Fourth Quarter Summary1
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Net income for the fourth quarter was $14.3 million, or $0.91 per diluted common share.
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Total revenue, net of interest expense, of $50.0 million.
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Credit loss expense of $0.6 million.
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Noninterest expense of $30.4 million.
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Excluding Paycheck Protection Program ("PPP") loans, commercial loans were $2.68 billion2, as compared to $2.64 billion2, an increase of 5.5% annualized.
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Efficiency ratio was 56.74%2, an increase of 40 basis points ("bps").
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Nonperforming assets ratio declined 5 bps to 0.53% and the net charge-off ratio was a recovery of 3 bps.
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Average total deposits were $5.0 billion, as compared to $4.9 billion, an increase of 2.7%, while cost of average total deposits decreased 2 bps to 0.24% and cost of funds decreased 2 bps to 0.35%.
Full Year 2021 Summary1
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Record net income of $69.5 million, or $4.37 per diluted common share.
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Book value and tangible book value per share grew 4.6% and 6.4%2, respectively.
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Return on average equity and return on average tangible equity of 13.18% and 16.63%2, respectively.
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Net charge-off ratio was a recovery of 1 basis point.
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Efficiency ratio was 54.65%2, a decline of 227 bps from the prior year.
IOWA CITY, Iowa, Jan. 27, 2022 (GLOBE NEWSWIRE) -- MidWestOne Financial Group, Inc. (Nasdaq: MOFG) (“we”, “our”, or the "Company”) today reported net income for the fourth quarter of 2021 of $14.3 million, or $0.91 per diluted common share, compared to net income of $16.3 million, or $1.03 per diluted common share, for the linked quarter. For the full year of 2021, the Company reported record earnings, with net income of $69.5 million, or $4.37 per diluted common share, compared to net income for the full year of 2020 of $6.6 million, or $0.41 per diluted common share.
CEO COMMENTARY
Charles Funk, Chief Executive Officer of the Company, commented, "The fourth quarter of 2021 was a solid ending to a record earnings year for MidWestOne. During the quarter, we saw good ex-PPP commercial loan growth, continued progress in wealth management, and improvements in our nonperforming loans and nonperforming assets ratios. We are pleased with the return on average tangible equity of 13.50%.
Key to continued progress in our Company is quality loan growth. We saw ex-PPP linked quarter commercial loan growth of 5.5% annualized in the fourth quarter. This is even more impressive when considering that we saw a high level of pay-offs during the fourth quarter and continued low credit line usage. We begin 2022 with a solid pipeline of new loans and optimism that this growth will continue.
The consistent improvement in overall asset quality was one of the big stories for the Company in 2021. At year-end, nonperforming loans fell below 1.0%, at 0.97% of total loans. For the quarter and for the entire year, we had a net recovery of charged-off loans. Importantly, we expect to see continued progress in nonperforming assets in 2022.
With respect to fee income, there is no doubt that our mortgage team contributed mightily to the record 2021 results. In line with the rise in long-term interest rates, we see that slowing in 2022. Our wealth management team also continued to shine as their revenue in 2021 was up $2.0 million, or 21.2%, from the prior year and we expect continued good progress.
We have continued to make headway in our previously announced acquisition of Iowa First Bancshares Corp. ("IOFB"), which is expected to close late in the first quarter or early in the second quarter of 2022. We look forward to welcoming our new customers and employees to MidWestOne.
Finally, between share repurchases and the cash dividend, we returned $25.8 million to our common shareholders in 2021. Looking ahead, our common stock dividend increase of 5.6% for 2022 reflects our confidence in continued sound financial performance."
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1 Fourth Quarter Summary compares to the third quarter of 2021 (the "linked quarter") unless noted. Full Year 2021 Summary compares to the full year 2020 unless noted.
2 Non-GAAP measure. See the separate Non-GAAP Measures section for a reconciliation to the most directly comparable GAAP measure.
