0001412665-19-000009.txt : 20190124 0001412665-19-000009.hdr.sgml : 20190124 20190124160027 ACCESSION NUMBER: 0001412665-19-000009 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20190124 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20190124 DATE AS OF CHANGE: 20190124 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MidWestOne Financial Group, Inc. CENTRAL INDEX KEY: 0001412665 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 421206172 STATE OF INCORPORATION: IA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-35968 FILM NUMBER: 19540017 BUSINESS ADDRESS: STREET 1: 102 SOUTH CLINTON ST. CITY: IOWA CITY STATE: IA ZIP: 52240 BUSINESS PHONE: 319-356-5800 MAIL ADDRESS: STREET 1: 102 SOUTH CLINTON ST. CITY: IOWA CITY STATE: IA ZIP: 52240 FORMER COMPANY: FORMER CONFORMED NAME: ISB Financial Corp. DATE OF NAME CHANGE: 20070918 8-K 1 a12-31x18earningsrelease.htm FORM 8-K Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
FORM 8-K
 
 
 
 
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
 
 
 
Date of Report (Date of earliest event reported)
  
January 24, 2019
 
  
 
 
 
 
MidWestOne Financial Group, Inc.
(Exact name of registrant as specified in its charter)
 
 
 
 
Commission file number 001-35968
 
 
Iowa
 
42-1206172
(State or other jurisdiction
of incorporation)
 
(I.R.S. Employer
Identification Number)
102 South Clinton Street
Iowa City, Iowa 52240
(Address of principal executive offices, including zip code)
(319) 356-5800
(Registrant's telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
 
 
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2 below):
 
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 
 
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Exchange Act of 1934.
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨






Item 2.02.     Results of Operations and Financial Condition.
On January 24, 2019, MidWestOne Financial Group, Inc. (the “Company”) issued a press release announcing its earnings for the three months and year ended December 31, 2018. The press release is attached as Exhibit 99.1.
The information in this item and the attached press release shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any such filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.
Item 9.01.    Financial Statements and Exhibits.
(d)    Exhibits. The following exhibits are filed herewith:
 
 
MidWestOne Financial Group, Inc. Press Release dated January 24, 2019.






SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


 
 
MIDWESTONE FINANCIAL GROUP, INC.
 
 
 
 
 
 
 
 
 
Dated:
January 24, 2019
By:
 
/s/ BARRY S. RAY
 
 
 
 
 
 
Barry S. Ray
 
 
 
 
 
 
Senior Vice President and Chief Financial Officer
 
 
 
 
 
 
 
 




EX-99.1 2 financialresults2018q4.htm EXHIBIT 99.1 Exhibit
Exhibit 99.1

mofglogoa01.jpg

FOR IMMEDIATE RELEASE                            January 24, 2019

MIDWESTONE FINANCIAL GROUP, INC.
REPORTS FINANCIAL RESULTS FOR THE FOURTH QUARTER AND FULL YEAR 2018
Iowa City, Iowa - 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.
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 assets
0.92
%
 
0.83
%
 
0.93
%
 
0.60
%
Return on average equity
8.61
%
 
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 deposits
0.78
%
 
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 ratio
10.85
%
 
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 ratio
91.80
%
 
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.”




1




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 Income
2018
 
2018
 
(In thousands)
Trust, investment, and insurance fees
$
1,534

 
$
1,526

Service charges and fees on deposit accounts
1,175

 
1,148

Loan origination and servicing fees
884

 
891

Other service charges and fees
1,751

 
1,502

Bank-owned life insurance
381

 
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.

2



The following table presents details of noninterest expense for the periods indicated:
 
Three Months Ended
 
December 31,
 
September 30,
Noninterest Expense
2018
 
2018
 
(In thousands)
Salaries and employee benefits
$
12,111

 
$
13,051

Occupancy and equipment, net
2,597

 
3,951

Professional fees
1,027

 
1,861

Data processing
875

 
697

FDIC insurance
429

 
393

Amortization of intangibles
503

 
547

Other
2,261

 
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 fees
89

 
588

Data processing
100

 

Other
15

 

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.”

