midwestone 063013 10Q
 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
 
 
 
FORM 10-Q
 
 
 
 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2013
OR
o
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 of Incorporation)
(I.R.S. Employer Identification No.)
102 South Clinton Street
Iowa City, IA 52240
(Address of principal executive offices, including zip code)
319-356-5800
(Registrant's telephone number, including area code)
  
 
 
 
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    o  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    x  Yes    o  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 o
  
Accelerated filer
x
Non-accelerated filer
 o  (Do not check if a smaller reporting company)
  
Smaller reporting company
o

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

As of July 31, 2013, there were 8,467,146 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
 
Item 3.
 
 
 
 
 
 
 
Item 4.
 
 
 
 
 
 
 
Part II
 
 
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
Item 1A.
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
 
Item 3.
 
 
 
 
 
 
 
Item 4.
 
 
 
 
 
 
 
Item 5.
 
 
 
 
 
 
 
Item 6.
 
 
 
 
 
 
 
 
 
 


Table of Contents

PART I – FINANCIAL INFORMATION
Item 1.   Financial Statements.

MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
 
June 30, 2013
 
December 31, 2012
(dollars in thousands)
(unaudited)
 
 
ASSETS
 
 
 
Cash and due from banks
$
22,847

  
$
30,197

Interest-bearing deposits in banks
723

  
16,242

Federal funds sold
—

  
752

Cash and cash equivalents
23,570

  
47,191

Investment securities:
  
 
 
Available for sale
509,385

  
557,541

Held to maturity (fair value of $31,755 as of June 30, 2013 and $32,920 as of December 31, 2012)
33,312

  
32,669

Loans held for sale
1,304

  
1,195

Loans
1,061,401

  
1,035,284

Allowance for loan losses
(16,578
)
 
(15,957
)
Net loans
1,044,823

  
1,019,327

Loan pool participations, net
29,717

  
35,650

Premises and equipment, net
26,386

  
25,609

Accrued interest receivable
9,538

  
10,292

Intangible assets, net
9,137

  
9,469

Bank-owned life insurance
29,137

  
28,676

Other real estate owned
2,774

  
3,278

Assets held for sale
—

 
764

Deferred income taxes
5,728

  
776

Other assets
17,073

  
20,382

Total assets
$
1,741,884

  
$
1,792,819

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
Deposits:
  
 
 
Non-interest-bearing demand
$
207,859

  
$
190,491

Interest-bearing checking
578,155

  
582,283

Savings
95,720

  
91,603

Certificates of deposit under $100,000
278,029

  
312,489

Certificates of deposit $100,000 and over
177,173

  
222,867

Total deposits
1,336,936

  
1,399,733

Federal funds purchased
2,235

 
—

Securities sold under agreements to repurchase
57,677

  
68,823

Federal Home Loan Bank borrowings
143,174

  
120,120

Deferred compensation liability
3,513

  
3,555

Long-term debt
15,464

  
15,464

Accrued interest payable
1,247

  
1,475

Other liabilities
9,355

  
9,717

Total liabilities
1,569,601

  
1,618,887

Shareholders' equity:
  
 
 
Preferred stock, no par value; authorized 500,000 shares; no shares issued and outstanding at June 30, 2013 and December 31, 2012
$
—

 
$
—

Common stock, $1.00 par value; authorized 15,000,000 shares at June 30, 2013 and December 31, 2012; issued 8,690,398 shares at June 30, 2013 and December 31, 2012; outstanding 8,466,471 shares at June 30, 2013 and 8,480,488 shares at December 31, 2012
8,690

  
8,690

Additional paid-in capital
80,252

  
80,383

Treasury stock at cost, 223,927 shares as of June 30, 2013 and 209,910 shares at December 31, 2012
(3,858
)
 
(3,316
)
Retained earnings
84,325

  
77,125

Accumulated other comprehensive income
2,874

  
11,050

Total shareholders' equity
172,283

  
173,932

Total liabilities and shareholders' equity
$
1,741,884

  
$
1,792,819


See accompanying notes to consolidated financial statements.  

1
Table of Contents

MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
 
(unaudited)
(dollars in thousands, except share and per share amounts)
  
Three Months Ended June 30,
 
Six Months Ended June 30,
 
  
2013
 
2012
 
2013
 
2012
Interest income:
  
 
 
 
 
 
 
 
Interest and fees on loans
  
$
12,277

 
$
12,799

 
$
24,391

 
$
25,879

Interest and discount on loan pool participations
  
610

 
401

 
1,690

 
855

Interest on bank deposits
  
1

 
12

 
6

 
22

Interest on federal funds sold
  
—

 
1

 
—

 
1

Interest on investment securities:
  
  
 
 
 
 
 
