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MidWestOne Financial Group, Inc. Reports Financial Results for the First Quarter of 2019

IOWA CITY, Iowa, April 25, 2019 (GLOBE NEWSWIRE) -- MidWestOne Financial Group, Inc. (Nasdaq - MOFG) (“we”, “our”, or “the Company”) today reported its financial results for the first quarter of 2019. Net income for the first quarter of 2019 was $7.3 million, or $0.60 per diluted common share, compared to net income of $7.6 million, or $0.62 per diluted common share, for the fourth quarter of 2018 (the “linked quarter”). Merger-related costs reduced diluted earnings per share by $0.01 for the first quarter of 2019, and $0.02 for the linked quarter.

FINANCIAL HIGHLIGHTS

As of or For the Three Months Ended

March 31,

December 31,

March 31,

2019

2018

2018

(Dollars in thousands, except per share amounts)

Net income

$

7,285

$

7,624

$

7,793

Diluted earnings per share

$

0.60

$

0.62

$

0.64

Return on average assets

0.89

%

0.92

%

0.98

%

Return on average equity

8.22

%

8.61

%

9.28

%

Return on average tangible equity (1)

10.85

%

11.47

%

12.70

%

Net interest margin (tax equivalent)(1)

3.56

%

3.59

%

3.69

%

Yield on average loans (tax equivalent)(1)

4.93

%

4.85

%

4.72

%

Cost of average total deposits

0.88

%

0.78

%

0.55

%

Efficiency ratio(1)

63.00

%

58.43

%

60.24

%

Total assets

$

3,308,975

$

3,291,480

$

3,241,642

Loans held for investment, net of unearned income

$

2,403,759

$

2,398,779

$

2,326,158

Total deposits

$

2,684,827

$

2,612,929

$

2,631,921

Equity to assets ratio

11.00

%

10.85

%

10.53

%

Tangible equity/tangible assets(1)

8.97

%

8.80

%

8.41

%

Book value per share

$

29.94

$

29.32

$

27.95

Tangible book value per share(1)

$

23.89

$

23.25

$

21.81

Gross loans held for investment to deposit ratio

89.74

%

91.80

%

88.38

%

(1) Non-GAAP measure. See pages 13-14 for a detailed explanation.

Charles Funk, President and CEO commented, ”Better than expected deposit growth - some of which is seasonal, was a highlight of the first quarter of 2019. The quarter’s results were adversely affected by a larger than anticipated loan loss provision of $1.6 million. However, we remain comfortable with our prior guidance of $4 to $6 million for the loan loss provision for the year of 2019.”

INCOME STATEMENT HIGHLIGHTS

Net Interest Income

Net interest income decreased in the first quarter of 2019 to $26.0 million from $26.6 million in the linked quarter due primarily to the cost of deposits rising faster than asset yields. The loan yield was 4.93% for the first quarter of 2019 compared to 4.85% for the linked quarter. The increased loan yield reflected higher coupon interest and an increase in discount accretion on acquired loans. Discount accretion on acquired loans increased to $586 thousand in the current quarter compared to $454 thousand in the linked quarter. The total remaining acquired loan discount as of March 31, 2019 was $5.2 million. The linked quarter also included $89 thousand in interest reversals from nonaccrual loans compared to $160 thousand in the first quarter of 2019.

The tax equivalent net interest margin (NIM) decreased to 3.56% for the first quarter of 2019 from 3.59% in the linked quarter. The decrease in the NIM was due primarily to higher yields on average loans being more than offset by higher deposit and borrowing costs. Loan purchase discount accretion added 8 bps to the NIM in the current quarter compared to 6 bps in the linked quarter.

The cost of average total deposits in the first quarter of 2019 was 0.88% compared to 0.78% in the linked quarter. The increase reflects the higher rates paid to attract and retain deposits in light of recent market rate increases and the competitive market for deposits.

Noninterest Income

Noninterest income for the first quarter of 2019 decreased $386 thousand, or 7%, from the linked quarter. The decrease was primarily due to a decrease of $491 thousand in loan revenue, of which $253 thousand was related to the valuation of our mortgage servicing rights, with the remainder attributable primarily to lower mortgage and SBA loan activity. Service charges and fees decreased $114 thousand, or 7%, in the first quarter of 2019 compared to the linked quarter mainly due to lower nonsufficient funds charges. Insurance commissions increased $160 thousand, or 62%, between the two periods due primarily to an increase in commission and contingency income.

