 Second Quarter Summary1 Net income for the second quarter of 11.7 million, or 0.73 per diluted common share. Pre-tax, Pre-provision Net Revenue2 of 18.9 million, an increase of 1.4 million or 8. Credit Loss Expense of 4.7 million, a decrease of 17.0 million or 78. Average deposit balances increased 405.6 million or 11. Allowance for Credit Losses as a percentage of loans held for investment, net of unearned income, increased to 1.55 1.70 when adjusted for 327.6 million of Small Business Administrations SBA Paycheck Protection Program PPP loans2.IOWA CITY, Iowa, July 30, 2020 GLOBE NEWSWIRE -- MidWestOne Financial Group, Inc. Nasdaq - MOFG we, our, or the Company today reported net income for the second quarter of 2020 of 11.7 million, or 0.73 per diluted common share, compared to net loss of 2.0 million, or 0.12 per diluted common share, for the first quarter of 2020 the linked quarter. Credit loss expense for the second quarter was 4.7 million, which reduced diluted earnings per common share by approximately 0.22 for the second quarter of 2020.Charles Funk, Chief Executive Officer, commented, We are pleased with our results in the second quarter, particularly our bankers efforts in the origination of SBA PPP loans during a period of unprecedented challenges for our customers, employees, and communities. The commitment of our employees combined with our business continuity planning efforts and digital service offerings provided our customers continued access to banking services despite COVID-19s far-reaching impacts. While we believe there will likely be volatility in earnings in this economic environment, the quarterly return on average equity of 9.21 and a return on average tangible equity of 13.50 represents solid performance.FINANCIAL HIGHLIGHTSThree Months Ended Six Months Ended June 30, March 31, June 30, June 30, June 30, 2020 2020 2019 2020 2019 Dollars in thousands, except per share amounts Net interest income38,712 37,406 34,832 76,118 60,808 Noninterest income8,269 10,155 8,796 18,424 14,206 Total revenue, net of interest expense46,981 47,561 43,628 94,542 75,014 Credit loss expense4,685 21,733 696 26,418 2,290 Noninterest expense28,038 30,001 29,040 58,039 49,657 Income loss before income tax expense benefit14,258 4,173 13,892 10,085 23,067 Income tax expense benefit2,546 2,198 3,218 348 5,108 Net income loss11,712 1,975 10,674 9,737 17,959 Diluted earnings loss per share0.73 0.12 0.72 0.60 1.33 Return on average assets0.92 0.17 1.01 0.40 0.96 Return on average equity9.21 1.54 9.66 3.82 9.02 Return on average tangible equity213.50 0.47 13.41 6.48 12.24 Efficiency ratio254.80 57.67 56.24 56.24 58.85 1 Second Quarter Summary compares to the linked quarter unless noted.2 Non-GAAP measure. See the separate Non-GAAP Measures section for a reconciliation to the most directly comparable GAAP measure.COVID-19 RESPONSE Branch OperationsThe Company commenced re-opening selected bank branch lobbies on June 1, 2020 and continues to actively manage lobby access based on local COVID-19 community spread conditions. Mr. Funk noted, We have continued to encourage and practice proper protocols to keep our employees and customers safe. Recently, we have temporarily closed lobbies in communities where COVID cases saw marked increases. The MidWestOne team remains resilient and together.SBA PPP LoansThe Company remains committed to supporting its customers and communities during these difficult times. This commitment includes offering PPP loans as authorized by the Coronavirus Aid, Relief, and Economic Security Act enacted on March 27, 2020, as amended. As of June 30, 2020, the Company had funded 2,534 PPP loans totaling 345.4 million with an average loan size of 136 thousand. These loans earn a 1 annual interest rate plus an origination fee from the SBA based upon loan size. At June 30, 2020, the amortized cost basis of PPP loans was 327.6 million and the unamortized net fees were 9.3 million. The fees will be recognized over the term of the respective loans.Loan ModificationsThe Company continues to offer payment deferrals and mortgage forbearance to customers, which totaled 474.9 million as of June 30, 2020. Approximately 32 of the modifications were interest only payments and 68 were full payment deferrals, with both modification types generally three months in length. As of July 24, 2020, 16 loans, totaling 31.2 million, were either in or being processed for a second deferral period.INCOME STATEMENT HIGHLIGHTSNet Interest IncomeNet interest income increased in the second quarter of 2020 to 38.7 million from 37.4 million as larger volumes of interest earning