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| FINANCIAL HIGHLIGHTS
| | Three Months Ended | | Year Ended |
| (Dollars in thousands, except per share amounts) | | December 31, | | September 30, | | December 31, | | December 31, | | December 31, |
| | | 2021 | | | | 2021 | | | | 2020 | | | | 2021 | | | | 2020 | |
| Net interest income | | $ | 38,819 | | | $ | 40,340 | | | $ | 39,037 | | | $ | 156,281 | | | $ | 152,964 | |
| Noninterest income | | | 11,229 | | | | 9,182 | | | | 10,626 | | | | 42,453 | | | | 38,620 | |
| Total revenue, net of interest expense | | | 50,048 | | | | 49,522 | | | | 49,663 | | | | 198,734 | | | | 191,584 | |
| Credit loss expense (benefit) | | | 622 | | | | (1,080 | ) | | | (3,041 | ) | | | (7,336 | ) | | | 28,369 | |
| Noninterest expense | | | 30,444 | | | | 29,778 | | | | 31,915 | | | | 116,592 | | | | 149,893 | |
| Income before income tax expense | | | 18,982 | | | | 20,824 | | | | 20,789 | | | | 89,478 | | | | 13,322 | |
| Income tax expense | | | 4,726 | | | | 4,513 | | | | 4,079 | | | | 19,992 | | | | 6,699 | |
| Net income | | $ | 14,256 | | | $ | 16,311 | | | $ | 16,710 | | | $ | 69,486 | | | $ | 6,623 | |
| Diluted earnings per share | | $ | 0.91 | | | $ | 1.03 | | | $ | 1.04 | | | $ | 4.37 | | | $ | 0.41 | |
| | | | | | | | | | | |
| Return on average assets | | | 0.95 | % | | | 1.11 | % | | | 1.22 | % | | | 1.20 | % | | | 0.13 | % |
| Return on average equity | | | 10.68 | % | | | 12.00 | % | | | 13.15 | % | | | 13.18 | % | | | 1.28 | % |
| Return on average tangible equity(1) | | | 13.50 | % | | | 15.06 | % | | | 17.07 | % | | | 16.63 | % | | | 10.80 | % |
| Efficiency ratio(1) | | | 56.74 | % | | | 56.34 | % | | | 59.69 | % | | | 54.65 | % | | | 56.92 | % |
| (1) Non-GAAP measure. See the Non-GAAP Measures section for a reconciliation to the most directly comparable GAAP measure. |
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INCOME STATEMENT HIGHLIGHTS
Net Interest Income
Net interest income decreased to $38.8 million in the fourth quarter of 2021 from $40.3 million in the third quarter of 2021 due primarily to decreased PPP loan fee accretion stemming from loan forgiveness that continued to be robust in the fourth quarter of 2021. Net PPP loan fee accretion was $2.0 million in the fourth quarter of 2021 compared to $3.6 million in the linked quarter.
Average interest earning assets increased $117.2 million to $5.61 billion in the fourth quarter of 2021, compared to the third quarter of 2021. When adjusting for the $91.0 million reduction in average PPP loan balances due to forgiveness, average interest earning assets increased $206.9 million, primarily due to cash inflows from deposit activity that resulted in an increase in interest earning deposits in banks on the balance sheet and that were used to purchase debt securities, coupled with non-PPP loan growth.
The Company's tax equivalent net interest margin was 2.83% in the fourth quarter of 2021 compared to 3.00% in the linked quarter due to a decrease in total interest earning assets yield, partially offset by reduced funding costs. Total interest earning assets yield decreased 19 bps from the linked quarter due to the reduced benefit from PPP net loan fee accretion described above, coupled with lower loan coupon rates at origination and re-pricing, and an asset mix shift to cash and debt securities. The cost of interest bearing liabilities decreased 3 bps to 0.43%, primarily as a result of interest bearing deposits costs of 0.30%, which declined 2 bps from the linked quarter.
