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

MidWestOne Bank
·27 min read

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

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