U.S. Markets open in 3 hrs 29 mins
  • S&P Futures

    3,444.25
    +21.50 (+0.63%)
     
  • Dow Futures

    28,256.00
    +156.00 (+0.56%)
     
  • Nasdaq Futures

    11,722.00
    +71.75 (+0.62%)
     
  • Russell 2000 Futures

    1,624.70
    +13.40 (+0.83%)
     
  • Crude Oil

    40.94
    +0.11 (+0.27%)
     
  • Gold

    1,909.20
    -2.50 (-0.13%)
     
  • Silver

    24.75
    +0.05 (+0.21%)
     
  • EUR/USD

    1.1809
    +0.0036 (+0.3070%)
     
  • 10-Yr Bond

    0.7610
    0.0000 (0.00%)
     
  • Vix

    28.47
    +1.06 (+3.87%)
     
  • GBP/USD

    1.2963
    +0.0022 (+0.1737%)
     
  • USD/JPY

    105.5620
    +0.1320 (+0.1252%)
     
  • BTC-USD

    11,784.65
    +727.64 (+6.58%)
     
  • CMC Crypto 200

    239.31
    +5.64 (+2.41%)
     
  • FTSE 100

    5,894.63
    +9.98 (+0.17%)
     
  • Nikkei 225

    23,567.04
    -104.09 (-0.44%)
     

MidWestOne Financial Group, Inc. Reports Financial Results for The second Quarter of 2019

IOWA CITY, Iowa, July 25, 2019 (GLOBE NEWSWIRE) -- MidWestOne Financial Group, Inc. (Nasdaq - MOFG) (“we”, “our”, or “the Company”) today reported its financial results for the second quarter of 2019. Net income for the second quarter of 2019 was $10.7 million, or $0.72 per diluted common share, compared to net income of $7.3 million, or $0.60 per diluted common share, for the first quarter of 2019 (the “linked quarter”).

Charles Funk, President and CEO commented, “The second quarter saw the consummation of our acquisition of ATBancorp and, as a result, our earnings reflected the impact of certain one-time costs incurred in connection with the merger. With that said, we believe the underlying trends are positive. Excluding transaction charges of $0.16 per diluted share, net income for the quarter was $0.88 per diluted share, and return on average tangible equity was 16.28%.”

FINANCIAL HIGHLIGHTS

As of or For the Three Months Ended

As of or For the Six Months Ended

June 30,

March 31,

June 30,

June 30,

June 30,

2019

2019

2018

2019

2018

(Dollars in thousands, except per share amounts)

Net income

$

10,674

$

7,285

$

8,156

$

17,959

$

15,949

Earnings per common share, diluted

$

0.72

$

0.60

$

0.67

$

1.33

$

1.30

Return on average assets

1.01

%

0.89

%

1.01

%

0.96

%

1.00

%

Return on average equity

9.66

%

8.22

%

9.55

%

9.02

%

9.41

%

Return on average tangible equity (1)

13.34

%

10.85

%

12.91

%

12.21

%

12.81

%

Net interest margin (tax equivalent)(1)

3.68

%

3.56

%

3.65

%

3.63

%

3.67

%

Yield on average loans (tax equivalent)(1)

5.10

%

4.93

%

4.76

%

5.03

%

4.74

%

Cost of average total deposits

0.92

%

0.88

%

0.62

%

0.90

%

0.59

%

Efficiency ratio(1)

63.30

%

63.00

%

60.76

%

63.17

%

60.62

%

Total assets

$

4,662,463

$

3,308,975

$

3,276,277

$

4,662,463

$

3,276,277

Loans held for investment, net of unearned income

$

3,536,503

$

2,403,759

$

2,364,035

$

3,536,503

$

2,364,035

Total deposits

$

3,725,472

$

2,684,827

$

2,604,201

$

3,725,472

$

2,604,201

Equity to assets ratio

10.47

%

11.00

%

10.57

%

10.47

%

10.57

%

Tangible common equity ratio(1)

8.06

%

8.97

%

8.48

%

8.06

%

8.48

%

Book value per share

$

30.11

$

29.94

$

28.33

$

30.11

$

28.33

Tangible book value per share(1)

$

22.56

$

23.89

$

22.22

$

22.56

$

22.22

Gross loans held for investment to deposit ratio

95.81

%

89.74

%

90.78

%

95.81

%

90.78

%

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

Acquisition of ATBancorp

On May 1, 2019, we completed our 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(1)

$

148,435

Identifiable net assets acquired, at fair value

Assets acquired

Cash and due from banks

$

71,820

Debt securities available for sale

99,353

Loans(1)

1,137,880

Premises and equipment(1)

19,213

Core deposit intangible(1)

28,230

Bank-owned life insurance

18,759

Foreclosed assets(1)

3,767

Other assets(1)

17,360

Total assets acquired

1,396,382

Liabilities assumed

Deposits(1)

1,079,094

Short-term borrowings(1)

60,761

Long-term debt(1)

111,201

Other liabilities(1)

25,613

Total liabilities assumed

1,276,669

Total identifiable net assets acquired, at fair value

$

119,713

Goodwill

$

28,722

(1) The initial accounting for the acquisition was incomplete at June 30, 2019 and the amount recognized was determined only provisionally.

