Midwestone Financial Group
Annual Report 2009

Plain-text annual report

B anking in the heartland An Emerging Force 2009 Annu Al rEport Charles N. Funk, President and CEO, and W. Richard Summerwill, Chairman. to our ShArEholdErS This is the third annual report presented to you since the March, 2008 merger of ISB Financial Corp. and the “former” MidWestOne Financial Group. Much has taken place since that combination of two well established and respected Iowa community banking organizations. We endured a tornado and a major flood in 2008, the worst economy in a generation, and all of the normal day-to-day challenges inherent in any merger transaction. If we have learned anything during these two years, it is the art of perseverance. This necessary mind set prompts us to be very optimistic about the long term future of MidWestOne. Our financial performance in 2009 exceeded 2008 results. Nevertheless, it was well below our long-term goals. MidWestOne Financial earned $4,409,000 before the dividend on the Company’s preferred stock leaving $3,630,000 net income available to common shareholders, equal to $0.42 per diluted common share, in 2009. Among the factors that contributed to this financial performance, three are most noteworthy, all directly related to the poor economy: • Our FDIC insurance premiums increased significantly to $3,244,000 from $595,000 in 2008 as the banking industry assumed the cost of the 145 bank failures as of year-end 2009. • Given current conditions, we aggressively built our loan loss reserve in our bank loan portfolio. Our provision for loan losses increased to $7,725,000 in 2009 from $4,366,000 in 2008. It is important to note that our 2009 provision significantly exceeded net charge-offs of $4,745,000 during the year. • The results of our loan pool participations were well below our historical averages. Shareholders will recall this is a line of business the former MidWestOne had been involved with since 1988. The “all-in” yield on this loan portfolio declined to 3.21% in 2009 from 8.41% in 2008. In terms of income, the decline was to $1,809,000 in 2009 from $4,459,000 in 2008. This was the worst performance in the 21 year history of the loan pools. MidWestOne Financial group, inc. 2009 annual report 1 To summarize, these three items represented a pre-tax reduction in 2009 earnings of $8,658,000. Looking ahead, we expect that FDIC insurance premiums will remain at higher than historical levels. With the stabilization that we have seen in the economy during 2009 and so far in 2010, the loan loss provision for the bank loan portfolio may be less in 2010 than in 2009 but this, of course, ultimately depends on the experience of the bank loan portfolio as the year progresses. With regard to loan pools, we believe returns will continue to be lower than historical norms in 2010. Prominent in most discussions concerning banking companies during the past few years is an examination of credit quality in the loan portfolio. MidWestOne ended 2009 with a 1.44% ratio of non-performing loans to total loans in the bank loan portfolio. This is an improvement from year end 2008 when the comparable ratio was 1.50%. Loans 30-89 days past due also declined to $10.1 million at 2009 year-end from $10.8 million at the end of 2008. Other real estate owned increased to $3.6 million at year-end 2009 from $1.0 million at year-end 2008 as we moved non-performing loans toward resolution. We had net charge-offs in 2009 of 0.49% of average total loans. While all the above numbers are higher than we have normally experienced, we believe they represent solid performance in difficult times and we commend our lending and loan review personnel for this achievement in an extremely challenging economic environment. In the past two annual letters, we discussed three major corporate goals. • We have reduced our loan to deposit ratio to 89.2% at year-end 2009 from 98.4% at the end of the prior year. This is consistent with our “in the 80s” goal. We believe we can provide shareholders with solid returns with loan to deposit ratios in this range. Higher loan to deposit levels generally present higher levels of credit and liquidity risk; thus, we believe that our “in the 80s” goal achieves the appropriate balance between generating attractive returns and managing risk. • Progress toward our goal of non-interest income accounting for 30% of total revenues was