2019 Annual Report

interest rates (we now service more than $1 billion in mortgage loans for our customers). MidWest One remains committed to the mortgage loan business as we believe this is a key to remaining a strong retail bank in our communities. As we look at our balance sheet, the acquisition increased our assets substantially. At year end our total assets stood at $4.65 billion, which was an increase from 2018’s pre-merger closing $3.29 billion. A year ago, we wrote “the banking industry is currently in a battle for deposit dollars” and our team at MidWest One rose to the challenge! One of the shining successes of 2019 was the deposit performance of so many regions in our company. In fact, each region in the “legacy” MidWest One footprint showed an increase in deposits from the prior year end. We believe this is vital because we have often stated in the past that deposits are the key to our franchise value. In terms of portfolio size, our loan portfolio did not enjoy the same success it achieved after a robust 2018. Total loans at legacy MidWest One and at American Trust were flat to down from the prior year end. We attribute this lack of growth to several factors. We saw higher than expected pay-downs as customers reduced debt or moved to other institutions. About 40 percent of our footprint resides in rural America and the economy in these areas is less than robust, thus creating reduced loan demand. Additionally, as is typical after a long economic expansion, we declined to make loans on terms that we considered not in our best interests. Two of our Twin Cities regions, along with Denver and Southwest Florida, showed positive loan growth in 2019 and we remain thankful for the geographic diversification of our company. Getting loan growth back on track is among our most important goals in 2020. Asset quality—the quality residing in our loan portfolio—has been a significant topic of discussion since 2016. We have reserved for and charged off more loans than our regional and national peers during this time. A year ago, we wrote that we believed improvement was imminent. Indeed, improvement was achieved in 2019 as net charge-offs fell from .51 percent of total loans in 2017, to .26 percent in 2018, and to .23 percent in 2019. While we believe this number remains elevated for the current environment, we do note there is improvement and believe it will continue. Yet there remains work to be done as our non-performing loans increased from $25.6 million at year end 2018 to $46.0 million in 2019. Some of this increase comes from loans at ATBancorp that came across in the acquisition; the remainder comes from the “legacy” MidWest One portfolio, especially within the Iowa footprint. We remain extremely confident that our monitoring procedures are strong and that the process whereby we evaluate and “mark” our problem assets is as accurate as it has ever been. It takes time to clean up a portfolio and while progress is slower than we would like, we are nevertheless moving forward. Twenty nineteen was a year of technological change and, yes, disruption in our industry. Consumers continue to change their banking habits. While our branch offices remain important, foot traffic continues to decline while digital transactions increase. This trend is demonstrated by the following increases from 2018 to 2019: mobile

RETURN ON AVERAGE EQUITY (%)

10.00 11.00 12.00 13.00

5.00 6.00 7.00 8.00 9.00

FY2015

FY2016

FY2017

FY2018

FY2019

MOFG

Peer

Midwest Banks

RETURN ON AVERAGE ASSETS (%)

0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60

FY2015

FY2016

FY2017

FY2018

FY2019

MOFG

Peer

Midwest Banks

NET INTEREST MARGIN (%)

3.90

3.80

3.70

3.60

3.50

3.40

FY2015

FY2016

FY2017

FY2018

FY2019

MOFG

Peer

Midwest Banks

EFFICIENCY RATIO (%)

56.00 58.00 60.00 62.00 64.00 66.00 68.00 70.00

FY2015

FY2016

FY2017

FY2018

FY2019

MOFG

Peer

Midwest Banks

6 MidWest One Financial Group, Inc. 2019 Annual Report