In addition to the balance sheet impacts shown above, our net income for the quarter was reduced by $3.1 million in pre-tax, acquisition-related expenses stemming from the ATBancorp transaction. Those charges reduced diluted earnings per share by approximately $0.16.

INCOME STATEMENT HIGHLIGHTS

Net Interest Income

Net interest income increased in the second quarter of 2019 to $34.8 million from $26.0 million in the linked quarter due primarily to higher average earning asset volumes and a higher tax equivalent net interest margin (“NIM”). Average earning assets increased $851.1 million from the linked quarter as a result of assets acquired in the ATBancorp transaction. Discount accretion from acquired loans added $2.2 million to net interest income in the current quarter compared to $586 thousand in the linked quarter.

The tax equivalent net interest margin increased to 3.68% for the second quarter of 2019 from 3.56% in the linked quarter as increased loan yields, driven by loan purchase discount accretion, outpaced higher funding costs. The loan yield was 5.10% for the second quarter of 2019 compared to 4.93% for the linked quarter. Loan purchase discount accretion added 28 bps to loan yields and 23 bps to the NIM in the current quarter compared to 10 bps and 8 bps, respectively, in the linked quarter. The cost of average total deposits in the second quarter of 2019 was 0.92% compared to 0.88% in the linked quarter. The increase reflects the merger, as well as higher rates paid to attract and retain deposits in a competitive market.

Noninterest Income

Noninterest income for the second quarter of 2019 increased $3.4 million, or 63%, from the linked quarter. The increase was due primarily to additional fee income (trust, service charges, card and loan revenue) earned as a result of the ATBancorp transaction. Further, ‘Other’ income reflected a gain of $1.1 million from the sale of assets of MidWestOne Insurance Services, Inc. Partially offsetting these increases, ‘Loan revenue’ included a $507 thousand negative valuation adjustment to the Company’s mortgage servicing rights.

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

Three Months Ended

June 30,

March 31,

June 30,

Noninterest Income

2019

2019

2018

(In thousands)

Investment services and trust activities

$

1,890

$

1,390

$

1,218

Service charges and fees

1,870

1,442

1,518

Card revenue

1,799

998

1,093

Loan revenue

648

393

906

Bank-owned life insurance

470

392

397

Insurance commissions

314

420

319

Investment securities gains (losses), net

32

17

(4

)

Other

1,773

358

246

Total noninterest income

$

8,796

$

5,410

$

5,693

Noninterest Expense

Noninterest expense for the second quarter of 2019 increased $8.4 million, or 40.9%, from the linked quarter, due primarily to merger-related as well as additional on-going expenses incurred as a result of the ATBancorp transaction. Pre-tax merger-related expenses were $3.1 million for the second quarter of 2019 compared to $167 thousand in the linked quarter.

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

Three Months Ended

June 30,

March 31,

June 30,

Noninterest Expense

2019

2019

2018

(In thousands)

Compensation and employee benefits

$

16,409

$

12,579

$

12,225

Occupancy expense of premises, net

2,127

1,879

1,882

Equipment

1,914

1,371

1,408

Legal and professional

3,291

965

959

Data processing

1,008

845

691

Marketing

869

606

690

Amortization of intangibles

930

452

589

FDIC insurance

434

370

392

Communications

377

342

341

Foreclosed assets, net

84

58

145

Other

1,597

1,150

1,264

Total noninterest expense

$

29,040

$

20,617

$

20,586

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

Three Months Ended

June 30,

March 31,

June 30,

Merger-related Expenses

2019

2019

2018

(In thousands)

Compensation and employee benefits

$

1,020

$

10

$

Legal and professional

1,826

126

Data processing

240

5

Other

48

26

Total merger-related costs

$

3,134

$

167

$

Income Taxes

The effective income tax rate was 23.2% for the second quarter of 2019 and 20.6% for the linked quarter. The effective tax rate for the second quarter of 2019 was higher due primarily to the payment of certain non-deductible merger related expenses and other merger-related items in the second quarter of 2019.

BALANCE SHEET HIGHLIGHTS

Mr. Funk continued, ”The highlight of the first six months was deposit growth in the legacy MidWestOne footprint of more than 4%. Loan growth continued to be challenged by paydowns in our rural regions but was strong in Iowa City and Denver, and solid in the Twin Cities markets.”

Loans Held for Investment

Loans held for investment, net of unearned income, increased $1.14 billion, or 47.4%, to $3.54 billion, primarily due to the merger. At June 30, 2019, commercial real estate loans comprised approximately 51% of the loan portfolio. Commercial and industrial loans was the next largest category at 25% of total loans, followed by residential real estate loans at 17%, agricultural loans at 4%, and consumer loans at 3%.

