MidWestOne Financial Group, Inc. Reports Financial Results For the Third Quarter of 2020
Third Quarter Summary(1)
- Net loss for the third quarter of $19.8 million, or a loss of $1.23 per diluted common share, driven by goodwill write-down of $31.5 million.
- Excluding goodwill write-down, core earnings(2) were stable at $11.7 million, or $0.73 per diluted common share.
- Mortgage banking revenues drove $1.3 million, or 16%, increase in noninterest income.
- Tax equivalent net interest margin(2) of 3.14% down from 3.38%.
- Average deposit balances increased $151.6 million, or 4%, while cost of average total deposits declined 13 basis points ("bps") to 49 bps.
- COVID-19 loan modifications declined 75% to $116.0 million, which represents 3% of loans held for investment, net of unearned income.
IOWA CITY, Iowa, Oct. 29, 2020 (GLOBE NEWSWIRE) -- MidWestOne Financial Group, Inc. (Nasdaq - MOFG) (“we”, “our”, or the "Company”) today reported a net loss for the third quarter of 2020 of $19.8 million, or a loss of $1.23 per diluted common share, compared to net income of $11.7 million, or $0.73 per diluted common share, for the second quarter of 2020 (the “linked quarter”). The decrease in net income in the third quarter was due primarily to a $31.5 million goodwill impairment charge. The goodwill impairment charge in the third quarter of 2020 reduced diluted earnings per common share by approximately $1.96.
Charles Funk, Chief Executive Officer of the Company, commented, “In March of this year, the COVID-19 pandemic caused a significant decline in stock market valuations. Subsequently, bank valuations, including our stock price, have generally not experienced a rebound similar to the broader markets. As a result, at September 30, 2020, we recorded a goodwill impairment charge as our estimated fair value was less than our book value on that date. This non-cash charge has no impact on our regulatory capital ratios, cash flows or liquidity position. Our underlying operations remain strong as the Company delivered a return on average tangible equity of 12.56%(2) and an efficiency ratio of 55.37%(2) in the third quarter of 2020. We also continued to build our allowance for credit losses ratio during the quarter to 1.82%(2), excluding PPP loans, while our level of non-performing assets declined from the linked second quarter."
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1Third Quarter summary compares to the linked quarter unless noted.
2Non-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, | |||||||||||||||
| 2020 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||
| (Dollars in thousands, except per share amounts) | |||||||||||||||||||
| Net interest income | $ | 37,809 | $ | 38,712 | $ | 43,258 | $ | 113,927 | $ | 104,066 | |||||||||
| Noninterest income | 9,570 | 8,269 | 8,004 | 27,994 | 22,210 | ||||||||||||||
| Total revenue, net of interest expense | 47,379 | 46,981 | 51,262 | 141,921 | 126,276 | ||||||||||||||
| Credit loss expense | 4,992 | 4,685 | 4,264 | 31,410 | 6,554 | ||||||||||||||
| Noninterest expense | 59,939 | 28,038 | 31,442 | 117,978 | 81,099 | ||||||||||||||
| (Loss) income before income tax (benefit) expense | (17,552 | ) | 14,258 | 15,556 | (7,467 | ) | 38,623 | ||||||||||||
| Income tax expense | 2,272 | 2,546 | 3,256 | 2,620 | 8,364 | ||||||||||||||
| Net (loss) income | $ | (19,824 | ) | $ | 11,712 | $ | 12,300 | $ | (10,087 | ) | $ | 30,259 | |||||||
| Diluted (loss) earnings per share | $ | (1.23 | ) | $ | 0.73 | $ | 0.76 | $ | (0.63 | ) | $ | 2.09 | |||||||
| Return on average assets | (1.48 | )% | 0.92 | % | 1.06 | % | (0.27 | )% | 1.00 | % | |||||||||
| Return on average equity | (14.88 | )% | 9.21 | % | 9.92 | % | (2.60 | )% | 9.37 | % | |||||||||
| Return on average tangible equity(1) | 12.56 | % | 13.50 | % | 15.57 | % | 8.58 | % | 13.48 | % | |||||||||
| Efficiency ratio(1) | 55.37 | % | 54.80 | % | 50.46 | % | 55.95 | % | 55.45 | % | |||||||||
| (1) Non-GAAP measure. See the separate Non-GAAP Measures section for a reconciliation to the most directly comparable GAAP measure. | |||||||||||||||||||
COVID-19 UPDATE
Loan Modifications
As of September 30, 2020, COVID-19 pandemic related loan modifications totaled $116.0 million, a decline of 75% from $468.6 million at June 30, 2020. Of those modified loans at September 30, 2020, $41.2 million are in their first deferral period while $74.8 million are in or being processed for a second deferral.
"We have been pleased that the level of deferrals has fallen to 3% of net loans held for investment at the end of the third quarter, and we expect this number to continue to fall as first deferrals expire," stated Mr. Funk.
Small Business Administration ("SBA") Paycheck Protection Program ("PPP") Loans
The SBA PPP program closed on August 8, 2020, and the SBA is no longer accepting PPP applications from participating lenders. At September 30, 2020, the Company had 2,664 PPP loans totaling $331.7 million, including $8.1 million of unamortized net fees. As of September 30, 2020, certain of the Company's PPP loan customers had initiated the loan forgiveness process, but no PPP loans had been submitted to the SBA for forgiveness.
On October 8, 2020, the SBA, in conjunction with the U.S. Department of the Treasury, issued new guidelines regarding a simplified forgiveness program for PPP loans of $50,000 or less. As of September 30, 2020, the Company had 1,579 PPP loans totaling $27.8 million, including unamortized net fees of $0.4 million, that would qualify for the simplified forgiveness program.
INCOME STATEMENT HIGHLIGHTS
Net Interest Income
Net interest income decreased in the third quarter of 2020 to $37.8 million from $38.7 million in the linked quarter, reflecting net interest margin compression and lower loan purchase discount accretion. The tax equivalent net interest margin decreased 24 bps to 3.14% for the third quarter of 2020 from 3.38% in the linked quarter. Interest earning asset and loan yields decreased 34 bps and 20 bps, respectively, from the linked quarter. Approximately 4 bps of the loan yield decrease was attributable to PPP loans. The cost of interest bearing liabilities decreased 11 bps to 0.76% as a 15 bps decline in interest bearing deposit costs to 0.62% was only partially offset by the effects of the Company's recent $65.0 million subordinated debt offering. Loan purchase discount accretion added $1.9 million to net interest income in the third quarter compared to $2.6 million in the linked quarter. Net fee accretion for PPP loans in the third quarter of 2020 was $1.3 million compared to $1.1 million in the linked quarter.
Mr. Funk noted, "Generally, the banking industry's net interest margins have been impacted by the Federal Reserve's zero interest rate policy instituted in response to the COVID-19 pandemic, and we expect this to continue in subsequent quarters."
Noninterest Income
Noninterest income for the third quarter of 2020 increased $1.3 million, or 16%, from the linked quarter. The increase was primarily due to a $1.3 million increase in loan revenue, which was driven by mortgage banking, and a $0.4 million increase in card revenue. These increases were partially offset by a decrease in 'Other' noninterest income of $0.7 million, which was due primarily to a decline of $0.5 million in income received from our commercial loan back-to-back swap program.
"Our Home Mortgage Center continues to work hard to process increased volumes of home mortgage loans, largely driven by low market interest rates. Our staff have been working long hours to serve our customers," noted Mr. Funk.
The following table presents details of noninterest income for the periods indicated:
| Three Months Ended | |||||||||||
| September 30, | June 30, | September 30, | |||||||||
| Noninterest Income | 2020 | 2020 | 2019 | ||||||||
| (In thousands) | |||||||||||
| Investment services and trust activities | $ | 2,361 | $ | 2,217 | $ | 2,339 | |||||
| Service charges and fees | 1,491 | 1,290 | 2,068 | ||||||||
| Card revenue | 1,600 | 1,237 | 1,655 | ||||||||
| Loan revenue | 3,252 | 1,910 | 991 | ||||||||
| Bank-owned life insurance | 530 | 635 | 514 | ||||||||
| Investment securities gains, net | 106 | 6 | 23 | ||||||||
| Other | 230 | 974 | 414 | ||||||||
| Total noninterest income | $ | 9,570 | $ | 8,269 | $ | 8,004 | |||||
Noninterest Expense
Noninterest expense for the third quarter of 2020 increased $31.9 million, or 113.8%, from the linked quarter due primarily to a $31.5 million goodwill impairment charge. Excluding the goodwill impairment charge, core noninterest expense increased $0.4 million, due primarily to an increase in compensation and employee benefits of $0.8 million. The increase in compensation and employee benefits reflected a $1.4 million expense benefit from SBA PPP loan origination costs that was recognized in the linked quarter.