3



The following table presents the composition of loans held for investment, net of unearned income, as of the dates indicated:
 
December 31,
 
September 30,
 
December 31,
Loans Held for Investment
2018
 
2018
 
2017
 
(In thousands)
Commercial and industrial
$
533,188

 
$
523,333

 
$
503,624

Agricultural
96,956

 
103,207

 
105,512

Commercial real estate
 
 
 
 
 
Construction and development
217,617

 
223,324

 
165,276

Farmland
88,807

 
85,735

 
87,868

Multifamily
134,741

 
126,663

 
134,506

Other
826,163

 
818,068

 
784,321

Total commercial real estate
1,267,328

 
1,253,790

 
1,171,971

Residential real estate
 
 
 
 
 
One-to-four family first liens
341,830

 
342,755

 
352,226

One-to-four family junior liens
120,049

 
115,768

 
117,204

Total residential real estate
461,879

 
458,523

 
469,430

Consumer
39,428

 
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 Forward
2018
 
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
)
Recoveries
235

 
345

 
176

 
988

 
908

Net charge-offs
(5,221
)
 
(472
)
 
(9,120
)
 
(6,052
)
 
(11,125
)
Provision for credit losses
3,250

 
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.

4



The following table presents the composition of our deposit portfolio as of the dates indicated:
 
December 31,
 
September 30,
 
December 31,
Deposit Composition
2018
 
2018
 
2017
 
(In thousands)
Noninterest-bearing demand
$
439,133

 
$
458,576

 
$
461,969

Interest checking
683,894

 
691,743

 
687,433

Money market
555,839

 
545,179

 
540,679

Savings
210,416

 
211,591

 
213,430

Total non-maturity deposits
1,889,282

 
1,907,089

 
1,903,511

Time deposits less than $100,000
352,631

 
348,099

 
324,681

Time deposits of $100,000 to $250,000
179,764

 
174,459

 
158,259

Time deposits of $250,000 and over
191,252

 
202,612

 
218,868

Total time deposits
723,647

 
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.
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 Metrics
2018
 
2018
 
2017
 
(dollars in thousands)
Nonaccrual loans held for investment
$
19,924

 
$
20,929

 
$
14,784

Performing troubled debt restructured loans held for investment
5,284

 
7,354

 
8,870

Accruing loans contractually past due 90 days or more
365

 
171

 
207

Foreclosed assets, net
535

 
549

 
2,010

Total nonperforming assets
$
26,108

 
$
29,003

 
$
25,871

Allowance for loan losses
29,307

 
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 investment
1.22
%
 
1.32
%
 
1.23
%
Allowance for loan losses to nonaccrual loans held for investment
147.09
%
 
149.45
%
 
189.79
%
Nonaccrual loans held for investment to loans held for investment
0.83
%
 
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

5



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 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

6



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.

7



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 banks
1,693

 
4,150

 
5,474

Federal funds sold

 

 
680

Total cash and cash equivalents
45,480

 
53,379

 
50,972

Equity securities at fair value
2,737

 
2,797

 
2,336

Debt securities available for sale at fair value
414,101

 
407,766

 
445,324

Held to maturity securities at amortized cost
195,822

 
191,733

 
195,619

Loans held for sale
666

 
1,124

 
856

Loans held for investment, net of unearned income
2,398,779

 
2,377,649

 
2,286,695

Allowance for loan losses
(29,307
)
 
(31,278
)
 
(28,059
)
Loans held for investment, net
2,369,472

 
2,346,371

 
2,258,636

Premises and equipment, net
75,773

 
76,497

 
75,969

Goodwill
64,654

 
64,654

 
64,654

Other intangible assets, net
9,876

 
10,378

 
12,046

Foreclosed assets, net
535

 
549

 
2,010

Other
112,364

 
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 deposits
2,173,796

 
2,173,683

 
2,143,350

Total deposits
2,612,929

 
2,632,259

 
2,605,319

Federal funds purchased
56,900

 
19,056

 
1,000

Securities sold under agreements to repurchase
74,522

 
68,922

 
96,229

Federal Home Loan Bank borrowings
136,000

 
143,000

 
115,000

Junior subordinated notes issued to capital trusts
23,888

 
23,865

 
23,793

Long-term debt
7,500

 
8,750

 
12,500

Other
22,674

 
22,924

 
18,126

Total liabilities
2,934,413

 
2,918,776

 
2,871,967

SHAREHOLDERS' EQUITY
  

 
  

 
  

Common stock
12,463

 
12,463

 
12,463

Additional paid-in capital
187,813

 
187,581

 
187,486

Treasury stock
(6,499
)
 
(5,474
)
 
(5,121
)
Retained earnings
168,951

 
163,709

 
148,078

Accumulated other comprehensive loss
(5,661
)
 
(9,090
)
 
(2,602
)
Total shareholders' equity
357,067

 
349,189

 
340,304

Total liabilities and shareholders' equity
$
3,291,480

 
$
3,267,965

 
$
3,212,271



8



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


9



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 banks
1,693

 
4,150

 
1,717

 
2,467

 
5,474

Federal funds sold

 

