MidWestOne Financial Group, Inc. Reports Results for the Fourth Quarter and Full Year of 2019

IOWA CITY, Iowa, Jan. 23, 2020 (GLOBE NEWSWIRE) -- MidWestOne Financial Group, Inc. (Nasdaq - MOFG) (“we”, “our”, or the "Company”) today reported net income for the fourth quarter of 2019 of $13.4 million, or $0.83 per diluted common share, compared to net income of $12.3 million, or $0.76 per diluted common share, for the third quarter of 2019 (the “linked quarter”). Net income for the full year 2019 was $43.6 million, or $2.93 per diluted common share, compared to net income for the full year 2018 of $30.4 million, or $2.48 per diluted common share. Pre-tax merger-related expenses were $3.3 million and $9.1 million for the fourth quarter and full year of 2019, respectively. Such expenses reduced diluted earnings per common share by $0.15 and $0.47 for the fourth quarter and full year of 2019, respectively.

Charles Funk, President and Chief Executive Officer, commented, “It was another very good quarter for MidWestOne and also the best full year earnings in our history. We continue to see the benefits of a relatively stable core net interest margin and good expense control. Our fourth quarter results produced a return on average assets of 1.14%, a return on average equity of 10.55%, and a return on average tangible equity of 15.60%.”

FINANCIAL HIGHLIGHTS

	As of or For the Three Months Ended												As of or For the Year Ended
	December 31,				September 30,				December 31,				December 31,				December 31,
	2019				2019				2018				2019				2018
	(Dollars in thousands, except per share amounts)
Net income	$	13,371			$	12,300			$	7,624			$	43,630			$	30,351
Earnings per common share, diluted	$	0.83			$	0.76			$	0.62			$	2.93			$	2.48
Return on average assets	1.14		%		1.06		%		0.92		%		1.04		%		0.93		%
Return on average equity	10.55		%		9.92		%		8.61		%		9.65		%		8.78		%
Return on average tangible equity (1)	15.60		%		15.57		%		11.47		%		13.98		%		11.87		%
Net interest margin, tax equivalent(1)	3.79		%		4.15		%		3.59		%		3.82		%		3.60		%
Yield on loans, tax equivalent(1)	5.16		%		5.59		%		4.85		%		5.22		%		4.77		%
Cost of total deposits	0.88		%		0.89		%		0.78		%		0.89		%		0.66		%
Efficiency ratio(1)	63.05		%		50.46		%		57.81		%		57.56		%		61.23		%
Total assets	$	4,653,573			$	4,648,287			$	3,291,480			$	4,653,573			$	3,291,480
Loans held for investment, net of unearned income	$	3,451,266			$	3,524,728			$	2,398,779			$	3,451,266			$	2,398,779
Total deposits	$	3,728,655			$	3,709,712			$	2,612,929			$	3,728,655			$	2,612,929
Equity to assets ratio	10.94		%		10.71		%		10.85		%		10.94		%		10.85		%
Tangible common equity ratio(1)	8.48		%		8.21		%		8.78		%		8.48		%		8.78		%
Book value per share	$	31.49			$	30.77			$	29.32			$	31.49			$	29.32
Tangible book value per share(1)	$	23.77			$	22.93			$	23.20			$	23.77			$	23.20
Gross loans held for investment to deposit ratio	93.04		%		95.59		%		91.80		%		93.04		%		91.80		%
(1) Non-GAAP measure. See pages 14-15 for a reconciliation to the most directly comparable GAAP measure.

Acquisition of ATBancorp

Our results of operations for the fourth quarter and full year of 2019 and our financial condition at December 31, 2019 were significantly impacted by the May 1, 2019 acquisition of ATBancorp. The table below summarizes the amounts recognized at the acquisition date for each major class of assets acquired and liabilities assumed:

	May 1, 2019
	(in thousands)
Merger consideration				$	148,443
Identifiable net assets acquired, at fair value
Assets acquired
Cash and due from banks	$	71,820
Debt securities available for sale		99,056
Loans		1,138,928
Premises and equipment		18,327
Core deposit intangible		23,539
Customer relationship intangible		4,285
Bank-owned life insurance		18,759
Foreclosed assets		3,091
Other assets		22,857
Total assets acquired					1,400,662
Liabilities assumed
Deposits		1,079,094
Short-term borrowings		100,761
Long-term debt		71,234
Other liabilities		29,544
Total liabilities assumed					1,280,633
Total identifiable net assets acquired, at fair value				$	120,029
Goodwill				$	28,414

INCOME STATEMENT HIGHLIGHTS

Net Interest Income

Net interest income decreased in the fourth quarter of 2019 to $39.6 million from $43.3 million in the linked quarter due primarily to lower loan purchase discount accretion in the current period. Discount accretion from acquired loans added $3.9 million to net interest income in the fourth quarter compared to $7.2 million in the linked quarter. Average earning assets were up slightly and reflected a mix shift between investment securities and loans.

The tax equivalent net interest margin decreased to 3.79% for the fourth quarter of 2019 from 4.15% in the linked quarter as lower loan yields, driven by lower loan purchase discount accretion, were only partially offset by lower  funding costs. The Company's core net interest margin, which excludes loan purchase discount accretion, compressed 6 basis points ("bps") from the linked quarter. Such compression reflected the negative impact to the Company's variable rate asset yields from the three cuts to the federal funds target rate in the latter half of 2019 coupled with the continued challenges posed by the shape of the yield curve. In addition, interest reversals related to nonaccrual loans accounted for 2 bps of the sequential decline in earning asset yields. Partially offsetting those factors was a 5 bps sequential decline in funding costs.

Mr. Funk continued, “Our 'core margin' this quarter was impacted by market rates, nonaccrual loan interest reversals and a shift in mix of loans and investment securities. We continue to be diligent in managing our funding costs consistent with changes in market rates to maintain our margin.”

