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MidWestOne Financial Group, Inc. Reports Financial Results for the Fourth Quarter and Full Year 2018

IOWA CITY, Iowa, Jan. 24, 2019 (GLOBE NEWSWIRE) -- MidWestOne Financial Group, Inc. (Nasdaq - MOFG) (“we”, “our”, or “the Company”) today reported its financial results for the fourth quarter and full year 2018. Net income for the fourth quarter of 2018 was $7.6 million, or $0.62 per diluted common share, compared to net income of $6.8 million, or $0.55 per diluted common share, for the third quarter of 2018 (the “linked quarter”). Net income for the full year 2018 was $30.4 million, or $2.48 per diluted common share, compared to net income for the full year 2017 of $18.7 million, or $1.55 per diluted common share. Merger-related costs reduced earnings per share by $0.02 for the fourth quarter of 2018, $0.05 for the linked quarter, and $0.06 for the full year 2018.

FINANCIAL HIGHLIGHTS

As of or For the Three Months Ended

As of or For the Years Ended

December 31,

September 30,

December 31,

December 31,

2018

2018

2018

2017

(Dollars in thousands, except per share amounts)

Net income

$

7,624

$

6,778

$

30,351

$

18,699

Diluted earnings per share

$

0.62

$

0.55

$

2.48

$

1.55

Return on average assets

0.92

%

0.83

%

0.93

%

0.60

%

Return on average equity

8.61

%

7.72

%

8.78

%

5.58

%

Return on average tangible equity (1)

11.47

%

10.45

%

11.86

%

8.00

%

Net interest margin (tax equivalent)(1)

3.59

%

3.56

%

3.62

%

3.83

%

Yield on average loans (tax equivalent)(1)

4.85

%

4.74

%

4.77

%

4.73

%

Cost of average total deposits

0.78

%

0.70

%

0.66

%

0.46

%

Efficiency ratio(1)

58.33

%

68.58

%

62.05

%

58.64

%

Total assets

$

3,291,480

$

3,267,965

$

3,291,480

$

3,212,271

Loans held for investment

$

2,398,779

$

2,377,649

$

2,398,779

$

2,286,695

Total deposits

$

2,612,929

$

2,632,259

$

2,612,929

$

2,605,319

Equity to assets ratio

10.85

%

10.69

%

10.85

%

10.59

%

Tangible equity/tangible assets(1)

8.80

%

8.61

%

8.80

%

8.44

%

Book value per share

$

29.32

$

28.57

$

29.32

$

27.85

Tangible book value per share(1)

$

23.25

$

22.50

$

23.25

$

21.67

Loan to deposit ratio

91.80

%

90.33

%

91.80

%

87.77

%

(1) Non-GAAP measure. See pages 14-15 for a detailed explanation.

Charles Funk, President and CEO, commented, “The year of 2018 represents the best net income and earnings per share performance in our Company’s history. While we are pleased with the Company’s progress, we are far from satisfied and are confident that 2019 will be another year of tangible improvement.”

INCOME STATEMENT HIGHLIGHTS

Net Interest Income

Net interest income increased in the fourth quarter of 2018 to $26.7 million from $26.4 million in the linked quarter due primarily to a higher average loan yields. The loan yield was 4.85% for the fourth quarter of 2018 compared to 4.74% for the linked quarter. The increased loan yield reflected higher coupon interest partially offset by a decrease in discount accretion on acquired loans. Discount accretion on acquired loans decreased to $454 thousand in the current quarter from $605 thousand in the linked quarter. The total remaining acquired loan discount as of December 31, 2018 was $5.8 million. The linked quarter also included $313 thousand in interest reversals from nonaccrual loans compared to $89 thousand in the fourth quarter of 2018.

The tax equivalent net interest margin (NIM) increased to 3.59% for the fourth quarter of 2018 from 3.56% in the linked quarter. The increase in the NIM was due primarily to higher yields on average loans, partially offset by higher deposit and borrowing costs. Loan purchase discount accretion added 6 bps to the NIM in the current quarter compared to 8 bps in the linked quarter.

The cost of average total deposits in the fourth quarter of 2018 was 0.78% compared to 0.70% 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.

“The flat yield curve and increased competition for deposits is a headwind for the net interest margin,” stated Mr. Funk. “However, our year-over-year quarterly margin, excluding loan purchase discount accretion and the effects of tax reform, was basically flat and we are pleased with this performance.”

Noninterest Income

Noninterest income for the fourth quarter of 2018 decreased $339 thousand, or 6%, from the linked quarter. The decrease was primarily due to $190 thousand in foreclosed asset gains, $146 thousand of income from customer derivative contracts, and $192 thousand of investment security gains, all in the linked quarter. The investment security gains in the linked quarter were recognized in connection with the sales of certain tax-exempt municipal securities. Those sales were completed to take advantage of favorable market pricing for those securities. Other service charges and fees in the fourth quarter of 2018 were up mainly due to a $211 thousand recovery related to an acquired asset.

