EX-99.4 5 exhibit994.htm EXHIBIT 99.4 Exhibit
Exhibit 99.4

UNAUDITED PRO FORMA COMBINED CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma combined condensed financial information and explanatory notes show the impact on the historical financial position and results of operations of MidWestOne Financial Group, Inc. ("MidWestOne") and ATBancorp and have been prepared to illustrate the effects of the merger involving MidWestOne and ATBancorp under the acquisition method of accounting. Under the acquisition method of accounting, the assets and liabilities of ATBancorp, as of the effective date of the merger, will be recorded by MidWestOne at their respective fair values and the excess of the merger consideration over the fair value of ATBancorp’s net assets will be recorded to goodwill. The unaudited pro forma combined condensed balance sheet as of December 31, 2018 gives effect to the merger as if it occurred on that date. The unaudited pro forma combined condensed income statement for the year ended December 31, 2018 gives effect to the merger as if it occurred on January 1, 2018. The effective date of the merger was May 1, 2019.
In connection with the plan to integrate the operations of MidWestOne and ATBancorp following the completion of the merger, MidWestOne anticipates that it will incur nonrecurring charges, such as costs associated with systems implementation, severance and other costs related to exit or disposal activities. Refer to the footnotes to the unaudited pro forma combined condensed financial information below for additional information on merger-related costs. These charges will affect the results of operations of MidWestOne and ATBancorp, as well as those of the combined company following the completion of the merger, in the period in which they are recorded. The unaudited pro forma combined condensed consolidated income statements do not include the effects of the non-recurring costs associated with any restructuring or integration activities resulting from the merger or any anticipated disposition of assets that may result from integration.
The pro forma adjustments reflected in the unaudited pro forma combined condensed financial information are subject to change and may vary materially from the actual values that will be recorded at the time the accounting for the merger is completed. Adjustments may include, but not be limited to:
•
capital used or generated in ATBancorp’s operations between the signing of the merger Agreement and completion of the merger;
•
changes in the fair values of ATBancorp’s assets and liabilities;
•
other changes in ATBancorp's net assets that occurred prior to completion of the merger, which could cause material changes in the information presented below; and
•
the actual financial results of the combined company.
The unaudited pro forma combined condensed consolidated financial information is provided for informational purposes only. The unaudited pro forma combined condensed consolidated financial information is not necessarily, and should not be assumed to be, an indication of the results that would have been achieved had the transaction been completed as of the dates indicated or that may be achieved in the future. The preparation of the unaudited pro forma combined condensed consolidated financial information required management to make certain assumptions and estimates. The unaudited pro forma combined condensed consolidated financial information is based on, and should be read together with, the historical consolidated financial statements and related notes of MidWestOne contained in its Annual Report on Form 10-K for the year ended December 31, 2018.

1

MIDWESTONE FINANCIAL GROUP, INC. AND ATBANCORP
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 2018
(in thousands, except share data)
 
 
MidWestOne Historical
 
ATBancorp Historical
 
Pro Forma
Adjustments
 
Notes
 
Pro Forma
Combined
ASSETS
 
(in thousands)
Cash and cash equivalents
 
$
45,480

 
$
117,882

 
$
(26,300
)
 
A
 
$
137,062

Equity securities, at fair value
 
2,737

 
—

 
—

 
 
 
2,737

Debt securities available for sale, at fair value
 
414,101

 
99,574

 
—

 
 
 
513,675

Debt securities held to maturity, at amortized cost
 
195,822

 
—

 
—

 
 
 
195,822

Loans held for sale
 
666

 
987

 
—

 
 
 
1,653

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

 
1,152,051

 
(19,868
)
 
B
 
3,530,962

Less: allowance for loan and lease losses
 
29,307

 
12,548

 
(12,548
)
 
C
 
29,307

Loans held for investment, net
 
2,369,472

 
1,139,503

 
(7,320
)
 
 
 
