MidWestOne(US:MOFG)2020-07-31 21:20Financial Data and Key Metrics Changes - The company reported net income of $11.7 million or $0.73 per diluted common share, compared to a net loss of $2 million or $0.12 per diluted common share in the previous quarter [33] - Return on tangible equity for the quarter was 13.5% with an efficiency ratio under 55% [8] - Average loans grew by 6% and average deposits increased by 11% [35] - Tangible book value per share increased to $24.74, up 5.8% during the quarter [28] Business Line Data and Key Metrics Changes - Non-interest income was positively impacted by mortgage results, with volumes for the first six months of 2020 being 114% higher than the same period in 2019 [13] - Mortgage revenues of $1.7 million were up $855,000 from the previous quarter, driven by a 141% increase in mortgage production volumes [41] - Wealth management services exceeded budget expectations despite facing market volatility and challenges in new business development [15] Market Data and Key Metrics Changes - The company experienced a decline in loans, excluding PPP loans, due to borrowers paying down lines of credit and having excess liquidity [11] - Non-accrual loans decreased slightly to 1.15% of total loans, down from 1.28% at the end of the first quarter [22] - The percentage of watch and substandard agricultural loans improved to 18.1%, down from 23.6% in March 2018 [23] Company Strategy and Development Direction - The company is focused on managing expenses and has announced the closure of its Newport, Minnesota office, expecting to save approximately $360,000 annually [18] - The management team is committed to maintaining the dividend and has conducted stress tests to ensure its security [30][86] - The company is actively monitoring vulnerable industries and has enhanced credit monitoring processes to manage risks effectively [49][56] Management's Comments on Operating Environment and Future Outlook - The management acknowledged significant uncertainty in the current environment but expressed confidence in the company's ability to navigate challenges [7] - The company expects a reasonable pipeline of new loans moving forward, although it does not anticipate robust growth [12] - Management anticipates that 70% or more of SBA PPP loan fees will be recognized by the fourth quarter, which should bolster net interest margin [39] Other Important Information - The allowance for credit losses increased to 1.70% of total loans, excluding PPP loans, indicating a strong position [22] - The company completed a private placement of $65 million in subordinated notes to bolster capital levels [46] Q&A Session Summary Question: Expectations on reserve building for the second half of the year - Management indicated that they will continue to moderately build reserves based on portfolio monitoring and expected migration trends [70] Question: Status of goodwill impairment review - The review is complete, with management indicating it is 99.9% finalized [71][75] Question: Outlook for fee income - Management expects a normalized fee income run rate of approximately $8.3 million to $8.5 million per quarter [83] Question: Dividend security - Management confirmed that the dividend is secure based on current assessments and stress tests [86] Question: Details on vulnerable industries and credit monitoring - Management confirmed overlap between vulnerable industries and top loan relationships, with some downgrades noted [88]