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

Three Months Ended

December 31,

September 30,

Noninterest Income

2018

2018

(In thousands)

Trust, investment, and insurance fees

$

1,534

$

1,526

Service charges and fees on deposit accounts

1,175

1,148

Loan origination and servicing fees

884

891

Other service charges and fees

1,751

1,502

Bank-owned life insurance

381

399

Investment securities gains (losses), net

(4

)

192

Other

(76

)

326

Total noninterest income

$

5,645

$

5,984

Noninterest Expense

Noninterest expense for the fourth quarter of 2018 decreased $3.0 million, or 13.2%, from the linked quarter. The decrease was driven by occupancy charges, salaries and employee benefits, and professional fees. Occupancy and equipment, net, decreased $1.4 million, as the linked quarter included a $585 thousand write-down of a former Minnesota banking center, whereas the current quarter included a $743 gain on the sale of a former bank administration building. Salaries and employee benefits decreased $940 thousand primarily from decreased benefits expenses of $438 thousand in the fourth quarter of 2018 due to expense accrual adjustments, and approximately $274 thousand of expenses in the linked quarter related to the retirement of the Company’s former Chief Credit Officer. Professional fees decreased $834 thousand, mainly due to a decrease of $499 thousand of costs related to our planned merger with ATBancorp as well as decreased credit-related legal fees.

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

Three Months Ended

December 31,

September 30,

Noninterest Expense

2018

2018

(In thousands)

Salaries and employee benefits

$

12,111

$

13,051

Occupancy and equipment, net

2,597

3,951

Professional fees

1,027

1,861

Data processing

875

697

FDIC insurance

429

393

Amortization of intangibles

503

547

Other

2,261

2,311

Total noninterest expense

$

19,803

$

22,811

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

Three Months Ended

December 31,

September 30,

2018

2018

(In thousands)

Occupancy and equipment, net

$

2

$

Professional fees

89

588

Data processing

100

Other

15

Total merger-related costs

$

206

$

588

Income Taxes

The effective income tax rate was 18.2% for the fourth quarter of 2018 and 21.0% for the linked quarter. The effective tax rate for the fourth quarter of 2018 was lower due primarily to certain tax credits recognized during the period. The effective tax rate for the full year 2018 was 20.1%.

BALANCE SHEET HIGHLIGHTS

Loans Held for Investment

Loans held for investment, net of unearned income, increased $112.1 million, or 4.9%, from $2.29 billion at December 31, 2017, to $2.40 billion at December 31, 2018. Loan portfolio segments experiencing the largest increases were commercial real estate and commercial and industrial. As of December 31, 2018, 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, ”Loan growth of 4.9% represents good performance during a year in which approximately 25% of our footprint faced a challenging rural economy.”

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

2018

2018

2017

(In thousands)

Commercial and industrial

$

533,188

$

523,333

$

503,624

Agricultural

96,956

103,207

105,512

Commercial real estate

Construction and development

217,617

223,324

165,276

Farmland

88,807

85,735

87,868

Multifamily

134,741

126,663

134,506

Other

826,163

818,068

784,321

Total commercial real estate

1,267,328

1,253,790

1,171,971

Residential real estate

One-to-four family first liens

341,830

342,755

352,226

One-to-four family junior liens

120,049

115,768

117,204

Total residential real estate

461,879

458,523

469,430

Consumer

39,428

38,796

36,158

Total loans held for investment, net of unearned income

$

2,398,779

$

2,377,649

$

2,286,695

Provision and Allowance for Loan Losses

For the fourth quarter of 2018, the provision for loan losses was $3.3 million, an increase of $2.3 million from the linked quarter. The provision for loan losses for the fourth quarter of 2018 was mainly due to net charge-offs experienced during the period and the recognition of impairment on one credit relationship.

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

Three Months Ended

Years Ended

December 31,

September 30,

December 31,

December 31,

December 31,

Allowance for Loan Losses Roll Forward

2018

2018

2017

2018

2017

(In thousands)

Beginning balance

$

31,278

$

30,800

$

26,510

$

28,059

$

21,850

Charge-offs

(5,456

)

(817

)

(9,296

)

(7,040

)

(12,033

)

Recoveries

235

345

176

988

908

Net charge-offs

(5,221

)

(472

)

(9,120

)

(6,052

)

(11,125

)

Provision for credit losses

3,250

950

10,669

7,300

17,334

Ending balance

$

29,307

$

31,278

$

28,059

$

29,307

$

28,059

“$4.8 million of the net charge-offs this quarter was related to a loan that had been partially charged-off in the fourth quarter of 2017,” noted Mr. Funk. “This loan is in the process of being resolved in a bankruptcy sale. While we had reserved $3.4 million against this loan, the proceeds of the sale were lower than we anticipated, thus necessitating an additional provision for loan loss. We did not, however, see any significant deterioration in our agricultural portfolio during the quarter, and at 147.09%, our loan loss reserve more than covers our nonperforming assets.”

