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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
 
 
 
FORM 10-Q
 
 
 
 
 
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2018
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
 
Commission file number 001-35968
 
 
 
 
MIDWESTONE FINANCIAL GROUP, INC.
(Exact name of Registrant as specified in its charter)
 
 
 
 
Iowa
42-1206172
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
102 South Clinton Street
Iowa City, IA 52240
(Address of principal executive offices, including zip code)
319-356-5800
(Registrant’s telephone number, including area code)
  
 
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes    ☐  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ☒  Yes    ☐  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
☐
 
Accelerated filer
☒
Non-accelerated filer
☐  (Do not check if a smaller reporting company)
 
Smaller reporting company
☐
 
 
 
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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ☐  Yes    ☒  No

As of July 31, 2018, there were 12,221,107 shares of common stock, $1.00 par value per share, outstanding.
 
 
 
 
 

Table of Contents

MIDWESTONE FINANCIAL GROUP, INC.
Form 10-Q Quarterly Report
Table of Contents
 
 
 
 
Page No.
PART I
 
 
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
 
Item 3.
 
 
 
 
 
 
 
Item 4.
 
 
 
 
 
 
 
Part II
 
 
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
Item 1A.
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
 
Item 3.
 
 
 
 
 
 
 
Item 4.
 
 
 
 
 
 
 
Item 5.
 
 
 
 
 
 
 
Item 6.
 
 
 
 
 
 
 
 
 
 


Table of Contents

PART I – FINANCIAL INFORMATION
Item 1.   Financial Statements.

MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
June 30, 2018
 
December 31, 2017
(dollars in thousands)
(unaudited)
 
 
ASSETS
 
 
 
Cash and due from banks
$
41,547

 
$
44,818

Interest-earning deposits in banks
1,717

 
5,474

Federal funds sold
—

 
680

Cash and cash equivalents
43,264

 
50,972

Investment securities:
 
 
 
Equity securities, at fair value
2,809

 
2,336

Debt securities available for sale, at fair value
438,312

 
445,324

Debt securities held to maturity (fair value of $188,407 as of June 30, 2018 and $194,343 as of December 31, 2017)
192,896

 
195,619

Loans held for sale
1,528

 
856

Loans held for investment, net of unearned income
2,364,035

 
2,286,695

Allowance for loan losses
(30,800
)
 
(28,059
)
Loans held for investment, net
2,333,235

 
2,258,636

Premises and equipment, net
78,106

 
75,969

Interest receivable
13,636

 
14,732

Goodwill
64,654

 
64,654

Other intangible assets, net
10,925

 
12,046

Bank-owned life insurance
60,209

 
59,831

Other real estate owned
676

 
2,010

Deferred income taxes, net
9,014

 
6,525

Other assets
27,013

 
22,761

Total assets
$
3,276,277

 
$
3,212,271

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
Deposits:
 
 
 
Non-interest-bearing demand
$
469,862

 
$
461,969

Interest-bearing checking
1,183,384

 
1,228,112

Savings
216,866

 
213,430

Certificates of deposit under $100,000
341,584

 
324,681

Certificates of deposit $100,000 and over
392,505

 
377,127

Total deposits
2,604,201

 
2,605,319

Federal funds purchased
52,421

 
1,000

Securities sold under agreements to repurchase
75,046

 
96,229

Federal Home Loan Bank borrowings
143,000

 
115,000

Junior subordinated notes issued to capital trusts
23,841

 
23,793

Long-term debt
10,000

 
12,500

Deferred compensation liability
5,267

 
5,199

Interest payable
1,744

 
1,428

Other liabilities
14,556

 
11,499

Total liabilities
2,930,076

 
2,871,967

Shareholders' equity:
 
 
 
Preferred stock, no par value; authorized 500,000 shares; no shares issued and outstanding at June 30, 2018 and December 31, 2017
$
—

 
$
—

Common stock, $1.00 par value; authorized 30,000,000 shares at June 30, 2018 and December 31, 2017; issued 12,463,481 shares at June 30, 2018 and December 31, 2017; outstanding 12,221,107 shares at June 30, 2018 and 12,219,611 shares at December 31, 2017
12,463

 
12,463

Additional paid-in capital
187,304

 
187,486

Treasury stock at cost, 242,374 shares as of June 30, 2018 and 243,870 shares as of December 31, 2017
(5,474
)
 
(5,121
)
Retained earnings
159,315

 
148,078

Accumulated other comprehensive income (loss)
(7,407
)
 
(2,602
)
Total shareholders' equity
346,201

 
340,304

Total liabilities and shareholders' equity
$
3,276,277

 
$
3,212,271

See accompanying notes to consolidated financial statements.  

