2010 an n ua l r e p or t To our ShareholderS The year 2010 has come and gone. As we look back, we see a year that is best defined by the word “progress” for MidWestOne Financial Group, Inc. Progress was clearly made in the earnings performance and stock price performance of your company. But there were strides made in other areas as well. The theme, then, of this annual letter to our shareholders is to discuss the progress that has been made throughout the year and, more importantly, how this progress serves as the foundation for what we believe will be a very bright future. For those who are reading our annual letter for the first time, we provide a historical perspective. MidWestOne Financial Group, Inc. is a relatively new banking organization that came into existence in March 2008 and was the merger of two long time and like-minded Iowa community banking organizations. Shortly after our merger, the great recession of 2008 struck with ferocity. As with almost every commercial bank in America, our earnings suffered as we dealt with larger than normal loan delinquencies and charge-offs and significantly higher FDIC insurance premiums. 2008 brought a tornado that destroyed our Parkersburg office and, less than two weeks later, the Flood of 2008 that severely damaged two more MidWestOne offices. 2009, of course, brought continued economic woes as our company began to put the pieces together for a successful future. As we said in our shareholder letter one year ago: “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 optimism proved to be well-founded as 2010 produced net income available to common shareholders of $9,262,000 or $1.07 per diluted common share, and more than doubled 2009 results of $3,630,000 and $0.42, respectively. Our return on tangible equity improved to 7.14%, well above 2009’s 3.00%. As we look to the future, we believe the days of a consistent 13 to 15 percent return on tangible common equity are a thing of the past for community banks. While the “new normal’ is unclear, it appears that 10 to 12 percent will be the standard for high performance in the future. Thus, while we are very pleased with our 2010 results, we also acknowledge that there is more work to be done. Those who read our quarterly shareholder reports will recognize that we have regularly discussed three keys to performance and survival during the recent turbulent times. 2 MidWestOne Financial GrOup, inc. 2010 annual repOrt capiTal continues to be critical to the long term survival and performance of banking organizations. At year-end, 2010 MidWestOne continued to exhibit excellent capital strength. Tangible common equity to tangible assets of 8.37% and total equity to assets of 10.02% are strong numbers that give us good protection from risk in our balance sheet and also provide the foundation for us to grow in the future. crediT qualiTy is what has separated the winners from the losers in the banking industry over the past three years. While our ratio of non-performing loans to total loans increased to 2.11% in our bank loan portfolio, we note that this number, while higher than it has been historically, is a solid number. We measure ourselves against 17 other Midwestern banks of similar size. At September 30, 2010, our ratio of non-performing loans to loans was the second best of the 18 bank universe. Similarly, our net charge-offs to total loans were 0.50% in 2010. This ratio ranks near the top of that peer group. Our reserve for loan losses in the bank portfolio was 1.62% at year-end, the highest since the merger. While we can never be complacent about the quality of our loan portfolio, we can state that at year-end, 2010, we were very comfortable with our credit quality and, most importantly, where it is headed. liquidiTy has always been evident at MidWestOne. We will quickly acknowledge that our style has never been to “lever up” our balance sheet. We know that in good times this style of balance sheet management sometimes costs us income. But, in bad times, we are very happy to have the added liquidity. In our first shareholder letter to you, we stated that our goal was to move our loan to deposit ratio “into the 80’s” (at the time it was in the mid-90’s due to the merger). We are pleased to report that we were at 82.5% at year end. Going forward, our goal is to maintain this ratio between 75 and 90%. Over the long term, we believe this is a prudent and relatively safe way to manage your company. We’ve also talked about the need to increase our non-interest income and set a long term goal of moving