PART I. FINANCIAL INFORMATION Financial Statements The company's total assets grew to $8.03 billion, while Q2 2023 net income was $21.6 million Consolidated Balance Sheet Highlights (Unaudited) | (In thousands) | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $8,034,721 | $7,855,501 | | Total Loans, net | $6,302,394 | $6,245,416 | | Total Deposits | $6,426,548 | $6,364,652 | | Total Liabilities | $7,257,900 | $7,096,927 | | Total Shareholders' Equity | $776,821 | $758,574 | Consolidated Income Statement Highlights (Unaudited) | (In thousands, except per share data) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $58,840 | $61,334 | $119,344 | $118,161 | | Provision for Credit Losses | $5,879 | $5,441 | $9,014 | $9,608 | | Net Income | $21,575 | $21,883 | $43,347 | $42,632 | | Diluted Earnings Per Common Share | $0.86 | $0.97 | $1.72 | $1.89 | Consolidated Cash Flow Highlights (Unaudited) | (In thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $60,753 | $154,477 | | Net cash used in investing activities | ($185,842) | ($511,449) | | Net cash provided by (used in) financing activities | $125,153 | ($53,282) | | Net increase (decrease) in cash and cash equivalents | $64 | ($410,254) | Management's Discussion and Analysis of Financial Condition and Results of Operations Net interest margin compressed due to rising deposit costs, while the loan portfolio grew modestly - The company is terminating its participation in the GreenSky loan origination program, effective October 21, 2023, which contributed to a $103.2 million decrease in consumer loans186 - In Q2 2023, the company redeemed $6.6 million of subordinated notes, recognizing a gain of $0.7 million136 - The company's allowance for credit losses increased to $65.0 million (1.02% of total loans) from $61.1 million (0.97%) at year-end 2022, reflecting a more cautious economic outlook193 Results of Operations Q2 2023 net income decreased slightly as surging interest expense outpaced interest income growth Net Interest Income and Margin Analysis (Tax-Equivalent) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net Interest Income | $59.0M | $61.7M | | Net Interest Margin | 3.23% | 3.65% | - Noninterest income for Q2 2023 increased by $4.1 million compared to Q2 2022, primarily due to a $3.2 million increase in other income173175 - Noninterest expense for Q2 2023 rose by $1.6 million compared to Q2 2022, driven by higher FDIC insurance expense and data processing fees177179180 Financial Condition Total assets, loans, and deposits grew, with a notable decrease in uninsured deposits to 19% Loan Portfolio Composition | Loan Category (in thousands) | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Commercial loans and leases | $2,108,396 | $2,006,318 | | Commercial real estate | $2,443,995 | $2,433,159 | | Construction and land development | $366,631 | $320,882 | | Consumer | $1,076,836 | $1,180,014 | | Total loans, gross | $6,367,344 | $6,306,467 | Deposit Composition | Deposit Category (in thousands) | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Noninterest-bearing demand | $1,162,909 | $1,362,158 | | Interest-bearing deposits | $5,263,639 | $5,002,494 | | Total deposits | $6,426,548 | $6,364,652 | - The company estimates that uninsured deposits totaled $1.21 billion, or 19% of total deposits, a decrease from $1.55 billion, or 24%, at year-end 2022220 Capital Resources and Liquidity Management Shareholders' equity and total liquidity increased, supported by net income and credit line availability - The company repurchased 432,809 shares for $8.9 million, with $16.1 million of authority remaining under its stock repurchase program through December 31, 2023223255 Sources of Liquidity | (In thousands) | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $160,695 | $160,631 | | Unpledged securities | $343,501 | $209,184 | | FHLB committed liquidity | $857,207 | $997,388 | | FRB discount window availability | $184,107 | $12,201 | | Total Estimated Liquidity | $1,545,510 | $1,379,404 | Quantitative and Qualitative Disclosures about Market Risk The company remains asset-sensitive to interest rate risk, with NII projected to rise in a higher rate environment Net Interest Income Sensitivity Analysis (Shocks) | Immediate Change in Rates | +200 bps | +100 bps | -100 bps | | :--- | :--- | :--- | :--- | | NII % Change (June 30, 2023) | +7.5% | +3.9% | -3.4% | | NII % Change (Dec 31, 2022) | +7.2% | +3.6% | -4.2% | Controls and Procedures Management confirmed the effectiveness of disclosure controls and procedures with no material changes identified - The President and CEO, along with the CFO, have concluded that the company's disclosure controls and procedures were effective as of June 30, 2023245 - There were no changes in the company's internal control over financial reporting during the second quarter of 2023 that materially affected these controls246 PART II. OTHER INFORMATION Legal Proceedings The company is not party to any material pending legal proceedings - In the normal course of business, the company is subject to various lawsuits, but none are expected to have a material effect248 Risk Factors No material changes to risk factors were reported since the last annual filing - No material changes from the risk factors disclosed in the 2022 Form 10-K have occurred250 Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 310,327 shares in Q2 2023, with $16.1 million remaining under its buyback program Issuer Purchases of Equity Securities (Q2 2023) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2023 | 97,089 | $20.60 | | May 2023 | 208,150 | $19.39 | | June 2023 | 5,088 | $19.76 | | Total | 310,327 | $19.78 | - The company's board approved a stock repurchase program authorizing up to $25.0 million, with approximately $16.1 million in remaining authority as of June 30, 2023223255 Other Information No directors or officers adopted or terminated Rule 10b5-1 trading arrangements during the quarter - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement in Q2 2023257 Exhibits This section lists filed exhibits, including required CEO/CFO certifications and iXBRL financial data - Exhibits filed include CEO and CFO certifications as required by Sarbanes-Oxley Act Sections 302 and 906260 - Financial information is provided in iXBRL format as per SEC requirements260
MIDLAND STS(MSBIP) - 2023 Q2 - Quarterly Report