3,501,655

Premises and equipment, net
 
75,773

 
17,083

 
9,600

 
D
 
102,456

Goodwill
 
64,654

 
3,253

 
4,097

 
F
 
72,004

Other intangible assets, net
 
9,875

 
682

 
13,801

 
G
 
24,358

Other real estate owned
 
535

 
4,130

 
(826
)
 
E
 
3,839

Other assets
 
112,365

 
39,056

 
(5,304
)
 
H
 
146,117

Total assets
 
$
3,291,480

 
$
1,422,150

 
$
(12,252
)
 
 
 
$
4,701,378

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
Deposits
 
$
2,612,929

 
$
1,171,828

 
$
—

 
 
 
3,784,757

Federal funds purchased
 
56,900

 
550

 
—

 
 
 
57,450

Securities sold under agreements to repurchase
 
74,522

 
27,147

 
—

 
 
 
101,669

Other borrowed money
 
143,500

 
46,400

 
35,000

 
I
 
224,900

Subordinated debentures
 
—

 
20,435

 
(9,600
)
 
J
 
10,835

Junior subordinated notes issued to capital trusts
 
23,888

 
19,500

 
(4,500
)
 
K
 
38,888

Other liabilities
 
22,674

 
17,984

 
(185
)
 
L
 
40,473

Total liabilities
 
2,934,413

 
1,303,844

 
20,715

 
 
 
4,258,972

Commitments and contingent liabilities
 
 
 
 
 
 
 
 
 
 
Shareholders’ equity:
 
 
 
 
 
 
 
 
 
 
Common stock
 
12,463

 
1,764

 
2,354

 
M
 
16,581

Additional paid-in capital
 
187,813

 
4,852

 
93,269

 
N
 
285,934

Treasury stock
 
(6,499
)
 
(585
)
 
585

 
O
 
(6,499
)
Retained earnings
 
168,951

 
113,862

 
(130,762
)
 
P
 
152,051

Accumulated other comprehensive income
 
(5,661
)
 
(1,587
)
 
1,587

 
Q
 
(5,661
)
Total shareholders’ equity
 
357,067

 
118,306

 
(32,967
)
 
 
 
442,406

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

 
$
1,422,150

 
$
(12,252
)
 
 
 
$
4,701,378


See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Information.

2

MIDWESTONE FINANCIAL GROUP, INC. AND ATBANCORP
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31, 2018
(in thousands, except per share amounts)
 
 
MidWestOneHistorical
 
ATBancorp
Historical
 
Pro Forma
Merger Adjustments
 
Notes
 
Pro Forma
Combined
Interest Income
 
(in thousands except per share amounts)
Loans
 
$
111,193

 
$
50,526

 
$
3,642

 
R
 
$
165,361

Taxable securities
 
11,742

 
2,260

 
(394
)
 
S
 
13,608

Tax-exempt securities
 
5,827

 
337

 
—

 
 
 
6,164

Other
 
62

 
1,332

 
(187
)
 
T
 
1,207

Total interest income
 
128,824

 
54,455

 
3,061

 
 
 
186,340

Interest Expense
 
 
 
 
 
 
 
 
 
 
Deposits
 
17,331

 
9,107

 
(302
)
 
U
 
26,136

Subordinated debentures
 
—

 
1,328

 
(624
)
 
V
 
704

Junior subordinated notes issued to capital trusts
 
1,184

 
781

 
225

 
W
 
2,190

Other borrowings
 
4,326

 
1,593

 
1,619

 
X
 
7,538

Total interest expense
 
22,841

 
12,809

 
918

 
 
 
36,568

Net Interest Income
 
105,983

 
41,646

 
2,143

 
 
 
149,859

Provision for loan losses
 
7,300

 
1,072

 
—

 
 
 
8,372

Net interest income after provision for loan losses
 
98,683

 
40,574

 
2,143

 
 
 
141,400

Noninterest Income
 
 
 
 
 
 
 
 
 
 
Trust, investment, and insurance fees
 
6,237

 
17,764

 
(11,619
)
 
Y
 
12,382

Service charges and fees on deposit accounts
 
4,649

 
1,203

 
(26
)
 
