2 0 11 an n ual r e p o rt Take good care of our customers Hire and retain excellent employeesalways conduct yourself witH tHe utmost integritywork as one teamlearn constantly so we can continually improveOur Operating principles: To our shareholders Charles N. FuNk, President & CEO keviN W. MoNsoN, Chairman 2 MidWEstOnE FinanCial GrOuP, inC. 2011 annual rEPOrt T his space is reserved each year to succinctly communicate in direct terms about the corporate events of the prior year as well as our thoughts on the future. Some letters are easier to write than others but this year’s letter contains positive and exciting news for our shareholders. 2011 was a good year for MidWestOne Financial Group, Inc. It was a year of record earnings for your company. It was a year of deposit and loan growth. It was a year in which the company’s TARP obligations were completely repaid from internal funds. It was a year of significantly increased dividends and share repurchases. And, most importantly, it was a year in which we continued to build a strong founda- tion for the future. When ISB Financial Corp. merged with the “former” MidWestOne in 2008, we assumed many synergies and efficiencies would occur. What we did not forecast was the worst recession in our lifetime and dealing with the reces- sion certainly impeded earnings prog- ress for the new company. Nevertheless, one must give credit to our staff as they never took their “eye off the ball” and continued to plant the seeds of efficien- cy that finally began to emerge in 2011. 2011 earnings available to common shareholders improved to $12,672,000, a 36.8% improvement over 2010 earn- ings of $9,262,000. Better yet, basic earnings per share of $1.47 is an all time record for your company. $1.47 per share is a 36.1% improvement over $1.08 in 2010 and handily surpasses the prior peak of $1.39 per share in 2004. Among the positive surprises in 2011 was the healthy growth of our balance sheet. Total assets and deposits each increased more than 7% and we ended the year just under $1.7 billion in total assets, at $1,695,000,000. Our bank loan portfolio grew more than $48 million or 5.1%, to more than $986 million at year-end. Most of this growth occurred in the last half of 2011 with the strongest quarter being the fourth. We tire of hearing the press and some politicians say “banks aren’t making loans” while MidWestOne and many other community banks in Iowa and throughout the nation increased their loan portfolios in 2011. MidWestOne continues to enjoy asset quality metrics that are better than our peers, whether viewed on a regional or national scale. At year-end 2011, our non-performing bank loans as a percent- age of total bank loans stood at 1.84%, down from 2.11% a year earlier. Our total level of non-performing bank loans stood at $18.1 million, down from $19.8 million a year earlier. Other real estate owned increased by less than $200,000, from $3.9 million at year-end 2010 to $4.0 million at year-end 2011. We are pleased that our net charged off loans fell to 0.30% of total loans in 2011, down from 0.50% in 2010. Through the finan- cial crisis, our net charge-offs have never exceeded 0.50% of loans. The allowance for loan losses in the bank portfolio remained strong at 1.59% of total loans at year-end. Overall, we believe this is exceptional performance and thank the many in our company who have had a hand in this success. Our capital ratios are strong, with tangible common equity to tangible assets standing at 8.68% at year-end. All regulatory capital ratios are well above the minimum levels set by our regulators. Our liquidity levels remain very strong with the closely watched loan to deposit ratio standing at 79.5% at year-end. Our strong capital and liquidity metrics afford us flexibility as we evaluate options to expand in the coming years. As we look to the future, we believe the ingredients for success in banking and financial services will not be much differ- ent than in the past. To be sure, our in- dustry is changing, but the basic formula for success in our industry is centered around the ability to collect deposits and make sound loans. Increasingly, banks such as ours must develop and increase the contribution to bottom line earnings from non-interest income. And we must never become complacent in our search for further operating efficiencies. Our company has traditionally done a bit better than the typical community bank in terms of the ability to generate non-interest income as a percentage of total operating revenues. Our long term goal is 30% and we are far short of the goal, with the 2011 number com- ing in at 22.8%. MidWestOne’s major components of non-interest income in the future will be the fees associated