obscured by several one-time, non-core items. For example, on the positive side there were one-time gains from the sale of investment securities and on the negative side there were other than temporary impairment charges with respect to certain investment securities in our portfolio. Also, there were a number of smaller adjustments, both positive and negative, which resulted from integration and compliance issues attributable to the 2008 merger. On an ongoing basis, the primary drivers toward our goal will be real estate loan fees and wealth management fees. We progressed in both areas last year and believe we can reach our 30% goal over the next few years. • Implementation of a disciplined expense management culture is continuing. While professional fees continued to be high ($3,635,000 in 2009) due to the early stages of Sarbanes-Oxley compliance costs and loan collection expenses, we expect this number to decline in 2010. We have also undertaken a review of all banking operations with the goal of increased efficiency. 2 MidWestOne Financial group, inc. 2009 annual report On the senior management front, we have continued to strengthen our team by putting the right people in the right jobs throughout the company. We promoted Susan R. Evans to Chief Operating Officer and Gary J. Ortale to Chief Financial Officer. During 2009 we welcomed James M. Cantrell as Senior Vice President of Risk Management at MidWestOne Bank and Gregory W. Turner as Senior Vice President of Wealth Management. Jim and Greg, together with others hired during 2009, will be counted upon heavily in the years ahead. All MidWestOne employees have regular educational discussions relative to our 75-year mission statement of “taking care of our customers and those who should be.” We devote substantial resources to train our employees to execute our mission with each customer encounter. During the final quarter of 2009, we saw more frequent examples of our employees working together to increase our wallet share and allow MidWestOne to play an even greater role in the lives of our customers. Unfortunately, the banking industry experienced significantly increased costs of compliance in 2009. More proposed regulations are being debated in Congress in response to the financial crisis of 2008–2009 that, if enacted, would raise our cost of doing business and potentially restrict consumers’ access to credit. Community banks have not been at the center of the economic crisis. It is our hope that when the final laws are written, they do not unfairly penalize the community banks who have not engaged in many of the risky practices engaged in by the large Wall Street institutions. We believe that community banks will play an integral role in rebuilding local economies through financing small businesses and consumers in their local communities, and hope that any new regulation will help facilitate lending by community banks rather than imposing additional costs and regulatory burdens. While we do not see completely smooth sailing ahead, we do nevertheless believe that the worst has passed for MidWestOne. We must continue to closely monitor our loan portfolio as it will be the biggest determinant of near term profit improvement. In that vein, we do take comfort that Iowa remains in much better shape than the nation with an unemployment rate of just 6.6% and a relatively stable agricultural economy. We thank our employees for a year of hard work and progress in continuing to build a strong foundation. We also thank our shareholders for your patience and support. We look forward to the future with some optimism. We are — and we remain — a force in Iowa banking! Charles N. Funk President and CEO W. Richard Summerwill Chairman MidWESTONE FiNANCiAL GROUP, iNC. BoArd oF dirEctorS richard r. donohue Managing Principal, Td&T Financial Group, P.C. charles n. Funk President & CEO, MidWestOne Financial Group, inc. and President & CEO, MidWestOne Bank charles S. howard Vice Chairman, MidWestOne Financial Group, inc. and Vice Chairman, MidWestOne Bank John S. Koza Retired Bank Executive, MidWestOne Bank Sally K. Mason President, The University of iowa Kevin W. Monson Managing Partner, Neumann Monson Architects, PC John p. pothoven Retired Bank Executive, MidWestOne Bank James G. Wake General Manager, Smith-Wake Ag Services W. richard Summerwill Chairman, MidWestOne Financial Group, inc. and Chairman, MidWestOne