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


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

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

FINANCIAL HIGHLIGHTS

 As of or For the Three Months Ended As of or For the Six Months Ended
 June 30, March 31, June 30, June 30, June 30,
 2019 2019 2018 2019 2018
          
 (Dollars in thousands, except per share amounts)
Net income$10,674  $7,285  $8,156  $17,959  $15,949 
Earnings per common share, diluted$0.72  $0.60  $0.67  $1.33  $1.30 
Return on average assets1.01% 0.89% 1.01% 0.96% 1.00%
Return on average equity9.66% 8.22% 9.55% 9.02% 9.41%
Return on average tangible equity (1)13.34% 10.85% 12.91% 12.21% 12.81%
          
Net interest margin (tax equivalent)(1)3.68% 3.56% 3.65% 3.63% 3.67%
Yield on average loans (tax equivalent)(1)5.10% 4.93% 4.76% 5.03% 4.74%
Cost of average total deposits0.92% 0.88% 0.62% 0.90% 0.59%
Efficiency ratio(1)63.30% 63.00% 60.76% 63.17% 60.62%
          
Total assets$4,662,463  $3,308,975  $3,276,277  $4,662,463  $3,276,277 
Loans held for investment, net of unearned income$3,536,503  $2,403,759  $2,364,035  $3,536,503  $2,364,035 
Total deposits$3,725,472  $2,684,827  $2,604,201  $3,725,472  $2,604,201 
          
Equity to assets ratio10.47% 11.00% 10.57% 10.47% 10.57%
Tangible common equity ratio(1)8.06% 8.97% 8.48% 8.06% 8.48%
Book value per share$30.11  $29.94  $28.33  $30.11  $28.33 
Tangible book value per share(1)$22.56  $23.89  $22.22  $22.56  $22.22 
Gross loans held for investment to deposit ratio95.81% 89.74% 90.78% 95.81% 90.78%
          
(1) Non-GAAP measure. See pages 14-15 for a detailed explanation.
 

Acquisition of ATBancorp

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

 May 1, 2019
 (in thousands)
Merger consideration(1) $148,435 
Identifiable net assets acquired, at fair value  
Assets acquired  
Cash and due from banks$71,820  
Debt securities available for sale99,353  
Loans(1)1,137,880  
Premises and equipment(1)19,213  
Core deposit intangible(1)28,230  
Bank-owned life insurance18,759  
Foreclosed assets(1)3,767  
Other assets(1)17,360  
Total assets acquired 1,396,382 
Liabilities assumed  
Deposits(1)1,079,094  
Short-term borrowings(1)60,761  
Long-term debt(1)111,201  
Other liabilities(1)25,613  
Total liabilities assumed 1,276,669 
Total identifiable net assets acquired, at fair value $119,713 
Goodwill $28,722 
(1) The initial accounting for the acquisition was incomplete at June 30, 2019 and the amount recognized was determined only provisionally.
 

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

INCOME STATEMENT HIGHLIGHTS

Net Interest Income

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

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

Noninterest Income

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

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

 Three Months Ended
 June 30, March 31, June 30,
Noninterest Income2019 2019 2018
      
 (In thousands)
Investment services and trust activities$1,890  $1,390  $1,218 
Service charges and fees1,870  1,442  1,518 
Card revenue1,799  998  1,093 
Loan revenue648  393  906 
Bank-owned life insurance470  392  397 
Insurance commissions314  420  319 
Investment securities gains (losses), net32  17  (4)
Other1,773  358  246 
Total noninterest income$8,796  $5,410  $5,693 
 

Noninterest Expense

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

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

 Three Months Ended
 June 30, March 31, June 30,
Noninterest Expense2019 2019 2018
      
 (In thousands)
Compensation and employee benefits$16,409  $12,579  $12,225 
Occupancy expense of premises, net2,127  1,879  1,882 
Equipment1,914  1,371  1,408 
Legal and professional3,291  965  959 
Data processing1,008  845  691 
Marketing869  606  690 
Amortization of intangibles930  452  589 
FDIC insurance434  370  392 
Communications377  342  341 
Foreclosed assets, net84  58  145 
Other1,597  1,150  1,264 
Total noninterest expense$29,040  $20,617  $20,586 
 

