IOWA CITY, Iowa, Jan. 23, 2020 (GLOBE NEWSWIRE) -- MidWestOne Financial Group, Inc. (Nasdaq - MOFG) (“we”, “our”, or the "Company”) today reported net income for the fourth quarter of 2019 of $13.4 million, or $0.83 per diluted common share, compared to net income of $12.3 million, or $0.76 per diluted common share, for the third quarter of 2019 (the “linked quarter”). Net income for the full year 2019 was $43.6 million, or $2.93 per diluted common share, compared to net income for the full year 2018 of $30.4 million, or $2.48 per diluted common share. Pre-tax merger-related expenses were $3.3 million and $9.1 million for the fourth quarter and full year of 2019, respectively. Such expenses reduced diluted earnings per common share by $0.15 and $0.47 for the fourth quarter and full year of 2019, respectively.
Charles Funk, President and Chief Executive Officer, commented, “It was another very good quarter for MidWestOne and also the best full year earnings in our history. We continue to see the benefits of a relatively stable core net interest margin and good expense control. Our fourth quarter results produced a return on average assets of 1.14%, a return on average equity of 10.55%, and a return on average tangible equity of 15.60%.”
FINANCIAL HIGHLIGHTS
| As of or For the Three Months Ended | As of or For the Year Ended | ||||||||||||||||||
| December 31, | September 30, | December 31, | December 31, | December 31, | |||||||||||||||
| 2019 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||
| (Dollars in thousands, except per share amounts) | |||||||||||||||||||
| Net income | $ | 13,371 | $ | 12,300 | $ | 7,624 | $ | 43,630 | $ | 30,351 | |||||||||
| Earnings per common share, diluted | $ | 0.83 | $ | 0.76 | $ | 0.62 | $ | 2.93 | $ | 2.48 | |||||||||
| Return on average assets | 1.14 | % | 1.06 | % | 0.92 | % | 1.04 | % | 0.93 | % | |||||||||
| Return on average equity | 10.55 | % | 9.92 | % | 8.61 | % | 9.65 | % | 8.78 | % | |||||||||
| Return on average tangible equity (1) | 15.60 | % | 15.57 | % | 11.47 | % | 13.98 | % | 11.87 | % | |||||||||
| Net interest margin, tax equivalent(1) | 3.79 | % | 4.15 | % | 3.59 | % | 3.82 | % | 3.60 | % | |||||||||
| Yield on loans, tax equivalent(1) | 5.16 | % | 5.59 | % | 4.85 | % | 5.22 | % | 4.77 | % | |||||||||
| Cost of total deposits | 0.88 | % | 0.89 | % | 0.78 | % | 0.89 | % | 0.66 | % | |||||||||
| Efficiency ratio(1) | 63.05 | % | 50.46 | % | 57.81 | % | 57.56 | % | 61.23 | % | |||||||||
| Total assets | $ | 4,653,573 | $ | 4,648,287 | $ | 3,291,480 | $ | 4,653,573 | $ | 3,291,480 | |||||||||
| Loans held for investment, net of unearned income | $ | 3,451,266 | $ | 3,524,728 | $ | 2,398,779 | $ | 3,451,266 | $ | 2,398,779 | |||||||||
| Total deposits | $ | 3,728,655 | $ | 3,709,712 | $ | 2,612,929 | $ | 3,728,655 | $ | 2,612,929 | |||||||||
| Equity to assets ratio | 10.94 | % | 10.71 | % | 10.85 | % | 10.94 | % | 10.85 | % | |||||||||
| Tangible common equity ratio(1) | 8.48 | % | 8.21 | % | 8.78 | % | 8.48 | % | 8.78 | % | |||||||||
| Book value per share | $ | 31.49 | $ | 30.77 | $ | 29.32 | $ | 31.49 | $ | 29.32 | |||||||||
| Tangible book value per share(1) | $ | 23.77 | $ | 22.93 | $ | 23.20 | $ | 23.77 | $ | 23.20 | |||||||||
| Gross loans held for investment to deposit ratio | 93.04 | % | 95.59 | % | 91.80 | % | 93.04 | % | 91.80 | % | |||||||||
| (1) Non-GAAP measure. See pages 14-15 for a reconciliation to the most directly comparable GAAP measure. | |||||||||||||||||||
Acquisition of ATBancorp
Our results of operations for the fourth quarter and full year of 2019 and our financial condition at December 31, 2019 were significantly impacted by the May 1, 2019 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 | $ | 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 | 18,327 | |||||
| Core deposit intangible | 23,539 | |||||
| Customer relationship intangible | 4,285 | |||||
| Bank-owned life insurance | 18,759 | |||||
| Foreclosed assets | 3,091 | |||||
| Other assets | 22,857 | |||||
| Total assets acquired | 1,400,662 | |||||
| Liabilities assumed | ||||||
| Deposits | 1,079,094 | |||||
| Short-term borrowings | 100,761 | |||||
| Long-term debt | 71,234 | |||||
| Other liabilities | 29,544 | |||||
| Total liabilities assumed | 1,280,633 | |||||
| Total identifiable net assets acquired, at fair value | $ | 120,029 | ||||
| Goodwill | $ | 28,414 | ||||
INCOME STATEMENT HIGHLIGHTS
Net Interest Income
Net interest income decreased in the fourth quarter of 2019 to $39.6 million from $43.3 million in the linked quarter due primarily to lower loan purchase discount accretion in the current period. Discount accretion from acquired loans added $3.9 million to net interest income in the fourth quarter compared to $7.2 million in the linked quarter. Average earning assets were up slightly and reflected a mix shift between investment securities and loans.
The tax equivalent net interest margin decreased to 3.79% for the fourth quarter of 2019 from 4.15% in the linked quarter as lower loan yields, driven by lower loan purchase discount accretion, were only partially offset by lower funding costs. The Company's core net interest margin, which excludes loan purchase discount accretion, compressed 6 basis points ("bps") from the linked quarter. Such compression reflected the negative impact to the Company's variable rate asset yields from the three cuts to the federal funds target rate in the latter half of 2019 coupled with the continued challenges posed by the shape of the yield curve. In addition, interest reversals related to nonaccrual loans accounted for 2 bps of the sequential decline in earning asset yields. Partially offsetting those factors was a 5 bps sequential decline in funding costs.
Mr. Funk continued, “Our 'core margin' this quarter was impacted by market rates, nonaccrual loan interest reversals and a shift in mix of loans and investment securities. We continue to be diligent in managing our funding costs consistent with changes in market rates to maintain our margin.”
Noninterest Income
Noninterest income for the fourth quarter of 2019 increased $1.0 million, or 13%, from the linked quarter. The increase was due primarily to increases in the 'Loan revenue' and ‘Other’ income line items. ‘Loan revenue’ in the linked quarter included a $657 thousand negative valuation adjustment to the Company’s mortgage servicing right whereas the fourth quarter adjustment was a favorable $272 thousand, a $929 thousand period-to-period change. The 'Other' line item reflected increased income from our commercial loan swap program. Partially offsetting these increases, ‘Card revenue’ declined $513 thousand due primarily to the recognition of rewards costs related to our credit card program.
“Both our trust and investment services groups recorded their best years ever in 2019 which was reflected in our financial results. Our mortgage group also finished the year strong and, finally, we were pleased by the success of our commercial bankers in selling our loan swap products,” said Mr. Funk.