"Expense management will continue to be critical to our success as we attempt to combat low margins in future quarters," stated Mr. Funk.
The following table presents details of noninterest expense for the periods indicated:
| Three Months Ended | |||||||||||
| September 30, | June 30, | September 30, | |||||||||
| Noninterest Expense | 2020 | 2020 | 2019 | ||||||||
| (In thousands) | |||||||||||
| Compensation and employee benefits | $ | 16,460 | $ | 15,682 | $ | 17,426 | |||||
| Occupancy expense of premises, net | 2,278 | 2,253 | 2,294 | ||||||||
| Equipment | 1,935 | 2,010 | 2,181 | ||||||||
| Legal and professional | 1,184 | 1,382 | 1,996 | ||||||||
| Data processing | 1,308 | 1,240 | 1,234 | ||||||||
| Marketing | 857 | 910 | 1,167 | ||||||||
| Amortization of intangibles | 1,631 | 1,748 | 2,583 | ||||||||
| FDIC insurance | 470 | 445 | (42 | ) | |||||||
| Communications | 428 | 449 | 489 | ||||||||
| Foreclosed assets, net | 13 | 34 | 265 | ||||||||
| Other | 1,875 | 1,885 | 1,849 | ||||||||
| Total core noninterest expense | $ | 28,439 | $ | 28,038 | $ | 31,442 | |||||
| Goodwill impairment | 31,500 | $ | — | $ | — | ||||||
| Total noninterest expense | $ | 59,939 | $ | 28,038 | $ | 31,442 | |||||
The Company's noninterest expense for the third quarter of 2020 compared to the third quarter of 2019 is impacted by merger-related costs that were incurred in the third quarter of 2019. The following table presents details of merger-related costs for the periods indicated:
| Three Months Ended | |||||||||||
| September 30, | June 30, | September 30, | |||||||||
| Merger-related Expenses | 2020 | 2020 | 2019 | ||||||||
| (In thousands) | |||||||||||
| Compensation and employee benefits | $ | — | $ | — | $ | 1,584 | |||||
| Equipment | — | 7 | — | ||||||||
| Legal and professional | — | — | 163 | ||||||||
| Data processing | — | — | 567 | ||||||||
| Other | — | — | 233 | ||||||||
| Total merger-related costs | $ | — | $ | 7 | $ | 2,547 | |||||
Income Taxes
The effective income tax rate was (12.9)% in the third quarter of 2020 compared to 17.9% in the linked quarter. Excluding non-deductible goodwill impairment, the effective income tax rate in the third quarter of 2020 was 16.3%, reflecting benefits related to tax-exempt interest and renewable energy tax credits. Excluding the non-deductible goodwill impairment, the effective tax rate for the full year 2020 is currently expected to be in the range of 14-16%.
| BALANCE SHEET, LIQUIDITY AND CAPITAL HIGHLIGHTS | As of or For the Three Months Ended | ||||||||||
| September 30, | June 30, | September 30, | |||||||||
| 2020 | 2020 | 2019 | |||||||||
| (Dollars in millions, except per share amounts) | |||||||||||
| Ending Balance Sheet | |||||||||||
| Total assets | $ | 5,330.7 | $ | 5,231.0 | $ | 4,648.3 | |||||
| Loans held for investment, net of unearned income | 3,537.4 | 3,597.0 | 3,524.7 | ||||||||
| Total securities held for investment | 1,366.3 | 1,187.5 | 693.6 | ||||||||
| Total deposits | 4,333.6 | 4,265.4 | 3,709.7 | ||||||||
| Average Balance Sheet | |||||||||||
| Average total assets | $ | 5,311.4 | $ | 5,098.8 | $ | 4,620.5 | |||||
| Average total loans | 3,576.6 | 3,633.7 | 3,526.1 | ||||||||
| Average total deposits | 4,317.2 | 4,165.6 | 3,692.5 | ||||||||
| Funding and Liquidity | |||||||||||
| Short-term borrowings | $ | 183.9 | $ | 162.2 | $ | 155.1 | |||||
| Long-term debt | 245.5 | 190.0 | 244.7 | ||||||||
| Loans to deposits ratio | 81.63 | % | 84.33 | % | 95.01 | % | |||||
| Equity | |||||||||||
| Total shareholders' equity | $ | 499.1 | $ | 520.8 | $ | 497.9 | |||||
| Equity to assets ratio | 9.36 | % | 9.96 | % | 10.71 | % | |||||
| Tangible common equity(1) | 409.8 | 398.4 | 371.0 | ||||||||
| Tangible common equity ratio(1) | 7.82 | % | 7.80 | % | 8.21 | % | |||||
| Per Share Data | |||||||||||
| Book value | $ | 31.00 | $ | 32.35 | $ | 30.77 | |||||
| Tangible book value(1) | $ | 25.45 | $ | 24.74 | $ | 22.93 | |||||
| (1) Non-GAAP Measure. See the separate Non-GAAP Measures section for a reconciliation to the most directly comparable GAAP measure. | |||||||||||
Loans Held for Investment
Loans held for investment, net of unearned income, decreased $59.6 million, or 2%, to $3.54 billion from June 30, 2020, due primarily to loan pay downs, including pay downs of $8.8 million of PPP loans, and lower line utilization. At September 30, 2020, commercial real estate loans comprised approximately 48% of the loan portfolio. Commercial and industrial loans were the next largest category at 31%, followed by residential real estate loans at 15%, agricultural loans at 4%, and consumer loans at 2% of total loans.
Mr. Funk noted, "We saw sluggish loan demand in the quarter due to borrowers' uncertainty related to COVID-19. Line of credit usage was at 36% as of September 30, 2020 compared to 38% at June 30, 2020 and 47% at September 30, 2019."
The following table presents the composition of loans held for investment, net of unearned income, as of the dates indicated:
| September 30, | June 30, | September 30, | |||||||||
| Loans Held for Investment | 2020 | 2020 | 2019 | ||||||||
| (In thousands) | |||||||||||
| Commercial and industrial | $ | 1,103,102 | $ | 1,084,527 | $ | 871,192 | |||||
| Agricultural | 129,453 | 140,837 | 151,984 | ||||||||
| Commercial real estate | |||||||||||
| Construction and development | 191,423 | 199,950 | 296,586 | ||||||||
| Farmland | 152,362 | 161,897 | 188,394 | ||||||||
| Multifamily | 235,241 | 247,403 | 236,145 | ||||||||
| Other | 1,128,009 | 1,155,489 | 1,102,744 | ||||||||
| Total commercial real estate | 1,707,035 | 1,764,739 | 1,823,869 | ||||||||
| Residential real estate | |||||||||||
| One-to-four family first liens | 371,390 | 377,100 | 416,194 | ||||||||
| One-to-four family junior liens | 150,180 | 155,814 | 176,162 | ||||||||
| Total residential real estate | 521,570 | 532,914 | 592,356 | ||||||||
| Consumer | 76,272 | 74,022 | 85,327 | ||||||||
| Loans held for investment, net of unearned income | $ | 3,537,432 | $ | 3,597,039 | $ | 3,524,728 | |||||
Credit Loss Expense & Allowance for Credit Losses
The following table shows the activity in the allowance for credit losses for the periods indicated:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||
| September 30, | June 30, | September 30, | September 30, | September 30, | |||||||||||||||
| Allowance for Credit Losses Roll Forward | 2020 | 2020 | 2019 | 2020 | 2019 | ||||||||||||||
| (In thousands) | |||||||||||||||||||
| Beginning balance | $ | 55,644 | $ | 51,187 | $ | 28,691 | $ | 29,079 | $ | 29,307 | |||||||||
| Cumulative effect of change in accounting principle - CECL | — | — | — | 3,984 | — | ||||||||||||||
| Charge-offs | (2,188 | ) | (2,103 | ) | (1,635 | ) | (5,788 | ) | (5,178 | ) | |||||||||
| Recoveries | 347 | 236 | 212 | 882 | 849 | ||||||||||||||
| Net charge-offs | (1,841 | ) | (1,867 | ) | (1,423 | ) | (4,906 | ) | (4,329 | ) | |||||||||
| Credit loss expense related to loans | 4,697 | 6,324 | 4,264 | 30,343 | 6,554 | ||||||||||||||
| Ending balance | $ | 58,500 | $ | 55,644 | $ | 31,532 | $ | 58,500 | $ | 31,532 | |||||||||
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 September 30, 2020, the ACL was $58.5 million, or 1.65% of loans held for investment, net of unearned income, compared with $55.6 million, or 1.55%, at June 30, 2020. After excluding $331.7 million of net PPP loans, the ACL as a percentage of loans held for investment, net of unearned income increased to 1.82% as of September 30, 2020. The increase in the ACL during the third quarter was attributable to changes in the economic forecast and changes to modeling assumptions.
