MidWestOne attracted by Central Bank's strong team, market

Editor's note: MidWestOne Financial Group, Iowa City, Iowa completed its acquisition of Central Bank, Golden Valley, Minn., on May 1. MidWestOne CEO Charlie Funk recently visited with Northwestern Financial Review reporter Matthew Doffing about the Central Bank acquisition.

Q: How did discussions start with John Morrison, Central Bank's sole owner?

Our first meeting was a real lesson on hearing someone out. An investment banker introduced John and me. I almost didn't go because the Twin Cities are a long way from Iowa. I'm glad I decided to go. We first met in March 2014. The deal had gained momentum by August and we signed the purchase agreement in November.

Q. Morrison remains in a leadership position at MidWestOne as its chairman and largest shareholder. How did his continued leadership at the bank come about?

John built Central Bank with the help of a great team. He was clear from the beginning he wanted to get his bank into good hands. He commonly used the word "perpetuate" at our first meeting.

We agreed on a cash and stock mix early on in our discussions. The amount of stock John received as a result of the deal gives him just over 25 percent ownership in MidWestOne Financial Group. John can speak to the reasons that a stock and cash mix was attractive to him. I am sure it was much better from a tax perspective for him to take stock.

The $1.2 billion Central Bank was a large acquisition for us. MidWestOne Bank has $1.8 billion in assets. We put a lot of cash into the deal relative to our size. MidWestOne could not have acquired Central for all cash. We have been able to achieve respectable results at MidWestOne. John wanted to affiliate with a strong organization. Our strong balance sheet allowed us to use stock as well. We expect tremendous earnings accretion as a result of the merger.

Q. What made Central Bank an attractive acquisition target for MidWestOne?

With our strong performance we have been accumulating capital for three years and had been looking to expand with an acquisition in our footprint. There were a few deals in our area and we were the runnerup on one transaction in Iowa.

I am glad I decided to meet with John. The Twin Cities is a very attractive market for us. It has the lowest unemployment in the country; its economy is very different from MidWestOne's and offers us a lot of diversity.

If you look at Iowa banks' cost of funding it is much higher than banks in the Twin Cities. Wells Fargo and other large banks have 25 percent of the deposits in the Twin Cities. We see an opportunity to bring MidwestOne's retail banking expertise to Central Bank, which has been a loan driven operation, to grow our deposit share. We will look at bringing our wealth management and insurance business to the Twin Cities as well but we need to determine the best avenue for doing that. We also want to continue Central Bank's enthusiasm for making good loans.

Q. What are your plans for the Central Bank charter? Who will lead the Central Bank charter after its CEO, Larry Albert, retires in August?

You don't purchase a bank with Central Bank's size and brand recognition one day and merge it the next. We plan to merge the charters within the next year. I anticipate the MidWestOne brand and name will come to the Twin Cities at that point.

Larry Albert has impressed me very much. He is a tremendous banker and a better person. Under his leadership, Central Bank fared better than most Twin Cities banks in terms of asset quality. I selfishly hoped he would work a few more years.

Doug Beqjamin, regional president at MidWest One Bank, Conrad, Iowa, will move to the Twin Cities and assume some but not all of Larry's responsibilities. His title will be chief banking officer. Doug's strength is retail banking and he will lead our efforts to grow our retail presence in the Twin Cities.

A lot of good people have come to our organization as a result of the acquisition. We plan to use them. This isn't a deal where MidWestOne folks come in and take over all the key jobs. Minneapolis people will have important roles from the beginning. Karin Taylor, Central's chief risk officer in charge of internal audit, will assume all the compliance responsibilities for the two banks. Stig Sandell, who was in charge of Central's mortgage operation, will lead mortgage in both banks. Central came with many more great people. Katie Lorenson, Central's chief financial officer, is another great example. We are really excited about these people joining MidWestOne.