The following table presents details of noninterest income for the periods indicated:
| Three Months Ended | |||||||||||
| December 31, | September 30, | December 31, | |||||||||
| Noninterest Income | 2019 | 2019 | 2018 | ||||||||
| (In thousands) | |||||||||||
| Investment services and trust activities | $ | 2,421 | $ | 2,339 | $ | 1,274 | |||||
| Service charges and fees | 2,072 | 2,068 | 1,556 | ||||||||
| Card revenue | 1,142 | 1,655 | 1,095 | ||||||||
| Loan revenue | 1,757 | 991 | 884 | ||||||||
| Bank-owned life insurance | 501 | 514 | 381 | ||||||||
| Insurance commissions | — | — | 260 | ||||||||
| Investment securities gains (losses), net | 18 | 23 | (4 | ) | |||||||
| Other | 1,125 | 414 | 350 | ||||||||
| Total noninterest income | $ | 9,036 | $ | 8,004 | $ | 5,796 | |||||
Noninterest Expense
Noninterest expense for the fourth quarter of 2019 increased $5.0 million, or 16%, from the linked quarter due primarily to accounting for certain flow-through tax credit partnerships. Specifically, 'Other' noninterest expense in the fourth quarter reflected a write-down of approximately $3.9 million to the Company's investment in such partnerships. This write-down was wholly offset, however, by a benefit in income tax expense.
The following table presents details of noninterest expense for the periods indicated:
| Three Months Ended | |||||||||||
| December 31, | September 30, | December 31, | |||||||||
| Noninterest Expense | 2019 | 2019 | 2018 | ||||||||
| (In thousands) | |||||||||||
| Compensation and employee benefits | $ | 19,246 | $ | 17,426 | $ | 12,111 | |||||
| Occupancy expense of premises, net | 2,347 | 2,294 | 1,166 | ||||||||
| Equipment | 2,251 | 2,181 | 1,433 | ||||||||
| Legal and professional | 1,797 | 1,996 | 1,027 | ||||||||
| Data processing | 1,492 | 1,234 | 875 | ||||||||
| Marketing | 1,147 | 1,167 | 678 | ||||||||
| Amortization of intangibles | 1,941 | 2,583 | 503 | ||||||||
| FDIC insurance | (72 | ) | (42 | ) | 429 | ||||||
| Communications | 493 | 489 | 342 | ||||||||
| Foreclosed assets, net | 173 | 265 | 46 | ||||||||
| Other | 5,621 | 1,849 | 1,169 | ||||||||
| Total noninterest expense | $ | 36,436 | $ | 31,442 | $ | 19,779 | |||||
The following table presents details of merger-related costs for the periods indicated:
| Three Months Ended | |||||||||||
| December 31, | September 30, | December 31, | |||||||||
| Merger-related Expenses | 2019 | 2019 | 2018 | ||||||||
| (In thousands) | |||||||||||
| Compensation and employee benefits | $ | 2,854 | $ | 1,576 | $ | — | |||||
| Occupancy expense of premises, net | 73 | 44 | — | ||||||||
| Equipment | 43 | 204 | 2 | ||||||||
| Legal and professional | 201 | 471 | 89 | ||||||||
| Data processing | 51 | 39 | 100 | ||||||||
| Marketing | 2 | 6 | — | ||||||||
| Other | 58 | 207 | 15 | ||||||||
| Total merger-related costs | $ | 3,282 | $ | 2,547 | $ | 206 | |||||
Income Taxes
The Company recognized a net income tax benefit of $1.8 million in the fourth quarter compared to an expense of $3.3 million in the linked quarter due primarily to the recognition of $4.0 million in renewable energy and historic tax credits in the fourth quarter. These credits reduced the Company's annual effective income tax rate for 2019 to 13.1%. Partially offsetting the earnings benefit from those tax credits was the aforementioned $3.9 million write-down of the related tax credit partnership investment during the fourth quarter.
BALANCE SHEET HIGHLIGHTS
Loans Held for Investment
Loans held for investment, net of unearned income, increased $1.05 billion, or 44%, to $3.45 billion from December 31, 2018, primarily due to the merger. Loans held for investment, net of unearned income, decreased $73.5 million, or 2%, from September 30, 2019. At December 31, 2019, commercial real estate loans comprised approximately 53% of the loan portfolio. Commercial and industrial loans was the next largest category at 24% of total loans, followed by residential real estate loans at 17%, agricultural loans at 4%, and consumer loans at 2% of total loans.
The following table presents the composition of loans held for investment, net of unearned income, as of the dates indicated:
| December 31, | September 30, | December 31, | ||||||
| Loans Held for Investment | 2019 | 2019 | 2018 | |||||
| (In thousands) | ||||||||
| Commercial and industrial | $ | 835,236 | $ | 871,192 | $ | 533,188 | ||
| Agricultural | 140,446 | 151,984 | 96,956 | |||||
| Commercial real estate | ||||||||
| Construction and development | 298,077 | 296,586 | 217,617 | |||||
| Farmland | 181,885 | 188,394 | 88,807 | |||||
| Multifamily | 227,407 | 236,145 | 134,741 | |||||
| Other | 1,107,490 | 1,102,744 | 826,163 | |||||
| Total commercial real estate | 1,814,859 | 1,823,869 | 1,267,328 | |||||
| Residential real estate | ||||||||
| One-to-four family first liens | 407,418 | 416,194 | 341,830 | |||||
| One-to-four family junior liens | 170,381 | 176,162 | 120,049 | |||||
| Total residential real estate | 577,799 | 592,356 | 461,879 | |||||
| Consumer | 82,926 | 85,327 | 39,428 | |||||
| Loans held for investment, net of unearned income | $ | 3,451,266 | $ | 3,524,728 | $ | 2,398,779 | ||
“Loan balances fell during the quarter due to several factors. We continued to experience higher than anticipated loan pay-offs. Further, weak loan demand, including line utilization, also contributed to lower loan volumes,” stated Mr. Funk.
Provision and Allowance for Loan Losses
The following table shows the activity in the allowance for loan losses for the periods indicated:
| Three Months Ended | Year Ended | ||||||||||||||||||
| December 31, | September 30, | December 31, | December 31, | December 31, | |||||||||||||||
| Allowance for Loan Losses Roll Forward | 2019 | 2019 | 2018 | 2019 | 2018 | ||||||||||||||
| (In thousands) | |||||||||||||||||||
| Beginning balance | $ | 31,532 | $ | 28,691 | $ | 31,278 | $ | 29,307 | $ | 28,059 | |||||||||
| Charge-offs | (3,212 | ) | (1,635 | ) | (5,456 | ) | (8,390 | ) | (7,040 | ) | |||||||||
| Recoveries | 155 | 212 | 235 | 1,004 | 988 | ||||||||||||||
| Net charge-offs | (3,057 | ) | (1,423 | ) | (5,221 | ) | (7,386 | ) | (6,052 | ) | |||||||||
| Provision for loan losses | 604 | 4,264 | 3,250 | 7,158 | 7,300 | ||||||||||||||
| Ending balance | $ | 29,079 | $ | 31,532 | $ | 29,307 | $ | 29,079 | $ | 29,307 | |||||||||
As of December 31, 2019, the allowance for loan losses was $29.1 million, or 0.84% of loans held for investment, net of unearned income, compared with $29.3 million, or 1.22%, at December 31, 2018. The decline in coverage ratio from year-end 2018 was due primarily to loans acquired in the ATBancorp acquisition. Those loans were measured at fair value upon acquisition and, as a result, initially there was no allowance for loan losses recognized for such loans.
