MidWestOne Financial Group, Inc. Reports Financial Results for the First Quarter of 2024

Published

IOWA CITY, Iowa, April 25, 2024 (GLOBE NEWSWIRE) -- MidWestOne Financial Group, Inc. (Nasdaq: MOFG) (“we”, “our”, or the "Company”) today reported results for the first quarter of 2024.

First Quarter 2024 Summary1

  • Completed acquisition of Denver Bankshares, Inc. ("DNVB"), the related core banking system conversion, and closure of the legacy MidWestOne Denver banking office.
  • Net income of $3.3 million, or $0.21 per diluted common share.
    • Revenue was $44.5 million, comprised of net interest income of $34.7 million and noninterest income of $9.8 million, which included a negative MSR valuation adjustment of $368 thousand.
    • Credit loss expense of $4.7 million, which included day 1 credit loss expense of $3.2 million related to the DNVB acquisition.
    • Noninterest Expense of $35.6 million, which included merger-related costs of $1.3 million, OREO write-down expense of $311 thousand, and non-acquisition related severance expense of $261 thousand.
  • Net interest margin (tax equivalent) expanded 11 bps to 2.33%2.
  • Annualized adjusted loan growth (excluding acquired DNVB loan balances) of 8%.
  • Continued momentum in Wealth Management with revenue growth of 10%.
  • Nonperforming assets ratio remained stable at 0.49%; net charge-off ratio was 0.02%.

CEO Commentary

Charles (Chip) Reeves, Chief Executive Officer of the Company, commented, “We are very pleased with the underlying strength of the first quarter as we continue to execute on our strategic initiatives. During the quarter we closed and integrated Denver Bankshares, the front end of our geographic realignment announced in late September 2023, and our Florida divestiture remains on track for a June 2024 closing.

Importantly, our net interest margin expanded this quarter, rising 11 bps, with net interest income increasing 7% from the fourth quarter of 2023. This outcome reflected the strategic balance sheet actions taken in 2023, the completed merger of DNVB, and continued loan growth in our targeted metro markets.

In Commercial Banking and Wealth Management, our customer and banker acquisition strategies led to robust balance sheet, assets under management, and revenue gains, and we will continue to invest in these critical business lines. Even amidst significant talent, platform, and product investments, we have been able to re-allocate resources to maintain expense discipline.

We welcome our new Bank of Denver team members, and I am proud of our entire MidWestOne team for their commitment to our customers and execution of our strategic plan."

__________________________________1 First Quarter Summary compares to the fourth quarter of 2023 (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.

  As of or for the quarter ended
(Dollars in thousands, except per share amounts and as noted) March 31, December 31, March 31,
  2024   2023   2023 
Financial Results      
Revenue $44,481  $36,421  $36,030 
Credit loss expense  4,689   1,768   933 
Noninterest expense  35,565   32,131   33,319 
Net income  3,269   2,730   1,397 
Per Common Share      
Diluted earnings per share $0.21  $0.17  $0.09 
Book value  33.53   33.41   31.94 
Tangible book value(1)  27.14   27.90   26.13 
Balance Sheet & Credit Quality      
Loans In millions $4,414.6  $4,126.9  $3,919.4 
Investment securities In millions  1,862.2   1,870.3   2,071.8 
Deposits In millions  5,585.2   5,395.7   5,555.2 
Net loan charge-offs In millions  0.2   2.1   0.3 
Allowance for credit losses ratio  1.27%  1.25%  1.27%
Selected Ratios      
Return on average assets  0.20%  0.17%  0.09%
Net interest margin, tax equivalent(1)  2.33%  2.22%  2.75%
Return on average equity  2.49%  2.12%  1.14%
Return on average tangible equity(1)  4.18%  3.57%  2.70%
Efficiency ratio(1)  71.28%  70.16%  62.32%
(1) Non-GAAP measure. See the Non-GAAP Measures section for a reconciliation to the most directly comparable GAAP measure.

DENVER BANKSHARES, INC. ACQUISITION

On January 31, 2024, we completed our acquisition of Denver Bankshares, Inc, and its wholly-owned banking subsidiary, the Bank of Denver. The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting. The assets and liabilities, both tangible and intangible, were recorded at their fair values as of the January 31, 2024 acquisition date, net of any applicable tax effects. The Company considers all purchase accounting estimates provisional and fair values are subject to refinement for up to one year after the close date.

The table below summarizes the amounts recognized at the acquisition date for each major class of assets acquired and liabilities assumed:

(In thousands) As of January 31, 2024
Merger consideration  
Cash consideration $32,600 
Identifiable net assets acquired, at fair value  
Assets acquired  
Cash and due from banks  462 
Interest earning deposits in banks  3,517 
Debt securities  52,493 
Loans held for investment  207,095 
Premises and equipment  13,470 
Core deposit intangible  7,100 
Other assets  4,987 
Total assets acquired  289,124 
Liabilities assumed  
Deposits  (224,248)
Short-term borrowings  (37,500)
Other liabilities  (3,417)
Total liabilities assumed  (265,165)
Identifiable net assets acquired, at fair value  23,959 
Goodwill $8,641 

REVENUE REVIEW

Revenue       Change Change
       1Q24 vs 1Q24 vs
(Dollars in thousands) 1Q24 4Q23 1Q23 4Q23 1Q23
Net interest income $34,731 $32,559 $40,076  7% (13)%
Noninterest income  9,750  3,862  (4,046) 152% n/m 
Total revenue, net of interest expense $44,481 $36,421 $36,030  22% 23%
           
Results are not meaningful (n/m)

Total revenue for the first quarter of 2024 increased $8.1 million from the fourth quarter of 2023 due to higher noninterest income and net interest income during the quarter. When compared to the first quarter of 2023, total revenue increased $8.5 million due to higher noninterest income, partially offset by lower net interest income.

