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, 2007**





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 0-24630





MIDWEST *ONE* FINANCIAL GROUP, INC.


222
      First
      Avenue East


Oskaloosa,
      IA 52577





Registrant’s
      telephone number: **641-673-8448**


(State
                  of Incorporation)
              
              (I.R.S.
                  Employer Identification No.)**Iowa**
              
              **42-1003699**


Indicate
      by check mark whether the registrant (1) has filed all reports required 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.





Yes
x
      No o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of the
      Exchange Act).


Large
                  Accelerated Filer o
              Accelerated
                  Filer o
              Non-accelerated
                  Filer x


Indicate
      by check mark whether the registrant is a shell company ( as defined in Rule
      12b-2 of the Exchange Act).





Yes
o  No x





As
      of
      August 13, 2007, there were 3,695,115 shares of common stock $5 par value
      outstanding.





PART
                I —
                Item 1. Financial Statements**MIDWEST*****ONE*****FINANCIAL GROUP, INC.****AND
                SUBSIDIARIES****CONSOLIDATED
                STATEMENTS OF CONDITION**





**June
                30,**
            
            **December
                31,****2007**
            
            **2006**(dollars
                in thousands)
            
            (unaudited)**ASSETS**Cash
                and due from banks
            
            $
            21,779
            
            $
            20,279Interest-bearing
                deposits in banks
            
            
            627
            
            
            447Cash
                and cash equivalents
            
            
            22,406
            
            
            20,726Investment
                securities:Available
                for sale at fair value
            
            
            74,450
            
            
            70,743Held
                to maturity (fair value of $11,005 as of June 30, 2007and
                $12,168 as of December 31, 2006)
            
            
            11,137
            
            
            12,220Loans
            
            
            523,975
            
            
            503,832Allowance
                for loan losses
            
            
            (5,869
            )
            
            (5,693
            )Net
                loans
            
            
            518,106
            
            
            498,139Loan
                pool participations
            
            
            77,343
            
            
            98,885Premises
                and equipment, net
            
            
            12,915
            
            
            12,327Accrued
                interest receivable
            
            
            6,639
            
            
            6,587Goodwill
            
            
            13,405
            
            
            13,405Other
                intangible assets, net
            
            
            1,001
            
            
            1,128Bank-owned
                life insurance
            
            
            7,940
            
            
            7,798Other
                real estate owned
            
            
            424
            
            
            188Other
                assets
            
            
            3,289
            
            
            2,765Total
                assets
            
            $
            749,055
            
            $
            744,911**LIABILITIES
                AND SHAREHOLDERS' EQUITY**Deposits:Demand
            
            $
            52,766
            
            $
            64,291Interest-bearing
                checking
            
            
            65,138
            
            
            65,482Savings
            
            
            104,529
            
            
            101,443Certificates
                of deposit
            
            
            343,844
            
            
            329,399Total
                deposits
            
            
            566,277
            
            
            560,615Federal
                funds purchased
            
            
            8,560
            
            
            465Federal
                Home Loan Bank advances
            
            
            87,600
            
            
            99,100Notes
                payable
            
            
            5,050
            
            
            4,050Long-term
                debt
            
            
            10,310
            
            
            10,310Accrued
                interest payable
            
            
            3,377
            
            
            2,804Other
                liabilities
            
            
            4,591
            
            
            5,034Total
                liabilities
            
            
            685,765
            
            
            682,378Shareholders'
                equity:Common
                stock, $5 par value; authorized 20,000,000 shares; issued4,912,849
                shares as of June 30, 2007 and December 31, 2006
            
            
            24,564
            
            
            24,564Capital
                surplus
            
            
            13,165
            
            
            13,076Treasury
                stock at cost, 1,219,234 shares as of June 30, 2007,and
                1,197,418 shares as of December 31, 2006
            
            
            (17,595
            )
            
            (17,099
            )Retained
                earnings
            
            
            43,873
            
            
            42,447Accumulated
                other comprehensive loss
            
            
            (717
            )
            
            (455
            )Total
                shareholders' equity
            
            
            63,290
            
            
            62,533Total
                liabilities and shareholders' equity
            
            $
            749,055
            
            $
            744,911




See
                accompanying notes to consolidated financial
                statements.





2


PART
                  I —
                  Item 1. Financial Statements, Continued**MIDWEST*****ONE*****FINANCIAL GROUP, INC.****AND
                  SUBSIDIARIES****CONSOLIDATED
                  STATEMENTS OF INCOME**
 
 (unaudited)
              
              **Quarter
                  Ended**
              
              **Six
                  Months Ended**(dollars
                  in thousands, except per share amounts)
              
              **June
                  30,**
              
              **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006****Interest
                  income:**Interest
                  and fees on loans
              
              $
              9,606
              
              $
              8,238
              
              $
              18,937
              
              $
              16,112Interest
                  and discount on loan pool participations
              
              
              2,301
              
              
              2,183
              
              
              4,316
              
              
              4,792Interest
                  on bank deposits
              
              
              4
              
              
              8
              
              
              15
              
              
              15Interest
                  on federal funds sold
              
              
              60
              
              
              -
              
              
              61
              
              
              3Interest
                  on investment securities:Available
                  for sale
              
              
              792
              
              
              662
              
              
              1,559
              
              
              1,323Held
                  to maturity
              
              
              118
              
              
              123
              
              
              237
              
              
              247Total
                  interest income
              
              
              12,881
              
              
              11,214
              
              
              25,125
              
              
              22,492**Interest
                  expense:**Interest
                  on deposits:Interest-bearing
                  checking
              
              
              87
              
              
              92
              
              
              167
              
              
              178Savings
              
              
              715
              
              
              656
              
              
              1,396
              
              
              1,197Certificates
                  of deposit
              
              
              4,142
              
              
              2,728
              
              
              8,078
              
              
              5,254Interest
                  on federal funds purchased
              
              
              11
              
              
              175
              
              
              97
              
              
              245Interest
                  on Federal Home Loan Bank advances
              
              
              1,178
              
              
              1,044
              
              
              2,378
              
              
              1,991Interest
                  on notes payable
              
              
              89
              
              
              89
              
              
              169
              
              
              194Interest
                  on long-term debt
              
              
              240
              
              
              232
              
              
              475
              
              
              445Total
                  interest expense
              
              
              6,462
              
              
              5,016
              
              
              12,760
              
              
              9,504Net
                  interest income
              
              
              6,419
              
              
              6,198
              
              
              12,365
              
              
              12,988Provision
                  for loan losses
              
              
              179
              
              
              -
              
              
              576
              
              
              -Net
                  interest income after provision for loan losses
              
              
              6,240
              
              
              6,198
              
              
              11,789
              
              
              12,988**Noninterest
                  income:**Deposit
                  service charges
              
              
              554
              
              
              586
              
              
              987
              
              
              1,060Other
                  customer service charges and fees
              
              
              203
              
              
              157
              
              
              396
              
              
              313Brokerage
                  commissions
              
              
              154
              
              
              288
              
              
              427
              
              
              539Insurance
                  commissions
              
              
              183
              
              
              237
              
              
              387
              
              
              385Data
                  processing income
              
              
              63
              
              
              57
              
              
              119
              
              
              109Mortgage
                  origination fees
              
              
              189
              
              
              142
              
              
              313
              
              
              246Bank-owned
                  life insurance income
              
              
              85
              
              
              80
              
              
              169
              
              
              160Other
                  operating income
              
              
              50
              
              
              55
              
              
              216
              
              
              355Gain
                  (loss) on sale of available for sale securities
              
              
              49
              
              
              -
              
              
              49
              
              
              (126
              )Total
                  noninterest income
              
              
              1,530
              
              
              1,602
              
              
              3,063
              
              
              3,041**Noninterest
                  expense:**Salaries
                  and employee benefits
              
              
              3,011
              
              
              2,981
              
              
              6,464
              
              
              6,128Net
                  occupancy expense
              
              
              876
              
              
              852
              
              
              1,752
              
              
              1,739Professional
                  fees
              
              
              268
              
              
              164
              
              
              566
              
              
              340Data
                  processing expense
              
              
              104
              
              
              123
              
              
              193
              
              
              230Other
                  intangible asset amortization
              
              
              63
              
              
              77
              
              
              127
              
              
              155Other
                  operating expense
              
              
              940
              
              
              1,118
              
              
              1,855
              
              
              2,057Total
                  noninterest expense
              
              
              5,262
              
              
              5,315
              
              
              10,957
              
              
              10,649Income
                  before income tax expense
              
              
              2,508
              
              
              2,485
              
              
              3,895
              
              
              5,380Income
                  tax expense
              
              
              720
              
              
              830
              
              
              1,133
              
              
              1,806**Net
                  income**
              
              $
              1,788
              
              $
              1,655
              
              $
              2,762
              
              $
              3,574Earnings
                  per common share - basic
              
              $
              0.48
              
              $
              0.44
              
              $
              0.75
              
              $
              0.96Earnings
                  per common share - diluted
              
              $
              0.48
              
              $
              0.44
              
              $
              0.74
              
              $
              0.95Dividends
                  per common share
              
              $
              0.18
              
              $
              0.18
              
              $
              0.36
              
              $
              0.35
  See
                  accompanying notes to consolidated financial
                  statements.




3


PART
                  I —
                  Item 1. Financial Statements,
                  Continued
 
 **MIDWEST*****ONE*****FINANCIAL GROUP, INC.****AND
                  SUBSIDIARIES****CONSOLIDATED
                  STATEMENTS OF COMPREHENSIVE
                  INCOME**
  (unaudited)
              
              **Quarter
                  Ended**
              
              **Six
                  Months Ended**(in
                  thousands)
              
              **June
                  30,**
              
              **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006****Net
                  income**
              
              $
              1,788
              
              $
              1,655
              
              $
              2,762
              
              $
              3,574Other
                  comprehensive loss:Unrealized
                  losses on securities available for sale:Unrealized
                    holding losses arising during the
                    period, net of tax
              
              
              (313
              )
              
              (402
              )
              
              (230
              )
              
              (526
              )Reclassification
                    adjustment for net (gains) losses included in
                    net income, net of tax
              
              
              (32
              )
              
              -
              
              
              (32
              )
              
              79**Other
                  comprehensive loss, net of tax**
              
              
              (345
              )
              
              (402
              )
              
              (262
              )
              
              (447
              )**Comprehensive
                  income**
              
              $
              1,443
              
              $
              1,253
              
              $
              2,500
              
              $
              3,127
  See
                  accompanying notes to consolidated financial
                  statements.