Deposits
The following table presents the composition of our deposit portfolio as of the dates indicated:
| December 31, | September 30, | December 31, | ||||||
| Deposit Composition | 2019 | 2019 | 2018 | |||||
| (In thousands) | ||||||||
| Noninterest bearing deposits | $ | 662,209 | $ | 673,777 | $ | 439,133 | ||
| Interest checking deposits | 962,830 | 924,861 | 683,894 | |||||
| Money market deposits | 763,028 | 763,661 | 555,839 | |||||
| Savings deposits | 387,142 | 389,606 | 210,416 | |||||
| Total non-maturity deposits | 2,775,209 | 2,751,905 | 1,889,282 | |||||
| Time deposits of $250,000 and under | 682,232 | 685,409 | 532,395 | |||||
| Time deposits over $250,000 | 271,214 | 272,398 | 191,252 | |||||
| Total time deposits | 953,446 | 957,807 | 723,647 | |||||
| Total deposits | $ | 3,728,655 | $ | 3,709,712 | $ | 2,612,929 | ||
Mr. Funk noted, “Every region of legacy MidWestOne saw increased deposit balances in 2019 which resulted in one of the best deposit generation years ever for our company. In addition, deposit run-off in the former ATBancorp footprint slowed significantly during the fourth quarter.”
CREDIT QUALITY
The following table presents a roll forward of nonperforming loans for the period indicated:
| 90+ Days Past | Performing | ||||||||||||||
| Due & Still | 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 | 29,954 | 1,369 | 215 | 31,538 | |||||||||||
| Established through acquisition | 12,116 | — | — | 12,116 | |||||||||||
| Repayments (including interest applied to principal) | (9,993 | ) | (18 | ) | (573 | ) | (10,584 | ) | |||||||
| Loans returned to accrual status or no longer past due | (1,824 | ) | (962 | ) | — | (2,786 | ) | ||||||||
| Charge-offs | (6,924 | ) | — | — | (6,924 | ) | |||||||||
| Transfers to foreclosed assets | (1,770 | ) | — | — | (1,770 | ) | |||||||||
| Transfers to nonaccrual | — | (618 | ) | (554 | ) | (1,172 | ) | ||||||||
| Balance at December 31, 2019 | $ | 41,483 | $ | 136 | $ | 4,372 | $ | 45,991 | |||||||
The following table presents selected loan credit quality metrics as of the dates indicated:
| December 31, | September 30, | December 31, | |||||||||
| Credit Quality Metrics | 2019 | 2019 | 2018 | ||||||||
| (dollars in thousands) | |||||||||||
| Nonaccrual loans held for investment | $ | 41,483 | $ | 31,968 | $ | 19,924 | |||||
| Performing troubled debt restructured loans held for investment | 4,372 | 4,701 | 5,284 | ||||||||
| Accruing loans contractually past due 90 days or more | 136 | 236 | 365 | ||||||||
| Total nonperforming loans | 45,991 | 36,905 | 25,573 | ||||||||
| Foreclosed assets, net | 3,706 | 4,366 | 535 | ||||||||
| Total nonperforming assets | $ | 49,697 | $ | 41,271 | $ | 26,108 | |||||
| Allowance for loan losses | 29,079 | 31,532 | 29,307 | ||||||||
| Provision for loan losses (for the quarter) | 604 | 4,264 | 3,250 | ||||||||
| Net charge-offs (for the quarter) | 3,057 | 1,423 | 5,221 | ||||||||
| Net charge-offs to average loans held for investment (for the quarter) | 0.35 | % | 0.16 | % | 0.86 | % | |||||
| Allowance for loan losses to loans held for investment, net of unearned income | 0.84 | % | 0.89 | % | 1.22 | % | |||||
| Allowance for loan losses to nonaccrual loans held for investment, net of unearned income | 70.10 | % | 98.64 | % | 147.09 | % | |||||
| Nonaccrual loans held for investment to loans held for investment | 1.20 | % | 0.91 | % | 0.83 | % | |||||
“While nonaccrual loans increased by $9.5 million during the quarter, we believe these loans have been properly evaluated in our allowance for loan losses. Further, subsequent to year-end, $2.2 million of these loans were paid-off,” noted Mr. Funk.
CORPORATE UPDATE
Share Repurchase Program
During the fourth quarter of 2019, the Company repurchased 19,102 shares of its common stock at an average price of $29.65 per share and a total cost of $566 thousand. At December 31, 2019, $9.0 million remained available to repurchase shares under the Company’s current share repurchase program.
Cash Dividend Announcement
On January 22, 2020, the Company’s board of directors declared a quarterly cash dividend of $0.22 per common share. The dividend is payable March 16, 2020, to shareholders of record at the close of business on March 2, 2020. "The 9% increase in our dividend reflects good 2019 financial performance and our optimism for the future. We continue to be pleased with our tangible common equity ratio of 8.48%," Mr. Funk concluded.
Measurement of Credit Losses on Financial Instruments (CECL)
On January 1, 2020, new accounting and recognition guidance related to credit losses and impairment of certain financial assets became effective for the Company. Our latest estimate of the impact based on December 31, 2019 loan data and economic forecasts indicates that the allowance for credit losses for loans and off-balance sheet credit exposures will increase between 20% and 30%. The current estimate and future calculations are highly dependent on loan composition, macroeconomic conditions and forecasts, and other management assumptions and judgments.
CONFERENCE CALL DETAILS
The Company will host a conference call for investors at 11:00 a.m. CT on Friday, January 24, 2020. To participate, please dial 866-233-3483 at least fifteen minutes before the call start time. If you are unable to participate on the call, a replay will be available until April 24, 2020, by calling 877-344-7529 and using the replay access code of 10136587. A transcript of the call will also be available on the Company’s web site (www.midwestone.com) within three business days of the call.
