Edgar Filing: ISB Financial Corp.

Amendment Number 2 to Form S-4

As filed with the Securities and Exchange Commission on January 22, 2008

Registration No. 333-147628

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Amendment No. 2

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

ISB FINANCIAL CORP.

(Exact Name of Registrant as Specified in its Charter)

Iowa

6022

42-1206172

(State or other jurisdiction of

incorporation or organization)

(Primary Standard Industrial

Classification Code Number)

(I.R.S. Employer

Identification Number)

102 South Clinton St.

Iowa City, Iowa 52240

(319) 356-5800

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

Charles N. Funk

President

ISB Financial Corp.

102 South Clinton St.

Iowa City, Iowa 52240

(319) 356-5800

(name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

John E. Freechack, Esq.

Robert M. Fleetwood, Esq.

Barack Ferrazzano Kirschbaum &

Nagelberg LLP

200 W. Madison Street, Suite 3900

Chicago, Illinois 60606

(312) 984-3100

Fax: (312) 984-3150

Daniel C. McKay II, Esq.

Jennifer Durham King, Esq.

Vedder Price P.C.

222 North LaSalle Street, Suite 2600

Chicago, Illinois 60601

(312) 609-7500

Fax: (312) 609-5005

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective and all other conditions to the proposed merger described herein have been satisfied or waived.

If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. ¨

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

Subject to completion, dated January 22, 2008

The information contained herein is not complete and may change. A registration statement relating to the securities to be issued by ISB Financial Corp. has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted before the registration statement becomes effective. This document shall not constitute an offer to sell or the solicitation of any offer to buy these securities in any jurisdiction in which such offer, solicitation or sale is not permitted.



Proxy Statement for the Special Meeting of Shareholders of ISB Financial Corp.		*Proxy Statement for the Special Meeting of Shareholders of MidWestOne* Financial Group, Inc.**

Prospectus of ISB Financial Corp.

MERGER PROPOSED – YOUR VOTE IS VERY IMPORTANT

The Boards of Directors of ISB Financial Corp. and MidWestOne Financial Group, Inc. have approved a merger agreement that would result in a tax-free merger of MidWestOne with and into ISB Financial Corp., or ISBF, with the combined entity operating under the name “MidWestOne Financial Group, Inc.”

If the merger is completed, MidWestOne shareholders will receive 0.95 share of ISBF common stock for each share of MidWestOne common stock they own. As a result of the fixed exchange ratio, the value of the stock consideration that MidWestOne shareholders will receive in the merger will fluctuate as the trading price of ISBF common stock changes. ISBF common stock does not trade on any national securities exchange but currently is quoted on the Pink Sheets under the symbol “ISBO.PK.” The last reported trading price of ISBF common stock prior to the date of this joint proxy statement-prospectus was $17.40 on January 18, 2008. ISBF’s common stock is thinly traded, and because of the absence of generally accessible business and financial information about ISBF, you should not place undue reliance on Pink Sheets quotations of ISBF common stock. If the merger is approved and completed, the stock of the combined company will be listed on the Nasdaq Global Market under the symbol “MOFG”.

To complete this merger we must obtain the necessary government approvals and the approval of the shareholders of each of our companies who own a majority of the common stock of each company. Each company will hold a special meeting of its shareholders to vote on this merger proposal as described in greater detail in this joint proxy statement-prospectus. ISBF shareholders also will consider and vote upon a proposed equity incentive plan. Your vote is very important. Even if you plan to attend your shareholder meeting, please take the time to vote by completing and mailing the enclosed proxy card or by following the telephone or Internet voting procedures described on the proxy card. If you do not vote or if you do not instruct your broker how to vote any shares held for you in your broker’s name, the effect will be a vote against this merger.

The dates, times and places of the meetings are as follows:

For ISBF shareholders:

Sheraton Iowa City Hotel

210 S. Dubuque Street

Iowa City, Iowa

March 7, 2008, 1:00 p.m., central standard time

For MidWestOne shareholders:

The Peppertree

2274 Highway 63 North

Oskaloosa, Iowa

March 7, 2008, 10:00 a.m., central standard time

This joint proxy statement-prospectus gives you detailed information about the merger we are proposing, and it includes our merger agreement as an appendix. You can obtain additional information about MidWestOne from publicly available documents it has filed with the Securities and Exchange Commission. We encourage you to read this entire document carefully. For a discussion of certain risks that you should consider in evaluating the merger and related matters described in this document, see “ Risk Factors” beginning on page 35.

LOGO

W. Richard Summerwill

Chairman of the Board and Chief Executive Officer

ISB Financial Corp.

LOGO

Charles S. Howard

Chairman, President and Chief Executive Officer

MidWestOne Financial Group, Inc.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under this joint proxy statement-prospectus or determined if this joint proxy statement-prospectus is truthful or complete. Any representation to the contrary is a criminal offense. The securities being offered through this document are not savings or deposit accounts or other obligations of any bank or non-bank subsidiary of either ISBF or MidWestOne, and they are not insured by the Federal Deposit Insurance Corporation, the Deposit Insurance Fund or any other federal or state governmental agency.

This joint proxy statement-prospectus is dated January 22, 2008, and is first being mailed to shareholders on or about January 22, 2008.

ISB Financial Corp.

102 South Clinton St.

Iowa City, Iowa 52240

Notice of Special Meeting of Shareholders

To Be Held On March 7, 2008

A special meeting of the shareholders of ISB Financial Corp., an Iowa corporation (“ISBF”) will be held at the Sheraton Iowa City Hotel, located at 210 S. Dubuque Street, Iowa City, Iowa, on Friday, March 7, 2008 at 1:00 p.m., central standard time, for the following purposes:

to consider and approve the Agreement and Plan of Merger, dated September 11, 2007, between ISBF and MidWestOne Financial Group, Inc., an Iowa corporation (“MidWestOne”), pursuant to which MidWestOne will merge with and into ISBF, and approve the transactions it contemplates, including the issuance of shares of ISBF common stock as consideration in the proposed merger.

as a condition to consummating the proposed merger, to consider, approve and adopt amended and restated articles of incorporation of ISBF to, among other things, change ISBF’s corporate name to “MidWestOne Financial Group, Inc.” and provide for a classified board of directors.

to consider and approve the 2008 Equity Incentive Plan, which, if approved, will be in effect for the combined company following the merger;

to approve any adjournment of the special meeting if necessary to solicit additional proxies in order to approve the merger agreement; and

to transact such other business as may properly be brought before the special meeting, or any adjournments or postponements of the special meeting, including whether or not to adjourn the special meeting.

The close of business on January 15, 2008, has been fixed as the record date for determining those shareholders entitled to vote at the special meeting and any adjournments or postponements of the special meeting. Accordingly, only shareholders of record on that date are entitled to notice of, and to vote at, the special meeting and any adjournments or postponements of the special meeting.

Whether or not you plan to attend the special meeting in person, please take the time to vote by completing and mailing the enclosed proxy card or by following the telephone or Internet voting procedures described on the proxy card. If you attend the special meeting, you still may vote in person if you wish, even if you have previously returned your proxy card. Because the affirmative vote of the holders of a majority of the outstanding shares of common stock entitled to vote at the special meeting is required to approve proposals 1, 2 and 3 above, the failure to vote by proxy or in person will have the same effect as a vote against such proposals. Abstentions and broker non-votes will have the same affect as a vote against these proposals.

Your board of directors unanimously recommends that you vote FOR the approval of the merger agreement and the transactions it contemplates, including the issuance of shares of ISBF common stock as consideration in the proposed merger; FOR the approval and adoption of amended and restated articles of incorporation; FOR the approval of the 2008 Equity Incentive Plan; and FOR any adjournment of the special meeting to solicit additional proxies, if necessary.

January 22, 2008

By Order of the Board of Directors

LOGO

W. Richard Summerwill

Chairman of the Board

MidWestOne Financial Group, Inc.

222 First Avenue East

Oskaloosa, Iowa 52577

Notice of Special Meeting of Shareholders

To Be Held On March 7, 2008

A special meeting of the shareholders of MidWestOne Financial Group, Inc., an Iowa corporation (“MidWestOne”), will be held at The Peppertree, located at 2274 Highway 63 North, Oskaloosa, Iowa, on March 7, 2008, at 10:00 a.m., central standard time, for the following purposes:

to consider and approve the Agreement and Plan of Merger, dated September 11, 2007, between ISB Financial Corp, an Iowa corporation (“ISBF”), and MidWestOne and the transactions it contemplates, including the merger of MidWestOne with and into ISBF;

to approve any adjournment of the special meeting if necessary to solicit additional proxies in order to approve the merger agreement; and

The close of business on January 18, 2008, has been fixed as the record date for determining those shareholders entitled to vote at the special meeting and any adjournments or postponements of the special meeting. Accordingly, only shareholders of record on that date are entitled to notice of, and to vote at, the special meeting and any adjournments or postponements of the special meeting.

Whether or not you plan to attend the special meeting in person, please take the time to vote by completing and mailing the enclosed proxy card or by following the telephone or Internet voting procedures described on the proxy card. If you attend the special meeting, you may still vote in person if you wish, even if you have previously returned your proxy card. Because the affirmative vote of the holders of a majority of the outstanding shares of common stock entitled to vote at the special meeting is required to approve the merger proposal, the failure to vote by proxy or in person will have the same effect as a vote against the merger proposal. Abstentions and broker non-votes will have the same affect as a vote against the merger proposal.

Your board of directors unanimously recommends that you vote FOR the approval of the merger agreement and the transactions it contemplates and FOR any adjournment of the special meeting to solicit additional proxies, if necessary.

January 22, 2008

By Order of the Board of Directors

Charles S. Howard

Chairman of the Board

ADDITIONAL INFORMATION

This joint proxy statement-prospectus refers to important business and financial information about ISB Financial Corp. and MidWestOne Financial Group, Inc. that is not included in or delivered with this joint proxy statement-prospectus. This information is described under “Where You Can Find More Information.” You can obtain free copies of documents related to ISB Financial Corp. and MidWestOne Financial Group, Inc. that contain this information through the Securities and Exchange Commission’s website at http://www.sec.gov or by writing or calling:

ISB Financial Corp.

102 South Clinton Street

Iowa City, Iowa 52240

Attention: Kenneth R. Urmie

Telephone: (319) 356-5925

MidWestOne Financial Group, Inc.

222 First Avenue East

Oskaloosa, Iowa 52577

Attention: Karen K. Binns

Telephone: (641) 673-8448

To obtain timely delivery of the documents, you must request the information by February 29, 2008 in order to receive them before the special meeting.

You also may obtain additional proxy cards and other information related to the proxy solicitation by contacting the appropriate contact listed above. You will not be charged for any of these documents that you request.

TABLE OF CONTENTS


		Page
Questions and Answers About The Merger and The Special Meetings		1
Summary		6
General		6
The Companies		6
The Special Meetings		7
ISBF Special Meeting		7
MidWestOne Special Meeting		7
Record Date; Vote Required		7
Share Ownership of Directors and Executive Officers		8
Recommendation to Shareholders		8
The Merger and Related Transactions		8
The Merger		8
What You Will Receive in the Merger		9
Market Prices of ISBF and MidWestOne Common Stock		9
Exchange of Stock Certificates		10
Effect of the Merger on Stock Options and Other Equity Awards		10
Ownership After the Merger		10
Regulatory Approvals		10
Effective Time of the Merger		11
Appraisal Rights		11
Material Federal Income Tax Consequences		11
Accounting Treatment		11
Reasons for the Merger		11
Interests of Certain Persons in the Merger		11
Opinions of Financial Advisors		13
Conditions to Completion of the Merger		13
Termination and Termination Fees		13
Waiver and Amendment		14
Management and Board of Directors Composition After the Merger		14
Dividend Policy After the Merger; Coordination of Dividends		14
Differences in the Rights of Shareholders		15
Authority to Adjourn Special Meeting to Solicit Additional Proxies		15
The 2008 Equity Incentive Plan		15
Price Range of Common Stock and Dividend Information		16
Selected Historical Financial Data		19
Selected Consolidated Pro Forma Financial Data of ISBF and MidWestOne		21
Unaudited Pro Forma Combined Financial Information		22
Unaudited Comparative Per Share Data		33
Risk Factors		35
Risks Related to the Merger		35
Certain Risks Relating to the Business, Operations and Financial Results After the Merger		38
Forward-Looking Statements		41
The Special Meetings		42
ISBF Special Meeting		43
Date, Place, Time and Purpose		43
Record Date, Voting Rights, Required Vote and Revocability of Proxies		43
Solicitation of Proxies		44
Authority to Adjourn Special Meeting to Solicit Additional Proxies		44
Appraisal Rights		44

TABLE OF CONTENTS

(continued)


		Page
Recommendation of ISBF’s Board		44
MidWestOne Special Meeting		46
Date, Place, Time and Purpose		46
Record Date, Voting Rights, Required Vote and Revocability of Proxies		46
ESOP Participant Voting		47
Solicitation of Proxies		47
Authority to Adjourn Special Meeting to Solicit Additional Proxies		47
Appraisal Rights		47
Recommendation of MidWestOne’s Board		48
The Merger		49
General		49
Treatment of Stock Options and Restricted Stock		50
Effective Time of the Merger		50
Background of the Merger		51
ISBF’s Reasons for the Merger and Board Recommendation		56
MidWestOne’s Reasons for the Merger and Board Recommendation		58
Fairness Opinion of Sandler O’Neill, MidWestOne’s Financial Advisor		60
Fairness Opinion of Howe Barnes, MidWestOne’s Financial Advisor		69
Fairness Opinion of Keefe Bruyette, ISBF’s Financial Advisor		77
Regulatory Approvals		86
Surrender of Stock Certificates		86
Management and Operations After the Merger		87
Employee Benefits		90
Interests of Certain Persons in the Merger		90
Resales of ISBF Common Stock		93
The Merger Agreement		94
Conditions to Completion of the Merger		94
Representations and Warranties of the Parties		95
Conduct of Business Pending the Merger and Other Covenants		96
Termination and Termination Fees		99
Waiver and Amendment		102
Indemnification and Insurance		102
Accounting Treatment		102
Expenses		102
Material United States Federal Income Tax Consequences of the Merger		103
Description of ISBF Capital Stock and Comparison of Shareholder Rights		106
General		106
Authorized Capital Stock		106
Voting Rights		106
Classification of Board of Directors		106
Size of the Board of Directors; Qualifications; Vacancies; Removal		107
Shareholder Nominations and Proposals		108
Special Meetings of Shareholders		108
Action by Written Consent		108
Dividends		108
Special Voting Requirements; State Takeover Laws		108
Amendment of Charter Documents		109
Limitations on Director Liability		110

TABLE OF CONTENTS

(continued)


		Page
Indemnification		110
Appraisal Rights		110
Liquidation Rights		111
Other Rights		111
Summary of Amendments to ISBF’s Articles of Incorporation and Bylaws		111
The 2008 Equity Incentive Plan		112
Purpose of the Plan		112
General Terms of the Plan		112
Eligibility		114
Options		114
Stock Appreciation Rights		114
Stock Awards		114
Cash Incentive Awards		115
Forfeiture		115
U.S. Income Tax Deduction Limitations Under Section 162(m) of the Internal Revenue Code		115
Change In Control		116
Amendment and Termination		116
Certain U.S. Federal Income Tax Considerations		116
Initial Grants of Awards Under the Plan		118
Board Recommendation		118
Business of ISBF		119
General		119
Operating Strategy		119
Market Areas		119
Lending Activities		120
Trust and Investment Services		122
Other Services		122
Competition		122
Employees		123
Internet Website		123
Supervision and Regulation		124
Governmental Monetary Policy and Economic Conditions		129
Properties		129
Legal Proceedings		130
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		131
ISBF Management		131
ISBF Management’s Discussion and Analysis of Financial Condition and Results of Operations		132
Overview		132
Recent Performance Summary		133
Results of Operations		133
Analysis of Financial Condition		145
Critical Accounting Policies		160
Quantitative and Qualitative Disclosures About Market Risk		161
ISBF Executive Compensation		162
Compensation Discussion and Analysis		162
Compensation Committee Interlocks and Insider Participation		166
Summary Compensation		167
Grants of Plan-Based Awards		167

iii

TABLE OF CONTENTS

(continued)


		Page
Outstanding Equity Awards		168
Option Exercises and Stock Vested		168
Pension Benefits		168
Employment Agreements and Potential Payments Upon Termination or Change in Control		168
Loans to Officers and Directors and Other Transactions With Officers and Directors		169
Director Independence		169
Compensation of Directors		169
Ownership of Securities by Certain Beneficial Owners and Management		170
Business of MidWestOne		171
General Description		171
Subsidiaries		172
Lending Services		173
Loan Pool Participations		174
Other Products and Services		176
Competition		176
Supervision and Regulation		177
Employees		179
Properties		179
Legal Proceedings		180
MidWestOne Management’s Discussion and Analysis of Financial Condition and Results of Operations		180
Safe Harbor Statement		180
Overview		182
Performance Summary		182
Results of Operations		183
Analysis of Financial Condition at September 30, 2007		194
Analysis of Financial Condition at December 31, 2006		204
Asset-Liability Management		214
Interest Rate Risk		215
Critical Accounting Policies		216
Quantitative and Qualitative Disclosures About Market Risk		217
Commitments and Contingencies		217
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		217
MidWestOne Executive Compensation		218
Compensation Discussion and Analysis		218
Compensation Committee Interlocks and Insider Participation		221
Summary Compensation		222
Grants of Plan-Based Awards		222
Outstanding Equity Awards		223
Option Exercises and Stock Vested		224
Pension Benefits		224
Deferred Compensation Plan		224
Employment Contracts and Termination of Employment and Change-In-Control Arrangements		225
Loans to Officers and Directors and Other Transactions With Officers and Directors		225
Ownership of Securities by Certain Beneficial Owners and Management		225
Director Independence and Board Meetings		227
Compensation of Directors		227
Supervision and Regulation of the Combined Company		229
Other Matters		229
Shareholder Proposals		229
Experts		229

TABLE OF CONTENTS

(continued)


		Page
Certain Opinions		230
Where You Can Find More Information		230

Appendix A—Agreement and Plan of Merger

Appendix B—Fairness Opinion of Sandler O’Neill & Partners, L.P.

Appendix C—Fairness Opinion of Howe Barnes Hoefer & Arnett, Inc.

Appendix D—Fairness Opinion of Keefe, Bruyette & Woods, Inc.

Appendix E—Amended and Restated Articles of Incorporation of ISB Financial Corp.

Appendix F—The 2008 Equity Incentive Plan

QUESTIONS AND ANSWERS ABOUT THE MERGER

AND THE SPECIAL MEETINGS

Q:	What am I being asked to vote on?

ISBF shareholders and MidWestOne shareholders are being asked to approve a merger agreement, pursuant to which MidWestOne will merge with and into ISBF, and to approve the transactions it contemplates, including the merger. By approving the merger agreement, ISBF shareholders also will be approving the issuance of ISBF common stock as consideration in the proposed merger.

As provided in the merger agreement, as a condition to consummating the proposed merger, ISBF shareholders must adopt and approve amended and restated articles of incorporation of ISBF that will amend ISBF’s existing articles of incorporation to, among other things change ISBF’s corporate name to “MidWestOne Financial Group, Inc.” and provide for a classified board of directors. Approval of the amended and restated articles of incorporation by ISBF shareholders is a condition to closing the proposed merger. Therefore, ISBF shareholders must approve both proposal 1, the merger agreement with MidWestOne, and proposal 2, the amended and restated articles of incorporation of ISBF, in order to approve the proposed merger with MidWestOne. The merger can not proceed unless each of these proposals is approved by the required number of affirmative votes.

Additionally, ISBF shareholders are being asked to approve the 2008 Equity Incentive Plan, which, if approved, will govern equity awards that may be made from time to time by the board of directors (or compensation committee of the board of directors) of the combined company.

Q:	*Why do ISBF and MidWestOne* want to merge?**

ISBF and MidWestOne believe that the proposed merger will create a strong, independent financial services institution, headquartered in Iowa, that will have the resources of a combined institution and the potential to achieve greater earnings and balance sheet growth. As a larger company, ISBF and MidWestOne believe their customers will appreciate the expanded geographic presence of the combined company, and their shareholders will benefit from owning stock in a company with greater capital and resources than either company standing alone. The merger is expected to create a platform for expanding the combined company’s branch network and, if opportunities arise, considering future strategic partnering and acquisition opportunities.

Q:	*What will happen to MidWestOne* and ISBF as a result of the merger?**

If the merger is completed, MidWestOne will merge with and into ISBF, with ISBF being the surviving entity in the merger. However, the new, combined entity will operate under the name “MidWestOne Financial Group, Inc.” as it is more representative of the larger geographic area that will be served by the combined institution. As a “merger of equals,” each company will contribute an equal number of directors to the combined company’s board of directors. Additionally, certain executives from both companies will comprise the executive team of the combined company, as more fully described in this joint proxy statement-prospectus.

Q:	*Will MidWestOne* Bank, Iowa State Bank & Trust Company and First State Bank merge as well?**

Yes. The “merger of equals” transaction between ISBF and MidWestOne is the first step in a process that calls for the eventual merger and consolidation of Iowa State Bank & Trust Company, First State Bank, and MidWestOne Bank, which we expect to occur in the third quarter of 2008. The resulting combined bank is expected to operate under the name MidWestOne Bank.

Q:	Where will the combined company be located?

A:	Following the merger, the headquarters of the combined company will be in Iowa City, Iowa. All Oskaloosa, Iowa locations are expected to remain open.

Q:	*What will I receive for my shares of MidWestOne***?

Shareholders of MidWestOne will be entitled to receive 0.95 share of ISBF common stock for each share of MidWestOne common stock that they own at the effective time of the merger. Fractional shares will not be issued in the merger. Instead of fractional shares, MidWestOne shareholders will receive cash in an amount determined as described in this joint proxy statement-prospectus. Current MidWestOne shareholders should not send in their stock certificates at this time.

Q:	What will happen to my shares of ISBF?

All shares of ISBF will remain outstanding following consummation of the merger and current ISBF shareholders will not need to do anything in connection with the closing of the merger. Because ISBF will be changing its name, current ISBF shareholders will be given the opportunity following the consummation of the merger to exchange their stock certificates for new certificates, which will reflect the new corporate name of “MidWestOne Financial Group, Inc.” This exchange, however, is not required as current ISBF certificates will continue to represent ownership of common stock of the combined company. Information will be sent to current ISBF shareholders after the consummation of the merger regarding the process for exchanging their current certificates for new certificates, if they elect to do so. Current ISBF shareholders should not send in their stock certificates for exchange at this time.

Q:	Will the shares of the new, combined company be listed on a stock exchange?

A:	Yes. Currently MidWestOne shares are listed on the Nasdaq Global Market and ISBF shares are quoted on the Pink Sheets. As a condition to consummating the merger, shares of the combined company will be listed on the Nasdaq Global Market under the symbol “MOFG.”

Q:	Will the value of the merger consideration fluctuate?

Yes. Because the exchange ratio is fixed at 0.95 share of ISBF common stock per share of MidWestOne common stock, the value of the stock consideration payable to MidWestOne shareholders will fluctuate as the value of ISBF common stock changes. The market for ISBF common stock, like many Pink Sheets securities, is relatively illiquid, or “thinly traded,” which tends to increase price volatility. Illiquid securities are often difficult for investors to buy or sell without dramatically affecting the quoted price. Current, publicly available information regarding issuers of Pink Sheet securities, such as ISBF, and their prospects, the risks associated with their business, or an investment in their securities may not be available to the general public. As a result, it can be difficult to properly value an investment in a Pink Sheets security. The MidWestOne board of directors considered these aspects of ISBF’s trading price as quoted on the Pink Sheets in making its determination to approve the merger with ISBF and looked to other business and financial measures available to them concerning ISBF. You should keep these factors in mind when obtaining current market price quotations for ISBF common stock.