with residential real estate lending, trust services, investment services and com- missions from our insurance agencies. We are very focused on improving each of these areas and bringing MidWestOne services to more customers throughout our geographic footprint. Unfortunately, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and other regulatory pronouncements have impeded our ability to recover fees for consumer banking services we provide and we expect this component of the in- come statement to remain flat or decline in the years ahead. We continue to make very good progress at becoming more efficient and the best measure of this is evident in our non-interest expense line. In 2009, our non-interest expense was $45,579,000. This number fell to $43,289,000 in 2010 and fell again to $42,235,000 in 2011. While not disclosed in this report, our subsidiary bank, MidWestOne Bank, saw its efficiency ratio fall below 60% for the first time in many years. The efficiency ratio is one metric that measures bank efficiency and the fact that our bank crashed the 60% barrier is very positive. Our goal is to improve our company- wide efficiency each year and we have set a five year goal of 55% for MidWestOne Bank. It is critical that we continue to improve our efficiency each year, not only within the Bank, but also in the holding company. We see two increasingly problem- atic issues that come from Washington, D.C. The first is the Federal Reserve’s continued maintenance of a “zero inter- est rate policy.” While the Fed’s poli- cymakers are clearly well meaning, this policy, now in its fifth year, has served to put tremendous pressure on bank net interest margins. It is our opinion that the longer this policy is maintained, the more risk will find its way into the commercial banking system as banks are explicitly or implicitly encouraged to take on more risk in order to maintain profit margins. This is an important issue that all bank managements must confront and, frankly, we see few good solutions to this problem. The second, is regulatory over- reach. Sadly, for the past three years, we’ve written about this and, yet again, no progress has been made on this front in the past year. We have more—not less—paper required to originate a mort- gage loan. It still takes nearly an hour to properly open a new account because of all of the required information we must collect. We’ve added one more compliance position in the company during the past year. Our bankers are spending more time checking boxes and filling out required forms and less time in front of customers. It is the world in which we live and we continue to look hard for better ways to comply without inconveniencing our customers. Since our 2008 merger, we’ve used this letter to communicate on progress in satisfying our four main constituen- cies—our customers, our employees, our communities, and our shareholders. We believe the news is compelling that we’ve improved our standing with each group over the past twelve months but we’ll let them (and you) be the ultimate arbiters of that statement. our CustoMers: We are fortunate that we live in the State of Iowa, which has not seen the extreme economic duress other states have seen over the past few years. Unemployment ended the year at 5.6% in Iowa, the lowest level in two years. That does not mean, however, that all of our custom- ers have escaped economic hardship. At year-end, MidWestOne Bank had 18 customers with home properties in fore- closure. We serve 19 communities and have 2,152 residential real estate loans on our books as of year-end. Only 18 (0.84%) of those properties were in fore- closure. As you might expect, we take great care to exhaust all possible avenues before entering foreclosure. When we are working with many of our past due home mortgage borrowers, it may be Jason Swestka, Second Vice President, who is the bank representative talking to the customer. Jason practices a few rather simple rules: Always treat the customer with respect, always give the customer every opportunity to try to continue to pay on the loan even if it is a partial payment, and always try to put our customer on the best possible path to succeed. As Jason would say, “We will work with you if you will work with us.” Our 77-year-old mission statement is to MidWEstOnE FinanCial GrOuP, inC. 2011 annual rEPOrt 3 (lEFt tO riGht) JeFF JohNsoN FraN katko JasoN sWestka “take care of our customers and those who should be” and Jason excels in working with a segment of our customer base that is under daily pressure. Fran Katko, Service Associate Managing Officer, will retire in May after taking care of our customers and serving our employees for 26 years in our Oskaloosa office. Fran