non-interest income to 30% of total revenues over time. We are making progress but it is slow. Thanks to the terrific performance of our Home Loan Center in the great refinance boom in the fourth quarter of 2010, mortgage origination and loan fees propelled non-interest income to 23.7% of total revenues for 2010. That is a long way from our goal of 30%, but it is progress. To get to our goal, we will need continued improvement from our Trust Department As we said in our shareholder letter one year ago: “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. ” and Investment Services Department. Both of these business units had very nice gains in net income in 2010 and we are planning their continued expansion. In addition, we have an insurance subsidiary that is currently operating at a small loss and we expect to see vast improvement in the next three years to help us to our 30% goal. Expense management has been a consistent theme in these letters as well. We are very happy to report that we excelled in this area during 2010. Our non-interest expenses declined nearly $2.3 million, or 5.0% compared to 2009. The progress was throughout the company as professional fees, FDIC insurance premiums, and other expenses all declined. As we began the year, we were aware that we had more employees than other banking companies of similar size. As the year unfolded, we found opportunities to reduce our staff by more than 30 positions. This was done mostly through attrition. We are proud of the efforts from all corners of the company to achieve this with very little disruption to our customers. We also made the difficult decision to close three offices that were deemed to have low volume and low potential. In each case, the offices’ deposits were moved to a near-by MidWestOne office. While these decisions are never easy, they are necessary for us to be as efficient as possible going forward. The loan pool participations, which had been a part of the former MidWestOne dating back to 1988, continue to create a drag on our earnings power. The loan pools have traditionally given the company an “all-in” yield of 8-12% and for many years they produced returns in the high end of that range. For the past few years---since the recession began— returns have been poorer. This past year, the pools returned 3.88%. The balance of these loans has continued to decline and ended 2010 at $65.9 million, only 4.2% of total assets. We are not adding to our position in the loan pools and our plan is to exit this line of business as principal repayments continue. We believe that the future in community banking in Iowa is bright and these assets do not fit with our strategic plans for the future. One of our operating principles is to “hire and retain good people”. We realize almost every annual shareholder letter contains an obligatory tip of the cap to a company’s staff. We want to do more than that. Having the right persons in the right jobs has never been more critical to our success. We thank a superb senior management team for its leadership in 2010. And we thank the many associates MidWestOne Financial GrOup, inc. 2010 annual repOrt 3 charles n. Funk, president and ceO, and W. richard summerwill, chairman. in foreclosure. As with most other Iowa banks, we have acted responsibly in our lending practices and foreclosure for MidWestOne is a last resort. The ingredients for success, then, are not much different than they have been since your company was founded in 1934. We collect deposits, we make good loans and we offer a broad array of financial solutions to make our customers’ lives better. And we do this, always, knowing that we must provide outstanding customer service in every encounter with our customers. We know that these encounters do not always take place in our banking offices but now take place increasingly on the telephone or at MidWestOne.com. And we know that competition in the banking and financial services industry has never been keener. Our ability to retain and expand our current banking relationships and attract new ones will continue to be the key to our future success. We finish by saluting two outgoing directors. W. Richard Summerwill and James G. Wake will retire at the conclusion of the 2010 annual meeting. Jim has been a director of the company since 2008, and of the former MidWestOne since 2000. He is an expert in the field of agriculture and we will miss his counsel as well as his very good sense of humor. Dick’s retirement marks the end of 48 years with this company as an officer and/or director. He was the