MOFG - Earnings call transcript Q4 2021 | MidWestOne Financial Group, Inc.

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Operator

Welcome to the Midwest Financial Group Incorporated, Fourth Quarter 2021 Earnings Conference Call. My name is Juan, and I will be coordinating your call today. This presentation contains forward-looking statements relating to the financial condition, results of operation, and businesses of MidWestOne Financial Group Incorporated.

Forward looking statements generally include what we least expect, unanticipated, and other similar expressions. Actual results could differ materially from those indicated. economic that rate, actual of company's some business, pressures, factors materially, to the periodic important risk and competitive interest the Exchange statements are of [Indiscernible] the report the and could in filled results cause differ company's factors [Indiscernible] Among detailed and with the Securities conditions, the mix Commission. presentation. no reflect or update date statements to events MidWestOne circumstances revise of Financial these publicly this Group, obligation to Inc., the or undertakes after forward-looking Instruction]. [Operator now to begin Chief over will Executive Officer Funk, I host, Charlie hand your that with. to go Charlie, ahead. Please

Charlie Funk

in from have of during year the to earnings And did MidWestOne that with we and and PPP first continued million from asset a Len and our credit Thank quality non-interest that I'll and all a Jim record in income in we quarter President, a was Officer, us make begin you, Wan. would And release $X.XX which on year for be we the management. the by room our good with morning joining morning improvement, allowed Financial I'll you Chief year. or Officer, also and $XX.X us call. few XXXX good introductory joined who've Barry Treasurer especially solid afternoon Officer, us trends Sims, acknowledge share. and -- our certainly to reserves the tailwinds our Fourth Credit our stating Cantrell. for loan Gary remarks. wealth the during wealth by joined thank to Devaisher, earnings And you Chief includes Investment and growth Chief Ray, tell I'm this were obvious, driven would that

loan we this growth levels excited four. growth our quarter. -- in almost talent year. the during overall provision area. our wealth making quarter excited the the high still be strong about look excellent commercial very the continue we management the were a origination to [Indiscernible] We very later the gain that added we to to and levels potential in small as that progress to pipeline start We're a we've loans did XXXX during think Almost also quarter due think improvement last in our PPP. that loan a more have for forward entirely very commercial saw I will asset us and over certainly XX was asset improvement what payoff we're in XXXX able I we continues three-year months as beyond. with show despite unprecedented mid-XXXX happens to take loans a We the with a and fruit significant early to in very note quality. and we quality and in expect And in payoff

technology. in And invest to in a notable I few developments technology. would continue We highlight

continued solutions in during XXXX. to We've digital enhancement have back literally continue of hundreds platform. that enterprise retail flow work our saved We integrate office hours

and We during systems once we of efficient systems. staff integrated. a will more streamlining Since better lending we've our in this also balance It XXXX much to be process work trust customers continue over AT our our that's We're new year. merge running been and merger, for will the the something platform that are will and integrating system. we trust on our business two with those for

for are on we our relevant the some in we our year-to-year, change capital Chief Officer, Barry to and fall know our is that under CETX our than by and Len think offer at that regulatory risk ratio, our X.XX%, is beyond. level our we a basis in with necessary our in which adequate of adjusted MidWestOne. let would only Financial XX%, a to modest conclude President, exhibit goal customers And change. that to would I want comments, adequate, just is think now I increase as our dividend, line note We be that payout bottom where saying embracing and Ray, X.X% are by that'll XXXX slightly and Devaisher. especially we risk percentage. also continue at levels on I more our remain We to regard followed

Barry Ray

$X.XX Charlie. third launch $XXX,XXX current of to, quarter to of higher a you, the count basis, Fourth Thank in from diluted recapture the Charlie the fourth $XX in $XX.X alluded And fourth for small alluded of the quarter, in linked-quarter. offset earnings XXXX, $X.X company for the described by earnings share a revenue million. Also above million or quarter were earlier, were a a by linked we quarter. offset share from recognize Higher share earnings during XXXX down Charlie repurchases Lower that to as record per On down expenses. quarter. expense were reduced $XX.X was in of year as earnings the linked-quarter. credit the quarter, compared per-share partially in of $X.X million million also quarter

