MidWestOne(MOFG) - 2022 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements (unaudited) This section presents the unaudited consolidated financial statements for MidWestOne Financial Group, Inc. as of June 30, 2022, and for the three and six-month periods then ended, including balance sheets, income statements, comprehensive income, shareholders' equity, cash flows, and accompanying notes Consolidated Balance Sheets Total assets increased to $6.44 billion by June 30, 2022, driven by loan and securities growth, while shareholders' equity decreased to $488.8 million primarily due to accumulated other comprehensive loss Consolidated Balance Sheets (dollars in thousands) | | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $6,442,491 | $6,025,128 | | Total cash and cash equivalents | $83,864 | $203,830 | | Total securities | $2,402,831 | $2,288,110 | | Total loans held for investment, net | $3,558,802 | $3,196,312 | | Goodwill | $62,477 | $62,477 | | Total Liabilities | $5,953,659 | $5,497,653 | | Total deposits | $5,537,441 | $5,114,519 | | Short-term borrowings | $193,894 | $181,368 | | Long-term debt | $159,168 | $154,879 | | Total Shareholders' Equity | $488,832 | $527,475 | Consolidated Statements of Income Net income for Q2 2022 was $12.6 million, a decrease from $17.3 million in Q2 2021, primarily due to a shift from a credit loss benefit to an expense and higher noninterest expenses Consolidated Statements of Income (dollars in thousands) | | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net interest income | $39,725 | $38,505 | $77,061 | $77,122 | | Credit loss expense (benefit) | $3,282 | $(2,144) | $3,282 | $(6,878) | | Noninterest income | $12,347 | $10,218 | $23,991 | $22,042 | | Noninterest expense | $32,082 | $28,670 | $63,725 | $56,370 | | Net income | $12,621 | $17,271 | $26,516 | $38,919 | | Earnings - diluted (per share) | $0.80 | $1.08 | $1.69 | $2.43 | Consolidated Statements of Comprehensive Income Comprehensive loss was $10.6 million for Q2 2022, a significant change from comprehensive income of $23.1 million in Q2 2021, primarily due to a $24.0 million net unrealized loss on available-for-sale debt securities Consolidated Statements of Comprehensive Income (dollars in thousands) | | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net income | $12,621 | $17,271 | $26,516 | $38,919 | | Other comprehensive (loss) income, net of tax | $(23,215) | $5,788 | $(56,366) | $(14,764) | | Comprehensive (loss) income | $(10,594) | $23,059 | $(29,850) | $24,155 | Consolidated Statements of Shareholders' Equity Total shareholders' equity decreased from $527.5 million at year-end 2021 to $488.8 million at June 30, 2022, mainly due to a $56.4 million other comprehensive loss offsetting net income Consolidated Statements of Shareholders' Equity (dollars in thousands) | | Six Months Ended June 30, 2022 | | :--- | :--- | | Balance at December 31, 2021 | $527,475 | | Net income | $26,516 | | Other comprehensive loss | $(56,366) | | Dividends paid on common stock | $(7,448) | | Repurchase of common stock | $(2,299) | | Balance at June 30, 2022 | $488,832 | Consolidated Statements of Cash Flows Cash and cash equivalents decreased by $120.0 million for the six months ended June 30, 2022, driven by net cash used in investing and financing activities, partially offset by operating activities Consolidated Statements of Cash Flows (dollars in thousands) | | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $44,076 | $79,289 | | Net cash used in investing activities | $(128,178) | $(276,436) | | Net cash (used in) provided by financing activities | $(35,864) | $177,922 | | Net decrease in cash and cash equivalents | $(119,966) | $(19,225) | Notes to Consolidated Financial Statements This section provides detailed disclosures on the acquisition of Iowa First Bancshares Corp., reclassification of debt securities, loan portfolio analysis, derivatives, goodwill, regulatory capital, and commitments - On June 9, 2022, the Company acquired Iowa First Bancshares Corp. (IOFB) for cash consideration of $46.7 million, resulting in a bargain purchase gain of $1.4 million[27][38][39] - On January 1, 2022, the Company transferred $1.25 billion of debt securities from available for sale to held to maturity, with a net unrealized after-tax loss of $11.5 million remaining in accumulated other comprehensive loss[43] - The Allowance