MidWestOne Financial Group, Inc. Reports Financial Results for the Fourth Quarter and Full Year 2018

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IOWA CITY, Iowa, Jan. 24, 2019 (GLOBE NEWSWIRE) -- MidWestOne Financial Group, Inc. (Nasdaq - MOFG) ("we", "our", or "the Company") today reported its financial results for the fourth quarter and full year 2018. Net income for the fourth quarter of 2018 was $7.6 million, or $0.62 per diluted common share, compared to net income of $6.8 million, or $0.55 per diluted common share, for the third quarter of 2018 (the "linked quarter"). Net income for the full year 2018 was $30.4 million, or $2.48 per diluted common share, compared to net income for the full year 2017 of $18.7 million, or $1.55 per diluted common share. Merger-related costs reduced earnings per share by $0.02 for the fourth quarter of 2018, $0.05 for the linked quarter, and $0.06 for the full year 2018.

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FINANCIAL HIGHLIGHTS

    
 As of or For the Three Months Ended As of or For the Years Ended
 December 31, September 30, December 31, December 31,
 2018 2018 2018 2017
 (Dollars in thousands, except per share amounts)
Net income$7,624  $6,778  $30,351  $18,699 
Diluted earnings per share$0.62  $0.55  $2.48  $1.55 
Return on average assets0.92% 0.83% 0.93% 0.60%
Return on average equity8.61% 7.72% 8.78% 5.58%
Return on average tangible equity (1)11.47% 10.45% 11.86% 8.00%
        
Net interest margin (tax equivalent)(1)3.59% 3.56% 3.62% 3.83%
Yield on average loans (tax equivalent)(1)4.85% 4.74% 4.77% 4.73%
Cost of average total deposits0.78% 0.70% 0.66% 0.46%
Efficiency ratio(1)58.33% 68.58% 62.05% 58.64%
        
Total assets$3,291,480  $3,267,965  $3,291,480  $3,212,271 
Loans held for investment$2,398,779  $2,377,649  $2,398,779  $2,286,695 
Total deposits$2,612,929  $2,632,259  $2,612,929  $2,605,319 
        
Equity to assets ratio10.85% 10.69% 10.85% 10.59%
Tangible equity/tangible assets(1)8.80% 8.61% 8.80% 8.44%
Book value per share$29.32  $28.57  $29.32  $27.85 
Tangible book value per share(1)$23.25  $22.50  $23.25  $21.67 
Loan to deposit ratio91.80% 90.33% 91.80% 87.77%
        
(1) Non-GAAP measure. See pages 14-15 for a detailed explanation.
 

Charles Funk, President and CEO, commented, "The year of 2018 represents the best net income and earnings per share performance in our Company's history. While we are pleased with the Company's progress, we are far from satisfied and are confident that 2019 will be another year of tangible improvement."

INCOME STATEMENT HIGHLIGHTS

Net Interest Income

Net interest income increased in the fourth quarter of 2018 to $26.7 million from $26.4 million in the linked quarter due primarily to a higher average loan yields. The loan yield was 4.85% for the fourth quarter of 2018 compared to 4.74% for the linked quarter. The increased loan yield reflected higher coupon interest partially offset by a decrease in discount accretion on acquired loans. Discount accretion on acquired loans decreased to $454 thousand in the current quarter from $605 thousand in the linked quarter. The total remaining acquired loan discount as of December 31, 2018 was $5.8 million. The linked quarter also included $313 thousand in interest reversals from nonaccrual loans compared to $89 thousand in the fourth quarter of 2018.

The tax equivalent net interest margin (NIM) increased to 3.59% for the fourth quarter of 2018 from 3.56% in the linked quarter. The increase in the NIM was due primarily to higher yields on average loans, partially offset by higher deposit and borrowing costs. Loan purchase discount accretion added 6 bps to the NIM in the current quarter compared to 8 bps in the linked quarter.

The cost of average total deposits in the fourth quarter of 2018 was 0.78% compared to 0.70% in the linked quarter. The increase reflects the higher rates paid to attract and retain deposits in light of recent market rate increases and the competitive market for deposits.

"The flat yield curve and increased competition for deposits is a headwind for the net interest margin," stated Mr. Funk. "However, our year-over-year quarterly margin, excluding loan purchase discount accretion and the effects of tax reform, was basically flat and we are pleased with this performance."

Noninterest Income

Noninterest income for the fourth quarter of 2018 decreased $339 thousand, or 6%, from the linked quarter. The decrease was primarily due to $190 thousand in foreclosed asset gains, $146 thousand of income from customer derivative contracts, and $192 thousand of investment security gains, all in the linked quarter. The investment security gains in the linked quarter were recognized in connection with the sales of certain tax-exempt municipal securities. Those sales were completed to take advantage of favorable market pricing for those securities. Other service charges and fees in the fourth quarter of 2018 were up mainly due to a $211 thousand recovery related to an acquired asset.