Z
 
5,826

Loan origination and servicing fees
 
3,622

 
2,861

 
(14
)
 
AA
 
6,469

Other service charges and fees
 
6,215

 
3,893

 
(13
)
 
BB
 
10,095

Investment securities gains, net
 
193

 
(1,136
)
 
—

 
 
 
(943
)
Other
 
1,872

 
24,179

 
(26,715
)
 
CC
 
(664
)
Total noninterest income
 
22,788

 
48,764

 
(38,387
)
 
 
 
33,165

Noninterest Expense
 
 
 
 
 
 
 
 
 
 
Salaries and employee benefits
 
49,758

 
28,783

 
(9,168
)
 
DD
 
69,373

Net occupancy and equipment expense
 
13,037

 
5,813

 
(1,676
)
 
EE
 
17,174

Professional fees
 
4,641

 
6,505

 
(3,374
)
 
FF
 
7,772

Data processing expense
 
2,951

 
3,931

 
(917
)
 
GG
 
5,965

FDIC insurance expense
 
1,533

 
464

 
(67
)
 
HH
 
1,930

Amortization of intangibles
 
2,296

 
67

 
2,438

 
II
 
4,801

Other
 
9,287

 
7,562

 
(3,806
)
 
JJ
 
13,043

Total noninterest expense
 
83,503

 
53,125

 
(16,570
)
 
 
 
120,058

Income before income taxes
 
37,968

 
36,213

 
(19,674
)
 
 
 
52,211

Income tax provision
 
7,617

 
10,183

 
(5,115
)
 
KK
 
12,685

Net income before noncontrolling interest
 
30,351

 
26,030

 
(14,559
)
 
 
 
39,526

Net income attributable to noncontrolling interest
 
—

 
447

 
(447
)
 
LL
 
—

Net income available to common shareholders
 
$
30,351

 
$
26,477

 
$
(15,006
)
 
 
 
$
39,526

Per Common Share
 
 
 
 
 
 
 
 
 
 
Earnings basic
 
$
2.48

 
$
0.75

 
—

 
 
 
$
2.45

Earnings diluted
 
$
2.48

 
$
0.75

 
—

 
 
 
$
2.45

Weighted average number of common shares outstanding
 
12,220

 
35,070

 
(30,915
)
 
MM
 
16,375

Weighted average number of diluted common shares outstanding
 
12,237

 
35,070

 
(30,915
)
 
NN
 
16,392


See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Information.

3

Notes to Unaudited Pro Forma Condensed Combined Financial Information
Note 1—Basis of Presentation
The unaudited pro forma combined condensed consolidated financial information has been prepared using the acquisition method of accounting for business combinations. The unaudited pro forma combined condensed consolidated statement of income for the year ended December 31, 2018 is presented as if the acquisition had occurred on January 1, 2018. This information is not intended to reflect actual results that would have been achieved had the acquisition actually occurred on that date. The pro forma adjustments are preliminary, based on estimates, and are subject to change as more information becomes available and after final analysis of the fair values of both tangible and intangible assets acquired and liabilities assumed are completed. Accordingly, the final fair value adjustments may be materially different from those presented in this document.
Certain historical data of ATBancorp has been reclassified on a pro forma basis to conform to MidWestOne's classifications.    
Note 2—Purchase Price
Each outstanding share of common stock, no par value per share, of ATBancorp was exchanged for (i) 117.55 shares of common stock, $1.00 par value per share, of MidWestOne; and (ii) $992.51 in cash.
Note 3—Allocation of Purchase Price of ATBancorp
Under the acquisition method of accounting, ATBancorp's assets and liabilities and any identifiable intangible assets are required to be adjusted to their estimated fair values. The excess of the purchase price over the fair value of the net assets acquired, net of deferred taxes, is allocated to goodwill. Estimated fair value adjustments included in the pro forma financial information is based upon available information, and certain assumptions considered reasonable, and may be revised as additional information becomes available. The following are the pro forma merger consideration transfered by MidWestOne, the estimated fair value of assets acquired (including identifiable intangible assets) and liabilities assumed from ATBancorp, and the goodwill created by the merger, at the date indicated.
 
