MidWestOne Financial Group, Inc. Reports Financial Results for the Fourth Quarter and Full Year of 2023
IOWA CITY, Iowa, Jan. 25, 2024 (GLOBE NEWSWIRE) -- MidWestOne Financial Group, Inc. (Nasdaq: MOFG) (“we”, “our”, or the "Company”) today reported results for the fourth quarter and full year of 2023.*Fourth* *Quarter 2023* *Summary*^*1*
· Net income of $2.7 million, or $0.17 per diluted common share, including, on a pre-tax basis, securities net losses of $5.7 million, merger-related costs of $245 thousand, voluntary early retirement program costs of $438 thousand, and a negative mortgage servicing right valuation adjustment of $105 thousand.
· Sold $115.2 million of securities in a balance sheet repositioning, proceeds were utilized to purchase higher yielding debt securities and reduce short-term borrowings.
· Annualized loan growth of 6.1%.
· Deposits, excluding brokered deposits, increased $31.4 million, or 0.6%, the second sequential quarter of deposit growth.
· Nonperforming assets ratio remained stable at 0.47%; net charge-off ratio was 0.20%.
· Received all regulatory approvals for the previously announced acquisition of Denver Bankshares, Inc, which is expected to close early in the first quarter of 2024.
*Full Year **2023* *Summary*^*1*
· Net income for the full year was $20.9 million, or $1.33 per diluted common share.
· Sold $346.9 million of securities to reposition the balance sheet, proceeds were utilized to purchase higher yielding debt securities and reduce short-term borrowings.
· Net charge-off ratio declined 10 basis points ("bps") to 0.09%.
· Tangible book value of $27.90^2, an increase of $2.30 or 9%.
*Subsequent Events*
· On January 23, 2024, the Board of Directors declared a cash dividend of $0.2425 per common share, payable on March 15, 2024 to shareholders of record as of the close of business on March 1, 2024.*CEO Commentary*
Charles (Chip) Reeves, Chief Executive Officer of the Company, commented, “I'm pleased with our balance sheet trends, as we delivered 6.1% annualized loan growth during the fourth quarter of 2023, and continue to benefit from the expansion of our major market banking teams. We also achieved core deposit growth in the quarter, and remain cautiously optimistic that we can grow our core deposit franchise through the year ahead. That said, we remain liability sensitive, and funding cost pressure continued to impact our margins and earnings through the fourth quarter, though that pressure has been moderating.”
Mr. Reeves concluded, "More importantly, we are well ahead of plan in executing our strategic initiatives designed to improve our performance and position the Bank to deliver financial results at the median of our peer group by the end of 2025. Highlights from 2023 include outstanding expense discipline and re-allocation, our geographic repositioning with the Denver Bankshares merger expected to close on January 31st, key new hires in our Iowa Metro and Twin Cities markets, the hiring of a talented executive to lead our wealth management business, and the expansion of our specialty business lines with the recruitment of an agri-business team. We are rapidly scaling in our core markets while adding new business lines, which taken together, provide visibility to improved growth and returns."
[_________________________________________]^
[1][ Fourth Quarter Summary compares to the third quarter of 2023 (the "linked quarter") unless noted. Full Year 2023 Summary compares to the full year 2022 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* *Year Ended*
*(Dollars in thousands, except per share amounts and as noted)*
*December 31,* September 30, December 31, *December 31,* December 31, *2023* 2023 2022 *2023* 2022
*Financial Results*
Revenue *$* *36,421* $ 44,436 $ 54,504 *$* *162,595* $ 213,877
Credit loss expense *1,768* 1,551 572 *5,849* 4,492
Noninterest expense *32,131* 31,544 34,440 *131,913* 132,788
Net income *2,730* 9,138 16,002 *20,859* 60,835
*Per Common Share*
Diluted earnings per share *$* *0.17* $ 0.58 $ 1.02 *$* *1.33* $ 3.87
Book value *33.41* 32.21 31.54 *33.41* 31.54
Tangible book value^(^1) *27.90* 26.60 25.60 *27.90* 25.60
*Balance Sheet & Credit Quality*
Loans In millions *$* *4,126.9* $ 4,066.0 $ 3,840.5 *$* *4,126.9* $ 3,840.5
Investment securities In millions *1,870.3* 1,958.5 2,283.0 *1,870.3* 2,283.0
Deposits In millions *5,395.7* 5,363.3 5,468.9 *5,395.7* 5,468.9
Net loan charge-offs In millions *2.1* 0.5 3.5 *3.7* 6.6
Allowance for credit losses ratio *1.25* *%* 1.27 % 1.28 % *1.25* *%* 1.28 %
*Selected Ratios*
Return on average assets *0.17* *%* 0.56 % 0.97 % *0.32* *%* 0.97 %
Net interest margin, tax equivalent^(^1) *2.22* *%* 2.35 % 2.93 % *2.46* *%* 2.92 %
Return on average equity *2.12* *%* 7.14 % 13.26 % *4.12* *%* 12.16 %
Return on average tangible equity^(^1) *3.57* *%* 9.68 % 17.85 % *6.14* *%* 15.89 %
Efficiency ratio^(^1) *70.16* *%* 66.06 % 57.79 % *67.28* *%* 56.98 %
[^(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 4Q23 vs 4Q23 vs
*(Dollars in thousands)* *4Q23* 3Q23 4Q22 3Q23 4Q22
Net interest income *$* *32,559* $ 34,575 $ 43,564 (6 )% (25 )%
Noninterest income *3,862* 9,861 10,940 (61 )% (65 )%
Total revenue, net of interest expense *$* *36,421* $ 44,436 $ 54,504 (18 )% (33 )%
Total revenue for the fourth quarter of 2023 decreased $8.0 million from the third quarter of 2023 and decreased $18.1 million from the fourth quarter of 2022 due to lower net interest income and noninterest income.
Net interest income of $32.6 million for the fourth quarter of 2023 decreased $2.0 million from the third quarter of 2023 primarily due to higher funding costs, partially offset by lower volumes of interest bearing liabilities, higher volumes of interest earning assets, and higher interest earning asset yields. When compared to the fourth quarter of 2022, net interest income decreased $11.0 million primarily due to higher funding costs and volumes and lower interest earning asset volumes, partially offset by higher interest earning asset yields.