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

 Three Months Ended
 June 30, March 31, June 30,
Merger-related Expenses2019 2019 2018
      
 (In thousands)
Compensation and employee benefits$1,020  $10  $ 
Legal and professional1,826  126   
Data processing240  5   
Other48  26   
Total merger-related costs$3,134  $167  $ 
 

Income Taxes

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

BALANCE SHEET HIGHLIGHTS

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

Loans Held for Investment

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

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

 June 30, March 31, December 31, June 30,
Loans Held for Investment2019 2019 2018 2018
        
 (In thousands)
Commercial and industrial$866,023  $535,878  $533,188  $512,357 
Agricultural152,491  96,766  96,956  103,429 
Commercial real estate       
Construction and development273,149  187,906  217,617  206,269 
Farmland187,393  86,648  88,807  88,761 
Multifamily243,928  161,067  134,741  129,659 
Other1,114,039  843,817  826,163  819,205 
Total commercial real estate1,818,509  1,279,438  1,267,328  1,243,894 
Residential real estate       
One-to-four family first liens423,625  333,220  341,830  350,281 
One-to-four family junior liens176,685  121,793  120,049  117,138 
Total residential real estate600,310  455,013  461,879  467,419 
Consumer99,170  36,664  39,428  36,936 
Loans held for investment, net of unearned income$3,536,503  $2,403,759  $2,398,779  $2,364,035 
 

Provision and Allowance for Loan Losses

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

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

 Three Months Ended Six Months Ended
 June 30, March 31, June 30, June 30, June 30,
Allowance for Loan Losses Roll Forward2019 2019 2018 2019 2018
          
 (In thousands)
Beginning balance$29,652  $29,307  $29,671  $29,307  $28,059 
Charge-offs(2,187) (1,355) (291) (3,542) (767)
Recoveries530  106  170  636  408 
Net charge-offs(1,657) (1,249) (121) (2,906) (359)
Provision for loan losses696  1,594  1,250  2,290  3,100 
Ending balance$28,691  $29,652  $30,800  $28,691  $30,800 
 

Deposits

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

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

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

 June 30, March 31, December 31, June 30,
Deposit Composition2019 2019 2018 2018
        
 (In thousands)
Noninterest bearing demand deposits$647,078  $426,729  $439,133  $469,862 
Interest checking deposits762,530  696,760  683,894  654,094 
Money market deposits1,019,886  629,838  555,839  529,290 
Savings deposits356,328  200,998  210,416  216,866 
Total non-maturity deposits2,785,822  1,954,325  1,889,282  1,870,112 
Time deposits of $250,000 and under678,752  541,310  532,395  514,163 
Time deposits of $250,000 and over260,898  189,192  191,252  219,926 
Total time deposits939,650  730,502  723,647  734,089 
Total deposits$3,725,472  $2,684,827  $2,612,929  $2,604,201 
 

CREDIT QUALITY

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

   90+ Days Past Performing  
   Due & Still Troubled Debt  
Nonperforming LoansNonaccrual 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 accruing12,849  1,000  72  13,921 
Established through acquisition7,909  27    7,936 
Repayments (including interest applied to principal)(5,303) (18) (209) (5,530)
Loans returned to accrual status or no longer past due(1,021) (144)   (1,165)
Charge-offs(3,023)     (3,023)
Transfers to foreclosed assets(460)     (460)
Transfers to nonaccrual  (283) (554) (837)
Balance at June 30, 2019$30,875  $947  $4,593  $36,415 

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

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

 June 30, March 31, December 31, June 30,
Credit Quality Metrics2019 2019 2018 2018
        