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

June 30,

March 31,

December 31,

June 30,

Loans Held for Investment

2019

2019

2018

2018

(In thousands)

Commercial and industrial

$

866,023

$

535,878

$

533,188

$

512,357

Agricultural

152,491

96,766

96,956

103,429

Commercial real estate

Construction and development

273,149

187,906

217,617

206,269

Farmland

187,393

86,648

88,807

88,761

Multifamily

243,928

161,067

134,741

129,659

Other

1,114,039

843,817

826,163

819,205

Total commercial real estate

1,818,509

1,279,438

1,267,328

1,243,894

Residential real estate

One-to-four family first liens

423,625

333,220

341,830

350,281

One-to-four family junior liens

176,685

121,793

120,049

117,138

Total residential real estate

600,310

455,013

461,879

467,419

Consumer

99,170

36,664

39,428

36,936

Loans held for investment, net of unearned income

$

3,536,503

$

2,403,759

$

2,398,779

$

2,364,035

Provision and Allowance for Loan Losses

For the second quarter of 2019, the provision for loan losses was $0.7 million, a decrease of $0.9 million from the linked quarter.

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

Three Months Ended

Six Months Ended

June 30,

March 31,

June 30,

June 30,

June 30,

Allowance for Loan Losses Roll Forward

2019

2019

2018

2019

2018

(In thousands)

Beginning balance

$

29,652

$

29,307

$

29,671

$

29,307

$

28,059

Charge-offs

(2,187

)

(1,355

)

(291

)

(3,542

)

(767

)

Recoveries

530

106

170

636

408

Net charge-offs

(1,657

)

(1,249

)

(121

)

(2,906

)

(359

)

Provision for loan losses

696

1,594

1,250

2,290

3,100

Ending balance

$

28,691

$

29,652

$

30,800

$

28,691

$

30,800

Deposits

Total deposits at June 30, 2019, were $3.73 billion, an increase of $1.11 billion from December 31, 2018, due primarily to the merger. The mix of deposits reflected increases between December 31, 2018 and June 30, 2019 of $464.0 million, or 83.5% in money market deposits, $216.0 million, or 29.8%, in time deposits, $207.9 million, or 47.4%, in noninterest bearing deposits, $145.9 million, or 69.3%, in savings deposits, and $78.6 million, or 11.5%, in interest checking deposits.

“We ended the quarter with tangible equity to tangible assets of 8.06%,” said Mr. Funk. “We believe we have ample flexibility in terms of capital deployment in future quarters.”

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

June 30,

March 31,

December 31,

June 30,

Deposit Composition

2019

2019

2018

2018

(In thousands)

Noninterest bearing demand deposits

$

647,078

$

426,729

$

439,133

$

469,862

Interest checking deposits

762,530

696,760

683,894

654,094

Money market deposits

1,019,886

629,838

555,839

529,290

Savings deposits

356,328

200,998

210,416

216,866

Total non-maturity deposits

2,785,822

1,954,325

1,889,282

1,870,112

Time deposits of $250,000 and under

678,752

541,310

532,395

514,163

Time deposits of $250,000 and over

260,898

189,192

191,252

219,926

Total time deposits

939,650

730,502

723,647

734,089

Total deposits

$

3,725,472

$

2,684,827

$

2,612,929

$

2,604,201

CREDIT QUALITY

The following table presents a roll forward of nonperforming loans as of the dates 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

12,849

1,000

72

13,921

Established through acquisition

7,909

27

7,936

Repayments (including interest applied to principal)

(5,303

)

(18

)

(209

)

(5,530

)

Loans returned to accrual status or no longer past due

(1,021

)

(144

)

(1,165

)

Charge-offs

(3,023

)

(3,023

)

Transfers to foreclosed assets

(460

)

(460

)

Transfers to nonaccrual

(283

)

(554

)

(837

)

Balance at June 30, 2019

$

30,875

$

947

$

4,593

$

36,415

At June 30, 2019, net foreclosed assets totaled $4.9 million, up from $535 thousand at December 31, 2018, primarily due to the merger. As of June 30, 2019, the allowance for loan losses was $28.7 million, or 0.81% of loans held for investment, net of unearned income, compared with $29.3 million, or 1.22% at December 31, 2018. Acquired loans reduced this ratio by 41 basis points at June 30, 2019 as, at acquisition, such loans are measured at fair value which includes a credit-related discount and, thus, no allowance for loan losses is initially measured.