Net interest income of $34.7 million for the first quarter of 2024 increased $2.2 million from the fourth quarter of 2023, primarily due to higher interest earning asset volumes and yields, partially offset by higher interest bearing liabilities volumes and funding costs. When compared to the first quarter of 2023, net interest income decreased $5.3 million, primarily due to higher funding costs and volumes, partially offset by higher interest earning asset volumes and yields.

The Company's tax equivalent net interest margin was 2.33%3 in the first quarter of 2024, compared to 2.22%3 in the fourth quarter of 2023, as higher earning asset yields more than offset increased funding costs. Total interest earning assets yield during the first quarter of 2024 increased 20 bps from the fourth quarter of 2023, as a result of increased loan and securities yields of 17 bps and 10 bps, respectively. The cost of interest bearing liabilities during the first quarter of 2024 increased 10 bps, to 2.75%, due primarily to interest bearing deposit costs of 2.45% and long-term debt of 6.86%, which increased 6 bps and 7 bps, respectively, from the fourth quarter of 2023, as well as a mix-shift to increased short-term borrowings. Our cycle-to-date interest bearing deposit beta was 41%.

The Company's tax equivalent net interest margin was 2.33%3 in the first quarter of 2024, compared to 2.75%3 in the first quarter of 2023, driven by higher funding costs, partially offset by higher interest earning asset yields. The cost of interest bearing liabilities increased 116 bps to 2.75%, due to interest bearing deposit costs of 2.45%, short-term borrowing costs of 4.82%, and long-term debt costs of 6.86%, which increased 107 bps, 200 bps and 67 bps, respectively from the first quarter of 2023. Total interest earning assets yield increased 56 bps from the first quarter of 2023, primarily as a result of an increase in loan yields of 56 bps.

Noninterest Income (Loss)       Change Change
        1Q24 vs 1Q24 vs
(In thousands) 1Q24 4Q23 1Q23 4Q23 1Q23
Investment services and trust activities $3,503  $3,193  $2,933  10% 19%
Service charges and fees  2,144   2,148   2,008  % 7%
Card revenue  1,943   1,802   1,748  8% 11%
Loan revenue  856   909   1,420  (6)% (40)%
Bank-owned life insurance  660   656   602  1% 10%
Investment securities gains (losses), net  36   (5,696)  (13,170) n/m  n/m 
Other  608   850   413  (28)% 47%
Total noninterest income (loss) $9,750  $3,862  $(4,046) 152% n/m 
             
MSR Valuation Adjustment (included in loan revenue)  (368)  (105)  315  250% (217)%
             
Results are not meaningful (n/m)            
             
______________________________________3 Non-GAAP measure. See the separate Non-GAAP Measures section for a reconciliation to the most directly comparable GAAP measure.

Noninterest income for the first quarter of 2024 increased $5.9 million from the linked quarter, primarily due to investment securities losses, net, of $5.7 million recorded in the fourth quarter of 2023 as part of a balance sheet repositioning, which did not recur in the first quarter of 2024. Investment services and trust activities income increased $0.3 million during the first quarter of 2024, as a result of growth in assets under administration and market valuation.

Noninterest income for the first quarter of 2024 increased $13.8 million from the first quarter of 2023, primarily due to the investment securities losses, net, of $13.2 million recorded in the first quarter of 2023 as part of a balance sheet repositioning, which did not recur in the first quarter of 2024. Investment services and trust activities income increased $0.6 million compared to the first quarter of 2023, due to growth in assets under administration. Partially offsetting these identified increases was a decline of $0.6 million in loan revenue, which primarily reflected the unfavorable year-over-year change in the fair value of our mortgage servicing rights, from a positive adjustment of $315 thousand in the first quarter of 2023 to a negative adjustment of $368 thousand in the first quarter of 2024.

EXPENSE REVIEW

Noninterest Expense       Change Change
       1Q24 vs 1Q24 vs
(In thousands) 1Q24 4Q23 1Q23 4Q23 1Q23
Compensation and employee benefits $20,930 $17,859 $19,607  17% 7%
Occupancy expense of premises, net  2,813  2,309  2,746  22% 2%
Equipment  2,600  2,466  2,171  5% 20%
Legal and professional  2,059  2,269  1,736  (9)% 19%
Data processing  1,360  1,411  1,363  (4)% %
Marketing  598  700  986  (15)% (39)%
Amortization of intangibles  1,637  1,441  1,752  14% (7)%
FDIC insurance  942  900  749  5% 26%
Communications  196  183  261  7% (25)%
Foreclosed assets, net  358  45  (28) 696% n/m 
Other  2,072  2,548  1,976  (19)% 5%
Total noninterest expense $35,565 $32,131 $33,319  11% 7%
           
Results are not meaningful (n/m)          

Merger-related Expenses      
(In thousands) 1Q24 4Q23 1Q23
Compensation and employee benefits $241 $ $70
Occupancy expense of premises, net  152    
Equipment  149    
Legal and professional  573  180  
Data processing  61    65
Marketing  32  38  
Communications  1    
Other  105  27  1
Total merger-related expenses $1,314 $245 $136

Noninterest expense for the first quarter of 2024 increased $3.4 million from the linked quarter primarily due to increases of $3.1 million, $0.5 million, and $0.3 million in compensation and employee benefits, occupancy expense of premises, net, and foreclosed assets, net, respectively. The increase in compensation and employee benefits was primarily driven by annual compensation adjustments, increased headcount as a result of the DNVB acquisition, increased incentive and commission expense, and merger-related expenses. The increase in occupancy was primarily driven by additional expense as a result of the DNVB acquisition, merger-related expenses, and increased costs for snow removal. The increase in foreclosed assets expense was driven by a $0.3 million write-down of other real estate owned.