Noninterest Income

Noninterest income for the fourth quarter of 2019 increased $1.0 million, or 13%, from the linked quarter. The increase was due primarily to increases in the 'Loan revenue' and ‘Other’ income line items. ‘Loan revenue’ in the linked quarter included a $657 thousand negative valuation adjustment to the Company’s mortgage servicing right whereas the fourth quarter adjustment was a favorable $272 thousand, a $929 thousand period-to-period change. The 'Other' line item reflected increased income from our commercial loan swap program. Partially offsetting these increases, ‘Card revenue’ declined $513 thousand due primarily to the recognition of rewards costs related to our credit card program.

“Both our trust and investment services groups recorded their best years ever in 2019 which was reflected in our financial results. Our mortgage group also finished the year strong and, finally, we were pleased by the success of our commercial bankers in selling our loan swap products,” said Mr. Funk.

The following table presents details of noninterest income for the periods indicated:

	Three Months Ended
	December 31,				September 30,				December 31,
Noninterest Income	2019				2019				2018
	(In thousands)
Investment services and trust activities	$	2,421			$	2,339			$	1,274
Service charges and fees	2,072				2,068				1,556
Card revenue	1,142				1,655				1,095
Loan revenue	1,757				991				884
Bank-owned life insurance	501				514				381
Insurance commissions	—				—				260
Investment securities gains (losses), net	18				23				(4		)
Other	1,125				414				350
Total noninterest income	$	9,036			$	8,004			$	5,796

Noninterest Expense

Noninterest expense for the fourth quarter of 2019 increased $5.0 million, or 16%, from the linked quarter due primarily to accounting for certain flow-through tax credit partnerships. Specifically, 'Other' noninterest expense in the fourth quarter reflected a write-down of approximately $3.9 million to the Company's investment in such partnerships. This write-down was wholly offset, however, by a benefit in income tax expense.

The following table presents details of noninterest expense for the periods indicated:

	Three Months Ended
	December 31,				September 30,				December 31,
Noninterest Expense	2019				2019				2018
	(In thousands)
Compensation and employee benefits	$	19,246			$	17,426			$	12,111
Occupancy expense of premises, net	2,347				2,294				1,166
Equipment	2,251				2,181				1,433
Legal and professional	1,797				1,996				1,027
Data processing	1,492				1,234				875
Marketing	1,147				1,167				678
Amortization of intangibles	1,941				2,583				503
FDIC insurance	(72		)		(42		)		429
Communications	493				489				342
Foreclosed assets, net	173				265				46
Other	5,621				1,849				1,169
Total noninterest expense	$	36,436			$	31,442			$	19,779

The following table presents details of merger-related costs for the periods indicated:

	Three Months Ended
	December 31,				September 30,				December 31,
Merger-related Expenses	2019				2019				2018
	(In thousands)
Compensation and employee benefits	$	2,854			$	1,576			$	—
Occupancy expense of premises, net	73				44				—
Equipment	43				204				2
Legal and professional	201				471				89
Data processing	51				39				100
Marketing	2				6				—
Other	58				207				15
Total merger-related costs	$	3,282			$	2,547			$	206

Income Taxes

The Company recognized a net income tax benefit of $1.8 million in the fourth quarter compared to an expense of $3.3 million in the linked quarter due primarily to the recognition of $4.0 million in renewable energy and historic tax credits in the fourth quarter. These credits reduced the Company's annual effective income tax rate for 2019 to 13.1%. Partially offsetting the earnings benefit from those tax credits was the aforementioned $3.9 million write-down of the related tax credit partnership investment during the fourth quarter.

BALANCE SHEET HIGHLIGHTS

Loans Held for Investment

Loans held for investment, net of unearned income, increased $1.05 billion, or 44%, to $3.45 billion from December 31, 2018, primarily due to the merger. Loans held for investment, net of unearned income, decreased $73.5 million, or 2%, from September 30, 2019. At December 31, 2019, commercial real estate loans comprised approximately 53% of the loan portfolio. Commercial and industrial loans was the next largest category at 24% of total loans, followed by residential real estate loans at 17%, agricultural loans at 4%, and consumer loans at 2% of total loans.

The following table presents the composition of loans held for investment, net of unearned income, as of the dates indicated:

	December 31,			September 30,			December 31,
Loans Held for Investment	2019			2019			2018
	(In thousands)
Commercial and industrial	$	835,236		$	871,192		$	533,188
Agricultural	140,446			151,984			96,956
Commercial real estate
Construction and development	298,077			296,586			217,617
Farmland	181,885			188,394			88,807
Multifamily	227,407			236,145			134,741
Other	1,107,490			1,102,744			826,163
Total commercial real estate	1,814,859			1,823,869			1,267,328
Residential real estate
One-to-four family first liens	407,418			416,194			341,830
One-to-four family junior liens	170,381			176,162			120,049
Total residential real estate	577,799			592,356			461,879
Consumer	82,926			85,327			39,428
Loans held for investment, net of unearned income	$	3,451,266		$	3,524,728		$	2,398,779

“Loan balances fell during the quarter due to several factors. We continued to experience higher than anticipated loan pay-offs. Further, weak loan demand, including line utilization, also contributed to lower loan volumes,” stated Mr. Funk.

Provision and Allowance for Loan Losses

The following table shows the activity in the allowance for loan losses for the periods indicated:

	Three Months Ended												Year Ended
	December 31,				September 30,				December 31,				December 31,				December 31,
Allowance for Loan Losses Roll Forward	2019				2019				2018				2019				2018
	(In thousands)
Beginning balance	$	31,532			$	28,691			$	31,278			$	29,307			$	28,059
Charge-offs	(3,212		)		(1,635		)		(5,456		)		(8,390		)		(7,040		)
Recoveries	155				212				235				1,004				988
Net charge-offs	(3,057		)		(1,423		)		(5,221		)		(7,386		)		(6,052		)
Provision for loan losses	604				4,264				3,250				7,158				7,300
Ending balance	$	29,079			$	31,532			$	29,307			$	29,079			$	29,307

As of December 31, 2019, the allowance for loan losses was $29.1 million, or 0.84% of loans held for investment, net of unearned income, compared with $29.3 million, or 1.22%, at December 31, 2018. The decline in coverage ratio from year-end 2018 was due primarily to loans acquired in the ATBancorp acquisition. Those loans were measured at fair value upon acquisition and, as a result, initially there was no allowance for loan losses recognized for such loans. 

