MidWestOne Financial Group, Inc. Reports Results for the First Quarter 2020


First Quarter Summary1

  • Through April 28, 2020, approved approximately $332 million of PPP loans for 2,190 customers.
  • Net Loss of $2.0 million, or a Loss of $0.12 Per Diluted Share
    °  Credit Loss Expense of $21.7 million
    °  Pre-tax, Pre-provision Net Revenue2 of $17.6 million, an increase of $5.4 million
    °  Noninterest Income increased 12% to $10.2 million
    °  Noninterest Expenses decreased 18% to $30.0 million
  • Ending deposit balances rose $131.2 million, or 4%, from year-end 2019

IOWA CITY, Iowa, April 30, 2020 (GLOBE NEWSWIRE) -- MidWestOne Financial Group, Inc. (Nasdaq - MOFG) (“we”, “our”, or the "Company”) today reported net loss for the first quarter of 2020 of $2.0 million, or $0.12 per diluted common share, compared to net income of $13.4 million, or $0.83 per diluted common share, for the fourth quarter of 2019 (the “linked quarter”). Credit loss expense for the first quarter was $21.7 million, which reduced diluted earnings per common share by approximately $0.99 for the first quarter of 2020.

Charles Funk, President and Chief Executive Officer, commented, “The quarter was dominated by the activity, which accelerated in March, to prepare and deal with the effects of the COVID-19 pandemic on our employees, customers and communities. We had many bankers in April working 18 hour days to assure that our customers with PPP applications were promptly served. We also implemented CECL as a means of calculating our necessary credit loss expense. Our credit loss expense of $21.7 million is related to the worsening forecast for the U.S. and our regional economy due to the significant slowing we’ve seen in current and forecasted economic activity. We saw a number of positive elements during the quarter, including excellent deposit growth, very good fee income across our footprint, and improved expense management.”

FINANCIAL HIGHLIGHTSThree Months Ended
March 31, December 31, March 31,
2020 2019 2019
 (Dollars in thousands, except per share amounts)
Net interest income$37,406  $39,584  $25,976 
Noninterest income10,155  9,036  5,410 
Total revenue, net of interest expense47,561  48,620  31,386 
Credit loss expense21,733  604  1,594 
Noninterest expense30,001  36,436  20,617 
(Loss) income before income tax (benefit) expense(4,173) 11,580  9,175 
Income tax (benefit) expense(2,198) (1,791) 1,890 
Net (loss) income$(1,975) $13,371  $7,285 
Diluted (loss) earnings per share$(0.12) $0.83  $0.60 
      
Return on average assets(0.17)% 1.14% 0.89%
Return on average equity(1.54)% 10.55% 8.22%
Return on average tangible equity(2)(0.47)% 15.60% 10.87%
Efficiency ratio(2)57.67% 63.05% 62.48%
 
First Quarter Summary compares to the linked quarter unless noted. 
Non-GAAP measure. See pages 15-17 for a reconciliation to the most directly comparable GAAP measure. 
 

MIDWESTONE'S RESPONSE TO COVID-19

MidWestOne has activated our Business Continuity Plan and taken actions to support the health, safety, and well-being of our communities, customers, and employees.

SUPPORTING OUR EMPLOYEES

MidWestOne has taken steps to support our employees:

  • Ensuring the safety of our workforce through social distancing throughout our locations, servicing customers via drive-up and closure of bank lobbies, significant expansion of work from home capabilities, increased cleaning services, and implementation of business travel restrictions.

  • Providing financial assistance by providing pandemic pay benefits to employees to care for children due to school or daycare closures and for COVID-19 self-isolation, and by providing accommodations for employees with pre-existing health conditions through pandemic pay benefits or remote work arrangements.

SUPPORTING OUR CUSTOMERS

To assist our consumer and business clients during this time of need, MidWestOne is providing relief in several ways:

  • Implementing loan payment deferral program. Through April 28, 2020, we have approved approximately $346 million in loan payment deferrals.

  • Aiding our clients through administration of the Small Business Administration's Paycheck Protection Program (PPP). Through April 28, 2020, we have approved approximately $332 million in total loan volume through the PPP for 2,190 customers.

  • Aiding our clients through administration of the CARES Act SBA payment forgiveness program. Through April 23, 2020, over 120 loans have been enrolled with monthly payment relief totaling more than $600,000.

  • Digitally enabling our customers. Online banking user sessions and online account openings increased 26% and 34%, respectively1.

SUPPORTING OUR COMMUNITIES

MidWestOne is committing an additional $150,000 to our annual charitable giving to help meet the needs of our communities impacted by COVID-19. As a community bank, MidWestOne takes pride in making these contributions. In addition, MidWestOne has focused on supporting our local businesses, including by using local restaurants to provide food for employee recognition lunches for MidWestOne employees working on-site.

