IOWA CITY, Iowa, July 25, 2019 (GLOBE NEWSWIRE) -- MidWestOne Financial Group, Inc. (Nasdaq - MOFG) (“we”, “our”, or “the Company”) today reported its financial results for the second quarter of 2019. Net income for the second quarter of 2019 was $10.7 million, or $0.72 per diluted common share, compared to net income of $7.3 million, or $0.60 per diluted common share, for the first quarter of 2019 (the “linked quarter”).
Charles Funk, President and CEO commented, “The second quarter saw the consummation of our acquisition of ATBancorp and, as a result, our earnings reflected the impact of certain one-time costs incurred in connection with the merger. With that said, we believe the underlying trends are positive. Excluding transaction charges of $0.16 per diluted share, net income for the quarter was $0.88 per diluted share, and return on average tangible equity was 16.28%.”
FINANCIAL HIGHLIGHTS
| As of or For the Three Months Ended | As of or For the Six Months Ended | ||||||||||||||||||
| June 30, | March 31, | June 30, | June 30, | June 30, | |||||||||||||||
| 2019 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||
| (Dollars in thousands, except per share amounts) | |||||||||||||||||||
| Net income | $ | 10,674 | $ | 7,285 | $ | 8,156 | $ | 17,959 | $ | 15,949 | |||||||||
| Earnings per common share, diluted | $ | 0.72 | $ | 0.60 | $ | 0.67 | $ | 1.33 | $ | 1.30 | |||||||||
| Return on average assets | 1.01 | % | 0.89 | % | 1.01 | % | 0.96 | % | 1.00 | % | |||||||||
| Return on average equity | 9.66 | % | 8.22 | % | 9.55 | % | 9.02 | % | 9.41 | % | |||||||||
| Return on average tangible equity (1) | 13.34 | % | 10.85 | % | 12.91 | % | 12.21 | % | 12.81 | % | |||||||||
| Net interest margin (tax equivalent)(1) | 3.68 | % | 3.56 | % | 3.65 | % | 3.63 | % | 3.67 | % | |||||||||
| Yield on average loans (tax equivalent)(1) | 5.10 | % | 4.93 | % | 4.76 | % | 5.03 | % | 4.74 | % | |||||||||
| Cost of average total deposits | 0.92 | % | 0.88 | % | 0.62 | % | 0.90 | % | 0.59 | % | |||||||||
| Efficiency ratio(1) | 63.30 | % | 63.00 | % | 60.76 | % | 63.17 | % | 60.62 | % | |||||||||
| Total assets | $ | 4,662,463 | $ | 3,308,975 | $ | 3,276,277 | $ | 4,662,463 | $ | 3,276,277 | |||||||||
| Loans held for investment, net of unearned income | $ | 3,536,503 | $ | 2,403,759 | $ | 2,364,035 | $ | 3,536,503 | $ | 2,364,035 | |||||||||
| Total deposits | $ | 3,725,472 | $ | 2,684,827 | $ | 2,604,201 | $ | 3,725,472 | $ | 2,604,201 | |||||||||
| Equity to assets ratio | 10.47 | % | 11.00 | % | 10.57 | % | 10.47 | % | 10.57 | % | |||||||||
| Tangible common equity ratio(1) | 8.06 | % | 8.97 | % | 8.48 | % | 8.06 | % | 8.48 | % | |||||||||
| Book value per share | $ | 30.11 | $ | 29.94 | $ | 28.33 | $ | 30.11 | $ | 28.33 | |||||||||
| Tangible book value per share(1) | $ | 22.56 | $ | 23.89 | $ | 22.22 | $ | 22.56 | $ | 22.22 | |||||||||
| Gross loans held for investment to deposit ratio | 95.81 | % | 89.74 | % | 90.78 | % | 95.81 | % | 90.78 | % | |||||||||
| (1) Non-GAAP measure. See pages 14-15 for a detailed explanation. | |||||||||||||||||||
Acquisition of ATBancorp
On May 1, 2019, we completed our acquisition of ATBancorp. The table below summarizes the amounts recognized at the acquisition date for each major class of assets acquired and liabilities assumed:
| May 1, 2019 | ||||||
| (in thousands) | ||||||
| Merger consideration(1) | $ | 148,435 | ||||
| Identifiable net assets acquired, at fair value | ||||||
| Assets acquired | ||||||
| Cash and due from banks | $ | 71,820 | ||||
| Debt securities available for sale | 99,353 | |||||
| Loans(1) | 1,137,880 | |||||
| Premises and equipment(1) | 19,213 | |||||
| Core deposit intangible(1) | 28,230 | |||||
| Bank-owned life insurance | 18,759 | |||||
| Foreclosed assets(1) | 3,767 | |||||
| Other assets(1) | 17,360 | |||||
| Total assets acquired | 1,396,382 | |||||
| Liabilities assumed | ||||||
| Deposits(1) | 1,079,094 | |||||
| Short-term borrowings(1) | 60,761 | |||||
| Long-term debt(1) | 111,201 | |||||
| Other liabilities(1) | 25,613 | |||||
| Total liabilities assumed | 1,276,669 | |||||
| Total identifiable net assets acquired, at fair value | $ | 119,713 | ||||
| Goodwill | $ | 28,722 | ||||
| (1) The initial accounting for the acquisition was incomplete at June 30, 2019 and the amount recognized was determined only provisionally. | ||||||
In addition to the balance sheet impacts shown above, our net income for the quarter was reduced by $3.1 million in pre-tax, acquisition-related expenses stemming from the ATBancorp transaction. Those charges reduced diluted earnings per share by approximately $0.16.
INCOME STATEMENT HIGHLIGHTS
Net Interest Income
Net interest income increased in the second quarter of 2019 to $34.8 million from $26.0 million in the linked quarter due primarily to higher average earning asset volumes and a higher tax equivalent net interest margin (“NIM”). Average earning assets increased $851.1 million from the linked quarter as a result of assets acquired in the ATBancorp transaction. Discount accretion from acquired loans added $2.2 million to net interest income in the current quarter compared to $586 thousand in the linked quarter.
The tax equivalent net interest margin increased to 3.68% for the second quarter of 2019 from 3.56% in the linked quarter as increased loan yields, driven by loan purchase discount accretion, outpaced higher funding costs. The loan yield was 5.10% for the second quarter of 2019 compared to 4.93% for the linked quarter. Loan purchase discount accretion added 28 bps to loan yields and 23 bps to the NIM in the current quarter compared to 10 bps and 8 bps, respectively, in the linked quarter. The cost of average total deposits in the second quarter of 2019 was 0.92% compared to 0.88% in the linked quarter. The increase reflects the merger, as well as higher rates paid to attract and retain deposits in a competitive market.
Noninterest Income
Noninterest income for the second quarter of 2019 increased $3.4 million, or 63%, from the linked quarter. The increase was due primarily to additional fee income (trust, service charges, card and loan revenue) earned as a result of the ATBancorp transaction. Further, ‘Other’ income reflected a gain of $1.1 million from the sale of assets of MidWestOne Insurance Services, Inc. Partially offsetting these increases, ‘Loan revenue’ included a $507 thousand negative valuation adjustment to the Company’s mortgage servicing rights.
The following table presents details of noninterest income for the periods indicated:
| Three Months Ended | |||||||||||
| June 30, | March 31, | June 30, | |||||||||
| Noninterest Income | 2019 | 2019 | 2018 | ||||||||
| (In thousands) | |||||||||||
| Investment services and trust activities | $ | 1,890 | $ | 1,390 | $ | 1,218 | |||||
| Service charges and fees | 1,870 | 1,442 | 1,518 | ||||||||
| Card revenue | 1,799 | 998 | 1,093 | ||||||||
| Loan revenue | 648 | 393 | 906 | ||||||||
| Bank-owned life insurance | 470 | 392 | 397 | ||||||||
| Insurance commissions | 314 | 420 | 319 | ||||||||
| Investment securities gains (losses), net | 32 | 17 | (4 | ) | |||||||
| Other | 1,773 | 358 | 246 | ||||||||
| Total noninterest income | $ | 8,796 | $ | 5,410 | $ | 5,693 | |||||
Noninterest Expense
Noninterest expense for the second quarter of 2019 increased $8.4 million, or 40.9%, from the linked quarter, due primarily to merger-related as well as additional on-going expenses incurred as a result of the ATBancorp transaction. Pre-tax merger-related expenses were $3.1 million for the second quarter of 2019 compared to $167 thousand in the linked quarter.