 
Taxable securities
  
2,546

 
2,818

 
5,176

 
5,570

Tax-exempt securities
  
1,334

 
1,246

 
2,695

 
2,465

Total interest income
  
16,768

 
17,277

 
33,958

 
34,792

Interest expense:
  
 
 
 
 
 
 
 
Interest on deposits:
  
 
 
 
 
 
 
 
Interest-bearing checking
  
600

 
761

 
1,271

 
1,590

Savings
  
35

 
32

 
71

 
69

Certificates of deposit under $100,000
  
1,121

 
1,496

 
2,360

 
3,086

Certificates of deposit $100,000 and over
  
569

 
754

 
1,202

 
1,527

Total interest expense on deposits
  
2,325

 
3,043

 
4,904

 
6,272

Interest on federal funds purchased
  
18

 
2

 
27

 
5

Interest on securities sold under agreements to repurchase
  
29

 
47

 
65

 
102

Interest on Federal Home Loan Bank borrowings
  
705

 
783

 
1,397

 
1,586

Interest on notes payable
  
7

 
9

 
15

 
18

Interest on long-term debt
  
75

 
167

 
150

 
335

Total interest expense
  
3,159

 
4,051

 
6,558

 
8,318

Net interest income
  
13,609

 
13,226

 
27,400

 
26,474

Provision for loan losses
  
600

 
575

 
800

 
1,154

Net interest income after provision for loan losses
  
13,009

 
12,651

 
26,600

 
25,320

Noninterest income:
  
 
 
 
 
 
 
 
Trust, investment, and insurance fees
  
1,423

 
1,220

 
2,772

 
2,473

Service charges and fees on deposit accounts
  
743

 
811

 
1,450

 
1,578

Mortgage origination and loan servicing fees
  
717

 
828

 
1,761

 
1,595

Other service charges, commissions and fees
  
596

 
623

 
1,168

 
1,333

Bank-owned life insurance income
  
230

 
221

 
461

 
451

Impairment losses on investment securities
  
—

 
—

 
—

 
—

Gain on sale or call of available for sale securities (Includes $4 and $84 reclassified from accumulated other comprehensive income for net gains on available for sale securities for the three and six months ended June 30, 2013, respectively)
  
4

 
417

 
84

 
733

Gain (loss) on sale of premises and equipment
  
—

 
4,047

 
(2
)
 
4,205

Total noninterest income
  
3,713

 
8,167

 
7,694

 
12,368

Noninterest expense:
  
 
 
 
 
 
 
 
Salaries and employee benefits
  
6,173

 
11,988

 
12,466

 
17,960

Net occupancy and equipment expense
  
1,538

 
1,560

 
3,226

 
3,204

Professional fees
  
718

 
793

 
1,401

 
1,525

Data processing expense
  
337

 
369

 
728

 
815

FDIC insurance expense
  
296

 
293

 
590

 
603

Amortization of intangible assets
 
166

 
195

 
332

 
389

Other operating expense
  
1,357

 
1,382

 
2,836

 
2,887

Total noninterest expense
  
10,585

 
16,580

 
21,579

 
27,383

Income before income tax expense
  
6,137

 
4,238

 
12,715

 
10,305

Income tax expense (Includes $2 and $33 income tax expense reclassified from accumulated other comprehensive income for the three and six months ended June 30, 2013, respectively)
  
1,606

 
726

 
3,394

 
2,361

Net income
  
$
4,531

 
$
3,512

 
$
9,321

 
$
7,944

Share and Per share information:
  
 
 
 
 
 
 
 
Ending number of shares outstanding
  
8,466,471

 
8,475,765

 
8,466,471

 
8,475,765

Average number of shares outstanding
  
8,474,925

 
8,471,379

 
8,484,100

 
8,484,649

Diluted average number of shares
  
8,517,292

 
8,516,461

 
8,526,961

 
8,521,971

Earnings per common share - basic
  
$
0.54

 
$
0.42

 
$
1.10

 
$
0.94

Earnings per common share - diluted
  
0.53

 
0.41

 
1.09

 
0.93

Dividends paid per common share
  
0.13

 
0.09

 
0.25

 
0.17

See accompanying notes to consolidated financial statements.

2
Table of Contents

MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
(unaudited)
(dollars in thousands)
  
Three Months Ended June 30,
 
Six Months Ended June 30,
 
  
2013
 
2012
 
2013
 
2012
Net income
 
$
4,531

 
$
3,512

 
$
9,321

 
$
7,944

 
 
 
 
 
 
 
 
 
Other comprehensive income (loss), available for sale securities:
 
 
 
 
 
 
 
 
Unrealized holding gains (losses) arising during period
 
(11,558
)
 
1,556

 
(12,968
)
 
2,415

Reclassification adjustment for gains included in net income
 
(4
)
 
(417
)
 
(84
)
 
(733
)
Income tax (expense) benefit
 
4,317

 
(434
)
 