December 31, 2018
 
(in thousands)
Consideration Transferred:
 
MidWestOne common stock issued
$
102,239

Cash paid
34,800

Total consideration transferred
$
137,039

Assets Acquired:
 
Cash and cash equivalents
$
108,282

Debt securities available for sale
99,574

Loans held for sale
987

Loans held for investment
1,132,183

Premises and equipment
26,683

Core deposit intangible
14,483

Other real estate owned
3,304

Other assets
33,752

Total assets acquired
$
1,419,248

Liabilities Assumed:
 
Deposits
$
1,171,828

Borrowings
74,097

Subordinated debentures
10,835

Junior subordinated notes issued to capital trusts
15,000

Other liabilities
17,799

Total liabilities assumed
$
1,289,559

Net assets acquired
$
129,689

Goodwill
$
7,350


4

Note 4—Pro Forma Adjustments
The following pro forma adjustments have been reflected in the unaudited pro forma condensed combined financial information. All taxable balance sheet adjustments were calculated using a combined 26% tax rate to arrive at deferred tax asset or liability adjustments. All adjustments are based on current assumptions and valuations, which are subject to change.

Balance Sheet (dollars in thousands)
A. Adjustments to cash and cash equivalents
To reflect cash used by ATBancorp to redeem certain subordinated debt
$
(9,600
)
To reflect excess cash proceeds from MidWestOne senior debt
200

Merger expenses anticipated to be incurred
(16,900
)
 
$
(26,300
)

B. Adjustment to loans, net of unearned income
To reflect estimated fair value at closing date, calculated as 1.7% of the ATBancorp loan balance.
$
(19,868
)

C. Adjustment to allowance for loan and lease losses
To remove ATBancorp allowance at Merger date as the credit risk is contemplated in the estimated fair value in adjustment B above.
$
12,548


D. Adjustment to premises and equipment
To reflect estimated fair value of ATBancorp properties at Merger date. The estimated useful life of these properties is 39 years. To be recognized an a straight-line basis.
$
9,600


E Adjustment to other real estate owned
To reflect estimated fair value of ATBancorp other real estate owned at Merger date based on MidWestOne's estimate of property values given current market conditions and additional discounts necessary to liquidate these properties.
$
(826
)

F. Adjustment to goodwill
To reverse ATBancorp goodwill on the books.
$
(3,253
)
To reflect the goodwill associated with the Merger.
7,350

    
$
4,097


G. Adjustment to core deposit intangible ("CDI"), net
To reverse ATBancorp CDI on the books.
$
(682
)
To record the estimated fair value of acquired identifiable intangible assets, calculated as 1.5% of ATBancorp core deposits. Core deposits were identified as the demand, savings and money market accounts. The acquired core deposit intangible will be amortized over 10 years using a sum-of-the-years-digits method.
14,483

    
$
13,801


5

Amortization Schedule - Core Deposit Intangible
Sum-of-the-years-digits method
(dollars in thousands)
 
Year 1
$
2,633

Year 2
2,370

Year 3
2,107

Year 4
1,843

Year 5
1,580

Year 6
1,317

Year 7
1,053

Year 8
790

Year 9
527

Year 10
263

 
$
14,483


H. Adjustment to other assets
Net deferred tax liability, calculated as follows:
 
Adjustment to loans held for investment, net of unearned income
$
(19,868
)
Adjustment to allowance for loan and lease losses
12,548

Adjustment to CDI, net
13,801

Adjustment to premises and equipment
9,600

Adjustment to other real estate owned
(826
)
Adjustment to junior subordinated notes issued to capital trusts
4,500

Subtotal for fair value adjustments
19,755

Calculated net deferred tax liability at MidWestOne's estimated combined rate of 26%
(5,136
)
Elimination of historical other assets from the ATB Businesses.
(168
)
 
$
(5,304
)