4


PART
                  I —
                  Item 1. Financial Statements, Continued**MIDWEST*****ONE*****FINANCIAL GROUP, INC.****AND
                  SUBSIDIARIES****CONSOLIDATED
                  STATEMENTS OF CHANGES IN SHAREHOLDERS'
                  EQUITY**
 
 (unaudited)
              
              **Common**
              
              **Capital**
              
              **Treasury**
              
              **Retained**
              
              **Accumulated
                  Other Comprehensive**(in
                  thousands, except per share amounts)
              
              **Stock**
              
              **Surplus**
              
              **Stock**
              
              **Earnings**
              
              **Loss**
              
              **Total**Balance
                  at December 31, 2005
              
              $
              24,564
              
              
              12,886
              
              
              (16,951
              )
              
              38,630
              
              
              (743
              )
              
              58,386Comprehensive
                  income:Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              3,574
              
              
              -
              
              
              3,574Unrealized
                  losses arising during theperiod
                  on securities available for sale
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (526
              )
              
              (526
              )Reclassification
                  for realized losses onsecurities
                  available for sale, net of tax
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              79
              
              
              79Total
                  comprehensive income
              
              
              -
              
              
              -
              
              
              -
              
              
              3,574
              
              
              (447
              )
              
              3,127Dividends
                  paid ($.35 per share)
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,296
              )
              
              -
              
              
              (1,296
              )Stock-based
                  compensation
              
              
              -
              
              
              10
              
              
              112
              
              
              -
              
              
              -
              
              
              122Stock
                  options exercised(15,241
                  shares)
              
              
              -
              
              
              (13
              )
              
              214
              
              
              -
              
              
              -
              
              
              201Treasury
                  stock purchased(35,000
                  shares)
              
              
              -
              
              
              -
              
              
              (677
              )
              
              -
              
              
              -
              
              
              (677
              )Balance
                  at June 30, 2006
              
              $
              24,564
              
              
              12,883
              
              
              (17,302
              )
              
              40,908
              
              
              (1,190
              )
              
              59,863Balance
                  at December 31, 2006
              
              $
              24,564
              
              
              13,076
              
              
              (17,099
              )
              
              42,447
              
              
              (455
              )
              
              62,533Comprehensive
                  income:Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              2,762
              
              
              -
              
              
              2,762Unrealized
                  losses arising during theperiod
                  on securities available for sale
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (230
              )
              
              (230
              )Reclassification
                  adjustment for realized gainson
                  securities available for sale, net of tax
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (32
              )
              
              (32
              )Total
                  comprehensive income
              
              
              -
              
              
              -
              
              
              -
              
              
              2,762
              
              
              (262
              )
              
              2,500Dividends
                  paid ($.36 per share)
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,336
              )
              
              -
              
              
              (1,336
              )Stock-based
                  compensation
              
              
              -
              
              
              101
              
              
              -
              
              
              -
              
              
              -
              
              
              101Stock
                  options exercised(23,184
                  shares)
              
              
              -
              
              
              (12
              )
              
              333
              
              
              -
              
              
              -
              
              
              321Treasury
                  stock purchased(45,000
                  shares)
              
              
              -
              
              
              -
              
              
              (829
              )
              
              -
              
              
              -
              
              
              (829
              )Balance
                  at June 30, 2007
              
              $
              24,564
              
              
              13,165
              
              
              (17,595
              )
              
              43,873
              
              
              (717
              )
              
              63,290
  See
                  accompanying notes to consolidated financial
                  statements.




5


PART
                  I — Item 1. Financial Statements, Continued**MIDWEST*****ONE*****FINANCIAL GROUP, INC.****AND
                  SUBSIDIARIES****CONSOLIDATED
                  STATEMENTS OF CASH FLOWS**
 
 (unaudited)
              
              **Six
                  Months Ended**(dollars
                  in thousands)
              
              **June
                  30,****2007**
              
              **2006****Cash
                  flows from operating activities:**Net
                  income
              
              $
              2,762
              
              $
              3,574Adjustments
                  to reconcile net income to net cashprovided
                  by operating activities:Depreciation
                  and amortization
              
              
              912
              
              
              961Provision
                  for loan losses
              
              
              576
              
              
              -(Gain)
                  loss on sale of available for sale investment securities
              
              
              (49
              )
              
              126Stock-based
                  compensation
              
              
              101
              
              
              122Excess
                  tax benefits related to stock options
              
              
              (31
              )
              
              (8
              )Amortization
                  of investment securities and loan premiums
              
              
              117
              
              
              202Accretion
                  of investment securities and loan discounts
              
              
              (48
              )
              
              (42
              )(Increase)
                  decrease in other assets
              
              
              (803
              )
              
              581Increase
                  in other liabilities
              
              
              130
              
              
              216Net
                  cash provided by operating activities
              
              
              3,667
              
              
              5,732**Cash
                  flows from investing activities:**Investment
                  securities available for sale:Proceeds
                  from sales
              
              
              238
              
              
              6,476Proceeds
                  from maturities
              
              
              10,586
              
              
              9,075Purchases
              
              
              (14,985
              )
              
              (9,575
              )Investment
                  securities held to maturity:Proceeds
                  from maturities
              
              
              1,073
              
              
              714Net
                  increase in loans
              
              
              (20,512
              )
              
              (42,183
              )Purchases
                  of loan pool participations
              
              
              (2,288
              )
              
              (11,767
              )Principal
                  recovery on loan pool participations
              
              
              23,830
              
              
              22,744Purchases
                  of premises and equipment
              
              
              (1,373
              )
              
              (1,619
              )Net
                  cash used in investing activities
              
              
              (3,431
              )
              
              (26,135
              )**Cash
                  flows from financing activities:**Net
                  increase in deposits
              
              
              5,662
              
              
              7,102Net
                  increase in federal funds purchased
              
              
              8,095
              
              
              7,095Federal
                  Home Loan Bank advances
              
              
              -
              
              
              44,000Repayment
                  of Federal Home Loan Bank advances
              
              
              (11,500
              )
              
              (33,000
              )Advances
                  on notes payable
              
              
              1,500
              
              
              450Principal
                  payments on notes payable
              
              
              (500
              )
              
              (2,000
              )Excess
                  tax benefits related to stock options
              
              
              31
              
              
              8Dividends
                  paid
              
              
              (1,336
              )
              
              (1,296
              )Proceeds
                  from exercise of stock options
              
              
              321
              
              
              201Purchases
                  of treasury stock
              
              
              (829
              )
              
              (677
              )Net
                  cash provided by financing activities
              
              
              1,444
              
              
              21,883**Net
                  increase in cash and cash equivalents**
              
              
              1,680
              
              
              1,480Cash
                  and cash equivalents at beginning of period
              
              
              20,726
              
              
              13,520Cash
                  and cash equivalents at end of period
              
              $
              22,406
              
              $
              15,000Supplemental
                  disclosures of cash flow information:Cash
                  paid during the period for:Interest
              
              $
              12,186
              
              $
              9,219Income
                  taxes
              
              $
              1,263
              
              $
              2,511
  See
                  accompanying notes to consolidated financial
                  statements.


6


Part
      I -
      Item 1. Financial Statements, Continued





Notes
      to
      Financial Statements





1.  Basis
      of
      Presentation





The
      accompanying consolidated statements of income and the consolidated statements
      of comprehensive income for the three months and the six months ended June
      30,
      2007 and 2006, the consolidated statements of cash flows for the six months
      ended June 30, 2007 and 2006 and the consolidated statements of condition as
      of
      June 30, 2007 and December 31, 2006 include the accounts and transactions of
      MidWest *One* Financial Group, Inc. (the “Company”) and its wholly-owned subsidiaries,
      MidWest *One* Bank,
      MidWest *One* Investment Services, Inc. and Cook & Son Agency, Inc. All material
      intercompany balances and transactions have been eliminated in consolidation.





The
      accompanying consolidated financial statements have been prepared by the Company
      pursuant to the rules and regulations of the Securities and Exchange Commission.
      Certain information and footnote disclosures normally included in financial
      statements prepared in accordance with U. S. generally accepted accounting
      principles have been condensed or omitted pursuant to such rules and
      regulations. Although management believes that the disclosures are adequate
      to
      make the information presented not misleading, it is suggested that these
      interim consolidated financial statements be read in conjunction with the
      Company’s most recent audited financial statements and notes thereto. 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, 2007, and the results
      of
      operations for the three months and the six months ended June 30, 2007 and
      2006
      and cash flows for the six months ended June 30, 2007 and 2006.





The
      results for the three months and the six months ended June 30, 2007 may not
      be
      indicative of results for the year ending December 31, 2007, or for any other
      period.





2.  Consolidated
      Statements of Cash Flows





In
      the
      consolidated statements of cash flows, cash and cash equivalents include cash
      and due from banks and interest-bearing deposits in banks.





3.  Income
      Taxes





Federal
      income tax expense for the three months and the six months ended June 30,
      2007 and 2006 was computed using the consolidated effective federal tax rate.
      The Company also recognized income tax expense pertaining to state franchise
      taxes payable individually by the subsidiary bank. On January 1, 2007, the
      Company adopted FIN 48, “Accounting for Uncertainty in Income Taxes.” The
      evaluation was performed for those tax years which remain open to audit. The
      Company files a consolidated tax return for federal purposes. A consolidated
      tax
      return for the state of Iowa is filed for the parent company and non-bank
      subsidiaries. A separate Iowa franchise tax return is filed for the bank
      subsidiary. The tax years ended December 31, 2006, 2005, and 2004, remain
      subject to examination by the Internal Revenue Service. For state tax purposes,
      the tax years ended December 31, 2006, 2005, and 2004, remain open for
      examination. As a result of the implementation of FIN 48, the Company did not
      recognize any increase or decrease for unrecognized tax benefits. There were
      no
      material unrecognized tax benefits on January 1, 2007 and June 30, 2007. No
      interest or penalties on these unrecognized tax benefits has been recorded.
      As
      of June 30, 2007, the Company does not anticipate any significant increase
      or
      decrease in unrecognized tax benefits during the next twelve months.





