Earnings call transcript Q4 2022

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Operator

Ladies and gentlemen, welcome to the MidWestOne Financial Group, Inc. Fourth Quarter 2022 Earnings Call. My name is Glenn, and I will be the moderator for today's call. [Operator Instructions]

I will now hand you over to your host, Barry Ray, CFO of MidWestOne, to begin. ahead. go please Barry,

Barry Ray

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

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

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

expects, generally and could statements include indicated. Forward-looking words from such materially similar results as believes, Actual anticipates expressions. those other differ

with Among the are competitive in reflect filed company's Inc. or important and to statements to business, periodic statements undertakes registration that circumstances change presentation. risk results of obligation this Commission. the Group, update general to no and company's of actual differ the interest conditions economic publicly factors revise the the after the pressures, materially events detailed MidWestOne and forward-looking could Financial in factors date cause rates, Securities reports the or these mix Exchange

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

Chip Reeves

his and my Len like days. succeed for did acknowledge Charlie interim geographic outstanding morning, Devaisher, to and $X.X excited CEO. billion also communities in to grown everyone. wisdom to that's and job be simply an while for here an XX states. to company footprint years our positioned who honored customers as firmly enduring to today five CEO. also our to and Charlie's success. Through developed Thank Barry, Charlie culture our as you, vision, and thankful grateful has through I'd MidWestOne good opportunity future President quite the Charlie first next counsel for and employees, I'm succeed COO, focused MidWestOne's of on has XX this expanding and leadership I'm assets,

combination organic my spent lines super business know banks developing those rural and me, community both For banking engines, I in regional building priorities, both new through career fortunate I've don't who and value. disciplined improved strategic growth markets, outstanding while to that at metro on of ultimately and process talent acquisition. a and results bankers delivering of and work executed shareholder financial been a teams with strategic

Here with strong at compelling lines. and business I MidWestOne, see a a bank foundation, diverse markets

fourth results. franchise from year XX implemented banking can to commercial which Our ago, initiatives our XX has quarter full benefited be seen months and in

AUM significant We business that and XXXX our growth also talent during a markets. strategically have in wealth added has

the business to is in business for valuations, due revenue muted equity prepared this substantial year-over-year While line growth. is

core strengths foundational enjoys now In share banking in into need bank of We our addition, MidWestOne performance. to market dominant our Iowa many translate operating community markets. these

these reflected Denver of initiatives by acquisition Looking detail. of at loan results the Iowa. annualized more quarter. select exceeding and in our They banking many the XX% and relationship quarter with target markets our occurred growth metro primarily for driven talent model, Metro in our consecutive Twin growth Cities, third fourth This

organization's our asset actions, metrics XX the coverage uncertain economic remained XX and XXXX's low for issues delinquencies We've X.XX% our well XX legacy positioned at remedied now day are historically at levels. is and our conditions. to Turning credit decreasing assets to nonperforming quality X.XX%, ratio ratio allowance to strategic in points fourth measurably expertise credit improved Through our quarter quality. with basis

Our net earning rate primarily costs to and fourth by leading asset fixed higher a results, funding however, margin composition, compression. impacted quarter interest were

volumes, our origination addition, primarily to lower income was earnings. pressured and both In profitability due noninterest mortgage impacted

top-performing MidWestOne engines with bank. of of the the believe we've and position development this that a I becoming forward, this, our there's an to accomplish enhancing plan goal strategic goal. improve a will opportunity developing To further commenced our Looking operations, while ultimate to growth achieve

in plan our the of let details quarter more thoughts me review. high-level April our on earnings outlined first share late we call, some XXXX While

bank's manage address given a this that to actively challenge. is reviewing we balance to sheet, more are range focus area clear a of broad initiatives First, of the liability-sensitive. We're

we We must operate. businesses provide are responsible will and in our business in the lines which for markets review scale geographies Second, opportunities we ensure growth. we and that profitable and that

Third, drive as occur. likely resources operating of lines, growth, our efficiency. we base business as of review to review a well will reallocation to expense lead will our a as commensurate This

bank part markets want Once and is we forward of high-performing and results. an This power You'll hear creating bankers, organization. to talented to a engine with be a we be I'm high-performing Bank. to special me place strong a MidWestOne a growth organic with say look this our often, a again, to compelling honored foundation,

to With comments. provide who that, business turn will call the line over I'll Len, of