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 Group, Inc. 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, 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; (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, financial technology (FinTech) companies, 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 | |||||||||||
| December 31, | September 30, | December 31, | |||||||||
| 2019 | 2019 | 2018 | |||||||||
| (In thousands) | |||||||||||
| ASSETS | |||||||||||
| Cash and due from banks | $ | 67,174 | $ | 79,776 | $ | 43,787 | |||||
| Interest earning deposits in banks | 6,112 | 6,413 | 1,693 | ||||||||
| Federal funds sold | 198 | 478 | — | ||||||||
| Total cash and cash equivalents | 73,484 | 86,667 | 45,480 | ||||||||
| Debt securities available for sale at fair value | 785,977 | 503,278 | 414,101 | ||||||||
| Held to maturity securities at amortized cost | — | 190,309 | 195,822 | ||||||||
| Total securities held for investment | 785,977 | 693,587 | 609,923 | ||||||||
| Loans held for sale | 5,400 | 7,906 | 666 | ||||||||
| Gross loans held for investment | 3,469,236 | 3,545,993 | 2,405,001 | ||||||||
| Unearned income, net | (17,970 | ) | (21,265 | ) | (6,222 | ) | |||||
| Loans held for investment, net of unearned income | 3,451,266 | 3,524,728 | 2,398,779 | ||||||||
| Allowance for loan losses | (29,079 | ) | (31,532 | ) | (29,307 | ) | |||||
| Total loans held for investment, net | 3,422,187 | 3,493,196 | 2,369,472 | ||||||||
| Premises and equipment, net | 90,723 | 91,190 | 75,773 | ||||||||
| Goodwill | 93,068 | 93,258 | 64,654 | ||||||||
| Other intangible assets, net | 31,693 | 33,635 | 9,875 | ||||||||
| Foreclosed assets, net | 3,706 | 4,366 | 535 | ||||||||
| Other assets | 147,335 | 144,482 | 115,102 | ||||||||
| Total assets | $ | 4,653,573 | $ | 4,648,287 | $ | 3,291,480 | |||||
| LIABILITIES | |||||||||||
| Noninterest bearing deposits | $ | 662,209 | $ | 673,777 | $ | 439,133 | |||||
| Interest bearing deposits | 3,066,446 | 3,035,935 | 2,173,796 | ||||||||
| Total deposits | 3,728,655 | 3,709,712 | 2,612,929 | ||||||||
| Short-term borrowings | 139,349 | 155,101 | 131,422 | ||||||||
| Long-term debt | 231,660 | 244,677 | 168,726 | ||||||||
| Other liabilities | 44,927 | 40,912 | 21,336 | ||||||||
| Total liabilities | 4,144,591 | 4,150,402 | 2,934,413 | ||||||||
| SHAREHOLDERS' EQUITY | |||||||||||
| Common stock | 16,581 | 16,581 | 12,463 | ||||||||
| Additional paid-in capital | 297,390 | 297,144 | 187,813 | ||||||||
| Retained earnings | 201,105 | 191,007 | 168,951 | ||||||||
| Treasury stock | (10,466 | ) | (9,933 | ) | (6,499 | ) | |||||
| Accumulated other comprehensive income (loss) | 4,372 | 3,086 | (5,661 | ) | |||||||
| Total shareholders' equity | 508,982 | 497,885 | 357,067 | ||||||||
| Total liabilities and shareholders' equity | $ | 4,653,573 | $ | 4,648,287 | $ | 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 | Year Ended | |||||||||||||||||
| December 31, | September 30, | December 31, | December 31, | |||||||||||||||
| 2019 | 2019 | 2018 (1) | 2019 | 2018 (1) | ||||||||||||||
| (In thousands, except per share data) | ||||||||||||||||||
| Interest income | ||||||||||||||||||
| Loans, including fees | $ | 44,906 | $ | 49,169 | $ | 29,052 | $ | 163,163 | $ | 111,193 | ||||||||
| Taxable investment securities | 3,540 | 3,376 | 2,774 | 13,132 | 11,027 | |||||||||||||
| Tax-exempt investment securities | 1,465 | 1,401 | 1,375 | 5,696 | 5,827 | |||||||||||||
| Other | 115 | 130 | 23 | 450 | 62 | |||||||||||||
| Total interest income | 50,026 | 54,076 | 33,224 | 182,441 | 128,109 | |||||||||||||
| Interest expense | ||||||||||||||||||
| Deposits | 8,251 | 8,238 | 5,161 | 29,927 | 17,331 | |||||||||||||
| Short-term borrowings | 368 | 522 | 374 | 1,847 | 1,315 | |||||||||||||
| Long-term debt | 1,823 | 2,058 | 1,136 | 7,017 | 4,195 | |||||||||||||
| Total interest expense | 10,442 | 10,818 | 6,671 | 38,791 | 22,841 | |||||||||||||
| Net interest income | 39,584 | 43,258 | 26,553 | 143,650 | 105,268 | |||||||||||||
| Provision for loan losses | 604 | 4,264 | 3,250 | 7,158 | 7,300 | |||||||||||||
| Net interest income after provision for loan losses | 38,980 | 38,994 | 23,303 | 136,492 | 97,968 | |||||||||||||
| Noninterest income | ||||||||||||||||||
| Investment services and trust activities | 2,421 | 2,339 | 1,274 | 8,040 | 4,953 | |||||||||||||
| Service charges and fees | 2,072 | 2,068 | 1,556 | 7,452 | 6,157 | |||||||||||||
| Card revenue | 1,142 | 1,655 | 1,095 | 5,594 | 4,223 | |||||||||||||
| Loan revenue | 1,757 | 991 | 884 | 3,789 | 3,622 | |||||||||||||
| Bank-owned life insurance | 501 | 514 | 381 | 1,877 | 1,610 | |||||||||||||
| Insurance commissions | — | — | 260 | 734 | 1,284 | |||||||||||||
| Investment securities gains (losses), net | 18 | 23 | (4 | ) | 90 | 193 | ||||||||||||
| Other | 1,125 | 414 | 350 | 3,670 | 1,173 | |||||||||||||
| Total noninterest income | 9,036 | 8,004 | 5,796 | 31,246 | 23,215 | |||||||||||||
| Noninterest expense | ||||||||||||||||||
| Compensation and employee benefits | 19,246 | 17,426 | 12,111 | 65,660 | 49,758 | |||||||||||||
| Occupancy expense of premises, net | 2,347 | 2,294 | 1,166 | 8,647 | 7,597 | |||||||||||||
| Equipment | 2,251 | 2,181 | 1,433 | 7,717 | 5,565 | |||||||||||||
| Legal and professional | 1,797 | 1,996 | 1,027 | 8,049 | 4,641 | |||||||||||||
| Data processing | 1,492 | 1,234 | 875 | 4,579 | 2,951 | |||||||||||||
| Marketing | 1,147 | 1,167 | 678 | 3,789 | 2,660 | |||||||||||||
| Amortization of intangibles | 1,941 | 2,583 | 503 | 5,906 | 2,296 | |||||||||||||
| FDIC insurance | (72 | ) | (42 | ) | 429 | 690 | 1,533 | |||||||||||
| Communications | 493 | 489 | 342 | 1,701 | 1,353 | |||||||||||||
| Foreclosed assets, net | 173 | 265 | 46 | 580 | 21 | |||||||||||||
| Other | 5,621 | 1,849 | 1,169 | 10,217 | 4,840 | |||||||||||||
| Total noninterest expense | 36,436 | 31,442 | 19,779 | 117,535 | 83,215 | |||||||||||||
| Income before income tax expense | 11,580 | 15,556 | 9,320 | 50,203 | 37,968 | |||||||||||||
| Income tax expense (benefit) | (1,791 | ) | 3,256 | 1,696 | 6,573 | 7,617 | ||||||||||||
| Net income | $ | 13,371 | $ | 12,300 | $ | 7,624 | $ | 43,630 | $ | 30,351 | ||||||||
| Earnings per common share | ||||||||||||||||||
| Basic | $ | 0.83 | $ | 0.76 | $ | 0.62 | $ | 2.93 | $ | 2.48 | ||||||||
| Diluted | $ | 0.83 | $ | 0.76 | $ | 0.62 | $ | 2.93 | $ | 2.48 | ||||||||
| Weighted average basic common shares outstanding | 16,162 | 16,201 | 12,217 | 14,870 | 12,220 | |||||||||||||
| Weighted average diluted common shares outstanding | 16,193 | 16,215 | 12,235 | 14,885 | 12,237 | |||||||||||||
| Dividends paid per common share | $ | 0.2025 | $ | 0.2025 | $ | 0.1950 | $ | 0.81 | $ | 0.78 | ||||||||
(1) Reclassified to conform to the current period’s presentation.
| MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES FIVE QUARTER CONSOLIDATED BALANCE SHEETS | |||||||||||||||||||
| December 31, | September 30, | June 30, | March 31, | December 31, | |||||||||||||||
| 2019 | 2019 | 2019 | 2019 | 2018 | |||||||||||||||
| (In thousands) | |||||||||||||||||||
| ASSETS | |||||||||||||||||||
| Cash and due from banks | $ | 67,174 | $ | 79,776 | $ | 72,801 | $ | 40,002 | $ | 43,787 | |||||||||
| Interest earning deposits in banks | 6,112 | 6,413 | 47,708 | 2,969 | 1,693 | ||||||||||||||
| Federal funds sold | 198 | 478 | — | — | — | ||||||||||||||
| Total cash and cash equivalents | 73,484 | 86,667 | 120,509 | 42,971 | 45,480 | ||||||||||||||
| Debt securities available for sale at fair value | 785,977 | 503,278 | 460,302 | 432,979 | 414,101 | ||||||||||||||
| Held to maturity securities at amortized cost | — | 190,309 | 193,173 | 195,033 | 195,822 | ||||||||||||||
| Total securities held for investment | 785,977 | 693,587 | 653,475 | 628,012 | 609,923 | ||||||||||||||
| Loans held for sale | 5,400 | 7,906 | 4,306 | 309 | 666 | ||||||||||||||
| Gross loans held for investment | 3,469,236 | 3,545,993 | 3,569,236 | 2,409,333 | 2,405,001 | ||||||||||||||
| Unearned income, net | (17,970 | ) | (21,265 | ) | (32,733 | ) | (5,574 | ) | (6,222 | ) | |||||||||
| Loans held for investment, net of unearned income | 3,451,266 | 3,524,728 | 3,536,503 | 2,403,759 | 2,398,779 | ||||||||||||||
| Allowance for loan losses | (29,079 | ) | (31,532 | ) | (28,691 | ) | (29,652 | ) | (29,307 | ) | |||||||||
| Total loans held for investment, net | 3,422,187 | 3,493,196 | 3,507,812 | 2,374,107 | 2,369,472 | ||||||||||||||
| Premises and equipment, net | 90,723 | 91,190 | 93,395 | 75,200 | 75,773 | ||||||||||||||
| Goodwill | 93,068 | 93,258 | 93,376 | 64,654 | 64,654 | ||||||||||||||
| Other intangible assets, net | 31,693 | 33,635 | 36,624 | 9,423 | 9,875 | ||||||||||||||
| Foreclosed assets, net | 3,706 | 4,366 | 4,922 | 336 | 535 | ||||||||||||||
| Other assets | 147,335 | 144,482 | 148,044 | 113,963 | 115,102 | ||||||||||||||
| Total assets | $ | 4,653,573 | $ | 4,648,287 | $ | 4,662,463 | $ | 3,308,975 | $ | 3,291,480 | |||||||||
| LIABILITIES | |||||||||||||||||||
| Noninterest bearing deposits | $ | 662,209 | $ | 673,777 | $ | 647,078 | $ | 426,729 | $ | 439,133 | |||||||||
| Interest bearing deposits | 3,066,446 | 3,035,935 | 3,078,394 | 2,258,098 | 2,173,796 | ||||||||||||||
| Total deposits | 3,728,655 | 3,709,712 | 3,725,472 | 2,684,827 | 2,612,929 | ||||||||||||||
| Short-term borrowings | 139,349 | 155,101 | 153,829 | 76,066 | 131,422 | ||||||||||||||
| Long-term debt | 231,660 | 244,677 | 252,673 | 162,471 | 168,726 | ||||||||||||||
| Other liabilities | 44,927 | 40,912 | 42,138 | 21,762 | 21,336 | ||||||||||||||
| Total liabilities | 4,144,591 | 4,150,402 | 4,174,112 | 2,945,126 | 2,934,413 | ||||||||||||||
| SHAREHOLDERS' EQUITY | |||||||||||||||||||
| Common stock | 16,581 | 16,581 | 16,581 | 12,463 | 12,463 | ||||||||||||||
| Additional paid-in capital | 297,390 | 297,144 | 296,879 | 187,535 | 187,813 | ||||||||||||||
| Retained earnings | 201,105 | 191,007 | 181,984 | 173,771 | 168,951 | ||||||||||||||
| Treasury stock | (10,466 | ) | (9,933 | ) | (8,716 | ) | (7,297 | ) | (6,499 | ) | |||||||||
| Accumulated other comprehensive income (loss) | 4,372 | 3,086 | 1,623 | (2,623 | ) | (5,661 | ) | ||||||||||||
| Total shareholders' equity | 508,982 | 497,885 | 488,351 | 363,849 | 357,067 | ||||||||||||||
| Total liabilities and shareholders' equity | $ | 4,653,573 | $ | 4,648,287 | $ | 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 FIVE QUARTER CONSOLIDATED STATEMENTS OF INCOME | |||||||||||||||||
| Three Months Ended | |||||||||||||||||
| December 31, | September 30, | June 30, | March 31, | December 31, | |||||||||||||
| 2019 | 2019 | 2019 | 2019 | 2018 (1) | |||||||||||||
| (In thousands, except per share data) | |||||||||||||||||
| Interest income | |||||||||||||||||
| Loans, including fees | $ | 44,906 | $ | 49,169 | $ | 40,053 | $ | 29,035 | $ | 29,052 | |||||||
| Taxable investment securities | 3,540 | 3,376 | 3,289 | 2,927 | 2,774 | ||||||||||||
| Tax-exempt investment securities | 1,465 | 1,401 | 1,424 | 1,406 | 1,375 | ||||||||||||
| Other | 115 | 130 | 185 | 20 | 23 | ||||||||||||
| Total interest income | 50,026 | 54,076 | 44,951 | 33,388 | 33,224 | ||||||||||||
| Interest expense | |||||||||||||||||
| Deposits | 8,251 | 8,238 | 7,743 | 5,695 | 5,161 | ||||||||||||
| Short-term borrowings | 368 | 522 | 500 | 457 | 374 | ||||||||||||
| Long-term debt | 1,823 | 2,058 | 1,876 | 1,260 | 1,136 | ||||||||||||
| Total interest expense | 10,442 | 10,818 | 10,119 | 7,412 | 6,671 | ||||||||||||
| Net interest income | 39,584 | 43,258 | 34,832 | 25,976 | 26,553 | ||||||||||||
| Provision for loan losses | 604 | 4,264 | 696 | 1,594 | 3,250 | ||||||||||||
| Net interest income after provision for loan losses | 38,980 | 38,994 | 34,136 | 24,382 | 23,303 | ||||||||||||
| Noninterest income | |||||||||||||||||
| Investment services and trust activities | 2,421 | 2,339 | 1,890 | 1,390 | 1,274 | ||||||||||||
| Service charges and fees | 2,072 | 2,068 | 1,870 | 1,442 | 1,556 | ||||||||||||
| Card revenue | 1,142 | 1,655 | 1,799 | 998 | 1,095 | ||||||||||||
| Loan revenue | 1,757 | 991 | 648 | 393 | 884 | ||||||||||||
| Bank-owned life insurance | 501 | 514 | 470 | 392 | 381 | ||||||||||||
| Insurance commissions | — | — | 314 | 420 | 260 | ||||||||||||