Deposits

The following table presents the composition of our deposit portfolio as of the dates indicated:

	December 31,			September 30,			December 31,
Deposit Composition	2019			2019			2018
	(In thousands)
Noninterest bearing deposits	$	662,209		$	673,777		$	439,133
Interest checking deposits	962,830			924,861			683,894
Money market deposits	763,028			763,661			555,839
Savings deposits	387,142			389,606			210,416
Total non-maturity deposits	2,775,209			2,751,905			1,889,282
Time deposits of $250,000 and under	682,232			685,409			532,395
Time deposits over $250,000	271,214			272,398			191,252
Total time deposits	953,446			957,807			723,647
Total deposits	$	3,728,655		$	3,709,712		$	2,612,929

Mr. Funk noted, “Every region of legacy MidWestOne saw increased deposit balances in 2019 which resulted in one of the best deposit generation years ever for our company. In addition, deposit run-off in the former ATBancorp footprint slowed significantly during the fourth quarter.”

CREDIT QUALITY

The following table presents a roll forward of nonperforming loans for the period indicated:

					90+ Days Past				Performing
					Due & Still				Troubled Debt
Nonperforming Loans	Nonaccrual				Accruing				Restructured				Total
	(In thousands)
Balance at December 31, 2018	$	19,924			$	365			$	5,284			$	25,573
Loans placed on nonaccrual, restructured or 90+ days past due & still accruing	29,954				1,369				215				31,538
Established through acquisition	12,116				—				—				12,116
Repayments (including interest applied to principal)	(9,993		)		(18		)		(573		)		(10,584		)
Loans returned to accrual status or no longer past due	(1,824		)		(962		)		—				(2,786		)
Charge-offs	(6,924		)		—				—				(6,924		)
Transfers to foreclosed assets	(1,770		)		—				—				(1,770		)
Transfers to nonaccrual	—				(618		)		(554		)		(1,172		)
Balance at December 31, 2019	$	41,483			$	136			$	4,372			$	45,991

The following table presents selected loan credit quality metrics as of the dates indicated:

	December 31,				September 30,				December 31,
Credit Quality Metrics	2019				2019				2018
	(dollars in thousands)
Nonaccrual loans held for investment	$	41,483			$	31,968			$	19,924
Performing troubled debt restructured loans held for investment	4,372				4,701				5,284
Accruing loans contractually past due 90 days or more	136				236				365
Total nonperforming loans	45,991				36,905				25,573
Foreclosed assets, net	3,706				4,366				535
Total nonperforming assets	$	49,697			$	41,271			$	26,108
Allowance for loan losses	29,079				31,532				29,307
Provision for loan losses (for the quarter)	604				4,264				3,250
Net charge-offs (for the quarter)	3,057				1,423				5,221
Net charge-offs to average loans held for investment (for the quarter)	0.35		%		0.16		%		0.86		%
Allowance for loan losses to loans held for investment, net of unearned income	0.84		%		0.89		%		1.22		%
Allowance for loan losses to nonaccrual loans held for investment, net of unearned income	70.10		%		98.64		%		147.09		%
Nonaccrual loans held for investment to loans held for investment	1.20		%		0.91		%		0.83		%

“While nonaccrual loans increased by $9.5 million during the quarter, we believe these loans have been properly evaluated in our allowance for loan losses. Further, subsequent to year-end, $2.2 million of these loans were paid-off,” noted Mr. Funk.

CORPORATE UPDATE

Share Repurchase Program

During the fourth quarter of 2019, the Company repurchased 19,102 shares of its common stock at an average price of $29.65 per share and a total cost of $566 thousand. At December 31, 2019, $9.0 million remained available to repurchase shares under the Company’s current share repurchase program.

Cash Dividend Announcement

On January 22, 2020, the Company’s board of directors declared a quarterly cash dividend of $0.22 per common share. The dividend is payable March 16, 2020, to shareholders of record at the close of business on March 2, 2020. "The 9% increase in our dividend reflects good 2019 financial performance and our optimism for the future. We continue to be pleased with our tangible common equity ratio of 8.48%," Mr. Funk concluded.

Measurement of Credit Losses on Financial Instruments (CECL)

On January 1, 2020, new accounting and recognition guidance related to credit losses and impairment of certain financial assets became effective for the Company. Our latest estimate of the impact based on December 31, 2019 loan data and economic forecasts indicates that the allowance for credit losses for loans and off-balance sheet credit exposures will increase between 20% and 30%. The current estimate and future calculations are highly dependent on loan composition, macroeconomic conditions and forecasts, and other management assumptions and judgments.

CONFERENCE CALL DETAILS

The Company will host a conference call for investors at 11:00 a.m. CT on Friday, January 24, 2020. To participate, please dial 866-233-3483 at least fifteen minutes before the call start time. If you are unable to participate on the call, a replay will be available until April 24, 2020, by calling 877-344-7529 and using the replay access code of 10136587. A transcript of the call will also be available on the Company’s web site (www.midwestone.com) within three business days of the call.

ABOUT MIDWESTONE FINANCIAL GROUP, INC.

MidWestOne Financial Group, Inc. is a financial holding company headquartered in Iowa City, Iowa. MidWestOne Financial is the parent company of MidWestOne Bank, which operates banking offices in Iowa, Minnesota, Wisconsin, Florida, and Colorado. MidWestOne provides electronic delivery of financial services through its website, MidWestOne.com. MidWestOne Financial Group, Inc. trades on the Nasdaq Global Select Market under the symbol “MOFG”.