for Credit Losses (ACL) increased to $52.4 million at June 30, 2022, from $48.7 million at year-end 2021, reflecting a $3.4 million initial allowance for PCD loans and $3.1 million for acquired non-PCD loans[76] - As of June 30, 2022, both the Company and MidWestOne Bank were considered well-capitalized under regulatory requirements, with a consolidated Total capital to risk-weighted assets ratio of 11.73%[122][223] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the financial condition and results for Q2 and H1 2022, highlighting the IOFB acquisition, net interest income trends, and the decline in net income due to credit loss expense and increased noninterest expense - Net income for Q2 2022 was $12.6 million, a decrease of $4.7 million from Q2 2021, primarily due to a $3.3 million credit loss expense in 2022 versus a $2.1 million benefit in 2021, and a $3.4 million increase in noninterest expense[154][158][172] - The acquisition of IOFB on June 9, 2022, for $46.7 million in cash, significantly impacted the balance sheet, contributing to a $417.4 million increase in total assets to $6.44 billion at June 30, 2022[150][155] - Tax equivalent net interest margin for Q2 2022 was 2.87%, a slight decrease from 2.88% in Q2 2021, as lower loan yields were partially offset by higher investment security yields and lower deposit costs[169] - Shareholders' equity decreased by $38.6 million from year-end 2021 to $488.8 million at June 30, 2022, primarily due to a decrease in Accumulated Other Comprehensive Income (AOCI) from unrealized losses on available-for-sale debt securities[222] Quantitative and Qualitative Disclosures about Market Risk The company manages interest rate risk, its primary market risk, with a hypothetical 100 basis point rate increase decreasing net interest income by 2.0% over twelve months, and maintains diverse liquidity sources - The most significant market risk for the company is interest rate risk, arising from movements in interest rates affecting earnings and capital[245] Interest Rate Sensitivity (dollars in thousands) | | -100 bp Change | +100 bp Change | +200 bp Change | | :--- | :--- | :--- | :--- | | June 30, 2022 | | | | | Dollar change | $321 | $(3,290) | $(7,304) | | Percent change | 0.2% | (2.0)% | (4.4)% | - The company maintains multiple sources of liquidity, including $155.0 million in unsecured federal funds lines, $472.0 million in available FHLB borrowing capacity, and a $39.2 million borrowing capacity at the Federal Reserve Bank Discount Window as of June 30, 2022[250][251][252] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting during the quarter - The Company's management concluded that disclosure controls and procedures were effective as of June 30, 2022[264] - No material changes to the Company's internal controls over financial reporting occurred during the quarter ended June 30, 2022[266] PART II – OTHER INFORMATION Legal Proceedings The company is involved in various legal actions arising in the normal course of business, with management expecting no material adverse effect on its financial condition - The Company is party to various legal actions in the normal course of business but does not expect them to have a material adverse effect on its financial condition[269] Risk Factors No material changes were reported to the risk factors previously disclosed in the Company's Form 10-K for the fiscal year ended December 31, 2021 - No material changes were reported to the risk factors disclosed in the Company's 2021 Form 10-K[270] Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2022, the Company repurchased 65,315 shares of common stock at an average price of $29.67 per share, with $3.5 million remaining for future repurchases under the program Common Stock Repurchases | Period | Total Shares Purchased | Average Price Paid per Share | Total Purchased as Part of Program | | :--- | :--- | :--- | :--- | | April 1 - 30, 2022 | 7,662 | $31.46 | 7,662 | | May 1 - 31, 2022 | 32,116 | $29.26 | 31,897 | | June 1 - 30, 2022 | 25,908 | $29.64 | 25,756 | | Total Q2 2022 | 65,686 | $29.67 | 65,315 | - As of June 30, 2022, approximately $3.5 million remained available for repurchase under the company's share repurchase program, which extends through December 31, 2023[272] Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by key officers and financial statements formatted in Inline XBRL