Unless authority to vote for the nominees is withheld, the shares represented by the enclosed proxy card, if executed and returned,proxies will be voted “for” the election of the nominees proposed by the board of directors.
The board of directors recommends that you vote your shares “for” each of the nominees for director.
NOMINEES
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Term Expiring 2021 |
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| Name of Individual | | Since | | Position with MidWestOne Financial |
| Richard R. Donohue | | 2008(1) | | Director of MidWestOne Financial and the Bank |
| Nathaniel J. Kaeding | | - | | None |
| Ruth E. Stanoch | | 2015 | | Director of MidWestOne Financial and the Bank |
| Kurt R. Weise | | 2015(2) | | Director of MidWestOne Financial and the Bank |
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(1) | Mr. Donohue became a director of the Company upon completion of the merger with the former MidWestOne Financial Group, Inc. on March 14, 2008. He had been a director of the former MidWestOne Financial since 1999. |
(2) | Mr. Weise became a director of the Company upon completion of the merger with Central Bancshares, Inc. (“Central”) on May 1, 2015. He had been a director of Central since 1988. |
Richard R. Donohue. Mr. Donohue, 68, is the former Managing Partner of TD&T CPAs and Advisors, P.C. in Cedar Rapids, Iowa, a certified public accounting firm in which he was involved in all phases of the practice. Mr. Donohue joined the board of directors of the former MidWestOne Financial in 1999. He became a director of the Company upon completion of our merger with the former MidWestOne Financial in March 2008. Mr. Donohue was appointed to the board of directors of the Bank in 2009. We consider Mr. Donohue to be a qualified candidate for service on the board, the Audit Committee, and the Nominating and Corporate Governance Committee due to his business and financial accounting expertise acquired as the managing partner of a certified public accounting firm, as well as his knowledge of and prominence in our market area.
Nathaniel J. Kaeding. Mr. Kaeding, 35, is the Director of Business Development and Client Relations for Build to Suit, Inc., a construction management and real estate development firm based in Bettendorf and Coralville, Iowa. Prior to his role with Build to Suit, Inc., Mr. Kaeding served as the Director of Retail Development for the Iowa City Downtown District where he managed economic development and various marketing, branding and place-making initiatives for the District. Mr. Kaeding is an Iowa City native and attended the University of Iowa as an undergraduate where he earned both academic and athletic All-American honors as a member of the University of Iowa football team. Mr. Kaeding was selected as the 65th pick in the 2004 NFL draft by the San Diego Chargers and enjoyed a nine-year career as a place-kicker in the NFL. Upon retirement from the NFL, Mr. Kaeding returned to Iowa City and earned an MBA from the University of Iowa. We consider Mr. Kaeding to be a qualified candidate for service on the board due to his experience in the real estate industry, his strong ties within the Iowa City community, and his significant involvement in the Iowa City community.
Ruth E. Stanoch. Ms. Stanoch, 59, has been a corporate affairs consultant since 2008. She became a director of the Company upon completion of our merger with Central in May 2015 and a director of the Bank in 2016. Among her prior experiences, in 2010, Ms. Stanoch served as the senior advisor to Minnesota's governor-elect, Mark Dayton, and from 1994 to 2007, was employed with Thomson Legal & Regulatory. Between 2010 and 2012, Ms. Stanoch also served on various committees of the Board of Directors of Archipelago Learning, Inc., a leading subscription-based online education company, which was a public company. She received her Bachelor's degree from the University of Minnesota, and was a policy fellow at the University of Minnesota's Humphrey Institute of Public Affairs. Among other attributes, skills and qualifications, we believe that Ms. Stanoch's extensive corporate experience, leadership at a large corporation and previous service on a public company board provide valuable experience to the Company's board, Compensation Committee, and Nominating and Corporate Governance Committee.
Kurt R. Weise. Mr. Weise, 61, is the retired Executive Vice President of the Company, a position he held from May 2015 upon completion of our merger with Central until December 2016. Mr. Weise joined the board of directors of Central in 1988, and he became a director of the Company and the Bank upon completion of our merger with Central in May 2015. Mr. Weise also served as the Chairman of the Board of Central Bank from 1994 until 2015 and as the President of Central from 1988 until 2015. In addition, Mr. Weise has served in various finance and banking roles with Mr. Morrison and certain of his associates since 1985. Mr. Weise received his Bachelor’s degree from Winona State University, and he is a Certified Public Accountant. Among other attributes, skills and qualifications, we believe that Mr. Weise’s leadership as President of Central, his years of experience in finance and banking, and his status as a CPA enable him to bring valuable insight and knowledge to the Company’s board.
CONTINUING DIRECTORS AND NAMED EXECUTIVE OFFICERS
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Term Expiring 2019 |
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| Name of Individual | | Since | | Position with MidWestOne Financial |
| Tracy S. McCormick | | 2011 | | Director of MidWestOne Financial and the Bank |
| Kevin W. Monson | | 2005 | | Vice Chairman of MidWestOne Financial; Chairman ofFinancial and the Bank
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| Richard J. Schwab | | 2013 | | Director of MidWestOne Financial and the Bank |
| R. Scott Zaiser | | 2008(1) | | Director of MidWestOne Financial and the Bank |
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(1) | Mr. Zaiser became a director of the Company upon completion of the merger with the former MidWestOne Financial Group, Inc. on March 14, 2008. He had been a director of the former MidWestOne Financial since 2006. He resigned from the board in May 2015 as part of the restructuring of the board in conjunction with the merger with Central, Merger.and was subsequently elected to the board in 2016. |
Tracy S. McCormick. Ms. McCormick, 55, is a retired Vice President in investment banking for J.P. Morgan & Co., Incorporated. Ms. McCormick is the daughter of our former Chairman and current Director Emeritus, W. Richard Summerwill, and became a director of the Company in 2011 following his retirement from the board. She became a director of the Bank upon the completion of our Merger with Central in May 2015. Ms. McCormick was educated at the University of Michigan and the London School of Economics and Political Science. We consider Ms. McCormick to be a qualified candidate for service on the board, the Audit Committee and the Compensation Committee due to her skills and expertise developed in investment banking.
Kevin W. Monson. Mr. Monson, 64, is the Vice Chairman of the Board of the Company and Chairman of the Board of the Bank, and previously served as the Chairman of the Board of the Company prior to the Merger. He is the President, Managing Partner and the largest shareholder of Neumann Monson, Inc., an architectural services firm headquartered in Iowa City. He became a director of the Company and the Bank in 2005. Mr. Monson is also the majority partner in Tower Partners, a real estate investment partnership. We consider Mr. Monson to be a qualified candidate for service on the board due to his skills and expertise developed as the head of a successful architectural firm, and his knowledge of and prominence in the Iowa City market.
Richard J. Schwab. Mr. Schwab, 64, is a self-employed entrepreneur, angel fund investor, real estate investor and business owner, and is also a certified public accountant. He became a director of the Company in July 2013. Mr. Schwab was a director of the Company from 2004 to 2008, and has been a director of the Bank since 2004. Mr. Schwab has a B.A. in accounting from the University of Minnesota-Duluth. We consider Mr. Schwab to be a qualified candidate for service on the board, the Audit Committee and the Nominating and Corporate Governance Committee due to his skills and expertise developed as an entrepreneur, and his knowledge of and prominence in the Iowa City market.
R. Scott Zaiser. Mr. Zaiser, 55, is the President of Zaiser's Landscaping, Inc. in Burlington, Iowa, which is a landscaping company specializing in the design and installation of landscaping for residential and commercial properties in southeastern Iowa and west central Illinois. Mr. Zaiser became a director of the former MidWestOne Bank in 2000 and became a director of the former MidWestOne in 2006. He became a director of the Company upon completion of our merger with the former MidWestOne in March 2008, and a director of the Bank in 2011. Mr. Zaiser resigned as a director of the Company in May 2015 as part of the restructuring of the board due to the Merger.