Cautionary Note Regarding Forward-Looking Statements

This release contains certain “forward-looking statements” within the meaning of such term in the Private Securities Litigation Reform Act of 1995. We and our representatives may, from time to time, make written or oral statements that are “forward-looking” and provide information other than historical information. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from any results, levels of activity, performance or achievements expressed or implied by any forward-looking statement. These factors include, among other things, the factors listed below. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of our management and on information currently available to management, are generally identifiable by the use of words such as “believe,” “expect,” “anticipate,” “should,” “could,” “would,” “plans,” “goals,” “intend,” “project,” “estimate,” “forecast,” “may” or similar expressions. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in, or implied by, these statements. Readers are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Additionally, we undertake no obligation to update any statement in light of new information or future events, except as required under federal securities law.

Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors that could have an impact on our ability to achieve operating results, growth plan goals and future prospects include, but are not limited to, the following: (1) credit quality deterioration or pronounced and sustained reduction in real estate market values causing an increase in the allowance for credit losses, an increase in the provision for loan losses, and a reduction in net earnings; (2) the risks related to mergers, including, without limitation, the related time and costs of implementing such transactions, integrating operations as part of these transactions and possible failures to achieve expected gains, revenue growth and/or expense savings from such transactions; (3) our management’s ability to reduce and effectively manage interest rate risk and the impact of interest rates in general on the volatility of our net interest income; (4) changes in the economic environment, competition, or other factors that may affect our ability to acquire loans or influence the anticipated growth rate of loans and deposits and the quality of the loan portfolio and loan and deposit pricing; (5) fluctuations in the value of our investment securities; (6) governmental monetary and fiscal policies; (7) legislative and regulatory changes, including changes in banking, securities, trade, and tax laws and regulations and their application by our regulators; (8) the ability to attract and retain key executives and employees experienced in banking and financial services; (9) the sufficiency of the allowance for loan losses to absorb the amount of actual losses inherent in our existing loan portfolio; (10) our ability to adapt successfully to technological changes to compete effectively in the marketplace; (11) credit risks and risks from concentrations (by geographic area and by industry) within our loan portfolio; (12) the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds, financial technology (FinTech) companies, and other financial institutions operating in our markets or elsewhere or providing services similar to ours; (13) the failure of assumptions underlying the establishment of allowances for loan losses and estimation of values of collateral and various financial assets and liabilities; (14) volatility of rate-sensitive deposits; (15) operational risks, including data processing system failures or fraud; (16) asset/liability matching risks and liquidity risks; (17) the costs, effects and outcomes of existing or future litigation; (18) changes in general economic or industry conditions, nationally, internationally or in the communities in which we conduct business; (19) changes in accounting policies and practices, as may be adopted by state and federal regulatory agencies and the Financial Accounting Standards Board; (20) war or terrorist activities which may cause further deterioration in the economy or cause instability in credit markets; (21) cyber-attacks; (22) the imposition of tariffs or other domestic or international governmental policies impacting the value of the agricultural or other products of our borrowers; and (23) other risk factors detailed from time to time in Securities and Exchange Commission filings made by the Company.

MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
	December 31,				September 30,				December 31,
	2019				2019				2018
	(In thousands)
ASSETS
Cash and due from banks	$	67,174			$	79,776			$	43,787
Interest earning deposits in banks	6,112				6,413				1,693
Federal funds sold	198				478				—
Total cash and cash equivalents	73,484				86,667				45,480
Debt securities available for sale at fair value	785,977				503,278				414,101
Held to maturity securities at amortized cost	—				190,309				195,822
Total securities held for investment	785,977				693,587				609,923
Loans held for sale	5,400				7,906				666
Gross loans held for investment	3,469,236				3,545,993				2,405,001
Unearned income, net	(17,970		)		(21,265		)		(6,222		)
Loans held for investment, net of unearned income	3,451,266				3,524,728				2,398,779
Allowance for loan losses	(29,079		)		(31,532		)		(29,307		)
Total loans held for investment, net	3,422,187				3,493,196				2,369,472
Premises and equipment, net	90,723				91,190				75,773
Goodwill	93,068				93,258				64,654
Other intangible assets, net	31,693				33,635				9,875
Foreclosed assets, net	3,706				4,366				535
Other assets	147,335				144,482				115,102
Total assets	$	4,653,573			$	4,648,287			$	3,291,480
LIABILITIES
Noninterest bearing deposits	$	662,209			$	673,777			$	439,133
Interest bearing deposits	3,066,446				3,035,935				2,173,796
Total deposits	3,728,655				3,709,712				2,612,929
Short-term borrowings	139,349				155,101				131,422
Long-term debt	231,660				244,677				168,726
Other liabilities	44,927				40,912				21,336
Total liabilities	4,144,591				4,150,402				2,934,413
SHAREHOLDERS' EQUITY
Common stock	16,581				16,581				12,463
Additional paid-in capital	297,390				297,144				187,813
Retained earnings	201,105				191,007				168,951
Treasury stock	(10,466		)		(9,933		)		(6,499		)
Accumulated other comprehensive income (loss)	4,372				3,086				(5,661		)
Total shareholders' equity	508,982				497,885				357,067
Total liabilities and shareholders' equity	$	4,653,573			$	4,648,287			$	3,291,480

Certain reclassifications have been made to prior periods’ consolidated financial statements to present them on a basis comparable with the current period’s consolidated financial statements.

MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
		Three Months Ended												Year Ended
		December 31,				September 30,				December 31,				December 31,
		2019				2019				2018 (1)				2019			2018 (1)
		(In thousands, except per share data)
Interest income
Loans, including fees		$	44,906			$	49,169			$	29,052			$	163,163		$	111,193
Taxable investment securities		3,540				3,376				2,774				13,132			11,027
Tax-exempt investment securities		1,465				1,401				1,375				5,696			5,827
Other		115				130				23				450			62
Total interest income		50,026				54,076				33,224				182,441			128,109
Interest expense
Deposits		8,251				8,238				5,161				29,927			17,331
Short-term borrowings		368				522				374				1,847			1,315
Long-term debt		1,823				2,058				1,136				7,017			4,195
Total interest expense		10,442				10,818				6,671				38,791			22,841
Net interest income		39,584				43,258				26,553				143,650			105,268
Provision for loan losses		604				4,264				3,250				7,158			7,300
Net interest income after provision for loan losses		38,980				38,994				23,303				136,492			97,968
Noninterest income
Investment services and trust activities		2,421				2,339				1,274				8,040			4,953
Service charges and fees		2,072				2,068				1,556				7,452			6,157
Card revenue		1,142				1,655				1,095				5,594			4,223
Loan revenue		1,757				991				884				3,789			3,622
Bank-owned life insurance		501				514				381				1,877			1,610
Insurance commissions		—				—				260				734			1,284
Investment securities gains (losses), net		18				23				(4		)		90			193
Other		1,125				414				350				3,670			1,173
Total noninterest income		9,036				8,004				5,796				31,246			23,215
Noninterest expense
Compensation and employee benefits		19,246				17,426				12,111				65,660			49,758
Occupancy expense of premises, net		2,347				2,294				1,166				8,647			7,597
Equipment		2,251				2,181				1,433				7,717			5,565
Legal and professional		1,797				1,996				1,027				8,049			4,641
Data processing		1,492				1,234				875				4,579			2,951
Marketing		1,147				1,167				678				3,789			2,660
Amortization of intangibles		1,941				2,583				503				5,906			2,296
FDIC insurance		(72		)		(42		)		429				690			1,533
Communications		493				489				342				1,701			1,353
Foreclosed assets, net		173				265				46				580			21
Other		5,621				1,849				1,169				10,217			4,840
Total noninterest expense		36,436				31,442				19,779				117,535			83,215
Income before income tax expense		11,580				15,556				9,320				50,203			37,968
Income tax expense (benefit)		(1,791		)		3,256				1,696				6,573			7,617
Net income		$	13,371			$	12,300			$	7,624			$	43,630		$	30,351
Earnings per common share
Basic		$	0.83			$	0.76			$	0.62			$	2.93		$	2.48
Diluted		$	0.83			$	0.76			$	0.62			$	2.93		$	2.48
Weighted average basic common shares outstanding		16,162				16,201				12,217				14,870			12,220
Weighted average diluted common shares outstanding		16,193				16,215				12,235				14,885			12,237
Dividends paid per common share		$	0.2025			$	0.2025			$	0.1950			$	0.81		$	0.78

(1) Reclassified to conform to the current period’s presentation.

MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES FIVE QUARTER CONSOLIDATED BALANCE SHEETS
	December 31,				September 30,				June 30,				March 31,				December 31,
	2019				2019				2019				2019				2018
	(In thousands)
ASSETS
Cash and due from banks	$	67,174			$	79,776			$	72,801			$	40,002			$	43,787
Interest earning deposits in banks	6,112				6,413				47,708				2,969				1,693
Federal funds sold	198				478				—				—				—
Total cash and cash equivalents	73,484				86,667				120,509				42,971				45,480
Debt securities available for sale at fair value	785,977				503,278				460,302				432,979				414,101
Held to maturity securities at amortized cost	—				190,309				193,173				195,033				195,822
Total securities held for investment	785,977				693,587				653,475				628,012				609,923
Loans held for sale	5,400				7,906				4,306				309				666
Gross loans held for investment	3,469,236				3,545,993				3,569,236				2,409,333				2,405,001
Unearned income, net	(17,970		)		(21,265		)		(32,733		)		(5,574		)		(6,222		)
Loans held for investment, net of unearned income	3,451,266				3,524,728				3,536,503				2,403,759				2,398,779
Allowance for loan losses	(29,079		)		(31,532		)		(28,691		)		(29,652		)		(29,307		)
Total loans held for investment, net	3,422,187				3,493,196				3,507,812				2,374,107				2,369,472
Premises and equipment, net	90,723				91,190				93,395				75,200				75,773
Goodwill	93,068				93,258				93,376				64,654				64,654
Other intangible assets, net	31,693				33,635				36,624				9,423				9,875
Foreclosed assets, net	3,706				4,366				4,922				336				535
Other assets	147,335				144,482				148,044				113,963				115,102
Total assets	$	4,653,573			$	4,648,287			$	4,662,463			$	3,308,975			$	3,291,480
LIABILITIES
Noninterest bearing deposits	$	662,209			$	673,777			$	647,078			$	426,729			$	439,133
Interest bearing deposits	3,066,446				3,035,935				3,078,394				2,258,098				2,173,796
Total deposits	3,728,655				3,709,712				3,725,472				2,684,827				2,612,929
Short-term borrowings	139,349				155,101				153,829				76,066				131,422
Long-term debt	231,660				244,677				252,673				162,471				168,726
Other liabilities	44,927				40,912				42,138				21,762				21,336
Total liabilities	4,144,591				4,150,402				4,174,112				2,945,126				2,934,413
SHAREHOLDERS' EQUITY
Common stock	16,581				16,581				16,581				12,463				12,463
Additional paid-in capital	297,390				297,144				296,879				187,535				187,813
Retained earnings	201,105				191,007				181,984				173,771				168,951
Treasury stock	(10,466		)		(9,933		)		(8,716		)		(7,297		)		(6,499		)
Accumulated other comprehensive income (loss)	4,372				3,086				1,623				(2,623		)		(5,661		)
Total shareholders' equity	508,982				497,885				488,351				363,849				357,067
Total liabilities and shareholders' equity	$	4,653,573			$	4,648,287			$	4,662,463			$	3,308,975			$	3,291,480

Certain reclassifications have been made to prior periods’ consolidated financial statements to present them on a basis comparable with the current period’s consolidated financial statements.

MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES FIVE QUARTER CONSOLIDATED STATEMENTS OF INCOME
	Three Months Ended
	December 31,				September 30,				June 30,			March 31,			December 31,
	2019				2019				2019			2019			2018 (1)
	(In thousands, except per share data)
Interest income
Loans, including fees	$	44,906			$	49,169			$	40,053		$	29,035		$	29,052
Taxable investment securities	3,540				3,376				3,289			2,927			2,774
Tax-exempt investment securities	1,465				1,401				1,424			1,406			1,375
Other	115				130				185			20			23
Total interest income	50,026				54,076				44,951			33,388			33,224
Interest expense
Deposits	8,251				8,238				7,743			5,695			5,161
Short-term borrowings	368				522				500			457			374
Long-term debt	1,823				2,058				1,876			1,260			1,136
Total interest expense	10,442				10,818				10,119			7,412			6,671
Net interest income	39,584				43,258				34,832			25,976			26,553
Provision for loan losses	604				4,264				696			1,594			3,250
Net interest income after provision for loan losses	38,980				38,994				34,136			24,382			23,303
Noninterest income
Investment services and trust activities	2,421				2,339				1,890			1,390			1,274
Service charges and fees	2,072				2,068				1,870			1,442			1,556
Card revenue	1,142				1,655				1,799			998			1,095
Loan revenue	1,757				991				648			393			884
Bank-owned life insurance	501				514				470			392			381
Insurance commissions	—				—				314			420			260
Investment securities gains (losses), net	18				23				32			17			(4		)
Other	1,125				414				1,773			358			350
Total noninterest income	9,036				8,004				8,796			5,410			5,796
Noninterest expense
Compensation and employee benefits	19,246				17,426				16,409			12,579			12,111
Occupancy expense of premises, net	2,347				2,294				2,127			1,879			1,166
Equipment	2,251				2,181				1,914			1,371			1,433
Legal and professional	1,797				1,996				3,291			965			1,027
Data processing	1,492				1,234				1,008			845			875
Marketing	1,147				1,167				869			606			678
Amortization of intangibles	1,941				2,583				930			452			503
FDIC insurance	(72		)		(42		)		434			370			429
Communications	493				489				377			342			342
Foreclosed assets, net	173				265				84			58			46
Other	5,621				1,849				1,597			1,150			1,169
Total noninterest expense	36,436				31,442				29,040			20,617			19,779
Income before income tax expense	11,580				15,556				13,892			9,175			9,320
Income tax expense (benefit)	(1,791		)		3,256				3,218			1,890			1,696
Net income	$	13,371			$	12,300			$	10,674		$	7,285		$	7,624
Earnings per common share
Basic	$	0.83			$	0.76			$	0.72		$	0.60		$	0.62
Diluted	$	0.83			$	0.76			$	0.72		$	0.60		$	0.62
Weighted average basic common shares outstanding	16,162				16,201				14,894			12,164			12,217
Weighted average diluted common shares outstanding	16,193				16,215				14,900			12,177			12,235
Dividends paid per common share	$	0.2025			$	0.2025			$	0.2025		$	0.2025		$	0.1950

(1) Reclassified to conform to the current period’s presentation.

MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES AVERAGE BALANCE SHEET AND YIELD ANALYSIS
	Three Months Ended
	December 31, 2019									September 30, 2019									December 31, 2018
	Average Balance			Interest Income/ Expense			Average Yield/ Cost			Average Balance			Interest Income/ Expense			Average Yield/ Cost			Average Balance(6)			Interest Income/ Expense(6)			Average Yield/ Cost
	(Dollars in thousands)
ASSETS
Loans, including fees (1)(2)(3)	$	3,493,496		$	45,429		5.16	%		$	3,526,149		$	49,712		5.59	%		$	2,398,859		$	29,330		4.85	%
Taxable investment securities	508,911			3,540			2.76	%		471,180			3,376			2.84	%		407,506			2,774			2.74	%
Tax-exempt investment securities (2)(4)	211,695			1,846			3.46	%		200,533			1,765			3.49	%		198,073			1,732			3.47	%
Total securities held for investment(2)	720,606			5,386			2.97	%		671,713			5,141			3.04	%		605,579			4,506			2.98	%
Other	28,227			115			1.62	%		17,609			130			2.93	%		4,243			23			2.15	%
Total interest earning assets(2)	$	4,242,329		50,930			4.76	%		$	4,215,471		54,983			5.17	%		$	3,008,681		33,859			44.70	%
Other assets	392,254									405,060									269,445
Total assets	$	4,634,583								$	4,620,531								$	3,278,126
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest checking deposits	$	926,155		$	1,394		0.60	%		$	877,470		$	1,398		0.63	%		$	680,971		$	899		0.52	%
Money market deposits	784,752			1,820			0.92	%		809,264			1,904			0.93	%		556,522			1,030			0.73	%
Savings deposits	388,338			389			0.40	%		392,298			463			0.47	%		210,106			65			0.12	%
Time deposits	953,804			4,648			1.93	%		939,480			4,473			1.89	%		724,973			3,167			1.73	%
Total interest bearing deposits	3,053,049			8,251			1.07	%		3,018,512			8,238			1.08	%		2,172,572			5,161			0.94	%
Short-term borrowings	126,508			368			1.15	%		139,458			522			1.49	%		104,710			374			1.41	%
Long-term debt	237,788			1,823			3.04	%		249,226			2,058			3.28	%		171,029			1,136			2.64	%
Total borrowed funds	364,296			2,191			2.39	%		388,684			2,580			2.63	%		275,739			1,510			2.17	%
Total interest bearing liabilities	$	3,417,345		$	10,442		1.21	%		$	3,407,196		$	10,818		1.26	%		$	2,448,311		$	6,671		1.08	%
Noninterest bearing deposits	670,884									674,003									454,185
Other liabilities	43,343									47,582									24,232
Shareholders’ equity	503,011									491,750									351,398
Total liabilities and shareholders’ equity	$	4,634,583								$	4,620,531								$	3,278,126
Net interest income(2)				$	40,488								$	44,165								$	27,188
Net interest spread(2)							3.55	%								3.91	%								43.62	%
Net interest margin(2)							3.79	%								4.15	%								3.59	%
Total deposits(5)	$	3,723,933		$	8,251		0.88	%		$	3,692,515		$	8,238		0.89	%		$	2,626,757		$	5,161		0.78	%