Noninterest expense for the first quarter of 2024 increased $2.2 million from the first quarter of 2023, primarily due to increases of $1.3 million, $0.4 million, and $0.4 million in compensation and employee benefits, equipment, and foreclosed assets, net, respectively. The increase in compensation and employee benefits was primarily driven by annual compensation adjustments, increased headcount as a result of the DNVB acquisition, increased incentive and commission expense, and merger-related expenses. The increase in equipment reflected higher software costs and merger-related expenses. The increase in foreclosed assets, net, was due to a $0.3 million write-down of other real estate owned. Partially offsetting these increases was a decline of $0.4 million in marketing.

The Company's effective tax rate was 22.7% in the first quarter of 2024. The effective income tax rate for 2024 is expected to be 21-23%.

BALANCE SHEET REVIEW

Total assets were $6.75 billion at March 31, 2024, compared to $6.43 billion at December 31, 2023 and $6.41 billion at March 31, 2023. The increase from December 31, 2023 was primarily driven by the assets acquired from the acquisition of DNVB and organic loan growth. Compared to March 31, 2023, the increase was primarily driven by the assets acquired from the acquisition of DNVB, organic loan growth, and higher cash balances, partially offset by lower securities balances resulting from balance sheet repositioning executed in 2023.

Loans Held for Investment March 31, 2024 December 31, 2023 March 31, 2023 
(Dollars in thousands) Balance % ofTotal Balance % ofTotal Balance % ofTotal 
Commercial and industrial $1,105,718 25.0%$1,075,003 26.0%$1,080,514 27.6%
Agricultural  113,029 2.6  118,414 2.9  106,641 2.7 
Commercial real estate             
Construction and development  403,571 9.1  323,195 7.8  320,924 8.2 
Farmland  184,109 4.2  184,955 4.5  182,528 4.7 
Multifamily  409,504 9.3  383,178 9.3  255,065 6.5 
Other  1,440,645 32.7  1,333,982 32.4  1,290,454 33.0 
     Total commercial real estate  2,437,829 55.3  2,225,310 54.0  2,048,971 52.4 
Residential real estate             
One-to-four family first liens  495,408 11.2  459,798 11.1  448,459 11.4 
One-to-four family junior liens  182,001 4.1  180,639 4.4  162,403 4.1 
     Total residential real estate  677,409 15.3  640,437 15.5  610,862 15.5 
Consumer  80,661 1.8  67,783 1.6  72,377 1.8 
Loans held for investment, net of unearned income $4,414,646 100.0%$4,126,947 100.0%$3,919,365 100.0%
              
Total commitments to extend credit $1,230,612   $1,210,796   $1,205,902   

Loans held for investment, net of unearned income, increased $287.7 million, or 7.0%, to $4.41 billion from $4.13 billion at December 31, 2023 and $495.3 million, or 12.6%, from $3.92 billion at March 31, 2023. This increase from the fourth quarter of 2023 was driven by loans acquired in the DNVB acquisition, organic loan growth, and higher line of credit usage. The increase from the first quarter of 2023 was driven by loans acquired in the DNVB acquisition and organic loan growth.

Investment Securities March 31, 2024 December 31, 2023 March 31, 2023 
(Dollars in thousands) Balance % of Total Balance % of Total Balance % of Total 
Available for sale $797,230 42.8%$795,134 42.5%$954,074 46.1%
Held to maturity  1,064,939 57.2% 1,075,190 57.5% 1,117,709 53.9%
Total investment securities $1,862,169   $1,870,324   $2,071,783   

Investment securities at March 31, 2024 were $1.86 billion, decreasing $8.2 million from December 31, 2023 and $209.6 million from March 31, 2023. The decrease from the fourth quarter of 2023 was primarily due to the principal cash flows received from scheduled payments, calls, and maturities. The decrease from the first quarter of 2023 was primarily due to balance sheet repositioning executed in 2023.

Deposits March 31, 2024 December 31, 2023 March 31, 2023 
(Dollars in thousands) Balance % of Total Balance % of Total Balance % of Total 
Noninterest bearing deposits $920,764 16.5%$897,053 16.6%$989,469 17.8%
Interest checking deposits  1,349,823 24.2  1,320,435 24.5  1,476,948 26.6 
Money market deposits  1,122,717 20.1  1,105,493 20.5  969,238 17.4 
Savings deposits  728,276 13.0  650,655 12.1  631,811 11.4 
Time deposits of $250 and under  787,851 14.1  752,214 13.9  599,302 10.8 
Total core deposits  4,909,431 87.9  4,725,850 87.6  4,666,768 84.0 
Brokered time deposits  205,000 3.7  221,039 4.1  366,539 6.6 
Time deposits over $250  470,805 8.4  448,784 8.3  521,846 9.4 
Total deposits $5,585,236 100.0%$5,395,673 100.0%$5,555,153 100.0%

Deposits increased $189.6 million, or 3.5%, to $5.59 billion, from $5.40 billion at December 31, 2023, primarily due to the $224.2 million of deposits assumed in the DNVB acquisition. Total deposits increased $30.1 million, or 0.5%, from $5.56 billion at March 31, 2023 due to the DNVB acquisition, partially offset by a decline of $161.5 million in brokered deposits.

