MidWestOne Financial Group, Inc. Q1 FY2025 earnings call

Pleased with first quarter financial results. Disciplined balance sheet management and deposit pricing initiatives led to core net interest margin increase. Loan origination activity solid despite economic uncertainty. Asset quality metrics improved. Continued execution of strategic initiatives including hiring new commercial bankers and treasury management officers. Strategic platform and technology investments in 2025, like moving to Aperture commercial banking online platform and ServiceNow back-office workflow management platform. Non-interest expense decreased $1.1 million in first quarter due to various cost decreases.

Net income was $15.1 million with a return on average assets of 1%. Core net interest margin increased 10 basis points. Loan growth was flat due to elevated payoffs but origination activity remained solid. Deposits were essentially flat. C&I loan balances had 4.9% linked quarter annualized growth. Ag balances had seasonal uptick. Wealth management fee income was down q/q but up y/y. SBA gain on sale income was up 52% y/y. Mortgage production was up 23% q/q with gain on sale income up 33% y/y. Criticized assets decreased $24 million or 9% and nonperforming assets ratio improved 7 basis points to 0.33%. Charge-offs were 29 basis points, mostly due to partial charge-off of a CRE loan.

Second quarter pipelines and activity q-to-date indicate return to mid-single-digit loan growth rate. 2025 annual expenses expected in range of $145 million to $147 million. Consolidated CET1 ratio expected to continue building and target between 11% and 11.5%. Actively reviewing to move into market for share buybacks in second quarter.

Interest rates, changes in business mix, competitive pressures, general economic conditions. Uncertainty in the environment causing some customers to delay investment plans. Market volatility impacting wealth management business. Risks related to commercial real estate loans and potential impacts from tariffs on agricultural business.

Q: What are the upside and downside risks to the outlook for the second quarter?

A: Chip mentioned confidence in loan pipelines for second quarter but uncertainty beyond that, customers delaying plans due to environment uncertainty, but expenses guidance maintained.

Q: How much of the 10% wealth management growth outlook is organic net new business component?

A: Len said 10% growth is mix of net new assets and fee initiatives, organic net new asset component less than 10%.

Q: Where will the average earning asset base land in the second quarter for non-loan?

A: Barry said securities portfolio continuing to runoff, so non-loan piece expected to trend down from average earning asset base.

Q: Thoughts on improving efficiency ratio in medium-term?

A: Barry said efficiency ratio mostly driven by revenue component, currently in range of 55% to 59%.

Q: Impact of rate cuts on net interest margin trajectory?

A: Barry said rate cuts would be tailwind to deposit cost, margin expected to grind upward with lower deposit costs and asset repricing, more pronounced in back half of year.

Q: What's needed for buybacks?

A: Chip said CET1 close to 11% at end of first quarter, target between 11% and 11.5%, actively reviewing to move into market in second quarter.

Q: Loan-loss reserve level consideration?

A: Gary said based on CECL model, using Moody's stress scenarios to keep provision at mid-120s range.

Q: Risks in ag business?

A: Gary said concern about 2026 and impact of tariffs on input costs and pricing for ag business.

Q: Expense quarterly run rate?

A: Barry said slight ramp in latter half of year due to typical annual salary increases