understands that every customer interaction is an op- portunity to live our mission statement. It is an opportunity to provide courte- ous and efficient service and send the satisfied customer on his/her way. It is an opportunity to suggest a service, such as mobile banking or the OneCard, that might make the customer’s life simpler. It might be an opportunity to put her arm around a customer’s shoulder and ask how a family member who has been ill is doing. Fran’s contribution to the company goes well beyond serv- ing our customers. Fran manages our service associates in Oskaloosa and is a constant source of encouragement to them. She is a mentor. She is a teacher. And, perhaps most importantly, she is a friend. Fran says that “it is important that my work is accurate and completed on time” and that her employees know “I expect the same from them.” our CoMMuNities: MidWestOne is a community bank. We cannot suc- ceed unless our communities prosper. We know we have an obligation to do more than write “donation” checks (we do that, too; more than $329,000 in 2011). We expect our officers to be engaged in their respective communities. We serve on boards and we raise funds for organizations we love. In short, we do whatever needs to be done to move our communities ahead. Jeff Johnson is our Sigourney Market Manager and a ten year veteran of MidWestOne. In addition to overseeing the coordination of numer- ous bank efforts to help the community, Jeff sits on the Sigourney City Council and chairs its Finance Committee. He is a past President and sits on the Sigour- ney Economic Development Corpora- tion. And if that isn’t enough, he is the Treasurer of First Resource Corp., which provides services to the disabled in a ten county region in Southeast Iowa. The Sigourney community is clearly better because of Jeff Johnson! our eMployees: Employees such as Jason, Fran and Jeff are what make our company great. One thing that this trio has in common is that they have continued to increase their contribution to the bank with each passing year. They have chosen to pursue their careers at MidWestOne and they’ve found tangible ways to make a difference in the lives of their customers, their co-workers, and their communities. We chose to highlight them in this year’s letter, but we could have chosen dozens of others who have made strong contributions to the success of our company. We also focus on service excellence stories later in this report as a means of displaying the continual commitment our employees make toward serving our customers. We have a talented staff. And we are grateful for their good work. We remain focused on internal staff development and we offer various opportunities for our employees to sharpen and improve their skills. The MidWestOne Leader- ship Institute is in its third year and we already have 23 “alumni” who have benefitted from this leadership training. All of our employees receive “EDGE” (Exceptional Deeds through Genuine Ef- fort) training within the first few months of their hire. But we also know that it takes more than “top down” corporate programs to sustain an engaged and talented staff. That is why we continue 4 MidWEstOnE FinanCial GrOuP, inC. 2011 annual rEPOrt to work with all of our managers and supervisors to assure that we reward and recognize achievement and encourage accountability at all levels. To assure continued success, we believe we must develop our culture and give our employ- ees the tools they need to succeed. our shareholders: Our shareholders received tangible rewards in 2011. Following a year of exceptional stock price performance in 2010, our stock price declined 3% in 2011. This decline was significantly less than the av- erage publicly traded bank stock. Repay- ing our TARP obligations in July without raising additional capital was one of our achievements. Immediately following this repayment, we raised our dividend to common stock shareholders by 20% and raised it another 42% in January, 2012. We also commenced a share repurchase program and repurchased more than 102,000 shares of our stock during the last six months of 2011 at an average price of $14.66, well below our tangible book value. This returned $1.5 million to our shareholders and we believe that this is a very good investment your com- pany has made in its future. We are excited about our future and we hope you are as well. Thank you for your support and your encouragement. You’re the Ones for whom we will dili- gently work to exceed your expectations. Charles N. Funk President & CEO Kevin W. Monson Chairman Building on bedroCk values keviN W. MoNsoN ChairMan OF thE bOard “O ur emphasis has always been to share with the community, do quality work, provide great