As noted above, the shares of common stock of the combined company will be listed on the Nasdaq Global Market. The Nasdaq Global Market is a more liquid market than the over-the-counter market in which shares quoted exclusively on the Pink Sheets trade, although there is no guarantee that there will be a liquid market for the shares of the combined company’s stock following the merger. Additionally, unlike ISBF currently, access to the business and financial information of the combined company will be available as a result of the combined company’s reporting obligations under U.S. securities laws. These and other factors will affect the market price of the combined company after the merger. As a result, you should not place undue reliance on volume data and current price quotations of ISBF common stock in determining the current or prospective value of the stock consideration to be paid in the merger.

Q:	Is the merger expected to be taxable to me?

A:	In general, the exchange of your MidWestOne common stock solely for ISBF common stock will not cause you to recognize any taxable gain or loss for federal income tax purposes. However, MidWestOne

shareholders will have to recognize taxable income, gain or loss in connection with cash received in lieu of any fractional shares of common stock of the combined company.

Because ISBF shareholders are not receiving any cash or stock in the merger, the merger will have no U.S. federal income tax consequences to them.

Each of ISBF’s and MidWestOne’s respective obligations to complete the merger is conditioned upon receipt of an opinion about the U.S. federal income tax treatment of the merger. The opinion will not bind the Internal Revenue Service, which could take a different view. You should consult your own tax advisor for a full understanding of the tax consequences to you of the merger.

Q:	Why is ISBF proposing to amend its articles of incorporation as part of the merger?

In the merger agreement, each of ISBF and MidWestOne agreed to amend the articles of incorporation of ISBF to change ISBF’s corporate name to “MidWestOne Financial Group, Inc.,” to provide for a classified board of directors and, as a technical matter, to change the combined company’s registered agent, subject to approval by ISBF shareholders. Although ISBF shareholders would be assenting to these amendments by approving the merger agreement, we are required to permit ISBF shareholders to vote on these amendments as a separate proposal.

Both ISBF and MidWestOne believe that operating the combined company under MidWestOne’s corporate name will be more representative of the larger geographic area that will be served by the combined institution. In addition, both companies’ boards of directors believe that a classified board structure for the combined company will ensure each of ISBF and MidWestOne has substantially equal representation on the combined company’s board of directors after the completion of the proposed merger, consistent with a merger-of-equals transaction. The classified board may provide certain other advantages, including continuity and stability in the combined company board’s leadership and policies, and in the management of the combined company’s business and affairs.

ISBF shareholders who vote FOR approval of the merger agreement should vote FOR the adoption of ISBF’s amended and restated articles of incorporation if they desire to approve the merger with MidWestOne. The proposed merger can not be consummated unless the proposal to adopt the amended and restated articles of incorporation also is approved.

Q:	Why is ISBF proposing to put in place a new equity incentive plan?

Following the merger, we believe it is important to our long-term financial success to provide a means to attract, retain and reward individuals who can and will contribute to such success and to further align their interests with those of the combined company’s shareholders. Subject to certain permitted adjustments, the maximum number of shares that may be issued under the 2008 Equity Incentive Plan will be 750,000 shares of the combined company’s common stock, less the number of shares subject to outstanding awards granted under the current plans of MidWestOne and ISBF.

Q:	Who must approve the proposals at the special meeting?

Holders of a majority of the outstanding shares of common stock of each of MidWestOne and ISBF as of the record dates of their respective special meetings must approve the merger agreement and the transactions it contemplates, and a majority of the outstanding shares of ISBF common stock must approve the amended and restated articles of incorporation and the 2008 Equity Incentive Plan.

Q:	When and where will the special meetings take place?

The ISBF special meeting will be held on Friday, March 7, 2008, at 1:00 p.m. central standard time, at the Sheraton Iowa City Hotel, 210 S. Dubuque Street, Iowa City, Iowa. The MidWestOne special meeting will be held on Friday, March 7, 2008, at 10:00 a.m. central standard time, at The Peppertree, 2274 Highway 63 North, Oskaloosa, Iowa.

Q:	Who can vote at the special meetings?

You can vote at the ISBF special meeting if you owned shares of ISBF common stock at the close of business on January 15, 2008, the record date for the ISBF special meeting. You can vote at the MidWestOne special meeting if you owned shares of MidWestOne common stock at the close of business on January 18, 2008, the record date for the MidWestOne special meeting.

All of MidWestOne’s directors, including the MidWestOne executive officers who also serve as directors, have agreed to vote the shares of MidWestOne common stock over which they have voting control in favor of the merger agreement at the special meeting. All of ISBF’s directors, including the ISBF executive officers who also serve as directors, have agreed to vote the shares of ISBF common stock over which they have voting control in favor of the merger agreement and the amended and restated articles of incorporation at the special meeting.

Q:	*What do the ISBF board of directors and the MidWestOne* board of directors recommend?**

Each of the boards of directors of ISBF and MidWestOne recommend that their respective shareholders vote “FOR” approval of the merger agreement and the transactions it contemplates. Additionally, the ISBF board of directors recommends that ISBF shareholders vote “FOR” the approval of the amended and restated articles of incorporation and “FOR” the approval of the 2008 Equity Incentive Plan.

Q:	What do I need to do now?

After reviewing this document, submit your proxy using any of the proxy delivery or voting methods indicated on the proxy card. By submitting your proxy, you authorize the individuals named in it to represent you and vote your shares at the special meeting in accordance with your instructions. Your proxy vote is important. Whether or not you plan to attend your respective special meeting, please submit your proxy promptly in the enclosed envelope or vote telephonically or through the Internet by following the instructions on the proxy card. ISBF and MidWestOne shareholders should not send in their stock certificates at this time. A letter of transmittal regarding MidWestOne stock certificates will be sent to MidWestOne shareholders if the merger is consummated.

Q:	How will my shares be voted if I return a blank proxy card?

If you sign and date your proxy card but do not indicate how you want to vote, your proxies will be counted as a vote “FOR” the approval of the merger agreement and the transactions it contemplates, “FOR” the proposal to adjourn the special meeting, if necessary, to solicit additional proxies to approve the merger agreement, and in the discretion of the persons named as proxies in any other matters properly presented at the special meeting. With respect to ISBF shareholders, it also will be voted “FOR” the approval of the amended and restated articles of incorporation and “FOR” the approval of the 2008 Equity Incentive Plan.

Q:	What will be the effect if I do not vote?

Your failure to vote will have the same effect as if you voted against approval of the merger agreement and the transactions it contemplates and, with respect to ISBF shareholders, as if you voted against the approval of the amended and restated articles of incorporation and the 2008 Equity Incentive Plan.

Q:	If my shares are held in “street name” by my broker, will my broker vote my shares for me?

A:	Your broker will vote your shares only if you instruct your broker on how to vote. Your broker will send you directions on how to do this. If you fail to provide your broker with instructions on how to vote your shares it will not be able to vote them at the special meeting.

Q:	Can I vote my shares in person?

A:	Yes, if your shares are registered in your own name, you may attend the special meeting and vote your shares in person. If your shares are held in “street name” (for example, if they are held through a broker or

with a trust company), you will need to obtain a “legal proxy” from your broker to vote your shares in person at the special meeting. We recommend that you sign, date and promptly mail the enclosed proxy card (or follow the telephone or Internet voting instructions described on the proxy card) even if you intend to attend the special meeting.

Q:	Can I change my mind and revoke my proxy?

A:	Yes, you may revoke your proxy and change your vote at any time before the polls close at your special meeting by following the instructions in this document.

Q:	What if I oppose the merger? Do I have appraisal or dissenters’ rights?

A:	Neither MidWestOne shareholders nor ISBF shareholders have appraisal or dissenters’ rights under Iowa law.

Q:	When do you expect the merger to be completed?

A:	If approved by the ISBF and MidWestOne shareholders, we anticipate closing the merger in the first quarter of 2008. However, it is possible that factors outside our control could require us to complete the merger at a later time or not complete it at all.

Q:	*How do I exchange my MidWestOne* stock certificates?**

A:	If the merger is approved and consummated, after the merger is effective, the exchange agent will send to you a letter of transmittal, which will include instructions on where to surrender your stock certificates for exchange.

Q:	Who can answer my questions?

A:	You should contact:

For ISBF shareholders: Gary J. Ortale, Treasurer, at (319) 356-5924 or via email at gortale@isbt.com

For MidWestOne shareholders: David Meinert, Chief Financial Officer, at (641) 673-1522 or via email at dmeinert@mwofg.com

SUMMARY

This brief summary highlights selected information from this joint proxy statement-prospectus and does not contain all of the information that may be important to you. We urge you to carefully read this entire document and the other documents we refer to in this document. These will give you a more complete description of the transaction we are proposing. For more information about our two companies, see “Where You Can Find More Information.” We have included page references in this summary to direct you to other places in this joint proxy statement-prospectus where you can find a more complete description of the topics we have summarized.

As used in this joint proxy statement-prospectus, the term “ISBF” refers to ISB Financial Corp. and its consolidated subsidiaries, and “MidWestOne” refers to MidWestOne Financial Group, Inc., and its consolidated subsidiaries, in each case unless the context indicates otherwise. The terms “the combined company” and “the continuing company” as used herein refer to ISBF, the surviving company, following the merger of MidWestOne with and into ISBF and its name change to “MidWestOne Financial Group, Inc.”

General

This joint proxy statement-prospectus relates to the proposed merger between MidWestOne and ISBF. ISBF and MidWestOne believe that the proposed merger will create a strong, independent financial services company that will have the resources of a combined institution and the ability to achieve greater earnings and balance sheet growth. As a larger company, ISBF and MidWestOne believe customers will appreciate the expanded geographic presence, and shareholders will benefit from owning stock in a combined company with greater capital and resources than either company standing alone. The merger is expected to create a platform for expanding the combined company’s branch network and, if opportunities arise, future strategic partnering and acquisition opportunities.

The Companies

ISB Financial Corp.

102 South Clinton St.

Iowa City, Iowa 52240

(319) 356-5800

ISBF is the holding company for Iowa State Bank & Trust Company in Iowa City, Iowa, and First State Bank in Conrad, Iowa. ISBF is a traditional community bank provider, offering a full range of business and consumer bank products and services including trust and brokerage services through its subsidiary banks’ investment and trust divisions and insurance and real estate brokerage services through divisions of First State Bank. ISBF has a network of ten branches serving the greater Iowa City market in east-central Iowa and the communities of Conrad, Melbourne and Parkersburg in north-central Iowa. At September 30, 2007, ISBF reported, on a consolidated basis, total assets of approximately $682.1 million, deposits of approximately $499.2 million and stockholders’ equity of approximately $76.0 million.

MidWestOne Financial Group, Inc.

222 First Avenue East

Oskaloosa, Iowa 52577

(641) 673-8448

MidWestOne is the holding company for MidWestOne Bank, headquartered in Oskaloosa, Iowa, which operates 19 full-service branches throughout central and eastern Iowa. MidWestOne offers a full range of commercial and retail banking products and services, as well as trust services and investment and insurance products. At September 30, 2007, MidWestOne reported, on a consolidated basis, total assets of approximately $768.9 million, deposits of approximately $558.3 million and stockholders’ equity of approximately $64.6 million.

The Special Meetings

ISBF Special Meeting (page 43)

A special meeting of ISBF shareholders will be held on Friday, March 7, 2008, at 1:00 p.m., local time, at the Sheraton Iowa City Hotel, 210 S. Dubuque Street, Iowa City, Iowa. At the special meeting, shareholders will be asked:

•

to consider and approve the merger agreement entered into with MidWestOne and the transactions it contemplates, including the issuance of ISBF common stock as consideration in the proposed merger.

•

to consider and approve the 2008 Equity Incentive Plan; and

•

to act on other matters that may properly be submitted to a vote at the meeting, including a motion to adjourn the meeting to another time or place, if necessary, for the purpose of soliciting additional proxies in order to approve the merger agreement.

MidWestOne Special Meeting (page 46)

A special meeting of MidWestOne shareholders will be held on Friday, March 7, 2008, at 10:00 a.m., local time, at The Peppertree, 2274 Highway 63 North, Oskaloosa, Iowa. At the special meeting, shareholders will be asked:

•

to consider and approve the merger agreement entered into with ISBF and the transactions it contemplates; and

•

Record Date; Vote Required (pages 43 and 46)

ISBF shareholders. You may vote at the meeting of ISBF’s shareholders if you owned ISBF common stock at the close of business on January 15, 2008. You can cast one vote for each share of ISBF common stock that you owned at that time. To approve the merger agreement and the transactions it contemplates, including the issuance of shares of ISBF common stock as consideration in the merger, the holders of a majority of the outstanding voting shares of ISBF as of the record date must vote in favor of doing so. Additionally, the affirmative vote of the holders of a majority of the outstanding shares of ISBF common stock is required in order to approve, in each case, the adoption of the amended and restated articles of incorporation and the 2008 Equity Incentive Plan.

You may vote your shares in person by attending the meeting or by mailing us your proxy if you are unable to or do not wish to attend. You can revoke your proxy at any time before ISBF takes a vote at the meeting by submitting a written notice revoking the proxy or a later-dated proxy to the secretary of ISBF, or by attending the meeting and voting in person.

MidWestOne shareholders. You may vote at the meeting of MidWestOne’s shareholders if you owned MidWestOne common stock at the close of business on January 18, 2008. You can cast one vote for each share of MidWestOne common stock that you owned at that time. To approve the merger agreement and the transactions it contemplates, the holders of a majority of the outstanding voting shares of MidWestOne as of the record date must vote in favor of doing so.

You may vote your shares in person by attending the meeting or by mailing us your proxy if you are unable to or do not wish to attend. You can revoke your proxy at any time before MidWestOne takes a vote at the meeting by submitting a written notice revoking the proxy or a later-dated proxy to the secretary of MidWestOne, or by attending the meeting and voting in person.

Share Ownership of Directors and Executive Officers (pages 170 and 225)

ISBF shareholders. As of ISBF’s record date, ISBF’s directors and executive officers beneficially owned approximately 1.67 million shares, or approximately 32.3% of the outstanding shares of ISBF common stock. All of ISBF’s directors, including the ISBF executive officers who also serve as directors, have agreed to vote the shares of ISBF common stock over which they have voting control to approve the merger agreement and the transactions it contemplates. However, because they have the power to vote only approximately 32.1% of the outstanding shares of ISBF common stock entitled to vote at the special meeting, there is no assurance that the proposal will be approved by ISBF shareholders.

MidWestOne shareholders. As of MidWestOne’s record date, MidWestOne’s directors and executive officers beneficially owned approximately 570,296 shares, or approximately 14.8% of the outstanding shares of MidWestOne common stock. All of MidWestOne’s directors, including the MidWestOne executive officers who also serve as directors, have agreed to vote the shares of MidWestOne common stock over which they have voting control in favor of the merger agreement at the special meeting. However, because they have the power to vote only approximately 14.0% of the outstanding shares of MidWestOne common stock entitled to vote at the special meeting, there is no assurance that the proposal will be approved by MidWestOne shareholders.

Recommendation to Shareholders (pages 44 and 48)

ISBF shareholders. ISBF’s board of directors believes that the merger agreement and the merger are fair to its shareholders and in their best interests, and unanimously recommends that they vote “FOR” the proposal to approve the merger agreement and the transactions it contemplates, including the issuance of shares of ISBF common stock as consideration in the proposed merger, “FOR” the adoption of the amended and restated articles of incorporation, and “FOR” the approval of the 2008 Equity Incentive Plan.

MidWestOne shareholders. MidWestOne’s board of directors believes that the merger agreement and the merger are fair to its shareholders and in their best interests, and unanimously recommends that they vote “FOR” the proposal to approve the merger agreement and the transactions it contemplates.

The Merger and Related Transactions

The Merger (page 49)

Pursuant to the merger agreement, MidWestOne will merge with ISBF in exchange for shares of ISBF common stock. The combined company will continue under the name “MidWestOne Financial Group, Inc.” and its shares will be listed on the Nasdaq Global Market under the symbol “MOFG.” The combined company’s main office will be located in Iowa City, Iowa. We expect to complete the merger in the first quarter of 2008, although delays could occur.

During the third quarter of 2008, we intend to consolidate Iowa State Bank & Trust, First State Bank and MidWestOne Bank as one bank, although delays could occur. The resulting institution will be an Iowa chartered commercial bank with its home office in Iowa City, Iowa, and will operate under the name “MidWestOne Bank.”

We have attached a copy of the merger agreement as Appendix A to this document. Please read the merger agreement. It is the legal document that governs the merger.

What You Will Receive in the Merger (pages 49-50)

ISBF shareholders. Each share of ISBF common stock will remain outstanding, and will represent a share of common stock of the combined company.

MidWestOne shareholders. If the merger is completed, each share of MidWestOne common stock will automatically become a right to receive 0.95 share of common stock of the combined company. The total number of shares you will have the right to receive will be equal to the number of shares of MidWestOne common stock you own multiplied by 0.95. For example, if you hold 100 shares of MidWestOne common stock, you will be entitled to receive 95 shares (100 x 0.95) of common stock of the combined company. Based on the last reported trade price of $17.40 per share of ISBF common stock on January 18, 2008, the value of 0.95 share of ISBF common stock was $16.53, and the total value of the merger consideration was approximately $61.2 million. However, because the exchange ratio is fixed, the market value of the shares of ISBF common stock you will receive in the merger will fluctuate from time to time, causing the total value of the merger consideration to fluctuate. Additionally, because of the illiquid trading market for ISBF common stock and the absence of publicly available business and financial information for ISBF, you should not place undue reliance on current price quotations of ISBF common stock in determining the current or prospective value of the stock consideration to be paid in the merger.

ISBF will not issue any fractional shares. Instead, MidWestOne shareholders will receive cash in lieu of any fractional shares of common stock of the combined company owed to them in exchange for their shares of MidWestOne common stock. The amount of cash to be paid for a fractional share will be equal to the product of the average of the closing prices of ISBF common stock for the ten trading days immediately preceding the date of the merger agreement and the fractional share amount.

Market Prices of ISBF and MidWestOne Common Stock (page 16)

Shares of ISBF common stock are quoted on the Pink Sheets under the symbol “ISBO.PK.” On September 11, 2007, the last trading day before we announced the merger, the last reported trading price of ISBF common stock was $27.50 per share. The last reported trading price of ISBF common stock before the mailing of the joint proxy statement-prospectus was $17.40 per share on January 18, 2008. As a condition to the completion of the merger, the shares of common stock of the combined company will be listed on the Nasdaq Global Market. We can make no prediction or guarantee at what price the shares of the combined company will trade after the completion of the merger.

Shares of MidWestOne common stock are traded on the Nasdaq Global Market under the symbol “OSKY.” On September 11, 2007, the last trading day before we announced the merger, the last reported trading price of MidWestOne common stock was $16.99 per share. On January 18, 2008, the last trading day before the mailing of the joint proxy statement-prospectus, the last reported trading price of MidWestOne common stock was $16.31 per share.

Exchange of Stock Certificates (page 86)

Shortly after the effective date of the merger, MidWestOne shareholders will receive a transmittal letter and instructions from the exchange agent on how to surrender their stock certificates representing MidWestOne common stock in exchange for stock certificates of the combined company. MidWestOne shareholders must carefully review and complete these materials and return them as instructed along with their MidWestOne common stock certificates. MidWestOne shareholders should not send any stock certificates to ISBF or MidWestOne until they receive these instructions. ISBF shareholders should not exchange their certificates at this time. If the merger is approved and completed, ISBF shareholders will be afforded the opportunity to exchange their current certificates for new certificates that reflect the new name of the combined company. However, this will not be required and ISBF shareholders will not have to take any action after the merger.

Effect of the Merger on Stock Options and Other Equity Awards (page 50)

In the merger, options to purchase MidWestOne common stock outstanding immediately before completing the merger will become options to purchase ISBF common stock and will continue to be governed by the terms of the original MidWestOne plans under which they were issued. The number of shares of ISBF common stock subject to each of these converted stock options, as well as the exercise price of these stock options, will reflect the exchange ratio applicable in the merger.

The merger agreement provides that ISBF and MidWestOne shall, prior to the effective time of the merger, cause each outstanding unexercised ISBF stock option and MidWestOne stock option, as the case may be, to vest and become exercisable upon consummation of merger. In addition, the merger agreement provides that MidWestOne shall, prior to the effective time of the merger, accelerate the vesting of each share of restricted stock that is then outstanding and unvested, and cause such share to be free of all restrictions.

Ownership After the Merger (page 49)

Based on the exchange ratio contained in the merger agreement and the number of shares of MidWestOne common stock currently outstanding and the number of shares subject to options, upon completion of the merger, ISBF will issue between 3,510,843 and 3,963,115 shares of its common stock to MidWestOne shareholders. Based on the minimum issuance and assuming no exercises of currently outstanding ISBF or MidWestOne options, immediately after the merger existing ISBF shareholders would own approximately 59.5%, and former MidWestOne shareholders would own approximately 40.5%, of the outstanding shares of common stock of the combined company.

Regulatory Approvals (page 86)

As of December 14, 2007, we had received the required prior approval to the merger from both the Board of Governors of the Federal Reserve System and the Iowa Division of Banking, or IDOB. In addition, on December 29, 2007, the statutory waiting period for consummation of the merger required by the Federal Reserve had expired.

In addition, if the merger is completed, First State Bank and MidWestOne Bank will be merged with Iowa State Bank & Trust, with the resulting bank to be named “MidWestOne Bank.” The merger of MidWestOne Bank with and into Iowa State Bank & Trust is subject to the prior approval of the Federal Deposit Insurance Corporation and the IDOB. It is expected that applications will be filed with the IDOB and the FDIC for approval of the bank merger, which would be expected to occur during the third quarter of 2008.

Effective Time of the Merger (page 50)

The merger will become effective on the close of business on the day when articles of merger are filed with the Secretary of State of the State of Iowa or such later date or time as we agree and specify in the articles of merger. If our shareholders approve the merger at their special meetings, and if ISBF obtains all required regulatory approvals, we anticipate that the merger will be completed before the end of the first quarter of 2008, although delays could occur.

We cannot assure you that we can obtain the necessary shareholder and regulatory approvals or that the other conditions to completion of the merger can or will be satisfied.

Appraisal Rights (page 110)

MidWestOne and ISBF Shareholders. Under Iowa law, neither MidWestOne shareholders nor ISBF shareholders have the right to dissent from the merger and receive in cash the fair value of their shares.

Material Federal Income Tax Consequences (page 103)

For U.S. federal income tax purposes, the exchange of shares of MidWestOne common stock for shares of ISBF common stock will not cause the holders of MidWestOne common stock to recognize any gain or loss. Holders of MidWestOne common stock, however, will recognize income, gain or loss in connection with any cash received to redeem any fractional share interest. Because ISBF shareholders are not receiving any cash or stock in the merger, the merger will have no U.S. federal income tax consequences to them.

Tax matters can be complicated, and the tax consequences of the merger to you will depend on your particular tax situation. We urge you to consult your tax advisor to determine the tax consequences of the merger to you.

Accounting Treatment (page 102)

The merger will be accounted for as a “purchase transaction” in accordance with accounting principles generally accepted in the United States.