$X.X year-end a net very quarter the fees but some Moving XXXX, down rate were from small of the most million quarter, do income XXXX remain PPP of million Unearned fourth and on fourth the quarter, into of from some fee $X -- or still the in balance million was yields will throughout million the margin basis X.XX% XXXX basis linked $XX.X points forgiveness remain to where linked in reported from be interest first the $X.X quarter. We though basis the two yields in We the points the expect of earning asset down the that forgiven was likely in XX quarter cost down X.X break loans million will was at fourth interest in the million. it was funds that the margin, down which of PPP were million tapered by we net interest in and will was end income $X.X $XX.X earning XX year. XX.X of of million. likely at points. cost net fourth quarter, PPP income the asset year-end linked-quarter. and down quarter the fund of the

loan from basis the to and points, origination. yield, respect the lower were occurring that in said, coupon costs, accretion, assets, and from two and lower being at mix basis rates. deposit discount, earning PPPC eight basis points earning the funding I to decline at points a as principally re-pricing Moving two shift With bolted deposit that costs was was balance combination loan down time asset purchase of of

alluded the downward Moving credit XXXX, to not X.X% expected the XX% down down wealth really as the plans which onto non-interest XXXX. linked forecast year-end. and teams mortgage in risk acquisition expense. will compared decline. diesel upon company's tangible investments ratio was to with the was Charlie from year credit efficiency, believe to for likely expect the XXXX, planned Positively, loss than million X% buffer XXXX, next I to linked-quarter. loss common early our million XXXX, in expense just credit and potential $XX.X common and Fee million from With Fourth-quarter at so-called remains origination income, fourth equity that, provide we to credit the to prior capital, in equity non-interest management With elevated ratio our strong, to the the we XX% Iowa a FIRST December credit range. of some If and revenue be note finished recognize approximately clean our to, was expect X.XX% linked-quarter, expenses XXXX in profile expenses XXXX, do that for and impact million from from were said forecasts And $XX.X assets the quarter XXXX were improve recent FIRST be Nonperforming X.XX% expenses. ratio continue XXXX thus measures respect from fourth million expense XXst, economic coverage We up for quality the mortgage will Mortgage revenue. XXth. of $XX.X additional September at lower the to the driving XXXX though in and of are will we tangible income $XX.X the quarter double-count. business drift acquisition The losses. from respect quarter deteriorate allowance course like expect target Iowa that's increase $X.X loss in efficiency the XXXX of up will over the there ratio based -- X.X% the credit in XXXX Having XXXX. we in quarter the and

larger We for available to higher have securities and portfolio debt which years. a sale we adjustment, negative interest impact from compared prior market rates to increase expect AOCI given

put levels to on downward In additional a levels build deal. But the capital some First capital cash Iowa as acquisition near-term addition, thereafter. that's we do expect will no back pressure

And awaiting early quarter Still don't to regulatory any today, but Devaisher. Iowa we're for expect a First, with late with turn to issues second a And Integration respect update. I'll on as quarter, brief first continue. activities that. it that, track Len over with of we approval, close. Finally,

Len Devaisher

the would XXXX, is Thanks of Barry. say I really our sales headline two culture, for emphasizing Group advancing a MidWestOne for idea Financial things.

execution. First,

Second, talent.

is pleased in referral business, activity. growth consumer a are We combination that, driving both and and that in households, growth

of All growth in to revenue. a leading that

with And we're revenue the the loan a balances Core of we're bit and drivers. a with top thinking little what share pleased what to you priority. on like we remain I'd see So, commercial progress. about,

that growth broad-based our It's much highest biggest then, a it's in marked made legacy fourth important quarter But our investments. three balances. we've know, Twin since of talent was that low quarters key production some to we've The in recall, The our city been first quarter of drivers, you'll growth of has our of and including which growth metric markets Iowa includes quarter you deposit of latter think As quarter Iowa City. in here and being footprint, gratified 'XX notable I Denver headquarters talk point Cities. growth. fourth payoffs. see having seen the deposits. well. about But the in also note the year-over-year say of evident bank probably more we're to the is our Barry I loan customers. most elevated balances excited than entire the a strength increasing franchise growth XX% We was and non-interest-bearing net will for that primary add spoke we're lot would despite and a as to the in in year, retail about generating

indicator another card And of that franchise the related of strength increase is the in deposit revenue. important so

strong income performance. Charlie about a while managements we And and out believe will we basis. on our we across mortgage from why to was moderated of the benefited contribution pay of pleased that an footprint, our linked-quarter Speaking in income, strategy essentially of a example year. see spoke talent our rest investment continue wealth And we dividends. area as are it's that fee the with industry, across the level clearly origination

