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

    Source: Nasdaq GlobeNewswire / 22 Apr 2021 16:34:12   America/New_York

    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 IncomeMarch 31, December 31, March 31,
    (In thousands)2021 2020 2020
    Investment services and trust activities$2,836  $2,518  $2,536 
    Service charges and fees1,487  1,571  1,826 
    Card revenue1,536  1,517  1,365 
    Loan revenue4,730  3,900  1,123 
    Bank-owned life insurance542  541  520 
    Investment securities gains, net27  30  42 
    Other666  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 ExpenseMarch 31, December 31, March 31,
    (In thousands)2021 2020 2020
    Compensation and employee benefits$16,917  $17,638  $16,617 
    Occupancy expense of premises, net2,318  2,476  2,341 
    Equipment1,793  2,040  1,880 
    Legal and professional783  2,052  1,535 
    Data processing1,252  1,460  1,354 
    Marketing1,006  986  1,062 
    Amortization of intangibles1,507  1,569  2,028 
    FDIC insurance512  495  448 
    Communications409  412  457 
    Foreclosed assets, net47  (35) 138 
    Other1,156  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 income3,358.2  3,482.2  3,425.8 
    Total securities held for investment1,896.9  1,657.4  881.9 
    Total deposits4,794.6  4,547.0  3,859.8 
    Average Balance Sheet     
    Average total assets$5,520.3  $5,457.9  $4,669.7 
    Average total loans3,429.7  3,560.6  3,436.3 
    Average total deposits4,573.9  4,490.0  3,760.0 
    Funding and Liquidity     
    Short-term borrowings$175.8  $230.8  $129.5 
    Long-term debt201.7  208.7  209.9 
    Loans to deposits ratio70.04% 76.58% 88.75%
    Equity     
    Total shareholders' equity$511.3  $515.3  $500.6 
    Common equity ratio8.91% 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 InvestmentMarch 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 %
    Agricultural117,099  3.5  116,392  3.3  145,435  4.2  
    Commercial real estate            
    Construction and development164,927  4.9  181,291  5.2  282,921  8.3  
    Farmland138,199  4.1  144,970  4.2  168,777  4.9  
    Multifamily261,806  7.8  256,525  7.4  217,108  6.3  
    Other1,128,660  33.6  1,149,575  33.0  1,111,640  32.5  
    Total commercial real estate1,693,592  50.4  1,732,361  49.8  1,780,446  52.0  
    Residential real estate            
    One-to-four family first liens337,408  10.0  355,684  10.2  389,055  11.4  
    One-to-four family junior liens137,025  4.1  143,422  4.1  165,235  4.8  
    Total residential real estate474,433  14.1  499,106  14.3  554,290  16.2  
    Consumer79,267  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 ForwardMarch 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)
    Recoveries687  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 CompositionMarch 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 deposits1,406,070  29.4  1,351,641  29.7  995,762  25.8  
    Money market deposits950,300  19.8  918,654  20.2  793,482  20.6  
    Savings deposits580,862  12.1  529,751  11.7  404,100  10.5  
    Total non-maturity deposits3,895,758  81.3  3,710,701  81.6  2,830,471  73.4  
    Time deposits of $250,000 and under558,338  11.6  581,471  12.8  688,409  17.8  
    Time deposits over $250,000340,467  7.1  254,877  5.6  340,964  8.8  
    Total time deposits898,805  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
    HighlightsMarch 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 / Watch130,052   157,213   117,301 
    Classified115,381   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 more508   739   303 
    Total nonperforming loans44,382   42,689   44,276 
    Foreclosed assets, net1,487   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 accruing5,521  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 Ratios2021 (1) 2020 2020
    MidWestOne Financial Group, Inc. Consolidated     
    Tier 1 leverage ratio8.78% 8.50% 9.39%
    Common equity tier 1 capital ratio10.16% 9.72% 9.25%
    Tier 1 capital ratio11.13% 10.70% 10.25%
    Total capital ratio13.75% 13.41% 11.48%
    MidWestOne Bank     
    Tier 1 leverage ratio9.60% 9.35% 10.03%
    Common equity tier 1 capital ratio12.19% 11.79% 10.95%
    Tier 1 capital ratio12.19% 11.79% 10.95%
    Total capital ratio13.19% 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 banks80,924  17,409  55,421  45,018  58,319 
    Federal funds sold7,691  172  7,540  6,329  6,830 
    Total cash and cash equivalents145,769  82,659  134,862  117,210  125,545 
    Debt securities available for sale at fair value1,896,894  1,657,381  1,366,344  1,187,455  881,859 
    Loans held for sale58,333  59,956  13,096  12,048  9,483 
    Gross loans held for investment3,374,076  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 income3,358,161  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, net3,307,511  3,426,723  3,478,932  3,541,395  3,374,575 
    Premises and equipment, net85,581  86,401  87,955  88,929  89,860 
    Goodwill62,477  62,477  62,477  93,977  93,977 
    Other intangible assets, net23,735  25,242  26,811  28,443  30,190 
    Foreclosed assets, net1,487  2,316  724  965  968 
    Other assets155,525  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 deposits3,836,037  3,636,394  3,469,137  3,397,798  3,222,717 
    Total deposits4,794,563  4,547,049  4,333,641  4,265,435  3,859,844 