4.  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**
            
            **Six
                Months Ended****June
                30,**
            
            **June
                30,****2007**
            
            **2006**
            
            **2007**
            
            **2006****Earnings
                per Share Information:**Weighted
                average number of sharesoutstanding
                during the period
            
            
            3,696,925
            
            
            3,702,483
            
            
            3,704,805
            
            
            3,704,396Weighted
                average number of sharesoutstanding
                during the periodincluding
                all dilutive potential shares
            
            
            3,728,279
            
            
            3,775,948
            
            
            3,742,782
            
            
            3,773,069Net
                earnings
            
            $
            1,788,000
            
            $
            1,655,000
            
            $
            2,762,000
            
            $
            3,574,000Earnings
                per share - basic
            
            $
            .48
            
            $
            .44
            
            $
            .75
            
            $
            .96Earnings
                per share - diluted
            
            $
            .48
            
            $
            .44
            
            $
            .74
            
            $
            .95





7





5.  Effect
      of
      New Financial Accounting Standards





In
      September 2006, the FASB issued Statement No. 157, “Fair Value Measurements”
(“SFAS No. 157”). SFAS No. 157 establishes a framework for measuring fair value
      in U.S. generally accepted accounting principles and expands disclosures about
      fair value measurements. It applies whenever other standards require or permit
      assets or liabilities to be measured at fair value. It does not expand the
      use
      of fair value in any new circumstances. SFAS No. 157 is effective for the
      Company beginning January 1, 2008. The Company does not expect the adoption
      of
      this statement to have a material effect on its financial condition or results
      of operations.





In
      September 2006, the Emerging Issues Task Force (“EITF”) Issue No. 06-4,
“Accounting for Deferred Compensation and Postretirement Benefit Aspects of
      Endorsement Split-Dollar Life Insurance Arrangements,” was ratified. This EITF
      Issue addresses accounting for separate agreements that split life insurance
      policy benefits between an employer and employee. The Issue requires the
      employer to recognize a liability for future benefits payable to the employee
      under these agreements. The effects of applying this Issue must be recognized
      through either a change in accounting principle through an adjustment to equity
      or through the retrospective application to all prior periods. The Issue is
      effective for the Company beginning January 1, 2008. The Company does not expect
      the adoption of the Issue to have a material effect on its financial condition
      or results of operations.





In
      February 2007, the FASB issued Statement No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159
      allows companies to elect fair-value measurement of specified financial
      instruments and warranty and insurance contracts when an eligible asset or
      liability is initially recognized or when an event, such as a business
      combination, triggers a new basis of accounting for that asset or liability.
      The
      election, called the “fair value option,” will enable some companies to reduce
      the volatility in reported earnings caused by measuring related assets and
      liabilities differently. The election is available for eligible assets or
      liabilities on a contract-by-contract basis without electing it for identical
      assets or liabilities under certain restrictions. SFAS No. 159 is effective
      for
      the Company beginning January 1, 2008. The Company does not anticipate that
      the
      adoption of SFAS No. 159 will have a material effect on its financial condition
      or results of operations.





6.  Use
      of
      Estimates in the Preparation of Financial Statements





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 and disclosure of
      contingent assets and liabilities at the date of the financial statements and
      the reported amounts of revenues and expenses during the reported period. Actual
      results could differ from those estimates. A significant estimate that is
      particularly sensitive to change is the allowance for loan losses.





7.  Reclassifications





Certain
      reclassifications have been made to prior year consolidated financial statements
      in order to conform to current year presentation. These reclassifications
      consist of expanding the noninterest income categories on the income statement
      to present separately bank-owned life insurance income.


8


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





OVERVIEW





The
      following discussion is provided for the consolidated operations of
      MidWest *One* Financial Group, Inc. (“Company”), which includes its wholly-owned banking
      subsidiary, MidWest *One* Bank
      (“Bank”), its wholly-owned insurance agency, Cook & Son Agency, Inc. (“Cook
& Son”) and its wholly-owned investment brokerage subsidiary,
      MidWest *One* Investment Services, Inc. (“MWI”). The discussion focuses on the consolidated
      results of operations for the three months and the six months ended June 30,
      2007, compared to the same periods in 2006, and on the consolidated financial
      condition of the Company and its subsidiaries as of June 30, 2007 and December
      31, 2006.





RESULTS
      OF OPERATIONS





QUARTER
      ENDED June 30, 2007





The
      Company earned net income of $1,788,000 for the quarter ended June 30, 2007,
      compared with $1,655,000 for the quarter ended June 30, 2006, an increase of
      $133,000 or 8 percent. The increase in net income was primarily due to greater
      net interest income and lower noninterest expense. Basic and diluted earnings
      per share for the quarter ended June 30, 2007 were $.48 versus $.44 for the
      quarter ended June 30, 2006. The Company’s return on average assets was .96
      percent for the quarter ended June 30, 2007 and for the quarter ended June
      30,
      2006. The Company’s return on average equity increased to 11.37 percent for the
      three months ended June 30, 2007, compared with 11.02 percent for the three
      months ended June 30, 2006.





The
      following table presents selected financial results and measures for the three
      months ended June 30, 2007 compared with the three months ended June 30,
      2006.


Three
                  Months Ended June 30,2007
              
              2006Net
                  Income
              
              $
              1,788,000
              
              $
              1,655,000Average
                  Assets
              
              
              747,729,000
              
              
              688,353,000Average
                  Shareholders’ Equity
              
              
              63,053,000
              
              
              60,214,000Return
                  on Average Assets
              
              
              .96
              %
              
              .96
              %Return
                  on Average Equity
              
              
              11.37
              %
              
              11.02
              %Equity
                  to Assets (end of period)
              
              
              8.45
              %
              
              8.53
              %





Net
      Interest Income





Net
      interest income is computed by subtracting total interest expense from total
      interest income. Fluctuations in net interest income can result from the changes
      in the volumes of assets and liabilities as well as changes in interest rates.
      The Company’s net interest income for the quarter ended June 30, 2007 increased
      $221,000 or 4 percent to $6,419,000 from $6,198,000 for the quarter ended June
      30, 2006. Total interest income was $1,667,000 greater in the second quarter
      of
      2007 compared with the same period in 2006. Interest income excluding loan
      pool
      participations was $1,549,000, or 17 percent greater in the second quarter
      of
      2007 in comparison with the quarter ended June 30, 2006 due to an increase
      in the volume of loans and higher yields on loans and investment securities.
      Interest income and discount recovery on loan pool participations was $118,000
      greater in the second quarter of 2007 compared to the second quarter of 2006
      as
      a result of higher collections. The increase in interest income was partially
      offset by increased interest expense on deposits. Total interest expense for
      the
      second quarter of 2007 increased $1,446,000 or 29 percent compared with the
      same
      period in 2006 due to increased volumes and a higher cost of funds, reflecting
      the interest rate environment. The Company’s net interest margin on a federal
      tax-equivalent basis for the second quarter of 2007 decreased to 3.83 percent
      from 3.98 percent in the second quarter of 2006. Net interest margin is a
      measure of the net return on interest-earning assets and is computed by dividing
      annualized net interest income by the average of total interest-earning assets
      for the period. The Company’s overall yield on earning assets improved to 7.56
      percent for the second quarter of 2007 compared with 7.12 percent for the second
      quarter of 2006. The rate on interest-bearing liabilities increased in the
      second quarter of 2007 to 4.14 percent compared to 3.48 percent for the second
      quarter of 2006.





The
      following table presents a comparison of the average balance of earning assets,
      interest-bearing liabilities, tax equivalent interest income and expense,
      and tax equivalent average yields and costs for the three months ended June
      30,
      2007 and 2006.


**Quarter
                  Ended June 30,***(in
                  thousands)*
              
              **2007**
              
              **2006****Average**
              
              
              
              **Average**
              
              **Average**
              
              
              
              **Average****Balance**
              
              **Interest**
              
              **Rate**
              
              **Balance**
              
              **Interest**
              
              **Rate****Average
                  earning assets:**Loans
              
              $
              519,430
              
              $
              9,646
              
              
              7.45
              %
              $
              467,770
              
              $
              8,276
              
              
              7.10
              %Loan
                  pool participations
              
              
              84,807
              
              
              2,301
              
              
              10.88
              %
              
              89,973
              
              
              2,183
              
              
              9.73
              %Interest-bearing
                  deposits
              
              
              592
              
              
              4
              
              
              3.00
              %
              
              408
              
              
              8
              
              
              7.97
              %Investment
                  securities:Available
                  for sale
              
              
              73,155
              
              
              897
              
              
              4.92
              %
              
              68,607
              
              
              707
              
              
              4.13
              %Held
                  to maurity
              
              
              11,684
              
              
              175
              
              
              6.01
              %
              
              12,748
              
              
              182
              
              
              5.75
              %Federal
                  funds sold
              
              
              4,623
              
              
              60
              
              
              5.13
              %
              
              -
              
              
              -
              
              
              0.00
              %Total
                  earning assets
              
              
              694,291
              
              
              13,083
              
              
              7.56
              %
              
              639,506
              
              
              11,356
              
              
              7.12
              %**Average
                  interest-bearing liabilities:**Interest-bearing
                  demand deposits
              
