MidWestOne Financial Group, Inc. Q4 FY2024 earnings call

• Fourth quarter results showed dramatic impact of bond portfolio repositioning and paydown of higher cost borrowings, leading to a 92 basis-point improvement in net interest margin and 30% Q-over-Q increase in net interest income, net income of $16.3 million and ROA of 1.03%.
• Premium deposit franchise showed strength with total deposits up 2% linked quarter, non-interest bearing deposits up 4% linked quarter. Loan growth flat but pass rated loans growing, commercial originations up. Asset quality metrics favorable with classified loan ratio decline.
• SBA team generated over $1.6M in 2024 SBA gain on sale revenue, wealth management saw momentum. Balance sheet repositioning had significant impact on net interest margin, non-interest income improved from prior quarter, expenses had some increases but expected 2025 expenses in $145M-$147M range.

Deposit Segment: Total deposits increased 2% linked quarter. Non-interest bearing deposits grew 4% linked quarter. Public funds were down 14% for the year, with public funds CDs down 40%, while consumer balances were up 2% and commercial balances up 6%. Loan Segment: Loan growth was flat primarily due to elevated payoffs, but pass rated loan balances grew at a 4% linked quarter annualized rate, and commercial originations exceeded third quarter by 8%. Classified loan ratio declined 54 basis points. Wealth Management: Saw an 11% linked quarter increase and 18% year-over-year increase. SBA: Generated more than $1.6 million of SBA gain on sale revenue in 2024, with $630,000 in the fourth quarter.

• Expect 2025 annual expenses to be in the range of $145 million to $147 million.
• Anticipate mid-single digit loan growth in the first quarter of 2025.
• Margin expansion still has potential with core margin at 3.26% in Q4 and month of December at 3.29%, and $386 million of fixed rate loans expected to reprice in next 12 months.
• Deposit growth expected around 3% in 2025.
• Expect around $200 million of cash flows off the bond portfolio in 2025.

• Factors that could cause actual results to differ materially include interest rates, changes in business mix, competitive pressures, general economic conditions, and risk factors detailed in periodic reports and registration statements with the SEC.

Q: Brendan Nosal asked about capital deployment options and margin path.

A: Barry Ray mentioned use of capital waterfall (support loan growth, cash dividend, share repurchase, M&A), and Chip Reeves noted back book loan repricing continues with loan yields and originations at certain rates, margin still has gas in the tank.

Q: Terry McEvoy asked about loan growth outlook and fee income.

A: Len Devaisher said mid-single digit loan growth expected for 2025, and Terry was told about wealth management double-digit growth target, SBA momentum, treasury management growth, and CRE potential aiding fee income.

Q: Damon DelMonte asked about credit portfolio and organic growth.

A: Gary Sims said credit pressure points mostly unchanged, reserve adequate for resolutions, and Charles Reeves said high focus on Twin Cities, Denver, Iowa Metro for organic growth and infrastructure investment.

Q: Nathan Race asked about loan repricing, deposit costs, and balance sheet sensitivity.

A: Barry Ray said $386 million of fixed rate loans to reprice in 12 months, new loans at low 7s, CD book mostly less than one year with opportunity to lower costs, and balance sheet models as asset-sensitive on shock scenario.

Q: Brian Martin asked about fee income drivers.

A: Len Devaisher talked about SBA momentum, treasury management growth, leveraging secondary market for mortgage, CRE potential aiding swap line, and mid high single-digit fee income growth outlook.

Q: Nathan Race asked about deposit growth expectations and bond cash flows.

A: Barry Ray said deposit growth expected around 3% in 2025, and around $200 million of cash flows off bond portfolio in 2025.