“Investment services and trust as well as our insurance unit are off to a strong start,” stated Mr. Funk. “Our residential mortgage originations were adversely affected by, among other things, the extremely cold weather in most of our footprint during the first quarter. We are already seeing significant improvement in April in terms of the loan pipeline.”

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

Three Months Ended

March 31,

December 31,

March 31,

Noninterest Income

2019

2018

2018

(In thousands)

Investment services and trust activities

$

1,390

$

1,274

$

1,239

Service charges and fees

1,442

1,556

1,571

Card revenue

998

1,095

966

Loan revenue

393

884

941

Bank-owned life insurance

392

381

433

Insurance commissions

420

260

401

Investment securities gains (losses), net

17

(4

)

9

Other

358

350

121

Total noninterest income

$

5,410

$

5,796

$

5,681

Noninterest Expense

Noninterest expense for the first quarter of 2019 increased $0.8 million, or 4.2%, from the linked quarter. The increase was driven by occupancy expense of premises, net, and salaries and employee benefits. Occupancy expense of premises, net, increased $0.7 million, as the linked quarter included a $743 gain on the sale of a former bank administration building. Salaries and employee benefits increased $468 thousand primarily from normal annual salary and benefit cost adjustments. Most other noninterest expense categories experienced a decline compared to the linked quarter.

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

Three Months Ended

March 31,

December 31,

March 31,

Noninterest Expense

2019

2018

2018

(In thousands)

Compensation and employee benefits

$

12,579

$

12,111

$

12,371

Occupancy expense of premises, net

1,879

1,166

1,906

Equipment

1,371

1,433

1,383

Legal and professional

965

1,027

794

Data processing

845

875

688

Marketing

606

678

620

Amortization of intangibles

452

503

657

FDIC insurance

370

429

319

Communications

342

342

329

Foreclosed assets, net

58

46

(39

)

Other

1,150

1,169

1,200

Total noninterest expense

$

20,617

$

19,779

$

20,228

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

Three Months Ended

March 31,

December 31,

Merger-related Expenses

2019

2018

(In thousands)

Compensation and employee benefits

$

10

$

Occupancy expense of premises, net

2

Legal and professional

126

89

Data processing

5

100

Other

26

15

Total merger-related costs

$

167

$

206

Income Taxes

The effective income tax rate was 20.6% for the first quarter of 2019 and 18.2% for the linked quarter. The effective tax rate for the first quarter of 2019 was higher due primarily to certain tax credits recognized during the linked quarter.

BALANCE SHEET HIGHLIGHTS

Loans Held for Investment

Loans held for investment, net of unearned income, increased $5.0 million, or 0.2%, to $2.40 billion at March 31, 2019. Loan portfolio segments experiencing the largest increases were commercial real estate and commercial and industrial. As of March 31, 2019, commercial real estate loans comprised approximately 53% of the loan portfolio. Commercial and industrial loans was the next largest category at 22% of total loans, followed by residential real estate loans at 19%, agricultural loans at 4%, and consumer loans at 2%.

Mr. Funk continued, ”Overall loan originations were decent in the first quarter of 2019, but we experienced a higher than normal level of loan pay-offs, which kept loan growth in check.”

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

March 31,

December 31,

March 31,

Loans Held for Investment

2019

2018

2018

(In thousands)

Commercial and industrial

$

535,878

$

533,188

$

513,778

Agricultural

96,766

96,956

111,975

Commercial real estate

Construction and development

187,906

217,617

194,712

Farmland

86,648

88,807

87,030

Multifamily

161,067

134,741

126,802

Other

843,817

826,163

789,902

Total commercial real estate

1,279,438

1,267,328

1,198,446

Residential real estate

One-to-four family first liens

333,220

341,830

349,742

One-to-four family junior liens

121,793

120,049

116,187

Total residential real estate

455,013

461,879

465,929

Consumer

36,664

39,428

36,030

Loans held for investment, net of unearned income

$

2,403,759

$

2,398,779

$

2,326,158

Provision and Allowance for Loan Losses

For the first quarter of 2019, the provision for loan losses was $1.6 million, a decrease of $1.7 million from the linked quarter. The provision for loan losses for the first quarter of 2019 resulted from net charge-offs experienced during the period and the recognition of small impairments on several credit relationships.