4,876

 
(630
)
Other comprehensive income (loss) on available for sale securities
 
(7,245
)
 
705

 
(8,176
)
 
1,052

 
 
 
 
 
 
 
 
 
Other comprehensive income, pension plan:
 
 
 
 
 
 
 
 
Reclassification of pension plan expense due to plan settlement
 
—

 
5,968

 
—

 
5,968

Income tax benefit
 
—

 
(2,226
)
 
—

 
(2,226
)
Defined benefit pension plans
 
—

 
3,742

 
—

 
3,742

Other comprehensive income (loss), net of tax
 
(7,245
)
 
4,447

 
(8,176
)
 
4,794

Comprehensive income (loss)
 
$
(2,714
)
 
$
7,959

 
$
1,145

 
$
12,738

See accompanying notes to consolidated financial statements.


3
Table of Contents

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

(unaudited)
(dollars in thousands, except share and per share amounts)
  
Preferred
Stock
  
Common
Stock
  
Additional
Paid-in
Capital
 
Treasury
Stock
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (loss)
 
Total
Balance at December 31, 2011
  
$
—

  
$
8,690

  
$
80,333

 
$
(2,312
)
 
$
63,646

 
$
6,137

 
$
156,494

Net income
  
—

  
—


—


—


7,944


—


7,944

Dividends paid on common stock ($0.17 per share)
  
—

 
—

 
—

 
—

 
(1,443
)
 
—


(1,443
)
Stock options exercised (23,497shares)
 
—

 
—

 
(49
)
 
265

 
—

 
—

 
216

Release/lapse of restriction on RSUs (15,610 shares)
  
—

 
—

 
(198
)
 
210

 
—

 
—


12

Repurchase of common stock (86,083 shares)
 
—

 
—

 
—

 
(1,445
)
 
—

 
—

 
(1,445
)
Stock compensation
  
—

 
—

 
129

 
—

 
—

 
—


129

Other comprehensive income, net of tax
 
—

 
—

 
—

 
—

 
—

 
4,794

 
4,794

Balance at June 30, 2012
  
$
—

 
$
8,690

 
$
80,215

 
$
(3,282
)
 
$
70,147

 
$
10,931

 
$
166,701

Balance at December 31, 2012
  
$
—

  
$
8,690

  
$
80,383

 
$
(3,316
)
 
$
77,125

 
$
11,050

 
$
173,932

Net income
  
—

  
—

  
—

 
—

 
9,321

 
—

 
9,321

Dividends paid on common stock ($0.25 per share)
  
—

  
—

  
—

 
—

 
(2,121
)
 
—

 
(2,121
)
Stock options exercised (22,193 shares)
  
—

  
—

  
(39
)
 
143

 
—

 
—

 
104

Release/lapse of restriction on RSUs (19,385 shares)
  
—

  
—

  
(259
)
 
282

 
—

 
—

 
23

Repurchase of common stock (40,713 shares)
 
—

 
—

 
—

 
(967
)
 
—

 
—

 
(967
)
Stock compensation
  
—

  
—

  
167

 
—

 
—

 
—

 
167

Other comprehensive loss, net of tax
 
—

 
—

 
—

 
—

 
—

 
(8,176
)
 
(8,176
)
Balance at June 30, 2013
  
$
—

  
$
8,690

  
$
80,252

 
$
(3,858
)
 
$
84,325

 
$
2,874

 
$
172,283

See accompanying notes to consolidated financial statements.  

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Table of Contents

MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(unaudited) (dollars in thousands)
Six Months Ended June 30,
 
2013
 
2012
Cash flows from operating activities:
 
 
 
Net income
$
9,321

 
$
7,944

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for loan losses
800

 
1,154

Depreciation, amortization and accretion
2,709

 
2,729

(Gain) loss on sale of premises and equipment
2

 
(4,205
)
Deferred income taxes
(76
)
 
226

Stock-based compensation
167

 
141

Net gain on sale or call of available for sale securities
(84
)
 
(733
)
Net gain on sale of other real estate owned
(39
)
 
(84
)
Net gain on sale of loans held for sale
(838
)
 
(899
)
Writedown of other real estate owned
33

 
16

Origination of loans held for sale
(52,325
)
 
(67,081
)
Proceeds from sales of loans held for sale
53,054

 
69,010

Recognition of previously deferred expense related to pension plan settlement
—

 
3,002

Pension plan contribution
—

 
(3,031
)
Decrease in accrued interest receivable
754

 
985

Increase in cash surrender value of bank-owned life insurance
(461
)
 
(451
)
(Increase) decrease in other assets
3,309

 
(544
)
Decrease in deferred compensation liability
(42
)
 
(48
)
Increase (decrease) in accrued interest payable, accounts payable, accrued expenses, and other liabilities
(590
)
 
8,364

Net cash provided by operating activities
15,694

 
16,495

Cash flows from investing activities:
 