Len Devaisher

Thank you, Chip's of the to acceleration morning, we high-performing everyone. Chip, good to the aligned, arrival, team MidWestOne build is With a into and committed are bank. leadership and journey our

just begun, has we're journey started. that getting While

of of wealth these past proud accomplishments on number the integrating Iowa three, perspective two, Looking focus driving our I'll number am business; number portfolio; priorities, improving while and our up our some executed risk high-level each areas. the over the we scaling I profile back growth, strategic on year, First one, of including: acquisition. offer as loan our

Cities more XXXX. loan the Looking than Twin way, growth, led growing Denver and $XXX commercial million at in each our

Iowa Nonperforming down million followed that have $XX talent contributor talent. $XX increased than markets, nearly than XX-day risk Twin more different $X are importantly, exceeds have one has a as half, while past new These same million. trend. just dues pleased Des recruiting Metro reduction, common growing investments City's a growth, commercial These to very volume, billion. more the with driven by profile. but but portfolio are been now also Moines improving an assets thread, are strong We

the continues and our in I $XX engine, growth team consumer deliver up out needle Finally, retail mortgage. balances while $XX million consumer in is mover footprint high-quality our point growth million in commercial should our that to loan across with

we an appropriate is digits commercial current to feel growth In our target. mid-single Looking range forward, pipeline remains the environment, solid.

At relationships is risk customer opportunistically to the the we and a given return the shareholder we've profile loan-to-deposit same onboarded will ratio, win. add our when new new talent time, low continue and

that uncertainty especially for Our our for advantage Well, story. some planned, revenue the half has back credit relationship belief of share, business well our to to XXXX growth of over present slower and disciplined bodes future. than gain the same the could market. take momentum materialize The opportunities the talent of growth approach in the is we XXXX is wealth the been

with pleased new bringing are that S&P We XXX, we our AUM on teams the grow materially million faster of wealth than AUM. saw $XXX

forward, with the similar and our commercial in opening of are Cedar XX encouraged pipeline will we magnitude, office new and look days. next As we we be wealth Rapids the

to capacity in expense takeouts evident. Iowa ahead plan drive on earnings according First Finally, initiatives Iowa our First to With realized technology now fully strategic and integrated, and has focus contribution to with and the positioned operations we performed growth are year efficiency.

to Let me now the call financial discuss Barry our turn to results.

Barry Ray

$X.X Len. our Starting balance annualized to financial $XX.X you, walk quarter with XX.X% the the with assets. statements through sheet. beginning from Thank linked I'll increased million billion. Loans or

at average In fourth or XX.X% the commercial quarter portfolio Strength million compared on a an improvement point of loans, from a yield quarter. increased coupon were as XX $XX.X was linked brought The in linked premium the X.XX% annualized quarter, the resulting by X.XX% was third the basis asset new loans which led and X.XX%, quarter. at quarter in from to yields in in interest-earning of overall XXXX. the

which the As profile the improve Chip positions of our loan strategic actions credit bank fourth through portfolio, we uncertain an outlook. the discussed, took economic quarter to for

charge-offs to million $X.X quarter, $X.X of credit partially X.XX% the declined offset loan loans XX. expense million the was During allowance to credit million, by $X.X due loss for at $XX.X The net investment losses held for decline of million. December of or

were compared up linked slightly the Deposits as billion XXXX. $X.X quarter, to to down year-end from X.X% but

experienced we our for to increased competition deposit to During us rates the raise deposits, required which relationships. maintain quarter,

Looking Finishing million, at driven million of $XX.X XX costs of Total to basis of to shareholders' comprised closely, primarily $X.X change our and costs. income by dividends million. interest-bearing $X.X million, interest-bearing million long-term offset cash more a $XXX.X increased X.XX%, net cost debt short-term of to the the partially equity favorable points in AOCI balance rose $XX deposits, by and increases borrowing sheet. this of liabilities

the linked partially increased asset quarter, the to the $X.X income in cost yields. Net the with due interest and levels the to in level declined million and interest-earning statement. quarter increase the of compared Turning primarily higher high-cost combined income fourth borrowings by offset million to as $XX.X to funds of