Bank robert d. Wersen President, interpower Corporation Stephen l. West President, West Music Company, inc. r. Scott Zaiser Owner, Zaiser’s Landscaping, inc. MidWESTONE BANK BoArd oF dirEctorS richard r. donohue, Managing Principal, Td&T Financial Group, P.C. charles n. Funk, President & CEO, MidWestOne Financial Group, inc. and President & CEO, MidWestOne Bank oFFicErS W. richard Summerwill, Chairman charles S. howard, Vice Chairman charles n. Funk, President & Chief charles S. howard, Vice Chairman, MidWestOne Financial Group, inc. and Vice Chairman, Executive Officer MidWestOne Bank dorothy l. King, Retired Bank Executive, MidWestOne Bank Barbara Kniff-Mcculla, CEO, Corporate Treasurer, Secretary, KLK Construction John p. pothoven, Retired Bank Executive, MidWestOne Bank richard J. Schwab, investor, Entrepreneur & Builder Suzanne Summerwill, Retired Bank Executive, MidWestOne Bank W. richard Summerwill, Chairman, MidWestOne Financial Group, inc. and Chairman, MidWestOne Bank Stephen l. West, President, West Music Company, inc. Susan r. Evans, Chief Operating Officer Gary J. ortale, Executive Vice President, Chief Financial Officer & Treasurer Kent l. Jehle, Executive Vice President & Chief Lending Officer James M. cantrell, Vice President & Chief Risk Officer Gregory W. turner, Vice President & Head of Wealth Management Kenneth r. urmie, Secretary MidWestOne Financial group, inc. 2009 annual report 3 4 MidWestOne Financial group, inc. 2009 annual report Todd Means, Vice President and Central Region Retail Manager, and Barb Finney, Market President and West Region Retail Manager. Bu i lding on o ur legacy todd Means and Barb Finney mirror MidWestOne’s commitment to community Among MidWestOne’s greatest assets are the talented employees it has fostered from early in their careers. Joining the bank in entry-level positions, such as service associates and loan processors, many employees choose to stay with the organization, growing into more senior positions. Two such employees have recently been recognized for their excellence — Todd Means and Barb Finney. Means previously worked at another bank as a teller, while getting his degree in Economics from The University of Iowa. He joined the bank in 2002 as manager of the Coralville branch, eventually bringing another branch under his leadership three years later. Last August, Means was promoted to Vice President and Central Region Retail Manager. Based in Iowa City, he oversees the retail programs at six branches, helping them to expand their consumer lending, checking, savings and CDs, as well as tending to service quality and the bank’s mission statement. He is currently working toward his graduate degree from the Graduate School of Banking in Colorado. In 2009, he was recognized by the Corridor Business Journal in its “40 Under 40” issue as a young leader in the community. Means was surprised by his inclusion in the roundup of local talent but definitely pleased. He especially enjoys and values the way in which his job allows him to give back to the community. “MidWestOne is a big bank, but we really have a community-centered, small-town feel, which is very important to me,” says Means, who was born and raised in Iowa City, and now has two school-aged children of his own. “I really want to work for a place that has the same passion for the community that I do.” Mean’s colleague, Finney, is Market President and West Region Retail Manager. Based in Oskaloosa, she has been with the bank for 13 years, starting at age 26 as the Operations Officer for the then-Mahaska Investment Company. When Mahaska merged the four institutions under its control in 2006, Finney oversaw the consolidation process. She was especially focused on product standardizaton. “We wanted to be sure that while we became more efficient and offered more products,” explains Finney, “we didn’t lose anything by way of customer service or the community involvements that made each bank unique.” Finney graduated with a bachelor’s degree in Finance at The University of Iowa, before pursuing a degree from the Graduate School of Banking in Colorado. A strong commercial banking instructor piqued her interested in a career in banking, and her first job was as an examiner for the Sioux City branch of the Office of the Comptroller of the Currency. The position allowed her to travel widely and see a multitude of examples of how banks