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CST: 16/11/2019 16:39:38   

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

22 Days ago

IOWA CITY, Iowa, Oct. 25, 2019 (GLOBE NEWSWIRE) -- MidWestOne Financial Group, Inc. (Nasdaq - MOFG) (“we”, “our”, or “the Company”) today reported its financial results for the third quarter of 2019. Charles Funk, President and Chief Executive Officer commented, “We are beginning to realize the operational efficiencies stemming from the ATBancorp acquisition. The continued improvement in our financial results reflected the hard work put in by so many to make that transaction a reality.”

Net income for the third quarter of 2019 was $12.3 million, or $0.76 per diluted common share, compared to net income of $10.7 million, or $0.72 per diluted common share, for the second quarter of 2019 (the “linked quarter”). Mr. Funk continued, “This was the best quarter in our history. Notably, merger-related expenses of $2.5 million lowered our third quarter earnings per share by $0.12.”

FINANCIAL HIGHLIGHTS

    As of or For the Nine Months Ended
  As of or For the Three Months Ended
    September 30,   June 30,   September 30,   September 30,   September 30,
    2019
  2019
  2018
  2019
  2018
                     
    (Dollars in thousands, except per share amounts)
Net income   $ 12,300     $ 10,674     $ 6,778     $ 30,259     $ 22,727  
Earnings per common share, diluted   $ 0.76     $ 0.72     $ 0.55     $ 2.09     $ 1.86  
Return on average assets     1.06 %     1.01 %     0.83 %     1.00 %     0.94 %
Return on average equity     9.92 %     9.66 %     7.72 %     9.37 %     8.84 %
Return on average tangible equity (1)     15.57 %     13.30 %     10.42 %     13.48 %     11.96 %
                                         
Net interest margin, tax equivalent(1)     4.15 %     3.68 %     3.55 %     3.83 %     3.61 %
Yield on loans, tax equivalent(1)     5.59 %     5.10 %     4.74 %     5.25 %     4.74 %
Cost of total deposits     0.89 %     0.92 %     0.70 %     0.89 %     0.63 %
Efficiency ratio(1)     50.46 %     56.24 %     65.86 %     55.45 %     62.36 %
                                         
Total assets   $ 4,648,287     $ 4,662,463     $ 3,267,965     $ 4,648,287     $ 3,267,965  
Loans held for investment, net of unearned income   $ 3,524,728     $ 3,536,503     $ 2,377,649     $ 3,524,728     $ 2,377,649  
Total deposits   $ 3,709,712     $ 3,725,472     $ 2,632,259     $ 3,709,712     $ 2,632,259  
                                         
Equity to assets ratio     10.71 %     10.47 %     10.69 %     10.71 %     10.69 %
Tangible common equity ratio(1)     8.21 %     7.91 %     8.59 %     8.21 %     8.59 %
Book value per share   $ 30.77     $ 30.11     $ 28.57     $ 30.77     $ 28.57  
Tangible book value per share(1)   $ 22.93     $ 22.09     $ 22.43     $ 22.93     $ 22.43  
Gross loans held for investment to deposit ratio     95.59 %     95.81 %     90.59 %     95.59 %     90.59 %
                                         
(1)  Non-GAAP measure. See pages 14-15 for a detailed explanation.
 

Acquisition of ATBancorp

On May 1, 2019, we acquired ATBancorp. The table below summarizes the amounts recognized at the acquisition date for each major class of assets acquired and liabilities assumed:

      May 01, 2019
    (in thousands)
             
Merger consideration         $ 148,443
Identifiable net assets acquired, at fair value            
Assets acquired            
Cash and due from banks   $ 71,820      
Debt securities available for sale     99,056      
Loans     1,138,928      
Premises and equipment     18,623      
Core deposit intangible     23,539      
Trust customer list intangible     4,285      
Bank-owned life insurance     18,759      
Foreclosed assets     3,091      
Other assets     20,677      
Total assets acquired           1,398,778
Liabilities assumed            
Deposits     1,079,094      
Short-term borrowings     100,761      
Long-term debt     71,234      
Other liabilities     27,850      
Total liabilities assumed           1,278,939
Total identifiable net assets acquired, at fair value         $ 119,839
Goodwill         $ 28,604
             

INCOME STATEMENT HIGHLIGHTS

Net Interest Income

Net interest income increased in the third quarter of 2019 to $43.3 million from $34.8 million in the linked quarter due to both higher average earning asset volumes and higher tax equivalent net interest margin (“NIM”). Average earning assets increased $334.7 million as the linked quarter balances reflected only two months of acquired ATBancorp assets. Further, discount accretion from acquired loans added $7.2 million to net interest income in the current quarter compared to $2.2 million in the linked quarter. Acquired loan prepayment and renewal activity added approximately $2.3 million to discount accretion this quarter.

The tax equivalent net interest margin increased to 4.15% for the third quarter of 2019 from 3.68% in the linked quarter as increased loan yields, driven by loan purchase discount accretion, and marginally lower funding costs. The loan yield was 5.59% for the third quarter of 2019 compared to 5.10% for the linked quarter. Loan purchase discount accretion added 81 bps to loan yields and 69 bps to the NIM in the current quarter compared to 28 bps and 23 bps, respectively, in the linked quarter. The cost of average total deposits in the third quarter of 2019 was 0.89% compared to 0.92% in the linked quarter. The decrease reflects the 4 basis point reduction attributable to deposit purchase accounting accretion related to the merger.

Mr. Funk continued, “While loan discount accretion income boosted our margin in the quarter, our 'core margin' also held up very well, aided by the asset mix change after acquiring ATBancorp.”

