MidWestOne Financial (MOFG) 26 Jan 242023 Q4 Earnings call transcript

Good morning, ladies and gentlemen, and welcome to the MidWestOne Financial Group, Inc. Fourth Quarter and Full Year 2023 Earnings Call. [Operator Instructions].

As a reminder, this call is being recorded. I would now like to turn the call over to Barry Ray, Chief Financial Officer of MidWestOne Financial Group.

Thank you, everyone, for joining us today. in conference participation this your appreciate our call earnings morning. We Officer; are here our our Operating our on me Chip Credit President Gary Officer. Chief the Chief Devaisher, With Len call Reeves, Sims, Officer; Chief and and Executive

conference, conclusion this call replay the available Following a our be on of today's of website. will

Relations deck website. our to slide is a of today's presentation also section available Additionally, complement on the Investor

financial statements condition, Inc. the begin, of call everyone that relating let to contains presentation we business the Before and on forward-looking results Group, operations of me this Financial remind MidWestOne

in statements believes, results to other factors date Exchange mix of Securities periodic the Forward-looking rates, generally those that anticipates reflect obligation no include of business, Financial materially detailed and to and company's differ the circumstances MidWestOne these update actual as words indicated. Among Actual this events interest pressures, the expects, differ Commission. the expressions. cause conditions in important with or statements general are the economic factors such and statements could after changes similar the forward-looking from registration publicly or company's competitive to revise the undertakes and filed Inc. could results presentation. risk reports materially Group,

to over I turn the would to now like call Chip.

strategic on net share earnings $X.X of morning. earnings Thank diluted significant the Barry or the over on of an provide update financial a achieved you, progress fourth provide will of call, plan with today's fourth and a Len X on that good conclude per Barry, $X.XX. update more our our an will high-level results. Starting review and executing delivered our quarter million and I'll On last overview income business, results we then of of detailed quarter presentation. we've year. our of our lines Slide

loss balance net During million in the our sheet. of to address liability-sensitive of sold pretax $XXX securities, continue we a quarter, we $X.X million resulting as

to our value or those related items, diluted program, costs common Adjusting per early $XXX,XXX our fair retirement previously merger-related announced in million $XXX,XXX $XXX,XXX adjusted was We of costs for of MSR. $X.X $X.XX the also recorded and to income voluntary net share. X reduction

deeper looking expansion quarter sheet We our for market X.X% of annualized the loan major loan trends. the X.X% delivered pleased I'm for balance our with growth our Now benefit and we to as full results, the from at fourth banking teams. growth continue year

quarter year to core we can Additionally, a growth and modest we our achieved in fourth ahead. cautiously grow core the through franchise continue optimistic deposit the remain deposit

encouraging, That in moderation rate continued will margin and sensitive, While the we XXXX. the do balance to the our sheet of through our fourth decline pressure of rate the liability and said, are we expect and remain NIM interest to through first see have NIM trends our environment half quarter. trough continued NII our a

median we to Importantly, end MidWestOne on quite at well group results our XXXX. and the strategic financial institution to this deliver peer transform control continue what of to and execute position we Bank of the control by initiatives our can

our working track we're was accomplishment A top-performing believe firmly realignment hard substantial are to we given the calls, bank As previous sale September million of long-established on highly a year. of key become proceeds operations achieved I've we've The Denver said Bankshares. $XXX in with on past this progress announced geographic a over the and our attractive bank. footprint in the merger to the reinvested asset with through be our and Denver Florida MSA

robust in this hired large and we accelerate SBA an fourth in officer we and our treasury platform officer, that market, management MSA. a to further quarter, as commercially continue During the expand growth

the the and the $X franchise MSA years. regulatory XX. approximately At Denver deposits in million January closing, firmly we'll in marketplace a approvals all merger loans in and we've we're this forward, billion-plus $XXX building on to the to coming have path million on Looking and into received expect close believe in $XXX

We enjoyed in and Denver major the also banking loan continue to under Metro expand have robust and businesses up-tier of growth our management assets metro and markets management our Twin and commercial wealth Cities, Iowa. and

