Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- MidWestOne Financial Group Inc (MOFG, Financial) achieved a 3% annualized loan growth, excluding the Florida divested balances.
- The company successfully completed the divestiture of its Florida operations, resulting in an attractive net deposit premium.
- Net interest margin expanded by 8 basis points, leading to a 5% quarterly increase in net interest income.
- Asset quality metrics improved with limited charge-offs, lower non-performing assets (NPAs), and significantly reduced classified assets.
- Wealth management revenues increased by 15.8% in the first half of 2024 compared to the same period in the prior year.
Negative Points
- Total deposits declined by $39.5 million from March 31, 2024, after excluding the Florida divestiture.
- The net result for the quarter was essentially flat due to deposit outflows in April, despite increases in May and June.
- Non-interest expense increased by $0.2 million or 1% from the linked quarter, driven by costs associated with the former Bank of Denver operations and additional legal and professional costs.
- The sale of Florida operations created some noise in the second quarter financial results, complicating the analysis of core results.
- Funding cost pressures persist, with total deposit costs increasing by 8 basis points from the linked quarter.
Q & A Highlights
Q: You have done a lot of heavy lifting as part of the strategic plan. What areas of your initiatives do you have the most enthusiasm for and which ones do you think can make the most impact to the bottom-line?
A: Chip Reeves, CEO: Our commercial banking enterprise and wealth management enterprise are areas where we see good trajectory and will continue to invest. Len Devaisher, President & COO: Our investment in the Colorado market is a good example of where we see a lot of runways.
Q: Is there anything else you have thought of doing with the securities portfolio heading into year-end that might help the margin move higher?
A: Barry Ray, CFO: We continue to evaluate opportunities with the bond portfolio on a quarterly basis, but there is nothing specific we are looking at closely right now.
Q: What is your outlook for quarterly expenses, given the recent investments and changes?
A: Barry Ray, CFO: We expect to land somewhere in the $34 million to $34.5 million range per quarter over the next couple of quarters, and then higher as we continue to invest and get into 2025.
Q: What type of investments do you need to make in the Denver market to get to the necessary scale?
A: Chip Reeves, CEO: Our strategy will likely be branch light, focusing on commercial and wealth heavy. We are looking to incrementally add to the commercial banking enterprise and wealth management in that market.
Q: Could you share any financial targets on wealth management?
A: Len Devaisher, President & COO: We are pleased with the first half of the year and focused on net new assets and new client acquisition. We aim for high-single to low double-digit growth in wealth management revenue.
Q: How are you thinking about the reserve trajectory over the next couple of quarters?
A: Gary Sims, Chief Credit Officer: We feel comfortable with the current reserve levels relative to the risk profile of the portfolio and will continue to add to the reserve as the portfolio grows to maintain similar coverage.
Q: How are you thinking about NII growth prospects in the back half of the year, given the full quarter without Florida?
A: Barry Ray, CFO: Florida was about $1 million a quarter of NII. We expect some incremental net interest margin improvement based on trends with asset yields and costs.
Q: How are you thinking about share repurchases going forward?
A: Barry Ray, CFO: We are in a capital-build mode and do not expect to do a lot of share repurchases in the near term.
Q: Should we expect the securities portfolio to continue running off to fund loan growth?
A: Barry Ray, CFO: Yes, we expect to continue allowing the securities portfolio to run off to fund loan growth, aiming for the portfolio to be about 15% to 20% of assets.
Q: Can you provide an update on new lending verticals like agri-business and SBA?
A: Len Devaisher, President & COO: We see growth in community region loan balances and robust pipeline activity in government guaranteed lending, with fee income upside expected in the latter half of the year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