INCOME STATEMENT HIGHLIGHTS

Net Interest Income

Net interest income decreased in the first quarter of 2020 to $37.4 million from $39.6 million in the linked quarter, reflecting net interest margin compression and lower loan purchase discount accretion. The tax equivalent net interest margin decreased 19 basis points ("bps") to 3.60% for the first quarter of 2020 from 3.79% in the linked quarter. Loan purchase discount accretion added $3.0 million to net interest income in the first quarter compared to $3.9 million in the linked quarter. The Company's core net interest margin, which excludes loan purchase discount accretion, compressed 11 bps from the linked quarter as lower asset yields were only partially offset by reduced funding costs. Finally, an asset-side mix shift contributed to the decrease in net interest income.

Mr. Funk continued, “Part of the decrease in net interest income compared to the prior quarter was attributable to loan purchase discount accretion. In addition, core net interest margin compression reflected a timing difference between the market reduction in interest rates on variable rate loans and the repricing of our deposit portfolios. Certain variable rate loans repriced lower twice during the month of March as a result of the decreases of 50 bps and 100 bps in the target federal funds rate by the Federal Reserve Board's Federal Open Market Committee. However, certain deposit rates were not adjusted until the end of the month. We expect to see net interest margin improvement in the second quarter as our funding costs are adjusted.”

1Online banking user sessions data compares April 25, 2020 to March 1, 2020. Online Account openings data compares March 2020 to February 2020.

Noninterest Income

Noninterest income for the first quarter of 2020 increased $1.1 million, or 12%, from the linked quarter. The increase was due primarily to an increase of $1.6 million in the ‘Other’ income line item. The 'Other' line item reflected an increase from the linked quarter of $2.0 million in income from our commercial loan swap program. Partially offsetting this increase, loan revenue declined $634 thousand due primarily to a $447 thousand decrease in the fair value of mortgage servicing rights.

“It was a strong quarter throughout our lines of business that generate fees. Wealth management had consistent performance throughout the quarter, as did our Home Mortgage Center. Commercial banking swap revenues had the best quarter since we implemented this product for our customers. The biggest negative in this segment was the fair value adjustment in mortgage servicing rights,” said Mr. Funk.

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

 Three Months Ended
 March 31, December 31, March 31,
Noninterest Income2020 2019 2019
 (In thousands)
Investment services and trust activities$2,536 $2,421  $1,390 
Service charges and fees1,826 2,072  1,442 
Card revenue1,365 1,142  998 
Loan revenue1,123 1,757  393 
Bank-owned life insurance520 501  392 
Insurance commissions   420 
Investment securities gains, net42 18  17 
Other2,743 1,125  358 
Total noninterest income$10,155 $9,036  $5,410 
 

Noninterest Expense

Noninterest expense for the first quarter of 2020 decreased $6.4 million, or 18%, from the linked quarter due primarily to a decrease in compensation and employee benefits. The decrease in compensation and employee benefits is primarily attributable to the decrease in merger-related expenses related to the Company's prior merger with ATBancorp. In addition, other noninterest expense decreased primarily due to a reduction in tax credit partnership investment amortization, which was $401 thousand in the first quarter of 2020 compared to $3.9 million in the linked quarter.

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

 Three Months Ended
 March 31, December 31, March 31,
Noninterest Expense2020 2019 2019
 (In thousands)
Compensation and employee benefits$16,617 $19,246  $12,579 
Occupancy expense of premises, net2,341 2,347  1,879 
Equipment1,880 2,251  1,371 
Legal and professional1,535 1,797  965 
Data processing1,354 1,492  845 
Marketing1,062 1,147  606 
Amortization of intangibles2,028 1,941  452 
FDIC insurance448 (72) 370 
Communications457 493  342 
Foreclosed assets, net138 173  58 
Other2,141 5,621  1,150 
Total noninterest expense$30,001 $36,436  $20,617 
 

The following table presents details of merger-related costs for the periods indicated:

 Three Months Ended
 March 31, December 31, March 31,
Merger-related Expenses2020 2019 2019
 (In thousands)
Compensation and employee benefits$ $2,854 $10
Occupancy expense of premises, net 73 
Equipment 43 
Legal and professional 201 126
Data processing44 51 5
Marketing 2 
Other10 58 26
Total merger-related costs$54 $3,282 $167
 

Income Taxes

The Company recognized a net income tax benefit of $2.2 million in the first quarter of 2020 compared to a net income tax benefit of $1.8 million in the linked quarter due primarily to the net loss during the first quarter of 2020 and the recognition of $383 thousand of tax credits during the the first quarter of 2020.

