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)
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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
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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.