The Company's tax equivalent net interest margin was 2.22% in the fourth quarter of 2023, compared to 2.35% in the third quarter of 2023, as higher earning asset yields were more than offset by increased funding costs. The cost of interest bearing liabilities increased 32 bps, to 2.65%, due primarily to interest bearing deposit costs of 2.39% and short-term borrowing costs of 4.91%, which increased 34 bps and 62 bps, respectively from the third quarter of 2023. Total interest earning assets yield increased 12 bps from the third quarter of 2023, as a result of an increase in loan yield of 15 bps. Our cycle-to-date interest bearing deposit beta was 40%.
The tax equivalent net interest margin was 2.22% in the fourth quarter of 2023, compared to 2.93% in the fourth quarter of 2022, driven by higher funding costs and volumes and lower interest earning asset volumes, partially offset by higher interest earning asset yields. The cost of interest bearing liabilities increased 157 bps to 2.65%, due to interest bearing deposit costs of 2.39%, short-term borrowing costs of 4.91%, and long-term debt costs of 6.79%, which increased 156 bps, 237 bps and 125 bps, respectively from the fourth quarter of 2022. Total interest earning assets yield increased 59 bps from the fourth quarter of 2022, primarily as a result of an increase in loan yields of 68 bps.
*Noninterest Income*
Change Change 4Q23 vs 4Q23 vs
*(In thousands)* *4Q23* 3Q23 4Q22 3Q23 4Q22
Investment services and trust activities *$* *3,193* $ 3,004 $ 2,666 6 % 20 %
Service charges and fees *2,148* 2,146 2,028 — % 6 %
Card revenue *1,802* 1,817 1,784 (1 )% 1 %
Loan revenue *909* 1,462 966 (38 )% (6 )%
Bank-owned life insurance *656* 626 637 5 % 3 %
Investment securities gains (losses), net *(5,696* *)* 79 (1 ) n/m n/m
Other *850* 727 2,860 17 % (70 )%
Total noninterest income *$* *3,862* $ 9,861 $ 10,940 (61 )% (65 )%
Results are not meaningful (n/m)
Noninterest income for the fourth quarter of 2023 decreased $6.0 million from the linked quarter, primarily due to investment securities losses, net, of $5.7 million in the fourth quarter of 2023, coupled with a $0.6 million unfavorable change in loan revenue. Investment securities losses stemmed from a balance sheet repositioning in the fourth quarter of 2023, in which $115.2 million of securities, yielding 2.26%, were sold and sale proceeds of $109.5 million were utilized to purchase $63.3 million of securities, yielding 5.62%, with the balance utilized to reduce short-term borrowings. Loan revenue primarily reflected an unfavorable quarter-over quarter change in the fair value of our mortgage servicing rights of $0.4 million and a decline of $0.1 million in revenue from our mortgage origination business.
Noninterest income for the fourth quarter of 2023 decreased $7.1 million from the fourth quarter of 2022 due to investment securities losses, net, of $5.7 million and a $2.0 million decline in other revenue, partially offset by an increase of $0.5 million in investment services and trust activities revenue. Investment securities losses stemmed from the balance sheet repositioning previously described. Other revenue in the fourth quarter of 2022 benefited from a nonrecurring bargain purchase gain of $2.5 million recognized in connection with the acquisition of Iowa First Bancshares Corp., which was partially offset by an increase of $0.5 million in swap origination fee income. The increase in investment services and trust activities revenue was driven by higher assets under management.
*EXPENSE REVIEW*
*Noninterest Expense*
Change Change 4Q23 vs 2Q23 vs
*(In thousands)* *4Q23* 3Q23 4Q22 3Q23 4Q22
Compensation and employee benefits *$* *17,859* $ 18,558 $ 20,438 (4 )% (13 )%
Occupancy expense of premises, net *2,309* 2,405 2,663 (4 )% (13 )%
Equipment *2,466* 2,123 2,327 16 % 6 %
Legal and professional *2,269* 1,678 1,846 35 % 23 %
Data processing *1,411* 1,504 1,375 (6 )% 3 %
Marketing *700* 782 947 (10 )% (26 )%
Amortization of intangibles *1,441* 1,460 1,770 (1 )% (19 )%
FDIC insurance *900* 783 405 15 % 122 %
Communications *183* 206 285 (11 )% (36 )%
Foreclosed assets, net *45* 2 48 2150 % (6 )%
Other *2,548* 2,043 2,336 25 % 9 %
Total noninterest expense *$* *32,131* $ 31,544 $ 34,440 2 % (7 )%
*Merger-related Expenses*
*(In thousands)* *4Q23* 3Q23 4Q22
Compensation and employee benefits *$* *—* $ — $ 189
Equipment *—* — 4
Legal and professional *180* 11 54
Data processing *—* — 131
Marketing *38* — 2
Other *27* — 29
Total merger-related expenses *$* *245* $ 11 $ 409
Noninterest expense for the fourth quarter of 2023 increased $0.6 million from the linked quarter primarily as a result of increases of $0.6 million and $0.5 million in legal and professional and other, respectively. The largest offset to increases in noninterest expense was a decline of $0.7 million in compensation and employee benefits. The increase in legal and professional expenses stemmed primarily from higher executive recruitment and merger-related expenses. The increase in other noninterest expense was driven by various changes, including increases in loan expenses, travel, meals and entertainment, and operating losses. The largest driver in the decrease in compensation and employee benefits was a reduction in incentive and commission expense.
Noninterest expense for the fourth quarter of 2023 decreased $2.3 million from the fourth quarter of 2022 due primarily to a $2.6 million decline in compensation and employee benefits, which reflected a $1.6 million reduction in incentives and commissions, and a $0.6 million decline in employee benefits. The $0.3 million decrease in occupancy expense reflected a write-down of assets held for sale in the fourth quarter of 2022, which did not recur in the fourth quarter of 2023. Partially offsetting the decreases in noninterest expense was an increase of $0.5 million in FDIC insurance expense and an increase of $0.4 million in legal and professional expense, which stemmed primarily from higher recruitment and merger-related expenses.