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

Three Months Ended

March 31,

December 31,

March 31,

Allowance for Loan Losses Roll Forward

2019

2018

2018

(In thousands)

Beginning balance

$

29,307

$

31,278

$

28,059

Charge-offs

(1,355

)

(5,456

)

(476

)

Recoveries

106

235

238

Net charge-offs

(1,249

)

(5,221

)

(238

)

Provision for loan losses

1,594

3,250

1,850

Ending balance

$

29,652

$

29,307

$

29,671

Deposits

Total deposits at March 31, 2019, were $2.68 billion, an increase of $71.9 million from December 31, 2018. The mix of deposits reflected increases between December 31, 2018 and March 31, 2019 of $6.9 million, or 0.9%, in time deposits, $74.0 million, or 13.3% in money market deposits, and $12.9 million, or 1.9%, in interest checking deposits. These increases were partially offset by a decrease, between the two dates, of $12.4 million, or 2.8%, in noninterest bearing deposits, and $9.4 million, or 4.5%, in savings deposits.

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

March 31,

December 31,

March 31,

Deposit Composition

2019

2018

2018

(In thousands)

Noninterest bearing demand

$

426,729

$

439,133

$

450,168

Interest checking

696,760

683,894

698,895

Money market

629,838

555,839

541,313

Savings

200,998

210,416

215,940

Total non-maturity deposits

1,954,325

1,889,282

1,906,316

Time deposits less than $100,000

358,436

352,631

332,727

Time deposits of $100,000 to $250,000

182,874

179,764

170,742

Time deposits of $250,000 and over

189,192

191,252

222,136

Total time deposits

730,502

723,647

725,605

Total deposits

$

2,684,827

$

2,612,929

$

2,631,921

CREDIT QUALITY

Nonaccrual loans increased $1.4 million between December 31, 2018 and March 31, 2019, primarily due to $5.5 million being added to nonaccrual status, partially offset by $2.1 million of payments, net charge-offs of $1.0 million, $0.8 million coming out of nonaccrual status, and $0.2 million transferred to foreclosed assets, net. The balance of loans modified in a troubled debt restructuring (“TDRs”) decreased $0.1 million from year-end 2018, primarily due to payments of $0.2 million, partially offset by $0.1 being added to TDR status. Loans 90 days or more past due and still accruing interest decreased $157 thousand between December 31, 2018, and March 31, 2019. At March 31, 2019, net foreclosed assets totaled $336 thousand, down from $535 thousand at December 31, 2018. As of March 31, 2019, the allowance for loan losses was $29.7 million, or 1.23% of loans held for investment, net of unearned income, compared with $29.3 million, or 1.28% at December 31, 2018.

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

March 31,

December 31,

March 31,

Credit Quality Metrics

2019

2018

2018

(dollars in thousands)

Nonaccrual loans held for investment

$

21,274

$

19,924

$

13,566

Performing troubled debt restructured loans held for investment

5,161

5,284

9,623

Accruing loans contractually past due 90 days or more

208

365

116

Foreclosed assets, net

336

535

1,001

Total nonperforming assets

$

26,979

$

26,108

$

24,306

Allowance for loan losses

29,652

29,307

29,671

Provision for loan losses (for the quarter)

1,594

3,250

1,850

Net charge-offs (for the quarter)

1,249

5,221

238

Net charge-offs to average loans held for investment (for the quarter)

0.21

%

0.86

%

0.04

%

Allowance for loan losses to loans held for investment, net of unearned income

1.23

%

1.22

%

1.28

%

Allowance for loan losses to nonaccrual loans held for investment, net of unearned income

139.38

%

147.09

%

218.72

%

Nonaccrual loans held for investment to loans held for investment, net of unearned income

0.89

%

0.83

%

0.58

%

“Our loan loss allowance covers 139.4% of our total nonaccrual loans and we believe this reflects a strong position,” noted Mr. Funk. “We are continuing to work on lowering our level of nonperforming loans.”