Noninterest Income

Noninterest income for the third quarter of 2019 decreased $0.8 million, or 9%, from the linked quarter. The decrease was due primarily to ‘Other’ income in the linked quarter reflecting a gain of $1.1 million from the sale of assets of MidWestOne Insurance Services, Inc. In addition, ‘Loan revenue’ included a $657 thousand negative valuation adjustment to the Company’s mortgage servicing right this quarter compared to a $507 thousand adjustment in the linked quarter. Partially offsetting these decreases, ‘Investment services and trust activities’ increased $449 thousand due to increased trust income following the full integration of the ATBancorp operations.

“Trust and investment services are having very good years and we are also benefiting from increased mortgage loan activity,” said Mr. Funk.

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

  Three Months Ended
  September 30,   June 30,   September 30,
Noninterest Income 2019   2019   2018
     (In thousands) 
Investment services and trust activities $ 2,339   $ 1,890   $ 1,222
Service charges and fees   2,068     1,870     1,512
Card revenue   1,655     1,799     1,069
Loan revenue   991     648     891
Bank-owned life insurance   514     470     399
Insurance commissions       314     304
Investment securities gains, net   23     32     192
Other   414     1,773     456
Total noninterest income $ 8,004   $ 8,796   $ 6,045

Noninterest Expense

Noninterest expense for the third quarter of 2019 increased $2.4 million, or 8.27%, from the linked quarter as the linked quarter reflected only two months of ATBancorp results. Pre-tax merger-related expenses were $2.5 million for the third quarter of 2019 compared to $3.1 million in the linked quarter.

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

  Three Months Ended
  September 30,
  June 30,
  September 30,
Noninterest Expense 2019
  2019
  2018
   (In thousands)
Compensation and employee benefits $ 17,426     $ 16,409     $ 13,051  
Occupancy expense of premises, net   2,294       2,127       2,643  
Equipment   2,181       1,914       1,341  
Legal and professional   1,996       3,291       1,861  
Data processing   1,234       1,008       697  
Marketing   1,167       869       672  
Amortization of intangibles   2,583       930       547  
FDIC insurance   (42 )     434       393  
Communications   489       377       341  
Foreclosed assets, net   265       84       (131 )
Other   1,849       1,597       1,207  
Total noninterest expense $ 31,442     $ 29,040     $ 22,622  
                       

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

  Three Months Ended 
  September 30,
  June 30,   September 30,
Merger-related Expenses  2019    2019    2018
           
   (In thousands)
Compensation and employee benefits $ 1,584   $ 1,020   $
Legal and professional   163     1,826     571
Data processing   567     240     17
Other   233     48     16
Total merger-related costs $ 2,547   $ 3,134   $ 604
                 

Income Taxes

The effective income tax rate was 20.9% for the third quarter of 2019 and 23.2% for the linked quarter. The effective tax rate for the third quarter of 2019 was lower due primarily to the impact from certain non-deductible merger related expenses and other merger-related items in the second quarter of 2019.

BALANCE SHEET HIGHLIGHTS

Loans Held for Investment

Loans held for investment, net of unearned income, increased $1.13 billion, or 46.9%, to $3.52 billion, from December 31, 2018, primarily due to the merger. At September 30, 2019, commercial real estate loans comprised approximately 52% of the loan portfolio. Commercial and industrial loans was the next largest category at 25% of total loans, followed by residential real estate loans at 17%, agricultural loans at 4%, and consumer loans at 2%.

“Our loan portfolio has continued to experience higher than expected pay downs in 2019, and this continued in the third quarter,” stated Mr. Funk.

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

                       
  September 30,
  June 30,   December 31,   September 30,
Loans Held for Investment 2019   2019   2018   2018
               
  (In thousands)
Commercial and industrial $ 871,192   $ 866,023   $ 533,188   $ 523,333
Agricultural   151,984     152,491     96,956     103,207
Commercial real estate                      
Construction and development   296,586     273,149     217,617     223,324
Farmland   188,394     187,393     88,807     85,735
Multifamily   236,145     243,928     134,741     126,663
Other   1,102,744     1,114,039     826,163     818,068
Total commercial real estate   1,823,869     1,818,509     1,267,328     1,253,790
Residential real estate                      
One-to-four family first liens   416,194     423,625     341,830     342,755
One-to-four family junior liens   176,162     176,685     120,049     115,768
Total residential real estate   592,356     600,310     461,879     458,523
Consumer   85,327     99,170     39,428     38,796
Loans held for investment, net of unearned income $ 3,524,728   $ 3,536,503   $ 2,398,779   $ 2,377,649
                       

Provision and Allowance for Loan Losses

For the third quarter of 2019, the provision for loan losses was $4.3 million, an increase of $3.6 million from the linked quarter. The increased provision in the third quarter of 2019 was primarily due to the application of the Company’s standard loss reserve factors to the agricultural portfolio loans and renewal of non-agricultural loans acquired in the merger.

“At the beginning of 2019 we gave guidance of a $4 to $6 million provision for loan losses at legacy MidWestOne. We believe the Company will be well within that range at year-end,” said Mr. Funk.

