
1
1
2
3
4
5
6
Item 2.
32
Item 3.
53
Item 4.
55
Part II
Item 1.
57
Item 1A.
57
Item 2.
57
Item 3.
57
Item 4.
57
Item 5.
57
Item 6.
58
59


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


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

MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
  September 30, 2021   December 31, 2020
(unaudited) (dollars in thousands, except per share amounts)  
ASSETS
Cash and due from banks $ 53,562  $ 65,078 
Interest earning deposits in banks 84,952  17,409 
Federal funds sold —  172 
Total cash and cash equivalents 138,514  82,659 
Debt securities available for sale at fair value 2,136,902  1,657,381 
Loans held for sale 58,679  59,956 
Gross loans held for investment 3,278,150  3,496,790 
Unearned income, net (9,506) (14,567)
Loans held for investment, net of unearned income 3,268,644  3,482,223 
Allowance for credit losses (47,900) (55,500)
Total loans held for investment, net 3,220,744  3,426,723 
Premises and equipment, net 84,130  86,401 
Goodwill 62,477  62,477 
Other intangible assets, net 21,130  25,242 
Foreclosed assets, net 454  2,316 
Other assets 152,393  153,493 
Total assets $ 5,875,423  $ 5,556,648 
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest bearing deposits $ 999,887  $ 910,655 
Interest bearing deposits 3,957,894  3,636,394 
Total deposits 4,957,781  4,547,049 
Short-term borrowings 187,508  230,789 
Long-term debt 154,860  208,691 
Other liabilities 45,010  54,869 
Total liabilities 5,345,159  5,041,398 
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 15,729,451 and 16,016,780
16,581  16,581 
Additional paid-in capital 300,327  300,137 
Retained earnings 232,639  188,191 
Treasury stock at cost, 851,566 and 564,237 shares
(22,735) (14,251)
Accumulated other comprehensive income 3,452  24,592 
Total shareholders' equity 530,264  515,250 
Total liabilities and shareholders' equity $ 5,875,423  $ 5,556,648 
See accompanying notes to consolidated financial statements.  
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Table of Contents
MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
 
Three Months Ended Nine Months Ended
September 30, September 30,
(unaudited) (dollars in thousands, except per share amounts) 2021   2020 2021 2020
Interest income  
Loans, including fees $ 36,115    $ 38,191  $ 107,393  $ 120,417 
Taxable investment securities 6,655    4,574  18,231  12,937 
Tax-exempt investment securities 2,428    2,360  7,532  5,730 
Other 21  29  54  233 
Total interest income 45,219    45,154  133,210  139,317 
Interest expense  
Deposits 3,150    5,296  10,167  19,654 
Short-term borrowings 132    175  421  772 
Long-term debt 1,597    1,874  5,160  4,964 
Total interest expense 4,879    7,345  15,748    25,390 
Net interest income 40,340    37,809  117,462  113,927 
Credit loss (benefit) expense (1,080)   4,992  (7,958) 31,410 
Net interest income after credit loss (benefit) expense 41,420    32,817  125,420  82,517 
Noninterest income  
Investment services and trust activities 2,915    2,361  8,560  7,114 
Service charges and fees 1,613    1,491  4,575  4,607 
Card revenue 1,820    1,600  5,269  4,202 
Loan revenue 1,935    3,252  9,816  6,285 
Bank-owned life insurance 532    530  1,612  1,685 
Investment securities gains, net 36    106  105  154 
Other 331  230  1,287  3,947 
Total noninterest income 9,182    9,570  31,224  27,994 
Noninterest expense  
Compensation and employee benefits 17,350    16,460  51,671  48,759 
Occupancy expense of premises, net 2,547    2,278  7,063  6,872 
Equipment 1,973  1,935  5,627  5,825 
Legal and professional 1,272  1,184  3,430  4,101 
Data processing 1,406  1,308  4,005  3,902 
Marketing 1,022  857  2,901  2,829 
Amortization of intangibles 1,264    1,631  4,112  5,407 
FDIC insurance 435    470  1,192  1,363 
Communications 275    428  1,055  1,334 
Foreclosed assets, net 43  13  226  185 
Goodwill impairment —  31,500  —  31,500 
Other 2,191    1,875  4,866  5,901 
Total noninterest expense 29,778    59,939  86,148  117,978 
Income (loss) before income tax expense 20,824    (17,552) 70,496  (7,467)
Income tax expense 4,513    2,272  15,266  2,620 
Net income (loss) $ 16,311    $ (19,824) $ 55,230  $ (10,087)
Per common share information  
Earnings (loss) - basic $ 1.03    $ (1.23) $ 3.47  $ (0.63)
Earnings (loss) - diluted $ 1.03    $ (1.23) $ 3.46  $ (0.63)
Dividends paid $ 0.2250    $ 0.2200  $ 0.6750  $ 0.6600 
See accompanying notes to consolidated financial statements.
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Table of Contents
MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
Three Months Ended Nine Months Ended
September 30, September 30,
(unaudited) (dollars in thousands) 2021 2020 2021 2020
Net income (loss) $ 16,311  $ (19,824) $ 55,230  $ (10,087)
Other comprehensive income (loss), net of tax:
Unrealized (loss) gain from debt securities available for sale:
Unrealized net holding (loss) gain on debt securities available for sale arising during the period
(8,591) 1,726  (28,501) 21,917 
Reclassification adjustment for gains included in net income
(36) (106) (105) (154)
Income tax benefit (expense)
2,251  (423) 7,466  (5,680)
Unrealized net (loss) gain on debt securities available for sale, net of reclassification adjustment
(6,376) 1,197  (21,140) 16,083 
Unrealized gain (loss) from cash flow hedging instruments:
Unrealized net holding gains (losses) in cash flow hedging instruments arising during the period
—  8  —  (1,009)
Reclassification adjustment for net loss in cash flow hedging instruments included in income
—  88  —  145 
Income tax benefit (expense)
—  (25) —  225 
Unrealized net gains (losses) on cash flow hedge instruments, net of reclassification adjustment
—  71  —  (639)
Other comprehensive (loss) income, net of tax (6,376) 1,268  (21,140) 15,444 
Comprehensive income (loss) $ 9,935  $ (18,556) $ 34,090  $ 5,357 
See accompanying notes to consolidated financial statements.

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Table of Contents
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, 2020 $ 16,581  $ 299,542  $ 198,382  $ (12,272) $ 18,548  $ 520,781 
Net loss —  —  (19,824) —  —  (19,824)
Other comprehensive income —  —  —  —  1,268  1,268 
Share-based compensation —  397  —  —  —  397 
Dividends paid on common stock ($0.2200 per share)
—  —  (3,541) —  —  (3,541)
Balance at September 30, 2020 $ 16,581  $ 299,939  $ 175,017  $ (12,272) $ 19,816  $ 499,081 
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 
Nine Months Ended September 30,
Common Stock
(unaudited)
(dollars in thousands, except per share amounts)
Par Value
Additional
Paid-in
Capital
Retained Earnings Treasury Stock
Accumulated
Other
Comprehensive
Income (Loss)
Total
Balance at December 31, 2019 $ 16,581  $ 297,390  $ 201,105  $ (10,466) $ 4,372  508,982 
Cumulative effect of change in accounting principle(1)
—  —  (5,362) —  —  (5,362)
Net Loss —  —  (10,087) —  —  (10,087)
Other comprehensive income —  —  —  —  15,444  15,444 
Acquisition fair value finalization(2)
—  2,355  —  —  —  2,355 
Release/lapse of restriction on RSUs (32,488 shares, net)
—  (937) —  798  —  (139)
Repurchase of common stock (95,340 shares)
—  —  —  (2,604) —  (2,604)
Share-based compensation —  1,131  —  —  —  1,131 
Dividends paid on common stock ($0.6600 per share)
—  —  (10,639) —  —  (10,639)
Balance at September 30, 2020 $ 16,581  $ 299,939  $ 175,017  $ (12,272) $ 19,816  $ 499,081 
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 
(1) Reclassification pursuant to adoption of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.
(2) Relates to the finalization of the purchase accounting adjustments for the ATBancorp acquisition. This purchase accounting adjustment had a $2.06 million impact on goodwill, $296 thousand impact on deferred income taxes, with the offsetting impact being to additional paid-in capital.
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Table of Contents
MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Nine Months Ended September 30,
(unaudited) (dollars in thousands) 2021   2020
Cash flows from operating activities:
Net income (loss)
$ 55,230    $ (10,087)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
Credit loss (benefit) expense
(7,958)   31,410 
         Goodwill impairment —  31,500 
Depreciation, amortization, and accretion
71    4,054 
         Net change in premises and equipment due to writedown or sale 295  55 
Share-based compensation
1,522    1,131 
Net gain on sale or call of debt securities available for sale
(105)   (132)
Net change in foreclosed assets due to writedown or sale 163  125 
Net gain on sale of loans held for sale (6,696) (5,519)
Origination of loans held for sale
(236,326)   (286,551)
Proceeds from sales of loans held for sale
244,299  284,374 
Increase in cash surrender value of bank-owned life insurance (1,339) (1,317)
Decrease (increase) in deferred income taxes, net 2,013  (7,105)
Change in:
Other assets
7,514    (8,393)
Other liabilities
(11,494) 8,495 
Net cash provided by operating activities
$ 47,189    $ 42,040 
Cash flows from investing activities:  
Proceeds from sales of debt securities available for sale
$ 42,193    $ 27,020 
Proceeds from maturities and calls of debt securities available for sale
304,443    169,210 
Purchases of debt securities available for sale
(856,739)   (746,101)
Net decrease (increase) in loans held for investment
225,479    (81,867)
Purchases of premises and equipment
(1,477)   (1,514)
Proceeds from sale of foreclosed assets
1,983  2,922 
Proceeds from sale of premises and equipment
16    49 
Net cash used in investing activities
$ (284,102)   $ (630,281)
Cash flows from financing activities:  
Net increase (decrease) in:
Deposits
$ 410,598    $ 604,699 
Short-term borrowings
(43,281) 44,544 
         Proceeds from issuance of subordinated debt —  65,000 
         Payments of subordinated debt issuance costs (9) (1,248)
         Redemption of subordinated debentures (10,835) — 
         Payments on finance lease liability (107) (94)
Payments of Federal Home Loan Bank borrowings
(43,000) (44,400)
Payments of other long-term debt —  (5,500)
Taxes paid relating to the release/lapse of restriction on RSUs
(118) (139)
Dividends paid
(10,753)   (10,639)
Repurchase of common stock
(9,727) (2,604)
Net cash provided by financing activities
$ 292,768    $ 649,619 
Net increase in cash and cash equivalents
$ 55,855    $ 61,378 
Cash and cash equivalents:
        Beginning of Period 82,659    73,484 
        Ending balance $ 138,514    $ 134,862 
Supplemental disclosures of cash flow information:  
Cash paid during the period for interest
$ 17,500    $ 25,478 
Cash paid during the period for income taxes
14,300    8,970 
Supplemental schedule of non-cash investing and financing activities:
Transfer of loans to foreclosed assets, net
$ 284    $ 65 
Investment securities purchased but not settled 1,835  10,690 
See accompanying notes to consolidated financial statements.
5
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., 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.
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, 2020, filed with the SEC on March 11, 2021.
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, 2021 may not be indicative of results for the year ending December 31, 2021, 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, 2020, filed with the SEC on March 11, 2021.
Segment Reporting

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

Accounting Guidance Pending Adoption at September 30, 2021

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

6
2.    Debt Securities
The amortized cost and fair value of investment debt securities AFS, with gross unrealized gains and losses, were as follows:
  As of September 30, 2021
(in thousands) Amortized
Cost 		Gross
Unrealized
Gains 		Gross
Unrealized
Losses 		Allowance for Credit Loss related to Debt Securities Fair Value
U.S. Government agencies and corporations $ 286  $ 2  $ —  $ —  $ 288 
State and political subdivisions 696,306  9,671  4,696  —  701,281 
Mortgage-backed securities
108,445  1,280  494  —  109,231 
Collateralized mortgage obligations 860,623  2,564  9,354  —  853,833 
Corporate debt securities 466,570  8,380  2,681  —  472,269 
Total debt securities
$ 2,132,230  $ 21,897  $ 17,225  $ —  $ 2,136,902 

 
  As of December 31, 2020
(in thousands)
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Allowance for Credit Loss related to Debt Securities
Fair Value
U.S. Government agencies and corporations $ 355  $ 6  $ —  $ —  $ 361 
State and political subdivisions 611,666  17,163  483  —  628,346 
Mortgage-backed securities
92,261  1,758  1  —  94,018 
Collateralized mortgage obligations 559,718  6,332  214  —  565,836 
Corporate debt securities 360,103  9,333  616  —  368,820 
Total debt securities
$ 1,624,103  $ 34,592  $ 1,314  $ —  $ 1,657,381 
 
Investment securities with a fair value of $542.4 million and $434.7 million at September 30, 2021 and December 31, 2020, respectively, were pledged on public deposits, securities sold under agreements to repurchase and for other purposes, as required or permitted by law.
The following table presents debt securities AFS in an unrealized loss position for which an allowance for credit losses has not been recorded at September 30, 2021, aggregated by investment category and length of time in a continuous loss position:  
    As of September 30, 2021
Number
of
Securities
Less than 12 Months 12 Months or More Total
Available for Sale
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
(in thousands, except number of securities)  
State and political subdivisions 127  $ 254,630  $ 4,447  $ 12,474  $ 249  $ 267,104  $ 4,696 
Mortgage-backed securities
7  45,955  494  44  —  45,999  494 
Collateralized mortgage obligations
35  607,333  8,913  25,716  441  633,049  9,354 
Corporate debt securities 25  126,945  1,866  18,094  815  145,039  2,681 
Total
194  $ 1,034,863  $ 15,720  $ 56,328  $ 1,505  $ 1,091,191  $ 17,225 
As of September 30, 2021, 127 state and political subdivisions securities with total unrealized losses of $4.7 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, 2021, 7 mortgage-backed securities and 35 collateralized mortgage obligations with unrealized losses totaling $9.8 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, 2021, 25 corporate debt securities with total unrealized losses of $2.7 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 information available. Based on this evaluation, management concluded that the decline in fair value was not attributable to credit losses.
7
Accrued interest receivable on available for sale debt securities, which is recorded within 'Other Assets,' totaled $8.1 million at September 30, 2021 and $7.3 million at December 31, 2020 and is excluded from the estimate of 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, 2020, aggregated by investment category and length of time in a continuous loss position:
    As of December 31, 2020
Available for Sale
Number
of
Securities
Less than 12 Months 12 Months or More Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
(in thousands, except number of securities)  
State and political subdivisions 27  $ 31,489  $ 157  $ 4,065  $ 326  $ 35,554  $ 483 
Mortgage-backed securities
7  315  1  —  —  315  1 
Collateralized mortgage obligations 8  133,032  214  —  —  133,032  214 
Corporate debt securities 15  35,995  523  3,311  93  39,306  616 
Total
57  $ 200,831  $ 895  $ 7,376  $ 419  $ 208,207  $ 1,314 
Proceeds and gross realized gains and losses on debt securities available for sale for the three and nine months ended September 30, 2021 and 2020 were as follows:
Three Months Ended Nine Months Ended
(in thousands) September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020
Proceeds from sales of debt securities available for sale $ 782  $ 4,885  $ 42,193  $ 27,020 
Gross realized gains from sales of debt securities available for sale 32  105  856  255 
Gross realized losses from sales of debt securities available for sale —  (10) (791) (123)
Net realized gain from sales of debt securities available for sale(1)
$ 32  $ 95  $ 65  $ 132 
(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 $4.0 thousand and $40.0 thousand for the three and nine months ended ended September 30, 2021, respectively, and $11.0 thousand and $22.0 thousand for the three and nine months ended September 30, 2020, respectively.
The contractual maturity distribution of investment debt securities at September 30, 2021, is shown below. Expected maturities of MBS and CMO may differ from contractual maturities because the mortgages underlying the securities may be called or prepaid without any penalties. Therefore, these securities are not included in the maturity categories in the following summary.
  Available For Sale
(in thousands) Amortized Cost Fair Value
Due in one year or less $ 47,732  $ 48,263 
Due after one year through five years 309,686  314,874 
Due after five years through ten years 477,290  479,402 
Due after ten years 328,454  331,299 
$ 1,163,162  $ 1,173,838 
Mortgage-backed securities 108,445  109,231 
Collateralized mortgage obligations 860,623  853,833 
Total $ 2,132,230  $ 2,136,902 

8
3.    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, 2021 December 31, 2020
Agricultural $ 106,356  $ 116,392 
Commercial and industrial 927,258  1,055,488
Commercial real estate:
Construction & development 146,417  181,291
Farmland 130,936  144,970
Multifamily 273,347  256,525
Commercial real estate-other 1,148,658  1,149,575
Total commercial real estate 1,699,358  1,732,361
Residential real estate:
One- to four- family first liens 334,267  355,684
One- to four- family junior liens 133,869  143,422
Total residential real estate 468,136  499,106
Consumer 67,536  78,876
Loans held for investment, net of unearned income 3,268,644  3,482,223
Allowance for credit losses (47,900) (55,500)
Total loans held for investment, net $ 3,220,744  $ 3,426,723 

Loans with unpaid principal in the amount of $815.0 million and $830.2 million at September 30, 2021 and December 31, 2020, 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.