CORPORATE UPDATE

Share Repurchase Program

During the first quarter of 2019 the Company repurchased 49,216 shares at an average price of $26.41 and a total cost of $1.3 million. At March 31, 2019, $2.7 million remained available to repurchase shares under the Company’s current share repurchase program.

Quarterly Cash Dividend Declared

On April 18, 2019, the Company’s board of directors declared a quarterly cash dividend of $0.2025 per common share, the same as the dividend paid in the previous quarter. The dividend is payable June 17, 2019, to shareholders of record at the close of business on April 29, 2019. At this quarterly rate, the indicated annual cash dividend is equal to $0.81 per common share.

CONFERENCE CALL DETAILS

The Company will host a conference call for investors at 11:00 a.m., CDT, on Friday, April 26, 2019. 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 July 26, 2019, by calling 877-344-7529 and using the replay access code of 10126189. A transcript of the call will also be available on the company’s web site (www.midwestone.com) within three business days of the event.

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 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 our pending merger with ATBancorp, 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 and changes in the scope and cost of Federal Deposit Insurance Corporation insurance and other coverages; (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, 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

March 31,

December 31,

2019

2018

(In thousands)

ASSETS

Cash and due from banks

$

40,002

$

43,787

Interest earning deposits in banks

2,969

1,693

Total cash and cash equivalents

42,971

45,480

Debt securities available for sale at fair value

432,979

414,101

Held to maturity securities at amortized cost

195,033

195,822

Total securities held for investment

628,012

609,923

Loans held for sale

309

666

Gross loans held for investment

2,409,333

2,405,001

Unearned income, net

(5,574

)

(6,222

)

Loans held for investment, net of unearned income

2,403,759

2,398,779

Allowance for loan losses

(29,652

)

(29,307

)

Total loans held for investment, net

2,374,107

2,369,472

Premises and equipment, net

75,200

75,773

Goodwill

64,654

64,654

Other intangible assets, net

9,423

9,875

Foreclosed assets, net

336

535

Other assets

113,963

115,102

Total assets

$

3,308,975

$

3,291,480

LIABILITIES

Noninterest bearing deposits

$

426,729

$

439,133

Interest bearing deposits

2,258,098

2,173,796

Total deposits

2,684,827

2,612,929

Short-term borrowings

76,066

131,422

Long-term debt

162,471

168,726

Other liabilities

21,762

21,336

Total liabilities

2,945,126

2,934,413

SHAREHOLDERS' EQUITY

Common stock

12,463

12,463

Additional paid-in capital

187,535

187,813

Retained earnings

173,771

168,951

Treasury stock

(7,297

)

(6,499

)

Accumulated other comprehensive loss

(2,623

)

(5,661

)

Total shareholders' equity

363,849

357,067

Total liabilities and shareholders' equity

$

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
CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended

March 31,

December 31,

March 31,

2019

2018 (1)

2018 (1)

(In thousands, except per share data)

Interest income

Loans, including fees

$

29,035

$

29,052

$

26,567

Taxable investment securities

2,927

2,774

2,748

Tax-exempt investment securities

1,406

1,375

1,529

Other

20

23

9

Total interest income

33,388

33,224

30,853

Interest expense

Deposits

5,695

5,161

3,536

Short-term borrowings

457

374

261

Long-term debt

1,260

1,136

882

Total interest expense

7,412

6,671

4,679

Net interest income

25,976

26,553

26,174

Provision for loan losses

1,594

3,250

1,850

Net interest income after provision for loan losses

24,382

23,303

24,324

Noninterest income

Investment services and trust activities

1,390

1,274

1,239

Service charges and fees

1,442

1,556

1,571

Card revenue

998

1,095

966

Loan revenue

393

884

941

Bank-owned life insurance

392

381

433

Insurance commissions

420

260

401

Investment securities gains (losses), net

17

(4

)