 

 

 
680

Total cash and cash equivalents
45,480

 
53,379

 
43,264

 
42,396

 
50,972

Equity securities at fair value
2,737

 
2,797

 
2,809

 
2,815

 
2,336

Debt securities available for sale at fair value
414,101

 
407,766

 
438,312

 
446,087

 
445,324

Held to maturity securities at amortized cost
195,822

 
191,733

 
192,896

 
194,617

 
195,619

Loans held for sale
666

 
1,124

 
1,528

 
870

 
856

Loans held for investment, net of unearned income
2,398,779

 
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, net
2,369,472

 
2,346,371

 
2,333,235

 
2,296,487

 
2,258,636

Premises and equipment, net
75,773

 
76,497

 
78,106

 
77,552

 
75,969

Goodwill
64,654

 
64,654

 
64,654

 
64,654

 
64,654

Other intangible assets, net
9,876

 
10,378

 
10,925

 
11,389

 
12,046

Foreclosed assets, net
535

 
549

 
676

 
1,001

 
2,010

Other
112,364

 
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 deposits
2,173,796

 
2,173,683

 
2,134,339

 
2,181,753

 
2,143,350

Total deposits
2,612,929

 
2,632,259

 
2,604,201

 
2,631,921

 
2,605,319

Federal funds purchased
56,900

 
19,056

 
52,421

 
25,573

 
1,000

Securities sold under agreements to repurchase
74,522

 
68,922

 
75,046

 
67,738

 
96,229

Federal Home Loan Bank borrowings
136,000

 
143,000

 
143,000

 
123,000

 
115,000

Junior subordinated notes issued to capital trusts
23,888

 
23,865

 
23,841

 
23,817

 
23,793

Long-term debt
7,500

 
8,750

 
10,000

 
11,250

 
12,500

Other
22,674

 
22,924

 
21,567

 
16,966

 
18,126

Total liabilities
2,934,413

 
2,918,776

 
2,930,076

 
2,900,265

 
2,871,967

SHAREHOLDERS' EQUITY
  

 
  

 
  

 
  

 
  

Common stock
12,463

 
12,463

 
12,463

 
12,463

 
12,463

Additional paid-in capital
187,813

 
187,581

 
187,304

 
187,188

 
187,486

Treasury stock
(6,499
)
 
(5,474
)
 
(5,474
)
 
(5,612
)
 
(5,121
)
Retained earnings
168,951

 
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' equity
357,067

 
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



10



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 securities
2,949

 
2,965

 
2,940

 
2,888

 
2,676

Tax-exempt securities
1,375

 
1,395

 
1,528

 
1,529

 
1,540

Deposits in banks and federal funds sold
23

 
12

 
19

 
8

 
91

Total interest income
33,399

 
32,460

 
31,973

 
30,992

 
30,538

Interest expense
 
 
 
 
 
 
 
 
 
Deposits
5,161

 
4,625

 
4,009

 
3,536

 
3,120

Federal funds purchased
181

 
144

 
211

 
125

 
19

Securities sold under agreements to repurchase
190

 
173

 
144

 
134

 
116

Federal Home Loan Bank borrowings
739

 
741

 
615

 
517

 
517

Other borrowings
4

 
3

 
4

 
2

 
3

Junior subordinated notes issued to capital trusts
306

 
313

 
307

 
258

 
245

Long-term debt
90

 
100

 
102

 
107

 
107

Total interest expense
6,671

 
6,099

 
5,392

 
4,679

 
4,127

Net interest income
26,728

 
26,361

 
26,581

 
26,313

 
26,411

Provision for loan losses
3,250

 
950

 
1,250

 
1,850

 
10,669

Net interest income after provision for loan losses
23,478

 
25,411

 
25,331

 
24,463

 
15,742

Noninterest income
 
 
 
 
 
 
 
 
 
Trust, investment, and insurance fees
1,534

 
1,526

 
1,537

 
1,640

 
1,595

Service charges and fees on deposit accounts
1,175

 
1,148

 
1,158

 
1,168

 
1,291

Loan origination and servicing fees
884

 
891

 
906

 
941

 
889

Other service charges and fees
1,751

 
1,502

 
1,582

 
1,380

 
1,412

Bank-owned life insurance
381

 
399

 
397

 
433

 
398

Investment securities gains (losses), net
(4
)
 
192

 
(4
)
 
9

 
2

Other
(76
)
 
326

 
(89
)
 