We're line, and softness encouraged While hope current by deliver for on are by investments our card I to we in 'XX, growth. for wealth quarters one shareholders. follow focused in to increasing and growth In emphasizing growth, Number especially that did momentum look in where that the we return we continues in deposit outlook we're we that to a close our continued is pursue realize core return commercial see and swap income. on revenue. in rate fee lines, focused two just continued of the interest trend. 'XX business and will the revenue swap loan

the The fees. mentioned. expect losing We well management that know We're as the credit profile. is integration Barry paramount. of clear First we and our of teams PPP expense the Iowa finally, preparing tailwind continue for strengthening are to thoughtful progressing eyed trend about of And risk

So for in finding efficiencies we can a growth. means can we where that expenses that and reducing expense can business we know discipline that continue drive invest so we the where And non-negotiable. us, to is

along, one, what all Just those you've heard with be from as and we'd Charlie, us be to you investments take priorities With heard that talent pleased would from technology. consistent questions. for

Operator

[Operator Instructor]. you. Thank

Sandler. is question Please. Nosal now open. line first comes from The Piper from your Brendan Brendan,

Brendan Nosal

Hey, everybody. doing? you are How morning good

Charlie Funk

Morning Brendan.

Len Devaisher

Good morning.

Brendan Nosal

Maybe on things. the to off just growth start side of loan

been it this As in like activity some to quarter downs you alluded of time. nice even you three than the gross these start was outside stronger to, mid-single-digit get sounds guys and has pay guys growth quarters of

about curious move as you within we puts So XXXX. loan is a And for through growth expectation growth for do the the think reasonable and just loan takes when year?

Len Devaisher

the would the lot be year. start construction, we're by type I development this of that one Brendan, across of we loans some would reasons Len. is so, those we drawing have optimism see there saying, the response production seeing a for the includes Sure. up

Of course, the we growth payoff push But the across pipeline elevated as we referenced continue here today expect to for year. activity we quarter. as in see continue fourth to with sit remaining and we our steady,

Brendan Nosal

one Maybe from color. me. more That's it. Got helpful

Just kind already. of looking you to that and book have guys work much securities portfolio, at the in so put liquidity

rates us cash that give some things How just like book your move reinvest ability per to that. So portfolio as higher. color quarter, much on flow that is just

Jim Cantrell

is one. this Brendan, Jim, that I'll take

it absolutely in the little in billion investment You're current a got flow it cash of right. that in My $X a is will portfolio flow the XXXX, the cash -- generate its over little of good neighborhood bit year. next is form. million a be supplying less in portfolio, will current of maybe We've $XXX and expectation the than this deal year -- in

case, loan investment have flexibility be or likely. slowly a be pace and But as the So sort by portfolio will we growth -- liability your investment in rapid outcomes see of what the not that answer range we to kind most side, the it deposit hope invest could is It growth, almost and loans. we runoff gives depends how think happens of at growth. if quickly we that we don't let that's some on the balances that see of loan those if question. us, I I growth replaced portfolio. to pretty If all would think, My would and continue grow loan of on the I

Brendan Nosal

Understood. Yeah. for Appreciate thoughts taking the your questions. Thank there. you

Operator

Thank you.

Rulis now Davidson, please your Our comes line Jeff next is D.A. from open. from question Jeff

Jeff Rulis

Thanks. Good morning.

Charlie Funk

Good morning, Jeff.