are managed, an experience she says was invaluable. When she started a family, however, she decided that she wanted to stay closer to home in central Iowa. Last summer, Charlie Funk, president and CEO of MidWestOne Bank, nominated Finney for NorthWestern Financial Review’s annual “Rising Stars in Banking” competition. He noted that Finney, who won the award, “has become one of our key officers.” The mother of two children, Finney, much like Means, values MidWestOne’s commitment to community. “We care deeply about our communities,” she notes. “We appreciate each individual town and its differences, while also providing the products and services of a large institution.” Having experienced many different banking institutions, she believes this to be a unique combination. No doubt, both Finney and Means have a special loyalty toward MidWestOne because of the years that they have spent with the institution, beginning at early ages. Now in a position to hire current students and recent college graduates, Means is especially proud of the bank’s dedication to its youngest employees: “No matter someone’s age, they have to prove themselves, of course. But we provide a lot of opportunities for younger people to grow with us.” “no Matter soMeone’s age, they have to prove theMselves, oF course. But We provide a lot oF opportunities For younger people to groW With us.” todd Means central region retail Manager MidWestOne Financial group, inc. 2009 annual report 5 Marketing o ut s i de th e Box telling our story Lose the pig! That was the message that greeted MidWestOne customers for much of the summer of 2009 on signs, t-shirts, and piggy banks. Promoting the Bank’s unique Bank Your Change service, the campaign reminded people that they no longer needed a piggy bank because MidWestOne would round up to the next whole dollar any purchase they made on their Check Card and automatically deposit the difference into a savings account. Featuring a cute but forlorn pig holding a sign, “Need Work,” the campaign garnered several awards from the Iowa Bankers Association, including Best of Show and People’s Choice for best campaign. Marketing Officer, Nick Pfeiffer, says that MidWestOne prides itself on its out-of-the-box approach to marketing. “The overall goal of our marketing tactics is to establish relationships and create a buzz,” he says. “We want our customers, and those who should be, to know that MidWestOne isn’t your typical bank.” Other recent marketing campaigns have focused on community outreach, including a program between MidWestOne and the animal shelters in two of its communities, Iowa City and Burlington, which provided reduced-price microchipping for dogs. Pet owners could bring their dog to a MidWestOne branch on a certain day and animal shelter employees would chip the dog. Microchips about the size of a grain of rice are implanted in a painless and quick process, after which dogs can be scanned and their owner’s information quickly located should the animals become lost or stolen. In two years, more than six hundred dogs have been microchipped through this program. Two other programs send MidWestOne employees into the community to do unsuspecting good. “A Plug for You. A Plug for Us,” was started at the downtown branch of the Iowa City location in 2008. At random times each week, a bank employee walks around downtown—an area with many hotly contested short-term meters — and puts ten or fifteen cents into meters that are about to expire or have already expired. Drivers learn about this act of goodwill through a card bearing the MidWestOne logo that is left on the windshield and reads, “We noticed your meter was running a little low, so we dropped a few coins your way to give you some extra time. Thank you for spending time in, and supporting, downtown Iowa City. Be sure to stop by and see us!” “This program has generated a lot of goodwill for the bank,” says Pfeiffer, noting several thank you letters the bank has received from grateful drivers. “It leaves a good impression on both members of the community and people visiting from outside of the area.” In order to raise awareness about environmental issues, while also getting the MidWestOne brand into the community, the bank has given away more than 50,000 reusable tote bags since June of 2008. The bags were distributed not only at branches but also at community events, parades, and farmers