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

  
 Three Months Ended
 December 31, September 30,
Noninterest Income2018 2018
 (In thousands)
Trust, investment, and insurance fees$1,534  $1,526 
Service charges and fees on deposit accounts1,175  1,148 
Loan origination and servicing fees884  891 
Other service charges and fees1,751  1,502 
Bank-owned life insurance381  399 
Investment securities gains (losses), net(4) 192 
Other(76) 326 
Total noninterest income$5,645  $5,984 
 

Noninterest Expense

Noninterest expense for the fourth quarter of 2018 decreased $3.0 million, or 13.2%, from the linked quarter. The decrease was driven by occupancy charges, salaries and employee benefits, and professional fees. Occupancy and equipment, net, decreased $1.4 million, as the linked quarter included a $585 thousand write-down of a former Minnesota banking center, whereas the current quarter included a $743 gain on the sale of a former bank administration building. Salaries and employee benefits decreased $940 thousand primarily from decreased benefits expenses of $438 thousand in the fourth quarter of 2018 due to expense accrual adjustments, and approximately $274 thousand of expenses in the linked quarter related to the retirement of the Company's former Chief Credit Officer. Professional fees decreased $834 thousand, mainly due to a decrease of $499 thousand of costs related to our planned merger with ATBancorp as  well as decreased credit-related legal fees.

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

  
 Three Months Ended
 December 31, September 30,
Noninterest Expense2018 2018
 (In thousands)
Salaries and employee benefits$12,111  $13,051 
Occupancy and equipment, net2,597  3,951 
Professional fees1,027  1,861 
Data processing875  697 
FDIC insurance429  393 
Amortization of intangibles503  547 
Other2,261  2,311 
Total noninterest expense$19,803  $22,811 
        

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

  
 Three Months Ended
 December 31, September 30,
 2018 2018
 (In thousands)
Occupancy and equipment, net$2  $ 
Professional fees89  588 
Data processing100   
Other15   
Total merger-related costs$206  $588 
        

Income Taxes

The effective income tax rate was 18.2% for the fourth quarter of 2018 and 21.0% for the linked quarter. The effective tax rate for the fourth quarter of 2018 was lower due primarily to certain tax credits recognized during the period. The effective tax rate for the full year 2018 was 20.1%.

BALANCE SHEET HIGHLIGHTS

Loans Held for Investment

Loans held for investment, net of unearned income, increased $112.1 million, or 4.9%, from $2.29 billion at December 31, 2017, to $2.40 billion at December 31, 2018. Loan portfolio segments experiencing the largest increases were commercial real estate and commercial and industrial. As of December 31, 2018, commercial real estate loans comprised approximately 53% of the loan portfolio. Commercial and industrial loans was the next largest category at 22% of total loans, followed by residential real estate loans at 19%, agricultural loans at 4%, and consumer loans at 2%.

Mr. Funk continued, "Loan growth of 4.9% represents good performance during a year in which approximately 25% of our footprint faced a challenging rural economy."

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 Investment2018 2018 2017
 (In thousands)
Commercial and industrial$533,188  $523,333  $503,624 
Agricultural96,956  103,207  105,512 
Commercial real estate     
Construction and development217,617  223,324  165,276 
Farmland88,807  85,735  87,868 
Multifamily134,741  126,663  134,506 
Other826,163  818,068  784,321 
Total commercial real estate1,267,328  1,253,790  1,171,971 
Residential real estate     
One-to-four family first liens341,830  342,755  352,226 
One-to-four family junior liens120,049  115,768  117,204 
Total residential real estate461,879  458,523  469,430 
Consumer39,428  38,796  36,158 
Total loans held for investment, net of unearned income$2,398,779  $2,377,649  $2,286,695 
            

Provision and Allowance for Loan Losses

For the fourth quarter of 2018, the provision for loan losses was $3.3 million, an increase of $2.3 million from the linked quarter. The provision for loan losses for the fourth quarter of 2018 was mainly due to net charge-offs experienced during the period and the recognition of impairment on one credit relationship.

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

    
 Three Months Ended Years Ended
 December 31, September 30, December 31, December 31, December 31,
Allowance for Loan Losses Roll Forward2018 2018 2017 2018 2017
 (In thousands)
Beginning balance$31,278  $30,800  $26,510  $28,059  $21,850 
Charge-offs(5,456) (817) (9,296) (7,040) (12,033)
Recoveries235  345  176  988  908 
Net charge-offs(5,221) (472) (9,120) (6,052) (11,125)
Provision for credit losses3,250  950  10,669  7,300  17,334 
Ending balance$29,307  $31,278  $28,059  $29,307  $28,059 
                    

"$4.8 million of the net charge-offs this quarter was related to a loan that had been partially charged-off in the fourth quarter of 2017," noted Mr. Funk. "This loan is in the process of being resolved in a bankruptcy sale. While we had reserved $3.4 million against this loan, the proceeds of the sale were lower than we anticipated, thus necessitating an additional provision for loan loss. We did not, however, see any significant deterioration in our agricultural portfolio during the quarter, and at 147.09%, our loan loss reserve more than covers our nonperforming assets."