service, and develop lifelong relationships,” says Kevin Monson, presi- dent and CEO of Neumann Monson Architects in Iowa City. But wait: Is he talking about architecture or community banking? In fact, Monson explains, “MidWestOne’s philosophy and the way our firm does business are very much aligned”—which is among the reasons Kevin Monson is so well suited to his new role as chairman of the MidWestOne Board of Directors. A board member since 2006, Monson says he was surprised and humbled when MidWestOne President & CEO Charles Funk and former board chairman W. Richard Summerwill approached him about becoming chair. But he readily accepted, despite some trepidation about stepping into the shoes of his well-known predecessor. “Dick Summerwill is a stalwart fixture in the banking community in Iowa, and certainly one of the most revered bankers in Iowa City,” he says. “I’m going to be a far different chairman. But thanks to Charlie’s leadership, we have a fantastic staff in place—a team of people who understand the challenges ahead, know where we’re going, and are committed to delivering great service to our customers. “That’s why I joined the MidWestOne board in the first place,” he continues. “We treat people like Iowans here, and I like that. We are locally controlled, and we care about and give back to the communities we serve. My mission as board chair is to make sure we stay firmly grounded in our communities and continue to be viewed as a true community asset. By working together, we can help our customers and our communities grow, be more competitive, and become better at everything they do.” Monson’s focus on customer service is a natural extension of his architectural practice. “I love being able to create some- thing for clients that they never dreamed possible, and having them be delighted by the results,” he says. “Building projects require so many different talents, and I enjoy working on large teams. Everyone involved gets a huge amount of pride and satis- faction in creating something that’s unique and that lasts.” A “farm kid” from Forest City, Iowa, Monson’s desire to create can be traced back to childhood, when he was drawn to the idea of building shelter. He remembers constructing “little hovels” out of discarded objects and machine parts. In college, he found architecture to be “a great combination of science and artistic expression and discovery, and that balance intrigued me.” After earning a degree in architecture from Iowa State Uni- versity and working for another local firm, he and two partners formed Neumann Monson Architects in 1977. “When our firm was looking for a bank,” Monson recalls, “we really wanted to have a relationship with people we knew and trusted, people who cared about the community and cared about us. It was important to bank with someone who would look after our best interests but also set limits, so we could grow smartly and sustainably. We chose what was then Iowa State Bank & Trust Company, now MidWestOne.” Neumann Monson Architects has become increasingly well known for its leading-edge work on projects that incorporate energy conservation and sustain- ability. “To me, sustainability is about people, and about creating a healthy environ- ment in which people have the tools and conditions that allow them to outperform what they’ve done in the past,” Monson explains. “Of course our buildings have to be beautiful and affordable and function well—but if they also focus on the human dimension of sustainability, the dividends will be huge.” Monson clearly values the dividends he’s gained through his relationship with MidWestOne. “Working with the board and staff has been a wonderfully educa- tional opportunity for me,” he says. “I know we face great challenges in the future, and we need to be very fluid in the face of growing change. But at the same time, our key values are unchanging and non-negotiable. Those values have given us the backbone to weather storms as they come and go, while continuing to serve our communities. MidWestOne has a rock-solid foundation, we’re working as one, and we’re very optimistic about the future.” MidWEstOnE FinanCial GrOuP, inC. 2011 annual rEPOrt 5 Take good care of our CustoMers “i just acted on instinct.” I t was a cold, rainy, windy Saturday morning in November 2011 when an elderly customer pulled up to the drive- in window at MidWestOne Bank in Sigourney. As she placed three checks in the teller drawer, a gust of wind tore the top check away and sent it wheeling through the air. Inside the teller window—five steps down from the main bank lobby, which is closed on Saturdays—MidWestOne Service Associate Don Banning watched the check fly up to Main Street and turn north. “I didn’t even have