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CST: 11/12/2019 03:40:24   

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

229 Days ago

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

FINANCIAL HIGHLIGHTS

  As of or For the Three Months Ended
  March 31,   December 31,   March 31,
  2019   2018   2018
   
  (Dollars in thousands, except per share amounts)
Net income $ 7,285     $ 7,624     $ 7,793  
Diluted earnings per share $ 0.60     $ 0.62     $ 0.64  
Return on average assets 0.89 %   0.92 %   0.98 %
Return on average equity 8.22 %   8.61 %   9.28 %
Return on average tangible equity (1) 10.85 %   11.47 %   12.70 %
           
Net interest margin (tax equivalent)(1) 3.56 %   3.59 %   3.69 %
Yield on average loans (tax equivalent)(1) 4.93 %   4.85 %   4.72 %
Cost of average total deposits 0.88 %   0.78 %   0.55 %
Efficiency ratio(1) 63.00 %   58.43 %   60.24 %
           
Total assets $ 3,308,975     $ 3,291,480     $ 3,241,642  
Loans held for investment, net of unearned income $ 2,403,759     $ 2,398,779     $ 2,326,158  
Total deposits $ 2,684,827     $ 2,612,929     $ 2,631,921  
           
Equity to assets ratio 11.00 %   10.85 %   10.53 %
Tangible equity/tangible assets(1) 8.97 %   8.80 %   8.41 %
Book value per share $ 29.94     $ 29.32     $ 27.95  
Tangible book value per share(1) $ 23.89     $ 23.25     $ 21.81  
Gross loans held for investment to deposit ratio 89.74 %   91.80 %   88.38 %
           
(1) Non-GAAP measure. See pages 13-14 for a detailed explanation.

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

INCOME STATEMENT HIGHLIGHTS

Net Interest Income

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

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

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

Noninterest Income

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

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

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

  Three Months Ended
  March 31,   December 31,   March 31,
Noninterest Income 2019   2018   2018
   
  (In thousands)
Investment services and trust activities $ 1,390     $ 1,274     $ 1,239  
Service charges and fees 1,442     1,556     1,571  
Card revenue 998     1,095     966  
Loan revenue 393     884     941  
Bank-owned life insurance 392     381     433  
Insurance commissions 420     260     401  
Investment securities gains (losses), net 17     (4 )   9  
Other 358     350     121  
Total noninterest income $ 5,410     $ 5,796     $ 5,681  

Noninterest Expense

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

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

  Three Months Ended
  March 31,   December 31,   March 31,
Noninterest Expense 2019   2018   2018
   
  (In thousands)
Compensation and employee benefits $ 12,579     $ 12,111     $ 12,371  
Occupancy expense of premises, net 1,879     1,166     1,906  
Equipment 1,371     1,433     1,383  
Legal and professional 965     1,027     794  
Data processing 845     875     688  
Marketing 606     678     620  
Amortization of intangibles 452     503     657  
FDIC insurance 370     429     319  
Communications 342     342     329  
Foreclosed assets, net 58     46     (39 )
Other 1,150     1,169     1,200  
Total noninterest expense $ 20,617     $ 19,779     $ 20,228  

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

  Three Months Ended
  March 31,   December 31,
Merger-related Expenses 2019   2018
   
  (In thousands)
Compensation and employee benefits $ 10     $  
Occupancy expense of premises, net     2  
Legal and professional 126     89  
Data processing 5     100  
Other 26     15  
Total merger-related costs $ 167     $ 206  

Income Taxes

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

BALANCE SHEET HIGHLIGHTS

Loans Held for Investment

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

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

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

  March 31,   December 31,   March 31,
Loans Held for Investment 2019   2018   2018
   
  (In thousands)
Commercial and industrial $ 535,878     $ 533,188     $ 513,778  
Agricultural 96,766     96,956     111,975  
Commercial real estate          
Construction and development 187,906     217,617     194,712  
Farmland 86,648     88,807     87,030  
Multifamily 161,067     134,741     126,802  
Other 843,817     826,163     789,902  
Total commercial real estate 1,279,438     1,267,328     1,198,446  
Residential real estate          
One-to-four family first liens 333,220     341,830     349,742  
One-to-four family junior liens 121,793     120,049     116,187  
Total residential real estate 455,013     461,879     465,929  
Consumer 36,664     39,428     36,030  
    Loans held for investment, net of unearned income $ 2,403,759     $ 2,398,779     $ 2,326,158  