Deposits and Borrowings

Total deposits at December 31, 2018, were $2.61 billion, an increase of $7.6 million from December 31, 2017. The mix of deposits saw increases between December 31, 2017 and December 31, 2018 of $21.8 million, or 3.1%, in certificates of deposit, and $11.6 million, or 0.9%, in interest-bearing checking deposits. These increases were partially offset by a decrease of $22.8 million, or (4.9)%, in non-interest-bearing demand deposits, and $3.0 million, or (1.4)%, in savings deposits between the two dates.

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

      
 December 31, September 30, December 31,
Deposit Composition2018 2018 2017
 (In thousands)
Noninterest-bearing demand$439,133  $458,576  $461,969 
Interest checking683,894  691,743  687,433 
Money market555,839  545,179  540,679 
Savings210,416  211,591  213,430 
Total non-maturity deposits1,889,282  1,907,089  1,903,511 
Time deposits less than $100,000352,631  348,099  324,681 
Time deposits of $100,000 to $250,000179,764  174,459  158,259 
Time deposits of $250,000 and over191,252  202,612  218,868 
Total time deposits723,647  725,170  701,808 
Total deposits$2,612,929  $2,632,259  $2,605,319 
            

Between December 31, 2017 and December 31, 2018, federal funds purchased rose $55.9 million, to $56.9 million compared to $1.0 million, while securities sold under agreements to repurchase declined $21.7 million, due to normal cash need fluctuations by customers. FHLB borrowings rose $21.0 million or 18.3%, between the two dates. The overall increase in borrowings was the result of growth in the loan portfolio exceeding deposit growth. At December 31, 2018, long-term debt had an outstanding balance of $7.5 million, a decrease of $5.0 million, or 40.0%, from December 31, 2017, due to normal scheduled repayments.

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CREDIT QUALITY

Nonaccrual loans increased $5.1 million between December 31, 2017 and December 31, 2018, primarily due to $16.1 million being added to nonaccrual status, partially offset by $2.7 million of payments, net charge-offs of $5.4 million, and $2.3 million coming out of nonaccrual status. The balance of loans modified in a troubled debt restructuring ("TDRs") decreased $4.5 million from year-end 2017, primarily due to payments of $3.5 million. Loans 90 days or more past due and still accruing interest increased $158 thousand between December 31, 2017, and December 31, 2018. At December 31, 2018, net foreclosed assets totaled $535 thousand, down from $2.0 million at December 31, 2017. As of December 31, 2018, the allowance for loan losses was $29.3 million, or 1.22% of total loans, compared with $28.1 million, or 1.23% of total loans at December 31, 2017.

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

      
 December 31, September 30, December 31,
Credit Quality Metrics2018 2018 2017
 (dollars in thousands)
Nonaccrual loans held for investment$19,924  $20,929  $14,784 
Performing troubled debt restructured loans held for investment5,284  7,354  8,870 
Accruing loans contractually past due 90 days or more365  171  207 
Foreclosed assets, net535  549  2,010 
Total nonperforming assets$26,108  $29,003  $25,871 
Allowance for loan losses29,307  31,278  28,059 
Provision for loan losses (for the quarter)3,250  950  10,669 
Net charge-offs (for the quarter)5,221  472  9,120 
Net charge-offs to average loans held for investment (for the quarter)0.86% 0.08% 1.60%
Allowance for loan losses to loans held for investment1.22% 1.32% 1.23%
Allowance for loan losses to nonaccrual loans held for investment147.09% 149.45% 189.79%
Nonaccrual loans held for investment to loans held for investment0.83% 0.88% 0.65%
         

CORPORATE UPDATE

Proposed Merger with ATBancorp

On January 11, 2019, the Company held a special meeting of shareholders, at which the Company's shareholders voted on a proposal to approve and adopt the Agreement and Plan of Merger, dated August 21, 2018, by and between the Company and ATBancorp ("ATB"), pursuant to which ATB will merge with and into the Company (the "Merger Proposal"), and on a proposal to approve the issuance of approximately 4,117,541 shares of the Company's common stock to ATB's shareholders in connection with the merger. The shareholders present in person or by proxy at the special meeting approved both the Merger Proposal and the issuance of common stock.

For further information, please refer to the Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on January 11, 2019.

Mr. Funk commented, "We anticipate closing this transaction late in the first quarter of 2019 and are excited about the opportunities presented by this transaction, not the least of which is projected significant earnings accretion to our Company."