time to think and just acted on instinct,” he recalls. “I raced up the steps, hollered at my colleague to unlock the front door, and chased down the check. It got away from me a couple of times, but it finally got a little wet and then I could grab it.” “While I’m doing this, the customer is still sitting in her car by the window, worrying about the process she’s going to have to go through to replace that check. She was really kind of glad to see me show up,” he says in characteristic understatement. Banning is a retired educator who works at MidWestOne on a part-time basis. “We’re talking about a retired man, yes,” he says. “But I’m in pretty good shape!” Banning lives in North English and also works part-time in the MidWestOne office there. “My primary job is customer service,” he says. “We’re taught to go the extra mile.” Even in the wind, rain, cold, and on Saturdays. doN baNNiNg, MidWestone Service associate 6 MidWEstOnE FinanCial GrOuP, inC. 2011 annual rEPOrt spotlight on Service in 1934, when Ben Summerwill, Sr. formed the bank that would become MidWestone, he wisely advised his staff to focus on providing good customer service. Seventy-seven years later, MidWestone and its employees live by five core operating Principles—and customer service remains at the very top of the list: • Take good care of our customers • Hire and retain excellent employees • Always conduct yourself with the utmost integrity • Work as one team • Learn constantly so we can continually improve This year’s annual report—the first in a five-part series—highlights the ways in which our employees truly deliver “above and beyond” service. although we’ve chosen to feature just a few of our communities in this report, they are emblematic of the entire MidWestone family. for staff in every MidWestone location, first-rate service is second nature. Next year, our Annual Report will focus on another of MidWestone’s five operating Principles. We look forward to sharing more employee- customer stories that illustrate our commitment to excellence in everything we do. as we say, at MidWestone . . . You’re the one. Mike FiNlaysoN, MidWestone Mike draper, raYgun When philosophies align W hen Mike Draper made plans to expand RAYGUN—his irreverent and highly successful Des Moines T-shirt store—into downtown Iowa City, he knew he needed a local banking partner. And he had one very important qualification. “I’m sure there are better ways to pick a bank,” Draper admits, “but for me, it’s all about how easy the people are to work with.” Referred to MidWestOne by his Iowa City landlord, Draper met with Second Vice President and Retail Managing Officer Mike Finlayson about a business loan. “Mike’s sales team is phenomenal,” Draper says. “From our very first meeting, everyone at MidWestOne has listened to our needs and been very agreeable. That’s why MidWestOne is our main bank today.” Draper’s sales career started in college. During his senior year at the University of Pennsylvania, he and a friend began selling T-shirts to college students in major cities on the East Coast. “It was the front lines of capitalism,” Draper recalls. “Much of what we use at RAYGUN today, from sales techniques to marketing to the design of our shirts, stems from what I learned selling T-shirts on the street.” When he returned to Iowa in 2005 and opened RAYGUN in downtown Des Moines, Draper worked with a number of banks and quickly learned how not to do business. “Any banking issue you have is bound to be serious, so you want to talk to someone who knows what’s going on and has the power to help you,” he says. He was frustrated when banking staff were uninformed or unable to assist. That’s why his MidWestOne experience has been so positive, and also happens to align with RAYGUN’s own philosophy. “We don’t have a secret ingredient other than our people,” Draper says. “We hire staff almost entirely on attitude and train them to be as helpful as possible. That kind of service makes the difference.” MidWEstOnE FinanCial GrOuP, inC. 2011 annual rEPOrt 7 Take good care of our CustoMers What it means to be a community bank M idWestOne customer Greg Martin of West Liberty spent much of the 2011 Independence Day weekend boat shopping. On Saturday, July 2, he found what he was looking for. But it was a holiday weekend, the banks were closed, the boat was in Illinois, and the cautious seller was reluctant to accept either Martin’s personal check or a cashier’s check. Now what? “I called Cindy at home and asked her if we could make this work,” Martin says, referring to Cindy Mays, Market President at the MidWestOne West Liberty office. Mays responds: “I’ve been in banking for 35 years. In a small town where you know everybody, if someone’s