The Company recognized a tax benefit in the fourth quarter of 2023 to reduce the full-year 2023 effective income tax rate to 16.0%, as compared to 20.6% in the prior year. The decrease in the 2023 annual effective income tax rate reflected lower taxable income and a larger benefit from tax exempt investment income. The effective income tax rate for 2024 is expected to be 20-22%.
*BALANCE SHEET REVIEW*
Total assets were $6.43 billion at December 31, 2023, compared to $6.47 billion at September 30, 2023 and $6.58 billion at December 31, 2022. The decrease from September 30, 2023 was primarily driven by lower securities balances as a result of the balance sheet repositioning, partially offset by higher loan balances. Compared to December 31, 2022, the decrease was primarily due to lower securities balances resulting from balance sheet repositioning in the first and fourth quarters of 2023, partially offset by higher loan balances.
*Loans Held for Investment*
*December 31, 2023* September 30, 2023 December 31, 2022
*(Dollars in thousands)* *Balance**
* % of
Total Balance % of
Total Balance % of
Total
Commercial and industrial *$* *1,075,003* *26.0* *%* $ 1,078,773 26.5 % $ 1,055,162 27.5 %
Agricultural *118,414* *2.9* 111,950 2.8 115,320 3.0
Commercial real estate
Construction and development *323,195* *7.8* 331,868 8.2 270,991 7.1
Farmland *184,955* *4.5* 182,621 4.5 183,913 4.8
Multifamily *383,178* *9.3* 337,509 8.3 252,129 6.6
Other *1,333,982* *32.4* 1,324,019 32.5 1,272,985 33.1
Total commercial real estate *2,225,310* *54.0* 2,176,017 53.5 1,980,018 51.6
Residential real estate
One-to-four family first liens *459,798* *11.1* 456,771 11.2 451,210 11.7
One-to-four family junior liens *180,639* *4.4* 173,275 4.3 163,218 4.2
Total residential real estate *640,437* *15.5* 630,046 15.5 614,428 15.9
Consumer *67,783* *1.6* 69,183 1.7 75,596 2.0
Loans held for investment, net of unearned income *$* *4,126,947* *100.0* *%* $ 4,065,969 100.0 % $ 3,840,524 100.0 %
Total commitments to extend credit *$* *1,210,796* $ 1,251,345 $ 1,190,607
Loans held for investment, net of unearned income, increased $61.0 million, or 1.5%, to $4.13 billion from $4.07 billion at September 30, 2023 and $286.4 million, or 7.5%, from December 31, 2022. This increase from the third quarter of 2023 was driven by new loan production in the fourth quarter of 2023 and higher line of credit usage. The increase from the fourth quarter of 2022 was due to new loan production.
*Investment Securities* *December 31, 2023* September 30, 2023 December 31, 2022
*(Dollars in thousands)* *Balance* *% of Total* Balance % of Total Balance % of Total
Available for sale *$* *795,134* *42.5* *%* $ 872,770 44.6 % $ 1,153,547 50.5 %
Held to maturity *1,075,190* *57.5* *%* 1,085,751 55.4 % 1,129,421 49.5 %
Total investment securities *$* *1,870,324* $ 1,958,521 $ 2,282,968
Investment securities at December 31, 2023 were $1.87 billion, decreasing $88.2 million from September 30, 2023 and $412.6 million from December 31, 2022. The decrease from the third quarter of 2023 was primarily due to the balance sheet repositioning previously discussed, as well as principal cash flows received from scheduled payments, calls, and maturities. The decrease from the fourth quarter of 2022 was primarily due to balance sheet repositioning in the first and fourth quarters of 2023.
*Deposits* *December 31, 2023* September 30, 2023 December 31, 2022
*(Dollars in thousands)* *Balance* *% of Total* Balance % of Total Balance % of Total
Noninterest bearing deposits *$* *897,053* *16.6* *%* $ 924,213 17.2 % $ 1,053,450 19.3 %
Interest checking deposits *1,320,435* *24.5* 1,334,481 24.9 1,624,278 29.8
Money market deposits *1,105,493* *20.5* 1,127,287 21.0 937,340 17.1
Savings deposits *650,655* *12.1* 619,805 11.6 664,169 12.1
Time deposits of $250 and under *752,214* *13.9* 703,646 13.1 559,466 10.2
Total core deposits *4,725,850* *87.6* 4,709,432 87.8 4,838,703 88.5
Brokered time deposits *221,039* *4.1* 220,063 4.1 126,767 2.3
Time deposits over $250 *448,784* *8.3* 433,829 8.1 503,472 9.2
Total deposits *$* *5,395,673* *100.0* *%* $ 5,363,324 100.0 % $ 5,468,942 100.0 %
Total deposits increased $32.3 million, or 0.6%, to $5.40 billion from $5.36 billion at September 30, 2023. Core deposits increased $16.4 million from September 30, 2023. Total deposits decreased $73.3 million, or 1.3%, from $5.47 billion at December 31, 2022. Brokered deposits increased $94.3 million from $126.8 million at December 31, 2022, with core deposits declining $112.9 million from December 31, 2022.
*Borrowed Funds* *December 31, 2023* September 30, 2023 December 31, 2022
*(Dollars in thousands)* *Balance* *% of Total* Balance % of Total Balance % of Total
Short-term borrowings *$* *300,264* *70.9* *%* $ 373,956 75.0 % $ 391,873 73.8 %
Long-term debt *123,296* *29.1* *%* 124,526 25.0 % 139,210 26.2 %
Total borrowed funds *$* *423,560* $ 498,482 $ 531,083
Total borrowed funds were $423.6 million at December 31, 2023, a decrease of $74.9 million from September 30, 2023 and a decrease of $107.5 million from December 31, 2022. The decrease when compared to the linked quarter was due to lower Federal Home Loan Bank overnight borrowings and securities sold under agreements to repurchase, partially offset by higher Bank Term Funding Program borrowings. The decrease when compared to December 31, 2022 was primarily due to lower Federal Home Loan Bank overnight borrowings and securities sold under agreements to repurchase, partially offset by Bank Term Funding Program borrowings of $285 million, as compared to no such borrowings in the prior year.