Deposits
The following table presents the composition of our deposit portfolio as of the dates indicated:
| September 30, | June 30, | September 30, | |||||||||
| Deposit Composition | 2020 | 2020 | 2019 | ||||||||
| (In thousands) | |||||||||||
| Noninterest bearing deposits | $ | 864,504 | $ | 867,637 | $ | 673,777 | |||||
| Interest checking deposits | 1,230,146 | 1,153,697 | 924,861 | ||||||||
| Money market deposits | 871,336 | 811,368 | 763,661 | ||||||||
| Savings deposits | 486,876 | 463,262 | 389,606 | ||||||||
| Total non-maturity deposits | 3,452,862 | 3,295,964 | 2,751,905 | ||||||||
| Time deposits of $250,000 and under | 617,229 | 656,723 | 685,409 | ||||||||
| Time deposits over $250,000 | 263,550 | 312,748 | 272,398 | ||||||||
| Total time deposits | 880,779 | 969,471 | 957,807 | ||||||||
| Total deposits | $ | 4,333,641 | $ | 4,265,435 | $ | 3,709,712 | |||||
CREDIT QUALITY
| Three Months Ended | |||||||||||
| September 30, | June 30, | September 30, | |||||||||
| Highlights | 2020 | 2020 | 2019 | ||||||||
| (dollars in thousands) | |||||||||||
| Credit loss expense related to loans | $ | 4,697 | $ | 6,324 | $ | 4,264 | |||||
| Net charge-offs | $ | 1,841 | $ | 1,867 | $ | 1,423 | |||||
| Net charge-off ratio(1) | 0.20 | % | 0.21 | % | 0.16 | % | |||||
| At period-end | |||||||||||
| Nonaccrual loans held for investment | $ | 39,071 | $ | 41,303 | $ | 31,968 | |||||
| Accruing loans contractually past due 90 days or more | 2,593 | 3,238 | 236 | ||||||||
| Foreclosed assets, net | 724 | 965 | 4,366 | ||||||||
| Total nonperforming assets (2) | $ | 42,388 | $ | 45,506 | $ | 36,570 | |||||
| Nonperforming assets ratio(3) | 1.20 | % | 1.26 | % | 1.04 | % | |||||
| Allowance for credit losses | 58,500 | 55,644 | 31,532 | ||||||||
| Allowance for credit losses ratio(4) | 1.65 | % | 1.55 | % | 0.89 | % | |||||
| Adjusted allowance for credit losses ratio(5) | 1.82 | % | 1.70 | % | 0.89 | % | |||||
| Performing troubled debt restructured loans held for investment | 2,355 | 2,550 | 4,701 | ||||||||
| (1) Net charge-off ratio is calculated as annualized net charge-offs divided by average loans held for investment, net of unearned income during the period. | |||||||||||
| (2) Starting in the second quarter of 2020, performing troubled debt restructured loans held for investment are no longer included in nonperforming assets. Prior period credit quality metrics have been adjusted to exclude these loans. | |||||||||||
| (3) Nonperforming assets ratio is calculated as total nonperforming assets divided by the sum of loans held for investment, net of unearned income and foreclosed assets, net at the end of the period. | |||||||||||
| (4) Allowance for credit losses ratio is calculated as allowance for credit losses divided by loans held for investment, net of unearned income at the end of the period. | |||||||||||
| (5) Non-GAAP Measure. See the separate Non-GAAP Measures section for a reconciliation to the most directly comparable GAAP measure. | |||||||||||
"Monitoring of our loan portfolio remains critical, and we believe our ACL ratio, at 1.65% (1.82% excluding PPP loans), sits in a strong position. We are taking a cautious approach as we build our reserves, in light of the uncertainty related to COVID-19 and its impact on our borrowers," stated Mr. Funk.
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.
As previously announced, on July 28, 2020, the Company completed a private placement of $65.0 million aggregate principal amount of 5.75% fixed-to-floating rate subordinated notes. The subordinated notes are intended to qualify as Tier 2 capital for regulatory purposes, and the Company is using the net proceeds from the offering for general corporate purposes and to support its organic growth plans, including maintaining its regulatory capital ratios. The following table presents the regulatory capital ratios of the Company and its banking subsidiary as of the dates indicated:
| September 30, | June 30, | September 30, | ||||||
| Regulatory Capital Ratios | 2020 (1) | 2020 | 2019 | |||||
| MidWestOne Financial Group, Inc. Consolidated | ||||||||
| Common equity tier 1 capital ratio | 9.72 | % | 9.48 | % | 8.79 | % | ||
| Tier 1 capital ratio | 10.73 | % | 10.48 | % | 9.76 | % | ||
| Total capital ratio | 13.56 | % | 11.72 | % | 10.65 | % | ||
| Tier 1 leverage ratio | 8.52 | % | 8.72 | % | 9.26 | % | ||
| MidWestOne Bank | ||||||||
| Common equity tier 1 capital ratio | 11.75 | % | 11.34 | % | 10.26 | % | ||
| Tier 1 capital ratio | 11.75 | % | 11.34 | % | 10.26 | % | ||
| Total capital ratio | 12.95 | % | 12.47 | % | 11.00 | % | ||
| Tier 1 leverage ratio | 9.26 | % | 9.39 | % | 9.72 | % | ||
| (1) Capital ratios for September 30, 2020 are preliminary | ||||||||
CORPORATE UPDATE
Share Repurchase Program
At September 30, 2020, the total amount available under the Company's current share repurchase program was $6.4 million. Subsequent to September 30, 2020, the Company's board of directors authorized resuming repurchases under the Company's share repurchase program. The Company previously announced the temporary suspension of its share repurchase program in light of market conditions associated with the COVID-19 pandemic.
Cash Dividend Announcement
On October 28, 2020, the Company’s board of directors declared a quarterly cash dividend of $0.22 per common share. The dividend is payable December 15, 2020, to shareholders of record at the close of business on December 1, 2020.
CONFERENCE CALL DETAILS
The Company will host a conference call for investors at 11:00 a.m. CT on Friday, October 30, 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 January 30, 2021, by calling 877-344-7529 and using the replay access code of 10136666. 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.
EARNINGS CALL PRESENTATION
The Company has prepared presentation materials that management intends to use during its third quarter 2020 conference call on October 30, 2020. These materials have been furnished to the U.S. Securities and Exchange Commission in a Form 8-K concurrently with this press release, and are also available on the Company'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 is the parent company of MidWestOne Bank, which operates banking offices in Iowa, Minnesota, Wisconsin, Florida, and Colorado. MidWestOne provides electronic delivery of financial services through its website, MidWestOne.bank. MidWestOne Financial Group, Inc. trades on the Nasdaq Global Select Market under the symbol “MOFG”.
Cautionary Note Regarding Forward-Looking Statements
This release contains certain “forward-looking statements” within the meaning of such term in the Private Securities Litigation Reform Act of 1995. We and our representatives may, from time to time, make written or oral statements that are “forward-looking” and provide information other than historical information. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from any results, levels of activity, performance or achievements expressed or implied by any forward-looking statement. These factors include, among other things, the factors listed below. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of our management and on information currently available to management, are generally identifiable by the use of words such as “believe,” “expect,” “anticipate,” “should,” “could,” “would,” “plans,” “goals,” “intend,” “project,” “estimate,” “forecast,” “may” or similar expressions. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in, or implied by, these statements. Readers are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Additionally, we undertake no obligation to update any statement in light of new information or future events, except as required under federal securities law.
Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors that could have an impact on our ability to achieve operating results, growth plan goals and future prospects include, but are not limited to, the following: (1) effects of the COVID-19 pandemic, including its potential effects on the economic environment, our customers and our operations, as well as any changes to federal, state, or local government laws, regulations, or orders in connection with the pandemic; (2) government intervention in the U.S. financial system in response to the COVID-19 pandemic, including the effects of recent legislative, tax, accounting and regulatory actions and reforms including the Coronavirus Aid, Relief, and Economic Security Act; (3) the impact of the COVID-19 pandemic on our financial results, including possible lost revenue and increased expenses (including the cost of capital), as well as possible goodwill impairment charges; (4) credit quality deterioration or pronounced and sustained reduction in real estate market values causing an increase in the allowance for credit losses, an increase in the credit loss expense, and a reduction in net earnings; (5) the effects of interest rates, including on our net income and the value of our securities portfolio; (6) changes in the economic environment, competition, or other factors that may affect our ability to acquire loans or influence the anticipated growth rate of loans and deposits and the quality of the loan portfolio and loan and deposit pricing; (7) fluctuations in the value of our investment securities; (8) governmental monetary and fiscal policies; (9) changes in and uncertainty related to benchmark interest rates used to price loans and deposits, including the expected elimination of LIBOR; (10) legislative and regulatory changes, including changes in banking, securities, trade, and tax laws and regulations and their application by our regulators; (11) the ability to attract and retain key executives and employees experienced in banking and financial services; (12) the sufficiency of the allowance for credit losses to absorb the amount of actual losses inherent in our existing loan portfolio; (13) our ability to adapt successfully to technological changes to compete effectively in the marketplace; (14) credit risks and risks from concentrations (by geographic area and by industry) within our loan portfolio; (15) the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds, financial technology companies, and other financial institutions operating in our markets or elsewhere or providing similar services; (16) the failure of assumptions underlying the establishment of allowances for credit losses and estimation of values of collateral and various financial assets and liabilities; (17) the risks of mergers, including, without limitation, the related time and costs of implementing such transactions, integrating operations as part of these transactions and possible failures to achieve expected gains, revenue growth and/or expense savings from such transactions; (18) volatility of rate-sensitive deposits; (19) operational risks, including data processing system failures or fraud; (20) asset/liability matching risks and liquidity risks; (21) the costs, effects and outcomes of existing or future litigation; (22) changes in general economic, political, or industry conditions, nationally, internationally or in the communities in which we conduct business; (23) changes in accounting policies and practices, as may be adopted by state and federal regulatory agencies and the Financial Accounting Standards Board; (24) war or terrorist activities, widespread disease or pandemic, or other adverse external events, which may cause deterioration in the economy or cause instability in credit markets; (25) the effects of cyber-attacks; (26) the imposition of tariffs or other domestic or international governmental policies impacting the value of the agricultural or other products of our borrowers; and (27) other risk factors detailed from time to time in Securities and Exchange Commission filings made by the Company.
MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| September 30, | June 30, | December 31, | |||||||||
| 2020 | 2020 | 2019 | |||||||||
| (In thousands) | |||||||||||
| ASSETS | |||||||||||
| Cash and due from banks | $ | 71,901 | $ | 65,863 | $ | 67,174 | |||||
| Interest earning deposits in banks | 55,421 | 45,018 | 6,112 | ||||||||
| Federal funds sold | 7,540 | 6,329 | 198 | ||||||||
| Total cash and cash equivalents | 134,862 | 117,210 | 73,484 | ||||||||
| Debt securities available for sale at fair value | 1,366,344 | 1,187,455 | 785,977 | ||||||||
| Loans held for sale | 13,096 | 12,048 | 5,400 | ||||||||
| Gross loans held for investment | 3,555,969 | 3,618,675 | 3,469,236 | ||||||||
| Unearned income, net | (18,537 | ) | (21,636 | ) | (17,970 | ) | |||||
| Loans held for investment, net of unearned income | 3,537,432 | 3,597,039 | 3,451,266 | ||||||||
| Allowance for credit losses | (58,500 | ) | (55,644 | ) | (29,079 | ) | |||||
| Total loans held for investment, net | 3,478,932 | 3,541,395 | 3,422,187 | ||||||||
| Premises and equipment, net | 87,955 | 88,929 | 90,723 | ||||||||
| Goodwill | 62,477 | 93,977 | 91,918 | ||||||||
| Other intangible assets, net | 26,811 | 28,443 | 32,218 | ||||||||
| Foreclosed assets, net | 724 | 965 | 3,706 | ||||||||
| Other assets | 159,507 | 160,541 | 147,960 | ||||||||
| Total assets | $ | 5,330,708 | $ | 5,230,963 | $ | 4,653,573 | |||||
| LIABILITIES | |||||||||||
| Noninterest bearing deposits | $ | 864,504 | $ | 867,637 | $ | 662,209 | |||||
| Interest bearing deposits | 3,469,137 | 3,397,798 | 3,066,446 | ||||||||
| Total deposits | 4,333,641 | 4,265,435 | 3,728,655 | ||||||||
| Short-term borrowings | 183,893 | 162,224 | 139,349 | ||||||||
| Long-term debt | 245,481 | 189,973 | 231,660 | ||||||||
| Other liabilities | 68,612 | 92,550 | 44,927 | ||||||||
| Total liabilities | 4,831,627 | 4,710,182 | 4,144,591 | ||||||||
| SHAREHOLDERS' EQUITY | |||||||||||
| Common stock | 16,581 | 16,581 | 16,581 | ||||||||
| Additional paid-in capital | 299,939 | 299,542 | 297,390 | ||||||||
| Retained earnings | 175,017 | 198,382 | 201,105 | ||||||||
| Treasury stock | (12,272 | ) | (12,272 | ) | (10,466 | ) | |||||
| Accumulated other comprehensive income | 19,816 | 18,548 | 4,372 | ||||||||
| Total shareholders' equity | 499,081 | 520,781 | 508,982 | ||||||||
| Total liabilities and shareholders' equity | $ | 5,330,708 | $ | 5,230,963 | $ | 4,653,573 | |||||
MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
| Three Months Ended | Nine Months Ended | ||||||||||||||||||
| September 30, | June 30, | September 30, | September 30, | ||||||||||||||||
| 2020 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||
| (In thousands, except per share data) | |||||||||||||||||||
| Interest income | |||||||||||||||||||
| Loans, including fees | $ | 38,191 | $ | 40,214 | $ | 49,169 | $ | 120,417 | $ | 118,257 | |||||||||
| Taxable investment securities | 4,574 | 4,646 | 3,376 | 12,937 | 9,592 | ||||||||||||||
| Tax-exempt investment securities | 2,360 | 1,858 | 1,401 | 5,730 | 4,231 | ||||||||||||||
| Other | 29 | 40 | 130 | 233 | 335 | ||||||||||||||
