IOWA CITY, Iowa, Aug. 01, 2023 (GLOBE NEWSWIRE) -- MidWestOne Financial Group, Inc. ( MOFG) (“we”, “our”, or the "Company”) today reported results for the second quarter of 2023.
Second Quarter 2023 Highlights1
- Net income of $7.6 million, or $0.48 per diluted common share, compared to net income of $1.4 million, or $0.09 per diluted common share, for the linked quarter.
- Annualized loan growth of 10.6%.
- Expenses of $34.9 million included $1.4 million of costs stemming from a voluntary early retirement program and executive relocation.
- Nonperforming assets ratio improved 1 basis point (“bps”) to 0.22%; net charge-off ratio was 0.09%.
Subsequent Events
- On July 25, 2023, the Board of Directors declared a cash dividend of $0.2425 per common share.
CEO COMMENTARY
Charles (Chip) Reeves, Chief Executive Officer of the Company, commented, “On our first quarter earnings call, we introduced a comprehensive strategic plan designed to transform our operations and become a higher performing bank over the medium term. Though we are facing a challenging operating environment driven by rising interest rates, we have made solid progress across the five pillars of our plan highlighted by 10% loan growth, annualized, that we achieved in the quarter. We have been adding bankers in our major markets of the Twin Cities, Denver, and Metro Iowa, which has been a major factor in this strong loan growth. So far this year, we have added bankers in the Twin Cities and we will continue to add bankers in our major markets as we continue to build scale and take market share. Late in the second quarter, as part of our specialty commercial loan growth initiative, we recruited an established agribusiness team from a regional bank as we strive to ‘up-tier’ in this attractive segment of the market. This team has already started to bring full relationship business to MidWestOne. We are also starting to see momentum in our governmental lending group, where we have improved our focus and execution. Lastly, we are seeing a nice increase in our wealth management assets under management and revenues, as compared to the first quarter, driven by the teams recruited in 2021 and 2022.”
Mr. Reeves concluded, “I’m very pleased with the early results that we are achieving as we execute our strategic plan. We are beginning to make investments in talent and our platform to drive growth, while keeping our noninterest expense relatively steady from the first quarter. We are driving significant change across our organization, and I would like to thank our employees for their hard work and dedication to our Company, customers, and communities. Our results would not be possible without their tireless efforts. I remain confident that we are on a strong path to significantly improved financial results.”
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1 Second Quarter Summary compares to the first quarter of 2023 (the “linked quarter”) unless noted.
| As of or for the quarter ended | Six Months Ended | ||||||||||||||||||
| (Dollars in thousands, except per share amounts and as noted) | June 30, | March 31, | June 30, | June 30, | June 30, | ||||||||||||||
| 2023 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||
| Financial Results | |||||||||||||||||||
| Revenue | $ | 45,708 | $ | 36,030 | $ | 52,072 | $ | 81,738 | $ | 101,052 | |||||||||
| Credit loss expense | 1,597 | 933 | 3,282 | 2,530 | 3,282 | ||||||||||||||
| Noninterest expense | 34,919 | 33,319 | 32,082 | 68,238 | 63,725 | ||||||||||||||
| Net income | 7,594 | 1,397 | 12,621 | 8,991 | 26,516 | ||||||||||||||
| Per Common Share | |||||||||||||||||||
| Diluted earnings per share | $ | 0.48 | $ | 0.09 | $ | 0.80 | $ | 0.57 | $ | 1.69 | |||||||||
| Book value | 31.96 | 31.94 | 31.26 | 31.96 | 31.26 | ||||||||||||||
| Tangible book value(1) | 26.26 | 26.13 | 25.10 | 26.26 | 25.10 | ||||||||||||||
| Balance Sheet & Credit Quality | |||||||||||||||||||
| Loans In millions | $ | 4,018.6 | $ | 3,919.4 | $ | 3,611.2 | $ | 4,018.6 | $ | 3,611.2 | |||||||||
| Investment securities In millions | 2,003.1 | 2,071.8 | 2,402.8 | 2,003.1 | 2,402.8 | ||||||||||||||
| Deposits In millions | 5,445.4 | 5,555.2 | 5,537.4 | 5,445.4 | 5,537.4 | ||||||||||||||
| Net loan charge-offs In millions | 0.9 | 0.3 | 0.3 | 1.2 | 2.5 | ||||||||||||||
| Allowance for credit losses ratio | 1.25 | % | 1.27 | % | 1.45 | % | 1.25 | % | 1.45 | % | |||||||||
| Selected Ratios | |||||||||||||||||||
| Return on average assets | 0.47 | % | 0.09 | % | 0.83 | % | 0.28 | % | 0.89 | % | |||||||||
| Net interest margin, tax equivalent(1) | 2.52 | % | 2.75 | % | 2.87 | % | 2.63 | % | 2.83 | % | |||||||||
| Return on average equity | 6.03 | % | 1.14 | % | 10.14 | % | 3.61 | % | 10.44 | % | |||||||||
| Return on average tangible equity(1) | 8.50 | % | 2.70 | % | 13.13 | % | 5.65 | % | 13.35 | % | |||||||||
| Efficiency ratio(1) | 71.13 | % | 62.32 | % | 56.57 | % | 66.56 | % | 58.46 | % | |||||||||
| (1) Non-GAAP measure. See the Non-GAAP Measures section for a reconciliation to the most directly comparable GAAP measure. | |||||||||||||||||||
REVENUE REVIEW
| Revenue | Change | Change | |||||||||||
| 2Q23 vs | 2Q23 vs | ||||||||||||
| (Dollars in thousands) | 2Q23 | 1Q23 | 2Q22 | 1Q23 | 2Q22 | ||||||||
| Net interest income | $ | 36,962 | $ | 40,076 | $ | 39,725 | (8 | )% | (7 | )% | |||
| Noninterest income (loss) | 8,746 | (4,046 | ) | 12,347 | n / m | (29 | )% | ||||||
| Total revenue, net of interest expense | $ | 45,708 | $ | 36,030 | $ | 52,072 | 27 | % | (12 | )% | |||
| Results are not meaningful (n/m) | |||||||||||||
Total revenue for the second quarter of 2023 increased $9.7 million from the first quarter of 2023 as a result of increased noninterest income, partially offset by lower net interest income. Compared to the second quarter of 2022, total revenue decreased $6.4 million due to lower net interest income and noninterest income.