9
The following table presents the amortized cost basis of loans based on delinquency status:
Age Analysis of Past-Due Financial Assets 90 Days or More Past Due And Accruing
(in thousands) Current 30 - 59 Days Past Due 60 - 89 Days Past Due 90 Days or More Past Due Total
September 30, 2021
Agricultural
$ 105,402  $ 152  $ —  $ 802  $ 106,356  $ — 
Commercial and industrial
924,379  351  313  2,215  927,258  50 
Commercial real estate:
Construction and development
145,714  107  —  596  146,417  — 
Farmland
127,930  —  119  2,887  130,936  — 
Multifamily
271,960  —  1,387  —  273,347  — 
Commercial real estate-other
1,142,251  948  —  5,459  1,148,658  — 
Total commercial real estate
1,687,855  1,055  1,506  8,942  1,699,358  — 
Residential real estate:
One- to four- family first liens
330,912  2,280  845  230  334,267  — 
One- to four- family junior liens
133,481  261  20  107  133,869  1 
Total residential real estate
464,393  2,541  865  337  468,136  1 
Consumer
67,458  41  23  14  67,536  — 
Total
$ 3,249,487  $ 4,140  $ 2,707  $ 12,310  $ 3,268,644  $ 51 
December 31, 2020
Agricultural
$ 115,284  $ 8  $ 45  $ 1,055  $ 116,392  $ — 
Commercial and industrial
1,051,727  477  333  2,951  1,055,488  106 
Commercial real estate:
Construction and development
180,059  586  42  604  181,291  — 
Farmland
138,798  226  324  5,622  144,970  — 
Multifamily
256,525  —  —  —  256,525  — 
Commercial real estate-other
1,132,015  11,514  318  5,728  1,149,575  — 
Total commercial real estate
1,707,397  12,326  684  11,954  1,732,361  — 
Residential real estate:
One- to four- family first liens
351,370  2,062  566  1,686  355,684  625 
One- to four- family junior liens
142,663  377  234  148  143,422  — 
Total residential real estate
494,033  2,439  800  1,834  499,106  625 
Consumer
78,747  43  39  47  78,876  8 
Total
$ 3,447,188  $ 15,293  $ 1,901  $ 17,841  $ 3,482,223  $ 739 

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 as of September 30, 2021 and December 31, 2020:
Nonaccrual Nonaccrual with no Allowance for Credit Losses 90 Days or More Past Due And Accruing
(in thousands) September 30, 2021 December 31, 2020 September 30, 2021 December 31, 2020 September 30, 2021 December 31, 2020
Agricultural
$ 2,120  $ 2,584  $ 1,366  $ 1,599  $ —  $ — 
Commercial and industrial
4,145  7,326  1,341  4,349  50  106 
Commercial real estate:
Construction and development
607  1,145  596  900  —  — 
Farmland
6,755  8,319  5,338  7,266  —  — 
Multifamily
1,009  746  331  39  —  — 
Commercial real estate-other
16,811  19,134  1,076  2,497  —  — 
Total commercial real estate
25,182  29,344  7,341  10,702  —  — 
Residential real estate:
One- to four- family first liens
1,532  1,895  339  75  —  625 
One- to four- family junior liens
628  722  —  1  1  — 
Total residential real estate
2,160  2,617  339  76  1  625 
Consumer
50  79  8  13  —  8 
Total
$ 33,657  $ 41,950  $ 10,395  $ 16,739  $ 51  $ 739 
The interest income recognized on loans that were on nonaccrual for the three months ended September 30, 2021 and September 30, 2020 was $453 thousand and $130 thousand, respectively. The interest income recognized on loans that were on
10
nonaccrual for the nine months ended September 30, 2021 and September 30, 2020 was $1.1 million and $526 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.















11
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, 2021. As of September 30, 2021, there were no 'loss' rated credits.
Term Loans by Origination Year Revolving Loans
September 30, 2021
(in thousands)
2021 2020 2019 2018 2017 Prior Total
Agricultural
Pass $ 21,302  $ 9,886  $ 4,979  $ 1,440  $ 1,126  $ 1,407  $ 55,410  $ 95,550 
Special mention / watch 1,220  405  275  —  75  1,000  4,066  7,041 
Substandard 673  759  133  229  6  278  1,687  3,765 
Doubtful —  —  —  —  —  —  —  — 
Total $ 23,195  $ 11,050  $ 5,387  $ 1,669  $ 1,207  $ 2,685  $ 61,163  $ 106,356 
Commercial and industrial
Pass $ 245,228  $ 236,565  $ 80,280  $ 41,016  $ 65,928  $ 98,838  $ 136,230  $ 904,085 
Special mention / watch 5,485  1,900  704  143  296  139  1,892  10,559 
Substandard 1,104  2,154  1,046  924  220  3,016  4,149  12,613 
Doubtful —  —  —  —  1  —  —  1 
Total $ 251,817  $ 240,619  $ 82,030  $ 42,083  $ 66,445  $ 101,993  $ 142,271  $ 927,258 
CRE - Construction and development
Pass $ 53,757  $ 54,553  $ 7,950  $ 3,266  $ 1,872  $ 922  $ 20,967  $ 143,287 
Special mention / watch 622  —  172  406  —  —  —  1,200 
Substandard —  894  1,025  —  —  11  —  1,930 
Doubtful —  —  —  —  —  —  —  — 
Total $ 54,379  $ 55,447  $ 9,147  $ 3,672  $ 1,872  $ 933  $ 20,967  $ 146,417 
CRE - Farmland
Pass $ 31,894  $ 36,063  $ 19,419  $ 5,175  $ 6,014  $ 12,113  $ 1,489  $ 112,167 
Special mention / watch 1,727  4,092  587  1,421  295  225  75  8,422 
Substandard 2,599  2,050  1,465  1,971  1,667  595  —  10,347 
Doubtful —  —  —  —  —  —  —  — 
Total $ 36,220  $ 42,205  $ 21,471  $ 8,567  $ 7,976  $ 12,933  $ 1,564  $ 130,936 
CRE - Multifamily
Pass $ 85,674  $ 130,248  $ 25,013  $ 2,800  $ 6,492  $ 4,929  $ 7,589  $ 262,745 
Special mention / watch —  —  —  5,983  —  558  —  6,541 
Substandard —  2,737  —  —  —  1,324  —  4,061 
Doubtful —  —  —  —  —  —  —  — 
Total $ 85,674  $ 132,985  $ 25,013  $ 8,783  $ 6,492  $ 6,811  $ 7,589  $ 273,347 
CRE - other
Pass $ 243,842  $ 435,676  $ 104,778  $ 41,412  $ 66,205  $ 81,287  $ 44,819  $ 1,018,019 
Special mention / watch 5,842  25,278  2,507  10,024  1,832  2,166  1,459  49,108 
Substandard 4,309  50,557  12,568  6,163  979  6,955  —  81,531 
Doubtful —  —  —  —  —  —  —  — 
Total $ 253,993  $ 511,511  $ 119,853  $ 57,599  $ 69,016  $ 90,408  $ 46,278  $ 1,148,658 
RRE - One- to four- family first liens
Performing $ 96,842  $ 83,033  $ 31,181  $ 27,093  $ 18,761  $ 71,848  $ 3,978  $ 332,736 
Nonperforming 478  47  —  188  164  654  —  1,531 
Total $ 97,320  $ 83,080  $ 31,181  $ 27,281  $ 18,925  $ 72,502  $ 3,978  $ 334,267 
RRE - One- to four- family junior liens
Performing $ 26,283  $ 14,437  $ 4,860  $ 6,132  $ 4,364  $ 5,471  $ 71,692  $ 133,239 
Nonperforming —  —  139  166  17  203  105  630 
Total $ 26,283  $ 14,437  $ 4,999  $ 6,298  $ 4,381  $ 5,674  $ 71,797  $ 133,869 
Consumer
Performing $ 26,150  $ 18,297  $ 7,134  $ 5,164  $ 2,044  $ 5,800  $ 2,897  $ 67,486 
Nonperforming —  —  16  8  14  12  —  50 
Total $ 26,150  $ 18,297  $ 7,150  $ 5,172  $ 2,058  $ 5,812  $ 2,897  $ 67,536 
Total by Credit Quality Indicator Category
Pass $ 681,697  $ 902,991  $ 242,419  $ 95,109  $ 147,637  $ 199,496  $ 266,504  $ 2,535,853 
Special mention / watch 14,896  31,675  4,245  17,977  2,498  4,088  7,492  82,871 
Substandard 8,685  59,151  16,237  9,287  2,872  12,179  5,836  114,247 
Doubtful —  —  —  —  1  —  —  1 
Performing 149,275  115,767  43,175  38,389  25,169  83,119  78,567  533,461 
Nonperforming 478  47  155  362  195  869  105  2,211 
Total $ 855,031  $ 1,109,631  $ 306,231  $ 161,124  $ 178,372  $ 299,751  $ 358,504  $ 3,268,644 
12
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, 2020. As of December 31, 2020, there were no 'loss' rated credits.
Term Loans by Origination Year Revolving Loans
December 31, 2020
(in thousands)
2020 2019 2018 2017 2016 Prior Total
Agricultural
Pass $ 17,836  $ 6,959  $ 2,764  $ 2,145  $ 1,386  $ 1,833  $ 60,802  $ 93,725 
Special mention / watch 4,892  1,083  117  108  553  1,103  7,210  15,066 
Substandard 4,075  650  258  183  121  226  2,086  7,599 
Doubtful 1  —  —  —  —  1  —  2 
Total $ 26,804  $ 8,692  $ 3,139  $ 2,436  $ 2,060  $ 3,163  $ 70,098  $ 116,392 
Commercial and industrial
Pass $ 546,171  $ 105,523  $ 57,055  $ 61,753  $ 38,695  $ 92,526  $ 120,498  $ 1,022,221 
Special mention / watch 3,410  572  497  2,261  611  112  4,796  12,259 
Substandard 5,014  1,539  928  656  461  3,261  9,144  21,003 
Doubtful —  —  —  1  —  3  1  5 
Total $ 554,595  $ 107,634  $ 58,480  $ 64,671  $ 39,767  $ 95,902  $ 134,439  $ 1,055,488 
CRE - Construction and development
Pass $ 109,885  $ 25,972  $ 14,994  $ 2,696  $ 679  $ 876  $ 22,519  $ 177,621 
Special mention / watch 843  298  542  —  9  3  —  1,695 
Substandard 597  1,132  220  —  —  26  —  1,975 
Doubtful —  —  —  —  —  —  —  — 
Total $ 111,325  $ 27,402  $ 15,756  $ 2,696  $ 688  $ 905  $ 22,519  $ 181,291 
CRE - Farmland
Pass $ 48,378  $ 25,022  $ 9,577  $ 10,490  $ 8,378  $ 13,003  $ 1,263  $ 116,111 
Special mention / watch 8,088  4,583  935  660  361  237  —  14,864 
Substandard 3,924  2,627  4,386  1,728  166  1,128  36  13,995 
Doubtful —  —  —  —  —  —  —  — 
Total $ 60,390  $ 32,232  $ 14,898  $ 12,878  $ 8,905  $ 14,368  $ 1,299  $ 144,970 
CRE - Multifamily
Pass $ 164,817  $ 18,992  $ 17,805  $ 10,706  $ 10,201  $ 19,581  $ 11,558  $ 253,660 
Special mention / watch 345  —  —  —  59  —  —  404 
Substandard 1,099  —  —  —  1,362  —  —  2,461 
Doubtful —  —  —  —  —  —  —  — 
Total $ 166,261  $ 18,992  $ 17,805  $ 10,706  $ 11,622  $ 19,581  $ 11,558  $ 256,525 
CRE - other
Pass $ 487,771  $ 129,388  $ 60,957  $ 83,393  $ 66,369  $ 91,698  $ 45,129  $ 964,705 
Special mention / watch 71,141  14,870  12,415  5,953  3,756  4,335  455  112,925 
Substandard 48,690  7,162  6,370  1,222  579  6,997  925  71,945 
Doubtful —  —  —  —  —  —  —  — 
Total $ 607,602  $ 151,420  $ 79,742  $ 90,568  $ 70,704  $ 103,030  $ 46,509  $ 1,149,575 
RRE - One- to four- family first liens
Performing $ 117,923  $ 46,581  $ 42,875  $ 30,628  $ 37,407  $ 68,501  $ 9,249  $ 353,164 
Nonperforming 239  1  596  303  148  1,233  —  2,520 
Total $ 118,162  $ 46,582  $ 43,471  $ 30,931  $ 37,555  $ 69,734  $ 9,249  $ 355,684 
RRE - One- to four- family junior liens
Performing $ 19,818  $ 7,973  $ 12,140  $ 6,152  $ 3,467  $ 5,354  $ 87,795  $ 142,699 
Nonperforming 7  —  223  17  116  190  170  723 
Total $ 19,825  $ 7,973  $ 12,363  $ 6,169  $ 3,583  $ 5,544  $ 87,965  $ 143,422 
Consumer
Performing $ 30,755  $ 13,662  $ 10,341  $ 4,960  $ 2,656  $ 6,306  $ 10,118  $ 78,798 
Nonperforming 2  21  13  5  13  24  —  78 
Total $ 30,757  $ 13,683  $ 10,354  $ 4,965  $ 2,669  $ 6,330  $ 10,118  $ 78,876 
Total by Credit Quality Indicator Category
Pass $ 1,374,858  $ 311,856  $ 163,152  $ 171,183  $ 125,708  $ 219,517  $ 261,769  $ 2,628,043 
Special mention / watch 88,719  21,406  14,506  8,982  5,349  5,790  12,461  157,213 
Substandard 63,399  13,110  12,162  3,789  2,689  11,638  12,191  118,978 
Doubtful 1  —  —  1  —  4  1  7 
Performing 168,496  68,216  65,356  41,740  43,530  80,161  107,162  574,661 
Nonperforming 248  22  832  325  277  1,447  170  3,321 
Total $ 1,695,721  $ 414,610  $ 256,008  $ 226,020  $ 177,553  $ 318,557  $ 393,754  $ 3,482,223 





13
Allowance for Credit Losses
At September 30, 2021, the economic forecast used by the Company showed the following: (1) Midwest unemployment – decreases over the next four forecasted quarters; (2) Year-to-year change in national retail sales - increases over the next four forecasted quarters; (3) Year-to-year change in CRE Index - decreases over the next two forecasted quarters, followed by an increase in the third and fourth forecasted quarters; (4) Year-to-year change in U.S. GDP - increases over the next four forecasted quarters; (5) Year-to-year change in National Home Price Index – increases over the next four forecasted quarters; and (6) Rental Vacancy - increases over the next four forecasted quarters. The economic forecast loss driver data generally exhibited improvements in the economic forecast and stabilization of the credit profile outlook when compared to the previously disclosed second quarter of 2021 results.

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 $10.8 million at September 30, 2021 and $14.2 million at December 31, 2020 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, 2021 and 2020
(in thousands) Agricultural Commercial and Industrial Commercial Real Estate Residential Real Estate Consumer Total
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 (benefit) expense(1)
44  1,058  (2,226) 5  139  (980)
Ending balance $ 1,060  $ 15,775  $ 26,329  $ 4,105  $ 631  $ 47,900 
For the Three Months Ended September 30, 2020
Beginning balance $ 1,408  $ 18,709  $ 28,221  $ 6,074  $ 1,232  $ 55,644 
Charge-offs
(746) (983) (275) (83) (101) (2,188)
Recoveries
103  180  9  14  41  347 
Credit loss (benefit) expense(1)
649  (1,267) 2,966  2,273  76  4,697 
Ending balance $ 1,414  $ 16,639  $ 30,921  $ 8,278  $ 1,248  $ 58,500 
(1) The difference in the credit loss expense reported herein as compared to the Consolidated Statements of Income is associated with the credit loss (benefit) expense of $(0.1) million and $0.3 million related to off-balance sheet credit exposures for the three months ended September 30, 2021 and September 30, 2020, respectively.

For the Nine Months Ended September 30, 2021 and 2020
(in thousands) Agricultural Commercial and Industrial Commercial Real Estate Residential Real Estate Consumer Total
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)
Recoveries 67  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 
For the Nine Months Ended September 30, 2020
Beginning balance $ 3,748  $ 8,394  $ 13,804  $ 2,685  $ 448  $ 29,079 
Day 1 transition adjustment from adoption of ASC 326 (2,557) 2,728  1,300  2,050  463  3,984 
Charge-offs (939) (2,356) (1,787) (186) (520) (5,788)
Recoveries 129  559  28  29  137  882 
Credit loss expense 1,033  7,314  17,576  3,700  720  30,343 
Ending balance $ 1,414  $ 16,639  $ 30,921  $ 8,278  $ 1,248  $ 58,500 
(1) The difference in the credit loss expense reported herein as compared to the Consolidated Statements of Income is associated with the credit loss (benefit) expense of $(0.2) million and $1.1 million related to off-balance sheet credit exposures for the nine months ended September 30, 2021 and September 30, 2020, respectively.
14
The composition of allowance for credit losses by portfolio segment based on evaluation method were as follows:
As of September 30, 2021
(in thousands) Agricultural Commercial and Industrial Commercial Real Estate Residential Real Estate Consumer Total
Loans held for investment, net of unearned income
Individually evaluated for impairment
$ 1,366  $ 3,084  $ 24,650  $ 570  $ 8  $ 29,678 
Collectively evaluated for impairment
104,990  924,174  1,674,708  467,566  67,528  3,238,966 
Total
$ 106,356  $ 927,258  $ 1,699,358  $ 468,136  $ 67,536  $ 3,268,644 
Allowance for credit losses:
Individually evaluated for impairment
$ —  $ 708  $ 2,008  $ 230  $ —  $ 2,946 
Collectively evaluated for impairment
1,060  15,067  24,321  3,875  631  44,954 
Total
$ 1,060  $ 15,775  $ 26,329  $ 4,105  $ 631  $ 47,900 
As of December 31, 2020
(in thousands) Agricultural Commercial and Industrial Commercial Real Estate Residential Real Estate Consumer Total
Loans held for investment, net of unearned income
Individually evaluated for impairment
$ 2,088  $ 6,582  $ 28,235  $ 427  $ 8  $ 37,340 
Collectively evaluated for impairment
114,304  1,048,906  1,704,126  498,679  78,868  3,444,883 
Total
$ 116,392  $ 1,055,488  $ 1,732,361  $ 499,106  $ 78,876  $ 3,482,223 
Allowance for credit losses:
Individually evaluated for impairment
$ 66  $ 799  $ 2,031  $ 179  $ —  $ 3,075 
Collectively evaluated for impairment
1,280  14,890  30,609  4,703  943  52,425 
Total
$ 1,346  $ 15,689  $ 32,640  $ 4,882  $ 943  $ 55,500 
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, 2021

(in thousands) 		Primary Type of Collateral
Real Estate Equipment Other Total ACL Allocation
Agricultural $ 934  $ 432  $ —  $ 1,366  $ — 
Commercial and industrial 407  391  2,286  3,084  708 
Commercial real estate:
     Construction and development 595  —  —  595  — 
      Farmland 6,438  —  —  6,438  53 
      Multifamily 1,009  —  —  1,009  401 
      Commercial real estate-other 16,387  —  221  16,608  1,554 
Residential real estate:
     One- to four- family first liens 404  —  —  404  64 
     One- to four- family junior liens 166  —  —  166  166 
Consumer —  8  —  8  — 
        Total $ 26,340  $ 831  $ 2,507  $ 29,678  $ 2,946 
15
As of December 31, 2020