              
              68,569
              
              
              87
              
              
              0.51
              %
              
              67,955
              
              
              92
              
              
              0.55
              %Savings
                  deposits
              
              
              106,567
              
              
              715
              
              
              2.69
              %
              
              112,410
              
              
              656
              
              
              2.34
              %Certificates
                  of deposit
              
              
              340,842
              
              
              4,142
              
              
              4.88
              %
              
              280,515
              
              
              2,728
              
              
              3.90
              %Federal
                  funds purchased
              
              
              642
              
              
              11
              
              
              6.45
              %
              
              12,615
              
              
              175
              
              
              5.55
              %Federal
                  Home Loan Bank advances
              
              
              94,226
              
              
              1,178
              
              
              5.01
              %
              
              89,386
              
              
              1,044
              
              
              4.68
              %Notes
                  payable
              
              
              4,506
              
              
              89
              
              
              7.96
              %
              
              4,588
              
              
              89
              
              
              7.81
              %Long-term
                  debt
              
              
              10,310
              
              
              240
              
              
              9.33
              %
              
              10,310
              
              
              232
              
              
              9.04
              %Total
                  interest-bearing liabilities
              
              
              625,662
              
              
              6,462
              
              
              4.14
              %
              
              577,779
              
              
              5,016
              
              
              3.48
              %**Net
                  interest income**
              
              
              
              
              
              6,621
              
              
              3.42
              %
              
              
              
              
              6,340
              
              
              3.64
              %**Net
                  interest margin**
              
              
              
              
              
              
              
              
              3.83
              %
              
              
              
              
              
              
              
              3.98
              %





Interest
      income and fees on loans increased $1,370,000 or 17 percent in the second quarter of 2007 compared to
      the
      same period in 2006. Average loans were $51,660,000 or 11 percent higher in
      the
      second quarter of 2007 compared with 2006, which contributed to the growth
      in
      interest income. The increase in loan volume reflects new loan originations
      primarily in the Cedar Falls/Waterloo and Davenport, Iowa markets. Higher
      interest rates in the second quarter of 2007 compared with 2006 also contributed
      to the additional interest income generated in 2007. The average yield on loans
      increased to 7.45 percent for the second quarter of 2007, compared to 7.10
      percent in the second quarter of 2006. The yield on the Company’s loan portfolio
      is affected by the amount of nonaccrual loans (which do not earn interest
      income), the mix of the portfolio (real estate loans generally have a lower
      overall yield than commercial and agricultural loans), the effects of
      competition and the interest rate environment on the amounts and volumes of
      new
      loan originations, and the mix of variable rate versus fixed rate loans in
      the
      Company’s portfolio. Additionally, many of the borrowers have refinanced their
      real estate mortgages outside the Company to take advantage of long-term
      fixed-rate loans. The Company has typically not retained long-term fixed-rate
      loans in its portfolio in order to reduce interest rate risk. Competition in
      the
      local markets served by the Company has caused the pricing of new and many
      existing loans to be at or near the national prime rate.


Interest
      and discount income on loan pool participations increased $118,000 or 5 percent in the second quarter of 2007 compared with
      the
      same period in 2006. Interest income and discount collected on the loan pool
      participations for the three months ended June 30, 2007 was $2,301,000
      compared with $2,183,000 collected in the three months ended June 30, 2006.
      The
      yield on loan pool participations was 10.88 percent for the second quarter
      of
      2007 compared with 9.73 percent for the second quarter of 2006. The average
      loan
      pool participation investment balance was $5,166,000 lower in the second quarter
      of 2007 than in the same period of 2006. The loan pool participations are pools
      of performing and distressed and nonperforming loans that the Company has
      purchased at a discount from the aggregate outstanding principal amount of
      the
      underlying loans. Income is derived from this investment in the form of interest
      collected and the repayment of the principal in excess of the purchase cost
      which is herein referred to as “discount recovery.” The loan pool participations
      have traditionally been a high-yield activity for the Company, but this yield
      has fluctuated from period to period based on the amount of cash collections,
      discount recovery, and net collection expenses of the servicer in any given
      period. The income and yield on loan pool participations may vary in future
      periods due to the volume and discount rate on loan pools purchased. The Company
      adopted SOP 03-3 on January 1, 2005. All loans that the Company had purchased
      prior to January 1, 2005 continue to utilize the cash basis for recognition
      of
      interest income and discount recovery. The loan pool participations purchased
      subsequent to January 1, 2005 that are subject to the “accretable yield” income
      recognition requirements of SOP 03-3 have not generated amounts of income
      significantly greater than what would have been recognized under the cash basis.
      Loan pool participations that are not subject to the “accretable yield”
requirements also utilize the cash basis for recognition of interest income
      and
      discount recovery.





9




Interest
      income on investment securities increased $125,000 or 16 percent in the quarter ended June 30, 2007, compared
      with the quarter ended June 30, 2006 mainly due to higher yields on securities
      in the portfolio. Interest income on investment securities totaled $910,000
      in
      the second quarter of 2007 compared with $785,000 for the second quarter of
      2006. An increase in the average balance of the investment portfolio also
      contributed additional interest income. The average balance of investments
      in
      the second quarter of 2007 was $84,839,000 compared with $81,355,000 in the
      second quarter of 2006. The tax-equivalent yield on the Company’s investment
      portfolio in the second quarter of 2007 increased to 5.07 percent from 4.39
      percent in the comparable period of 2006 reflecting reinvestment of maturing
      securities at higher market interest rates.





Interest
      expense on deposits was
      $1,468,000 or 42 percent greater in the second quarter of 2007 compared with
      the
      same period in 2006 mainly due to higher market interest rates and increased
      deposit volumes. The weighted average rate paid on interest-bearing deposits
      was
      3.84 percent in the second quarter of 2007 compared with 3.03 percent in the
      second quarter of 2006. Average interest-bearing deposits for the second quarter
      of 2007 were $55,098,000 greater compared with the same period in 2006. The
      Company has noted higher market rates and has increased the rates it pays on
      deposit accounts in response to the competition. The Company’s goal has been to
      pay a competitive rate on deposits in all markets it serves.





Interest
      expense on borrowed funds was
      $22,000 lower in the second quarter of 2007 compared with the same period in
      2006. Interest on borrowed funds totaled $1,518,000 for the second quarter
      of
      2007. The Company’s average borrowed funds balances were lower in the second
      quarter of 2007 resulting in reduced interest expense. Higher market interest
      rates in 2007 compared with 2006 partially offset the interest reduction from
      the lower balances. Average borrowed funds for the second quarter of 2007 were
      $7,215,000 lower compared to the same period in 2006. The weighted average
      rate
      paid on borrowed funds increased to 5.55 percent in the second quarter of 2007
      compared with 5.28 percent in the second quarter of 2006.





Provision
      for Loan Losses





The
      Company recorded a provision for loan losses of $179,000 in the second quarter
      of 2007 compared with zero provision in the second quarter of 2006. No provision
      for the second quarter of 2006 was necessary due to the recovery of $901,000
      from a previously charged off agricultural loan credited to the reserve in
      January 2006. Net loans charged off in the second quarter of 2007 totaled
      $196,000 compared with net charge-offs of $114,000 in the second quarter of
      2006. The provision for loan losses in the second quarter of 2007 reflected
      the
      continued growth in the loan portfolio. Management determines an appropriate
      provision based on its evaluation of the adequacy of the allowance for loan
      losses in relationship to a continuing review of problem loans, the current
      economic conditions, actual loss experience and industry trends. Management
      believes that the allowance for loan losses is adequate based on the inherent
      risk in the portfolio as of June 30, 2007; however, growth in the loan portfolio
      and the uncertainty of the general economy require that management continue
      to
      evaluate the adequacy of the allowance for loan losses and make additional
      provisions in future periods as deemed necessary.





10




Noninterest
      Income





Noninterest
      income results from the charges and fees collected by the Company from its
      customers for various services performed, data processing income received from
      nonaffiliated banks, miscellaneous other income, and gains (or losses) from
      the
      sale of investment securities held in the available for sale category. Total
      noninterest income was $72,000 or 4 percent lower in the second quarter of
      2007
      compared with the same period in 2006. Service charges on deposit accounts
      decreased $32,000 or 5 percent for the quarter ended June 30, 2007 compared
      with
      the quarter ended June 30, 2006 primarily due to reduced non-sufficient funds
      charges collected on deposit account overdrafts. Other customer service charges
      and fees increased $46,000 in the second quarter of 2007 compared with the
      same
      period of 2006 primarily due to higher ATM fees as a result of increased
      customer transaction volume. Brokerage commissions decreased $134,000 to
      $154,000 for the second quarter of 2007 due to reduced sales of securities
      to
      clients. Insurance commissions were $183,000 in the second quarter of 2007
      compared with $237,000 in the second quarter of 2006 reflecting lower credit
      life and accident & health policy sales to bank loan customers and reduced
      property & casualty insurance premium volume. Loan origination fees on
      single-family real estate loans that were originated by the Company and sold
      servicing-released to the secondary market increased to $189,000 in the second
      quarter of 2007 compared to $142,000 for the second quarter of 2006 due to
      increased origination activity. Recognized available for sale investment
      security gains totaled $49,000 in the second quarter of 2007. There were no
      security gains or losses recognized in the second quarter of 2006.





Noninterest
      Expense





Total
      noninterest expense for the quarter ended June 30, 2007 was $53,000 lower
      compared to noninterest expense for the quarter ended June 30, 2006. Noninterest
      expense for the second quarter of 2007 was $5,262,000 and includes all the
      costs
      incurred to operate the Company except for interest expense, the loan loss
      provision and income taxes. Salaries and benefits expense for the second quarter
      of 2007 was $30,000 or 1 percent higher compared with the same period in 2006.
      The increase was attributable to annual compensation adjustments and increased
      benefit costs. The Company had 221 full-time equivalent employees on June 30,
      2007, which is the same as on June 30, 2006. Occupancy expense increased $24,000
      reflecting higher building maintenance costs and property taxes. Professional
      fees increased $104,000 in the second quarter of 2007 due to increased legal
      fees, regulatory fees and costs associated with development and implementation
      of the Company’s Sarbanes-Oxley initiative. Other operating expenses decreased
      $178,000 or 16 percent in the second quarter of 2007 compared to the second
      quarter of 2006 with much of the reduction related to lower marketing expenses
      and reduced losses from fraudulent customer scams that occurred in the second
      quarter of 2006.