Reasons for the Merger (pages 56 and 58)

Each of our boards of directors believes the merger will enhance shareholder value by permitting the combined company to expand its market presence in Iowa. We expect the merger to strengthen our position as a competitor in the financial services business as a result of the increased resources and expanded geographic footprint of a combined institution.

You can find a more detailed discussion of the background of the merger and ISBF’s and MidWestOne’s reasons for the merger in this document under “The Merger—Background of the Merger”, “—ISBF’s Reasons for the Merger and Board Recommendation” and “—MidWestOne’s Reasons for the Merger and Board Recommendation”. The discussion of our reasons for the merger includes forward-looking statements about possible or assumed future results of our operations and the performance of the combined company after the merger. For a discussion of factors that could affect these future results, see “Forward-Looking Statements”.

Interests of Certain Persons in the Merger (page 90)

Some members of our respective management and boards of directors may be deemed to have interests in the merger that are in addition to their interests as shareholders generally.

In the case of MidWestOne, currently outstanding but unexercisable options to purchase common stock held by directors, officers and other employees of MidWestOne will vest and become exercisable upon the effectiveness of the merger. In addition, Charles S. Howard, the Chairman, President and Chief Executive Officer of MidWestOne, and David A. Meinert, Executive Vice President and Chief Financial Officer of MidWestOne, entered into agreements with ISBF, effective upon the closing of the merger, providing for terms of their employment with, or service as a director of, the combined company following the merger. Executive officers also will receive options to purchase common stock of the combined company as well as restricted stock units if the merger is consummated, and certain executives are entitled to change-in-control payments under their current salary continuation or deferred compensation agreements with MidWestOne.

As a result of the merger, Mr. Howard will receive a lump sum change in control payment of $968,600 pursuant to his existing salary continuation agreement. Additionally, outstanding options to purchase 1,020 shares of MidWestOne common stock with an exercise price of $17.70 per share will vest and the restrictions on 375 shares of restricted stock will lapse as a result of the merger. With respect to Mr. Meinert, John P. Pothoven, President and Chief Executive Officer of MidWestOne Bank, and Jerry D. Krause, Regional President for Southern Region of MidWestOne Bank, options to purchase 1,020, 850 and 714 shares, respectively, of MidWestOne common stock with an exercise price of $17.70 per share will vest and the restrictions on 375, 375 and 225 shares, respectively, of restricted stock will lapse as a result of the merger. Options to purchase 2,081 shares of common stock held by each non-employee director of MidWestOne (with an exercise price of $17.56 as to 411 shares, $19.07 as to 670 shares and $17.15 as to the remaining 1,000 shares (16,648 shares in the aggregate)) also will become vested and exercisable as a result of the merger, and the restrictions on 1,000 shares of restricted stock held by each non-employee director (8,000 shares in the aggregate) will lapse as a result of the merger. In addition to the foregoing, Mr. Meinert will be entitled to receive an initial option grant to purchase 3,000 shares of the combined company’s common stock if the merger is completed.

In the case of ISBF, in connection with the execution of the merger agreement, ISBF has executed agreements with certain officers of ISBF, effective upon the closing of the merger, which provide for terms of their employment with, or service as a director of, the combined company following the merger. Certain executive officers also will receive options to purchase common stock of the combined company as well as restricted stock units if the merger is consummated.

As a result of the merger, Charles N. Funk, the President of ISBF and President and Chief Financial Officer of Iowa State Bank & Trust who will become President and Chief Executive Officer of the combined company, and Kent L. Jehle, the Executive Vice President—Commercial Banking of Iowa State Bank & Trust who will become the Chief Lending Officer of the combined company, will experience substantial increases in their annual compensation levels. Specifically, Mr. Funk’s annual base salary will increase from $231,000 to $300,000 and Mr. Jehle’s will increase from $145,950 to $205,000. Mr. Funk and Mr. Jehle will be entitled to receive an initial option grant to purchase 6,000 and 3,000 shares, respectively, of the combined company’s stock if the merger is completed. Neither Mr. Funk nor Mr. Jehle received any equity-based compensation in 2007.

Also a result of the merger, W. Richard Summerwill, the Chairman and Chief Executive Officer of ISBF who will become the non-executive Chairman of the combined company, will receive 500 restricted stock units and will have his annual base salary increased to $80,000, but he will no longer be entitled to receive director fees in addition to his salary. In 2007, Mr. Summerwill did not receive any equity-based compensation, had an annual base salary of $60,000 and received director fees (separate from his salary) of $15,950.

The board of directors of each of ISBF and MidWestOne were aware of these interests and considered them, together with the other matters described in this joint proxy statement-prospectus, in approving the merger agreement and the merger.

Opinions of Financial Advisors (pages 60, 69 and 77)

MidWestOne shareholders. Each of Sandler O’Neill & Partners, L.P. and Howe Barnes Hoefer & Arnett, Inc. has delivered a written opinion, dated September 11, 2007, to the MidWestOne board of directors that the exchange ratio of 0.95 share of ISBF common stock for each share of MidWestOne common stock to be exchanged in the merger is fair to the holders of MidWestOne common stock from a financial point of view. We have attached these opinions to this document as Appendix B and Appendix C, respectively. You should read these opinions carefully to understand the procedures followed, matters considered and limitations on the reviews undertaken by Sandler O’Neill and Howe Barnes in providing their respective opinions.

ISBF shareholders. Keefe, Bruyette & Woods, Inc. has delivered a written opinion, dated September 11, 2007, to the ISBF board of directors that the exchange ratio is fair to the holders of ISBF common stock from a financial point of view. We have attached this opinion to this document as Appendix D. You should read this opinion carefully to understand the procedures followed, matters considered and limitations on the reviews undertaken by Keefe Bruyette in providing its opinion.

Conditions to Completion of the Merger (page 94)

The completion of the merger depends on a number of conditions being met. Subject to exceptions described in the merger agreement, these include:

•

approval of the merger agreement by each company’s shareholders;

•

approval of regulatory authorities and the receipt of all required consents;

•

accuracy of the respective representations and warranties of ISBF and MidWestOne in the merger agreement;

•

compliance in all material respects by each of ISBF and MidWestOne with their respective covenants and agreements in the merger agreement;

•

the absence of any event that had or would be reasonably likely to have a material adverse effect on the other party;

•

receipt from such company’s legal counsel of an opinion that, among other things, for federal income tax purposes MidWestOne shareholders who exchange their shares for shares of common stock of the combined company will not recognize any gain or loss as a result of the merger, except in connection with the payment of cash instead of fractional shares;

•

the absence of any injunction, legal proceeding or other restraint preventing the consummation of the merger or the merger of MidWestOne Bank and First State Bank with Iowa State Bank & Trust; and

•

the shares of ISBF common stock having been approved for listing on the Nasdaq Market.

A party to the merger agreement could choose to complete the merger even though a condition to its obligation has not been satisfied by waiving such condition, as long as the law allows it to do so. We cannot be certain when or if the conditions to the merger will be satisfied or waived, or that the merger will be completed.

Termination and Termination Fees (page 99)

The parties can mutually agree at any time to terminate the merger agreement without completing the merger. Also, either party can decide, without the consent of the other, to terminate the merger agreement if the merger has not been completed by May 31, 2008, unless the failure to complete the merger by that time is due to a violation of the merger agreement by the party seeking to terminate the merger agreement.

In addition, either ISBF or MidWestOne can terminate the merger agreement if the conditions to its respective obligation to complete the merger have not been satisfied, on the basis of a breach by the other party of certain representations, warranties or covenants that have not been cured, or, under certain circumstances, if the other party takes certain actions with respect to a competing takeover proposal from a third party.

Either ISBF or MidWestOne may be required to pay the other party a termination fee if the merger agreement is terminated due to certain circumstances outlined in the merger agreement, including, among other things, disapproval of the merger by either company’s shareholders. Depending on the circumstances, the termination fee payable by either party may range from $350,000 to $3,350,000. For a discussion of these conditions and fees, see “The Merger Agreement—Termination and Termination Fees.”

Waiver and Amendment (page 102)

ISBF and MidWestOne may jointly amend the merger agreement before the effective time of the merger; however, if the merger agreement already has been submitted to the shareholders of MidWestOne or ISBF, the merger agreement may be amended only if such amendment would not materially adversely affect the rights of MidWestOne or ISBF shareholders. In addition, either party may waive its right to require the other party to adhere to any term or condition of the merger agreement.

Management and Board of Directors Composition After the Merger (page 87)

The present management groups of both companies will share the responsibility of managing the combined company after the completion of the merger. Charles N. Funk, presently the President of ISBF and the President and Chief Executive Officer of Iowa State Bank & Trust, will serve as President and Chief Executive Officer of the combined company. David A. Meinert, presently the Executive Vice President and Chief Financial Officer of MidWestOne, will serve as Executive Vice President, Chief Financial Officer and Treasurer of the combined company. John P. Pothoven, presently the President of MidWestOne Bank, and Kent L. Jehle, presently the Executive Vice President—Commercial Banking of Iowa State Bank & Trust, will serve as Chief Operating Officer and Chief Lending Officer, respectively, of the combined company. Mr. Pothoven is expected to retire early to mid-2008.

The board of directors of the combined company will initially be comprised of 12 members, six designated by ISBF and six designated by MidWestOne, split equally among three classes of directors serving staggered terms. Both ISBF and MidWestOne intend for the board of directors of the combined company to remain evenly split between ISBF designated directors and MidWestOne designated directors until at least the second annual meeting of the shareholders of the combined company.

Dividend Policy After the Merger; Coordination of Dividends (pages 17 and 97-98)

The merger agreement permits MidWestOne to continue to pay regular quarterly cash dividends to its shareholders prior to merger completion. In addition, ISBF is permitted under the merger agreement to pay its annual cash dividend on its common stock in the amount of not more than $0.33 per share, prior to merger completion. MidWestOne has agreed in the merger agreement to coordinate with ISBF regarding dividend declarations and payment dates so that MidWestOne shareholders will not receive more than one regular quarterly dividend, or fail to receive one regular quarterly dividend, for any single quarter. Accordingly, prior to the merger, MidWestOne may coordinate and alter its dividend record dates in order to effect this policy.

The payment of dividends by the combined company on its common stock in the future is subject to the determination of its board of directors and depends on cash requirements, financial condition and earnings, legal and regulatory considerations and other factors. The parties expect, however, that the combined company after the merger will, in its initial fiscal year, declare and pay to its shareholders quarterly cash dividends of $0.1525 per share. This expectation is not assured, and any decision as to the amount and timing of dividends is subject to the determination of the combined company’s board of directors and may change at any time.

Differences in the Rights of Shareholders (page 106)

Because each of MidWestOne and ISBF is incorporated in and governed by Iowa law, and because the combined company will continue to be governed by Iowa law, the rights of ISBF and MidWestOne shareholders as governed by Iowa law will not change. Although there are differences between the provisions contained in MidWestOne’s and ISBF’s articles of incorporation and bylaws, there are no material differences in the voting rights, dividend rights, liquidation rights or other material rights of shareholders. However, the combined company’s articles of incorporation and bylaws will contain provisions providing for a classified board of directors. Although MidWestOne currently has a classified board of directors, ISBF does not. Among other things, a classified board of directors makes it more difficult for shareholders to effect significant changes in the composition of the board of directors in any one year. For a comparison of the rights of the shareholders of ISBF and MidWestOne, see “Description of ISBF Capital Stock and Comparison of Shareholder Rights.”

Authority to Adjourn Special Meeting to Solicit Additional Proxies (pages 44 and 47)

Each of ISBF and MidWestOne is asking its shareholders to grant full authority for their respective special meetings to be adjourned, if necessary, to permit solicitation of additional proxies to approve the transactions proposed by this joint proxy statement-prospectus.

Amendments to ISBF’s Articles of Incorporation and Bylaws (page 107 and 111)

As a condition to consummating the proposed merger, ISBF shareholders will be asked to approve amended and restated articles of incorporation of ISBF which, upon filing with the Iowa Secretary of State, will effect amendments to ISBF’s current articles of incorporation to change the name of ISBF to “MidWestOne Financial Group, Inc.” and provide for a classified board of directors consisting of three classes serving staggered three-year terms. In addition, the bylaws of the combined company will be amended to provide for certain board of director supermajority voting provisions for specific matters.

The 2008 Equity Incentive Plan (page 112)

The 2008 Equity Incentive Plan is intended to provide the board of directors of the combined company a means to grant a broad variety of cash-based and equity-based incentive compensation in an effort to promote the long-term financial success of the combined company. Through cash-based and equity-based awards that may be made from time to time under the plan, the combined company will seek to attract, retain and reward persons who can contribute to the success of the combined company and further align the interests of the combined company’s directors, officers, employees and other eligible participants with those of the combined company’s shareholders. Subject to permitted adjustments for certain corporate transactions, the maximum number of shares that may be awarded to participants, or their beneficiaries, under the 2008 Equity Incentive Plan will be 750,000 shares of the combined company’s common stock, less the number of shares subject to outstanding awards granted under the current plans of MidWestOne and ISBF as of the effective time of the merger. The effective date of the 2008 Equity Incentive Plan will be the date on which the merger is consummated, subject to approval by shareholders.

PRICE RANGE OF COMMON STOCK AND DIVIDEND INFORMATION

ISBF common stock is quoted on the Pink Sheets under the symbol “ISBO.PK” and MidWestOne common stock is traded on the Nasdaq Global Market under the symbol “OSKY.” The following table sets forth the last reported trade price of ISBF common stock, the closing price of MidWestOne common stock, and the equivalent per share value of MidWestOne common stock giving effect to the merger, as of September 11, 2007, the date immediately prior to public announcement of the merger. The equivalent per share value of MidWestOne common stock shown below represents the product achieved by multiplying the last reported trade price of ISBF common stock by the exchange ratio of 0.95.

Last reported
trade price per
share of ISBF

common stock⁽¹⁾

Closing price per
share of
MidWestOne
common stock

MidWestOne
equivalent per
share value

September 11, 2007

27.50

16.99

26.13

(1)	The last reported trade of ISBF common stock prior to the announcement of the transaction was on September 11, 2007.

The following table sets forth for the periods indicated the high and low reported bid prices per share and the intra-day high and low sales prices per share, respectively, of ISBF and MidWestOne common stock as reported by Pink Sheets and the Nasdaq Global Market, respectively, along with the cash dividends per share declared during such periods. With respect to the high and low bid information of ISBF provided below, the per share prices reflect inter-dealer prices without adjustments for markups, markdowns or commissions and may not necessarily represent actual transactions.


	ISBF Common Stock						*MidWestOne* Common Stock**
	High		Low		Cash Dividend Declared		High		Low		Cash Dividend Declared
2006
First Quarter	$	21.33	$	20.17	$	0.32	$	19.80	$	17.50	$	0.17
Second Quarter		22.33		20.17		—		19.75		18.75		0.18
Third Quarter		—		—		—		19.92		18.80		0.18
Fourth Quarter		22.50		22.00		—		20.98		18.65		0.18

2007
First Quarter	$	26.75	$	22.50	$	0.32	$	19.73	$	17.45	$	0.18
Second Quarter		26.80		22.50		—		17.58		16.90		0.18
Third Quarter		26.00		20.00		—		24.00		15.64		0.18
Fourth Quarter		24.00		18.55		—		18.50		16.00		0.18

Based on the last reported trade price prior to the date of this joint proxy statement-prospectus of $17.40 per share of ISBF common stock on January 18, 2008, the value of the aggregate consideration that MidWestOne shareholders will receive in the merger is approximately $61.2 million based on the number of MidWestOne shares issued and outstanding on January 18, 2008. Because of the illiquid trading market of ISBF common stock and the absence of publicly available business and financial information for ISBF, you should not place undue reliance on current price quotations of ISBF common stock in determining the current or prospective value of the stock consideration to be paid in the merger. See “Risk Factors—The lack of a liquid public market for ISBF’s common stock may make it difficult to evaluate the fairness of the merger.” ISBF will apply to list its common stock, including the common stock to be issued to MidWestOne shareholders in the merger, on the Nasdaq Global Market, and the consummation of the merger is conditioned upon the common stock of the combined company being accepted for listing by Nasdaq. ISBF anticipates that the merger and the listing of its common stock on the Nasdaq Global Market will result in a more active trading market for the combined company’s common stock. However, ISBF cannot assure you that a liquid trading market for the combined company’s

common stock will develop or be sustained after the merger. You may not be able to sell your shares quickly or at the market price if trading in the combined company’s common stock is not active. As of September 30, 2007, there were approximately 270 holders of record of ISBF common stock.

Dividends. Dividends currently may be paid on ISBF’s and MidWestOne’s common stock, as and when declared by ISBF’s board of directors and MidWestOne’s board of directors, respectively, out of any of funds legally available for the payment of such dividends, subject to any and all preferences and rights of any preferred stock or a series thereof. The amount of dividends payable will depend upon the earnings and financial condition of ISBF and MidWestOne and other factors, including applicable governmental regulations and policies. ISBF expects to declare and pay its annual dividend of $0.33 per share in December 2007. The merger agreement prohibits ISBF from paying any other cash dividends prior to the closing date of the merger. MidWestOne has declared its regular fourth quarter cash dividend and has set the record date to occur prior to December 31, 2007 so that MidWestOne shareholders will receive payment of the fourth quarter dividend prior to the closing of the merger. Under the terms of merger agreement, MidWestOne may declare and pay to its shareholders a cash dividend not to exceed $0.18 per share per quarter.

MidWestOne historically has paid a higher cash dividend per share than ISBF. It is expected that the combined company will pay dividends closer to MidWestOne’s current quarterly dividend rate of $0.18 per share. However, this expectation is not assured, and the timing and amount of future dividends, if any, paid by the combined company following the merger will be subject to determination by the combined company’s board of directors in its discretion and will depend upon earnings, cash requirements and the financial condition of the combined company and its subsidiaries, applicable government regulations and other factors deemed relevant by the combined company’s board of directors. Various state and federal laws and other restrictions will limit the ability of the combined company’s subsidiary banks to pay dividends to the combined company after the merger. It is currently expected, but not assured, that the combined company will, in its initial fiscal year, declare and pay to its shareholders quarterly cash dividends of $0.1525 per share, subject to declaration by the combined company’s board of directors and the other considerations described above.

SELECTED HISTORICAL FINANCIAL DATA

The following tables present selected consolidated historical financial data as of September 30, 2007, and 2006, and for the nine-month periods then ended, and as of December 31, 2006, 2005, 2004, 2003 and 2002 and for each of the years then ended, for each of ISBF and MidWestOne.

You should read the following tables in conjunction with the consolidated financial statements and notes thereto included in this joint proxy statement-prospectus beginning on page F-1.

Historical results do not necessarily indicate the results that you can expect for any future period. Management of each of ISBF and MidWestOne believe that all adjustments (which include only normal recurring adjustments) necessary to arrive at a fair presentation of their respective company’s interim results of operations have been included. Results for the interim period ended September 30, 2007, do not necessarily indicate the results that you can expect for the year as a whole.

ISBF SELECTED HISTORICAL FINANCIAL DATA

(dollars in thousands, except per share data)


	Nine Months Ended September 30,						Years Ended December 31,
	2007			2006			2006			2005			2004			2003			2002
	(unaudited)
Summary of income data:
Total interest income	$	28,511		$	26,177		$	35,308		$	30,627		$	28,417		$	28,794		$	31,935
Total interest expense		14,177			12,232			16,759			11,742			9,503			10,775			13,591

Net interest income		14,334			13,945			18,549			18,885			18,914			18,019			18,344
Provision for loan losses		425			330			550			300			195			660			1,336
Noninterest income		6,493			5,921			7,572			8,722			8,189			9,253			8,419
Noninterest expenses		13,919			13,294			17,680			17,514			16,551			16,172			16,410

Income before income tax		6,483			6,242			7,891			9,793			10,357			10,440			9,017
Income tax expense		1,666			1,700			2,093			2,876			3,149			3,271			2,754

Income before minority interest		4,817			4,542			5,798			6,917			7,208			7,169			6,263
Minority interest in net income of subsidiary		—			—			—			—			—			(28	)		(86	)

Net income	$	4,817		$	4,542		$	5,798		$	6,917		$	7,208		$	7,141		$	6,177


Per share data:⁽¹⁾
Net income—basic	$	0.93		$	0.87		$	1.11		$	1.32		$	1.38		$	1.37		$	1.18
Net income—diluted		0.93			0.87			1.11			1.32			1.38			1.37			1.18
Cash dividends declared		0.32			0.32			0.32			0.28			0.27			0.23			0.21
Book value		14.73			13.78			14.14			13.18			12.59			11.79			10.99
Net tangible book value		13.88			12.94			13.29			12.34			11.76			10.96			10.20

Selected financial ratios
Net income to average assets		0.95	%		0.91	%		0.87	%		1.06	%		1.15	%		1.20	%		1.12	%
Net income to average equity		8.63			8.68			8.16			10.27			11.32			12.01			11.42
Net income to average tangible equity		9.17			9.23			8.69			10.98			12.15			12.94			12.36
Dividend payout ratio		28.56			23.96			23.96			20.53			19.52			19.69			18.16
Total shareholder’s equity to total assets		11.14			10.78			10.95			10.30			10.35			10.04			9.98
Tangible shareholder’s equity to tangible assets		10.57			10.19			10.36			9.71			9.73			9.40			9.32
Average shareholder’s equity to average assets		10.93			10.26			10.39			10.39			10.00			9.96			9.67
Tier 1 risk-based capital ratio		15.85			15.19			14.69			15.65			15.60			15.65			15.37
Net interest margin		3.25			3.13			3.12			3.29			3.35			3.39			3.67
Allowance for loan losses to total loans		1.43			1.38			1.40			1.41			1.46			1.72			1.79
Non-performing loans to total loans		0.47			0.19			0.20			0.20			0.16			0.33			0.55
Net loans charged off (recovered) to average loans		0.03			0.09			0.13			(0.01	)		0.26			0.11			0.72

Selected balance sheet data:
Total assets	$	682,085		$	662,155		$	668,671		$	669,769		$	635,713		$	613,420		$	574,275
Total loans net of unearned discount		391,975			383,829			378,612			370,849			335,551			322,018			291,603
Allowance for loan losses		5,622			5,308			5,298			5,227			4,894			5,553			5,233
Total deposits		499,212			488,123			492,901			492,581			474,559			453,252			435,070
Total shareholders’ equity		75,992			71,408			73,209			68,959			65,772			61,611			57,291

(1)	In 2006, ISBF’s board declared a three-for-one stock split. Per share amounts for all periods have been adjusted for this split.