Share Repurchase Program

During the fourth quarter of 2018 and for the year ended December 31, 2018, we repurchased 42,130 shares at an average price of $24.81 and a total cost of $1.0 million. At December 31, 2018, $4.0 million remained available to repurchase shares under the Company's current share repurchase program.

Quarterly Cash Dividend Declared

On January 15, 2019, the Company's board of directors declared a quarterly cash dividend of $0.2025 per common share, an increase of 3.8% from the dividend paid in the previous quarter. The dividend is payable March 15, 2019, to shareholders of record at the close of business on February 28, 2019. At this quarterly rate, the indicated annual cash dividend is equal to $0.81 per common share.

"We are pleased to raise the dividend to our shareholders in 2019. We continue to monitor opportunities to repurchase our stock," concluded Mr. Funk.

CONFERENCE CALL DETAILS

The Company will host a conference call for investors at 11:00 a.m., CDT, on Friday, January 25, 2019. To participate, please dial 866-233-3483 at least fifteen minutes before the call start time. If you are unable to participate on the call, a replay will be available until April 25, 2019, by calling 877-344-7529 and using the replay access code of 10126188. 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 risk of mergers, including 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 similar services; (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,
 2018 2018 2017
 (In thousands)
ASSETS     
Cash and due from banks$43,787  $49,229  $44,818 
Interest-earning deposits in banks1,693  4,150  5,474 
Federal funds sold    680 
Total cash and cash equivalents45,480  53,379  50,972 
Equity securities at fair value2,737  2,797  2,336 
Debt securities available for sale at fair value414,101  407,766  445,324 
Held to maturity securities at amortized cost195,822  191,733  195,619 
Loans held for sale666  1,124  856 
Loans held for investment, net of unearned income2,398,779  2,377,649  2,286,695 
Allowance for loan losses(29,307) (31,278) (28,059)
Loans held for investment, net2,369,472  2,346,371  2,258,636 
Premises and equipment, net75,773  76,497  75,969 
Goodwill64,654  64,654  64,654 
Other intangible assets, net9,876  10,378  12,046 
Foreclosed assets, net535  549  2,010 
Other112,364  112,717  103,849 
Total assets$3,291,480  $3,267,965  $3,212,271 
LIABILITIES     
Noninterest-bearing deposits$439,133  $458,576  $461,969 
Interest-bearing deposits2,173,796  2,173,683  2,143,350 
Total deposits2,612,929  2,632,259  2,605,319 
Federal funds purchased56,900  19,056  1,000 
Securities sold under agreements to repurchase74,522  68,922  96,229 
Federal Home Loan Bank borrowings136,000  143,000  115,000 
Junior subordinated notes issued to capital trusts23,888  23,865  23,793 
Long-term debt7,500  8,750  12,500 
Other22,674  22,924  18,126 
Total liabilities2,934,413  2,918,776  2,871,967 
SHAREHOLDERS' EQUITY     
Common stock12,463  12,463  12,463 
Additional paid-in capital187,813  187,581  187,486 
Treasury stock(6,499) (5,474) (5,121)
Retained earnings168,951  163,709  148,078 
Accumulated other comprehensive loss(5,661) (9,090) (2,602)
Total shareholders' equity357,067  349,189  340,304 
Total liabilities and shareholders' equity$3,291,480  $3,267,965  $3,212,271 
            


 
MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
 
  Three Months Ended Years Ended
  December 31, September 30, December 31, December 31,
  2018 2018 2017 2018 2017
  (In thousands, except per share data)
Interest income          
Loans $29,052  $28,088  $26,231  $111,193  $102,366 
Taxable securities 2,949  2,965  2,676  11,742  10,573 
Tax-exempt securities 1,375  1,395  1,540  5,827  6,239 
Deposits in banks and federal funds sold 23  12  91  62  142 
Total interest income 33,399  32,460  30,538  128,824  119,320 
Interest expense          
Deposits 5,161  4,625  3,120  17,331  11,489 
Federal funds purchased 181  144  19  661  171 
Securities sold under agreements to repurchase 190  173  116  641  241 
Federal Home Loan Bank borrowings 739  741  517  2,612  1,838 
Other borrowings 4  3  3  13  12 
Junior subordinated notes issued to capital trusts 306  313  245  1,184  949 
Long-term debt 90  100  107  399  445 
Total interest expense 6,671  6,099  4,127  22,841  15,145 
Net interest income 26,728  26,361  26,411  105,983  104,175 
Provision for loan losses 3,250  950  10,669  7,300  17,334 
Net interest income after provision for loan losses 23,478  25,411  15,742  98,683  86,841 
Noninterest income          
Trust, investment, and insurance fees 1,534  1,526  1,595  6,237  6,189 
Service charges and fees on deposit accounts 1,175  1,148  1,291  4,649  5,126 
Loan origination and servicing fees 884  891  889  3,622  3,421 
Other service charges and fees 1,751  1,502  1,412  6,215  5,992 
Bank-owned life insurance 381  399  398  1,610  1,388 
Investment securities gains (losses), net (4) 192  2  193  241 
Other (76) 326  (53) 262  13 
Total noninterest income 5,645  5,984  5,534  22,788  22,370 
Noninterest expense          
Salaries and employee benefits 12,111  13,051  12,152  49,758  47,864 
Occupancy and equipment, net 2,597  3,951  2,982  13,037  12,305 
Professional fees 1,027  1,861  971  4,641  3,962 
Data processing 875  697  692  2,951  2,674 
FDIC insurance 429  393  308  1,533  1,265 
Amortization of intangibles 503  547  713  2,296  3,125 
Other 2,261  2,311  2,275  9,287  8,941 
Total noninterest expense 19,803  22,811  20,093  83,503  80,136 
Income before income tax expense 9,320  8,584  1,183  37,968  29,075 
Income tax expense 1,696  1,806  2,773  7,617  10,376 
Net income $7,624  $6,778  $(1,590) $30,351  $18,699 
Earnings (loss) per common share          
Basic $0.62  $0.55  $(0.13) $2.48  $1.55 
Diluted $0.62  $0.55  $(0.13) $2.48  $1.55 
Weighted average basic common shares outstanding 12,217  12,221  12,219  12,220  12,038 
Weighted average diluted common shares outstanding 12,235  12,240  12,219  12,237  12,063 
Dividends paid per common share $0.195  $0.195  $0.17  $0.78  $0.67 
                     