BALANCE SHEET, LIQUIDITY AND CAPITAL HIGHLIGHTSAs of or For the Three Months Ended
March 31, December 31, March 31,
2020 2019 2019
 (Dollars in millions, except per share amounts)
Ending Balance Sheet     
Total assets$4,763.9  $4,653.6  $3,309.0 
Loans held for investment, net of unearned income3,425.8  3,451.3  2,403.8 
Total securities held for investment881.9  786.0  628.0 
Total deposits3,859.8  3,728.7  2,684.8 
Average Balance Sheet     
Average total assets$4,669.7  $4,634.6  $3,301.1 
Average total loans3,436.3  3,493.5  2,409.6 
Average total deposits3,760.0  3,723.9  2,627.6 
Funding and Liquidity     
Short-term borrowings$129.5  $139.3  $76.1 
Long-term debt209.9  231.7  162.5 
Loans to deposits ratio89.15% 93.04% 89.74%
Equity     
Total shareholders' equity$500.6  $509.0  $363.8 
Equity to assets ratio10.51% 10.94% 11.00%
Tangible common equity(1)376.4  384.8  289.8 
Tangible common equity ratio(1)8.11% 8.50% 8.96%
Per Share Data     
Book value$31.11  $31.49  $29.94 
Tangible book value(1)$23.39  $23.81  $23.84 
(1) Non-GAAP measure. See pages 15-17 for a reconciliation to the most directly comparable GAAP measure.
 

Loans Held for Investment

Loans held for investment, net of unearned income, decreased $25.5 million, or 1%, to $3.43 billion from December 31, 2019, primarily due to continued pay downs. At March 31, 2020, commercial real estate loans comprised approximately 52% of the loan portfolio. Commercial and industrial loans was the next largest category at 25% of total loans, followed by residential real estate loans at 16%, agricultural loans at 4%, and consumer loans at 2% of total loans.

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

 March 31, December 31, March 31,
Loans Held for Investment2020 2019 2019
 (In thousands)
Commercial and industrial$864,702 $835,236  $535,878 
Agricultural145,435 140,446  96,766 
Commercial real estate     
Construction and development282,921 298,077  187,906 
Farmland168,777 181,885  86,648 
Multifamily217,108 227,407  161,067 
Other1,111,640 1,107,490  843,817 
Total commercial real estate1,780,446 1,814,859  1,279,438 
Residential real estate     
One-to-four family first liens389,055 407,418  333,220 
One-to-four family junior liens165,235 170,381  121,793 
Total residential real estate554,290 577,799  455,013 
Consumer80,889 82,926  36,664 
Loans held for investment, net of unearned income$3,425,762 $3,451,266  $2,403,759 
 

“Although total loans fell from year-end, commercial and industrial loans showed a large increase and agricultural loans showed an increase as lines of credit were drawn on in anticipation of spring planting. Construction and development loans were down, which is partially seasonal, and pay-downs occurred in the multi-family portfolio. The largest decrease occurred in the 1-4 family residential portfolio as in-house loans were refinanced into the secondary market due to historically low interest rates,” stated Mr. Funk.

Credit Loss Expense and Allowance for Credit Losses

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

 Three Months Ended
 March 31, December 31, March 31,
Allowance for Credit Losses Roll Forward2020 2019 2019
 (In thousands)
Beginning balance$29,079  $31,532  $29,307 
Cumulative effect of change in accounting principle - CECL3,984     
Charge-offs(1,497) (3,212) (1,355)
Recoveries299  155  106 
Net charge-offs(1,198) (3,057) (1,249)
Credit loss expense related to loans19,322  604  1,594 
Ending balance$51,187  $29,079  $29,652 
 

Effective January 1, 2020, the Company adopted the Financial Instruments - Credit Losses (CECL) accounting guidance. The adoption of this guidance established a single allowance framework for all financial assets carried at amortized cost and certain off-balance sheet credit exposures. The framework requires that management's estimate reflects credit losses over the full remaining expected life of each credit and considers expected future changes in macroeconomic conditions. The adoption resulted in the recognition on January 1, 2020 of cumulative effect adjustments of $4.0 million related to the allowance for credit losses (ACL) and $3.4 million related to the liability for off-balance sheet credit exposures.

As of March 31, 2020, the ACL was $51.2 million, or 1.49% of loans held for investment, net of unearned income, compared with $29.1 million, or 0.84%, at December 31, 2019. The increase in the ratio was due to an increased credit loss expense driven by deterioration in current and forecasted economic conditions, largely as a result of the COVID-19 pandemic.  

As of March 31, 2020, the liability for off-balance sheet credit exposures was $5.8 million and was included in 'Other liabilities' on the balance sheet. The increase in the liability for off-balance-sheet credit exposures was due to credit loss expense of $2.4 million in the first quarter driven by deterioration in current and forecasted economic conditions, largely as a result of the COVID-19 pandemic.

Deposits

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

 March 31, December 31, March 31,
Deposit Composition2020 2019 2019
 (In thousands)
Noninterest bearing deposits$637,127  $662,209  $426,729 
Interest checking deposits995,762  962,830  696,760 
Money market deposits793,482  763,028  629,838 
Savings deposits404,100  387,142  200,998 
Total non-maturity deposits2,830,471  2,775,209  1,954,325 
Time deposits of $250,000 and under688,409  682,232  541,310 
Time deposits over $250,000340,964  271,214  189,192 
Total time deposits1,029,373  953,446  730,502 
Total deposits$3,859,844  $3,728,655  $2,684,827 
 

Mr. Funk noted, “Once again, it was a very strong deposit quarter for the bank. Some of this growth is seasonal, but real progress is being made in developing long-term core funding relationships.”