CEO from 1983–2000 and has been the Chairman of the Board since stepping down as CEO. Although he will remain as a Director Emeritus, we will nonetheless miss his leadership and counsel. During the year, Sally Mason resigned unexpectedly from the board and we miss her contribution to our board as well. We welcomed the well qualified Barbara J. Kniff-McCulla to serve Sally’s unexpired term on the Board of Directors. We know we have challenges in the new year and beyond. But we firmly believe that the best years for MidWestOne are ahead. Our decisions will continue to be thoughtful and in the long-term interests of our shareholders. And so, we thank you, our shareholders, for your support, encouragement, patience, and trust. You’re the Ones for whom we will diligently work to exceed your expectations. Charles N. Funk President and CEO W. Richard Summerwill Chairman throughout the company who have gone the extra mile to fulfill our corporate mission statement of “taking care of our customers and those who should be”. There is not a day that passes when we do not see several extraordinary acts of good customer service in all corners of the company. MidWestOne has continued its commitment to train its employees in the fundamentals of good customer service through its Extraordinary Deeds through Genuine Effort (EDGE) training program. Since 2006, your company has invested more than $250,000 in this program to assure that our customers are served in a superior manner. 2010 marked the inaugural year for the MidWestOne Leadership Institute, a year-long program in which twelve selected officers received monthly training in the art of leadership and execution. We have a new class enrolled in the program in 2011. We will continue to invest significant resources in the training and development of our staff. We know that nothing is more important to a successful future than an engaged and talented staff. A year ago, we surveyed more than 450 customers, employees and directors as a first step in articulating a clear and succinct brand promise. It was no surprise that MidWestOne’s brand was drilled down to two basic themes: relationships and high quality customer service. Our fledgling company introduced “You’re the One” as our new slogan and theme last spring. Inside our walls, “You’re the One” ties perfectly to our mission statement — “taking care of our customers and those who should be”. Out in the community, “You’re the One” states unequivocally that we make our customers “number one” in all that we do. Our slogan is copyrighted and you’ll see it used in multiple ways in the future. As we look ahead, we see a promising future for MidWestOne. The many economic calamities that have unfolded since the Great Recession began in 2008 have made us even more thankful that our business is located in Iowa, where the unemployment rate never exceeded 7% (and sits at 6.3% as this is written). The banking business has been much better in our State than almost anywhere in America. While only 42nd in population in our country, Iowa has the fourth highest number of banking charters. We believe that the approximately 350 banking charters in Iowa will dwindle at a consistent pace over the next five years and we are well positioned to be a selective acquirer of banks when it is in our shareholders’ best interest. Our regulatory climate is much different than just a few years ago. Several aspects of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 are troubling for all commercial banks. At this writing, there are serious questions about all banks’ ability to continue to offer free debit cards to customers due to the Durbin Amendment, which price fixes the amount of interchange income per transaction. This is not a small item to your company and we continue to make our case to our Congressional delegation and Senators to overturn this destructive legislation, which, we might add, had absolutely nothing to do with financial reform. We also suffer from increased compliance requirements. For example, due to increased regulatory requirements, we estimate that it takes roughly 50% more manpower to close a real estate loan than it did just two years ago! This is not good for consumers and it is not good for banks. We hasten to add that, at year-end 2010, your company had just eight residential real estate loans 4 MidWestOne Financial GrOup, inc. 2010 annual repOrt MidWestOne Financial GrOup, inc. oFFiCerS W. richard Summerwill, chairman Charles S. howard, Vice chairman Charles N. Funk, president & chief executive Officer 