Jeff Rulis

speak monitor quite loan comments -- accretion announced is its Thanks. if they did on did one the optimistic impact 'XX. with the you've maybe growth about quarter any of Iowa growth announcement? more high a the on specific I QX payout I On we'll figures in you thoughts that and you're end, their historical performance margin, or would level equity, credit could how expectations that fourth of to, our keep confident that that on number it first, but front, and guess didn't hear yes,

Charlie Funk

Yeah. I'll start on Jeff. question. Good that,

mid-single-digit end on of I a determine to But, now Obviously, X% I the of think higher payoffs to are from lot in might our you lot range going at guidance all see, saw I along know, be we of what Right has growth. X% it a been think the that. payoffs that. loan as very quality been have in well. referred seem had consistent. the secret profitable quarter. fourth Iowa been our but no the a the quarter those solid of that I one had to First They fourth that They some banks were It's quarter. has of This asset problems, fourth pretty earnings. in to satisfaction. two addressed

Jeff Rulis

I and moderate Charlie, rate, for expense if just maybe the Great. Thanks, Barry you, the costs. exclude run merger we guess

this you Now But thoughts from of the -- to the we that fourth year number said or XX change. don't just clean and back get take till of then of back quarter you XX year. sort on coming FIRST to Iowa And down any on probably there?

Barry Ray

do thought our increases that each My we is of year. Jeff, that, whole Xst January on salary Yeah. on company

go-forward First, not excluding it's million, expenses. probably, quarterly a run Iowa bad or the $XX rate So estimate of

I of $X.X there obviously second $X is First quarter expect quarter. other that merger-related add around million going in there million well. Excluding to merger starting types in landing a to as costs would per the things, are the of lot and Again, expenses Iowa

Jeff Rulis

it. Got

And lastly, think okay. that then the said XX, than any -- I rate? kind but million but tack-on is historic, run seemed tax tax good first and expense, kind of of a a the have Thanks. you may so rate of and rate, for is that change add-on misquoted but rate, run -- a kind that $XX on that higher XX new, for little --

Barry Ray

a XXXX. rate your tax the To think tax is otherwise, to I tax our effective the action going Jeff. an XXXX, some expense had we rate, the upon year-end government rate in XX% uptick probably true-up barring the question, at of from to XX% Yes, in based in federal be or

Jeff Rulis

you. Thank Okay.

Charlie Funk

Jeff, I also this Charlie and just is might interject.

environment pressure the every in line think item almost no I be, that'll with we're can there's what budget dealing on are under companies industry that don't in but certainly some us pressure. forecast the I of different is upward know of -- all expenses. that inflationary expense I think from our we most

allow think that. we all need So I to for

Jeff Rulis

Charlie. Thanks, Okay.

Operator

you. Thank

your Our from now Terry, Stephens. next Please, question open. comes McEvoy line Terry from is

Terry Mcevoy

Thank you. Good everyone. morning,

Charlie Funk

Hi, Terry

Jim Cantrell

Good Terry. morning,

Terry Mcevoy

release, to press low in increase? you your continued behind the I you line talked XXXX, wondering quarter. usage the about was the if put usage within you Within some rates the numbers credit and fourth outlook for could expect that would

Len Devaisher

Yes.

tail XX%, quarter at fourth But rate of did end the positive So signs our at fourth Terry, some because was uptick there's usage end the historically line see again some production. recall. But the that of as the at we the still seen low, we of loan quarter-over-quarter so quarter. I have

So constant usage, kind and additional of gain. holding some balance driving but production

we upward So to tailwind 'XX, our balances. for as we would move and through number would some that see outlook continue that move be, gradually us on be

Terry Mcevoy

you. And think in re-pricing and interest wondering as you Understood. rise, I'm referenced as you your deposit in rate on I your update guess you'll your then a us Particularly deposit base presentation, core world your the lag deposits? your -- to you rates that just if specifically sensitivity presentation. able follow-up, Thank be in do

Jim Cantrell

the is this of saying fairly I rising models, you year, modeling, guess in move as take the at mean would the question. at do some show look is we start neutral I first what rate and benefits time. we -- shot that when year, Terry, first in through fair by Jim, I neutral. see least at I I'll results first we model a in the would environment, pretty then a will ALCO Yes. amount and and

small the to in the year, I will. you rate as points think on tens of start the quarters to say potential there's some would amount unmodeled of the see would margin I in and of a it's as rate the -- stages. year, in more assets than would on not in reprice not, a potential, lag don't the deposit but want some terms first we early to of It's upside I on suggest, measured the margin. points second the increase, There's margin, oversell the do we for model in late expect our front of benefits a that terms basis not the unmodeled, what up. benefit, will fixed call, the lot in points near So indicate increases, in the basis it's it, in starting basis

Terry Mcevoy

Great. a Thank everyone you for that. And weekend, have nice thinks.