CREDIT QUALITY

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

   90+ Days Past Performing  
   Due & Still Troubled Debt  
Nonperforming LoansNonaccrual Accruing Restructured Total
 (In thousands)
Balance at December 31, 2019$41,483  $136  $4,372  $45,991 
Loans placed on nonaccrual, restructured or 90+ days past due & still accruing10,450  291    10,741 
Repayments (including interest applied to principal)(6,078)   (13) (6,091)
Loans returned to accrual status or no longer past due(274) (61)   (335)
Charge-offs(1,288)     (1,288)
Transfers to foreclosed assets(320)     (320)
Transfers to nonaccrual  (63)   (63)
Balance at March 31, 2020$43,973  $303  $4,359  $48,635 
 

The following table presents selected loan credit quality metrics as of the dates indicated:

 March 31, December 31, March 31,
Credit Quality Metrics2020 2019 2019
 (dollars in thousands)
Nonaccrual loans held for investment$43,973  $41,483  $21,274 
Performing troubled debt restructured loans held for investment4,359  4,372  5,161 
Accruing loans contractually past due 90 days or more303  136  208 
Total nonperforming loans48,635  45,991  26,643 
Foreclosed assets, net968  3,706  336 
Total nonperforming assets$49,603  $49,697  $26,979 
Allowance for credit losses51,187  29,079  29,652 
Credit loss expense related to loans (for the quarter)19,322  604  1,594 
Net charge-offs (for the quarter)1,198  3,057  1,249 
Net charge-offs to average loans held for investment (for the quarter)0.14% 0.35% 0.21%
ACL to loans held for investment, net of unearned income1.49% 0.84% 1.23%
ACL to nonaccrual loans held for investment, net of unearned income116.41% 70.10% 139.38%
Nonaccrual loans held for investment to loans held for investment, net of unearned income1.28% 1.20% 0.89%
         

Mr. Funk noted, "Total nonperforming assets (NPAs) were relatively flat quarter to quarter. During the first quarter, we did make progress in our collection efforts on several large NPAs, but unfortunately we expect that the current pandemic crisis will likely stall collection efforts that were scheduled to occur in the second quarter."

CAPITAL

Effective March 31, 2020, we elected the 5-year phase-in option allowed under the interim final rule (IFR) recently 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.

The following table presents the regulatory capital ratios of the Company and its banking subsidiary as of the dates indicated:

 March 31, December 31, March 31,
Regulatory Capital Ratios2020 2019 2019
MidWestOne Financial Group, Inc. Consolidated     
Common equity tier 1 capital ratio(1)9.25% 9.46% 10.36%
Tier 1 capital ratio(1)10.25% 10.47% 11.21%
Total capital ratio(1)11.48% 11.34% 12.26%
Tier 1 leverage ratio(1)9.39% 9.48% 9.80%
MidWestOne Bank     
Common equity tier 1 capital ratio(1)10.95% 11.12% 10.90%
Tier 1 capital ratio(1)10.95% 11.12% 10.90%
Total capital ratio(1)12.03% 11.83% 11.95%
Tier 1 leverage ratio(1)10.03% 10.06% 9.52%
(1) Capital ratios for March 31, 2020 are preliminary     
      

CORPORATE UPDATE

Share Repurchase Program

During the first quarter of 2020, the Company repurchased 95,340 shares of its common stock at an average price of $27.32 per share and a total cost of $2.6 million. At March 31, 2020, $6.4 million remained available to repurchase shares under the Company’s current share repurchase program.

"We discontinued repurchases of our stock in mid-March and currently have no near-term plans to resume repurchases until we have more clarity on the economic outlook," Mr. Funk concluded.

Cash Dividend Announcement

On April 29, 2020, the Company’s board of directors declared a quarterly cash dividend of $0.22 per common share. The dividend is payable June 15, 2020, to shareholders of record at the close of business on June 1, 2020.

CONFERENCE CALL DETAILS

The Company will host a conference call for investors at 11:00 a.m. CT on Friday, May 1, 2020. 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 31, 2020, by calling 877-344-7529 and using the replay access code of 10136657. 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.

INVESTOR PRESENTATION

MidWestOne has prepared presentation materials (the “Investor Presentation”) that management intends to use during its First Quarter 2020 conference call on May 1, 2020. These materials have been furnished to the U.S. Securities and Exchange Commission concurrently with this press release, and are also available on MidWestOne’s website at www.midwestonefinancial.com.

ABOUT MIDWESTONE FINANCIAL GROUP, INC.