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

June 30,

March 31,

December 31,

June 30,

Credit Quality Metrics

2019

2019

2018

2018

(dollars in thousands)

Nonaccrual loans held for investment

$

30,875

$

21,274

$

19,924

$

13,067

Performing troubled debt restructured loans held for investment

4,593

5,161

5,284

8,362

Accruing loans contractually past due 90 days or more

947

208

365

151

Total nonperforming loans

36,415

26,643

25,573

21,580

Foreclosed assets, net

4,922

336

535

676

Total nonperforming assets

$

41,337

$

26,979

$

26,108

$

22,256

Allowance for loan losses

28,691

29,652

29,307

30,800

Provision for loan losses (for the quarter)

696

1,594

3,250

1,250

Net charge-offs (for the quarter)

1,657

1,249

5,221

121

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

0.21

%

0.21

%

0.86

%

0.02

%

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

0.81

%

1.23

%

1.22

%

1.30

%

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

92.93

%

139.38

%

147.09

%

235.71

%

Nonaccrual loans held for investment to loans held for investment

0.87

%

0.89

%

0.83

%

0.56

%

“We’ve made significant progress in identification and resolution of nonperforming loans in the legacy MidWestOne footprint,” noted Mr. Funk. “We believe our agricultural portfolio has stabilized, though close monitoring will be essential in the coming months. We also have good coverage as, excluding the $7.9 million of nonaccrual loans established in the ATBancorp transaction, the allowance for loan losses was at 124.93% of nonaccrual loans.”

CORPORATE UPDATE

MidWestOne Insurance Services, Inc. Asset Sale

On June 30, 2019, the Company sold substantially all of the assets used by MidWestOne Insurance Services, Inc. to sell insurance products. The Company recognized a pre-tax gain of $1.1 million from the sale which was reported in ‘Other’ noninterest income on the Company’s consolidated statements of income. In 2018, MidWestOne Insurance Services accounted for $1.3 million and $1.1 million of the Company’s total noninterest income and expense, respectively.

“We made the strategic decision to exit this line of business as our insurance revenues comprised a small percentage of overall revenues,” concluded Mr. Funk.

Share Repurchase Program

During the second quarter of 2019 the Company repurchased 56,985 shares at an average price of $28.01 and a total cost of $1.6 million. At June 30, 2019, $1.1 million remained available to repurchase shares under the Company’s current share repurchase program.

Cash Dividend Announcement

On July 16, 2019, the Company’s board of directors declared a quarterly cash dividend of $0.2025 per common share. The dividend is payable September 16, 2019, to shareholders of record at the close of business on September 2, 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, July 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 October 26, 2019, by calling 877-344-7529 and using the replay access code of 10126192. 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

June 30,

March 31,

December 31,

2019

2019

2018

(In thousands)

ASSETS

Cash and due from banks

$

72,801

$

40,002

$

43,787

Interest earning deposits in banks

47,708

2,969

1,693

Total cash and cash equivalents

120,509

42,971

45,480

Debt securities available for sale at fair value

460,302

432,979

414,101

Held to maturity securities at amortized cost

193,173

195,033

195,822

Total securities held for investment

653,475

628,012

609,923

Loans held for sale

4,306

309

666

Gross loans held for investment

3,569,236

2,409,333

2,405,001

Unearned income, net

(32,733

)

(5,574

)

(6,222

)

Loans held for investment, net of unearned income

3,536,503

2,403,759

2,398,779

Allowance for loan losses

(28,691

)

(29,652

)

(29,307

)

Total loans held for investment, net

3,507,812

2,374,107

2,369,472

Premises and equipment, net

93,395

75,200

75,773

Goodwill

93,376

64,654

64,654

Other intangible assets, net

36,624

9,423

9,875

Foreclosed assets, net

4,922

336

535

Other assets

148,044

113,963

115,102

Total assets

$

4,662,463

$

3,308,975

$

3,291,480

LIABILITIES

Noninterest bearing deposits

$

647,078

$

426,729

$

439,133

Interest bearing deposits

3,078,394

2,258,098

2,173,796

Total deposits

3,725,472

2,684,827

2,612,929

Short-term borrowings

153,829

76,066

131,422

Long-term debt

252,673

162,471

168,726

Other liabilities

42,138

21,762

21,336

Total liabilities

4,174,112

2,945,126

2,934,413

SHAREHOLDERS' EQUITY

Common stock

16,581

12,463

12,463

Additional paid-in capital

296,879

187,535

187,813

Retained earnings

181,984

173,771

168,951

Treasury stock

(8,716

)

(7,297

)

(6,499

)

Accumulated other comprehensive income (loss)

1,623

(2,623

)

(5,661

)

Total shareholders' equity

488,351

363,849

357,067

Total liabilities and shareholders' equity

$

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
CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended

Six Months Ended

June 30,

March 31,

June 30,

June 30,

2019

2019

2018 (1)

2019

2018 (1)

(In thousands, except per share data)