Provision and Allowance for Loan Losses

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

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

  Three Months Ended
  March 31,   December 31,   March 31,
Allowance for Loan Losses Roll Forward 2019   2018   2018
   
  (In thousands)
Beginning balance $ 29,307     $ 31,278     $ 28,059  
Charge-offs (1,355 )   (5,456 )   (476 )
Recoveries 106     235     238  
Net charge-offs (1,249 )   (5,221 )   (238 )
Provision for loan losses 1,594     3,250     1,850  
Ending balance $ 29,652     $ 29,307     $ 29,671  

Deposits

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

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

  March 31,   December 31,   March 31,
Deposit Composition 2019   2018   2018
   
  (In thousands)
Noninterest bearing demand $ 426,729     $ 439,133     $ 450,168  
Interest checking 696,760     683,894     698,895  
Money market 629,838     555,839     541,313  
Savings 200,998     210,416     215,940  
Total non-maturity deposits 1,954,325     1,889,282     1,906,316  
Time deposits less than $100,000 358,436     352,631     332,727  
Time deposits of $100,000 to $250,000 182,874     179,764     170,742  
Time deposits of $250,000 and over 189,192     191,252     222,136  
Total time deposits 730,502     723,647     725,605  
Total deposits $ 2,684,827     $ 2,612,929     $ 2,631,921  

CREDIT QUALITY

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

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

  March 31,   December 31,   March 31,
Credit Quality Metrics 2019   2018   2018
   
  (dollars in thousands)
Nonaccrual loans held for investment $ 21,274     $ 19,924     $ 13,566  
Performing troubled debt restructured loans held for investment 5,161     5,284     9,623  
Accruing loans contractually past due 90 days or more 208     365     116  
Foreclosed assets, net 336     535     1,001  
Total nonperforming assets $ 26,979     $ 26,108     $ 24,306  
Allowance for loan losses 29,652     29,307     29,671  
Provision for loan losses (for the quarter) 1,594     3,250     1,850  
Net charge-offs (for the quarter) 1,249     5,221     238  
Net charge-offs to average loans held for investment (for the quarter) 0.21 %   0.86 %   0.04 %
Allowance for loan losses to loans held for investment, net of unearned income 1.23 %   1.22 %   1.28 %
Allowance for loan losses to nonaccrual loans held for investment, net of unearned income 139.38 %   147.09 %   218.72 %
Nonaccrual loans held for investment to loans held for investment, net of unearned income 0.89 %   0.83 %   0.58 %

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

CORPORATE UPDATE

Share Repurchase Program

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

Quarterly Cash Dividend Declared

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

CONFERENCE CALL DETAILS

The Company will host a conference call for investors at 11:00 a.m., CDT, on Friday, April 26, 2019. To participate, please dial 866-233-3483 at least fifteen minutes before the call start time. If you are unable to participate on the call, a replay will be available until July 26, 2019, by calling 877-344-7529 and using the replay access code of 10126189. A transcript of the call will also be available on the company’s web site (www.midwestone.com) within three business days of the event.

ABOUT MIDWESTONE FINANCIAL GROUP, INC.

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

Cautionary Note Regarding Forward-Looking Statements

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

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


MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

  March 31,   December 31,
  2019   2018
   
  (In thousands)
ASSETS      
Cash and due from banks $ 40,002     $ 43,787  
Interest earning deposits in banks 2,969     1,693  
Total cash and cash equivalents 42,971     45,480  
Debt securities available for sale at fair value 432,979     414,101  
Held to maturity securities at amortized cost 195,033     195,822  
Total securities held for investment 628,012     609,923  
Loans held for sale 309     666  
Gross loans held for investment 2,409,333     2,405,001  
Unearned income, net (5,574 )   (6,222 )
Loans held for investment, net of unearned income 2,403,759     2,398,779  
Allowance for loan losses (29,652 )   (29,307 )
Total loans held for investment, net 2,374,107     2,369,472  
Premises and equipment, net 75,200     75,773  
Goodwill 64,654     64,654  
Other intangible assets, net 9,423     9,875  
Foreclosed assets, net 336     535  
Other assets 113,963     115,102  
Total assets $ 3,308,975     $ 3,291,480  
LIABILITIES      
Noninterest bearing deposits $ 426,729     $ 439,133  
Interest bearing deposits 2,258,098     2,173,796  
Total deposits 2,684,827     2,612,929  
Short-term borrowings 76,066     131,422  
Long-term debt 162,471     168,726  
Other liabilities 21,762     21,336  
Total liabilities 2,945,126     2,934,413  
SHAREHOLDERS' EQUITY      
Common stock 12,463     12,463  
Additional paid-in capital 187,535     187,813  
Retained earnings 173,771     168,951  
Treasury stock (7,297 )   (6,499 )
Accumulated other comprehensive loss (2,623 )   (5,661 )
Total shareholders' equity 363,849     357,067  
Total liabilities and shareholders' equity $ 3,308,975     $ 3,291,480  