*Capital* *December 31,* September 30, December 31,
*(Dollars in thousands)* *2023*^*(1)* 2023 2022
Total shareholders' equity *$* *524,378* $ 505,411 $ 492,793
Accumulated other comprehensive loss *(64,899* *)* (84,606 ) (89,047 )
*MidWest**One **Financial Group, Inc. Consolidated*
Tier 1 leverage to average assets ratio *8.58* *%* 8.58 % 8.35 %
Common equity tier 1 capital to risk-weighted assets ratio *9.59* *%* 9.52 % 9.28 %
Tier 1 capital to risk-weighted assets ratio *10.38* *%* 10.31 % 10.05 %
Total capital to risk-weighted assets ratio *12.53* *%* 12.45 % 12.07 %
*MidWest**One **Bank*
Tier 1 leverage to average assets ratio *9.39* *%* 9.51 % 9.36 %
Common equity tier 1 capital to risk-weighted assets ratio *11.54* *%* 11.43 % 11.29 %
Tier 1 capital to risk-weighted assets ratio *11.54* *%* 11.43 % 11.29 %
Total capital to risk-weighted assets ratio *12.49* *%* 12.36 % 12.10 %
[(1) Regulatory capital ratios for December 31, 2023 are preliminary]
Total shareholders' equity at December 31, 2023 increased $19.0 million from September 30, 2023, driven by a decrease in accumulated other comprehensive loss. Total shareholders' equity at December 31, 2023 increased $31.6 million from December 31, 2022, driven by a decrease in accumulated other comprehensive loss and an increase in retained earnings.
Accumulated other comprehensive loss at December 31, 2023 decreased $19.7 million compared to September 30, 2023, primarily due to an increase in available for sale securities valuations and the recognition of the loss from the fourth quarter sale of securities. Accumulated other comprehensive loss decreased $24.1 million from December 31, 2022.
On January 23, 2024, the Board of Directors of the Company declared a cash dividend of $0.2425 per common share. The dividend is payable March 15, 2024, to shareholders of record at the close of business on March 1, 2024.
No common shares were repurchased by the Company during the period September 30, 2023 through December 31, 2023 or for the subsequent period through January 25, 2024. The current share repurchase program allows for the repurchase of up to $15.0 million of the Company's common shares.
*CREDIT QUALITY REVIEW*
*Credit Quality*
*As of or For the Three Months Ended* *December 31,* September 30, December 31,
*(Dollars in thousands)* *2023* 2023 2022
Credit loss expense related to loans *$* *1,968* $ 1,651 $ 572
Net charge-offs *2,068* 451 3,472
Allowance for credit losses *51,500* 51,600 49,200
Pass *$* *3,846,012* $ 3,785,908 $ 3,635,766
Special Mention / Watch *113,029* 163,222 108,064
Classified *167,906* 116,839 96,694
Loans greater than 30 days past due and accruing *$* *10,778* $ 6,449 $ 6,680
Nonperforming loans *$* *26,359* $ 28,987 $ 15,821
Nonperforming assets *30,288* 28,987 15,924
Net charge-off ratio^(^1) *0.20* *%* 0.04 % 0.36 %
Classified loans ratio^(^2) *4.07* *%* 2.87 % 2.52 %
Nonperforming loans ratio^(^3) *0.64* *%* 0.71 % 0.41 %
Nonperforming assets ratio^(^4) *0.47* *%* 0.45 % 0.24 %
Allowance for credit losses ratio^(^5) *1.25* *%* 1.27 % 1.28 %
Allowance for credit losses to nonaccrual loans ratio^(^6) *198.91* *%* 178.63 % 322.50 %
[^(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 ratio declined 7 bps and the nonperforming assets ratio increased 2 bps. The classified loans ratio increased 120 bps from the linked quarter, primarily due to the downgrade of three larger commercial relationships. When compared to the prior year, the nonperforming loans and assets ratios both increased 23 bps, to 0.64% and 0.47%.
As of December 31, 2023, the allowance for credit losses was $51.5 million and the allowance for credit losses ratio was 1.25%, compared with $51.6 million and 1.27% at September 30, 2023. When compared to the linked quarter, credit loss expense of $1.8 million in the fourth quarter of 2023 was primarily attributable to loan growth, with the increase compared to the prior year stemming from loan growth and individually evaluated loans.
*Nonperforming Loans Roll Forward* *Nonaccrual*
*90+ Days Past Due & Still Accruing*
*Total*
*(Dollars in thousands)*
*Balance at **September 30, 2023* *$* *28,887* *$* *100* *$* *28,987*
Loans placed on nonaccrual or 90+ days past due & still accruing 4,377 432 4,809
Proceeds related to repayment or sale (1,285 ) (1 ) (1,286 )
Loans returned to accrual status or no longer past due (289 ) 1 (288 )
Charge-offs (1,955 ) (64 ) (2,019 )
Transfers to foreclosed assets (3,844 ) — (3,844 )
*Balance at **December 31, 2023* *$* *25,891* *$* *468* *$* *26,359*
*CONFERENCE CALL D**ETAILS*
The Company will host a conference call for investors at 11:00 a.m. CT on Friday, January 26, 2024. To participate, you may pre-register for this call utilizing the following link: https://www.netroadshow.com/events/login?show=0492f968&confId=59127. 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 827546 at least fifteen minutes before the call start time. If you are unable to participate on the call, a replay will be available until April 25, 2024 by calling 1-866-813-9403 and using the replay access code of 572754. 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 MIDWEST**ONE** 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 with Iowa First Bancshares Corp. and Denver Bankshares, Inc.), 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 recent and potential additional increases in inflation and interest rates, 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 new 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 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 at other banks that resulted in failure of those institutions; and (27) other risk factors detailed from time to time in Securities and Exchange Commission filings made by the Company.