(1)  Average balance includes nonaccrual loans.
(2)  Tax equivalent.
(3)  Interest income includes net loan fees, loan purchase discount accretion and tax equivalent adjustments. Net loan fees were $159 thousand, $(178) thousand, and $(67) thousand for the three months ended December 31, 2019, September 30, 2019, and December 31, 2018, respectively. Loan purchase discount accretion was $3.9 million, $7.2 million, and $454 thousand for the three months ended December 31, 2019, September 30, 2019, and December 31, 2018, respectively. Tax equivalent adjustments were $523 thousand, $543 thousand, and $278 thousand for the three months ended December 31, 2019, September 30, 2019, and December 31, 2018, respectively. The federal statutory tax rate utilized was 21%.
(4) Interest income includes tax equivalent adjustments of $381 thousand, $364 thousand, and $357 thousand for the three months ended December 31, 2019, September 30, 2019, and December 31, 2018, respectively. The federal statutory tax rate utilized was 21%.
(5) Total deposits is the sum of total interest-bearing deposits and noninterest bearing deposits. The cost of total deposits is calculated as annualized interest expense on deposits divided by average total deposits.
(6) Reclassified to conform to the current period’s presentation.

MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES AVERAGE BALANCE SHEET AND YIELD ANALYSIS
	Year Ended
	December 31, 2019											December 31, 2018
	Average Balance				Interest Income/ Expense				Average Yield/ Cost			Average Balance(6)				Interest Income/ Expense(6)				Average Yield/ Cost
	(Dollars in thousands)
ASSETS
Loans, including fees(1)(2)(3)	$	3,157,127			$	164,948			5.22	%		$	2,354,354			$	112,233			4.77	%
Taxable investment securities	465,484				13,132				2.82	%		428,757				11,027				2.57	%
Tax-exempt investment securities(2)(4)	204,375				7,177				3.51	%		207,605				7,342				3.54	%
Total securities held for investment (2)	669,859				20,309				3.03	%		636,362				18,369				2.89	%
Other	21,289				450				2.11	%		3,372				62				1.84	%
Total interest earning assets(2)	$	3,848,275			185,707				4.83	%		$	2,994,088			130,664				4.36	%
Other assets	352,765											255,630
Total assets	$	4,201,040										$	3,249,718
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest checking deposits	$	806,624			4,723				0.59	%		$	672,069			2,907				0.43	%
Money market deposits	766,812				7,549				0.98	%		543,359				3,020				0.56	%
Savings deposits	329,199				1,092				0.33	%		214,244				254				0.12	%
Time deposits	873,978				16,563				1.90	%		723,830				11,150				1.54	%
Total interest bearing deposits	2,776,613				29,927				1.08	%		2,153,502				17,331				0.80	%
Short-term borrowings	124,956				1,847				1.48	%		105,094				1,302				1.24	%
Long-term debt	224,149				7,017				3.13	%		169,540				4,208				2.48	%
Total borrowed funds	349,105				8,864				2.54	%		274,634				5,510				2.01	%
Total interest bearing liabilities	$	3,125,718			38,791				1.24	%		$	2,428,136			22,841				0.94	%
Noninterest bearing deposits	586,100											455,223
Other liabilities	37,204											20,625
Shareholders’ equity	452,018											345,734
Total liabilities and shareholders’ equity	$	4,201,040										$	3,249,718
Net interest income(2)					$	146,916										$	107,823
Net interest spread(2)									3.59	%										3.42	%
Net interest margin(2)									3.82	%										3.60	%
Total deposits(5)	$	3,362,713			$	29,927			0.89	%		$	2,608,725			$	17,331			0.66	%

(1)  Average balance includes nonaccrual loans.
(2) Tax equivalent.
(3) Interest income includes net loan fees, loan purchase discount accretion and tax equivalent adjustments. Net loan fees were $(316) thousand and $(407) thousand for the year ended December 31, 2019 and December 31, 2018, respectively. Loan purchase discount accretion was $14.0 million and $2.7 million for the year ended December 31, 2019 and December 31, 2018, respectively. Tax-equivalent adjustments were $1.8 million and $1.0 million for the year ended December 31, 2019 and December 31, 2018, respectively. The federal statutory tax rate utilized was 21%.
(4) Interest income includes tax equivalent adjustments of $1.5 million and $1.5 million for the year ended December 31, 2019 and December 31, 2018, respectively.  The federal statutory tax rate utilized was 21%.
(5) Total deposits is the sum of total interest bearing deposits and noninterest bearing demand deposits. The cost of total deposits is calculated as annualized interest expense on deposits divided by average total deposits.
(6) Reclassified to conform to the current period’s presentation

Non-GAAP Measures

This earnings release contains non-GAAP measures for tangible book value per share, tangible common equity ratio, return on average tangible equity, net interest margin (tax equivalent), loan yield (tax equivalent) and the efficiency ratio. Management believes these measures provide investors with useful information regarding the Company’s profitability, financial condition and capital adequacy, consistent with how management evaluates the Company’s financial performance. The following tables provide a reconciliation of each non-GAAP measure to the most comparable GAAP measure.