9

Other

358

350

121

Total noninterest income

5,410

5,796

5,681

Noninterest expense

Compensation and employee benefits

12,579

12,111

12,371

Occupancy expense of premises, net

1,879

1,166

1,906

Equipment

1,371

1,433

1,383

Legal and professional

965

1,027

794

Data processing

845

875

688

Marketing

606

678

620

Amortization of intangibles

452

503

657

FDIC insurance

370

429

319

Communications

342

342

329

Foreclosed assets, net

58

46

(39

)

Other

1,150

1,169

1,200

Total noninterest expense

20,617

19,779

20,228

Income before income tax expense

9,175

9,320

9,777

Income tax expense

1,890

1,696

1,984

Net income

$

7,285

$

7,624

$

7,793

Earnings per common share

Basic

$

0.60

$

0.62

$

0.64

Diluted

$

0.60

$

0.62

$

0.64

Weighted average basic common shares outstanding

12,164

12,217

12,223

Weighted average diluted common shares outstanding

12,177

12,235

12,242

Dividends paid per common share

$

0.2025

$

0.195

$

0.195

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


MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
FIVE QUARTER CONSOLIDATED BALANCE SHEETS

March 31,

December 31,

September 30,

June 30,

March 31,

2019

2018

2018

2018

2018

(In thousands)

ASSETS

Cash and due from banks

$

40,002

$

43,787

$

49,229

$

41,547

$

39,929

Interest earning deposits in banks

2,969

1,693

4,150

1,717

2,467

Total cash and cash equivalents

42,971

45,480

53,379

43,264

42,396

Debt securities available for sale at fair value

432,979

414,101

407,766

438,312

446,087

Held to maturity securities at amortized cost

195,033

195,822

191,733

192,896

194,617

Total securities held for investment

628,012

609,923

599,499

631,208

640,704

Loans held for sale

309

666

1,124

1,528

870

Gross loans held for investment

2,409,333

2,405,001

2,384,459

2,371,406

2,334,074

Unearned income, net

(5,574

)

(6,222

)

(6,810

)

(7,371

)

(7,916

)

Loans held for investment, net of unearned income

2,403,759

2,398,779

2,377,649

2,364,035

2,326,158

Allowance for loan losses

(29,652

)

(29,307

)

(31,278

)

(30,800

)

(29,671

)

Total loans held for investment, net

2,374,107

2,369,472

2,346,371

2,333,235

2,296,487

Premises and equipment, net

75,200

75,773

76,497

78,106

77,552

Goodwill

64,654

64,654

64,654

64,654

64,654

Other intangible assets, net

9,423

9,875

10,378

10,925

11,389

Foreclosed assets, net

336

535

549

676

1,001

Other assets

113,963

115,102

115,514

112,681

106,589

Total assets

$

3,308,975

$

3,291,480

$

3,267,965

$

3,276,277

$

3,241,642

LIABILITIES

Noninterest bearing deposits

$

426,729

$

439,133

$

458,576

$

469,862

$

450,168

Interest bearing deposits

2,258,098

2,173,796

2,173,683

2,134,339

2,181,753

Total deposits

2,684,827

2,612,929

2,632,259

2,604,201

2,631,921

Short-term borrowings

76,066

131,422

87,978

127,467

93,311

Long-term debt

162,471

168,726

176,979

178,083

159,335

Other liabilities

21,762

21,336

21,560

20,325

15,698

Total liabilities

2,945,126

2,934,413

2,918,776

2,930,076

2,900,265

SHAREHOLDERS' EQUITY

Common stock

$

12,463

$

12,463

$

12,463

$

12,463

$

12,463

Additional paid-in capital

187,535

187,813

187,581

187,304

187,188

Retained earnings

173,771

168,951

163,709

159,315

153,542

Treasury stock

(7,297

)

(6,499

)

(5,474

)

(5,474

)

(5,612

)

Accumulated other comprehensive loss

(2,623

)

(5,661

)

(9,090

)

(7,407

)

(6,204

)

Total shareholders' equity

363,849

357,067

349,189

346,201

341,377

Total liabilities and shareholders' equity

$

3,308,975

$

3,291,480

$

3,267,965

$

3,276,277

$

3,241,642

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

March 31,

December 31,

September 30,

June 30,

March 31,

2019

2018 (1)

2018 (1)