MidWestOne Financial Group, Inc. is a financial holding company headquartered in Iowa City, Iowa. MidWestOne Financial 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.com. 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) 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; (3) the effects of interest rates, including on our net income and the value of our securities portfolio; (4) 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; (5) fluctuations in the value of our investment securities; (6) governmental monetary and fiscal policies; (7) changes in benchmark interest rates used to price loans and deposits, including the expected elimination of LIBOR; (8) legislative and regulatory changes, including changes in banking, securities, trade, and tax laws and regulations and their application by our regulators; (9) the ability to attract and retain key executives and employees experienced in banking and financial services; (10) the sufficiency of the allowance for loan losses to absorb the amount of actual losses inherent in our existing loan portfolio; (11) our ability to adapt successfully to technological changes to compete effectively in the marketplace; (12) credit risks and risks from concentrations (by geographic area and by industry) within our loan portfolio; (13) 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; (14) the failure of assumptions underlying the establishment of allowances for loan losses and estimation of values of collateral and various financial assets and liabilities; (15) 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; (16) volatility of rate-sensitive deposits; (17) operational risks, including data processing system failures or fraud; (18) asset/liability matching risks and liquidity risks; (19) the costs, effects and outcomes of existing or future litigation; (20) changes in general economic, political, or industry conditions, nationally, internationally or in the communities in which we conduct business; (21) changes in accounting policies and practices, as may be adopted by state and federal regulatory agencies and the Financial Accounting Standards Board, such as the implementation of CECL; (22) 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; (23) the effects of cyber-attacks; (24) the imposition of tariffs or other domestic or international governmental policies impacting the value of the agricultural or other products of our borrowers; and (25) other risk factors detailed from time to time in Securities and Exchange Commission filings made by the Company.

MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

 March 31, December 31,
 2020 2019
 (In thousands)
ASSETS   
Cash and due from banks$60,396  $67,174 
Interest earning deposits in banks58,319  6,112 
Federal funds sold6,830  198 
Total cash and cash equivalents125,545  73,484 
Debt securities available for sale at fair value881,859  785,977 
Loans held for sale9,483  5,400 
Gross loans held for investment3,440,907  3,469,236 
Unearned income, net(15,145) (17,970)
Loans held for investment, net of unearned income3,425,762  3,451,266 
Allowance for credit losses(51,187) (29,079)
Total loans held for investment, net3,374,575  3,422,187 
Premises and equipment, net89,860  90,723 
Goodwill93,977  91,918 
Other intangible assets, net30,190  32,218 
Foreclosed assets, net968  3,706 
Other assets157,452  147,960 
Total assets$4,763,909  $4,653,573 
LIABILITIES   
Noninterest bearing deposits$637,127  $662,209 
Interest bearing deposits3,222,717  3,066,446 
Total deposits3,859,844  3,728,655 
Short-term borrowings129,489  139,349 
Long-term debt209,874  231,660 
Other liabilities64,138  44,927 
Total liabilities4,263,345  4,144,591 
SHAREHOLDERS' EQUITY   
Common stock16,581  16,581 
Additional paid-in capital299,412  297,390 
Retained earnings190,212  201,105 
Treasury stock(12,518) (10,466)
Accumulated other comprehensive income6,877  4,372 
Total shareholders' equity500,564  508,982 
Total liabilities and shareholders' equity$4,763,909  $4,653,573 
 

MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF INCOME

 Three Months Ended
 March 31, December 31, March 31,
 2020 2019 2019
 (In thousands, except per share data)
Interest income     
Loans, including fees$42,012  $44,906  $29,035 
Taxable investment securities3,717  3,540  2,927 
Tax-exempt investment securities1,512  1,465  1,406 
Other164  115  20 
Total interest income47,405  50,026  33,388 
Interest expense     
Deposits7,949  8,251  5,695 
Short-term borrowings334  368  457 
Long-term debt1,716  1,823  1,260 
Total interest expense9,999  10,442  7,412 
Net interest income37,406  39,584  25,976 
Credit loss expense21,733  604  1,594 
Net interest income after credit loss expense15,673  38,980  24,382 
Noninterest income     
Investment services and trust activities2,536  2,421  1,390 
Service charges and fees1,826  2,072  1,442 
Card revenue1,365  1,142  998 
Loan revenue1,123  1,757  393 
Bank-owned life insurance520  501  392 
Insurance commissions    420 
Investment securities gains, net42  18  17 
Other2,743  1,125  358 
Total noninterest income10,155  9,036  5,410 
Noninterest expense     
Compensation and employee benefits16,617  19,246  12,579 
Occupancy expense of premises, net2,341  2,347  1,879 
Equipment1,880  2,251  1,371 
Legal and professional1,535  1,797  965 
Data processing1,354  1,492  845 
Marketing1,062  1,147  606 
Amortization of intangibles2,028  1,941  452 
FDIC insurance448  (72) 370 
Communications457  493  342 
Foreclosed assets, net138  173  58 
Other2,141  5,621  1,150 
Total noninterest expense30,001  36,436  20,617 
(Loss) income before income tax (benefit) expense(4,173) 11,580  9,175 
Income tax (benefit) expense(2,198) (1,791) 1,890 
Net (loss) income$(1,975) $13,371  $7,285 
      
(Loss) earnings per common share     
Basic$(0.12) $0.83  $0.60 
Diluted$(0.12) $0.83  $0.60 
Weighted average basic common shares outstanding16,142  16,162  12,164 
Weighted average diluted common shares outstanding16,142  16,193  12,177 
Dividends paid per common share$0.2200  $0.2025  $0.2025 
            

MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES 
FIVE QUARTER CONSOLIDATED BALANCE SHEETS

 March 31, December 31, September 30, June 30, March 31,
 2020 2019 2019 2019 2019
 (In thousands)
ASSETS         
Cash and due from banks$60,396  $67,174  $79,776  $72,801  $40,002 
Interest earning deposits in banks58,319  6,112  6,413  47,708  2,969 
Federal funds sold6,830  198  478     
Total cash and cash equivalents125,545  73,484  86,667  120,509  42,971 
Debt securities available for sale at fair value881,859  785,977  503,278  460,302  432,979 
Held to maturity securities at amortized cost    190,309  193,173  195,033 
Total securities held for investment881,859  785,977  693,587  653,475  628,012 
Loans held for sale9,483  5,400  7,906  4,306  309 
Gross loans held for investment3,440,907  3,469,236  3,545,993  3,569,236  2,409,333 
Unearned income, net(15,145) (17,970) (21,265) (32,733) (5,574)
Loans held for investment, net of unearned income3,425,762  3,451,266  3,524,728  3,536,503  2,403,759 
Allowance for credit losses(51,187) (29,079) (31,532) (28,691) (29,652)
Total loans held for investment, net3,374,575  3,422,187  3,493,196  3,507,812  2,374,107 
Premises and equipment, net89,860  90,723  91,190  93,395  75,200 
Goodwill93,977  91,918  93,258  93,376  64,654 
Other intangible assets, net30,190  32,218  33,635  36,624  9,423 
Foreclosed assets, net968  3,706  4,366  4,922  336 
Other assets157,452  147,960  144,482  148,044  113,963 
Total assets$4,763,909  $4,653,573  $4,648,287  $4,662,463  $3,308,975 
LIABILITIES         
Noninterest bearing deposits$637,127  $662,209  $673,777  $647,078  $426,729 
Interest bearing deposits3,222,717  3,066,446  3,035,935  3,078,394  2,258,098 
Total deposits3,859,844  3,728,655  3,709,712  3,725,472  2,684,827 
Short-term borrowings129,489  139,349  155,101  153,829  76,066 
Long-term debt209,874  231,660  244,677  252,673  162,471 
Other liabilities64,138  44,927  40,912  42,138  21,762 
Total liabilities4,263,345  4,144,591  4,150,402  4,174,112  2,945,126 
SHAREHOLDERS' EQUITY         
Common stock16,581  16,581  16,581  16,581  12,463 
Additional paid-in capital299,412  297,390  297,144  296,879  187,535 
Retained earnings190,212  201,105  191,007  181,984  173,771 
Treasury stock(12,518) (10,466) (9,933) (8,716) (7,297)
Accumulated other comprehensive income (loss)6,877  4,372  3,086  1,623  (2,623)
Total shareholders' equity500,564  508,982  497,885  488,351  363,849 
Total liabilities and shareholders' equity$4,763,909  $4,653,573  $4,648,287  $4,662,463  $3,308,975 
 


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,
 2020 2019 2019 2019 2019
 (In thousands, except per share data)
Interest income         
Loans, including fees$42,012  $44,906  $49,169  $40,053  $29,035 
Taxable investment securities3,717  3,540  3,376  3,289  2,927 
Tax-exempt investment securities1,512  1,465  1,401  1,424  1,406 
Other164  115  130  185  20 
Total interest income47,405  50,026  54,076  44,951  33,388 
Interest expense         
Deposits7,949  8,251  8,238  7,743  5,695 
Short-term borrowings334  368  522  500  457 
Long-term debt1,716  1,823  2,058  1,876  1,260 
Total interest expense9,999  10,442  10,818  10,119  7,412 
Net interest income37,406  39,584  43,258  34,832  25,976 
Credit loss expense21,733  604  4,264  696  1,594 
Net interest income after credit loss expense15,673  38,980  38,994  34,136  24,382 
Noninterest income         
Investment services and trust activities2,536  2,421  2,339  1,890  1,390 
Service charges and fees1,826  2,072  2,068  1,870  1,442 
Card revenue1,365  1,142  1,655  1,799  998 
Loan revenue1,123  1,757  991  648  393 
Bank-owned life insurance520  501  514  470  392 
Insurance commissions      314  420 
Investment securities gains, net42  18  23  32  17 
Other2,743  1,125  414  1,773  358 
Total noninterest income10,155  9,036  8,004  8,796  5,410 
Noninterest expense         
Compensation and employee benefits16,617  19,246  17,426  16,409  12,579 
Occupancy expense of premises, net2,341  2,347  2,294  2,127  1,879 
Equipment1,880  2,251  2,181  1,914  1,371 
Legal and professional1,535  1,797  1,996  3,291  965 
Data processing1,354  1,492  1,234  1,008  845 
Marketing1,062  1,147  1,167  869  606 
Amortization of intangibles2,028  1,941  2,583  930  452 
FDIC insurance448  (72) (42) 434  370 
Communications457  493  489  377  342 
Foreclosed assets, net138  173  265  84  58 
Other2,141  5,621  1,849  1,597  1,150 
Total noninterest expense30,001  36,436  31,442  29,040  20,617 
(Loss) income before income tax (benefit) expense(4,173) 11,580  15,556  13,892  9,175 
Income tax (benefit) expense(2,198) (1,791) 3,256  3,218  1,890 
Net (loss) income$(1,975) $13,371  $12,300  $10,674  $7,285 
          