Income
      Tax Expense





The
      Company incurred income tax expense of $720,000 for the three months ended
      June
      30, 2007 compared with $830,000 for the three months ended June 30, 2006. The
      effective income tax rate as a percent of income before taxes for the three
      months ended June 30, 2007 and 2006 was 28.7 percent and 33.4 percent,
      respectively. The effective tax rate varies from the statutory rate due to
      state
      taxes and the amount of tax-exempt income on municipal bonds earned during
      the
      period. Tax-exempt income on municipal bonds is greater in comparison to
      previous periods as the market yields on newly-purchased bonds has increased
      and
      the Company has a higher volume of municipal bonds.





On
      January 1, 2007, the Company adopted FASB Interpretation No. 48, “Accounting for
      Uncertainty in Income Taxes,” (“FIN 48”). Implementation of FIN 48 did not
      result in a cumulative effect adjustment to retained earnings.





11





SIX
      MONTHS ENDED June 30, 2007





The
      Company earned net income of $2,762,000 for the six months ended June 30, 2007,
      compared with $3,574,000 for the six months ended June 30, 2006, a decrease
      of
      $812,000 or 23 percent. The decrease in net income was primarily due to reduced
      net interest income, higher provision for loan losses and increased noninterest
      expense. On January 6, 2006, the Company received the proceeds from the recovery
      of an agricultural loan that had been charged off in 2001. These proceeds
      included a loan principal recovery of $901,000 that was credited to the
      allowance for loan losses, $364,000 in interest that was recorded to interest
      income on loans and $50,000 credited to other loan income for the reimbursement
      of attorney fees incurred by the Company in 2001. The interest income and fees
      recovered contributed $.08 per share basic and diluted to the Company’s earnings
      in the six months ended June 30, 2006. Basic and diluted earnings per share
      for
      the six months ended June 30, 2007 were $.75 and $.74, respectively. This
      compares with basic and diluted earnings per share of $.96 and $.95,
      respectively, for the six months ended June 30, 2006. The Company’s return on
      average assets was .75 percent for the six months ended June 30, 2007 and 1.06
      percent for the six months ended June 30, 2006. The Company’s return on average
      equity was 8.86 percent for the six months ended June 30, 2007, compared with
      12.06 percent for the six months ended June 30, 2006.





The
      following table presents selected financial results and measures for the six
      months ended June 30, 2007 compared with the six months ended June 30,
      2006.


Six
                  Months Ended June 30,2007
              
              2006Net
                  Income
              
              $
              2,762,000
              
              $
              3,574,000Average
                  Assets
              
              
              745,593,000
              
              
              682,230,000Average
                  Shareholders’ Equity
              
              
              62,871,000
              
              
              59,771,000Return
                  on Average Assets
              
              
              .75
              %
              
              1.06
              %Return
                  on Average Equity
              
              
              8.86
              %
              
              12.06
              %Equity
                  to Assets (end of period)
              
              
              8.45
              %
              
              8.53
              %





Net
      Interest Income





The
      Company’s net interest income for the six months ended June 30, 2007 decreased
      $623,000 or 5 percent to $12,365,000 from $12,988,000 for the six months ended
      June 30, 2006. Total interest income was $2,633,000 greater in the first six
      months of 2007 compared with the same period in 2006. Interest income excluding
      loan pool participations was $3,109,000, or 18 percent greater in the first
      six
      months of 2007 in comparison with the six months ended June 30, 2006 due
      primarily to an increase in the volume of loans and higher yields on loans
      and
      investment securities. Interest income and discount recovery on loan pool
      participations was $476,000 lower in the first six months of 2007 compared
      to
      the same period of 2006 as a result of lower collections. The increase in
      interest income was offset by increased interest expense. Total interest expense
      for the six months ended June 30,2007 increased $3,256,000 or 34 percent
      compared with the same period in 2006 due to increased volumes and a higher
      cost
      of funds, reflecting the interest rate environment. The Company’s net interest
      margin on a federal tax-equivalent basis for the first six months of 2007
      decreased to 3.72 percent from 4.25 percent in the first six months of 2006.
      The
      Company’s overall yield on earning assets increased to 7.43 percent for the
      first six months of 2007 compared with 7.29 percent for the first six months
      of
      2006. The rate on interest-bearing liabilities increased in the six months
      ended
      June 30, 2007 to 4.12 percent compared to 3.39 percent for the six months ended
      June 30, 2006.





The
      following table presents a comparison of the average balance of earning assets,
      interest-bearing liabilities, tax-equivalent interest income and expense,
      and tax-equivalent average yields and costs for the six months ended June 30,
      2007 and 2006.





12




**Six
                  Months Ended June 30,***(in
                  thousands)*
              
              **2007**
              
              **2006****Average**
              
              
              
              **Average**
              
              **Average**
              
              
              
              **Average****Balance**
              
              **Interest**
              
              **Rate**
              
              **Balance**
              
              **Interest**
              
              **Rate****Average
                  earning assets:**Loans
              
              $
              514,317
              
              $
              19,017
              
              
              7.46
              %
              $
              454,240
              
              $
              16,186
              
              
              7.19
              %Loan
                  pool participations .
              
              
              90,450
              
              
              4,316
              
              
              9.62
              %
              
              93,169
              
              
              4,792
              
              
              10.37
              %Interest-bearing
                  deposits
              
              
              541
              
              
              15
              
              
              5.65
              %
              
              512
              
              
              15
              
              
              6.02
              %Investment
                  securities:Available
                  for sale .
              
              
              72,567
              
              
              1,756
              
              
              4.88
              %
              
              69,114
              
              
              1,405
              
              
              4.10
              %Held
                  to maurity .
              
              
              11,884
              
              
              352
              
              
              5.98
              %
              
              12,792
              
              
              367
              
              
              5.79
              %Federal
                  funds sold
              
              
              2,386
              
              
              61
              
              
              5.13
              %
              
              173
              
              
              3
              
              
              3.69
              %Total
                  earning assets .
              
              
              692,145
              
              
              25,517
              
              
              7.43
              %
              
              630,000
              
              
              22,768
              
              
              7.29
              %**Average
                  interest-bearing liabilities:**Interest-bearing
                  demand deposits
              
              
              66,574
              
              
              167
              
              
              0.51
              %
              
              63,721
              
              
              178
              
              
              0.56
              %Savings
                  deposits
              
              
              105,230
              
              
              1,396
              
              
              2.67
              %
              
              112,645
              
              
              1,197
              
              
              2.14
              %Certificates
                  of deposit .
              
              
              338,309
              
              
              8,078
              
              
              4.82
              %
              
              278,303
              
              
              5,254
              
              
              3.81
              %Federal
                  funds purchased
              
              
              3,426
              
              
              97
              
              
              5.70
              %
              
              9,362
              
              
              245
              
              
              5.27
              %Federal
                  Home Loan Bank advances
              
              
              95,747
              
              
              2,378
              
              
              5.01
              %
              
              85,807
              
              
              1,991
              
              
              4.68
              %Notes
                  payable
              
              
              4,279
              
              
              169
              
              
              7.98
              %
              
              5,332
              
              
              194
              
              
              7.34
              %Long-term
                  debt
              
              
              10,310
              
              
              475
              
              
              9.28
              %
              
              10,310
              
              
              445
              
              
              8.71
              %Total
                  interest-bearing liabilities .
              
              
              623,875
              
              
              12,760
              
              
              4.12
              %
              
              565,480
              
              
              9,504
              
              
              3.39
              %**Net
                  interest income**
              
              
              
              
              
              12,757
              
              
              3.31
              %
              
              
              
              
              13,264
              
              
              3.90
              %**Net
                  interest margin .**
              
              
              
              
              
              
              
              
              3.72
              %
              
              
              
              
              
              
              
              4.25
              %


Interest
      income and fees on loans increased $2,825,000 or 18 percent in the first six months of 2007 compared
      to
      the same period in 2006. Total interest income and fees on loans for the first
      six months of 2007 totaled $18,937,000 compared with $16,112,000 for the first
      six months of 2006. Included in the total for the first six months of 2006
      was
      $324,000 of additional interest collected from the recovery of a previously
      charged-off loan that was received in January 2006. This recovery was not
      repeated in the first six months of 2007. Average loans were $60,077,000 or
      13
      percent higher in the first six months of 2007 compared with 2006, which
      contributed to the growth in interest income. The increase in loan volume
      reflects new loan originations primarily in the Cedar Falls/Waterloo and
      Davenport, Iowa markets. Higher interest rates in the first six months of 2007
      compared with 2006 also contributed to the additional interest income generated
      in 2007. The average yield on loans increased to 7.46 percent for the first
      six
      months of 2007, compared to 7.19 percent in the first six months of
      2006.





Interest
      and discount income on loan pool participations decreased $476,000 or 10 percent in the first six months of 2007 compared with
      the same period in 2006. Interest income and discount collected on the loan
      pool
      participations for the six months ended June 30, 2007 was $4,316,000
      compared with $4,792,000 collected in the six months ended June 30, 2006. The
      yield on loan pool participations was 9.62 percent for the first six months
      of
      2007 compared with 10.37 percent for the first six months of 2006. The average
      loan pool participation investment balance was $2,719,000 lower in the first
      six
      months of 2007 than in the same period of 2006.





Interest
      income on investment securities increased $226,000 or 14 percent in the six months ended June 30, 2007, compared
      with the six months ended June 30, 2006 mainly due to higher yields on
      securities in the portfolio. Interest income on investment securities totaled
      $1,796,000 in the first six months of 2007 compared with $1,570,000 for the
      first six months of 2006. An increase in the average balance of the investment
      portfolio also contributed additional interest income. The average balance
      of
      investments for the first six months of 2007 was $84,451,000 compared with
      $81,906,000 for the first six months of 2006. The tax-equivalent yield on the
      Company’s investment portfolio for the six months ended June 30, 2007 increased
      to 5.03 percent from 4.36 percent in the comparable period of 2006 reflecting
      reinvestment of maturing securities at higher market interest
      rates.