 (dollars in thousands)
Nonaccrual loans held for investment$30,875  $21,274  $19,924  $13,067 
Performing troubled debt restructured loans held for investment4,593  5,161  5,284  8,362 
Accruing loans contractually past due 90 days or more947  208  365  151 
Total nonperforming loans36,415  26,643  25,573  21,580 
Foreclosed assets, net4,922  336  535  676 
Total nonperforming assets$41,337  $26,979  $26,108  $22,256 
Allowance for loan losses28,691  29,652  29,307  30,800 
Provision for loan losses (for the quarter)696  1,594  3,250  1,250 
Net charge-offs (for the quarter)1,657  1,249  5,221  121 
Net charge-offs to average loans held for investment (for the quarter)0.21% 0.21% 0.86% 0.02%
Allowance for loan losses to loans held for investment, net of unearned income0.81% 1.23% 1.22% 1.30%
Allowance for loan losses to nonaccrual loans held for investment, net of unearned income92.93% 139.38% 147.09% 235.71%
Nonaccrual loans held for investment to loans held for investment0.87% 0.89% 0.83% 0.56%

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

CORPORATE UPDATE

MidWestOne Insurance Services, Inc. Asset Sale

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

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

Share Repurchase Program

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

Cash Dividend Announcement

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

CONFERENCE CALL DETAILS

The Company will host a conference call for investors at 11:00 a.m., CDT, on Friday, July 26, 2019. To participate, please dial 866-233-3483 at least fifteen minutes before the call start time. If you are unable to participate on the call, a replay will be available until October 26, 2019, by calling 877-344-7529 and using the replay access code of 10126192. A transcript of the call will also be available on the company’s web site (www.midwestone.com) within three business days of the event.

ABOUT MIDWESTONE FINANCIAL GROUP, INC.

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

Cautionary Note Regarding Forward-Looking Statements

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

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


MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

 June 30, March 31, December 31,
 2019 2019 2018
 (In thousands)  
ASSETS     
Cash and due from banks$72,801  $40,002  $43,787 
Interest earning deposits in banks47,708  2,969  1,693 
Total cash and cash equivalents120,509  42,971  45,480 
Debt securities available for sale at fair value460,302  432,979  414,101 
Held to maturity securities at amortized cost193,173  195,033  195,822 
Total securities held for investment653,475  628,012  609,923 
Loans held for sale4,306  309  666 
Gross loans held for investment3,569,236  2,409,333  2,405,001 
Unearned income, net(32,733) (5,574) (6,222)
Loans held for investment, net of unearned income3,536,503  2,403,759  2,398,779 
Allowance for loan losses(28,691) (29,652) (29,307)
Total loans held for investment, net3,507,812  2,374,107  2,369,472 
Premises and equipment, net93,395  75,200  75,773 
Goodwill93,376  64,654  64,654 
Other intangible assets, net36,624  9,423  9,875 
Foreclosed assets, net4,922  336  535 
Other assets148,044  113,963  115,102 
Total assets$4,662,463  $3,308,975  $3,291,480 
LIABILITIES     
Noninterest bearing deposits$647,078  $426,729  $439,133 
Interest bearing deposits3,078,394  2,258,098  2,173,796 
Total deposits3,725,472  2,684,827  2,612,929 
Short-term borrowings153,829  76,066  131,422 
Long-term debt252,673  162,471  168,726 
Other liabilities42,138  21,762  21,336 
Total liabilities4,174,112  2,945,126  2,934,413 
SHAREHOLDERS' EQUITY     
Common stock16,581  12,463  12,463 
Additional paid-in capital296,879  187,535  187,813 
Retained earnings181,984  173,771  168,951 
Treasury stock(8,716) (7,297) (6,499)
Accumulated other comprehensive income (loss)1,623  (2,623) (5,661)
Total shareholders' equity488,351  363,849  357,067 
Total liabilities and shareholders' equity$4,662,463  $3,308,975  $3,291,480 

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


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

 Three Months Ended Six Months Ended
 June 30, March 31, June 30, June 30,
 2019 2019 2018 (1) 2019 2018 (1)
          