MIDWESTONE SELECTED HISTORICAL FINANCIAL DATA

(dollars in thousands, except per share data)


	Nine Months Ended September 30,						Years Ended December 31,
	2007			2006			2006			2005			2004			2003			2002
	(unaudited)
Summary of Income data:
Interest income excluding loan pool participations		31,701			27,284		$	37,312		$	29,858		$	27,977		$	28,593		$	27,482
Interest and discount on loan pool participations		6,134			7,134			9,142			10,222			9,395			8,985			10,058

Total interest income		37,835			34,418			46,454			40,080			37,372			37,578			37,540
Total interest expense		19,453			15,134			21,209			15,426			13,370			14,767			17,027

Net interest income		18,382			19,284			25,245			24,654			24,002			22,811			20,513
Provision for loan losses		739			90			180			468			858			589			1,070
Noninterest income		4,542			4,367			5,928			4,428			4,276			4,358			3,787
Noninterest expenses		16,389			16,039			21,459			19,415			18,513			17,387			14,426

Income before income tax		5,796			7,522			9,534			9,199			8,907			9,193			8,804
Income tax expense		1,786			2,502			3,093			3,111			3,078			3,267			3,015

Net income	$	4,010			5,020		$	6,441			6,088			5,829			5,926			5,789


Per share data:
Net income—basic	$	1.08		$	1.36		$	1.74		$	1.63		$	1.54		$	1.54		$	1.49
Net income—diluted		1.07			1.33			1.71			1.59			1.50			1.50			1.46
Cash dividends declared		0.54			0.53			0.71			0.68			0.68			0.64			0.64
Book value		17.46			16.61			16.83			15.77			15.18			14.84			14.17
Net tangible book value		13.58			12.64			12.92			11.77			11.32			11.08			11.53

Selected financial ratios:
Net income to average assets		0.72	%		0.97	%		0.92	%		0.93	%		0.92	%		0.98	%		1.07	%
Net income to average equity		8.48			11.19			10.65			10.49			10.23			10.52			10.91
Dividend payout ratio		50.00			38.97			40.80			41.72			44.16			41.56			42.95
Total shareholder’s equity to total assets		8.40			8.49			8.39			8.63			8.75			9.01			10.37
Tangible shareholder’s equity to tangible assets		6.66			6.59			6.57			6.59			6.67			6.88			8.60
Tier 1 capital ratio		10.23			10.09			10.01			10.38			10.88			11.20			14.67
Net interest margin		3.66			4.13			3.99			4.11			4.14			4.10			4.10
Gross revenue of loan pools to total gross revenue		14.47			18.39			17.45			22.97			22.17			21.42			24.34
Allowance for loan losses to total loans		0.99			1.18			1.13			1.16			1.19			1.29			1.30
Non-performing loans to total loans		0.87			0.84			1.15			0.77			0.73			0.83			0.86
Net loans charged off (recovered) to average loans		0.21			(0.14	)		(0.11	)		0.05			0.25			0.08			0.15

Selected balance sheet data:
Total assets	$	768,887		$	719,094		$	744,911		$	676,332		$	650,564		$	623,306		$	537,026
Total loans net of unearned discount		533,361			489,164			503,832			433,437			398,854			377,017			306,024
Total loan pool participations		90,757			92,450			98,885			103,570			105,502			89,059			82,341
Allowance for loan losses		5,299			5,769			5,693			5,011			4,745			4,857			3,967
Total deposits		558,262			524,532			560,615			505,245			475,102			453,125			395,546
Total shareholders’ equity	$	64,579			61,044			62,533			58,386			56,930			56,144			55,698

SELECTED CONSOLIDATED PRO FORMA FINANCIAL DATA OF

ISBF AND MIDWESTONE

The following table shows selected consolidated pro forma financial data reflecting the merger of MidWestOne with ISBF, assuming the companies had been combined at the dates and for the periods shown. The pro forma amounts reflect certain purchase accounting adjustments, which are based on estimates that are subject to change depending on fair values as of the merger completion date. These adjustments are described in the notes to the unaudited pro forma combined financial statements that follow this presentation under the caption “Unaudited Pro Forma Combined Financial Information.” The pro forma financial information in the table below does not include any projected cost savings, revenue enhancements or other possible financial benefits of the merger to the combined company and does not attempt to suggest or predict future results. This information also does not necessarily reflect what the historical financial condition or results of operations of the combined company would have been had ISBF and MidWestOne been combined as of the dates and for the periods shown.


	At or for the Nine Months Ended September 30, 2007		For the Year Ended December 31, 2006
	(dollars in thousands)
Summary of income data:
Interest income	$	67,461	$	83,249
Interest expense		33,769		38,154

Net interest income		33,692		45,095
Provision for loan losses		1,164		730

Net interest income (after provision for loan losses)		32,528		44,365
Noninterest income		11,035		13,500
Noninterest expenses		31,467		40,649

Income before income taxes		12,096		17,216
Income tax expense		3,384		5,109

Net income	$	8,712	$	12,107


Selected balance sheet data:
Total assets	$	1,469,596
Total loans net of unearned interest		914,825
Total loan pool participations		89,520
Allowance for loan losses		9,447
Total deposits		1,057,579
Total stockholders’ equity		159,380

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

The accompanying unaudited pro forma combined balance sheet data assumes the merger took place as of September 30, 2007. The unaudited pro forma consolidated balance sheet data combines the unaudited consolidated balance sheet data of ISBF as of September 30, 2007, and the unaudited consolidated balance sheet data of MidWestOne as of September 30, 2007.

The accompanying unaudited pro forma combined statement of income data presents the unaudited consolidated statement of income data of ISBF for the nine months ended September 30, 2007, and the audited consolidated statement of income data for the year ended December 31, 2006, combined, respectively, with MidWestOne’s unaudited consolidated statement of income data for the nine months ended September 30, 2007, and audited consolidated statement of income data for the year ended December 31, 2006. The unaudited pro forma combined statement of income gives effect to the merger as if it had occurred as of the beginning of each period.

The pro forma financial information includes purchase accounting adjustments to record the assets and liabilities of MidWestOne at their estimated fair values and to record certain exit costs related to MidWestOne. The pro forma adjustments included herein are subject to updates as additional information becomes available and as additional analyses are performed. Any change in the fair value of the net assets of MidWestOne will change the estimated purchase accounting adjustments and the amount of the purchase price allocable to goodwill. Additionally, changes to MidWestOne’s stockholders’ equity, including net income from October 1, 2007, through the date the merger is completed, will also change the amount of goodwill recorded. Final adjustments may be materially different from the unaudited pro forma adjustments presented herein.

ISBF and MidWestOne anticipate that the merger will provide the combined company with financial benefits that include increased revenue opportunities and reduced operating expenses, but these financial benefits are not reflected in the pro forma information. Accordingly, the pro forma information does not attempt to predict or suggest future results. It also does not necessarily reflect what the historical results of the combined company would have been had our companies been combined during the periods presented.

Historical results do not necessarily indicate the results that you can expect for any future period. ISBF and MidWestOne believe that all adjustments (which include only normal recurring adjustments) have been included that are necessary to arrive at a fair presentation of the interim results of operations. Results for the interim period ended September 30, 2007, do not necessarily indicate the results that you can expect for the year as a whole.

The unaudited pro forma financial information presented below should be read together with the historical financial statements of ISBF and MidWestOne, including the related notes, and the other financial information, including the related notes, included in this document.

UNAUDITED PRO FORMA FINANCIAL INFORMATION

Pro Forma Statement of Financial Condition as of September 30, 2007

(dollars in thousands, except per share data)


	Historical						Pro Forma Before Entries			Purchase Accounting Adjustments						Pro Forma After Entries
	ISBF			*MidWestOne***			Pro Forma Before Entries			Debit			Credit			Pro Forma After Entries
ASSETS
Cash and due from banks	$	12,184		$	13,055			25,239					$	4,595	⁽ⁿ⁾	$	20,644
Federal funds sold		10,350			—			10,350									10,350
Investment securities		235,070			87,478			322,548						217	^(a)		322,331
Loans (net of unearned interest)		391,975			533,361			925,336						10,511	^(b)(d)(e)		914,825
Allowance for loan losses		(5,622	)		(5,299	)		(10,921	)		1,474	^(e)					(9,447	)

Net loans		386,353			528,062			914,415									905,378
Loan pool participations		—			90,757			90,757						1,237	^(c)		89,520
Premises and equipment		11,553			13,544			25,097			2,000	^(f)					27,097
Loans held for sale		1,144			—			1,144									1,144
Other real estate owned		—			1,579			1,579									1,579
Goodwill		4,356			13,405			17,761			35,921	^(p)		13,405	^(g)		40,277
Core deposit intangible		—			449			449			8,720	^(m)		449	^(g)		8,720
Other intangibles		300			489			789			400	^(q)		489	^(g)		700
Other assets (includes deferred taxes)		20,775			20,069			40,844			1,556	^(g)(n)		544	^(l)		41,856

Total assets	$	682,085		$	768,887		$	1,450,972		$	50,071		$	31,447		$	1,469,596

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Deposits:
Noninterest-bearing	$	62,779		$	49,451		$	112,230								$	112,230
Interest-bearing		436,433			508,811			945,244						105	^(h)		945,349

Total deposits		499,212			558,262			1,057,474									1,057,579
Federal funds purchased and securities sold under agreements to repurchase		58,749			18,545			77,294									77,294

Federal Home Loan Bank advances		43,500			90,600			134,100			602	⁽ⁱ⁾					133,498
Short-term borrowings		—			2,500			2,500									2,500
Long-term debt		315			—			315									315
Trust preferred securities		—			25,774			25,774						312	^(j)		26,086
Other liabilities		4,317			8,627			12,944									12,944

Total liabilities	$	606,093		$	704,308		$	1,310,401								$	1,310,216

Stockholders’ Equity
Common stock	$	5,159		$	24,564		$	29,723		$	24,564	^(k)	$	3,514	^(o)	$	8,673
Surplus		21			13,206			13,227			13,206	^(k)		80,741	^(n)(o)		80,762
Retained earnings		72,203			44,459			116,662			45,326	^(k)(n)					71,336
Accumulated other comprehensive income (loss)		(1,391	)		(136	)		(1,527	)					136	^(k)		(1,391	)

Total stockholders’ equity before treasury stock		75,992			82,093			158,085
Treasury stock		—			(17,514	)		(17,514	)					17,514	^(k)		—

Total stockholders’ equity		75,992			64,579			140,571									159,380

Total liabilities and stockholders’ equity	$	682,085		$	768,887		$	1,450,972		$	83,698		$	102,322		$	1,469,596

See Notes to Unaudited Pro Forma Combined Financial Statements.

Following are estimates and assumptions for purchase accounting adjustments. Actual adjustments will be determined at transaction date and may differ significantly from this pro forma disclosure.

(a)	Reduce carrying value of MidWestOne’s held-to-maturity investment securities by $217,000 to fair market value; fair market value adjustment to be accreted over remaining life for each security on a level-yield basis.

(b)	Reduce carrying value of MidWestOne’s loans to fair market value; fair market value adjustment to be accreted over average life of portfolio on a level-yield basis.

(c)	Reduce carrying value of MidWestOne’s loan pool participations to fair market value; fair market value adjustment to be accreted over average life of portfolio on a level-yield basis.

(d)	As required by SFAS 141, loans of the acquired enterprise are to be recorded at fair value. The fair value adjustment removes any previously-deferred loan origination fees or costs and establishes a new book value equal to the present value of expected future cash flows of the loan portfolio.

(e)	Reduce carrying value of MidWestOne’s loans and allowances for loan losses for specific reserves assigned to impaired loans.

(f)	Increase carrying value of MidWestOne’s premises and equipment to fair market value; estimated fair market value adjustment to be amortized on straight-line basis over 15 years.

(g)	Eliminate existing MidWestOne goodwill, core deposit, and customer list intangible asset and related deferred tax liability.

(h)	Adjust MidWestOne time deposits to fair market value; estimated fair market value adjustment to be accreted over the average life of time deposit portfolio of one year on a level-yield basis.

(i)	Adjust FHLB advances to fair market value; estimate fair market value adjustment to be accreted on individual advances over remaining term on a level-yield basis.

(j)	Adjust trust preferred securities to fair market value; estimate fair market value adjustment to be accreted over remaining 30-year term on a straight-line basis.

(k)	Eliminate MidWestOne stockholders’ equity.

(l)	Net impact of deferred tax entries on purchase accounting adjustments.

(m)	Record core deposit intangible, estimated at 4% of MidWestOne deposits, excluding certificates of deposit, anticipated to be amortized on an accelerated basis over a 10 year period.


	Amortization
Year 1	$	1,586
Year 2		1,427
Year 3		1,268
Year 4		1,110
Year 5		951
Year 6		793
Year 7		634
Year 8		476
Year 9		317
Year 10		158

	$	8,720

(n)	Pro forma merger costs expected by ISBF:


Professional fees (legal and accounting)	$	325
Investment banking fees		300
Proxy printing		25

ISBF direct costs to be capitalized (all cash disbursement)		650	*

Excess value of new stock option replacement awards		1,276
Marketing and other merger costs		100	*
Less estimated deferred tax benefits		(509	)

ISBF indirect merger costs to be expensed		867

Total cash disbursements associated with ISBF indirect merger costs		100


Pro forma merger costs expected by MidWestOne:

Professional fees (legal and accounting)	475	*
Investment banking fees	1,170	*
Proxy printing	50	*
Employment contract termination, severance and stay bonuses	1,500	*
Acceleration of restricted stock unit vesting	281
Acceleration of stock option vesting	163
Marketing and other merger-related expenses	150	*
Donation to ISBF Foundation	500	*

MidWestOne costs to be expensed	4,289

* Total cash disbursement associated with merger costs	4,595

Note: The following outlines the effect on the transaction of the new stock option replacement awards being issued in the transaction.


	Total			Per share
Calculated Fair Value of awards as of measurement date (9/12/07)**	$	2,618		$	6.07
Less: Calculated excess fair value of awards allocated to compensation costs, at 9/3/07		(1,276	)		(2.96	)

Amount allocated to transaction purchase price	$	1,342		$	3.11

** The fair value of each stock option was established at the announcement/measurement date (September 12, 2007), using a fair value of $23.23 per share of ISBF stock (calculated as described in footnote (o)) and the Black-Scholes valuation model with the following assumptions: Expected dividend rate of 2.47%, average risk-free interest rate of 4.98%, average expected option life of 54 months and expected volatility of 16%. Due to limited market activity, the expected volatility is based on the historical volatility of the KBW Bank Index, which is a modified-capitalization-weighted index, and is highly representative of the banking industry. The risk-free interest rates for periods within the expected life of the awards are based on the U.S. Treasury yield curve in effect at the date of valuation. The expected life is based on historical exercise experience. The dividend yield assumption is based on the projected dividend payout of the combined company.



(o) MidWestOne shares outstanding as of September 30, 2007		3,699,275


Fixed exchange ratio per merger agreement		0.95

Total ISBF common shares to be issued		3,514,311
Fair value per share of ISBF stock	$	23.23

Fair value of stock consideration (dollars in thousands)	$	81,637

MidWestOne stock options outstanding		454,274
Fixed exchange ratio per merger agreement		0.95

ISBF options to be granted		431,560
Estimated per share fair value of ISBF stock options to be granted	$	3.11

Fair value of stock option consideration (dollars in thousands)		1,342

Total Stock and stock option consideration (dollars in thousands)		82,979

Par value of common shares to be issued ($1.00/share)		3,514
Addition to surplus on common stock to be issued		78,123
Addition to surplus on fair value of stock options to be issued		1,342

Total credit to stockholder’s equity		82,979

Note: Due to limited market activity, the fair value per share of ISBF stock of $23.23 was calculated by taking the interpolated book value as of September 12, 2007 ($14.61) times the medium price-to-book value for twenty publicly-traded peer institutions (159%).

(p)	Estimated goodwill related to total transaction cost in excess of net assets acquired (see Note 3, Purchase Price and Acquisition Costs).

(q)	Customer list intangible for MidWestOne Insurance Services customer base, estimated at $400, anticipated to be amortized on a straight-line basis over 5 years.

UNAUDITED PRO FORMA FINANCIAL INFORMATION

Pro Forma Statement of Income for Nine Months Ended September 30, 2007

(dollars in thousands, except per share data)


	Historical					Pro Forma Before Entries			Mark-to-market Adjustments						Pro Forma After Entries
	ISBF			*MidWestOne***		Pro Forma Before Entries			Debit			Credit			Pro Forma After Entries
Interest income
Loans	$	20,563		$	28,849	$	49,412					$	898	^(b)	$	50,310
Loan pool participations		—			6,134		6,134						185	^(c)		6,319
Securities		7,438			2,762		10,200						32	^(a)		10,232
Federal funds sold and other		510			90		600									600

Total interest income		28,511			37,835		66,346									67,461

Interest expense
Deposits		10,998			14,656		25,654						79	^(e)		25,575
Federal funds purchased and repurchase agreements and short-term borrowings		1,624			340		1,964									1,964
Federal Home Loan Bank advances		1,478			3,444		4,922		$	226	^(f)					5,148
Long-term debt		77			266		343									343
Trust preferred securities		—			747		747						8	^(g)		739

Total interest expense		14,177			19,453		33,630									33,769

Net interest income before provision for loan losses		14,334			18,382		32,716									33,692

Provision for loan losses		425			739		1,164									1,164

Net interest income after provision for loan losses		13,909			17,643		31,552									32,528

Noninterest income
Trust and investment fees		2,667			614		3,281									3,281
Service charges on deposit accounts		1,526			1,562		3,088									3,088
Gain on sale of mortgage loans and servicing fees		1,027			440		1,467									1,467
Other service fees and commissions		1,572			1,877		3,449									3,449
Investment securities gains (losses), net		(299	)		49		(250	)								(250	)

Total noninterest income		6,493			4,542		11,035									11,035

Noninterest expense
Salaries and employee benefits		8,161			9,774		17,935									17,935
Occupancy		1,010			1,324		2,334			100	^(d)					2,434
Equipment		1,217			1,302		2,519									2,519
Office supplies, postage, and telephone		753			546		1,299									1,299
Other		2,778			3,443		6,221			1,249	^(h)(i)		190	^(j)		7,280

Total other expenses		13,919			16,389		30,308									31,467

Income before taxes		6,483			5,796		12,279									12,096
Income taxes		1,666			1,786		3,452						68	^(k)		3,384

Net income	$	4,817		$	4,010	$	8,827		$	1,575		$	1,460		$	8,712

Net income for common stockholders	$	4,817		$	4,010										$	8,712

Basic earnings per common share	$	0.93		$	1.08										$	1.00

Diluted earnings per common share	$	0.93		$	1.07										$	1.00

Basic weighted average common shares outstanding		5,167,598			3,701,675											8,681,909

Diluted weighted average common shares outstanding		5,174,684			3,736,747											8,722,313

See Notes to Unaudited Pro Forma Combined Financial Statements.

Following are estimates and assumptions for purchase accounting adjustments for the Unaudited Pro Forma Combined Statement of Income for the Nine Months ended September 30, 2007. Actual adjustments will be determined at transaction date and may differ significantly from this pro forma disclosure.


(a)	Accretion of purchase accounting adjustment on investments acquired over expected five-year life.	$	(32	)

(b)	Accretion of purchase accounting adjustment on acquired loans over expected seven-year life.		(898	)

(c)	Accretion of purchase accounting adjustment on acquired loan pools over expected five-year life.		(185	)

(d)	Amortization of purchase accounting adjustment on acquired premises and equipment on straight-line basis over estimated remaining life of 15 years.		100

(e)	Accretion of purchase accounting adjustment on time deposits over expected one-year life.		(79	)

(f)	Amortization of purchase accounting adjustment on FHLB advances over expected two-year life.		226

(g)	Amortization of purchase accounting adjustment on trust preferred securities over 30 years.		(8	)

(h)	Amortization of core deposit intangible on an accelerated basis over expected ten-year life.		1,189

(i)	Amortization of purchase accounting adjustment on customer list intangible over expected five-year life.		60

(j)	Elimination of amortization expense on existing MidWestOne intangible assets		(190	)

(k)	Decreased tax cost of amortization and accretion of purchase accounting adjustments assuming a combined marginal tax rate of 37%.		(68	)

Note:

Approximately 95% of MidWestOne’s outstanding options will be fully vested as of the closing date, and the remaining 5% will vest upon consummation of the merger pursuant to the merger agreement. Accordingly, the costs of the stock option replacement awards are not included in the pro forma income statements.

UNAUDITED PRO FORMA FINANCIAL INFORMATION

Pro Forma Statement of Income for Twelve Months Ended December 31, 2006

(dollars in thousands, except per share data)


	Historical						Pro Forma Before Entries			Mark-to-market Adjustments						Pro Forma After Entries
	ISBF			*MidWestOne***			Pro Forma Before Entries			Debit			Credit			Pro Forma After Entries
Interest income
Loans	$	25,850			33,897			59,747					$	1,197	^(b)	$	60,944
Loan pool participations		—			9,142			9,142						247	^(c)		9,389
Securities		9,175			3,299			12,474						43	^(a)		12,517
Federal funds sold and other		283			116			399									399

Total interest income		35,308			46,454			81,762									83,249

Interest expense
Deposits		12,348			15,045			27,393						105	^(e)		27,288
Federal funds purchased and repurchase agreements and short-term borrowings		1,878			418			2,296									2,296
Federal Home Loan Bank advances		2,436			4,446			6,882		$	301	^(f)					7,183
Long-term debt		97			373			470									470
Trust preferred securities		—			927			927						10	^(g)		917

Total interest expense		16,759			21,209			37,968									38,154

Net interest income before provision for loan losses		18,549			25,245			43,794									45,095

Provision for loan losses		550			180			730									730

Net interest income after provision for loan losses		17,999			25,065			43,064									44,365

Noninterest income
Trust and investment fees		2,889			995			3,884									3,884
Service charges on deposit accounts		1,935			2,114			4,049									4,049
Gain on sale of mortgage loans and servicing fees		963			580			1,543									1,543
Other service fees and commissions		1,893			2,451			4,344									4,344
Investment securities gains (losses), net		(108	)		(212	)		(320	)								(320	)

Total noninterest income		7,572			5,928			13,500									13,500

Noninterest expense
Salaries and employee benefits		10,081			12,546			22,627									22,627
Occupancy		1,291			1,660			2,951			133	^(d)					3,084
Equipment		1,520			1,831			3,351									3,351
Office supplies, postage, and telephone		960			865			1,825									1,825
Other		3,828			4,557			8,385			1,666	^(h)(i)		289	^(j)		9,762

Total other expenses		17,680			21,459			39,139									40,649

Income before taxes		7,891			9,534			17,425									17,216
Income taxes		2,093			3,093			5,186						77	^(k)		5,109

Net income	$	5,798		$	6,441		$	12,239		$	2,100		$	1,968		$	12,107

Net income for common stockholders	$	5,798		$	6,441											$	12,107

Basic earnings per common share	$	1.11		$	1.74											$	1.39

Diluted earnings per common share	$	1.11		$	1.71											$	1.38

Basic weighted average common shares outstanding		5,204,957			3,694,972												8,719,268

Diluted weighted average common shares outstanding		5,213,878			3,764,802												8,794,528

See Notes to Unaudited Pro Forma Combined Financial Statements.

Following are estimates and assumptions for purchase accounting adjustments for Unaudited Pro Forma Combined Statement of Income for the Twelve Months Ended December 31, 2006. Actual adjustments will be determined at transaction date and may differ significantly from this pro forma disclosure.


(a)	Accretion of purchase accounting adjustment on investments acquired over expected five-year life.	$	(43	)

(b)	Accretion of purchase accounting adjustment on acquired loans over expected seven-year life.		(1,197	)

(c)	Accretion of purchase accounting adjustment on acquired loan pools over expected five-year life.		(247	)

(d)	Amortization of purchase accounting adjustment on acquired premises and equipment on straight-line basis over estimated remaining life of 15 years.		133

(e)	Accretion of purchase accounting adjustment on time deposits over expected one-year life.		(105	)

(f)	Amortization of purchase accounting adjustment on FHLB advances over expected two-year life.		301

(g)	Amortization of purchase accounting adjustment on trust preferred securities over 30 years		(10	)

(h)	Amortization of core deposit intangible on an accelerated basis over expected ten-year life.		1,586

(i)	Amortization of purchase accounting adjustment on customer list intangible over expected five-year life.		80

(j)	Elimination of amortization expense on existing MidWestOne intangible assets.		(289	)

(k)	Decreased tax cost of amortization and accretion of purchase accounting adjustments assuming a combined marginal tax rate of 37%.		(77	)

Notes To Unaudited Pro Forma Combined Financial Statements

Note 1. Basis of Presentation

The combination will be accounted for using the purchase method of accounting.

Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations, requires the purchase method of accounting for business combinations. SFAS No. 142, Goodwill and Other Intangible Assets, establishes standards for goodwill acquired in a business combination and sets for the methods to periodically evaluate goodwill for impairment at least annually. The purchase method of accounting for business combinations requires that the assets acquired and liabilities assumed be recorded at their respective estimated fair market values as of the closing date. The excess of the total acquisition cost over the sum of the assigned fair values of the tangible and identifiable intangible assets acquired, less liabilities assumed, should be recorded as goodwill and evaluated thereafter at least annually for impairment. Financial statements of the combined company issued after the consummation of the merger are required to reflect those values, as well as the results of operations of the combined company beginning after the closing date of the merger. Historical financial statements of ISBF issued prior to the consummation of the merger will not be restated to reflect MidWestOne historical financial condition or results of operations.

The unaudited pro forma combined balance sheet as of September 30, 2007, gives effect to the merger as if the merger had occurred on September 30, 2007. The unaudited pro forma combined statement of income for the nine months ended September 30, 2007, and for the year ended December 31, 2006, give effect to the merger as if the merger had occurred on January 1, 2007 and 2006 respectively.

The unaudited pro forma financial data is based on preliminary estimates and various assumptions that ISBF management and MidWestOne management believe are reasonable in these circumstances. The unaudited pro forma adjustments reflect transaction-related items only and are based on currently available information. Purchase price allocations and related amortization, accretion and depreciation periods will be based on final appraisals, evaluations, and estimates of fair values. As a result, actual asset and liability values established and related operating results, including actual amortization and accretion, could differ materially from those reflected in the unaudited pro forma combined financial statements. No estimates of anticipated cost savings, potential revenue enhancements or synergies that ISBF and MidWestOne expect to realize in connection with the combination have been reflected in the unaudited pro forma combined financial statement. The unaudited pro forma combined financial statements do not reflect the impact of conforming MidWestOne accounting policies to those of ISBF, as the impact, if any has not yet been determined.

Note 2. Merger Consideration

Under terms of the merger agreement, ISBF expects to issue between 3,510,843 and 3,963,115 shares of common stock for the currently outstanding shares of MidWestOne common stock and the shares of MidWestOne common stock subject to options. ISBF currently does not own any shares of MidWestOne common stock.

Note 3. Purchase Price and Acquisition Costs

ISBF has estimated the relative fair value of MidWestOne net assets in order to determine a preliminary allocation of the purchase price to the net assets to be acquired. For purposes of the accompanying unaudited pro forma condensed combined financial statements, the excess of the purchase price over the book value of net assets to be acquired has been estimated as follows:


MidWestOne shares outstanding as of September 30, 2007		3,699,275
Fixed exchange ratio per merger agreement		0.95

Total ISBF common shares to be issued		3,514,311
Fair value per share of ISBF stock	$	23.23

Fair value of stock consideration (dollars in thousands)		81,637

MidWestOne stock options outstanding		454,274
Fixed exchange ratio per merger agreement		0.95

ISBF options to be granted		431,560
Estimated per share fair value of ISBF stock options to be granted	$	3.11

Fair value of stock option consideration (dollars in thousands)		1,342

Total stock and stock option consideration (dollars in thousands)		82,979

Note: The following outlines the effect on the transaction of the new stock option replacement awards being issued in the transaction.


	Total			Per share
Calculated Fair Value of awards as of measurement date (9/12/07)	$	2,618		$	6.07
Less: Calculated excess fair value of awards allocated to compensation costs, at 9/3/07		(1,276	)		(2.96	)

Amount allocated to transaction purchase price	$	1,342		$	3.11


Par value of common shares to be issued ($1/share)		3,514
Addition to surplus on common stock to be issued		78,123
Addition to surplus on fair value of stock options to be issued		1,342

Total credit to stockholder’s equity		82,979

Pro forma merger costs expected by ISBF:
Professional fees (legal and accounting)		325
Investment banking fees		300
Proxy printing		25

ISBF direct costs to be capitalized (all cash disbursement)	$	650

Total purchase price		83,629

MidWestOne equity prior to transaction		64,579
–Merger expenses		(3,845	)
–Pre-existing FASB 91 deferred fees and costs		(655	)
–Pre-existing goodwill and core deposit intangibles		(13,854	)
–Pre-existing customer list intangible		(489	)
+Deferred taxes on pre-existing intangibles		1,047

Adjusted equity at closing		46,783

Purchase price to be allocated		36,846
HTM investment fair market value adjustment		(217	)
Loans fair market value adjustment		(8,382	)
Purchased loan pools fair market value adjustment		(1,237	)
Premises and equipment fair market value adjustment		2,000
Time deposit fair market value adjustment		(105	)
FHLB advances fair market value adjustment		602
Trust preferred securities market value adjustment		(312	)
Core deposit intangible		8,720
Insurance agency customer list		400
Less deferred tax asset/liability on above at 37%		(544	)

Purchase accounting adjustments		925

Goodwill		35,921

The pro forma purchase price calculation shown above is subject to change between September 30, 2007 and the closing date of the merger as a result of possible changes in actual acquisition costs incurred by ISBF and final appraisals, evaluations, and estimates of fair value.

UNAUDITED COMPARATIVE PER SHARE DATA

The following table presents certain comparative historical, pro forma and pro forma equivalent per share financial information of ISBF and MidWestOne that reflects the merger using the purchase method of accounting.

The pro forma and equivalent pro forma per share information gives effect to the merger as if the merger had been effective on September 30, 2007. The information in the following table is based on, and should be read together with, the historical financial information that appears elsewhere in this document. See MidWestOne and ISBF’s audited and unaudited financial statements beginning on page F-1 and “Unaudited Pro Forma Combined Financial Information.”

The information listed as “Equivalent Pro Forma Per MidWestOne Share” was obtained by multiplying the pro forma amount listed by ISBF by the 0.95 exchange ratio. We present this information to reflect the fact that MidWestOne shareholders will receive 0.95 share of ISBF common stock for each share of MidWestOne common stock exchanged in the merger.

We expect that we will incur merger and integration charges as a result of combining our companies. We also anticipate that the merger will provide the combined company with financial benefits that include reduced operating expenses and the opportunity to earn more revenue. The pro forma information, while helpful in illustrating the financial characteristics of the combined company under one set of assumptions, does not reflect these expenses or benefits and, accordingly, does not attempt to predict or suggest future results. It also does not necessarily reflect what the historical results of the combined company would have actually been had our companies been combined as of the dates or for the periods presented.


	ISBF Historical		*MidWestOne* Historical**		Pro Forma Combined		Equivalent Pro Forma Per MidWestOne Share (0.95 Share)
Earnings per share:
For the year ended December 31, 2006:
Basic	$	1.11	$	1.74	$	1.39	$	1.32
Diluted		1.11		1.71		1.38		1.31
For the nine months ended September 30, 2007:
Basic		0.93		1.08		1.00	$	0.95
Diluted		0.93		1.07		1.00		0.95
Cash dividends declared per share:
For the year ended December 31, 2006		0.32		0.71		0.32		0.30
For the nine months ended September 30, 2007		0.32		0.54		0.32		0.30
Book value:
As of December 31, 2006		14.14		16.83
As of September 30, 2007		14.73		17.46		18.38		17.46

The market price of ISBF common stock will likely fluctuate between the date of this document and the date on which the merger is completed and after the merger. Because the exchange ratio of 0.95 is fixed, the value of the merger consideration will fluctuate as the price of ISBF common stock changes. Shareholders who obtain current market price quotations for shares of ISBF common stock in connection with making any decisions with respect to the merger should bear in mind that ISBF common stock, like many Pink Sheet securities, is relatively illiquid, which tends to increase price volatility and make it difficult for investors to buy or sell without dramatically affecting the quoted price. Because of the illiquid trading market of ISBF common stock and the absence of publicly available business and financial information for ISBF, you should not place undue reliance on current price quotations of ISBF common stock in determining the current or prospective value of the stock consideration to be paid in the merger. In addition, the value of the shares of the combined company’s common stock that MidWestOne shareholders will receive in the merger may increase or decrease after the merger.

By voting to approve the merger agreement and the transactions it contemplates, MidWestOne shareholders will be choosing to invest in the combined ISBF/MidWestOne, because they will receive ISBF common stock in exchange for their shares of MidWestOne common stock. An investment in the combined company’s common stock involves significant risk. In addition to the other information included in this joint proxy statement-prospectus, ISBF and MidWestOne shareholders should carefully consider the matters described below in “Risk Factors” when determining whether to approve the merger agreement and the transactions it contemplates.

RISK FACTORS

By voting in favor of the merger, you will be choosing to invest in the common stock of a combined ISBF and MidWestOne. In addition to the information contained elsewhere in this joint proxy statement-prospectus or incorporated in this joint proxy statement-prospectus by reference, you should carefully consider the following factors in making your decision as to how to vote on the merger.

Risks Related to the Merger

The exchange ratio is fixed and will not be adjusted to reflect changes in ISBF’s stock value prior to the effective time of the merger.

The merger agreement provides that each share of MidWestOne common stock will be converted into the right to receive 0.95 share of ISBF common stock. The exchange ratio is fixed and will not be adjusted to reflect any changes in the value of ISBF common stock between the date of the merger agreement and the effective time of the merger. As a result, the value of the merger consideration to be paid to MidWestOne’s shareholders will not be known at the time of the MidWestOne special meeting. When you vote at the special meeting, you will not know the exact value of the shares of ISBF common stock that MidWestOne shareholders will receive in the merger.

Although obtaining current market price quotations for ISBF common stock prior to voting on the merger is possible, ISBF common stock, like many Pink Sheet securities, is relatively illiquid, which tends to increase price volatility and makes it difficult for investors to buy or sell without dramatically affecting the quoted price. Because of the illiquid trading market of ISBF common stock and the absence of publicly available business and financial information for ISBF, you should not place undue reliance on current price quotations of ISBF common stock in determining the current or prospective value of the stock consideration to be paid in the merger.

Moreover, the value of the combined company’s common stock may also rise or fall after the merger. Stock price changes may result from a variety of factors, including completion of the merger, general market and economic conditions, changes in our respective businesses, operations and prospects and regulatory considerations. Many of these factors are beyond the combined company’s control, and it is possible that the market value of the combined company’s common stock at the time of the merger and afterward may be substantially higher or lower than current market value.

The lack of a liquid public market for ISBF’s common stock may make it difficult to evaluate the fairness of the merger.

ISBF’s common stock is quoted on the Pink Sheets. Pink Sheets is not a securities exchange or a broker-dealer, but is an electronic quotation and information service provided to registered broker-dealers to facilitate transactions in Pink Sheet securities. Investors must contact an SEC registered broker-dealer that is a member of the Financial Industry Regulatory Authority to invest in a security quoted on the Pink Sheets. Many Pink Sheet securities are relatively illiquid, or “thinly traded,” which tends to increase price volatility. Illiquid securities are often difficult for investors to buy or sell without dramatically affecting the quoted price. Because a company whose shares are quoted exclusively on the Pink Sheets is not required to file periodic reports with the Securities and Exchange Commission, reliable, publicly available information regarding the company, its securities, its business, financial condition and prospects, and the risks associated with the business or an investment in the company’s securities may not be available. As a result, it may be difficult to properly value an investment in a Pink Sheet security.

The board of directors of MidWestOne used, and its financial advisors used, in part, historical Pink Sheets-quoted prices of ISBF common stock in determining the value of the merger and the fair market valuation of ISBF. The lack of a liquid, public market for ISBF shares increases the uncertainty in determining the fair market value of ISBF. The value of the combined company’s common stock to be issued to MidWestOne shareholders could be greater or less than the market trading price of ISBF common stock.

The merger agreement limits MidWestOne and ISBF’s ability to pursue alternatives to the merger.

The merger agreement contains terms and conditions that make it more difficult for MidWestOne or ISBF to enter into a business combination other than with each other. These “no shop” provisions impose restrictions that prevent either party from seeking another acquisition proposal and that, subject to certain exceptions, limit each party’s ability to discuss, facilitate or commit to competing third-party proposals to acquire all or a significant part of each company. See “The Merger Agreement—Termination and Termination Fees.”

Each company agreed to these provisions as a condition to each company’s willingness to enter into the merger agreement. These provisions, however, might discourage a third party that might have an interest in acquiring all or a significant part of either company from considering or proposing an acquisition or other business combination even if it were prepared to pay consideration with a higher per share price than the current proposed merger consideration. Either company’s obligation to pay a termination fee, under certain circumstances, might result in a potential competing acquiror proposing to pay a lower per share price to acquire either company than it might otherwise have proposed to pay.

The fairness opinions obtained by MidWestOne and ISBF from their respective financial advisors will not reflect changes in circumstances prior to the merger.

Each company’s financial advisors delivered a “fairness opinion” to each company’s respective board of directors. The fairness opinions delivered by MidWestOne’s financial advisors stated that, as of the date the parties executed the merger agreement, the exchange ratio of 0.95 share of ISBF common stock for each share of MidWestOne common stock is fair from a financial point of view to MidWestOne shareholders. The fairness opinion delivered by ISBF’s financial advisor stated that, as of the date the parties executed the merger agreement, the exchange ratio is fair from a financial point of view to ISBF’s shareholders. The opinions, however, do not reflect changes that may occur or may have occurred after the date each such opinion was delivered, including changes to the operations and prospects of MidWestOne and ISBF, changes in general market and economic conditions or other factors. Any such changes on which the opinions are based, or other factors, may alter the relative value of MidWestOne and ISBF.

Future results of the combined company may differ materially from the pro forma financial information presented in this joint proxy statement-prospectus.

The combined company’s future results may be materially different from those shown in the pro forma financial information presented in this joint proxy statement-prospectus that show only a combination of ISBF’s and MidWestOne’s historical results. Charges that the combined company will record due to the merger may be higher or lower than estimated, depending upon how costly or difficult it is to integrate our two companies. Furthermore, these charges may decrease the combined company’s capital that could be used for income-earning investments in the future.

Difficulties in combining the operations of MidWestOne and ISBF may prevent the combined company from achieving the expected benefits from its acquisition.

The combined company may not be able to achieve fully the strategic objectives and operating efficiencies it hopes to achieve in the merger. The success of the merger will depend on a number of factors, including the combined company’s ability to:

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integrate the operations of MidWestOne and ISBF, including successfully integrating and combining the technology, financial, credit, security and legal reporting systems and controls of ISBF and MidWestOne;

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maintain existing relationships with depositors so as to minimize withdrawals of deposits after the merger;

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maintain and enhance existing relationships with borrowers so as to limit unanticipated losses from loans of MidWestOne and ISBF;

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control the incremental non-interest expense so as to maintain overall operating efficiencies; and

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compete effectively in the communities served by MidWestOne and ISBF and in nearby communities.

The market price of the common stock of the combined company after the merger may be affected by factors different from those that currently affect the market value of ISBF and MidWestOne’s common stock.

The businesses of ISBF and MidWestOne and the markets on which each company’s shares trade differ in certain respects. Accordingly, the results of operations of the combined company and the market price of the combined company’s shares of common stock after the merger may be affected by factors different from those currently affecting the independent results of operations and market prices of each of ISBF and MidWestOne.

There may be a limited trading market for the combined company’s common stock, which may hinder your ability to sell your shares and may lower our stock price.

While the combined company’s common stock will be listed on the Nasdaq Global Market as a condition to completing the merger, an active and liquid trading market for our common stock may not develop. The lack of an active, liquid market in our shares may make it difficult for you to sell your shares when you want and may reduce the market value of our common stock. Moreover, in a limited trading market, the sale of a large number of shares at one time may temporarily depress the market price of our common stock, which may further restrict your ability to sell shares at desired prices.

Inability to satisfy closing conditions could delay or prevent completion of the merger.

Completion of the merger is conditioned upon the receipt and continued effectiveness of all material governmental authorizations, consents, orders and approvals. ISBF and MidWestOne intend to pursue all required approvals in accordance with the merger agreement. Although the required bank regulatory approvals have been obtained, no assurance can be given that these approvals will continue to be effective, other required consents and approvals will be obtained or that the required conditions to closing will be satisfied, and, if all such other consents and approvals are obtained and the conditions are satisfied, no assurance can be given as to the terms, conditions and timing of the approvals or that they will satisfy the terms of the merger agreement. See “The Merger Agreement—Conditions for the Completion of the Merger” for a discussion of the conditions to the completion of the merger and “The Merger—Regulatory Approvals” for a description of the regulatory approvals necessary in connection with the merger.

Uncertainties associated with the merger may cause a loss of employees and may otherwise affect the future business and operations of ISBF and MidWestOne.

The combined company’s success after the merger will depend in part upon its ability to retain key employees of ISBF and MidWestOne. Current and prospective employees of ISBF and MidWestOne may experience uncertainty about their roles with the combined company following the merger. This may adversely affect the ability of each of ISBF and MidWestOne to attract and retain key management, sales, marketing, technical and other personnel. In addition, key employees may depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the combined company following the merger. Accordingly, no assurance can be given that the combined company will be able to attract or retain key employees of ISBF and MidWestOne to the same extent that those companies have been able to attract or retain their own employees in the past. These factors could contribute to the combined company not achieving the expected benefits from the merger within the desired time frames, if at all.

Certain Risks Relating to the Business, Operations and Financial Results After the Merger

The combined company will have investments in pools of performing and nonperforming loans that will comprise a significant component of its assets and generate substantial interest income with yields that may fluctuate considerably resulting in inconsistent profitability from period to period.

On a pro forma basis as of September 30, 2007, approximately 6.7% of the combined company’s earning assets were invested in loan pools, and approximately 8.1% of the combined company’s gross total revenue were derived from the loan pools. These loan pools represent a mixture of performing, sub-performing and non-performing loans. As of September 30, 2007, MidWestOne’s loan pool investment of $90,757,000 consisted of loans secured by commercial real estate (50%), commercial operating (18%), single-family residential real estate (12%), agricultural real estate (11%), and other loans (9%). The loan pool investment is a “non-traditional” activity that has historically provided MidWestOne with a higher return than typical loans and investment securities. The return on investment in loan pools and the effect on profitability can be unpredictable due to fluctuations in the balance of loan pools and collections from borrowers by the loan pool servicer. Loan pool balances are affected by the ability to purchase additional loan pools to maintain the level of investment and by the payment and refinancing activities of the borrowers resulting in pay-offs of the underlying loans and reduction in the balances. Purchase of the new loan pools will be subject to many factors that will be outside the combined company’s control, including: availability, competition, credit and performance quality of assets offered for sale, asset size and type, and the economic and interest rate environment. Collections from the individual borrowers are managed by the servicer and are affected by the borrower’s financial ability and willingness to pay, foreclosure and legal action, collateral value, and the economy in general. Any of these identified factors, and others not identified, could affect the combined company’s return on the loan pool investment.

Although MidWestOne does not seek to purchase consumer or consumer real estate loans characterized as sub-prime or AltA credit, because the purchase of these assets is on a pool basis, MidWestOne as a result has acquired some sub-prime loans as characterized by borrowers or guarantors having FICO scores below 640. Consumer-based paper makes up approximately 13% of MidWestOne’s loan pool investment and, as of September 30, 2007, approximately 5.7% of the basis amount of MidWestOne’s loan pool investment represented sub-prime credit. Because MidWestOne does not originate the consumer-based loans that may be characterized as AltA, and because of the nature of the information provided to MidwestOne with respect to any AltA loans in the pools, MidWestOne is not able to verify the basis amount of its loan pool investment that represents AltA credit. Loans that are characterized as sub-prime and to a lesser extent AltA carry a higher risk of default by the underlying borrowers than other types of loans, which could affect the value of the overall loan pool investment.

The combined company’s allowance for loan losses may be insufficient to absorb possible losses in its loan portfolio.

Like all financial institutions, the combined company will maintain an allowance for loan losses to provide for loans in its portfolio that may not be repaid in their entirety. Based on loan loss policies and procedures currently in effect for ISBF and MidWestOne, we expect that the allowance for loan losses of the combined company will be maintained at a level adequate to absorb probable losses inherent in the combined company’s loan portfolio. However, the combined company’s allowance for loan losses may not be sufficient to cover actual losses, and future provisions for loan losses could materially adversely affect the combined company’s operating results.

The combined company will continue to experience intense competition for loans and deposits.

The banking business is highly competitive and we experience competition in all of our markets from many other financial institutions. After the merger, we will continue to compete with large regional banks, local community banks, credit unions, thrifts, securities and brokerage companies, mortgage companies, insurance companies, finance companies, money market mutual funds, and other non-bank financial service providers. The combined company will compete with these institutions both in attracting deposits and making loans as well as in providing other financial services. Increased competition in the combined company’s market may result in a

decrease in amounts of our loans and deposits, reduced spreads between loan rates and deposit rates, or loan terms that are more favorable to the borrowers. Any of these could have a material adverse effect on the combined company’s ability to grow and remain profitable.

Our continued geographic concentration will make us sensitive to changes in the economic, demographic and regulatory conditions in our market area.

As a combined company, most of our loans will continue to be to individuals and businesses and/or secured by properties located in central and eastern Iowa. As a result, our revenues and profitability will be subject to prevailing economic, regulatory, demographic and other conditions in this market area. Because our business is concentrated in this area, adverse economic, regulatory, demographic or other developments that are limited to this area may have a disproportionately greater effect on us than they would have if we also did business in markets outside that particular geographic area.

Changing interest rates will continue to adversely affect profits of the combined company.

The spread between the interest rates earned on investments, loans and loan pools and the interest rates paid on deposits and other interest-bearing liabilities affects, in part, the profitability of ISBF and MidWestOne, and will affect the profitability of the combined company. Net interest spread and margin of financial institutions are affected by general economic conditions and other factors that influence market interest rates and an institution’s ability to respond to changes in such rates. The combined company’s assets and liabilities at any given time will be such that they will be affected differently by a given change in interest rates. As a result, an increase or decrease in rates, the length of loan and certificate of deposit terms or the mix of adjustable and fixed rate loans in our portfolio could have a positive or negative effect on our profitability. Each of ISBF and MidWestOne currently measure interest rate risk under various rate scenarios and using specific criteria and assumptions. Each company has summarized its process for measuring interest rate risk under “Quantitative and Qualitative Disclosures About Market Risk” that is contained in each company’s “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Although the management teams of ISBF and MidWestOne believe their current levels of interest rate sensitivity are reasonable and effectively managed, significant fluctuations in interest rates may have an adverse effect on the business, financial condition and results of operations of the combined company.

We will incur expenses after the merger from operating as a public company, which may adversely affect our profitability.

Following the merger, our non-interest expenses will be impacted as a result of the financial accounting, legal and various other additional expenses usually associated with operating as a public company. The federal securities laws and the regulations of the Securities and Exchange Commission will require that we file annual, quarterly and current reports and that we maintain effective disclosure controls and procedures and internal control over financial reporting. This may require that we implement additional finance and accounting systems, procedures and controls in order to satisfy our new public company reporting requirements. We expect that the obligations of being a public company, including substantial public reporting obligations, will require significant expenditures relative to our size and place additional demands on our management team, not all of whom will have prior public company experience.

Certain ISBF shareholders will continue to own a significant interest in the combined company and may exercise their control in a manner detrimental to your interests.