CONTINUING DIRECTORS AND NAMED EXECUTIVE OFFICERS
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Term Expiring 20172020 |
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| Name of Individual | | Since | | Position with MidWestOne Financial |
| Charles N. Funk | | 2000 | | Director, President and Chief Executive Officer of MidWestOne Financial and the Bank |
| Michael A. Hatch | | 2015 | | Director of MidWestOne Financial |
| John M. Morrison | | 2015(1) | | Chairman of MidWestOne Financial and Director of Central Bank
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| William N. Ruud | | 2013 | | Director of MidWestOne Financial |
| Douglas K. True | | | | |
(1) | Mr. Morrison became a director of the Company upon completion of the Merger with Central on May 1, 2015. He had been a director of Central since 1988. |
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Term Expiring 2018 |
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| Name of Individual | | Since | | Position with MidWestOne Financial
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| Richard R. Donohue | | 2008(1)
| | Director of MidWestOne Financial, the Bank and Central Bank
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| Ruth E. Stanoch | | 2015 | | Director of MidWestOne Financial
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| Kurt R. Weise | | 2015(2)
| | Director and Executive Vice President of MidWestOne Financial; Director of the Bank; Chairman and Senior Vice President of Central Bank
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| Stephen L. West | | 19912017 | | Director of MidWestOne Financial and the Bank |
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(1) | Mr. DonohueMorrison became a director of the Company upon completion of the merger with the former MidWestOne Financial Group, Inc. on March 14, 2008. He had been a director of the former MidWestOne Financial since 1999. |
(2) | Mr. Weise became a director of the Company upon completion of the Merger with Central on May 1, 2015. He had been a director of Central since 1988. |
Richard R. Donohue. Mr. Donohue, 66, is the former Managing Partner of TD&T CPAs and Advisors, P.C. in Cedar Rapids, Iowa, a certified public accounting firm in which he was involved in all phases of the practice. Mr. Donohue joined the board of directors of the former MidWestOne Financial in 1999. He became a director of the Company upon completion of our merger with the former MidWestOne Financial in March 2008. Mr. Donohue was appointed to the board of directors of the Bank in 2009, and Central Bank in 2015. We consider Mr. Donohue to be a qualified candidate for service on the board, the Audit Committee, and the Nominating and Corporate Governance Committee due to his business and financial accounting expertise acquired as the managing partner of a certified public accounting firm, as well as his knowledge of and prominence in our market area.
Charles N. Funk. Mr. Funk, 61,63, is the President and Chief Executive Officer of the Company and the Bank. He joined the Bank in these same roles in November 2000. Prior to that, he held positions as President and Central Region Manager and Chief Investment Officer for Brenton Bank-Des Moines. Mr. Funk currently serves on the faculty ofhas taught for the Colorado Graduate School of Banking in Boulder, Colorado. Previously, he taught forColorado, the Iowa School of Banking, and the Stonier Graduate School of Banking at Georgetown University. He also serveshas served on the board of directors of Iowa SourceMedia GroupFolience and of the American Bankers Association and was the Chairman of the Iowa Bankers Association in 2010 and 2011. Mr. Funk graduated with a B.A.Bachelor’s degree from William Jewell College. We consider Mr. Funk to be a qualified candidate for service on the board due to his extensive expertise in the financial services industry, particularly in the state of Iowa, and intimate knowledge of MidWestOne Financial’s business and operations and because of his role as the President and Chief Executive Officer of MidWestOne Financial and the Bank.
Michael A. Hatch. Mr. Hatch, 67,69, has been employed as a trial and litigation attorney with Blackwell Burke P.A. since 2007. He became a director of the Company upon the completion of our Mergermerger with Central in May 2015. Among his prior experience, Mr. Hatch served as Minnesota’s Attorney General from 1999 to 2007, and he has served on the boards of a number of insurance companies. He earned his Bachelor’s degree from the University of Minnesota-Duluth and his Juris Doctorate from the University of Minnesota Law School. Among other attributes, skills and qualifications, we believe that Mr. Hatch’s service as a board member of insurance companies and extensive experience in the Minnesota legal arena enable him to bring valuable insight and knowledge to the Company’s board and Compensation Committee.
John M. MorrisonTracy S. McCormick. .Ms. McCormick, 57, is the Chief Financial Officer and a director of Mill Creek Development Company, an urban planning and development company in Pasadena, California. She currently serves on the board of Folience, a private company based in Cedar Rapids, Iowa. Her prior experience includes a career in investment banking with J.P. Morgan & Co., Incorporated in New York, Chicago, and Los Angeles. Ms. McCormick is the daughter of our former Chairman and current Director Emeritus, W. Richard Summerwill, and became a director of the Company in 2011 following his retirement from the board. She became a director of the Bank upon the completion of our merger with Central in May 2015. Ms. McCormick received a Bachelor’s degree in Economics and Communications from the University of Michigan and a M.Sc. in Economics from the London School of Economics and Political Science. We consider Ms. McCormick to be a qualified candidate for service on the board, the Audit Committee and the Compensation Committee due to her skills and expertise developed in investment banking and subsequent business experience.
Kevin W. Monson. Mr. Morrison, 78,Monson, 66, is the Chairman of the Board of the Company and was appointedChairman of the Board of the Bank. He served as the President, Managing Partner and the largest shareholder of Neumann Monson, Inc., an architectural services firm headquartered in Iowa City, from 1992 through 2017, and is currently the Chairman of the Board and a shareholder of Neumann Monson, Inc. He became a director of the Company and the Bank in 2005. Mr. Monson is also the majority partner in Tower Partners, a real estate investment partnership, and several other real estate investment corporations. We consider Mr. Monson to such positionbe a qualified candidate for service on the board due to his skills and expertise developed as the head of a successful architectural firm and his knowledge of and prominence in the Iowa City market.
John M. Morrison. Mr. Morrison, 80, is a director of the Company and served as the Chairman of the Board of the Company from May 2015 to April 2016, upon the completion of our Mergermerger with Central. Mr. Morrison also has served as a director of Central Bank since 1988. He previously served as the Chairman of Central since 1988.from 1988 until 2015. Mr. Morrison also serves as the Chairman of the University of St. Thomas. Among his prior experience, Mr. Morrison has also served as a director of three publicly traded companies.publicly-traded companies more than five years ago. Mr. Morrison received his Bachelor’s degree from the University of Minnesota and attended law school at LaSalle University. He received an honorary Dr.Doctor of Law degree from the University of St. Thomas. Among other attributes, skills and qualifications, we believe that Mr. Morrison’s service as a board member of public and private companies enable him to bring valuable insight and knowledge to the Company’s board.
William N. Ruud.Richard J. Schwab. Dr. Ruud, 63,Mr. Schwab, 66, is the president of the University of Northern Iowa, located in Cedar Falls, Iowa. Dr. Ruud becamea self-employed entrepreneur, angel fund investor, real estate investor and business owner, and is also a Certified Public Accountant. Mr. Schwab was a director of the Company in September 2013. Dr. Ruud previously served onfrom 2004 to 2008 and rejoined the board of directors of First Interstate Bank Corporation, Southern Idaho (now Wells Fargo) from 1994 to 1997. We consider Dr. Ruud to be a qualified candidate for service on the boardin July 2013, and the Compensation Committee due to his skills and expertise acquired as the president of a large public
educational institution, as well as his past service on the board of directors of First Interstate Bank Corporation, Southern Idaho (now Wells Fargo) from 1994 to 1997.
Ruth E. Stanoch. Ms. Stanoch, 57, has been a corporate affairs consultant since 2008. She became a director of the Company upon completion of our Merger with Central in May 2015. Among her prior experiences, in 2010, Ms. Stanoch served as the senior advisor to Minnesota's governor-elect, Mark Dayton, and from 1994 to 2007, was employed with Thomson Legal & Regulatory. Between 2010 and 2012, Ms. Stanoch also served on various committees of the Board of Directors of Archipelago Learning, Inc., a leading subscription-based online education company. She received her Bachelor's degree from the University of Minnesota, and was a policy fellow at the University of Minnesota's Humphrey Institute of Public Affairs. Among other attributes, skills and qualifications, we believe that Ms. Stanoch's extensive corporate experience, leadership at a large corporation and previous service on a public company board provide valuable experience to the Company's board, Audit Committee, and Nominating and Corporate Governance Committee.
Kurt R. Weise. Mr. Weise, 59, is an Executive Vice President of the Company and Chairman and Senior Vice President of Central Bank and was appointed to such positions in May 2015 upon completion of our Merger with Central. Mr. Weise joined the board of directors of Central in 1988, and he became a director of the Company and the Bank upon completion of our Merger with Central in May 2015. Mr. Weise has also served as the Chairman of the Board of Central Bank since 1994. He previously served as the President of Central since 1988. In addition, Mr. Weise has served in various finance and banking roles with Mr. Morrison and certain of his associates since 1985. Mr. Weise received his Bachelor’s degree from Winona State University and he is a CPA. Among other attributes, skills and qualifications, we believe that Mr. Weise’s leadership as President of Central, his years of experience in finance and banking, and his status as a CPA enable him to bring valuable insight and knowledge to the Company’s board.
