MidWestOne Financial Group, Inc. Reports Financial Results for the First Quarter of 2021

First Quarter Summary(1)

  • Net income for the first quarter was a record $21.6 million, or $1.35 per diluted common share.
    • Total revenue, net of interest expense, increased to $50.4 million.
    • Credit loss benefit increased to $4.7 million.
    • Noninterest expense decreased to $27.7 million.
  • Efficiency ratio improved to 50.8%.
  • Average total interest earning assets grew 6.6% annualized.
  • Average total deposits grew 7.8% annualized.
  • Allowance for credit losses ratio declined to 1.5% given the improving economic outlook.
  • Nonperforming assets increased 1.9% and the net charge-off ratio was 4 bps.

IOWA CITY, Iowa, April 22, 2021 (GLOBE NEWSWIRE) — MidWestOne Financial Group, Inc. (Nasdaq: MOFG) (“we”, “our”, or the “Company”) today reported net income for the first quarter of 2021 of $21.6 million, or $1.35 per diluted common share, compared to net income of $16.7 million, or $1.04 per diluted common share, for the linked quarter.

Charles Funk, Chief Executive Officer of the Company, commented, “This is the highest earnings quarter in our Company’s history. We have seen our asset quality stabilize as the economy improves. Further, our credit loss estimate has declined from peak 2020 levels that stemmed from economic uncertainty driven by the COVID-19 pandemic. We also note our expenses are well-controlled, which is important given this period of soft loan demand.”

1First Quarter Summary compares to the linked quarter unless noted.
2Non-GAAP measure. See the Non-GAAP Measures section for a reconciliation to the most directly comparable GAAP measure.

     
FINANCIAL HIGHLIGHTS   Three Months Ended
    March 31,   December 31,   March 31,
(Dollars in thousands, except per share amounts)   2021   2020   2020
Net interest income   $ 38,617       $ 39,037       $ 37,406    
Noninterest income   11,824       10,626       10,155    
Total revenue, net of interest expense   50,441       49,663       47,561    
Credit loss (benefit) expense   (4,734 )     (3,041 )     21,733    
Noninterest expense   27,700       31,915       30,001    
Income (loss) before income tax expense (benefit)   27,475       20,789       (4,173 )  
Income tax expense (benefit)   5,827       4,079       (2,198 )  
Net income (loss)   $ 21,648       $ 16,710       $ (1,975 )  
Diluted earnings (loss) per share   $ 1.35       $ 1.04       $ (0.12 )  
             
Return on average assets   1.59   %   1.22   %   (0.17 ) %
Return on average equity   17.01   %   13.15   %   (1.54 ) %
Return on average tangible equity(1)   21.52   %   17.07   %   (0.47 ) %
Efficiency ratio(1)   50.77   %   59.69   %   57.67   %
             
(1) Non-GAAP measure. See the Non-GAAP Measures section for a reconciliation to the most directly comparable GAAP measure.
 

COVID-19 UPDATE

Loan Modifications

As of March 31, 2021, the outstanding balance of loans modified as a result of the COVID-19 pandemic totaled $16.7 million, a decline of 62% from $44.1 million at December 31, 2020. Of those modified loans at March 31, 2021, $3.2 million were in their first deferral period while $13.5 million are in, or being processed for, an additional deferral.

SBA PPP Loans

On March 30, 2021, President Biden signed into law the PPP Extension Act of 2021, which provided an extension to May 31, 2021 for qualifying businesses to apply for a PPP loan and provided an additional 30 days for the SBA to process pending PPP loan applications. We expect the Company’s volume of PPP loan originations will decline after March 31, 2021 compared to the level of originations during the first quarter of 2021.

The following table presents PPP loan measures as of the dates indicated:

    Total PPP Loans Funded   Outstanding PPP Loans(1)
(Dollars in millions)   #   $   #   $   Unearned
income
March 31, 2021   4,304   $ 474.2     2,577   $ 248.7     $ 6.9  
                     
December 31, 2020   2,681   $ 348.5     2,410   $ 259.3     $ 5.3  
(1) Outstanding loans are presented net of unearned income.
 

Vulnerable Industries

We believe loans to certain industries are uniquely vulnerable to credit deterioration stemming from the COVID-19 pandemic. The following table presents our exposure to those industries as of the dates indicated.

  March 31, 2021     December 31, 2020  
(Dollars in millions)   Balance   % of Total
Loans
    Balance   % of Total
Loans
 
Non-essential Retail   $ 88.0     2.6   %   $ 95.0     2.7   %
Restaurants   56.1     1.7       49.9     1.4    
Hotels   114.4     3.4       117.0     3.4    
CRE-Retail   191.1     5.7       203.7     5.8    
Arts, Entertainment & Gaming   23.5     0.7       26.9     0.8    
Total Vulnerable Industries Loan Portfolio   $ 473.1     14.1   %   $ 492.5     14.1   %
                                 

INCOME STATEMENT HIGHLIGHTS

Net Interest Income

Net interest income decreased to $38.6 million in the first quarter of 2021 from $39.0 million in the fourth quarter of 2020 as higher average earning asset volumes were offset by a 3 basis point decline in the net interest margin. In addition, net PPP loan fee income added $4.4 million in the first quarter of 2021 compared to $3.1 million in the linked quarter, whereas loan purchase discount accretion was $1.1 million in the first quarter of 2021, down from $1.5 million in the linked quarter.

Average interest earning assets increased $81.1 million to $5.2 billion in the first quarter of 2021, compared to the fourth quarter of 2020, as cash on hand and cash inflows from net loan pay-downs and deposit activity was used to purchase debt securities. The mix of interest earning assets shifted further to debt securities as non-PPP loan demand continued to be soft and line utilization was low.

The Company’s tax equivalent net interest margin was 3.10% in the first quarter of 2021 compared to 3.13% in the linked quarter, as lower earning asset yields were only partially offset by a reduction in average funding costs. Total earning asset yields decreased 9 bps from the linked quarter, reflecting the aforementioned shift in earning asset mix to debt securities that generally have lower yields than our loan portfolio. The cost of interest bearing liabilities decreased 8 bps to 0.56%, primarily as a result of interest bearing deposit costs of 0.40%, which declined 7 bps from the linked quarter.

