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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 HIGHLIGHTS

Three 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 income

10,155

9,036

5,410

Total revenue, net of interest expense

47,561

48,620

31,386

Credit loss expense

21,733

604

1,594

Noninterest expense

30,001

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

%

1 First Quarter Summary compares to the linked quarter unless noted.

2 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 Income

2020

2019

2019

(In thousands)

Investment services and trust activities

$

2,536

$

2,421

$

1,390

Service charges and fees

1,826

2,072

1,442

Card revenue

1,365

1,142

998

Loan revenue

1,123

1,757

393

Bank-owned life insurance

520

501

392

Insurance commissions

420

Investment securities gains, net

42

18

17

Other

2,743

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 Expense

2020

2019

2019

(In thousands)

Compensation and employee benefits

$

16,617

$

19,246

$

12,579

Occupancy expense of premises, net

2,341

2,347

1,879

Equipment

1,880

2,251

1,371

Legal and professional

1,535

1,797

965

Data processing

1,354

1,492

845

Marketing

1,062

1,147

606

Amortization of intangibles

2,028

1,941

452

FDIC insurance

448

(72

)

370

Communications

457

493

342

Foreclosed assets, net

138

173

58

Other

2,141

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 Expenses

2020

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 processing

44

51

5

Marketing

2

Other

10

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 HIGHLIGHTS

As 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 income

3,425.8

3,451.3

2,403.8

Total securities held for investment

881.9

786.0

628.0

Total deposits

3,859.8

3,728.7

2,684.8

Average Balance Sheet

Average total assets

$

4,669.7

$

4,634.6

$

3,301.1

Average total loans

3,436.3

3,493.5

2,409.6

Average total deposits

3,760.0

3,723.9

2,627.6

Funding and Liquidity

Short-term borrowings

$

129.5

$

139.3

$

76.1

Long-term debt

209.9

231.7

162.5

Loans to deposits ratio

89.15

%

93.04

%

89.74

%

Equity

Total shareholders' equity

$

500.6

$

509.0

$

363.8

Equity to assets ratio

10.51

%

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 Investment

2020

2019

2019

(In thousands)

Commercial and industrial

$

864,702

$

835,236

$

535,878

Agricultural

145,435

140,446

96,766

Commercial real estate

Construction and development

282,921

298,077

187,906

Farmland

168,777

181,885

86,648

Multifamily

217,108

227,407

161,067

Other

1,111,640

1,107,490

843,817

Total commercial real estate

1,780,446

1,814,859

1,279,438

Residential real estate

One-to-four family first liens

389,055

407,418

333,220

One-to-four family junior liens

165,235

170,381

121,793

Total residential real estate

554,290

577,799

455,013

Consumer

80,889

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 Forward

2020

2019

2019

(In thousands)

Beginning balance

$

29,079

$

31,532

$

29,307

Cumulative effect of change in accounting principle - CECL

3,984

Charge-offs

(1,497

)

(3,212

)

(1,355

)

Recoveries

299

155

106

Net charge-offs

(1,198

)

(3,057

)

(1,249

)

Credit loss expense related to loans

19,322

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 Composition

2020

2019

2019

(In thousands)

Noninterest bearing deposits

$

637,127

$

662,209

$

426,729

Interest checking deposits

995,762

962,830

696,760

Money market deposits

793,482

763,028

629,838

Savings deposits

404,100

387,142

200,998

Total non-maturity deposits

2,830,471

2,775,209

1,954,325

Time deposits of $250,000 and under

688,409

682,232

541,310

Time deposits over $250,000

340,964

271,214

189,192

Total time deposits

1,029,373

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 Loans

Nonaccrual

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 accruing

10,450

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 Metrics

2020

2019

2019

(dollars in thousands)

Nonaccrual loans held for investment

$

43,973

$

41,483

$

21,274

Performing troubled debt restructured loans held for investment

4,359

4,372

5,161

Accruing loans contractually past due 90 days or more

303

136

208

Total nonperforming loans

48,635

45,991

26,643

Foreclosed assets, net

968

3,706

336

Total nonperforming assets

$

49,603

$

49,697

$

26,979

Allowance for credit losses

51,187

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 income

1.49

%

0.84

%

1.23

%

ACL to nonaccrual loans held for investment, net of unearned income

116.41

%

70.10

%

139.38

%

Nonaccrual loans held for investment to loans held for investment, net of unearned income

1.28

%

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 Ratios

2020

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 banks

58,319

6,112

Federal funds sold

6,830

198

Total cash and cash equivalents

125,545

73,484

Debt securities available for sale at fair value

881,859

785,977

Loans held for sale

9,483

5,400

Gross loans held for investment

3,440,907

3,469,236

Unearned income, net

(15,145

)

(17,970

)

Loans held for investment, net of unearned income

3,425,762

3,451,266

Allowance for credit losses

(51,187

)

(29,079

)

Total loans held for investment, net

3,374,575

3,422,187

Premises and equipment, net

89,860

90,723

Goodwill

93,977

91,918

Other intangible assets, net

30,190

32,218

Foreclosed assets, net

968

3,706

Other assets

157,452

147,960

Total assets

$

4,763,909

$

4,653,573

LIABILITIES

Noninterest bearing deposits

$

637,127

$

662,209

Interest bearing deposits

3,222,717

3,066,446

Total deposits

3,859,844

3,728,655

Short-term borrowings

129,489

139,349

Long-term debt

209,874

231,660

Other liabilities

64,138

44,927

Total liabilities

4,263,345

4,144,591

SHAREHOLDERS' EQUITY

Common stock

16,581

16,581

Additional paid-in capital

299,412

297,390

Retained earnings

190,212

201,105

Treasury stock

(12,518

)