assets more than offset net interest margin compression. The tax equivalent net interest margin decreased 22 basis points bps to 3.38 for the second quarter of 2020 from 3.60 in the linked quarter. Interest earning assets yields decreased 47 basis points from the linked quarter, approximately 8 basis points of which was attributable to PPP loans, which have a coupon rate of 1. Net fee accretion for PPP loans in the second quarter of 2020 was 1.1 million. Partially offsetting the lower asset yields was a 26 bps reduction in cost of funds.The Companys core net interest margin a non-GAAP measure, see the separate Non-GAAP Measures section for a reconciliation to the most directly comparable GAAP measure, which excludes loan purchase discount accretion, decreased 15 bps from the linked quarter as lower asset yields were only partially offset by reduced funding costs. Loan purchase discount accretion added 2.6 million to net interest income in the second quarter compared to 3.0 million in the linked quarter.Our margin suffered from an asset mix change whereby loans were paid off and were reinvested into lower yielding securities, stated Mr. Funk.Noninterest IncomeNoninterest income for the second quarter of 2020 decreased 1.9 million, or 19, from the linked quarter. The decrease was due primarily to decreases of 1.8 million and 0.5 million in the Other income and Service charges and fees line items, respectively. The Other line item reflected a decrease from the linked quarter of 1.6 million in income from our commercial loan back-to-back swap program. The decrease in Service charges and fees was primarily driven by a 0.5 million decrease in overdraft fees, which reflected lower customer overdraft activity coupled with increased waivers of such fees. The net decrease in noninterest income was partially offset by an increase in loan revenue of 0.8 million, which was driven by increased volume in home mortgage loans.We enjoyed solid performance from our home mortgage business as low mortgage rates continued to drive refinance and purchase activity, noted Mr. Funk.The following table presents details of noninterest income for the periods indicated: Three Months Ended June 30, March 31, June 30, Noninterest Income2020 2020 2019 In thousands Investment services and trust activities2,217 2,536 1,890 Service charges and fees1,290 1,826 1,870 Card revenue1,237 1,365 1,799 Loan revenue1,910 1,123 648 Bank-owned life insurance635 520 470 Insurance commissions 314 Investment securities gains, net6 42 32 Other974 2,743 1,773 Total noninterest income8,269 10,155 8,796 Noninterest ExpenseNoninterest expense for the second quarter of 2020 decreased 2.0 million, or 6.5, from the linked quarter due primarily to a decrease in compensation and employee benefits of 0.9 million. The decrease in compensation and employee benefits was primarily attributable to a 1.4 million benefit from SBA PPP loan origination costs which are deferred and amortized over the life of the loan to which they relate.The following table presents details of noninterest expense for the periods indicated: Three Months Ended June 30, March 31, June 30, Noninterest Expense2020 2020 2019 In thousands Compensation and employee benefits15,682 16,617 16,409 Occupancy expense of premises, net2,253 2,341 2,127 Equipment2,010 1,880 1,914 Legal and professional1,382 1,535 3,291 Data processing1,240 1,354 1,008 Marketing910 1,062 869 Amortization of intangibles1,748 2,028 930 FDIC insurance445 448 434 Communications449 457 377 Foreclosed assets, net34 138 84 Other1,885 2,141 1,597 Total noninterest expense28,038 30,001 29,040 The following table presents details of merger-related costs for the periods indicated: Three Months Ended June 30, March 31, June 30, Merger-related Expenses2020 2020 2019 In thousands Compensation and employee benefits 1,020 Equipment7 Legal and professional 1,826 Data processing 44 240 Other 10 48 Total merger-related costs7 54 3,134 Income TaxesThe Company recognized a net income tax expense of 2.5 million in the second quarter of 2020 compared to a net income tax benefit of 2.2 million in the linked quarter. The resulting net income tax expense during the second quarter of 2020 was primarily due to the net income earned during the quarter, which was offset by the recognition of 771 thousand in tax credits. BALANCE SHEET, LIQUIDITY AND CAPITAL HIGHLIGHTSAs of or For the Three Months Ended June 30, March 31, June 30, 2020 2020 2019 Dollars in millions, except per share amounts Ending Balance Sheet Total assets5,231.0 4,763.9 4,662.5 Loans held for investment, net of unearned income3,597.0 3,425. 