Interest
      expense on deposits totaled
      $9,641,000 for the first six months of 2007 compared to $6,629,000 for the
      first
      six months of 2006. Interest expense was $3,012,000 or 45 percent greater in
      the
      six months ended June 30, 2007 compared with the same period in 2006 mainly
      due
      to higher market interest rates and increased deposit volumes. The weighted
      average rate paid on interest-bearing deposits was 3.81 percent in the first
      six
      months of 2007 compared with 2.94 percent for the first six months of 2006.
      Average interest-bearing deposits for the first six months of 2007 were
      $55,444,000 greater compared with the same period in 2006.





Interest
      expense on borrowed funds was
      $244,000 higher in the first six months of 2007 compared with the same period
      in
      2006. Interest on borrowed funds totaled $3,119,000 for the first six months
      of
      2007 compared with $2,875,000 in the same period of 2006. The Company’s average
      borrowed funds balances were $2,951,000 higher in the six months ended June
      30,2007 resulting in additional interest expense. Higher market interest rates
      in 2007 compared with 2006 also contributed to additional interest expense
      in
      the first six months of 2007. Average borrowed funds for the first six months
      of
      2007 were $113,762,000 compared with $110,811,000 for the same period in 2006.
      The weighted average rate paid on borrowed funds increased to 5.53 percent
      in
      the first six months of 2007 compared with 5.23 percent in the first six months
      of 2006.





13




Provision
      for Loan Losses





The
      Company recorded a provision for loan losses of $576,000 in the six months
      ended
      June 30, 2007. No provision for loan losses was taken in the six months ended
      June 30, 2006 as a result of the recovery of $901,000 of a previously charged
      off agricultural loan credited to the reserve in January 2006. Net loans charged
      off in the first six months of 2007 totaled $400,000 compared with net
      recoveries of $668,000 in the first six months of 2006.





Noninterest
      Income





Total
      noninterest income for the six months ended June 30, 2007 was $3,063,000
      compared with $3,041,000 for the six months ended June 2006. Excluding
      investment security gains and losses, noninterest income decreased $153,000
      or 5
      percent in the first six months of 2007 compared with the same period in 2006.
      Service charges on deposit accounts decreased $73,000 or 7 percent for the
      six
      month period ended June 30, 2007 compared with the six months ended June 30,
      2006 primarily due to reduced non-sufficient funds charges collected on deposit
      account overdrafts. Other customer service charges and fees increased $83,000
      in
      the first six months of 2007 compared with the same period of 2006 primarily
      due
      to higher ATM fees as a result of increased customer transaction volume.
      Brokerage commissions decreased $112,000 to $427,000 for the first six months
      of
      2007 due to reduced sales of securities to clients. Insurance commissions were
      $387,000 for the first six months of 2007 compared with $385,000 in the first
      six months of 2006. Data processing income from outside banks increased $10,000
      reflecting increased transaction volumes and higher pricing. Mortgage loan
      origination fees on single-family real estate loans that were originated by
      the
      Company and sold servicing-released to the secondary market increased $67,000
      in
      the first six months of 2007 compared to the first six months of 2006 due to
      increased origination activity. Other operating income declined $139,000 for
      the
      six months ended June 30, 2007 compared to the same period in 2006 primarily
      due
      to the reimbursement of attorney fees related to the charge-off recovery in
      the
      first quarter of 2006. Recognized available for sale investment security gains
      totaled $49,000 in the first six months of 2007 compared with a loss on the
      sale
      of investment securities of $126,000 in the first six months of
      2006.





Noninterest
      Expense





Total
      noninterest expense for the six months ended June 30, 2007 was $10,957,000
      compared with $10,649,000 for the six months ended June 30, 2006. Noninterest
      expense increased $308,000 or 3 percent for the first six months of 2007
      compared to 2006. Salaries and benefits expense for the first six months of
      2007
      was $336,000 or 5 percent higher compared with the same period in 2006. The
      increase was attributable to additional number of employees, annual compensation
      adjustments and increased benefit costs. The Company had an average of 220
      full-time equivalent employees for the six months ended June 30, 2007 compared
      with an average of 216 full-time equivalent employees for the six months ended
      June 30, 2006. Professional fees increased $226,000 in the first six months
      of
      2007 due to increased legal fees, regulatory fees and costs associated with
      development and implementation of the Company’s Sarbanes-Oxley initiative. Other
      operating expenses decreased $202,000 or 10 percent in the first six months
      of
      2007 compared to the first six months of 2006 with much of the reduction related
      to lower marketing expenses and reduced losses from fraudulent customer scams
      that occurred in the first six months of 2006.





Income
      Tax Expense





The
      Company incurred income tax expense of $1,133,000 for the six months ended
      June
      30, 2007 compared with $1,806,000 for the six months ended June 30, 2006. The
      effective income tax rate as a percent of income before taxes for the six months
      ended June 30, 2007 and 2006 was 29.1 percent and 33.6 percent, respectively.
      The effective tax rate varies from the statutory rate due to state taxes and
      the
      amount of tax-exempt income on municipal bonds earned during the period.
      Tax-exempt income on municipal bonds is greater in comparison to previous
      periods as the market yields on newly-purchased bonds has increased and the
      Company has a higher volume of municipal bonds.





14





FINANCIAL
      CONDITION





Total
      assets as of June 30, 2007 were $749,055,000 compared with $744,911,000 as
      of
      December 31, 2006, an increase of $4,144,000 or less than 1 percent. As of
      June
      30, 2007, the Company had $8,560,000 of federal funds purchased compared with
      $465,000 purchased as of December 31, 2006. Federal funds are purchased on
      a
      short-term basis to meet liquidity needs.





Investment
      Securities





Investment
      securities available for sale totaled $74,450,000 as of June 30, 2007. This
      is
      an increase of $3,707,000 from $70,743,000 as of December 31, 2006. The proceeds
      from paydown in the loan pool participations were utilized to purchase
      additional investment securities. Investment securities classified as held
      to
      maturity declined to $11,137,000 as of June 30, 2007, compared with $12,220,000
      on December 31, 2006 as the proceeds from maturing bonds were reinvested in
      available for sale securities.





Loans





Total
      loans were $523,975,000 as of June 30, 2007, compared with $503,832,000 as
      of
      December 31, 2006, an increase of $20,413,000 or 4 percent. Much of the growth
      in the first six months of 2007 came from commercial, agricultural operating,
      agricultural real estate and commercial real estate loans. As of June 30, 2007,
      the Company’s loan to deposit ratio was 92.5 percent compared with a year-end
      2006 loan to deposit ratio of 89.9 percent. As of June 30, 2007, loans secured
      by residential real estate comprised the largest category in the portfolio
      at
      approximately 24 percent of total loans. Commercial loans were the next largest
      category at 19 percent. Commercial real estate loans made up approximately
      15
      percent of the total loan portfolio. Agricultural loans were approximately
      14
      percent of the total loan portfolio. Construction and land development loans
      comprised approximately 11 percent of the portfolio and agricultural land loans
      were 11 percent. Multifamily residential real estate and loans to individuals
      each constituted approximately 3 percent of the portfolio. The loan percentages
      did not change significantly from December 31, 2006.





The
      Company has very minimal exposure to subprime mortgages in its loan portfolio.
      The Company’s loan policy provides a guideline that real estate mortgage
      borrowers have a Beacon score of 640 or greater. Exceptions to the guideline
      have been noted but the overall exposure is deemed minimal by management.
      Mortgages originated by the Company and sold on the secondary market are
      typically underwritten according to the guidelines of the secondary market
      investors. These mortgages are on a non-recourse basis, thereby eliminating
      any
      subprime exposure.





15





Loan
      Pool
      Participations





As
      of
      June 30, 2007, the Company had loan pool participations of $77,343,000, a
      decrease of $21,542,000 or 22 percent from the December 31, 2006 balance of
      $98,885,000. The decrease in the loan pool participations is the result of
      collections of loan pool participations during the period. The loan pool
      investment balance shown as an asset on the Company’s Statement of Condition
      represents the discounted purchase cost of the loan pool participations. The
      average loan pool participation balance of $90,450,000 for the first six months
      of 2007 was $2,719,000 lower than the average balance of $93,169,000 for the
      first six months of 2006. The Company placed numerous bids on loan pools during
      the first six months of 2007, but was only successful in purchasing $2,288,000.
      In comparison, during the first six months of 2006, the Company purchased
      $11,767,000 in loan pool participations. As of June 30, 2007, the categories
      of
      loans by collateral type in the loan pools were commercial real estate - 50%,
      commercial loans - 19%, agricultural real estate - 15%, single-family
      residential real estate - 9% and other loans - 7%. The Company has very minimal
      exposure in loan pools to consumer real estate subprime credit. Most of the
      basis in loans identified with borrowers or guarantors having credit scores
      categorized as subprime relates to additional collateral taken to reduce
      exposure on commercial or commercial real estate loans. The Company does not
      actively seek to purchase consumer or consumer real estate loans characterized
      as subprime credit.





Goodwill
      and Other Intangible Assets





Goodwill
      totaled $13,405,000 as of June 30, 2007 and December 31, 2006. Goodwill is
      subject to testing at least annually for impairment in accordance with the
      provisions of Financial Accounting Standards Board Statement No. 142. No
      impairment write-down of goodwill has been recorded.





Other
      intangible assets decreased to $1,001,000 as of June 30, 2007 from the
      December 31, 2006 total of $1,128,000 reflecting the amortization of
      intangible assets. The gross carrying amount of other intangible assets and
      the
      associated accumulated amortization at June 30, 2007 and December 31, 2006
      are
      presented in the table below. Amortization expense for other intangible assets
      for the six months ended June 30, 2007 and 2006 was $127,000 and $155,000,
      respectively.


**Gross**
              
              
              
              **Unamortized****Carrying**
              
              **Accumulated**
              
              **Intangible****Amount**
              
              **Amortization**
              
              **Assets****(in
                  thousands)****June
                  30, 2007**Other
                  intangible assets:Core
                  deposit premium
              
              $
              3,281
              
              
              2,793
              
              
              488Customer
                  list intangible
              
              $
              786
              
              
              273
              
              
              513Total
              
              $
              4,067
              
              $
              3,066
              
              $
              1,001**December
                  31, 2006**Other
                  intangible assets:Core
                  deposit premium
              
              $
              3,281
              
              
              2,716
              
              
              565Customer
                  list intangible
              
              $
              786
              
              
              223
              
              
              563Total
              
              $
              4,067
              
              $
              2,939
              
              $
              1,128


Amortization
      of intangible assets is recorded using an accelerated method based on the
      estimated life of the core deposit intangible. Projections of amortization
      expense are based on existing asset balances and the remaining useful lives.
      The
      following table shows the estimated future amortization
      expense.