*MIDWEST**ONE** FINANCIAL GROUP, INC. AND SUBSIDIARIES *
*FIVE QUARTER CONSOLIDATED BALANCE SHEETS *
*December 31,* September 30, June 30, March 31, December 31,
*(In thousands)* *2023* 2023 2023 2023 2022
*ASSETS*
Cash and due from banks *$* *76,237* $ 71,015 $ 75,955 $ 63,945 $ 83,990
Interest earning deposits in banks *5,479* 3,773 68,603 5,273 2,445
Federal funds sold *11* — — — —
Total cash and cash equivalents *81,727* 74,788 144,558 69,218 86,435
Debt securities available for sale at fair value *795,134* 872,770 903,520 954,074 1,153,547
Held to maturity securities at amortized cost *1,075,190* 1,085,751 1,099,569 1,117,709 1,129,421
Total securities *1,870,324* 1,958,521 2,003,089 2,071,783 2,282,968
Loans held for sale *1,045* 2,528 2,821 2,553 612
Gross loans held for investment *4,138,352* 4,078,060 4,031,377 3,932,900 3,854,791
Unearned income, net *(11,405* *)* (12,091 ) (12,728 ) (13,535 ) (14,267 )
Loans held for investment, net of unearned income *4,126,947* 4,065,969 4,018,649 3,919,365 3,840,524
Allowance for credit losses *(51,500* *)* (51,600 ) (50,400 ) (49,800 ) (49,200 )
Total loans held for investment, net *4,075,447* 4,014,369 3,968,249 3,869,565 3,791,324
Premises and equipment, net *85,742* 85,589 85,831 86,208 87,125
Goodwill *62,477* 62,477 62,477 62,477 62,477
Other intangible assets, net *24,069* 25,510 26,969 28,563 30,315
Foreclosed assets, net *3,929* — — — 103
Other assets *222,780* 244,036 227,495 219,585 236,517
Total assets *$* *6,427,540* $ 6,467,818 $ 6,521,489 $ 6,409,952 $ 6,577,876
*LIABILITIES*
Noninterest bearing deposits *$* *897,053* $ 924,213 $ 897,923 $ 989,469 $ 1,053,450
Interest bearing deposits *4,498,620* 4,439,111 4,547,524 4,565,684 4,415,492
Total deposits *5,395,673* 5,363,324 5,445,447 5,555,153 5,468,942
Short-term borrowings *300,264* 373,956 362,054 143,981 391,873
Long-term debt *123,296* 124,526 125,752 137,981 139,210
Other liabilities *83,929* 100,601 86,895 72,187 85,058
Total liabilities *5,903,162* 5,962,407 6,020,148 5,909,302 6,085,083
*SHAREHOLDERS' EQUITY*
Common stock *16,581* 16,581 16,581 16,581 16,581
Additional paid-in capital *302,157* 301,889 301,424 300,966 302,085
Retained earnings *294,784* 295,862 290,548 286,767 289,289
Treasury stock *(24,245* *)* (24,315 ) (24,508 ) (24,779 ) (26,115 )
Accumulated other comprehensive loss *(64,899* *)* (84,606 ) (82,704 ) (78,885 ) (89,047 )
Total shareholders' equity *524,378* 505,411 501,341 500,650 492,793
Total liabilities and shareholders' equity *$* *6,427,540* $ 6,467,818 $ 6,521,489 $ 6,409,952 $ 6,577,876
*MIDWEST**ONE** FINANCIAL GROUP, INC. AND SUBSIDIARIES *
*FIVE QUARTER AND YEAR TO DATE CONSOLIDATED STATEMENTS OF INCOME *
*Three Months Ended* *Year Ended* *December 31,* September 30, June 30, March 31, December 31, *December 31,* December 31,
*(In thousands, except per share data)* *2023* 2023 2023 2023 2022 *2023* 2022
Interest income
Loans, including fees *$* *54,093* $ 51,870 $ 49,726 $ 46,490 $ 43,769 *$* *202,179* $ 148,284
Taxable investment securities *9,274* 9,526 9,734 10,444 10,685 *38,978* 39,019
Tax-exempt investment securities *1,789* 1,802 1,822 2,127 2,303 *7,540* 9,379
Other *230* 374 68 244 — *916* 77
*Total interest income* *65,386* 63,572 61,350 59,305 56,757 *249,613* 196,759
Interest expense
Deposits *27,200* 23,128 20,117 15,319 9,127 *85,764* 20,245
Short-term borrowings *3,496* 3,719 2,118 1,786 1,955 *11,119* 3,070
Long-term debt *2,131* 2,150 2,153 2,124 2,111 *8,558* 7,086
*Total interest expense* *32,827* 28,997 24,388 19,229 13,193 *105,441* 30,401
*Net interest income* *32,559* 34,575 36,962 40,076 43,564 *144,172* 166,358
Credit loss expense *1,768* 1,551 1,597 933 572 *5,849* 4,492
*Net interest income after credit loss expense* *30,791* 33,024 35,365 39,143 42,992 *138,323* 161,866
Noninterest income (loss)
Investment services and trust activities *3,193* 3,004 3,119 2,933 2,666 *12,249* 11,223
Service charges and fees *2,148* 2,146 2,047 2,008 2,028 *8,349* 7,477
Card revenue *1,802* 1,817 1,847 1,748 1,784 *7,214* 7,210
Loan revenue *909* 1,462 909 1,420 966 *4,700* 10,504
Bank-owned life insurance *656* 626 616 602 637 *2,500* 2,305
Investment securities (losses) gains, net *(5,696* *)* 79 (2 ) (13,170 ) (1 ) *(18,789* *)* 271
Other *850* 727 210 413 2,860 *2,200* 8,529
*Total noninterest income (loss)* *3,862* 9,861 8,746 (4,046 ) 10,940 *18,423* 47,519
Noninterest expense
Compensation and employee benefits *17,859* 18,558 20,386 19,607 20,438 *76,410* 78,103
Occupancy expense of premises, net *2,309* 2,405 2,574 2,746 2,663 *10,034* 10,272