| Total interest income | 45,154 | 46,758 | 54,076 | 139,317 | 132,415 | ||||||||||||||
| Interest expense | |||||||||||||||||||
| Deposits | 5,296 | 6,409 | 8,238 | 19,654 | 21,676 | ||||||||||||||
| Short-term borrowings | 175 | 263 | 522 | 772 | 1,479 | ||||||||||||||
| Long-term debt | 1,874 | 1,374 | 2,058 | 4,964 | 5,194 | ||||||||||||||
| Total interest expense | 7,345 | 8,046 | 10,818 | 25,390 | 28,349 | ||||||||||||||
| Net interest income | 37,809 | 38,712 | 43,258 | 113,927 | 104,066 | ||||||||||||||
| Credit loss expense | 4,992 | 4,685 | 4,264 | 31,410 | 6,554 | ||||||||||||||
| Net interest income after credit loss expense | 32,817 | 34,027 | 38,994 | 82,517 | 97,512 | ||||||||||||||
| Noninterest income | |||||||||||||||||||
| Investment services and trust activities | 2,361 | 2,217 | 2,339 | 7,114 | 5,619 | ||||||||||||||
| Service charges and fees | 1,491 | 1,290 | 2,068 | 4,607 | 5,380 | ||||||||||||||
| Card revenue | 1,600 | 1,237 | 1,655 | 4,202 | 4,452 | ||||||||||||||
| Loan revenue | 3,252 | 1,910 | 991 | 6,285 | 2,032 | ||||||||||||||
| Bank-owned life insurance | 530 | 635 | 514 | 1,685 | 1,376 | ||||||||||||||
| Insurance commissions | — | — | — | — | 734 | ||||||||||||||
| Investment securities gains, net | 106 | 6 | 23 | 154 | 72 | ||||||||||||||
| Other | 230 | 974 | 414 | 3,947 | 2,545 | ||||||||||||||
| Total noninterest income | 9,570 | 8,269 | 8,004 | 27,994 | 22,210 | ||||||||||||||
| Noninterest expense | |||||||||||||||||||
| Compensation and employee benefits | 16,460 | 15,682 | 17,426 | 48,759 | 46,414 | ||||||||||||||
| Occupancy expense of premises, net | 2,278 | 2,253 | 2,294 | 6,872 | 6,300 | ||||||||||||||
| Equipment | 1,935 | 2,010 | 2,181 | 5,825 | 5,466 | ||||||||||||||
| Legal and professional | 1,184 | 1,382 | 1,996 | 4,101 | 6,252 | ||||||||||||||
| Data processing | 1,308 | 1,240 | 1,234 | 3,902 | 3,087 | ||||||||||||||
| Marketing | 857 | 910 | 1,167 | 2,829 | 2,642 | ||||||||||||||
| Amortization of intangibles | 1,631 | 1,748 | 2,583 | 5,407 | 3,965 | ||||||||||||||
| FDIC insurance | 470 | 445 | (42 | ) | 1,363 | 762 | |||||||||||||
| Communications | 428 | 449 | 489 | 1,334 | 1,208 | ||||||||||||||
| Foreclosed assets, net | 13 | 34 | 265 | 185 | 407 | ||||||||||||||
| Goodwill impairment | 31,500 | — | — | 31,500 | — | ||||||||||||||
| Other | 1,875 | 1,885 | 1,849 | 5,901 | 4,596 | ||||||||||||||
| Total noninterest expense | 59,939 | 28,038 | 31,442 | 117,978 | 81,099 | ||||||||||||||
| (Loss) income before income tax expense (benefit) | (17,552 | ) | 14,258 | 15,556 | (7,467 | ) | 38,623 | ||||||||||||
| Income tax expense (benefit) | 2,272 | 2,546 | 3,256 | 2,620 | 8,364 | ||||||||||||||
| Net (loss) income | $ | (19,824 | ) | $ | 11,712 | $ | 12,300 | $ | (10,087 | ) | $ | 30,259 | |||||||
| Earnings (loss) per common share | |||||||||||||||||||
| Basic | $ | (1.23 | ) | $ | 0.73 | $ | 0.76 | $ | (0.63 | ) | $ | 2.10 | |||||||
| Diluted | $ | (1.23 | ) | $ | 0.73 | $ | 0.76 | $ | (0.63 | ) | $ | 2.09 | |||||||
| Weighted average basic common shares outstanding | 16,099 | 16,094 | 16,201 | 16,112 | 14,434 | ||||||||||||||
| Weighted average diluted common shares outstanding | 16,099 | 16,100 | 16,215 | 16,112 | 14,445 | ||||||||||||||
| Dividends paid per common share | $ | 0.2200 | $ | 0.2200 | $ | 0.2025 | $ | 0.6600 | $ | 0.6075 | |||||||||
MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
FIVE QUARTER CONSOLIDATED BALANCE SHEETS
| September 30, | June 30, | March 31, | December 31, | September 30, | |||||||||||||||
| 2020 | 2020 | 2020 | 2019 | 2019 | |||||||||||||||
| (In thousands) | |||||||||||||||||||
| ASSETS | |||||||||||||||||||
| Cash and due from banks | $ | 71,901 | $ | 65,863 | $ | 60,396 | $ | 67,174 | $ | 79,776 | |||||||||
| Interest earning deposits in banks | 55,421 | 45,018 | 58,319 | 6,112 | 6,413 | ||||||||||||||
| Federal funds sold | 7,540 | 6,329 | 6,830 | 198 | 478 | ||||||||||||||
| Total cash and cash equivalents | 134,862 | 117,210 | 125,545 | 73,484 | 86,667 | ||||||||||||||
| Debt securities available for sale at fair value | 1,366,344 | 1,187,455 | 881,859 | 785,977 | 503,278 | ||||||||||||||
| Held to maturity securities at amortized cost | — | — | — | — | 190,309 | ||||||||||||||
| Total securities held for investment | 1,366,344 | 1,187,455 | 881,859 | 785,977 | 693,587 | ||||||||||||||
| Loans held for sale | 13,096 | 12,048 | 9,483 | 5,400 | 7,906 | ||||||||||||||
| Gross loans held for investment | 3,555,969 | 3,618,675 | 3,440,907 | 3,469,236 | 3,545,993 | ||||||||||||||
| Unearned income, net | (18,537 | ) | (21,636 | ) | (15,145 | ) | (17,970 | ) | (21,265 | ) | |||||||||
| Loans held for investment, net of unearned income | 3,537,432 | 3,597,039 | 3,425,762 | 3,451,266 | 3,524,728 | ||||||||||||||
| Allowance for credit losses | (58,500 | ) | (55,644 | ) | (51,187 | ) | (29,079 | ) | (31,532 | ) | |||||||||
| Total loans held for investment, net | 3,478,932 | 3,541,395 | 3,374,575 | 3,422,187 | 3,493,196 | ||||||||||||||
| Premises and equipment, net | 87,955 | 88,929 | 89,860 | 90,723 | 91,190 | ||||||||||||||
| Goodwill | 62,477 | 93,977 | 93,977 | 91,918 | 93,258 | ||||||||||||||
| Other intangible assets, net | 26,811 | 28,443 | 30,190 | 32,218 | 33,635 | ||||||||||||||
| Foreclosed assets, net | 724 | 965 | 968 | 3,706 | 4,366 | ||||||||||||||
| Other assets | 159,507 | 160,541 | 157,452 | 147,960 | 144,482 | ||||||||||||||
| Total assets | $ | 5,330,708 | $ | 5,230,963 | $ | 4,763,909 | $ | 4,653,573 | $ | 4,648,287 | |||||||||
| LIABILITIES | |||||||||||||||||||
| Noninterest bearing deposits | $ | 864,504 | $ | 867,637 | $ | 637,127 | $ | 662,209 | $ | 673,777 | |||||||||
| Interest bearing deposits | 3,469,137 | 3,397,798 | 3,222,717 | 3,066,446 | 3,035,935 | ||||||||||||||
| Total deposits | 4,333,641 | 4,265,435 | 3,859,844 | 3,728,655 | 3,709,712 | ||||||||||||||
| Short-term borrowings | 183,893 | 162,224 | 129,489 | 139,349 | 155,101 | ||||||||||||||
| Long-term debt | 245,481 | 189,973 | 209,874 | 231,660 | 244,677 | ||||||||||||||
| Other liabilities | 68,612 | 92,550 | 64,138 | 44,927 | 40,912 | ||||||||||||||
| Total liabilities | 4,831,627 | 4,710,182 | 4,263,345 | 4,144,591 | 4,150,402 | ||||||||||||||
| SHAREHOLDERS' EQUITY | |||||||||||||||||||
| Common stock | 16,581 | 16,581 | 16,581 | 16,581 | 16,581 | ||||||||||||||
| Additional paid-in capital | 299,939 | 299,542 | 299,412 | 297,390 | 297,144 | ||||||||||||||
| Retained earnings | 175,017 | 198,382 | 190,212 | 201,105 | 191,007 | ||||||||||||||
| Treasury stock | (12,272 | ) | (12,272 | ) | (12,518 | ) | (10,466 | ) | (9,933 | ) | |||||||||
| Accumulated other comprehensive income | 19,816 | 18,548 | 6,877 | 4,372 | 3,086 | ||||||||||||||
| Total shareholders' equity | 499,081 | 520,781 | 500,564 | 508,982 | 497,885 | ||||||||||||||
| Total liabilities and shareholders' equity | $ | 5,330,708 | $ | 5,230,963 | $ | 4,763,909 | $ | 4,653,573 | $ | 4,648,287 | |||||||||
MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
FIVE QUARTER CONSOLIDATED STATEMENTS OF INCOME
| Three Months Ended | |||||||||||||||||||
| September 30, | June 30, | March 31, | December 31, | September 30, | |||||||||||||||
| 2020 | 2020 | 2020 | 2019 | 2019 | |||||||||||||||