1
Table of Contents

MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
 
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
(unaudited) (dollars in thousands, except per share amounts)
 
2018
 
2017
 
2018
 
2017
Interest income:
 
 
 
 
 
 
 
 
Loans
 
$
27,486

 
$
25,650

 
$
54,053

 
$
49,929

Bank deposits
 
18

 
26

 
26

 
31

Federal funds sold
 
1

 
1

 
1

 
1

Taxable securities
 
2,940

 
2,590

 
5,828

 
5,308

Tax-exempt securities
 
1,528

 
1,587

 
3,057

 
3,152

Total interest income
 
31,973

 
29,854

 
62,965

 
58,421

Interest expense:
 
 
 
 
 
 
 
 
Interest on deposits:
 
 
 
 
 
 
 
 
Interest-bearing checking
 
1,291

 
912

 
2,376

 
1,710

Savings
 
63

 
51

 
126

 
102

Certificates of deposit under $100,000
 
1,134

 
886

 
2,129

 
1,745

Certificates of deposit $100,000 and over
 
1,521

 
995

 
2,914

 
1,912

Total interest expense on deposits
 
4,009

 
2,844

 
7,545

 
5,469

Federal funds purchased
 
211

 
25

 
336

 
71

Securities sold under agreements to repurchase
 
144

 
34

 
278

 
72

Federal Home Loan Bank borrowings
 
615

 
404

 
1,132

 
847

Other borrowings
 
4

 
3

 
6

 
6

Junior subordinated notes issued to capital trusts
 
307

 
240

 
565

 
461

Long-term debt
 
102

 
113

 
209

 
223

Total interest expense
 
5,392

 
3,663

 
10,071

 
7,149

Net interest income
 
26,581

 
26,191

 
52,894

 
51,272

Provision for loan losses
 
1,250

 
1,240

 
3,100

 
2,281

Net interest income after provision for loan losses
 
25,331

 
24,951

 
49,794

 
48,991

Noninterest income:
 
 
 
 
 
 
 
 
Trust, investment, and insurance fees
 
1,537

 
1,528

 
3,177

 
3,140

Service charges and fees on deposit accounts
 
1,158

 
1,257

 
2,326

 
2,540

Loan origination and servicing fees
 
906

 
718

 
1,847

 
1,520

Other service charges and fees
 
1,582

 
1,497

 
2,962

 
2,955

Bank-owned life insurance income
 
397

 
318

 
830

 
646

Gain on sale or call of debt securities available for sale
 
—

 
20

 
9

 
20

Gain (loss) on sale or call of debt securities held to maturity
 
(4
)
 
—

 
(4
)
 
43

Gain (loss) on sale of premises and equipment
 
(17
)
 
8

 
(18
)
 
6

Other gain (loss)
 
(72
)
 
37

 
30

 
50

Total noninterest income
 
5,487

 
5,383

 
11,159

 
10,920

Noninterest expense:
 
 
 
 
 
 
 
 
Salaries and employee benefits
 
12,225

 
11,789

 
24,596

 
23,673

Occupancy and equipment, net
 
3,238

 
3,033

 
6,489

 
6,337

Professional fees
 
959

 
1,036

 
1,753

 
2,058

Data processing
 
691

 
548

 
1,379

 
1,259

FDIC insurance
 
392

 
352

 
711

 
719

Amortization of intangibles
 
589

 
804

 
1,246

 
1,653

Other
 
2,437

 
2,402

 
4,715

 
4,600

Total noninterest expense
 
20,531

 
19,964

 
40,889

 
40,299

Income before income tax expense
 
10,287

 
10,370

 
20,064

 
19,612

Income tax expense
 
2,131

 
3,136

 
4,115

 
5,665

Net income
 
$
8,156

 
$
7,234

 
$
15,949

 
$
13,947

Per share information:
 
 
 
 
 
 
 
 
Earnings per common share - basic
 
$
0.67

 
$
0.59

 
$
1.31

 
$
1.18

Earnings per common share - diluted
 
0.67

 
0.59

 
1.30

 
1.17

Dividends paid per common share
 
0.195

 
0.165

 
0.390

 
0.330

See accompanying notes to consolidated financial statements.

2
Table of Contents

MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
(unaudited) (dollars in thousands, except per share amounts)
 
2018
 
2017
 
2018
 
2017
Net income
 
$
8,156

 
$
7,234

 
$
15,949

 
$
13,947

 
 
 
 
 
 
 
 
 
Other comprehensive income, available for sale debt securities:
 
 
 
 
 
 
 
 
Unrealized holding gains (losses) arising during period
 
(1,628
)
 
2,745

 
(6,416
)
 
4,312

Reclassification adjustment for gains included in net income
 
—

 
(20
)
 
(9
)
 
(20
)
Income tax (expense) benefit
 
425

 
(1,070
)
 
1,677

 
(1,686
)
Other comprehensive income (loss) on available for sale debt securities
 
(1,203
)
 
1,655

 
(4,748
)
 
2,606

Other comprehensive income (loss), net of tax
 
(1,203
)
 
1,655

 
(4,748
)
 
2,606

Comprehensive income
 
$
6,953

 
$
8,889

 
$
11,201

 
$
16,553

See accompanying notes to consolidated financial statements.