Equipment *2,466* 2,123 2,435 2,171 2,327 *9,195* 8,693
Legal and professional *2,269* 1,678 1,682 1,736 1,846 *7,365* 8,646
Data processing *1,411* 1,504 1,521 1,363 1,375 *5,799* 5,574
Marketing *700* 782 1,142 986 947 *3,610* 4,272
Amortization of intangibles *1,441* 1,460 1,594 1,752 1,770 *6,247* 6,069
FDIC insurance *900* 783 862 749 405 *3,294* 1,660
Communications *183* 206 260 261 285 *910* 1,125
Foreclosed assets, net *45* 2 (6 ) (28 ) 48 *13* (18 )
Other *2,548* 2,043 2,469 1,976 2,336 *9,036* 8,392
*Total noninterest expense* *32,131* 31,544 34,919 33,319 34,440 *131,913* 132,788
*Income before income tax expense* *2,522* 11,341 9,192 1,778 19,492 *24,833* 76,597
Income tax (benefit) expense *(208* *)* 2,203 1,598 381 3,490 *3,974* 15,762
*Net income* *$* *2,730* $ 9,138 $ 7,594 $ 1,397 $ 16,002 *$* *20,859* $ 60,835
Earnings per common share
Basic *$* *0.17* $ 0.58 $ 0.48 $ 0.09 $ 1.02 *$* *1.33* $ 3.89
Diluted *$* *0.17* $ 0.58 $ 0.48 $ 0.09 $ 1.02 *$* *1.33* $ 3.87
Weighted average basic common shares outstanding *15,693* 15,689 15,680 15,650 15,624 *15,678* 15,649
Weighted average diluted common shares outstanding *15,756* 15,711 15,689 15,691 15,693 *15,725* 15,701
Dividends paid per common share *$* *0.2425* $ 0.2425 $ 0.2425 $ 0.2425 $ 0.2375 *$* *0.9700* $ 0.9500
*MIDWEST**ONE** FINANCIAL GROUP, INC. AND SUBSIDIARIES *
*FINANCIAL STATISTICS*
*As of or for the Three Months Ended* *As of or for the Year Ended* *December 31,* September 30, December 31, *December 31,* December 31,
*(Dollars in thousands, except per share amounts)* *2023* 2023 2022 *2023* 2022
*Earnings:*
Net interest income *$* *32,559* $ 34,575 $ 43,564 *$* *144,172* $ 166,358
Noninterest income *3,862* 9,861 10,940 *18,423* 47,519
Total revenue, net of interest expense *36,421* 44,436 54,504 *162,595* 213,877
Credit loss expense *1,768* 1,551 572 *5,849* 4,492
Noninterest expense *32,131* 31,544 34,440 *131,913* 132,788
Income before income tax expense *2,522* 11,341 19,492 *24,833* 76,597
Income tax (benefit) expense *(208* *)* 2,203 3,490 *3,974* 15,762
Net income *$* *2,730* $ 9,138 $ 16,002 *$* *20,859* $ 60,835
*Per Share Data:*
Diluted earnings *$* *0.17* $ 0.58 $ 1.02 *$* *1.33* $ 3.87
Book value *33.41* 32.21 31.54 *33.41* 31.54
Tangible book value^(^1) *27.90* 26.60 25.60 *27.90* 25.60
*Ending Balance Sheet:*
Total assets *$* *6,427,540* $ 6,467,818 $ 6,577,876 *$* *6,427,540* $ 6,577,876
Loans held for investment, net of unearned income *4,126,947* 4,065,969 3,840,524 *4,126,947* 3,840,524
Total securities *1,870,324* 1,958,521 2,282,968 *1,870,324* 2,282,968
Total deposits *5,395,673* 5,363,324 5,468,942 *5,395,673* 5,468,942
Short-term borrowings *300,264* 373,956 391,873 *300,264* 391,873
Long-term debt *123,296* 124,526 139,210 *123,296* 139,210
Total shareholders' equity *524,378* 505,411 492,793 *524,378* 492,793
*Average Balance Sheet:*
Average total assets *$* *6,459,705* $ 6,452,815 $ 6,516,969 *$* *6,475,360* $ 6,244,284
Average total loans *4,080,243* 4,019,852 3,791,880 *3,993,389* 3,511,192
Average total deposits *5,443,323* 5,379,871 5,495,599 *5,455,609* 5,309,049
*Financial Ratios:*
Return on average assets *0.17* *%* 0.56 % 0.97 % *0.32* *%* 0.97 %
Return on average equity *2.12* *%* 7.14 % 13.26 % *4.12* *%* 12.16 %
Return on average tangible equity^(^1) *3.57* *%* 9.68 % 17.85 % *6.14* *%* 15.89 %
Efficiency ratio^(^1) *70.16* *%* 66.06 % 57.79 % *67.28* *%* 56.98 %
Net interest margin, tax equivalent^(^1) *2.22* *%* 2.35 % 2.93 % *2.46* *%* 2.92 %
Loans to deposits ratio *76.49* *%* 75.81 % 70.22 % *76.49* *%* 70.22 %
Common equity ratio *8.16* *%* 7.81 % 7.49 % *8.16* *%* 7.49 %
Tangible common equity ratio^(^1) *6.90* *%* 6.54 % 6.17 % *6.90* *%* 6.17 %
*Credit Risk Profile:*
Total nonperforming loans *$* *26,359* $ 28,987 $ 15,821 *$* *26,359* $ 15,821
Nonperforming loans ratio *0.64* *%* 0.71 % 0.41 % *0.64* *%* 0.41 %
Total nonperforming assets *$* *30,288* $ 28,987 $ 15,924 *$* *30,288* $ 15,924
Nonperforming assets ratio *0.47* *%* 0.45 % 0.24 % *0.47* *%* 0.24 %
Net charge-offs *$* *2,068* $ 451 $ 3,472 *$* *3,749* $ 6,563
Net charge-off ratio *0.20* *%* 0.04 % 0.36 % *0.09* *%* 0.19 %
Allowance for credit losses *$* *51,500* $ 51,600 $ 49,200 *$* *51,500* $ 49,200
Allowance for credit losses ratio *1.25* *%* 1.27 % 1.28 % *1.25* *%* 1.28 %
Allowance for credit losses to nonaccrual ratio *198.91* *%* 178.63 % 322.50 % *198.91* *%* 322.50 %
[^(1)Non-GAAP measure. See the Non-GAAP Measures section for a reconciliation to the most directly comparable GAAP measure.]