Deposits and Borrowings

Total deposits at December 31, 2018, were $2.61 billion, an increase of $7.6 million from December 31, 2017. The mix of deposits saw increases between December 31, 2017 and December 31, 2018 of $21.8 million, or 3.1%, in certificates of deposit, and $11.6 million, or 0.9%, in interest-bearing checking deposits. These increases were partially offset by a decrease of $22.8 million, or (4.9)%, in non-interest-bearing demand deposits, and $3.0 million, or (1.4)%, in savings deposits between the two dates.

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

December 31,

September 30,

December 31,

Deposit Composition

2018

2018

2017

(In thousands)

Noninterest-bearing demand

$

439,133

$

458,576

$

461,969

Interest checking

683,894

691,743

687,433

Money market

555,839

545,179

540,679

Savings

210,416

211,591

213,430

Total non-maturity deposits

1,889,282

1,907,089

1,903,511

Time deposits less than $100,000

352,631

348,099

324,681

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

179,764

174,459

158,259

Time deposits of $250,000 and over

191,252

202,612

218,868

Total time deposits

723,647

725,170

701,808

Total deposits

$

2,612,929

$

2,632,259

$

2,605,319

Between December 31, 2017 and December 31, 2018, federal funds purchased rose $55.9 million, to $56.9 million compared to $1.0 million, while securities sold under agreements to repurchase declined $21.7 million, due to normal cash need fluctuations by customers. FHLB borrowings rose $21.0 million or 18.3%, between the two dates. The overall increase in borrowings was the result of growth in the loan portfolio exceeding deposit growth. At December 31, 2018, long-term debt had an outstanding balance of $7.5 million, a decrease of $5.0 million, or 40.0%, from December 31, 2017, due to normal scheduled repayments.

CREDIT QUALITY

Nonaccrual loans increased $5.1 million between December 31, 2017 and December 31, 2018, primarily due to $16.1 million being added to nonaccrual status, partially offset by $2.7 million of payments, net charge-offs of $5.4 million, and $2.3 million coming out of nonaccrual status. The balance of loans modified in a troubled debt restructuring (“TDRs”) decreased $4.5 million from year-end 2017, primarily due to payments of $3.5 million. Loans 90 days or more past due and still accruing interest increased $158 thousand between December 31, 2017, and December 31, 2018. At December 31, 2018, net foreclosed assets totaled $535 thousand, down from $2.0 million at December 31, 2017. As of December 31, 2018, the allowance for loan losses was $29.3 million, or 1.22% of total loans, compared with $28.1 million, or 1.23% of total loans at December 31, 2017.

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

December 31,

September 30,

December 31,

Credit Quality Metrics

2018

2018

2017

(dollars in thousands)

Nonaccrual loans held for investment

$

19,924

$

20,929

$

14,784

Performing troubled debt restructured loans held for investment

5,284

7,354

8,870

Accruing loans contractually past due 90 days or more

365

171

207

Foreclosed assets, net

535

549

2,010

Total nonperforming assets

$

26,108

$

29,003

$

25,871

Allowance for loan losses

29,307

31,278

28,059

Provision for loan losses (for the quarter)

3,250

950

10,669

Net charge-offs (for the quarter)

5,221

472

9,120

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

0.86

%

0.08

%

1.60

%

Allowance for loan losses to loans held for investment

1.22

%

1.32

%

1.23

%

Allowance for loan losses to nonaccrual loans held for investment

147.09

%

149.45

%

189.79

%

Nonaccrual loans held for investment to loans held for investment

0.83

%

0.88

%

0.65

%

CORPORATE UPDATE

Proposed Merger with ATBancorp

On January 11, 2019, the Company held a special meeting of shareholders, at which the Company’s shareholders voted on a proposal to approve and adopt the Agreement and Plan of Merger, dated August 21, 2018, by and between the Company and ATBancorp ("ATB"), pursuant to which ATB will merge with and into the Company (the "Merger Proposal"), and on a proposal to approve the issuance of approximately 4,117,541 shares of the Company’s common stock to ATB's shareholders in connection with the merger. The shareholders present in person or by proxy at the special meeting approved both the Merger Proposal and the issuance of common stock.

For further information, please refer to the Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on January 11, 2019.

Mr. Funk commented, “We anticipate closing this transaction late in the first quarter of 2019 and are excited about the opportunities presented by this transaction, not the least of which is projected significant earnings accretion to our Company.”

Share Repurchase Program

During the fourth quarter of 2018 and for the year ended December 31, 2018, we repurchased 42,130 shares at an average price of $24.81 and a total cost of $1.0 million. At December 31, 2018, $4.0 million remained available to repurchase shares under the Company’s current share repurchase program.

