MidWestOne(US:MOFG)2024-05-07 21:07PART I – FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) This section presents MidWestOne Financial Group's unaudited consolidated financial statements for Q1 2024, including balance sheets, income, equity, and cash flows, highlighting the impact of the DNVB acquisition Consolidated Balance Sheets As of March 31, 2024, total assets increased to $6.75 billion from $6.43 billion at year-end 2023, primarily driven by growth in loans and goodwill from the DNVB acquisition, with total deposits growing to $5.59 billion and shareholders' equity to $528.0 million Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $6,748,015 | $6,427,540 | | Gross loans held for investment | $4,433,258 | $4,138,352 | | Total securities | $1,862,169 | $1,870,324 | | Goodwill | $71,118 | $62,477 | | Total Liabilities | $6,219,975 | $5,903,162 | | Total deposits | $5,585,236 | $5,395,673 | | Short-term borrowings | $422,988 | $300,264 | | Total Shareholders' Equity | $528,040 | $524,378 | Consolidated Statements of Income For Q1 2024, net income significantly improved to $3.3 million ($0.21 per diluted share) from $1.4 million ($0.09 per diluted share) in Q1 2023, primarily due to the absence of prior year's investment securities losses Q1 2024 vs Q1 2023 Income Statement (in thousands) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Interest Income | $34,731 | $40,076 | | Credit Loss Expense | $4,689 | $933 | | Noninterest Income (Loss) | $9,750 | $(4,046) | | Investment securities gains (losses), net | $36 | $(13,170) | | Total Noninterest Expense | $35,565 | $33,319 | | Net Income | $3,269 | $1,397 | | Earnings - diluted (per share) | $0.21 | $0.09 | Consolidated Statements of Cash Flows For Q1 2024, operating activities provided $9.6 million, investing activities used $38.3 million, and financing activities provided $44.8 million, resulting in a net increase of $16.0 million in cash and cash equivalents Cash Flow Summary (in thousands) | Activity | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $9,588 | $17,599 | | Net cash (used in) provided by investing activities | $(38,337) | $132,544 | | Net cash provided by (used in) financing activities | $44,784 | $(167,360) | | Net change in cash and cash equivalents | $16,035 | $(17,217) | - The company paid $20.0 million in cash for a business acquisition during the first quarter of 202421 Notes to Consolidated Financial Statements These notes detail accounting policies and financial statement items, including the DNVB acquisition for $32.6 million, which boosted assets and goodwill, and the loan portfolio's growth to $4.41 billion with increased ACL and deposits - On January 31, 2024, the Company acquired DNVB and its subsidiary, Bank of Denver, for $32.6 million in cash, adding identifiable net assets of $24.0 million and resulting in $8.6 million of goodwill283740 - The Allowance for Credit Losses (ACL) increased from $51.5 million at year-end 2023 to $55.9 million at March 31, 2024, including $3.1 million of day-one credit loss expense for acquired DNVB loans7679 - The company's loan portfolio is concentrated in real estate, with commercial real estate loans (excluding farmland) comprising approximately 66% of total loans129 - As of March 31, 2024, the company and its bank subsidiary met all regulatory capital requirements and were considered 'well capitalized'122197 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2024 financial results, noting a net income increase to $3.3 million due to the absence of prior year's securities losses, a decline in net interest income, and growth in loans and deposits driven by the DNVB acquisition - The company completed the acquisition of DNVB on January 31, 2024, for $32.6 million in cash and announced a definitive agreement to sell its Florida operations, expected to close in June 2024148149 Q1 2024 vs Q1 2023 Performance Summary (in thousands) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Interest Income | $34,731 | $40,076 | | Credit Loss Expense | $4,689 | $933 | | Noninterest Income (Loss) | $9,750 | $(4,046) | | Net Income | $3,269 | $1,397 | | Diluted EPS | $0.21 | $0.09 | - Tax equivalent net interest margin declined to 2.33% in Q1 2024 from 2.75% in Q1 2023, as the cost of interest-bearing liabilities rose by 116 basis points, outpacing the 56 basis point increase in the yield on interest-earning assets166 - Noninterest expense increased by $2.2 million (6.7%) year-over-year, primarily due to higher compensation and benefits from the DNVB acquisition and annual adjustments, as well as increased equipment costs170 Financial Condition Analysis Total assets grew by $320.5 million (5.0%) to $6.75 billion, driven by a $287.7 million (7.0%) increase in loans and a $189.6 million (3.5%) rise in deposits, primarily from