(10,466

)

Accumulated other comprehensive income

6,877

4,372

Total shareholders' equity

500,564

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 securities

3,717

3,540

2,927

Tax-exempt investment securities

1,512

1,465

1,406

Other

164

115

20

Total interest income

47,405

50,026

33,388

Interest expense

Deposits

7,949

8,251

5,695

Short-term borrowings

334

368

457

Long-term debt

1,716

1,823

1,260

Total interest expense

9,999

10,442

7,412

Net interest income

37,406

39,584

25,976

Credit loss expense

21,733

604

1,594

Net interest income after credit loss expense

15,673

38,980

24,382

Noninterest income

Investment services and trust activities

2,536

2,421

1,390

Service charges and fees

1,826

2,072

1,442

Card revenue

1,365

1,142

998

Loan revenue

1,123

1,757

393

Bank-owned life insurance

520

501

392

Insurance commissions

420

Investment securities gains, net

42

18

17

Other

2,743

1,125

358

Total noninterest income

10,155

9,036

5,410

Noninterest expense

Compensation and employee benefits

16,617

19,246

12,579

Occupancy expense of premises, net

2,341

2,347

1,879

Equipment

1,880

2,251

1,371

Legal and professional

1,535

1,797

965

Data processing

1,354

1,492

845

Marketing

1,062

1,147

606

Amortization of intangibles

2,028

1,941

452

FDIC insurance

448

(72

)

370

Communications

457

493

342

Foreclosed assets, net

138

173

58

Other

2,141

5,621

1,150

Total noninterest expense

30,001

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 outstanding

16,142

16,162

12,164

Weighted average diluted common shares outstanding

16,142

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 banks

58,319

6,112

6,413

47,708

2,969

Federal funds sold

6,830

198

478

Total cash and cash equivalents

125,545

73,484

86,667

120,509

42,971

Debt securities available for sale at fair value

881,859

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 investment

881,859

785,977

693,587

653,475

628,012

Loans held for sale

9,483

5,400

7,906

4,306

309

Gross loans held for investment

3,440,907

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 income

3,425,762

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, net

3,374,575

3,422,187

3,493,196

3,507,812

2,374,107

Premises and equipment, net

89,860

90,723

91,190

93,395

75,200

Goodwill

93,977

91,918

93,258

93,376

64,654

Other intangible assets, net

30,190

32,218

33,635

36,624

9,423

Foreclosed assets, net

968

3,706

4,366

4,922

336

Other assets

157,452

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 deposits

3,222,717

3,066,446

3,035,935

3,078,394

2,258,098

Total deposits

3,859,844

3,728,655

3,709,712

3,725,472

2,684,827

Short-term borrowings

129,489

139,349

155,101

153,829

76,066

Long-term debt

209,874

231,660

244,677

252,673

162,471

Other liabilities

64,138

44,927

40,912

42,138

21,762

Total liabilities

4,263,345

4,144,591

4,150,402

4,174,112

2,945,126

SHAREHOLDERS' EQUITY

Common stock

16,581

16,581

16,581

16,581

12,463

Additional paid-in capital

299,412

297,390

297,144

296,879

187,535

Retained earnings

190,212

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' equity

500,564

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 securities

3,717

3,540

3,376

3,289

2,927

Tax-exempt investment securities

1,512

1,465

1,401

1,424

1,406

Other

164

115

130

185

20

Total interest income

47,405

50,026

54,076

44,951

33,388

Interest expense

Deposits

7,949

8,251

8,238

7,743

5,695

Short-term borrowings

334

368

522

500

457

Long-term debt

1,716

1,823

2,058

1,876

1,260

Total interest expense

9,999

10,442

10,818

10,119

7,412

Net interest income

37,406

39,584

43,258

34,832

25,976

Credit loss expense

21,733

604

4,264

696

1,594

Net interest income after credit loss expense

15,673

38,980

38,994

34,136

24,382

Noninterest income

Investment services and trust activities

2,536

2,421

2,339

1,890

1,390

Service charges and fees

1,826

2,072

2,068

1,870

1,442

Card revenue

1,365

1,142

1,655

1,799

998

Loan revenue

1,123

1,757

991

648

393

Bank-owned life insurance

520

501

514

470

392

Insurance commissions

314

420

Investment securities gains, net

42

18

23

32

17

Other

2,743

1,125

414

1,773

358

Total noninterest income

10,155

9,036

8,004

8,796

5,410

Noninterest expense

Compensation and employee benefits

16,617

19,246

17,426

16,409

12,579

Occupancy expense of premises, net

2,341

2,347

2,294

2,127

1,879

Equipment

1,880

2,251

2,181

1,914

1,371

Legal and professional

1,535

1,797

1,996

3,291

965

Data processing

1,354

1,492

1,234

1,008

845

Marketing

1,062

1,147

1,167

869

606

Amortization of intangibles

2,028

1,941

2,583

930

452

FDIC insurance

448

(72

)

(42

)

434

370

Communications

457

493

489

377

342

Foreclosed assets, net

138

173

265

84

58

Other

2,141

5,621

1,849

1,597

1,150

Total noninterest expense

30,001

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 outstanding

16,142

16,162

16,201

14,894

12,164

Weighted average diluted common shares outstanding

16,142

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