“Although our balance sheet continues to grow thanks to higher deposit balances, thus generating more net interest income, low loan demand has necessitated purchasing investment securities with these deposits. We were helped in the quarter by a slightly steeper yield curve, but this yield spread remains historically narrow,” stated Mr. Funk.

Noninterest Income

Noninterest income for the first quarter of 2021 increased $1.2 million, or 11%, from the linked quarter. The increase was due primarily to a $0.8 million increase in loan revenue and an increase of $0.3 million in investment services and trust activities revenue. The increase in loan revenue was due primarily to a $0.9 million increase in the fair value of our mortgage servicing rights partially offset by a $0.2 million decrease in loan sale gains. Investment services and trust activities revenue reflected the earnings benefit from increased equity market valuations and fees collected in the normal course of those lines of business.

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

  Three Months Ended
Noninterest Income March 31,   December 31,   March 31,
(In thousands) 2021   2020   2020
Investment services and trust activities $ 2,836     $ 2,518     $ 2,536  
Service charges and fees 1,487     1,571     1,826  
Card revenue 1,536     1,517     1,365  
Loan revenue 4,730     3,900     1,123  
Bank-owned life insurance 542     541     520  
Investment securities gains, net 27     30     42  
Other 666     549     2,743  
Total noninterest income $ 11,824     $ 10,626     $ 10,155  
                       

Noninterest Expense

Noninterest expense for the first quarter of 2021 decreased $4.2 million, or 13.2%, from the linked quarter due primarily to decreases in other, legal and professional, and compensation and employee benefits of $1.7 million, $1.3 million, and $0.7 million, respectively. The decrease in other noninterest expense was primarily due to a $0.8 million loss on the termination of our cash flow hedge that was recorded in the fourth quarter of 2020, which did not recur in the first quarter of 2021, coupled with a reduction in tax credit partnership investment amortization of $0.6 million. The decrease in legal and professional expenses was primarily due to a $0.6 million fee incurred during the fourth quarter of 2020 related to a large contract renewal, which did not recur in the first quarter of 2021, coupled with an overall decline in legal and professional fees paid for regulatory, personnel and other services. The decrease in compensation and employee benefits reflected a $0.9 million benefit from SBA PPP loan origination costs which are deferred and amortized over the life of the loan to which they relate, coupled with a decline of $0.5 million in commission and incentive expense. Partially offsetting these decreases in compensation and employee benefits were increased salary and benefit costs of $0.7 million which stemmed from normal annual increases. Expense control was the primary driver to improvement in the Company’s efficiency ratio, which decreased 8.92% to 50.77%, as compared to the linked quarter efficiency ratio of 59.69%.

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

  Three Months Ended
Noninterest Expense March 31,   December 31,   March 31,
(In thousands) 2021   2020   2020
Compensation and employee benefits $ 16,917     $ 17,638     $ 16,617  
Occupancy expense of premises, net 2,318     2,476     2,341  
Equipment 1,793     2,040     1,880  
Legal and professional 783     2,052     1,535  
Data processing 1,252     1,460     1,354  
Marketing 1,006     986     1,062  
Amortization of intangibles 1,507     1,569     2,028  
FDIC insurance 512     495     448  
Communications 409     412     457  
Foreclosed assets, net 47     (35 )   138  
Other 1,156     2,822     2,141  
Total noninterest expense $ 27,700     $ 31,915     $ 30,001  
                       

Income Taxes

The effective income tax rate was 21.2% in the first quarter of 2021 compared to 19.6% in the linked quarter. The effective income tax rate in the first quarter of 2021 reflected an increase in income taxes based on the statutory rate and state income taxes, net of federal income tax benefits primarily due to the net income earned during the quarter, offset by benefits related to tax-exempt interest and bank-owned life insurance. The effective income tax rate for the full year 2021 is expected to be in the range of 20-22%.

   
BALANCE SHEET, LIQUIDITY AND CAPITAL HIGHLIGHTS As of or For the Three Months Ended
  March 31,   December 31,   March 31,
(Dollars in millions, except per share amounts) 2021   2020   2020
Ending Balance Sheet          
Total assets $ 5,737.3     $ 5,556.6     $ 4,763.9  
Loans held for investment, net of unearned income 3,358.2     3,482.2     3,425.8  
Total securities held for investment 1,896.9     1,657.4     881.9  
Total deposits 4,794.6     4,547.0     3,859.8  
Average Balance Sheet          
Average total assets $ 5,520.3     $ 5,457.9     $ 4,669.7  
Average total loans 3,429.7     3,560.6     3,436.3  
Average total deposits 4,573.9     4,490.0     3,760.0  
Funding and Liquidity          
Short-term borrowings $ 175.8     $ 230.8     $ 129.5  
Long-term debt 201.7     208.7     209.9  
Loans to deposits ratio 70.04 %   76.58 %   88.75 %
Equity          
Total shareholders’ equity $ 511.3     $ 515.3     $ 500.6  
Common equity ratio 8.91 %   9.27 %   10.51 %
Tangible common equity(1) 425.1     427.5     376.4  
Tangible common equity ratio(1) 7.52 %   7.82 %   8.11 %
Per Share Data          
Book value $ 32.00     $ 32.17     $ 31.11  
Tangible book value(1) $ 26.60     $ 26.69     $ 23.39  
(1) Non-GAAP Measure. See the Non-GAAP Measures section for a reconciliation to the most directly comparable GAAP measure.

Loans Held for Investment

Loans held for investment, net of unearned income, decreased $124.1 million, or 4%, to $3.36 billion from December 31, 2020, driven primarily by net loan pay-downs and lower line utilization.