Net interest income of $37.0 million for the second quarter of 2023 decreased from $40.1 million in the first quarter of 2023, due primarily to higher funding costs and volumes and lower interest earning asset volumes, partially offset by higher interest earning asset yields. Compared to the second quarter of 2022, net interest income decreased $2.8 million as a result of higher funding costs and volumes, partially offset by higher interest earning asset yields and volumes.
The Company’s tax equivalent net interest margin was 2.52% in the second quarter of 2023 compared to 2.75% in the first quarter of 2023, as higher earning asset yields were more than offset by increased funding costs. The cost of interest bearing liabilities increased 39 bps to 1.98%, due to interest bearing deposit costs of 1.79%, short-term borrowing costs of 2.91%, and long-term debt costs of 6.38%, which increased 41 bps, 9 bps and 19 bps, respectively from the first quarter of 2023. Total interest earning assets yield increased 12 bps primarily as a result of an increase in loan yield of 10 bps, partially offset by a decrease in investment security yield of 5 bps, respectively. Our cycle-to-date interest bearing deposit beta was 31%.
The tax equivalent net interest margin was 2.52% in the second quarter of 2023 compared to 2.87% in the second quarter of 2022, driven by higher funding costs and volumes, partially offset by higher interest earning asset yields. The cost of interest bearing liabilities increased 153 bps to 1.98%, due to interest bearing deposit costs of 1.79%, short-term borrowing costs of 2.91%, and long-term debt costs of 6.38%, which increased 148 bps, 244 bps and 193 bps, respectively from the second quarter of 2022. Total interest earning assets yield increased 92 bps primarily as a result of an increase in loan and securities yields of 103 bps and 22 bps, respectively.
| Noninterest Income (Loss) | Change | Change | ||||||||||||||
| 2Q23 vs | 2Q23 vs | |||||||||||||||
| (In thousands) | 2Q23 | 1Q23 | 2Q22 | 1Q23 | 2Q22 | |||||||||||
| Investment services and trust activities | $ | 3,119 | $ | 2,933 | $ | 2,670 | 6 | % | 17 | % | ||||||
| Service charges and fees | 2,047 | 2,008 | 1,717 | 2 | % | 19 | % | |||||||||
| Card revenue | 1,847 | 1,748 | 1,878 | 6 | % | (2 | )% | |||||||||
| Loan revenue | 909 | 1,420 | 3,523 | (36 | )% | (74 | )% | |||||||||
| Bank-owned life insurance | 616 | 602 | 558 | 2 | % | 10 | % | |||||||||
| Investment securities (losses) gains, net | (2 | ) | (13,170 | ) | 395 | n / m | (101 | )% | ||||||||
| Other | 210 | 413 | 1,606 | (49 | )% | (87 | )% | |||||||||
| Total noninterest income (loss) | $ | 8,746 | $ | (4,046 | ) | $ | 12,347 | n / m | (29 | )% | ||||||
Noninterest income for the second quarter of 2023 increased $12.8 million from the linked quarter due primarily to $13.2 million of investment security losses recognized in the linked quarter, partially offset by a $0.5 million unfavorable change in loan revenue. Loan revenue reflected an unfavorable quarter-over-quarter change in the fair value of our mortgage servicing rights of $0.9 million, partially offset by a $0.5 million favorable change in loan sale gains generated by our governmental lending and mortgage origination businesses. Noninterest income decreased $3.6 million from the second quarter of 2022. The largest driver was a $0.6 million decrease in the fair value of our mortgage servicing rights in the current quarter compared to a $2.4 million increase in the second quarter of 2022.
EXPENSE REVIEW
| Noninterest Expense | Change | Change | ||||||||||
| 2Q23 vs | 2Q23 vs | |||||||||||
| (In thousands) | 2Q23 | 1Q23 | 2Q22 | 1Q23 | 2Q22 | |||||||
| Compensation and employee benefits | $ | 20,386 | ||||||||||