Our is to $X million. assets target bankers individuals add as $XX with plan we continue to million and with million in investable $XX middle-market to $XXX to of companies revenue million

experience Wealth in we're a Importantly, of hiring extensive super to of about come. growth with We annual the new segment Head to this in leader achieve revenue look Management, years double-digit the excited our the Midwest. business in seasoned regional

our markets we've made bankers talent two Des specialty our expect in we XXXX. We're in product acceleration growing and digits progress Moines Additionally, SBA. in our commercial capabilities core and added both expense one with of in high for to significant metro in one markets, year an Iowa our Accordingly, growth Overall, loan and our experienced Dubuque. full and agribusiness also pleased XXXX verticals the single we extremely discipline. the

to XXXX, exceeded outlined X% X.X% plan base our this, reduce plan and of remain we've and reallocate productive, Through focused substantial part rate a by departments. progress reinvestment. To on MidWestOne stated we've the when improved the more expense positioning conclude, then abates. markets appropriate As we profitable balance that and transforming for power made and returns into cycle of for cost interest containment and and earnings the growth bank operating

journey be thank communities. shareholders. At unwavering support. continued to their would and customers our execution and of also liability-sensitive better earnings, the future to with without progressing the their like work, what challenged time, employees what initiatives than for hard our combined and our our faster this is holds strategic for employees possible balance and very commitment While remain their not I current company, on I'd optimistic we've sheet This has expected, our

to Now I'd the over Len. turn to call like

XXXX, funds. results everyone. good of and the the day, and mix decline Chip, at Thanks, improving especially deposits, have with We're pleased commercial showing. lumpy remained focus segment muting in consistent a Deposits are high-cost a and the consumer in quality public

to XXXX our reflect a growth focus and strong from are in in accounts X.XX services [ ] which deposit on approach. household, new proactive net positive per Our X.XX relationship up

Looking having generated another on cautiously Slide forward, we remain X. deposit of core growth, highlighted optimistic, quarter as

the continues strong drive asset of team too. on balance growth sheet, to banking the commercial Our side

in our Our $XX focused by million Metro. commercial Iowa loan growth markets, particularly quarter the fourth was of driven

continue terms And we We of new ag see balances. in and growth in strong commitments, to in momentum see CRE C&I.

Our is and loan story about also but risk. profitability growth

in in We weighted that increase X.XX% average originations our commercial an of are pleased coupon new to from was X.XX%, up September. December

from renewal X.XX% September. up X.XX% in rate Our in averaged December,

our is outlined assets Slide As on X, stable. nonperforming ratio

see Two and CRE space fourth the did classified: three During relationships the we one senior from in living the mention office space. to quarter, special migrate in

minimis of basis credit migrate for profile risk with full indicator net from de and our solid a the X only XX a special mention. The points the past exposure low of to points. of saw basis amount we leading only of Importantly, remains low day credit year XX-plus delinquency portfolio charge-offs at

losses well allowance for credit X.XX%. with reserved portfolio Our an remains of

As with in Slide well office. are X in shows, a we and portfolio only loan diversified X.X% positioned concentration without nonowner-occupied CRE outsized

XX, a to the in has been fruit. investments to talent represents to of increase wealth XXXX. new million, XX% bear continue also entrusted which compared Year-to-date, $XXX assets nearly Turning Slide with the team

excited opportunity our to financial our to to call and week. With wealth I'm past further to to grow Barry discuss As business pleased that, Chip an our CFO, Ray, business our we mentioned, over are results. of new have this head turn see named a wealth the

X.XX%, our from the in beginning financial sheet I'll with million you, annualized $X.XX or walk statements million increased commercial Thank Len. loans with Strength was the quarter. assets, on estate by led quarter The $XX.X XX-basis a linked XX. Starting from increased through quarter. to balance linked the $XX Slide X.X% which yield improvement real fourth the was the billion. or portfolio loans, point annualized from quarter X.X% linked overall