The following table presents the composition of loans held for investment, net of unearned income, as of the dates indicated:

Loans Held for Investment March 31, 2021   December 31, 2020   March 31, 2020  
(dollars in thousands) Balance   % of
Total
  Balance   % of
Total
  Balance   % of
Total
 
Commercial and industrial $ 993,770     29.6   % $ 1,055,488     30.3   % $ 864,702     25.2   %
Agricultural 117,099     3.5     116,392     3.3     145,435     4.2    
Commercial real estate                        
Construction and development 164,927     4.9     181,291     5.2     282,921     8.3    
Farmland 138,199     4.1     144,970     4.2     168,777     4.9    
Multifamily 261,806     7.8     256,525     7.4     217,108     6.3    
Other 1,128,660     33.6     1,149,575     33.0     1,111,640     32.5    
Total commercial real estate 1,693,592     50.4     1,732,361     49.8     1,780,446     52.0    
Residential real estate                        
One-to-four family first liens 337,408     10.0     355,684     10.2     389,055     11.4    
One-to-four family junior liens 137,025     4.1     143,422     4.1     165,235     4.8    
Total residential real estate 474,433     14.1     499,106     14.3     554,290     16.2    
Consumer 79,267     2.4     78,876     2.3     80,889     2.4    
Loans held for investment, net of unearned income $ 3,358,161     100.0   % $ 3,482,223     100.0   % $ 3,425,762     100.0   %
                                           

Mr. Funk noted, “Loan demand remains weak in most areas of our geographic footprint. This is evidenced by credit line utilization of only 32% during the quarter compared to 46% in the first quarter of 2020. We believe loan demand will improve as the national economy opens up.”

Credit Loss Expense & Allowance for Credit Losses

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

  Three Months Ended
Allowance for Credit Losses Roll Forward March 31,   December 31,   March 31,
(In thousands) 2021   2020   2020
Beginning balance $ 55,500     $ 58,500     $ 29,079  
Cumulative effect of change in accounting principle – CECL         3,984  
Charge-offs (1,003 )   (1,005 )   (1,497 )
Recoveries 687     646     299  
Net charge-offs (316 )   (359 )   (1,198 )
Credit loss (benefit) expense related to loans (4,534 )   (2,641 )   19,322  
Ending balance $ 50,650     $ 55,500     $ 51,187  
                       

As of March 31, 2021, the allowance for credit losses (“ACL”) was $50.7 million, or 1.51% of loans held for investment, net of unearned income, compared with $55.5 million, or 1.59%, at December 31, 2020. After excluding net PPP loans, the ACL as a percentage of loans held for investment, net of unearned income, decreased to 1.63%(1) as of March 31, 2021, from 1.72%(1) at December 31, 2020. The decline in the ACL during the first quarter reflected overall improvements in the economic forecast and an improved credit profile outlook when compared to the linked quarter.

(1)Non-GAAP Measure. See the Non-GAAP Measures section for a reconciliation to the most directly comparable GAAP measure.

“We believe that our ACL is sufficient to weather the challenges that lie ahead,” stated Mr. Funk.

Deposits

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

Deposit Composition March 31, 2021   December 31, 2020   March 31, 2020  
(In thousands) Balance   % of Total   Balance   % of Total   Balance   % of Total  
Noninterest bearing deposits $ 958,526     20.0   % $ 910,655     20.0   % $ 637,127     16.5   %
Interest checking deposits 1,406,070     29.4     1,351,641     29.7     995,762     25.8    
Money market deposits 950,300     19.8     918,654     20.2     793,482     20.6    
Savings deposits 580,862     12.1     529,751     11.7     404,100     10.5    
Total non-maturity deposits 3,895,758     81.3     3,710,701     81.6     2,830,471     73.4    
Time deposits of $250,000 and under 558,338     11.6     581,471     12.8     688,409     17.8    
Time deposits over $250,000 340,467     7.1     254,877     5.6     340,964     8.8    
Total time deposits 898,805     18.7     836,348     18.4     1,029,373     26.6    
Total deposits $ 4,794,563     100.0   % $ 4,547,049     100.0   % $ 3,859,844     100.0   %
                                           

CREDIT RISK PROFILE

  As of or For the Three Months Ended
Highlights March 31,   December 31,   March 31,
(dollars in thousands) 2021   2020   2020
Credit loss (benefit) expense related to loans $ (4,534 )     $ (2,641 )     $ 19,322  
Net charge-offs $ 316       $ 359       $ 1,198  
Net charge-off ratio(1) 0.04   %   0.04   %   0.14 %
           
At period-end          
Pass $ 3,112,728       $ 3,202,704       $ 3,231,725  
Special Mention / Watch 130,052       157,213       117,301  
Classified 115,381       122,306       76,736  
Total loans held for investment, net $ 3,358,161       $ 3,482,223       $ 3,425,762  
Classified loans ratio(2) 3.44   %   3.51   %   2.24 %
           
Nonaccrual loans held for investment $ 43,874       $ 41,950       $ 43,973  
Accruing loans contractually past due 90 days or more 508       739       303  
Total nonperforming loans 44,382       42,689       44,276  
Foreclosed assets, net 1,487       2,316       968  
Total nonperforming assets (3) $ 45,869       $ 45,005       $ 45,244  
Nonperforming loans ratio(4) 1.32   %   1.23   %   1.29 %
Nonperforming assets ratio(5) 0.80   %   0.81   %   0.95 %
Allowance for credit losses $ 50,650       $ 55,500       $ 51,187  
Allowance for credit losses ratio(6) 1.51   %   1.59   %   1.49 %
Adjusted allowance for credit losses ratio(7) 1.63   %   1.72   %   1.49 %
           
Performing troubled debt restructured loans held for investment $ 2,230       $ 2,630       $ 4,359  
(1) Net charge-off ratio is calculated as annualized net charge-offs divided by average loans held for investment, net of unearned income, during the period.
(2) Classified loans ratio is calculated as classified loans divided by loans held for investment, net of unearned income, at the end of the period.
(3) Starting in the second quarter of 2020, performing troubled debt restructured loans held for investment are no longer included in nonperforming assets. Prior period credit quality metrics have been adjusted to exclude these loans.
(4) Nonperforming loans ratio is calculated as total nonperforming loans divided by loans held for investment, net of unearned income, at the end of the period.
(5) Nonperforming assets ratio is calculated as total nonperforming assets divided by total assets at the end of the period.
(6) Allowance for credit losses ratio is calculated as allowance for credit losses divided by loans held for investment, net of unearned income, at the end of the period.
(7) Non-GAAP Measure. See the Non-GAAP Measures section for a reconciliation to the most directly comparable GAAP measure.
 