markets. Recipients were told that they could “Get caught holding the bag” and win cash. More than $10,000 in cash prizes have since been given away in the form of coupons worth $25, $50, and $100 that bank employees disburse randomly at public events or just on the street during a lunch break. Marketing campaigns such as these are relatively easy and low-cost ways for MidWestOne to capture the public’s attention and instill trust and a sense of neighborly generosity. The fact that the campaigns are often fun and practical is an added bonus. As Pfeiffer notes, “You can go to any financial institution and get a checking account or a loan, but when you come to MidWestOne Bank you are getting outstanding service, a community leader, and a friend that knows how and when to have fun. It really does make a difference.” “the overall goal oF our Marketing tactics is to estaBlish relationships and create a Buzz. We Want our custoMers, and those Who should Be, to knoW that MidWestOne isn’t your typical Bank..” nick pFeiFFer, Marketing oFFicer 6 MidWestOne Financial group, inc. 2009 annual report MidWestOne Financial group, inc. 2009 annual report 7 “We recognize that ‘taking care oF our custoMers’ could have a diFFerent Meaning For each eMployee, and We Want to help our eMployees have a More uniForM approach to helping our custoMers.” susan Weinschenk, vice president oF huMan resource developMent ed ge service Extraordinary deeds through Genuine Efforts “Take care of our customers and those who should be,” is the MidWestOne Bank mission statement. The belief that developing strong relationships is a key to success led bank executives to a decision four years ago to provide employees with additional tools to enhance their communication skills. The Bank created a service skill development program called EDGE—Extraordinary Deeds through Genuine Efforts. MidWestOne employees of all levels have participated in the program, from the custodians to the president. “We recognize the fact that ‘taking care of our customers’ could have a different meaning for each employee, and we want to help our employees have a more uniform approach to helping our customers,” says Susan Weinschenk, Vice President of Human Resource Development. The goal, according to Weinschenk, is to provide MidWestOne’s staff with tools for dealing comfortably with a wide range of customers and situations. “We want to give people skills that they can rely on,” she says. “It’s not about giving them a script, but allowing them to personalize a message and make it genuine.” The skills learned in the initial course help employees focus on using a positive attitude to take ownership of interactions by satisfying the TRU needs of customers. Customers are defined as both internal and external and all have TRU needs. The TRU needs are: Task, Respect, and Uniqueness. Employees take ownership of their interactions by going beyond respectful service to meet the unique needs and situations of the person with whom they are interacting. The program is divided into two six-hour classes, and is held over two weeks. Small groups work together, learning about the skills, writing scripts, and discussing various customer service scenarios that can be improved utilizing the skills. The initial program focuses on the following ABCDE skills: • Aligning with people by greeting them warmly and professionally, or empathizing with them when they are upset or have a complaint or problem; • Bridging by keeping the person informed of what you are doing or will do; • Clarifying and Checking to better understand the person’s needs and wishes before offering solutions or options; • Delighting people by going the extra mile to meet their uniqueness needs; • Explaining solutions and options in simple, easy to understand terms that include a benefit to the person. Cedar Valley Market President Sue Armbrecht, says that EDGE helps employees to “focus on the importance of aligning with your customer from the Welcome through the Close, ensuring they receive the proper services needed specifically for them.” Weinschenk says, “Our people come out of these classes with a new level of confidence. Most importantly, they bring away pride.” In addition to the introductory EDGE classes for new employees, Weinschenk’s staff reinforces the EDGE Skills by providing follow-up events and activities and by including the skills in other classes they conduct. She says that a range of bank employees, including service associates, personal bankers, and supervisors, benefit from EDGE in their ongoing and daily interactions with internal and external customers. “These truly are communication skills, so they can be used in a multitude of situations,” says Weinschenk. “They are not just specific to customer service.” 