MidWestOne Financial Group, Inc. Q1 FY2024 earnings call

• Seamless closing and integration of Denver Bankshares, adding scale and low-cost deposit franchise. Denver has loans $673 million and deposits $429 million.
• 8% annualized loan growth excluding acquired balances, led by commercial and industrial loans.
• Deposits saw gains in February and March, mitigating seasonal decline.
• Commercial Banking: Iowa Metro, Colorado, and Twin Cities were largest contributors to balanced growth, with SBA gain-on-sale business growing, recognizing $213,000 in first quarter 2024.
• Wealth Management: Assets under administration up 11%, revenue up 19% from same period prior year; new talent attracted.
• Expense discipline, funding investments by reallocating expense reductions.

Loans increased $287.7 million or 7% from the linked quarter to $4.41 billion. Excluding the $207.1 million of loans acquired in the Bank of Denver acquisition, loan growth was $80.6 million or 8% annualized. Total deposits increased $189.6 million to $5.59 billion at March 31 compared to December 31; excluding the $224.2 million of deposits assumed in the Bank of Denver acquisition, deposits were down $34.7 million. The tax equivalent net interest margin increased 11 basis points to 2.33% in the first quarter. Wealth Management first quarter revenue was $3.5 million, a 10% quarterly and 19% year-over-year increase. Loans of $673 million and deposits of $429 million were added with the Denver Bankshares acquisition, aiming for a $1 billion franchise in the future.

• Anticipate slow build of margin for remainder of 2024 even if no rate cuts occur.
• Expect to divest Florida branches in June 2024, reducing quarterly expense run rate by about $700,000 beginning July 2024.
• Wealth Management revenue expected to continue double-digit growth.

• Interest rates, changes in business mix, competitive pressures, general economic conditions.
• Trucking industry credits downgraded to special mention due to industry downturn post-pandemic.
• Deposit funding costs as a risk to margin expansion.

Q: Would love to hear about opportunities now with deal closed and new team adds in Denver?

A: Len Devaisher mentioned new talent recruitment like SBA Business Development Officer, Treasury Management Officer, and senior C&I commercial banker, showing momentum in Denver.

Q: Color on trucking industry credits driving increase in special mention?

A: Gary Sims said total exposure to trucking industry is $55 million, downgrades due to less-than-expected cash flow from industry downturn post-pandemic, but customers have wherewithal to endure.

Q: Balance sheet position for higher, longer rate environment?

A: Barry Ray said balance sheet positioned for margin expansion without rate cuts due to repricing dynamics, but risk is deposit funding cost side.

Q: Wealth Management revenue up 10%, thoughts on full year outlook?

A: Len Devaisher said see momentum from added talent, partnership between wealth and commercial bankers, expecting double-digit growth full year.

Q: Expense run rate, Florida transaction impact?

A: Barry Ray said 2Q will be higher as Florida transaction closes late 2Q, expecting ~$34 million per quarter run rate for expenses post-noisy periods.

Q: Reserve trending, loan growth outlook?

A: Gary Sims said loan growth will drive reserve additions, existing portfolio adequately reserved.

Q: Margin impact with rate cuts?

A: Barry Ray said expect incremental margin improvement without cuts, better improvement with rate cuts, contingent on pace of cuts and deposit funding battle.

Q: Commercial real estate maturities and margin impact?

A: Barry Ray said ~60% of portfolio is commercial real estate, ~$160 million of fixed rate repricing in next year.

Q: Fee income, wealth management and SBA platform?

A: Chip Reeves said pleased with first quarter fee income momentum, but won't guide specific number.

Q: Tax rate expectation?

A: Barry Ray said expecting around 22% effective tax rate for 2024.

Q: March margin trending vs full quarter?

A: Barry Ray said March margin was around $2.39, a few basis points higher than full quarter $2.33.

Q: Repricing of fixed and adjustable rate over next 12 months?

A: Barry Ray said ~$250 million fixed rate and ~$180 million adjustable rate repricing in next 12 months.

Q: New origination yields and pickup?

A: Barry Ray said new origination yields around 7.61-7.60%, with renewal rate below 8%.

Q: Accretion number trend?

A: Barry Ray said next quarter would expect ~$250,000 more attributable to Bank of Denver transaction.

Q: Office and healthcare portfolios, size and criticized/classified?

A: Gary Sims said nonowner-occupied office is $166 million, 28% classified and 31% criticized; senior living portfolio is $241 million, 24% classified, no special mention credits.