$XXX,XXX $XX.X expected lower held for for reflected in segments million or quarter, losses at credit loss credit growth the that During investment XX. than loans segments. X.XX% The rates to portfolio loan with small decreased the other allowance December are decrease of

Turning to deposits.

brokered, as increased This growth of second million quarter the Excluding which ahead is quarter. points the X.X% sequential growth, year $XX.X to our or positively deposit in deposit the continued franchise stabilizes. deposits from linked

to reduce billion security cost borrowings. $XX.X deposits increased to at Total with XX to quarter, combined positioned increase, This higher December fourth our the FHLB XX. compared as million For sales, us September $X.X

to $XX.X quarter, million. the borrowed decreased During $XXX.X million funds total

rate As pressure to touched costs costs funding on, in total rising our environment continued the and deposit Chip the interest quarter. fourth

primarily to the Specifically, rose points XX the deposits, driven X.XX% by increases cost decrease equity to comprehensive of loss. million accumulated a to sheet, million in $XX balance short-term basis costs. Finishing our interest-bearing comprised shareholders' debt increased interest-bearing of liabilities and $XXX.X long-term other total borrowing

of interest-bearing yields. XX, higher assets quarter, partially $X income the interest higher to the and of due as costs volumes compared to in net interest-earning statement to million income asset lower fourth on million by offset volumes Turning higher funding quarter to the linked Slide $XX.X primarily interest-earning liabilities, declined

Our as compared points net in quarter XX declined to to in interest fourth quarter. X.XX% tax the equivalent margin linked basis the X.XX%

Our net funding be in points margin by total in outpaced change asset continued decreased which fourth quarter in $XXX,XXX the Noninterest on the interest our quarter in our sale $X.X impacted XX in costs basis yields. fourth to quarter increase $X fourth security million, increase the our the unfavorable income of revenue. to significantly the due the million and in loss primarily loan net interest-earning

Visa million losses, The in MSR on, touched to value gain the Class our B mortgage was primarily million a the quarter, change by resulting of loan of securities of partially decrease [ in $XXX.X $XXX,XXX in in in ] quarter-over-quarter a and revenue from Chip $XXX,XXX in million we shares. the As due originations. revenue fair $X quarter-over-quarter change $X.X sale on sold offset

was the to quarter. Finishing the was MSR, noninterest $XX.X quarter as and expenses, noninterest from the quarter. fourth linked on total with our the Excluding loss $XXX,XXX million, X.X% in or compared income linked an stable expense security sales in of the increase change

to on expect our call, in to we As as gradually last invest we that noninterest business. rise expense discussed quarter's our continue we

our at and cost open we operator alluded Importantly, a with and key I'll expense as for target that, base our we turn undertaken expense than savings million lower XXXX measures. our to with had and $X.XX questions. execution. And we Chip not very annual focus to be are exceeded Expense savings go-forward those result, in a will to control our line earlier, least as the of it team, remains pleased back management the

McEvoy Stephens. from Instructions] the [Operator first comes Our Terry today of line with question

commentary you in success and outlook expense that cost the in that with stick finished just investing the The with. plan future. maybe but Barry,

you both those? And you type an you So how XXXX think about of do when of expense do balance outlook have? what

Yes. A couple Terry. of things,

Denver in the Just -- quarter. as really we'll of have reminder, months of second as the the the Bank on until coming well will a the two not of -- roll off as Florida first we quarter, end

second and look $XX were XXXX, first of expect going million where it I I quarters. if we'll end million come expect quarter per that at we're from I be -- would the fourth $XX the XXXX we range we So quarter. out in of higher to to of the towards in in the

a then rates, sticking incremental when given is there just first And in in get sheet And hopefully restructuring balance your how fourth net Perfect. liability do the the question ahead quarter? And quickly quarter? cut margin, the to with quarter think maybe fourth lower the And in balance deposit how then you the begins on you'll Fed the see rates? of much can margin, you that? sheet, interest of margin was the an benefit

Yes.