8 MidWestOne Financial group, inc. 2009 annual report FiNANCiAL hiGhliGhtS (dollars in thousands, except per share amounts) YEAr-End BAlAncES Assets investment Securities Loans Loan Pool Participation Non-Performing Bank Loans deposits Shareholder Equity AVErAGE BAlAncES Assets investment Securities Loans Loan Pools deposits Shareholder Equity rESultS oF opErAtionS Net interest income Provision for Loan Losses Noninterest income Noninterest Expense income (Loss) Before income Taxes Net income (Loss) Net income (Loss) Available to Common Shareholders $ pEr coMMon ShArE Net income — Basic Net income — diluted dividends Tangible Book Value Closing Price rAtioS Return on Average Equity Return on Average Assets Net interest Margin Average Equity as a % of Average Assets Allowance for Bank Loan Losses as a % of Bank Loans Net Bank Loan Charge-offs as a % of Average Bank Loans Non-Performing Bank Loans as a % of Bank Loans 2009 $ 1,534,783 370,912 966,998 85,186 13,879 1,179,868 152,208 2009 2008 $ 1,508,962 280,505 1,014,814 95,066 15,233 1,128,189 130,342 2008 $ 1,543,307 $ 1,359,667 347,965 990,540 92,456 1,035,938 147,544 2009 282,822 893,451 72,558 894,823 138,603 2008 2007 $ 701,983 232,220 401,554 - 1,299 526,615 77,392 2007 $ 681,109 235,360 390,862 - 441,421 66,873 2007 $ 45,115 $ 39,811 $ 19,267 7,725 12,519 45,579 4,330 4,409 3,630 2009 0.42 0.42 0.30 14.42 8.74 2009 2.99% 0.29% 3.27% 9.56% 1.44% 0.48% 1.44% $ 4,366 5,542 65,999 (25,012) (24,562) (24,562) 2008 (3.09) (3.09) 0.46 13.58 9.90 2008 -15.96% -1.61% 3.29% 10.19% 1.08% 0.48% 1.50% 500 8,806 18,620 8,953 6,648 6,648 2007 $ 1.29 1.29 0.65 14.14 18.55 2007 8.83% 0.98% 3.27% 9.82% 1.36% 0.09% 0.32% MidWestOne Financial group, inc. 2009 annual report 9 condEnSEd conSolidAtEd BAlAncE ShEEtS (dollars in thousands, except per share amounts) ASSEtS Cash and due from banks Federal funds sold and other short-term investments cash and cash equivalents dEcEMBEr 31, 2009 25,452 2,136 27,588 $ dEcEMBEr 31, 2008 32,383 $ 543 32,926 investment securities available for sale investment securities held to maturity Loans held for sale Loans Allowance for loan losses Loans, net Loan pool participations, net Premises and equipment, net Accrued interest receivable Other intangible assets, net Bank owned life insurance Other real estate owned Other assets total Assets liABilitiES And ShArEholdErS’ EQuitY liabilities deposits: Non-interest bearing demand interest-bearing checking Savings Certificates of deposit under $100,000 Certificates of deposit $100,000 and over Total deposits Federal funds purchased and securities sold under agreements to repurchase Federal Home Loan Bank borrowings Long-term debt Accrued expenses and other liabilities total liabilities Shareholders’ Equity Preferred stock, no par value, with a liquidation preference of $1,000 per share; authorized 500,000 shares; issued and outstanding 16,000 shares as of december 31, 2009; no shares authorized or issued at december 31, 2008 Capital stock, common, $1 par value; authorized 15,000,000 shares at december 31, 2009 and 10,000,000 shares at december 31, 2008; 8,690,398 shares issued at december 31, 2009 and 2008; 8,605,333 shares outstanding at december 31, 2009 and 8,603,055 at december 31, 2008 Additional paid-in capital Treasury stock, at cost; 85,065 shares and 87,343 shares at december 31, 2009 and 2008, respectively Retained earnings Accumulated other comprehensive (loss) total Shareholders’ Equity total liabilities and Shareholders’ Equity 10 MidWestOne Financial group, inc. 2009 annual report 362,903 8,009 1,208 966,998 (13,957) 953,041 83,052 28,969 11,534 12,172 18,118 3,635 24,554 $ 1,534,783 272,380 8,125 5,279 1,014,814 (10,977) 1,003,837 92,932 28,748 11,736 13,424 17,340 996 21,239 $ 1,508,962 dEcEMBEr 31, 2009 dEcEMBEr 31, 2008 $ 133,990 401,264 62,989 394,369 187,256 1,179,868 44,973 130,200 15,588 11,946 $ 1,382,575 $ 123,558 389,227 59,133 402,950 153,321 1,128,189 57,299 158,782 15,640 18,710 $ 1,378,620 15,699 - 8,690 81,179 (1,183) 48,079 (256) 8,690 