 
 
Proceeds from sales of available for sale securities
12,205

 
16,224

Proceeds from maturities and calls of available for sale securities
59,139

 
58,772

Purchases of available for sale securities
(37,243
)
 
(86,840
)
Proceeds from maturities and calls of held to maturity securities
540

 
546

Purchase of held to maturity securities
(1,185
)
 
(5,000
)
Increase in loans
(26,372
)
 
(12,734
)
Decrease in loan pool participations, net
5,933

 
8,006

Purchases of premises and equipment
(2,025
)
 
(1,465
)
Proceeds from sale of other real estate owned
586

 
1,624

Proceeds from sale of premises and equipment
12

 
5,244

Proceeds from sale of assets held for sale
764

 
—

Net cash provided by (used in) investing activities
12,354

 
(15,623
)
Cash flows from financing activities:
 
 
 
Net increase (decrease) in deposits
(62,797
)
 
14,761

Increase (decrease) in federal funds purchased
2,235

 
(8,920
)
Increase (decrease) in securities sold under agreements to repurchase
(11,146
)
 
3,730

Proceeds from Federal Home Loan Bank borrowings
94,000

 
—

Repayment of Federal Home Loan Bank borrowings
(71,000
)
 
(10,000
)
Stock options exercised
127

 
216

Dividends paid
(2,121
)
 
(1,443
)
Repurchase of common stock
(967
)
 
(1,445
)
Net cash used in financing activities
(51,669
)
 
(3,101
)
Net decrease in cash and cash equivalents
(23,621
)
 
(2,229
)
Cash and cash equivalents at beginning of period
47,191

 
32,623

Cash and cash equivalents at end of period
$
23,570

 
$
30,394

Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for interest
$
6,786

 
$
8,307

Cash paid during the period for income taxes
$
4,038

 
$
3,171

Supplemental schedule of non-cash investing activities:
 
 
 
Transfer of loans to other real estate owned
$
76

 
$
1,392

Transfer of property to assets held for sale
$
—

 
$
764

See accompanying notes to consolidated financial statements.

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Table of Contents

MidWestOne Financial Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

1.Principles of Consolidation and Presentation
MidWestOne Financial Group, Inc. (the “Company,” which is also referred to herein as “we,” “our” or “us”) is an Iowa corporation incorporated in 1983, a bank holding company under the Bank Holding Company Act of 1956 and a financial holding company under the Gramm-Leach-Bliley Act of 1999. Our principal executive offices are located at 102 South Clinton Street, Iowa City, Iowa 52240.
The Company owns 100% 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 (the “Bank”), and 100% of the common stock of MidWestOne Insurance Services, Inc., Oskaloosa, Iowa. We operate primarily through our bank subsidiary, MidWestOne Bank, and MidWestOne Insurance Services, Inc., our wholly-owned subsidiary that operates an insurance agency business through three offices located in central and east-central Iowa.
The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all the information and notes necessary for complete financial statements in conformity with U.S. generally accepted accounting principles. The information in this Quarterly Report on Form 10-Q is written with the presumption that the users of the interim financial statements have read or have access to the most recent Annual Report on Form 10-K of the Company, which contains the latest audited financial statements and notes thereto, together with Management's Discussion and Analysis of Financial Condition and Results of Operations as of December 31, 2012 and for the year then ended. Management believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, the accompanying consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of June 30, 2013, and the results of operations and cash flows for the three and six months ended June 30, 2013 and 2012. All significant intercompany accounts and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. These estimates are based on information available to management at the time the estimates are made. Actual results could differ from those estimates. The results for the three and six months ended June 30, 2013 may not be indicative of results for the year ending December 31, 2013, or for any other period.
During the quarter ended June 30, 2013, the Company identified an immaterial error in its accounting for other-than-temporary impairment on its portfolio of collateralized debt obligations. This error related to the identification of credit-related impairments subsequent to the Company's adoption of Financial Accounting Standards Board (FASB) Staff Position (FSP) No. FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” as of April 1, 2009.
As a result, the Company has adjusted prior period amounts for the immaterial error. Specifically, on the Company's consolidated statement of shareholders' equity the balance of retained earnings was reduced by $2,653,000, from $66,299,000 to $63,646,000, and accumulated other comprehensive income was increased by $2,653,000, from $3,484,000 to $6,137,000, as of December 31, 2011, to reflect the effect of the error in the years ended December 31, 2009, 2010, and 2011. On the Company's consolidated balance sheets, retained earnings and accumulated other comprehensive income as of December 31, 2012, were decreased and increased, respectively, by $2,870,000. Of the adjustment amounts as of December 31, 2011 and 2012, $2,322,000 relates to the after-tax effect of credit impairments that should have been recognized in the Company's consolidated statements of operations for the year ended December 31, 2009. No adjustments to the Company's consolidated statements of operations for the three- and six-month periods ended June 30, 2012 were necessary as a result of this correction.
The correction will also result in the following adjustments to historical amounts which will be part of comparative amounts in future filings: (i) on the Company's consolidated statement of shareholders' equity, the balance of retained earnings will be reduced by $2,647,000, from $55,619,000 to $52,972,000, and accumulated other comprehensive income will be increased by $2,647,000, from $(1,826,000) to $821,000, as of December 31, 2010, to reflect the effect of the error in the years ended December 31, 2009 and 2010; (ii) on the Company's consolidated statements of operations, net income for the year ended December 31, 2011 will be reduced $6,000, from $13,317,000 to $13,311,000, with no change in the reported basic or diluted earnings per share for such time period; (iii) on the Company's consolidated statements of operations, net income for the year ended December 31, 2012 will be reduced $217,000, from $16,751,000 to