Noninterest Income
Noninterest income for the fourth quarter of 2021 increased $2.0 million, or 22.3%, from the linked quarter. The increase was primarily due to an increase of $1.2 million in loan revenue and an increase of $0.5 million in 'Other' noninterest income. The increase in loan revenue was primarily driven by a $0.9 million increase in the fair value of our mortgage servicing rights. The increase in 'Other' noninterest income partially stemmed from a $0.2 million increase in income received from our commercial loan back-to-back swap program.
The following table presents details of noninterest income for the periods indicated:
| | Three Months Ended |
| Noninterest Income | December 31, | | September 30, | | December 31, |
| (In thousands) | | 2021 | | | 2021 | | | 2020 |
| Investment services and trust activities | $ | 3,115 | | $ | 2,915 | | $ | 2,518 |
| Service charges and fees | | 1,684 | | | 1,613 | | | 1,571 |
| Card revenue | | 1,746 | | | 1,820 | | | 1,517 |
| Loan revenue | | 3,132 | | | 1,935 | | | 3,900 |
| Bank-owned life insurance | | 550 | | | 532 | | | 541 |
| Investment securities gains, net | | 137 | | | 36 | | | 30 |
| Other | | 865 | | | 331 | | | 549 |
| Total noninterest income | $ | 11,229 | | $ | 9,182 | | $ | 10,626 |
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Noninterest Expense
Noninterest expense for the fourth quarter of 2021 increased $0.7 million, or 2.2%, from the linked quarter primarily due to an increase of $0.9 million in compensation and employee benefits and a $0.6 million increase in legal and professional expenses. The increase in compensation and employee benefits was primarily due to an increase of $0.5 million related to incentive and commission expense. The increase in legal and professional expenses was partially due to $0.2 million merger-related legal expenses. Partially offsetting these increases was a decrease of $0.5 million in 'other' noninterest expense. The decline in 'other' noninterest expense was primarily driven by the settlement of litigation claims totaling $0.7 million during the third quarter of 2021, which did not recur in the fourth quarter of 2021.
The increase in noninterest expense and the decline in net interest income, partially offset by the increase in noninterest income noted above, were the primary drivers of the increase in the efficiency ratio, which increased 0.40 percentage points to 56.74% from 56.34% in the linked quarter.
The following table presents details of noninterest expense for the periods indicated:
| | Three Months Ended |
| Noninterest Expense | December 31, | | September 30, | | December 31, |
| (In thousands) | | 2021 | | | 2021 | | | 2020 | |
| Compensation and employee benefits | $ | 18,266 | | $ | 17,350 | | $ | 17,638 | |
| Occupancy expense of premises, net | | 2,211 | | | 2,547 | | | 2,476 | |
| Equipment | | 2,189 | | | 1,973 | | | 2,040 | |
| Legal and professional | | 1,826 | | | 1,272 | | | 2,052 | |
| Data processing | | 1,211 | | | 1,406 | | | 1,460 | |
| Marketing | | 1,121 | | | 1,022 | | | 986 | |
| Amortization of intangibles | | 1,245 | | | 1,264 | | | 1,569 | |
| FDIC insurance | | 380 | | | 435 | | | 495 | |
| Communications | | 277 | | | 275 | | | 412 | |
| Foreclosed assets, net | | 7 | | | 43 | | | (35 | ) |
| Other | | 1,711 | | | 2,191 | | | 2,822 | |
| Total noninterest expense | $ | 30,444 | | $ | 29,778 | | $ | 31,915 | |
The following table presents details of merger-related expenses for the periods indicated:
| | Three Months Ended |
| | December 31, | | September 30, | | December 31, |
| Merger-related Expenses | | 2021 | | | 2021 | | | 2020 |
| (In thousands) | | | | | |
| Equipment | $ | 18 | | $ | — | | $ | — |
| Legal and professional | | 202 | | | — | | | — |
| Marketing | | 2 | | | — | | | — |
| Other | | 2 | | | — | | | — |
| Total merger-related expenses | $ | 224 | | $ | — | | $ | — |
| | | | | | | | | |
Income Taxes
The effective income tax rate increased to 24.9% in the fourth quarter of 2021 compared to 21.7% in the linked quarter. This increase was primarily due to the year-end adjustment to federal tax expense based upon 2021 taxable income. The Company's effective tax rate is lower than its combined statutory tax rate due to benefits related to tax-exempt interest and bank-owned life insurance. The effective income tax rate for the full year 2022 is expected to be in the range of 19.5-21.5%.