in a pinch over the weekend, I’m always happy to help.” The personal service that MidWestOne customers have come to expect, says Martin, caught the Chicago-area boat seller by surprise. “I told him my bank was willing to cut him a check, and he simply could not believe a bank was going to open up over the 4th of July weekend just for me. He wanted to drive out here and see for himself. “So I gave him directions and we met in the bank parking lot on Sunday morning,” Martin continues. “Cindy had made some calls, and she and Service Associate Cathy Simon opened the bank, cut the cashier’s check, and hand-delivered it to the guy. He was just amazed. Cindy kind of ribbed him about it—she said, ‘You’re obviously banking at the wrong place.’” That afternoon, Martin brought the boat back to Iowa and by Monday, July 4, he and his family were happily plying the waters of Coralville Lake. Meanwhile, Mays sees nothing out of the ordinary in this story. “To me, customer service is about meeting my customers’ needs with a smile and open arms and an open heart. That’s what it means to be a community bank.” CiNdy Mays, MidWestone greg MartiN, MidWestone customer 8 MidWEstOnE FinanCial GrOuP, inC. 2011 annual rEPOrt “[the boat-seller from Chicago] was just amazed. Cindy kind of ribbed him about it — she said, ‘You’re obviously banking at the wrong place.” “…our best customer service is to ensure customer protection.” I n his position as a Personal Banker at MidWestOne Bank’s downtown Iowa City office, John Schickedanz deals with many University of Iowa students—one of whom needed his help more than she knew. The student came into the bank at the start of the 2011 fall semester. Over the summer, she had completed a website revision for an online employer. She received a paycheck of nearly $3,000, a sum that would allow her to pay tuition without relying on student loans. She was eager to open a MidWestOne account and excited about starting classes debt-free. “She was a really nice young woman, and I saw no red flags as we went through the account-opening process,” Schickedanz explains. “But when I took the check from her to make the deposit, I realized something wasn’t right.” He noticed that key features were missing, including microprint on the front of the check and the “Original Document” text on the back. “I called the bank that had issued the check and it turned out to have been stolen,” Schickedanz says. “This student was trying to make an honest day’s pay and she’d done all the work, but the entire set-up was fraudulent. She ended up not being able to pay her tuition and it was a terrible situation. If the check had gone through, she would have had to reimburse the bank.” JohN sChiCkeNdaz, MidWestone Fortunately, a hard-won lesson had a softer landing: With the student’s permission, MidWestOne contacted the University, explained what had happened, and the UI agreed to extend the student’s tuition-payment deadline so she could start fall classes as planned. “After it was all over, the student came back into the bank and was so thankful for our help,” Schickedanz says. “Sometimes, our best customer service is to ensure customer protection.” “[the boat-seller from Chicago] was just amazed. Cindy kind of ribbed him about it — she said, ‘You’re obviously banking at the wrong place.” MidWEstOnE FinanCial GrOuP, inC. 2011 annual rEPOrt 9 MidWEstOnE FinanCial GrOuP, inC. and MidWEstOnE bank boards oF direCtors row one: richard r. donohue Managing Principal, td&t Financial Group, P.C. MOFG and MidWestOne bank board Member barbara kniff-McCulla CEO, klk Construction MOFG and MidWestOne bank board Member richard J. schwab investor, Entrepreneur, and builder MidWestOne bank board Member tracy s. McCormick Past Vice President, investment banking, JP Morgan and Co. MOFG board Member robert d. Wersen President, interpower Corporation MOFG board Member row two: suzanne summerwill, retired bank Executive, MidWestOne bank MidWestOne bank board Member robert J. latham Chairman and President, latham and associates, inc. MOFG and MidWestOne bank board Member John s. koza retired bank Executive, MidWestOne bank MOFG and MidWestOne bank board Member stephen l. West President, West Music Company, inc. MOFG and MidWestOne bank board Member row three: kevin W. Monson Chairman, Managing Partner, neumann Monson architects, PC MOFG and MidWestOne bank board Member Charles N. Funk President & CEO, MidWestOne Financial Group, inc. and President & CEO, MidWestOne bank John p. pothoven retired bank Executive, MidWestOne bank MOFG and MidWestOne bank board Member Charles s. howard retired bank Executive, MidWestOne bank MOFG board Member r. scott zaiser Owner, Zaiser’s landscaping, inc. MOFG and MidWestOne