| (In thousands, except per share data) | |||||||||||||||||||
| Interest income | |||||||||||||||||||
| Loans, including fees | $ | 38,191 | $ | 40,214 | $ | 42,012 | $ | 44,906 | $ | 49,169 | |||||||||
| Taxable investment securities | 4,574 | 4,646 | 3,717 | 3,540 | 3,376 | ||||||||||||||
| Tax-exempt investment securities | 2,360 | 1,858 | 1,512 | 1,465 | 1,401 | ||||||||||||||
| Other | 29 | 40 | 164 | 115 | 130 | ||||||||||||||
| Total interest income | 45,154 | 46,758 | 47,405 | 50,026 | 54,076 | ||||||||||||||
| Interest expense | |||||||||||||||||||
| Deposits | 5,296 | 6,409 | 7,949 | 8,251 | 8,238 | ||||||||||||||
| Short-term borrowings | 175 | 263 | 334 | 368 | 522 | ||||||||||||||
| Long-term debt | 1,874 | 1,374 | 1,716 | 1,823 | 2,058 | ||||||||||||||
| Total interest expense | 7,345 | 8,046 | 9,999 | 10,442 | 10,818 | ||||||||||||||
| Net interest income | 37,809 | 38,712 | 37,406 | 39,584 | 43,258 | ||||||||||||||
| Credit loss expense | 4,992 | 4,685 | 21,733 | 604 | 4,264 | ||||||||||||||
| Net interest income after credit loss expense | 32,817 | 34,027 | 15,673 | 38,980 | 38,994 | ||||||||||||||
| Noninterest income | |||||||||||||||||||
| Investment services and trust activities | 2,361 | 2,217 | 2,536 | 2,421 | 2,339 | ||||||||||||||
| Service charges and fees | 1,491 | 1,290 | 1,826 | 2,072 | 2,068 | ||||||||||||||
| Card revenue | 1,600 | 1,237 | 1,365 | 1,142 | 1,655 | ||||||||||||||
| Loan revenue | 3,252 | 1,910 | 1,123 | 1,757 | 991 | ||||||||||||||
| Bank-owned life insurance | 530 | 635 | 520 | 501 | 514 | ||||||||||||||
| Investment securities gains, net | 106 | 6 | 42 | 18 | 23 | ||||||||||||||
| Other | 230 | 974 | 2,743 | 1,125 | 414 | ||||||||||||||
| Total noninterest income | 9,570 | 8,269 | 10,155 | 9,036 | 8,004 | ||||||||||||||
| Noninterest expense | |||||||||||||||||||
| Compensation and employee benefits | 16,460 | 15,682 | 16,617 | 19,246 | 17,426 | ||||||||||||||
| Occupancy expense of premises, net | 2,278 | 2,253 | 2,341 | 2,347 | 2,294 | ||||||||||||||
| Equipment | 1,935 | 2,010 | 1,880 | 2,251 | 2,181 | ||||||||||||||
| Legal and professional | 1,184 | 1,382 | 1,535 | 1,797 | 1,996 | ||||||||||||||
| Data processing | 1,308 | 1,240 | 1,354 | 1,492 | 1,234 | ||||||||||||||
| Marketing | 857 | 910 | 1,062 | 1,147 | 1,167 | ||||||||||||||
| Amortization of intangibles | 1,631 | 1,748 | 2,028 | 1,941 | 2,583 | ||||||||||||||
| FDIC insurance | 470 | 445 | 448 | (72 | ) | (42 | ) | ||||||||||||
| Communications | 428 | 449 | 457 | 493 | 489 | ||||||||||||||
| Foreclosed assets, net | 13 | 34 | 138 | 173 | 265 | ||||||||||||||
| Goodwill impairment | 31,500 | — | — | — | — | ||||||||||||||
| Other | 1,875 | 1,885 | 2,141 | 5,621 | 1,849 | ||||||||||||||
| Total noninterest expense | 59,939 | 28,038 | 30,001 | 36,436 | 31,442 | ||||||||||||||
| (Loss) income before income tax expense (benefit) | (17,552 | ) | 14,258 | (4,173 | ) | 11,580 | 15,556 | ||||||||||||
| Income tax expense (benefit) | 2,272 | 2,546 | (2,198 | ) | (1,791 | ) | 3,256 | ||||||||||||
| Net (loss) income | $ | (19,824 | ) | $ | 11,712 | $ | (1,975 | ) | $ | 13,371 | $ | 12,300 | |||||||
| (Loss) earnings per common share | |||||||||||||||||||
| Basic | $ | (1.23 | ) | $ | 0.73 | $ | (0.12 | ) | $ | 0.83 | $ | 0.76 | |||||||
| Diluted | $ | (1.23 | ) | $ | 0.73 | $ | (0.12 | ) | $ | 0.83 | $ | 0.76 | |||||||
| Weighted average basic common shares outstanding | 16,099 | 16,094 | 16,142 | 16,162 | 16,201 | ||||||||||||||
| Weighted average diluted common shares outstanding | 16,099 | 16,100 | 16,142 | 16,193 | 16,215 | ||||||||||||||
| Dividends paid per common share | $ | 0.2200 | $ | 0.2200 | $ | 0.2200 | $ | 0.2025 | $ | 0.2025 | |||||||||
MIDWESTONE FINANCIAL GROUP, INC. AND SUBSIDIARIES
AVERAGE BALANCE SHEET AND YIELD ANALYSIS
| Three Months Ended | ||||||||||||||||||||||||||||||||
| September 30, 2020 | June 30, 2020 | September 30, 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) | $ | 3,576,642 | $ | 38,727 | 4.31 | % | $ | 3,633,695 | $ | 40,721 | 4.51 | % | $ | 3,526,149 | $ | 49,712 | 5.59 | % | ||||||||||||||
| Taxable investment securities | 864,864 | 4,574 | 2.10 | % | 731,699 | 4,646 | 2.55 | % | 471,180 | 3,376 | 2.84 | % | ||||||||||||||||||||
| Tax-exempt investment securities (2)(4) | 405,517 | 2,968 | 2.91 | % | 285,758 | 2,340 | 3.29 | % | 200,533 | 1,765 | 3.49 | % | ||||||||||||||||||||
| Total securities held for investment(2) | 1,270,381 | 7,542 | 2.36 | % | 1,017,457 | 6,986 | 2.76 | % | 671,713 | 5,141 | 3.04 | % | ||||||||||||||||||||
| Other | 88,152 | 29 | 0.13 | % | 67,429 | 40 | 0.24 | % | 17,609 | 130 | 2.93 | % | ||||||||||||||||||||
| Total interest earning assets(2) | $ | 4,935,175 | 46,298 | 3.73 | % | $ | 4,718,581 | 47,747 | 4.07 | % | $ | 4,215,471 | 54,983 | 5.17 | % | |||||||||||||||||
| Other assets | 376,211 | 380,266 | 405,060 | |||||||||||||||||||||||||||||
| Total assets | $ | 5,311,386 | $ | 5,098,847 | $ | 4,620,531 | ||||||||||||||||||||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||||||||||||||
| Interest checking deposits | $ | 1,174,033 | $ | 1,049 | 0.36 | % | $ | 1,091,565 | $ | 1,113 | 0.41 | % | $ | 877,470 | $ | 1,398 | 0.63 | % | ||||||||||||||
| Money market deposits | 847,059 | 622 | 0.29 | % | 829,826 | 885 | 0.43 | % | 809,264 | 1,904 | 0.93 | % | ||||||||||||||||||||
| Savings deposits | 473,000 | 351 | 0.30 | % | 439,592 | 365 | 0.33 | % | 392,298 | 463 | 0.47 | % | ||||||||||||||||||||
| Time deposits | 931,655 | 3,274 | 1.40 | % | 990,797 | 4,046 | 1.64 | % | 939,480 | 4,473 | 1.89 | % | ||||||||||||||||||||
| Total interest bearing deposits | 3,425,747 | 5,296 | 0.62 | % | 3,351,780 | 6,409 | 0.77 | % | 3,018,512 | 8,238 | 1.08 | % | ||||||||||||||||||||
| Short-term borrowings | 165,840 | 175 | 0.42 | % | 159,157 | 263 | 0.66 | % | 139,458 | 522 | 1.49 | % | ||||||||||||||||||||
| Long-term debt | 231,406 | 1,874 | 3.22 | % | 201,240 | 1,374 | 2.75 | % | 249,226 | 2,058 | 3.28 | % | ||||||||||||||||||||
| Total borrowed funds | 397,246 | 2,049 | 2.05 | % | 360,397 | 1,637 | 1.83 | % | 388,684 | 2,580 | 2.63 | % | ||||||||||||||||||||
| Total interest bearing liabilities | $ | 3,822,993 | $ | 7,345 | 0.76 | % | $ | 3,712,177 | $ | 8,046 | 0.87 | % | $ | 3,407,196 | $ | 10,818 | 1.26 | % | ||||||||||||||
| Noninterest bearing deposits | 891,425 | 813,794 | 674,003 | |||||||||||||||||||||||||||||
| Other liabilities | 67,111 | 61,637 | 47,582 | |||||||||||||||||||||||||||||
| Shareholders’ equity | 529,857 | 511,239 | 491,750 | |||||||||||||||||||||||||||||
| Total liabilities and shareholders’ equity | $ | 5,311,386 | $ | 5,098,847 | $ | 4,620,531 | ||||||||||||||||||||||||||
| Net interest income(2) | $ | 38,953 | $ | 39,701 | $ | 44,165 | ||||||||||||||||||||||||||
| Net interest spread(2) | 2.97 | % | 3.20 | % | 3.91 | % | ||||||||||||||||||||||||||
| Net interest margin(2) | 3.14 | % | 3.38 | % | 4.15 | % | ||||||||||||||||||||||||||
| Total deposits(5) | $ | 4,317,172 | $ | 5,296 | 0.49 | % | $ | 4,165,574 | $ | 6,409 | 0.62 | % | $ | 3,692,515 | $ | 8,238 | 0.89 | % | ||||||||||||||
| Cost of funds(6) | 0.62 | % | 0.72 | % | 1.05 | % | ||||||||||||||||||||||||||
(1) Average balance includes nonaccrual loans.