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

  Three Months Ended
  Nine Months Ended
  September 30,
  June 30,   September 30,   September 30,
  September 30,
                   
Allowance for Loan Losses Roll Forward 2019
  2019
  2018
  2019   2018
                   
                   
                   
  (In thousands)
Beginning balance $ 28,691     $ 29,652     $ 30,800     $ 29,307     $ 28,059  
Charge-offs   (1,635 )     (2,187 )     (817 )     (5,178 )     (1,584 )
Recoveries   212       530       345       849       753  
Net charge-offs   (1,423 )     (1,657 )     (472 )     (4,329 )     (831 )
Provision for loan losses   4,264       696       950       6,554       4,050  
Ending balance $ 31,532     $ 28,691     $ 31,278     $ 31,532     $ 31,278  
                                       

Deposits

Total deposits at September 30, 2019, were $3.71 billion, an increase of $1.10 billion from December 31, 2018, due primarily to the merger. The mix of deposits reflected increases between December 31, 2018 and September 30, 2019 of $241.0 million, or 35.2%, in interest checking deposits, $234.6 million, or 53.4%, in noninterest bearing deposits, $234.2 million, or 32.4%, in time deposits, $207.8 million, or 37.4% in money market deposits, and $179.2 million, or 85.2%, in savings deposits.

Mr. Funk noted, “The decline in deposits from the linked quarter stemmed principally from net runoff experienced in the legacy ATBancorp footprint. That net runoff reflected, in part, our efforts at rationalizing our deposit costs in those markets to defend our net interest margin. Notably, that net runoff was partially offset by excellent net deposit growth elsewhere in the Company. Thus, we were generally pleased with our deposit performance through the first nine months of 2019.”

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

  September 30,
  June 30,   December 31,   September 30,
Deposit Composition  2019    2019    2018    2018
               
  (In thousands)
Noninterest bearing deposits $ 673,777   $ 647,078   $ 439,133   $ 458,576
Interest checking deposits   924,861     762,530     683,894     691,743
Money market deposits   763,661     1,019,886     555,839     545,179
Savings deposits   389,606     356,328     210,416     211,591
Total non-maturity deposits   2,751,905     2,785,822     1,889,282     1,907,089
Time deposits of $250,000 and under   685,409     678,752     532,395     522,558
Time deposits of $250,000 and over   272,398     260,898     191,252     202,612
Total time deposits   957,807     939,650     723,647     725,170
Total deposits $ 3,709,712   $ 3,725,472   $ 2,612,929   $ 2,632,259
                       

CREDIT QUALITY

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

    90+ Days Past Due & Still   Performing Troubled Debt        
Nonperforming Loans Nonaccrual Accruing   Restructured   Total
  (In thousands)
Balance at December 31, 2018 $ 19,924   $ 365   $ 5,284   $ 25,573  
Loans placed on nonaccrual, restructured or 90+ days past due & still accruing   14,236     1,265     215     15,716  
Established through acquisition   12,116             12,116  
Repayments (including interest applied to principal)   (7,420 )   (18 )   (244 )   (7,682 )
Loans returned to accrual status or no longer past due   (1,243 )   (962 )       (2,205 )
Charge-offs   (3,972 )           (3,972 )
Transfers to foreclosed assets   (1,673 )           (1,673 )
Transfers to nonaccrual       (414 )   (554 )   (968 )
Balance at September 30, 2019 $ 31,968   $ 236   $ 4,701   $ 36,905  
         

At September 30, 2019, net foreclosed assets totaled $4.4 million, up from $535 thousand at December 31, 2018, primarily due to the merger. As of September 30, 2019, the allowance for loan losses was $31.5 million, or 0.89% of loans held for investment, net of unearned income, compared with $29.3 million, or 1.22% at December 31, 2018.

“We recorded a $4.3 million provision for loan losses this quarter, $3.0 million of which was related to the acquired ATBancorp loan portfolio. Notably, the provision related to the ATBancorp loans was not the result of deterioration in the overall quality of that portfolio, but rather a function of transitioning from the initial measurement of the acquired loans to our standard allowance methodology. We continue to make progress in identifying and resolving our problem loans,” concluded Mr. Funk.

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

  September 30, June 30, December 31, September 30,
Credit Quality Metrics   2019     2019     2018     2018  
  (dollars in thousands)
Nonaccrual loans held for investment $ 31,968   $ 30,875   $ 19,924   $ 20,929  
Performing troubled debt restructured loans held for investment   4,701     4,593     5,284     7,354  
Accruing loans contractually past due 90 days or more   236     947     365     171  
Total nonperforming loans   36,905     36,415     25,573     28,454  
Foreclosed assets, net   4,366     4,922     535     549  
Total nonperforming assets $ 41,271   $ 41,337   $ 26,108   $ 29,003  
Allowance for loan losses   31,532     28,691     29,307     31,278  
Provision for loan losses (for the quarter)   4,264     696     3,250     950  
Net charge-offs (for the quarter)   1,423     1,657     5,221     472  
Net charge-offs to average loans held for investment (for the quarter)   0.16 %   0.21 %   0.86 %   0.08 %
Allowance for loan losses to loans held for investment, net of unearned income   0.89 %   0.81 %   1.22 %   1.32 %
Allowance for loan losses to nonaccrual loans held for investment, net of unearned income   98.64 %   92.93 %   147.09 %   149.45 %
Nonaccrual loans held for investment to loans held for investment   0.91 %   0.87 %   0.83 %   0.88 %

 

CORPORATE UPDATE

Share Repurchase Program

During the third quarter of 2019 the Company repurchased 41,426 shares at an average price of $29.37 and a total cost of $1.2 million. At September 30, 2019, $4.5 million remained available to repurchase shares under the Company’s current share repurchase program.

Cash Dividend Announcement

On October 22, 2019, the Company’s board of directors declared a quarterly cash dividend of $0.2025 per common share. The dividend is payable December 16, 2019, to shareholders of record at the close of business on December 2, 2019. At this quarterly rate, the indicated annual cash dividend is equal to $0.81 per common share.