**Core**
              
              **Customer****Deposit**
              
              **List****Premium**
              
              **Intangible**
              
              **Totals****(in
                  thousands)**Six
                  months ended December 31, 2007
              
              $
              78
              
              
              47
              
              
              125Year
                  ended December 31,2008
              
              
              156
              
              
              87
              
              
              2432009
              
              
              127
              
              
              79
              
              
              2062010
              
              
              41
              
              
              71
              
              
              1122011
              
              
              41
              
              
              62
              
              
              1032012
              
              
              41
              
              
              54
              
              
              95Thereafter
              
              
              4
              
              
              113
              
              
              117





Deposits





Total
      deposits as of June 30, 2007 were $566,277,000 compared with $560,615,000 as
      of
      December 31, 2006, an increase of $5,662,000 or 1 percent. Certificates of
      deposit remain the largest category of deposits at June 30, 2007 representing
      approximately 61 percent of total deposits. Based on historical experience,
      management anticipates that many of the maturing certificates of deposit will
      be
      renewed upon maturity. Maintaining competitive market interest rates will
      facilitate the Company’s retention of certificates of deposit.





16





Borrowed
      Funds/Notes Payable





The
      Company had $8,560,000 federal funds purchased on June 30, 2007. There was
      $465,000 in federal funds purchased on December 31, 2006. During the first
      six
      months of 2007, the Company had an average balance of federal funds purchased
      of
      $3,426,000. Advances from the Federal Home Loan Bank totaled $87,600,000 as
      of
      June 30, 2007 compared with $99,100,000 as of December 31, 2006. The Company
      utilizes federal funds purchased and Federal Home Loan Bank advances as a
      supplement to customer deposits to fund earning assets. Notes payable increased
      to $5,050,000 as of June 30, 2007 compared with $4,050,000 on December 31,
      2006.
      Long-term debt in the form of a trust-preferred security was $10,310,000 as
      of
      March 31, 2007 and December 31, 2006.





Nonperforming
      Assets





The
      Company’s nonperforming assets totaled $6,238,000 (1.19 percent of total loans)
      as of June 30, 2007, compared to $5,989,000 (1.19 percent of total loans) as
      of
      December 31, 2006. All nonperforming asset totals and related ratios
      exclude the loan pool participations. The following table presents the
      categories of nonperforming assets as of June 30, 2007 compared with
      December 31, 2006:


**June
                  30,**
              
              **December
                  31,****2007**
              
              **2006****(in
                  thousands)**Impaired
                  loans and leases:Nonaccrual
              
              $
              1,353
              
              
              727Restructured
              
              
              2,010
              
              
              2,014Total
                  impaired loans and leases
              
              
              3,363
              
              
              2,741Loans
                  and leases past due 90 days and more
              
              
              2,451
              
              
              3,060Total
                  nonperforming loans
              
              
              5,814
              
              
              5,801Other
                  real estate owned
              
              
              424
              
              
              188Total
                  nonperforming assets
              
              $
              6,238
              
              
              5,989


From
      December 31, 2006 to June 30, 2007, the Company’s nonaccrual loans increased
      $626,000, with most of the increase attributable to an assisted-living facility
      and a parcel of agricultural land that were classified nonaccrual. Loans ninety
      days past due decreased $609,000. Troubled debt restructurings decreased $4,000
      from December 31, 2006 to June 30, 2007. Other real estate owned increased
      $236,000 in the first six months of 2007 following foreclosure on three
      residential real estate properties and a bowling alley. The Company’s allowance
      for loan losses as of June 30, 2007 was $5,869,000, which was 1.12 percent
      of
      total loans as of that date. This compares with an allowance for loan losses
      of
      $5,693,000 as of December 31, 2006, which was 1.13 percent of total loans.
      As of
      June 30, 2007, the allowance for loan losses was 94.1 percent of nonperforming
      assets compared with 95.1 percent as of December 31, 2006. Based on the
      inherent risk in the loan portfolio, management believes that as of
      June 30, 2007, the allowance for loan losses is adequate. For the three
      months ended June 30, 2007, the Company experienced net loan charge-offs of
      $196,000 compared with net loan charge-offs of $114,000 during the three months
      ended June 30, 2006. Net loan charge-offs for the six months ended June 30,
      2007
      were $400,000 compared with net recoveries of $668,000 for the six months ended
      June 30, 2006.





Changes
      in the allowance for loan losses for the six months ended June 30, 2007 and
      2006
      were as follows:


**2007**
              
              **2006****(in
                  thousands)**Balance
                  at beginning of year
              
              $
              5,693
              
              
              5,011Provision
                  for loan losses
              
              
              576
              
              
              -Recoveries
                  on loans previously charged off
              
              
              23
              
              
              1,046Loans
                  charged off
              
              
              (423
              )
              
              (378
              )Balance
                  at end of period
              
              $
              5,869
              
              
              5,679





Capital
      Resources





Total
      shareholders’ equity was 8.5 percent of total assets as of June 30, 2007 and was
      8.4 percent as of December 31, 2006. Tangible equity to tangible assets was
      6.7
      percent as of June 30, 2007 and 6.6 percent as of December 31, 2006. The
      Company’s Tier 1 Capital Ratio was 10.2 percent of risk-weighted assets as of
      June 30, 2007 and was 10.0 percent as of December 31, 2006, compared to a
      4.0 percent regulatory requirement. 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. Tier 1 Capital is the Company’s total common
      shareholders’ equity plus the trust preferred security reduced by goodwill.
      Management believes that, as of June 30, 2007, the Company and its subsidiary
      bank meet all capital adequacy requirements to which they are subject. As of
      that date, the bank subsidiary was “well capitalized” under regulatory prompt
      corrective action provisions.





17




On
      January 18, 2007, the Company’s Board of Directors authorized a stock repurchase
      of up to $2,000,000 until December 31, 2007. In accordance with this
      authorization, the Company repurchased 15,000 shares on the open market during
      the second quarter of 2007 for a total of $262,500, or an average price per
      share of $17.50. A total of 8,204 shares were issued during the second quarter
      of 2007 for options exercised under previously awarded grants. Cash dividends
      of
      $.18 per share were paid to shareholders on June 15, 2007.





Liquidity





Liquidity
      management involves meeting the cash flow requirements of depositors and
      borrowers. The Company conducts liquidity management on both a daily and
      long-term basis; and it adjusts its investments in liquid assets based on
      expected loan demand, projected loan maturities and payments, estimated cash
      flows from the loan pool participations, expected deposit flows, yields
      available on interest-bearing deposits, and the objectives of its
      asset/liability management program. The Company had liquid assets (cash and
      cash
      equivalents) of $22,406,000 as of June 30, 2007, compared with $20,726,000
      as of
      December 31, 2006. Investment securities classified as available for sale could
      be sold to meet liquidity needs if necessary. Additionally, the bank subsidiary
      maintains lines of credit with correspondent banks and the Federal Home Loan
      Bank that would allow it to borrow federal funds on a short-term basis if
      necessary. The Company also maintains a line of credit with a major commercial
      bank that provides liquidity for the purchase of loan pool participations and
      other corporate needs. Management believes that the Company has sufficient
      liquidity as of June 30, 2007 to meet the needs of borrowers and
      depositors.





The
      Company’s $9,000,000 revolving line of credit matured on June 30, 2007. The line
      of credit was renewed for a period of one year in the amount of $5,000,000.
      The
      credit limit was reduced at the request of Company management since a .125
      percent commitment fee was being assessed on the unused portion of the line.
      As
      of June 30, 2007, the Company had $2,550,000 borrowed on the line. Management
      believes that the $5,000,000 line should be adequate to meet anticipated
      borrowing needs.





Commitments
      and Contingencies





In
      the
      ordinary course of business, the Company is engaged in various issues involving
      litigation. Management believes that none of this litigation is material to
      the
      Company’s results of operations.





Critical
      Accounting Policies





The
      Company has identified two critical accounting policies and practices relative
      to the financial condition and results of operations. These two accounting
      policies relate to the allowance for loan losses and to loan pool
      accounting.





The
      allowance for loan losses is based on management’s estimate. Management believes
      the allowance for loan losses is adequate to absorb probable losses in the
      existing portfolio. In evaluating the portfolio, management takes into
      consideration numerous factors, including current economic conditions, prior
      loan loss experience, the composition of the loan portfolio, and management’s
      estimate of probable credit losses. The allowance for loan losses is established
      through a provision for loss based on management’s evaluation of the risk
      inherent in the loan portfolio, the composition of the portfolio, specific
      impaired loans, and current economic conditions. Such evaluation, which includes
      a review of all loans on which full collectibility may not be reasonably
      assured, considers among other matters, the estimated net realizable value
      or
      the fair value of the underlying collateral, economic conditions, historical
      loss experience, and other factors that warrant recognition in providing for
      an
      adequate allowance for loan losses.





18




The
      loan
      pool accounting practice relates to management’s estimate that the investment
      amount reflected on the Company’s financial statements does not exceed the
      estimated net realizable value or the fair value of the underlying collateral
      securing the purchased loans. In evaluating the purchased loan portfolio,
      management takes into consideration many factors, including the borrowers’
current financial situation, the underlying collateral, current economic
      conditions, historical collection experience, and other factors relative to
      the
      collection process.





In
      the
      event that management’s evaluation of the level of the allowance for loan losses
      is inadequate, the Company would need to increase its provision for loan losses.
      If the estimated realizable value of the loan pool participations is overstated,
      the Company’s yield on the loan pools would be reduced.




Off-Balance-Sheet
      Arrangements





The
      Company 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, which
      include commitments to extend credit. The Company’s exposure to credit loss in
      the event of nonperformance by the other party to the commitments to extend
      credit is represented by the contractual amount of those instruments. The
      Company uses the same credit policies in making commitments as it does for
      on-balance-sheet instruments.