    Short-term borrowings175,785  230,789  183,893  162,224  129,489 
    Long-term debt201,696  208,691  245,481  189,973  209,874 
    Other liabilities53,948  54,869  68,612  92,550  64,138 
    Total liabilities5,225,992  5,041,398  4,831,627  4,710,182  4,263,345 
    SHAREHOLDERS' EQUITY          
    Common stock16,581  16,581  16,581  16,581  16,581 
    Additional paid-in capital299,747  300,137  299,939  299,542  299,412 
    Retained earnings206,230  188,191  175,017  198,382  190,212 
    Treasury stock(15,278) (14,251) (12,272) (12,272) (12,518)
    Accumulated other comprehensive income4,040  24,592  19,816  18,548  6,877 
    Total shareholders' equity511,320  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 securities5,093  4,673  4,574  4,646  3,717 
    Tax-exempt investment securities2,555  2,529  2,360  1,858  1,512 
    Other14  29  29  40  164 
    Total interest income44,204  45,470  45,154  46,758  47,405 
    Interest expense         
    Deposits3,608  4,265  5,296  6,409  7,949 
    Short-term borrowings128  142  175  263  334 
    Long-term debt1,851  2,026  1,874  1,374  1,716 
    Total interest expense5,587  6,433  7,345  8,046  9,999 
    Net interest income38,617  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) expense43,351  42,078  32,817  34,027  15,673 
    Noninterest income         
    Investment services and trust activities2,836  2,518  2,361  2,217  2,536 
    Service charges and fees1,487  1,571  1,491  1,290  1,826 
    Card revenue1,536  1,517  1,600  1,237  1,365 
    Loan revenue4,730  3,900  3,252  1,910  1,123 
    Bank-owned life insurance542  541  530  635  520 
    Investment securities gains, net27  30  106  6  42 
    Other666  549  230  974  2,743 
    Total noninterest income11,824  10,626  9,570  8,269  10,155 
    Noninterest expense         
    Compensation and employee benefits16,917  17,638  16,460  15,682  16,617 
    Occupancy expense of premises, net2,318  2,476  2,278  2,253  2,341 
    Equipment1,793  2,040  1,935  2,010  1,880 
    Legal and professional783  2,052  1,184  1,382  1,535 
    Data processing1,252  1,460  1,308  1,240  1,354 
    Marketing1,006  986  857  910  1,062 
    Amortization of intangibles1,507  1,569  1,631  1,748  2,028 
    FDIC insurance512  495  470  445  448 
    Communications409  412  428  449  457 
    Foreclosed assets, net47  (35) 13  34  138 
    Goodwill impairment—  —  31,500  —  — 
    Other1,156  2,822  1,875  1,885  2,141 
    Total noninterest expense27,700  31,915  59,939  28,038  30,001 
    Income (loss) before income tax expense27,475  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 outstanding15,991  16,074  16,099  16,094  16,142 
    Weighted average diluted common shares outstanding16,021  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 income11,824   10,626   10,155  
    Total revenue, net of interest expense50,441   49,663   47,561  
    Credit loss (benefit) expense(4,734)  (3,041)  21,733  
    Noninterest expense27,700   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 value32.00   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 income3,358,161   3,482,223   3,425,762  
    Total securities held for investment1,896,894   1,657,381   881,859  
    Total deposits4,794,563   4,547,049   3,859,844  
    Short-term borrowings175,785   230,789   129,489  
    Long-term debt201,696   208,691   209,874  
    Total shareholders' equity511,320   515,250   500,564  
    Average Balance Sheet:     
    Average total assets$5,520,304   $5,457,939   $4,669,724  
    Average total loans3,429,746   3,560,632   3,436,263  
    Average total deposits4,573,898   4,490,048   3,760,016  
    Financial Ratios:     
    Return on average assets1.59 % 1.22 % (0.17)%
    Return on average equity17.01 % 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 ratio70.04 % 76.58 % 88.75 %
    Common equity ratio8.91 % 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 ratio1.32 % 1.23 % 1.29 %
    Total nonperforming assets$45,869   $45,005   $45,244  
    Nonperforming assets ratio0.80 % 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 ratio0.04 % 0.04 % 0.14 %
    Allowance for credit losses$50,650   $55,500   $51,187  
    Allowance for credit losses ratio1.51 % 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 Income4,377   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 securities1,266,714  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%
    Other36,536  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 assets321,515      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 deposits913,087  478  0.21% 931,900  544  0.23% 766,766  1,645  0.86%
    Savings deposits553,824  286  0.21% 508,763  279  0.22% 393,833  391  0.40%
    Time deposits837,460  1,853  0.90% 862,408  2,484  1.15% 997,136  4,597  1.85%
    Total interest bearing deposits3,654,042  3,608  0.40% 3,579,391  4,265  0.47% 3,122,812  7,949  1.02%
    Short-term borrowings175,193  128  0.30% 182,080  142  0.31% 121,942  334  1.10%
    Long-term debt205,971  1,851  3.64% 223,407  2,026  3.61% 225,587  1,716  3.06%
    Total borrowed funds381,164  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 deposits919,856      910,657      637,204     
    Other liabilities49,003      56,898      47,010     
    Shareholders’ equity516,239      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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