Tangible Book Value Per Share/		December 31,				September 30,				June 30,				March 31,				December 31,
Tangible Common Equity Ratio		2019				2019				2019				2019				2018
		(Dollars in thousands, except per share data)
Total shareholders’ equity		$	508,982			$	497,885			$	488,351			$	363,849			$	357,067
Intangible assets, net		(124,761		)		(126,893		)		(130,000		)		(74,077		)		(74,529		)
Tangible equity		$	384,221			$	370,992			$	358,351			$	289,772			$	282,538
Total assets		$	4,653,573			$	4,648,287			$	4,662,463			$	3,308,975			$	3,291,480
Intangible assets, net		(124,761		)		(126,893		)		(130,000		)		(74,077		)		(74,529		)
Tangible assets		$	4,528,812			$	4,521,394			$	4,532,463			$	3,234,898			$	3,216,951
Book value per share		$	31.49			$	30.77			$	30.11			$	29.94			$	29.32
Tangible book value per share(1)		$	23.77			$	22.93			$	22.09			$	23.84			$	23.20
Shares outstanding		16,162,176				16,179,734				16,221,160				12,153,045				12,180,015
Equity to assets ratio		10.94		%		10.71		%		10.47		%		11.00		%		10.85		%
Tangible common equity ratio(2)		8.48		%		8.21		%		7.91		%		8.96		%		8.78		%

(1) Tangible equity divided by shares outstanding.
(2) Tangible equity divided by tangible assets.

		For the Three Months Ended												For the Year Ended
Return on Average Tangible Equity		December 31, 2019				September 30, 2019				December 31, 2018				December 31, 2019				December 31, 2018
		(Dollars in thousands)
Net income		$	13,371			$	12,300			$	7,624			$	43,630			$	30,351
Intangible amortization, net of tax(1)		1,456				1,937				377				4,430				1,722
Tangible net income		$	14,827			$	14,237			$	8,001			$	48,060			$	32,073
Average shareholders’ equity		$	503,011			$	491,750			$	351,398			$	452,018			$	345,734
Average intangible assets, net		(125,898		)		(128,963		)		(74,766		)		(108,242		)		(75,531		)
Average tangible equity		$	377,113			$	362,787			$	276,632			$	343,776			$	270,203
Return on average equity		10.55		%		9.92		%		8.61		%		9.65		%		8.78		%
Return on average tangible equity(2)		15.60		%		15.57		%		11.47		%		13.98		%		11.87		%

(1) The combined income tax rate utilized was 25%.
(2) Annualized tangible net income divided by average tangible equity.

		For the Three Months Ended												For the Year Ended
Net Interest Margin, Tax Equivalent		December 31, 2019				September 30, 2019				December 31, 2018				December 31, 2019				December 31, 2018
		(Dollars in thousands)
Net interest income		$	39,584			$	43,258			$	26,553			$	143,650			$	105,268
Tax equivalent adjustments:
Loans(1)		523				543				278				1,785				1,040
Securities(1)		381				364				357				1,481				1,515
Net interest income, tax equivalent		$	40,488			$	44,165			$	27,188			$	146,916			$	107,823
Loan purchase discount accretion		(3,937		)		(7,207		)		(454		)		(13,977		)		(2,720		)
Core net interest income		$	36,551			$	36,958			$	26,734			$	132,939			$	105,103
Net interest margin		3.70		%		4.07		%		3.50		%		3.73		%		3.52		%
Net interest margin, tax equivalent(2)		3.79		%		4.15		%		3.59		%		3.82		%		3.60		%
Core net interest margin(3)		3.42		%		3.48		%		3.53		%		3.45		%		3.51		%
Average interest earning assets		$	4,242,329			$	4,215,471			$	3,008,681			$	3,848,275			$	2,994,088

(1) The federal statutory tax rate utilized was 21%.
(2) Annualized tax equivalent net interest income divided by average interest earning assets.
(3) Annualized core net interest income divided by average interest earning assets.

		For the Three Months Ended												For the Year Ended
Loan Yield, Tax Equivalent		December 31, 2019				September 30, 2019				December 31, 2018				December 31, 2019				December 31, 2018
		(Dollars in thousands)
Loan interest income, including fees		$	44,906			$	49,169			$	29,052			$	163,163			$	111,193
Tax equivalent adjustment(1)		523				543				278				1,785				1,040
Tax equivalent loan interest income		$	45,429			$	49,712			$	29,330			$	164,948			$	112,233
Loan purchase discount accretion		(3,937		)		(7,207		)		(454		)		(13,977		)		(2,720		)
Core loan interest income		$	41,492			$	42,505			$	28,876			$	150,971			$	109,513
Yield on loans		5.10		%		5.53		%		4.80		%		5.17		%		4.72		%
Yield on loans, tax equivalent(2)		5.16		%		5.59		%		4.85		%		5.22		%		4.77		%
Core yield on loans(3)		4.71		%		4.78		%		4.78		%		4.78		%		4.65		%
Average loans		$	3,493,496			$	3,526,149			$	2,398,859			$	3,157,127			$	2,354,354

(1) The federal statutory tax rate utilized was 21%.
(2) Annualized tax equivalent loan interest income divided by average loans.
(3) Annualized core loan interest income divided by average loans.

		For the Three Months Ended															For the Year Ended
Efficiency Ratio		December 31, 2019					September 30, 2019					December 31, 2018					December 31, 2019					December 31, 2018
		(Dollars in thousands)
Total noninterest expense		$	36,436				$	31,442				$	19,779				$	117,535				$	83,215
Amortization of intangibles		(1,941		)			(2,583		)			(503		)			(5,906		)			(2,296		)
Merger-related expenses		(3,282		)			(2,547		)			(206		)			(9,130		)			(797		)
Noninterest expense used for efficiency ratio		$	31,213				$	26,312				$	19,070				$	102,499				$	80,122
Net interest income, tax equivalent(1)		$	40,488				$	44,165				$	27,188				$	146,916				$	107,823
Noninterest income		9,036					8,004					5,796					31,246					23,215
Investment securities (gains) losses, net		(18		)			(23		)			4					(90		)			(193		)
Net revenues used for efficiency ratio		$	49,506				$	52,146				$	32,988				$	178,072				$	130,845
Efficiency ratio		63.05		%			50.46		%			57.81		%			57.56		%			61.23		%

(1) The federal statutory tax rate utilized was 21%.

Contact:
	Charles N. Funk		Barry S. Ray
	President and Chief Executive Officer		Senior Executive Vice President and Chief Financial Officer
	319.356.5800		319.356.5800