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$16,534,000, with basic earnings per share decreasing from $1.97 to $1.95 and diluted earnings per share decreasing from $1.96 to $1.94 during such period; (iv) corresponding adjustments to the Company's comprehensive income will be made for the years ended December 31, 2012 and 2011; and (v) amounts in relevant footnotes for all periods to be presented will be corrected for the effects of this immaterial error.
All significant accounting policies followed in the preparation of the quarterly financial statements are disclosed in the December 31, 2012 Annual Report on Form 10-K. In the consolidated statements of cash flows, cash and cash equivalents include cash and due from banks, interest-bearing deposits in banks, and federal funds sold.

2.Shareholders' Equity
Preferred Stock: The number of authorized shares of preferred stock for the Company is 500,000. As of June 30, 2013, none were issued or outstanding.
Common Stock: As of June 30, 2013, the number of authorized shares of common stock for the Company was 15,000,000.
On October 18, 2011, our Board of Directors amended the Company's existing $1.0 million share repurchase program, originally authorized on July 26, 2011, by increasing the remaining amount of authorized repurchases to $5.0 million, and extending the expiration of the program to December 31, 2012.

On January 15, 2013, the Company's board of directors announced the renewal of the Company's share repurchase program, extending the expiration of the program to December 31, 2014 and increasing the remaining amount of authorized repurchases under the program to $5.0 million from the approximately $2.4 million of authorized repurchases that had previously remained. Pursuant to the program, the Company may continue to repurchase shares from time to time in the open market, and the method, timing and amounts of repurchase will be solely in the discretion of the Company's management. The repurchase program does not require the Company to acquire a specific number of shares. Therefore, the amount of shares repurchased pursuant to the program will depend on several factors, including market conditions, capital and liquidity requirements, and alternative uses for cash available. As of June 30, 2013 the remaining amount available for share repurchases under the program was $4.0 million.

3.Earnings per Common Share
Basic earnings per common share computations are based on the weighted average number of shares of common stock actually outstanding during the period. Diluted earnings per share amounts are computed by dividing net income by the weighted average number of shares outstanding and all dilutive potential shares outstanding during the period.
The following table presents the computation of earnings per common share for the respective periods:
 
 
  
Three Months Ended June 30,
 
Six Months Ended June 30,
 
(dollars in thousands, except share and per share amounts)
  
2013
 
2012
 
2013
 
2012
 
Basic earnings per common share computation
 
 
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
 
 
Net income
 
$
4,531

 
$
3,512

 
$
9,321

 
$
7,944

 
 
 
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
 
 
Weighted average shares outstanding
 
8,474,925

 
8,471,379

 
8,484,100

 
8,484,649

 
Basic earnings per common share
 
$
0.54

 
$
0.42

 
$
1.10

 
$
0.94

 
 
 
 
 
 
 
 
 
 
 
Diluted earnings per common share computation
 
 
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
 
 
Net income
 
$
4,531

 
$
3,512

 
$
9,321

 
$
7,944

 
 
 
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
 
 
Weighted average shares outstanding, included all dilutive potential shares
 
8,517,292

 
8,516,461

 
8,526,961

 
8,521,971

 
Diluted earnings per common share
 
$
0.53

 
$
0.41

 
$
1.09

 
$
0.93



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4.Investment Securities
A summary of investment securities available for sale is as follows:
 
 
As of June 30, 2013
 
 
Amortized
Cost
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
(in thousands)
 
  
 
  
 
 
 
 
U.S. Government agencies and corporations
$
56,949

  
$
669

  
$
809

 
$
56,809

 
State and political subdivisions
196,055

  
7,232

  
2,513

 
200,774

 
Mortgage-backed securities and collateralized mortgage obligations
218,039

  
3,260

  
1,866

 
219,433

 
Corporate debt securities
31,094

  
354

  
1,970

 
29,478

 
Total debt securities
502,137

  
11,515

  
7,158

 
506,494

 
Other equity securities
2,646

  
285

  
40

 
2,891

 
Total
$
504,783

  
$
11,800

  
$
7,198

 
$
509,385

 
 