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. and MidWestOne bank Board oF direCtorS row one: Charles S. howard Vice chairman, MidWestOne Financial Group, inc. and Vice chairman, MidWestOne bank row two: richard J. Schwab investor, entrepreneur, and builder MidWestOne bank board Member W. richard Summerwill chairman, MidWestOne Financial Group, inc. and chairman, MidWestOne bank r. Scott Zaiser Owner, Zaiser’s landscaping, inc. MOFG board Member Barbara Kniff-McCulla ceO, klk construction MOFG and MidWestOne bank board Member Kevin W. Monson Managing partner, neumann-Monson architects, pc MOFG board Member Charles N. Funk president & ceO, MidWestOne Financial Group, inc. and president & ceO, MidWestOne bank richard r. donohue Managing principal, td&t Financial Group, p.c. MOFG and MidWestOne bank board Member John S. Koza retired bank executive, MidWestOne bank MOFG board Member row three: Suzanne Summerwill, retired bank executive, MidWestOne bank MidWestOne bank board Member Stephen l. West president, West Music company, inc. MOFG and MidWestOne bank board Member robert d. Wersen president, interpower corporation MOFG board Member row Four: John p. pothoven retired bank executive, MidWestOne bank MOFG and MidWestOne bank board Member James G. Wake General Manager, smith-Wake ag services MOFG board Member MidWestOne Financial GrOup, inc. 2010 annual repOrt 5 hoNoriNG TWo BoarD MeMBerS MidWestone Bank director dorothy King of Conrad, Iowa, passed away on august 16, 2010. King spent 42 years at First State Bank in Conrad, serving as senior vice president, cashier, and trust officer at the time of her retirement in December 2001. She joined the board of directors of First State Bank in January 1980 and was elected to MidWestone Bank’s newly formed board when the banks merged in 2008. King broke through the glass ceiling within the Conrad business community. She was the first female vice president of First State Bank, first female president of the Grundy County Bankers association, and first female city council member in Conrad. upon her death, the MidWestone board passed a resolution noting, in part, that King “will continue to be an inspiration, personally and professionally, for everyone who had the rare good fortune to know her and work with her.” She is survived by her husband of 52 years, Warren King, two children, and six grandchildren. James G. Wake of Clive, Iowa, will retire from the MidWestone Financial Group, Inc. board as of the annual shareholders meeting on april 21, 2011. Wake is chairman of the board of oskaloosa-based Tetra agra Group; he is the third generation of family leadership in the 94-year-old agricultural business, which includes feed and livestock production, contract finishing, grain services and storage and land management. Wake became a director of the former Mahaska State Bank in oskaloosa in 1987 and continued in that capacity to the present day. “Being a bank board member over the past 25 years has been a true privilege,” Wake says. “The merger of two outstanding community banking organizations into one has been a very rewarding experience. I believe MidWestone is positioned for a great future.” Following his retirement, Wake and his spouse, Jayne, plan to spend more time in arizona and with their four children and five grandchildren. 6 MidWestOne Financial GrOup, inc. 2010 annual repOrt reprinted WitH perMissiOn ©2011 tHe GaZette, cedar rapids, iOWa tHe s uMMer Will leGaCy: “We’re going to be around a long, long time” people. Family. communiTy. Ask Dick Summerwill what’s most important, what he’s proudest of, and what he’ll miss when he steps down this year as chairman of MidWestOne Financial Group and MidWestOne Bank, and these three words come up time after time. In fact, in Summerwill’s view, they’re practically interchangeable, which says a lot about his upbringing as well as MidWestOne’s approach to banking. An Iowa City native, Summerwill attended the University of Michigan, where he earned a B.A. in economics. He served as an officer in the U.S. Navy and Naval Reserve, and then began his banking career at Northern Trust Company in Chicago. In 1963 he joined Iowa State Bank & Trust, which his grandfather, Ben Summerwill, Sr., had helped organize during the Great Depression. “Grandpa Ben used to stress three things about the business,” remembers Summerwill. “Take good care of your customers, hire really good people and treat them well, and have the utmost integrity. That mantra is still what we’re about.” Summerwill was named as the bank’s CEO in 1984 and served