The following table presents details of noninterest expense for the periods indicated:
| Three Months Ended | |||||||||||
| June 30, | March 31, | June 30, | |||||||||
| Noninterest Expense | 2019 | 2019 | 2018 | ||||||||
| (In thousands) | |||||||||||
| Compensation and employee benefits | $ | 16,409 | $ | 12,579 | $ | 12,225 | |||||
| Occupancy expense of premises, net | 2,127 | 1,879 | 1,882 | ||||||||
| Equipment | 1,914 | 1,371 | 1,408 | ||||||||
| Legal and professional | 3,291 | 965 | 959 | ||||||||
| Data processing | 1,008 | 845 | 691 | ||||||||
| Marketing | 869 | 606 | 690 | ||||||||
| Amortization of intangibles | 930 | 452 | 589 | ||||||||
| FDIC insurance | 434 | 370 | 392 | ||||||||
| Communications | 377 | 342 | 341 | ||||||||
| Foreclosed assets, net | 84 | 58 | 145 | ||||||||
| Other | 1,597 | 1,150 | 1,264 | ||||||||
| Total noninterest expense | $ | 29,040 | $ | 20,617 | $ | 20,586 | |||||
The following table presents details of merger-related costs for the periods indicated:
| Three Months Ended | |||||||||||
| June 30, | March 31, | June 30, | |||||||||
| Merger-related Expenses | 2019 | 2019 | 2018 | ||||||||
| (In thousands) | |||||||||||
| Compensation and employee benefits | $ | 1,020 | $ | 10 | $ | — | |||||
| Legal and professional | 1,826 | 126 | — | ||||||||
| Data processing | 240 | 5 | — | ||||||||
| Other | 48 | 26 | — | ||||||||
| Total merger-related costs | $ | 3,134 | $ | 167 | $ | — | |||||
Income Taxes
The effective income tax rate was 23.2% for the second quarter of 2019 and 20.6% for the linked quarter. The effective tax rate for the second quarter of 2019 was higher due primarily to the payment of certain non-deductible merger related expenses and other merger-related items in the second quarter of 2019.
BALANCE SHEET HIGHLIGHTS
Mr. Funk continued, ”The highlight of the first six months was deposit growth in the legacy MidWestOne footprint of more than 4%. Loan growth continued to be challenged by paydowns in our rural regions but was strong in Iowa City and Denver, and solid in the Twin Cities markets.”
Loans Held for Investment
Loans held for investment, net of unearned income, increased $1.14 billion, or 47.4%, to $3.54 billion, primarily due to the merger. At June 30, 2019, commercial real estate loans comprised approximately 51% of the loan portfolio. Commercial and industrial loans was the next largest category at 25% of total loans, followed by residential real estate loans at 17%, agricultural loans at 4%, and consumer loans at 3%.
The following table presents the composition of loans held for investment, net of unearned income, as of the dates indicated:
| June 30, | March 31, | December 31, | June 30, | ||||||||||||
| Loans Held for Investment | 2019 | 2019 | 2018 | 2018 | |||||||||||
| (In thousands) | |||||||||||||||
| Commercial and industrial | $ | 866,023 | $ | 535,878 | $ | 533,188 | $ | 512,357 | |||||||
| Agricultural | 152,491 | 96,766 | 96,956 | 103,429 | |||||||||||
| Commercial real estate | |||||||||||||||
| Construction and development | 273,149 | 187,906 | 217,617 | 206,269 | |||||||||||
| Farmland | 187,393 | 86,648 | 88,807 | 88,761 | |||||||||||
| Multifamily | 243,928 | 161,067 | 134,741 | 129,659 | |||||||||||
| Other | 1,114,039 | 843,817 | 826,163 | 819,205 | |||||||||||
| Total commercial real estate | 1,818,509 | 1,279,438 | 1,267,328 | 1,243,894 | |||||||||||
| Residential real estate | |||||||||||||||
| One-to-four family first liens | 423,625 | 333,220 | 341,830 | 350,281 | |||||||||||
| One-to-four family junior liens | 176,685 | 121,793 | 120,049 | 117,138 | |||||||||||
| Total residential real estate | 600,310 | 455,013 | 461,879 | 467,419 | |||||||||||
| Consumer | 99,170 | 36,664 | 39,428 | 36,936 | |||||||||||
| Loans held for investment, net of unearned income | $ | 3,536,503 | $ | 2,403,759 | $ | 2,398,779 | $ | 2,364,035 | |||||||
Provision and Allowance for Loan Losses
For the second quarter of 2019, the provision for loan losses was $0.7 million, a decrease of $0.9 million from the linked quarter.
The following table shows the activity in the allowance for loan losses for the periods indicated:
| Three Months Ended | Six Months Ended | ||||||||||||||||||
| June 30, | March 31, | June 30, | June 30, | June 30, | |||||||||||||||
| Allowance for Loan Losses Roll Forward | 2019 | 2019 | 2018 | 2019 | 2018 | ||||||||||||||
| (In thousands) | |||||||||||||||||||
| Beginning balance | $ | 29,652 | $ | 29,307 | $ | 29,671 | $ | 29,307 | $ | 28,059 | |||||||||
| Charge-offs | (2,187 | ) | (1,355 | ) | (291 | ) | (3,542 | ) | (767 | ) | |||||||||
| Recoveries | 530 | 106 | 170 | 636 | 408 | ||||||||||||||
| Net charge-offs | (1,657 | ) | (1,249 | ) | (121 | ) | (2,906 | ) | (359 | ) | |||||||||
| Provision for loan losses | 696 | 1,594 | 1,250 | 2,290 | 3,100 | ||||||||||||||
| Ending balance | $ | 28,691 | $ | 29,652 | $ | 30,800 | $ | 28,691 | $ | 30,800 | |||||||||
Deposits
Total deposits at June 30, 2019, were $3.73 billion, an increase of $1.11 billion from December 31, 2018, due primarily to the merger. The mix of deposits reflected increases between December 31, 2018 and June 30, 2019 of $464.0 million, or 83.5% in money market deposits, $216.0 million, or 29.8%, in time deposits, $207.9 million, or 47.4%, in noninterest bearing deposits, $145.9 million, or 69.3%, in savings deposits, and $78.6 million, or 11.5%, in interest checking deposits.
“We ended the quarter with tangible equity to tangible assets of 8.06%,” said Mr. Funk. “We believe we have ample flexibility in terms of capital deployment in future quarters.”