I. Adjustment to long-term debt
To reflect proceeds from senior debt incurred by MidWestOne to fund cash portion of Merger consideration.
$
35,000


J. Adjustment to subordinated debentures
To reflect cash redemption by ATBancorp of certain subordinated debentures.
$
(9,600
)

K. Adjustment to junior subordinated debentures
To reflect valuation mark on junior subordinated notes issued to capital trusts.
$
(4,500
)

L. Adjustment to other liabilities
Elimination of historical other liabilities from the ATB Businesses.
$
(185
)


6

M. Adjustments to common stock
To eliminate historical ATBancorp common stock.
$
(1,764
)
To reflect the issuance of MidWestOne common stock to ATBancorp shareholders.
4,118

 
$
2,354


N. Adjustments to additional paid-in capital
To eliminate historical ATBancorp additional paid-in capital.
$
(4,852
)
To reflect the issuance of MidWestOne common stock to ATBancorp shareholders.
98,121

 
$
93,269


O. Adjustment to treasury stock
To eliminate historical ATBancorp treasury stock
$
585


P. Adjustment to retained earnings
Merger expenses anticipated to be incurred
$
(16,900
)
To eliminate historical ATBancorp retained earnings
(113,862
)
 
$
(130,762
)

Q. Adjustment to accumulated other comprehensive income
To eliminate historical ATBancorp accumulated other comprehensive income.
$
1,587



7

Income Statement
(dollars and shares in thousands)        
 
 
Year Ended December 31, 2018
R.
  Adjustment to loan interest income
 
 
To reflect accretion of loan discount resulting from loan fair value pro forma adjustment based on weighted average remaining life of five years.
$
6,623

 
To eliminate historical income from ATBancorp's United American Bank subsidiary, which was sold on May 4, 2018.
(2,981
)
 
 
$
3,642

 
 
 
S.
Adjustment to taxable securities interest income
 
 
To eliminate historical income from ATBancorp's United American Bank subsidiary, which was sold on May 4, 2018.
$
(394
)
 
 
 
T.
Adjustment to other interest income
 
 
To eliminate historical income from ATBancorp's United American Bank subsidiary, which was sold on May 4, 2018.
$
(187
)
 
 
 
U.
Adjustment to deposit interest expense
 
 
To eliminate historical expense from ATBancorp's United American Bank subsidiary, which was sold on May 4, 2018.
$
(302
)
 
 
 
V.
Adjustment to subordinated debentures interest expense
 
 
Elimination of historical ATBancorp interest on subordinated debentures paid with interest calculated using an interest rate of 6.50%
$
(624
)
 
 
 
W.
Adjustment to junior subordinated notes issued to capital trusts interest expense
 
 
To reflect additional interest expense resulting from the amortization of the merger valuation mark on ATBancorp's junior subordinated notes.
$
225

 
 
 
X.
Adjustment to other debt interest expense
 
 
To reflect additional interest expense resulting from the issuance of $35.0 million of new senior debt, at an estimated annual interest rate of 4.625%.
$
1,619

 
 
 
Y.
Adjustment to trust, investment and insurance fees
 
 
To eliminate estimated historical income from the ATB Businesses.
$
(11,619
)
 
 
 
Z.
Adjustment to service charges and fees on deposit accounts
 
 
To eliminate historical income from ATBancorp's United American Bank subsidiary, which was sold on May 4, 2018.
$
(26
)
 
 
 
AA.
Adjustment to loan origination and servicing fees
 
 
To eliminate historical income from ATBancorp's United American Bank subsidiary, which was sold on May 4, 2018.
$
(14
)
 
 
 
 
 
 

8

BB.
Adjustment to other service charges and fees
 
 
To eliminate historical income from ATBancorp's United American Bank subsidiary, which was sold on May 4, 2018.
$
(13
)
 
 
 
CC.
Adjustment to other noninterest income
 
 
To eliminate historical income from ATBancorp's United American Bank subsidiary, which was sold on May 4, 2018.
$
(1
)
 