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


MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

    Three Months Ended
    March 31,   December 31,   March 31,
    2019   2018 (1)   2018 (1)
     
    (In thousands, except per share data)
Interest income            
Loans, including fees   $ 29,035     $ 29,052     $ 26,567  
Taxable investment securities   2,927     2,774     2,748  
Tax-exempt investment securities   1,406     1,375     1,529  
Other   20     23     9  
Total interest income   33,388     33,224     30,853  
Interest expense            
Deposits   5,695     5,161     3,536  
Short-term borrowings   457     374     261  
Long-term debt   1,260     1,136     882  
Total interest expense   7,412     6,671     4,679  
Net interest income   25,976     26,553     26,174  
Provision for loan losses   1,594     3,250     1,850  
Net interest income after provision for loan losses   24,382     23,303     24,324  
Noninterest income            
Investment services and trust activities   1,390     1,274     1,239  
Service charges and fees   1,442     1,556     1,571  
Card revenue   998     1,095     966  
Loan revenue   393     884     941  
Bank-owned life insurance   392     381     433  
Insurance commissions   420     260     401  
Investment securities gains (losses), net   17     (4 )   9  
Other   358     350     121  
Total noninterest income   5,410     5,796     5,681  
Noninterest expense            
Compensation and employee benefits   12,579     12,111     12,371  
Occupancy expense of premises, net   1,879     1,166     1,906  
Equipment   1,371     1,433     1,383  
Legal and professional   965     1,027     794  
Data processing   845     875     688  
Marketing   606     678     620  
Amortization of intangibles   452     503     657  
FDIC insurance   370     429     319  
Communications   342     342     329  
Foreclosed assets, net   58     46     (39 )
Other   1,150     1,169     1,200  
Total noninterest expense   20,617     19,779     20,228  
Income before income tax expense   9,175     9,320     9,777  
Income tax expense   1,890     1,696     1,984  
Net income   $ 7,285     $ 7,624     $ 7,793  
Earnings per common share            
Basic   $ 0.60     $ 0.62     $ 0.64  
Diluted   $ 0.60     $ 0.62     $ 0.64  
Weighted average basic common shares outstanding   12,164     12,217     12,223  
Weighted average diluted common shares outstanding   12,177     12,235     12,242  
Dividends paid per common share   $ 0.2025     $ 0.195     $ 0.195  

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


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

  March 31,   December 31,   September 30,   June 30,   March 31,
  2019   2018   2018   2018   2018
   
  (In thousands)
ASSETS                  
Cash and due from banks $ 40,002     $ 43,787     $ 49,229     $ 41,547     $ 39,929  
Interest earning deposits in banks 2,969     1,693     4,150     1,717     2,467  
Total cash and cash equivalents 42,971     45,480     53,379     43,264     42,396  
Debt securities available for sale at fair value 432,979     414,101     407,766     438,312     446,087  
Held to maturity securities at amortized cost 195,033     195,822     191,733     192,896     194,617  
Total securities held for investment 628,012     609,923     599,499     631,208     640,704  
Loans held for sale 309     666     1,124     1,528     870  
Gross loans held for investment 2,409,333     2,405,001     2,384,459     2,371,406     2,334,074  
Unearned income, net (5,574 )   (6,222 )   (6,810 )   (7,371 )   (7,916 )
Loans held for investment, net of unearned income 2,403,759     2,398,779     2,377,649     2,364,035     2,326,158  
Allowance for loan losses (29,652 )   (29,307 )   (31,278 )   (30,800 )   (29,671 )
Total loans held for investment, net 2,374,107     2,369,472     2,346,371     2,333,235     2,296,487  
Premises and equipment, net 75,200     75,773     76,497     78,106     77,552  
Goodwill 64,654     64,654     64,654     64,654     64,654  
Other intangible assets, net 9,423     9,875     10,378     10,925     11,389  
Foreclosed assets, net 336     535     549     676     1,001  
Other assets 113,963     115,102     115,514     112,681     106,589  
Total assets $ 3,308,975     $ 3,291,480     $ 3,267,965     $ 3,276,277     $ 3,241,642  
LIABILITIES                  
Noninterest bearing deposits $ 426,729     $ 439,133     $ 458,576     $ 469,862     $ 450,168  
Interest bearing deposits 2,258,098     2,173,796     2,173,683     2,134,339     2,181,753  
Total deposits 2,684,827     2,612,929     2,632,259     2,604,201     2,631,921  
Short-term borrowings 76,066     131,422     87,978     127,467     93,311  
Long-term debt 162,471     168,726     176,979     178,083     159,335  
Other liabilities 21,762     21,336     21,560     20,325     15,698  
Total liabilities 2,945,126     2,934,413     2,918,776     2,930,076     2,900,265  
SHAREHOLDERS' EQUITY                  
Common stock $ 12,463     $ 12,463     $ 12,463     $ 12,463     $ 12,463  
Additional paid-in capital 187,535     187,813     187,581     187,304     187,188  
Retained earnings 173,771     168,951     163,709     159,315     153,542  
Treasury stock (7,297 )   (6,499 )   (5,474 )   (5,474 )   (5,612 )
Accumulated other comprehensive loss (2,623 )   (5,661 )   (9,090 )   (7,407 )   (6,204 )
Total shareholders' equity 363,849     357,067     349,189     346,201     341,377  
Total liabilities and shareholders' equity $ 3,308,975     $ 3,291,480     $ 3,267,965     $ 3,276,277     $ 3,241,642  