Charlie Funk

Thank Terry. you,

Jim Cantrell

You too.

Operator

The question please you. next is now. your Thank Damon comes Damon, from KBW, from DelMonte line

Damon Delmonte

good Hey, afternoon, everyone.

Just to sensitivity. question interest follow-up on Terry's with rate

we March the look at do of some of a flat can you core keep and for back year. it from more in as think at couple half this pressure or middle actually couple flex in to the the rise expectation quarters the quarter's upcoming you one Do the core the margin think towards up? with before hike that here, rates that over there's begins So and maybe level, margin you then still downward to

Jim Cantrell

is think this again. I Damon, Jim -- Yeah.

couple hikes in I we of think that a -- rate I as early One first do as think factors that is, talked are coming of there marketplace those expected our as we get are may March. those about just the work in favor. rates

of move We immediately. very that some up portfolio. our floating-rate, There's in liabilities will increases few will prime-based our a see loan our

our reprice, to money deposit be that I fairly time. Some CDs DDAs for is of market will likely and place but the steady, non-maturing steady. hold of savings, couple take increase But the those will most like, type to will think increases first start over

work I'm favor think talked that factor, letting signs, other off. see the in the run we starting I to portfolio about maybe do our So will and and

margin the sheet PPP think little course, towards forward. of a will less has that I balance think Now move contribute That -- little its bit run the I shift as more will we securities. better also, a maybe loans to than and forgiveness flat composition towards

Damon Delmonte

But a with of run two do how banking moving helpful. and very you what is at in with rate based over stuff. Then last Obviously, area you've the sensitive income. That's here? around now right industry off to core Thanks. look regard quarters your fee the mortgage seen rates

Barry Ray

Damon, is this Barry.

around As probably I I Obviously the run back, for million I this, I good $X say third and look probably core run adjustment that to rate a servicing going to is -- Damon. that of quarter of going that at million forward. $X.X fee the look XXXX would I'm Iowa right excluding say rate exclude income rate run also probably of mortgage would out the it and was First.

Damon Delmonte

contribute much, Maybe a bucks? Right. like mean, right? Right. they'll I too million

Barry Ray

will Damon. I quarter, -- that yes, million think a is first I be have I a about number a that's bucks

Damon Delmonte

asked and Great. else very much. Thank answered. been Okay. you Everything has

Charlie Funk

you, Thank Damon.

Operator

now comes Brian, question next The Janney open. from you. Martin, line Please, Thank from Brian Montgomery. your is

Brian Martin

guys. morning, good Hey,

Charlie Funk

Brian. Morning,

Jim Cantrell

Morning, Brian.

Brian Martin

just Maybe more loans, on today rate upward? your of margin, that are just one the what variable would loans percentage the on variable Jim, reprice

Jim Cantrell

depending would And variability, and of and third general I a a that the -- timing but the XX% in of on touch a right degrees. and upfront. Yeah. maybe some of loans, loans the between is -- third variable happens loans prime-based some XX% are less, answer of say Those it XX of the

Okay.

so time Some take off floor, get the will have floors. a little to bit the of

Brian Martin

you. Got

each how it, begin get some to a seemingly accrue would the thinking you get how when the hike XX I just think of in mean, increases -- mean, total, here. those I -- basis of it that rate or on you're we and point going in characterize how do rate does floors. I are you margin benefit rate that as hike, about benefit just to Okay, kind guess you'd from how the -- about to

Jim Cantrell

hike hiking but small of rate think Yes. early of in it's Brian, -- basis points. cycle, terms I in benefit do quarters the a some there's

time, the of early quarter, one in the in basis or per points basis but hike, if points it's the think up first tens over year so stages. incremental a I two probably it's expansion, after small, it's

margin stages, just I Fed see increase, it think small with big time, ones. I early the to changes over don't expect momentum the but builds

Brian Martin

you're kind And term. of flattish just removing kind That and are looking from taking I talk guess, the or, kind out at look core at? kind take standpoint margin you a What you then level? a of Are in PPP from your it, Jim your there -- core as that got about sit to you near point today, reference what you. core of here of maybe okay, of being of