The following table presents a roll forward of nonperforming loans for the period indicated:

Nonperforming Loans      
(dollars in thousands) Nonaccrual
  90+ Days Past Due
& Still Accruing

  Total
Balance at December 31, 2020 $ 41,950     $ 739     $ 42,689  
Loans placed on nonaccrual or 90+ days past due & still accruing 5,521     228     5,749  
Repayments (including interest applied to principal) (2,514 )   1     (2,513 )
Loans returned to accrual status or no longer past due (268 )   (330 )   (598 )
Charge-offs (715 )   (130 )   (845 )
Transfers to foreclosed assets (100 )       (100 )
Balance at March 31, 2021 $ 43,874     $ 508     $ 44,382  
                       

CAPITAL

Effective March 31, 2020, we elected the 5-year phase-in option allowed under the interim final rule (IFR) issued by the federal banking regulatory agencies that delays the estimated impact on regulatory capital stemming from the implementation of CECL. The IFR allows the add back of 100% of the capital effect from the day one CECL transition adjustment and 25% of the capital effect from subsequent increases in the allowance for credit losses through the two-year period ending December 31, 2021. This cumulative amount will then be reduced from capital over the subsequent three-year period.

  March 31,   December 31,   March 31,
Regulatory Capital Ratios 2021 (1)   2020   2020
MidWestOne Financial Group, Inc. Consolidated          
Tier 1 leverage ratio 8.78 %   8.50 %   9.39 %
Common equity tier 1 capital ratio 10.16 %   9.72 %   9.25 %
Tier 1 capital ratio 11.13 %   10.70 %   10.25 %
Total capital ratio 13.75 %   13.41 %   11.48 %
MidWestOne Bank          
Tier 1 leverage ratio 9.60 %   9.35 %   10.03 %
Common equity tier 1 capital ratio 12.19 %   11.79 %   10.95 %
Tier 1 capital ratio 12.19 %   11.79 %   10.95 %
Total capital ratio 13.19 %   12.89 %   12.03 %
(1) Capital ratios for March 31, 2021 are preliminary          
           

CORPORATE UPDATE

Share Repurchase Program

During the first quarter of 2021, the Company repurchased 62,588 shares of its common stock at an average price of $27.14 per share and a total cost of $1.7 million. At March 31, 2021, $2.7 million remained available to repurchase shares under the Company’s current share repurchase program.

CONFERENCE CALL DETAILS

The Company will host a conference call for investors at 11:00 a.m. CT on Friday, April 23, 2021. 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 July 29, 2021, by calling 877-344-7529 and using the replay access code of 10153549. A transcript of the call will also be available on the Company’s web site (www.midwestonefinancial.com) within three business days of the call.

ABOUT MIDWESTONE FINANCIAL GROUP, INC.

MidWestOne Financial Group, Inc. is a financial holding company headquartered in Iowa City, Iowa. MidWestOne 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.bank. MidWestOne Financial Group, Inc. 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) effects of the COVID-19 pandemic, including its potential effects on the economic environment, our customers and our operations, as well as any changes to federal, state, or local government laws, regulations, or orders in connection with the pandemic; (2) government intervention in the U.S. financial system in response to the COVID-19 pandemic, including the effects of recent legislative, tax, accounting and regulatory actions and reforms, including the Coronavirus Aid, Relief, and Economic Security Act, the Consolidated Appropriations Act, 2021 and the American Rescue Plan; (3) the impact of the COVID-19 pandemic on our financial results, including possible lost revenue and increased expenses (including the cost of capital), as well as possible goodwill impairment charges; (4) 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 credit loss expense, and a reduction in net earnings; (5) the effects of interest rates, including on our net income and the value of our securities portfolio; (6) changes in the economic environment, competition, or other factors that may affect our ability to acquire loans or influence the anticipated growth rate of loans and deposits and the quality of the loan portfolio and loan and deposit pricing; (7) fluctuations in the value of our investment securities; (8) governmental monetary and fiscal policies; (9) changes in and uncertainty related to benchmark interest rates used to price loans and deposits, including the expected elimination of LIBOR; (10) legislative and regulatory changes, including changes in banking, securities, trade, and tax laws and regulations and their application by our regulators; (11) the ability to attract and retain key executives and employees experienced in banking and financial services; (12) the sufficiency of the allowance for credit losses to absorb the amount of actual losses inherent in our existing loan portfolio; (13) our ability to adapt successfully to technological changes to compete effectively in the marketplace; (14) credit risks and risks from concentrations (by geographic area and by industry) within our loan portfolio; (15) 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, financial technology companies, and other financial institutions operating in our markets or elsewhere or providing similar services; (16) the failure of assumptions underlying the establishment of allowances for credit losses and estimation of values of collateral and various financial assets and liabilities; (17) the risks of mergers, 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; (18) volatility of rate-sensitive deposits; (19) operational risks, including data processing system failures or fraud; (20) asset/liability matching risks and liquidity risks; (21) the costs, effects and outcomes of existing or future litigation; (22) changes in general economic, political, or industry conditions, nationally, internationally or in the communities in which we conduct business; (23) changes in accounting policies and practices, as may be adopted by state and federal regulatory agencies and the Financial Accounting Standards Board; (24) war or terrorist activities, widespread disease or pandemic, or other adverse external events, which may cause deterioration in the economy or cause instability in credit markets; (25) the effects of cyber-attacks; (26) the imposition of tariffs or other domestic or international governmental policies impacting the value of the agricultural or other products of our borrowers; and (27) other risk factors detailed from time to time in Securities and Exchange Commission filings made by the Company.