| BALANCE SHEET, LIQUIDITY AND CAPITAL HIGHLIGHTS
| As of or for the Three Months Ended |
| | December 31, | | September 30, | | December 31, |
| (Dollars in millions, except per share amounts) | | 2021 | | | | 2021 | | | | 2020 | |
| Ending Balance Sheet | | | | | |
| Total assets | $ | 6,025.1 | | | $ | 5,875.4 | | | $ | 5,556.6 | |
| Loans held for investment, net of unearned income | | 3,245.0 | | | | 3,268.6 | | | | 3,482.2 | |
| Total securities held for investment | | 2,288.1 | | | | 2,136.9 | | | | 1,657.4 | |
| Total deposits | | 5,114.5 | | | | 4,957.8 | | | | 4,547.0 | |
| Average Balance Sheet | | | | | |
| Average total assets | $ | 5,934.1 | | | $ | 5,811.2 | | | $ | 5,457.9 | |
| Average total loans | | 3,268.8 | | | | 3,356.7 | | | | 3,560.6 | |
| Average total deposits | | 5,015.5 | | | | 4,882.8 | | | | 4,490.0 | |
| Funding and Liquidity | | | | | |
| Short-term borrowings | $ | 181.4 | | | $ | 187.5 | | | $ | 230.8 | |
| Long-term debt | | 154.9 | | | | 154.9 | | | | 208.7 | |
| Loans to deposits ratio | | 63.45 | % | | | 65.93 | % | | | 76.58 | % |
| Equity | | | | | |
| Total shareholders' equity | $ | 527.5 | | | $ | 530.3 | | | $ | 515.3 | |
| Common equity ratio | | 8.75 | % | | | 9.03 | % | | | 9.27 | % |
| Tangible common equity(1) | | 445.1 | | | | 446.7 | | | | 427.5 | |
| Tangible common equity ratio(1) | | 7.49 | % | | | 7.71 | % | | | 7.82 | % |
| Per Share Data | | | | | |
| Book value | $ | 33.66 | | | $ | 33.71 | | | $ | 32.17 | |
| Tangible book value(1) | $ | 28.40 | | | $ | 28.40 | | | $ | 26.69 | |
| (1) Non-GAAP Measure. See the Non-GAAP Measures section for a reconciliation to the most directly comparable GAAP measure. |
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Loans Held for Investment
Loans held for investment, net of unearned income, decreased $23.6 million, or 0.7%, to $3.25 billion from September 30, 2021, driven primarily by PPP loan forgiveness and partially offset by new loan production during the fourth quarter of 2021. The revolving line of credit utilization was consistent with the linked quarter at 32%.