Stephen L. West. Mr. West, 70, is the majority owner and Chairman of West Music Company Inc., a musical instrument and supply store headquartered in Coralville, Iowa. He has been a director of the Company and the Bank since 1991. Mr. West is also the Treasurer of Accent LLC, a private-label musical instruments company, and the President of WestInvest, L.C., a family investment vehicle.2004. We consider Mr. WestSchwab to be a qualified candidate for service on the board, the CompensationAudit Committee and the Nominating and Corporate Governance Committee due to his skills and expertise acquireddeveloped as an entrepreneur, and his knowledge of and prominence in the Iowa City market.
Douglas K. True. Mr. True, 68, is the retired Senior Vice President for Finance and Operations and University Treasurer for the University of Iowa, positions he held from 1991 to 2016. Mr. True served as the chief financial officer of leadership at several institutionsthe University of Iowa and provided operational oversight and management direction for a broad range of non-academic units including human resources, facilities management and utilities. He also oversaw the operating and capital budgets of the University of Iowa with broad responsibility for financial management and controls of all university budgets. Mr. True received an MBA from Drake University. We consider Mr. True to be a qualified candidate for service on the board, Audit Committee and Compensation Committee due to his extensive business and financial accounting expertise, as well as his knowledge of and prominence in our market area.
R. Scott Zaiser. Mr. Zaiser, 57, is the President of Zaiser's Landscaping, Inc. in Burlington, Iowa, which is a landscaping company specializing in the design and installation of landscaping for residential and commercial properties in southeastern Iowa and west central Illinois. Mr. Zaiser became a director of the former MidWestOne Bank in 2000 and became a director of the former MidWestOne in 2006. Mr. Zaiser was a director of the Company upon completion of our merger with the former MidWestOne Financial’s market areas.,servingfrom 2008 to 2015. He resigned from the board in May 2015 as part of the restructuring of the board in conjunction with the merger with Central and was subsequently elected to the board in 2016. He was appointed to the board of directors of the Bank in 2011. We consider Mr. Zaiser to be a qualified candidate for service on the board and the Nominating and Corporate Governance Committee due to his skills acquired as the president of a successful business, as well as his knowledge of the Burlington market.
In addition, Mr. W. Richard Summerwill, who had served on our board of directors since our formation in 1983 and served as our long-time Chief Executive Officer prior to our merger with the former MidWestOne Financial in March 2008, and Mr. John S. Koza, who also had served on our board of directors since our formation in 1983 and retired from the board in 2014, both currently serve as non-voting Directors Emeriti.
Finally, the following individuals serve as executive officers of MidWestOne Financial, four of whom are named in the compensation tables included in this proxy statement:
James M. Cantrell. Mr. Cantrell, 56,58, is Vice President, Chief Investment Officer and Chief Risk OfficerTreasurer of the Company and Senior Vice President, Chief Investment Officer and Treasurer of the Bank. He has also served as the Interim Chief RiskFinancial Officer of both the Bank.Company and the Bank since December 2017. He joined the Company in his current positionpositions, other than Interim Chief Financial Officer, in July 2009. Prior to joining the Bank, he had been with Provident Bank in Baltimore, Maryland, since 2008, where he served as Senior Vice President and Director of Treasury Operations. In that capacity, he was responsible for management of asset/liability activities, investment portfolio accounting, and derivative activity and compliance. Prior to that, he was employed as the Senior Vice President and Treasurer of Mercantile-Safe Deposit and Trust Company in Baltimore, Maryland, where he had been employed since 2001. Mr. Cantrell has a B.A.Bachelor’s degree in business and economics from Wittenberg University.
Susan R. Evans. Mitchell W. CookMs. Evans, 58,. Mr. Cook, 53, is a Senior Regional President for the Minnesota and Wisconsin markets of the Company. Prior to MidWestOne’s merger with Central, he served as the President and Chief Operating Officer of Central Bank since 2010. He began his career with Central in 2002 as a Commercial Lender. Prior to joining Central, Mr. Cook was involved in non-bank businesses in western Michigan, where he gained 15 years of experience in retail, wholesale distribution and manufacturing. Mr. Cook received his Bachelor's degree in economics from Colby College in Maine. Mr. Cook received his MBA in management information systems and strategic management from the Carlson School of Management at the University of Minnesota. He is also a graduate of the Graduate School of Banking in Madison, Wisconsin.
Kevin E. Kramer. Mr. Kramer, 51, is Chief Operating Officer of the Company and the Bank. Ms. EvansCompany. He joined the Company in 2001his current position in October 2016. Prior to joining the Company, he had been with Bank Midwest since 2011, where he served as Executive Vice President-Retail Banking of the Bank, and was appointed to her current role as Chief Operating Officer in August 2009. She has more than thirty years of banking experience, previously serving as Indianola Market President of Brenton Bank, Des Moines,Commercial Banking. In that capacity, he was responsible for commercial banking, business development and client relationship management. Prior to that, he was employed as well as Retail Marketthe Senior Vice President and Sales Manager for U.S. Bank, Des Moines.Director, Commercial Strategy and Administration at UMB Financial Corporation, where he had been employed since 1995. Mr. Kramer has a Bachelor's degree in business administration from Benedictine College.
Kent L. Jehle. Mr. Jehle, 56,58, is the Executive Vice President and Chief Credit Officer of the Company and the Bank. He became the Company's Executive Vice President and Chief Credit Officer upon consummation of our merger with the former MidWestOne Financial in March 2008. Prior to that merger, Mr. Jehle had been serving as the Bank's Executive Vice President-Commercial Banking since 2004. He has been with the Company and the Bank since 1986.
Katie A. Lorenson.Karin M. Taylor. Ms. Lorenson, 35,Taylor, 50, is a Vice President of the Company and Senior Vice President and Chief Financial Officer of Central Bank, which positions she assumed upon consummation of the Merger. Prior to the Merger, she served as the Senior Vice President and Chief Financial Officer of Central and Central Bank since 2011. Prior to joining Central, she worked
as a Manager on the Financial Institutions Team at RSM. She has nearly 18 years of experience in various front line, operational, lending and retail banking functions. Ms. Lorenson is a Certified Public Accountant who received her Bachelor's degree in accounting from Minnesota State University Moorhead. Ms. Lorenson will assume the position of Senior Vice President and Chief Financial Officer of the Company upon Mr. Ortale’s retirement on August 31, 2016.
Gary J. Ortale. Mr. Ortale, 65, is the Executive Vice President and Chief Financial Officer of the Company and the Bank. He was appointed to such position in May 2009, after serving as our Interim Chief Financial Officer since January 2009. Prior to that time, he was the Senior Vice President and Chief Risk Officer of the Bank, a position he assumed upon consummation of our merger with the former MidWestOne Financial in March 2008. Prior to that merger, Mr. Ortale had been serving as the Treasurer of the Company and the Senior Vice President-Chief Financial Officer of the Bank since 2002. He began with the Company and the Bank as their Vice President and Controller in 1987. Mr. Ortale has a B.S. in accounting from Drake University. Mr. Ortale has announced his intent to retire as Executive Vice President and Chief Financial Officer of the Company effective August 31, 2016.
Karin M. Taylor. Ms. Taylor, 48, is a Vice President of the Company and Chief Risk Officer of Central Bank, which positions she assumed upon consummation of the Merger.Company. Prior to the Merger,merger with Central, she served as the Chief Risk Officer of Central Bank since 2009. Prior to joining Central, she worked as a Director in the Risk Management Consulting practice at McGladrey. She has 25 years of experience in industry and consulting including management of various operational, lending and retail divisions, regulatory compliance, internal audit, process design and workflow management. Ms. Taylor received her Bachelor's degree from St. Olaf College.