 
MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
FIVE QUARTER CONSOLIDATED BALANCE SHEETS
                   
  March 31,   December 31,   September 30,   June 30,   March 31,
(In thousands) 2021   2020   2020   2020   2020
ASSETS                  
Cash and due from banks $ 57,154     $ 65,078     $ 71,901     $ 65,863     $ 60,396  
Interest earning deposits in banks 80,924     17,409     55,421     45,018     58,319  
Federal funds sold 7,691     172     7,540     6,329     6,830  
Total cash and cash equivalents 145,769     82,659     134,862     117,210     125,545  
Debt securities available for sale at fair value 1,896,894     1,657,381     1,366,344     1,187,455     881,859  
Loans held for sale 58,333     59,956     13,096     12,048     9,483  
Gross loans held for investment 3,374,076     3,496,790     3,555,969     3,618,675     3,440,907  
Unearned income, net (15,915 )   (14,567 )   (18,537 )   (21,636 )   (15,145 )
Loans held for investment, net of unearned income 3,358,161     3,482,223     3,537,432     3,597,039     3,425,762  
Allowance for credit losses (50,650 )   (55,500 )   (58,500 )   (55,644 )   (51,187 )
Total loans held for investment, net 3,307,511     3,426,723     3,478,932     3,541,395     3,374,575  
Premises and equipment, net 85,581     86,401     87,955     88,929     89,860  
Goodwill 62,477     62,477     62,477     93,977     93,977  
Other intangible assets, net 23,735     25,242     26,811     28,443     30,190  
Foreclosed assets, net 1,487     2,316     724     965     968  
Other assets 155,525     153,493     159,507     160,541     157,452  
Total assets $ 5,737,312     $ 5,556,648     $ 5,330,708     $ 5,230,963     $ 4,763,909  
LIABILITIES                   
Noninterest bearing deposits $ 958,526     $ 910,655     $ 864,504     $ 867,637     $ 637,127  
Interest bearing deposits 3,836,037     3,636,394     3,469,137     3,397,798     3,222,717  
Total deposits 4,794,563     4,547,049     4,333,641     4,265,435     3,859,844  
Short-term borrowings 175,785     230,789     183,893     162,224     129,489  
Long-term debt 201,696     208,691     245,481     189,973     209,874  
Other liabilities 53,948     54,869     68,612     92,550     64,138  
Total liabilities 5,225,992     5,041,398     4,831,627     4,710,182     4,263,345  
SHAREHOLDERS’ EQUITY                   
Common stock 16,581     16,581     16,581     16,581     16,581  
Additional paid-in capital 299,747     300,137     299,939     299,542     299,412  
Retained earnings 206,230     188,191     175,017     198,382     190,212  
Treasury stock (15,278 )   (14,251 )   (12,272 )   (12,272 )   (12,518 )
Accumulated other comprehensive income 4,040     24,592     19,816     18,548     6,877  
Total shareholders’ equity 511,320     515,250     499,081     520,781     500,564  
Total liabilities and shareholders’ equity $ 5,737,312     $ 5,556,648     $ 5,330,708     $ 5,230,963     $ 4,763,909  
                                       
 
MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
FIVE QUARTER CONSOLIDATED STATEMENTS OF INCOME
   
  Three Months Ended
  March 31,   December 31,   September 30,   June 30,   March 31,
(In thousands, except per share data) 2021   2020   2020   2020   2020
Interest income                  
Loans, including fees $ 36,542     $ 38,239     $ 38,191     $ 40,214     $ 42,012  
Taxable investment securities 5,093     4,673     4,574     4,646     3,717  
Tax-exempt investment securities 2,555     2,529     2,360     1,858     1,512  
Other 14     29     29     40     164  
Total interest income 44,204     45,470     45,154     46,758     47,405  
Interest expense                  
Deposits 3,608     4,265     5,296     6,409     7,949  
Short-term borrowings 128     142     175     263     334  
Long-term debt 1,851     2,026     1,874     1,374     1,716  
Total interest expense 5,587     6,433     7,345     8,046     9,999  
Net interest income 38,617     39,037     37,809     38,712     37,406  
Credit loss (benefit) expense (4,734 )   (3,041 )   4,992     4,685     21,733  
Net interest income after credit loss (benefit) expense 43,351     42,078     32,817     34,027     15,673  
Noninterest income                  
Investment services and trust activities 2,836     2,518     2,361     2,217     2,536  
Service charges and fees 1,487     1,571     1,491     1,290     1,826  
Card revenue 1,536     1,517     1,600     1,237     1,365  
Loan revenue 4,730     3,900     3,252     1,910     1,123  
Bank-owned life insurance 542     541     530     635     520  
Investment securities gains, net 27     30     106     6     42  
Other 666     549     230     974     2,743  
Total noninterest income 11,824     10,626     9,570     8,269     10,155  
Noninterest expense                  
Compensation and employee benefits 16,917     17,638     16,460     15,682     16,617  
Occupancy expense of premises, net 2,318     2,476     2,278     2,253     2,341  
Equipment 1,793     2,040     1,935     2,010     1,880  
Legal and professional 783     2,052     1,184     1,382     1,535  
Data processing 1,252     1,460     1,308     1,240     1,354  
Marketing 1,006     986     857     910     1,062  
Amortization of intangibles 1,507     1,569     1,631     1,748     2,028  
FDIC insurance 512     495     470     445     448  
Communications 409     412     428     449     457  
Foreclosed assets, net 47     (35 )   13     34     138  
Goodwill impairment         31,500          
Other 1,156     2,822     1,875     1,885     2,141  
Total noninterest expense 27,700     31,915     59,939     28,038     30,001  
Income (loss) before income tax expense 27,475     20,789     (17,552 )   14,258     (4,173 )
Income tax expense (benefit) 5,827     4,079     2,272     2,546     (2,198 )
Net income (loss) $ 21,648     $ 16,710     $ (19,824 )   $ 11,712     $ (1,975 )
                   