(in thousands) 		Primary Type of Collateral
Real Estate Equipment Other Total ACL Allocation
Agricultural $ 516  $ 824  $ 748  $ 2,088  $ 66 
Commercial and industrial 667  3,037  2,878  6,582  799 
Commercial real estate:
     Construction and development 899  —  —  899  — 
      Farmland 7,850  —  —  7,850  88 
      Multifamily 746  —  —  746  202 
      Commercial real estate-other 18,740  —  —  18,740  1,741 
Residential real estate:
     One- to four- family first liens 204  —  —  204  132 
     One- to four- family junior liens 223  —  —  223  47 
Consumer —  8  —  8  — 
        Total $ 29,845  $ 3,869  $ 3,626  $ 37,340  $ 3,075 

Troubled Debt Restructurings
TDRs totaled $19.8 million and $11.0 million as of September 30, 2021 and December 31, 2020, respectively. As of September 30, 2021, the Company had $8 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,
2021 2020
Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment
(dollars in thousands)
CONCESSION - Interest rate reduction
Commercial and industrial —  $ —  $ —  1  $ 143  $ 143 
CONCESSION - Extended maturity date
Commercial real estate-other 2  9,717  9,623  —  —  — 
One- to four- family first liens —  —  —  1  128  132 
CONCESSION - Other
Agricultural —  —  —  1  59  69 
Farmland —  —  —  1  150  161 
Total 2 $ 9,717  $ 9,623  4  $ 480  $ 505 
16
Nine Months Ended September 30,
2021 2020
Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment
(dollars in thousands)
CONCESSION - Interest rate reduction
Commercial and industrial — $ —  $ —  1 $ 143  $ 143 
Farmland 2 1,982  1,982  — —  — 
One- to four- family first liens 1 171  171  — —  — 
CONCESSION - Extended maturity date
Commercial real estate-other 2 9,717  9,623  3 759  808 
One- to four- family first liens 2 178  178  3 274  278 
CONCESSION - Other
Agricultural — —  —  2 267  278 
Farmland — —  —  3 504  514 
Commercial real estate-other 1 44  44  — —  — 
One- to four- family first liens 1 150  150  — —  — 
Total 9 $ 12,242  $ 12,148  12 $ 1,947  $ 2,021 

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,
2021 2020 2021 2020
Number of Contracts Recorded Investment Number of Contracts Recorded Investment Number of Contracts Recorded Investment Number of Contracts Recorded Investment
(dollars in thousands)
CONCESSION - Extended maturity date
One- to four- family first liens — —  2 $ 203  — —  2 $ 203 
CONCESSION - Other
Agricultural — —  1 59  — —  1 59 
Farmland — —  1 150  — —  1 150 
Total — $ —  4 $ 412  — $ —  4 $ 412 

Modifications in response to COVID-19:

The Company began offering short-term loan modifications to assist borrowers during the COVID-19 pandemic. The CARES Act, as extended by the CAA, along with a joint interagency statement issued by the federal banking agencies, provide that short-term modifications made in response to COVID-19 do not need to be accounted for as a TDR. Accordingly, the Company does not account for such loan modifications as TDRs. The Company's loan modifications allow for the initial deferral of three months of principal and/or interest. The deferred interest is due and payable at the end of the deferral period, and the deferred principal is due and payable on the maturity date. At September 30, 2021, the outstanding balance of loans modified as a result of the COVID-19 pandemic totaled $4.5 million. The program is ongoing and additional loans continue to be granted deferrals.


17
4.    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, 2021 As of December 31, 2020
Notional
Amount
Fair Value
Notional
Amount
Fair Value
(in thousands) Assets Liabilities Assets Liabilities
Designated as hedging instruments:
Fair value hedges:
Interest rate swaps
$ 24,994  $ 381  $ 1,542  $ 25,559  $ 34  $ 2,452 
Total $ 24,994  $ 381  $ 1,542  $ 25,559  $ 34  $ 2,452 
Not designated as hedging instruments:
Interest rate swaps
$ 351,227  $ 6,014  $ 6,023  $ 347,380  $ 10,758  $ 10,807 
RPAs - protection sold 4,291  —  —  4,471  4  — 
RPAs - protection purchased
9,680  —  2  9,825  —  8 
Interest rate lock commitments 23,839  316  —  —  —  — 
Interest rate forward loan sales contracts 24,217  —  107  —  —  — 
Total $ 413,254  $ 6,330  $ 6,132  $ 361,676  $ 10,762  $ 10,815 

Derivatives Designated as Hedging Instruments
The Company uses derivative instruments to hedge its exposure to economic risks, including interest rate, liquidity, and credit risk. Certain hedging relationships are formally designated and qualify for hedge accounting under GAAP as fair value or cash flow hedges.
Fair Value Hedges - Derivatives are designated as fair value hedges to limit the Company's exposure to changes in the fair value of assets or liabilities due to movements in interest rates. The Company entered into pay-fixed receive-floating interest rate swaps to manage its exposure to changes in fair value in certain fixed-rate assets. The gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in interest income.
Cash Flow Hedges - Derivatives are designated as cash flow hedges in order to minimize the variability in cash flows of earning assets or forecasted transactions caused by movement in interest rates. In February 2020, the Company entered into a pay-fixed receive-variable interest rate swap with a notional amount of $30.0 million to hedge against adverse fluctuations in interest rates by reducing exposure to variability in cash flows relating to interest payments on the Company's variable rate debt. The interest rate swap was designated as a cash flow hedge. The gain or loss on the derivative was recorded in accumulated other comprehensive income and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings. The Company terminated its cash flow hedge in the fourth quarter of 2020.

The table below presents the effect of cash flow hedge accounting on AOCI for three and nine months ended September 30, 2021 and 2020.
Amount of Gain (Loss) Recognized in AOCI on Derivative Location of Gain (Loss) Reclassified from AOCI into Income Amount of Gain (Loss) Reclassified from AOCI into Income
Three Months Ended September 30, Three Months Ended September 30,
(in thousands) 2021 2020 2021 2020
Interest rate swaps $ —  $ 8  Interest Expense $ —  $ (88)
Amount of Gain (Loss) Recognized in AOCI on Derivative Location of Gain (Loss) Reclassified from AOCI into Income Amount of Gain (Loss) Reclassified from AOCI into Income
Nine Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2021 2020 2021 2020
Interest rate swaps $ —  $ (1,009) Interest Expense $ —  $ (145)

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The table below presents the effect of the Company’s derivative financial instruments designated as hedging instruments on the consolidated statements of income for the periods indicated:
Location and Amount of Gain or Loss Recognized in Income on Fair Value and Cash Flow Hedging Relationships
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2021 2020 2021 2020
(in thousands) Interest Income Other Income Interest Income Other Income Interest Income Other Income Interest Income Other Income
Total amounts of income and expense line items presented in the consolidated statements of income in which the effects of fair value or cash flow hedges are recorded
$ (110) $ —  $ (102) $ —  $ (329) $ —  $ (229) $ — 
The effects of fair value and cash flow hedging:
Gain (loss) on fair value hedging relationships in subtopic 815-20:
Interest contracts:
Hedged items (199) —  (174) —  (1,254) —  1,814  — 
Derivative designated as hedging instruments
157  —  180  —  910  —  (1,813) — 
Income statement effect of cash flow hedging relationships in subtopic 815-20:
Interest contracts:
Amount reclassified from AOCI into income
—  —  (88) —  —  —  (145) — 

As of September 30, 2021, 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 $ 26,177  $ 1,165 


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. At September 30, 2021, the Bank had commitments to originate mortgage loans held for sale totaling $23.8 million and forward sales commitments of $24.2 million, which are used to hedge both on-balance sheet and off-balance sheet exposures. At December 31, 2020, the Bank had $13.0 million of commitments to originate mortgage loans held for sale and no forward sales commitments.

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The following table presents the net gains (losses) recognized on the consolidated statements of income related to the derivatives not designated as hedging instruments for the periods indicated:
Location in the Consolidated Statements of Income For the Three Months Ended September 30, For the Nine Months Ended September 30,
(in thousands) 2021 2020 2021 2020
Interest rate swaps Other income $ 5  $ (90) $ 40  $ 33 
RPAs Other income 1  (3) 2  94 
Interest rate lock commitments Loan revenue 316  —  316  — 
Interest rate forward loan sales contracts Loan revenue (107) —  (107) — 
                Total $ 215  $ (93) $ 251  $ 127 

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, 2021 and December 31, 2020, 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 of Recognized Assets (Liabilities) Gross Amounts Offset in the Balance Sheet Net Amounts of Assets (Liabilities) presented in the Balance Sheet Financial Instruments Cash Collateral Received (Paid) Net Assets (Liabilities)
As of September 30, 2021
Asset Derivatives $ 6,711  $ —  $ 6,711  $ —  $ —  $ 6,711 
Liability Derivatives (7,674) —  (7,674) —  (4,630) (3,044)
As of December 31, 2020
Asset Derivatives $ 10,796  $ —  $ 10,796  $ —  $ —  $ 10,796 
Liability Derivatives (13,267) —  (13,267) —  (13,267) — 

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, 2021, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $6.3 million. As of September 30, 2021, the Company had minimum collateral posting thresholds with certain of its derivative counterparties and had posted $4.6 million of collateral related to these agreements. If the Company had breached any of these provisions at September 30, 2021, it could have been required to settle its obligations under the agreements at their termination value of $6.3 million.

5.    Goodwill and Intangible Assets
The carrying amount of goodwill was $62.5 million at September 30, 2021 and December 31, 2020.
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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, 2021 As of December 31, 2020
(in thousands) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount
Core deposit intangible $ 41,745  $ (29,649) $ 12,096  $ 41,745  $ (26,440) $ 15,305 
Customer relationship intangible 5,265  (3,451) 1,814  5,265  (2,630) 2,635 
Other
2,700  (2,520) 180  2,700  (2,438) 262 
$ 49,710  $ (35,620) $ 14,090  $ 49,710  $ (31,508) $ 18,202 
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, 2021 and the succeeding annual periods:
(in thousands) Core Deposit Intangible Customer Relationship Intangible Other Total
2021 $ 981  $ 241  $ 24  $ 1,246 
2022 3,487  797  79  4,363 
2023 2,833  518  51  3,402 
2024 2,180  239  24  2,443 
2025 1,526  19  2  1,547 
Thereafter 1,089  —  —  1,089 
Total $ 12,096  $ 1,814  $ 180  $ 14,090 
6.    Other Assets
The components of the Company's other assets as of September 30, 2021 and December 31, 2020 were as follows:
(in thousands) September 30, 2021 December 31, 2020
Bank-owned life insurance $ 84,822  $ 83,483 
Interest receivable 19,076  21,706 
FHLB stock 10,319  13,784 
Mortgage servicing rights 5,634  5,137 
Operating lease right-of-use assets, net 3,093  3,613 
Federal and state income taxes, current 1,433  — 
Federal and state income taxes, deferred 9,298  3,845 
Derivative assets 6,711  10,796 
Other receivables/assets 12,007  11,129 
$ 152,393  $ 153,493 


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7.    Deposits
The following table presents the composition of our deposits as of the dates indicated:
(in thousands) September 30, 2021 December 31, 2020
Noninterest bearing deposits $ 999,887  $ 910,655 
Interest checking deposits 1,464,389  1,351,641 
Money market deposits 989,095  918,654 
Savings deposits 616,924  529,751 
Time deposits under $250 522,907  581,471 
Time deposits of $250 or more 364,579  254,877 
Total deposits
$ 4,957,781  $ 4,547,049 

The Company had $5.6 million and $7.8 million in reciprocal time deposits through the CDARS program as of September 30, 2021 and December 31, 2020, respectively. Included in interest-bearing checking and money market deposits at September 30, 2021 and December 31, 2020 were $52.6 million and $14.8 million, respectively, of reciprocal deposits in the ICS program. The CDARS and ICS programs coordinate, on a reciprocal basis, a network of banks to spread deposits exceeding the FDIC insurance coverage limits out to numerous institutions in order to provide insurance coverage for all participating deposits.

As of September 30, 2021 and December 31, 2020, the Company had public entity deposits that were collateralized by investment securities of $265.9 million and $156.7 million, respectively.

8.    Short-Term Borrowings
The following table summarizes our short-term borrowings as of the dates indicated:
September 30, 2021 December 31, 2020
(in thousands) Weighted Average Rate Balance Weighted Average Rate Balance
Securities sold under agreements to repurchase 0.25  % $ 187,508  0.28  % $ 174,289 
Federal Home Loan Bank advances —  —  0.29  56,500 
Total
0.25  % $ 187,508  0.28  % $ 230,789 

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 3. 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 $170.0 million from multiple correspondent banking relationships. There were no borrowings from such lines at either September 30, 2021 or December 31, 2020.
Other - At September 30, 2021 and December 31, 2020, the Company had no Federal Reserve Discount Window borrowings, while the financing capacity was $62.7 million as of September 30, 2021 and $67.7 million as of December 31, 2020. As of September 30, 2021 and December 31, 2020, the Bank had municipal securities with a market value of $67.8 million and $72.0 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. Prior to September 30, 2021, interest on the outstanding balance was payable at a rate of one-month LIBOR plus 1.75%. Fees are paid on the average daily unused revolving commitment in the amount of 0.30% per annum. On October 22, 2021, the credit agreement was amended such that, commencing September 30, 2021, interest is payable on the $25.0 million revolving commitment at an annual rate equal to the monthly reset term SOFR rate plus 1.70%. There were no changes to the fees paid on the average daily unused revolving commitment as part of the amendment. The amended credit agreement matures on September 30, 2022. The Company had no balance outstanding under this revolving credit facility as of both September 30, 2021 and December 31, 2020.

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9.    Long-Term Debt
Junior Subordinated Notes Issued to Capital Trusts
The table below summarizes the terms of each issuance of junior subordinated notes outstanding as of the dates indicated:
(in thousands) Face Value Book Value Interest Rate Rate Maturity Date Callable Date
September 30, 2021
ATBancorp Statutory Trust I $ 7,732  $ 6,879 
Three-month LIBOR + 1.68%
1.80  % 06/15/2036 06/15/2011
ATBancorp Statutory Trust II 12,372  10,893 
Three-month LIBOR + 1.65%
1.77  % 09/15/2037 06/15/2012
Barron Investment Capital Trust I 2,062  1,792 
Three-month LIBOR + 2.15%
2.28  % 09/23/2036 09/23/2011
Central Bancshares Capital Trust II 7,217  6,868 
Three-month LIBOR + 3.50%
3.62  % 03/15/2038 03/15/2013
MidWestOne Statutory Trust II 15,464  15,464 
Three-month LIBOR + 1.59%
1.71  % 12/15/2037 12/15/2012
Total
$ 44,847  $ 41,896 
December 31, 2020
ATBancorp Statutory Trust I $ 7,732  $ 6,850 
Three-month LIBOR + 1.68%
1.90  % 06/15/2036 06/15/2011
ATBancorp Statutory Trust II 12,372 10,850
Three-month LIBOR + 1.65%
1.87  % 09/15/2037 06/15/2012
Barron Investment Capital Trust I 2,062  1,767 
Three-month LIBOR + 2.15%
2.39  % 09/23/2036 09/23/2011
Central Bancshares Capital Trust II 7,217  6,832 
Three-month LIBOR + 3.50%
3.72  % 03/15/2038 03/15/2013
MidWestOne Statutory Trust II 15,464  15,464 
Three-month LIBOR + 1.59%
1.81  % 12/15/2037 12/15/2012
    Total $ 44,847  $ 41,763 
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 May 1, 2019, with the acquisition of ATBancorp, the Company assumed $10.9 million of subordinated debentures (the "ATB Debentures"). The ATB Debentures had a stated maturity of May 31, 2023, and bore interest at a fixed annual rate of 6.50%, with interest payable semi-annually. The Company redeemed the debentures, in whole, on May 31, 2021. At the time of redemption, we were permitted to treat 20% of the ATB Debentures as Tier 2 capital under the applicable rules and regulations of the Federal Reserve. The amount of ATB Debentures qualifying as Tier 2 regulatory capital would have been phased-out completely starting in the second quarter of 2022.

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, 2021, 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
Long-term borrowings were as follows as of September 30, 2021 and December 31, 2020:
September 30, 2021 December 31, 2020
(in thousands) Weighted Average Rate Balance Weighted Average Rate Balance
Finance lease payable 8.89  % $ 989  8.89  % $ 1,096 
FHLB borrowings 2.76  48,132  1.92  91,198 
Total
2.88  % $ 49,121  2.00  % $ 92,294 

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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 3. Loans Receivable and the Allowance for Credit Losses of the notes to the consolidated financial statements. At September 30, 2021, FHLB long-term borrowings included advances from the FHLBC, which were collateralized by investment securities. See Note 2. Debt Securities of the notes to the consolidated financial statements.
As of September 30, 2021, FHLB borrowings were as follows:
(in thousands) Weighted Average Rate Amount
Due in 2021 —  % $ — 
Due in 2022 2.68  % 31,000 
Due in 2023 2.79  % 11,000 
Due in 2024 3.15  % 6,000 
Total 48,000 
Valuation adjustment from acquisition accounting 132 
Total $ 48,132 

10.    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) 2021 2020 2021 2020
Basic Earnings (Loss) Per Share:
Net income (loss) $ 16,311  $ (19,824) $ 55,230  $ (10,087)
Weighted average shares outstanding 15,840,769  16,099,324  15,938,889  16,111,591 
Basic earnings (loss) per common share $ 1.03  $ (1.23) $ 3.47  $ (0.63)
Diluted Earnings (Loss) Per Share:
Net income (loss) $ 16,311  $ (19,824) $ 55,230  $ (10,087)
Weighted average shares outstanding, including all dilutive potential shares
15,863,247  16,099,324  15,963,229  16,111,591 
Diluted earnings (loss) per common share $ 1.03  $ (1.23) $ 3.46  $ (0.63)

The weighted average shares that have an antidilutive effect in the calculation of diluted earnings per common share and have been excluded from the computation above were as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Dilutive shares(1)
—  7,132  —  6,820 
(1) Dilutive potential shares that were excluded from the computation of diluted earnings per common share for the three and nine months ended September 30, 2020 as a result of the reported net loss available to common shareholders.