Merger-Related Agreements
Pursuant to the terms of the Agreement and Plan of Merger dated November 20, 2014, by and between Central and the Company (the “Merger Agreement”), as the holder of all of the outstanding shares of the common stock of Central, the John M. Morrison Revocable Trust #4 (the “Trust”) received as merger consideration, upon the closing of the Mergermerger on May 1, 2015, $64,000,000 in cash and 2,723,083 shares of MidWestOne Financial common stock, which represented 24.5% of the outstanding shares of MidWestOne Financial common stock.stock at that tme. Mr. Morrison, Chairman of the Boarda director of the Company, is the trustee of the Trust. Based on Mr. Morrison’s most recent Schedule 13D filing, filed on February 1, 2016,As described under “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT,” Mr. Morrison beneficially owned 2,466,083431,393 shares as of February 13, 2018, or 21.6%3.5% of our common stock and the Trust beneficially owned 2,265,583as of such date, which included 245,693 shares, or 19.9%2.0% of our common stock.stock, beneficially owned by the Trust as of such date.
The Company and Central specifically negotiated and named in the Merger Agreement those individuals who would serve as the Company’s executive officers following the Merger. The Company and Central also negotiated in the Merger Agreement that the board of directors of the Company following the Mergermerger would initially consist of eight directors appointed by the Company (each, a “Company-Related Director”) and five directors appointed by Central (each, a “Central-Related Director”). The Company and Central also negotiated in the Merger Agreement that Mr. Morrison would serve as the Chairman of the Board of the Company.
Pursuant to the Merger Agreement and as reflected in the Company’s amended and restated bylaws which became effective upon the consummation of the Merger, the Class I directors consist of two Company-Related Directors and two Central-Related Directors, one of whom is required to be Mr. Morrison. At the 2017 annual meeting of shareholders, Mr. Morrison, if then still serving as a director, may not stand for reelection, but if he has served the entirety of his initial term, subject to the approval of the Nominating and Corporate Governance Committee, the board of directors will nominate an individual recommended by Mr. Morrison to fill the seat left vacant by Mr. Morrison. Class I will consist of two Central-Related Directors until the 2020 annual meeting of shareholders, except under certain circumstances described in the bylaws.
The Class II directors consist of two Company-Related Directors and two Central-Related Directors. Class II will consist of two Central-Related Directors until the 2021 annual meeting of shareholders, except under certain circumstances described in the bylaws. The Class III directors currently consist of four Company-Related Directors and one Central-Related Director, who was required to be Mr. Albert. As previously discussed, at the 2016 annual meeting of shareholders, Mr. Albert may not stand for reelection, Class III will include no Central-Related Directors, and the total number of Central-Related Directors will be reduced by one.Directors.
In addition, Mr. Morrison, a director, was also a party to the Shareholder Agreement dated as of November 20, 2014 (the “Shareholder Agreement”), among the Company, the Trust, CBS LLC (“TruPS Holder”), the holder of all outstanding preferred securities of CBI Capital Trust III, Riverbank Insurance Center, Inc., the holder of all outstanding Class A units (the “Insurance Agency Units”) of Central Insurance Agency, LLC (“Insurance Agency Owner”), and Mr. Morrison, who has common control over the Trust, TruPS Holder and Insurance Agency Owner. Among other things, pursuant to the Shareholder Agreement: (i) the Trust and Mr. Morrison arewere entitled to certain preemptive rights with respect to MidWestOne Financial securities; (ii)securities until the first to occur of November 20, 2017 or the Trust Insurance Agency Owner, TruPS Holder and Mr. Morrison are subject to a general prohibition on the sale or transferowning less than 10% of shares of MidWestOne Financial
our common stock, until the first anniversary of the effective time of the Merger; (iii)which occurred on March 22, 2017; and (ii) the Company is generally entitled to a right of first refusal in the event that any of the Trust, Insurance Agency Owner, TruPS Holder and Mr. Morrison desire to sell shares of MidWestOne Financial common stock following the effective time of the Merger; and (iv) the Trust was entitled to certain customary registration rights relating to the shares of MidWestOne Financial common stock it received in conjunction with the Merger, which it has exercised.merger. Additionally, the Shareholder Agreement subjects the Trust, Insurance Agency Owner, TruPS Holder and Mr. Morrison to certain customary “standstill” provisions and a requirement that such parties vote their shares of MidWestOne Financial common stock in accordance with the terms of the Shareholder Agreement with respect to various matters for certain
periods of time. The Trust, Insurance Agency Owner, TruPS Holder and Mr. Morrison are required to vote their shares: (i)shares in favor of all nominees to the board of directors as approved by the board, through the 2018 annual meeting of shareholders; (ii) in favor of all proposals of the board of directors as approved by the board, unless the proposal adversely affects its own interests, through the 2017 annual meeting of shareholders; and (iii) against any shareholder proposal not approved by the board or recommended by the board for approval, through the 2017 annual meeting of shareholders.
CORPORATE GOVERNANCE AND BOARD MATTERS
General
The board has adopted guidelines on significant corporate governance matters that, together with our Code of Business Conduct and Ethics and other policies, creates our corporate governance standards. Generally, the board oversees our business and monitors the performance of our management. In accordance with our corporate governance standards, the board does not involve itself in the day-to-day operations of MidWestOne Financial, which is monitored by our executive officers and management. Our directors fulfill their duties and responsibilities by attending regular meetings of the board, which convene at least on a quarterly basis, and through committee membership, which is discussed below. Our directors also discuss business and other matters with Mr. Funk, our President and Chief Executive Officer, other key executives and our principal external advisers (legal counsel, auditors and other consultants).
With the exception of Messrs. Albert, Funk, Monson, Morrison, and Weise, each of our current directors and nominees is “independent,” as defined under The Nasdaq Stock Market LLC’s listing rules, and the board has determined that the independent directors do not have other relationships with us that prevent them from making objective, independent decisions. The board of directors has established an Audit Committee, a Nominating and Corporate Governance Committee and a Compensation Committee, each of which is currently made up solely of independent directors. The current charters of each of these committees are available on our website at www.midwestonefinancial.com. Our Code of Business Conduct and Ethics is also available on our website. Also posted on our website is a general description regarding our company and links to our filings with the SEC.
Our board of directors held nineten meetings during 2015.2017. All of the directors attended at least 75% of the board meetings and meetings of committees of which they were members. While we do not have a specific policy regarding attendance at the annual shareholder meeting, all directors are encouraged and expected to attend the meeting. Last year’s annual meeting was attended by all of the directors in office at such time, except for Mr. West.
Audit Committee
In 2015,2017, prior to the Merger on May 1, 2015,annual meeting of shareholders, the Audit Committee was comprised of Messrs. Donohue (Chairman) and Schwab, and Mses. McCormick and Stanoch. Following the 2017 annual meeting of shareholders, the Audit Committee has comprised of Messrs. Donohue (Chairman), Schwab, and Zaiser,True, and Ms. McCormick. Upon consummation of the Merger, Mr. Zaiser resigned from the board and the Audit Committee, and Ms. Stanoch was appointed to the Audit Committee and has served on the committee since that time. Each individual is considered to be “independent” under Nasdaq listing rules and the regulations of the SEC. It is anticipated that the composition of the Audit Committee will remain the same throughout 2016.2018, except that Mr. Kaeding is expected to join the Audit Committee following the 2018 annual meeting of shareholders. The board of directors has determined that Mr. Donohue qualifies as an “audit committee financial expert” under the regulations of the SEC. The board has based this determination on Mr. Donohue’s education and his professional experience as the managing partner of a certified public accounting firm.
The functions performed by the Audit Committee include, among other things, the following:
overseeing our accounting and financial reporting;
selecting, appointing and overseeing our independent registered public accounting firm;
reviewing actions by management on recommendations of the independent registered public accounting firm and internal auditors;
meeting with management, the internal auditors and the independent registered public accounting firm to review the effectiveness of our system of internal controls and internal audit procedures; and
reviewing reports of bank regulatory agencies and monitoring management’s compliance with recommendations contained in those reports.
To promote independence of the audit function, the Audit Committee consults separately and jointly with our independent registered public accounting firm, the internal auditors and management. We have adopted a written charter for the committee, which sets forth its duties and responsibilities. The current charter is available on our website at www.midwestonefinancial.com. In 2015,2017, the committee met fifteen times.