2018 (1)

2018 (1)

(In thousands, except per share data)

Interest income

Loans, including fees

$

29,035

$

29,052

$

28,088

$

27,486

$

26,567

Taxable investment securities

2,927

2,774

2,715

2,790

2,748

Tax-exempt investment securities

1,406

1,375

1,395

1,528

1,529

Other

20

23

12

18

9

Total interest income

33,388

33,224

32,210

31,822

30,853

Interest expense

Deposits

5,695

5,161

4,625

4,009

3,536

Short-term borrowings

457

374

321

359

261

Long-term debt

1,260

1,136

1,153

1,024

882

Total interest expense

7,412

6,671

6,099

5,392

4,679

Net interest income

25,976

26,553

26,111

26,430

26,174

Provision for loan losses

1,594

3,250

950

1,250

1,850

Net interest income after provision for loan losses

24,382

23,303

25,161

25,180

24,324

Noninterest income

Investment services and trust activities

1,390

1,274

1,222

1,218

1,239

Service charges and fees

1,442

1,556

1,512

1,518

1,571

Card revenue

998

1,095

1,069

1,093

966

Loan revenue

393

884

891

906

941

Bank-owned life insurance

392

381

399

397

433

Insurance commissions

420

260

304

319

401

Investment securities gains (losses), net

17

(4

)

192

(4

)

9

Other

358

350

456

246

121

Total noninterest income

5,410

5,796

6,045

5,693

5,681

Noninterest expense

Compensation and employee benefits

12,579

12,111

13,051

12,225

12,371

Occupancy expense of premises, net

1,879

1,166

2,643

1,882

1,906

Equipment

1,371

1,433

1,341

1,408

1,383

Legal and professional

965

1,027

1,861

959

794

Data processing

845

875

697

691

688

Marketing

606

678

672

690

620

Amortization of intangibles

452

503

547

589

657

FDIC insurance

370

429

393

392

319

Communications

342

342

341

341

329

Foreclosed assets, net

58

46

(131

)

145

(39

)

Other

1,150

1,169

1,207

1,264

1,200

Total noninterest expense

20,617

19,779

22,622

20,586

20,228

Income before income tax expense

9,175

9,320

8,584

10,287

9,777

Income tax expense

1,890

1,696

1,806

2,131

1,984

Net income

$

7,285

$

7,624

$

6,778

$

8,156

$

7,793

Earnings per common share

Basic

$

0.60

$

0.62

$

0.55

$

0.67

$

0.64

Diluted

$

0.60

$

0.62

$

0.55

$

0.67

$

0.64

Weighted average basic common shares outstanding

12,164

12,217

12,221

12,218

12,223

Weighted average diluted common shares outstanding

12,177

12,235

12,240

12,230

12,242

Dividends paid per common share

$

0.2025

$

0.195

$

0.195

$

0.195

$

0.195

(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

March 31, 2019

December 31, 2018

March 31, 2018

Average
Balance

Interest
Income/
Expense

Average
Yield/
Cost

Average
Balance

Interest
Income/
Expense

Average
Yield/
Cost

Average
Balance

Interest
Income/
Expense

Average
Yield/
Cost

(Dollars in thousands)

ASSETS

Loans, including fees (1)(2)

$

2,409,641

$

29,308

4.93

%

$

2,398,859

$

29,330

4.85

%

$

2,304,984

$

26,808

4.72

%

Taxable investment securities

414,986

2,927

2.86

%

404,733

2,774

2.72

%

423,991

2,748

2.63

%

Tax-exempt investment securities (3)