Certain ISBF shareholders who are descendants of Iowa State Bank & Trust’s founder collectively control approximately 54.4% of the outstanding shares of ISBF. Immediately after the merger, these persons will control approximately 32.4% of the combined company’s outstanding common stock and may have the opportunity to exert influence on the outcome of matters required to be submitted to shareholders for approval.

We will continue to be subject to substantial regulation which could adversely affect the combined business and operations.

As a financial institution, we will be subject to extensive regulation that will materially affect our business. Statutes, regulations and policies that we will be subject to may change at any time, and the interpretation and the application of those laws and regulations by our regulators also is subject to change. There can be no assurance that future changes in regulations or in their interpretation or application will not adversely affect us. Each company currently has established policies, procedures and systems designed to comply with these regulatory and operational risk requirements and such policies will continue under the combined company. We will, however, face complexity and costs associated with our compliance efforts. Adverse publicity and damage to our reputation arising from the failure or perceived failure to comply with legal, regulatory or contractual requirements could affect our ability to attract and retain customers or could result in enforcement actions, fines, penalties and lawsuits.

FORWARD-LOOKING STATEMENTS

We have each made forward-looking statements in this document (and in documents to which we refer you in this document) that are subject to risks and uncertainties. These forward-looking statements include information about possible or assumed future results of our operations or the performance of the combined company after the merger is completed. When we use any of the words “believes,” “expects,” “anticipates,” “estimates” or similar expressions, we are making forward-looking statements. These statements are based on ISBF’s and MidWestOne’s respective management’s existing expectations, which in turn are based on information that is currently available to them and on the current economic, regulatory and competitive environment, including factors such as the strength of the U.S. and local economies; federal, state and local laws, regulations and policies; interest rates and regulatory policies; and expectations as to competitors and customers. Many possible events or factors, including changes from current conditions in the factors mentioned above, could affect the future financial results and performance of each of our companies and of the combined company after the merger and could cause those results or performance to differ materially from those expressed in our forward-looking statements.

In addition to the factors listed above and the risks discussed in the “Risk Factors” section of this joint proxy statement-prospectus, factors that could have a material adverse effect on our operations and future prospects include, but are not limited to, the following:

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the risk that the businesses of ISBF and/or MidWestOne in connection with the merger will not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected;

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expected revenue synergies and cost savings from the merger may not be fully realized or realized within the expected time frame;

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customer and employee relationships and business operations may be disrupted by the merger;

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the availability of capital to fund the expansion of the combined business;

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technological changes implemented by us and by other parties, including third party vendors, which may be more difficult or more expensive than anticipated or which may have unforeseen consequences to us and our customers;

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other factors referenced in this joint proxy statement-prospectus or the documents incorporated by reference; and

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the factors identified as “Risk Factors” in MidWestOne’s Annual Report on Form 10-K for the year ended December 31, 2006 and any additional or modified factors identified as risk factors in MidWestOne’s 2007 Quarterly Reports on Form 10-Q.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

The forward-looking statements included in this joint proxy statement-prospectus are made only as of the date of this joint proxy statement-prospectus. Further information concerning MidWestOne and its business, including additional factors that could materially affect MidWestOne’s financial results, is included in MidWestOne’s filings with the Securities and Exchange Commission.

THE SPECIAL MEETINGS

ISBF is furnishing this joint proxy statement-prospectus to holders of ISBF common stock, $1.00 par value per share, in connection with the proxy solicitation by ISBF’s board of directors. ISBF’s board of directors will use the proxies at the special meeting of shareholders of ISBF to be held on March 7, 2008, and at any adjournments or postponements of the meeting.

MidWestOne is furnishing this joint proxy statement-prospectus to holders of MidWestOne common stock, $5.00 par value per share, in connection with the proxy solicitation by MidWestOne’s board of directors. MidWestOne’s board of directors will use the proxies at the special meeting of shareholders of MidWestOne to be held on March 7, 2008, and at any adjournments or postponements of the meeting.

All ISBF and MidWestOne shareholders will be asked at their respective special meetings to vote to approve the Agreement and Plan of Merger, dated September 11, 2007, between ISBF and MidWestOne, and to approve the transactions it contemplates. Under the merger agreement, the parties will engage in a transaction in which MidWestOne will merge with ISBF. In the merger of MidWestOne with ISBF, each outstanding share of MidWestOne common stock will be converted into the right to receive 0.95 share of the combined company. MidWestOne shareholders will receive cash instead of any fractional shares. At the special meeting, ISBF shareholders also will be asked to approve the amended and restated articles of incorporation of ISBF, which will be the articles of incorporation of the combined company, and the 2008 Equity Incentive Plan.

ISBF SPECIAL MEETING

Date, Place, Time and Purpose

The special meeting of ISBF’s shareholders will be held at the Sheraton Iowa City Hotel, located at 210 S. Dubuque Street, Iowa City, Iowa, at 1:00 p.m., central standard time on Friday, March 7, 2008. At the special meeting, holders of ISBF common stock will be asked to vote upon a proposal to approve the merger agreement and the transactions it contemplates, including the merger and the issuance of shares of ISBF common stock as consideration in the proposed merger. ISBF shareholders also will be asked to approve, as a condition to consummating the proposed merger, amended and restated articles of incorporation of ISBF to, among other things change ISBF’s corporate name to “MidWestOne Financial Group, Inc.” and provide for a classified board of directors. Additionally, ISBF shareholders will be asked to consider and approve the 2008 Equity Incentive Plan, which reserves for issuance 750,000 shares of ISBF common stock (less the number of shares subject to outstanding awards granted under the current plans of MidWestOne and ISBF as of the effective time of the merger) for future equity incentive awards by the combined company. ISBF is also asking its shareholders to grant full authority to adjourn the special meeting, if necessary, to permit solicitation of additional proxies to approve the transactions proposed by this joint proxy statement-prospectus.

Record Date, Voting Rights, Required Vote and Revocability of Proxies

The ISBF board fixed the close of business on January 15, 2008 as the record date for determining those ISBF shareholders who are entitled to notice of and to vote at the special meeting. Only holders of ISBF common stock of record at the close of business on the record date have the right to receive notice of and to vote at the special meeting. On the record date, there were 5,165,308 shares of ISBF common stock issued and outstanding, held by approximately 263 holders of record.

ISBF shareholders should complete and return their proxy card accompanying this document or follow the alternative voting instructions described on the proxy card to ensure that their votes are counted at the ISBF special meeting, regardless of whether they plan to attend the ISBF special meeting. To be sure that your shares are represented at the meeting, please either complete and promptly mail the enclosed proxy card in the envelope provided for this purpose or vote by following the telephone or Internet voting procedures described on the proxy card. If your shares are registered in the name of a bank or brokerage firm, telephone or Internet voting will be available to you only if offered by your bank or broker and such procedures are described on the voting form sent to you.

At the special meeting, ISBF shareholders will have one vote for each share of ISBF common stock owned on the record date. The holders of a majority of the outstanding shares of ISBF common stock entitled to vote at the special meeting must be present for a quorum to exist at the special meeting.

Approval of the merger agreement, the amended and restated articles of incorporation, and the 2008 Equity Incentive Plan each requires the affirmative vote of holders of a majority of the outstanding shares of ISBF common stock. Brokers who hold shares in street name for customers who are the beneficial owners of such shares may not give a proxy to vote those shares without specific instructions from their customers. Any abstention, non-voting share or “broker non-vote” will have the same effect as a vote against the approval of the merger agreement. In addition, approval of the amended and restated articles of incorporation by ISBF shareholders is a condition to closing the proposed merger. Therefore, ISBF shareholders must approve both proposal 1, the merger agreement with MidWestOne, and proposal 2, the amended and restated articles of incorporation of ISBF, in order to approve the proposed merger with MidWestOne.

Properly executed proxies that ISBF receives before the vote at the special meeting that are not revoked will be voted in accordance with the instructions indicated on the proxies. If no instructions are indicated, these proxies will be voted “FOR” the proposal to approve the merger agreement and the transactions it contemplates, “FOR” the proposal to approve the amended and restated articles of incorporation, “FOR” the proposal to

approve the ISBF 2008 Equity Incentive Plan, and “FOR” any resolution to adjourn the special meeting, if necessary, to solicit additional proxies, and the proxy holder may vote the proxy in its discretion as to any other matter that may properly come before the special meeting.

An ISBF shareholder who has given a proxy solicited by the ISBF board may revoke it at any time prior to its exercise at the special meeting by:

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giving written notice of revocation to ISBF;

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properly submitting to ISBF a duly executed proxy bearing a later date, which automatically revokes your earlier proxy, by mail (or by telephone or Internet if that method was used for your initial proxy submission); or

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attending the special meeting and voting in person.

All written notices of revocation and other written communications with respect to revocation of proxies should be sent to: ISB Financial Corp., 102 South Clinton St., Iowa City, Iowa 52240, Attention: Kenneth R. Urmie, Secretary.

On the record date, ISBF’s directors and executive officers beneficially owned 1,670,393 shares, or approximately 32.3% of the outstanding shares, of ISBF common stock. Pursuant to a voting agreement, the directors will vote the shares over which they have voting control in favor of approving the merger agreement and the transactions it contemplates. However, because they only have voting control over 32.1% of ISBF shares, approval of the merger agreement and the merger is not assured.

Solicitation of Proxies

Directors, officers and employees of ISBF may solicit proxies by regular or electronic mail, in person or by telephone or facsimile. They will receive no additional compensation for these services. ISBF may make arrangements with brokerage firms and other custodians, nominees and fiduciaries, if any, for the forwarding of solicitation materials to the beneficial owners of ISBF common stock held of record by such persons. ISBF will reimburse any brokers, custodians, nominees and fiduciaries for the reasonable out-of-pocket expenses incurred by them for their services. ISBF will pay all expenses associated with the printing and mailing of this joint proxy statement-prospectus to its shareholders.

Authority to Adjourn Special Meeting to Solicit Additional Proxies

ISBF is asking its shareholders to grant full authority for the special meeting to be adjourned, if necessary, to permit solicitation of additional proxies to approve the transactions proposed by this joint proxy statement-prospectus.

Appraisal Rights

Under Iowa law, ISBF’s shareholders are not entitled to exercise appraisal or dissenters’ rights and obtain a cash payment as a result of the merger or any of the transactions contemplated by the merger agreement.

Recommendation of ISBF’s Board

The ISBF board has unanimously approved the merger agreement and the transactions it contemplates and believes that the proposal to approve the merger agreement and the transactions it contemplates are in the best interests of ISBF and its shareholders. The ISBF board unanimously recommends that the ISBF shareholders vote “FOR” approval of the merger agreement and the transactions it contemplates, “FOR” approval of the amended and restated articles of incorporation, “FOR” the approval of the 2008 Equity Incentive Plan, and “FOR” any resolution to adjourn the special meeting, if necessary, to solicit additional proxies. See “The Merger—ISBF’s Reasons for the Merger and Board Recommendation.”

ISBF shareholders should not send stock certificates with their proxy cards. ISBF shareholders will not need to do anything with their stock certificates in connection with the closing of the merger. Following consummation of the merger, current ISBF shareholders will be given the opportunity to exchange their stock certificates for new certificates, which will reflect the new corporate name of “MidWestOne Financial Group, Inc.” This exchange, however, is not required, as current ISBF certificates will continue to represent ownership of shares of common stock of the combined company. Information will be sent to current ISBF shareholders following consummation of the merger regarding the process for exchanging their current certificates for new certificates, if they elect to do so.

MIDWESTONE SPECIAL MEETING

Date, Place, Time and Purpose

The special meeting of MidWestOne’s shareholders will be held at The Peppertree, located at 2274 Highway 63 North, Oskaloosa, Iowa, at 10:00 a.m., central standard time on March 7, 2008. At the special meeting, holders of MidWestOne common stock will be asked to vote upon a proposal to approve the merger agreement and the transactions it contemplates. MidWestOne is also asking its shareholders to grant full authority to adjourn the special meeting, if necessary, to permit solicitation of additional proxies to approve the transactions proposed by this joint proxy statement-prospectus.

Record Date, Voting Rights, Required Vote and Revocability of Proxies

The MidWestOne board fixed the close of business on January 18, 2008 as the record date for determining those MidWestOne shareholders who are entitled to notice of and to vote at the special meeting. Only holders of MidWestOne common stock of record at the close of business on the record date have the right to receive notice of and to vote at the special meeting. On the record date, there were 3,705,225 shares of MidWestOne common stock issued and outstanding, held by approximately 385 holders of record.

MidWestOne shareholders should complete and return their proxy card accompanying this document or follow the alternative voting instructions described on the proxy card to ensure that their votes are counted at the MidWestOne special meeting, regardless of whether they plan to attend the MidWestOne special meeting. To be sure that your shares are represented at the meeting, please either complete and promptly mail the enclosed proxy card in the envelope provided for this purpose or vote by following the telephone or Internet voting procedures described on the proxy card. If your shares are registered in the name of a bank or brokerage firm, telephone or Internet voting will be available to you only if offered by your bank or broker and such procedures are described on the voting form sent to you.

At the special meeting, MidWestOne shareholders will have one vote for each share of MidWestOne common stock owned on the record date. The holders of a majority of the outstanding shares of MidWestOne common stock entitled to vote at the special meeting must be present for a quorum to exist at the special meeting. Abstentions will be treated as shares present and entitled to vote for purposes of determining whether a quorum is present, but not voted for purposes of determining the approval of any matter submitted to the shareholders for a vote. If a proxy returned by a broker indicates that the broker does not have discretionary authority to vote some or all of the shares covered thereby for any matter submitted to the shareholders for a vote (broker non-votes), such shares will be considered to be present for the purpose of determining whether a quorum is present, but will not be considered as entitled to vote at the special meeting.

Approval of the merger agreement requires the affirmative vote of holders of a majority of the outstanding shares of MidWestOne common stock. Brokers who hold shares in street name for customers who are the beneficial owners of such shares may not give a proxy to vote those shares without specific instructions from their customers. Any abstention, non-voting share or “broker non-vote” will have the same effect as a vote against the approval of the merger agreement.

Properly executed proxies that MidWestOne receives before the vote at the special meeting that are not revoked will be voted in accordance with the instructions indicated on the proxies. If no instructions are indicated, these proxies will be voted “FOR” the proposal to approve the merger agreement and the transactions it contemplates, and “FOR” any resolution to adjourn the special meeting, if necessary, to solicit additional proxies, and the proxy holder may vote the proxy in its discretion as to any other matter that may properly come before the special meeting.

A MidWestOne shareholder who has given a proxy solicited by the MidWestOne board may revoke it at any time prior to its exercise at the special meeting by:

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giving written notice of revocation to MidWestOne;

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properly submitting to MidWestOne a duly executed proxy bearing a later date, which automatically revokes your earlier proxy, by mail (or by telephone or Internet if that method was used for your initial proxy submission); or

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attending the special meeting and voting in person.

All written notices of revocation and other communications with respect to revocation of proxies should be sent to: MidWestOne Financial Group, Inc., 222 First Avenue East, Oskaloosa, Iowa 52577, Attention: Karen K. Binns, Secretary.

On the record date, MidWestOne’s directors and executive officers beneficially owned 570,296 shares, or approximately 14.8% of the outstanding shares, of MidWestOne common stock. Pursuant to a voting agreement entered into in connection with the execution of the merger agreement, these individuals must vote the shares over which they have voting control in favor of approving the merger agreement and the transactions it contemplates. However, because they only have voting control over approximately 14.0% of the MidWestOne shares, approval of the merger agreement and the merger is not assured.

ESOP Participant Voting

For participants in the MidWestOne Financial Group, Inc. Employee Stock Ownership Plan and Trust (the “MidWestOne ESOP”), the proxy card will also serve as a voting instruction card for MidWestOne Bank, the trustee of the MidWestOne ESOP, with respect to shares held in the participants’ accounts. A participant cannot direct the voting of shares allocated to the participant’s account in the MidWestOne ESOP unless the proxy card is signed and returned. If proxy cards representing shares in the MidWestOne ESOP are not returned, those shares will be voted by the MidWestOne ESOP trustee in the same proportion as the shares for which signed proxy cards are returned by the other participants in the MidWestOne ESOP.

Solicitation of Proxies

Directors, officers and employees of MidWestOne may solicit proxies by regular or electronic mail, in person or by telephone or facsimile. They will receive no additional compensation for these services. MidWestOne may make arrangements with brokerage firms and other custodians, nominees and fiduciaries, if any, for the forwarding of solicitation materials to the beneficial owners of MidWestOne common stock held of record by such persons. MidWestOne will reimburse any brokers, custodians, nominees and fiduciaries for the reasonable out-of-pocket expenses incurred by them for their services. MidWestOne will pay all expenses associated with the printing and mailing of this joint proxy statement-prospectus to its shareholders.

Authority to Adjourn Special Meeting to Solicit Additional Proxies

MidWestOne is asking its shareholders to grant full authority for the special meeting to be adjourned, if necessary, to permit solicitation of additional proxies to approve the transactions proposed by this joint proxy statement-prospectus.

Appraisal Rights

Under Iowa law, MidWestOne shareholders are not entitled to exercise appraisal or dissenters’ rights and obtain a cash payment for their shares as a result of the merger or any of the transactions contemplated by the merger agreement.

Recommendation of MidWestOne’s Board

The MidWestOne board has unanimously approved the merger agreement and the transactions it contemplates and believes that the proposal to approve the merger agreement and the transactions it contemplates are in the best interests of MidWestOne and its shareholders. The MidWestOne board unanimously recommends that the MidWestOne shareholders vote “FOR” approval of the merger agreement and the transactions it contemplates and “FOR” any resolution to adjourn the special meeting, if necessary, to solicit additional proxies. See “The Merger—MidWestOne’s Reasons for the Merger and Board Recommendation.”

MidWestOne shareholders should not send stock certificates with their proxy cards. Upon completion of the merger, former MidWestOne shareholders will be mailed a transmittal form by the exchange agent with instructions on how to exchange their MidWestOne stock certificates for ISBF stock certificates.

THE MERGER

The following discussion contains material information pertaining to the merger and the related transactions. This discussion is subject to and qualified in its entirety by reference to the merger agreement and the opinions of MidWestOne’s and ISBF’s financial advisors attached as appendices to this document. We urge you to read the appendices in their entirety.

General

The ISBF board of directors and the MidWestOne board of directors each have unanimously approved the merger agreement, which provides for a merger of MidWestOne with and into ISBF. ISBF will be the surviving corporation in the merger and will continue its existence as an Iowa corporation under the name “MidWestOne Financial Group, Inc.” At the time the merger becomes effective, each share of MidWestOne common stock then issued and outstanding will be converted into and exchanged for the right to receive 0.95 share of ISBF common stock. Each share of ISBF common stock then issued and outstanding will remain outstanding.

ISBF will not issue any fractional shares to MidWestOne’s shareholders. Instead, MidWestOne shareholders will receive cash in lieu of any fractional shares of common stock of the combined company owed to them in exchange for their shares of MidWestOne common stock. The amount of cash to be paid for a fractional share will be equal to the product of the average of the closing prices of ISBF common stock for the ten trading days immediately preceding the date of the merger agreement and the fractional share amount. No interest will be paid or accrued on cash payable to holders of MidWestOne common stock in lieu of fractional shares. No shareholder of MidWestOne will be entitled to dividends, voting rights or any other rights as a shareholder of ISBF with respect to any fractional shares.

On their respective record dates, ISBF had 5,165,308 shares of common stock issued and outstanding and MidWestOne had 3,705,225 shares of common stock issued and outstanding. Based on the exchange ratio contained in the merger agreement, ISBF expects to issue approximately 3,519,963 shares of its common stock for the outstanding shares held by MidWestOne shareholders. After the merger, current MidWestOne shareholders will own approximately 41% of the outstanding shares of common stock of the combined company.

Fluctuation in ISBF Stock Price. Because the exchange ratio of 0.95 share of ISBF common stock is fixed, the value of the merger consideration will fluctuate if the price of ISBF common stock changes. Share prices cannot be accurately predicted, particularly because ISBF common stock is not traded on a securities exchange but over-the-counter among broker-dealers. As a result, the market for ISBF shares is relatively illiquid, which tends to increase price volatility. The following table illustrates the effective value of the merger consideration to be received by MidWestOne shareholders on a per share basis under varying prices of ISBF common stock:


Price of ISBF Common Stock		Value of Stock Consideration to be Received in the Merger
$16.00		$15.20
16.50		15.68
17.00		16.15
17.50		16.63
18.00		17.10
18.50		17.58
19.00		18.05
19.50		18.53
20.00		19.00
20.50		19.48
21.00		19.95
21.50		20.43
22.00		20.90
22.50		21.38
23.00		21.85
23.50		22.33
24.00		22.80
24.50		23.28
25.00		23.75
25.50		24.23
26.00		24.70

Based on the last reported transaction involving the sale of ISBF common stock prior to the date of this joint proxy statement-prospectus, the most recent sale price of ISBF common stock was $17.40. Based on this price, the value of the merger consideration would be $16.53 (0.95 share, multiplied by $17.40). The actual value of the shares of the combined company that you receive in the merger may be more or less than the hypothetical values referred to above. The actual value of the combined company shares you receive in the merger for your MidWestOne shares will depend on the value of ISBF’s shares at the time of the merger, and after the merger, will fluctuate based on the market price of the combined company’s shares on the Nasdaq Global Market.

Treatment of Stock Options and Restricted Stock

MidWestOne Stock Options. Upon completion of the merger, each outstanding option to acquire MidWestOne common stock shall be deemed to constitute an option to acquire a number of whole shares of ISBF common stock equal to the product of the number of shares of MidWestOne common stock that were subject to the original MidWestOne stock option multiplied by the exchange ratio (the product being rounded down to the nearest whole share). The per share exercise price for each outstanding option to acquire MidWestOne common stock will be equal to the exercise price per share of the original MidWestOne stock option divided by the exchange ratio (the quotient being rounded up to the nearest cent). As soon as practicable, but in no event later than the completion of the merger, ISBF will file a registration statement to register the issuance of the shares of common stock to be issued upon exercise of the MidWestOne stock options that will be deemed to constitute an option to acquire ISBF common stock upon completion of the merger.

ISBF Stock Options. At the effective time of the merger, each outstanding ISBF stock option shall continue to constitute an option to purchase on the same terms and conditions as were applicable under the terms of the ISBF stock option plan under which the ISBF stock option was granted and the applicable award agreement thereunder, the same number of shares of ISBF common stock at the same exercise price per share.

Acceleration and Extension of ISBF and MidWestOne Stock Options. The merger agreement provides that, prior to the effective time of the merger, ISBF and MidWestOne shall take all actions necessary to cause each outstanding, unexercised ISBF stock option or MidWestOne stock option, as the case may be, to vest and become exercisable upon the merger becoming effective. Accordingly, options to purchase 61,392 shares of MidWestOne common stock that were not exercisable as of September 30, 2007 will become exercisable no later than the effective date of the merger. Currently, all outstanding ISBF options are fully vested and exercisable. Further, the merger agreement provides that, prior to the effective time of the merger, ISBF and MidWestOne shall take all actions necessary to extend the period during which a holder of MidWestOne stock options or ISBF stock options, who is an employee of MidWestOne or ISBF, may exercise such options after termination of employment for any reason (other than termination by the combined company or a subsidiary for cause or resignation by the employee in circumstances that do not entitle the employee to severance benefits) to one year from the date of termination, but not beyond the expiration date of the option.