Compensation Committee
In 2015,2017, prior to the Merger on May 1, 2015,annual meeting of shareholders, the Compensation Committee of MidWestOne Financial was comprised of Messrs. West (Chairman), LathamHatch, and Ruud, and Ms. McCormick and Ms. Kniff-McCulla. In connection with our Merger with Central, our board and committees were restructured. From May 1, 2015,McCormick. Following the 2017 annual meeting of shareholders, the Compensation Committee wasof MidWestOne Financial has comprised of Ms. McCormick (Chairperson), Ms. Stanoch, and Messrs. Hatch, True, and West. Mr. West (Chairman), Latham, Ruud and Hatch, and Ms. McCormick.will leave the committee upon his retirement from the board of directors in April 2018. Each individual served as an “independent” director as defined by Nasdaq listing requirements, an “outside” director pursuant to Section 162(m) of the Internal Revenue Code and a “non-employee” director under Section 16 of the Securities Exchange Act of 1934.Act.
The Compensation Committee reviews the performance of our Chief Executive Officer, Charles N. Funk, and determines the salary and bonus paid to him. It also reviews and determines the salaries and bonuses paid to our other Named Executive Officers (“NEOs”). The Compensation Committee relies upon Mr. Funk’s assessment of each NEO’s individual performance, which considers, as applicable, each executive’s efforts in achieving his or her individual goals each year and the executive’s overall success in the performance of his or her role in the organization. Individual goals for NEOs are established by Mr. Funk in consultation with each executive officer which consider the strategic and financial objectives of the Company. The Compensation Committee also consults with management and its independent advisors on a variety of matters relative to overall executive compensation and respective performance of our NEOs. No executive officer participates in any recommendation, discussion, or decision with respect to his or her own compensation or benefits. Further, the Compensation Committee administers our overall executive compensation program including equity incentive plans, our long-term incentive plans and our executive incentive bonus plans and, asplans. As a result, it has ultimate responsibility for interpretation and oversight of those plans.
The Compensation Committee’s duties, responsibilities, and functions are further described in its charter. The committee reviews its charter at least annually. It then recommends approval of the charter to the Company’s board of directors. The committee’s charter is available on our website, www.midwestonefinancial.com. You may also request a copy of this charter by writing to the Compensation Committee Secretary at MidWestOne Bank, 102 South Clinton Street, P.O. Box 1700, Iowa City, Iowa 52244-1700.
The charter gives the Compensation Committee the authority to hire outside consultants and independent advisors to further its objectives and responsibilities. For the last several years and again in 2015,2017, the Compensation Committee has retained the independent compensation consultant services of F.W. Cook & Co., Chicago, Illinois, to provide expertise and serve as a resource with respect to current market activities involving executive compensation practices and procedures, and also to help analyze our executive compensation practices and procedures. F.W. Cook & Co. provides no other services to the Company, and the Compensation Committee believes F.W. Cook & Co. is independent as determined under applicable Nasdaq guidance.
The Compensation Committee met four times during 2015,2017, convening in January, March,February, August, and December. Mr. WestMs. McCormick also met as needed with internal staff members and members of management to assimilateassemble compensation information for this proxy statement.
Nominating and Corporate Governance Committee
In 2015, prior to the Merger on May 1, 2015,2017 the members of the Nominating and Corporate Governance Committee of MidWestOne Financial were Messrs. Schwab (Chairman), Donohue, and West,Zaiser, and Ms. Heiden. Upon consummation of the Merger, Ms. Heiden resigned from the boardStanoch, and these individuals currently comprise the Nominating and Corporate Governance Committee, and Ms. Stanoch was appointed to the Nominating and Corporate Governance Committee and has served on the Committee since that time.Committee. Each individual is considered “independent” under Nasdaq listing rules. It is anticipated that the composition of the Nominating and Corporate Governance Committee will remain the same throughout 2016,2018, except that Mr. West will resign fromKaeding is expected to join the committeeNominating and be replaced by Mr. Zaiser (effective atCorporate Governance Committee following the end2018 annual meeting of the 2016 annual shareholder meeting).shareholders. The primary purposes of the committee are to identify and recommend individuals to serve on our board of directors and to review and monitor our policies, procedures and structure as they relate to corporate governance. We have adopted a written charter for the committee, which sets forth its duties and responsibilities. The current charter is available on our website at www.midwestonefinancial.com. In 2015,2017, the committee met twofive times.
Director Nominations and Qualifications
For the 20162018 annual meeting, the Nominating and Corporate Governance Committee nominated for re-election to the board three incumbent directors whose current terms are set to expire at the 20162018 annual meeting and one former director of the Company who resigned in May 2015.new nominee. These nominations were further approved by the full board. We did not receive any properly-made shareholder nominations for directorships for the 20162018 annual meeting.
The Nominating and Corporate Governance Committee evaluates all potential nominees for election, including incumbent directors, board nominees and any shareholder nominees included in the proxy statement, in the same manner. Generally, the committee believes that, at a minimum, directors should possess certain qualities, including the highest personal and professional ethics and integrity, a sufficient educational and professional background, demonstrated leadership skills, sound judgment, a strong
sense of service to the communities which we serve and an ability to meet the standards and duties set forth in our Code of Business Conduct and Ethics. While we do not have a separate diversity policy, the committee does consider the diversity of its directors and nominees in terms of knowledge, experience, skills, expertise, and other demographics which may contribute to the board. The committee also evaluates potential nominees to determine if they have any conflicts of interest that may interfere with their ability to serve as effective board members and to determine whether they are “independent” in accordance with Nasdaq listing rules (to ensure that at least a majority of the directors will, at all times, be independent). The committee has not, in the past, retained any third party to assist it in identifying qualified candidates.
The committee identifies nominees by first evaluating the current members of the board whose term is set to expire at the upcoming annual shareholder meeting and who are willing to continue in service. Current members of the board with skills and experience that are relevant to our business and who are willing to continue in service are considered for re-nomination. If any member of the board does not wish to continue in service or if the committee or the board decides not to re-nominate a member for re-election, the committee would identify the desired skills and experience of a new nominee in light of the criteria above. Mr. Kaeding, the nominee for election at the 2018 annual meeting of shareholders, was nominated to the board of directors by Mr. Schwab.
Board Leadership Structure
The positions of Chairman of the Board and Chief Executive Officer of MidWestOne are currently held by separate individuals. We believe this is the most appropriate structure for our board at this time. The Chairman provides leadership to the board and works with the board to define its structure and activities in the fulfillment of its responsibilities. The Chairman sets the board agendas with board and management input, facilitates communication among directors, works with the Chief Executive Officer to provide an appropriate information flow between management and the board and presides at meetings of the board and shareholders. With the Chairman’s assumption of these duties, the Chief Executive Officer may place a greater focus on our strategic and operational activities. We also believe our board feels a greater sense of involvement and brings a wider source of perspective as a result of this structure, from which we benefit. In connection with the Merger, we agreed to appoint Mr. Morrison as Chairman of the Board for the length of his current term, and Mr. Monson serves as Vice Chairman of the Board.
Independent Director Sessions
The board of directors has created the position of a “lead” independent director, currently filled by Mr. West.Ms. McCormick. The Nominating and Corporate Governance Committee reviews this appointment annually, and the full board has the opportunity to ratify the committee’s selection. It is expected that Ms. McCormick will serve as lead director after the 2018 annual meeting of shareholders. The lead independent director assists the board in assuring effective corporate governance and serves as chairman of the independent director sessions. Consistent with Nasdaq listing rules, the independent directors regularly have the opportunity to meet without the non-independent directors present, and in 20152017 there were two such sessions.
Board’s Role in Risk Oversight
Risk is inherent with every business, and how well a business manages risk can ultimately determine its success. We face a number of risks, including general economic risks, credit risks, regulatory risks, audit risks, reputational risks and others, such as risks related to the unintentional effects our compensation plans may have on employee decision-making or the impact of competition. Management is responsible for the day-to-day management of risks the Company faces, while the board, as a whole and through its committees, has responsibility for the oversight of risk management. In its risk oversight role, the board of directors has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed.
While the full board of directors is charged with ultimate oversight responsibility for risk management, various committees of the board and members of management also have responsibilities with respect to our risk oversight. In particular, the Audit Committee plays a large role in monitoring and assessing our financial, legal, and organizational risks, and receives regular reports from our Chief Risk Officer regarding comprehensive organizational risk as well as particular areas of concern. The Compensation
Committee monitors and assesses the various risks associated with compensation policies, and oversees incentive plans to ensure a reasonable and manageable level of risk-taking consistent with our overall strategy. Additionally, our Chief Credit Officer and loan review staff are directly responsible for overseeing our credit risk.