3
Table of Contents

MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(unaudited)
(dollars in thousands, except per share amounts)
 
Preferred
Stock
 
Common
Stock
 
Additional
Paid-in
Capital
 
Treasury
Stock
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Balance at December 31, 2016
 
$
—


$
11,713


$
163,667


$
(5,766
)

$
136,975


$
(1,133
)

$
305,456

Net income
 
—


—


—


—


13,947


—


13,947

Issuance of common stock (750,000 shares), net of expenses of $1,328
 
—

 
750

 
23,610

 
—

 
—

 
—

 
24,360

Dividends paid on common stock ($0.33 per share)
 
—

 
—

 
—

 
—

 
(3,907
)
 
—


(3,907
)
Stock options exercised (8,250 shares)
 
—

 
—

 
(81
)
 
172

 
—

 
—

 
91

Release/lapse of restriction on RSUs (26,875 shares)
 
—

 
—

 
(560
)
 
453

 
—

 
—


(107
)
Stock compensation
 
—

 
—

 
426

 
—

 
—

 



426

Other comprehensive income, net of tax
 
—

 
—

 
—

 
—

 
—

 
2,606

 
2,606

Balance at June 30, 2017
 
$
—

 
$
12,463

 
$
187,062

 
$
(5,141
)
 
$
147,015

 
$
1,473


$
342,872

Balance at December 31, 2017
 
$
—

 
$
12,463

 
$
187,486

 
$
(5,121
)
 
$
148,078

 
$
(2,602
)
 
$
340,304

Cumulative effect of changes in accounting principles(1)
 
—

 
—

 
—

 
—

 
57

 
(57
)
 
—

Net income
 
—

 
—

 
—

 
—

 
15,949

 
—

 
15,949

Dividends paid on common stock ($0.39 per share)
 
—

 
—

 
—

 
—

 
(4,769
)
 
—

 
(4,769
)
Stock options exercised (9,700 shares)
 
—

 
—

 
(69
)
 
204

 
—

 
—

 
135

Release/lapse of restriction on RSUs (28,525 shares)
 
—

 
—

 
(609
)
 
525

 
—

 
—

 
(84
)
Repurchase of common stock (33,998 shares)
 
—

 
—

 
—

 
(1,082
)
 
—

 
—

 
(1,082
)
Stock compensation
 
—

 
—

 
496

 
—

 
—

 
—

 
496

Other comprehensive loss, net of tax
 
—

 
—

 
—

 
—

 
—

 
(4,748
)
 
(4,748
)
Balance at June 30, 2018
 
$
—

 
$
12,463

 
$
187,304

 
$
(5,474
)
 
$
159,315

 
$
(7,407
)
 
$
346,201

(1) Impact from adoption on January 1, 2018 of ASU 2016-01, 'Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.”
See accompanying notes to consolidated financial statements.  

4
Table of Contents

MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
Six Months Ended June 30,
(unaudited) (dollars in thousands)
2018
 
2017
Cash flows from operating activities:
 
 
 
Net income
$
15,949

 
$
13,947

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for loan losses
3,100

 
2,281

Depreciation of premises and equipment
2,105

 
2,058

Amortization of other intangibles
1,246

 
1,653

Amortization of premiums and discounts on investment securities, net
492

 
650

(Gain) loss on sale of premises and equipment
18

 
(6
)
Deferred income taxes
(803
)
 
(554
)
Excess tax benefit from share-based award activity
—

 
(91
)
Stock-based compensation
496

 
426

Net losses on equity securities
23

 
—

Net gain on sale or call of debt securities available for sale
(9
)
 
(20
)
Net (gain) loss on sale or call of debt securities held to maturity
4

 
(43
)
Net gain on sale of other real estate owned
(50
)
 
(30
)
Net gain on sale of loans held for sale
(802
)
 
(799
)
Writedown of other real estate owned
5

 
23

Origination of loans held for sale
(30,140
)
 
(41,284
)
Proceeds from sales of loans held for sale
30,270

 
44,688

Decrease in interest receivable
1,096

 
1,265

Increase in cash surrender value of bank-owned life insurance
(830
)
 
(646
)
Decrease in other assets
(4,252
)
 
(935
)
Increase in deferred compensation liability
68

 
44

Increase in interest payable, accounts payable, accrued expenses, and other liabilities
3,373

 
568

Net cash provided by operating activities
21,359

 
23,195

Cash flows from investing activities:
 
 
 
Purchases of equity securities
(505
)
 
(2
)
Proceeds from sales of debt securities available for sale
496

 
9,999

Proceeds from maturities and calls of debt securities available for sale
30,942

 
41,162

Purchases of debt securities available for sale
(31,194
)
 
(12,839
)
Proceeds from sales of debt securities held to maturity
—

 
1,153

Proceeds from maturities and calls of debt securities held to maturity
3,132

 
2,998

Purchase of debt securities held to maturity
(553
)
 
(18,292
)
Net increase in loans
(78,203
)
 
(34,188
)
Purchases of premises and equipment
(4,212
)
 
(1,697
)
Proceeds from sale of other real estate owned
1,883

 
825

Proceeds from sale of premises and equipment
—

 
28

Proceeds of principal and earnings from bank-owned life insurance
452

 
—

Payments to acquire intangible assets
(125
)
 
—

Net cash used in investing activities
(77,887
)
 
(10,853
)
Cash flows from financing activities:
 
 
 
Net increase (decrease) in deposits
(1,118<