202,027

1,772

3.56

%

198,073

1,732

3.47

%

216,590

1,930

3.61

%

Other

3,053

20

2.66

%

4,243

23

2.15

%

2,421

9

1.51

%

Total interest earning assets

$

3,029,707

34,027

4.55

%

$

3,005,908

33,859

4.47

%

$

2,947,986

31,495

4.33

%

Other assets

271,390

272,218

268,032

Total assets

$

3,301,097

$

3,278,126

$

3,216,018

LIABILITIES AND SHAREHOLDERS’ EQUITY

Interest checking deposits

$

676,654

$

910

0.55

%

$

680,971

$

899

0.52

%

$

668,626

$

592

0.36

%

Money market deposits

599,695

1,334

0.90

%

556,522

1,034

0.74

%

528,484

493

0.38

%

Savings deposits

204,757

58

0.11

%

210,106

65

0.12

%

216,232

63

0.12

%

Time deposits

724,772

3,393

1.90

%

724,973

3,163

1.73

%

718,312

2,388

1.35

%

Total interest bearing deposits

2,205,878

5,695

1.05

%

2,172,572

5,161

0.94

%

2,131,654

3,536

0.67

%

Short-term borrowings

109,929

457

1.69

%

104,710

374

1.42

%

106,746

261

0.99

%

Long-term debt

179,515

1,260

2.85

%

171,029

1,136

2.64

%

161,203

882

2.22

%

Total borrowed funds

289,444

1,717

2.41

%

275,739

1,510

2.17

%

267,949

1,143

1.73

%

Total interest bearing liabilities

$

2,495,322

$

7,412

1.20

%

$

2,448,311

$

6,671

1.08

%

$

2,399,603

$

4,679

0.79

%

Noninterest bearing deposits

421,753

454,185

456,883

Other liabilities

24,619

24,232

18,982

Shareholders’ equity

359,403

351,398

340,550

Total liabilities and shareholders’ equity

$

3,301,097

$

3,278,126

$

3,216,018

Net interest income(4)

$

26,615

$

27,188

$

26,816

Net interest spread(4)

3.35

%

3.39

%

3.54

%

Net interest margin(4)

3.56

%

3.59

%

3.69

%

Total deposits(5)

$

2,627,631

$

5,695

0.88

%

$

2,626,757

$

5,161

0.78

%

$

2,588,537

$

3,536

0.55

%

Funding sources(6)

$

2,917,075

$

7,412

1.03

%

$

2,902,496

$

6,671

0.91

%

$

2,856,486

$

4,679

0.66

%

(1) Non-accrual loans have been included in average loans, net of unearned income. Amortized net deferred loans and net unearned discounts on acquired loans were included in the interest income calculations. The amortization of net deferred loans fees was $(150) thousand, $(67) thousand, and $(132) thousand for the three months ended March 31, 2019, December 31, 2018, and March 31, 2018, respectively. Accretion of unearned purchase discounts was $586 thousand, $454 thousand, and $878 thousand for the three months ended March 31, 2019, December 31, 2018, and March 31, 2018, respectively.

(2) Includes tax-equivalent adjustments of $273 thousand, $278 thousand, and $241 thousand for the three months ended March 31, 2019, December 31, 2018, and March 31, 2018, respectively. The federal statutory tax rate utilized was 21%.

(3) Includes tax-equivalent adjustments of $366 thousand, $357 thousand, and $401 thousand for the three months ended March 31, 2019, December 31, 2018, and March 31, 2018, respectively. The federal statutory tax rate utilized was 21%.

(4) Tax equivalent.

(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) Funding sources is the sum of total interest-bearing liabilities and noninterest-bearing demand deposits. The cost of funding sources is calculated as annualized total interest expense divided by average funding sources.


Non-GAAP Presentations:

Certain non-GAAP ratios and amounts are provided to evaluate and measure the Company’s operating performance and financial condition, including tangible book value per share, the tangible equity to tangible assets ratio, return on average tangible equity, net interest margin, earnings per share exclusive of merger expenses, and the efficiency ratio. Management believes this data provides investors with pertinent information regarding the Company’s profitability, financial condition and capital adequacy and how management evaluates such metrics internally. The following tables provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

As of

As of

As of

As of

As of

March 31,

December 31,

September 30,

June 30,

March 31,

(unaudited, dollars in thousands, except per share data)

2019

2018

2018

2018

2018

Tangible Equity

Total shareholders’ equity

$

363,849

$

357,067

$

349,189

$

346,201

$

341,377

Plus: Deferred tax liability associated with intangibles

546

660

786

924

1,073

Less: Intangible assets, net

(74,077

)

(74,529

)

(75,032

)

(75,579

)

(76,043

)

