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

| Source: MidWestOne Bank MidWestOne Bank

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 Income2019 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 Expense2019
 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 Investment2019 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 Forward2019
 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 LoansNonaccrualAccruing 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.

MIDWESTONE 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 20192018 (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. 


MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
AVERAGE BALANCE SHEET AND YIELD ANALYSIS
          
  Three Months Ended
 September 30, 2019June 30, 2019September 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$49,7125.59%$3,183,138$40,4955.10%$2,375,100$28,3584.74%
Taxable investment securities 471,180 3,3762.84% 458,438 3,2892.88% 409,816 2,7152.63%
Tax-exempt investment securities (3) 200,533 1,7653.49% 203,179 1,7943.54% 200,577 1,7603.48%
Total securities held for investment 671,713 5,1413.04% 661,617 5,0833.08% 610,393 4,4752.91%
Other 17,609 1302.93% 36,031 1852.06% 2,541 121.87%
Total interest earning assets$4,215,471 54,9835.17%$3,880,786 45,7634.73%$2,988,034 32,8454.36%
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$1,3980.63%$731,973$1,0210.56%$672,502$7980.47%
Money market deposits 809,264 1,9040.93% 880,973 2,4911.13% 539,142 8240.61%
Savings deposits 392,298 4630.47% 328,694 1820.22% 214,124 630.12%
Time deposits 939,480 4,4731.89% 874,619 4,0491.86% 729,795 2,9401.60%
Total interest bearing deposits 3,018,512 8,2381.08% 2,816,259 7,7431.10% 2,155,563 4,6250.85%
Short-term borrowings 139,458 5221.49% 123,586 5001.62% 99,254 3211.28%
Long-term debt 249,226 2,0583.28% 229,152 1,8763.28% 178,435 1,1532.56%
Total borrowed funds 388,684 2,5802.63% 352,738 2,3762.70% 277,689 1,4742.11%
Total interest bearing liabilities$3,407,196$10,8181.26%$3,168,997$10,1191.28%$2,433,252$6,0990.99%
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$8,2380.89%$3,390,979$7,7430.92%$2,608,687$4,6250.70%
Funding sources(6)$4,081,199$10,8181.05%$3,743,717$10,1191.08%$2,886,376$6,0990.84%
          
(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, 2019September 30, 2018
 Average BalanceInterest Income/ ExpenseAverage Yield/ CostAverage Balance(7)Interest Income/ Expense(7)Average Yield/ Cost
 (Dollars in thousands)
 ASSETS      
Loans, including fees (1)(2)$3,043,772$119,5195.25%$2,339,357$82,9104.74%
Taxable investment securities 448,407 9,5922.86% 434,537 8,2532.54%
Tax-exempt investment securities (3) 201,908 5,3313.53% 210,817 5,6193.56%
Total Investments 650,315 14,9233.07% 645,354 13,8722.87%
Other 18,951 3352.36% 3,078 391.69%
Total interest-earning assets$3,713,038 134,7774.85%$2,987,789 96,8214.33%
Other assets 341,693   252,334  
Total assets$4,054,731  $3,240,123  
LIABILITIES AND SHAREHOLDERS’ EQUITY     
Interest checking deposits$766,343 3,3290.58%$669,070 2,0080.40%
Money market deposits 760,115 5,7291.01% 538,723 1,9900.49%
Savings deposits 309,270 7030.30% 215,638 1890.12%
Time deposits 847,077 11,9151.88% 722,645 7,9831.48%
Total interest bearing deposits 2,682,805 21,6761.08% 2,146,076 12,1700.76%
Short-term borrowings 124,433 1,4791.59% 105,223 9411.20%
Long-term debt 219,553 5,1943.16% 169,038 3,0592.42%
Total borrowed funds 343,986 6,6732.59% 274,261 4,0001.95%
Total interest bearing liabilities$3,026,791 28,3491.25%$2,420,337 16,1700.89%
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$21,6760.89%$2,601,597$12,1700.63%
Funding sources(6)$3,584,499$28,3491.06%$2,875,858$16,1700.75%
       
(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 EndedFor 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 EndedFor 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 EndedFor 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 EndedFor 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. FunkBarry S. Ray
President and Chief Executive OfficerSenior Executive Vice President and Chief Financial Officer
319.356.5800319.356.5800