MidWestOne(MOFG) - 2025 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) This section presents the unaudited consolidated financial statements for MidWestOne Financial Group, Inc. as of June 30, 2025, and for the three and six-month periods then ended, including balance sheets, income statements, and cash flows Consolidated Balance Sheets As of June 30, 2025, total assets were $6.16 billion, a slight decrease from year-end 2024, primarily due to reduced debt securities and cash equivalents, while total liabilities also decreased, and shareholders' equity rose Consolidated Balance Sheet Summary (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $6,160,773 | $6,236,329 | | Total cash and cash equivalents | $169,445 | $204,895 | | Total loans held for investment, net | $4,315,388 | $4,260,427 | | Debt securities available for sale | $1,235,045 | $1,328,433 | | Total Liabilities | $5,571,733 | $5,676,633 | | Total deposits | $5,388,098 | $5,477,982 | | Long-term debt | $112,320 | $113,376 | | Total Shareholders' Equity | $589,040 | $559,696 | Consolidated Statements of Income Net income for Q2 2025 was $10.0 million ($0.48 per diluted share), a decrease from Q2 2024 due to higher credit loss expense, while year-to-date net income increased to $25.1 million, supported by stronger net interest income Income Statement Highlights (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $49,982 | $36,347 | $97,421 | $71,078 | | Credit Loss Expense | $11,889 | $1,267 | $13,576 | $5,956 | | Noninterest Income | $10,249 | $21,554 | $20,385 | $31,304 | | Noninterest Expense | $35,767 | $35,761 | $72,060 | $71,326 | | Net Income | $9,980 | $15,819 | $25,118 | $19,088 | | Earnings - diluted | $0.48 | $1.00 | $1.20 | $1.21 | Consolidated Statements of Comprehensive Income Comprehensive income for Q2 2025 was $15.5 million, a decrease from Q2 2024, reflecting lower net income partially offset by higher other comprehensive income from unrealized gains on AFS debt securities, while year-to-date comprehensive income increased to $40.3 million Comprehensive Income Summary (in thousands) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $9,980 | $15,819 | $25,118 | $19,088 | | Other comprehensive income, net of tax | $5,541 | $2,669 | $15,205 | $6,764 | | Comprehensive Income | $15,521 | $18,488 | $40,323 | $25,852 | Consolidated Statements of Shareholders' Equity Shareholders' equity increased from $559.7 million at December 31, 2024, to $589.0 million at June 30, 2025, driven by net income and other comprehensive income, partially offset by dividends and stock repurchases - For the six months ended June 30, 2025, total shareholders' equity increased by $29.3 million, from $559.7 million to $589.0 million[19] - Key drivers for the increase in shareholders' equity during the first half of 2025 were net income ($25.1M) and other comprehensive income ($15.2M), offset by dividends paid ($10.1M) and stock repurchases ($1.8M)[19] Consolidated Statements of Cash Flows For the six months ended June 30, 2025, cash and cash equivalents decreased by $35.5 million, as net cash provided by operating and investing activities was more than offset by net cash used in financing activities, primarily due to a net decrease in deposits Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $33,591 | $34,820 | | Net cash provided by (used in) investing activities | $37,587 | $(660) | | Net cash used in financing activities | $(106,628) | $(14,319) | | Net change in cash and cash equivalents | $(35,450) | $19,841 | Notes to Consolidated Financial Statements The notes provide detailed explanations of accounting policies and financial data, covering business combinations, financial instruments, credit loss allowance, and regulatory capital - On January 31, 2024, the Company acquired DNVB and its subsidiary, Bank of Denver, for $32.6 million in cash[27][36] - On June 7, 2024, the Bank sold its Florida banking operations, resulting in a gain on sale of $10.9 million[28][41] - In Q1 2025, the company reclassified $11.0 million of credit card receivables to loans held for sale, with the sale expected to close in Q4 2025[28] Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations for the three and six months ended June 30, 2025, covering key performance drivers and balance sheet changes Financial Summary The company reported net income of $10.0 million for Q2 2025, a decrease from Q2 2024 due to higher credit loss expense, while year-to-date net income increased to $25.1 million, with total assets decreasing to $6.16 billion and the allowance for credit losses rising to $65.8 million Quarterly Financial Performance | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Net Income | $10.0M | $15.8M | | Diluted EPS | $0.48 | $1.00 | Year-to-Date Financial Performance | Metric | H1 2025 | H1 2024 | | :--- | :--- | :--- | | Net Income | $25.1M | $19.1M | | Diluted EPS | $1.20 | $1.21 | - The allowance for credit losses increased to $65.8 million (1.50% of total loans) at June 30, 2025, from $55.2 million (1.28% of total loans) at year-end 2024, primarily due to a specific reserve on a single CRE office credit[161] Results of Operations For Q2 2025, tax-equivalent net interest income increased by 35.9% to $51.2 million, driven by higher asset yields and lower funding costs, but a significant $11.9 million credit loss expense pressured earnings, while noninterest income fell due to the prior year's gain from branch sales - Q2 2025 tax equivalent net interest income was $51.2 million, a 35.9% increase from Q2 2024, driven by higher earning asset yields