101

 
(53
)
Total noninterest income
5,645

 
5,984

 
5,487

 
5,672

 
5,534

Noninterest expense
 
 
 
 
 
 
 
 
 
Salaries and employee benefits
12,111

 
13,051

 
12,225

 
12,371

 
12,152

Occupancy and equipment, net
2,597

 
3,951

 
3,238

 
3,251

 
2,982

Professional fees
1,027

 
1,861

 
959

 
794

 
971

Data processing
875

 
697

 
691

 
688

 
692

FDIC insurance
429

 
393

 
392

 
319

 
308

Amortization of intangibles
503

 
547

 
589

 
657

 
713

Other
2,261

 
2,311

 
2,437

 
2,278

 
2,275

Total noninterest expense
19,803

 
22,811

 
20,531

 
20,358

 
20,093

Income before income tax expense
9,320

 
8,584

 
10,287

 
9,777

 
1,183

Income tax expense
1,696

 
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 outstanding
12,217

 
12,221

 
12,218

 
12,223

 
12,219

Weighted average diluted common shares outstanding
12,235

 
12,240

 
12,230

 
12,242

 
12,219

Dividends paid per common share
$
0.195

 
$
0.195

 
$
0.195

 
$
0.20

 
$
0.17


11



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 securities
421,203

 
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 securities
619,276

 
4,681

 
3.00
%
 
627,251

 
4,725

 
2.99

 
633,540

 
5,030

 
3.15
%
Federal funds sold and interest-earning deposits in banks
4,243

 
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 banks
37,599

 
 
 
 
 
36,759

 
 
 
 
 
37,122

 
 
 
 
Premises and equipment
76,271

 
 
 
 
 
77,476

 
 
 
 
 
75,445

 
 
 
 
Allowance for loan losses
(31,712
)
 
 
 
 
 
(31,441
)
 
 
 
 
 
(26,321
)
 
 
 
 
Other assets
173,590

 
 
 
 
 
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 deposit
724,973

 
3,167

 
1.73
%
 
729,795

 
2,940

 
1.60
%
 
667,362

 
2,035

 
1.21
%
Total interest-bearing deposits
2,172,572

 
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 repurchase
104,710

 
371

 
1.41
%
 
99,254

 
317

 
1.27
%
 
95,376

 
135

 
0.56
%
Federal Home Loan Bank borrowings
137,065

 
739

 
2.14
%
 
143,326

 
741

 
2.05
%
 
126,087

 
517

 
1.63
%
Long-term debt and junior subordinated notes issued to capital trusts
33,964

 
400

 
4.67
%
 
35,109

 
416

 
4.70
%
 
38,823

 
355

 
3.63
%
Total borrowed funds
275,739

 
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 deposits
454,185

 
 
 
 
 
453,124

 
 
 
 
 
467,784

 
 
 
 
Other liabilities
24,232

 
 
 
 
 
23,776

 
 
 
 
 
19,851

 
 
 
 
Shareholders’ equity
351,398

 
 
 
 
 
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.

12



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 securities
431,478

 
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 securities
639,083

 
19,084

 
2.99
%
 
641,328

 
20,109

 
3.14
%
Federal funds sold and interest-earning deposits in banks
3,372

 
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 banks
36,384

 
 
 
 
 
35,745

 
 
 
 
Premises and equipment
77,178

 
 
 
 
 
75,082

 
 
 
 
Allowance for loan losses
(30,533
)
 
 
 
 
 
(23,557
)
 
 
 
 
Other assets
169,880

 
 
 
 
 
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 deposit
723,830

 
11,150

 
1.54
%
 
674,757

 
7,626

 
1.13
%
Total interest-bearing deposits
2,153,502

 
17,331

 
0.80
%
 
2,032,311

 
11,489

 
0.57
%
Federal funds purchased and securities sold under agreements to repurchase
105,094

 
1,302

 
1.24
%
 
87,763

 
412

 
0.47
%
Federal Home Loan Bank borrowings
133,814

 
2,612

 
1.95
%
 
110,000

 
1,838

 
1.67
%
Long-term debt and junior subordinated notes issued to capital trusts
35,726

 
1,596

 
4.47
%
 
40,679

 
1,406

 
3.46
%
Total borrowed funds
274,634

 
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 deposits
455,223

 
 
 
 
 
471,170

 
 
 
 
Other liabilities
20,625

 
 
 
 
 
20,607

 
 
 
 
Shareholders’ equity
345,734

 
 
 
 
 
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.

13



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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

14



 
 
 
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
 
 
 



15
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