*MIDWEST**ONE** FINANCIAL GROUP, INC. AND SUBSIDIARIES*
*AVERAGE BALANCE SHEET AND YIELD ANALYSIS*
*Three Months Ended* *December 31, 2023* *September 30, 2023* *December 31, 2022*
*(Dollars in thousands)* *Average*
*Balance* *Interest*
*Income/*
*Expense* *Average*
*Yield/*
*Cost* *Average*
*Balance* *Interest*
*Income/*
*Expense* *Average*
*Yield/*
*Cost* *Average Balance* *Interest*
*Income/*
*Expense* *Average*
*Yield/*
*Cost*
*ASSETS*
Loans, including fees^(1)(2)(3) *$* *4,080,243* *$* *54,939* *5.34* *%* $ 4,019,852 $ 52,605 5.19 % $ 3,791,880 $ 44,494 4.66 %
Taxable investment securities *1,593,699* *9,274* *2.31* *%* 1,637,259 9,526 2.31 % 1,865,494 10,685 2.27 %
Tax-exempt investment securities^(2)(4) *338,243* *2,217* *2.60* *%* 341,330 2,234 2.60 % 422,156 2,893 2.72 %
Total securities held for investment^(^2) *1,931,942* *11,491* *2.36* *%* 1,978,589 11,760 2.36 % 2,287,650 13,578 2.35 %
Other *22,937* *230* *3.98* *%* 34,195 374 4.34 % 5,562 — — %
Total interest earning assets^(^2) *$* *6,035,122* *$* *66,660* *4.38* *%* $ 6,032,636 $ 64,739 4.26 % $ 6,085,092 $ 58,072 3.79 %
Other assets *424,583* 420,179 431,877
Total assets *$* *6,459,705* $ 6,452,815 $ 6,516,969
*LIABILITIES AND SHAREHOLDERS’ EQUITY*
Interest checking deposits *$* *1,305,759* *$* *2,991* *0.91* *%* $ 1,354,597 $ 2,179 0.64 % $ 1,632,749 $ 1,703 0.41 %
Money market deposits *1,103,637* *7,954* *2.86* *%* 1,112,149 7,402 2.64 % 995,512 2,369 0.94 %
Savings deposits *639,766* *1,493* *0.93* *%* 603,628 749 0.49 % 683,538 306 0.18 %
Time deposits *1,463,498* *14,762* *4.00* *%* 1,403,504 12,798 3.62 % 1,067,044 4,749 1.77 %
Total interest bearing deposits *4,512,660* *27,200* *2.39* *%* 4,473,878 23,128 2.05 % 4,378,843 9,127 0.83 %
Securities sold under agreements to repurchase *8,661* *17* *0.78* *%* 66,020 85 0.51 % 151,880 437 1.14 %
Other short-term borrowings *273,963* *3,479* *5.04* *%* 277,713 3,634 5.19 % 153,155 1,518 3.93 %
Short-term borrowings *282,624* *3,496* *4.91* *%* 343,733 3,719 4.29 % 305,035 1,955 2.54 %
Long-term debt *124,495* *2,131* *6.79* *%* 125,737 2,150 6.78 % 151,266 2,111 5.54 %
Total borrowed funds *407,119* *5,627* *5.48* *%* 469,470 5,869 4.96 % 456,301 4,066 3.54 %
Total interest bearing liabilities *$* *4,919,779* *$* *32,827* *2.65* *%* $ 4,943,348 $ 28,997 2.33 % $ 4,835,144 $ 13,193 1.08 %
Noninterest bearing deposits *930,663* 905,993 1,116,756
Other liabilities *98,027* 95,408 86,242
Shareholders’ equity *511,236* 508,066 478,827
Total liabilities and shareholders’ equity *$* *6,459,705* $ 6,452,815 $ 6,516,969
Net interest income^(^2) *$* *33,833* $ 35,742 $ 44,879
Net interest spread^(^2) *1.73* *%* 1.93 % 2.71 %
Net interest margin^(^2) *2.22* *%* 2.35 % 2.93 %
Total deposits^(^5) *$* *5,443,323* *$* *27,200* *1.98* *%* $ 5,379,871 $ 23,128 1.71 % $ 5,495,599 $ 9,127 0.66 %
Cost of funds^(^6) *2.23* *%* 1.97 % 0.88 %
^(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 $207 thousand, $141 thousand, and $87 thousand for the three months ended December 31, 2023, September 30, 2023, and December 31, 2022, respectively. Loan purchase discount accretion was $765 thousand, $791 thousand, and $1.3 million for the three months ended December 31, 2023, September 30, 2023, and December 31, 2022, respectively. Tax equivalent adjustments were $846 thousand, $735 thousand, and $725 thousand for the three months ended December 31, 2023, September 30, 2023, and December 31, 2022, respectively. The federal statutory tax rate utilized was 21%.
^(4) Interest income includes tax equivalent adjustments of $428 thousand, $432 thousand, and $590 thousand for the three months ended December 31, 2023, September 30, 2023, and December 31, 2022, respectively. The federal statutory tax rate utilized was 21%.
^(5) Total deposits is the sum of total interest-bearing deposits and noninterest bearing deposits. The cost of total deposits is calculated as annualized interest expense on deposits divided by average total deposits.
^(6) Cost of funds is calculated as annualized total interest expense divided by the sum of average total deposits and borrowed funds.