11.    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, 2021 and December 31, 2020, 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, 2021 and December 31, 2020, is presented below:
Actual
For Capital Adequacy Purposes With Capital Conservation Buffer(1)
To Be Well Capitalized Under Prompt Corrective Action Provisions
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
At September 30, 2021
Consolidated:
Total capital/risk weighted assets $603,666 13.58% $466,739 10.50% N/A N/A
Tier 1 capital/risk weighted assets 497,955 11.20 377,837 8.50 N/A N/A
Common equity tier 1 capital/risk weighted assets
456,059 10.26 311,160 7.00 N/A N/A
Tier 1 leverage capital/average assets 497,955 8.70 229,025 4.00 N/A N/A
MidWestOne Bank:
Total capital/risk weighted assets $579,124 13.05% $465,857 10.50% $443,674 10.00%
Tier 1 capital/risk weighted assets 538,413 12.14 377,123 8.50 354,939 8.00
Common equity tier 1 capital/risk weighted assets
538,413 12.14 310,572 7.00 288,388 6.50
Tier 1 leverage capital/average assets 538,413 9.41 228,764 4.00 285,955 5.00
At December 31, 2020
Consolidated:
Total capital/risk weighted assets $572,437 13.41% $448,068 10.50% N/A N/A
Tier 1 capital/risk weighted assets 456,526 10.70 362,722 8.50 N/A N/A
Common equity tier 1 capital/risk weighted assets
414,763 9.72 298,712 7.00 N/A N/A
Tier 1 leverage capital/average assets 456,526 8.50 214,795 4.00 N/A N/A
MidWestOne Bank:
Total capital/risk weighted assets $547,558 12.89% $446,113 10.50% $424,870 10.00%
Tier 1 capital/risk weighted assets 500,981 11.79 361,139 8.50 339,896 8.00
Common equity tier 1 capital/risk weighted assets
500,981 11.79 297,409 7.00 276,165 6.50
Tier 1 leverage capital/average assets 500,981 9.35 214,251 4.00 271,992 5.00
(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, and the Company is using the net proceeds from the offering for general corporate purposes and to support its organic growth plans, including maintaining its regulatory capital ratios.
ATBancorp Subordinated Debenture Redemption: On May 31, 2021, the Company redeemed, in whole, $10.8 million of ATB Debentures. The amount of ATB Debentures qualifying as Tier 2 regulatory capital would have been phased-out completely starting in the second quarter of 2022. See Note 9. Long-Term Debt of the notes to the consolidated financial statements.

12.    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, 2021 December 31, 2020
(in thousands)
Commitments to extend credit $ 950,157  $ 897,274 
Commitments to sell loans 58,679  59,956 
Standby letters of credit 19,551  34,212 
Total $ 1,028,387  $ 991,442 
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
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future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the party. Collateral held varies, but may include accounts receivable, crops, livestock, inventory, property and equipment, residential real estate and income-producing commercial properties.
Commitments to sell loans are agreements to sell loans held for sale to third parties at an agreed upon price.

Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements and, generally, have terms of one year or 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, 2021, the liability for off-balance-sheet credit losses totaled $3.9 million, whereas the total amount of the liability as of December 31, 2020 was $4.1 million. The total amount recorded in credit loss (benefit) expense for the nine months ended September 30, 2021 was a benefit of $0.2 million, while credit loss expense of $1.1 million was recorded for the nine months ended September 30, 2020.
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 7% are agriculturally related. The concentrations of credit by type of loan are set forth in Note 3. 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 18% and 13%, respectively, as of September 30, 2021.

13.    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 2020 Annual Report on Form 10-K, filed with the SEC on March 11, 2021.
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
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"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.
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, 2021 Using
(in thousands) Total   Level 1   Level 2   Level 3
Assets:      
Available for sale debt securities:
     
U.S. Government agencies and corporations
$ 288    $ —    $ 288    $ — 
State and political subdivisions
701,281    —    701,281    — 
Mortgage-backed securities
109,231    —    109,231    — 
Collateralized mortgage obligations
853,833  —  853,833  — 
Corporate debt securities
472,269    —    472,269    — 
Derivative assets 6,711  —  6,395  316 
     Mortgage servicing rights 5,634  —  5,634  — 
Liabilities:
Derivative liabilities
$ 7,674  $ —  $ 7,674  $ — 
 
Fair Value Measurement at December 31, 2020 Using
(in thousands) Total   Level 1   Level 2   Level 3
Assets:      
Debt securities available for sale:
     
U.S. Government agencies and corporations
$ 361    $ —    $ 361    $ — 
State and political subdivisions
628,346    —    628,346    — 
Mortgage-backed securities
94,018    —    94,018    — 
Collateralized mortgage obligations
565,836  —  565,836  — 
Corporate debt securities
368,820    —    368,820    — 
Derivative assets 10,796  —  10,796  — 
Mortgage servicing rights 5,137  —  5,137  — 
Liabilities:
Derivative liabilities $ 13,267  $ —  $ 13,267  $ — 

There were no transfers of assets between Level 3 and other levels of the fair value hierarchy during the three and nine months ended September 30, 2021 or the year ended December 31, 2020.
Changes in the fair value of available for sale debt securities are included in other comprehensive income.
The fair values of the interest rate lock commitments and interest rate forward loan sales contracts are estimated using quoted or published market prices for similar instruments, adjusted for factors such as pull-through rate assumptions based on historical information, where appropriate. The pull-through rate assumptions are considered Level 3 valuation inputs and are significant to the interest rate lock commitment valuation; as such, the interest rate lock commitment derivatives are classified as Level 3.
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, 2021 December 31, 2020 Valuation Techniques(s) Unobservable Input Range of Inputs Weighted Average
Interest rate lock commitments $ 316  $ —  Quoted or published market prices of similar instruments, adjusted for factors such as pull-through rate assumptions Pull-through rate 88  % - 100  % 88  %

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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, 2021 Using
(in thousands) Total Level 1 Level 2 Level 3
Collateral dependent individually analyzed loans $ 16,340  $ —  $ —  $ 16,340 
Foreclosed assets, net
454  —  —  454 
 
Fair Value Measurement at December 31, 2020 Using
(in thousands) Total Level 1 Level 2 Level 3
Collateral dependent individually analyzed loans $ 34,265  $ —  $ —  $ 34,265 
Foreclosed assets, net
2,316  —  —  2,316 

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, 2021 December 31, 2020 Valuation Techniques(s) Unobservable Input Range of Inputs Weighted Average
Collateral dependent individually analyzed loans $ 16,340  $ 34,265  Fair value of collateral Valuation adjustments 7  % - 55  % 25  %
Foreclosed assets, net $ 454  $ 2,316  Fair value of collateral Valuation adjustments 8  % - 66  % 24  %
Changes in assumptions or estimation methodologies may have a material effect on these estimated fair values.
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Carrying Amount and Estimated Fair Value of Financial Instruments
The carrying amount and estimated fair value of financial instruments at September 30, 2021 and December 31, 2020 were as follows:

  September 30, 2021
(in thousands) Carrying
Amount 		Estimated
Fair Value 		Level 1 Level 2 Level 3
Financial assets:
Cash and cash equivalents $ 138,514  $ 138,514  $ 138,514  $ —  $ — 
Debt securities available for sale 2,136,902  2,136,902  —  2,136,902  — 
Loans held for sale 58,679  58,786  —  58,786  — 
Loans held for investment, net 3,220,744  3,238,812  —  —  3,238,812 
Interest receivable 19,076  19,076  —  19,076  — 
FHLB stock 10,319  10,319  —  10,319  — 
Derivative assets 6,711  6,711  —  6,395  316 
Financial liabilities:
Noninterest bearing deposits 999,887  999,887  999,887  —  — 
Interest bearing deposits 3,957,894  3,956,787  3,070,408  886,379  — 
Short-term borrowings 187,508  187,508  187,508  —  — 
Finance leases payable 989  989  —  989  — 
FHLB borrowings 48,132  49,369  —  49,369  — 
Junior subordinated notes issued to capital trusts 41,896  35,382  —  35,382  — 
Subordinated debentures 63,843  68,411  —  68,411  — 
Derivative liabilities 7,674  7,674  —  7,674  — 
  December 31, 2020
(in thousands)
Carrying
Amount
Estimated
Fair Value
Level 1 Level 2 Level 3
Financial assets:
Cash and cash equivalents $ 82,659  $ 82,659  $ 82,659  $ —  $ — 
Debt securities available for sale 1,657,381  1,657,381  —  1,657,381  — 
Loans held for sale 59,956  60,039  —  60,039  — 
Loans held for investment, net 3,426,723  3,469,515  —  —  3,469,515 
Interest receivable 21,706  21,706  —  21,706  — 
FHLB stock 13,784  13,784  —  13,784  — 
Derivative assets 10,796  10,796  —  10,796  — 
Financial liabilities:
Noninterest bearing deposits 910,655  910,655  910,655  —  — 
Interest bearing deposits 3,636,394  3,640,365  2,800,046  840,319 
Short-term borrowings 230,789  230,789  230,789  —  — 
Finance leases payable 1,096  1,096  —  1,096  — 
FHLB borrowings 91,198  93,380  —  93,380 
Junior subordinated notes issued to capital trusts 41,763  33,986  —  33,986 
Subordinated debentures 74,634  77,228  —  77,228 
Derivative liabilities 13,267  13,267  —  13,267  — 

14.    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 with terms extending through 2025. 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.
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Supplemental balance sheet information related to leases was as follows:
(in thousands) Classification September 30, 2021 December 31, 2020
Lease Right-of-Use Assets
Operating lease right-of-use assets
Other assets
$ 3,093  $ 3,613 
Finance lease right-of-use asset
Premises and equipment, net
470  542 
Total right-of-use assets
$ 3,563  $ 4,155 
Lease Liabilities
Operating lease liability
Other liabilities
$ 4,038  $ 4,583 
Finance lease liability
Long-term debt
989  1,096 
Total lease liabilities
$ 5,027  $ 5,679 
Weighted-average remaining lease term
Operating leases
8.95 years 8.82 years
Finance lease
4.92 years 5.67 years
Weighted-average discount rate
Operating leases
4.05  % 3.92  %
Finance lease
8.89  % 8.89  %

The following table represents lease costs and other lease information. As the Company elected, for all classes of underlying assets, not to separate lease and non-lease components and instead to account for them as a single lease component, the variable lease cost primarily represents variable payments such as common area maintenance and utilities.
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 2021   2020 2021 2020
Lease Costs
Operating lease cost
$ 301  $ 209  $ 894  $ 937 
Variable lease cost
(3) 42  89  189 
Interest on lease liabilities(1)
23  25  69  78 
Amortization of right-of-use assets
24  24  72  72 
Net lease cost
$ 345  $ 300  $ 1,124  $ 1,276 
Other Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$ 553  $ 443  $ 1,655  $ 1,598 
Operating cash flows from finance lease
23  25  69  78 
Finance cash flows from finance lease
37  32  107  94 
     Supplemental non-cash information on lease liabilities:
           Right-of-use assets obtained in exchange for new operating lease liabilities 232  39  232  132 
(1)Included in long-term debt interest expense in the Company’s consolidated statements of income. All other lease costs in this table are included in occupancy expense of premises, net.
Future minimum payments for finance leases and operating leases with initial or remaining terms of one year or more for the remaining three months ending December 31, 2021 and the succeeding annual periods were as follows:
(in thousands) Finance Leases Operating Leases
December 31, 2021 $ 59  $ 295 
December 31, 2022 240  1,060 
December 31, 2023 245  947 
December 31, 2024 250  717 
December 31, 2025 255  247 
Thereafter 171  1,973 
Total undiscounted lease payment $ 1,220  $ 5,239 
Amounts representing interest (231) (1,201)
Lease liability $ 989  $ 4,038 

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15.    Subsequent Events
The Company has evaluated events that have occurred subsequent to September 30, 2021 and has concluded there are no other subsequent events that would require recognition in the accompanying consolidated financial statements.
On October 19, 2021, the board of directors of the Company declared a cash dividend of $0.2250 per share payable on December 15, 2021 to shareholders of record as of the close of business on December 1, 2021.
On October 22, 2021, the Company entered into an amended credit agreement with a correspondent bank, effective September 30, 2021, that provides a revolving commitment of up to $25.0 million. Interest is payable on the $25.0 million revolving commitment at an annual rate equal to the monthly reset term SOFR rate plus 1.70%, with a maturity date of September 30, 2022. The Company had no balance outstanding under the terms of the credit agreement as of September 30, 2021.

On November 1, 2021, the Company and Iowa First Bancshares Corp. (IOFB), the holding company for First National Bank in Fairfield (FNBF) and First National Bank of Muscatine (FNBM), jointly announced the signing of a definitive merger agreement pursuant to which the Company will acquire IOFB, FNBM, and FNBF. Under terms of the definitive merger agreement, the aggregate consideration to be paid by MidWestOne for IOFB will consist of cash consideration of $47.6 million, subject to adjustment. The acquisition is expected to close during the first quarter of 2022 and is subject to approval by IOFB’s shareholders and regulatory agencies, as well as other customary closing conditions.
Pursuant to the Company’s share repurchase program approved on June 22, 2021, the Company has purchased 37,700 shares of common stock subsequent to September 30, 2021 and through November 2, 2021 for a total cost of $1.2 million inclusive of transaction costs, leaving $6.4 million remaining available under the program.


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

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

•the effects of the COVID-19 pandemic, including its effects on the economic environment, our customers and our operations, including due to supply chain disruptions, as well as any changes to federal, state, or local government laws, regulations, or orders in connection with the pandemic;
•government intervention in the U.S. financial system in response to the COVID-19 pandemic, including the effects of recent legislative, tax, accounting and regulatory actions and reforms;
•the impact of the COVID-19 pandemic on our financial results, including possible lost revenue and increased expenses (including the cost of capital), as well as possible goodwill impairment charges;
•the risks of mergers (including with Iowa First Bancshares Corp.), 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 causing an increase in the allowance for credit losses, an increase in the credit loss expense, and a reduction in net earnings;
•the effects of interest rates, including on our net income and the value of our securities portfolio;
•changes in the economic environment, competition, or other factors that may affect our ability to acquire loans or influence the anticipated growth rate of loans and deposits and the quality of the loan portfolio and loan and deposit pricing;
•fluctuations in the value of our investment securities;
•governmental monetary and fiscal policies;
•changes in and uncertainty related to benchmark interest rates used to price 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;
•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 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, 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; and
•other factors and risks described under “Risk Factors” in this Form 10-Q and in other reports we file with the SEC.

We qualify all of our forward-looking statements by the foregoing cautionary statements. Because of these risks and other uncertainties, our actual future results, performance or achievement, or industry results, may be materially different from the results indicated by these forward-looking statements. In addition, our past results of operations are not necessarily indicative of our future results.
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OVERVIEW
The Company provides financial services to individuals, businesses, governmental units and institutional customers located primarily in the upper Midwest through its bank subsidiary, MidWestOne Bank. The Bank has locations throughout central and eastern Iowa, the Minneapolis/St. Paul metropolitan area of Minnesota, southwestern Wisconsin, southwestern Florida, and Denver, Colorado.
The Bank is focused on delivering relationship-based business and personal banking products and services. The Bank provides commercial loans, real estate loans, agricultural loans, credit card loans, and consumer loans. The Bank also provides deposit products including demand and interest checking accounts, savings accounts, money market accounts, and time deposits. Complementary to our loan and deposit products, the Bank also provides products and services including treasury management, Zelle, online and mobile banking, credit and debit cards, ATMs, and safe deposit boxes. The Bank also has a trust department through which it offers services including the administration of estates, personal trusts, and conservatorships and the management of real property. Finally, the Bank’s investment services department offers financial planning, investment advisory, and retail securities brokerage services (the latter of which is provided through an agreement with a third-party registered broker-dealer).
Our results of operations 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, 2020, filed with the SEC on March 11, 2021. Results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of results to be attained for any other period.
COVID-19 Update
Our response to COVID-19 continues to be focused on how we can best serve our employees, customers, and communities. The Bank has utilized a combination of digital banking, voice, branch drive-thru and other channels in order to meet the needs of our customers. We implemented additional safety measures to achieve appropriate social distancing for both customers and employees throughout our locations. We have continued to adjust procedures and restrictions based on local conditions and generally in alignment with guidance from the Centers for Disease Control.
Loan Payment Deferral Program Update: The federal government has taken several actions designed to cushion the economic impact as a result of COVID-19 and related restrictions. The CARES Act and guidance from the FRB and the FDIC allow financial institutions the option to temporarily suspend certain requirements under GAAP related to TDRs for a limited period of time during the COVID-19 pandemic and that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not to be considered TDRs. This includes short-term (e.g., six months) modifications, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented.
As of September 30, 2021, the outstanding balance of loans modified as a result of the COVID-19 pandemic was $4.5 million, as compared to $44.1 million as of December 31, 2020.
PPP Loans: The Bank was a participating lender in the PPP. The PPP loans have a two-year or five-year term and earn interest at 1%. Loans funded through the PPP are fully guaranteed by the U.S. government if certain criteria are met. The Company believes that the majority of these loans will be forgiven by the SBA in accordance with the terms of the program. Should those circumstances change, the Company could be required to establish additional allowance for credit loss through additional credit loss expense charged to earnings.





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The following table presents PPP loan measures as of the dates indicated:
September 30, 2021 December 31, 2020
Round 1 Round 2 Total Round 1 Round 2 Total
(Dollars in millions) # $ # $ # $ # $ # $ # $
Total PPP Loans Funded 2,681 $ 348.5  2,175 $ 149.3  4,856 $ 497.8  2,681 $ 348.5  — $ —  2,681 $ 348.5 
PPP Loan Forgiveness 2,478 323.7  1,514 72.9  3,992 396.6  253 70.1  — —  253 70.1 
Outstanding PPP Loans(1)
184 16.3  661 73.1  845 89.4  2,410 259.3  — —  2,410 259.3 
Unearned Income $0.1 $2.8 $2.9 $5.3 $— $5.3
(1) Outstanding loans are presented net of unearned income.
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, 2020, filed with the SEC on March 11, 2021, and there have been no material changes in these critical accounting policies since December 31, 2020.