bank board Member MidWEstOnE FinanCial GrOuP, inC. oFFiCers kevin W. Monson 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 Credit Officer James M. Cantrell Vice President & Chief risk Officer gregory W. turner Vice President & head of Wealth Management kenneth r. urmie secretary not pictured: W. richard summerwill retired bank Executive, MidWestOne bank director Emeritus of MOFG and MidWestOne bank MidWEstOnE FinanCial GrOuP, inC. exeCutive oFFiCers (lEFt tO riGht) kent l. Jehle, Executive Vice President & Chief Credit Officer susan r. evans, Chief Operating Officer gary J. ortale, Executive Vice President, Chief Financial Officer & treasurer 10 MidWEstOnE FinanCial GrOuP, inC. 2011 annual rEPOrt FinanCial highlights (dollars in thousands, except per share amounts) year-eNd balaNCes assets investment securities loans loan Pools deposits shareholders’ Equity average balaNCes assets investment securities loans loan Pools deposits shareholders’ Equity results oF operatioNs net interest income Provision for loan losses noninterest income noninterest Expense income before income taxes net income per CoMMoN share net income — basic net income — diluted dividends book Value tangible Common Equity Per share Closing share Price asset quality bank loans Past due 30–89 days non-performing bank loans net Charge Offs 2011 $ 1,695,244 536,116 986,173 52,186 1,306,642 156,494 $ 1,628,253 507,466 953,392 59,972 1,262,705 158,146 $ $ 48,798 3,350 14,716 42,235 17,929 13,317 1.47 1.47 0.22 18.35 17.15 14.62 2010 $ 1,581,259 465,986 938,035 68,005 1,219,328 158,466 $ 1,559,035 415,571 955,562 78,150 1,192,751 157,190 $ $ 47,865 5,950 14,907 43,289 13,533 10,130 1.08 1.07 0.20 18.39 15.27 15.11 2009 $ 1,534,783 370,912 966,998 85,186 1,179,868 152,208 $ 1,543,307 347,965 990,540 92,456 1,170,113 147,544 $ $ 45,115 7,725 12,519 45,579 4,330 4,409 0.42 0.42 0.30 17.69 14.42 8.74 $ 7,001 18,106 2,841 $ 10,482 19,781 4,740 $ 10,075 13,879 4,745 ratios return on average Equity return on average tangible Common Equity return on average assets net interest Margin Efficiency ratio 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 % 8.42 9.51 0.82 3.34 62.94 9.71 1.59 0.30 1.84 % 6.44 7.66 0.65 3.43 64.44 10.08 1.62 0.50 2.11 % 2.99 3.64 0.29 3.27 71.92 9.56 1.44 0.48 1.44 MidWEstOnE FinanCial GrOuP, inC. 2011 annual rEPOrt 11 COndE nsEd 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, 2011 28,155 $ 4,468 32,623 deCeMber 31, 2010 13,720 $ 6,803 20,523 534,080 2,036 1,955 986,173 (15,676) 970,497 50,052 26,260 10,422 10,247 27,723 4,033 25,316 $ 1,695,244 461,954 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 deCeMber 31, 2011 deCeMber 31, 2010 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 $ 161,287 499,905 71,823 346,858 226,769 1,306,642 57,207 140,014 15,464 19,423 1,538,750 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 no shares as of december 31, 2011 and 16,000 shares as of december 31, 2010 - Capital stock, common, $1 par value; authorized 15,000,000 shares; 8,690,398 shares issued at december 31, 2011 and 2010 additional paid-in capital treasury stock, at cost; 160,868 shares and 75,608 shares at december 31, 2011 and 2010, respectively retained earnings accumulated other comprehensive income (loss) total shareholders’ equity 8,690 80,333 (2,312) 66,299 3,484 156,494 total liabilities and shareholders’ equity $1,695,244 12 MidWEstOnE FinanCial GrOuP, inC. 2011 annual rEPOrt $ 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 $1,581,259 COndE nsEd 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 years eNded deCeMber 31, 2011 2010 2009 $ 52,163 1,108 $ 54,731 2,631 $ 58,697 1,809 10,934 4,339 37 68,581 2011 3,891 200 11,231 272 3,494 657 38 19,783 48,798 9,667 3,912 40 70,981 8,797 3,997 58 73,358 2010 2009 4,260 183 13,137 303 4,650 534 49 23,116 47,865 4,501 213 16,897 464 5,450 658 60 28,243 45,115 provision for loan losses Net interest income after provision for loan losses 3,350 45,448 5,950 41,915 7,725 37,390 NoNiNterest iNCoMe trust, investment, and insurance fees service charges on deposit accounts Mortgage origination and servicing fees bank-owned life insurance income securities gains, net investment securities impairment losses Other income Total noninterest income NoNiNterest expeNse salaries and employee benefits net occupancy and equipment data processing FdiC insurance amortization of intangible assets Other expenses Total noninterest expense Income before income taxes income tax expense (benefit) Net income Less: Preferred stock dividends and discount accretion Net income available to common shareholders earNiNgs per CoMMoN share basic diluted 2011 4,537 3,702 2,691 951 490 - 2,345 14,716 2010 4,556 4,042 3,506 685 453 (189) 1,854 14,907 2009 4,180 3,988 2,770 778 813 (2,404) 2,394 12,519 2011 2010 2009 23,194 6,537 1,670 1,612 896 8,326 42,235 17,929 4,612 $ 13,317 645 $ 12,672 23,170 6,566 1,702 2,850 1,029 7,972 43,289 13,533 3,403 $ 10,130 868 $ 9,262 23,152 6,961 1,844 3,244 1,141 9,237 45,579 4,330 (79) $ 4,409 779 $ 3,630 2011 1.47 1.47 $ $ 2010 $ 1.08 $ 1.07 $ $ 2009 0.42 0.42 MidWEstOnE FinanCial GrOuP, inC. 2011 annual rEPOrt 13 COnsOlidatE d statEMEnts OF shareholders’ equity (dollars in thousands, except per share amounts) aCCuMulated other years eNded deCeMber 31, 2011, 2010, aNd 2009 stoCk preFerred CoMMoN additioNal stoCk paid-iN Capital stoCk treasury retaiNed CoMpreheNsive earNiNgs iNCoMe total balance, december 31, 2008 $ - $ 8,690 $ 80,757 $ (1,215) $ 43,683 $ (1,573) $ 130,342 Effect of adoption of Fasb asC 320 on retained earnings, net of tax net income dividends paid on common stock ($0.30 per share) dividends paid on preferred stock release/lapse of restriction on rsus (2,278 shares) issuance of preferred shares (16,000 shares) Common Warrants issued Preferred stock discount accretion stock compensation Other comprehensive income, net of tax - - - - - - 57 - - 15,642 - - - - - - - - - - - - - - (32) - 358 - 96 - - - - - 3,266 4,409 (2,602) (620) 32 - - - - - - - - (57) - - 3,266 - - 4,409 - (2,602) (620) - - - 15,642 - 358 - - - 96 - 1,317 1,317 balance, december 31, 2009 $ 15,699 $ 8,690 $ 81,179 $ (1,183) $ 48,079 $ (256) $ 152,208 net income dividends paid on common stock ($0.20 per share) dividends paid on preferred stock stock options exercised (3,953 shares) release/lapse of restriction on rsus (5,604 shares) Preferred stock discount accretion stock compensation Other comprehensive income (loss), net of tax - - - - - 68 - - - - - - - - - - - - - (23) (78) - 190 - - 10,130 (1,722) - (800) - 53 78 - - - - - (68) - - - 10,130 - (1,722) (800) - 30 - - - - - 190 - (1,570) (1,570) balance, december 31, 2010 $ 15,767 $ 8,690 $ 81,268 $ (1,052) $ 55,619 $ (1,826) $ 158,466 net income dividends paid on common stock ($0.22 per share) dividends paid on preferred stock stock options exercised (6,832 shares) release/lapse of restriction on rsus (10,850 shares) Preferred stock discount accretion redemption of preferred stock (16,000 shares) repurchase of common stock warrant repurchase of common stock (102,190 shares) stock compensation Other comprehensive income, net of tax 233 (16,000) - - - - - - - - - - - - - - - - - - - - - - - (17) (138) - - (1,000) - 13,317 (1,891) - (513) - 97 141 - - - - - (233) - - - - - - 13,317 - (1,891) (513) - 80 - 3 - - - - (16,000) - (1,000) - (1,498) 220 - 5,310 5,310 - (1,498) 220 - - - balance, december 31, 2011 $ - $ 8,690 $ 80,333 $ (2,312) $ 66,299 $ 3,484 $ 156,494 14 MidWEstOnE FinanCial GrOuP, inC. 2011 annual rEPOrt share priCe 2010 First Quarter second Quarter third Quarter Fourth Quarter 2011 First Quarter second Quarter third Quarter Fourth Quarter high $ 11.94 $ 17.00 $ 15.70 $ 15.95 high $ 15.45 $ 14.89 $ 15.00 $ 15.15 loW Cash divideNd deClared $ 7.70 $ 11.26 $ 12.37 $ 13.91 $ 0.05 $ 0.05 $ 0.05 $ 0.05 loW Cash divideNd de Clared $ 13.62 $ 12.20 $ 13.75 $ 13.66 $ 0.05 $ 0.05 $ 0.06 $ 0.06 traNsFer ageNt/ divideNd payiNg ageNt IST Shareholder Services 209 West Jackson Boulevard, Suite 903 Chicago, Illinois 60606-6905 geNeral CouNsel iNdepeNdeN t publiC 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 BaNk MIDWesTONe INsuraNCe servICes, INC. Conrad Coralville davenport Fairfield Fairfield belle plaine 802 13th street burlington 3225 division street Cedar Falls 4510 Prairie Parkway 120 West Center street 110 First avenue 319-444-2842 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 Fort Madison 926 avenue G iowa City iowa City iowa City iowa City 102 south Clinton street 325 south Clinton street 1906 keokuk street 2233 rochester avenue Melbourne 202 Main street North english 10030 highway 149 319-372-3991 319-356-5800 319-356-5960 319-356-5800 319-356-5800 641-482-3105 319-664-3311 North liberty 465 hwy 965 nE, suite a 319-356-5800 oskaloosa oskaloosa ottumwa 124 south First street 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 West liberty 305 West rainbow drive 641-673-8303 641-673-8303 641-682-8355 319-346-1645 641-628-4356 641-628-4356 641-622-2381 319-232-5513 319-627-2100 toll Free en español 319-688-3938 1-800-247-4418 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 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 nick Pfeiffer, MidWestOne ©2012 MidWEstOnE FinanCial GrOuP, inC. Direction: Writing: Photography: Design: Printing: benson & hepker design, iowa City shullaw and associates, iowa City fisheye, hiawatha tru art, iowa City MidWEstOnE FinanCial GrOuP, inC. 2011 annual rEPOrt 15