 
As of December 31, 2012
 
 
Amortized
Cost
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
(in thousands)
 
  
 
  
 
 
 
 
U.S. Government agencies and corporations
$
68,707

  
$
1,132

  
$
56

 
$
69,783

 
State and political subdivisions
206,392

  
11,752

  
125

 
218,019

 
Mortgage-backed securities and collateralized mortgage obligations
236,713

  
6,433

  
28

 
243,118

 
Corporate debt securities
26,438

  
360

  
1,858

 
24,940

 
Total debt securities
538,250

  
19,677

  
2,067

 
555,860

 
Other equity securities
1,637

  
109

  
65

 
1,681

 
Total
$
539,887

  
$
19,786

  
$
2,132

 
$
557,541

 
A summary of investment securities held to maturity is as follows:
 
 
As of June 30, 2013
 
 
Amortized
Cost
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
  
Estimated
Fair Value
 
(in thousands)
 
  
 
  
 
  
 
 
State and political subdivisions
$
20,209

  
$
—

  
$
1,193

  
$
19,016

 
Mortgage-backed securities
9,843

  
4

  
306

  
9,541

 
Corporate debt securities
3,260

  
—

  
62

  
3,198

 
Total
$
33,312

  
$
4

  
$
1,561

  
$
31,755

 
 
 
As of December 31, 2012
 
 
Amortized
Cost
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
  
Estimated
Fair Value
 
(in thousands)
 
  
 
  
 
  
 
 
State and political subdivisions
$
19,278

  
$
199

  
$
57

  
$
19,420

 
Mortgage-backed securities
10,133

  
121

  
—

  
10,254

 
Corporate debt securities
3,258

  
—

  
12

  
3,246

 
Total
$
32,669

  
$
320

  
$
69

  
$
32,920

The summary of investment securities shows that some of the securities in the available for sale and held to maturity investment portfolios had unrealized losses, or were temporarily impaired, as of June 30, 2013 and December 31, 2012. This temporary impairment represents the estimated amount of loss that would be realized if the securities were sold on the valuation date. 

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The following presents information pertaining to securities with gross unrealized losses as of June 30, 2013 and December 31, 2012, aggregated by investment category and length of time that individual securities have been in a continuous loss position:  
 
 
 
  
As of June 30, 2013
 
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)
 
  
 
  
 
  
 
  
 
  
 
  
 
 
U.S. Government agencies and corporations
3

  
$
22,071

  
$
809

  
$
—

  
$
—

  
$
22,071

  
$
809

 
State and political subdivisions
135

  
44,570

  
2,513

  
—

  
—

  
44,570

  
2,513

 
Mortgage-backed securities and collateralized mortgage obligations
12

  
85,435

  
1,866

  
—

  
—

  
85,435

  
1,866

 
Corporate debt securities
8

  
14,328

  
274

  
786

  
1,696

  
15,114

  
1,970

 
Other equity securities
1

  
960

  
40

  
—

  
—

  
960

  
40

 
Total
159

  
$
167,364

  
$
5,502

  
$
786

  
$
1,696

  
$
168,150

  
$
7,198

 
 
 
  
As of December 31, 2012
 
 
Number
of
Securities
  
Less than 12 Months
  
12 Months or More
  
Total
 
 
  
Fair
Value
  
Unrealized
Losses 
  
Fair
Value
  
Unrealized
Losses 
  
Fair
Value
  
Unrealized
Losses 
 
(in thousands, except number of securities)
 
  
 
  
 
  
 
  
 
  
 
  
 
 
U.S. Government agencies and corporations
2

  
$
15,359

  
$
56

  
$
—

  
$
—

  
$
15,359

  
$
56

 
State and political subdivisions
27

  
7,221

  
125

  
—

  
—

  
7,221

  
125

 
Mortgage-backed securities and collateralized mortgage obligations
2

  
10,919

  
28

  
—

  
—

  
10,919

  
28

 
Corporate debt securities
9

  
14,672

  
242

  
755

  
1,616

  
15,427

  
1,858

 
Other equity securities
1

  
754

  
65

  
—

  
—

  
754

  
65

 
Total
41

  
$
48,925

  
$
516

  
$
755

  
$
1,616

  
$
49,680

  
$
2,132

 
 
 
  
As of June 30, 2013
 
Number
of
Securities
  
Less than 12 Months
  
12 Months or More
  
Total
 
Held to Maturity
  
Fair
Value
  
Unrealized
Losses 
  
Fair
Value
  
Unrealized
Losses 
  
Fair
Value
  
Unrealized
Losses 
 
(in thousands, except number of securities)
 
  
 
  
 
  
 
  
 
  
 
  
 