and lower interest-bearing liability costs[171] - Credit loss expense for Q2 2025 was $11.9 million, a substantial increase from $1.3 million in Q2 2024, primarily due to a specific reserve on a single $24.0 million CRE office credit[173] - Q2 2025 noninterest income decreased by $11.3 million year-over-year, mainly because Q2 2024 included an $11.1 million gain from the sale of Florida banking operations[174] Financial Condition As of June 30, 2025, total assets stood at $6.16 billion, down 1.2% from year-end 2024, with the loan portfolio growing 1.5% to $4.38 billion, while nonperforming assets increased significantly to $40.6 million, and total deposits decreased by 1.6% Balance Sheet Changes (in thousands) | Account | June 30, 2025 | Dec 31, 2024 | % Change | | :--- | :--- | :--- | :--- | | Total Assets | $6,160,773 | $6,236,329 | (1.2)% | | Loans held for investment, net | $4,315,388 | $4,260,427 | 1.3% | | Total Deposits | $5,388,098 | $5,477,982 | (1.6)% | | Total Shareholders' Equity | $589,040 | $559,696 | 5.2% | - Nonperforming assets rose to $40.6 million at June 30, 2025, from $25.2 million at year-end 2024, primarily due to a single $24.0 million CRE office credit[203] - The allowance for credit losses to total loans ratio increased to 1.50% at June 30, 2025, compared to 1.28% at December 31, 2024[211] Capital Resources The company's capital position remained strong and well-capitalized as of June 30, 2025, with total shareholders' equity increasing to $589.0 million and all regulatory capital ratios improving Key Capital Ratios | Ratio | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Total risk-based capital | 14.44% | 14.07% | | Tier 1 leverage | 9.62% | 9.15% | | Tangible common equity | 8.19% | 7.57% | - As of June 30, 2025, the Company and the Bank met all capital adequacy requirements and the Bank was considered "well capitalized" under regulatory provisions[223] Liquidity The company manages liquidity risk through diverse funding sources, maintaining significant borrowing capacity through federal funds lines, the Federal Reserve Discount Window, and FHLB advances to meet its obligations - Principal sources of funds include deposits, FHLB advances, loan repayments, and proceeds from securities sales[226] - For the first six months of 2025, net cash from operations was $33.6 million, from investing was $37.6 million, while financing activities used $106.6 million[227][246] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's primary market risks are interest rate and liquidity risk, with liquidity managed through diverse funding sources and interest rate risk monitored via NII simulation and EVE analysis, showing asset-sensitivity as of June 30, 2025 - The company's most significant market risks are interest rate risk and liquidity risk[243][244] Net Interest Income Sensitivity Analysis (June 30, 2025) | Rate Shock | Dollar Change (in thousands) | Percent Change | | :--- | :--- | :--- | | +200 bps | $9,268 | 4.3% | | +100 bps | $4,725 | 2.2% | | -100 bps | $(5,117) | (2.4)% | | -200 bps | $(12,845) | (5.9)% | - The company maintains multiple sources of liquidity, including $135.0 million in federal funds lines, $302.9 million in borrowing capacity at the Federal Reserve Discount Window, and $541.5 million in additional borrowing capacity from the FHLB as of June 30, 2025[247][248][249] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter - Management concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025[262] - No material changes to internal controls over financial reporting occurred during the quarter ended June 30, 2025[264] PART II – OTHER INFORMATION Legal Proceedings The company and its subsidiaries are involved in various legal actions arising in the normal course of business, with management believing the outcomes will not have a material adverse effect on the consolidated financial condition - The company is party to various legal actions from the normal course of business, but management does not expect any to have a material adverse effect on its financial condition[266] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Form 10-K for the fiscal year ended December 31, 2024 - No material changes have occurred to the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024[267] Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2025, the company repurchased 63,402 shares of common stock at an average price of $27.65 per share, with approximately $13.2 million remaining available under the repurchase program through December 31, 2025 Share Repurchases in Q2 2025 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | June 1 - 30, 2025 | 63,402 | $27.65 | | Total Q2 2025 | 63,402 | $27.65 | - The company has a share repurchase program allowing for up to $15.0 million in repurchases through December 31, 2025 As of June 30, 2025, $11.5 million remained available under this authorization[269] Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - None[270] Other Information During the quarter ended June 30, 2025, no directors or executive officers adopted or terminated any Rule 10b5-1 trading plans or other non-Rule 10b5-1 trading arrangements for the purchase or sale of company securities - No directors or executive officers adopted or terminated any Rule 10b5-1 trading plans during the fiscal quarter[272] Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, award agreements, credit agreements, officer certifications, and XBRL data files - Exhibits filed include officer certifications (31.1, 31.2, 31.3, 32.1, 32.2, 32.3) and Inline XBRL financial data (101)[273][274]