quarter. first Terry, the fourth quarter, balance the question, at On sheet we very fourth repositioning of executed the the of end part the that

benefit in from the nothing no transaction the margin, quarter there's fourth fourth So that quarter margin. in

will, So the interest million a be net that dollars, couple would tune of you about of tailwind, income. a of to say, if XXXX will I

the will for cuts It think and for how is given respect be happening we be obviously deposits. function get of we there's piece really what's do effective of a sheet. those what still to should and serve I in with talking balance lot can the be second competitive-wise. Certainly, of our in rate and internally if prepared when FOMC here we lower we're front start rate The do about liability-sensitive competition how do markets to a come.

can will rates those that and our be if think successful I drive when deposit costs how so And at we lowering come.

of I key speak? if add you lot And you Chip, maybe And of to to sneak What so of still is team one where just the did a areas lot talent? the more complete, hires bank could looking for markets. in a in are

well. we'll focus be our be within Terry. almost Len markets hiring continue ever. primarily say as build in continue think I management, is commercial banking our as wealth and there comment? further metro I'd we concentrated are out don't areas those. to Devaisher here any done Len to They

about with about I one Denver Denver, there. of on would that. put leader, and top vision agree I would and to And close I as would I to our wealth about ability wealth platform. our remarks new to bring talked that No, say list feel I think his with the that in my hires our grow talent fundamentally, encouraged continue for Chip, new and

Yes. my catch make The or notes $X billion here did objective my goal eye. and

Our comes Damon of from KBW. next question the DelMonte line with

with that to outlook, is from to outperform one portfolio guess digits I you commentary be feel on growth year. you think kind to and -- good gaining more single others? increased ag that C&I. you the go the course growth you XXXX? the there to throughout you Or had CRE the of and said single start you're the the off Just as loan of wanted going optimism area was that high or think I on on quarter the high digits balanced Do of is -- I mid- expect through this

is this the Damon, for question. Thanks Yes. Len.

So we have our about what feel I I'm some also I strong is up Actually, would in a I see vertical. I happening momentum say see balanced agribusiness C&I going. fired things the like new good pretty outlook.

a historically, of as to lot complement nice momentum. where continued you a enjoyed to know, we've we've -- So -- CRE as

of so seeing though would we're play as one payoff I a pieces balanced into now a C&I that the -- but some new have including number fourth nameplates, bringing those significant the a look good with did from at that's we replaced we sale nice that. I quarter, the about with So in a business over and balances full had also you come perspective we other relationships. say even customer, feel

of me I give lot outlook look things positive in as those So 'XX. forward a

And this they the little then you margin, when what Barry, hit to with guidance as later be a Denver give to impact can us is going respect to from month? expected the

Yes.

Their think the our Bank interest as benefit balance of net net marks from is we'll get from of obviously. accretion than I rate some the margin relatively margin well. the they're we'll get interest Denver. part though our even the incremental benefit higher of in also sheet, interest margin then the And small

will just be the there expect organization. lift I margin by incremental transaction So that some just the from of size the moderated in

of in margin, restructuring on dollars you And the could of then did say from you that see a to couple quarter? tailwinds with respect first the core here the million NII

in the first not Damon. year, No, first in quarter, XXXX. the

The year, got first it.

end look like And then Okay. the so just here when you bottoms like quarter? it at core feel the margin, the second by of you

how That's the troughs in middle margin Damon, kind of half -- core of think XXXX first of the about it, XXXX. we that perhaps

Instructions]. no have [Operator further We questions.

Janney. question the with next Martin comes from Our of line Brian

trending? an guess you at maybe that Just month you can give really it was And then to you Did you margin the if -- basis restructuring. just the more can the that's that wanted on give -- the Barry. the put restructuring the about that up, for couple I I frame margin -- on just of a December margin, that since December, where and wasn't us of you there? -- was where of in where impact that point think guess, can idea

Yes.