We believe that establishing the right “tone at the top” and providing for full and open communication between management and our board of directors are essential for effective risk management and oversight. Our executive management meets regularly with our other senior officers to discuss strategy and risks facing the Company. Senior officers attend many of the board meetings or, if not in attendance, are available to address any questions or concerns raised by the board on risk management-related and
any other matters. Additionally, each of our board-level committees provides regular reports to the full board and apprises the board of our comprehensive risk profile and any areas of concern.
Code of Ethics
We have a codeCode of conductBusiness Conduct and Ethics in place that applies to all of our directors, officers and employees. The code sets forth the standard of ethics that we expect all of our directors, officers and employees to follow, including our Chief Executive Officer and Chief Financial Officer. The Code of Business Conduct and Ethics is posted on our website at www.midwestonefinancial.com. We intend to satisfy the disclosure requirements under Item 5.05(c) of Form 8-K regarding any amendment to or waiver of the code with respect to our Chief Executive Officer and Chief Financial Officer, and persons performing similar functions, by posting such information on our website.
AUDIT COMMITTEE REPORT
The Audit Committee which is comprised solely of independent directors, assistsfour members of the board of directorsthe Company. All the members of the Audit Committee are independent from management and the Company, as independence is currently defined in carrying out its oversight responsibilitiesthe Nasdaq listing requirements. The Audit Committee is governed by a charter. A copy of the charter is available on the Company’s website.
Company’s management has the primary responsibility for ourthe financial statements, for maintaining effective internal control over financial reporting process, audit process and assessing the effectiveness of internal controls.control over financial reporting. The Audit Committee discussed with management and the Company’s independent registered accounting firm, which we refer to as the external auditor, the Company’s annual and quarterly SEC reports on Forms 10-K and 10-Q including the financial statements and disclosures prior to their public release. The Audit Committee also reviews our auditedreviewed, where appropriate, other selected SEC filings and public disclosures regarding financial matters, such as earnings releases, prior to their public release. The Audit Committee discussed with Company management and the external auditor changes in accounting rules or standards that could materially impact the Company’s financial statements and recommendsthe implementation of those rules or standards.
The meetings of the Audit Committee are designed to facilitate and encourage communication among the Audit Committee, the Company, the Company’s internal auditors and the Company’s external auditor. The Audit Committee discussed with the Company’s internal auditors and external auditor the overall scope for their respective audits. The Audit Committee meets with the internal auditors and external auditor, with and without management present, to discuss results of their examinations, their evaluations of the Company’s internal control, and overall quality of the Company’s financial reporting.
As part of its oversight responsibility, the Audit Committee periodically reviews the external auditor’s qualifications, performance and independence in connection with the determination to retain the external auditor. In conducting the review for its 2018 recommendation to retain RSM US LLP as the external auditor, the Audit Committee considered factors including the professional qualifications of the external auditor, the external auditor’s recent and historical performance related to the board that they be included in our Annual Report on Form 10-K.Company’s audit, including a review of auditor performance feedback surveys completed by management, results of Public Company Accounting Oversight Board (PCAOB) examinations, and an evaluation of the external auditor’s independence. RSM US LLP has been the external auditor for the Company since 2013.
The Audit Committee has reviewed and discussed our audited financial statements for the year ended December 31, 20152017 with our management and RSM US LLP, the independent registered public accounting firm that audited our financial statements for that period. The committee has also discussed with RSM US LLP the matters required to be discussed by Auditing Standards No. 16,1301, and has received and discussed the written disclosures and the letter from RSM US LLP required by Public Company Accounting Oversight BoardPCAOB Rule 3526, Communication with Audit Committees Concerning Independence. Based on the review and discussions with management and RSM US LLP, the committeeAudit Committee has recommended to the board that the audited financial statements be included in our Annual Report on Form 10-K for the year ended December 31, 20152017 for filing with the SEC.
Submitted by:
The MidWestOne Financial Group, Inc. Audit Committee
Richard R. Donohue (Chairman)
Tracy S. McCormick
Richard J. Schwab
Ruth E. StanochDouglas K. True
COMPENSATION DISCUSSION AND ANALYSIS
Introduction
This Compensation Discussion & Analysis (“CD&A”) describes MidWestOne Financial’sFinancial Group’s compensation philosophy and policies as applicable to the NEOs listed in the Summary Compensation Table on page 22. This CD&A is intended to explain24. It explains the structure and rationale associated withof each material element of the executives’ total compensation, and it provides important context for the more detailed disclosure tables and specific compensation amounts provided following this CD&A.
MidWestOne Financial Group and MidWestOne Bank share an executive management team. The members of the executive management team, including the NEOs, are compensated by the Bank, not by MidWestOne Financial. The compensation packages of the NEOs are determined and approved by the Compensation Committee (the “Committee”) based on the executives’ performance and roles for both MidWestOne Financial and MidWestOne Bank.
Named Executive Officers
ThroughoutIn this CD&A and in the Summary Compensation Tableexecutive compensation tables that follows,follow, we refer toare reporting six “named executive officers” or “NEOs.” Our former Chief Financial Officer, Katie A. Lorenson, resigned from the Company effective December 7, 2017. As of that date, the transition process began immediately with the appointment of James M. Cantrell as our NEOs. With respect to 2015, theinterim Chief Financial Officer. As of December 31, 2017, our six NEOs of MidWestOne Financial areincluded: Charles N. Funk, our President and Chief Executive Officer, Susan R. Evans,James M. Cantrell, our Senior Vice President and Interim Chief Financial Officer, Kevin E. Kramer, our Chief Operating Officer, Kent L. Jehle, our Executive Vice President and Chief Credit Officer, Gary J. Ortale,Mitchell W. Cook, our ExecutiveSenior Regional President, and Katie A. Lorenson, our former Senior Vice President and& Chief Financial Officer, and James M. Cantrell, our Vice President and Chief Risk Officer.
Our Financial & Operational Performance
Our fiscal year ending December 31, 2015 came with many achievements, considerable success and several noteworthy accomplishments, including the successful integration of our merger partner, Central, in May. MidWestOne Financial recordedNet income for 2017 amounted to $18.7 million, or $1.55 per share. This compares to 2016 net income of $25.1$20.4 million, or $2.42$1.78 per fully-diluted share. After excluding the effects of $3.5 million ($3.0 million after tax) of expenses related to the Merger, adjusted diluted earnings per share were $2.70, reflecting growth of 16.9%. This was MidWestOne’s sixth consecutive year of record earnings.
Financial trends in 2015 were again positive for MidWestOne with a returnReturn on average assets of 0.91%0.60% and a return on average tangible common equity of 14.70%. The Company’s management has continued to target the efficiency ratio as a key component of measuring operating performance. The Merger impacted8.00% for 2017 were both below the Company’s previous, more favorable results, resulting inbudget and long-term goal of 1.00-1.15% and 11-13%, respectively. Of note is that the Company achieved an impressive efficiency ratio for 2017 of 58.64%. Both loan growth and deposit growth in 2017 enjoyed the year ending December 31, 2015 of 61.08%. Asset quality improved duringbest growth rates for the year with non-performing loansCompany in the loan portfolios for MidWestOne Bankpast several years (5.6% and Central Bank falling to 0.54% at December 31, 2015 compared to 1.15% of total bank loans for December 31, 2014.5.0%, respectively) and this was reflected in a 4.6% increase in net interest income between 2016 and 2017. Net charged-off loans were a respectable 0.11%in 2017 increased to 0.51% of total loans. Capital levels remain withinloans, the largest net charge-off ratio in more than ten years. The net charge-offs combined with the resulting increase in the provision for loan losses had the largest impact on the Company’s decline in net income for 2017 from 2016. At year-end 2017, the allowance for loan loss represented 117.59% of identified non-performing loans, up from 76.76% at prior year-end. The Company’s capital remained well in excess of regulatory guidelines withand tangible equity to totaltangible assets, net of deferred tax on intangibles, was 8.44% at 7.51%2017 year-end, up from 7.62% at year-end, a reduction from 10.29% at2016 year-end. Also noteworthy is the prior year-end, an expected resultCompany’s issuance of 750,000 additional shares of common stock in the first half of 2017, which raised $24.4 million (net of fees) in equity capital. Return on average tangible equity, efficiency ration and tangible equity to tangible assets net of deferred tax on intangibles are non-GAAP financial measures. See pages 32 through 34 of the Merger.
Our Company achieved many financial and operational goals in 2015 while also devoting significant attentionCompany’s Form 10-K for the year ended December 31, 2017, for a reconciliation to the Mergermost comparable GAAP equivalent measures.