Quarterly Cash Dividend Declared

On January 15, 2019, the Company’s board of directors declared a quarterly cash dividend of $0.2025 per common share, an increase of 3.8% from the dividend paid in the previous quarter. The dividend is payable March 15, 2019, to shareholders of record at the close of business on February 28, 2019. At this quarterly rate, the indicated annual cash dividend is equal to $0.81 per common share.

“We are pleased to raise the dividend to our shareholders in 2019. We continue to monitor opportunities to repurchase our stock,” concluded Mr. Funk.

CONFERENCE CALL DETAILS

The Company will host a conference call for investors at 11:00 a.m., CDT, on Friday, January 25, 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 April 25, 2019, by calling 877-344-7529 and using the replay access code of 10126188. 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 risk of mergers, including 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 similar services; (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,

2018

2018

2017

(In thousands)

ASSETS

Cash and due from banks

$

43,787

$

49,229

$

44,818

Interest-earning deposits in banks

1,693

4,150

5,474

Federal funds sold

680

Total cash and cash equivalents

45,480

53,379

50,972

Equity securities at fair value

2,737

2,797

2,336

Debt securities available for sale at fair value

414,101

407,766

445,324

Held to maturity securities at amortized cost

195,822

191,733

195,619

Loans held for sale

666

1,124

856

Loans held for investment, net of unearned income

2,398,779

2,377,649

2,286,695

Allowance for loan losses

(29,307

)

(31,278

)

(28,059

)

Loans held for investment, net

2,369,472

2,346,371

2,258,636

Premises and equipment, net

75,773

76,497

75,969

Goodwill

64,654

64,654

64,654

Other intangible assets, net

9,876

10,378

12,046

Foreclosed assets, net

535

549

2,010

Other

112,364

112,717

103,849

Total assets

$

3,291,480

$

3,267,965

$

3,212,271

LIABILITIES

Noninterest-bearing deposits

$

439,133

$

458,576

$

461,969

Interest-bearing deposits

2,173,796

2,173,683

2,143,350

Total deposits

2,612,929

2,632,259

2,605,319

Federal funds purchased

56,900

19,056

1,000

Securities sold under agreements to repurchase

74,522

68,922

96,229

Federal Home Loan Bank borrowings

136,000

143,000

115,000

Junior subordinated notes issued to capital trusts

23,888

23,865

23,793

Long-term debt

7,500

8,750

12,500

Other

22,674

22,924

18,126

Total liabilities

2,934,413

2,918,776

2,871,967

SHAREHOLDERS' EQUITY

Common stock

12,463

12,463

12,463

Additional paid-in capital

187,813

187,581

187,486

Treasury stock

(6,499

)

(5,474

)

(5,121

)

Retained earnings

168,951

163,709

148,078

Accumulated other comprehensive loss

(5,661

)

(9,090

)

(2,602

)

Total shareholders' equity

357,067

349,189

340,304

Total liabilities and shareholders' equity

$

3,291,480

$

3,267,965

$

3,212,271


MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended

Years Ended

December 31,

September 30,

December 31,

December 31,

2018

2018

2017

2018

2017

(In thousands, except per share data)

Interest income

Loans

$

29,052

$

28,088

$

26,231

$

111,193

$

102,366

Taxable securities

2,949

2,965

2,676

11,742

10,573

Tax-exempt securities

1,375

1,395

1,540

5,827

6,239

Deposits in banks and federal funds sold

23

12

91

62

142

Total interest income

33,399

32,460

30,538

128,824

119,320

Interest expense

Deposits

5,161

4,625

3,120

17,331

11,489

Federal funds purchased

181

144

19

661

171

Securities sold under agreements to repurchase

190

173

116

641

241

Federal Home Loan Bank borrowings

739

741

517

2,612

1,838

Other borrowings

4

3

3

13

12

Junior subordinated notes issued to capital trusts

306

313

245

1,184

949

Long-term debt

90

100

107

399

445

Total interest expense

6,671

6,099

4,127

22,841

15,145

Net interest income

26,728

26,361

26,411

105,983

104,175

Provision for loan losses

3,250

950

10,669

7,300

17,334

Net interest income after provision for loan losses

23,478

25,411

15,742

98,683

86,841

Noninterest income

Trust, investment, and insurance fees

1,534

1,526

1,595

6,237

6,189

Service charges and fees on deposit accounts

1,175

1,148

1,291

4,649

5,126

Loan origination and servicing fees

884

891

889

3,622

3,421

Other service charges and fees

1,751

1,502

1,412

6,215

5,992

Bank-owned life insurance

381

399

398

1,610

1,388

Investment securities gains (losses), net

(4

)

192

2

193

241

Other

(76

)

326

(53

)