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


MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
FIVE QUARTER CONSOLIDATED STATEMENTS OF INCOME

  Three Months Ended
  March 31,   December 31,   September 30,   June 30,   March 31,
  2019   2018 (1)   2018 (1)   2018 (1)   2018 (1)
   
  (In thousands, except per share data)
Interest income                  
Loans, including fees $ 29,035     $ 29,052     $ 28,088     $ 27,486     $ 26,567  
Taxable investment securities 2,927     2,774     2,715     2,790     2,748  
Tax-exempt investment securities 1,406     1,375     1,395     1,528     1,529  
Other 20     23     12     18     9  
Total interest income 33,388     33,224     32,210     31,822     30,853  
Interest expense                  
Deposits 5,695     5,161     4,625     4,009     3,536  
Short-term borrowings 457     374     321     359     261  
Long-term debt 1,260     1,136     1,153     1,024     882  
Total interest expense 7,412     6,671     6,099     5,392     4,679  
Net interest income 25,976     26,553     26,111     26,430     26,174  
Provision for loan losses 1,594     3,250     950     1,250     1,850  
Net interest income after provision for loan losses 24,382     23,303     25,161     25,180     24,324  
Noninterest income                  
Investment services and trust activities 1,390     1,274     1,222     1,218     1,239  
Service charges and fees 1,442     1,556     1,512     1,518     1,571  
Card revenue 998     1,095     1,069     1,093     966  
Loan revenue 393     884     891     906     941  
Bank-owned life insurance 392     381     399     397     433  
Insurance commissions 420     260     304     319     401  
Investment securities gains (losses), net 17     (4 )   192     (4 )   9  
Other 358     350     456     246     121  
Total noninterest income 5,410     5,796     6,045     5,693     5,681  
Noninterest expense                  
Compensation and employee benefits 12,579     12,111     13,051     12,225     12,371  
Occupancy expense of premises, net 1,879     1,166     2,643     1,882     1,906  
Equipment 1,371     1,433     1,341     1,408     1,383  
Legal and professional 965     1,027     1,861     959     794  
Data processing 845     875     697     691     688  
Marketing 606     678     672     690     620  
Amortization of intangibles 452     503     547     589     657  
FDIC insurance 370     429     393     392     319  
Communications 342     342     341     341     329  
Foreclosed assets, net 58     46     (131 )   145     (39 )
Other 1,150     1,169     1,207     1,264     1,200  
Total noninterest expense 20,617     19,779     22,622     20,586     20,228  
Income before income tax expense 9,175     9,320     8,584     10,287     9,777  
Income tax expense 1,890     1,696     1,806     2,131     1,984  
Net income $ 7,285     $ 7,624     $ 6,778     $ 8,156     $ 7,793  
Earnings per common share                  
Basic $ 0.60     $ 0.62     $ 0.55     $ 0.67     $ 0.64  
Diluted $ 0.60     $ 0.62     $ 0.55     $ 0.67     $ 0.64  
Weighted average basic common shares outstanding 12,164     12,217     12,221     12,218     12,223  
Weighted average diluted common shares outstanding 12,177     12,235     12,240     12,230     12,242  
Dividends paid per common share $ 0.2025     $ 0.195     $ 0.195     $ 0.195     $ 0.195  