The following table presents the composition of loans held for investment, net of unearned income, as of the dates indicated:
| Loans Held for Investment | December 31, 2021 | | September 30, 2021 | | December 31, 2020 | |
| | Balance
| | % of
| | Balance
| | % of | | Balance
| | % of | |
| (dollars in thousands) | | Total | | | Total | | | Total | |
| Commercial and industrial | $ | 902,314 | | 27.8 | % | $ | 927,258 | | 28.4 | % | $ | 1,055,488 | | 30.3 | % |
| Agricultural | | 103,417 | | 3.2 | | | 106,356 | | 3.3 | | | 116,392 | | 3.3 | |
| Commercial real estate | | | | | | | | | | | | |
| Construction and development | | 172,160 | | 5.3 | | | 146,417 | | 4.5 | | | 181,291 | | 5.2 | |
| Farmland | | 144,673 | | 4.5 | | | 130,936 | | 4.0 | | | 144,970 | | 4.2 | |
| Multifamily | | 244,503 | | 7.5 | | | 273,347 | | 8.4 | | | 256,525 | | 7.4 | |
| Other | | 1,143,205 | | 35.2 | | | 1,148,658 | | 35.0 | | | 1,149,575 | | 33.0 | |
| Total commercial real estate | | 1,704,541 | | 52.5 | | | 1,699,358 | | 51.9 | | | 1,732,361 | | 49.8 | |
| Residential real estate | | | | | | | | | | | | |
| One-to-four family first liens | | 333,308 | | 10.3 | | | 334,267 | | 10.2 | | | 355,684 | | 10.2 | |
| One-to-four family junior liens | | 133,014 | | 4.1 | | | 133,869 | | 4.1 | | | 143,422 | | 4.1 | |
| Total residential real estate | | 466,322 | | 14.4 | | | 468,136 | | 14.3 | | | 499,106 | | 14.3 | |
| Consumer | | 68,418 | | 2.1 | | | 67,536 | | 2.1 | | | 78,876 | | 2.3 | |
| Loans held for investment, net of unearned income | $ | 3,245,012 | | 100.0 | % | $ | 3,268,644 | | 100.0 | % | $ | 3,482,223 | | 100.0 | % |
| | | | | | | | | | | | | |
| Total commitments to extend credit | $ | 1,014,397 | | | | $ | 950,157 | | | | $ | 897,274 | | | |
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PPP Loans
The following table presents PPP loan measures as of the dates indicated:
| | | December 31, 2021 | | September 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) | | 2,609 | | 334.2 | | 2,009 | | 122.4 | | 4,618 | | 456.6 | | 2,478 | | 323.7 | | 1,514 | | 72.9 | | 3,992 | | 396.6 |
| Outstanding PPP Loans(2) | | 53 | | 5.6 | | 164 | | 25.2 | | 217 | | 30.8 | | 184 | | 16.3 | | 661 | | 73.1 | | 845 | | 89.4 |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Unearned Income | | $— | | $0.9 | | $0.9 | | $0.1 | | $2.8 | | $2.9 |
| (1) Excluded from the PPP Loan Forgiveness is $9.3 million as of December 31, 2021 and $9.1 million as of September 30, 2021 of PPP loans that were paid off by the borrower prior to forgiveness or through the SBA PPP loan guarantee. |
| (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. |
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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 | | Year Ended |
| Allowance for Credit Losses Roll Forward | December 31, | | September 30, | | December 31, | | December 31, | | December 31, |
| (In thousands) | | 2021 | | | | 2021 | | | | 2020 | | | | 2021 | | | | 2020 | |
| Beginning balance | $ | 47,900 | | | $ | 48,000 | | | $ | 58,500 | | | $ | 55,500 | | | $ | 29,079 | |
| Cumulative effect of change in accounting principle - CECL | | — | | | | — | | | | — | | | | — | | | | 3,984 | |
| Charge-offs | | (255 | ) | | | (234 | ) | | | (1,005 | ) | | | (2,332 | ) | | | (6,793 | ) |
| Recoveries | | 533 | | | | 1,114 | | | | 646 | | | | 2,768 | | | | 1,528 | |
| Net recoveries (charge-offs) | | 278 | | | | 880 | | | | (359 | ) | | | 436 | | | | (5,265 | ) |
| Credit loss (benefit) expense related to loans | | 522 | | | | (980 | ) | | | (2,641 | ) | | | (7,236 | ) | | | 27,702 | |
| Ending balance | $ | 48,700 | | | $ | 47,900 | | | $ | 55,500 | | | $ | 48,700 | | | $ | 55,500 | |
As of December 31, 2021, the allowance for credit losses ("ACL") was $48.7 million, or 1.50% of loans held for investment, net of unearned income, compared with $47.9 million, or 1.47% of loans held for investment, net of unearned income, at September 30, 2021. The ACL declined 12.3% from the prior year-end. After excluding net PPP loans, the ACL as a percentage of loans held for investment, net of unearned income, increased to 1.52%(1) as of December 31, 2021, from 1.51%(1) at September 30, 2021. The increase in the ACL during the fourth quarter was primarily attributable to reserve taken to support loan growth.