net interest December X.XX%, Our in margin Brian. was

Now some had interest it. income associated adjustments net that in with negative

put the sale to $X -- for it's really basis income not perhaps. did the the I benefit so to transaction. our on million probably kind closer again, of bond X.XX% And XXXX. of from between, closer interest around points But

you about Perfect. is guess, more credits terms minimis staying as de talk that I Can the negative, time a far credit. kind in talk year you're outlook in certain talked know -- just front, you the about about mention special but in bit were just concerns? I of secondly, just living a And you're talked closely as about low. -- here? the be period where can And so, you little of are will pretty whole I a of being for in the you downgraded the areas this throughout then risk just kind quarter the guess, very couple there okay. watching of And just as assisted that

Brian. we'll Sims, you. here that with is through Chief Sure, us, And and for our Credit Chip. have and walk Gary is This room go him Officer, the ahead in

Brian, relationships, on noted, efforts as three risk. senior Gary question substandard, portfolio, in in where focusing think an potential our we we're migration to mention our two of office you of special risk where here. focusing them crystallizes the And credit. were when identifying in one And that was from really kind the of living, about -- we

office the CRE. senior softness and living in have the seen We

On part, office, about It's the on operating more is, about for about living specifically most the part. most expenses, and then occupancy. the And operating not in the statement care. senior side, fact, occupancy for it's nursing it

Did So I'll question? answer stop, your that Brian.

that's No, Yes. helpful.

Just just of as are in what that areas the to estate -- get color, sectors other within of or identified than I you kind you've of already look a little forward real commercial kind any more concern? guess, bucket? specific

Sure. And good state there. to place

As and as identified out we portfolio That categories non-pass -- kind that we we out were gives things we it's the continued in to the finished see encouraged picture the we migration the not migrate. finished a fourth we've said, us of risk of with quarter. the the continuing as into one didn't portfolio the year,

trend So well. we're encouraged as by that

not material seeing Brian. Beyond office or weaknesses senior and point, categories this other in we're significant living, at

outlook initiatives All the said I joined on side, place of just your kind about then year have you that this how a fee just income this the done, makes call of maybe, what benefit on talk for we you kind to year? income about maybe the of late, just slowdown. but I fee the you -- given put sense the can a Or Chip, the the from you've you've right, some or up of income bit -- outlook your little the And fee don't frame hiring that the cadence actions? this know, in of your Okay. with of and laid, groundwork all bit trajectory guys if think kind

One, terms that services, primarily, which led management We of couple good divide areas really side, business say, under I'd department. we feel and feel on our more noninterest a say area our assets and we our into within in there, by management that two different wealth of the then sectors: I'd investment so brokerage our -- income really is line of wealth

Our management as we sale in a that, will of there hopefully and believe under government/SBA wealth nicely, about it as group volume 'XX. 'XX and Head with by metro XX% is of maintain and drive. of and noninterest Wealth assets and growing program on continue we markets. that swap group, a Len believe, showed standpoint just well that year XX% the a year-over-year our we're of about increased expecting some up customer centered primarily 'XX was trajectory couple into income that had hedging from In or more will well that increase segment, Also, coming accelerate continue area notated gain our 'XX. We a believe and in our a that comfortable in build to that on we the hired in that Management for new we've nice as from mentioned basis a revenue in very

feeling about income we're line. that overall, pretty So good noninterest

talent lot building of and a offering a both in, department, and heck standpoint. Len product management standpoint a but in investing outstanding and from a his job our other an treasury have then and that also done a structural out team also The we're

more for looking 'XX. we're there well so as in And

the you up $XX give of could is And $X.X out, kind kind kind in to? going today throughout out that guidepost a 'XX it. building of run year terms as kind move say, where you look you if look of level, the of where million, and year fees as you the of Given kind just maybe frame kind the of if rate in of a forward. you million you on rate happen year, of -- of if it's you around can But run of some kind you think get you if kind kind to exit

move Ultimately, potentially to exit No. the I single XXXX. digit this, levels high think can Yes. we as we double-digit

the any for We back have further the call no turn I'll team closing to management questions. remarks.

call Thank look all their for XXXX of in Thank to XXXX, brings here beyond organization work and everyone. team members for what you transformation year today. you for we the Thank everyone this joining of you, a this to to and institution. our forward

This lines. Thank and our your disconnect may you, you us call, concludes today. everyone, for joining now