(2) Tax equivalent. The federal statutory tax rate utilized was 21%.
(3) Interest income includes net loan fees, loan purchase discount accretion and tax equivalent adjustments. Net loan fees were $1.1 million, $748 thousand, and $(353) thousand for the three months ended September 30, 2020, June 30, 2020, and September 30, 2019, respectively. Loan purchase discount accretion was $1.9 million, $2.6 million, and $7.2 million for the three months ended September 30, 2020, June 30, 2020, and September 30, 2019, respectively. Tax equivalent adjustments were $536 thousand, $507 thousand, and $543 thousand for the three months ended September 30, 2020, June 30, 2020, and September 30, 2019, respectively. The federal statutory tax rate utilized was 21%.
(4) Interest income includes tax equivalent adjustments of $608 thousand, $482 thousand, and $364 thousand for the three months ended September 30, 2020, June 30, 2020, and September 30, 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.
| Nine Months Ended | |||||||||||||||||||||
| September 30, 2020 | September 30, 2019 | ||||||||||||||||||||
|
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) | $ | 3,548,968 | $ | 121,957 | 4.59 | % | $ | 3,043,772 | $ | 119,519 | 5.25 | % | |||||||||
| Taxable investment securities | 721,266 | 12,937 | 2.40 | % | 448,407 | 9,592 | 2.86 | % | |||||||||||||
| Tax-exempt investment securities (2)(4) | 305,514 | 7,215 | 3.15 | % | 201,908 | 5,331 | 3.53 | % | |||||||||||||
| Total securities held for investment(2) | 1,026,780 | 20,152 | 2.62 | % | 650,315 | 14,923 | 3.07 | % | |||||||||||||
| Other | 70,983 | 233 | 0.44 | % | 18,951 | 335 | 2.36 | % | |||||||||||||
| Total interest earning assets(2) | $ | 4,646,731 | 142,342 | 4.09 | % | $ | 3,713,038 | 134,777 | 4.85 | % | |||||||||||
| Other assets | 380,961 | 341,693 | |||||||||||||||||||
| Total assets | $ | 5,027,692 | $ | 4,054,731 | |||||||||||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||||||||||||
| Interest checking deposits | $ | 1,052,816 | $ | 3,477 | 0.44 | % | $ | 766,343 | $ | 3,329 | 0.58 | % | |||||||||
| Money market deposits | 814,669 | 3,152 | 0.52 | % | 760,115 | 5,729 | 1.01 | % | |||||||||||||
| Savings deposits | 435,612 | 1,107 | 0.34 | % | 309,270 | 703 | 0.30 | % | |||||||||||||
| Time deposits | 973,044 | 11,918 | 1.64 | % | 847,077 | 11,915 | 1.88 | % | |||||||||||||
| Total interest bearing deposits | 3,276,141 | 19,654 | 0.80 | % | 2,682,805 | 21,676 | 1.08 | % | |||||||||||||
| Short-term borrowings | 149,041 | 772 | 0.69 | % | 124,433 | 1,479 | 1.59 | % | |||||||||||||
| Long-term debt | 219,455 | 4,964 | 3.02 | % | 219,553 | 5,194 | 3.16 | % | |||||||||||||
| Total borrowed funds | 368,496 | 5,736 | 2.08 | % | 343,986 | 6,673 | 2.59 | % | |||||||||||||
| Total interest bearing liabilities | $ | 3,644,637 | $ | 25,390 | 0.93 | % | $ | 3,026,791 | $ | 28,349 | 1.25 | % | |||||||||
| Noninterest bearing deposits | 805,641 | 557,708 | |||||||||||||||||||
| Other liabilities | 58,618 | 38,325 | |||||||||||||||||||
| Shareholders’ equity | 518,796 | 431,907 | |||||||||||||||||||
| Total liabilities and shareholders’ equity | $ | 5,027,692 | $ | 4,054,731 | |||||||||||||||||
| Net interest income(2) | $ | 116,952 | $ | 106,428 | |||||||||||||||||
| Net interest spread(2) | 3.16 | % | 3.60 | % | |||||||||||||||||
| Net interest margin(2) | 3.36 | % | 3.83 | % | |||||||||||||||||
| Total deposits(5) | $ | 4,081,782 | $ | 19,654 | 0.64 | % | $ | 3,240,513 | $ | 21,676 | 0.89 | % | |||||||||
| Cost of funds(6) | 0.76 | % | 1.06 | % | |||||||||||||||||
(1) Average balance includes nonaccrual loans.
(2) Tax equivalent. The federal statutory tax rate utilized was 21%.
(3) Interest income includes net loan fees, loan purchase discount accretion and tax equivalent adjustments. Net loan fees were $1.8 million and $(670) thousand for the nine months ended September 30, 2020 and September 30, 2019, respectively. Loan purchase discount accretion was $7.6 million and $10.0 million for the nine months ended September 30, 2020 and September 30, 2019, respectively. Tax equivalent adjustments were $1.5 million and $1.3 million for the nine months ended September 30, 2020 and September 30, 2019, respectively. The federal statutory tax rate utilized was 21%.
(4) Interest income includes tax equivalent adjustments of $1.5 million and $1.1 million for the nine months ended September 30, 2020 and September 30, 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.
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, core earnings, and adjusted allowance for credit losses ratio. 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 | September 30, | June 30, | March 31, | December 31, | September 30, | |||||||||||||||
| per Share/Tangible Common Equity Ratio | 2020 | 2020 | 2020 | 2019 | 2019 | |||||||||||||||
| (Dollars in thousands, except per share data) | ||||||||||||||||||||
| Total shareholders’ equity | $ | 499,081 | $ | 520,781 | $ | 500,564 | $ | 508,982 | $ | 497,885 | ||||||||||
| Intangible assets, net | (89,288 | ) | (122,420 | ) | (124,167 | ) | (124,136 | ) | (126,893 | ) | ||||||||||
| Tangible common equity | $ | 409,793 | $ | 398,361 | $ | 376,397 | $ | 384,846 | $ | 370,992 | ||||||||||
| Total assets | $ | 5,330,708 | $ | 5,230,963 | $ | 4,763,909 | $ | 4,653,573 | $ | 4,648,287 | ||||||||||
| Intangible assets, net | (89,288 | ) | (122,420 | ) | (124,167 | ) | (124,136 | ) | (126,893 | ) | ||||||||||
| Tangible assets | $ | 5,241,420 | $ | 5,108,543 | $ | 4,639,742 | $ | 4,529,437 | $ | 4,521,394 | ||||||||||
| Book value per share | $ | 31.00 | $ | 32.35 | $ | 31.11 | $ | 31.49 | $ | 30.77 | ||||||||||
| Tangible book value per share(1) | $ | 25.45 | $ | 24.74 | $ | 23.39 | $ | 23.81 | $ | 22.93 | ||||||||||
| Shares outstanding | 16,099,324 | 16,099,324 | 16,089,782 | 16,162,176 | 16,179,734 | |||||||||||||||
| Equity to assets ratio | 9.36 | % | 9.96 | % | 10.51 | % | 10.94 | % | 10.71 | % | ||||||||||
| Tangible common equity ratio(2) | 7.82 | % | 7.80 | % | 8.11 | % | 8.50 | % | 8.21 | % | ||||||||||
(1) Tangible common equity divided by shares outstanding.
(2) Tangible common equity divided by tangible assets.
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||
| September 30, | June 30, | September 30, | September 30, | September 30, | |||||||||||||||||
| Return on Average Tangible Equity | 2020 | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||
| Net (loss) income | $ | (19,824 | ) | $ | 11,712 | $ | 12,300 | $ | (10,087 | ) | $ | 30,259 | |||||||||
| Intangible amortization, net of tax(1) | 1,223 | 1,311 | 1,937 | 4,055 | 2,974 | ||||||||||||||||
| Goodwill impairment | 31,500 | — | — | 31,500 | — | ||||||||||||||||
| Tangible net income | $ | 12,899 | $ | 13,023 | $ | 14,237 | $ | 25,468 | $ | 33,233 | |||||||||||
| Average shareholders’ equity | $ | 529,857 | $ | 511,239 | $ | 491,750 | $ | 518,796 | $ | 431,907 | |||||||||||
| Average intangible assets, net | (121,306 | ) | (123,313 | ) | (128,963 | ) | (122,518 | ) | (102,224 | ) | |||||||||||
| Average tangible equity | $ | 408,551 | $ | 387,926 | $ | 362,787 | $ | 396,278 | $ | 329,683 | |||||||||||
| Return on average equity | (14.88 | )% | 9.21 | % | 9.92 | % | (2.60 | )% | 9.37 | % | |||||||||||
| Return on average tangible equity(2) | 12.56 | % | 13.50 | % | 15.57 | % | 8.58 | % | 13.48 | % | |||||||||||
(1) The combined income tax rate utilized was 25%.