Borrowed Funds March 31, 2024 December 31, 2023 March 31, 2023 
(Dollars in thousands) Balance % of Total Balance % of Total Balance % of Total 
Short-term borrowings $422,988 77.6%$300,264 70.9%$143,981 51.1%
Long-term debt  122,066 22.4% 123,296 29.1% 137,981 48.9%
Total borrowed funds $545,054   $423,560   $281,962   

Borrowed funds were $545.1 million at March 31, 2024, an increase of $121.5 million from December 31, 2023 and an increase of $263.1 million from March 31, 2023. The increase compared to the linked quarter was due to higher Bank Term Funding Program borrowings and other short-term borrowings, partially offset by lower Federal Home Loan Bank overnight borrowings. The increase compared to March 31, 2023 was primarily due to higher Bank Term Funding Program borrowings and other short-term borrowings, partially offset by lower Federal Home Loan Bank overnight borrowings and securities sold under agreements to repurchase.

Capital March 31, December 31, March 31,
(Dollars in thousands) 2024(1)  2023   2023 
Total shareholders' equity $528,040  $524,378  $500,650 
Accumulated other comprehensive loss  (60,804)  (64,899)  (78,885)
MidWestOne Financial Group, Inc. Consolidated      
Tier 1 leverage to average assets ratio  8.16%  8.58%  8.30%
Common equity tier 1 capital to risk-weighted assets ratio  8.98%  9.59%  9.39%
Tier 1 capital to risk-weighted assets ratio  9.75%  10.38%  10.18%
Total capital to risk-weighted assets ratio  11.97%  12.53%  12.31%
MidWestOne Bank      
Tier 1 leverage to average assets ratio  9.36%  9.39%  9.28%
Common equity tier 1 capital to risk-weighted assets ratio  11.20%  11.54%  11.40%
Tier 1 capital to risk-weighted assets ratio  11.20%  11.54%  11.40%
Total capital to risk-weighted assets ratio  12.25%  12.49%  12.31%
(1) Regulatory capital ratios for March 31, 2024 are preliminary      

Total shareholders' equity at March 31, 2024 increased $3.7 million from December 31, 2023, driven by decreases in accumulated other comprehensive loss and treasury stock, partially offset by the decline in additional paid-in capital and retained earnings. Total shareholders' equity at March 31, 2024 increased $27.4 million from March 31, 2023, driven by decreases in accumulated other comprehensive loss and treasury stock, coupled with an increase in retained earnings.

Accumulated other comprehensive loss at March 31, 2024 decreased $4.1 million compared to December 31, 2023, primarily due to an increase in available for sale securities valuations. Accumulated other comprehensive loss decreased $18.1 million from March 31, 2023, primarily due to an increase in available for sale securities valuations and the recognition of the loss from the fourth quarter of 2023 sale of securities.

On April 25, 2024, the Board of Directors of the Company declared a cash dividend of $0.2425 per common share. The dividend is payable June 17, 2024, to shareholders of record at the close of business on June 3, 2024.

No common shares were repurchased by the Company during the period December 31, 2023 through March 31, 2024 or for the subsequent period through April 25, 2024. The current share repurchase program allows for the repurchase of up to $15.0 million of the Company's common shares.

CREDIT QUALITY REVIEW

Credit Quality As of or For the Three Months Ended
  March 31, December 31, March 31,
(Dollars in thousands)  2024   2023   2023 
Credit loss expense related to loans $4,589  $1,968  $933 
Net charge-offs  189   2,068   333 
Allowance for credit losses  55,900   51,500   49,800 
Pass $4,098,102  $3,846,012  $3,728,522 
Special Mention / Watch  152,604   113,029   92,075 
Classified  163,940   167,906   98,768 
Loans greater than 30 days past due and accruing $8,772  $10,778  $4,932 
Nonperforming loans $29,267  $26,359  $14,442 
Nonperforming assets  33,164   30,288   14,442 
Net charge-off ratio(1)  0.02%  0.20%  0.03%
Classified loans ratio(2)  3.71%  4.07%  2.52%
Nonperforming loans ratio(3)  0.66%  0.64%  0.37%
Nonperforming assets ratio(4)  0.49%  0.47%  0.23%
Allowance for credit losses ratio(5)  1.27%  1.25%  1.27%
Allowance for credit losses to nonaccrual loans ratio(6)  197.53%  198.91%  344.88%
(1) Net charge-off ratio is calculated as annualized net charge-offs divided by the sum of average loans held for investment, net of unearned income and average loans held for sale, during the period.
(2) Classified loans ratio is calculated as classified loans divided by loans held for investment, net of unearned income, at the end of the period.
(3) Nonperforming loans ratio is calculated as nonperforming loans divided by loans held for investment, net of unearned income, at the end of the period.
(4) Nonperforming assets ratio is calculated as nonperforming assets divided by total assets at the end of the period.
(5) 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.
(6) Allowance for credit losses to nonaccrual loans ratio is calculated as allowance for credit losses divided by nonaccrual loans at the end of the period.

Compared to the linked quarter, the nonperforming loans and nonperforming assets ratios remained stable, with slight increases in both ratios of 2 bps, to 0.66% and 0.49%, respectively. Special mention/watch balances increased $39.6 million from the linked quarter primarily due to two trucking industry relationships, while the classified loans ratio decreased 36 bps from the linked quarter. When compared to the prior year, the nonperforming loans and assets ratios increased 29 bps and 26 bps, respectively. Further, the net charge-off ratio declined 18 bps from the linked quarter and 1 bp from the same period in the prior year.

As of March 31, 2024, the allowance for credit losses was $55.9 million and the allowance for credit losses ratio was 1.27%, compared with $51.5 million and 1.25% at December 31, 2023. Credit loss expense of $4.7 million in the first quarter of 2024 reflected $3.2 million of day 1 credit loss expense related to the DNVB acquisition, as well as additional reserve taken to support organic loan growth.

