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

Third Quarter Summary(1)

   -- Net income for the third quarter was $16.3 million, or $1.03 per diluted 
      common share. 
          -- Total revenue, net of interest expense, of $49.5 million. 
          -- Credit loss benefit of $1.1 million. 
          -- Noninterest expense of $29.8 million. 
   -- Excluding Paycheck Protection Program ("PPP") loans, commercial loans 
      were $2.64 billion2, as compared to $2.61 billion2 at the end of the 
      second quarter of 2021 (the "linked quarter"), an increase of 1.2%. 
   -- Efficiency ratio was 56.34%2. 
   -- Nonperforming assets declined 19.0% and the net charge-off ratio was a 
      recovery of 10 basis points ("bps"). 
   -- Cost of average total deposits decreased 2 bps to 0.26% and cost of funds 
      decreased 3 bps to 0.37%. 
   -- On November 1, 2021, entered into a definitive agreement pursuant to 
      which the Company will acquire Iowa First Bancshares Corp. and its 
      banking subsidiaries in Muscatine and Fairfield, Iowa. 

IOWA CITY, Iowa, Nov. 01, 2021 (GLOBE NEWSWIRE) -- MidWestOne Financial Group, Inc. (Nasdaq: MOFG) ("we", "our", or the "Company") today reported net income for the third quarter of 2021 of $16.3 million, or $1.03 per diluted common share, compared to net income of $17.3 million, or $1.08 per diluted common share, for the linked quarter.

CEO COMMENTARY

Charles Funk, Chief Executive Officer of the Company, commented, "We are excited to expand our footprint to Muscatine and to grow our market share in Fairfield, the seat of Jefferson County, with MidWestOne's acquisition of Iowa First Bancshares Corp. ("IOFB"). With this acquisition, we will have the number one deposit market share in both Muscatine and Jefferson counties. We believe MidWestOne's brand of banking will fit very will with IOFB's brand, and we look forward to meeting our new customers and employees over the next few months. Notably, this transaction will provide good earnings momentum for 2022 and beyond.

The third quarter of 2021 was a strong one for our Company with earnings of $1.03 per diluted common share, a 12.00% return on average equity, and a 15.06% return on average tangible equity(2) . In a very tough operating environment, we were able to increase our commercial loans, excluding PPP loans, by 1.2%. We are also extremely pleased with the progress being made in asset quality. The year over year decline of 15 bps in our nonperforming loans ratio to 1.03% and the 30 bps decline in the net charge-off ratio to a net recovery ratio of 10 bps are especially impressive. Our trust and investment services group continued to build its business in the third quarter of 2021 and is on track to achieve record revenues in 2021. While we saw our mortgage loan closings trail off in the third quarter of 2021, we nonetheless expect a solid fourth quarter from this business line. With respect to capital, we continue to find value in repurchasing our shares at a price just above our tangible book value per share. Finally, our bankers continue to assist our customers in working through PPP loan forgiveness. We anticipate another sizeable amount of PPP loan forgiveness in the fourth quarter."

(1) Third Quarter Summary compares to the linked quarter unless noted.

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

FINANCIAL HIGHLIGHTS                 Three Months Ended                   Nine Months Ended 
                          -----------------------------------------  ---------------------------- 
                           September 
                              30,         June 30,    September 30,  September 30,  September 30, 
(Dollars in thousands, 
except per share 
amounts)                      2021          2021          2020           2021           2020 
                          ------------  ------------  -------------  -------------  ------------- 
Net interest income       $40,340       $38,505       $ 37,809       $117,462       $113,927 
Noninterest income          9,182        10,218          9,570         31,224         27,994 
                          -------       -------       --------       --------       -------- 
  Total revenue, net of 
   interest expense        49,522        48,723         47,379        148,686        141,921 
Credit loss (benefit) 
 expense                   (1,080)       (2,144)         4,992         (7,958)        31,410 
Noninterest expense        29,778        28,670         59,939         86,148        117,978 
                          -------       -------       --------       --------       -------- 
Income (loss) before 
 income tax expense        20,824        22,197        (17,552)        70,496         (7,467) 
Income tax expense          4,513         4,926          2,272         15,266          2,620 
                          -------       -------       --------       --------       -------- 
  Net income (loss)       $16,311       $17,271       $(19,824)      $ 55,230       $(10,087) 
                           ======        ======        =======        =======        ======= 
Diluted earnings (loss) 
 per share                $  1.03       $  1.08       $  (1.23)      $   3.46       $  (0.63) 
Return on average assets     1.11    %     1.18    %     (1.48)   %      1.29    %     (0.27)   % 
Return on average equity    12.00    %    13.24    %    (14.88)   %     14.03    %     (2.60)   % 
Return on average 
 tangible equity(1)         15.06    %    16.75    %     12.56    %     17.69    %      8.58    % 
Efficiency ratio(1)         56.34    %    54.83    %     55.37    %     53.95    %     55.95    % 
(1) Non-GAAP measure. See the Non-GAAP Measures section 
 for a reconciliation to the most directly comparable 
 GAAP measure. 