Earnings (loss) per common share                  
Basic $ 1.35     $ 1.04     $ (1.23 )   $ 0.73     $ (0.12 )
Diluted $ 1.35     $ 1.04     $ (1.23 )   $ 0.73     $ (0.12 )
Weighted average basic common shares outstanding 15,991     16,074     16,099     16,094     16,142  
Weighted average diluted common shares outstanding 16,021     16,092     16,099     16,100     16,142  
Dividends paid per common share $ 0.2250     $ 0.2200     $ 0.2200     $ 0.2200     $ 0.2200  
                                       
 
MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
FINANCIAL STATISTICS
   
  As of or for the three months ended
  March 31,   December 31,   March 31,
(Dollars in thousands, except per share amounts) 2021   2020   2020
Earnings:          
Net interest income $ 38,617       $ 39,037       $ 37,406    
Noninterest income 11,824       10,626       10,155    
Total revenue, net of interest expense 50,441       49,663       47,561    
Credit loss (benefit) expense (4,734 )     (3,041 )     21,733    
Noninterest expense 27,700       31,915       30,001    
Income (loss) before income tax expense (benefit) 27,475       20,789       (4,173 )  
Income tax expense (benefit) 5,827       4,079       (2,198 )  
Net income (loss) $ 21,648       $ 16,710       $ (1,975 )  
Per Share Data:          
Diluted earnings (loss) $ 1.35       $ 1.04       $ (0.12 )  
Book value 32.00       32.17       31.11    
Tangible book value(1) 26.60       26.69       23.39    
Ending Balance Sheet:          
Total assets $ 5,737,312       $ 5,556,648       $ 4,763,909    
Loans held for investment, net of unearned income 3,358,161       3,482,223       3,425,762    
Total securities held for investment 1,896,894       1,657,381       881,859    
Total deposits 4,794,563       4,547,049       3,859,844    
Short-term borrowings 175,785       230,789       129,489    
Long-term debt 201,696       208,691       209,874    
Total shareholders’ equity 511,320       515,250       500,564    
Average Balance Sheet:          
Average total assets $ 5,520,304       $ 5,457,939       $ 4,669,724    
Average total loans 3,429,746       3,560,632       3,436,263    
Average total deposits 4,573,898       4,490,048       3,760,016    
Financial Ratios:          
Return on average assets 1.59   %   1.22   %   (0.17 ) %
Return on average equity 17.01   %   13.15   %   (1.54 ) %
Return on average tangible equity(1) 21.52   %   17.07   %   (0.47 ) %
Efficiency ratio(1) 50.77   %   59.69   %   57.67   %
Net interest margin, tax equivalent(1) 3.10   %   3.13   %   3.60   %
Loans to deposits ratio 70.04   %   76.58   %   88.75   %
Common equity ratio 8.91   %   9.27   %   10.51   %
Tangible common equity ratio(1) 7.52   %   7.82   %   8.11   %
Credit Risk Profile:          
Total nonperforming loans $ 44,382       $ 42,689       $ 44,276    
Nonperforming loans ratio 1.32   %   1.23   %   1.29   %
Total nonperforming assets $ 45,869       $ 45,005       $ 45,244    
Nonperforming assets ratio 0.80   %   0.81   %   0.95   %
Performing troubled debt restructured loans held for investment $ 2,230       $ 2,630       $ 4,359    
Net charge-offs $ 316       $ 359       $ 1,198    
Net charge-off ratio 0.04   %   0.04   %   0.14   %
Allowance for credit losses $ 50,650       $ 55,500       $ 51,187    
Allowance for credit losses ratio 1.51   %   1.59   %   1.49   %
Adjusted allowance for credit losses ratio(1) 1.63   %   1.72   %   1.49   %
PPP Loans:          
Average PPP loans $ 236,231       $ 313,252          
Fee Income 4,377       3,059          
           
(1) Non-GAAP measure. See the Non-GAAP Measures section for a reconciliation to the most directly comparable GAAP measure.
 
 
MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
AVERAGE BALANCE SHEET AND YIELD ANALYSIS
   
  Three Months Ended
  March 31, 2021   December 31, 2020   March 31, 2020
(Dollars in thousands) Average
Balance
  Interest
Income/
Expense
  Average
Yield/
Cost
  Average
Balance
  Interest
Income/
Expense
  Average
Yield/
Cost
  Average
Balance
  Interest
Income/
Expense
  Average
Yield/
Cost
ASSETS                                  
Loans, including fees (1)(2)(3) $ 3,429,746     $ 37,073     4.38 %   $ 3,560,632     $ 38,795     4.33 %   $ 3,436,263     $ 42,509     4.98 %
Taxable investment securities 1,266,714     5,093     1.63 %   1,026,359     4,673     1.81 %   567,001     3,717     2.64 %
Tax-exempt investment securities (2)(4) 465,793     3,203     2.79 %   450,659     3,180     2.81 %   224,171     1,907     3.42 %
Total securities held for investment(2) 1,732,507     8,296     1.94 %   1,477,018     7,853     2.12 %   791,172     5,624     2.86 %
Other 36,536     14     0.16 %   80,019     29     0.14 %   55,833     164     1.18 %
Total interest earning assets(2) $ 5,198,789     45,383     3.54 %   $ 5,117,669     46,677     3.63 %   $ 4,283,268     48,297     4.54 %
Other assets 321,515             340,270             386,456          
Total assets $ 5,520,304             $ 5,457,939             $ 4,669,724          
LIABILITIES AND SHAREHOLDERS’ EQUITY                                  
Interest checking deposits $ 1,349,671     $ 991     0.30 %   $ 1,276,320     $ 958     0.30 %   $ 965,077     $ 1,316     0.55 %
Money market deposits 913,087     478     0.21 %   931,900     544     0.23 %   766,766     1,645     0.86 %
Savings deposits 553,824     286     0.21 %   508,763     279     0.22 %   393,833     391     0.40 %
Time deposits 837,460     1,853     0.90 %   862,408     2,484     1.15 %   997,136     4,597     1.85 %
Total interest bearing deposits 3,654,042     3,608     0.40 %   3,579,391     4,265     0.47 %   3,122,812     7,949     1.02 %
Short-term borrowings 175,193     128     0.30 %   182,080     142     0.31 %   121,942     334     1.10 %
Long-term debt 205,971     1,851     3.64 %   223,407     2,026     3.61 %   225,587     1,716     3.06 %
Total borrowed funds 381,164     1,979     2.11 %   405,487     2,168     2.13 %   347,529     2,050     2.37 %
Total interest bearing liabilities $ 4,035,206     $ 5,587     0.56 %   $ 3,984,878     $ 6,433     0.64 %   $ 3,470,341     $ 9,999     1.16 %
Noninterest bearing deposits 919,856             910,657             637,204          
Other liabilities 49,003             56,898             47,010          
Shareholders’ equity 516,239             505,506             515,169          
Total liabilities and shareholders’ equity $ 5,520,304             $ 5,457,939             $ 4,669,724          
Net interest income(2)     $ 39,796             $ 40,244             $ 38,298      
Net interest spread(2)         2.98 %           2.99 %           3.38 %
Net interest margin(2)         3.10 %           3.13 %           3.60 %
                                   