Interest income

Loans, including fees

$

40,053

$

29,035

$

27,486

$

69,088

$

54,053

Taxable investment securities

3,289

2,927

2,790

6,216

5,538

Tax-exempt investment securities

1,424

1,406

1,528

2,830

3,057

Other

185

20

18

205

27

Total interest income

44,951

33,388

31,822

78,339

62,675

Interest expense

Deposits

7,743

5,695

4,009

13,438

7,545

Short-term borrowings

500

457

359

957

620

Long-term debt

1,876

1,260

1,024

3,136

1,906

Total interest expense

10,119

7,412

5,392

17,531

10,071

Net interest income

34,832

25,976

26,430

60,808

52,604

Provision for loan losses

696

1,594

1,250

2,290

3,100

Net interest income after provision for loan losses

34,136

24,382

25,180

58,518

49,504

Noninterest income

Investment services and trust activities

1,890

1,390

1,218

3,280

2,457

Service charges and fees

1,870

1,442

1,518

3,312

3,089

Card revenue

1,799

998

1,093

2,797

2,059

Loan revenue

648

393

906

1,041

1,847

Bank-owned life insurance

470

392

397

862

830

Insurance commissions

314

420

319

734

720

Investment securities gains (losses), net

32

17

(4

)

49

5

Other

1,773

358

246

2,131

367

Total noninterest income

8,796

5,410

5,693

14,206

11,374

Noninterest expense

Compensation and employee benefits

16,409

12,579

12,225

28,988

24,596

Occupancy expense of premises, net

2,127

1,879

1,882

4,006

3,788

Equipment

1,914

1,371

1,408

3,285

2,791

Legal and professional

3,291

965

959

4,256

1,753

Data processing

1,008

845

691

1,853

1,379

Marketing

869

606

690

1,475

1,310

Amortization of intangibles

930

452

589

1,382

1,246

FDIC insurance

434

370

392

804

711

Communications

377

342

341

719

670

Foreclosed assets, net

84

58

145

142

106

Other

1,597

1,150

1,264

2,747

2,464

Total noninterest expense

29,040

20,617

20,586

49,657

40,814

Income before income tax expense

13,892

9,175

10,287

23,067

20,064

Income tax expense

3,218

1,890

2,131

5,108

4,115

Net income

$

10,674

$

7,285

$

8,156

$

17,959

$

15,949

Earnings per common share

Basic

$

0.72

$

0.60

$

0.67

$

1.33

$

1.31

Diluted

$

0.72

$

0.60

$

0.67

$

1.33

$

1.30

Weighted average basic common shares outstanding

14,894

12,164

12,218

13,537

12,220

Weighted average diluted common shares outstanding

14,900

12,177

12,230

13,545

12,235

Dividends paid per common share

$

0.2025

$

0.2025

$

0.195

$

0.405

$

0.39

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


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

June 30,

March 31,

December 31,

September 30,

June 30,

2019

2019

2018

2018

2018

(In thousands)

ASSETS

Cash and due from banks

$

72,801

$

40,002

$

43,787

$

49,229

$

41,547

Interest earning deposits in banks

47,708

2,969

1,693

4,150

1,717

Total cash and cash equivalents

120,509

42,971

45,480

53,379

43,264

Debt securities available for sale at fair value

460,302

432,979

414,101

407,766

438,312

Held to maturity securities at amortized cost

193,173

195,033

195,822

191,733

192,896

Total securities held for investment

653,475

628,012

609,923

599,499

631,208

Loans held for sale

4,306

309

666

1,124

1,528

Gross loans held for investment

3,569,236

2,409,333

2,405,001

2,384,459

2,371,406

Unearned income, net

(32,733

)

(5,574

)

(6,222

)

(6,810

)

(7,371

)

Loans held for investment, net of unearned income

3,536,503

2,403,759

2,398,779

2,377,649

2,364,035

Allowance for loan losses

(28,691

)

(29,652

)

(29,307

)

(31,278

)

(30,800

)

Total loans held for investment, net

3,507,812

2,374,107

2,369,472

2,346,371

2,333,235

Premises and equipment, net

93,395

75,200

75,773

76,497

78,106

Goodwill

93,376

64,654

64,654

64,654

64,654

Other intangible assets, net

36,624

9,423

9,875

10,378

10,925

Foreclosed assets, net

4,922

336

535

549

676

Other assets

148,044

113,963

115,102

115,514

112,681

Total assets

$

4,662,463

$

3,308,975

$

3,291,480

$

3,267,965

$

3,276,277

LIABILITIES

Noninterest bearing deposits

$

647,078

$

426,729

$

439,133

$

458,576

$

469,862

Interest bearing deposits

3,078,394

2,258,098

2,173,796

2,173,683

2,134,339

Total deposits

3,725,472

2,684,827

2,612,929

2,632,259

2,604,201

Short-term borrowings

153,829

76,066

131,422

87,978

127,467

Long-term debt

252,673

162,471

168,726

176,979

178,083

Other liabilities

42,138

21,762

21,336

21,560

20,325

Total liabilities

4,174,112

2,945,126

2,934,413

2,918,776

2,930,076

SHAREHOLDERS' EQUITY

Common stock

$

16,581

$

12,463

$

12,463

$

12,463

$

12,463

Additional paid-in capital

296,879

187,535

187,813

187,581

187,304

Retained earnings

181,984

173,771

168,951

163,709

159,315

Treasury stock

(8,716

)