The following table presents the composition of our deposit portfolio as of the dates indicated:
| June 30, | March 31, | December 31, | June 30, | ||||||||||||
| Deposit Composition | 2019 | 2019 | 2018 | 2018 | |||||||||||
| (In thousands) | |||||||||||||||
| Noninterest bearing demand deposits | $ | 647,078 | $ | 426,729 | $ | 439,133 | $ | 469,862 | |||||||
| Interest checking deposits | 762,530 | 696,760 | 683,894 | 654,094 | |||||||||||
| Money market deposits | 1,019,886 | 629,838 | 555,839 | 529,290 | |||||||||||
| Savings deposits | 356,328 | 200,998 | 210,416 | 216,866 | |||||||||||
| Total non-maturity deposits | 2,785,822 | 1,954,325 | 1,889,282 | 1,870,112 | |||||||||||
| Time deposits of $250,000 and under | 678,752 | 541,310 | 532,395 | 514,163 | |||||||||||
| Time deposits of $250,000 and over | 260,898 | 189,192 | 191,252 | 219,926 | |||||||||||
| Total time deposits | 939,650 | 730,502 | 723,647 | 734,089 | |||||||||||
| Total deposits | $ | 3,725,472 | $ | 2,684,827 | $ | 2,612,929 | $ | 2,604,201 | |||||||
CREDIT QUALITY
The following table presents a roll forward of nonperforming loans as of the dates indicated:
| 90+ Days Past | Performing | ||||||||||||||
| Due & Still | Troubled Debt | ||||||||||||||
| Nonperforming 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 | 12,849 | 1,000 | 72 | 13,921 | |||||||||||
| Established through acquisition | 7,909 | 27 | — | 7,936 | |||||||||||
| Repayments (including interest applied to principal) | (5,303 | ) | (18 | ) | (209 | ) | (5,530 | ) | |||||||
| Loans returned to accrual status or no longer past due | (1,021 | ) | (144 | ) | — | (1,165 | ) | ||||||||
| Charge-offs | (3,023 | ) | — | — | (3,023 | ) | |||||||||
| Transfers to foreclosed assets | (460 | ) | — | — | (460 | ) | |||||||||
| Transfers to nonaccrual | — | (283 | ) | (554 | ) | (837 | ) | ||||||||
| Balance at June 30, 2019 | $ | 30,875 | $ | 947 | $ | 4,593 | $ | 36,415 | |||||||
At June 30, 2019, net foreclosed assets totaled $4.9 million, up from $535 thousand at December 31, 2018, primarily due to the merger. As of June 30, 2019, the allowance for loan losses was $28.7 million, or 0.81% of loans held for investment, net of unearned income, compared with $29.3 million, or 1.22% at December 31, 2018. Acquired loans reduced this ratio by 41 basis points at June 30, 2019 as, at acquisition, such loans are measured at fair value which includes a credit-related discount and, thus, no allowance for loan losses is initially measured.
The following table presents selected loan credit quality metrics as of the dates indicated:
| June 30, | March 31, | December 31, | June 30, | ||||||||||||
| Credit Quality Metrics | 2019 | 2019 | 2018 | 2018 | |||||||||||
| (dollars in thousands) | |||||||||||||||
| Nonaccrual loans held for investment | $ | 30,875 | $ | 21,274 | $ | 19,924 | $ | 13,067 | |||||||
| Performing troubled debt restructured loans held for investment | 4,593 | 5,161 | 5,284 | 8,362 | |||||||||||
| Accruing loans contractually past due 90 days or more | 947 | 208 | 365 | 151 | |||||||||||
| Total nonperforming loans | 36,415 | 26,643 | 25,573 | 21,580 | |||||||||||
| Foreclosed assets, net | 4,922 | 336 | 535 | 676 | |||||||||||
| Total nonperforming assets | $ | 41,337 | $ | 26,979 | $ | 26,108 | $ | 22,256 | |||||||
| Allowance for loan losses | 28,691 | 29,652 | 29,307 | 30,800 | |||||||||||
| Provision for loan losses (for the quarter) | 696 | 1,594 | 3,250 | 1,250 | |||||||||||
| Net charge-offs (for the quarter) | 1,657 | 1,249 | 5,221 | 121 | |||||||||||
| Net charge-offs to average loans held for investment (for the quarter) | 0.21 | % | 0.21 | % | 0.86 | % | 0.02 | % | |||||||
| Allowance for loan losses to loans held for investment, net of unearned income | 0.81 | % | 1.23 | % | 1.22 | % | 1.30 | % | |||||||
| Allowance for loan losses to nonaccrual loans held for investment, net of unearned income | 92.93 | % | 139.38 | % | 147.09 | % | 235.71 | % | |||||||
| Nonaccrual loans held for investment to loans held for investment | 0.87 | % | 0.89 | % | 0.83 | % | 0.56 | % | |||||||
“We’ve made significant progress in identification and resolution of nonperforming loans in the legacy MidWestOne footprint,” noted Mr. Funk. “We believe our agricultural portfolio has stabilized, though close monitoring will be essential in the coming months. We also have good coverage as, excluding the $7.9 million of nonaccrual loans established in the ATBancorp transaction, the allowance for loan losses was at 124.93% of nonaccrual loans.”
CORPORATE UPDATE
MidWestOne Insurance Services, Inc. Asset Sale
On June 30, 2019, the Company sold substantially all of the assets used by MidWestOne Insurance Services, Inc. to sell insurance products. The Company recognized a pre-tax gain of $1.1 million from the sale which was reported in ‘Other’ noninterest income on the Company’s consolidated statements of income. In 2018, MidWestOne Insurance Services accounted for $1.3 million and $1.1 million of the Company’s total noninterest income and expense, respectively.
“We made the strategic decision to exit this line of business as our insurance revenues comprised a small percentage of overall revenues,” concluded Mr. Funk.
Share Repurchase Program
During the second quarter of 2019 the Company repurchased 56,985 shares at an average price of $28.01 and a total cost of $1.6 million. At June 30, 2019, $1.1 million remained available to repurchase shares under the Company’s current share repurchase program.
Cash Dividend Announcement
On July 16, 2019, the Company’s board of directors declared a quarterly cash dividend of $0.2025 per common share. The dividend is payable September 16, 2019, to shareholders of record at the close of business on September 2, 2019. At this quarterly rate, the indicated annual cash dividend is equal to $0.81 per common share.
CONFERENCE CALL DETAILS
The Company will host a conference call for investors at 11:00 a.m., CDT, on Friday, July 26, 2019. To participate, please dial 866-233-3483 at least fifteen minutes before the call start time. If you are unable to participate on the call, a replay will be available until October 26, 2019, by calling 877-344-7529 and using the replay access code of 10126192. A transcript of the call will also be available on the company’s web site (www.midwestone.com) within three business days of the event.
ABOUT MIDWESTONE FINANCIAL GROUP, INC.
MidWestOne Financial Group, Inc. is a financial holding company headquartered in Iowa City, Iowa. MidWestOne Financial is the parent company of MidWestOne Bank, which operates banking offices in Iowa, Minnesota, Wisconsin, Florida, and Colorado. MidWestOne provides electronic delivery of financial services through its website, MidWestOne.com. MidWestOne Financial trades on the Nasdaq Global Select Market under the symbol “MOFG”.
Cautionary Note Regarding Forward-Looking Statements
This release contains certain “forward-looking statements” within the meaning of such term in the Private Securities Litigation Reform Act of 1995. We and our representatives may, from time to time, make written or oral statements that are “forward-looking” and provide information other than historical information. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from any results, levels of activity, performance or achievements expressed or implied by any forward-looking statement. These factors include, among other things, the factors listed below. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of our management and on information currently available to management, are generally identifiable by the use of words such as “believe,” “expect,” “anticipate,” “should,” “could,” “would,” “plans,” “goals,” “intend,” “project,” “estimate,” “forecast,” “may” or similar expressions. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in, or implied by, these statements. Readers are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Additionally, we undertake no obligation to update any statement in light of new information or future events, except as required under federal securities law.
Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors that could have an impact on our ability to achieve operating results, growth plan goals and future prospects include, but are not limited to, the following: (1) credit quality deterioration or pronounced and sustained reduction in real estate market values causing an increase in the allowance for credit losses, an increase in the provision for loan losses, and a reduction in net earnings; (2) the risks related to mergers, including our pending merger with ATBancorp, including, without limitation, the related time and costs of implementing such transactions, integrating operations as part of these transactions and possible failures to achieve expected gains, revenue growth and/or expense savings from such transactions; (3) our management’s ability to reduce and effectively manage interest rate risk and the impact of interest rates in general on the volatility of our net interest income; (4) changes in the economic environment, competition, or other factors that may affect our ability to acquire loans or influence the anticipated growth rate of loans and deposits and the quality of the loan portfolio and loan and deposit pricing; (5) fluctuations in the value of our investment securities; (6) governmental monetary and fiscal policies; (7) legislative and regulatory changes, including changes in banking, securities, trade, and tax laws and regulations and their application by our regulators and changes in the scope and cost of Federal Deposit Insurance Corporation insurance and other coverages; (8) the ability to attract and retain key executives and employees experienced in banking and financial services; (9) the sufficiency of the allowance for loan losses to absorb the amount of actual losses inherent in our existing loan portfolio; (10) our ability to adapt successfully to technological changes to compete effectively in the marketplace; (11) credit risks and risks from concentrations (by geographic area and by industry) within our loan portfolio; (12) the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds, and other financial institutions operating in our markets or elsewhere or providing services similar to ours; (13) the failure of assumptions underlying the establishment of allowances for loan losses and estimation of values of collateral and various financial assets and liabilities; (14) volatility of rate-sensitive deposits; (15) operational risks, including data processing system failures or fraud; (16) asset/liability matching risks and liquidity risks; (17) the costs, effects and outcomes of existing or future litigation; (18) changes in general economic or industry conditions, nationally, internationally or in the communities in which we conduct business; (19) changes in accounting policies and practices, as may be adopted by state and federal regulatory agencies and the Financial Accounting Standards Board; (20) war or terrorist activities which may cause further deterioration in the economy or cause instability in credit markets; (21) cyber-attacks; (22) the imposition of tariffs or other domestic or international governmental policies impacting the value of the agricultural or other products of our borrowers; and (23) other risk factors detailed from time to time in Securities and Exchange Commission filings made by the Company.
MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| June 30, | March 31, | December 31, | |||||||||
| 2019 | 2019 | 2018 | |||||||||
| (In thousands) | |||||||||||
| ASSETS | |||||||||||
| Cash and due from banks | $ | 72,801 | $ | 40,002 | $ | 43,787 | |||||
| Interest earning deposits in banks | 47,708 | 2,969 | 1,693 | ||||||||
| Total cash and cash equivalents | 120,509 | 42,971 | 45,480 | ||||||||
| Debt securities available for sale at fair value | 460,302 | 432,979 | 414,101 | ||||||||
| Held to maturity securities at amortized cost | 193,173 | 195,033 | 195,822 | ||||||||
| Total securities held for investment | 653,475 | 628,012 | 609,923 | ||||||||
| Loans held for sale | 4,306 | 309 | 666 | ||||||||
| Gross loans held for investment | 3,569,236 | 2,409,333 | 2,405,001 | ||||||||
| Unearned income, net | (32,733 | ) | (5,574 | ) | (6,222 | ) | |||||
| Loans held for investment, net of unearned income | 3,536,503 | 2,403,759 | 2,398,779 | ||||||||
| Allowance for loan losses | (28,691 | ) | (29,652 | ) | (29,307 | ) | |||||
| Total loans held for investment, net | 3,507,812 | 2,374,107 | 2,369,472 | ||||||||
| Premises and equipment, net | 93,395 | 75,200 | 75,773 | ||||||||
| Goodwill | 93,376 | 64,654 | 64,654 | ||||||||
| Other intangible assets, net | 36,624 | 9,423 | 9,875 | ||||||||
| Foreclosed assets, net | 4,922 | 336 | 535 | ||||||||
| Other assets | 148,044 | 113,963 | 115,102 | ||||||||
| Total assets | $ | 4,662,463 | $ | 3,308,975 | $ | 3,291,480 | |||||
| LIABILITIES | |||||||||||
| Noninterest bearing deposits | $ | 647,078 | $ | 426,729 | $ | 439,133 | |||||
| Interest bearing deposits | 3,078,394 | 2,258,098 | 2,173,796 | ||||||||
| Total deposits | 3,725,472 | 2,684,827 | 2,612,929 | ||||||||
| Short-term borrowings | 153,829 | 76,066 | 131,422 | ||||||||
| Long-term debt | 252,673 | 162,471 | 168,726 | ||||||||
| Other liabilities | 42,138 | 21,762 | 21,336 | ||||||||
| Total liabilities | 4,174,112 | 2,945,126 | 2,934,413 | ||||||||
| SHAREHOLDERS' EQUITY | |||||||||||
| Common stock | 16,581 | 12,463 | 12,463 | ||||||||
| Additional paid-in capital | 296,879 | 187,535 | 187,813 | ||||||||
| Retained earnings | 181,984 | 173,771 | 168,951 | ||||||||
| Treasury stock | (8,716 | ) | (7,297 | ) | (6,499 | ) | |||||
| Accumulated other comprehensive income (loss) | 1,623 | (2,623 | ) | (5,661 | ) | ||||||
| Total shareholders' equity | 488,351 | 363,849 | 357,067 | ||||||||
| Total liabilities and shareholders' equity | $ | 4,662,463 | $ | 3,308,975 | $ | 3,291,480 | |||||
Certain reclassifications have been made to prior periods’ consolidated financial statements to present them on a basis comparable with the current period’s consolidated financial statements.
MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
| Three Months Ended | Six Months Ended | ||||||||||||||||||
| June 30, | March 31, | June 30, | June 30, | ||||||||||||||||
| 2019 | 2019 | 2018 (1) | 2019 | 2018 (1) | |||||||||||||||
| (In thousands, except per share data) | |||||||||||||||||||
| Interest income | |||||||||||||||||||
| Loans, including fees | $ | 40,053 | $ | 29,035 | $ | 27,486 | $ | 69,088 | $ | 54,053 | |||||||||
| Taxable investment securities | 3,289 | 2,927 | 2,790 | 6,216 | 5,538 | ||||||||||||||
| Tax-exempt investment securities | 1,424 | 1,406 | 1,528 | 2,830 | 3,057 | ||||||||||||||
| Other | 185 | 20 | 18 | 205 | 27 | ||||||||||||||
| Total interest income | 44,951 | 33,388 | 31,822 | 78,339 | 62,675 | ||||||||||||||
| Interest expense | |||||||||||||||||||