| Investment securities gains (losses), net | 18 | 23 | 32 | 17 | (4 | ) | |||||||||||
| Other | 1,125 | 414 | 1,773 | 358 | 350 | ||||||||||||
| Total noninterest income | 9,036 | 8,004 | 8,796 | 5,410 | 5,796 | ||||||||||||
| Noninterest expense | |||||||||||||||||
| Compensation and employee benefits | 19,246 | 17,426 | 16,409 | 12,579 | 12,111 | ||||||||||||
| Occupancy expense of premises, net | 2,347 | 2,294 | 2,127 | 1,879 | 1,166 | ||||||||||||
| Equipment | 2,251 | 2,181 | 1,914 | 1,371 | 1,433 | ||||||||||||
| Legal and professional | 1,797 | 1,996 | 3,291 | 965 | 1,027 | ||||||||||||
| Data processing | 1,492 | 1,234 | 1,008 | 845 | 875 | ||||||||||||
| Marketing | 1,147 | 1,167 | 869 | 606 | 678 | ||||||||||||
| Amortization of intangibles | 1,941 | 2,583 | 930 | 452 | 503 | ||||||||||||
| FDIC insurance | (72 | ) | (42 | ) | 434 | 370 | 429 | ||||||||||
| Communications | 493 | 489 | 377 | 342 | 342 | ||||||||||||
| Foreclosed assets, net | 173 | 265 | 84 | 58 | 46 | ||||||||||||
| Other | 5,621 | 1,849 | 1,597 | 1,150 | 1,169 | ||||||||||||
| Total noninterest expense | 36,436 | 31,442 | 29,040 | 20,617 | 19,779 | ||||||||||||
| Income before income tax expense | 11,580 | 15,556 | 13,892 | 9,175 | 9,320 | ||||||||||||
| Income tax expense (benefit) | (1,791 | ) | 3,256 | 3,218 | 1,890 | 1,696 | |||||||||||
| Net income | $ | 13,371 | $ | 12,300 | $ | 10,674 | $ | 7,285 | $ | 7,624 | |||||||
| Earnings per common share | |||||||||||||||||
| Basic | $ | 0.83 | $ | 0.76 | $ | 0.72 | $ | 0.60 | $ | 0.62 | |||||||
| Diluted | $ | 0.83 | $ | 0.76 | $ | 0.72 | $ | 0.60 | $ | 0.62 | |||||||
| Weighted average basic common shares outstanding | 16,162 | 16,201 | 14,894 | 12,164 | 12,217 | ||||||||||||
| Weighted average diluted common shares outstanding | 16,193 | 16,215 | 14,900 | 12,177 | 12,235 | ||||||||||||
| Dividends paid per common share | $ | 0.2025 | $ | 0.2025 | $ | 0.2025 | $ | 0.2025 | $ | 0.1950 | |||||||
(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 | ||||||||||||||||||||||||||
| December 31, 2019 | September 30, 2019 | December 31, 2018 | ||||||||||||||||||||||||
| Average Balance | Interest Income/ Expense | Average Yield/ Cost | Average Balance | Interest Income/ Expense | Average Yield/ Cost | Average Balance(6) | Interest Income/ Expense(6) | Average Yield/ Cost | ||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||
| ASSETS | ||||||||||||||||||||||||||
| Loans, including fees (1)(2)(3) | $ | 3,493,496 | $ | 45,429 | 5.16 | % | $ | 3,526,149 | $ | 49,712 | 5.59 | % | $ | 2,398,859 | $ | 29,330 | 4.85 | % | ||||||||
| Taxable investment securities | 508,911 | 3,540 | 2.76 | % | 471,180 | 3,376 | 2.84 | % | 407,506 | 2,774 | 2.74 | % | ||||||||||||||
| Tax-exempt investment securities (2)(4) | 211,695 | 1,846 | 3.46 | % | 200,533 | 1,765 | 3.49 | % | 198,073 | 1,732 | 3.47 | % | ||||||||||||||
| Total securities held for investment(2) | 720,606 | 5,386 | 2.97 | % | 671,713 | 5,141 | 3.04 | % | 605,579 | 4,506 | 2.98 | % | ||||||||||||||
| Other | 28,227 | 115 | 1.62 | % | 17,609 | 130 | 2.93 | % | 4,243 | 23 | 2.15 | % | ||||||||||||||
| Total interest earning assets(2) | $ | 4,242,329 | 50,930 | 4.76 | % | $ | 4,215,471 | 54,983 | 5.17 | % | $ | 3,008,681 | 33,859 | 44.70 | % | |||||||||||
| Other assets | 392,254 | 405,060 | 269,445 | |||||||||||||||||||||||
| Total assets | $ | 4,634,583 | $ | 4,620,531 | $ | 3,278,126 | ||||||||||||||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||||||||
| Interest checking deposits | $ | 926,155 | $ | 1,394 | 0.60 | % | $ | 877,470 | $ | 1,398 | 0.63 | % | $ | 680,971 | $ | 899 | 0.52 | % | ||||||||
| Money market deposits | 784,752 | 1,820 | 0.92 | % | 809,264 | 1,904 | 0.93 | % | 556,522 | 1,030 | 0.73 | % | ||||||||||||||
| Savings deposits | 388,338 | 389 | 0.40 | % | 392,298 | 463 | 0.47 | % | 210,106 | 65 | 0.12 | % | ||||||||||||||
| Time deposits | 953,804 | 4,648 | 1.93 | % | 939,480 | 4,473 | 1.89 | % | 724,973 | 3,167 | 1.73 | % | ||||||||||||||
| Total interest bearing deposits | 3,053,049 | 8,251 | 1.07 | % | 3,018,512 | 8,238 | 1.08 | % | 2,172,572 | 5,161 | 0.94 | % | ||||||||||||||
| Short-term borrowings | 126,508 | 368 | 1.15 | % | 139,458 | 522 | 1.49 | % | 104,710 | 374 | 1.41 | % | ||||||||||||||
| Long-term debt | 237,788 | 1,823 | 3.04 | % | 249,226 | 2,058 | 3.28 | % | 171,029 | 1,136 | 2.64 | % | ||||||||||||||
| Total borrowed funds | 364,296 | 2,191 | 2.39 | % | 388,684 | 2,580 | 2.63 | % | 275,739 | 1,510 | 2.17 | % | ||||||||||||||
| Total interest bearing liabilities | $ | 3,417,345 | $ | 10,442 | 1.21 | % | $ | 3,407,196 | $ | 10,818 | 1.26 | % | $ | 2,448,311 | $ | 6,671 | 1.08 | % | ||||||||
| Noninterest bearing deposits | 670,884 | 674,003 | 454,185 | |||||||||||||||||||||||
| Other liabilities | 43,343 | 47,582 | 24,232 | |||||||||||||||||||||||
| Shareholders’ equity | 503,011 | 491,750 | 351,398 | |||||||||||||||||||||||
| Total liabilities and shareholders’ equity | $ | 4,634,583 | $ | 4,620,531 | $ | 3,278,126 | ||||||||||||||||||||
| Net interest income(2) | $ | 40,488 | $ | 44,165 | $ | 27,188 | ||||||||||||||||||||
| Net interest spread(2) | 3.55 | % | 3.91 | % | 43.62 | % | ||||||||||||||||||||
| Net interest margin(2) | 3.79 | % | 4.15 | % | 3.59 | % | ||||||||||||||||||||
| Total deposits(5) | $ | 3,723,933 | $ | 8,251 | 0.88 | % | $ | 3,692,515 | $ | 8,238 | 0.89 | % | $ | 2,626,757 | $ | 5,161 | 0.78 | % | ||||||||
(1) Average balance includes nonaccrual loans.