80,757 (1,215) 43,683 (1,573) 152,208 $ 1,534,783 130,342 $ 1,508,962 condEnSEd conSolidAtEd StAtEMEntS oF opErAtionS (dollars in thousands, except per share amounts) intErESt incoME Loans Loan pool participations investment securities: Taxable securities Tax-exempt securities Federal funds sold and other short-term investments Total interest income intErESt ExpEnSE interest-bearing checking Savings Certificates of deposit Federal funds purchased and securities sold under agreements to repurchase Federal Home Loan Bank advances Long-term debt Other borrowings Total interest expense Net interest income Provision for loan losses Net interest income after provision for loan losses nonintErESt incoME Trust and investment fees Service charges on deposit accounts Mortgage origination and servicing fees Bank-owned life insurance income Securities gains (losses), net investment securities impairment losses Other income Total Noninterest income nonintErESt ExpEnSE Salaries and employee benefits Net occupancy and equipment data processing FdiC insurance Goodwill impairment Other expenses Total noninterest expense income (loss) before income taxes income tax expense (benefit) Net income (loss) Less: Preferred stock dividends and discount accretion Net income (loss) available to common shareholders EArninGS (loSS) pEr coMMon ShArE Basic diluted $ $ $ $ YEArS EndEd dEcEMBEr 31, $ 2009 58,697 1,809 2008 $ 53,104 4,459 2007 $ 27,564 - 8,797 3,997 58 73,358 2009 4,501 213 16,897 464 5,450 658 60 28,243 45,115 7,725 37,390 2009 4,180 3,988 2,770 778 813 (2,404) 2,394 12,519 2009 23,152 6,961 1,844 3,244 - 10,378 45,579 4,330 (79) 4,409 779 3,630 8,222 4,080 341 70,206 2008 4,149 1,362 17,646 1,122 5,348 631 137 30,395 39,811 4,366 35,445 2008 4,011 5,611 907 542 (346) (6,194) 1,011 5,542 2008 20,903 4,759 1,860 595 27,295 10,587 65,999 (25,012) (450) $ (24,562) - $ (24,562) 7,552 2,641 548 38,305 2007 2,950 159 11,689 2,114 2,126 - - 19,038 19,267 500 18,767 2007 3,688 2,082 1,208 338 (256) - 1,746 8,806 2007 10,926 2,978 1,145 60 - 3,511 18,620 8,953 2,305 $ 6,648 - $ 6,648 2009 0.42 0.42 2008 $ (3.09) $ (3.09) 2007 $ $ 1.29 1.29 MidWestOne Financial group, inc. 2009 annual report 11 condEnSEd conSolidAtEd StAtEMEntS oF ShArEholdErS’ EQuitY And othEr coMprEhEnSiVE incoME (loSS) (dollars in thousands, except per share amounts) YEArS EndEd dEcEMBEr 31, 2009, 2008, And 2007 StocK StocK pAid-in cApitAl StocK EArninGS incoME totAl prEFErrEd coMMon AdditionAl trEASurY rEtAinEd coMprEhEnSiVE AccuMulAtEd othEr Balance, december 31, 2006 $ - $ 5,176 $ 14 $ - $ 69,539 $ (1,520) $ 73,209 comprehensive income: Net income Net change in unrealized losses on securities, net of reclassification adjustment and tax Total Comprehensive income Cash dividends paid, $0.65 per share Stock options exercised for 8,425 shares Stock compensation Repurchase of 19,605 shares of common stock - - - - - - - - - 8 - (19) - - - 99 2 (15) - - - - - - 6,648 - 6,648 - 1,314 1,314 (3,359) - - (495) 7,962 - - - - (3,359) 107 2 (529) Balance, december 31, 2007 $ - $ 5,165 $ 100 $ - $ 72,333 $ (206) $ 77,392 comprehensive income (loss): Net loss Net change in unrealized losses on securities, net of reclassification adjustment and tax Net change in unrealized pension liability, net of tax Total Comprehensive income (Loss) Cash dividends paid, $0.46 per share Stock options exercised for 7,959 shares Treasury stock purchased Fractional shares purchased in merger Shares issued in merger Stock compensation Stock option value allocated to transaction purchase price Cumulative effect of adjustment for postretirement split dollar life insurance benefits Balance, december 31, 2008 $ Cumulative effect of FASB ASC 320, net of tax comprehensive income: Net income Net change in unrealized gains on securities, net of reclassification adjustment and tax Net change in unrealized pension liability, net of tax Total Comprehensive income Cash dividends paid, $0.30 per share Cash dividends paid on preferred stock Release/lapse of restrictions on RSUs issuance of preferred shares (16,000 shares) Common warrants issued Preferred stock discount accretion Stock compensation - - - - - - - - - - - - - - - - - - - - 5 - - 3,520 - - - - - - - 29 - (3) 78,245 21 2,365 - - - - - 38 (1,253) - - - - - (24,562) - (24,562) - - (2,425) (2,425) 1,058 1,058 (3,955) - - - - - (25,929) (3,955) - 72 - (1,253) - - (3) - 81,765 21 - - - 