| Deposits | 7,743 | 5,695 | 4,009 | 13,438 | 7,545 | ||||||||||||||
| Short-term borrowings | 500 | 457 | 359 | 957 | 620 | ||||||||||||||
| Long-term debt | 1,876 | 1,260 | 1,024 | 3,136 | 1,906 | ||||||||||||||
| Total interest expense | 10,119 | 7,412 | 5,392 | 17,531 | 10,071 | ||||||||||||||
| Net interest income | 34,832 | 25,976 | 26,430 | 60,808 | 52,604 | ||||||||||||||
| Provision for loan losses | 696 | 1,594 | 1,250 | 2,290 | 3,100 | ||||||||||||||
| Net interest income after provision for loan losses | 34,136 | 24,382 | 25,180 | 58,518 | 49,504 | ||||||||||||||
| Noninterest income | |||||||||||||||||||
| Investment services and trust activities | 1,890 | 1,390 | 1,218 | 3,280 | 2,457 | ||||||||||||||
| Service charges and fees | 1,870 | 1,442 | 1,518 | 3,312 | 3,089 | ||||||||||||||
| Card revenue | 1,799 | 998 | 1,093 | 2,797 | 2,059 | ||||||||||||||
| Loan revenue | 648 | 393 | 906 | 1,041 | 1,847 | ||||||||||||||
| Bank-owned life insurance | 470 | 392 | 397 | 862 | 830 | ||||||||||||||
| Insurance commissions | 314 | 420 | 319 | 734 | 720 | ||||||||||||||
| Investment securities gains (losses), net | 32 | 17 | (4 | ) | 49 | 5 | |||||||||||||
| Other | 1,773 | 358 | 246 | 2,131 | 367 | ||||||||||||||
| Total noninterest income | 8,796 | 5,410 | 5,693 | 14,206 | 11,374 | ||||||||||||||
| Noninterest expense | |||||||||||||||||||
| Compensation and employee benefits | 16,409 | 12,579 | 12,225 | 28,988 | 24,596 | ||||||||||||||
| Occupancy expense of premises, net | 2,127 | 1,879 | 1,882 | 4,006 | 3,788 | ||||||||||||||
| Equipment | 1,914 | 1,371 | 1,408 | 3,285 | 2,791 | ||||||||||||||
| Legal and professional | 3,291 | 965 | 959 | 4,256 | 1,753 | ||||||||||||||
| Data processing | 1,008 | 845 | 691 | 1,853 | 1,379 | ||||||||||||||
| Marketing | 869 | 606 | 690 | 1,475 | 1,310 | ||||||||||||||
| Amortization of intangibles | 930 | 452 | 589 | 1,382 | 1,246 | ||||||||||||||
| FDIC insurance | 434 | 370 | 392 | 804 | 711 | ||||||||||||||
| Communications | 377 | 342 | 341 | 719 | 670 | ||||||||||||||
| Foreclosed assets, net | 84 | 58 | 145 | 142 | 106 | ||||||||||||||
| Other | 1,597 | 1,150 | 1,264 | 2,747 | 2,464 | ||||||||||||||
| Total noninterest expense | 29,040 | 20,617 | 20,586 | 49,657 | 40,814 | ||||||||||||||
| Income before income tax expense | 13,892 | 9,175 | 10,287 | 23,067 | 20,064 | ||||||||||||||
| Income tax expense | 3,218 | 1,890 | 2,131 | 5,108 | 4,115 | ||||||||||||||
| Net income | $ | 10,674 | $ | 7,285 | $ | 8,156 | $ | 17,959 | $ | 15,949 | |||||||||
| Earnings per common share | |||||||||||||||||||
| Basic | $ | 0.72 | $ | 0.60 | $ | 0.67 | $ | 1.33 | $ | 1.31 | |||||||||
| Diluted | $ | 0.72 | $ | 0.60 | $ | 0.67 | $ | 1.33 | $ | 1.30 | |||||||||
| Weighted average basic common shares outstanding | 14,894 | 12,164 | 12,218 | 13,537 | 12,220 | ||||||||||||||
| Weighted average diluted common shares outstanding | 14,900 | 12,177 | 12,230 | 13,545 | 12,235 | ||||||||||||||
| Dividends paid per common share | $ | 0.2025 | $ | 0.2025 | $ | 0.195 | $ | 0.405 | $ | 0.39 | |||||||||
| (1) Reclassified to conform to the current period’s presentation. | |||||||||||||||||||
MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
FIVE QUARTER CONSOLIDATED BALANCE SHEETS
| June 30, | March 31, | December 31, | September 30, | June 30, | |||||||||||||||
| 2019 | 2019 | 2018 | 2018 | 2018 | |||||||||||||||
| (In thousands) | |||||||||||||||||||
| ASSETS | |||||||||||||||||||
| Cash and due from banks | $ | 72,801 | $ | 40,002 | $ | 43,787 | $ | 49,229 | $ | 41,547 | |||||||||
| Interest earning deposits in banks | 47,708 | 2,969 | 1,693 | 4,150 | 1,717 | ||||||||||||||
| Total cash and cash equivalents | 120,509 | 42,971 | 45,480 | 53,379 | 43,264 | ||||||||||||||
| Debt securities available for sale at fair value | 460,302 | 432,979 | 414,101 | 407,766 | 438,312 | ||||||||||||||
| Held to maturity securities at amortized cost | 193,173 | 195,033 | 195,822 | 191,733 | 192,896 | ||||||||||||||
| Total securities held for investment | 653,475 | 628,012 | 609,923 | 599,499 | 631,208 | ||||||||||||||
| Loans held for sale | 4,306 | 309 | 666 | 1,124 | 1,528 | ||||||||||||||
| Gross loans held for investment | 3,569,236 | 2,409,333 | 2,405,001 | 2,384,459 | 2,371,406 | ||||||||||||||
| Unearned income, net | (32,733 | ) | (5,574 | ) | (6,222 | ) | (6,810 | ) | (7,371 | ) | |||||||||
| Loans held for investment, net of unearned income | 3,536,503 | 2,403,759 | 2,398,779 | 2,377,649 | 2,364,035 | ||||||||||||||
| Allowance for loan losses | (28,691 | ) | (29,652 | ) | (29,307 | ) | (31,278 | ) | (30,800 | ) | |||||||||
| Total loans held for investment, net | 3,507,812 | 2,374,107 | 2,369,472 | 2,346,371 | 2,333,235 | ||||||||||||||
| Premises and equipment, net | 93,395 | 75,200 | 75,773 | 76,497 | 78,106 | ||||||||||||||
| Goodwill | 93,376 | 64,654 | 64,654 | 64,654 | 64,654 | ||||||||||||||
| Other intangible assets, net | 36,624 | 9,423 | 9,875 | 10,378 | 10,925 | ||||||||||||||
| Foreclosed assets, net | 4,922 | 336 | 535 | 549 | 676 | ||||||||||||||
| Other assets | 148,044 | 113,963 | 115,102 | 115,514 | 112,681 | ||||||||||||||
| Total assets | $ | 4,662,463 | $ | 3,308,975 | $ | 3,291,480 | $ | 3,267,965 | $ | 3,276,277 | |||||||||
| LIABILITIES | |||||||||||||||||||
| Noninterest bearing deposits | $ | 647,078 | $ | 426,729 | $ | 439,133 | $ | 458,576 | $ | 469,862 | |||||||||
| Interest bearing deposits | 3,078,394 | 2,258,098 | 2,173,796 | 2,173,683 | 2,134,339 | ||||||||||||||
| Total deposits | 3,725,472 | 2,684,827 | 2,612,929 | 2,632,259 | 2,604,201 | ||||||||||||||
| Short-term borrowings | 153,829 | 76,066 | 131,422 | 87,978 | 127,467 | ||||||||||||||
| Long-term debt | 252,673 | 162,471 | 168,726 | 176,979 | 178,083 | ||||||||||||||
| Other liabilities | 42,138 | 21,762 | 21,336 | 21,560 | 20,325 | ||||||||||||||
| Total liabilities | 4,174,112 | 2,945,126 | 2,934,413 | 2,918,776 | 2,930,076 | ||||||||||||||
| SHAREHOLDERS' EQUITY | |||||||||||||||||||
| Common stock | $ | 16,581 | $ | 12,463 | $ | 12,463 | $ | 12,463 | $ | 12,463 | |||||||||
| Additional paid-in capital | 296,879 | 187,535 | 187,813 | 187,581 | 187,304 | ||||||||||||||
| Retained earnings | 181,984 | 173,771 | 168,951 | 163,709 | 159,315 | ||||||||||||||
| Treasury stock | (8,716 | ) | (7,297 | ) | (6,499 | ) | (5,474 | ) | (5,474 | ) | |||||||||
| Accumulated other comprehensive income (loss) | 1,623 | (2,623 | ) | (5,661 | ) | (9,090 | ) | (7,407 | ) | ||||||||||
| Total shareholders' equity | 488,351 | 363,849 | 357,067 | 349,189 | 346,201 | ||||||||||||||
| Total liabilities and shareholders' equity | $ | 4,662,463 | $ | 3,308,975 | $ | 3,291,480 | $ | 3,267,965 | $ | 3,276,277 | |||||||||
Certain reclassifications have been made to prior periods’ consolidated financial statements to present them on a basis comparable with the current period’s consolidated financial statements.
MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
FIVE QUARTER CONSOLIDATED STATEMENTS OF INCOME
| Three Months Ended | |||||||||||||||||||
| June 30, | March 31, | December 31, | September 30, | June 30, | |||||||||||||||
| 2019 | 2019 | 2018 (1) | 2018 (1) | 2018 (1) | |||||||||||||||
| (In thousands, except per share data) | |||||||||||||||||||
| Interest income | |||||||||||||||||||
| Loans, including fees | $ | 40,053 | $ | 29,035 | $ | 29,052 | $ | 28,088 | $ | 27,486 | |||||||||
| Taxable investment securities | 3,289 | 2,927 | 2,774 | 2,715 | 2,790 | ||||||||||||||
| Tax-exempt investment securities | 1,424 | 1,406 | 1,375 | 1,395 | 1,528 | ||||||||||||||
| Other | 185 | 20 | 23 | 12 | 18 | ||||||||||||||
| Total interest income | 44,951 | 33,388 | 33,224 | 32,210 | 31,822 | ||||||||||||||
| Interest expense | |||||||||||||||||||
| Deposits | 7,743 | 5,695 | 5,161 | 4,625 | 4,009 | ||||||||||||||
| Short-term borrowings | 500 | 457 | 374 | 321 | 359 | ||||||||||||||
| Long-term debt | 1,876 | 1,260 | 1,136 | 1,153 | 1,024 | ||||||||||||||
| Total interest expense | 10,119 | 7,412 | 6,671 | 6,099 | 5,392 | ||||||||||||||
| Net interest income | 34,832 | 25,976 | 26,553 | 26,111 | 26,430 | ||||||||||||||
| Provision for loan losses | 696 | 1,594 | 3,250 | 950 | 1,250 | ||||||||||||||
| Net interest income after provision for loan losses | 34,136 | 24,382 | 23,303 | 25,161 | 25,180 | ||||||||||||||
| Noninterest income | |||||||||||||||||||
| Investment services and trust activities | 1,890 | 1,390 | 1,274 | 1,222 | 1,218 | ||||||||||||||
| Service charges and fees | 1,870 | 1,442 | 1,556 | 1,512 | 1,518 | ||||||||||||||
| Card revenue | 1,799 | 998 | 1,095 | 1,069 | 1,093 | ||||||||||||||
| Loan revenue | 648 | 393 | 884 | 891 | 906 | ||||||||||||||
| Bank-owned life insurance | 470 | 392 | 381 | 399 | 397 | ||||||||||||||
| Insurance commissions | 314 | 420 | 260 | 304 | 319 | ||||||||||||||
| Investment securities gains (losses), net | 32 | 17 | (4 | ) | 192 | (4 | ) | ||||||||||||
| Other | 1,773 | 358 | 350 | 456 | 246 | ||||||||||||||
| Total noninterest income | 8,796 | 5,410 | 5,796 | 6,045 | 5,693 | ||||||||||||||
| Noninterest expense | |||||||||||||||||||
| Compensation and employee benefits | 16,409 | 12,579 | 12,111 | 13,051 | 12,225 | ||||||||||||||
| Occupancy expense of premises, net | 2,127 | 1,879 | 1,166 | 2,643 | 1,882 | ||||||||||||||
| Equipment | 1,914 | 1,371 | 1,433 | 1,341 | 1,408 | ||||||||||||||
| Legal and professional | 3,291 | 965 | 1,027 | 1,861 | 959 | ||||||||||||||
| Data processing | 1,008 | 845 | 875 | 697 | 691 | ||||||||||||||
| Marketing | 869 | 606 | 678 | 672 | 690 | ||||||||||||||
| Amortization of intangibles | 930 | 452 | 503 | 547 | 589 | ||||||||||||||
| FDIC insurance | 434 | 370 | 429 | 393 | 392 | ||||||||||||||
| Communications | 377 | 342 | 342 | 341 | 341 | ||||||||||||||
| Foreclosed assets, net | 84 | 58 | 46 | (131 | ) | 145 | |||||||||||||
| Other | 1,597 | 1,150 | 1,169 | 1,207 | 1,264 | ||||||||||||||
| Total noninterest expense | 29,040 | 20,617 | 19,779 | 22,622 | 20,586 | ||||||||||||||
| Income before income tax expense | 13,892 | 9,175 | 9,320 | 8,584 | 10,287 | ||||||||||||||
| Income tax expense | 3,218 | 1,890 | 1,696 | 1,806 | 2,131 | ||||||||||||||
| Net income | $ | 10,674 | $ | 7,285 | $ | 7,624 | $ | 6,778 | $ | 8,156 | |||||||||
| Earnings per common share | |||||||||||||||||||
| Basic | $ | 0.72 | $ | 0.60 | $ | 0.62 | $ | 0.55 | $ | 0.67 | |||||||||
| Diluted | $ | 0.72 | $ | 0.60 | $ | 0.62 | $ | 0.55 | $ | 0.67 | |||||||||
| Weighted average basic common shares outstanding | 14,894 | 12,164 | 12,217 | 12,221 | 12,218 | ||||||||||||||
| Weighted average diluted common shares outstanding | 14,900 | 12,177 | 12,235 | 12,240 | 12,230 | ||||||||||||||
| Dividends paid per common share | $ | 0.2025 | $ | 0.2025 | $ | 0.195 | $ | 0.195 | $ | 0.195 | |||||||||
| (1) Reclassified to conform to the current period’s presentation. | |||||||||||||||||||
MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
AVERAGE BALANCE SHEET AND YIELD ANALYSIS
| Three Months Ended | ||||||||||||||||||||||||||||||||
| June 30, 2019 | March 31, 2019 | June 30, 2018 | ||||||||||||||||||||||||||||||
| Average Balance | Interest Income/ Expense | Average Yield/ Cost | Average Balance | Interest Income/ Expense | Average Yield/ Cost | Average Balance | Interest Income/ Expense | Average Yield/ Cost | ||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||
| ASSETS | ||||||||||||||||||||||||||||||||
| Loans, including fees (1)(2) | $ | 3,183,138 | $ | 40,495 | 5.10 | % | $ | 2,409,641 | $ | 29,308 | 4.93 | % | $ | 2,337,216 | $ | 27,744 | 4.76 | % | ||||||||||||||
| Taxable investment securities | 458,438 | 3,289 | 2.88 | % | 414,986 | 2,927 | 2.86 | % | 421,733 | 2,790 | 2.65 | % | ||||||||||||||||||||
| Tax-exempt investment securities (3) | 203,179 | 1,794 | 3.54 | % | 202,027 | 1,772 | 3.56 | % | 215,461 | 1,929 | 3.59 | % | ||||||||||||||||||||
| Total Investments | 661,617 | 5,083 | 3.08 | % | 617,013 | 4,699 | 3.09 | % | 637,194 | 4,719 | 2.97 | % | ||||||||||||||||||||
| Other | 36,031 | 185 | 2.06 | % | 3,053 | 20 | 2.66 | % | 4,271 | 18 | 1.69 | % | ||||||||||||||||||||
| Total interest earning assets | $ | 3,880,786 | 45,763 | 4.73 | % | $ | 3,029,707 | 34,027 | 4.55 | % | $ | 2,978,681 | 32,481 | 4.37 | % | |||||||||||||||||
| Other assets | 349,661 | 271,390 | 267,621 | |||||||||||||||||||||||||||||
| Total assets | $ | 4,230,447 | $ | 3,301,097 | $ | 3,246,302 | ||||||||||||||||||||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||||||||||||||
| Interest checking deposits | $ | 731,973 | $ | 1,021 | 0.56 | % | $ | 676,654 | $ | 910 | 0.55 | % | $ | 666,039 | $ | 618 | 0.37 | % | ||||||||||||||
| Money market deposits | 880,973 | 2,491 | 1.13 | % | 599,695 | 1,334 | 0.90 | % | 549,023 | 673 | 0.49 | % | ||||||||||||||||||||
| Savings deposits | 328,694 | 182 | 0.22 | % | 204,757 | 58 | 0.11 | % | 216,580 | 63 | 0.12 | % | ||||||||||||||||||||
| Time deposits | 874,619 | 4,049 | 1.86 | % | 724,772 | 3,393 | 1.90 | % | 721,293 | 2,655 | 1.48 | % | ||||||||||||||||||||
| Total interest bearing deposits | 2,816,259 | 7,743 | 1.10 | % | 2,205,878 | 5,695 | 1.05 | % | 2,152,935 | 4,009 | 0.75 | % | ||||||||||||||||||||
| Short-term borrowings | 123,586 | 500 | 1.62 | % | 109,929 | 457 | 1.69 | % | 109,752 | 359 | 1.30 | % | ||||||||||||||||||||
| Long-term debt | 229,152 | 1,876 | 3.28 | % | 179,515 | 1,260 | 2.85 | % | 167,288 | 1,024 | 2.46 | % | ||||||||||||||||||||
