Shares of MidWestOne Financial (MOFG +39.37%) rallied a whopping 33.3% as of 1:02 p.m. ET Friday.
MidWestOne reported earnings last night and delivered an earnings beat. However, the massive stock rally was primarily due to the announcement that the company had agreed to be acquired by Nicolet Bancshares (NIC 1.42%) in an all-stock deal.
NASDAQ: MOFG
Key Data Points
A Midwestern tie-up
In its third quarter, MidWestOne delivered an impressive profit expansion and bottom-line beat even as revenue came up a bit short of expectations. Net interest income grew a whopping 35.9%, as net interest margin expanded thanks to the more favorable interest rate environment and the Fed's recent cuts. Moreover, provisions for credit losses declined. That enabled adjusted (non-GAAP) earnings per share to grow 50%, even as total revenue net of interest expense came up just short of analyst expectations.
However, the bigger news was the announcement of MidWestOne's acquisition by Nicolet Bancshares in an all-stock deal. Under the terms of the agreement, Nicolet will buy MidWestOne for 0.3175 of a share of Nicolet common stock, which equates to a share price of $41.37 per share based on Nicolet's share price of $130.31 on Oct. 22. That's a huge 45.8% increase over MidWestOne's closing share price yesterday.
Regional banking system continues consolidation
The U.S. regional banking system is fairly fragmented compared with other countries, and we continue to see mergers of this sort as smaller banks look to bulk up to become more resilient, especially in the wake of the 2023 regional banking crisis.
With Nicolet operating across Wisconsin, Michigan, and Minnesota, and MidWestOne based in Iowa, it appears the Midwest will see a new, more powerful regional player, with a combined $15.3 billion in assets.
For those looking for riskier but higher-upside bets on small-cap financial stocks as the Federal Reserve continues interest rate cuts, this under-the-radar player, or players, should be worth a look.