(7,297

)

(6,499

)

(5,474

)

(5,474

)

Accumulated other comprehensive income (loss)

1,623

(2,623

)

(5,661

)

(9,090

)

(7,407

)

Total shareholders' equity

488,351

363,849

357,067

349,189

346,201

Total liabilities and shareholders' equity

$

4,662,463

$

3,308,975

$

3,291,480

$

3,267,965

$

3,276,277

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

June 30,

March 31,

December 31,

September 30,

June 30,

2019

2019

2018 (1)

2018 (1)

2018 (1)

(In thousands, except per share data)

Interest income

Loans, including fees

$

40,053

$

29,035

$

29,052

$

28,088

$

27,486

Taxable investment securities

3,289

2,927

2,774

2,715

2,790

Tax-exempt investment securities

1,424

1,406

1,375

1,395

1,528

Other

185

20

23

12

18

Total interest income

44,951

33,388

33,224

32,210

31,822

Interest expense

Deposits

7,743

5,695

5,161

4,625

4,009

Short-term borrowings

500

457

374

321

359

Long-term debt

1,876

1,260

1,136

1,153

1,024

Total interest expense

10,119

7,412

6,671

6,099

5,392

Net interest income

34,832

25,976

26,553

26,111

26,430

Provision for loan losses

696

1,594

3,250

950

1,250

Net interest income after provision for loan losses

34,136

24,382

23,303

25,161

25,180

Noninterest income

Investment services and trust activities

1,890

1,390

1,274

1,222

1,218

Service charges and fees

1,870

1,442

1,556

1,512

1,518

Card revenue

1,799

998

1,095

1,069

1,093

Loan revenue

648

393

884

891

906

Bank-owned life insurance

470

392

381

399

397

Insurance commissions

314

420

260

304

319

Investment securities gains (losses), net

32

17

(4

)

192

(4

)

Other

1,773

358

350

456

246

Total noninterest income

8,796

5,410

5,796

6,045

5,693

Noninterest expense

Compensation and employee benefits

16,409

12,579

12,111

13,051

12,225

Occupancy expense of premises, net

2,127

1,879

1,166

2,643

1,882

Equipment

1,914

1,371

1,433

1,341

1,408

Legal and professional

3,291

965

1,027

1,861

959

Data processing

1,008

845

875

697

691

Marketing

869

606

678

672

690

Amortization of intangibles

930

452

503

547

589

FDIC insurance

434

370

429

393

392

Communications

377

342

342

341

341

Foreclosed assets, net

84

58

46

(131

)

145

Other

1,597

1,150

1,169

1,207

1,264

Total noninterest expense

29,040

20,617

19,779

22,622

20,586

Income before income tax expense

13,892

9,175

9,320

8,584

10,287

Income tax expense

3,218

1,890

1,696

1,806

2,131

Net income

$

10,674

$

7,285

$

7,624

$

6,778

$

8,156

Earnings per common share

Basic

$

0.72

$

0.60

$

0.62

$

0.55

$

0.67

Diluted

$

0.72

$

0.60

$

0.62

$

0.55

$

0.67

Weighted average basic common shares outstanding

14,894

12,164

12,217

12,221

12,218

Weighted average diluted common shares outstanding

14,900

12,177

12,235

12,240

12,230

Dividends paid per common share

$

0.2025

$

0.2025

$

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

June 30, 2019

March 31, 2019

June 30, 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)

$

3,183,138

$

40,495

5.10

%

$

2,409,641

$

29,308

4.93

%

$

2,337,216

$

27,744

4.76

%

Taxable investment securities

458,438

3,289

2.88

%

414,986

2,927

2.86

%

421,733

2,790

2.65

%

Tax-exempt investment securities (3)