| Total borrowed funds | 352,738 | 2,376 | 2.70 | % | 289,444 | 1,717 | 2.41 | % | 277,040 | 1,383 | 2.00 | % | ||||||||||||||||||||
| Total interest bearing liabilities | $ | 3,168,997 | $ | 10,119 | 1.28 | % | $ | 2,495,322 | $ | 7,412 | 1.20 | % | $ | 2,429,975 | $ | 5,392 | 0.89 | % | ||||||||||||||
| Noninterest bearing deposits | 574,720 | 421,753 | 454,659 | |||||||||||||||||||||||||||||
| Other liabilities | 43,616 | 24,619 | 18,956 | |||||||||||||||||||||||||||||
| Shareholders’ equity | 443,114 | 359,403 | 342,712 | |||||||||||||||||||||||||||||
| Total liabilities and shareholders’ equity | $ | 4,230,447 | $ | 3,301,097 | $ | 3,246,302 | ||||||||||||||||||||||||||
| Net interest income(4) | $ | 35,644 | $ | 26,615 | $ | 27,089 | ||||||||||||||||||||||||||
| Net interest spread(4) | 3.45 | % | 3.35 | % | 3.48 | % | ||||||||||||||||||||||||||
| Net interest margin(4) | 3.68 | % | 3.56 | % | 3.64 | % | ||||||||||||||||||||||||||
| Total deposits(5) | $ | 3,390,979 | $ | 7,743 | 0.92 | % | $ | 2,627,631 | $ | 5,695 | 0.88 | % | $ | 2,607,594 | $ | 4,009 | 0.62 | % | ||||||||||||||
| Funding sources(6) | $ | 3,743,717 | $ | 10,119 | 1.08 | % | $ | 2,917,075 | $ | 7,412 | 1.03 | % | $ | 2,884,634 | $ | 5,392 | 0.75 | % | ||||||||||||||
(1) Non-accrual loans have been included in average loans, net of unearned income. Amortized net deferred loans and net unearned discounts on acquired loans were included in the interest income calculations. The amortization of net deferred loans fees was $(128) thousand, $(150) thousand, and $(99) thousand for the three months ended June 30, 2019, March 31, 2019, and June 30, 2018, respectively. Accretion of unearned purchase discounts was $2.2 million, $586 thousand, and $783 thousand for the three months ended June 30, 2019, March 31, 2019, and June 30, 2018, respectively.
(2) Includes tax-equivalent adjustments of $442 thousand, $273 thousand, and $258 thousand for the three months ended June 30, 2019, March 31, 2019, and June 30, 2018, respectively. The federal statutory tax rate utilized was 21%.
(3) Includes tax-equivalent adjustments of $370 thousand, $366 thousand, and $401 thousand for the three months ended June 30, 2019, March 31, 2019, and June 30, 2018, respectively. The federal statutory tax rate utilized was 21%.
(4) Tax equivalent.
(5) Total deposits is the sum of total interest-bearing deposits and noninterest-bearing demand deposits. The cost of total deposits is calculated as annualized interest expense on deposits divided by average total deposits.
(6) Funding sources is the sum of total interest-bearing liabilities and noninterest-bearing demand deposits. The cost of funding sources is calculated as annualized total interest expense divided by average funding sources.
| Six Months Ended | |||||||||||||||||||||
| June 30, 2019 | June 30, 2018 | ||||||||||||||||||||
| Average Balance | Interest Income/ Expense | Average Yield/ Cost | Average Balance | Interest Income/ Expense | Average Yield/ Cost | ||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||
| ASSETS | |||||||||||||||||||||
| Loans, including fees (1)(2) | $ | 2,798,526 | $ | 69,803 | 5.03 | % | $ | 2,321,189 | $ | 54,552 | 4.74 | % | |||||||||
| Taxable investment securities | 436,832 | 6,216 | 2.87 | % | 422,856 | 5,538 | 2.64 | % | |||||||||||||
| Tax-exempt investment securities (3) | 202,606 | 3,566 | 3.55 | % | 216,022 | 3,859 | 3.60 | % | |||||||||||||
| Total Investments | 639,438 | 9,782 | 3.08 | % | 638,878 | 9,397 | 2.97 | % | |||||||||||||
| Other | 19,633 | 205 | 2.11 | % | 3,351 | 27 | 1.62 | % | |||||||||||||
| Total interest-earning assets | $ | 3,457,597 | 79,790 | 4.65 | % | $ | 2,963,418 | 63,976 | 4.35 | % | |||||||||||
| Other assets | 310,132 | 267,902 | |||||||||||||||||||
| Total assets | $ | 3,767,729 | $ | 3,231,320 | |||||||||||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||||||||||||
| Interest checking deposits | $ | 698,654 | 1,931 | 0.56 | % | $ | 667,326 | 1,210 | 0.37 | % | |||||||||||
| Money market deposits | 746,339 | 3,825 | 1.03 | % | 538,810 | 1,166 | 0.44 | % | |||||||||||||
| Savings deposits | 267,068 | 240 | 0.18 | % | 216,407 | 126 | 0.12 | % | |||||||||||||
| Time deposits | 800,109 | 7,442 | 1.88 | % | 719,811 | 5,043 | 1.41 | % | |||||||||||||
| Total interest bearing deposits | 2,512,170 | 13,438 | 1.08 | % | 2,142,354 | 7,545 | 0.71 | % | |||||||||||||
| Short-term borrowings | 116,795 | 957 | 1.65 | % | 108,257 | 620 | 1.14 | % | |||||||||||||
| Long-term debt | 204,471 | 3,136 | 3.09 | % | 164,262 | 1,906 | 2.35 | % | |||||||||||||
| Total borrowed funds | 321,266 | 4,093 | 2.57 | % | 272,519 | 2,526 | 1.87 | % | |||||||||||||
| Total interest bearing liabilities | $ | 2,833,436 | 17,531 | 1.25 | % | $ | 2,414,873 | 10,071 | 0.84 | % | |||||||||||
| Noninterest bearing deposits | 498,733 | 455,825 | |||||||||||||||||||
| Other liabilities | 34,070 | 18,986 | |||||||||||||||||||
| Shareholders’ equity | 401,490 | 341,636 | |||||||||||||||||||
| Total liabilities and shareholders’ equity | $ | 3,767,729 | $ | 3,231,320 | |||||||||||||||||
| Net interest income(4) | $ | 62,259 | $ | 53,905 | |||||||||||||||||
| Net interest spread(4) | 3.40 | % | 3.51 | % | |||||||||||||||||
| Net interest margin(4) | 3.63 | % | 3.66 | % | |||||||||||||||||
| Total deposits(5) | $ | 3,010,903 | $ | 13,438 | 0.90 | % | $ | 2,598,179 | $ | 7,545 | 0.59 | % | |||||||||
| Funding sources(6) | $ | 3,332,169 | $ | 17,531 | 1.06 | % | $ | 2,870,698 | $ | 10,071 | 0.71 | % | |||||||||
(1) Non-accrual loans have been included in average loans, net of unearned income. Amortized net deferred loans and net unearned discounts on acquired loans were included in the interest income calculations. The amortization of net deferred loans fees was $(278) thousand and $(212) thousand for the six months ended June 30, 2019 and June 30, 2018, respectively. Accretion of unearned purchase discounts was $2.8 million and $1.7 million for the six months ended June 30, 2019 and June 30, 2018, respectively.
(2) Includes tax-equivalent adjustments of $715 thousand and $499 thousand for the six months ended June 30, 2019 and June 30, 2018, respectively. The federal statutory tax rate utilized was 21%.
(3) Includes tax-equivalent adjustments of $736 thousand and $802 thousand for the six months ended June 30, 2019 and June 30, 2018, respectively. The federal statutory tax rate utilized was 21%.
(4) Tax equivalent.
(5) Total deposits is the sum of total interest-bearing deposits and noninterest-bearing demand deposits. The cost of total deposits is calculated as annualized interest expense on deposits divided by average total deposits.