Nonperforming Loans Roll Forward(Dollars in thousands) Nonaccrual  90+ Days Past Due & Still Accruing  Total 
Balance at December 31, 2023 $25,891  $468  $26,359 
Loans placed on nonaccrual or 90+ days past due & still accruing  3,509   1,034   4,543 
Acquired loan portfolio  6   164   170 
Proceeds related to repayment or sale  (306)  (1)  (307)
Loans returned to accrual status or no longer past due  (352)  (293)  (645)
Charge-offs  (183)  (353)  (536)
Transfers to foreclosed assets  (265)  (16)  (281)
Transfer to nonaccrual     (36)  (36)
Balance at March 31, 2024 $28,300  $967  $29,267 

CONFERENCE CALL DETAILS

The Company will host a conference call for investors at 11:00 a.m. CT on Friday, April 26, 2024. To participate, you may pre-register for this call utilizing the following link: https://www.netroadshow.com/events/login?show=0114d1d0&confId=63215. After pre-registering for this event you will receive your access details via email. On the day of the call, you are also able to dial 1-833-470-1428 using an access code of 891090 at least fifteen minutes before the call start time. If you are unable to participate on the call, a replay will be available until July 25, 2024 by calling 1-866-813-9403 and using the replay access code of 561214. 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.

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) the risks of mergers or branch sales (including the sale of our Florida branches and the recent acquisition of DNVB), 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; (2) credit quality deterioration, pronounced and sustained reduction in real estate market values, or other uncertainties, including the impact of inflationary pressures on economic conditions and our business, resulting in an increase in the allowance for credit losses, an increase in the credit loss expense, and a reduction in net earnings; (3) the effects of significant increases in inflation and interest rates since 2020, including on our net income and the value of our securities portfolio; (4) 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; (5) fluctuations in the value of our investment securities; (6) governmental monetary and fiscal policies; (7) changes in and uncertainty related to benchmark interest rates used to price loans and deposits; (8) legislative and regulatory changes, including changes in banking, securities, trade, and tax laws and regulations and their application by our regulators, including the 1.0% excise tax on stock buybacks by publicly traded companies and any changes in response to the recent failures of other banks; (9) the ability to attract and retain key executives and employees experienced in banking and financial services; (10) the sufficiency of the allowance for credit losses to absorb the amount of actual losses inherent in our existing loan portfolio; (11) our ability to adapt successfully to technological changes to compete effectively in the marketplace; (12) credit risks and risks from concentrations (by geographic area and by industry) within our loan portfolio; (13) 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; (14) the failure of assumptions underlying the establishment of allowances for credit losses and estimation of values of collateral and various financial assets and liabilities; (15) volatility of rate-sensitive deposits; (16) operational risks, including data processing system failures or fraud; (17) asset/liability matching risks and liquidity risks; (18) the costs, effects and outcomes of existing or future litigation; (19) changes in general economic, political, or industry conditions, nationally, internationally or in the communities in which we conduct business, including the risk of a recession; (20) changes in accounting policies and practices, as may be adopted by state and federal regulatory agencies and the Financial Accounting Standards Board; (21) war or terrorist activities, including the ongoing Israeli-Palestinian conflict and the Russian invasion of Ukraine, widespread disease or pandemic, or other adverse external events, which may cause deterioration in the economy or cause instability in credit markets; (22) the occurrence of fraudulent activity, breaches, or failures of our or our third-party vendors' information security controls or cyber-security related incidents, including as a result of sophisticated attacks using artificial intelligence and similar tools; (23) the imposition of tariffs or other domestic or international governmental policies impacting the value of the agricultural or other products of our borrowers; (24) potential changes in federal policy and at regulatory agencies as a result of the upcoming 2024 presidential election; (25) the concentration of large deposits from certain clients who have balances above current FDIC insurance limits; (26) the effects of recent developments and events in the financial services industry, including the large-scale deposit withdrawals over a short period of time that resulted in recent bank failures; and (27) other risk factors detailed from time to time in Securities and Exchange Commission filings made by the Company.