 
State and political subdivisions
27

  
$
17,538

  
$
1,193

  
$
—

  
$
—

  
$
17,538

  
$
1,193

 
Mortgage-backed securities and collateralized mortgage obligations
1

  
9,502

  
306

  
—

  
—

  
9,502

  
306

 
Corporate debt securities
1

  
2,322

  
62

  
—

  
—

  
2,322

  
62

 
Total
29

  
$
29,362

  
$
1,561

  
$
—

  
$
—

  
$
29,362

  
$
1,561

 
 
 
  
As of December 31, 2012
 
 
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
11

 
$
3,672

 
$
57

 
$
—

 
$
—

  
$
3,672

  
$
57

 
Corporate debt securities
1

 
2,371

 
12

 
—

 
—

  
2,371

  
12

 
Total
12

  
$
6,043

  
$
69

  
$
—

  
$
—

  
$
6,043

  
$
69

The Company's assessment of other-than-temporary impairment ("OTTI") is based on its reasonable judgment of the specific facts and circumstances impacting each individual security at the time such assessments are made. The Company reviews and considers factual information, including expected cash flows, the structure of the security, the credit quality of the underlying assets and the current and anticipated market conditions. 
At June 30, 2013, approximately 60% of the municipal bonds held by the Company were Iowa based. The Company does not intend to sell these municipal obligations, and it is not more likely than not that the Company will be required to sell them before the recovery of its cost. Due to the issuers' continued satisfaction of their obligations under the securities

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in accordance with their contractual terms and the expectation that they will continue to do so, management's intent and ability to hold these securities for a period of time sufficient to allow for any anticipated recovery in fair value, as well as the evaluation of the fundamentals of the issuers' financial condition and other objective evidence, the Company believes that the municipal obligations identified in the tables above were temporarily depressed as of June 30, 2013 and December 31, 2012.
At June 30, 2013 and December 31, 2012, the Company's mortgage-backed securities portfolio consisted of securities predominantly underwritten to the standards of and guaranteed by the following government-sponsored agencies: FHLMC, FNMA and GNMA. The receipt of principal, at par, and interest on mortgage-backed securities is guaranteed by the respective government-sponsored agency guarantor, such that the Company believes that its mortgage-backed securities do not expose the Company to credit-related losses.
At June 30, 2013, the Company owned six collateralized debt obligations backed by pools of trust preferred securities with an original cost basis of $9.8 million. The book value of these securities as of June 30, 2013 totaled $2.4 million, after other-than-temporary impairment charges have been recognized. All of the Company's trust preferred collateralized debt obligations are in mezzanine tranches and are currently rated less than investment grade by Moody's Investor Services. They are secured by trust preferred securities of banks and insurance companies throughout the United States, and were rated as investment grade securities when purchased between March 2006 and December 2007. However, as the banking climate eroded during 2008, the securities experienced cash flow problems. Due to continued market deterioration in these securities, additional pre-tax charges to earnings were recorded from 2009 to 2012. The market for these securities is considered to be inactive according to the guidance issued in ASC Topic 820, “Fair Value Measurements and Disclosures.” The Company uses a discounted cash flow model to determine the estimated fair value of its pooled trust preferred collateralized debt obligations and to assess other-than-temporary impairment. The discounted cash flow analysis was performed in accordance with ASC Topic 325. The assumptions used in preparing the discounted cash flow model include the following: estimated discount rates (using yields of comparable traded instruments adjusted for illiquidity and other risk factors), estimated deferral and default rates on collateral, and estimated cash flows. The Company also reviewed a stress test of these securities to determine the additional deferrals or defaults in the collateral pool in excess of what the Company believes is probable, before the payments on the individual securities are negatively impacted.
As of June 30, 2013, the Company also owned $1.9 million of equity securities in banks and financial service-related companies, and $1.0 million of mutual funds invested in debt securities and other debt instruments that will cause units of the fund to be deemed to be qualified under the Community Reinvestment Act (the "CRA"). Equity securities are considered to have other-than-temporary impairment whenever they have been in a loss position, compared to current book value, for twelve consecutive months, and the Company does not expect them to recover to their original cost basis. For the first half of 2013 and the full year of 2012, no impairment charges were recorded, as the affected equity securities were not deemed impaired due to stabilized market prices in relation to the Company's original purchase price.
It is reasonably possible that the fair values of the Company's investment securities could decline in the future if the overall economy and the financial condition of the issuers deteriorate and the liquidity of certain securities remains depressed. As a result, there is a risk that other-than-temporary impairments may occur in the future and any such amounts could be material to the Company's consolidated statements of operations.
 