 (In thousands, except per share data)
Interest income         
Loans, including fees$40,053  $29,035  $27,486  $69,088  $54,053 
Taxable investment securities3,289  2,927  2,790  6,216  5,538 
Tax-exempt investment securities1,424  1,406  1,528  2,830  3,057 
Other185  20  18  205  27 
Total interest income44,951  33,388  31,822  78,339  62,675 
Interest expense         
Deposits7,743  5,695  4,009  13,438  7,545 
Short-term borrowings500  457  359  957  620 
Long-term debt1,876  1,260  1,024  3,136  1,906 
Total interest expense10,119  7,412  5,392  17,531  10,071 
Net interest income34,832  25,976  26,430  60,808  52,604 
Provision for loan losses696  1,594  1,250  2,290  3,100 
Net interest income after provision for loan losses34,136  24,382  25,180  58,518  49,504 
Noninterest income         
Investment services and trust activities1,890  1,390  1,218  3,280  2,457 
Service charges and fees1,870  1,442  1,518  3,312  3,089 
Card revenue1,799  998  1,093  2,797  2,059 
Loan revenue648  393  906  1,041  1,847 
Bank-owned life insurance470  392  397  862  830 
Insurance commissions314  420  319  734  720 
Investment securities gains (losses), net32  17  (4) 49  5 
Other1,773  358  246  2,131  367 
Total noninterest income8,796  5,410  5,693  14,206  11,374 
Noninterest expense         
Compensation and employee benefits16,409  12,579  12,225  28,988  24,596 
Occupancy expense of premises, net2,127  1,879  1,882  4,006  3,788 
Equipment1,914  1,371  1,408  3,285  2,791 
Legal and professional3,291  965  959  4,256  1,753 
Data processing1,008  845  691  1,853  1,379 
Marketing869  606  690  1,475  1,310 
Amortization of intangibles930  452  589  1,382  1,246 
FDIC insurance434  370  392  804  711 
Communications377  342  341  719  670 
Foreclosed assets, net84  58  145  142  106 
Other1,597  1,150  1,264  2,747  2,464 
Total noninterest expense29,040  20,617  20,586  49,657  40,814 
Income before income tax expense13,892  9,175  10,287  23,067  20,064 
Income tax expense3,218  1,890  2,131  5,108  4,115 
Net income$10,674  $7,285  $8,156  $17,959  $15,949 
Earnings per common share         
Basic$0.72  $0.60  $0.67  $1.33  $1.31 
Diluted$0.72  $0.60  $0.67  $1.33  $1.30 
Weighted average basic common shares outstanding14,894  12,164  12,218  13,537  12,220 
Weighted average diluted common shares outstanding14,900  12,177  12,230  13,545  12,235 
Dividends paid per common share$0.2025  $0.2025  $0.195  $0.405  $0.39 
(1) Reclassified to conform to the current period’s presentation.