the DNVB acquisition, while nonperforming assets remained stable Loan Portfolio Composition (in thousands) | Loan Type | March 31, 2024 | % of Total | December 31, 2023 | % of Total | | :--- | :--- | :--- | :--- | :--- | | Commercial and industrial | $1,105,718 | 25.0% | $1,075,003 | 26.0% | | Commercial real estate | $2,437,829 | 55.3% | $2,225,310 | 54.0% | | Residential real estate | $677,409 | 15.3% | $640,437 | 15.5% | | Agricultural | $113,029 | 2.6% | $118,414 | 2.9% | | Consumer | $80,661 | 1.8% | $67,783 | 1.6% | | Total Loans | $4,414,646 | 100.0% | $4,126,947 | 100.0% | - The Allowance for Credit Losses (ACL) was $55.9 million, or 1.27% of total loans, at March 31, 2024, up from $51.5 million, or 1.25% of loans, at December 31, 2023, mainly due to a $3.1 million day-one provision for DNVB loans and reserves for organic growth188 - Nonperforming loans increased slightly to $29.3 million (0.66% of total loans) from $26.4 million (0.64% of total loans) at year-end 2023179 - Deposits increased by $189.6 million, primarily due to the $224.2 million of deposits assumed in the DNVB acquisition, with core deposits representing 87.9% of total deposits194 Capital Resources and Liquidity The company maintains a strong capital position, exceeding 'well-capitalized' standards with a Tier 1 leverage ratio of 8.16% and total risk-based capital ratio of 11.97%, while managing liquidity through diverse funding sources Key Capital Ratios | Ratio | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Tangible common equity ratio | 6.43% | 6.90% | | Total risk-based capital ratio | 11.97% | 12.53% | | Tier 1 leverage ratio | 8.16% | 8.58% | | Tangible book value per share | $27.14 | $27.90 | - Total shareholders' equity increased by $3.7 million to $528.0 million as of March 31, 2024, driven by a decrease in accumulated other comprehensive loss196 - The company maintains multiple sources of liquidity, including $155.0 million in unsecured federal funds lines, and had additional borrowing capacity of $421.4 million from the Federal Reserve and $795.9 million from the FHLB as of March 31, 2024222223224 Quantitative and Qualitative Disclosures about Market Risk The company manages interest rate risk, its primary market risk, and as of March 31, 2024, is positioned to benefit from falling rates, with a 100 basis point rate decrease projected to increase net interest income by $1.3 million Net Interest Income Sensitivity Analysis (as of March 31, 2024) | Immediate Change in Rates | Dollar Change (in thousands) | Percent Change | | :--- | :--- | :--- | | +200 bps | $(4,634) | (3.1)% | | +100 bps | $(2,220) | (1.5)% | | -100 bps | $1,273 | 0.9% | | -200 bps | $2,832 | 1.9% | - The company's main sources of liquidity risk management include Federal Funds Lines ($155.0 million), Federal Reserve Bank borrowing capacity ($421.4 million), and FHLB advances capacity ($795.9 million)222223224 Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal control over financial reporting during the quarter - The CEO, CFO, and CAO concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report237 - No changes in internal control over financial reporting occurred during the quarter ended March 31, 2024, that materially affected or are likely to materially affect these controls239 PART II – OTHER INFORMATION Legal Proceedings The company is involved in routine legal actions, the outcomes of which management believes will not materially adversely affect its consolidated financial condition - The company states that any pending or threatened legal proceedings are ordinary routine litigation incidental to its business and are not expected to have a material adverse effect on its financial condition242 Risk Factors There have been no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023 - No material changes have occurred in the risk factors since the filing of the Form 10-K for the year ended December 31, 2023243 Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2024, the company did not repurchase shares under its program, but acquired 21,278 shares from employees for tax obligations, with $15.0 million remaining for repurchases through December 31, 2025 - No shares were repurchased under the company's publicly announced program in Q1 2024; the program, approved in April 2023, has $15.0 million remaining for repurchases through December 31, 2025244245 - A total of 21,278 shares were acquired by the company from employees to cover withholding taxes related to the vesting of restricted stock awards244 Other Information During Q1 2024, no directors or executive officers adopted or terminated any Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements - No directors or executive officers adopted or terminated a Rule 10b5-1 trading plan during the quarter ended March 31, 2024248