Commitments
      to extend credit are agreements to lend to a customer as long as there is no
      violation of any conditions established in the contract. Commitments generally
      have fixed expiration dates or other termination clauses and may require payment
      of a fee. Since many of the commitments are expected to expire without being
      drawn upon, the total commitment amounts do not necessarily represent future
      cash requirements. The Company evaluates each customer’s creditworthiness on a
      case-by-case basis. As of June 30, 2007 and December 31, 2006, outstanding
      commitments to extend credit totaled approximately $85,303,000 and $90,290,000,
      respectively.





Commitments
      under standby letters of credit outstanding aggregated $3,851,000 and $2,495,000
      as of June 30, 2007 and December 31, 2006, respectively. The Company does not
      anticipate any losses as a result of these transactions.





Contractual
      obligations and other commitments were presented in the Company’s Form 10-K
      Annual Report for the year ended December 31, 2006. Please refer to this
      discussion. There have been no material changes since that report was filed.
      The
      Company adopted FIN 48 on January 1, 2007. The adoption of FIN 48 did not have
      a
      material effect on the contractual obligations table presented in the Company’s
      Form 10-K Annual Report for the year ended December 31, 2006.





Part
      I -
      Item 3. Quantitative and Qualitative Disclosures about Market Risk.





Market
      risk is the risk of earnings volatility that results from adverse changes in
      interest rates and market prices. The Company’s market risk is primarily
      comprised of interest rate risk arising from its core banking activities of
      lending and deposit taking. Interest rate risk is the risk that changes in
      market interest rates may adversely affect the Company’s net interest income.
      Management continually develops and applies strategies to mitigate this risk.
      The Company has not experienced any material changes to its market risk position
      since December 31, 2006, from that disclosed in the Company’s 2006 Form 10-K
      Annual Report. Management does not believe that the Company’s primary market
      risk exposures and how those exposures were managed in the first six months
      of
      2007 changed when compared to 2006.





The
      Company uses a third-party computer software simulation modeling program to
      measure its 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 the Company’s
      deposits and the rates and volumes of the Company’s loans. This analysis
      measures the estimated change in net interest income in the event of
      hypothetical changes in interest rates. This analysis of the Company’s interest
      rate risk was presented in the Form 10-K filed by the Company for the year
      ended
      December 31, 2006.




19




*“SAFE
      HARBOR” STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM
      ACT*





*With
      the exception of the historical information contained in this report, the
      matters described herein contain forward-looking statements that involve risk
      and uncertainties that individually or mutually impact the matters herein
      described, including but not limited to financial projections, product demand
      and market acceptance, the effect of economic conditions, the impact of
      competitive products and pricing, governmental regulations, results of
      litigation, technological difficulties and/or other factors outside the control
      of the Company, which are detailed from time to time in the Company’s SEC
      reports. The Company disclaims any intent or obligation to update these
      forward-looking statements.*





Part
      II -
      Item 1A Risk Factors.





There
      were no material changes in the risk factors previously disclosed in the
      Company’s Annual Report on Form 10-K for the year ended December 31,
      2006.





Part
      II -
      Item 2.  Unregistered
      Sales of Equity Securities and Use of Proceeds.





(a)-(b)
      Not Applicable





(c)
      Issuer Purchases of Equity Securities


Period
              
              (a)
                  Total Number of Shares (or Units) Purchased
              
              (b)
                  Average Price Paid per Share (or Unit)
              
              (c)
                  Total Number of Shares (or Units) Purchased as Part of Publicly
                  Announced
                  Plans or Programs
              
              (d)
                  Maximum Number (or Approximate Dollar Value) of Shares (or Units)
                  that May
                  Yet Be Purchased Under the Plans or ProgramsApril
                  2007
              
              
              -
              
              $
              -
              
              
              -
              
              $
              1,432,700May
                  2007
              
              
              15,000
              
              
              17.500
              
              
              15,000
              
              
              1,170,200June
                  2007
              
              
              -
              
              
              -
              
              
              -
              
              $
              1,170,200Total
              
              
              15,000
              
              $
              17.500
              
              
              15,000


On
          January 18, 2007, the Board of Directors authorized the repurchase of up
          to
          $2,000,000 of the Company's common stock on the open market. This
          repurchase authorization expires on December 31, 2007.


Part
      II -
      Item 4.  Submission
      of Matters to a vote of Security Holders.





The
      Company’s annual meeting of shareholders was held on April 26, 2007. The record
      date for determination of shareholders entitled to vote at the meeting was
      February 20, 2007. There were 3,713,290 shares outstanding as of that date,
      each
      such share being entitled to one vote. At the shareholders’ meeting the holders
      of 3,279,692 or 88.3 percent of the outstanding shares were represented in
      person or by proxy, which constituted a quorum. The following proposals were
      voted on at the meeting:





Proposal
      I - Election of Directors :





Three
      directors were to be elected to serve for the specified term or until their
      successors shall have been elected and qualified. At the shareholders’ meeting,
      the individuals received the number of votes set opposite their
      names:


FOR
              
              ABSTAINThree-year
                  term (2010):Richard
                  R. Donohue
              
              
              2,881,250
              
              
              398,442John
                  P. Pothoven
              
              
              2,883,525
              
              
              396,167R.
                  Scott Zaiser
              
              
              2,876,609
              
              
              403,083





Proposal
      II *-* Ratification
      of Auditors’ Appointment :





A
      vote
      was also taken on the ratification of the appointment of KPMG LLP as independent
      auditors of the Company for the fiscal year ending December 31, 2007. The
      results of the vote were as follows:


FOR
              
              AGAINST
              
              ABSTAIN
              
              BROKER
                  NON-VOTE3,216,202
              
              
              19,353
              
              
              32,225
              
              
              11,912


20


Part
      II -
      Item 6. Exhibits.





(a)  The
      following exhibits and financial statement schedules are filed as part of this
      report:




Exhibits3.1
              
              Articles
                  of Incorporation, as amended through April 30, 1998, of Mahaska
                  Investment
                  Company. The Articles of Incorporation, as amended, of Mahaska
                  Investment
                  Company are incorporated by reference to the Company’s quarterly report on
                  Form 10-Q for the quarter ended September 30, 1998.3.1.1
              
              Amendment
                  to the Articles of Incorporation of Mahaska Investment Company
                  changing
                  the name of the corporation to MidWestOne Financial Group, Inc.
                  The
                  Amendment to the Articles of Incorporation of Mahaska Investment
                  Company
                  are incorporated by reference to the Company’s quarterly report on Form
                  10-Q for the quarter ended June 30, 2003.3.2
              
              Bylaws
                  of MidWestOne Financial Group, Inc. (f/k/a Mahaska Investment Company).
                  The Amended and Restated Bylaws of Mahaska Investment Company dated
                  July
                  23, 1998, are incorporated by reference to the Company’s quarterly report
                  on Form 10-Q for the Quarter ended September 30, 1998.10.1
              
              MidWestOne
                  Financial Group, Inc. Employee Stock Ownership Plan & Trust as
                  restated and amended. This Plan & Trust is incorporated by reference
                  to the Company’s Annual Report on Form 10-K for the year ended December
                  31, 2006.10.2.1
              
              1993
                  Stock Incentive Plan. This 1993 Stock Incentive Plan is incorporated
                  by
                  reference to Form S-1 Registration Number 33-81922 of Mahaska Investment
                  Company.10.2.2
              
              1996
                  Stock Incentive Plan. This 1996 Stock Incentive Plan is incorporated
                  by
                  reference to the Company’s Annual Report on Form 10-K for the year ended
                  December 31, 1996.10.2.3
              
              1998
                  Stock Incentive Plan. This 1998 Stock Incentive Plan is incorporated
                  by
                  reference to the Company’s Annual Report on Form 10-K for the year ended
                  December 31, 1997.10.2.4
              
              2006
                  Stock Incentive Plan. This 2006 Stock Incentive Plan is incorporated
                  by
                  reference to the Company’s Definitive Proxy Statement on Form 14A filed
                  March 21, 2006.10.3
              
              States
                  Resources Corp. Loan Participation and Servicing Agreement dated
                  February
                  5, 1999 between States Resources Corp. and Mahaska Investment Company.
                  This agreement is incorporated herein by reference to the Form
                  10-K report
                  filed by Mahaska Investment Company for the Year ended December
                  31,
                  1999.10.5
              
              Second
                  Amended and Restated Credit Agreement dated November 30, 2003 between
                  MidWestOne Financial Group, Inc. and Harris Trust and Savings Bank.
                  This
                  Agreement is incorporated herein by reference to the Form 10-K
                  Annual
                  Report filed by MidWestOne Financial Group, Inc. for the Year ended
                  December 31, 2003.10.5.1
              
              Seventh
                  Amendment to the Second Amended and Restated Credit Agreement dated
                  June
                  30, 2007 between MidWestOne Financial Group, Inc. and Harris
                  N.A.11
              
              Computation
                  of Per Share Earnings.31.1
              
              Certification
                  of Chief Executive Officer pursuant to Rule 13a - 14(a) of the
                  Securities
                  Exchange Act of 1934.31.2
              
              Certification
                  of Chief Financial Officer pursuant to Rule 13a - 14(a) of the
                  Securities
                  Exchange Act of 1934.32.1
              
              Certification
                  of Chief Executive Officer and Chief Financial Officer pursuant
                  to Rule
                  13a - 14(a) of the Securities Exchange Act of 1934 and 18 U.S.C.,
                  Section
                  1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
                  Act of
                  2002.




21




**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.




MidWest*One*Financial Group, Inc.
                (Registrant)By:
              /s/
                Charles S. HowardCharles
                  S. Howard
                Chairman,
                  President, Chief Executive OfficerAugust
                  13, 2007
                Dated
  By:
              /s
                /David A. MeinertDavid
                    A. Meinert
                  Executive
                    Vice President
                  and
                    Chief Financial Officer
                  (Principal
                    Accounting Officer)August
                  13, 2007
                Dated
  22