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


MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
AVERAGE BALANCE SHEET AND YIELD ANALYSIS

  Three Months Ended
  March 31, 2019   December 31, 2018   March 31, 2018
  Average
Balance
  Interest
Income/
Expense
  Average
Yield/
Cost
  Average
Balance
  Interest
Income/
Expense
  Average
Yield/
Cost
  Average
Balance
  Interest
Income/
Expense
  Average
Yield/
Cost
   
  (Dollars in thousands)
ASSETS                                  
Loans, including fees (1)(2) $ 2,409,641     $ 29,308     4.93 %   $ 2,398,859     $ 29,330     4.85 %   $ 2,304,984     $ 26,808     4.72 %
Taxable investment securities 414,986     2,927     2.86 %   404,733     2,774     2.72 %   423,991     2,748     2.63 %
Tax-exempt investment securities (3) 202,027     1,772     3.56 %   198,073     1,732     3.47 %   216,590     1,930     3.61 %
Other 3,053     20     2.66 %   4,243     23     2.15 %   2,421     9     1.51 %
Total interest earning assets $ 3,029,707     34,027     4.55 %   $ 3,005,908     33,859     4.47 %   $ 2,947,986     31,495     4.33 %
Other assets 271,390             272,218             268,032          
Total assets $ 3,301,097             $ 3,278,126             $ 3,216,018          
LIABILITIES AND SHAREHOLDERS’ EQUITY                                  
Interest checking deposits $ 676,654     $ 910     0.55 %   $ 680,971     $ 899     0.52 %   $ 668,626     $ 592     0.36 %
Money market deposits 599,695     1,334     0.90 %   556,522     1,034     0.74 %   528,484     493     0.38 %
Savings deposits 204,757     58     0.11 %   210,106     65     0.12 %   216,232     63     0.12 %
Time deposits 724,772     3,393     1.90 %   724,973     3,163     1.73 %   718,312     2,388     1.35 %
Total interest bearing deposits 2,205,878     5,695     1.05 %   2,172,572     5,161     0.94 %   2,131,654     3,536     0.67 %
Short-term borrowings 109,929     457     1.69 %   104,710     374     1.42 %   106,746     261     0.99 %
Long-term debt 179,515     1,260     2.85 %   171,029     1,136     2.64 %   161,203     882     2.22 %
Total borrowed funds 289,444     1,717     2.41 %   275,739     1,510     2.17 %   267,949     1,143     1.73 %
Total interest bearing liabilities $ 2,495,322     $ 7,412     1.20 %   $ 2,448,311     $ 6,671     1.08 %   $ 2,399,603     $ 4,679     0.79 %
Noninterest bearing deposits 421,753             454,185             456,883          
Other liabilities 24,619             24,232             18,982          
Shareholders’ equity 359,403             351,398             340,550          
Total liabilities and shareholders’ equity $ 3,301,097             $ 3,278,126             $ 3,216,018          
Net interest income(4)     $ 26,615             $ 27,188             $ 26,816      
Net interest spread(4)         3.35 %           3.39 %           3.54 %
Net interest margin(4)         3.56 %           3.59 %           3.69 %
Total deposits(5) $ 2,627,631     $ 5,695     0.88 %   $ 2,626,757     $ 5,161     0.78 %   $ 2,588,537     $ 3,536     0.55 %
Funding sources(6) $ 2,917,075     $ 7,412     1.03 %   $ 2,902,496     $ 6,671     0.91 %   $ 2,856,486     $ 4,679     0.66 %

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

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

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

(4) Tax equivalent.

(5) Total deposits is the sum of total interest-bearing deposits and noninterest-bearing demand deposits. The cost of total deposits is calculated as annualized interest expense on deposits divided by average total deposits.