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

 June 30, March 31, December 31, September 30, June 30,
 2019 2019 2018 2018 2018
          
 (In thousands)
ASSETS         
Cash and due from banks$72,801  $40,002  $43,787  $49,229  $41,547 
Interest earning deposits in banks47,708  2,969  1,693  4,150  1,717 
Total cash and cash equivalents120,509  42,971  45,480  53,379  43,264 
Debt securities available for sale at fair value460,302  432,979  414,101  407,766  438,312 
Held to maturity securities at amortized cost193,173  195,033  195,822  191,733  192,896 
Total securities held for investment653,475  628,012  609,923  599,499  631,208 
Loans held for sale4,306  309  666  1,124  1,528 
Gross loans held for investment3,569,236  2,409,333  2,405,001  2,384,459  2,371,406 
Unearned income, net(32,733) (5,574) (6,222) (6,810) (7,371)
Loans held for investment, net of unearned income3,536,503  2,403,759  2,398,779  2,377,649  2,364,035 
Allowance for loan losses(28,691) (29,652) (29,307) (31,278) (30,800)
Total loans held for investment, net3,507,812  2,374,107  2,369,472  2,346,371  2,333,235 
Premises and equipment, net93,395  75,200  75,773  76,497  78,106 
Goodwill93,376  64,654  64,654  64,654  64,654 
Other intangible assets, net36,624  9,423  9,875  10,378  10,925 
Foreclosed assets, net4,922  336  535  549  676 
Other assets148,044  113,963  115,102  115,514  112,681 
Total assets$4,662,463  $3,308,975  $3,291,480  $3,267,965  $3,276,277 
LIABILITIES         
Noninterest bearing deposits$647,078  $426,729  $439,133  $458,576  $469,862 
Interest bearing deposits3,078,394  2,258,098  2,173,796  2,173,683  2,134,339 
Total deposits3,725,472  2,684,827  2,612,929  2,632,259  2,604,201 
Short-term borrowings153,829  76,066  131,422  87,978  127,467 
Long-term debt252,673  162,471  168,726  176,979  178,083 
Other liabilities42,138  21,762  21,336  21,560  20,325 
Total liabilities4,174,112  2,945,126  2,934,413  2,918,776  2,930,076 
SHAREHOLDERS' EQUITY         
Common stock$16,581  $12,463  $12,463  $12,463  $12,463 
Additional paid-in capital296,879  187,535  187,813  187,581  187,304 
Retained earnings181,984  173,771  168,951  163,709  159,315 
Treasury stock(8,716) (7,297) (6,499) (5,474) (5,474)
Accumulated other comprehensive income (loss)1,623  (2,623) (5,661) (9,090) (7,407)
Total shareholders' equity488,351  363,849  357,067  349,189  346,201 
Total liabilities and shareholders' equity$4,662,463  $3,308,975  $3,291,480  $3,267,965  $3,276,277 

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


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

 Three Months Ended
 June 30, March 31, December 31, September 30, June 30,
 2019 2019 2018 (1) 2018 (1) 2018 (1)
          
 (In thousands, except per share data)
Interest income         
Loans, including fees$40,053  $29,035  $29,052  $28,088  $27,486 
Taxable investment securities3,289  2,927  2,774  2,715  2,790 
Tax-exempt investment securities1,424  1,406  1,375  1,395  1,528 
Other185  20  23  12  18 
Total interest income44,951  33,388  33,224  32,210  31,822 
Interest expense         
Deposits7,743  5,695  5,161  4,625  4,009 
Short-term borrowings500  457  374  321  359 
Long-term debt1,876  1,260  1,136  1,153  1,024 
Total interest expense10,119  7,412  6,671  6,099  5,392 
Net interest income34,832  25,976  26,553  26,111  26,430 
Provision for loan losses696  1,594  3,250  950  1,250 
Net interest income after provision for loan losses34,136  24,382  23,303  25,161  25,180 
Noninterest income         
Investment services and trust activities1,890  1,390  1,274  1,222  1,218 
Service charges and fees1,870  1,442  1,556  1,512  1,518 
Card revenue1,799  998  1,095  1,069  1,093 
Loan revenue648  393  884  891  906 
Bank-owned life insurance470  392  381  399  397 
Insurance commissions314  420  260  304  319 
Investment securities gains (losses), net32  17  (4) 192  (4)
Other1,773  358  350  456  246 
Total noninterest income8,796  5,410  5,796  6,045  5,693 
Noninterest expense         
Compensation and employee benefits16,409  12,579  12,111  13,051  12,225 
Occupancy expense of premises, net2,127  1,879  1,166  2,643  1,882 
Equipment1,914  1,371  1,433  1,341  1,408 
Legal and professional3,291  965  1,027  1,861  959 
Data processing1,008  845  875  697  691 
Marketing869  606  678  672  690 
Amortization of intangibles930  452  503  547  589 
FDIC insurance434  370  429  393  392 
Communications377  342  342  341  341 
Foreclosed assets, net84  58  46  (131) 145 
Other1,597  1,150  1,169  1,207  1,264 
Total noninterest expense29,040  20,617  19,779  22,622  20,586 
Income before income tax expense13,892  9,175  9,320  8,584  10,287 
Income tax expense3,218  1,890  1,696  1,806  2,131 
Net income$10,674  $7,285  $7,624  $6,778  $8,156 
Earnings per common share         
Basic$0.72  $0.60  $0.62  $0.55  $0.67 
Diluted$0.72  $0.60  $0.62  $0.55  $0.67 
Weighted average basic common shares outstanding14,894  12,164  12,217  12,221  12,218 
Weighted average diluted common shares outstanding14,900  12,177  12,235  12,240  12,230 
Dividends paid per common share$0.2025  $0.2025  $0.195  $0.195  $0.195 
(1) Reclassified to conform to the current period’s presentation.