2017 was a year of both challenges and integrationprogress for the Company. Specifically, the challenges were related to increasing credit costs and a large loan charge-off in the fourth quarter. Our credit costs were the primary factor that kept us from earning our budgeted pre-tax income goal for the year. A non-recurring, non-cash charge of Central Bank with and into MidWestOne Bank. Our management team remains focused on continued integration efforts as we bring$3.2 million related to the two banks together in April 2016 and direct our efforts on achieving the articulated financial resultslowering of the combined entity.corporate income tax rate also affected fourth quarter and full year numbers for 2017. We anticipate that this loss will be recovered relatively quickly in the future through a lower tax rate paid for federal income taxes.
2015
2017 Say-On-Pay
We received approximately 98.8%At 98% of votes cast shareholders in support of2017 overwhelmingly supported our executive compensation program duringprogram. This was similar to 2016 and was the 2015 annual shareholders meeting,second highest approval of our peer group, which was very high by peer and industry standards.is described below. The overall support for our peers’ compensation programs averaged nearly 94%, consistent with the Russell 3000 median. MidWestOne Financial, the Boardboard and the Committee pay careful attention to communications received from shareholders, including the results of these nonbinding, advisory say-on-pay votes. The Compensation Committee considered the results of the advisory vote as one of the many factors in making 20152017 compensation decisions and believes that the vote reflects the strong support of our shareholders with respect to the philosphophiesphilosophy and methodology inpursuant to which we compensate our executive officers. The Committee did not alter our compensation philosophy or methodology as a result of the 20152017 vote.
Chief Financial Officer Transition
In January 2016, Gary J. Ortale, our Chief Financial Officer, announced his intention to retire at the end of the summer. The Company has entered into an agreement with Katie A. Lorenson to succeed Mr. Ortale following his retirement.
Compensation Philosophy and Objectives
The Committee believes that our executive compensation plans, programs and objectives must fundamentally support MidWestOne Financial’s achievement of sustained, long-term financial success and the overall goal of increasing shareholder value. All of MidWestOne Financial’s compensation programs areprogram is designed to attract and retain executive management and key employees, motivate them to achieve desired performance, and to reward them for excellent performance. The compensation and benefit programs areprogram is not designed or intended to reward substandard or less than acceptable performance results and to ensure this, all programs are reviewed by and directed by our Compensation Committee. Additionally,performance. Accordingly, our executive compensation programs areprogram is intended to align the interests of executive management and key employees with those of our shareholders without creating undue risk to the Company.
MidWestOne Financial’s executive compensation program is designed and structured to be consistent with the guiding philosophies, and to achieve the strategic objectives, as follows:
encouragedeliver a relatively consistent and competitive return to our shareholders;
maintain an environment which encourages and promotes stability and a long-term perspective for both the Company and our management team;
maintainprovide a currently competitive compensation program, which is motivating for officers and staff members, giving us the flexibility to:
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◦ | ensureencourage the performance and success of each individual in support of our current goals and strategic plan; |
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◦ | allow the hiring and retention of key personnel who are critical to our long-term success; |
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◦ | emphasize goal-based performance objectives, including various incentive compensation programs which are aligned with management’s strategic plan and focused efforts; and, |
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◦ | minimize, and eliminate when possible, anymitigate undue risk to the Company with respect to all compensation practices and programs; and, |
provide consistentsustain exemplary management practices which:
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◦ | fulfill appropriate and necessary oversight responsibility to the constituents of MidWestOneMidWestOne Financial (shareholders, customers, employees, regulators, and communities); |
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◦ | maintain the highest level of ethical standards and conduct according to our overall corporate policies; and, |
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◦ | avoid any implied or real conflict between management’s responsibilities to the Company and each person’s personal interests. |
The Committee believes that the compensation program for our NEOs should reflect, in large part, success as a management team rather than as individuals, with focus on attaining key operating objectives with measurable results pertaining to loan, deposit, and total asset growth, asset quality, the growth and consistency of earnings, providing support to the many communities in which we serve, and ultimately an increased market price for our stock. Our compensation program provides balanced reward opportunities tied to performance outcomes that drive shareholder value. The Committee continues to be mindful of the importance of an executive compensation program which is designed to include incentives that do not threaten the value of MidWestOne Financial or the investments of our shareholders and has concluded that our compensation program is reasonably unlikely to have a material adverse effect on the Company.
Peer Group Benchmarking
As noted previously, the Compensation Committee engaged the services of F.W.F. W. Cook & Co., an independent compensation consultant (“F.W. Cook”), to provide expertise and serve as a resource asto the Committee continually evaluates and analyzes our executive compensation program.Committee. In connection with its work for the Committee during 2015,2017, F.W. Cook assisted the Committee with identifying an effectiveevaluation of an appropriate peer group of Midwestern financial institutions in the Midwestern United States.institutions. The peer group companies were identified based on asset size, economic factors, and geographical area. At its August 2015 meeting, the Compensation Committee acted to revise the peer group compositionarea, and are intended to reflect the changes to the organization resulting from our Merger with Central. BankFinancial Corporation, Baylake Corp., Hawthorn Bancshares, Inc., Isabella Bank Corp.,Company’s asset size and MutualFirst Financial Inc., were replaced with Community Trust Bancorp, Inc., First Busey Corporation, First Merchants Corporation, Heartland Financial USA, Inc., and Mercantile Bank Corporation, resulting in the 2015geographical footprint.
The 2017 peer group shown below. To provide contextwas the same as the 2016 peer group and continuity in light of the merger, compensation data were collected for both the 2014 and 2015 peer groups.included:
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| • Bank Mutual Corporation, Milwaukee, WI | • Hills Bancorporation, Hills, IA | |
| • Community Trust Bancorp, Inc., Pikeville, KY | • Horizon Bancorp, Michigan City, IN | |
| • Enterprise Financial Services Corp., Clayton, MO | • Lakeland Financial Corporation, Warsaw, IN | |
| • First Busey Corporation, Champaign, IL | • MainSource Financial Group, Inc., Greensburg, IN | |
| • First Financial Corporation, Terra Haute, IN | • Mercantile Bank Corporation, Grand Rapids, MI | |
| • First Merchants Corporation, Muncie, IN | • QCR Holdings, Inc., Moline, IL | |
| • First Mid-Illinois Bancshares, Inc., Mattoon, IL | • Waterstone Financial, Inc., Wauwatosa, WI | |
| • German American Bancorp, Inc., Jasper, IN | • West Bancorporation, West Des Moines, IA | |
| • Heartland Financial USA, Inc., Dubuque, IA | | |
Compensation Components
General. There are four primary components to our executive officer compensation program: base salary, incentive bonus, equity awards and additional fringe benefits. In reviewing an executive officer’s compensation, the Committee considers and evaluates all components of the officer’s total compensation in order to strive to provide each executive with a competitive compensation package. The Committee makes a concerted effort to give consideration to the research and analysis conducted by its compensation consultant, F.W. Cook, to ensure that MidWestOne’s executive officer total compensation is in line with its peers and that it remains competitive. Further, the Committee considers any amounts an officer is entitled to receive upon retirement, termination or a change-in-control event.
MidWestOne Financial is a party to employment agreements with Mr. Funk, Ms. Evans and Messrs. Jehle, Ortale, and Cantrell. The Committee believes these agreements serve to attract and retain key executives to MidWestOne and that their terms allow each executive to focus on his or her significant individual contributions with the best interests of the Company in mind.
Base Salary. The Committee believes that competitive base salary received by an executive officer is important to keep too much emphasis from being placed on short-term performance. Base salaries may be adjusted coinciding with annual performance reviews of the executive during which respective base salary levels are established using criteria that include the level of responsibility for the position, equity consideration of other internal positions, and the use of peer group compensation data.
The Committee reviews the relative performance and compensation trends of our peer group companies, as well as individual responsibility and performance of each executive officer. Each NEO’s performance is evaluated by reviewing performance appraisal information and recommendations made available by management. This review considers each NEO’s achievement of individual goals and how his or her performance has contributed to the overall financial performance of MidWestOne Financial. Mr. Funk presents the performance evaluations and his recommendations for each NEO, other than himself, to the Committee. Mr. West, the Committee’s Chairperson, presents the same for Mr. Funk. Mr. Monson, the Vice Chair of MidWestOne Financial’s Board of Directors also provides feedback to the Committee about Mr. Funk’s performance.