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

fair Noninterest as primarily than our income an which was the due by $X.X in revenue Our NIM an increase million a due total compared in the IOFB primarily earning asset value the to interest quarter recorded with $XX.X quarter. due impacted yield. more fourth the million decline recorded the decline increase quarter our rose decline fourth partially connection mortgage settlement origination the other to third rights $X.X XXXX, and servicing in of our of was in combined income bargain offset by acquisition. onetime of which purchase $XXX,XXX with a our fee an in The loan $XXX,XXX quarter in to linked in to a increase mortgage rapidly smaller declined the in in income increase decrease in in to million funding a gain costs, was the

the increase and an fourth $XX.X in decline employee quarter professional $XXX,XXX expense. incentive to from decline fees, to million, related from processing, largely quarter. the and and $XXX,XXX a compensation a IOFB was merger-related acquisition by with of MOFG, compensation $XXX,XXX due marketing benefits The total Finishing in legal offset increase partially noninterest in expenses, was at a decline expenses the data reflecting expense slight linked in

quarterly level, our costs. rate excluding believe merger-related we XXXX will forward, run quarter the Looking fourth expense approximate

turn the And line it back questions. to the with to for that, open operator I'll

Operator

question Instructions] from first Piper [Operator have We line now you. our your is Brendan Brendan? open. Sandler. from Thank Nosal Brendan, comes that

Chip Reeves

Operator, we Brendan. are not hearing

Operator

is now line open. your Brendan,

Chip Reeves

Brendan, I you think we got now.

Brendan Nosal

Hey. me? hear Can you guys

Chip Reeves

We yes. can, Brendan,

Barry Ray

Yeah. Hello.

Brendan Nosal

Hey.

start Maybe Sorry about kind off My loan to the between growth apologies. of on and equation folks. that just funding.

growth reasonable expectation. mid-single-digit So pace on it sounds loan like a is

growth curious securities the think like thinking of can kind about funding reinvestment piece, that how just but of it that. of ahead? about looking I balance kind fund the looks Just on mean, you a

Barry Ray

we're growth to start. at are Barry. to would then right is securities their digits run given cash and target the upwards an we to extent we're advances. looking wholesale of over short the as are cost mid-single brokered fund I'll alternative loan this favorable about FHLB that looking the exceed of that -- deposits What Brendan, able funding the flows at Yes, now obviously, sources. particular then

Brendan Nosal

Got it. Got it.

cycle the on a out of do couple pricing sense, then at a second And think get we we assuming are general kind maybe in where more pressures, one, just the pricing of of Okay. hedges deposit in pressures point? this you

Barry Ray

think Brendan. in thick pricing we're is deposit the it how pressures of I feels,

we I deposit think we quarter which indicated is cycle-to-date been see up when out to respectable pressures in may those be. think their happening indicated the ramp reaches in expect beta terminal our At I as has the those rate also our ramp It the we there and continue until industry. in quarter-over-quarter betas what's in XX%, the we up that that FOMC did release believe to fourth release. I which well. XX%, perhaps, quarter-over-quarter least to whenever

Chip Reeves

you And franchise to Chip. been visually Actually, in core what is a granular pretty terms and date actually the we're deposit of tell of core through beta least our cycle at XX%. franchise this granularity Brendan, that we've with through protect I'll cycle, to the it. going impressed deposit to of the or And is, only --

would franchise huge continue, pressures a deposit we part and I expect, also but it's to our So value. here to beta that point, rise the of Barry's believe

So to it. we're going protect

Brendan Nosal

taking right. Understood. Yeah. the Thank you All for questions.

Chip Reeves

Thank Brendan. you,

Operator

you, Brendan. Thank

question We have now your next open. is McEvoy Terry Stephens. from comes our line Terry, from

Terence McEvoy

you? are Hi. Good How everyone. Thanks. morning,

Chip Reeves

Good. Hi Terry.

Barry Ray

Good morning, Terry.

Terence McEvoy

far with along resolve we portfolio? loan you review portfolio the legacy expect credit Maybe to of start the are said some way, of And another how additional loan I guess, of issues? those should actions through off kind

Chip Reeves

Yes.

Gary have ahead Officer, go -- first, I'll Chief our Sims, then we and me hit go Credit this Let with us, Terry. also and

of obviously, the So credit that of November the to one -- legacy we let's first X, look pieces at job joined, I began when I issues. credit was, finish first the

or able that the So in did that place, some we XXXX, in Ultimately, we actions went believe through and anything be either did. put would we we resolution. the sale with obviously, then remedied resolve not we to other a review

to that impact, down with So asset ratio points. nonperforming XX that we to were reduce basis able

portfolio you whole. or want those Gary, to any if more speak to of even particulars as a the

Gary Sims

in portfolio nonperforming I December identified, as potential we resolutions, the that from what specifically, books and XX. And portfolio is Chip. Thanks, Chip Yes. the see have the There XXXX. left at still on