RESULTS OF OPERATIONS
Comparison of Operating Results for the Three Months Ended September 30, 2021 and September 30, 2020
Summary
Overall: Our consolidated net income for the three months ended September 30, 2021 was $16.3 million, an increase of $36.1 million, from the net loss of $19.8 million for the three months ended September 30, 2020. The increase in net income was due primarily to a goodwill impairment charge of $31.5 million that was recorded in the third quarter of 2020, which did not recur in the three months ended September 30, 2021. In addition, the increase in net income for the three months ended September 30, 2021 was due in part to a decline in credit loss expense of $6.1 million, or 121.6%, coupled with a $2.5 million, or 6.7%, increase in net interest income. Partially offsetting the identified increases to core earnings was a $2.2 million, or 98.6%, increase in income tax expense, a $1.3 million, or 4.7%, increase in noninterest expense when excluding the impact of the goodwill impairment, and a $0.4 million, or 4.1%, decrease in noninterest income.
Credit Loss (Benefit) Expense: The credit loss benefit of $1.1 million recorded in the third quarter of 2021 reflected overall improvements in forecasted economic conditions and stabilization of the credit risk profile. In addition, during the third quarter of 2021, net loan recoveries were $0.9 million, as compared to net loan charge-offs of $1.8 million in the third quarter of 2020. The Company recorded credit loss expense of $5.0 million in the third quarter of 2020 primarily due to the impact of economic uncertainty stemming from the COVID-19 pandemic on forecasted economic conditions.
Noninterest Income: Noninterest income decreased $0.4 million primarily due to a decline in mortgage origination fee income of $1.3 million, partially offset by an increase of $0.6 million in investment services and trust activities revenue driven by positive improvements in the financial markets and increased assets under administration and a $0.2 million increase in card revenue, which reflected an increase in transaction volumes in the third quarter of 2021 when compared to the third quarter of 2020.
Noninterest Expense: The $30.2 million decline in noninterest expense was primarily due to a $31.5 million goodwill impairment charge recorded in the third quarter of 2020 that did not recur in the third quarter of 2021. Excluding the goodwill impairment, noninterest expense increased $1.3 million in the third quarter of 2021 as compared to the third quarter of 2020, largely due to increases of $0.9 million, $0.3 million, and $0.3 million of compensation and employee benefits, occupancy expense of premises, net, and 'Other' noninterest expense, respectively. The increase in compensation and employee benefits was primarily due to an increase of $0.7 million of incentive and commission expense. Occupancy expense of premises, net increased $0.3 million, primarily as a result of the disposal and writedown of fixed assets, while 'Other' noninterest expense increased primarily as a result of $0.7 million of expenses incurred for the settlement of litigation claims. Partially offsetting the identified increases in noninterest expense was a decline of $0.4 million in the amortization of intangibles, which reflected the accelerated amortization methodology utilized for certain finite-lived intangible assets.
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Financial Performance: Both basic and diluted earnings per common share for the three months ended September 30, 2021 were $1.03 as compared with both basic and diluted loss per common share of $1.23 for the three months ended September 30, 2020. Our annualized return on average shareholders' equity was 12.00% for the three months ended September 30, 2021 compared with (14.88)% for the three months ended September 30, 2020.
Selected financial performance and capital ratios for the Company are presented in the table below as of or for the quarters ended September 30, 2021 and 2020.
As of or for the Three Months Ended September 30,
(dollars in thousands, except per share amounts) 2021   2020
Net Income $ 16,311    $ (19,824)
Return on Average Assets 1.11  %   (1.48) %
Return on Average Equity 12.00    (14.88)
Return on Average Tangible Equity(1)
15.06    12.56 
Efficiency Ratio(1)
56.34  55.37 
Dividend Payout Ratio 21.84 
nm(2)
Common Equity Ratio 9.03    9.36 
Tangible Common Equity Ratio(1)
7.71    7.82 
Book Value per Share $ 33.71  $ 31.00 
Tangible Book Value per Share(1)
28.40  25.45 
(1) A non-GAAP financial measure. See "Non-GAAP Financial Measures" for a reconciliation to the most comparable GAAP equivalents.
(2) Ratio has been determined to be not meaningful ("nm") for this period.
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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,
  2021   2020
  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)
$ 3,356,680  $ 36,622    4.33  %   $ 3,576,642  $ 38,727    4.31  %
Taxable investment securities
1,628,605  6,655    1.62    864,864  4,574    2.10 
Tax-exempt investment securities (2)(4)
459,717  3,043    2.63    405,517  2,968    2.91 
Total securities held for investment (2)
2,088,322  9,698    1.84    1,270,381  7,542    2.36 
Other
44,915  21    0.19    88,152  29    0.13 
Total interest earning assets (2)
$ 5,489,917  $ 46,341    3.35  %   $ 4,935,175  $ 46,298    3.73  %
Other assets
321,311      376,211   
Total assets
$ 5,811,228      $ 5,311,386   
         
LIABILITIES AND SHAREHOLDERS' EQUITY      
Interest checking deposits
$ 1,434,560  $ 1,056  0.29  % $ 1,174,033  $ 1,049  0.36  %
Money market deposits
955,174  506  0.21  847,059  622  0.29 
Savings deposits
606,449  316    0.21    473,000  351    0.30 
Time deposits
890,866  1,272    0.57    931,655  3,274    1.40 
Total interest bearing deposits
3,887,049  3,150    0.32    3,425,747  5,296    0.62 
Short-term borrowings
182,484  132    0.29    165,840  175    0.42 
Long-term debt 163,817  1,597    3.87    231,406  1,874    3.22 
Total borrowed funds
346,301  1,729  1.98  397,246  2,049  2.05 
Total interest bearing liabilities
$ 4,233,350  $ 4,879    0.46  %   $ 3,822,993  $ 7,345    0.76  %
                 
Noninterest bearing deposits
995,786      891,425   
Other liabilities
43,040      67,111   
Shareholders’ equity
539,052  529,857 
Total liabilities and shareholders’ equity
$ 5,811,228      $ 5,311,386   
Net interest income (2)
  $ 41,462        $ 38,953   
Net interest spread(2)
2.89  % 2.97  %
Net interest margin(2)
3.00  % 3.14  %
Total deposits(5)
$ 4,882,835  $ 3,150  0.26  % $ 4,317,172  $ 5,296  0.49  %
Cost of funds(6)
0.37  % 0.62  %
(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 $3.5 million and $1.1 million for the three months ended September 30, 2021 and September 30, 2020, respectively. Loan purchase discount accretion was $774 thousand and $1.9 million for the three months ended September 30, 2021 and September 30, 2020, respectively. Tax equivalent adjustments were $507 thousand and $536 thousand for the three months ended September 30, 2021 and September 30, 2020, respectively. The federal statutory tax rate utilized was 21%.
(4)
Interest income includes tax equivalent adjustments of $615 thousand and $608 thousand for the three months ended September 30, 2021 and September 30, 2020, 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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Table of Contents
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,
  2021 Compared to 2020 Change due to
(in thousands) Volume   Yield/Cost   Net
Increase (decrease) in interest income:    
Loans, including fees (1)
$ (2,292)   $ 187    $ (2,105)
Taxable investment securities
3,315    (1,234)   2,081 
Tax-exempt investment securities (1)
376    (301)   75 
Total securities held for investment (1)
3,691    (1,535)   2,156 
Other
(18)   10    (8)
Change in interest income (1)
1,381    (1,338)   43 
Increase (decrease) in interest expense:    
Interest checking deposits
224  (217) 7 
Money market deposits
71  (187) (116)
Savings deposits
87    (122)   (35)
Time deposits
(138)   (1,864)   (2,002)
Total interest-bearing deposits
244    (2,390)   (2,146)
Short-term borrowings
16    (59)   (43)
Long-term debt
(612)   335    (277)
Total borrowed funds
(596)   276    (320)
Change in interest expense
(352)   (2,114)   (2,466)
Change in net interest income $ 1,733    $ 776    $ 2,509 
Percentage (decrease) in net interest income over prior period     6.4  %
(1) Tax equivalent, using a federal statutory tax rate of 21%.
Our tax equivalent net interest income for the third quarter of 2021 was $41.5 million, an increase of $2.5 million, or 6.4%, as compared to $39.0 million for the third quarter of 2020. The increase in tax equivalent net interest income in the third quarter of 2021 as compared to the third quarter of 2020 was due primarily to an increase of $2.2 million, or 28.6%, in interest income earned from investment securities and a decline of $2.5 million, or 33.6%, in interest expense, partially offset by a decline of $2.1 million, or 5.4%, in loan interest income. The increase in interest income earned from investment securities reflected the larger volume of securities held for investment from the Company's investment of net deposit inflows, partially offset by a decrease in yield. The decline in interest expense was primarily due to a decline in interest expense on interest-bearing deposits of $2.1 million, or 40.5%, to $3.2 million as a result of lower rates paid on such deposits that more than offset the increase in the volume of deposits. Loan purchase discount accretion added $0.8 million to net interest income in the third quarter of 2021 compared to $1.9 million in the third quarter of 2020. Net fee accretion for PPP loans for the third quarter of 2021 was $3.6 million, compared to $1.3 million in the third quarter of 2020.
The tax equivalent net interest margin for the third quarter of 2021 was 3.00%, or 14 basis points lower than the tax equivalent net interest margin of 3.14% for the third quarter of 2020. The tax equivalent yield on investment securities decreased by 52 basis points, while tax equivalent yield on loans increased 2 basis points. Combined, the resulting yield on interest-earning assets for the third quarter of 2021 was 38 basis points lower than the third quarter of 2020, which primarily reflected the shift in earning asset mix to a greater proportion of investment securities, which generally have lower yields than loans. The cost of interest-bearing deposits decreased 30 basis points, while the average cost of borrowings was 7 basis point lower for the third quarter of 2021, compared to the third quarter of 2020.
Credit Loss (Benefit) Expense
We recorded a credit loss benefit during the third quarter of 2021 of $1.1 million, as compared to credit loss expense of $5.0 million for the third quarter of 2020, a decrease of $6.1 million, or 121.6%. In the third quarter of 2020, the Company recorded a credit loss expense primarily due to the impact of economic uncertainty stemming from the COVID-19 pandemic on forecasted economic conditions. The decline in credit loss expense in the third quarter of 2021 reflected overall improvements in forecasted economic conditions and stabilization of the credit risk profile, coupled with net loan recoveries of $0.9 million in the third quarter of 2021 as compared to net loan charge-offs of $1.8 million in the third quarter of 2020. Specifically, 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.
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Table of Contents
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) 2021   2020 $ Change % Change
Investment services and trust activities $ 2,915    $ 2,361  $ 554  23.5  %
Service charges and fees 1,613    1,491  122  8.2 
Card revenue 1,820    1,600  220  13.8 
Loan revenue 1,935  3,252  (1,317) (40.5)
Bank-owned life insurance 532    530  2  0.4 
Investment securities gains, net 36    106  (70) (66.0)
Other 331  230  101  43.9 
Total noninterest income
$ 9,182    $ 9,570  $ (388) (4.1) %
Total noninterest income for the third quarter of 2021 decreased $0.4 million, or 4.1%, to $9.2 million from $9.6 million in the third quarter of 2020. The decline in noninterest income was primarily due to a decline in loan revenue of $1.3 million, partially offset by a cumulative increase of $1.0 million in all other sources of noninterest income, excluding investment securities gains, net. The decline in loan revenue was primarily due to a $1.3 million decrease in mortgage origination fee income. Partially offsetting the decline of noninterest income were increases of $0.6 million and $0.2 million in investment services and trust activities revenue and card revenue, respectively. The increase in investment services and trust activities revenue was driven by positive improvements in the financial markets and increased assets under administration, while the increase in card revenue reflected an increase in transaction volumes in third quarter of 2021 when compared to the third quarter of 2020.
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) 2021 2020 $ Change % Change
Compensation and employee benefits $ 17,350  $ 16,460  $ 890  5.4  %
Occupancy expense of premises, net 2,547  2,278  269  11.8 
Equipment 1,973  1,935  38  2.0 
Legal and professional 1,272  1,184  88  7.4 
Data processing 1,406  1,308  98  7.5 
Marketing 1,022  857  165  19.3 
Amortization of intangibles 1,264  1,631  (367) (22.5)
FDIC insurance 435  470  (35) (7.4)
Communications 275  428  (153) (35.7)
Foreclosed assets, net 43  13  30  230.8 
Other 2,191  1,875  316  16.9 
Total core noninterest expense
$ 29,778  $ 28,439  $ 1,339  4.7  %
Goodwill impairment —  31,500  (31,500) 100.0 
Total noninterest expense
$ 29,778  $ 59,939  $ (30,161) (50.3) %
Noninterest expense for the third quarter of 2021 was $29.8 million, a decrease of $30.2 million, or 50.3%, from $59.9 million for the third quarter of 2020, primarily due to a $31.5 million goodwill impairment charge recorded in the third quarter of 2020 that did not recur in the third quarter of 2021. Excluding the goodwill impairment, noninterest expense increased $1.3 million, or 4.7%, in the third quarter of 2021 as compared to the third quarter of 2020, largely due to increases of $0.9 million, $0.3 million, and $0.3 million of compensation and employee benefits, occupancy expense of premises, net, and 'Other' noninterest expense, respectively. The increase in compensation and employee benefits was primarily due to an increase of $0.7 million of incentive and commission expense. The increase in occupancy expense of premises, net was mostly due to the disposal and writedown of fixed assets totaling $0.3 million, while the increase in 'Other' noninterest expense was primarily due to $0.7 million of expenses incurred for the settlement of litigation claims. Partially offsetting the identified increases in noninterest expense was a decline of $0.4 million in the amortization of intangibles, which reflected the accelerated amortization methodology utilized for certain finite-lived intangible assets and a $0.5 million reduction in tax credit partnership investment amortization, which is 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 21.7% for the three months ended September 30, 2021, as compared to an effective tax rate of (12.9)% for the three months ended September 30, 2020. The effective tax rate for the full year 2021 is expected to be in the range of 20-22%.

Comparison of Operating Results for the Nine Months Ended September 30, 2021 and September 30, 2020
Summary
Overall: Our consolidated net income for the nine months ended September 30, 2021 was $55.2 million, an increase of $65.3 million from net loss of $10.1 million for the nine months ended September 30, 2020. The increase in net income was due primarily to a decrease of $39.4 million in credit loss expense, coupled with a decrease of $31.8 million, or 27.0%, in noninterest expense primarily driven by the $31.5 million goodwill impairment charge that was recorded in the third quarter of 2020. Partially offsetting the identified increases to net income was an increase in income tax expense of $12.6 million.
Credit Loss (Benefit) Expense: The credit loss benefit of $8.0 million recorded in the first nine months of 2021 reflected overall improvements in forecasted economic conditions and stabilization of the credit risk profile. In addition, during the first nine months of 2021, net loan recoveries were $0.2 million, as compared to net loan charge-offs of $4.9 million during the first nine months of 2020. The Company recorded credit loss expense of $31.4 million in the first nine months of 2020 primarily due to the impact of economic uncertainty stemming from the COVID-19 pandemic on forecasted economic conditions.
Noninterest Income: The increase in noninterest income was primarily due to increased loan revenue of $3.5 million, which reflected a $1.3 million increase in mortgage origination fee income, as well as an increase of $2.2 million stemming from the fair value of our mortgage servicing rights. Also contributing to the increase in noninterest income were increases of $1.4 million and $1.1 million of revenue from investment services and trust activities and card revenue, respectively. Partially offsetting the identified increases in noninterest income was a decrease in other noninterest income of $2.7 million, which was primarily due to a decline in income from our commercial loan back-to-back swap program.
Noninterest Expense: The decline in noninterest expense of $31.8 million was due primarily to a $31.5 million goodwill impairment charge recorded in the third quarter of 2020 that did not recur in 2021. Excluding the goodwill impairment, noninterest expense declined $0.3 million, largely as a result of decreases of $1.3 million, $1.0 million, and $0.7 million in the amortization of intangibles, 'Other' noninterest expense, and legal and professional noninterest expenses, respectively. The decline in the amortization of intangibles reflected the accelerated amortization methodology utilized for certain finite-lived intangible assets. The decline in 'Other' noninterest expense was principally due to a $1.3 million reduction in tax credit partnership investment amortization, while the decline in legal and professional expenses reflected a decline in loan legal expenses and a decline in non-recurring audit fees. Partially offsetting the identified decreases in noninterest expense was an increase of $2.9 million in compensation and employee benefits expense that stemmed primarily from increased incentive and commission expense, normal annual increases in compensation, increased share-based compensation expense, and a decline in deferred compensation and employee benefits stemming from loan origination costs.
Financial Performance: Basic earnings per common share were $3.47, while diluted earnings per common share were $3.46 for the nine months ended September 30, 2021. In comparison, basic and diluted loss per common share was $0.63 for the nine months ended September 30, 2020. Our annualized return on average shareholders' equity was 14.03% for the nine months ended September 30, 2021 compared with (2.60)% for the nine months ended September 30, 2020.
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Selected financial performance and capital ratios for the Company are presented in the table below as of or for the nine months ended September 30, 2021 and 2020.
  As of and for the Nine Months Ended September 30,
(dollars in thousands, except per share amounts) 2021   2020
Net Income $ 55,230    $ (10,087)
Return on Average Assets 1.29  %   (0.27) %
Return on Average Equity 14.03    (2.60)
Return on Average Tangible Equity(1)
17.69    8.58 
Efficiency Ratio (1)
53.95  55.95 
Dividend Payout Ratio 19.45 
nm(2)
Common Equity Ratio 9.03    9.36 
Tangible Common Equity Ratio(1)
7.71    7.82 
Book Value per Share $ 33.71  $ 31.00 
Tangible Book Value per Share(1)
28.40  25.45 
(1) A non-GAAP financial measure. See "Non-GAAP Financial Measures" for a reconciliation to the most comparable GAAP equivalents.
(2) Ratio has been determined to be not meaningful ("nm") for this period.
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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,
  2021   2020
(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)
$ 3,394,066  $ 108,950    4.29  %   $ 3,548,968  $ 121,957    4.59  %
Taxable investment securities
1,501,252  18,231    1.62    721,266  12,937    2.40 
Tax-exempt investment securities (2)(4)
466,209  9,442    2.71    305,514  7,215    3.15 
Total securities held for investment (2)
1,967,461  27,673    1.88    1,026,780  20,152    2.62 
Other
43,250  54    0.17    70,983  233    0.44 
Total interest-earning assets (2)
$ 5,404,777  $ 136,677    3.38  %   $ 4,646,731  $ 142,342    4.09  %
Other assets
324,045      380,961   
Total assets
$ 5,728,822      $ 5,027,692   
         
LIABILITIES AND SHAREHOLDERS' EQUITY      
Interest checking deposits
$ 1,418,339  $ 3,142  0.30  % $ 1,052,816  $ 3,477  0.44  %
Money market deposits
936,932  1,486  0.21  814,669  3,152  0.52 
Savings deposits
585,334  926    0.21    435,612  1,107    0.34 
Time deposits
875,027  4,613    0.70    973,044  11,918    1.64 
Total interest-bearing deposits
3,815,632  10,167    0.36    3,276,141  19,654    0.80 
Short-term borrowings
192,083  421    0.29    149,041  772    0.69 
Long-term debt
186,323  5,160    3.70    219,455  4,964    3.02 
Total borrowed funds
378,406  5,581  1.97  368,496  5,736  2.08 
Total interest-bearing liabilities
$ 4,194,038  $ 15,748    0.50  %   $ 3,644,637  $ 25,390    0.93  %
Noninterest bearing deposits 962,852  805,641 
Other liabilities 45,671  58,618 
Shareholders' equity 526,261  518,796 
Total liabilities and shareholders' equity $ 5,728,822          $ 5,027,692       
Net interest income (2)
$ 120,929  $ 116,952 
Net interest spread(2)
  2.88  %     3.16  %
Net interest margin (2)
  2.99  %     3.36  %
Total deposits(5)
$ 4,778,484  $ 10,167  0.28  % $ 4,081,782  $ 19,654  0.64  %
Cost of funds(6)
0.41  % 0.76  %
 
(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 $9.3 million and $1.8 million for the nine months ended September 30, 2021 and September 30, 2020, respectively. Loan purchase discount accretion was $2.7 million and $7.6 million for the nine months ended September 30, 2021 and September 30, 2020, respectively. Tax equivalent adjustments were $1.6 million and $1.5 million for the nine months ended September 30, 2021 and September 30, 2020, respectively. The federal statutory tax rate utilized was 21%.
(4)
Interest income includes tax equivalent adjustments of $1.9 million and $1.5 million for the nine months ended September 30, 2021 and September 30, 2020, 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,
  2021 Compared to 2020 Change due to
(in thousands) Volume   Yield/Cost   Net
Increase (decrease) in interest income:    
Loans, including fees (1)
$ (5,208)   $ (7,799)   $ (13,007)
Taxable investment securities
10,542    (5,248)   5,294 
Tax-exempt investment securities(1)
3,348    (1,121)   2,227 
Total securities held for investment(1)
13,890    (6,369)   7,521 
Other
(70)   (109)   (179)
Change in interest income (1)
8,612    (14,277)   (5,665)
Increase (decrease) in interest expense:    
Interest checking deposits
975  (1,310) (335)
Money market deposits
425  (2,091) (1,666)
Savings deposits
316    (497)   (181)
Time deposits
(1,092)   (6,213)   (7,305)
Total interest-bearing deposits
624    (10,111)   (9,487)
Short-term borrowings
180    (531)   (351)
Long-term debt
(817)   1,013    196 
Total borrowed funds
(637)   482    (155)
Change in interest expense
(13)   (9,629)   (9,642)
Change in net interest income $ 8,625    $ (4,648)   $ 3,977 
Percentage (decrease) increase in net interest income over prior period     3.4  %
(1) Tax equivalent, using a federal statutory tax rate of 21%.