(1)Non-GAAP Measure. See the Non-GAAP Measures section for a reconciliation to the most directly comparable GAAP measure.
Deposits
The following table presents the composition of our deposit portfolio as of the dates indicated:
| Deposit Composition | December 31, 2021 | | September 30, 2021 | | December 31, 2020 | |
| (Dollars in thousands) | Balance | | % of Total | | Balance | | % of Total | | Balance | | % of Total | |
| Noninterest bearing deposits | $ | 1,005,369 | | 19.6 | % | $ | 999,887 | | 20.2 | % | $ | 910,655 | | 20.0 | % |
| Interest checking deposits | | 1,619,136 | | 31.6 | | | 1,464,389 | | 29.5 | | | 1,351,641 | | 29.7 | |
| Money market deposits | | 939,523 | | 18.4 | | | 989,095 | | 20.0 | | | 918,654 | | 20.2 | |
| Savings deposits | | 628,242 | | 12.3 | | | 616,924 | | 12.4 | | | 529,751 | | 11.7 | |
| Total non-maturity deposits | | 4,192,270 | | 81.9 | | | 4,070,295 | | 82.1 | | | 3,710,701 | | 81.6 | |
| Time deposits of $250 and under | | 505,392 | | 9.9 | | | 522,907 | | 10.5 | | | 581,471 | | 12.8 | |
| Time deposits over $250 | | 416,857 | | 8.2 | | | 364,579 | | 7.4 | | | 254,877 | | 5.6 | |
| Total time deposits | | 922,249 | | 18.1 | | | 887,486 | | 17.9 | | | 836,348 | | 18.4 | |
| Total deposits | $ | 5,114,519 | | 100.0 | % | $ | 4,957,781 | | 100.0 | % | $ | 4,547,049 | | 100.0 | % |
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CREDIT RISK PROFILE
| | As of or For the Three Months Ended |
| Highlights | December 31, | | September 30, | | December 31, |
| (Dollars in thousands) | | 2021 | | | | 2021 | | | | 2020 | |
| Credit loss (benefit) expense related to loans | $ | 522 | | | $ | (980 | ) | | $ | (2,641 | ) |
| Net (recoveries) charge-offs | $ | (278 | ) | | $ | (880 | ) | | $ | 359 | |
| Net (recovery) charge-off ratio(1) | | (0.03 | )% | | | (0.10 | )% | | | 0.04 | % |
| | | | | | |
| At period-end | | | | | |
| Pass | $ | 3,013,917 | | | $ | 3,069,314 | | | $ | 3,202,704 | |
| Special Mention / Watch | | 117,401 | | | | 82,871 | | | | 157,213 | |
| Classified | | 113,694 | | | | 116,459 | | | | 122,306 | |
| Total loans held for investment, net | $ | 3,245,012 | | | $ | 3,268,644 | | | $ | 3,482,223 | |
| Classified loans ratio(2) | | 3.50 | % | | | 3.56 | % | | | 3.51 | % |
| | | | | | |
| Nonaccrual loans held for investment | $ | 31,540 | | | $ | 33,657 | | | $ | 41,950 | |
| Accruing loans contractually past due 90 days or more | | — | | | | 51 | | | | 739 | |
| Total nonperforming loans | | 31,540 | | | | 33,708 | | | | 42,689 | |
| Foreclosed assets, net | | 357 | | | | 454 | | | | 2,316 | |
| Total nonperforming assets | $ | 31,897 | | | $ | 34,162 | | | $ | 45,005 | |
| Nonperforming loans ratio(3) | | 0.97 | % | | | 1.03 | % | | | 1.23 | % |
| Nonperforming assets ratio(4) | | 0.53 | % | | | 0.58 | % | | | 0.81 | % |
| Allowance for credit losses | $ | 48,700 | | | $ | 47,900 | | | $ | 55,500 | |
| Allowance for credit losses ratio(5) | | 1.50 | % | | 1.47 | % | | | 1.59 |