I We the will end very -- the to of credit about throughout thorough into And resolve and at in every and migration talked as see continue decline we the think review that end a we've of we book touch book by portfolio of So virtually the nonperforming existing size year. of the a do year don't continued before, XXXX. XXXX. material the

think So we see to to generally, credits. help? as continue that going go you're to continue that I resolve book Does down

Terence McEvoy

It compete products? a at to is strategy Do within degree banking that successful? third If your says commercial Thank commercial strengthening have adding the bankers? expense follow-up, you response. banking the or you shareholder about the product And does, to And can yes. as space so, slide the bullets commercial as both should the And that value for outlook? set look your interpret when I you incremental in or I franchise. the that be what then fourth

Chip Reeves

believe This our you'll internally give couple We'll begin today, comments space banking unveil into over months. is we've last for bank going two lean the to Len really within Terry. of commercial even I‘m I do see XX what the as and as more significant Chip, of this we years. and last we a market. for of as turn effort to external well more plans led Devaisher, progress strategic to the who made the in our than then it have

absolutely goes, Minneapolis, and In be terms Iowa. think it bankers, those Denver metro we'll where select of our terms commercial adding in and I in and talent markets of adding of Metro

think begin set, accelerate treasury is terms of to that In the continue to our we'll our product I initiatives some as of management things well.

comments Len, further any there?

Len Devaisher

Chip, it well. that I hits think,

might clouds do will be uncertainty the can add the makes take care feel a positions when bit. folks to only we opportunities risk on pricing on extent that. sidelines enjoy we for of level like there sense, companies profile loan-to-deposit ratio the be us and environment that the there, that advantage to -- I take that think any over thing the this the macro do other little is, I might is ours a And like there's where that

So that think helps recruiting I our story.

Chip Reeves

today? that that Barry I then, second think the terms expense Terry, So the And question in is the in part of your of guidance, base is, mentioned.

it number of into reallocation We that that guidance. new also of have hires expense will our a but take some we a significant hit built ensure base, current new of that base to

Terence McEvoy

my taking for Thanks Great. it. Appreciate questions.

Chip Reeves

Absolutely. Thank you, Terry.

Operator

Terry. you, Thank

have question We Damon from from open. DelMonte next line is now our your Damon, comes KBW.

Damon DelMonte

everyone. morning, doing hope all good you today. guys well I Hey, are

on Just wanted margin to -- morning. the a in bit little dig Good

points more some a dig here. little basis guys understand bit on XX margin. pressure Fed. if at the Barry, But near-term Just in the seeing there's you're you -- two wanted I hikes to of rate

you kind the more bit Just out? on margin the us funding kind could where and of of give the dynamics bottom can perspective equation, of given market on side the little a

Barry Ray

of to obviously, lot -- respect I'll margin to there's with It's Damon, your question. and do puts Yes. answer the my takes lands. ultimately where best a

I downward think in margin term, on be deposit will that our as rates, pressure the up. near and short-term FOMC betas there continues the pick to expected, increase the

on -- so liability side. we As the on that's be going the earlier to discussed

about some have a will benefit of on reprices side rates. portfolio asset to the we quarter side, XX% asset On same or those within It's so. the our

yield is positives. where to shape to to to will of what's there's articulate curve What's uncertainty of around challenge. deposits, the some the happen. it's to it's going those So bottom reason a example. why for happen And The be going the going is, difficult

to think answer be some it's is, best downward My pressure to going Damon answer. So difficult the there's term. I in near

Damon DelMonte

you have the Okay. month? margin you -- Can December do the for

Barry Ray

X.XX% around December. we're month think I of the for

Damon DelMonte

Okay.

all -- right. So

So quarter. it ended higher for the than

pressure quarters, do come Thank Okay. which remind space? to the coming office is what respect may then classes, lot exposure Great. do the you did your exposure under a just All there? right. you. additional asset in guys And Can you to with us in

Chip Reeves

us, will Credit Chief that that Gary. Sims, Gary Officer, Go is ahead, answer This for Damon.