CONFERENCE CALL DETAILS

The Company will host a conference call for investors at 11:00 a.m., CDT, on Friday, October 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 January 25, 2020, by calling 877-344-7529 and using the replay access code of 10126193. 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.

MIDWEST ONE FINANCIAL GROUP, INC. AND SUBSIDIARIES  
CONSOLIDATED BALANCE SHEETS  
         
  September 30, June 30, December 31,
    2019     2019     2018    
  (In thousands)  
ASSETS        
Cash and due from banks $ 79,776   $ 72,801   $ 43,787    
Interest earning deposits in banks   6,413     47,708     1,693    
Federal funds sold   478            
Total cash and cash equivalents   86,667     120,509     45,480    
Debt securities available for sale at fair value   503,278     460,302     414,101    
Held to maturity securities at amortized cost   190,309     193,173     195,822    
Total securities held for investment   693,587     653,475     609,923    
Loans held for sale   7,906     4,306     666    
Gross loans held for investment   3,545,993     3,569,236     2,405,001    
Unearned income, net   (21,265 )   (32,733 )   (6,222 )  
Loans held for investment, net of unearned income   3,524,728     3,536,503     2,398,779    
Allowance for loan losses   (31,532 )   (28,691 )   (29,307 )  
Total loans held for investment, net   3,493,196     3,507,812     2,369,472    
Premises and equipment, net   91,190     93,395     75,773    
Goodwill   93,258     93,376     64,654    
Other intangible assets, net   33,635     36,624     9,875    
Foreclosed assets, net   4,366     4,922     535    
Other assets   144,482     148,044     115,102    
Total assets $ 4,648,287   $ 4,662,463   $ 3,291,480    
LIABILITIES        
Noninterest bearing deposits $ 673,777   $ 647,078   $ 439,133    
Interest bearing deposits   3,035,935     3,078,394     2,173,796    
Total deposits   3,709,712     3,725,472     2,612,929    
Short-term borrowings   155,101     153,829     131,422    
Long-term debt   244,677     252,673     168,726    
Other liabilities   40,912     42,138     21,336    
Total liabilities   4,150,402     4,174,112     2,934,413    
SHAREHOLDERS' EQUITY        
Common stock   16,581     16,581     12,463    
Additional paid-in capital   297,144     296,879     187,813    
Retained earnings   191,007     181,984     168,951    
Treasury stock   (9,933 )   (8,716 )   (6,499 )  
Accumulated other comprehensive income (loss)   3,086     1,623     (5,661 )  
Total shareholders' equity   497,885     488,351     357,067    
Total liabilities and shareholders' equity $ 4,648,287   $ 4,662,463   $ 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     Nine Months Ended 
      September 30,     June 30,    September 30,      September 30, 
      2019     2019    2018 (1)      2019    2018   
  (In thousands, except per share data)
Interest  income                           
  Loans, including fees $   49,169   $   40,053 $   28,088   $   118,257 $   82,141  
  Taxable investment securities   3,376     3,289   2,715     9,592   8,253  
  Tax-exempt investment securities   1,401     1,424   1,395     4,231   4,452  
  Other   130     185   12     335   39  
  Total interest income   54,076     44,951   32,210     132,415   94,885  
Interest expense
                         
  Deposits   8,238     7,743   4,625     21,676   12,170  
  Short-term borrowings   522     500   321     1,479   941  
  Long-term debt   2,058     1,876   1,153     5,194   3,059  
  Total interest expense   10,818     10,119   6,099     28,349   16,170  
  Net interest income   43,258     34,832   26,111     104,066   78,715  
  Provision for loan losses   4,264     696   950     6,554   4,050  
  Net interest income after provision for loan losses   38,994     34,136   25,161     97,512   74,665  
Noninterest income
  Investment services and trust activities   2,339     1,890   1,222     5,619   3,679  
  Service charges and fees   2,068     1,870   1,512     5,380   4,601  
  Card revenue   1,655     1,799   1,069     4,452   3,128  
  Loan revenue   991     648   891     2,032   2,738  
  Bank-owned life insurance   514     470   399     1,376   1,229  
  Insurance commissions       314   304     734   1,024  
  Investment securities gains, net   23     32   192     72   197  
  Other   414     1,773   456     2,545   823  
  Total noninterest income   8,004     8,796   6,045     22,210   17,419  
Noninterest expense
                         
  Compensation and employee benefits   17,426     16,409   13,051     46,414   37,647  
  Occupancy expense of premises, net   2,294     2,127   2,643     6,300   6,431  
  Equipment   2,181     1,914   1,341     5,466   4,132  
  Legal and professional   1,996     3,291   1,861     6,252   3,614  
  Data processing   1,234     1,008   697     3,087   2,076  
  Marketing   1,167     869   672     2,642   1,982  
  Amortization of intangibles   2,583     930   547     3,965   1,793  
  FDIC insurance   (42 )   434   393     762   1,104  
  Communications   489     377   341     1,208   1,011  
  Foreclosed assets, net   265     84   (131 )   407   (25 )
  Other   1,849     1,597   1,207     4,596   3,671  
  Total noninterest expense   31,442     29,040   22,622     81,099   63,436  
  Income before income tax expense   15,556     13,892   8,584     38,623   28,648  
  Income tax expense   3,256     3,218   1,806     8,364   5,921  
  Net income $   12,300   $   10,674 $   6,778   $   30,259 $   22,727  
Earnings per common share
                         
  Basic $   0.76   $   0.72 $   0.55   $   2.10 $   1.86  
  Diluted $   0.76   $   0.72 $   0.55   $   2.09 $   1.86  
  Weighted average basic common shares outstanding   16,201     14,894   12,221     14,434   12,221  
  Weighted average diluted common shares outstanding   16,215     14,900   12,240     14,445   12,238  
  Dividends paid per common share
$   0.2025   $   0.2025 $   0.195   $   0.6075 $   0.585  
(1) Reclassified to conform to the current period’s presentation. 


MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
FIVE QUARTER CONSOLIDATED BALANCE SHEETS
           
  September 30,
2019
June 30,
2019
March 31,
2019
December 31,
2018
September 30,
2018
      (In thousands)    
ASSETS          
Cash and due from banks $   79,776   $   72,801   $   40,002   $   43,787   $   49,229  
Interest earning deposits in banks   6,413     47,708     2,969     1,693     4,150  
Federal funds sold   478                  
Total cash and cash equivalents   86,667     120,509     42,971     45,480     53,379  
Debt securities available for sale at fair value   503,278     460,302     432,979     414,101     407,766  
Held to maturity securities at amortized cost   190,309     193,173     195,033     195,822     191,733  
Total securities held for investment   693,587     653,475     628,012     609,923     599,499  
Loans held for sale   7,906     4,306     309     666     1,124  
Gross loans held for investment   3,545,993     3,569,236     2,409,333     2,405,001     2,384,459  
Unearned income, net   (21,265 )   (32,733 )   (5,574 )   (6,222 )   (6,810 )
Loans held for investment, net of unearned income   3,524,728     3,536,503     2,403,759     2,398,779     2,377,649  
Allowance for loan losses   (31,532 )   (28,691 )   (29,652 )   (29,307 )   (31,278 )
Total loans held for investment, net   3,493,196     3,507,812     2,374,107     2,369,472     2,346,371  
Premises and equipment, net   91,190     93,395     75,200     75,773     76,497  
Goodwill   93,258     93,376     64,654     64,654     64,654  
Other intangible assets, net   33,635     36,624     9,423     9,875     10,378  
Foreclosed assets, net   4,366     4,922     336     535     549  
Other assets   144,482     148,044     113,963     115,102     115,514  
Total assets $ 4,648,287   $ 4,662,463   $ 3,308,975   $ 3,291,480   $ 3,267,965  
LIABILITIES
Noninterest bearing deposits $   673,777   $   647,078   $   426,729   $   439,133   $   458,576  
Interest bearing deposits   3,035,935     3,078,394     2,258,098     2,173,796     2,173,683  
Total deposits   3,709,712     3,725,472     2,684,827     2,612,929     2,632,259  
Short-term borrowings   155,101     153,829     76,066     131,422     87,978  
Long-term debt   244,677     252,673     162,471     168,726     176,979  
Other liabilities   40,912     42,138     21,762     21,336     21,560  
Total liabilities   4,150,402     4,174,112     2,945,126     2,934,413     2,918,776  
SHAREHOLDERS' EQUITY
Preferred stock                    
Common stock $   16,581   $   16,581   $   12,463   $   12,463   $   12,463  
Additional paid-in capital   297,144     296,879     187,535     187,813     187,581  
Retained earnings   191,007     181,984     173,771     168,951     163,709  
Treasury stock   (9,933 )   (8,716 )   (7,297 )   (6,499 )   (5,474 )
Accumulated other comprehensive income (loss)   3,086     1,623     (2,623 )   (5,661 )   (9,090 )
Total shareholders' equity   497,885     488,351     363,849     357,067     349,189  
Total liabilities and shareholders' equity $ 4,648,287   $ 4,662,463   $ 3,308,975   $ 3,291,480   $ 3,267,965  


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
 
  September 30,   June 30, March 31, December 31, September 30,
    2019     2019   2019 2018 (1) 2018 (1)
  (In thousands, except per share data)
Interest income
Loans, including fees $   49,169   $   40,053 $   29,035 $   29,052   $   28,088  
Taxable investment securities   3,376     3,289   2,927   2,774     2,715  
Tax-exempt investment securities   1,401     1,424   1,406   1,375     1,395  
Other   130     185   20   23     12  
Total interest income   54,076     44,951   33,388   33,224     32,210  
Interest expense          
Deposits   8,238     7,743   5,695   5,161     4,625  
Short-term borrowings   522     500   457   374     321  
Long-term debt   2,058     1,876   1,260   1,136     1,153  
Total interest expense   10,818     10,119   7,412   6,671     6,099  
Net interest income   43,258     34,832   25,976   26,553     26,111  
Provision for loan losses   4,264     696   1,594   3,250     950  
Net interest income after provision for loan losses   38,994     34,136   24,382   23,303     25,161  
Noninterest income                          
Investment services and trust activities   2,339     1,890   1,390   1,274     1,222  
Service charges and fees   2,068     1,870   1,442   1,556     1,512  
Card revenue   1,655     1,799   998   1,095     1,069  
Loan revenue   991     648   393   884     891  
Bank-owned life insurance   514     470   392   381     399  
Insurance commissions       314   420   260     304  
Investment securities gains (losses), net   23     32   17   (4 )   192  
Other   414     1,773   358   350     456  
Total noninterest income   8,004     8,796   5,410   5,796     6,045  
Noninterest expense                  
Compensation and employee benefits   17,426     16,409   12,579   12,111     13,051  
Occupancy expense of premises, net   2,294     2,127   1,879   1,166     2,643  
Equipment   2,181     1,914   1,371   1,433     1,341  
Legal and professional   1,996     3,291   965   1,027     1,861  
Data processing   1,234     1,008   845   875     697  
Marketing   1,167     869   606   678     672  
Amortization of intangibles   2,583     930   452   503     547  
FDIC insurance   (42 )   434   370   429     393  
Communications   489     377   342   342     341  
Foreclosed assets, net   265     84   58   46     (131 )
Other   1,849     1,597   1,150   1,169     1,207  
Total noninterest expense   31,442     29,040   20,617   19,779     22,622  
Income before income tax expense   15,556     13,892   9,175   9,320     8,584  
Income tax expense   3,256     3,218   1,890   1,696     1,806  
Net income $ 12,300   $ 10,674 $ 7,285 $ 7,624   $ 6,778  
Earnings per common share          
Basic $   0.76   $   0.72 $   0.60 $   0.62   $   0.55  
Diluted $   0.76   $   0.72 $   0.60 $   0.62   $   0.55  
Weighted average basic common shares outstanding   16,201     14,894   12,164   12,217     12,221  
Weighted average diluted common shares outstanding   16,215     14,900   12,177   12,235     12,240  
Dividends paid per common share $   0.2025   $   0.2025 $   0.2025 $   0.195   $   0.195  
(1) Reclassified to conform to the current period’s presentation. 