(Loss) earnings per common share         
Basic$(0.12) $0.83  $0.76  $0.72  $0.60 
Diluted$(0.12) $0.83  $0.76  $0.72  $0.60 
Weighted average basic common shares outstanding16,142  16,162  16,201  14,894  12,164 
Weighted average diluted common shares outstanding16,142  16,193  16,215  14,900  12,177 
Dividends paid per common share$0.2200  $0.2025  $0.2025  $0.2025  $0.2025 
 

MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
AVERAGE BALANCE SHEET AND YIELD ANALYSIS

 Three Months Ended
 March 31, 2020 December 31, 2019 March 31, 2019
  Average
Balance
 Interest
Income/
Expense
 Average
Yield/
Cost
 Average
Balance
 Interest
Income/
Expense
 Average
Yield/
Cost
 Average Balance Interest
Income/
Expense
 Average
Yield/
Cost
 (Dollars in thousands)
ASSETS                  
Loans, including fees (1)(2)(3)$3,436,263 $42,509 4.98% $3,493,496 $45,429 5.16% $2,409,641 $29,308 4.93%
Taxable investment securities 567,001 3,717 2.64% 508,911 3,540 2.76% 414,986 2,927 2.86%
Tax-exempt investment securities (2)(4) 224,171 1,907 3.42% 211,695 1,846 3.46% 202,027 1,772 3.56%
Total securities held for investment(2) 791,172 5,624 2.86% 720,606 5,386 2.97% 617,013 4,699 3.09%
Other 55,833 164 1.18% 28,227 115 1.62% 3,053 20 2.66%
Total interest earning assets(2)$4,283,268 48,297 4.54% $4,242,329 50,930 4.76% $3,029,707 34,027 4.55%
Other assets 386,456     392,254     271,390    
Total assets$4,669,724     $4,634,583     $3,301,097    
LIABILITIES AND SHAREHOLDERS’ EQUITY                  
Interest checking deposits$965,077 $1,316 0.55% $926,155 $1,394 0.60% $676,654 $910 0.55%
Money market deposits 766,766 1,645 0.86% 784,752 1,820 0.92% 599,695 1,334 0.90%
Savings deposits 393,833 391 0.40% 388,338 389 0.40% 204,757 58 0.11%
Time deposits 997,136 4,597 1.85% 953,804 4,648 1.93% 724,772 3,393 1.90%
Total interest bearing deposits 3,122,812 7,949 1.02% 3,053,049 8,251 1.07% 2,205,878 5,695 1.05%
Short-term borrowings 121,942 334 1.10% 126,508 368 1.15% 109,929 457 1.69%
Long-term debt 225,587 1,716 3.06% 237,788 1,823 3.04% 179,515 1,260 2.85%
Total borrowed funds 347,529 2,050 2.37% 364,296 2,191 2.39% 289,444 1,717 2.41%
Total interest bearing liabilities$3,470,341 $9,999 1.16% $3,417,345 $10,442 1.21% $2,495,322 $7,412 1.20%
Noninterest bearing deposits 637,204     670,884     421,753    
Other liabilities 47,010     43,343     24,619    
Shareholders’ equity 515,169     503,011     359,403    
Total liabilities and shareholders’ equity$4,669,724     $4,634,583     $3,301,097    
Net interest income(2)   $38,298     $40,488     $26,615  
Net interest spread(2)     3.38%     3.55%     3.35%
Net interest margin(2)     3.60%     3.79%     3.56%
                   
Total deposits(5)$3,760,016 $7,949 0.85% $3,723,933 $8,251 0.88% $2,627,631 $5,695 0.88%
Cost of funds(6)     0.98%     1.01%     1.03%
Cost to fund earning assets(7)     0.94%     0.98%     0.99%
 
(1)  Average balance includes nonaccrual loans.
(2)  Tax equivalent.
(3)  Interest income includes net loan fees, loan purchase discount accretion and tax equivalent adjustments. Net loan fees were $(122) thousand, $159 thousand, and $(150) thousand for the three months ended March 31, 2020, December 31, 2019, and March 31, 2019, respectively. Loan purchase discount accretion was $3.0 million, $3.9 million, and $586 thousand for the three months ended March 31, 2020, December 31, 2019, and March 31, 2019, respectively. Tax equivalent adjustments were $497 thousand, $523 thousand, and $273 thousand for the three months ended March 31, 2020, December 31, 2019, and March 31, 2019, respectively. The federal statutory tax rate utilized was 21%.
(4) Interest income includes tax equivalent adjustments of $395 thousand, $381 thousand, and $366 thousand for the three months ended March 31, 2020, December 31, 2019, and March 31, 2019, 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.
(7) Cost to fund earnings assets is calculated as annualized total interest expense divided by average earning assets.
 