in that capacity until he retired to become chairman in 2000. His grandfather’s “mantra” was clearly at work during the 2008 merger of Iowa State Bank & Trust and its parent company, ISB Financial, with MidWestOne Financial Group, which Summerwill steered as ISB board chair. “I’m very proud of being able to move us from a family-owned community bank to a community bank run by professional management, which means we’re going to be around a long, long time,” says Summerwill, who will become Director Emeritus of the company upon his retirement from the board. “Too frequently, when family banks are purchased by large out-of-state banks, they can lose their connection to the community and become less willing to take risks on local customers.” Some of Summerwill’s best memories are of helping local business owners expand or rebuild their businesses when other banks were hesitant to do so. In many cases, Summerwill saw opportunities that would yield dividends for the community as a whole; he knew the business owners and their work ethic, and felt sure that the businesses would thrive and grow. More often than not, his predictions of success proved true. Although he clearly relishes such opportunities to make a difference, Summerwill says it’s time for transition. “At age 75, after 48 years, I’m ready to slow down,” he says. “We have a good board, a good CEO, a good staff, and wonderful customers; our numbers are positive; and the merger is behind us, so it’s the right time to go. It will be nice to not be running at full speed all the time.” With his boundless enthusiasm, it’s difficult to imagine Summerwill operating at anything less than full speed. Fortunately, he and his wife, Joyce (“my wonderful partner”), have plenty of other outlets, including their children and grandchildren. The couple also is involved in a host of local charitable organizations, from the arts and education to health care and the environment. So even in retirement, Dick Summerwill will keep on making a difference, for the benefit of all. “When you love what you do and are passionate about it, it makes life fun,” he says. “In the end, it’s all about the people.” MidWestOne Financial GrOup, inc. 2010 annual repOrt 7 MidWestOne Builds First LEED-Certified Bank in Iowa Like every resident of Parkersburg and surrounding northeastern Iowa communities, Doug Benjamin won’t ever forget Sunday, May 25, 2008—the day a deadly EF-5 tornado tore through Parkersburg, flattening much of the town of 1,800 and claiming eight lives in Parkersburg and nearby New Hartford. Three years later, Parkersburg itself is roaring back, anchored by a new MidWestOne Bank building that stands as a symbol of the town’s forward-thinking resiliency, and of MidWestOne’s commitment to stewarding our natural resources. Benjamin, who at the time was president and CEO of First State Bank (now MidWestOne) in Parkersburg, was at home that afternoon in May, watching televised tornado warnings with growing alarm. When he realized the massive storm was bearing down on Parkersburg, about 30 miles to the north, Benjamin began calling his employees. Unable to reach anyone by phone, he quickly drove to Parkersburg with his wife and another bank employee. They were shocked by the devastation. “We parked one mile outside of Parkersburg and walked into town,” Benjamin recalls. “The bank was completely destroyed.” The building’s obliteration was captured on the bank’s security cameras—a horrifying 56 seconds of footage that aired widely on national television and can still be viewed on the internet. Relying on the bank’s Business Continuity Plan, Benjamin and his staff took immediate action and began the rebuilding process as soon as a temporary location was secured. “It became evident that the most efficient and cost-effective route was to rebuild the identical structure at the same location,” Benjamin says. “We began to talk about LEED certification right away, and when we realized we would be the first LEED-Certified bank in Iowa, it was an easy decision.” Developed by the U.S. Green Building Council (USGBC), Leadership in Energy & Environmental Design (LEED) is an internationally recognized green building certification system that verifies buildings or communities designed and built with energy savings, water efficiency, emission reduction and improved environmental quality. Dedicated to building a LEED-Certified project, MidWestOne turned to Neumann-Monson Architects and Knutson Construction in Iowa City to deliver a top: the parkersburg MidWestOne bank (then First state bank) after a deadly tornado tore through parkersburg in late May 2008. Bottom: kevin Monson, neumann-Monson architects; clint ackerson, Market president; Joe Johnson, iowa leed Vice chair; charlie Funk, president and ceO, adam Hahn, knutson construction; doug benjamin, senior Vice president. 