Tangible equity

$

290,318

$

283,198

$

274,943

$

271,546

$

266,407

Tangible Assets

Total assets

$

3,308,975

$

3,291,480

$

3,267,965

$

3,276,277

$

3,241,642

Plus: Deferred tax liability associated with intangibles

546

660

786

924

1,073

Less: Intangible assets, net

(74,077

)

(74,529

)

(75,032

)

(75,579

)

(76,043

)

Tangible assets

$

3,235,444

$

3,217,611

$

3,193,719

$

3,201,622

$

3,166,672

Common shares outstanding

12,153,045

12,180,015

12,221,107

12,221,107

12,214,942

Tangible Book Value Per Share

$

23.89

$

23.25

$

22.50

$

22.22

$

21.81

Tangible Equity/Tangible Assets

8.97

%

8.80

%

8.61

%

8.48

%

8.41

%


For the Three Months Ended

(unaudited, dollars in thousands)

March 31,
2019

December 31,
2018

March 31,
2018

Net Income

$

7,285

$

7,624

$

7,793

Plus: Intangible amortization, net of tax(1)

357

397

519

Adjusted net income

$

7,642

$

8,021

$

8,312

Average Tangible Equity

Average total shareholders’ equity

$

359,403

$

351,398

$

340,550

Plus: Average deferred tax liability associated with intangibles

601

720

1,154

Less: Average intangible assets, net of amortization

(74,293

)

(74,766

)

(76,364

)

Average tangible equity

$

285,711

$

277,352

$

265,340

Return on Average Tangible Equity (annualized)

10.85

%

11.47

%

12.70

%


Net Interest Margin Tax Equivalent Adjustment

Net interest income

$

25,976

$

26,553

$

26,174

Plus tax equivalent adjustment:(1)

Loans

273

278

241

Securities

366

357

401

Tax equivalent net interest income (1)

$

26,615

$

27,188

$

26,816

Average interest earning assets

$

3,029,707

$

3,005,908

$

2,947,986

Net Interest Margin

3.56

%

3.59

%

3.69

%


Yield on Average Loans

Interest income on loans, including fees

$

29,035

$

29,052

$

26,567

Plus tax equivalent adjustment:(1)

Loans

273

278

241

Tax equivalent loan interest income (1)

$

29,308

$

29,330

$

26,808

Average loans

$

2,409,641

$

2,398,859

$

2,304,984

Average Yield on Loans

4.93

%

4.85

%

4.72

%

(1) Computed on a tax-equivalent basis, assuming a federal income tax rate of 21%.


For the Three Months Ended

(unaudited, dollars in thousands, except per share amounts)

March 31,
2019

December 31,
2018

March 31,
2018

Net Income

$

7,285

$

7,624

$

7,793

Plus: Merger-related expenses

167

206

Net tax effect of above item(1)

(11

)

(32

)

Net income exclusive of merger-related expenses

$

7,441

$

7,798

$

7,793

Average number of diluted shares

12,176,757

12,234,687

12,241,714

Earnings per common share - diluted

$

0.60

$

0.62

$

0.64

Earnings per common share - diluted, exclusive of merger-related expenses

$

0.61

$

0.64

$

0.64


For the Three Months Ended

(dollars in thousands)

March 31,
2019

December 31,
2018

March 31,
2018

Operating Expense

Total noninterest expense

$

20,617

$

19,779

$

20,228

Less: Amortization of intangibles

(452

)

(503

)

(657

)

Operating expense

$

20,165

$

19,276

$

19,571

Operating Revenue

Tax equivalent net interest income (2)

$

26,615

$

27,188

$

26,816

Plus: Noninterest income

5,410

5,796

5,681

Impairment losses on investment securities

Less: (Gain) loss on sale or call of debt securities

(17

)

4

(9

)

Operating revenue

$

32,008

$

32,988

$

32,488

Efficiency Ratio

63.00

%

58.43

%

60.24

%

(1) Computed assuming a combined marginal income tax rate of 25% on deductible items.

(2) Computed on a tax-equivalent basis, assuming a federal income tax rate of 21%.


Contact:

Charles N. Funk

Barry S. Ray

President and Chief Executive Officer

Senior Vice President and Chief Financial Officer

319.356.5800

319.356.5800