Total deposits(5) $ 4,573,898     $ 3,608     0.32 %   $ 4,490,048     $ 4,265     0.38 %   $ 3,760,016     $ 7,949     0.85 %
Cost of funds(6)         0.46 %           0.52 %           0.98 %

(1) Average balance includes nonaccrual loans.
(2) Tax equivalent. The federal statutory tax rate utilized was 21%.
(3) Interest income includes net loan fees, loan purchase discount accretion and tax equivalent adjustments. Net loan fees were $3.5 million, $2.5 million, and $(122) thousand for the three months ended March 31, 2021, December 31, 2020, and March 31, 2020, respectively. Loan purchase discount accretion was $1.1 million, $1.5 million, and $3.0 million for the three months ended March 31, 2021, December 31, 2020, and March 31, 2020, respectively. Tax equivalent adjustments were $531 thousand, $556 thousand, and $497 thousand for the three months ended March 31, 2021, December 31, 2020, and March 31, 2020, respectively. The federal statutory tax rate utilized was 21%.
(4) Interest income includes tax equivalent adjustments of $648 thousand, $651 thousand, and $395 thousand for the three months ended March 31, 2021, December 31, 2020, and March 31, 2020, respectively. The federal statutory tax rate utilized was 21%.
(5) Total deposits is the sum of total interest-bearing deposits and noninterest bearing deposits. The cost of total deposits is calculated as annualized interest expense on deposits divided by average total deposits.
(6) Cost of funds is calculated as annualized total interest expense divided by the sum of average total deposits and borrowed funds.

Non-GAAP Measures

This earnings release contains non-GAAP measures for tangible common equity, tangible book value per share, tangible common equity ratio, return on average tangible equity, net interest margin (tax equivalent), core net interest margin, loan yield (tax equivalent), core yield on loans, efficiency ratio, adjusted allowance for credit losses ratio, core loans, and core commercial loans. Management believes these measures provide investors with useful information regarding the Company’s profitability, financial condition and capital adequacy, consistent with how management evaluates the Company’s financial performance. The following tables provide a reconciliation of each non-GAAP measure to the most comparable GAAP measure.

                     
Tangible Common Equity/Tangible Book Value                    
per Share/Tangible Common Equity Ratio   March 31,   December 31,   September 30,   June 30,   March 31,
(Dollars in thousands, except per share data)   2021   2020   2020   2020   2020
Total shareholders’ equity   $ 511,320       $ 515,250       $ 499,081       $ 520,781       $ 500,564    
Intangible assets, net   (86,212 )     (87,719 )     (89,288 )     (122,420 )     (124,167 )  
Tangible common equity   $ 425,108       $ 427,531       $ 409,793       $ 398,361       $ 376,397    
                     
Total assets   $ 5,737,312       $ 5,556,648       $ 5,330,708       $ 5,230,963       $ 4,763,909    
Intangible assets, net   (86,212 )     (87,719 )     (89,288 )     (122,420 )     (124,167 )  
Tangible assets   $ 5,651,100       $ 5,468,929       $ 5,241,420       $ 5,108,543       $ 4,639,742    
                     
Book value per share   $ 32.00       $ 32.17       $ 31.00       $ 32.35       $ 31.11    
Tangible book value per share(1)   $ 26.60       $ 26.69       $ 25.45       $ 24.74       $ 23.39    
Shares outstanding   15,981,088       16,016,780       16,099,324       16,099,324       16,089,782    
                     
Common equity ratio   8.91   %   9.27   %   9.36   %   9.96   %   10.51   %
Tangible common equity ratio(2)   7.52   %   7.82   %   7.82   %   7.80   %   8.11   %

(1) Tangible common equity divided by shares outstanding.
(2) Tangible common equity divided by tangible assets.

     
    Three Months Ended
Return on Average Tangible Equity   March 31,   December 31,   March 31,
(Dollars in thousands)   2021   2020   2020
Net income (loss)   $ 21,648       $ 16,710       $ (1,975 )  
Intangible amortization, net of tax(1)   1,130       1,177       1,521    
Tangible net income (loss)   $ 22,778       $ 17,887       $ (454 )  
             
Average shareholders’ equity   $ 516,239       $ 505,506       $ 515,169    
Average intangible assets, net   (86,961 )     (88,543 )     (122,948 )  
Average tangible equity   $ 429,278       $ 416,963       $ 392,221    
             
Return on average equity   17.01   %   13.15   %   (1.54 ) %
Return on average tangible equity(2)   21.52   %   17.07   %   (0.47 ) %

(1) The combined income tax rate utilized was 25%.
(2) Annualized tangible net income divided by average tangible equity.