The Committee strives to maintain a base salarytotal compensation position which is competitive and fair with respect to our regional peer banks, and, more specifically, aligns our NEOs’ compensation with our financial performance relative to our peer group, with a goal of ranking within the top one-third of this group when supported by the Company’s financial performance. As discussed above, theThe Committee, with the assistance of F.W. Cook, annually performs a customarydetailed review of the Company’s total compensation levels by pay element to those of its peer group.
Compensation Components
General. There are four primary components to our executive officer compensation program: base salary, levels, on at leastincentive bonus, equity awards and additional fringe benefits. In reviewing an annual basis,executive officer’s compensation, the Committee considers and evaluates all components of the officer’s total compensation with the intention of providing each executive with a competitive compensation package. The Committee gives consideration to the research and analysis conducted by comparingF.W. Cook to ensure that the total compensation paid to each of our executive officers remains competitive with the total compensation paid by our peers. Further, the Committee considers any amounts an officer is entitled to receive upon retirement, termination or a change-in-control event.
As described in more detail below, MidWestOne Financial’s compensation levels to thoseFinancial has entered into employment agreements with each of its regional group peer companies.our NEOs. The Committee also acknowledgesbelieves these agreements serve to attract and retain key executives to MidWestOne Financial and that their terms allow each executive to focus his or her significant individual efforts and attention on matters that are most important to the rolescontinued success of the Company.
Base Salary. The Committee believes that competitive base salary for the NEOs is important to keep too much emphasis from being placed on short-term performance and responsibilitiesshort-term incentives. Base salaries of our NEOs are substantialtypically adjusted during the annual performance review process.
In setting annual base salary, the Committee typically considers an executive’s level of responsibility, individual performance during the prior year, internal pay equity and information concerning the compensation practices of our peer group. The Committee reviews Mr. Funk’s performance during the prior year. Each NEO’s performance is evaluated by reviewing performance appraisal information and recommendations made available by management. This review considers each NEO’s achievement of individual goals and how his or her performance has contributed to the successoverall financial performance of the Company and, therefore,Company. Mr. Funk presents the performance evaluations and respective compensationhis recommendations for each NEO, other than himself, to the Committee. Ms. McCormick, the Committee’s Chairperson, presents the same for Mr. Funk. Mr. Monson, the Chair of our NEOs is criticalthe Company’s board of directors also provides feedback to ongoing positive financial performance.
Generally, the Committee determines the annual base salaries for the coming year at the end of the prior calendar year. In determining these base salaries, we consider the same general factors discussed above includingabout Mr. Funk’s performance.
The Committee also considers the evolving landscape of the banking environment regionally and nationally, the impact of the economy and increased regulation of our industry on our earnings, the return on average assets, and overall assets. The Committee also considers certain economic factors in the financial industry that are beyond the NEOs’ control. The Committee believes that MidWestOne Financial’s performance continues to compare favorably in several areas with other financial institutions, including those in our peer group.
Cash Incentive Awards-Bonus. TheThe Committee also determines annual cash incentive awards for our NEOs with consideration to the performance results outlined infor each executive’sexecutive under the executive bonus plan. In additionAll of the NEOs, other than Mr. Cook, were eligible to participate in the CEO and other NEOs, the remaining members2017 executive bonus plan. Mr. Cook participated in a commercial lending incentive compensation plan. Ms. Lorenson, while eligible to participate, did not receive any bonus as a result of MidWestOne Bank’s senior management team are generally eligible for a bonus. Eachher resignation. The executive bonus plan is designed to provide an incentive to achieveincentivize the achievement of individual and corporate financial goals while considering the mitigation of any risks which may affect MidWestOne Financial’sthe Company’s overall financial performance. Generally speaking, thresholds and targets
are set within eachthe executive bonus plan so that improvement in each goal category is necessary in order to receive any or all of thea potential bonus payout. In addition, theThe executive bonus plans of the NEOs include a “knock out��� provision that requires the attainment ofplan also includes a minimum company-wideCompany-wide performance goalthreshold. If the minimum threshold is not achieved, then annual cash incentives would not be payable under the executive bonus plan. Mr. Cook’s commercial lending incentive compensation plan includes certain credit quality measures that must be satisfied in order for a bonus to be abledue and payable to receive any portion of the annual bonus.him thereunder. The Committee does, however, retainretains the discretion to increase or decrease the amount of a bonus or any incentive compensation plan payment if it determines that special circumstances existed during the year which warranted adjustment of any bonus amount.
The bonus and corresponding goal setting process occurs annually. Mr. Funk provides recommendations with respect to members of management other than himself to Mr. West andMs. McCormick for her initial review. Ms. McCormick, with input from Mr. Monson, for initial review. Mr. West and Mr. Monson discussdiscusses with the members of the Committee Mr. Funk’s recommendations with members of the Compensation Committee and also consideras well as factors applicable to Mr. Funk’s annual bonus. Mr. WestMs. McCormick then presents bonus plan recommendations to the Committee for its approval.
In 2015, pursuant to ourAn overview of the 2017 executive bonus plan, Mr. Funk was potentially eligible for an annualplans is presented in the table below. The executive bonus equal to one-half of his salary, or $205,000. Based on his and the Company’s performance during 2015, Mr. Funk earned 86.25% of his bonus, consistent with goals outlined in his 2015 bonus plan.
Theplan components designated by the Committee for each participating NEO and the percentage of salary that the NEOs wereeach participating NEO was eligible to earn for 20152017 performance, and resulting actual bonus received, were as follows:
| | Name | | Profitability Net Operating Income/EPS | | Peer Group Standing | | Efficiency Ratio | | Asset Quality | | Deposit Growth | | Additional Individual Goals - Subjective | | 2014 Eligible Bonus (as % of Base Salary) | | Profitability Net Operating Income/EPS | | Asset Quality | | Deposit/Loan Growth Levels | | Tangible Common Equity/Efficiency Ratio | | Additional Individual Goals - Subjective | | Potential 2017 Total Bonus (as % of Base Salary) |
Charles N. Funk | | 35% | | 35% | | 10% | | 15% | | 5% | | — | | 50% | | 45% | | 20% | | 10% | | 15% | | 10% | | 50% |
Susan R. Evans | | 35% | | 35% | | 15% | | — | | 5% | | 10% | | 40% | |
James M. Cantrell | | | 50% | | — | | 5% | | — | | 45% | | 33.3% |
Kevin E. Kramer | | | 25% | | 10% | | 10% | | — | | 55% | | 40% |
Kent L. Jehle | | 40% | | 20% | | — | | 40% | | — | | — | | 33.3% | | 45% | | 45% | | — | | — | | 10% | | 33.3% |
Gary J. Ortale | | 40% | | 35% | | 25% | | — | | — | | — | | 33.3% | |
James M. Cantrell | | 40% | | 40% | | — | | — | | — | | 20% | | 33.3% | |
Katie A. Lorenson | | | 55% | | — | | — | | — | | 45% | | 33.3% |
With respect to Mr. Cantrell, the Committee considered his successful management of the bond portfolio and interest rate risk positions which manifests itself in net interest margin and net interest income, and partnering with Ms. Lorenson as a resource on balance sheet and budgeting matters.
The Committee typically approves equity awards in January of each year in the form of Restricted Stock Units although the 2008 Equity Incentive Plan allows for the granting of various types of equity awards.restricted stock units. The timing of the equity grants coincides with the completion of annual performance evaluations and development of current-year bonus plans. The Committee reserves the right to grant additional equity awards at other times of the year in connection with the appointment of any new directors or officers or to compensate key employees for other significant or notable achievements.
Mr. Funk was awarded 5,000 restricted stock units.
Mr. FunkJehle was awarded 5,0002,000 restricted stock units.
Michael A. Hatch
This report shall not be deemed to be incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, and shall not otherwise be deemed filed under such acts.
The following table sets forth information concerning the compensation of our NEOs, which consist of our Chief Executive Officer, Chief Financial Officer, and our three most highly compensated executive officers in 2015.2017. Except as otherwise required pursuant to SEC rules, the table sets forth the following information for the years ended December 31, 2015, 2014,2017, 2016, and 2013:2015: (i) the dollar value of base salary and bonus earned; (ii) the aggregate grant date fair value of stock and option awards granted at any time computed in accordance with FASB ASC Topic 718; (iii) all other compensation; and (iv) the dollar value of total compensation.