8 MidWestOne Financial GrOup, inc. 2010 annual repOrt MidWestOne Builds First LEED-Certified Bank in Iowa facility that met the USGBC’s strict guidelines. Working from the existing concrete slab, the bank was rebuilt with the same square footage, but with a number of small yet significant changes that allowed the bank to achieve its LEED status. In addition to an air-to-air geothermal heating and cooling system, the new building features more efficient windows, better insulation in the walls and ceiling, more efficient lighting with automated controls and sensors, and the use of interior materials comprised of recycled content. Of all the changes, says Benjamin, now Senior Vice President and Regional Manager for MidWestOne, the geothermal heating system has been the biggest surprise. “We’ve substantially reduced our annual heating and cooling costs in the first year of operation,” he notes. The bank celebrated its energy-efficiency certification with a LEED plaque dedication and public open house on September 30, 2010. “MidWestOne Bank is proud of our LEED Certification,” says Charlie Funk, President and CEO. “It’s everyone’s responsibility to conserve our natural resources and MidWestOne is doing our small part. To the naked eye, the Parkersburg bank is the same building as it was before the tornado. We simply made some small modifications to be more efficient. Our employees are very proud to be the first bank location in Iowa to be LEED Certified, and we’re happy to have it completed in Parkersburg.” Kevin Monson, President, Neumann-Monson Architects, says his firm was pleased to be involved in the landmark project. “MidWestOne Bank took this tragedy and turned it into an opportunity to reduce its carbon footprint, improve working conditions for its employees, and reduce energy use and operational costs,” he says. “We applaud MidWestOne’s leadership in the sustainable building movement.” Doug Benjamin is equally proud of his bank and his employees, but like every good community banker, his thoughts are for his customers and their neighbors. “The community has been very supportive of our bank from the beginning,” he says. “But the challenges we had to go through were minimal compared to what the community faced.” Today, Parkersburg and its MidWestOne Bank are happily facing a brighter and more energy-efficient future. Of all the changes, says Doug Benjamin, now Senior Vice President and Regional Manager for MidWestOne, the geothermal heating system has been the biggest surprise. “We’ve substantially reduced our annual heating and cooling costs in the first year of operation,” he notes. MidWestOne Financial GrOup, inc. 2010 annual repOrt 9 All for one, one for all BUrliNG toN CoNrad Extremely involved and passionate about the communities we serve, we asked all of our offices what was the “one thing” they did for their local customers and communities that they were most proud of in 2010. It’s no surprise that our affiliates responded with enthusiasm, variety, and creativity—impacting communities throughout Eastern Iowa in many more ways than one. Our thanks to the hundreds of MidWestOne staff members who participated in meaningful programs like these: • Belle plaine: Hosted a “Go Red for Women” luncheon benefiting the American Heart Association. • Burlington: Sponsored outdoor showing of “Charlotte’s Web” with piggy banks for kids. • cedar Falls: Employee donations to a local food bank served local families at Thanksgiving. • conrad: “Teach Children to Save” day resulted in donations to charity from local 2nd graders. • coralville: Delivered over 600 boxes of Kleenex to area elementary schools. • davenport: “Lunch for a Buck” to benefit local charities drew more than 180 non-customers. • Fairfield: Hosted Santa & Mrs. Claus at the bank with free photo opportunities for kids. FairField • Fort madison: Employees collected food and financial contributions for the local food pantry. • • • iowa city downtown: Customers were given laminated copies of news articles in which they were featured. iowa city Keokuk street: Employees donated food items to a local domestic violence program. iowa city rochester avenue: “Wrap for a Cause” holiday promotion supported local charities. • melbourne: Delivered homemade rolls and flowers to