To eliminate estimated historical income from the ATB Businesses.
(1,383
)
 
To eliminate historical gain on sale from ATBancorp's sale of United American Bank subsidiary, which was sold on May 4, 2018, to be paid out as part of a special dividend prior to merger consummation.
(25,331
)
 
 
$
(26,715
)
 
 
 
DD.
Adjustment to salaries and employee benefits expense
 
 
To eliminate historical expense from ATBancorp's United American Bank subsidiary, which was sold on May 4, 2018.
$
(2,525
)
 
To eliminate estimated historical expense from the ATB Businesses.
(6,243
)
 
To eliminate merger-related expenses paid
(400
)
 
 
$
(9,168
)
 
 
 
EE.
Adjustment to occupancy expense
 
 
To reflect additional depreciation expense resulting from premises and equipment pro forma adjustment based on estimated useful life of 39 years using the straight line method.
$
246

 
To eliminate estimated historical expense from the ATB Businesses.
(1,075
)
 
To eliminate historical expense from ATBancorp's United American Bank subsidiary, which was sold on May 4, 2018.
(845
)
 
To eliminate merger-related expenses paid
(2
)
 
 
$
(1,676
)
 
 
 
FF.
Adjustment to professional fees expense
 
 
To eliminate historical expense from ATBancorp's United American Bank subsidiary, which was sold on May 4, 2018.
(1,508
)
 
To eliminate merger-related expenses paid
(1,866
)
 
 
$
(3,374
)
 
 
 
GG.
Adjustment to data processing expense
 
 
To eliminate estimated historical expense from the ATB Businesses.
(811
)
 
To eliminate historical expense from ATBancorp's United American Bank subsidiary, which was sold on May 4, 2018.
(6
)
 
To eliminate merger-related expenses paid
(100
)
 
 
$
(917
)
 
 
 
HH.
Adjustment to FDIC insurance expense
 
 
To eliminate historical expense from ATBancorp's United American Bank subsidiary, which was sold on May 4, 2018.
$
(67
)
 
 
 
 
 
 

9

II.
Adjustment to amortization of intangibles
 
 
 To reflect amortization of acquired intangible assets based on amortization period of 10 years and using the sum-of-the-years-digits method of amortization.
$
2,633

 
 To eliminate historical CDI amortization at ATBancorp
(67
)
 
 
$
2,438

JJ.
Adjustment to other expense
 
 
To eliminate estimated historical expense from the ATB Businesses.
$
(2,172
)
 
To eliminate historical expense from ATBancorp's United American Bank subsidiary, which was sold on May 4, 2018.
(1,619
)
 
To eliminate merger-related expenses paid
(15
)
 
 
$
(3,806
)
KK.
Adjustment to income tax provision
 
 
To reflect the income tax effect of pro forma adjustments R - JJ at MidWestOne's estimated combined tax rate of 26% for 2018.
$
(5,115
)
 
 
 
LL.
Adjustment to net income attributable to noncontrolling interests
 
 
To eliminate historical net loss attributable to noncontrolling interests stemming from ATBancorp's United American Bank subsidiary.
$
(447
)
MM.
Adjustment to weighted average number of common shares outstanding
(30,915
)
 
Adjustment to the year ended December 31, 2018 calculated as follows:
 
 
Removal of ATBancorp weighted average number of common shares outstanding for the year ended December 31, 2018
(35,033
)
 
MidWestOne shares issued to ATBancorp shareholders
4,118

 
Adjustment to weighted average number of common shares outstanding for the year ended December 31, 2018
(30,915
)
 
 
 
NN.
Adjustment to weighted average number of diluted common shares outstanding
(30,915
)
 
Adjustment to the year ended December 31, 2018 calculated as follows:
 
 
Removal of ATBancorp weighted average number of diluted common shares outstanding for the year ended December 31, 2018
(35,033
)
 
MidWestOne shares issued to ATBancorp shareholders
4,118

 
Adjustment to weighted average number of diluted common shares outstanding for the year ended December 31, 2018
(30,915
)



10