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

 Three Months Ended
 June 30, 2019 March 31, 2019 June 30, 2018
 Average
Balance
 Interest
Income/
Expense
 Average
Yield/
Cost
 Average
Balance
 Interest
Income/
Expense
 Average
Yield/
Cost
 Average
Balance
 Interest
Income/
Expense
 Average
Yield/
Cost
                  
 (Dollars in thousands)
ASSETS                 
Loans, including fees (1)(2)$3,183,138  $40,495  5.10% $2,409,641  $29,308  4.93% $2,337,216  $27,744  4.76%
Taxable investment securities458,438  3,289  2.88% 414,986  2,927  2.86% 421,733  2,790  2.65%
Tax-exempt investment securities (3)203,179  1,794  3.54% 202,027  1,772  3.56% 215,461  1,929  3.59%
Total Investments661,617  5,083  3.08% 617,013  4,699  3.09% 637,194  4,719  2.97%
Other36,031  185  2.06% 3,053  20  2.66% 4,271  18  1.69%
Total interest earning assets$3,880,786  45,763  4.73% $3,029,707  34,027  4.55% $2,978,681  32,481  4.37%
Other assets349,661      271,390      267,621     
Total assets$4,230,447      $3,301,097      $3,246,302     
LIABILITIES AND SHAREHOLDERS’ EQUITY                 
Interest checking deposits$731,973  $1,021  0.56% $676,654  $910  0.55% $666,039  $618  0.37%
Money market deposits880,973  2,491  1.13% 599,695  1,334  0.90% 549,023  673  0.49%
Savings deposits328,694  182  0.22% 204,757  58  0.11% 216,580  63  0.12%
Time deposits874,619  4,049  1.86% 724,772  3,393  1.90% 721,293  2,655  1.48%
Total interest bearing deposits2,816,259  7,743  1.10% 2,205,878  5,695  1.05% 2,152,935  4,009  0.75%
Short-term borrowings123,586  500  1.62% 109,929  457  1.69% 109,752  359  1.30%
Long-term debt229,152  1,876  3.28% 179,515  1,260  2.85% 167,288  1,024  2.46%
Total borrowed funds352,738  2,376  2.70% 289,444  1,717  2.41% 277,040  1,383  2.00%
Total interest bearing liabilities$3,168,997  $10,119  1.28% $2,495,322  $7,412  1.20% $2,429,975  $5,392  0.89%
Noninterest bearing deposits574,720      421,753      454,659     
Other liabilities43,616      24,619      18,956     
Shareholders’ equity443,114      359,403      342,712     
Total liabilities and shareholders’ equity$4,230,447      $3,301,097      $3,246,302     
Net interest income(4)  $35,644      $26,615      $27,089   
Net interest spread(4)    3.45%     3.35%     3.48%
Net interest margin(4)    3.68%     3.56%     3.64%
Total deposits(5)$3,390,979  $7,743  0.92% $2,627,631  $5,695  0.88% $2,607,594  $4,009  0.62%
Funding sources(6)$3,743,717  $10,119  1.08% $2,917,075  $7,412  1.03% $2,884,634  $5,392  0.75%

(1)  Non-accrual loans have been included in average loans, net of unearned income. Amortized net deferred loans and net unearned discounts on acquired loans were included in the interest income calculations. The amortization of net deferred loans fees was $(128) thousand, $(150) thousand, and $(99) thousand for the three months ended June 30, 2019, March 31, 2019, and June 30, 2018, respectively. Accretion of unearned purchase discounts was $2.2 million, $586 thousand, and $783 thousand for the three months ended June 30, 2019, March 31, 2019, and June 30, 2018, respectively.