Our tax equivalent net interest income for the nine months ended September 30, 2021 was $120.9 million, an increase of $4.0 million, or 3.4%, as compared to $117.0 million for the nine months ended September 30, 2020. The increase in tax equivalent net interest income for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 was due primarily to a decline in interest expenses of $9.6 million, or 38.0%, and an increase of $7.5 million, or 37.3%, in interest income earned from investment securities. The decline in interest expense was primarily due to a decline in interest expense on interest-bearing deposits of $9.5 million, or 48.3%, to $10.2 million as a result of lower rates paid on such deposits that more than offset the increase in the volume of deposits. The increase in interest income earned from investment securities reflected the larger volume of securities held for investment from the Company's investment of net deposit inflows, partially offset by a decrease in yield. Partially offsetting the contributing factors to the increase in net interest income identified above was a decline of $13.0 million in loan interest income due to lower loan purchase discount accretion, which decreased $4.9 million, reduced loan demand and line utilization, coupled with the origination of new loans and repricing of variable rate loans at lower rates. The identified decline in interest income from loans was partially offset by a net increase in loan fees of $7.5 million, which was primarily due to PPP fee accretion.

The tax equivalent net interest margin for the nine months ended September 30, 2021 was 2.99%, or 37 basis points lower than the tax equivalent net interest margin of 3.36% for the nine months ended September 30, 2020. The tax equivalent yield on investment securities decreased by 74 basis points, while the yield on loans decreased 30 basis points. Combined, the resulting yield on interest-earning assets for the nine months ended September 30, 2021 was 71 basis points lower than the nine months ended September 30, 2020, and reflected a shift in earning asset mix to a greater proportion of investment securities, which generally have lower yields than loans, as well as the origination and re-pricing of loans at generally lower coupon rates compared to existing portfolio coupon rates. The cost of interest-bearing deposits decreased 44 basis points, while the average cost of borrowings was lower by 11 basis points for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020. Our lower deposit costs in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 were a result of lower market interest rates as a result of the continuation of the target federal funds interest rate of 0.0% - 0.25% in response to the COVID-19 pandemic, as well as the origination and re-pricing of time deposits at lower rates than the existing portfolio.
Credit Loss (Benefit) Expense
We recorded a credit loss benefit of $8.0 million in the first nine months of 2021, as compared to credit loss expense of $31.4 million for the first nine months of 2020, a decrease of $39.4 million, or 125.4%. The Company recorded credit loss expense in the first, second, and third quarters of 2020 primarily due to the impact of economic uncertainty stemming from the COVID-19
42
pandemic on forecasted economic conditions. The credit loss benefit recorded in the first nine months of 2021 reflected overall improvements in forecasted economic conditions and stabilization of the credit risk profile, coupled with net loan recoveries of $0.2 million in the first nine months of 2021, as compared to net loan charge-offs of $4.9 million in the first nine months of 2020. Specifically, 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) 2021   2020 $ Change % Change
Investment services and trust activities $ 8,560    $ 7,114  $ 1,446  20.3  %
Service charges and fees 4,575    4,607  (32) (0.7)
Card revenue 5,269    4,202  1,067  25.4 
Loan revenue 9,816    6,285  3,531  56.2 
Bank-owned life insurance 1,612  1,685  (73) (4.3)
Investment securities gains, net 105    154  (49) (31.8)
Other 1,287  3,947  (2,660) (67.4)
Total noninterest income
$ 31,224    $ 27,994  $ 3,230  11.5  %
Total noninterest income for the first nine months of 2021 increased $3.2 million, or 11.5%, to $31.2 million from $28.0 million during the same period of 2020. This increase was due to increases in loan revenue, investment services and trust activities, and card revenue of $3.5 million, $1.4 million, and $1.1 million, respectively. The increase in loan revenue was primarily due to an increase of $1.3 million in mortgage origination fee income, as well as an increase of $2.2 million stemming from the fair value of our mortgage servicing rights. Investment services and trust activities revenue was positively impacted by improvements in the financial markets and increased assets under administration, while the increase in card revenue reflects an increase in transaction volumes in the first nine months of 2021, as compared to first nine months of 2020. Partially offsetting the identified increases in noninterest income was a decrease in 'Other' noninterest income of $2.7 million, which was primarily due to a decline in income from our commercial loan back-to-back swap program.
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) 2021 2020 $ Change % Change
Compensation and employee benefits $ 51,671  $ 48,759  $ 2,912  6.0  %
Occupancy expense of premises, net 7,063  6,872  191  2.8 
Equipment 5,627  5,825  (198) (3.4)
Legal and professional 3,430  4,101  (671) (16.4)
Data processing 4,005  3,902  103  2.6 
Marketing 2,901  2,829  72  2.5 
Amortization of intangibles 4,112  5,407  (1,295) (24.0)
FDIC insurance 1,192  1,363  (171) (12.5)
Communications 1,055  1,334  (279) (20.9)
Foreclosed assets, net 226  185  41  22.2 
Other 4,866  5,901  (1,035) (17.5)
Total core noninterest expense
$ 86,148  $ 86,478  $ (330) (0.4) %
Goodwill impairment —  31,500  (31,500) 100.0 
Total noninterest expense
$ 86,148  $ 117,978  $ (31,830) (27.0) %

Noninterest expense for the nine months ended September 30, 2021 was $86.1 million, a decrease of $31.8 million, or 27.0%, from $118.0 million for the nine months ended September 30, 2020, primarily due to a $31.5 million goodwill impairment charge recorded in the third quarter of 2020 that did not recur in 2021. Excluding the goodwill impairment, noninterest expense declined $0.3 million, or 0.4%, in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020, largely due to decreases of $1.3 million, $1.0 million, and $0.7 million in the amortization of intangibles, 'Other' noninterest expense, and legal and professional noninterest expenses, respectively. The decline in the amortization of
43
intangibles reflected the accelerated amortization methodology utilized for certain finite-lived intangible assets. The decline in 'Other' noninterest expense was principally due to a reduction in tax credit partnership investment amortization of $1.3 million, which was partially offset by $0.7 million of expenses incurred for the settlement of litigation claims in the nine months ended September 30, 2021. The decline in legal and professional expenses reflected a decline in loan legal expenses, as well as a decline in non-recurring audit fees. Partially offsetting the identified decreases in noninterest expense was an increase of $2.9 million in compensation and employee benefits expense that stemmed primarily from increased incentive and commission expense, normal annual increases in compensation, increased share-based compensation expense, and a decline in deferred compensation and employee benefits stemming from loan origination cost.
Income Tax Expense
Our effective income tax rate, or income taxes divided by income before taxes, was 21.7% for the first nine months of 2021, as compared to an effective tax rate of (35.1)% for the first nine months of 2020. The effective tax rate for the full year 2021 is currently expected to be in the range of 20-22%.

FINANCIAL CONDITION
Following is a table that represents the major categories of the Company's balance sheet as of the dates indicated:
(dollars in thousands) September 30, 2021 December 31, 2020 $ Change % Change
ASSETS
Cash and cash equivalents $ 138,514  $ 82,659  $ 55,855  67.6  %
Loans held for sale 58,679  59,956  (1,277) (2.1)
Debt securities available for sale at fair value 2,136,902  1,657,381  479,521  28.9 
Loans held for investment, net of unearned income 3,268,644  3,482,223  (213,579) (6.1)
Allowance for credit losses (47,900) (55,500) 7,600  (13.7)
Total loans held for investment, net 3,220,744  3,426,723  (205,979) (6.0)
Other assets 320,584  329,929  (9,345) (2.8)
Total assets $ 5,875,423  $ 5,556,648  $ 318,775  5.7  %
LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits $ 4,957,781  $ 4,547,049  $ 410,732  9.0  %
Total borrowings 342,368  439,480  (97,112) (22.1)
Other liabilities 45,010  54,869  (9,859) (18.0)
Total shareholders' equity 530,264  515,250  15,014  2.9 
Total liabilities and shareholders' equity $ 5,875,423  $ 5,556,648  $ 318,775  5.7  %
Debt Securities Available for Sale
The composition of debt securities available for sale as of the dates indicated was as follows:
  September 30, 2021   December 31, 2020
(dollars in thousands) Balance % of Total   Balance % of Total
U.S. Government agencies and corporations $ 288  —  % $ 361  —  %
States and political subdivisions
701,281  32.8  628,346  37.9 
Mortgage-backed securities
109,231  5.1    94,018  5.7 
Collateralized mortgage obligations
853,833  40.0    565,836  34.1 
Corporate debt securities
472,269  22.1  368,820  22.3 
Fair value of debt securities available for sale
$ 2,136,902  100.0  %   $ 1,657,381  100.0  %
As of September 30, 2021, the fair value of debt securities available for sale was $2.1 billion, an increase of $479.5 million from $1.7 billion as of December 31, 2020. The increase was primarily driven by the excess liquidity generated by the increased levels of deposit balances that were deployed into investment security purchases. There were $21.9 million of gross unrealized gains and $17.2 million of gross unrealized losses in our debt securities available for sale portfolio for a net unrealized gain of $4.7 million at September 30, 2021.



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Loans
The composition of our loan portfolio by type of loan was as follows:
  September 30, 2021   December 31, 2020
(dollars in thousands) Balance % of Total   Balance % of Total
Agricultural $ 106,356  3.3  % $ 116,392  3.3  %
Commercial and industrial
927,258  28.4  1,055,488  30.3 
Commercial real estate:
 
Construction and development
146,417  4.5    181,291  5.2 
Farmland
130,936  4.0  144,970  4.2 
Multifamily
273,347  8.4  256,525  7.4 
Commercial real estate-other
1,148,658  35.0  1,149,575  33.0 
Total commercial real estate
1,699,358  51.9    1,732,361  49.8 
Residential real estate:
 
One- to four-family first liens
334,267  10.2    355,684  10.2 
One- to four-family junior liens
133,869  4.1    143,422  4.1 
Total residential real estate
468,136  14.3    499,106  14.3 
Consumer
67,536  2.1    78,876  2.3 
Loans held for investment, net of unearned income
$ 3,268,644  100.0  % $ 3,482,223  100.0  %
Loans held for sale $ 58,679  $ 59,956 
Loans held for investment, net of unearned income, decreased $213.6 million, or 6.1%, from a balance of $3.48 billion at December 31, 2020, to $3.27 billion at September 30, 2021, primarily as a result of PPP loan forgiveness, net loan pay-downs, and lower revolving line of credit utilization. As of September 30, 2021, the amortized cost basis of PPP loans was $89.4 million, or 2.7% of loans held for investment, as compared to $259.3 million, or 7.4% of loans held for investment, at December 31, 2020, which are included in the agricultural and commercial and industrial loan portfolios. See Note 3. Loans Receivable and the Allowance for Credit Losses to our consolidated financial statements for additional information related to our loan portfolio.
Commitments under standby letters of credit, unused lines of credit and other conditionally approved credit lines totaled approximately $969.7 million and $931.5 million as of September 30, 2021 and December 31, 2020, respectively.
Our loan to deposit ratio decreased to 65.93% as of September 30, 2021 as compared to 76.58% as of December 31, 2020. The loan to deposit ratio fell when compared to the prior year-end due to PPP loan forgiveness, net loan pay-downs, and lower revolving line of credit utilization. In addition, deposit growth fueled by the government stimulus and PPP loan proceeds, which were generally deposited into customer accounts at the Bank, were principally utilized to purchase debt securities.
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Nonperforming Assets
The following table sets forth information concerning nonperforming loans by class of receivable and our nonperforming assets at September 30, 2021 and December 31, 2020:
September 30, 2021 December 31, 2020
(in thousands) Nonaccrual 90+ Days Past Due and Still Accruing Interest Total Nonaccrual 90+ Days Past Due and Still Accruing Interest Total
Agricultural
$ 2,120  $ —  $ 2,120  $ 2,584  $ —  $ 2,584 
Commercial and industrial
4,145  50  4,195  7,326  106  7,432 
Commercial real estate:
Construction and development
607  —  607  1,145  —  1,145 
Farmland
6,755  —  6,755  8,319  —  8,319 
Multifamily
1,009  —  1,009  746  —  746 
Commercial real estate-other
16,811  —  16,811  19,134  —  19,134 
Total commercial real estate
25,182  —  25,182  29,344  —  29,344 
Residential real estate:
One- to four- family first liens
1,532  —  1,532  1,895  625  2,520 
One- to four- family junior liens
628  1  629  722  —  722 
Total residential real estate
2,160  1  2,161  2,617  625  3,242 
Consumer
50  —  50  79  8  87 
Total nonperforming loans
$ 33,657  $ 51  $ 33,708  $ 41,950  $ 739  $ 42,689 
     Foreclosed assets, net 454  2,316 
      Total nonperforming assets $ 34,162  $ 45,005 
Nonperforming loans ratio (1)
1.03  % 1.23  %
Nonperforming assets ratio (2)
0.58  % 0.81  %
(1) 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.
(2) Nonperforming assets ratio is calculated as total nonperforming assets divided by total assets at the end of the period.
Loan Review and Classification Process for Agricultural, Commercial and Industrial, and Commercial Real Estate Loans:
The Bank maintains a loan review and classification process which involves multiple officers of the Bank and is designed to assess the general quality of credit underwriting and to promote early identification of potential problem loans. All commercial and agricultural loan officers are charged with the responsibility of risk rating all loans in their portfolios and updating the ratings, positively or negatively, on an ongoing basis as conditions warrant. Risk ratings are selected from an 8-point scale with ratings as follows: ratings 1- 4 Satisfactory (pass), rating 5 Watch (potential weakness), rating 6 Substandard (well-defined weakness), rating 7 Doubtful, and rating 8 Loss.
When a loan officer originates a new loan, based upon proper loan authorization, they document the credit file with an offering sheet summary, supplemental underwriting analysis, relevant financial information and collateral evaluations. All of this information is used in the determination of the initial loan risk rating. The Bank’s loan review department undertakes independent credit reviews of relationships based on either criteria established by loan policy, risk-focused sampling, or random sampling. 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, as determined semi-annually as of month-end in December and June, no less than 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
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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, 2021, the Company classified two loans and nine loans as TDRs, respectively, due to the Company granting a concession to a borrower experiencing financial difficulty. The aggregate post-modification outstanding recorded investment of the loans classified as TDRs during three and nine months ended September 30, 2021 was $9.6 million and $12.1 million, respectively.
Refer above to the "COVID-19 Update" section for details pertaining to the modifications that were a result of COVID-19 that were not deemed to be TDRs.
Allowance for Credit Losses
Our ACL as of September 30, 2021 was $47.9 million, which was 1.47% of loans held for investment, net of unearned income. This compares with an ACL of $55.5 million as of December 31, 2020, which was 1.59% of loans held for investment, net of unearned income. The ACL at September 30, 2021 does not include an allowance amount for PPP loans as they are fully guaranteed by the SBA. When adjusted for the impact of PPP loans, the ratio of the ACL as a percentage of loans held for investment, net of unearned income as of September 30, 2021 was 1.51% and as of December 31, 2020 was 1.72% (a non-GAAP financial measure - see "Non-GAAP Financial Measures"). The decrease in the ACL reflects overall improvements in forecasted economic conditions and stabilization of the credit risk profile. The liability for off-balance sheet credit exposures totaled $3.9 million as of September 30, 2021 as compared to $4.1 million at December 31, 2020 and is included in 'Other liabilities' on the balance sheet.
The Company recorded a credit loss benefit related to loans of $7.8 million for the nine months ended September 30, 2021 as compared to a credit loss expense related to loans of $30.3 million for the nine months ended September 30, 2020. Gross charge-offs for the first nine months of 2021 totaled $2.1 million, while there were $2.2 million in gross recoveries of
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previously charged-off loans. The ratio of annualized net loan (recoveries) charge offs to average loans for the first nine months of 2021 was (0.01)% compared to 0.18% for the nine months ended September 30, 2020.
Economic Forecast: At September 30, 2021, the economic forecast used by the Company showed the following: (1) Midwest unemployment – decreases over the next four forecasted quarters; (2) Year-to-year change in national retail sales - increases over the next four forecasted quarters; (3) Year-to-year change in CRE Index - decreases over the next two forecasted quarters, followed by an increase in the third and fourth forecasted quarters; (4) Year-to-year change in U.S. GDP - increases over the next four forecasted quarters; (5) Year-to-year change in National Home Price Index – increases over the next four forecasted quarters; and (6) Rental Vacancy - increases over the next four forecasted quarters. The economic forecast loss driver data overall exhibited improvements in the economic forecast and stabilization of the credit profile outlook when compared to the previously disclosed second quarter of 2021 results.
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. At September 30, 2021, TDRs were not a material portion of the loan portfolio. We review loans 90 days or more past due that are still accruing interest no less than quarterly to determine if the asset is both well secured and in the process of collection. If not, such loans are placed on non-accrual status.
Based on the inherent risk in the loan portfolio, management believed that as of September 30, 2021, the ACL was adequate; however, there is no assurance losses will not exceed the allowance, and any growth in the loan portfolio or uncertainty in the general economy will require that management continue to evaluate the adequacy of the ACL and make additional provisions in future periods as deemed necessary. See Note 3. 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, 2021 As of December 31, 2020
(in thousands) Balance % of Total Balance % of Total
Noninterest bearing deposits $ 999,887  20.2  % $ 910,655  20.0  %
Interest checking deposits 1,464,389  29.5  1,351,641  29.7 
Money market deposits 989,095  20.0  918,654  20.2 
Savings deposits 616,924  12.4  529,751  11.7 
    Total non-maturity deposits 4,070,295  82.1  3,710,701  81.6 
Time deposits of $250 and under 522,907  10.5  581,471  12.8 
Time deposits of over $250 364,579  7.4  254,877  5.6 
    Total time deposits 887,486  17.9  836,348  18.4 
Total deposits
$ 4,957,781  100.0  % $ 4,547,049  100.0  %
Deposits increased $410.7 million from December 31, 2020, or 9.0%, reflecting the combination of fiscal stimulus and the deposit of PPP loan proceeds, which were generally deposited into customer accounts at the Bank. Approximately 82.1% of our total deposits were considered “core” deposits as of September 30, 2021, compared to 81.6% at December 31, 2020. We consider core deposits to be the total of all deposits other than time deposits and non-reciprocal brokered money market deposits. See Note 7. Deposits to our consolidated financial statements for additional information related to our deposits.