MIDWESTONE FINANCIAL GROUP, INC. FIVE QUARTER CONSOLIDATED BALANCE SHEETS

  March 31, December 31, September 30, June 30, March 31,
(In thousands)  2024   2023   2023   2023   2023 
ASSETS          
Cash and due from banks $68,430  $76,237  $71,015  $75,955  $63,945 
Interest earning deposits in banks  29,328   5,479   3,773   68,603   5,273 
Federal funds sold  4   11          
Total cash and cash equivalents  97,762   81,727   74,788   144,558   69,218 
Debt securities available for sale at fair value  797,230   795,134   872,770   903,520   954,074 
Held to maturity securities at amortized cost  1,064,939   1,075,190   1,085,751   1,099,569   1,117,709 
Total securities  1,862,169   1,870,324   1,958,521   2,003,089   2,071,783 
Loans held for sale  2,329   1,045   2,528   2,821   2,553 
Gross loans held for investment  4,433,258   4,138,352   4,078,060   4,031,377   3,932,900 
Unearned income, net  (18,612)  (11,405)  (12,091)  (12,728)  (13,535)
Loans held for investment, net of unearned income  4,414,646   4,126,947   4,065,969   4,018,649   3,919,365 
Allowance for credit losses  (55,900)  (51,500)  (51,600)  (50,400)  (49,800)
Total loans held for investment, net  4,358,746   4,075,447   4,014,369   3,968,249   3,869,565 
Premises and equipment, net  95,986   85,742   85,589   85,831   86,208 
Goodwill  71,118   62,477   62,477   62,477   62,477 
Other intangible assets, net  29,531   24,069   25,510   26,969   28,563 
Foreclosed assets, net  3,897   3,929          
Other assets  226,477   222,780   244,036   227,495   219,585 
Total assets $6,748,015  $6,427,540  $6,467,818  $6,521,489  $6,409,952 
LIABILITIES          
Noninterest bearing deposits $920,764  $897,053  $924,213  $897,923  $989,469 
Interest bearing deposits  4,664,472   4,498,620   4,439,111   4,547,524   4,565,684 
Total deposits  5,585,236   5,395,673   5,363,324   5,445,447   5,555,153 
Short-term borrowings  422,988   300,264   373,956   362,054   143,981 
Long-term debt  122,066   123,296   124,526   125,752   137,981 
Other liabilities  89,685   83,929   100,601   86,895   72,187 
Total liabilities  6,219,975   5,903,162   5,962,407   6,020,148   5,909,302 
SHAREHOLDERS' EQUITY          
Common stock  16,581   16,581   16,581   16,581   16,581 
Additional paid-in capital  300,845   302,157   301,889   301,424   300,966 
Retained earnings  294,066   294,784   295,862   290,548   286,767 
Treasury stock  (22,648)  (24,245)  (24,315)  (24,508)  (24,779)
Accumulated other comprehensive loss  (60,804)  (64,899)  (84,606)  (82,704)  (78,885)
Total shareholders' equity  528,040   524,378   505,411   501,341   500,650 
Total liabilities and shareholders' equity $6,748,015  $6,427,540  $6,467,818  $6,521,489  $6,409,952 

MIDWESTONE FINANCIAL GROUP, INC. FIVE QUARTER CONSOLIDATED STATEMENTS OF INCOME

  Three Months Ended
  March 31, December 31, September 30, June 30, March 31,
(In thousands, except per share data) 2024  2023  2023  2023   2023 
Interest income          
Loans, including fees $57,947 $54,093  $51,870 $49,726  $46,490 
Taxable investment securities  9,460  9,274   9,526  9,734   10,444 
Tax-exempt investment securities  1,710  1,789   1,802  1,822   2,127 
Other  418  230   374  68   244 
Total interest income  69,535  65,386   63,572  61,350   59,305 
Interest expense          
Deposits  27,726  27,200   23,128  20,117   15,319 
Short-term borrowings  4,975  3,496   3,719  2,118   1,786 
Long-term debt  2,103  2,131   2,150  2,153   2,124 
Total interest expense  34,804  32,827   28,997  24,388   19,229 
Net interest income  34,731  32,559   34,575  36,962   40,076 
Credit loss expense  4,689  1,768   1,551  1,597   933 
Net interest income after credit loss expense  30,042  30,791   33,024  35,365   39,143 
Noninterest income (loss)          
Investment services and trust activities  3,503  3,193   3,004  3,119   2,933 
Service charges and fees  2,144  2,148   2,146  2,047   2,008 
Card revenue  1,943  1,802   1,817  1,847   1,748 
Loan revenue  856  909   1,462  909   1,420 
Bank-owned life insurance  660  656   626  616   602 
Investment securities gains (losses), net  36  (5,696)  79  (2)  (13,170)
Other  608  850   727  210   413 
Total noninterest income (loss)  9,750  3,862   9,861  8,746   (4,046)
Noninterest expense          
Compensation and employee benefits  20,930  17,859   18,558  20,386   19,607 
Occupancy expense of premises, net  2,813  2,309   2,405  2,574   2,746 
Equipment  2,600  2,466   2,123  2,435   2,171 
Legal and professional  2,059  2,269   1,678  1,682   1,736 
Data processing  1,360  1,411   1,504  1,521   1,363 
Marketing  598  700   782  1,142   986 
Amortization of intangibles  1,637  1,441   1,460  1,594   1,752 
FDIC insurance  942  900   783  862   749 
Communications  196  183   206  260   261 
Foreclosed assets, net  358  45   2  (6)  (28)
Other  2,072  2,548   2,043  2,469   1,976 
Total noninterest expense  35,565  32,131   31,544  34,919   33,319 
Income before income tax expense  4,227  2,522   11,341  9,192   1,778 
Income tax expense (benefit)  958  (208)  2,203  1,598   381 
Net income  $3,269 $2,730  $9,138 $7,594  $1,397 
           
Earnings per common share          
Basic $0.21 $0.17  $0.58 $0.48  $0.09 
Diluted $0.21 $0.17  $0.58 $0.48  $0.09 
Weighted average basic common shares outstanding  15,723  15,693   15,689  15,680   15,650 
Weighted average diluted common shares outstanding  15,774  15,756   15,711  15,689   15,691 
Dividends paid per common share $0.2425 $0.2425  $0.2425 $0.2425  $0.2425 