COVID-19 UPDATE

Loan Modifications

As of September 30, 2021, the outstanding balance of loans modified as a result of the COVID-19 pandemic totaled $4.5 million, a decline of 78.6% from $21.0 million at June 30, 2021. The decline from the end of the second quarter of 2021 was due largely to one commercial real estate loan where the borrower resumed making payments.

PPP Loans

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

                                    September 30, 2021                           June 30, 2021 
                         ---------------------------------------- 
                          Round 1(3)    Round 2(3)      Total       Round 1(3)    Round 2(3)       Total 
                         ------------  ------------  ------------  ------------  ------------  -------------- 
(Dollars in millions)      #      $      #      $      #      $      #      $      #      $      #       $ 
----------------------   -----  -----  -----  -----  -----  -----  -----  -----  -----  -----  -----  ------- 
Total PPP Loans Funded   2,681  348.5  2,175  149.3  4,856  497.8  2,681  348.5  2,175  149.3  4,856  497.8 
PPP Loan Forgiveness(1)  2,478  323.7  1,514   72.9  3,992  396.6  2,247  285.7    441   12.3  2,688  298.0 
Outstanding PPP 
 Loans(2)                  184   16.3    661   73.1    845   89.4    416   53.9  1,734  130.5  2,150  184.4 
Unearned Income              $0.1          $2.8          $2.9          $0.5          $6.0           $6.5 
(1) Excluded from the PPP Loan Forgiveness is $9.1 
 million as of September 30, 2021 and $8.9 million 
 as of June 30, 2021 of PPP loans that were paid off 
 by the borrower prior to forgiveness. 
(2) Outstanding loans are presented net of unearned 
 income. 
(3) Round 1 refers to PPP loan applications from the 
 first wave of funding made available through the CARES 
 Act, which was signed into law by President Trump 
 in March 2020. Round 2 refers to the second wave of 
 PPP funding made available through the Consolidated 
 Appropriations Act, 2021, which was signed into law 
 by President Trump in December 2020 and extended by 
 the PPP Extension Act of 2021, which was signed into 
 law by President Biden in March 2021. 

INCOME STATEMENT HIGHLIGHTS

Net Interest Income

Net interest income increased to $40.3 million in the third quarter of 2021 from $38.5 million in the second quarter of 2021 due primarily to increased PPP loan fee accretion stemming from loan forgiveness. Net PPP loan fee accretion was $3.6 million in the third quarter of 2021 compared to $2.5 million in the linked quarter.

Average interest earning assets decreased $32.5 million to $5.49 billion in the third quarter of 2021, compared to the second quarter of 2021, which includes a $90.4 million reduction in average PPP loan balances due to forgiveness. Adjusting for the $90.4 million in average PPP loan balance decline, average interest earning assets increased $57.9 million, primarily due to non-PPP loan growth.

The Company's tax equivalent net interest margin was 3.00% in the third quarter of 2021 compared to 2.88% in the linked quarter due to higher earning asset yields and lower funding costs. Total earning asset yields increased 9 bps from the linked quarter due primarily to the increased PPP net loan fee accretion described above. The cost of interest bearing liabilities decreased 3 bps to 0.46%, primarily as a result of interest bearing deposit costs of 0.32%, which declined 3 bps from the linked quarter.

Noninterest Income

Noninterest income for the third quarter of 2021 decreased $1.0 million, or 10.1%, from the linked quarter. The decrease was primarily due to a $1.2 million decrease in loan revenue. The decline in loan revenue included a $0.9 million reduction in mortgage origination fees stemming from lower gain on sale margins and decreased volumes of home mortgage loans as well as a $0.4 million decline in the fair value of our mortgage servicing rights.