262

13

Total noninterest income

5,645

5,984

5,534

22,788

22,370

Noninterest expense

Salaries and employee benefits

12,111

13,051

12,152

49,758

47,864

Occupancy and equipment, net

2,597

3,951

2,982

13,037

12,305

Professional fees

1,027

1,861

971

4,641

3,962

Data processing

875

697

692

2,951

2,674

FDIC insurance

429

393

308

1,533

1,265

Amortization of intangibles

503

547

713

2,296

3,125

Other

2,261

2,311

2,275

9,287

8,941

Total noninterest expense

19,803

22,811

20,093

83,503

80,136

Income before income tax expense

9,320

8,584

1,183

37,968

29,075

Income tax expense

1,696

1,806

2,773

7,617

10,376

Net income

$

7,624

$

6,778

$

(1,590

)

$

30,351

$

18,699

Earnings (loss) per common share

Basic

$

0.62

$

0.55

$

(0.13

)

$

2.48

$

1.55

Diluted

$

0.62

$

0.55

$

(0.13

)

$

2.48

$

1.55

Weighted average basic common shares outstanding

12,217

12,221

12,219

12,220

12,038

Weighted average diluted common shares outstanding

12,235

12,240

12,219

12,237

12,063

Dividends paid per common share

$

0.195

$

0.195

$

0.17

$

0.78

$

0.67


MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES

FIVE QUARTER CONSOLIDATED BALANCE SHEETS

December 31,

September 30,

June 30,

March 31,

December 31,

2018

2018

2018

2018

2017

(In thousands)

ASSETS

Cash and due from banks

$

43,787

$

49,229

$

41,547

$

39,929

$

44,818

Interest-earning deposits in banks

1,693

4,150

1,717

2,467

5,474

Federal funds sold

680

Total cash and cash equivalents

45,480

53,379

43,264

42,396

50,972

Equity securities at fair value

2,737

2,797

2,809

2,815

2,336

Debt securities available for sale at fair value

414,101

407,766

438,312

446,087

445,324

Held to maturity securities at amortized cost

195,822

191,733

192,896

194,617

195,619

Loans held for sale

666

1,124

1,528

870

856

Loans held for investment, net of unearned income

2,398,779

2,377,649

2,364,035

2,326,158

2,286,695

Allowance for loan losses

(29,307

)

(31,278

)

(30,800

)

(29,671

)

(28,059

)

Loans held for investment, net

2,369,472

2,346,371

2,333,235

2,296,487

2,258,636

Premises and equipment, net

75,773

76,497

78,106

77,552

75,969

Goodwill

64,654

64,654

64,654

64,654

64,654

Other intangible assets, net

9,876

10,378

10,925

11,389

12,046

Foreclosed assets, net

535

549

676

1,001

2,010

Other

112,364

112,717

109,872

103,774

103,849

Total assets

$

3,291,480

$

3,267,965

$

3,276,277

$

3,241,642

$

3,212,271

LIABILITIES

Non-interest-bearing deposits

$

439,133

$

458,576

$

469,862

$

450,168

$

461,969

Interest-bearing deposits

2,173,796

2,173,683

2,134,339

2,181,753

2,143,350

Total deposits

2,612,929

2,632,259

2,604,201

2,631,921

2,605,319

Federal funds purchased

56,900

19,056

52,421

25,573

1,000

Securities sold under agreements to repurchase

74,522

68,922

75,046

67,738

96,229

Federal Home Loan Bank borrowings

136,000

143,000

143,000

123,000

115,000

Junior subordinated notes issued to capital trusts

23,888

23,865

23,841

23,817

23,793

Long-term debt

7,500

8,750

10,000

11,250

12,500

Other

22,674

22,924

21,567

16,966

18,126

Total liabilities

2,934,413

2,918,776

2,930,076

2,900,265

2,871,967

SHAREHOLDERS' EQUITY

Common stock

12,463

12,463

12,463

12,463

12,463

Additional paid-in capital

187,813

187,581

187,304

187,188

187,486

Treasury stock

(6,499

)

(5,474

)

(5,474

)

(5,612

)

(5,121

)

Retained earnings

168,951

163,709

159,315

153,542

148,078

Accumulated other comprehensive income (loss)

(5,661

)

(9,090

)

(7,407

)

(6,204

)

(2,602

)

Total shareholders' equity

357,067

349,189

346,201

341,377

340,304

Total liabilities and shareholders' equity

$

3,291,480

$

3,267,965

$

3,276,277

$

3,241,642

$

3,212,271


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,

2018

2018

2018

2018

2017

(In thousands, except per share data)