Gary Sims

a office Thanks, not Damon. now. most really size class asset banks, preferred Like our right is

a result, As we're overexposed. not

X.X% our and X.X%. down to portfolio of from year-to-year. office, that's X.X% That's in We down have down

kind you category, our look construction exposure to our at of on stance we it, give And category. have idea, you an office any construction our when don't in

by existing of So for but in portfolio stable doing of right the it We now, to best market feel That market. is the portfolio idea up now. the The good that most Cities not to Twin probably about how help? feel Minnesota part, right -- office. new we're that that, in cetera, about that the leases, not well, you adding office relatively gives is Does just primarily space. office we backed et be we're and exposure XX%

Damon DelMonte

I lot. had I Great. Thanks all Yes, that’s helpful. appreciate That’s very the for color. now. a

Chip Reeves

Thank you.

Operator

Damon. question Brian, you, [Operator Our Martin is Janney. your Thank now comes from line from open. Brian Instructions] next

Brian Martin

everyone. Hi. Good morning,

Chip Reeves

Brian. morning, Good

Brian Martin

maybe last horse quantifying a as second on trough factors the currently today the quarter. go, Not but without you're in sounds that the they think though to Is how one and competitive where one, would it pressure like about maybe sounds it Just the you Barry. on the based dead beat that it experiencing? margin, margin

Barry Ray

quarter quarter think of I is half and maybe, and positive the benefit then the Second potentially, maybe it. how Brian, third into year, flat about the in latter some

Brian Martin

Yes.

Or a that? of XX would on portion perspective of maybe -- you could Okay. that that about, a do have And us next you How over -- I reprices. is? the on you the just a much little Is book the what level months? reprice remind talked think, me that give handle loan

Barry Ray

the earning mature reprice and/or assets over year. of the think I our course XX% about of

Brian Martin

origination it? said was yield where on today, loan think new the putting the maybe I I And you're missed it. rate, that or XX%. Okay. you

Barry Ray

was my the in quarter. just was above coupon -- Yes, comments, coupon it in the X% fourth average

Brian Martin

you. Got

about or maybe you, about being little you. with but how it Chip, it's sounds -- the Barry, in just Thank on market like the the then maybe Chip I should wealth kind how and side, this just mean frame mortgage Cool. just income kind the Maybe outlook the the term And your outlook, muted about at a significant divulged side gets opportunities a would on as Okay. talked think and for income I fee that or wealth maybe more someone kind income performance -- any opportunity. your don't of -- fee we else. you on maybe year, the in least just of near fee but maybe of up general, or plan, at help appreciated. on be unveil

Chip Reeves

bullish valuations, AUM actually million increase number MOFG substantially was may wealth $XXX Len revenue space there. now. mentioned increase Brian, item what the determine in that valuations in Obviously, to equity the potentially brought XXXX. management bit comes minus line equity on We we're here right a on believe little of XXXX. here that and will at of

challenged. is banking Mortgage

-- the still I Rates low. high. are other think housing know we inventory is that from for

business, the obviously now, Our pipelines are mortgage seasonally it's in challenged. adjusted as but well

is that so not do And expect we in great in, XXXX. frankly, business that, a momentum

Brian Martin

-- lower about be and know as is at puts and just that quarter's and level some the trying -- year-over-year Or lot run about a of year far but is, as I what -- aggregate of progress start? get income Okay. and kind its year to think in we there's a even general, it fourth growth maybe start thinking so level? the noise to look momentum, to should how as takes to about last in realistic going don't or you through it And run think rate the there maybe fee then maybe rate in being whether -- just you growth? just

Chip Reeves

again, good the I That begin think to range $X.X million $X -- Brian. this to I is think, year. a million Chip is, range

Brian Martin

housekeeping. last Okay. Perfect. me, And for more just one

think are year? any as far this from for of payoffs stair as kind where about how I the that today? Is Is is best or to just may significant down the paydowns? guess, income, outlook it in on accretion a we insight evolved Barry, level? through how any Just good step it that

Barry Ray

the step year That's fourth the Brian, Yes. and way and as down stair think the it I quarter take well. years in future throughout about it,

Brian Martin

you That’s the all taking guys. have. Thank Okay. questions, I

Chip Reeves

Thanks, Brian.

Barry Ray

Thanks, Brian.

Operator

I have remarks. you, further We back [Operator Thank Instructions] now on for will Brian. the hand no team line. questions to the closing

Chip Reeves

to continue everyone, joining Thanks, I becoming for today. to late and more forward bank. our sharing strategic plan look of journey in a top-performing priorities Thanks, we Great. everyone. our as April

Operator

Thank Thank gentlemen, you. for and call. this joining. today's Ladies you concludes

may your disconnect now You lines.

MidWestOne Financial (MOFG) 27 Jan 222022 Q4 Earnings call transcript