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

(3) Includes tax-equivalent adjustments of $370 thousand, $366 thousand, and $401 thousand for the three months ended June 30, 2019, March 31, 2019, and June 30, 2018, respectively.  The federal statutory tax rate utilized was 21%.

(4) Tax equivalent.

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

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


            
 Six Months Ended
 June 30, 2019 June 30, 2018
 Average
Balance
 Interest
Income/
Expense
 Average
Yield/
Cost
 Average
Balance
 Interest
Income/
Expense
 Average
Yield/
Cost
            
 (Dollars in thousands)
ASSETS           
Loans, including fees (1)(2)$2,798,526  $69,803  5.03% $2,321,189  $54,552  4.74%
Taxable investment securities436,832  6,216  2.87% 422,856  5,538  2.64%
Tax-exempt investment securities (3)202,606  3,566  3.55% 216,022  3,859  3.60%
Total Investments639,438  9,782  3.08% 638,878  9,397  2.97%
Other19,633  205  2.11% 3,351  27  1.62%
Total interest-earning assets$3,457,597  79,790  4.65% $2,963,418  63,976  4.35%
Other assets310,132      267,902     
Total assets$3,767,729      $3,231,320     
LIABILITIES AND SHAREHOLDERS’ EQUITY           
Interest checking deposits$698,654  1,931  0.56% $667,326  1,210  0.37%
Money market deposits746,339  3,825  1.03% 538,810  1,166  0.44%
Savings deposits267,068  240  0.18% 216,407  126  0.12%
Time deposits800,109  7,442  1.88% 719,811  5,043  1.41%
Total interest bearing deposits2,512,170  13,438  1.08% 2,142,354  7,545  0.71%
Short-term borrowings116,795  957  1.65% 108,257  620  1.14%
Long-term debt204,471  3,136  3.09% 164,262  1,906  2.35%
Total borrowed funds321,266  4,093  2.57% 272,519  2,526  1.87%
Total interest bearing liabilities$2,833,436  17,531  1.25% $2,414,873  10,071  0.84%
Noninterest bearing deposits498,733      455,825     
Other liabilities34,070      18,986     
Shareholders’ equity401,490      341,636     
Total liabilities and shareholders’ equity$3,767,729      $3,231,320     
Net interest income(4)  $62,259      $53,905   
Net interest spread(4)    3.40%     3.51%
Net interest margin(4)    3.63%     3.66%
Total deposits(5)$3,010,903  $13,438  0.90% $2,598,179  $7,545  0.59%
Funding sources(6)$3,332,169  $17,531  1.06% $2,870,698  $10,071  0.71%

(1)  Non-accrual loans have been included in average loans, net of unearned income. Amortized net deferred loans and net unearned discounts on acquired loans were included in the interest income calculations. The amortization of net deferred loans fees was $(278) thousand and $(212) thousand for the six months ended June 30, 2019 and June 30, 2018, respectively. Accretion of unearned purchase discounts was $2.8 million and $1.7 million for the six months ended June 30, 2019 and June 30, 2018, respectively.

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

(3) Includes tax-equivalent adjustments of $736 thousand and $802 thousand for the six months ended June 30, 2019 and June 30, 2018, respectively.  The federal statutory tax rate utilized was 21%.

(4) Tax equivalent.