Interest income

Loans

$

29,052

$

28,088

$

27,486

$

26,567

$

26,231

Taxable securities

2,949

2,965

2,940

2,888

2,676

Tax-exempt securities

1,375

1,395

1,528

1,529

1,540

Deposits in banks and federal funds sold

23

12

19

8

91

Total interest income

33,399

32,460

31,973

30,992

30,538

Interest expense

Deposits

5,161

4,625

4,009

3,536

3,120

Federal funds purchased

181

144

211

125

19

Securities sold under agreements to repurchase

190

173

144

134

116

Federal Home Loan Bank borrowings

739

741

615

517

517

Other borrowings

4

3

4

2

3

Junior subordinated notes issued to capital trusts

306

313

307

258

245

Long-term debt

90

100

102

107

107

Total interest expense

6,671

6,099

5,392

4,679

4,127

Net interest income

26,728

26,361

26,581

26,313

26,411

Provision for loan losses

3,250

950

1,250

1,850

10,669

Net interest income after provision for loan losses

23,478

25,411

25,331

24,463

15,742

Noninterest income

Trust, investment, and insurance fees

1,534

1,526

1,537

1,640

1,595

Service charges and fees on deposit accounts

1,175

1,148

1,158

1,168

1,291

Loan origination and servicing fees

884

891

906

941

889

Other service charges and fees

1,751

1,502

1,582

1,380

1,412

Bank-owned life insurance

381

399

397

433

398

Investment securities gains (losses), net

(4

)

192

(4

)

9

2

Other

(76

)

326

(89

)

101

(53

)

Total noninterest income

5,645

5,984

5,487

5,672

5,534

Noninterest expense

Salaries and employee benefits

12,111

13,051

12,225

12,371

12,152

Occupancy and equipment, net

2,597

3,951

3,238

3,251

2,982

Professional fees

1,027

1,861

959

794

971

Data processing

875

697

691

688

692

FDIC insurance

429

393

392

319

308

Amortization of intangibles

503

547

589

657

713

Other

2,261

2,311

2,437

2,278

2,275

Total noninterest expense

19,803

22,811

20,531

20,358

20,093

Income before income tax expense

9,320

8,584

10,287

9,777

1,183

Income tax expense

1,696

1,806

2,131

1,984

2,773

Net income (loss)

$

7,624

$

6,778

$

8,156

$

7,793

$

(1,590

)

Earnings (loss) per common share

Basic

$

0.62

$

0.55

$

0.67

$

0.64

$

(0.13

)

Diluted

$

0.62

$

0.55

$

0.67

$

0.64

$

(0.13

)

Weighted average basic common shares outstanding

12,217

12,221

12,218

12,223

12,219

Weighted average diluted common shares outstanding

12,235

12,240

12,230

12,242

12,219

Dividends paid per common share

$

0.195

$

0.195

$

0.195

$

0.20

$

0.17


MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES

AVERAGE BALANCE SHEET AND YIELD ANALYSIS

Three Months Ended

December 31, 2018

September 30, 2018

December 31, 2017

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 (1)(2)

$

2,398,859

$

29,330

4.85

%

$

2,375,100

$

28,358

4.74

%

$

2,258,009

$

26,716

4.69

%

Investment securities:

Taxable securities

421,203

2,949

2.78

%

426,674

2,965

2.76

415,518

2,676

2.56

%

Tax exempt securities (3)

198,073

1,732

3.47

%

200,577

1,760

3.48

218,022

2,354

4.28

%

Total investment securities

619,276

4,681

3.00

%

627,251

4,725

2.99

633,540

5,030

3.15

%

Federal funds sold and interest-earning deposits in banks

4,243

23

2.15

%

2,541

12

1.87

27,465

91

1.31

%

Total interest-earning assets

$

3,022,378

34,034

4.47

%

$

3,004,892

33,095

4.37

%

$

2,919,014

31,837

4.33

%

Cash and due from banks

37,599

36,759

37,122

Premises and equipment

76,271

77,476

75,445

Allowance for loan losses

(31,712

)

(31,441

)

(26,321

)

Other assets

173,590

170,597

165,800

Total assets

$

3,278,126

$

3,258,283

$

3,171,060

LIABILITIES AND SHAREHOLDERS’ EQUITY

Savings and interest-bearing demand deposits

$

1,447,599

1,994

0.55

%

$

1,425,768

1,685

0.47

%

$

1,408,099

1,085

0.31

%

Certificates of deposit

724,973

3,167

1.73

%

729,795

2,940

1.60

%

667,362

2,035

1.21

%

Total interest-bearing deposits

2,172,572

5,161

0.94

%

2,155,563

4,625

0.85

%

2,075,461

3,120

0.60

%

Federal funds purchased and securities sold under agreements to repurchase

104,710

371

1.41

%

99,254

317

1.27

%

95,376

135

0.56

%

Federal Home Loan Bank borrowings

137,065

739

2.14

%

143,326

741

2.05

%

126,087

517

1.63

%

Long-term debt and junior subordinated notes issued to capital trusts

33,964

400

4.67

%

35,109

416

4.70

%

38,823

355

3.63

%

Total borrowed funds

275,739

1,510

2.17

%

277,689

1,474

2.11

%

260,286

1,007

1.53

%

Total interest-bearing liabilities

$

2,448,311

6,671

1.08

%

$

2,433,252

6,099

0.99

%

$

2,335,747

4,127

0.70

%

Demand deposits

454,185

453,124

467,784

Other liabilities

24,232

23,776

19,851

Shareholders’ equity

351,398

348,131

347,678

Total liabilities and shareholders’ equity

$

3,278,126

$

3,258,283

$

3,171,060

Net interest income(4)