customers on their 80th SiGoUrNey birthday. • north english: Staff prepared all of the food for Customer Appreciation Meal, with 170 guests. • north liberty: Supported Junior Achievement, “Teach Children to Save” day, and local schools. • oskaloosa: Employees volunteered at the Special Olympics regional competition. • ottumwa: Holiday Salvation Army Angel Tree project collected toys for needy children. Waterloo • parkersburg: Organized community bus trip to Kansas City Chiefs game featuring 3 local NFL players. • pella: Adopted a local family of 6 for the holidays to ensure all family members had gifts. • sigourney: Promotion of MidWestOne grants yielded $29,000 to improve local business properties. • Waterloo: Conducted grade school assemblies on “Fairness,” one of the 6 pillars of character. • West liberty: Delivered annual May Day baskets to school employees. 10 MidWestOne Financial GrOup, inc. 2010 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’s equity aVeraGe BalaNCeS assets investment securities loans loan pools deposits shareholder’s equity reSUltS oF operatioNS net interest income provision for loan losses noninterest income noninterest expense income (loss) before income taxes net income (loss) 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 2010 2009 2008 $ 1,581,259 $ 1,534,783 $ 1,508,962 465,986 938,035 68,005 19,781 1,219,328 158,466 370,912 966,998 85,186 13,879 1,179,868 152,208 280,505 1,014,814 95,066 15,233 1,128,189 130,342 $ 1,559,035 $ 1,543,307 $ 1,359,667 415,571 955,562 78,150 1,054,069 157,190 347,965 990,540 92,456 1,035,938 147,544 282,822 893,451 72,558 894,823 138,603 $ 47,865 $ 45,115 $ 39,811 5,950 14,907 43,289 13,533 10,130 1.08 1.07 0.20 15.27 15.11 $ 7,725 12,519 45,579 4,330 4,409 0.42 0.42 0.30 14.42 8.74 $ 4,366 5,542 65,999 (25,012) (24,562) $ (3.09) (3.09) 0.46 13.58 9.90 6.44 % 2.99 % -15.96 % 0.65 3.43 10.08 1.62 0.50 2.11 0.29 3.27 9.56 1.44 0.48 1.44 -1.61 3.29 10.19 1.08 0.48 1.50 MidWestOne Financial GrOup, inc. 2010 annual repOrt 11 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, 2010 13,720 $ 6,803 20,523 deCeMBer 31, 2009 25,452 $ 2,136 27,588 461,954 4,032 702 938,035 (15,167) 922,868 65,871 26,518 10,648 11,143 26,772 3,850 26,378 $ 1,581,259 362,903 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 deCeMBer 31, 2010 deCeMBer 31, 2009 securities available for sale 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 $ 129,978 442,878 74,826 380,082 191,564 1,219,328 50,194 127,200 15,464 10,607 1,422,793 15,767 8,690 81,268 (1,052) 55,619 (1,826) 158,466 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, 2010 and 2009 capital stock, common, $1 par value; authorized 15,000,000 shares; 8,690,398 shares issued at december 31, 2010 and 2009 additional paid-in capital treasury stock, at cost; 75,608 shares and 85,065 shares at december 31, 2010 and 2009, respectively retained earnings accumulated other comprehensive (loss) total Shareholders’ equity total liabilities and Shareholders’ equity $ 1,581,259 12 MidWestOne Financial GrOup, inc. 2010 annual repOrt $ 133,990 401,264 62,989 394,369 187,256 1,179,868 44,973 130,200 15,588 11,946 1,382,575 15,699 8,690 81,179 (1,183) 48,079 (256) 152,208 $ 1,534,783 cOndensed cOnsOlidated StateMeNtS oF operatioNS (dollars in thousands, except per share amounts) iNtereSt iNCoMe loans loan pool participations 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, 2010 2009 2008 $ 54,731 2,631 $ 58,697 1,809 $ 53,104 4,459 9,667 3,912 40 70,981 2010 4,260 183 13,137 303 4,650 534 49 23,116 47,865 5,950 41,915 2010 4,556 4,042 3,506 685 453 (189) 1,854 14,907 8,797 3,997 58 73,358 2009 4,501 213 16,897 464 5,450 658 60 28,243 45,115 8,222 4,080 341 70,206 2008 4,149 1,362 17,646 1,122 5,348 631 137 30,395 39,811 7,725 37,390 4,366 35,445 2009 4,180 3,988 2,770 778 813 (2,404) 2,394 12,519 2008 4,011 5,611 907 542 (346) (6,194) 1,011 5,542 2010 2009 2008 23,170 6,566 1,702 2,850 - 9,001 43,289 13,533 3,403 $ 10,130 868 $ 9,262 23,152 6,961 1,844 3,244 - 10,378 45,579 4,330 (79) $ 4,409 779 $ 3,630 20,903 4,759 1,860 595 27,295 10,587 65,999 (25,012) (450) $ (24,562) - $ (24,562) 2010 1.08 1.07 $ $ 2009 2008 $ $ 0.42 0.42 $ $ (3.09) (3.09) MidWestOne Financial GrOup, inc. 2010 annual repOrt 13 cOndensed cOnsOlidated state Ments OF ShareholderS’ eQUity aNd other CoMpreheNSiVe iNCoMe (loSS) (dollars in thousands, except per share amounts) aCCUMUlated other yearS eNded deCeMBer 31, 2010, 2009, aNd 2008 StoCK preFerred CoMMoN additioNal StoCK paid-iN Capital StoCK treaSUry retaiNed CoMpreheNSiVe