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


Non-GAAP Presentations:

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

    As of   As of   As of   As of   As of
    March 31,   December 31,   September 30,   June 30,   March 31,
(unaudited, dollars in thousands, except per share data)   2019   2018   2018   2018   2018
Tangible Equity                    
Total shareholders’ equity   $ 363,849     $ 357,067     $ 349,189     $ 346,201     $ 341,377  
Plus: Deferred tax liability associated with intangibles   546     660     786     924     1,073  
Less: Intangible assets, net   (74,077 )   (74,529 )   (75,032 )   (75,579 )   (76,043 )
Tangible equity   $ 290,318     $ 283,198     $ 274,943     $ 271,546     $ 266,407  
Tangible Assets                    
Total assets   $ 3,308,975     $ 3,291,480     $ 3,267,965     $ 3,276,277     $ 3,241,642  
Plus: Deferred tax liability associated with intangibles   546     660     786     924     1,073  
Less: Intangible assets, net   (74,077 )   (74,529 )   (75,032 )   (75,579 )   (76,043 )
Tangible assets   $ 3,235,444     $ 3,217,611     $ 3,193,719     $ 3,201,622     $ 3,166,672  
Common shares outstanding   12,153,045     12,180,015     12,221,107     12,221,107     12,214,942  
Tangible Book Value Per Share   $ 23.89     $ 23.25     $ 22.50     $ 22.22     $ 21.81  
Tangible Equity/Tangible Assets   8.97 %   8.80 %   8.61 %   8.48 %   8.41 %


    For the Three Months Ended
(unaudited, dollars in thousands)   March 31,
2019
  December 31,
2018
  March 31,
2018
Net Income   $ 7,285     $ 7,624     $ 7,793  
Plus: Intangible amortization, net of tax(1)   357     397     519  
Adjusted net income   $ 7,642     $ 8,021     $ 8,312  
Average Tangible Equity            
Average total shareholders’ equity   $ 359,403     $ 351,398     $ 340,550  
Plus: Average deferred tax liability associated with intangibles   601     720     1,154  
Less: Average intangible assets, net of amortization   (74,293 )   (74,766 )   (76,364 )
Average tangible equity   $ 285,711     $ 277,352     $ 265,340  
Return on Average Tangible Equity (annualized)   10.85 %   11.47 %   12.70 %


Net Interest Margin Tax Equivalent Adjustment            
Net interest income   $ 25,976     $ 26,553     $ 26,174  
Plus tax equivalent adjustment:(1)            
Loans   273     278     241  
Securities   366     357     401  
Tax equivalent net interest income (1)   $ 26,615     $ 27,188     $ 26,816  
Average interest earning assets   $ 3,029,707     $ 3,005,908     $ 2,947,986  
Net Interest Margin   3.56 %   3.59 %   3.69 %


Yield on Average Loans            
Interest income on loans, including fees   $ 29,035     $ 29,052     $ 26,567  
Plus tax equivalent adjustment:(1)            
Loans   273     278     241  
Tax equivalent loan interest income (1)   $ 29,308     $ 29,330     $ 26,808  
Average loans   $ 2,409,641     $ 2,398,859     $ 2,304,984  
Average Yield on Loans   4.93 %   4.85 %   4.72 %
(1) Computed on a tax-equivalent basis, assuming a federal income tax rate of 21%.


    For the Three Months Ended
(unaudited, dollars in thousands, except per share amounts)   March 31,
2019
  December 31,
2018
  March 31,
2018
Net Income   $ 7,285     $ 7,624     $ 7,793  
Plus: Merger-related expenses   167     206      
Net tax effect of above item(1)   (11 )   (32 )    
Net income exclusive of merger-related expenses   $ 7,441     $ 7,798     $ 7,793  
Average number of diluted shares   12,176,757     12,234,687     12,241,714  
             
Earnings per common share - diluted   $ 0.60     $ 0.62     $ 0.64  
Earnings per common share - diluted, exclusive of merger-related expenses   $ 0.61     $ 0.64     $ 0.64  


    For the Three Months Ended
(dollars in thousands)   March 31,
2019
  December 31,
2018
  March 31,
2018
Operating Expense            
Total noninterest expense   $ 20,617     $ 19,779     $ 20,228  
Less: Amortization of intangibles   (452 )   (503 )   (657 )
Operating expense   $ 20,165     $ 19,276     $ 19,571  
Operating Revenue            
Tax equivalent net interest income (2)   $ 26,615     $ 27,188     $ 26,816  
Plus: Noninterest income   5,410     5,796     5,681  
Impairment losses on investment securities            
Less: (Gain) loss on sale or call of debt securities   (17 )   4     (9 )
Operating revenue   $ 32,008     $ 32,988     $ 32,488  
Efficiency Ratio   63.00 %   58.43 %   60.24 %
(1) Computed assuming a combined marginal income tax rate of 25% on deductible items.
(2) Computed on a tax-equivalent basis, assuming a federal income tax rate of 21%.


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

 

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