$

27,363

$

26,996

$

27,710

Net interest spread(4)

3.39

%

3.38

%

3.63

%

Net interest margin(4)

3.59

%

3.56

%

3.77

%

Total deposits(5)

$

2,626,757

$

5,161

0.78

%

$

2,608,687

$

4,625

0.70

%

$

2,543,245

$

3,120

0.49

%

Funding sources(6)

$

2,902,496

$

6,671

0.91

%

$

2,886,376

$

6,099

0.84

%

$

2,803,531

$

4,127

0.58

%

(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 $(67) thousand, $(128) thousand, and $(132) thousand for the three months ended December 31, 2018, September 30, 2018, and December 31, 2017, respectively. Accretion of unearned purchase discounts was $454 thousand, $605 thousand, and $1,088 thousand for the three months ended December 31, 2018, September 30, 2018, and December 31, 2017, respectively.

(2) Includes tax-equivalent adjustments of $278 thousand, $270 thousand, and $485 thousand for the three months ended December 31, 2018, September 30, 2018, and December 31, 2017, respectively. The federal statutory tax rate utilized was 21% for the 2018 periods and 35% for the 2017 period.

(3) Includes tax-equivalent adjustments of $357 thousand, $365 thousand, and $814 thousand for the three months ended December 31, 2018, September 30, 2018, and December 31, 2017, respectively. The federal statutory tax rate utilized was 21% for the 2018 periods and 35% for the 2017 period.

(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.

MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES

AVERAGE BALANCE SHEET AND YIELD ANALYSIS

Years Ended

December 31, 2018

December 31, 2017

Average
Balance

Interest
Income/
Expense

Average
Yield/
Cost

Average
Balance

Interest
Income/
Expense

Average
Yield/
Cost

(Dollars in thousands)

ASSETS

Loans (1)(2)

$

2,354,354

$

112,233

4.77

%

$

2,201,364

$

104,096

4.73

%

Investment securities:

Taxable securities

431,478

11,742

2.72

%

423,678

10,573

2.50

%

Tax exempt securities (3)

207,605

7,342

3.54

%

217,650

9,536

4.38

%

Total investment securities

639,083

19,084

2.99

%

641,328

20,109

3.14

%

Federal funds sold and interest-earning deposits in banks

3,372

62

1.84

%

11,138

142

1.27

%

Total interest-earning assets

$

2,996,809

131,379

4.38

%

$

2,853,830

124,347

4.36

%

Cash and due from banks

36,384

35,745

Premises and equipment

77,178

75,082

Allowance for loan losses

(30,533

)

(23,557

)

Other assets

169,880

156,396

Total assets

$

3,249,718

$

3,097,496

LIABILITIES AND SHAREHOLDERS’ EQUITY

Savings and interest-bearing demand deposits

$

1,429,672

6,181

0.43

%

$

1,357,554

3,863

0.28

%

Certificates of deposit

723,830

11,150

1.54

%

674,757

7,626

1.13

%

Total interest-bearing deposits

2,153,502

17,331

0.80

%

2,032,311

11,489

0.57

%

Federal funds purchased and securities sold under agreements to repurchase

105,094

1,302

1.24

%

87,763

412

0.47

%

Federal Home Loan Bank borrowings

133,814

2,612

1.95

%

110,000

1,838

1.67

%

Long-term debt and junior subordinated notes issued to capital trusts

35,726

1,596

4.47

%

40,679

1,406

3.46

%

Total borrowed funds

274,634

5,510

2.01

%

238,442

3,656

1.53

%

Total interest-bearing liabilities

$

2,428,136

22,841

0.94

%

$

2,270,753

15,145

0.67

%

Demand deposits

455,223

471,170

Other liabilities

20,625

20,607

Shareholders’ equity

345,734

334,966

Total liabilities and shareholders’ equity

$

3,249,718

$

3,097,496

Net interest income(4)

$

108,538

$

109,202

Net interest spread(4)

3.44

%

3.69

%

Net interest margin(4)

3.62

%

3.83

%

Total deposits(5)

$

2,608,725

$

17,331

0.66

%

$

2,503,481

$

11,489

0.46

%

Funding sources(6)

$

2,883,359

$

22,841

0.79

%

$

2,741,923

$

15,145

0.55

%

(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 $(407) thousand and $(543) thousand for the years ended ended December 31, 2018 and December 31, 2017, respectively. Accretion of unearned purchase discounts was $2.7 million and $4.8 million for the years ended ended December 31, 2018 and December 31, 2017, respectively.