(6) Funding sources is the sum of total interest-bearing liabilities and noninterest-bearing demand deposits. The cost of funding sources is calculated as annualized total interest expense divided by average funding sources.
Non-GAAP Measures
This earnings release contains non-GAAP measures for tangible book value per share, tangible equity to tangible assets ratio, return on average tangible equity, net interest margin (tax equivalent), loan yield (tax equivalent) and the efficiency ratio. Management believes these measures provide investors with useful information regarding the Company’s profitability, financial condition and capital adequacy, consistent with how management evaluates the Company’s financial performance. The following tables provide a reconciliation of each non-GAAP measure to the most comparable GAAP measure.
| As of | As of | As of | As of | As of | |||||||||||||||
| June 30, | March 31, | December 31, | September 30, | June 30, | |||||||||||||||
| (unaudited, dollars in thousands, except per share data) | 2019 | 2019 | 2018 | 2018 | 2018 | ||||||||||||||
| Tangible Equity | |||||||||||||||||||
| Total shareholders’ equity | $ | 488,351 | $ | 363,849 | $ | 357,067 | $ | 349,189 | $ | 346,201 | |||||||||
| Adjustments to tangible equity | |||||||||||||||||||
| Plus: Deferred tax liability associated with intangibles | 7,676 | 546 | 660 | 786 | 924 | ||||||||||||||
| Less: Intangible assets, net | (130,000 | ) | (74,077 | ) | (74,529 | ) | (75,032 | ) | (75,579 | ) | |||||||||
| Tangible equity | $ | 366,027 | $ | 290,318 | $ | 283,198 | $ | 274,943 | $ | 271,546 | |||||||||
| Tangible Assets | |||||||||||||||||||
| Total assets | $ | 4,662,463 | $ | 3,308,975 | $ | 3,291,480 | $ | 3,267,965 | $ | 3,276,277 | |||||||||
| Plus: Deferred tax liability associated with intangibles | 7,676 | 546 | 660 | 786 | 924 | ||||||||||||||
| Less: Intangible assets, net | (130,000 | ) | (74,077 | ) | (74,529 | ) | (75,032 | ) | (75,579 | ) | |||||||||
| Tangible assets | $ | 4,540,139 | $ | 3,235,444 | $ | 3,217,611 | $ | 3,193,719 | $ | 3,201,622 | |||||||||
| Common shares outstanding | 16,221,160 | 12,153,045 | 12,180,015 | 12,221,107 | 12,221,107 | ||||||||||||||
| Tangible Book Value Per Share | $ | 22.56 | $ | 23.89 | $ | 23.25 | $ | 22.50 | $ | 22.22 | |||||||||
| Tangible Equity/Tangible Assets | 8.06 | % | 8.97 | % | 8.80 | % | 8.61 | % | 8.48 | % | |||||||||
| For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||
| (unaudited, dollars in thousands) | June 30, 2019 | March 31, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 | ||||||||||||||
| Net Income | $ | 10,674 | $ | 7,285 | $ | 8,156 | $ | 17,959 | $ | 15,949 | |||||||||
| Plus: Intangible amortization, net of tax(1) | 735 | 357 | 465 | 1,092 | 984 | ||||||||||||||
| Adjusted net income | $ | 11,409 | $ | 7,642 | $ | 8,621 | $ | 19,051 | $ | 16,933 | |||||||||
| Average Tangible Equity | |||||||||||||||||||
| Average total shareholders’ equity | $ | 443,114 | $ | 359,403 | $ | 342,712 | $ | 401,490 | $ | 341,636 | |||||||||
| Plus: Average deferred tax liability associated with intangibles | 2,877 | 601 | 996 | 1,745 | 1,074 | ||||||||||||||
| Less: Average intangible assets, net of amortization | (102,919 | ) | (74,293 | ) | (75,780 | ) | (88,633 | ) | (76,065 | ) | |||||||||
| Average tangible equity | $ | 343,072 | $ | 285,711 | $ | 267,928 | $ | 314,602 | $ | 266,645 | |||||||||
| Return on Average Tangible Equity (annualized) | 13.34 | % | 10.85 | % | 12.91 | % | 12.21 | % | 12.81 | % | |||||||||
| Net Interest Margin Tax Equivalent Adjustment | |||||||||||||||||||
| Net interest income | $ | 34,832 | $ | 25,976 | $ | 26,430 | $ | 60,808 | $ | 52,604 | |||||||||
| Plus tax equivalent adjustment:(1) | |||||||||||||||||||
| Loans | 442 | 273 | 258 | 715 | 499 | ||||||||||||||
| Securities | 370 | 366 | 401 | 736 | 802 | ||||||||||||||
| Tax equivalent net interest income (1) | $ | 35,644 | $ | 26,615 | $ | 27,089 | $ | 62,259 | $ | 53,905 | |||||||||
| Average interest earning assets | $ | 3,880,786 | $ | 3,029,707 | $ | 2,978,681 | $ | 3,457,597 | $ | 2,963,418 | |||||||||
| Net Interest Margin | 3.68 | % | 3.56 | % | 3.65 | % | 3.63 | % | 3.67 | % | |||||||||
| (1) Computed on a tax-equivalent basis, assuming a federal income tax rate of 21%. | |||||||||||||||||||
| For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||
| (dollars in thousands) | June 30, 2019 | March 31, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 | ||||||||||||||
| Yield on Average Loans | |||||||||||||||||||
| Interest income on loans, including fees | $ | 40,053 | $ | 29,035 | $ | 27,486 | $ | 69,088 | $ | 54,053 | |||||||||
| Plus tax equivalent adjustment:(1) | |||||||||||||||||||
| Loans | 442 | 273 | 258 | 715 | 499 | ||||||||||||||
| Tax equivalent loan interest income (1) | $ | 40,495 | $ | 29,308 | $ | 27,744 | $ | 69,803 | $ | 54,552 | |||||||||
| Average loans | $ | 3,183,138 | $ | 2,409,641 | $ | 2,337,216 | $ | 2,798,526 | $ | 2,321,189 | |||||||||
| Average Yield on Loans | 5.10 | % | 4.93 | % | 4.76 | % | 5.03 | % | 4.74 | % | |||||||||
| Operating Expense | |||||||||||||||||||
| Total noninterest expense | $ | 29,040 | $ | 20,617 | $ | 20,586 | $ | 49,657 | $ | 40,814 | |||||||||
| Less: Amortization of intangibles | (930 | ) | (452 | ) | (589 | ) | (1,382 | ) | (1,246 | ) | |||||||||
| Operating expense | $ | 28,110 | $ | 20,165 | $ | 19,997 | $ | 48,275 | $ | 39,568 | |||||||||
| Operating Revenue | |||||||||||||||||||
| Tax equivalent net interest income (2) | $ | 35,644 | $ | 26,615 | $ | 27,089 | $ | 62,259 | $ | 53,905 | |||||||||
| Plus: Noninterest income | 8,796 | 5,410 | 5,693 | 14,206 | 11,374 | ||||||||||||||
| Impairment losses on investment securities | — | — | — | — | — | ||||||||||||||
| Less: (Gain) loss on sale or call of debt securities | (32 | ) | (17 | ) | 4 | (49 | ) | (5 | ) | ||||||||||
| Operating revenue | $ | 44,408 | $ | 32,008 | $ | 32,786 | $ | 76,416 | $ | 65,274 | |||||||||
| Efficiency Ratio | 63.30 | % | 63.00 | % | 60.99 | % | 63.17 | % | 60.62 | % | |||||||||
| (1) Computed assuming a combined marginal income tax rate of 25% on deductible items. | |||||||||||||||||||
| (2) Computed on a tax-equivalent basis, assuming a federal income tax rate of 21%. | |||||||||||||||||||
| Contact: | |||
| Charles N. Funk | Barry S. Ray | ||
| President and Chief Executive Officer | Senior Executive Vice President and Chief Financial Officer | ||
| 319.356.5800 | 319.356.5800 | ||