MIDWEST ONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
AVERAGE BALANCE SHEET AND YIELD ANALYSIS
                   
   Three Months Ended
  September 30, 2019 June 30, 2019 September 30, 2018
  Average
Balance
Interest Income/
Expense
Average Yield/
Cost
Average
Balance
Interest Income/
Expense
Average Yield/
Cost
Average
Balance (7)
Interest Income/
Expense (7)
Average Yield/
Cost
  (Dollars in thousands)
ASSETS                  
Loans, including fees (1)(2) $ 3,526,149 $ 49,712 5.59 % $ 3,183,138 $ 40,495 5.10 % $ 2,375,100 $ 28,358 4.74 %
Taxable investment securities   471,180   3,376 2.84 %   458,438   3,289 2.88 %   409,816   2,715 2.63 %
Tax-exempt investment securities (3)   200,533   1,765 3.49 %   203,179   1,794 3.54 %   200,577   1,760 3.48 %
Total securities held for investment   671,713   5,141 3.04 %   661,617   5,083 3.08 %   610,393   4,475 2.91 %
Other   17,609   130 2.93 %   36,031   185 2.06 %   2,541   12 1.87 %
Total interest earning assets $ 4,215,471   54,983 5.17 % $ 3,880,786   45,763 4.73 % $ 2,988,034   32,845 4.36 %
Other assets   405,060       349,661       270,249    
Total assets $ 4,620,531     $ 4,230,447     $ 3,258,283    
LIABILITIES AND SHAREHOLDERS’ EQUITY                  
Interest checking deposits $ 877,470 $ 1,398 0.63 % $ 731,973 $ 1,021 0.56 % $ 672,502 $ 798 0.47 %
Money market deposits   809,264   1,904 0.93 %   880,973   2,491 1.13 %   539,142   824 0.61 %
Savings deposits   392,298   463 0.47 %   328,694   182 0.22 %   214,124   63 0.12 %
Time deposits   939,480   4,473 1.89 %   874,619   4,049 1.86 %   729,795   2,940 1.60 %
Total interest bearing deposits   3,018,512   8,238 1.08 %   2,816,259   7,743 1.10 %   2,155,563   4,625 0.85 %
Short-term borrowings   139,458   522 1.49 %   123,586   500 1.62 %   99,254   321 1.28 %
Long-term debt   249,226   2,058 3.28 %   229,152   1,876 3.28 %   178,435   1,153 2.56 %
Total borrowed funds   388,684   2,580 2.63 %   352,738   2,376 2.70 %   277,689   1,474 2.11 %
Total interest bearing liabilities $ 3,407,196 $ 10,818 1.26 % $ 3,168,997 $ 10,119 1.28 % $ 2,433,252 $ 6,099 0.99 %
Noninterest bearing deposits   674,003       574,720       453,124    
Other liabilities   47,582       43,616       23,776    
Shareholders’ equity   491,750       443,114       348,131    
Total liabilities and shareholders’ equity                  
  $ 4,620,531     $ 4,230,447     $ 3,258,283    
Net interest income(4)   $ 44,165     $ 35,644     $ 26,746  
Net interest spread(4)     3.91 %     3.45 %     3.37 %
Net interest margin(4)     4.15 %     3.68 %     3.55 %
Total deposits(5) $ 3,692,515 $ 8,238 0.89 % $ 3,390,979 $ 7,743 0.92 % $ 2,608,687 $ 4,625 0.70 %
Funding sources(6) $ 4,081,199 $ 10,818 1.05 % $ 3,743,717 $ 10,119 1.08 % $ 2,886,376 $ 6,099 0.84 %
                   
(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 $(318) thousand, $(202) thousand, and $(186) thousand for the three months ended September 30, 2019, June 30, 2019, and September 30, 2018, respectively. Accretion of unearned purchase discounts was $7.2 million, $2.2 million, and $605 thousand for the three months ended September 30, 2019, June 30, 2019, and September 30, 2018, respectively.
(2) Includes tax-equivalent adjustments of $543 thousand, $442 thousand, and $270 thousand for the three months ended September 30, 2019, June 30, 2019, and September 30, 2018, respectively. The federal statutory tax rate utilized was 21%.
(3) Includes tax-equivalent adjustments of $364 thousand, $370 thousand, and $365 thousand for the three months ended September 30, 2019, June 30, 2019, and September 30, 2018, respectively. The federal statutory tax rate utilized was 21%.
(4) Tax equivalent.
(5) Total deposits is the sum of total interest-bearing deposits and noninterest-bearing 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 deposits. The cost of funding sources is calculated as annualized total interest expense divided by average funding sources.
(7) Reclassified to conform to the current period’s presentation.