A summary of the contractual maturity distribution of debt investment securities at June 30, 2013 is as follows:
 
 
Available For Sale
  
Held to Maturity
 
 
Amortized
Cost
  
Fair Value
  
Amortized
Cost
  
Fair Value
 
(in thousands)
 
  
 
  
 
  
 
 
Due in one year or less
$
22,263

  
$
22,541

  
$
300

  
$
300

 
Due after one year through five years
93,617

  
96,872

  
2,759

  
2,694

 
Due after five years through ten years
111,469

  
113,380

  
7,916

  
7,672

 
Due after ten years
56,749

  
54,268

  
12,494

  
11,548

 
Mortgage-backed securities and collateralized mortgage obligations
218,039

  
219,433

  
9,843

  
9,541

 
Total
$
502,137

  
$
506,494

  
$
33,312

  
$
31,755


Mortgage-backed and collateralized mortgage obligations are collateralized by mortgage loans guaranteed by U.S. government agencies. Experience has indicated that principal payments will be collected sooner than scheduled because of prepayments. Therefore, these securities are not scheduled in the maturity categories indicated above. Equity securities available for sale with an amortized cost of $2.6 million and a fair value of $2.9 million are also excluded from this table.

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Table of Contents

Other investment securities include investments in Federal Home Loan Bank (“FHLB”) stock. The carrying value of the FHLB stock at June 30, 2013 and December 31, 2012 was $11.8 million and $11.1 million, respectively, which is included in the Other Assets line of the consolidated balance sheets. This security is not readily marketable and ownership of FHLB stock is a requirement for membership in the FHLB Des Moines. The amount of FHLB stock the Bank is required to hold is directly related to the amount of FHLB advances borrowed. Because there are no available market values, this security is carried at cost and evaluated for potential impairment each quarter. Redemption of this investment is at the option of the FHLB.
Realized gains and losses on sales are determined on the basis of specific identification of investments based on the trade date. Realized gains on investments for the three and six months ended June 30, 2013 and 2012 are as follows:  
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2013
 
2012
 
2013
 
2012
 
(in thousands)
 
 
 
 
 
 
 
 
Available for sale fixed maturity securities:
 
 
 
 
 
 
 
 
Gross realized gains
$
64

 
$
38

 
$
144

 
$
352

 
Gross realized losses
(60
)
 
—

 
(60
)
 
—

 
Other-than-temporary impairment
—

 
—

 
—

 
—

 
 
4

 
38

 
84

 
352

 
Equity securities:
 
 
 
 
 
 
 
 
Gross realized gains
—

 
379

 
—

 
381

 
Gross realized losses
—

 
—

 
—

 
—

 
Other-than-temporary impairment
—

 
—

 
—

 
—

 
 
—

 
379

 
—

 
381

 
 
$
4

 
$
417

 
$
84

 
$
733


5.Loans Receivable and the Allowance for Loan Losses
The composition of loans and loan pool participations by portfolio segment are as follows:
 
 
Allowance for Loan Losses and Recorded Investment in Loan Receivables
 
 
As of June 30, 2013 and December 31, 2012
 
(in thousands)
Agricultural
 
Commercial and Industrial
 
Commercial Real Estate
 
Residential Real Estate
 
Consumer
 
Unallocated
 
Total
 
June 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
145

 
$
153

 
$
440

 
$
202

 
$
7

 
$
—

 
$
947

 
Collectively evaluated for impairment
850

 
4,621

 
5,224

 
3,132

 
272

 
1,532

 
15,631

 
Total
$
995

 
$
4,774

 
$
5,664

 
$
3,334

 
$
279

 
$
1,532

 
$
16,578

 
Loans acquired with deteriorated credit quality (loan pool participations)
$
3

 
$
59

 
$
719

 
$
129

 
$
5

 
$
1,219

 
$
2,134

 
Loans receivable
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
3,103

 
$
1,872

 
$
4,693

 
$
1,619

 
$
58

 
$
—

 
$
11,345

 
Collectively evaluated for impairment
79,927

 
256,736

 
426,244

 
268,659

 
18,490

 
—

 
1,050,056

 
Total
$
83,030

 
$
258,608

 
$
430,937

 
$
270,278

 
$
18,548

 
$
—

 
$
1,061,401

 
Loans acquired with deteriorated credit quality (loan pool participations)
$
55

 
$
1,694

 
$
20,940

 
$
4,192

 
$
64

 
$
4,906

 
$
31,851


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Table of Contents

 
(in thousands)
Agricultural
 
Commercial and Industrial
 
Commercial Real Estate
 
Residential Real Estate
 
Consumer
 
Unallocated
 
Total
 
December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
159

 
$
295

 
$
293

 
$
136

 
$
6

 
$
—

 
$
889

 
Collectively evaluated for impairment
867

 
4,304

 
5,474

 
2,871

 
350

 
1,202

 
15,068

 
Total
$
1,026

 
$
4,599

 
$
5,767

 
$
3,007

 
$
356

 
$
1,202

 
$
15,957

 
Loans acquired with deteriorated credit quality (loan pool participations)
$
4

 
$
77

 
$
673

 
$