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), efficiency ratio, and pre-tax pre-provision net revenue. 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 March 31, December 31, September 30, June 30, March 31,
per Share/Tangible Common Equity Ratio 2020 2019 2019 2019 2019
  (Dollars in thousands, except per share data)
Total shareholders’ equity $500,564  $508,982  $497,885  $488,351  $363,849 
Intangible assets, net (124,167) (124,136) (126,893) (130,000) (74,077)
Tangible common equity $376,397  $384,846  $370,992  $358,351  $289,772 
           
Total assets $4,763,909  $4,653,573  $4,648,287  $4,662,463  $3,308,975 
Intangible assets, net (124,167) (124,136) (126,893) (130,000) (74,077)
Tangible assets $4,639,742  $4,529,437  $4,521,394  $4,532,463  $3,234,898 
           
Book value per share $31.11  $31.49  $30.77  $30.11  $29.94 
Tangible book value per share(1) $23.39  $23.81  $22.93  $22.09  $23.84 
Shares outstanding 16,089,782  16,162,176  16,179,734  16,221,160  12,153,045 
           
Equity to assets ratio 10.51% 10.94% 10.71% 10.47% 11.00%
Tangible common equity ratio(2) 8.11% 8.50% 8.21% 7.91% 8.96%
 
(1) Tangible common equity divided by shares outstanding.
(2) Tangible common equity divided by tangible assets.
 


  For the Three Months Ended
Return on Average Tangible Equity March 31, 2020 December 31, 2019 March 31, 2019
  (Dollars in thousands)
Net (loss) income $(1,975) $13,371  $7,285 
Intangible amortization, net of tax(1) 1,521  1,456  357 
Tangible net (loss) income $(454) $14,827  $7,642 
       
Average shareholders’ equity $515,169  $503,011  $359,403 
Average intangible assets, net (122,948) (125,898) (74,293)
Average tangible equity $392,221  $377,113  $285,110 
       
Return on average equity (1.54)% 10.55% 8.22%
Return on average tangible equity(2) (0.47)% 15.60% 10.87%
 
(1) The combined income tax rate utilized was 25%.
(2) Annualized tangible net (loss) income divided by average tangible equity.
 


  For the Three Months Ended
Net Interest Margin, Tax Equivalent/
Core Net Interest Margin
 March 31, 2020 December 31, 2019 March 31, 2019
  (Dollars in thousands)
Net interest income $37,406  $39,584  $25,976 
Tax equivalent adjustments:      
Loans(1) 497  523  273 
Securities(1) 395  381  366 
Net interest income, tax equivalent $38,298  $40,488  $26,615 
Loan purchase discount accretion (3,023) (3,937) (586)
Core net interest income $35,275  $36,551  $26,029 
       
Net interest margin 3.51% 3.70% 3.48%
Net interest margin, tax equivalent(2) 3.60% 3.79% 3.56%
Core net interest margin(3) 3.31% 3.42% 3.48%
Average interest earning assets $4,283,268  $4,242,329  $3,029,707 
 
(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.
 


  For the Three Months Ended
Loan Yield, Tax Equivalent March 31, 2020 December 31, 2019 March 31, 2019
  (Dollars in thousands)
Loan interest income, including fees $42,012  $44,906  $29,035 
Tax equivalent adjustment(1) 497  523  273 
Tax equivalent loan interest income $42,509  $45,429  $29,308 
Loan purchase discount accretion (3,023) (3,937) (586)
Core loan interest income $39,486  $41,492  $28,722 
       
Yield on loans 4.92% 5.10% 4.89%
Yield on loans, tax equivalent(2) 4.98% 5.16% 4.93%
Core yield on loans(3) 4.62% 4.71% 4.83%
Average loans $3,436,263  $3,493,496  $2,409,641 
 
(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.
 


  For the Three Months Ended
Efficiency Ratio March 31, 2020 December 31, 2019 March 31, 2019
  (Dollars in thousands)
Total noninterest expense $30,001  $36,436  $20,617 
Amortization of intangibles (2,028) (1,941) (452)
Merger-related expenses (54) (3,282) (167)
Noninterest expense used for efficiency ratio $27,919  $31,213  $19,998 
       
Net interest income, tax equivalent(1) $38,298  $40,488  $26,615 
Noninterest income 10,155  9,036  5,410 
Investment securities gains, net (42) (18) (17)
Net revenues used for efficiency ratio $48,411  $49,506  $32,008 
       
Efficiency ratio 57.67% 63.05% 62.48%
 
(1) The federal statutory tax rate utilized was 21%.
 


  For the Three Months Ended
Pre-tax Pre-provision Net Revenue March 31, 2020 December 31, 2019 March 31, 2019
  (Dollars in thousands)
Net interest income $37,406  $39,584  $25,976 
Noninterest income 10,155  9,036  5,410 
Noninterest expense (30,001) (36,436) (20,617)
Pre-tax Pre-provision Net Revenue $17,560  $12,184  $10,769 


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