Acceleration of MidWestOne Restricted Stock. The merger agreement provides that, prior to the effective time of the merger, MidWestOne shall take all actions necessary to cause each share of MidWestOne restricted stock that is outstanding immediately prior to the effective time of the merger to vest and become free of all restrictions. As such, each share of MidWestOne restricted stock issued and outstanding immediately prior to the effective time of the merger will be converted into the right to receive the ISBF common stock. As of September 30, 2007, MidWestOne had outstanding 8,000 shares of restricted stock awarded to directors and 4,525 shares of restricted stock awarded to employees that would vest and become free of all restrictions in accordance with the terms of the merger agreement.

Effective Time of the Merger

The merger will become effective on the close of business on the day when articles of merger reflecting the merger are filed with the Secretary of State of the State of Iowa. The parties have agreed that the closing of the merger will occur on the fifth business day (or such other time agreed by the parties) after satisfaction or waiver of all of the conditions to closing set forth in the merger agreement.

We anticipate that the merger will become effective during the first quarter of 2008; however, delays could occur.

We cannot assure you that the necessary shareholder and regulatory approvals of the merger will be obtained or that other conditions precedent to the merger can or will be satisfied. Either party’s board of directors may terminate the merger agreement if the merger is not completed by May 31, 2008, unless it is not completed because of the failure by the party seeking termination to comply fully with its obligations under the merger agreement. See “The Merger—Conditions to Completion of the Merger” and “The Merger Agreement—Termination and Termination Fees.”

Background of the Merger

The boards of directors of each of ISBF and MidWestOne have regularly reviewed the business strategies of their respective companies in light of local competitive and economic conditions, their financial condition, results of operations and future prospects, legislative changes, and other developments affecting the banking industry generally, and each of their respective companies specifically.

The ISBF board of directors has considered from time to time the possible benefits of strategic business combinations with other comparably-sized financial institutions, including other bank holding companies, as a part of its ongoing evaluation of available methods to increase shareholder value, to strengthen its franchise through expansion of its existing market area and to solidify its market position in its existing markets. However, ISBF has not engaged in a business combination or other strategic transaction since its acquisition of First State Bank of Conrad, Iowa in 1998.

The MidWestOne board of directors also has considered, from time to time, the possible benefits of strategic business combinations with other comparably-sized financial institutions in order to expand its geographic footprint. In September 1999, MidWestOne acquired Midwest Bancshares, Inc., the holding company for Midwest Federal Savings and Loan Association of Eastern Iowa, which had banking operations in Burlington, Fort Madison and Wapello in southeastern Iowa, and, in February 2003, it acquired Belle Plaine Service Corp., the holding company for Citizens Bank & Trust of Hudson, which had branches in Hudson, Belle Plaine and Waterloo, Iowa. All of MidWestOne’s subsidiary banks eventually were merged under a single charter by January 1, 2006.

MidWestOne also has recently expanded the services it offers to customers by acquiring the assets of Koogler Company of Iowa, a retail brokerage and financial planning firm in Pella, Iowa, on June 30, 2004, and acquiring Cook & Son Agency, Inc., an insurance agency in Pella, Iowa, on September 1, 2005. The assets of Koogler Company are owned by MidWestOne Investment Services, Inc., a wholly-owned subsidiary of MidWestOne. In 2007, Cook & Son Agency, Inc. was renamed MidWestOne Insurance Services, Inc., which also is a wholly-owned subsidiary of MidWestOne.

The MidWestOne board of directors also assessed on an ongoing basis possible succession arrangements for Charles S. Howard, Chairman, President and Chief Executive Officer of MidWestOne, who has led the MidWestOne organization since 1993, and had retained an executive search firm with respect to John P. Pothoven, the President and Chief Executive Officer of MidWestOne Bank, in light of the officer’s expected retirement in 2008.

From time to time, MidWestOne periodically met with representatives of investment banking firms to discuss market trends and future outlook and possible strategic partnering opportunities. In late January and early February 2007, MidWestOne’s senior management met separately with representatives of each of Howe Barnes Hoefer & Arnett, Inc. and Sandler O’Neill & Partners, L.P., to discuss possible strategic directions and alternatives of MidWestOne. These meetings were initiated by members of MidWestOne’s senior management, and were attended by Messrs. Howard and Pothoven and David Meinert, Executive Vice President and Chief Financial Officer of MidWestOne. These discussions included an overview of the current banking environment as well as of MidWestOne, including a market analysis, a MidWestOne historical stock price, volume and liquidity analysis, a comparable group analysis and a discussion and analysis of an earnings model forecast of

MidWestOne prepared by each of the firms. The parties also discussed the bank and thrift merger and acquisition environment generally, and reviewed a valuation analysis of MidWestOne including a discussion of potential “merger of equals” partners and potential strategic buyers.

At these meetings, two financial institutions were identified as possible “merger-of-equals” partners, one of which was ISBF. It was agreed that Sandler O’Neill would contact ISBF’s management regarding their interest in meeting with MidWestOne’s senior management to discuss the possibility of a potential transaction.

In March 2007, representatives of Sandler O’Neill called Charles N. Funk, the President of ISBF, to determine if ISBF had an interest in meeting with MidWestOne to discuss a potential merger of equals transaction between the two companies. After discussing the issue with W. Richard Summerwill, the Chairman and Chief Executive Officer of ISBF, Mr. Funk agreed that ISBF would be interested in having a preliminary meeting with representatives of MidWestOne and Sandler O’Neill to explore whether the companies had compatible cultures and shared similar operating philosophies and visions for their organizations.

At a regularly scheduled meeting of MidWestOne’s board of directors held on March 15, 2007, management informed the board that both ISBF and another Iowa-based financial institution had expressed an interest and willingness to hold preliminary informal discussions with MidWestOne regarding possible strategic transactions. As to the other Iowa-based financial institution, certain members of management of MidWestOne had placed several calls to this institution in early 2007, which were not returned. Later, this entity contacted Howe Barnes and indicated that it would be interested in exploring preliminary discussions with MidWestOne. By then, however, discussions with ISBF had progressed further, and MidWestOne did not pursue further contact with this financial institution.

On April 16, 2007, Messrs. Summerwill and Funk, along with Kent Jehle, Executive Vice President—Commercial Banking of Iowa State Bank & Trust, met in Davenport, Iowa, with Charles S. Howard, David A. Meinert, Executive Vice President and Chief Financial Officer of MidWestOne, and representatives of Sandler O’Neill. The parties discussed their respective organizations and the operating philosophies and characteristics thereof, as well as the loan pool activities of MidWestOne. Sandler O’Neill presented a pro forma overview of the two organizations if they were to combine in a merger of equals transaction. Also presented was a branch map and a contribution analysis based on each party’s 2006 year end financial statements. The parties also discussed certain non-financial aspects of a potential merger of equals transaction generally and potential pros and cons to each organization of combining in such a transaction. No transaction specifics or possible pricing terms were discussed at this meeting. The representatives of both ISBF and MidWestOne decided that they would give further thought to a potential combination of the two entities. Because the parties intended to engage in further discussions with each other in the future, each company executed a confidentiality agreement that provided for, among other things, a mutual obligation to maintain the confidentiality of all transaction-related discussions and negotiations.

At a regular meeting of MidWestOne’s board of directors held on April 26, 2007, Mr. Meinert reported to the Board that he and Mr. Howard had met with representatives of ISBF and Sandler O’Neill to discuss the possibility of a merger of equals transaction. The board engaged in a general discussion regarding such a potential transaction, and it was the consensus of the board that discussions with ISBF in that regard should continue.

At a regular meeting of ISBF’s board of directors held on May 15, 2007, Messrs. Summerwill and Funk reported that they had met with representatives of MidWestOne and Sandler O’Neill to discuss the possibility of a merger of equals transaction. The board engaged in a general discussion regarding MidWestOne and a potential transaction therewith, and instructed Messrs. Summerwill and Funk to continue discussions with MidWestOne.

On both May 3 and May 23, 2007, senior management of ISBF and MidWestOne met in Iowa City, Iowa, and on June 4, 2007, Mr. Funk met with senior management of MidWestOne in Oskaloosa, Iowa, to continue

discussions regarding a potential merger of equals transaction involving the two companies. During these meetings, the parties discussed their respective businesses in greater detail and the markets that are served by each. The parties also began discussing cost savings that a combined entity potentially could achieve. In addition, the parties held initial discussions about which individuals would make up the senior management team of a combined entity. The parties did not discuss potential pricing or other specific transaction terms at these meetings. Rather, the purpose of the meetings was to gain a better understanding of each other’s business and to learn about the cultures of the respective organizations and their senior management teams.

At this point, ISBF’s board determined that the discussions with MidWestOne were getting serious enough to warrant obtaining special legal counsel to advise ISBF in connection with a potential strategic transaction. Thus, in early June 2007, Messrs. Summerwill and Funk contacted the law firm of Barack Ferrazzano Kirschbaum & Nagelberg LLP to discuss the possibility of Barack Ferrazzano representing ISBF. On June 7, 2007, Messrs. Summerwill and Funk had a conference call with representatives of Barack Ferrazzano to discuss preliminary issues regarding strategic transactions generally, and mergers of equals in particular. They also asked two outside directors, Richard Schwab and Stephen West, to participate in the next meeting with MidWestOne.

On June 15, 2007, representatives of ISBF and MidWestOne, including two outside directors of each company, as well as a representative of Sandler O’Neill, met in Amana, Iowa, to continue discussions regarding a potential merger of equals transaction. Representing ISBF were Messrs. Summerwill, Funk, Schwab and West. Representing MidWestOne were Mr. Meinert, Mr. Pothoven and Richard Donohue and James Wake, outside directors of MidWestOne. At this meeting, the parties’ discussion included the consideration of the possible advantages of a combination, including the fact that it represented the opportunity to extend the combined company’s market share over a larger portion of central and eastern Iowa—resulting in a bank with the sixth largest market share in the state of Iowa—and that it provided for improved stability for both companies because of the complementary nature of their respective businesses and would enable the combined company to realize significant cost savings.

ISBF’s board of directors held a lengthy special meeting on June 21, 2007, to discuss the possible strategic transaction with MidWestOne. Messrs. Summerwill and Funk summarized for the board the ongoing discussions with Messrs. Howard, Meinert and Pothoven of MidWestOne. Representatives from Barack Ferrazzano were present at the meeting and led a discussion regarding the directors’ fiduciary duties with respect to a strategic decision and, in particular, a merger of equals transaction; confidentiality of the proposed transaction; and prohibition of trading in ISBF or MidWestOne common stock prior to the public announcement of any proposed transaction. A representative of Sandler O’Neill also was present at the meeting and discussed with the board of directors a general analysis of merger of equals transactions and the financial aspects of such transactions, including a possible range of exchange ratios for the proposed transaction. ISBF’s board of directors voted to authorize further exploration by ISBF of its strategic alternatives with MidWestOne and directed Messrs. Summerwill and Funk to continue to negotiate the terms of a transaction.

A special meeting of MidWestOne’s board of directors was held on June 25, 2007, at which meeting Sandler O’Neill discussed the company’s strategic alternatives. A lengthy discussion ensued and the board reviewed the potential for a merger of equals transaction and determined that MidWestOne should continue to move forward with its discussions with ISBF. Further, MidWestOne’s board discussed the retention of Sandler O’Neill to represent MidWestOne in the transaction and determined that it preferred that Sandler O’Neill not simultaneously represent ISBF. Thus, after the board meeting, Mr. Howard called Mr. Funk to discuss the possibility of ISBF engaging an independent financial advisor to represent it in negotiations with MidWestOne. Accordingly, ISBF retained Keefe, Bruyette & Woods, Inc., an investment bank that specializes exclusively in the financial services sector, to advise ISBF in connection with its negotiations with MidWestOne and to issue a fairness opinion in connection with a possible transaction. ISBF and Keefe Bruyette then negotiated an engagement letter in early July, and executed an engagement letter on July 10, 2007.

During much of June and July 2007, both parties performed extensive due diligence on each other through in-person interviews, on-site investigations and by reviewing an extensive number of documents posted in an online data room maintained by a third-party provider.

On July 17, 2007, ISBF’s board of directors held a regular meeting, which was attended by representatives of Barack Ferrazzano and Keefe Bruyette. The representatives of Barack Ferrazzano reminded the directors of their fiduciary duties, which had been explained to them in detail at the June 21, 2007, special board meeting. Keefe Bruyette made its initial financial presentation to introduce the board to some of the possible financial underpinnings of the proposed transaction and enable it to make an informed decision regarding the transaction at the appropriate time. There also was a general discussion between the members of the board and the representatives of Keefe Bruyette regarding Keefe Bruyette’s preliminary analysis and presentation, as well as ISBF’s other possible actions, including not engaging in any strategic transactions. The board asked many questions regarding Keefe Bruyette’s position on the valuation, the initial exchange ratio proposal of 0.925 shares of ISBF common stock for each share of MidWestOne common stock, treatment of outstanding MidWestOne options in the merger and the payment of cash dividends prior to any closing, as well as issues involving the integration of the companies. A discussion then ensued regarding the next steps in the negotiation process, as well as the integration process in the event that the parties agree to pursue a transaction. The board directed ISBF’s senior management to continue its discussions and negotiations with MidWestOne, Barack Ferrazzano to prepare an initial draft of an agreement and plan of merger and Keefe Bruyette to negotiate with MidWestOne and Sandler O’Neill regarding the exchange ratio and other financial-related matters. In late July, ISBF’s executive management held several conference calls with representatives of Barack Ferrazzano to discuss issues in drafting the merger agreement. Keefe Bruyette, on behalf of ISBF, also made an initial proposal to MidWestOne and Sandler O’Neill for the exchange ratio.

MidWestOne’s board of directors held a lengthy special meeting on July 19, 2007, to discuss the possible strategic transaction with ISBF. Mr. Howard and Mr. Meinert summarized for the board the ongoing discussions with Messrs. Summerwill and Funk of ISBF. Representatives from Vedder, Price, Kaufman & Kammholz, P.C., special counsel to MidWestOne, were present at the meeting and led a discussion regarding the board of directors’ fiduciary duties with respect to evaluating strategic options and alternatives and, in particular, a merger of equals transaction; confidentiality of the proposed transaction; and prohibition of trading in ISBF or MidWestOne common stock prior to the public announcement of any proposed transaction. A representative of Sandler O’Neill also was present at the meeting. The board of directors also discussed structural terms of a proposed transaction, social issues and potential pricing terms. At this meeting, the board of directors approved the retention of Sandler O’Neill and Howe Barnes to serve as co-advisors to MidWestOne.

Through most of late July to mid-August 2007, the management teams and investment banking representatives for both companies continued to have discussions regarding the initial terms of a possible transaction. The management teams discussed at length the exchange ratio, the composition of the combined company’s board of directors and management team, as well as the overall organization, vision and strategy for the combined institution. Another area that was discussed extensively by the parties was the proposed bylaws of the combined company. The parties and their counsel also held extensive discussions regarding employee benefit matters, including the terms of employment agreements for the combined company’s senior executives. To assist the parties in establishing the employee benefit package for employees of the combined company and the terms of employment agreements for senior executives, they engaged an independent compensation consultant with experience representing financial institutions. Additional due diligence review by both parties continued, and Barack Ferrazzano completed an initial draft of a merger agreement and distributed it to MidWestOne and Vedder Price on August 3, 2007.

During the first several weeks of August 2007, Vedder Price and MidWestOne’s senior management team had multiple discussions regarding the draft merger agreement. On August 16, 2007, the board of directors met, along with representatives of Sandler O’Neill and Vedder Price, to continue its discussion regarding a possible merger of equals with IBSF. Following this discussion, the board supported moving forward with the merger at a minimum exchange ratio of 0.95 share of ISBF common stock for each MidWestOne common share, provided all the social issues could be resolved satisfactorily. The significant social issues that required further discussion included determining: (1) the availability and nature of positions that would be available for MidWestOne Bank’s senior management on the management team of the combined company; (2) the number of stock options

to be issued upon consummation; (3) the board and committee members of the combined company; (4) the amount of time the combined company’s board of directors’ supermajority voting provisions would remain in place after the merger; (5) whether to continue MidWestOne’s ESOP and freeze ISBF’s pension plan; (6) that MidWestOne employees would not lose any material benefits; (7) the terms and conditions of Mr. Howard’s letter agreement with the combined company and the terms and conditions of Mr. Meinert’s employment agreement and salary continuation retirement benefit; (8) the terms of a new severance plan for the combined company; and (9) whether MidWestOne’s outstanding stock options would be cashed out or rolled over, and the proper accounting treatment for the options based on the handling of the options.

On August 21, 2007, ISBF’s board of directors held its regular monthly meeting. Representatives of Barack Ferrazzano and Keefe Bruyette also participated in the meeting. Mr. Funk discussed with the board the remaining open issues that the parties needed to resolve prior to signing a definitive agreement, most of which related to employment and compensation-related matters. He also apprised them of the open issues regarding the proposed bylaws. Mr. Funk then provided an update on the additional due diligence on MidWestOne that had been conducted by ISBF’s senior management. Keefe Bruyette then briefed the board on the status of negotiations with MidWestOne and Sandler O’Neill regarding the exchange ratio and other financial-related terms. It noted that ISBF, through Keefe Bruyette, had made a proposal for a final exchange ratio, but the parties had not yet been able to reach agreement on the final number until some of the open issues that Mr. Funk had discussed at the beginning of the meeting were resolved. The board requested that ISBF’s senior management and its legal and financial advisors continue to work toward finalizing the exchange ratio, resolving the open issues that Mr. Funk had discussed and preparing a proposed final draft of the merger agreement that could be considered by the board at an upcoming special meeting.

Management of ISBF and MidWestOne, along with their respective financial advisors, continued to have discussions through the end of August and into September regarding the proposed exchange ratio. Concurrently, Barack Ferrazzano and Vedder Price, with direction and input from their respective clients, continued to negotiate the terms of the proposed merger agreement and related documents, including proposed employment agreements for the executive management personnel of the combined company.

On September 5, 2007, the MidWestOne board of directors held a special meeting to further discuss the proposed merger of equals with ISBF, the status of the merger negotiations and to review a draft of the merger agreement, a copy of which was previously provided to each MidWestOne director prior to the meeting. Representatives of Vedder Price, Sandler O’Neill and Howe Barnes participated in the meeting. The current draft of the merger agreement was discussed, along with the remaining unresolved financial and social issues. Drafts of the fairness opinions from each of Sandler O’Neill and Howe Barnes were presented to the board, and the board further discussed the merits of the proposed transaction.

During this first week of September, the parties reached a tentative agreement on the 0.95 exchange ratio, subject to the approval of each company’s board of directors. The parties also agreed, contingent on approval of each company’s boards of directors, to the terms that are provided in the final merger agreement and which are summarized in this joint proxy statement-prospectus. Legal counsel for the respective parties worked to finalize the merger agreement and other documentation, including the disclosure schedules delivered in connection with the merger agreement and employment agreements for executive officers of the combined company.

On September 11, 2007, the MidWestOne board of directors held a special meeting to consider the negotiated terms of the merger agreement. The meeting included extensive discussions of the proposed transaction and the merger agreement. Representatives of Vedder Price reviewed with the board of directors its fiduciary duties and other legal considerations involved in a decision to approve the contemplated transactions. The meeting also included a detailed discussion by Vedder Price of the terms of the proposed merger agreement, including how the open financial and social issues discussed at its last meeting were resolved in the current draft of the agreement. Additionally, Sandler O’Neill distributed its updated fairness opinion, and the final fairness opinion received from Howe Barnes was reviewed by the board. Following this discussion, the board of directors determined that the proposed merger of equals with ISBF was in the best interests of its shareholders and approved the merger agreement and related transactions.

Also on September 11, 2007, the ISBF board of directors held a special meeting to consider the negotiated terms of the merger agreement. The meeting included extensive discussions of the proposed transaction and the merger agreement. Barack Ferrazzano reviewed with the board of directors its fiduciary duties and other legal considerations involved in a decision to approve the contemplated transactions. The meeting also included a detailed discussion by Barack Ferrazzano of the terms of the proposed merger agreement and employment agreements to be entered into with key management personnel of the combined company. Additionally, Keefe Bruyette reviewed the financial terms of the transaction, provided a financial analysis of the proposed transaction and delivered its oral opinion, subsequently confirmed in writing, that the 0.95 exchange ratio was fair to ISBF’s shareholders from a financial point of view. At the conclusion of this portion of the meeting, the board of directors determined that the proposed merger of equals with MidWestOne was in the best interests of its shareholders and approved the merger agreement and related transactions.

The merger agreement was signed by both ISBF and MidWestOne after the closing of the stock markets on September 11, 2007. Both ISBF and MidWestOne held meetings with their employees on the morning of September 12, 2007, prior to the opening of trading, to inform them of the transaction. The transaction also was publicly announced on the morning of September 12, 2007, prior to the opening of trading.

ISBF’s Reasons for the Merger and Board Recommendation

The ISBF board of directors believes that the merger agreement and the transactions contemplated by the merger agreement, including the merger, the issuance of shares of ISBF common stock and the adoption of amended and restated articles of incorporation of ISBF to, among other things, change its corporate name to “MidWestOne Financial Group, Inc.,” are fair to, and in the best interests of, ISBF and its shareholders. Accordingly, the ISBF board has unanimously approved the merger agreement and unanimously recommends that its shareholders vote “FOR” the approval of the merger agreement and the transactions it contemplates.

ISBF’s board has concluded that the proposed merger offers shareholders an extremely attractive opportunity to achieve the board’s strategic business objectives. These objectives include increasing shareholder value, expanding the business into south-central Iowa and gaining deposit market share in east-central Iowa, more effectively leveraging its capital, achieving a more attractive cost structure and growing the size of the business to be one of the largest financial institutions headquartered in the state of Iowa. In addition, ISBF’s board believes that the proposed merger offers ISBF’s current shareholders the benefit of potentially providing greater liquidity for their shares of ISBF common stock.

In deciding to approve the merger agreement and the transactions it contemplates, ISBF’s board consulted with management, as well as its legal counsel and financial advisors, and considered numerous factors, including the following:

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information with respect to the businesses, earnings, operations, financial condition, prospects, capital levels and asset quality of ISBF and MidWestOne, both individually and as a combined company; in particular, the ISBF board focused on the strategic fit of the business lines and the operating philosophies of the two institutions;

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the fact that the merger would combine two solid banking franchises to create a bank with approximately $1.4 billion in assets;

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the consistency of the merger with ISBF’s long-term strategic vision to seek profitable future expansion in Iowa, providing the foundation for expansion of its geographic footprint, leading to continued growth in overall shareholder value;

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the complementary nature of the businesses of ISBF and MidWestOne, the general absence of overlap in the market areas served by each and the anticipated improved stability of the combined company’s business and earnings in varying economic and market climates relative to ISBF on a stand-alone basis;

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the opportunity to build greater brand recognition and awareness;

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the governance arrangements with respect to the combined company post-merger, including representation on the combined company’s board of directors from both companies and shared management responsibilities;

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the belief of ISBF’s senior management and the ISBF board that the two companies share a common vision with respect to delivering financial performance and shareholder value;

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the expectation that a larger organization could offer ISBF employees better career opportunities, which would improve retention particularly among its key employees;

•

the advantages of a combination with an institution such as MidWestOne that already has an established market share in south-central Iowa markets and has offices in certain attractive locations in eastern Iowa that presently are not served by ISBF and the opportunities for increased efficiencies and significant cost savings resulting from a combination with MidWestOne’s current organization, resulting in increased profitability of the combined entity over time, as compared to a possible combination without a similar market presence;

•

the fact that the combined company would be publicly held following the merger and would be traded on the Nasdaq Global Market, providing ISBF’s current shareholders with better access to a public trading market, and that shareholders would be expected to have increased liquidity for their shares as a result of the Nasdaq listing, the higher market capitalization of the combined company, the significantly expanded shareholder base and the potential increase in interest from institutional investors and securities analysts;

•

the fact that the market capitalization of the combined institution, as compared with ISBF’s market capitalization as a stand-alone entity, is expected to provide the combined company with increased access to capital markets to finance the combined company’s capital requirements, and in addition would provide for enhanced market visibility;

•

the fact that the higher market capitalization of the combined company is expected to enhance the attractiveness of the company’s stock going forward, which would make the stock more attractive as consideration to be used in future acquisition opportunities that may generate increased shareholder value;

•

the current and prospective economic and competitive environments facing ISBF and other financial institutions, characterized by intensifying competition from both banks and non-bank financial service organizations, and the growing costs associated with regulatory compliance in the industry;

•

the expectation that the combined company would achieve non-interest expense cost savings of approximately 7% by 2009;

•

the belief that, while no assurances could be given, the business and financial advantages contemplated in connection with the merger were likely to be achieved within a reasonable time frame;

•

the opinion of Keefe Bruyette that, as of September 11, 2007, the merger exchange ratio was fair from a financial point of view to ISBF’s shareholders; and

•

the likelihood that the merger will be approved by the relevant bank regulatory authorities in a timely manner.