MIDWESTONE FINANCIAL GROUP, INC. FINANCIAL STATISTICS

  As of or for the Three Months Ended
  March 31, December 31, March 31,
(Dollars in thousands, except per share amounts)  2024   2023   2023 
Earnings:      
Net interest income $34,731  $32,559  $40,076 
Noninterest income  9,750   3,862   (4,046)
Total revenue, net of interest expense  44,481   36,421   36,030 
Credit loss expense  4,689   1,768   933 
Noninterest expense  35,565   32,131   33,319 
Income before income tax expense  4,227   2,522   1,778 
Income tax expense (benefit)  958   (208)  381 
Net income $3,269  $2,730  $1,397 
Per Share Data:      
Diluted earnings $0.21  $0.17  $0.09 
Book value  33.53   33.41   31.94 
Tangible book value(1)  27.14   27.90   26.13 
Ending Balance Sheet:      
Total assets $6,748,015  $6,427,540  $6,409,952 
Loans held for investment, net of unearned income  4,414,646   4,126,947   3,919,365 
Total securities  1,862,169   1,870,324   2,071,783 
Total deposits  5,585,236   5,395,673   5,555,153 
Short-term borrowings  422,988   300,264   143,981 
Long-term debt  122,066   123,296   137,981 
Total shareholders' equity  528,040   524,378   500,650 
Average Balance Sheet:      
Average total assets $6,635,379  $6,459,705  $6,524,065 
Average total loans  4,298,216   4,080,243   3,867,110 
Average total deposits  5,481,114   5,443,323   5,546,694 
Financial Ratios:      
Return on average assets  0.20%  0.17%  0.09%
Return on average equity  2.49%  2.12%  1.14%
Return on average tangible equity(1)  4.18%  3.57%  2.70%
Efficiency ratio(1)  71.28%  70.16%  62.32%
Net interest margin, tax equivalent(1)  2.33%  2.22%  2.75%
Loans to deposits ratio  79.04%  76.49%  70.55%
Common equity ratio  7.83%  8.16%  7.81%
Tangible common equity ratio(1)  6.43%  6.90%  6.48%
Credit Risk Profile:      
Total nonperforming loans $29,267  $26,359  $14,442 
Nonperforming loans ratio  0.66%  0.64%  0.37%
Total nonperforming assets $33,164  $30,288  $14,442 
Nonperforming assets ratio  0.49%  0.47%  0.23%
Net charge-offs $189  $2,068  $333 
Net charge-off ratio  0.02%  0.20%  0.03%
Allowance for credit losses $55,900  $51,500  $49,800 
Allowance for credit losses ratio  1.27%  1.25%  1.27%
Allowance for credit losses to nonaccrual ratio  197.53%  198.91%  344.88%
       
(1) Non-GAAP measure. See the Non-GAAP Measures section for a reconciliation to the most directly comparable GAAP measure.
 

MIDWESTONE FINANCIAL GROUP, INC. AVERAGE BALANCE SHEET AND YIELD ANALYSIS

  Three Months Ended
  March 31, 2024 December 31, 2023 March 31, 2023
(Dollars in thousands) AverageBalance InterestIncome/Expense AverageYield/Cost AverageBalance InterestIncome/Expense AverageYield/Cost Average Balance InterestIncome/Expense AverageYield/Cost
ASSETS                  
Loans, including fees (1)(2)(3) $4,298,216 $58,867 5.51% $4,080,243 $54,939 5.34% $3,867,110 $47,206 4.95%
Taxable investment securities  1,557,603  9,460 2.44%  1,593,699  9,274 2.31%  1,811,388  10,444 2.34%
Tax-exempt investment securities (2)(4)  328,736  2,097 2.57%  338,243  2,217 2.60%  397,110  2,649 2.71%
Total securities held for investment(2)  1,886,339  11,557 2.46%  1,931,942  11,491 2.36%  2,208,498  13,093 2.40%
Other  30,605  418 5.49%  22,937  230 3.98%  24,848  244 3.98%
Total interest earning assets(2) $6,215,160 $70,842 4.58% $6,035,122 $66,660 4.38% $6,100,456 $60,543 4.02%
Other assets  420,219      424,583      423,609    
Total assets $6,635,379     $6,459,705     $6,524,065    
LIABILITIES AND SHAREHOLDERS’ EQUITY                  
Interest checking deposits $1,301,470 $2,890 0.89% $1,305,759 $2,991 0.91% $1,515,845 $1,849 0.49%
Money market deposits  1,102,543  8,065 2.94%  1,103,637  7,954 2.86%  930,543  3,269 1.42%
Savings deposits  694,143  2,047 1.19%  639,766  1,493 0.93%  653,043  272 0.17%
Time deposits  1,446,981  14,724 4.09%  1,463,498  14,762 4.00%  1,417,688  9,929 2.84%
Total interest bearing deposits  4,545,137  27,726 2.45%  4,512,660  27,200 2.39%  4,517,119  15,319 1.38%
Securities sold under agreements to repurchase  5,330  11 0.83%  8,661  17 0.78%  145,809  450 1.25%
Other short-term borrowings  409,525  4,964 4.88%  273,963  3,479 5.04%  111,306  1,336 4.87%
Short-term borrowings  414,855  4,975 4.82%  282,624  3,496 4.91%  257,115  1,786 2.82%
Long-term debt  123,266  2,103 6.86%  124,495  2,131 6.79%  139,208  2,124 6.19%
Total borrowed funds  538,121  7,078 5.29%  407,119  5,627 5.48%  396,323  3,910 4.00%
Total interest bearing liabilities $5,083,258 $34,804 2.75% $4,919,779 $32,827 2.65% $4,913,442 $19,229 1.59%
Noninterest bearing deposits  935,977      930,663      1,029,575    
Other liabilities  88,611      98,027      82,501    
Shareholders’ equity  527,533      511,236      498,547    
Total liabilities and shareholders’ equity $6,635,379     $6,459,705     $6,524,065    
Net interest income(2)   $36,038     $33,833     $41,314  
Net interest spread(2)     1.83%     1.73%     2.43%
Net interest margin(2)     2.33%     2.22%     2.75%
                   
Total deposits(5) $5,481,114 $27,726 2.03% $5,443,323 $27,200 1.98% $5,546,694 $15,319 1.12%
Cost of funds(6)     2.33%     2.23%     1.31%
                      