203,179

1,794

3.54

%

202,027

1,772

3.56

%

215,461

1,929

3.59

%

Total Investments

661,617

5,083

3.08

%

617,013

4,699

3.09

%

637,194

4,719

2.97

%

Other

36,031

185

2.06

%

3,053

20

2.66

%

4,271

18

1.69

%

Total interest earning assets

$

3,880,786

45,763

4.73

%

$

3,029,707

34,027

4.55

%

$

2,978,681

32,481

4.37

%

Other assets

349,661

271,390

267,621

Total assets

$

4,230,447

$

3,301,097

$

3,246,302

LIABILITIES AND SHAREHOLDERS’ EQUITY

Interest checking deposits

$

731,973

$

1,021

0.56

%

$

676,654

$

910

0.55

%

$

666,039

$

618

0.37

%

Money market deposits

880,973

2,491

1.13

%

599,695

1,334

0.90

%

549,023

673

0.49

%

Savings deposits

328,694

182

0.22

%

204,757

58

0.11

%

216,580

63

0.12

%

Time deposits

874,619

4,049

1.86

%

724,772

3,393

1.90

%

721,293

2,655

1.48

%

Total interest bearing deposits

2,816,259

7,743

1.10

%

2,205,878

5,695

1.05

%

2,152,935

4,009

0.75

%

Short-term borrowings

123,586

500

1.62

%

109,929

457

1.69

%

109,752

359

1.30

%

Long-term debt

229,152

1,876

3.28

%

179,515

1,260

2.85

%

167,288

1,024

2.46

%

Total borrowed funds

352,738

2,376

2.70

%

289,444

1,717

2.41

%

277,040

1,383

2.00

%

Total interest bearing liabilities

$

3,168,997

$

10,119

1.28

%

$

2,495,322

$

7,412

1.20

%

$

2,429,975

$

5,392

0.89

%

Noninterest bearing deposits

574,720

421,753

454,659

Other liabilities

43,616

24,619

18,956

Shareholders’ equity

443,114

359,403

342,712

Total liabilities and shareholders’ equity

$

4,230,447

$

3,301,097

$

3,246,302

Net interest income(4)

$

35,644

$

26,615

$

27,089

Net interest spread(4)

3.45

%

3.35

%

3.48

%

Net interest margin(4)

3.68

%

3.56

%

3.64

%

Total deposits(5)

$

3,390,979

$

7,743

0.92

%

$

2,627,631

$

5,695

0.88

%

$

2,607,594

$

4,009

0.62

%

Funding sources(6)

$

3,743,717

$

10,119

1.08

%

$

2,917,075

$

7,412

1.03

%

$

2,884,634

$

5,392

0.75

%

(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 $(128) thousand, $(150) thousand, and $(99) thousand for the three months ended June 30, 2019, March 31, 2019, and June 30, 2018, respectively. Accretion of unearned purchase discounts was $2.2 million, $586 thousand, and $783 thousand for the three months ended June 30, 2019, March 31, 2019, and June 30, 2018, respectively.

(2) Includes tax-equivalent adjustments of $442 thousand, $273 thousand, and $258 thousand for the three months ended June 30, 2019, March 31, 2019, and June 30, 2018, respectively. The federal statutory tax rate utilized was 21%.

(3) Includes tax-equivalent adjustments of $370 thousand, $366 thousand, and $401 thousand for the three months ended June 30, 2019, March 31, 2019, and June 30, 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.


Six Months Ended

June 30, 2019

June 30, 2018

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)

$

2,798,526

$

69,803

5.03

%

$

2,321,189

$

54,552

4.74

%

Taxable investment securities

436,832

6,216

2.87

%

422,856

5,538

2.64

%

Tax-exempt investment securities (3)

202,606

3,566

3.55

%

216,022

3,859

3.60

%

Total Investments

639,438

9,782

3.08

%

638,878

9,397

2.97

%

Other

19,633

205

2.11

%

3,351

27

1.62

%

Total interest-earning assets

$

3,457,597

79,790

4.65

%

$

2,963,418

63,976

4.35

%

Other assets

310,132

267,902

Total assets

$

3,767,729

$

3,231,320

LIABILITIES AND SHAREHOLDERS’ EQUITY

Interest checking deposits

$

698,654

1,931

0.56

%

$

667,326

1,210

0.37

%

Money market deposits

746,339

3,825

1.03

%

538,810

1,166

0.44

%

Savings deposits

267,068

240

0.18

%

216,407

126

0.12

%

Time deposits

800,109

7,442

1.88

%

719,811

5,043

1.41

%

Total interest bearing deposits

2,512,170

13,438

1.08

%

2,142,354

7,545

0.71

%

Short-term borrowings

116,795

957

1.65

%

108,257

620

1.14

%

Long-term debt

204,471

3,136

3.09

%

164,262

1,906

2.35

%

Total borrowed funds

321,266

4,093

2.57

%

272,519

2,526

1.87

%

Total interest bearing liabilities

$

2,833,436

17,531

1.25

%

$

2,414,873

10,071

0.84

%

Noninterest bearing deposits

498,733

455,825

Other liabilities

34,070

18,986

Shareholders’ equity

401,490

341,636

Total liabilities and shareholders’ equity

$

3,767,729

$

3,231,320

Net interest income(4)

$

62,259

$

53,905

Net interest spread(4)

3.40

%

3.51

%

Net interest margin(4)

3.63

%

3.66

%

Total deposits(5)

$

3,010,903

$

13,438

0.90

%

$

2,598,179

$

7,545

0.59

%

Funding sources(6)

$

3,332,169

$

17,531

1.06

%

$

2,870,698

$

10,071

0.71

%

(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 $(278) thousand and $(212) thousand for the six months ended June 30, 2019 and June 30, 2018, respectively. Accretion of unearned purchase discounts was $2.8 million and $1.7 million for the six months ended June 30, 2019 and June 30, 2018, respectively.

(2) Includes tax-equivalent adjustments of $715 thousand and $499 thousand for the six months ended June 30, 2019 and June 30, 2018, respectively. The federal statutory tax rate utilized was 21%.