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

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


Non-GAAP Measures

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

 As of As of As of As of As of
 June 30, March 31, December 31, September 30, June 30,
(unaudited, dollars in thousands, except per share data)2019 2019 2018 2018 2018
Tangible Equity         
Total shareholders’ equity$488,351  $363,849  $357,067  $349,189  $346,201 
Adjustments to tangible equity         
Plus: Deferred tax liability associated with intangibles7,676  546  660  786  924 
Less: Intangible assets, net(130,000) (74,077) (74,529) (75,032) (75,579)
          
Tangible equity$366,027  $290,318  $283,198  $274,943  $271,546 
Tangible Assets         
Total assets$4,662,463  $3,308,975  $3,291,480  $3,267,965  $3,276,277 
Plus: Deferred tax liability associated with intangibles7,676  546  660  786  924 
Less: Intangible assets, net(130,000) (74,077) (74,529) (75,032) (75,579)
Tangible assets$4,540,139  $3,235,444  $3,217,611  $3,193,719  $3,201,622 
Common shares outstanding16,221,160  12,153,045  12,180,015  12,221,107  12,221,107 
Tangible Book Value Per Share$22.56  $23.89  $23.25  $22.50  $22.22 
Tangible Equity/Tangible Assets8.06% 8.97% 8.80% 8.61% 8.48%


 For the Three Months Ended For the Six Months Ended
(unaudited, dollars in thousands)June 30, 2019 March 31, 2019 June 30, 2018 June 30, 2019 June 30, 2018
Net Income$10,674  $7,285  $8,156  $17,959  $15,949 
Plus: Intangible amortization, net of tax(1)735  357  465  1,092  984 
Adjusted net income$11,409  $7,642  $8,621  $19,051  $16,933 
Average Tangible Equity         
Average total shareholders’ equity$443,114  $359,403  $342,712  $401,490  $341,636 
Plus: Average deferred tax liability associated with intangibles2,877  601  996  1,745  1,074 
Less: Average intangible assets, net of amortization(102,919) (74,293) (75,780) (88,633) (76,065)
Average tangible equity$343,072  $285,711  $267,928  $314,602  $266,645 
Return on Average Tangible Equity (annualized)13.34% 10.85% 12.91% 12.21% 12.81%


Net Interest Margin Tax Equivalent Adjustment         
Net interest income$34,832  $25,976  $26,430  $60,808  $52,604 
Plus tax equivalent adjustment:(1)         
Loans442  273  258  715  499 
Securities370  366  401  736  802 
Tax equivalent net interest income (1)$35,644  $26,615  $27,089  $62,259  $53,905 
Average interest earning assets$3,880,786  $3,029,707  $2,978,681  $3,457,597  $2,963,418 
Net Interest Margin3.68% 3.56% 3.65% 3.63% 3.67%
(1) Computed on a tax-equivalent basis, assuming a federal income tax rate of 21%.    


 For the Three Months Ended For the Six Months Ended
(dollars in thousands)June 30, 2019 March 31, 2019 June 30, 2018 June 30, 2019 June 30, 2018
          
Yield on Average Loans         
Interest income on loans, including fees$40,053  $29,035  $27,486  $69,088  $54,053 
Plus tax equivalent adjustment:(1)         
Loans442  273  258  715  499 
Tax equivalent loan interest income (1)$40,495  $29,308  $27,744  $69,803  $54,552 
Average loans$3,183,138  $2,409,641  $2,337,216  $2,798,526  $2,321,189 
Average Yield on Loans5.10% 4.93% 4.76% 5.03% 4.74%


Operating Expense         
Total noninterest expense$29,040  $20,617  $20,586  $49,657  $40,814 
Less: Amortization of intangibles(930) (452) (589) (1,382) (1,246)
Operating expense$28,110  $20,165  $19,997  $48,275  $39,568 
Operating Revenue         
Tax equivalent net interest income (2)$35,644  $26,615  $27,089  $62,259  $53,905 
Plus: Noninterest income8,796  5,410  5,693  14,206  11,374 
Impairment losses on investment securities         
Less: (Gain) loss on sale or call of debt securities(32) (17) 4  (49) (5)
Operating revenue$44,408  $32,008  $32,786  $76,416  $65,274 
Efficiency Ratio63.30% 63.00% 60.99% 63.17% 60.62%
(1) Computed assuming a combined marginal income tax rate of 25% on deductible items.
(2) Computed on a tax-equivalent basis, assuming a federal income tax rate of 21%.


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