(2) Tax equivalent.
(3) Interest income includes net loan fees, loan purchase discount accretion and tax equivalent adjustments. Net loan fees were $159 thousand, $(178) thousand, and $(67) thousand for the three months ended December 31, 2019, September 30, 2019, and December 31, 2018, respectively. Loan purchase discount accretion was $3.9 million, $7.2 million, and $454 thousand for the three months ended December 31, 2019, September 30, 2019, and December 31, 2018, respectively. Tax equivalent adjustments were $523 thousand, $543 thousand, and $278 thousand for the three months ended December 31, 2019, September 30, 2019, and December 31, 2018, respectively. The federal statutory tax rate utilized was 21%.
(4) Interest income includes tax equivalent adjustments of $381 thousand, $364 thousand, and $357 thousand for the three months ended December 31, 2019, September 30, 2019, and December 31, 2018, respectively. The federal statutory tax rate utilized was 21%.
(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) Reclassified to conform to the current period’s presentation.
| MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES AVERAGE BALANCE SHEET AND YIELD ANALYSIS | |||||||||||||||||||||
| Year Ended | |||||||||||||||||||||
| December 31, 2019 | December 31, 2018 | ||||||||||||||||||||
| Average Balance | Interest Income/ Expense | Average Yield/ Cost | Average Balance(6) | Interest Income/ Expense(6) | Average Yield/ Cost | ||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||
| ASSETS | |||||||||||||||||||||
| Loans, including fees(1)(2)(3) | $ | 3,157,127 | $ | 164,948 | 5.22 | % | $ | 2,354,354 | $ | 112,233 | 4.77 | % | |||||||||
| Taxable investment securities | 465,484 | 13,132 | 2.82 | % | 428,757 | 11,027 | 2.57 | % | |||||||||||||
| Tax-exempt investment securities(2)(4) | 204,375 | 7,177 | 3.51 | % | 207,605 | 7,342 | 3.54 | % | |||||||||||||
| Total securities held for investment (2) | 669,859 | 20,309 | 3.03 | % | 636,362 | 18,369 | 2.89 | % | |||||||||||||
| Other | 21,289 | 450 | 2.11 | % | 3,372 | 62 | 1.84 | % | |||||||||||||
| Total interest earning assets(2) | $ | 3,848,275 | 185,707 | 4.83 | % | $ | 2,994,088 | 130,664 | 4.36 | % | |||||||||||
| Other assets | 352,765 | 255,630 | |||||||||||||||||||
| Total assets | $ | 4,201,040 | $ | 3,249,718 | |||||||||||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||||||||||||
| Interest checking deposits | $ | 806,624 | 4,723 | 0.59 | % | $ | 672,069 | 2,907 | 0.43 | % | |||||||||||
| Money market deposits | 766,812 | 7,549 | 0.98 | % | 543,359 | 3,020 | 0.56 | % | |||||||||||||
| Savings deposits | 329,199 | 1,092 | 0.33 | % | 214,244 | 254 | 0.12 | % | |||||||||||||
| Time deposits | 873,978 | 16,563 | 1.90 | % | 723,830 | 11,150 | 1.54 | % | |||||||||||||
| Total interest bearing deposits | 2,776,613 | 29,927 | 1.08 | % | 2,153,502 | 17,331 | 0.80 | % | |||||||||||||
| Short-term borrowings | 124,956 | 1,847 | 1.48 | % | 105,094 | 1,302 | 1.24 | % | |||||||||||||
| Long-term debt | 224,149 | 7,017 | 3.13 | % | 169,540 | 4,208 | 2.48 | % | |||||||||||||
| Total borrowed funds | 349,105 | 8,864 | 2.54 | % | 274,634 | 5,510 | 2.01 | % | |||||||||||||
| Total interest bearing liabilities | $ | 3,125,718 | 38,791 | 1.24 | % | $ | 2,428,136 | 22,841 | 0.94 | % | |||||||||||
| Noninterest bearing deposits | 586,100 | 455,223 | |||||||||||||||||||
| Other liabilities | 37,204 | 20,625 | |||||||||||||||||||
| Shareholders’ equity | 452,018 | 345,734 | |||||||||||||||||||
| Total liabilities and shareholders’ equity | $ | 4,201,040 | $ | 3,249,718 | |||||||||||||||||
| Net interest income(2) | $ | 146,916 | $ | 107,823 | |||||||||||||||||
| Net interest spread(2) | 3.59 | % | 3.42 | % | |||||||||||||||||
| Net interest margin(2) | 3.82 | % | 3.60 | % | |||||||||||||||||
| Total deposits(5) | $ | 3,362,713 | $ | 29,927 | 0.89 | % | $ | 2,608,725 | $ | 17,331 | 0.66 | % | |||||||||
(1) Average balance includes nonaccrual loans.
(2) Tax equivalent.
(3) Interest income includes net loan fees, loan purchase discount accretion and tax equivalent adjustments. Net loan fees were $(316) thousand and $(407) thousand for the year ended December 31, 2019 and December 31, 2018, respectively. Loan purchase discount accretion was $14.0 million and $2.7 million for the year ended December 31, 2019 and December 31, 2018, respectively. Tax-equivalent adjustments were $1.8 million and $1.0 million for the year ended December 31, 2019 and December 31, 2018, respectively. The federal statutory tax rate utilized was 21%.
(4) Interest income includes tax equivalent adjustments of $1.5 million and $1.5 million for the year ended December 31, 2019 and December 31, 2018, respectively. The federal statutory tax rate utilized was 21%.
(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) 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 common equity 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/ | December 31, | September 30, | June 30, | March 31, | December 31, | |||||||||||||||
| Tangible Common Equity Ratio | 2019 | 2019 | 2019 | 2019 | 2018 | |||||||||||||||
| (Dollars in thousands, except per share data) | ||||||||||||||||||||
| Total shareholders’ equity | $ | 508,982 | $ | 497,885 | $ | 488,351 | $ | 363,849 | $ | 357,067 | ||||||||||
| Intangible assets, net | (124,761 | ) | (126,893 | ) | (130,000 | ) | (74,077 | ) | (74,529 | ) | ||||||||||
| Tangible equity | $ | 384,221 | $ | 370,992 | $ | 358,351 | $ | 289,772 | $ | 282,538 | ||||||||||
| Total assets | $ | 4,653,573 | $ | 4,648,287 | $ | 4,662,463 | $ | 3,308,975 | $ | 3,291,480 | ||||||||||
| Intangible assets, net | (124,761 | ) | (126,893 | ) | (130,000 | ) | (74,077 | ) | (74,529 | ) | ||||||||||
| Tangible assets | $ | 4,528,812 | $ | 4,521,394 | $ | 4,532,463 | $ | 3,234,898 | $ | 3,216,951 | ||||||||||
| Book value per share | $ | 31.49 | $ | 30.77 | $ | 30.11 | $ | 29.94 | $ | 29.32 | ||||||||||
| Tangible book value per share(1) | $ | 23.77 | $ | 22.93 | $ | 22.09 | $ | 23.84 | $ | 23.20 | ||||||||||
| Shares outstanding | 16,162,176 | 16,179,734 | 16,221,160 | 12,153,045 | 12,180,015 | |||||||||||||||
| Equity to assets ratio | 10.94 | % | 10.71 | % | 10.47 | % | 11.00 | % | 10.85 | % | ||||||||||
| Tangible common equity ratio(2) | 8.48 | % | 8.21 | % | 7.91 | % | 8.96 | % | 8.78 | % | ||||||||||
(1) Tangible equity divided by shares outstanding.