 
MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
FIVE QUARTER CONSOLIDATED BALANCE SHEETS
          
 December 31, September 30, June 30, March 31, December 31,
 2018 2018 2018 2018 2017
 (In thousands)
ASSETS         
Cash and due from banks$43,787  $49,229  $41,547  $39,929  $44,818 
Interest-earning deposits in banks1,693  4,150  1,717  2,467  5,474 
Federal funds sold       680 
Total cash and cash equivalents45,480  53,379  43,264  42,396  50,972 
Equity securities at fair value2,737  2,797  2,809  2,815  2,336 
Debt securities available for sale at fair value414,101  407,766  438,312  446,087  445,324 
Held to maturity securities at amortized cost195,822  191,733  192,896  194,617  195,619 
Loans held for sale666  1,124  1,528  870  856 
Loans held for investment, net of unearned income2,398,779  2,377,649  2,364,035  2,326,158  2,286,695 
Allowance for loan losses(29,307) (31,278) (30,800) (29,671) (28,059)
Loans held for investment, net2,369,472  2,346,371  2,333,235  2,296,487  2,258,636 
Premises and equipment, net75,773  76,497  78,106  77,552  75,969 
Goodwill64,654  64,654  64,654  64,654  64,654 
Other intangible assets, net9,876  10,378  10,925  11,389  12,046 
Foreclosed assets, net535  549  676  1,001  2,010 
Other112,364  112,717  109,872  103,774  103,849 
Total assets$3,291,480  $3,267,965  $3,276,277  $3,241,642  $3,212,271 
LIABILITIES         
Non-interest-bearing deposits$439,133  $458,576  $469,862  $450,168  $461,969 
Interest-bearing deposits2,173,796  2,173,683  2,134,339  2,181,753  2,143,350 
Total deposits2,612,929  2,632,259  2,604,201  2,631,921  2,605,319 
Federal funds purchased56,900  19,056  52,421  25,573  1,000 
Securities sold under agreements to repurchase74,522  68,922  75,046  67,738  96,229 
Federal Home Loan Bank borrowings136,000  143,000  143,000  123,000  115,000 
Junior subordinated notes issued to capital trusts23,888  23,865  23,841  23,817  23,793 
Long-term debt7,500  8,750  10,000  11,250  12,500 
Other22,674  22,924  21,567  16,966  18,126 
Total liabilities2,934,413  2,918,776  2,930,076  2,900,265  2,871,967 
SHAREHOLDERS' EQUITY         
Common stock12,463  12,463  12,463  12,463  12,463 
Additional paid-in capital187,813  187,581  187,304  187,188  187,486 
Treasury stock(6,499) (5,474) (5,474) (5,612) (5,121)
Retained earnings168,951  163,709  159,315  153,542  148,078 
Accumulated other comprehensive income (loss)(5,661) (9,090) (7,407) (6,204) (2,602)
Total shareholders' equity357,067  349,189  346,201  341,377  340,304 
Total liabilities and shareholders' equity$3,291,480  $3,267,965  $3,276,277  $3,241,642  $3,212,271 
                    


