MidWestOne Financial Group, Inc. Q2 FY2024 earnings call

Employee and Customer Engagement

• Named a 2024 top workplace in Iowa and the USA.
• Completed geographic realignment with successful divestiture of Florida operations for an attractive net deposit premium.

Balance Sheet Trends

• Excluding Florida divested balances, 3% annualized loan growth; deposits were stable with controlled costs, net interest margin expanded 8 basis points, net interest income up 5% quarterly.

Credit Quality

• Asset quality metrics trended positively with limited charge-offs, lower NPAs, and reduced classified assets.

Talent Acquisition

• Hired new Chief Information Officer, Chief Marketing Officer, and Cedar Rapids Commercial Banking Leader from leading regional financial institutions.

Business Lines

• Commercial banking: Past grade commercial loan balances grew 6% linked quarter annualized; treasury management analysis fees grew 6.3% year-over-year.
• Wealth Management: Revenues up 15.8% in H1 2024, added private wealth relationship manager, strong pipeline activity.

Loans: Excluding Florida divestiture, there was 3% annualized loan growth. Commercial and industrial loans increased $17.9 million or 7% annualized from the linked quarter, while commercial real estate increased $18.7 million or 3% annualized. Deposits: Total deposits declined to $5.41 billion on June 30, but core deposits (excluding Florida) had a flat quarter with growth in commercial deposits and positive net new account metrics across consumer and commercial segments.

Expense Outlook

• Near term expenses expected to be in the $34 million to $34.5 million range per quarter over the next couple of quarters, with a higher run rate in 2025.

Wealth Management

• Targeting high single to low double-digit growth in revenues.

Loan Growth

• Expect to allow securities portfolio to run off to fund loan growth, anticipating $5 million additional interest income from repricing of $227 million fixed rate loans over the balance of the year.

• Interest rate changes could materially affect results.
• Competitive pressures impacting the mix of business.
• General economic conditions risk.
• Deterioration in CRE C&I portfolio observed.

Q: Brendan Nosal asks about areas of initiative with the most impact; A: Chip Reeves and Len Devaisher mention commercial banking and wealth management as areas with good trajectory.

Q: Brendan Nosal asks about securities portfolio impact on margin; A: Barry Ray says they continue to evaluate opportunities.

Q: Terry McEvoy asks about quarterly expenses; A: Barry Ray expects expenses in $34 million to $34.5 million range near term.

Q: Terry McEvoy asks about wealth management targets; A: Len Devaisher says targeting high single to low double-digit growth.

Q: Nathan Race asks about reserve trajectory; A: Gary Sims says comfortable with current reserve levels and will add to reserves as portfolio grows.

Q: Nathan Race asks about share repurchases; A: Barry Ray says not likely in near term due to capital build mode.

Q: Damon DelMonte asks about securities portfolio run-off; A: Barry Ray says expect to continue running off securities to fund loan growth.

Q: Damon DelMonte asks about Fed rate cuts impact on margin; A: Barry Ray says liability sensitive model expects benefit from rate cuts.

Q: Damon DelMonte asks about new lending verticals; A: Len Devaisher mentions agri-business and government guaranteed lending as bright spots.

Q: Brian Martin asks about loan book repricing; A: Barry Ray talks about fixed rate loans repricing and variable rate loans repricing quarterly.

Q: Brian Martin asks about credit quality in C&I; A: Gary Sims says some deterioration in trucking C&I portfolio due to macro issues.

Q: Brian Martin asks about profitability road map; A: Chip Reeves says depends on rate environment, expecting slow margin build in static environment and quicker improvement with rate cuts.