*MIDWEST**ONE** FINANCIAL GROUP, INC. AND SUBSIDIARIES*
*AVERAGE BALANCE SHEET AND YIELD ANALYSIS*
*Year Ended* *December 31, 2023* *December 31, 2022*
*(Dollars in thousands)* *Average*
*Balance* *Interest*
*Income/*
*Expense* *Average*
*Yield/*
*Cost* *Average*
*Balance* *Interest*
*Income/*
*Expense* *Average*
*Yield/*
*Cost*
*ASSETS*
Loans, including fees^(1)(2)(3) *$* *3,993,389* *$* *205,189* *5.14* *%* $ 3,511,192 $ 150,791 4.29 %
Taxable investment securities *1,684,360* *38,978* *2.31* *%* 1,891,234 39,019 2.06 %
Tax-exempt investment securities^(2)(4) *355,454* *9,353* *2.63* *%* 435,907 11,788 2.70 %
Total securities held for investment^(^2) *2,039,814* *48,331* *2.37* *%* 2,327,141 50,807 2.18 %
Other *22,791* *916* *4.02* *%* 20,827 77 0.37 %
Total interest earning assets^(^2) *$* *6,055,994* *$* *254,436* *4.20* *%* $ 5,859,160 $ 201,675 3.44 %
Other assets *419,366* 385,124
Total assets *$* *6,475,360* $ 6,244,284
*LIABILITIES AND SHAREHOLDERS’ EQUITY*
Interest checking deposits *$* *1,398,538* *$* *8,990* *0.64* *%* $ 1,640,303 $ 5,416 0.33 %
Money market deposits *1,037,123* *23,924* *2.31* *%* 992,390 4,707 0.47 %
Savings deposits *624,990* *2,802* *0.45* *%* 674,846 1,169 0.17 %
Time deposits *1,443,770* *50,048* *3.47* *%* 925,592 8,953 0.97 %
Total interest bearing deposits *4,504,421* *85,764* *1.90* *%* 4,233,131 20,245 0.48 %
Securities sold under agreements to repurchase *94,563* *975* *1.03* *%* 152,466 872 0.57 %
Other short-term borrowings *199,530* *10,144* *5.08* *%* 70,729 2,198 3.11 %
Short-term borrowings *294,093* *11,119* *3.78* *%* 223,195 3,070 1.38 %
Long-term debt *131,137* *8,558* *6.53* *%* 148,863 7,086 4.76 %
Total borrowed funds *425,230* *19,677* *4.63* *%* 372,058 10,156 2.73 %
Total interest bearing liabilities *$* *4,929,651* *$* *105,441* *2.14* *%* $ 4,605,189 $ 30,401 0.66 %
Noninterest bearing deposits *951,188* 1,075,918
Other liabilities *88,770* 62,706
Shareholders’ equity *505,751* 500,471
Total liabilities and shareholders’ equity *$* *6,475,360* $ 6,244,284
Net interest income^(^2) *$* *148,995* $ 171,274
Net interest spread^(^2) *2.06* *%* 2.78 %
Net interest margin^(^2) *2.46* *%* 2.92 %
Total deposits^(^5) *$* *5,455,609* *$* *85,764* *1.57* *%* $ 5,309,049 $ 20,245 0.38 %
Cost of funds^(^6) *1.79* *%* 0.54 %
^(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 $522 thousand and $765 thousand for the year ended December 31, 2023 and December 31, 2022, respectively. Loan purchase discount accretion was $3.7 million and $4.6 million for the year ended December 31, 2023 and December 31, 2022, respectively. Tax equivalent adjustments were $3.0 million and $2.5 million for the year ended December 31, 2023 and December 31, 2022, respectively. The federal statutory tax rate utilized was 21%.
^(4) Interest income includes tax equivalent adjustments of $1.8 million and $2.4 million for the year ended December 31, 2023 and December 31, 2022, respectively. The federal statutory tax rate utilized was 21%.
^(5) Total deposits is the sum of total interest-bearing deposits and noninterest bearing deposits. The cost of total deposits is calculated as annualized interest expense on deposits divided by average total deposits.
^(6) Cost of funds is calculated as annualized total interest expense divided by the sum of average total deposits and borrowed funds.
Non-GAAP Measures
This earnings release contains non-GAAP measures for tangible common equity, tangible book value per share, tangible common equity ratio, return on average tangible equity, net interest margin (tax equivalent), core net interest margin, loan yield (tax equivalent), core yield on loans, and efficiency ratio. Management believes these measures provide investors with useful information regarding the Company’s profitability, financial condition and capital adequacy, consistent with how management evaluates the Company’s financial performance. The following tables provide a reconciliation of each non-GAAP measure to the most comparable GAAP measure.
*Tangible Common Equity/Tangible Book Value*
*per Share/Tangible Common Equity Ratio* *December 31,* September 30, June 30, March 31, December 31,
*(Dollars in thousands, except per share data)* *2023* 2023 2023 2023 2022
Total shareholders’ equity *$* *524,378* $ 505,411 $ 501,341 $ 500,650 $ 492,793
Intangible assets, net *(86,546* *)* (87,987 ) (89,446 ) (91,040 ) (92,792 )
Tangible common equity *$* *437,832* $ 417,424 $ 411,895 $ 409,610 $ 400,001
Total assets *$* *6,427,540* $ 6,467,818 $ 6,521,489 $ 6,409,952 $ 6,577,876
Intangible assets, net *(86,546* *)* (87,987 ) (89,446 ) (91,040 ) (92,792 )
Tangible assets *$* *6,340,994* $ 6,379,831 $ 6,432,043 $ 6,318,912 $ 6,485,084
Book value per share *$* *33.41* $ 32.21 $ 31.96 $ 31.94 $ 31.54
Tangible book value per share^(^1) *$* *27.90* $ 26.60 $ 26.26 $ 26.13 $ 25.60
Shares outstanding *15,694,306* 15,691,738 15,685,123 15,675,325 15,623,977
Common equity ratio *8.16* *%* 7.81 % 7.69 % 7.81 % 7.49 %
Tangible common equity ratio^(^2) *6.90* *%* 6.54 % 6.40 % 6.48 % 6.17 %
^(1) Tangible common equity divided by shares outstanding.
^(2) Tangible common equity divided by tangible assets.
*Three Months Ended* *Year Ended*
*Return on Average Tangible Equity* *December 31,* September 30, December 31, *December 31,* December 31,
*(Dollars in thousands)* *2023* 2023 2022 *2023* 2022
Net income *$* *2,730* $ 9,138 $ 16,002 *$* *20,859* $ 60,835
Intangible amortization, net of tax^(^1) *1,081* 1,095 1,328 *4,685* 4,552
Tangible net income *$* *3,811* $ 10,233 $ 17,330 *$* *25,544* $ 65,387
Average shareholders’ equity *$* *511,236* $ 508,066 $ 478,827 *$* *505,751* $ 500,471
Average intangible assets, net *(87,258* *)* (88,699 ) (93,662 ) *(89,539* *)* (88,917 )
Average tangible equity *$* *423,978* $ 419,367 $ 385,165 *$* *416,212* $ 411,554
Return on average equity *2.12* *%* 7.14 % 13.26 % *4.12* *%* 12.16 %
Return on average tangible equity^(^2) *3.57* *%* 9.68 % 17.85 % *6.14* *%* 15.89 %
^(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* *Year Ended* *December 31,* September 30, December 31, *December 31,* December 31,
*(Dollars in thousands)* *2023* 2023 2022 *2023* 2022
Net interest