In addition, ISBF’s board considered the following negative factors that potentially created risks if the board decided to approve the merger:

•

the significant incremental costs that ISBF will incur as a publicly-traded company due to increased compliance, legal and accounting costs;

•

the amount of time and effort that ISBF’s management will spend on matters related to being a publicly-traded company (e.g., preparing securities filings, communicating with institutional investors, etc.), which will reduce the amount of time and effort management can spend on operational matters and customer relations;

•

the possibility that ISBF’s customers misunderstand the nature of the transaction and incorrectly interpret the name change of ISBF following the merger as an indication that ISBF was sold to an outside party, which could result in a loss of customers;

•

the possibility that the merger and related integration process could result in the loss of key employees, in the disruption of ISBF’s business and the loss of customers;

•

the possibility that the anticipated benefits of the merger may not be realized, including the expected cost savings and the potential merger-related restructuring charges;

•

the potential risk of diverting management focus and resources from operational matters while working to implement the merger;

•

the potential payment of up to $3,350,000 as a termination fee that could be required under the circumstances described in further detail in “The Merger Agreement—Termination Fee”; and

•

the risks of the type and nature described under the caption “Risk Factors,” in this joint proxy statement-prospectus.

ISBF’s board ultimately concluded, however, that the anticipated benefits of combining with MidWestOne were likely to substantially outweigh the preceding risks. For example, ISBF’s board concluded that the costs associated with becoming a publicly-traded company, both in terms of financial costs and management time and effort, were reasonable when compared to the expected significant benefits of becoming a publicly-traded company. Some of those benefits include the ability to provide employees with compensation in the form of stock of a larger organization with a more liquid trading market, which may help retain current employees and attract talented new employees, providing current shareholders with improved liquidity for their shares, enhancing the combined company’s access to the capital markets to finance growth and other capital requirements and providing the combined company with stock that can be used to pursue future acquisition opportunities. In addition, ISBF’s board believes that the additional costs of becoming a public company will be offset by the expected significant cost savings resulting from the combination of ISBF and MidWestOne. With respect to the potential risk that the merger could result in a loss of customers, ISBF’s board believes that any such losses can be minimized by being proactive in communicating with customers during the pendency of merger and during the post-merger integration of the companies’ subsidiary banks. With respect to the potential risk that key employees could be lost because of the disruption of the integration process, ISBF’s board believes that the ability to compensate employees with a more attractive stock, as well as the enhanced employment opportunities afforded by a larger and more well-known organization, will, on balance, enhance the combined company’s attractiveness to key employees. Thus, in the ISBF board’s view, the balance of factors weighed in favor of recommending the merger.

The above discussion of the information and factors considered by the ISBF board is not intended to be exhaustive, but includes the material factors they considered. In arriving at its determination to approve the merger agreement and the transactions it contemplates, and recommend that the ISBF shareholders vote to approve them, the ISBF board did not assign any relative or specific weights to the above factors, and individual directors may have given differing weights to different factors. The ISBF board unanimously recommends that its shareholders vote to approve the merger agreement and the transactions it contemplates.

MidWestOne’s Reasons for the Merger and Board Recommendation

The MidWestOne board of directors believes that the merger agreement and the transactions contemplated by the merger agreement are fair to, and in the best interests of, MidWestOne and its shareholders. Accordingly, the MidWestOne board has unanimously approved the merger agreement and unanimously recommends that its shareholders vote “FOR” the approval of the merger agreement and the transactions it contemplates.

In deciding to approve the merger agreement and the transactions it contemplates, MidWestOne’s board consulted with and was advised by management, as well as its legal counsel and financial advisors. A number of factors were considered by the MidWestOne board of directors in this process, including:

•

the board of directors’ familiarity with ISBF’s business, operations, financial condition, earnings and prospects, focusing in particular on the strategic fit of the two companies’ businesses and operating philosophies given the merger-of-equals transaction;

•

the board of directors’ view that the proposed merger of equals with ISBF was the best way to enhance shareholder value among the strategic alternatives available to MidWestOne, including remaining independent and growing through acquisitions of smaller institutions, entering into a merger of equals with a different company or being acquired by a larger institution;

•

current levels of merger and acquisition activity in the financial services industry and the impact of that activity on MidWestOne’s near and long-term position as a potential acquiror, merger partner or target;

•

the board of directors’ conclusion that, in view of the trend toward consolidation in the financial services industry, the merger would provide MidWestOne shareholders with an opportunity for continued equity participation in a larger financial institution;

•

the expectation that, as a combined company, MidWestOne’s loan pool investments would not have as significant an impact on earnings on a regular basis as they would if MidWestOne continued as an independent organization;

•

the challenging operating environment that currently confronts MidWestOne and challenges that will confront the company over the next several years including, in particular, intense pricing competition, compression of net interest margin, a tight credit environment and, as is the case particularly for Midwest banks, deposit shrinkage and stagnation;

•

the business, operations, financial condition, earnings and prospects of ISBF, taking into account the results of the due diligence review of ISBF directed by MidWestOne;

•

conditions in the banking industry, including recent unfavorable trends in interest rates, increased competition and consolidation;

•

the absence of substantial geographical overlap between MidWestOne and ISBF branches, while at the same time operating in contiguous regions in Iowa;

•

the oral and written presentation of Sander O’Neill and its written opinion as to the fairness of the merger consideration from a financial point of view to MidWestOne’s shareholders and the analyses, methodologies and conclusions underlying such determinations;

•

the oral and written presentation of Howe Barnes and its written opinion as to the fairness of the merger consideration from a financial point of view to MidWestOne’s shareholders and the analyses, methodologies and conclusions underlying such determinations;

•

the benefits of increased liquidity that MidWestOne shareholders would have in their investment as shareholders of a combined company;

•

the condition to the merger that shares of the combined company would be approved for listing on the Nasdaq Global Market;

•

the expectations of full-year non-interest expense cost savings of approximately 7% by 2009 by combining MidWestOne and ISBF;

•

the familiarity of MidWestOne’s senior management team with ISBF’s management team and the belief of MidWestOne’s senior management that the managements and employees of MidWestOne and ISBF possess complementary skills and expertise and the potential advantages of a larger institution when pursuing, or seeking to retain, production and management talent;

•

the effects on the management of MidWestOne as a result of the likely near-term retirement of John P. Pothoven;

•

the likelihood that the merger would be approved by regulatory authorities;

•

the fact that the merger was expected to be a tax-free reorganization to MidWestOne shareholders (other than the cashing out of fractional shares), which would allow them to postpone the recognition of tax if and until they sell their stock of the combined company; and

•

the merger consideration to be received by the shareholders of MidWestOne and the board of directors’ view of the likelihood that the merger would deliver value to the shareholders of MidWestOne that would exceed the value that could be expected by continuing operation as an independent company.

In addition, MidWestOne’s board considered the following negative factors that potentially created risks if the board decided to approve the merger:

•

the possibility for reduced dividends to the shareholders of the combined company following the merger, as compared to the recent historical dividends issued by MidWestOne;

•

the possibility that the merger and the related integration process could result in the loss of key employees, in the disruption of MidWestOne’s business and the loss of customers;

•

the possibility that the anticipated benefits of the merger may not be realized, including the expected cost savings and the potential merger-related restructuring charges;

•

the potential risk of diverting management focus and resources from other strategic opportunities and from operational matters while working to implement the merger;

•

the potential payment of up to $3,350,000 as a termination fee that could be required under the circumstances described in further detail in “The Merger Agreement—Termination Fee”;

•

the terms and conditions of the merger agreement that make it more difficult for MidWestOne to enter into a business combination with a party other than ISBF that could potentially provide a higher value for MidWestOne shares; and

•

the risks of the type and nature described under the caption “Risk Factors,” in this joint proxy statement – prospectus.

In addition, the board of directors considered the effect of the merger on its employees in light of the board of directors’ belief that ISBF’s corporate culture was similar in many respect to the corporate culture of MidWestOne. It also considered the interests of its directors and officers in the merger, as more specifically described under the “The Merger—Interests of Certain Persons in the Merger.” MidWestOne’s board concluded that the anticipated benefits of combining with ISBF in a merger-of-equals transaction particularly in light of the other strategic options available to the company, which the MidWestOne board of directors believed would not provide a comparable potential for increased shareholder value, and the increasingly challenging operating environment facing MidWestOne, particularly if it remained as a stand-alone entity, substantially outweighed the risks and negative factors noted above.

This discussion of the information and factors considered by MidWestOne’s board of directors is not intended to be exhaustive but includes the material factors the board considered. In reaching the determination to approve and recommend the merger, MidWestOne’s board of directors did not assign any relative or specific weights to the foregoing factors, and individual directors may have given differing weights to different factors. MidWestOne’s board of directors is unanimous in its recommendation that MidWestOne shareholders vote “FOR” approval of the merger agreement and the transactions it contemplates.

Fairness Opinion of Sandler O’Neill, MidWestOne’s Financial Advisor

MidWestOne retained Sandler O’Neill & Partners, L.P. to render a fairness opinion in connection with a possible business combination with ISBF. Sandler O’Neill is a nationally recognized investment banking firm whose principal business specialty is financial institutions. In the ordinary course of its investment banking business, Sandler O’Neill is regularly engaged in the valuation of financial institutions and their securities in connection with mergers and acquisitions and other corporate transactions.

At the September 11, 2007 meeting at which MidWestOne’s board considered and approved the merger agreement, Sandler O’Neill delivered to the board its oral opinion, subsequently confirmed in writing that, as of such date, the exchange ratio was fair to MidWestOne’s shareholders from a financial point of view. The full text of Sandler O’Neill’s opinion is attached as Appendix B to this proxy statement-prospectus. The opinion outlines the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Sandler O’Neill in rendering its opinion. The description of the opinion set forth below is qualified in its entirety by reference to the opinion. MidWestOne shareholders are urged to read the entire opinion carefully in connection with their consideration of the proposed merger.

Sandler O’Neill’s opinion speaks only as of the date of the opinion. The opinion was directed to the MidWestOne board and is directed only to the fairness of the exchange ratio to MidWestOne shareholders from a financial point of view. It does not address the underlying business decision of MidWestOne to engage in the merger or any other aspect of the merger and is not a recommendation to any MidWestOne shareholder as to how such shareholder should vote at the special meeting with respect to the merger or any other matter.

In connection with rendering its September 11, 2007 opinion, Sandler O’Neill reviewed and considered, among other things:

•

the merger agreement;

•

certain publicly available financial statements and other historical financial information of MidWestOne that Sandler O’Neill deemed relevant;

•

certain publicly available financial statements and other historical financial information of ISBF that Sandler O’Neill deemed relevant;

•

internal financial projections for MidWestOne for the years ending December 31, 2007 through 2011 as provided by and discussed with senior management of MidWestOne;

•

internal financial projections for ISBF for the years ending December 31, 2007 through 2011 as provided by and discussed with senior management of ISBF;

•

the pro forma financial impact of the merger on MidWestOne, based on assumptions relating to transaction expenses, purchase accounting adjustments, cost savings and other synergies determined by the senior management of MidWestOne and ISBF;

•

the publicly reported historical price and trading activity for MidWestOne’s and ISBF’s common stock, including a comparison of certain financial and stock market information for MidWestOne and ISBF and similar publicly available information for certain other companies the securities of which are publicly traded;

•

to the extent publicly available, the financial terms of certain recent merger of equals type business combinations in the banking industry;

•

the current market environment generally and the banking environment in particular; and

•

such other information, financial studies, analyses and investigations and financial, economic and market criteria as Sandler O’Neill considered relevant.

Sandler O’Neill also discussed with certain members of senior management of MidWestOne the business, financial condition, results of operations and prospects of MidWestOne and held similar discussions with certain members of senior management of ISBF regarding the business, financial condition, results of operations and prospects of ISBF.

In performing its review, Sandler O’Neill has relied upon the accuracy and completeness of all the financial and other information that was available to it from public sources or that was provided to it by MidWestOne and ISBF or their respective representatives and have assumed such accuracy and completeness for purposes of rendering this opinion. Sandler O’Neill has further relied on the assurances of management of MidWestOne and ISBF that they were not aware of any facts or circumstances that would make any of such information inaccurate or misleading. Sandler O’Neill has not been asked to and has not undertaken an independent verification of any such information and they do not assume any responsibility or liability for the accuracy or completeness thereof. Sandler O’Neill did not make an independent evaluation or appraisal of the specific assets, the collateral securing assets or the liabilities (contingent or otherwise) of MidWestOne or ISBF or any of their subsidiaries, or the collectibility of any such assets, nor was it furnished with any such evaluations or appraisals. Sandler O’Neill did not make an independent evaluation of the adequacy of the allowance for loan losses of MidWestOne or ISBF, nor did it review any individual credit files relating to MidWestOne or ISBF. Sandler O’Neill has assumed, with MidWestOne’s consent, that the respective allowances for loan losses for both MidWestOne and ISBF are adequate to cover such losses.

With respect to the internal financial projections for MidWestOne and ISBF reviewed by Sandler O’Neill with the respective management of MidWestOne and ISBF, and used by Sandler O’Neill in its analyses, MidWestOne’s and ISBF’s managements confirmed to Sandler O’Neill that they reflected the best currently available estimates and judgments of the respective managements of the respective future financial performances of MidWestOne and ISBF. Each company’s internal financial projections were prepared by management of the respective company, and Sandler O’Neill was not involved in the creation of these projections. With respect to the transaction expenses, purchase accounting adjustments, cost savings and other synergies determined by and reviewed with the senior managements of MidWestOne and ISBF, such managements confirmed to Sandler O’Neill that they reflected the best currently available estimates and judgments of such managements and Sandler O’Neill assumed that such performances would be achieved. Sandler O’Neill expressed no opinion as to such financial projections or the assumptions on which they are based. Sandler O’Neill has also assumed that there has been no material change in MidWestOne’s and ISBF’s assets, financial condition, results of operations, business or prospects since the date of the most recent financial statements made available to it. Sandler O’Neill has assumed in all respects material to our analysis that MidWestOne and ISBF will remain as going concerns for all periods relevant to its analyses, that all of the representations and warranties contained in the agreement and all related agreements are true and correct, that each party to the agreements will perform all of the covenants required to be performed by such party under the agreements, that the conditions precedent in the agreements are not waived and that the merger will be a tax-free reorganization for federal income tax purposes. Finally, with MidWestOne’s consent, Sandler O’Neill has relied upon the advice MidWestOne has received from its legal, accounting and tax advisors as to all legal, accounting and tax matters relating to the merger and the other transactions contemplated by the agreement.

Sandler O’Neill’s opinion was necessarily based upon financial, economic, market and other conditions as they existed on, and could be evaluated as of, the date of its opinion. Events occurring after the date of its opinion could materially affect its opinion. Sandler O’Neill has not undertaken to update, revise, reaffirm or withdraw its opinion or otherwise comment upon events occurring after the date of its opinion. Sandler O’Neill is expressing no opinion herein as to what the value of ISBF’s common stock will be when issued to MidWestOne’s shareholders pursuant to the agreement or the prices at which MidWestOne’s and ISBF’s common stock may trade at any time.

In rendering its September 11, 2007 opinion, Sandler O’Neill performed a variety of financial analyses. The following is a summary of the material analyses performed by Sandler O’Neill, but is not a complete description of all the analyses underlying Sandler O’Neill’s opinion. The summary includes information presented in tabular format. In order to fully understand the financial analyses, these tables must be read together with the accompanying text. The tables alone do not constitute a complete description of the financial analyses. The preparation of a fairness opinion is a complex process involving subjective judgments as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances.

The process, therefore, is not necessarily susceptible to a partial analysis or summary description. Sandler O’Neill believes that its analyses must be considered as a whole and that selecting portions of the factors and analyses considered without considering all factors and analyses, or attempting to ascribe relative weights to some or all such factors and analyses, could create an incomplete view of the evaluation process underlying its opinion. Also, no company included in Sandler O’Neill’s comparative analyses described below is identical to MidWestOne or ISBF and no transaction is identical to the merger. Accordingly, an analysis of comparable companies or transactions involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies and other factors that could affect the public trading values or merger transaction values, as the case may be, of MidWestOne or ISBF and the companies to which they are being compared.

In performing its analyses, Sandler O’Neill also made numerous assumptions with respect to industry performance, business and economic conditions and various other matters, many of which cannot be predicted and are beyond the control of MidWestOne, ISBF and Sandler O’Neill. The analyses performed by Sandler O’Neill are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by such analyses. Sandler O’Neill prepared its analyses solely for purposes of rendering its opinion and provided such analyses to the MidWestOne board at the board’s September 11, 2007 meeting. Estimates on the values of companies do not purport to be appraisals or necessarily reflect the prices at which companies or their securities may actually be sold. Such estimates are inherently subject to uncertainty and actual values may be materially different. Accordingly, Sandler O’Neill’s analyses do not necessarily reflect the value of MidWestOne’s common stock or ISBF’s common stock or the prices at which MidWestOne’s or ISBF’s common stock may be sold at any time.

Summary of Proposal. Sandler O’Neill reviewed the financial terms of the proposed transaction. Based upon the closing price of ISBF’s common stock on September 7, 2007 of $26.00, a fixed exchange ratio of 0.95, and the conversion of MidWestOne’s shares into shares of ISBF in the merger, Sandler O’Neill calculated an implied transaction value of $24.70 per share. Based upon financial information for MidWestOne for the twelve months ended June 30, 2007, Sandler O’Neill calculated the following ratios:

Transaction Ratios


Price / Book Value	144.1	%
Price / Tangible Book Value	186.6	%
Price / Last 12 Months’ Earnings Per Share	16.5x
Price / Estimated 2007 Earnings Per Share⁽¹⁾	15.9x
Price / Estimated 2008 Earnings Per Share⁽²⁾	15.1x
Core Deposit Premium⁽³⁾	9.7	%
Premium to Market⁽⁴⁾	46.6	%

(1)	Based on management estimates; excludes one-time charge for trust preferred refinancing.

(2)	Based on management estimates.

(3)	Core deposits are defined as total deposits less $84 million of jumbo CDs.

(4)	MidWestOne stock price of $16.85 as of September 7, 2007.

The aggregate offer value was approximately $95.7 million, based upon 3.7 million shares of MidWestOne common stock outstanding and including the intrinsic value of options to purchase an aggregate of 0.43 million shares with a weighted average strike price of $17.00. Sandler O’Neill noted that the transaction value represented a 46.6% premium over the September 7, 2007 closing value of MidWestOne’s common stock.

Stock Trading History. Sandler O’Neill reviewed the history of the reported trading prices and volume of MidWestOne’s and ISBF’s common stock for the one-year and three-year periods ended September 7, 2007 and compared the relationship between the movements in the prices of MidWestOne’s and ISBF’s common stock to

movements in the prices of the Nasdaq Bank Index, S&P 500 Index, S&P Bank Index and the performance of a composite Peer Group of publicly traded Midwest banking institutions selected by Sandler O’Neill for MidWestOne and ISBF, and described below. During both the one-year period and three-year period ended September 7, 2007, MidWestOne underperformed each of the indices to which it was compared. During both the one-year period and three-year period ended September 7, 2007, MidWestOne also underperformed relative to the stock of ISBF.

MidWestOne’s Stock Performance


	Beginning Index Value September 7, 2006		Ending Index Value September 7, 2007
MidWestOne	100.0	%	88.5	%
ISBF	100.0		100.5
Nasdaq Bank Index	100.0		92.0
S&P 500 Index	100.0		112.3
S&P Bank Index	100.0		93.7
Midwest Peer Group⁽¹⁾	100.0		89.2


	Beginning Index Value September 7, 2004		Ending Index Value September 7, 2007
MidWestOne	100.0	%	92.6	%
ISBF	100.0		137.1
Nasdaq Bank Index	100.0		100.9
S&P 500 Index	100.0		131.9
S&P Bank Index	100.0		103.2
Midwest Peer Group⁽¹⁾	100.0		97.3

(1)	The Peer Group for MidWestOne and ISBF used in the stock performance analysis was comprised of the Midwest commercial banks used in the MidWestOne and ISBF comparable group analysis shown below.

Comparable Company Analysis. Sandler O’Neill used publicly available information to compare selected financial and market trading information for MidWestOne and ISBF with a group of Midwest commercial banks selected by Sandler O’Neill for MidWestOne and ISBF. For both MidWestOne and ISBF, the Peer Group consisted of the following publicly traded Midwest commercial banks having assets between $500 million and $2.0 billion:


Ames National Corporation		Horizon Bancorp
BNCCORP, Inc.		Lakeland Financial Corporation
Community Bank Shares of Indiana, Inc.		Landmark Bancorp, Inc.
Community Central Bank Corporation		MBT Financial Corp.
Dearborn Bancorp, Inc.		Mercantile Bancorp, Inc.
Enterprise Financial Services Corp		Monroe Bancorp
First Business Financial Services, Inc.		Northern States Financial Corporation
Firstbank Corporation		Princeton National Bancorp, Inc.
German American Bancorp, Inc.		QCR Holdings, Inc.
Guaranty Federal Bancshares, Inc.		Team Financial, Inc.
Hawthorn Bancshares, Inc.		Tower Financial Corporation
Home Federal Bancorp		West Bancorporation, Inc.

The analysis compared publicly available financial information for MidWestOne and ISBF as of and for the twelve months ended June 30, 2007 with that of the Midwest Bank Peer Group as of and for the twelve months ended June 30, 2007. The table below sets forth the data for MidWestOne, ISBF and the median data for the Midwest Bank Peer Group, with pricing data as of September 7, 2007.

Comparable Group Analysis


	MidWestOne			ISBF			Midwest Bank Peer Group Median
Market Capitalization ($ millions)	$	62.3		$	134.1		$	91.4
Assets ($ millions)	$	749.1		$	680.7		$	947.3
5-Year Asset CAGR		6.44	%		4.61	%		9.63	%
Cash and Securities / Assets		14.42	%		37.53	%		19.84	%
Loans / Deposits		92.53	%		69.79	%		97.18	%
Loan Loss Reserve / Gross Loans		1.12	%		1.44	%		1.08	%
Core Deposits / Deposits⁽¹⁾		85.12	%		85.16	%		80.74	%
Tangible Equity / Tangible Assets		6.65	%		10.08	%		6.89	%
Net Interest Margin		3.74	%		3.16	%		3.33	%
Noninterest Income / Average Assets		0.82