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CST: 19/10/2019 13:14:14   

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

267 Days ago

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      

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