 
(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 $237 thousand, $207 thousand, and $95 thousand for the three months ended March 31, 2024, December 31, 2023, and March 31, 2023, respectively. Loan purchase discount accretion was $1.2 million, $765 thousand, and $1.2 million for the three months ended March 31, 2024, December 31, 2023, and March 31, 2023, respectively. Tax equivalent adjustments were $920 thousand, $846 thousand, and $716 thousand for the three months ended March 31, 2024, December 31, 2023, and March 31, 2023, respectively. The federal statutory tax rate utilized was 21%.
(4) Interest income includes tax equivalent adjustments of $387 thousand, $428 thousand, and $522 thousand for the three months ended March 31, 2024, December 31, 2023, and March 31, 2023, 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), core yield on loans, and efficiency 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          
per Share/Tangible Common Equity Ratio March 31, December 31, September 30, June 30, March 31,
(Dollars in thousands, except per share data)  2024   2023   2023   2023   2023 
Total shareholders’ equity $528,040  $524,378  $505,411  $501,341  $500,650 
Intangible assets, net  (100,649)  (86,546)  (87,987)  (89,446)  (91,040)
Tangible common equity $427,391  $437,832  $417,424  $411,895  $409,610 
           
Total assets $6,748,015  $6,427,540  $6,467,818  $6,521,489  $6,409,952 
Intangible assets, net  (100,649)  (86,546)  (87,987)  (89,446)  (91,040)
Tangible assets $6,647,366  $6,340,994  $6,379,831  $6,432,043  $6,318,912 
           
Book value per share $33.53  $33.41  $32.21  $31.96  $31.94 
Tangible book value per share(1) $27.14  $27.90  $26.60  $26.26  $26.13 
Shares outstanding  15,750,471   15,694,306   15,691,738   15,685,123   15,675,325 
           
Common equity ratio  7.83%  8.16%  7.81%  7.69%  7.81%
Tangible common equity ratio(2)  6.43%  6.90%  6.54%  6.40%  6.48%
                     
(1) Tangible common equity divided by shares outstanding.
(2) Tangible common equity divided by tangible assets.
 

  Three Months Ended
Return on Average Tangible Equity March 31, December 31, March 31,
(Dollars in thousands)  2024   2023   2023 
Net income $3,269  $2,730  $1,397 
Intangible amortization, net of tax(1)  1,228   1,081   1,314 
Tangible net income $4,497  $3,811  $2,711 
       
Average shareholders’ equity $527,533  $511,236  $498,547 
Average intangible assets, net  (95,296)  (87,258)  (92,002)
Average tangible equity $432,237  $423,978  $406,545 
       
Return on average equity  2.49%  2.12%  1.14%
Return on average tangible equity(2)  4.18%  3.57%  2.70%
             
(1) The combined income tax rate utilized was 25%.
(2) Annualized tangible net income divided by average tangible equity.
 

Net Interest Margin, Tax Equivalent/Core Net Interest Margin Three Months Ended
 March 31, December 31, March 31,
(Dollars in thousands)  2024   2023   2023 
Net interest income $34,731  $32,559  $40,076 
Tax equivalent adjustments:      
Loans(1)  920   846   716 
Securities(1)  387   428   522 
Net interest income, tax equivalent $36,038  $33,833  $41,314 
Loan purchase discount accretion  (1,152)  (765)  (1,189)
Core net interest income $34,886  $33,068  $40,125 
       
Net interest margin  2.25%  2.14%  2.66%
Net interest margin, tax equivalent(2)  2.33%  2.22%  2.75%
Core net interest margin(3)  2.26%  2.17%  2.67%
Average interest earning assets $6,215,160  $6,035,122  $6,100,456 
 
(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
Loan Yield, Tax Equivalent / Core Yield on Loans March 31, December 31, March 31,
(Dollars in thousands)  2024   2023   2023 
Loan interest income, including fees $57,947  $54,093  $46,490 
Tax equivalent adjustment(1)  920   846   716 
Tax equivalent loan interest income $58,867  $54,939  $47,206 
Loan purchase discount accretion  (1,152)  (765)  (1,189)
Core loan interest income $57,715  $54,174  $46,017 
       
Yield on loans  5.42%  5.26%  4.88%
Yield on loans, tax equivalent(2)  5.51%  5.34%  4.95%
Core yield on loans(3)  5.40%  5.27%  4.83%
Average loans $4,298,216  $4,080,243  $3,867,110 
 
(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
Efficiency Ratio March 31, December 31, March 31,
(Dollars in thousands)  2024   2023   2023 
Total noninterest expense $35,565  $32,131  $33,319 
Amortization of intangibles  (1,637)  (1,441)  (1,752)
Merger-related expenses  (1,314)  (245)  (136)
Noninterest expense used for efficiency ratio $32,614  $30,445  $31,431 
       
Net interest income, tax equivalent(1) $36,038  $33,833  $41,314 
Plus: Noninterest income  9,750   3,862   (4,046)
Less: Investment securities (losses) gains, net  36   (5,696)  (13,170)
Net revenues used for efficiency ratio $45,752  $43,391  $50,438 
       
Efficiency ratio (2)  71.28%  70.16%  62.32%
 
(1) The federal statutory tax rate utilized was 21%.
(2) Noninterest expense adjusted for amortization of intangibles and merger-related expenses divided by the sum of tax equivalent net interest income, noninterest income and net investment securities gains.
 

Category: Earnings

This news release may be downloaded from https://www.midwestonefinancial.com/corporate-profile/default.aspx

Source: MidWestOne Financial Group, Inc.

Industry: Banks

Contact:  
 Charles N. Reeves Barry S. Ray
 Chief Executive Officer Chief Financial Officer
 319.356.5800 319.356.5800

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Source: MidWestOne Bank

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