(3) Includes tax-equivalent adjustments of $736 thousand and $802 thousand for the six months ended June 30, 2019 and June 30, 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 Measures

This earnings release contains non-GAAP measures for tangible book value per share, tangible equity to tangible assets 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.

As of

As of

As of

As of

As of

June 30,

March 31,

December 31,

September 30,

June 30,

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

2019

2019

2018

2018

2018

Tangible Equity

Total shareholders’ equity

$

488,351

$

363,849

$

357,067

$

349,189

$

346,201

Adjustments to tangible equity

Plus: Deferred tax liability associated with intangibles

7,676

546

660

786

924

Less: Intangible assets, net

(130,000

)

(74,077

)

(74,529

)

(75,032

)

(75,579

)

Tangible equity

$

366,027

$

290,318

$

283,198

$

274,943

$

271,546

Tangible Assets

Total assets

$

4,662,463

$

3,308,975

$

3,291,480

$

3,267,965

$

3,276,277

Plus: Deferred tax liability associated with intangibles

7,676

546

660

786

924

Less: Intangible assets, net

(130,000

)

(74,077

)

(74,529

)

(75,032

)

(75,579

)

Tangible assets

$

4,540,139

$

3,235,444

$

3,217,611

$

3,193,719

$

3,201,622

Common shares outstanding

16,221,160

12,153,045

12,180,015

12,221,107

12,221,107

Tangible Book Value Per Share

$

22.56

$

23.89

$

23.25

$

22.50

$

22.22

Tangible Equity/Tangible Assets

8.06

%

8.97

%

8.80

%

8.61

%

8.48

%


For the Three Months Ended

For the Six Months Ended

(unaudited, dollars in thousands)

June 30, 2019

March 31, 2019

June 30, 2018

June 30, 2019

June 30, 2018

Net Income

$

10,674

$

7,285

$

8,156

$

17,959

$

15,949

Plus: Intangible amortization, net of tax(1)

735

357

465

1,092

984

Adjusted net income

$

11,409

$

7,642

$

8,621

$

19,051

$

16,933

Average Tangible Equity

Average total shareholders’ equity

$

443,114

$

359,403

$

342,712

$

401,490

$

341,636

Plus: Average deferred tax liability associated with intangibles

2,877

601

996

1,745

1,074

Less: Average intangible assets, net of amortization

(102,919

)

(74,293

)

(75,780

)

(88,633

)

(76,065

)

Average tangible equity

$

343,072

$

285,711

$

267,928

$

314,602

$

266,645

Return on Average Tangible Equity (annualized)

13.34

%

10.85

%

12.91

%

12.21

%

12.81

%


Net Interest Margin Tax Equivalent Adjustment

Net interest income

$

34,832

$

25,976

$

26,430

$

60,808

$

52,604

Plus tax equivalent adjustment:(1)

Loans

442

273

258

715

499

Securities

370

366

401

736

802

Tax equivalent net interest income (1)

$

35,644

$

26,615

$

27,089

$

62,259

$

53,905

Average interest earning assets

$

3,880,786

$

3,029,707

$

2,978,681

$

3,457,597

$

2,963,418

Net Interest Margin

3.68

%

3.56

%

3.65

%

3.63

%

3.67

%

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


For the Three Months Ended

For the Six Months Ended

(dollars in thousands)

June 30, 2019

March 31, 2019

June 30, 2018

June 30, 2019

June 30, 2018

Yield on Average Loans

Interest income on loans, including fees

$

40,053

$

29,035

$

27,486

$

69,088

$

54,053

Plus tax equivalent adjustment:(1)

Loans

442

273

258

715

499

Tax equivalent loan interest income (1)

$

40,495

$

29,308

$

27,744

$

69,803

$

54,552

Average loans

$

3,183,138

$

2,409,641

$

2,337,216

$

2,798,526

$

2,321,189

Average Yield on Loans

5.10

%

4.93

%

4.76

%

5.03

%

4.74

%


Operating Expense

Total noninterest expense

$

29,040

$

20,617

$

20,586

$

49,657

$

40,814

Less: Amortization of intangibles

(930

)

(452

)

(589

)

(1,382

)

(1,246

)

Operating expense

$

28,110

$

20,165

$

19,997

$

48,275

$

39,568

Operating Revenue

Tax equivalent net interest income (2)

$

35,644

$

26,615

$

27,089

$

62,259

$

53,905

Plus: Noninterest income

8,796

5,410

5,693

14,206

11,374

Impairment losses on investment securities

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

(32

)

(17

)

4

(49

)

(5

)

Operating revenue

$

44,408

$

32,008

$

32,786

$

76,416

$

65,274

Efficiency Ratio

63.30

%

63.00

%

60.99

%

63.17

%

60.62

%

(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 Executive Vice President and Chief Financial Officer

319.356.5800

319.356.5800