  Nine Months Ended
  September 30, 2019 September 30, 2018
  Average Balance Interest Income/ Expense Average Yield/ Cost Average Balance(7) Interest Income/ Expense(7) Average Yield/ Cost
  (Dollars in thousands)
 ASSETS            
Loans, including fees (1)(2) $ 3,043,772 $ 119,519 5.25 % $ 2,339,357 $ 82,910 4.74 %
Taxable investment securities   448,407   9,592 2.86 %   434,537   8,253 2.54 %
Tax-exempt investment securities (3)   201,908   5,331 3.53 %   210,817   5,619 3.56 %
Total Investments   650,315   14,923 3.07 %   645,354   13,872 2.87 %
Other   18,951   335 2.36 %   3,078   39 1.69 %
Total interest-earning assets $ 3,713,038   134,777 4.85 % $ 2,987,789   96,821 4.33 %
Other assets   341,693       252,334    
Total assets $ 4,054,731     $ 3,240,123    
LIABILITIES AND SHAREHOLDERS’ EQUITY          
Interest checking deposits $ 766,343   3,329 0.58 % $ 669,070   2,008 0.40 %
Money market deposits   760,115   5,729 1.01 %   538,723   1,990 0.49 %
Savings deposits   309,270   703 0.30 %   215,638   189 0.12 %
Time deposits   847,077   11,915 1.88 %   722,645   7,983 1.48 %
Total interest bearing deposits   2,682,805   21,676 1.08 %   2,146,076   12,170 0.76 %
Short-term borrowings   124,433   1,479 1.59 %   105,223   941 1.20 %
Long-term debt   219,553   5,194 3.16 %   169,038   3,059 2.42 %
Total borrowed funds   343,986   6,673 2.59 %   274,261   4,000 1.95 %
Total interest bearing liabilities $ 3,026,791   28,349 1.25 % $ 2,420,337   16,170 0.89 %
Noninterest bearing deposits   557,708       455,521    
Other liabilities   38,325       20,440    
Shareholders’ equity   431,907       343,825    
Total liabilities and shareholders’ equity $ 4,054,731     $ 3,240,123    
Net interest income(4)   $ 106,428     $ 80,651  
Net interest spread(4)     3.60 %     3.44 %
Net interest margin(4)     3.83 %     3.61 %
Total deposits(5) $ 3,240,513 $ 21,676 0.89 % $ 2,601,597 $ 12,170 0.63 %
Funding sources(6) $ 3,584,499 $ 28,349 1.06 % $ 2,875,858 $ 16,170 0.75 %
             
(1)  Non-accrual loans have been included in average loans, net of unearned income. Amortized net deferred loans and net unearned discounts on acquired loans were included in the interest income calculations. The amortization of net deferred loan fees was $(670) thousand and $(526) thousand for the nine months ended September 30, 2019 and September 30, 2018, respectively. Accretion of unearned purchase discounts was $10.0 million and $2.3 million for the nine months ended September 30, 2019 and September 30, 2018, respectively.
(2)  Includes tax-equivalent adjustments of $1,262 thousand and $769 thousand for the nine months ended September 30, 2019 and September 30, 2018, respectively. The federal statutory tax rate utilized was 21%.
(3)  Includes tax-equivalent adjustments of $1,100 thousand and $1,167 thousand for the nine months ended September 30, 2019 and September 30, 2018, respectively. The federal statutory tax rate utilized was 21%.
(4)  Tax equivalent.
(5)  Total deposits is the sum of total interest-bearing deposits and noninterest-bearing demand deposits. The cost of total deposits is calculated as annualized interest expense on deposits divided by average total deposits.
(6)  Funding sources is the sum of total interest-bearing liabilities and noninterest-bearing demand deposits. The cost of funding sources is calculated as annualized total interest expense divided by average funding sources.
(7)  Reclassified to conform to the current period’s presentation

Non-GAAP Measures

This earnings release contains non-GAAP measures for tangible book value per share, tangible equity to tangible assets ratio, return on average tangible equity, net interest margin (tax equivalent), loan yield (tax equivalent) and the efficiency ratio. Management believes these measures provide investors with useful information regarding the Company’s profitability, financial condition and capital adequacy, consistent with how management evaluates the Company’s financial performance. The following tables provide a reconciliation of each non-GAAP measure to the most comparable GAAP measure.


Tangible Book Value Per Share/ September 30, June 30, March 31, December 31, September 30,
Tangible Common Equity Ratio   2019     2019     2019     2018     2018  
                               
   
  (Dollars in thousands, except per share data)
Total shareholders’ equity $ 497,885   $ 488,351   $ 363,849   $ 357,067   $ 349,189  
Intangible assets, net   (126,893 )   (130,000 )   (74,077 )   (74,529 )   (75,032 )
Tangible equity $ 370,992   $ 358,351   $ 289,772   $ 282,538   $ 274,157  
           
Total assets $ 4,648,287   $ 4,662,463   $ 3,308,975   $ 3,291,480   $ 3,267,965  
Intangible assets, net   (126,893 )   (130,000 )   (74,077 )   (74,529 )   (75,032 )
Tangible assets $ 4,521,394   $ 4,532,463   $ 3,234,898   $ 3,216,951   $ 3,192,933  
           
Book value per share $ 30.77   $ 30.11   $ 29.94   $ 29.32   $ 28.57  
Tangible book value per share(1) $ 22.93   $ 22.09   $ 23.84   $ 23.20   $ 22.43  
Shares outstanding   16,179,734     16,221,160     12,153,045     12,180,015     12,221  
           
Equity to assets ratio   10.71 %   10.47 %   11.00 %   10.85 %   10.69 %
Tangible common equity ratio(2)   8.21 %   7.91 %   8.96 %   8.78 %   8.59 %
(1) Tangible equity divided by shares outstanding.
(2) Tangible equity divided by tangible assets.
           