2,365 (133) - (133) $ 8,690 $ 80,757 $ (1,215) $ 43,683 $ (1,573) $ 130,342 - - - - - - - - - - - - - - - - - (32) - 358 - 96 - - - - - - 32 - - - - 3,266 (3,266) - 4,409 - 4,409 - - 663 663 3,920 3,920 (2,602) (620) - - - (57) - 8,992 (2,602) (620) - - - - - 15,642 358 - - - 96 - - - - 15,642 - 57 - Balance, december 31, 2009 $15,699 $ 8,690 $81,179 $ (1,183) $ 48,079 $ (256) $ 152,208 12 MidWestOne Financial group, inc. 2009 annual report StocK 2008 First Quarter Second Quarter Third Quarter Fourth Quarter 2009 First Quarter Second Quarter Third Quarter Fourth Quarter hiGh loW cASh diVidEnd dEclArEd $ 19.24 $ 16.00 $ 17.25 $ 11.94 $ 14.95 $ 12.00 $ 14.47 $ 8.35 $ - $ 0.1525 $ 0.1525 $ 0.1525 hiGh loW cASh diVidEnd dEclArEd $ 10.35 $ $ 10.52 $ $ $ 9.50 $ 9.00 $ 5.90 6.51 7.00 7.57 $ 0.1525 $ 0.0500 $ 0.0500 $ 0.0500 rEport oF indEpEndEnt rEGiStErEd puBlic AccountinG FirM The Board of Directors, MidWestOne Financial Group, Inc.: We have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of MidWestOne Financial Group, Inc. and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of operations, shareholders’ equity and other comprehensive income (loss), and cash flows (not presented herein) for the years then ended; and in our report dated March 8, 2010, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated financial statements is fairly stated, in all material respects, in relation to the consolidated financial statements from which it has been derived. KPMG LLP Des Moines, Iowa March 8, 2010 rEport oF indEpEndEnt rEGiStErEd puBlic AccountinG FirM The Board of Directors, MidWestOne Financial Group, Inc. and Subsidiaries: We have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of operations, shareholders’ equity and other comprehensive income (loss), and cash flows of ISB Financial Corp. and Subsidiaries (n/k/a MidWestOne Financial Group, Inc.) for the year ended December 31, 2007 (not presented herein); and in our report dated March 13, 2008, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed financial statements is fairly stated, in all material respects, in relation to the financial statements from which it has been derived. McGladrey & Pullen Cedar Rapids, Iowa March 13, 2008 trAnSFEr AGEnt/ diVidEnd pAYinG AGEnt Illinois Stock Transfer Company 209 West Jackson Boulevard, Suite 903 Chicago, Illinois 60606-6905 GEnErAl council indEpEndEnt AccountinG FirM Barack Ferrazzano Kirschbaum & Nagelberg LLP 200 West Madison Street, Suite 3900 Chicago, Illinois 60606-3465 KPMG LLP 666 Grand Avenue 2500 Ruan Center Des Moines, Iowa 50309 MidWestOne Financial group, inc. 2009 annual report 13 822 12th Street 802 13th Street 3225 division Street 323 Jefferson Street 4510 Prairie Parkway 120 West Center Street 110 First Avenue 101 W. Second St., Suite 100 58 East Burlington Avenue 2408 West Burlington Avenue 926 Avenue G 100 Eddystone drive 102 South Clinton Street 325 South Clinton Street 1906 Keokuk Street 2233 Rochester Avenue 202 Main Street MidWEStOne BAnK oFFicES Belle plaine Belle plaine Burlington Burlington cedar Falls conrad coralville davenport Fairfield Fairfield Fort Madison hudson iowa city iowa city iowa city iowa city Melbourne north English 10030 Highway 149 north liberty 465 Hwy 965 NE, Suite A oskaloosa oskaloosa oskaloosa ottumwa parkersburg pella pella Sigourney Waterloo West liberty 124 South First Street 222 First Avenue East 301 A Avenue West 116 West Main Street 1001 Hwy 57 700 Main Street 500 Oskaloosa Street 112 North Main Street 3110 Kimball Avenue 305 West Rainbow drive 319-444-2842 (drive Up) 319-754-6526 319-754-7553 319-277-2500 641-366-2165 319-356-5800 563-322-9900 641-472-6511 641-472-2424 319-372-3991 319-988-4090 319-356-5800 319-356-5960 319-356-5800 319-356-5800 641-482-3105 319-664-3311 319-356-5800 641-673-8303 (drive Up) (drive Up) 641-682-8355 319-346-1645 641-628-4356 (drive Up) 641-622-2381 319-232-5513 319-627-2100 toll Free En Español 1-800-247-4418 319-688-3938 MidWEStOne inSurAncE SErVicES, inc. MidWestOne insurance Agency Melbourne 202 Main St. Butler-Brown insurance Agency 309 High Ave. East oskaloosa cook & Son Agency pella 729 Franklin St. 641-482-3105 641-673-8603 641-628-4904 MidWEStOne FinAnciAl Group, inc. corporate headquarters 102 South Clinton Street iowa City, iowa 52240-4065 1-800-247-4418 www.midwestone.com nASdAQ Symbol: MoFG 

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