 
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,
 2018 2018 2018 2018 2017
 (In thousands, except per share data)
Interest income         
Loans$29,052  $28,088  $27,486  $26,567  $26,231 
Taxable securities2,949  2,965  2,940  2,888  2,676 
Tax-exempt securities1,375  1,395  1,528  1,529  1,540 
Deposits in banks and federal funds sold23  12  19  8  91 
Total interest income33,399  32,460  31,973  30,992  30,538 
Interest expense         
Deposits5,161  4,625  4,009  3,536  3,120 
Federal funds purchased181  144  211  125  19 
Securities sold under agreements to repurchase190  173  144  134  116 
Federal Home Loan Bank borrowings739  741  615  517  517 
Other borrowings4  3  4  2  3 
Junior subordinated notes issued to capital trusts306  313  307  258  245 
Long-term debt90  100  102  107  107 
Total interest expense6,671  6,099  5,392  4,679  4,127 
Net interest income26,728  26,361  26,581  26,313  26,411 
Provision for loan losses3,250  950  1,250  1,850  10,669 
Net interest income after provision for loan losses23,478  25,411  25,331  24,463  15,742 
Noninterest income         
Trust, investment, and insurance fees1,534  1,526  1,537  1,640  1,595 
Service charges and fees on deposit accounts1,175  1,148  1,158  1,168  1,291 
Loan origination and servicing fees884  891  906  941  889 
Other service charges and fees1,751  1,502  1,582  1,380  1,412 
Bank-owned life insurance381  399  397  433  398 
Investment securities gains (losses), net(4) 192  (4) 9  2 
Other(76) 326  (89) 101  (53)
Total noninterest income5,645  5,984  5,487  5,672  5,534 
Noninterest expense         
Salaries and employee benefits12,111  13,051  12,225  12,371  12,152 
Occupancy and equipment, net2,597  3,951  3,238  3,251  2,982 
Professional fees1,027  1,861  959  794  971 
Data processing875  697  691  688  692 
FDIC insurance429  393  392  319  308 
Amortization of intangibles503  547  589  657  713 
Other2,261  2,311  2,437  2,278  2,275 
Total noninterest expense19,803  22,811  20,531  20,358  20,093 
Income before income tax expense9,320  8,584  10,287  9,777  1,183 
Income tax expense1,696  1,806  2,131  1,984  2,773 
Net income (loss)$7,624  $6,778  $8,156  $7,793  $(1,590)
Earnings (loss) per common share         
Basic$0.62  $0.55  $0.67  $0.64  $(0.13)
Diluted$0.62  $0.55  $0.67  $0.64  $(0.13)
Weighted average basic common shares outstanding12,217  12,221  12,218  12,223  12,219 
Weighted average diluted common shares outstanding12,235  12,240  12,230  12,242  12,219 
Dividends paid per common share$0.195  $0.195  $0.195  $0.20  $0.17 
                    


 
MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
AVERAGE BALANCE SHEET AND YIELD ANALYSIS
  
 Three Months Ended
 December 31, 2018 September 30, 2018 December 31, 2017
 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 (1)(2)$2,398,859  $29,330  4.85% $2,375,100  $28,358  4.74% $2,258,009  $26,716  4.69%
Investment securities:                 
Taxable securities421,203  2,949  2.78% 426,674  2,965  2.76  415,518  2,676  2.56%
Tax exempt securities (3)198,073  1,732  3.47% 200,577  1,760  3.48  218,022  2,354  4.28%
Total investment securities619,276  4,681  3.00% 627,251  4,725  2.99  633,540  5,030  3.15%
Federal funds sold and interest-earning deposits in banks4,243  23  2.15% 2,541  12  1.87  27,465  91  1.31%
Total interest-earning assets$3,022,378  34,034  4.47% $3,004,892  33,095  4.37% $2,919,014  31,837  4.33%
Cash and due from banks37,599      36,759      37,122     
Premises and equipment76,271      77,476      75,445     
Allowance for loan losses(31,712)     (31,441)     (26,321)    
Other assets173,590      170,597      165,800     
Total assets$3,278,126      $3,258,283      $3,171,060     
LIABILITIES AND SHAREHOLDERS' EQUITY                 
Savings and interest-bearing demand deposits$1,447,599  1,994  0.55% $1,425,768  1,685  0.47% $1,408,099  1,085  0.31%
Certificates of deposit724,973  3,167  1.73% 729,795  2,940  1.60% 667,362  2,035  1.21%
Total interest-bearing deposits2,172,572  5,161  0.94% 2,155,563  4,625  0.85% 2,075,461  3,120  0.60%
Federal funds purchased and securities sold under agreements to repurchase104,710  371  1.41% 99,254  317  1.27% 95,376  135  0.56%
Federal Home Loan Bank borrowings137,065  739  2.14% 143,326  741  2.05% 126,087  517  1.63%
Long-term debt and junior subordinated notes issued to capital trusts33,964  400  4.67% 35,109  416  4.70% 38,823  355  3.63%
Total borrowed funds275,739  1,510  2.17% 277,689  1,474  2.11% 260,286  1,007  1.53%
Total interest-bearing liabilities$2,448,311  6,671  1.08% $2,433,252  6,099  0.99% $2,335,747  4,127  0.70%
Demand deposits454,185      453,124      467,784     
Other liabilities24,232      23,776      19,851     
Shareholders' equity351,398      348,131      347,678     
Total liabilities and shareholders' equity$3,278,126      $3,258,283      $3,171,060     
Net interest income(4)  $27,363      $26,996      $27,710   
Net interest spread(4)    3.39%     3.38%     3.63%
Net interest margin(4)    3.59%     3.56%     3.77%
Total deposits(5)$2,626,757  $5,161  0.78% $2,608,687  $4,625  0.70% $2,543,245  $3,120  0.49%
Funding sources(6)$2,902,496  $6,671  0.91% $2,886,376  $6,099  0.84% $2,803,531  $4,127  0.58%
                                 