earNiNGS iNCoMe total Balance, december 31, 2007 $ - $ 5,165 $ 100) $ -) $ 72,333) $ (206) $ 77,392) Comprehensive income: 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 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 - - - - - - - - - - - - - - -) -) -) -) (24,562) -) (24,562) -) -) -) 1,058) (2,425) -) (2,425) - 5 - - 3,520 - -) 29) -) (3) 78,245) 21) -) 38) (1,253) -) -) -) (3,955) -) -) -) -) -) -) -) -) -) -) -) 1,058) (25,929) (3,955) 72) (1,253) (3) 81,765) 21) - 2,365) - -) -) -) -) -) 2,365) (133) -) (133) Balance, december 31, 2008 $ - $ 8,690 $ 80,757 $ (1,215) $ 43,683) $ (1,573) $ 130,342) cumulative effect of Fasb asc 320, net of tax Comprehensive income (loss): 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 - - - - - - - 15,642 - 57 - -) -) - 3,266) (3,266) -) -) -) -) -) -) -) -) -) -) -) -) -) -) -) -) (32) -) 358) -) 96 - - - 4,409) -) 4,409) -) 3,920) 663) -) 663) - - 32) - - - - (2,602) (620) -) -) -) (57) -) -) -) -) -) -) -) -) 3,920) 8,992) (2,602) (620) -) 15,642) 358) -) 96) Balance, december 31, 2009 $ 15,699 $ 8,690 $ 81,179 $ (1,183) $ 48,079 $ (256) $ 152,208 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, $0.20 per share cash dividends paid on preferred stock stock options exercised for 3,953 shares release/lapse of restrictions on rsus preferred stock discount accretion stock compensation - - - - - - - 68 - -) -) -) -) -) -) -) -) -) -) -) -) -) -) (23) (78) -) 190) - 10,130) -) 10,130 - - - - 53 78 -) -) -) (1,380) (1,380) -) (190) (1,722) (800) -) -) (68) -) -) -) -) -) -) -) (190) 8,560) (1,722) (800) 30) -) -) 190) Balance, december 31, 2010 $ 15,767 $ 8,690 $ 81,268 $ (1,052) $ 55,619 $ (1,826) $ 158,466) 14 MidWestOne Financial GrOup, inc. 2010 annual repOrt StoCK 2009 hiGh loW CaSh diVideNd deClared First Quarter $ 10.35 $ 5.90 second Quarter $ 10.52 $ 6.51 third Quarter Fourth Quarter $ 9.50 $ 7.00 $ 9.00 $ 7.57 $ 0.1525 $ 0.0500 $ 0.0500 $ 0.0500 2010 hiGh loW CaSh di VideNd de Clared First Quarter $ 11.94 $ 7.70 second Quarter $ 17.00 $ 11.26 third Quarter Fourth Quarter $ 15.70 $ 12.37 $ 15.95 $ 13.91 $ 0.0500 $ 0.0500 $ 0.0500 $ 0.0500 report oF iNdepeNdeN t re GiStered pUBli C 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, 2010 and 2009, and the related consolidated statements of operations, shareholders’ equity and other comprehensive income (loss), and cash flows (not presented herein) for each of the years in the three-year period ended December 31, 2010; and in our report dated March 4, 2011, 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 4, 2011 traNSFer aGeNt/ diVideNd payiNG aGeNt IST Shareholder Services 209 West Jackson Boulevard, Suite 903 Chicago, Illinois 60606-6905 GeNeral CoUNCil iNdepeNdeN t 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 ©2011 MidWestOne Financial GrOup, inc. Direction: nick pfeiffer, MidWestOne Writing: shullaw and associates, iowa city Photography: the Gazette, cedar rapids fisheye, Hiawatha Design: Printing: benson & Hepker design, iowa city tru art, iowa city MidWestOne Financial GrOup, inc. 2010 annual repOrt 15 MIDWesTONe BaNk OffICes Belle plaine 822 12th street Belle plaine 802 13th street Burlington 3225 division street Cedar Falls 4510 prairie parkway 120 West center street 110 First avenue 319-444-2842 (drive up) 319-754-6526 319-277-2500 641-366-2165 319-356-5800 101 W. second st., suite 100 563-322-9900 58 east burlington avenue 641-472-6511 2408 West burlington avenue 641-472-2424 Conrad Coralville davenport Fairfield Fairfield MIDWesTONe INsuraNCe servICes, INC. Butler-Brown insurance oskaloosa 309 High ave. east 641-673-8603 Cook & Son agency pella 700 Main st. MidWestone insurance agency Melbourne 202 Main st. 641-628-4904 641-482-3105 Fort Madison 926 avenue G 319-372-3991 iowa City iowa City iowa City iowa City 102 south clinton street 319-356-5800 325 south clinton street 319-356-5960 1906 keokuk street 319-356-5800 2233 rochester avenue 319-356-5800 Melbourne 202 Main street North english 10030 Highway 149 641-482-3105 319-664-3311 North liberty 465 Hwy 965 ne, suite a 319-356-5800 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 124 south First street 641-673-8303 oskaloosa oskaloosa ottumwa 222 First avenue east 116 West Main street parkersburg 1001 Hwy 57 pella pella Sigourney Waterloo 700 Main street 500 Oskaloosa street 112 north Main street 3110 kimball avenue (drive up) 641-682-8355 319-346-1645 641-628-4356 (drive up) 641-622-2381 319-232-5513 West liberty 305 West rainbow drive 319-627-2100 toll Free en español 319-688-3938 1-800-247-4418