(2) Annualized tangible net income divided by average tangible equity.
| Three Months Ended | Nine Months Ended | |||||||||||||||||||
|
Net Interest Margin, Tax Equivalent/ Core Net Interest Margin |
September 30, | June 30, | September 30, | September 30, | September 30, | |||||||||||||||
| 2020 | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| Net interest income | $ | 37,809 | $ | 38,712 | $ | 43,258 | $ | 113,927 | $ | 104,066 | ||||||||||
| Tax equivalent adjustments: | ||||||||||||||||||||
| Loans(1) | 536 | 507 | 543 | 1,540 | 1,262 | |||||||||||||||
| Securities(1) | 608 | 482 | 364 | 1,485 | 1,100 | |||||||||||||||
| Net interest income, tax equivalent | $ | 38,953 | $ | 39,701 | $ | 44,165 | $ | 116,952 | $ | 106,428 | ||||||||||
| Loan purchase discount accretion | (1,923 | ) | (2,610 | ) | (7,207 | ) | (7,556 | ) | (10,040 | ) | ||||||||||
| Core net interest income | $ | 37,030 | $ | 37,091 | $ | 36,958 | $ | 109,396 | $ | 96,388 | ||||||||||
| Net interest margin | 3.05 | % | 3.30 | % | 4.07 | % | 3.27 | % | 3.75 | % | ||||||||||
| Net interest margin, tax equivalent(2) | 3.14 | % | 3.38 | % | 4.15 | % | 3.36 | % | 3.83 | % | ||||||||||
| Core net interest margin(3) | 2.99 | % | 3.16 | % | 3.48 | % | 3.14 | % | 3.47 | % | ||||||||||
| Average interest earning assets | $ | 4,935,175 | $ | 4,718,581 | $ | 4,215,471 | $ | 4,646,731 | $ | 3,713,038 | ||||||||||
(1) The federal statutory tax rate utilized was 21%.
(2) Annualized tax equivalent net interest income divided by average interest earning assets.
(3) Annualized core net interest income divided by average interest earning assets.
| Three Months Ended | Nine Months Ended | |||||||||||||||||||
| September 30, | June 30, | September 30, | September 30, | September 30, | ||||||||||||||||
| Loan Yield, Tax Equivalent | 2020 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| Loan interest income, including fees | $ | 38,191 | $ | 40,214 | $ | 49,169 | $ | 120,417 | $ | 118,257 | ||||||||||
| Tax equivalent adjustment(1) | 536 | 507 | 543 | 1,540 | 1,262 | |||||||||||||||
| Tax equivalent loan interest income | $ | 38,727 | $ | 40,721 | $ | 49,712 | $ | 121,957 | $ | 119,519 | ||||||||||
| Loan purchase discount accretion | (1,923 | ) | (2,610 | ) | (7,207 | ) | (7,556 | ) | (10,040 | ) | ||||||||||
| Core loan interest income | $ | 36,804 | $ | 38,111 | $ | 42,505 | $ | 114,401 | $ | 109,479 | ||||||||||
| Yield on loans | 4.25 | % | 4.45 | % | 5.53 | % | 4.53 | % | 5.19 | % | ||||||||||
| Yield on loans, tax equivalent(2) | 4.31 | % | 4.51 | % | 5.59 | % | 4.59 | % | 5.25 | % | ||||||||||
| Core yield on loans(3) | 4.09 | % | 4.22 | % | 4.78 | % | 4.31 | % | 4.81 | % | ||||||||||
| Average loans | $ | 3,576,642 | $ | 3,633,695 | $ | 3,526,149 | $ | 3,548,968 | $ | 3,043,772 | ||||||||||
(1) The federal statutory tax rate utilized was 21%.
(2) Annualized tax equivalent loan interest income divided by average loans.
(3) Annualized core loan interest income divided by average loans.
| Three Months Ended | Nine Months Ended | |||||||||||||||||||
| September 30, | June 30, | September 30, | September 30, | September 30, | ||||||||||||||||
| Efficiency Ratio | 2020 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| Total noninterest expense | $ | 59,939 | $ | 28,038 | $ | 31,442 | $ | 117,978 | $ | 81,099 | ||||||||||
| Amortization of intangibles | (1,631 | ) | (1,748 | ) | (2,583 | ) | (5,407 | ) | (3,965 | ) | ||||||||||
| Merger-related expenses | — | (7 | ) | (2,547 | ) | (61 | ) | (5,848 | ) | |||||||||||
| Goodwill impairment | (31,500 | ) | — | — | (31,500 | ) | — | |||||||||||||
| Noninterest expense used for efficiency ratio | $ | 26,808 | $ | 26,283 | $ | 26,312 | $ | 81,010 | $ | 71,286 | ||||||||||
| Net interest income, tax equivalent(1) | $ | 38,953 | $ | 39,701 | $ | 44,165 | $ | 116,952 | $ | 106,428 | ||||||||||
| Noninterest income | 9,570 | 8,269 | 8,004 | 27,994 | 22,210 | |||||||||||||||
| Investment securities gains, net | (106 | ) | (6 | ) | (23 | ) | (154 | ) | (72 | ) | ||||||||||
| Net revenues used for efficiency ratio | $ | 48,417 | $ | 47,964 | $ | 52,146 | $ | 144,792 | $ | 128,566 | ||||||||||
| Efficiency ratio | 55.37 | % | 54.80 | % | 50.46 | % | 55.95 | % | 55.45 | % | ||||||||||
(1) The federal statutory tax rate utilized was 21%.
| Three Months Ended | Nine Months Ended | |||||||||||||||||||
| September 30, | June 30, | September 30, | September 30, | September 30, | ||||||||||||||||
| Core Earnings | 2020 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||
| (Dollars in thousands, except per share data) | ||||||||||||||||||||
| Net (loss) income | $ | (19,824 | ) | $ | 11,712 | $ | 12,300 | $ | (10,087 | ) | $ | 30,259 | ||||||||
| Goodwill impairment | 31,500 | — | — | 31,500 | — | |||||||||||||||
| Core earnings | $ | 11,676 | $ | 11,712 | $ | 12,300 | $ | 21,413 | $ | 30,259 | ||||||||||
| Weighted average diluted common shares outstanding | 16,099 | 16,100 | 16,215 | 16,112 | 14,445 | |||||||||||||||
| Earnings (loss) per common share | ||||||||||||||||||||
| Earnings per common share - diluted | $ | (1.23 | ) | $ | 0.73 | $ | 0.76 | $ | (0.63 | ) | $ | 2.09 | ||||||||
| Core earnings per common share - diluted (1) | $ | 0.73 | $ | 0.73 | $ | 0.76 | $ | 1.33 | $ | 2.09 | ||||||||||
(1) Core earnings divided by weighted average diluted common shares outstanding
| September 30, | June 30, | September 30, | ||||||||||
| Adjusted Allowance for Credit Losses Ratio | 2020 | 2020 | 2019 | |||||||||
| (Dollars in thousands) | ||||||||||||
| Loans held for investment, net of unearned income | $ | 3,537,432 | $ | 3,597,039 | $ | 3,524,728 | ||||||
| PPP loans | 331,703 | 327,648 | — | |||||||||
| Adjusted loans held for investment, net of unearned income | $ | 3,205,729 | $ | 3,269,391 | $ | 3,524,728 | ||||||
| Allowance for credit losses | $ | 58,500 | $ | 55,644 | $ | 31,532 | ||||||
| Allowance for credit losses ratio | 1.65 | % | 1.55 | % | 0.89 | % | ||||||
| Adjusted allowance for credit losses ratio(1) | 1.82 | % | 1.70 | % | 0.89 | % | ||||||
(1) Allowance for credit losses divided by adjusted loans held for investment, net of unearned income.
| Contact: | |||
| Charles N. Funk | Barry S. Ray | ||
| Chief Executive Officer | Senior Executive Vice President and Chief Financial Officer | ||
| 319.356.5800 | 319.356.5800 | ||
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