(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 $(67) thousand, $(128) thousand, and $(132) thousand for the three months ended December 31, 2018, September 30, 2018, and December 31, 2017, respectively. Accretion of unearned purchase discounts was $454 thousand, $605 thousand, and $1,088 thousand for the three months ended December 31, 2018, September 30, 2018, and December 31, 2017, respectively.

(2) Includes tax-equivalent adjustments of $278 thousand, $270 thousand, and $485 thousand for the three months ended December 31, 2018, September 30, 2018, and December 31, 2017, respectively.  The federal statutory tax rate utilized was 21% for the 2018 periods and 35% for the 2017 period.

(3) Includes tax-equivalent adjustments of $357 thousand, $365 thousand, and $814 thousand for the three months ended December 31, 2018, September 30, 2018, and December 31, 2017, respectively.  The federal statutory tax rate utilized was 21% for the 2018 periods and 35% for the 2017 period.

(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.

 
MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
AVERAGE BALANCE SHEET AND YIELD ANALYSIS
  
 Years Ended
 December 31, 2018 December 31, 2017
 Average
Balance
 Interest
Income/
Expense
 Average
Yield/
Cost
 Average
Balance
 Interest
Income/
Expense
 Average
Yield/
Cost
  
 (Dollars in thousands)
ASSETS           
Loans (1)(2)$2,354,354  $112,233  4.77% $2,201,364  $104,096  4.73%
Investment securities:           
Taxable securities431,478  11,742  2.72% 423,678  10,573  2.50%
Tax exempt securities (3)207,605  7,342  3.54% 217,650  9,536  4.38%
Total investment securities639,083  19,084  2.99% 641,328  20,109  3.14%
Federal funds sold and interest-earning deposits in banks3,372  62  1.84% 11,138  142  1.27%
Total interest-earning assets$2,996,809  131,379  4.38% $2,853,830  124,347  4.36%
Cash and due from banks36,384      35,745     
Premises and equipment77,178      75,082     
Allowance for loan losses(30,533)     (23,557)    
Other assets169,880      156,396     
Total assets$3,249,718      $3,097,496     
LIABILITIES AND SHAREHOLDERS' EQUITY           
Savings and interest-bearing demand deposits$1,429,672  6,181  0.43% $1,357,554  3,863  0.28%
Certificates of deposit723,830  11,150  1.54% 674,757  7,626  1.13%
Total interest-bearing deposits2,153,502  17,331  0.80% 2,032,311  11,489  0.57%
Federal funds purchased and securities sold under agreements to repurchase105,094  1,302  1.24% 87,763  412  0.47%
Federal Home Loan Bank borrowings133,814  2,612  1.95% 110,000  1,838  1.67%
Long-term debt and junior subordinated notes issued to capital trusts35,726  1,596  4.47% 40,679  1,406  3.46%
Total borrowed funds274,634  5,510  2.01% 238,442  3,656  1.53%
Total interest-bearing liabilities$2,428,136  22,841  0.94% $2,270,753  15,145  0.67%
Demand deposits455,223      471,170     
Other liabilities20,625      20,607     
Shareholders' equity345,734      334,966     
Total liabilities and shareholders' equity$3,249,718      $3,097,496     
Net interest income(4)  $108,538      $109,202   
Net interest spread(4)    3.44%     3.69%
Net interest margin(4)    3.62%     3.83%
Total deposits(5)$2,608,725  $17,331  0.66% $2,503,481  $11,489  0.46%
Funding sources(6)$2,883,359  $22,841  0.79% $2,741,923  $15,145  0.55%
                      

(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 $(407) thousand and $(543) thousand for the years ended ended December 31, 2018 and December 31, 2017, respectively. Accretion of unearned purchase discounts was $2.7 million and $4.8 million for the years ended ended December 31, 2018 and December 31, 2017, respectively.

(2) Includes tax-equivalent adjustments of $1.0 million and $1.7 million for the years ended ended December 31, 2018 and December 31, 2017, respectively.  The federal statutory tax rate utilized was 21% for the 2018 periods and 35% for the 2017 period.