  For the Three Months Ended For the Nine Months Ended
  September 30, June 30, September 30, September 30, September 30,
Return on Average Tangible Equity   2019     2019     2018     2019     2018  
   
  (Dollars in thousands)
Net income $ 12,300   $ 10,674   $ 6,778   $ 30,259   $ 22,727  
Intangible amortization, net of tax(1)   1,937     698     410     2,974     1,345  
Tangible net income $ 14,237   $ 11,372   $ 7,188   $ 33,233   $ 24,072  
           
Average shareholders’ equity $ 491,750   $ 443,114   $ 348,131   $ 431,907   $ 343,825  
Average intangible assets, net   (128,963 )   (102,919 )   (75,292 )   (102,224 )   (75,799 )
Average tangible equity $ 362,787   $ 340,195   $ 272,839   $ 329,683   $ 268,026  
           
Return on average equity   9.92 %   9.66 %   7.72 %   9.37 %   8.84 %
Return on average tangible equity(2)   15.57 %   13.30 %   10.42 %   13.48 %   11.96 %
(1) The combined income tax rate utilized was 25%.
(2) Annualized tangible net income divided by average tangible equity.
           
  For the Three Months Ended For the Nine Months Ended
  September 30, June 30, September 30, September 30, September 30,
Net Interest Margin, Tax Equivalent   2019     2019     2018     2019     2018  
   
  (Dollars in thousands)
Net interest income $ 43,258   $ 34,832   $ 26,111   $ 104,066   $ 78,715  
Tax equivalent adjustments:          
Loans(1)   543     442     270     1,262     769  
Securities(1)   364     370     365     1,100     1,167  
Net interest income, tax equivalent $ 44,165   $ 35,644   $ 26,746   $ 106,428   $ 80,651  
Loan purchase discount accretion   (7,207 )   (2,246 )   (605 )   (10,040 )   (2,266 )
Core net interest income $ 36,958   $ 33,398   $ 26,141   $ 96,388   $ 78,385  
           
Net interest margin   4.07 %   3.60 %   3.47 %   3.75 %   3.54 %
Net interest margin, tax equivalent(2)   4.15 %   3.68 %   3.55 %   3.83 %   3.61 %
Core net interest margin(3)   3.48 %   3.45 %   3.47 %   3.47 %   3.53 %
Average interest earning assets $ 4,215,471   $ 3,880,786   $ 2,988,034   $ 3,713,038   $ 2,987,789  
(1) The federal statutory tax rate utilized was 21%.
(2) Annualized tax equivalent net interest income divided by average interest earning assets.
(3) Annualized core net interest income divided by average interest earning assets.
           
  For the Three Months Ended For the Nine Months Ended
  September 30, June 30, September 30, September 30, September 30,
Loan Yield, Tax Equivalent   2019     2019     2018     2019     2018  
  (Dollars in thousands)
Loan interest income, including fees $ 49,169   $ 40,053   $ 28,088   $ 118,257   $ 82,141  
Tax equivalent adjustment(1)   543     442     270     1,262     769  
Tax equivalent loan interest income  $ 49,712   40,495    28,358   $ 119,519   82,910  
Loan purchase discount accretion   (7,207 )   (2,246 )   (605 )   (10,040 )   (2,266 )
Core loan interest income $ 42,505   $ 38,249   $ 27,753   $ 109,479   $ 80,644  
Yield on loans   5.53 %   5.05 %   4.69 %   5.19 %   4.69 %
Yield on loans, tax equivalent(2)   5.59 %   5.10 %   4.74 %   5.25 %   4.74 %
Core yield on loans(3)   4.78 %   4.82 %   4.64 %   4.81 %   4.61 %
Average loans $ 3,526,149   $ 3,183,138   $ 2,375,100   $ 3,043,772   $ 2,339,357  
(1) The federal statutory tax rate utilized was 21%.
(2) Annualized tax equivalent loan interest income divided by average loans.
(3) Annualized core loan interest income divided by average loans.
           
  For the Three Months Ended For the Nine Months Ended
  September 30, June 30, September 30, September 30, September 30,
Efficiency Ratio   2019     2019     2018     2019     2018  
  (Dollars in thousands)
Total noninterest expense $ 31,442   $ 29,040   $ 22,622   $ 81,099   $ 63,436  
Amortization of intangibles   (2,583 )   (930 )   (547 )   (3,965 )   (1,793 )
Merger-related expenses   (2,547 )   (3,134 )   (604 )   (5,848 )   (607 )
Expenses $ 26,312   $ 24,976   $ 21,471   $ 71,286   $ 61,036  
           
Net interest income, tax equivalent(1) $ 44,165   $ 35,644   $ 26,746   $ 106,428   $ 80,651  
Noninterest income   8,004     8,796     6,045     22,210     17,419  
Investment securities gain, net   (23 )   (32 )   (192 )   (72 )   (197 )
Net revenues $ 52,146   $ 44,408   $ 32,599   $ 128,566   $ 97,873  
           
Efficiency ratio   50.46 %   56.24 %   65.86 %   55.45 %   62.36 %
(1) The federal statutory tax rate utilized was 21%.


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

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