(2) Includes tax-equivalent adjustments of $1.0 million and $1.7 million for the years ended ended December 31, 2018 and December 31, 2017, respectively. The federal statutory tax rate utilized was 21% for the 2018 periods and 35% for the 2017 period.

(3) Includes tax-equivalent adjustments of $1.5 million and $3.3 million for the years ended ended December 31, 2018 and December 31, 2017, respectively. The federal statutory tax rate utilized was 21% for the 2018 periods and 35% for the 2017 period.

(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, 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

December 31,

September 30,

June 30,

March 31,

December 31,

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

2018

2018

2018

2018

2017

Tangible Equity

Total shareholders’ equity

$

357,067

$

349,189

$

346,201

$

341,377

$

340,304

Plus: Deferred tax liability associated with intangibles

660

786

924

1,073

1,241

Less: Intangible assets, net

(74,530

)

(75,032

)

(75,579

)

(76,043

)

(76,700

)

Tangible equity

$

283,197

$

274,943

$

271,546

$

266,407

$

264,845

Tangible Assets

Total assets

$

3,291,480

$

3,267,965

$

3,276,277

$

3,241,642

$

3,212,271

Plus: Deferred tax liability associated with intangibles

660

786

924

1,073

1,241

Less: Intangible assets, net

(74,530

)

(75,032

)

(75,579

)

(76,043

)

(76,700

)

Tangible assets

$

3,217,610

$

3,193,719

$

3,201,622

$

3,166,672

$

3,136,812

Common shares outstanding

12,180,015

12,221,107

12,221,107

12,214,942

12,219,611

Tangible Book Value Per Share

$

23.25

$

22.50

$

22.22

$

21.81

$

21.67

Tangible Equity/Tangible Assets

8.80

%

8.61

%

8.48

%

8.41

%

8.44

%


For the Three Months Ended

For the Years Ended

(unaudited, dollars in thousands)

December 31,
2018

September 30,
2018

December 31,
2017

December 31,
2018

December 31,
2017

Net Income

$

7,624

$

6,778

$

(1,590

)

$

30,351

$

18,699

Plus: Intangible amortization, net of tax(1)

397

432

463

1,814

2,031

Adjusted net income

$

8,021

$

7,210

$

(1,127

)

$

32,165

$

20,730

Average Tangible Equity

Average total shareholders’ equity

$

351,398

$

348,131

$

347,678

$

345,734

$

334,966

Plus: Average deferred tax liability associated with intangibles

720

852

1,993

929

2,436

Less: Average intangible assets, net of amortization

(74,766

)

(75,292

)

(77,037

)

(75,531

)

(78,159

)

Average tangible equity

$

277,352

$

273,691

$

272,634

$

271,132

$

259,243

Return on Average Tangible Equity (annualized)

11.47

%

10.45

%

(1.64

)%

11.86

%

8.00

%


Net Interest Margin Tax Equivalent Adjustment

Net interest income

$

26,728

$

26,361

$

26,411

$

105,983

$

104,175

Plus tax equivalent adjustment:(1)

Loans

278

270

485

1,040

1,730

Securities

357

365

814

1,515

3,297

Tax equivalent net interest income (1)

$

27,363

$

26,996

$

27,710

$

108,538

$

109,202

Average interest earning assets

$

3,022,378

$

3,004,892

$

2,919,014

$

2,996,809

$

2,853,830

Net Interest Margin

3.59

%

3.56

%

3.77

%

3.62

%

3.83

%

(1) Computed on a tax-equivalent basis, assuming a federal income tax rate of 21% for 2018, and 35% for 2017.


For the Three Months Ended

For the Years Ended

(dollars in thousands)

December 31,
2018

September 30,
2018

December 31,
2017

December 31,
2018

December 31,
2017

Operating Expense

Total noninterest expense

$

19,803

$

22,811

$

20,093

$

83,503

$

80,136

Less: Amortization of intangibles

(503

)

(547

)

(713

)

(2,296

)

(3,125

)

Operating expense

$

19,300

$

22,264

$

19,380

$

81,207

$

77,011

Operating Revenue

Tax equivalent net interest income (1)

$

27,363

$

26,996

$

27,710

$

108,538

$

109,202

Plus: Noninterest income

5,645

5,984

5,534

22,788

22,370

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

4

(192

)

(2

)

(193

)

(241

)

Other (gain) loss

76

(326

)

53

(262

)

(13

)

Operating revenue

$

33,088

$

32,462

$

33,295

$

130,871

$

131,318

Efficiency Ratio

58.33

%

68.58

%

58.21

%

62.05

%

58.64

%

(1) Computed on a tax-equivalent basis, assuming a federal income tax rate of 21% for 2018, and 35% for 2017.


Contact:

Charles N. Funk

Barry S. Ray

President & CEO

Sr. VP & CFO

319.356.5800

319.356.5800