(3) Includes tax-equivalent adjustments of $1.5 million and $3.3 million for the years ended ended December 31, 2018 and December 31, 2017, respectively.  The federal statutory tax rate utilized was 21% for the 2018 periods and 35% for the 2017 period.

(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 Presentations:

Certain non-GAAP ratios and amounts are provided to evaluate and measure the Company's operating performance and financial condition, including tangible book value per share, the tangible equity to tangible assets ratio, return on average tangible equity, net interest margin, and the efficiency ratio. Management believes this data provides investors with pertinent information regarding the Company's profitability, financial condition and capital adequacy and how management evaluates such metrics internally.  The following tables provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

            
   As of As of As of As of As of
   December 31, September 30, June 30, March 31, December 31,
(unaudited, dollars in thousands, except per share data) 2018 2018 2018 2018 2017
Tangible Equity          
Total shareholders' equity $357,067  $349,189  $346,201  $341,377  $340,304 
Plus: Deferred tax liability associated with intangibles 660  786  924  1,073  1,241 
Less: Intangible assets, net (74,530) (75,032) (75,579) (76,043) (76,700)
Tangible equity $283,197  $274,943  $271,546  $266,407  $264,845 
Tangible Assets          
Total assets $3,291,480  $3,267,965  $3,276,277  $3,241,642  $3,212,271 
Plus: Deferred tax liability associated with intangibles 660  786  924  1,073  1,241 
Less: Intangible assets, net (74,530) (75,032) (75,579) (76,043) (76,700)
Tangible assets $3,217,610  $3,193,719  $3,201,622  $3,166,672  $3,136,812 
Common shares outstanding 12,180,015  12,221,107  12,221,107  12,214,942  12,219,611 
Tangible Book Value Per Share $23.25  $22.50  $22.22  $21.81  $21.67 
Tangible Equity/Tangible Assets 8.80% 8.61% 8.48% 8.41% 8.44%
                


      
   For the Three Months Ended For the Years Ended
(unaudited, dollars in thousands) December 31,
2018
 September 30,
2018
 December 31,
2017
 December 31,
2018
 December 31,
2017
Net Income $7,624  $6,778  $(1,590) $30,351  $18,699 
Plus: Intangible amortization, net of tax(1) 397  432  463  1,814  2,031 
Adjusted net income $8,021  $7,210  $(1,127) $32,165  $20,730 
Average Tangible Equity          
Average total shareholders' equity $351,398  $348,131  $347,678  $345,734  $334,966 
Plus: Average deferred tax liability associated with intangibles 720  852  1,993  929  2,436 
Less: Average intangible assets, net of amortization (74,766) (75,292) (77,037) (75,531) (78,159)
Average tangible equity $277,352  $273,691  $272,634  $271,132  $259,243 
Return on Average Tangible Equity (annualized) 11.47% 10.45% (1.64)% 11.86% 8.00%
                


Net Interest Margin Tax Equivalent Adjustment          
Net interest income $26,728  $26,361  $26,411  $105,983  $104,175 
Plus tax equivalent adjustment:(1)          
Loans 278  270  485  1,040  1,730 
Securities 357  365  814  1,515  3,297 
Tax equivalent net interest income (1) $27,363  $26,996  $27,710  $108,538  $109,202 
Average interest earning assets $3,022,378  $3,004,892  $2,919,014  $2,996,809  $2,853,830 
Net Interest Margin 3.59% 3.56% 3.77% 3.62% 3.83%
(1) Computed on a tax-equivalent basis, assuming a federal income tax rate of 21% for 2018, and 35% for 2017.    
     


   For the Three Months Ended For the Years Ended
(dollars in thousands) December 31,
2018
 September 30,
2018
 December 31,
2017
 December 31,
2018
 December 31,
2017
Operating Expense          
Total noninterest expense $19,803  $22,811  $20,093  $83,503  $80,136 
Less: Amortization of intangibles (503) (547) (713) (2,296) (3,125)
Operating expense $19,300  $22,264  $19,380  $81,207  $77,011 
Operating Revenue          
Tax equivalent net interest income (1) $27,363  $26,996  $27,710  $108,538  $109,202 
Plus: Noninterest income 5,645  5,984  5,534  22,788  22,370 
Less: (Gain) loss on sale or call of debt securities 4  (192) (2) (193) (241)
 Other (gain) loss 76  (326) 53  (262) (13)
Operating revenue $33,088  $32,462  $33,295  $130,871  $131,318 
Efficiency Ratio 58.33% 68.58% 58.21% 62.05% 58.64%
(1) Computed on a tax-equivalent basis, assuming a federal income tax rate of 21% for 2018, and 35% for 2017.    
     


Contact:     
 Charles N. Funk Barry S. Ray   
 President & CEO Sr. VP & CFO   
 319.356.5800 319.356.5800   
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