Short-Term Borrowings
Federal funds purchased - The Bank purchases federal funds for short-term funding needs from correspondent and regional banks. As of September 30, 2021 and December 31, 2020, the Bank had no federal funds purchased.
Securities Sold Under Agreements to Repurchase - Securities sold under agreements to repurchase rose $13.2 million, or 7.6%, to $187.5 million as of September 30, 2021, compared with $174.3 million as of December 31, 2020. Securities sold under agreements to repurchase are agreements in which the Company acquires funds by selling investment securities to another party under a simultaneous agreement to repurchase the same investment securities at a specified price and date. The Company enters into repurchase agreements and also offers a demand deposit account product to customers that sweeps their balances in excess of an agreed upon target amount into overnight repurchase agreements. The balance of these borrowings vary according to the liquidity needs of the customers participating in these sweep accounts.
Federal Home Loan Bank Advances - The Bank utilizes FHLB short-term advances for short-term funding needs. The Company had no short-term advances as of September 30, 2021, compared with $56.5 million as of December 31, 2020.
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Other - At September 30, 2021 and December 31, 2020, the Company had no Federal Reserve Discount Window borrowings, while the financing capacity was $62.7 million as of September 30, 2021 and $67.7 million as of December 31, 2020.
The Bank maintains a credit agreement with a correspondent bank under which the Company is able to borrow up to $25.0 million from an unsecured revolving credit facility. The Company had no balance outstanding under this revolving credit facility as of both September 30, 2021 and December 31, 2020.
See Note 8. Short-Term Borrowings to our unaudited consolidated financial statements for additional information related to short-term borrowings.
Long-Term Debt
Finance Lease Payable - The Company has one existing finance lease for a branch location, with a present value liability balance of $1.0 million as of September 30, 2021 and $1.1 million as of December 31, 2020.
Junior Subordinated Notes Issued to Capital Trusts - Junior subordinated notes that have been issued to capital trusts that issued trust preferred securities were $41.9 million as of September 30, 2021 and $41.8 million as of December 31, 2020.
Subordinated Debentures - On May 1, 2019, the Company assumed $10.9 million in aggregate principal amount of subordinated debentures as a result of the merger with ATBancorp. The Company redeemed the ATB Debentures, in whole, on May 31, 2021. In addition, on July 28, 2020, the Company completed the private placement offering of $65.0 million aggregate principal amount of 5.75% fixed-to-floating rate subordinated notes, of which $63.75 million have been exchanged for subordinated notes registered under the Securities Act of 1933. The balance of subordinated debt was $63.8 million as of September 30, 2021, as compared to $74.6 million at December 31, 2020.
Federal Home Loan Bank Borrowings - FHLB borrowings totaled $48.1 million as of September 30, 2021, compared with $91.2 million as of December 31, 2020, a decrease of $43.1 million, or 47.2%, due to maturities of FHLB advances. We utilize FHLB borrowings as a supplement to customer deposits to fund interest-earning assets and to assist in managing interest rate risk.
See Note 9. Long-Term Debt to our unaudited consolidated financial statements for additional information related to long-term debt.
Capital Resources
Shareholder's Equity
Total shareholders’ equity was $530.3 million as of September 30, 2021, compared to $515.3 million as of December 31, 2020, an increase of $15.0 million, or 2.9%, primarily as a result of an increase in retained earnings, partially offset by decreased AOCI and an increase in treasury stock. The total shareholders’ equity to total assets ratio was 9.03% at September 30, 2021, down from 9.27% at December 31, 2020. The tangible common equity ratio (a non-GAAP financial measure -see "Non-GAAP Financial Measures") was 7.71% at September 30, 2021, compared with 7.82% at December 31, 2020. Book value was $33.71 per share at September 30, 2021, an increase from $32.17 per share at December 31, 2020. Tangible book value per share (a non-GAAP financial measure - see "Non-GAAP Financial Measures") was $28.40 at September 30, 2021, an increase from $26.69 per share at December 31, 2020.
Capital Adequacy
Our Tier 1 capital to risk-weighted assets ratio was 11.20% as of September 30, 2021 and was 10.70% as of December 31, 2020. 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, 2021, 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 11. Regulatory Capital Requirements and Restrictions on Subsidiary Cash to our unaudited consolidated financial statements for additional information related to our capital.


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Stock Compensation
Restricted stock units were granted to certain officers and directors of the Company on February 15, 2021, May 15, 2021, and August 15, 2021, in the aggregate amounts of 65,168, 11,231, and 7,667, respectively. Additionally, during the first nine months of 2021, 53,583 shares of common stock were issued in connection with the vesting of previously awarded grants of restricted stock units, of which 4,272 shares were surrendered by grantees to satisfy tax requirements, and 9,544 unvested restricted stock units were forfeited.
Liquidity
Liquidity Management
Liquidity management involves meeting the cash flow requirements of depositors and borrowers. We conduct liquidity management on both a daily and long-term basis, and adjust our investments in liquid assets based on expected loan demand, projected loan maturities and payments, expected deposit flows, yields available on interest-bearing deposits, and the objectives of our asset/liability management program. 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.
Generally, the government’s response to the COVID-19 pandemic in the form of fiscal stimulus payments to individuals, coupled with economic uncertainty stemming from the pandemic, has resulted in increased liquidity throughout 2020 and into 2021.
Cash and cash equivalents are summarized in the table below:
(dollars in thousands) As of September 30, 2021 As of December 31, 2020
Cash and due from banks $ 53,562  $ 65,078 
Interest-bearing deposits 84,952  17,409 
Federal funds sold —  172 
      Total $ 138,514  $ 82,659 
Generally, our principal sources of funds are deposits, advances from the FHLB, principal repayments on loans, proceeds from the sale of loans, proceeds from the maturity and sale of investment securities, our federal funds lines, and funds provided by operations. While scheduled loan amortization and maturing interest-bearing deposits are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by economic conditions, the general level of interest rates, and competition. We utilized particular sources of funds based on comparative costs and availability. The Bank maintains unsecured lines of credit with several correspondent banks and secured lines with the Federal Reserve Bank of Chicago and the FHLB that would allow us to borrow funds on a short-term basis, if necessary. We also hold debt securities classified as available for sale that could be sold to meet liquidity needs if necessary.
Net cash provided by operations was another major source of liquidity. The net cash provided by operating activities was $47.2 million for the nine months ended September 30, 2021 and $42.0 million for the nine months ended September 30, 2020.
Inflation
The effects of price changes and inflation can vary substantially for most financial institutions. While management believes that inflation affects the growth of total assets, it is difficult to assess its overall impact on the Company. The price of one or more of the components of the Consumer Price Index may fluctuate considerably and thereby influence the overall Consumer Price Index without having a corresponding effect on interest rates or upon the cost of those goods and services normally purchased by us. In years of high inflation and high interest rates, intermediate and long-term interest rates tend to increase, thereby adversely impacting the market values of investment securities, mortgage loans and other long-term fixed rate loans held by financial institutions. In addition, higher short-term interest rates caused by inflation tend to increase financial institutions’ cost of funds. In other years, the reverse situation may occur.
Off-Balance-Sheet Arrangements
During the normal course of business, we are a party to financial instruments with off-balance-sheet risk in order to meet the financing needs of our customers. These financial instruments include commitments to extend credit, commitments to sell loans, and standby letters of credit. We follow the same credit policy (including requiring collateral, if deemed appropriate) to make such commitments as is followed for those loans that are recorded in our financial statements.
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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 12. Commitments and Contingencies to our unaudited consolidated financial statements.
Contractual Obligations
Outside the redemption on May 31, 2021 of the ATB Debentures, which had been assumed by the Company upon the acquisition of ATBancorp, there have been no material changes to the Company's contractual obligations existing at December 31, 2020, as disclosed in the Annual Report on Form 10-K, filed with the SEC on March 11, 2021.

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.
Three Months Ended Nine Months Ended
Return on Average Tangible Equity September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020
(Dollars in thousands)
Net income (loss) $ 16,311  $ (19,824) $ 55,230  $ (10,087)
Intangible amortization, net of tax (1)
948  1,223  3,084  4,055 
Goodwill impairment —  31,500  —  31,500 
Tangible net income $ 17,259    $ 12,899  $ 58,314  $ 25,468 
 
Average shareholders' equity $ 539,052    $ 529,857  $ 526,261  $ 518,796 
Average intangible assets, net (84,288)   (121,306) (85,579) (122,518)
Average tangible equity $ 454,764    $ 408,551  $ 440,682  $ 396,278 
Return on average equity 12.00  % (14.88) % 14.03  % (2.60) %
Return on average tangible equity (2)
15.06  %   12.56  % 17.69  % 8.58  %
(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, 2021 December 31, 2020
(Dollars in thousands, except per share data)
Total shareholders’ equity $ 530,264  $ 515,250 
Intangible assets, net (83,607) (87,719)
Tangible common equity $ 446,657  $ 427,531 
Total assets $ 5,875,423  $ 5,556,648 
Intangible assets, net (83,607) (87,719)
Tangible assets $ 5,791,816  $ 5,468,929 
Book value per share $ 33.71  $ 32.17 
Tangible book value per share (1)
$ 28.40  $ 26.69 
Shares outstanding 15,729,451  16,016,780 
Equity to assets ratio 9.03  % 9.27  %
Tangible common equity ratio (2)
7.71  % 7.82  %
(1) Tangible common equity divided by shares outstanding.
(2) Tangible common equity divided by tangible assets.
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Three Months Ended Nine Months Ended
Net Interest Margin, Tax Equivalent/Core Net Interest Margin September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020
(dollars in thousands)
Net interest income $ 40,340  $ 37,809  $ 117,462  $ 113,927 
Tax equivalent adjustments:
Loans (1)
507  536  1,557  1,540 
Securities (1)
615  608  1,910  1,485 
Net interest income, tax equivalent $ 41,462  $ 38,953  $ 120,929  $ 116,952 
Loan purchase discount accretion (774) (1,923) (2,745) (7,556)
  Core net interest income $ 40,688  $ 37,030  $ 118,184  $ 109,396 
Net interest margin 2.92  % 3.05  % 2.91  % 3.27  %
Net interest margin, tax equivalent (2)
3.00  % 3.14  % 2.99  % 3.36  %
Core net interest margin (3)
2.94  % 2.99  % 2.92  % 3.14  %
Average interest earning assets $ 5,489,917  $ 4,935,175  $ 5,404,777  $ 4,646,731 
(1) The federal statutory tax rate utilized was 21%.
(2) Annualized tax equivalent net interest income divided by average interest earning assets.
(3) Annualized core net interest income divided by average interest earning assets.
Three Months Ended Nine Months Ended
Efficiency Ratio September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020
(dollars in thousands)
Total noninterest expense $ 29,778  $ 59,939  $ 86,148  $ 117,978 
Amortization of intangibles (1,264) (1,631) (4,112) (5,407)
Merger-related expenses —  —  —  (61)
Goodwill impairment —  (31,500) —  (31,500)
Noninterest expense used for efficiency ratio $ 28,514  $ 26,808  $ 82,036  $ 81,010 
Net interest income, tax equivalent(1)
$ 41,462  $ 38,953  $ 120,929  $ 116,952 
Noninterest income 9,182  9,570  31,224  27,994 
Investment security gains, net (36) (106) (105) (154)
Net revenues used for efficiency ratio $ 50,608  $ 48,417  $ 152,048  $ 144,792 
Efficiency ratio(2)
56.34  % 55.37  % 53.95  % 55.95  %
(1) The federal statutory tax rate utilized was 21%.
(2) Noninterest expense adjusted for amortization of intangibles, merger-related expenses, and goodwill impairment 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, 2021 December 31, 2020
(dollars in thousands)
Loans held for investment, net of unearned income $ 3,268,644  $ 3,482,223 
PPP loans (89,354) (259,260)
Core loans $ 3,179,290  $ 3,222,963 
Allowance for credit losses $ 47,900  $ 55,500 
Allowance for credit losses ratio 1.47  % 1.59  %
Adjusted allowance for credit losses ratio (1)
1.51  % 1.72  %
(1) Allowance for credit losses divided by core loans.
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Three Months Ended Nine Months Ended
Core Earnings September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020
(dollars in thousands, except per share data)
Net income (loss) $ 16,311  $ (19,824) $ 55,230  $ (10,087)
Goodwill impairment —  31,500  —  31,500 
       Core earnings $ 16,311  $ 11,676  $ 55,230  $ 21,413 
Weighted average diluted common shares outstanding 15,863,247 16,099,324 15,963,229 16,111,591
Earnings (loss) per common share
     Earnings (loss) per common share - diluted $ 1.03  $ (1.23) $ 3.46  $ (0.63)
     Core earnings per common share - diluted(1)
$ 1.03  $ 0.73  $ 3.46  $ 1.33 
(1) Core earnings divided by weighted average diluted common shares outstanding.

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 $47.2 million in the first nine months of 2021, compared with $42.0 million in the first nine months of 2020. Net cash outflows from investing activities were $284.1 million in the first nine months of 2021, compared to net cash outflows of $630.3 million in the comparable nine-month period of 2020. Net cash inflows from financing activities in the first nine months of 2021 were $292.8 million, compared with net cash inflows of $649.6 million for the same period of 2020.
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
•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, 2021, the Bank maintains several unsecured federal funds lines totaling $170.0 million, which lines are tested annually to ensure availability.
Federal Reserve Bank Discount Window - The Federal Reserve Bank Discount Window is another source of liquidity, particularly during difficult economic times. The Bank has a borrowing capacity with the Federal Reserve Bank of Chicago limited by the amount of municipal securities pledged against the line. As of September 30, 2021, the Bank had municipal
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securities with an approximate market value of $67.8 million pledged for liquidity purposes, and had a borrowing capacity of $62.7 million. There were no outstanding borrowings through the FRB Discount Window at September 30, 2021.
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, 2021, the Bank had $48.1 million in outstanding FHLB borrowings, leaving $471.7 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, 2021.

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, 2021, the Company had $5.6 million of reciprocal time deposits through the CDARS program and $52.6 million of reciprocal non-maturity deposits through the ICS program that qualified for the brokered deposit exemption.

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, 2021.

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.

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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.
The following table presents the anticipated effect on net interest income over a twelve month period if short- and long-term interest rates were to sustain an immediate decrease of 100 basis points or 200 basis points (the effects of which are not meaningful as of September 30, 2021 in the current low interest rate environment), or an immediate increase of 100 basis points or 200 basis points:
  Immediate Change in Rates
(dollars in thousands) -200   -100   +100   +200
September 30, 2021      
Dollar change
N/A   N/A   $ 223    $ 91 
Percent change
N/A   N/A   0.2  %   0.1  %
December 31, 2020      
Dollar change
N/A   N/A   $ 2,667    $ 4,167 
Percent change
N/A   N/A   1.8  %   2.8  %
As of September 30, 2021, 39.4% of the Company’s earning asset balances will reprice or are expected to pay down in the next twelve months, and 49.7% 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 and Senior Executive Vice President and Chief Financial 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 and Senior Executive Vice President and Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on this evaluation, the Chief Executive Officer and Senior Executive Vice President and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2021.
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.
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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, 2021 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, 2020. 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.

The following table sets forth information about the Company’s purchases of its common stock during the third quarter of 2021:

Total Number of Shares Purchased(1)
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Programs(1)
Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program
July 1 - 31, 2021 78,377  $ 28.66  78,377  $ 12,228,674 
August 1 - 31, 2021 91,200  29.75  91,200  9,515,067 
September 1 - 30, 2021 65,700  29.24  65,700  7,594,127 
Total 235,277  $ 29.24  235,277  $ 7,594,127 

(1) Common shares repurchased by the Company during the quarter related to shares repurchased under the share repurchase program. Under the prior repurchase program, which authorized the repurchase of $10.0 million of common stock, the Company had repurchased 297,158 shares of common stock for approximately $7.9 million since the plan was announced in August 2019, leaving $2.1 million available to be repurchased under that repurchase program as of June 22, 2021, the end of such program.