     
Net Interest Margin, Tax Equivalent/   Three Months Ended
Core Net Interest Margin   March 31,   December 31,   March 31,
(Dollars in thousands)   2021   2020   2020
Net interest income   $ 38,617       $ 39,037       $ 37,406    
Tax equivalent adjustments:            
Loans(1)   531       556       497    
Securities(1)   648       651       395    
Net interest income, tax equivalent   $ 39,796       $ 40,244       $ 38,298    
Loan purchase discount accretion   (1,098 )     (1,542 )     (3,023 )  
Core net interest income   $ 38,698       $ 38,702       $ 35,275    
             
Net interest margin   3.01   %   3.03   %   3.51   %
Net interest margin, tax equivalent(2)   3.10   %   3.13   %   3.60   %
Core net interest margin(3)   3.02   %   3.01   %   3.31   %
Average interest earning assets   $ 5,198,789       $ 5,117,669       $ 4,283,268    

(1) The federal statutory tax rate utilized was 21%.
(2) Annualized tax equivalent net interest income divided by average interest earning assets.
(3) Annualized core net interest income divided by average interest earning assets.

     
    Three Months Ended
Loan Yield, Tax Equivalent / Core Yield on Loans   March 31,   December 31,   March 31,
(Dollars in thousands)   2021   2020   2020
Loan interest income, including fees   $ 36,542       $ 38,239       $ 42,012    
Tax equivalent adjustment(1)   531       556       497    
Tax equivalent loan interest income   $ 37,073       $ 38,795       $ 42,509    
Loan purchase discount accretion   (1,098 )     (1,542 )     (3,023 )  
Core loan interest income   $ 35,975       $ 37,253       $ 39,486    
             
Yield on loans   4.32   %   4.27   %   4.92   %
Yield on loans, tax equivalent(2)   4.38   %   4.33   %   4.98   %
Core yield on loans(3)   4.25   %   4.16   %   4.62   %
Average loans   $ 3,429,746       $ 3,560,632       $ 3,436,263    

(1) The federal statutory tax rate utilized was 21%.
(2) Annualized tax equivalent loan interest income divided by average loans.
(3) Annualized core loan interest income divided by average loans.

     
    Three Months Ended
Efficiency Ratio   March 31,   December 31,   March 31,
(Dollars in thousands)   2021   2020   2020
Total noninterest expense   $ 27,700       $ 31,915       $ 30,001    
Amortization of intangibles   (1,507 )     (1,569 )     (2,028 )  
Merger-related expenses               (54 )  
Noninterest expense used for efficiency ratio   $ 26,193       $ 30,346       $ 27,919    
             
Net interest income, tax equivalent(1)   $ 39,796       $ 40,244       $ 38,298    
Noninterest income   11,824       10,626       10,155    
Investment securities gains, net   (27 )     (30 )     (42 )  
Net revenues used for efficiency ratio   $ 51,593       $ 50,840       $ 48,411    
             
Efficiency ratio (2)   50.77   %   59.69   %   57.67   %

(1) The federal statutory tax rate utilized was 21%.
(2) Noninterest expense adjusted for amortization of intangibles and merger-related expenses divided by the sum of tax equivalent net interest income, noninterest income and net investment securities gains.

                     
Adjusted Allowance for Credit Losses Ratio   March 31,   December 31,   September 30,   June 30,   March 31,
(Dollars in thousands)   2021   2020   2020   2020   2020
Loans held for investment, net of unearned income   $ 3,358,161       $ 3,482,223       $ 3,537,432       $ 3,597,039       $ 3,425,762  
PPP loans   (248,682 )     (259,260 )     (331,703 )     (327,648 )      
Core loans   $ 3,109,479       $ 3,222,963       $ 3,205,729       $ 3,269,391       $ 3,425,762  
Allowance for credit losses   $ 50,650       $ 55,500       $ 58,500       $ 55,644       $ 51,187  
                     
Allowance for credit losses ratio   1.51   %   1.59   %   1.65   %   1.55   %   1.49 %
Adjusted allowance for credit losses ratio(1)   1.63   %   1.72   %   1.82   %   1.70   %   1.49 %

(1) Allowance for credit losses divided by core loans

                     
Core Loans/Core Commercial Loans   March 31,   December 31,   September 30,   June 30,   March 31,
(Dollars in thousands)   2021   2020   2020   2020   2020
Commercial loans:                    
Commercial and industrial   $ 993,770     $ 1,055,488     $ 1,103,102     $ 1,084,527     $ 864,702  
Agricultural   117,099     116,392     129,453     140,837     145,435  
Commercial real estate   1,693,592     1,732,361     1,707,035     1,764,739     1,780,446  
Total commercial loans   $ 2,804,461     $ 2,904,241     $ 2,939,590     $ 2,990,103     $ 2,790,583  
Consumer loans:                    
Residential real estate   $ 474,433     $ 499,106     $ 521,570     $ 532,914     $ 554,290  
Other consumer   79,267     78,876     76,272     74,022     80,889  
Total consumer loans   $ 553,700     $ 577,982     $ 597,842     $ 606,936     $ 635,179  
Loans held for investment, net of unearned income   $ 3,358,161     $ 3,482,223     $ 3,537,432     $ 3,597,039     $ 3,425,762  
                     
PPP loans   $ 248,682     $ 259,260     $ 331,703     $ 327,648     $  
                     
Core loans(1)   $ 3,109,479     $ 3,222,963     $ 3,205,729     $ 3,269,391     $ 3,425,762  
Core commercial loans(2)   $ 2,555,779     $ 2,644,981     $ 2,607,887     $ 2,662,455     $ 2,790,583  

(1) Core loans are calculated as loans held for investment, net of unearned income less PPP loans.
(2) Core commercial loans are calculated as total commercial loans less PPP loans.

Category: Earnings

This news release may be downloaded from https://www.midwestonefinancial.com/corporate-profile/default.aspx

Source: MidWestOne Financial Group, Inc.

Contact:    
  Charles N. Funk   Barry S. Ray
  Chief Executive Officer   Senior Executive Vice President and Chief Financial Officer
  319.356.5800   319.356.5800

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