(2) Tangible equity divided by tangible assets.
| For the Three Months Ended | For the Year Ended | |||||||||||||||||||
| Return on Average Tangible Equity | December 31, 2019 | September 30, 2019 | December 31, 2018 | December 31, 2019 | December 31, 2018 | |||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| Net income | $ | 13,371 | $ | 12,300 | $ | 7,624 | $ | 43,630 | $ | 30,351 | ||||||||||
| Intangible amortization, net of tax(1) | 1,456 | 1,937 | 377 | 4,430 | 1,722 | |||||||||||||||
| Tangible net income | $ | 14,827 | $ | 14,237 | $ | 8,001 | $ | 48,060 | $ | 32,073 | ||||||||||
| Average shareholders’ equity | $ | 503,011 | $ | 491,750 | $ | 351,398 | $ | 452,018 | $ | 345,734 | ||||||||||
| Average intangible assets, net | (125,898 | ) | (128,963 | ) | (74,766 | ) | (108,242 | ) | (75,531 | ) | ||||||||||
| Average tangible equity | $ | 377,113 | $ | 362,787 | $ | 276,632 | $ | 343,776 | $ | 270,203 | ||||||||||
| Return on average equity | 10.55 | % | 9.92 | % | 8.61 | % | 9.65 | % | 8.78 | % | ||||||||||
| Return on average tangible equity(2) | 15.60 | % | 15.57 | % | 11.47 | % | 13.98 | % | 11.87 | % | ||||||||||
(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 Year Ended | |||||||||||||||||||
| Net Interest Margin, Tax Equivalent | December 31, 2019 | September 30, 2019 | December 31, 2018 | December 31, 2019 | December 31, 2018 | |||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| Net interest income | $ | 39,584 | $ | 43,258 | $ | 26,553 | $ | 143,650 | $ | 105,268 | ||||||||||
| Tax equivalent adjustments: | ||||||||||||||||||||
| Loans(1) | 523 | 543 | 278 | 1,785 | 1,040 | |||||||||||||||
| Securities(1) | 381 | 364 | 357 | 1,481 | 1,515 | |||||||||||||||
| Net interest income, tax equivalent | $ | 40,488 | $ | 44,165 | $ | 27,188 | $ | 146,916 | $ | 107,823 | ||||||||||
| Loan purchase discount accretion | (3,937 | ) | (7,207 | ) | (454 | ) | (13,977 | ) | (2,720 | ) | ||||||||||
| Core net interest income | $ | 36,551 | $ | 36,958 | $ | 26,734 | $ | 132,939 | $ | 105,103 | ||||||||||
| Net interest margin | 3.70 | % | 4.07 | % | 3.50 | % | 3.73 | % | 3.52 | % | ||||||||||
| Net interest margin, tax equivalent(2) | 3.79 | % | 4.15 | % | 3.59 | % | 3.82 | % | 3.60 | % | ||||||||||
| Core net interest margin(3) | 3.42 | % | 3.48 | % | 3.53 | % | 3.45 | % | 3.51 | % | ||||||||||
| Average interest earning assets | $ | 4,242,329 | $ | 4,215,471 | $ | 3,008,681 | $ | 3,848,275 | $ | 2,994,088 | ||||||||||
(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 Year Ended | |||||||||||||||||||
| Loan Yield, Tax Equivalent | December 31, 2019 | September 30, 2019 | December 31, 2018 | December 31, 2019 | December 31, 2018 | |||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| Loan interest income, including fees | $ | 44,906 | $ | 49,169 | $ | 29,052 | $ | 163,163 | $ | 111,193 | ||||||||||
| Tax equivalent adjustment(1) | 523 | 543 | 278 | 1,785 | 1,040 | |||||||||||||||
| Tax equivalent loan interest income | $ | 45,429 | $ | 49,712 | $ | 29,330 | $ | 164,948 | $ | 112,233 | ||||||||||
| Loan purchase discount accretion | (3,937 | ) | (7,207 | ) | (454 | ) | (13,977 | ) | (2,720 | ) | ||||||||||
| Core loan interest income | $ | 41,492 | $ | 42,505 | $ | 28,876 | $ | 150,971 | $ | 109,513 | ||||||||||
| Yield on loans | 5.10 | % | 5.53 | % | 4.80 | % | 5.17 | % | 4.72 | % | ||||||||||
| Yield on loans, tax equivalent(2) | 5.16 | % | 5.59 | % | 4.85 | % | 5.22 | % | 4.77 | % | ||||||||||
| Core yield on loans(3) | 4.71 | % | 4.78 | % | 4.78 | % | 4.78 | % | 4.65 | % | ||||||||||
| Average loans | $ | 3,493,496 | $ | 3,526,149 | $ | 2,398,859 | $ | 3,157,127 | $ | 2,354,354 | ||||||||||
(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 Year Ended | ||||||||||||||||||||||||
| Efficiency Ratio | December 31, 2019 | September 30, 2019 | December 31, 2018 | December 31, 2019 | December 31, 2018 | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||
| Total noninterest expense | $ | 36,436 | $ | 31,442 | $ | 19,779 | $ | 117,535 | $ | 83,215 | |||||||||||||||
| Amortization of intangibles | (1,941 | ) | (2,583 | ) | (503 | ) | (5,906 | ) | (2,296 | ) | |||||||||||||||
| Merger-related expenses | (3,282 | ) | (2,547 | ) | (206 | ) | (9,130 | ) | (797 | ) | |||||||||||||||
| Noninterest expense used for efficiency ratio | $ | 31,213 | $ | 26,312 | $ | 19,070 | $ | 102,499 | $ | 80,122 | |||||||||||||||
| Net interest income, tax equivalent(1) | $ | 40,488 | $ | 44,165 | $ | 27,188 | $ | 146,916 | $ | 107,823 | |||||||||||||||
| Noninterest income | 9,036 | 8,004 | 5,796 | 31,246 | 23,215 | ||||||||||||||||||||
| Investment securities (gains) losses, net | (18 | ) | (23 | ) | 4 | (90 | ) | (193 | ) | ||||||||||||||||
| Net revenues used for efficiency ratio | $ | 49,506 | $ | 52,146 | $ | 32,988 | $ | 178,072 | $ | 130,845 | |||||||||||||||
| Efficiency ratio | 63.05 | % | 50.46 | % | 57.81 | % | 57.56 | % | 61.23 | % | |||||||||||||||
(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 | ||