On June 22, 2021, the Board of Directors of the Company approved a new share repurchase program, allowing for the repurchase of up to $15.0 million of the Company's common stock through December 31, 2023. The new repurchase program replaced the Company’s prior repurchase program, which was due to expire on December 31, 2021. For the period June 23, 2021 through September 30, 2021, the Company repurchased 253,067 shares of common stock for approximately $7.4 million, leaving $7.6 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
Description Incorporated 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 of MidWestOne Financial Group, Inc.
Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 25, 2021
Eighth Amendment to the Credit Agreement by and between MidWestOne Financial Group, Inc. and U.S. Bank National Association dated October 22, 2021.
Filed herewith
Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) Filed herewith
Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) Filed herewith
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Filed herewith
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Filed herewith
101
The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Shareholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
Filed herewith
101.SCH Inline XBRL Taxonomy Extension Schema Document Filed herewith
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document Filed herewith
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document Filed herewith
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document Filed herewith
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document Filed herewith
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) Filed herewith

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
MIDWESTONE FINANCIAL GROUP, INC.
Dated: November 4, 2021 By:   /s/ CHARLES N. FUNK
  Charles N. Funk
  Chief Executive Officer
(Principal Executive Officer)
By:   /s/ BARRY S. RAY
  Barry S. Ray
 
Senior Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
 
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Execution Copy

EIGHTH AMENDMENT TO CREDIT AGREEMENT

This EIGHTH AMENDMENT TO CREDIT AGREEMENT (this “Amendment”), made and entered into as of October 22, 2021, and made effective as of September 30, 2021, is by and between MidWestOne Financial Group, Inc. a corporation organized under the laws of the State of Iowa (the “Borrower”), and U.S. Bank National Association, a national banking association (the “Bank”).

RECITALS

1.The Bank and the Borrower entered into a Credit Agreement dated as of April 30, 2015, a First Amendment to Credit Agreement dated as of April 28, 2016, a Second Amendment to Credit Agreement dated as of May 5, 2017, a Third Amendment to Credit Agreement dated as of May 31, 2018, a Fourth Amendment to Credit Agreement dated as of April 29, 2019, a Fifth Amendment to Credit Agreement dated as of February 28, 2020, a Sixth Amendment to Credit Agreement dated as of April 24, 2020, and a Seventh Amendment to Credit Agreement (“Seventh Amendment”) dated as of December 11, 2020 (as amended, the “Credit Agreement”); and

2.The Borrower desires to amend certain provisions of the Credit Agreement, and the Bank has agreed to make such amendments, subject to the terms and conditions set forth in this Amendment.

AGREEMENT

NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby covenant and agree to be bound as follows:

Section 1.    Capitalized Terms. Capitalized terms used and not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement, unless the context otherwise requires.

Section 2.    Amendment. The Credit Agreement is hereby amended as follows:

2.1    Section 1.1 - Defined Terms. Section 1.1 of the Credit Agreement is amended by amending the definitions of “Applicable Margin” and “Revolving Loan Maturity Date” in their entireties to read as follows:

“Applicable Margin”: Means 1.70% in the case of the Revolving Loans.

“Revolving Loan Maturity Date”: September 30, 2022.










Section 1.1 of the Credit Agreement is further amended by adding thereto the following definitions in proper alphabetical order:

“Benchmark”: As defined in Section 2.3(c).

“Daily Simple SOFR”: Means a daily rate based on SOFR and determined by the Bank in accordance with the conventions for such rate selected by the Bank.

“Monthly Reset Term SOFR Rate”: Means the greater of (a) zero and (b) the one-month forward-looking term rate based on SOFR quoted by the Bank from the Term SOFR Administrator’s Website (or other commercially available source providing such quotations as may be selected by the Bank from time to time), which shall be that one-month Term SOFR rate in effect two New York Banking Days prior to the Rate Adjustment Date, adjusted for any reserve requirement and any subsequent costs arising from a change in government regulation; provided that if the Term SOFR rate is not published on such New York Banking Day due to a holiday or other circumstance that the Bank deems in its sole discretion to be temporary, the applicable Term SOFR rate shall be the Term SOFR rate last published prior to such New York Banking Day. If the initial Revolving Loan under this Agreement occurs other than on the Rate Adjustment Date, the initial one-month Term SOFR rate shall be that one-month Term SOFR rate in effect two New York Banking Days prior to the later of (a) the immediately preceding Rate Adjustment Date and (b) the Closing Date, which rate plus the percentage described above shall be in effect until the next Rate Adjustment Date.

“Rate Adjustment Date”: Means the first day of each month.

“SOFR”: Means the secured overnight financing rate which is published by the Board or any committee convened by the Board and available at www.newyorkfed.org.

“Term SOFR”: Means a forward-looking term rate based on SOFR and recommended by the Board.

“Term SOFR Administrator’s Website” means the website or any successor source for Term SOFR identified by CME Group Benchmark Administration Ltd. (or a successor administrator of Term SOFR).

2.2. Section 1.6 – LIBOR Notification. Section 1.6 of the Credit Agreement is amended in its entirety to read as follows:

Section 1.6 [Reserved]

2.3 Section 2.3 – Interest Rate. Section 2.3 of the Credit Agreement is amended in its entirety to read as follows:

Section 2.3 Interest Rate.





2

(a)Interest Rate on the Revolving Loan. Interest on each Revolving Loan hereunder shall accrue at an annual rate equal to the Applicable Margin plus the Monthly Reset Term SOFR Rate. The Bank’s internal records of applicable interest rates shall be determinative in the absence of manifest error.

(b)Rates Applicable After Event of Default. Upon the occurrence of any Event of Default, each Loan shall, at the option of the Bank (or, in the case of an Event of Default under Section 7.1(f), (g) or (h), automatically upon the occurrence of such Event of Default), bear interest until paid in full at the rate otherwise applicable thereto plus 2.0%.

(c)Term SOFR Unavailability. If the Bank has determined in its sole discretion that (i) the administrator of Term SOFR, or any relevant agency or authority for such administrator, of Term SOFR (or any substitute index which replaces Term SOFR (Term SOFR or such replacement, the “Benchmark”)) has announced that such Benchmark will no longer be provided, (ii) any relevant agency or authority has announced that such Benchmark is no longer representative, or (iii) any similar circumstance exists such that such Benchmark has become permanently unavailable or ceased to exist, the Bank will (x) replace such Benchmark with a replacement rate or (y) if any such circumstance applies to fewer than all tenors of such Benchmark used for determining an interest period hereunder, discontinue the availability of the affected interest periods. In the case of Term SOFR, such replacement rate will be Daily Simple SOFR. In the case of a replacement rate other than Term SOFR, the Bank may add a spread adjustment selected by the Bank, taking into consideration any selection or recommendation of a replacement rate by any relevant agency or authority, and evolving or prevailing market practice. In connection with the selection and implementation of any such replacement rate, the Bank may make any technical, administrative or operational changes that the Bank decides may be appropriate to reflect the adoption and implementation of such replacement rate. Without limitation of the foregoing, in the case of a transition to Daily Simple SOFR, the Bank will remove any option to select another rate that may change or is reset on a daily basis, including, without limitation, the Prime Rate. The Bank does not warrant or accept any responsibility for the administration or submission of, or any other matter related to, Term SOFR or with respect to any alternative or successor rate thereto, or replacement rate thereof, including without limitation whether any such alternative, successor or replacement rate will have the same value as, or be economically equivalent to, Term SOFR.

Section 3.    Waiver.

3.1    Existing Event of Default. Pursuant to Section 5 of the Seventh Amendment, the Borrower agreed to provide to the Bank, on or before January 31, 2021, a certificate of a Secretary or Assistant Secretary of the Borrower certifying as to a true and accurate copy of a resolution of the Board of Directors of the Borrower, in form and substance reasonably acceptable to the Bank, ratifying and confirming the execution,


3

delivery and performance by the Borrower of the Seventh Amendment and the $25,000,000 Revolving Note delivered in connection with the Seventh Amendment and other actions taken by the officers of the Borrower with respect to the Seventh Amendment and the Credit Agreement, and the Borrower agreed that the failure to deliver such certificate would constitute an Event of Default under Section 7.1(d) of the Credit Agreement. The Borrower has failed to deliver such certificate. As a result of the circumstances described in the two proceeding sentences, an Event of Default under Section 7.1(c) of the Credit Agreement exists (the “Existing Event of Default”).

3.2    Waiver. Upon the date on which this Amendment becomes effective, the Bank hereby waives the Existing Event of Default.

3.3    Effect of Waiver. The waiver set forth in Section 3.2 above is limited to the express terms thereof, and nothing herein shall be deemed a waiver by the Bank with respect to any other term, condition, representation, or covenant applicable to the Borrower or any Subsidiary Bank under the Credit Agreement or any of the other agreements, documents, or instruments executed and delivered in connection therewith, or of the covenants described therein. The consents and waivers set forth herein shall not be deemed to be a course of action upon which the Borrower may rely in the future, and the Borrower hereby expressly waives any claim to such effect.

Section 4.    Effectiveness of Amendment. The amendments in this Amendment shall become effective upon delivery by the Borrower of, and compliance by the Borrower with, the following:

4.1    This Amendment, duly executed by the Borrower.

4.2    A certificate of a Secretary or Assistant Secretary of the Borrower dated as of the date of this Amendment and certifying as to the following:

(a)There has been no change to the Borrower’s Articles of Incorporation since a copy thereof was delivered to the Bank with a Secretary’s Certificate with respect to the Borrower dated April 29, 2019 (the “Existing Secretary’s Certificate”).

(b)A true, complete and correct copy of resolutions of the Borrower adopted by its Board of Directors on October 19, 2021.

(c)A true, complete and correct copy of the Bylaws of the Borrower adopted by its Board of Directors on January 20, 2021.

(d)The incumbency, names, titles, and signatures of the Borrower’s officers authorized to execute and deliver this Amendment.

4.3    Copies of all documents evidencing any necessary corporate action, consent or governmental or regulatory approval (if any) with respect to this Agreement.






4

4.4    UCC search for the Borrower and MidWestOne Bank issued not more than 30 days prior to the Closing Date.

4.5    The Borrower shall have satisfied such other conditions as specified by the Bank, including payment of all unpaid legal fees and expenses incurred by the Bank through the date of this Amendment in connection with the Credit Agreement and the Amendment Documents (as defined below).

Section 5.    Representations, Warranties, Authority, No Adverse Claim.

5.1    Reassertion of Representations and Warranties, No Default. The Borrower hereby represents that on and as of the date hereof and after giving effect to this Amendment (a) all of the representations and warranties in the Credit Agreement are true, correct, and complete in all respects as of the date hereof as though made on and as of such date, except for changes permitted by the terms of the Credit Agreement, and (b) there will exist no Default or Event of Default under the Credit Agreement as amended by this Amendment on such date that the Bank has not waived.

5.2    Authority, No Conflict, No Consent Required, Enforceability. The Borrower represents and warrants that it has the power, legal right, and authority to enter into this Amendment and has duly authorized as appropriate the execution and delivery of this Amendment and all other agreements and documents (collectively, the “Amendment Documents”) executed and delivered by the Borrower in connection therewith by proper corporate action, and none of the Amendment Documents and the agreements therein contravenes or constitutes a default under any agreement, instrument, or indenture to which the Borrower is a party or a signatory, any provision of the Borrower’s articles of incorporation or bylaws, or any other agreement or requirement of law, or results in the imposition of any Lien on any of its property under any agreement binding on or applicable to the Borrower or any of its property except, if any, in favor of the Bank. The Borrower represents and warrants that no consent, approval, or authorization of or registration or declaration with any Person, including but not limited to any governmental authority, is required in connection with the execution and delivery by the Borrower of the Amendment Documents or other agreements and documents executed and delivered by the Borrower in connection therewith or the performance of obligations of the Borrower therein described, except for those that the Borrower has obtained or provided and as to which the Borrower has delivered certified copies of documents evidencing each such action to the Bank. The Borrower represents and warrants that the Amendment Documents constitute the legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their terms, subject to limitations as to enforceability which might result from bankruptcy, insolvency, moratorium and other similar laws affecting creditors’ rights generally and subject to limitations on the availability of equitable remedies.

5.3    No Adverse Claim. The Borrower warrants, acknowledges, and agrees that no events have taken place and no circumstances exist at the date hereof that would







5

give the Borrower a basis to assert a defense, offset, or counterclaim to any claim of the Bank with respect to the Obligations.

Section 6.    Affirmation of Credit Agreement, Further References. The Bank and the Borrower each acknowledge and affirm that the Credit Agreement, as hereby amended, is hereby ratified and confirmed in all respects and all terms, conditions, and provisions of the Credit Agreement, except as amended by this Amendment, shall remain unmodified and in full force and effect. All references in any document or instrument to the Credit Agreement are hereby amended to refer to the Credit Agreement as amended by this Amendment.

Section 7.    Merger and Integration, Superseding Effect. This Amendment, from and after the date hereof, embodies the entire agreement and understanding between the parties hereto and supersedes and has merged into this Amendment all prior oral and written agreements on the same subjects by and between the parties hereto with the effect that this Amendment shall control with respect to the specific subjects hereof and thereof.

Section 8.    Severability. Whenever possible, each provision of this Amendment and the other Amendment Documents and any other statement, instrument, or transaction contemplated thereby or relating thereto shall be interpreted so as to be effective, valid, and enforceable under the applicable law of any jurisdiction, but if any provision of this Amendment, the other Amendment Documents, or any other statement, instrument or transaction contemplated thereby or relating thereto is held to be prohibited, invalid, or unenforceable under the applicable law, such provision shall be ineffective in such jurisdiction only to the extent of such prohibition, invalidity, or unenforceability, without invalidating or rendering unenforceable the remainder of such provision or the remaining provisions of this Amendment, the other Amendment Documents, or any other statement, instrument or transaction contemplated thereby or relating thereto in such jurisdiction, or affecting the effectiveness, validity, or enforceability of such provision in any other jurisdiction.

Section 9.    Successors. The Amendment Documents shall be binding upon the Borrower, the Bank, and their respective successors and assigns and shall inure to the benefit of the Borrower, the Bank, and the Bank’s successors and assigns.

Section 10.    Legal Expenses. As provided in Section 8.2 of the Credit Agreement, the Borrower shall pay or reimburse the Bank, upon execution of this Amendment, for all reasonable out-of-pocket expenses paid or incurred by the Bank, including filing and recording costs and fees, charges and disbursements of outside counsel to the Bank and/or the allocated costs of in-house counsel incurred from time to time, in connection with the Credit Agreement, including in connection with the negotiation, preparation, execution, collection, and enforcement of the Amendment Documents and all other documents negotiated, prepared, and executed in connection with the Amendment Documents, and in enforcing the obligations of the Borrower under the Amendment Documents, and to pay and save the Bank harmless from all liability for any stamp or other taxes that may be payable with respect to the execution or delivery of the Amendment Documents, which obligations of the Borrower shall survive any termination of the Credit Agreement.






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Section 11.    Headings. The headings of various sections of this Amendment have been inserted for reference only and shall not be deemed to be a part of this Amendment.

Section 12.    Counterparts. The Amendment Documents may be executed in several counterparts as deemed necessary or convenient, each of which, when so executed, shall be deemed an original, provided that all such counterparts shall be regarded as one and the same document.

Section 13.    Governing Law. THE AMENDMENT DOCUMENTS SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAW PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS, THEIR HOLDING COMPANIES, AND THEIR AFFILIATES.

Section 14.    Acknowledgement and Release. IN ORDER TO INDUCE THE BANK TO ENTER INTO THIS AMENDMENT, THE BORROWER: (A) REPRESENTS AND WARRANTS TO THE BANK THAT NO EVENTS HAVE TAKEN PLACE AND NO CIRCUMSTANCES EXIST AT THE DATE HEREOF WHICH WOULD GIVE THE BORROWER THE RIGHT TO ASSERT A DEFENSE, OFFSET OR COUNTERCLAIM TO ANY CLAIM BY THE BANK FOR PAYMENT OF THE OBLIGATIONS; AND (B) HEREBY RELEASES AND FOREVER DISCHARGES THE BANK AND ITS SUCCESSORS, ASSIGNS, DIRECTORS, OFFICERS, AGENTS, EMPLOYEES AND PARTICIPANTS FROM ANY AND ALL ACTIONS, CAUSES OF ACTION, SUITS, PROCEEDINGS, DEBTS, SUMS OF MONEY, COVENANTS, CONTRACTS, CONTROVERSIES, CLAIMS AND DEMANDS, AT LAW OR IN EQUITY, WHICH THE BORROWER EVER HAD OR NOW HAS AGAINST THE BANK OR ANY OF ITS SUCCESSORS, ASSIGNS, DIRECTORS, OFFICERS, AGENTS, EMPLOYEES OR PARTICIPANTS BY VIRTUE OF THEIR RELATIONSHIP TO THE BORROWER IN CONNECTION WITH THIS AMENDMENT, THE CREDIT AGREEMENT, THE LOAN DOCUMENTS AND TRANSACTIONS RELATED THERETO.

[The next page is the signature page.]



















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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date and year first above written.


MIDWESTONE FINANCIAL GROUP, INC.

By: /S/ CHARLES N. FUNK
Name: Charles N. Funk
Title: Chief Executive Officer


U.S. BANK NATIONAL ASSOCIATION


By: /S/ WILLIAM P. DORAN
Name: William P. Doran
Title: Vice President

Signature Page to Eighth Amendment to Credit Agreement

Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Charles N. Funk, Chief Executive Officer of MidWestOne Financial Group, Inc., certify that:
 
  1)
I have reviewed this Quarterly Report on Form 10-Q of MidWestOne Financial Group, Inc.;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4) The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

/s/ CHARLES N. FUNK
Charles N. Funk
Chief Executive Officer
Date: November 4, 2021



Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Barry S. Ray, Senior Executive Vice President and Chief Financial Officer of MidWestOne Financial Group, Inc., certify that:
  1)
I have reviewed this Quarterly Report on Form 10-Q of MidWestOne Financial Group, Inc.;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4) The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

/s/ BARRY S. RAY
Barry S. Ray
Senior Executive Vice President and Chief Financial Officer
Date: November 4, 2021



Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of MidWestOne Financial Group, Inc. on Form 10-Q for the period ended September 30, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Charles N. Funk, the Chief Executive Officer of MidWestOne Financial Group, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
 
  (a) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(b)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of MidWestOne Financial Group, Inc.
 
/s/ CHARLES N. FUNK
Charles N. Funk
Chief Executive Officer
Date: November 4, 2021

This certification accompanies this Form 10-Q and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that Section.



Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of MidWestOne Financial Group, Inc. on Form 10-Q for the period ended September 30, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Barry S. Ray, the Senior Executive Vice President and Chief Financial Officer of MidWestOne Financial Group, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
 
  (a) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(b)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of MidWestOne Financial Group, Inc.
 
/s/ BARRY S. RAY
Barry S. Ray
Senior Executive Vice President and Chief Financial Officer
Date: November 4, 2021

This certification accompanies this Form 10-Q and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that Section.