Len Devaisher

do XXX? What reported, margin, what we -- the the in what's

Barry Ray

We reported you margin XXX. Right? that, at around have If PPP. put of That out I XXX. at back it would the

Len Devaisher

got couple points basis accounting. We purchase points basis eight on -- basis of about PPP, whatever on A point you call it. two

Brian Martin

margin XXX so where upwards it? picture Okay, the and there. you thinking is trend seeing about the from are stabilize That's you're then how big

Jim Cantrell

it, I yes. how That's view

Brian Martin

is I should the guess? bit guys post see in the in about maybe First lower, know level, outlook you front okay. you improving talked credit then into quality That's talk don't the as But I Then better maybe Charlie when quality First, as but in? maybe just you're you that? on how your just whether who for you year, landing? and I do I mentioned Where think a on you here. you yourselves the Yeah, get about later credit guess, Can that's little helpful. Iowa somebody context whom, think give -- can factor all referenced you Perfect. trend a reserve we any maybe, Iowa you you're Is what just it when go bit 'XX seeing about

Charlie Funk

levels quality just the of go believe on couple look Yeah. are the say if years year you story year. the Brian, I'm as continue think to that I from and think think I a back progresses. memory I on we down basis I asset for XX you I And MPAs at is I us progress here. and the would will believe continual prior MPAs going lower -- see points biggest of you from

asset hearing of Sims all his on of specifics, think benefit - I from Gary quality. terms from terms A in we outlook In

it So Gary. I'd give the

Gary Sims

Sure. I would.

what the to seeing in Charlie outpacing is non-performers we that terms Just quarter. in we're ability saying Really, non-performers to is the if reductions. momentum existing see any we're and what any the our continue of resolve in was deterioration, that given seeing the any,

loss you're the So as That I have to, I loan the see trend over loss the going a that migrating really down. bias that towards believe that the believe of you're loan going reserve see equates reserve of believe year over from continue. year, we what to the course course to well. I will

Brian Martin

Got you.

see where that over far as if get if hold things As where pretty assimilated. a expecting? time when Whereas, like we do you continue First you Iowa to see trending well you're you -- tracking up

Gary Sims

I'm Barry to help ask me. going to

Charlie Funk

-- a good Brian. a that's question. That's

Barry. this to one, catch have You

Barry Ray

difficult basis the Obviously Yes, of are towards budget, in say a that it's But difficult coverage our thinking. just I our is the the when That's raise -- evaluation the our of to XX answer. we're mathematically. factor we a up again, drifting question ahead ratio would down. CECL we accounts, measure to of think impact bias but First, impact the bit what could points. we're Then things to how were like Iowa going that doing we ratio it I shake little when of out Brian, drifting looked coverage down probably

Brian Martin

Thank Good. you.

forget side, something FIRST. the was Iowa -- Iowa number. it you I you about a And Barry maybe I expense right. from guess made was I missed what $X.X I just it, did All Okay. just but said, -- guys what maybe on you earlier, expense FIRST. from you impact the but comment the the -- million earlier comment impact -- guess on from said

Barry Ray

Iowa million, Brian, what what what expenses I $X was and that $X.X additional I of be. That's we call FIRST. to would expect a was Right. Yes, it said, and rate from clean to run

Brian Martin

--what you when said, okay. quarter, that Barry maybe that -- -- be And he that I and Okay, clean, would when apologize. and said

Barry Ray

know the it's [Indiscernible] be quarter what? earliest one of -- earliest the expect. would probably fourth the clean quarter fourth I XXXX quarter, You this

Brian Martin

you. Got

right. all That's guys. it. Thanks. I Okay. I appreciate All had,

Charlie Funk

Brian. you, Thank

Operator

you. Thank

As question, Charlie Funk further hand remarks. to questions. a have any further over reminder, for to ask any final will Instructions] currently I We back please [Operator no

Charlie Funk

the call. on are Thanks to participation We and we and Thank the active us your stay say participation. to today you, everyone again. we Thanks warm going in are Midwest, appreciate Juan. healthy. your listening who's Since stay joined

Operator

today's Thank concludes joining. for These much you call. so

disconnect You lines. may now your

MidWestOne Financial (MOFG) 28 Jan 222021 Q4 Earnings call transcript