MidWestOne Financial reports solid Q1 growth, plans divestiture By Investing.com



MidWestOne Financial Group, Inc. (NASDAQ: MOFG) reported a robust first quarter for 2024, highlighting the successful integration of Denver Bankshares and the progress of its strategic plan initiatives. The company experienced an 8% annualized loan growth and reported an expansion in net interest margin. MidWestOne also announced its intention to divest its Florida branches in June 2024, which is expected to reduce quarterly expenses.

The company’s Wealth Management business saw a significant increase in revenue, both quarterly and year-over-year. Despite increased costs related to the merger and severance, the management team is focused on expense control. Looking ahead, the company is optimistic about its growth prospects in Denver and the performance of its commercial real estate portfolio.

Key Takeaways

  • MidWestOne Financial Group reported 8% annualized loan growth and net interest margin expansion in the first quarter of 2024.
  • Successful integration of Denver Bankshares has bolstered the company’s Denver operations, with loans of $673 million and deposits of $429 million.
  • The company’s Wealth Management business revenue increased by 10% quarterly and 19% year-over-year.
  • Non-interest income rose due to no net loss on security sales, while non-interest expense increased by $3.5 million, primarily due to merger-related costs.
  • MidWestOne announced plans to divest Florida branches, aiming to reduce quarterly expenses starting June 2024.
  • Analysts inquired about Denver opportunities, trucking industry credits, balance sheet position, wealth management revenue, loan deposit growth, reserve trends, and margin impact during the earnings call.

Company Outlook

  • MidWestOne Financial is expanding its Commercial Banking and Wealth Management businesses.
  • The company aims to reach a $1 billion franchise in the future for its Denver operations.
  • Management expressed confidence in the momentum of their fee income.
  • An expected effective tax rate of around 22% for 2024 was mentioned.
  • The company anticipates margin improvement with and without rate cuts.
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Bearish Highlights

  • Total non-interest expense rose by 11% due to merger-related and severance costs.
  • Weakness was noted in the office space and senior living portfolios, with portions classified or criticized.

Bullish Highlights

  • Solid loan and assets under management growth in major metro markets.
  • An increase in earning asset yields by 20 basis points, partially offset by a 10 basis point increase in funding costs.
  • The company reported new origination yields of around 7.50-7.61.
  • Accretion numbers are expected to increase next quarter due to the Denver transaction.

Misses

  • The cost of interest-bearing deposits grew modestly compared to the previous quarter.
  • The March margin was slightly higher than the quarterly margin, reported at 2.39 compared to 2.33.

Q&A Highlights

  • Analysts discussed the company’s expectations for margin improvement and the impact of rate cuts.
  • The company’s commercial real estate portfolio, which comprises 60% of their portfolio, has around $160 million of re-pricing expected in the next year.
  • Details were provided on the office and senior living portfolios, including classified or criticized percentages.
  • No significant migrations were reported in either portfolio during the quarter.
  • An expense impact of around $700,000 related to Florida was reported.

MidWestOne Financial Group ended the earnings call on a positive note, with management expressing satisfaction with the company’s solid start to the year and optimism for the future. The strategic initiatives and growth in key business areas suggest a strong outlook for the company, even as they navigate through increased expenses and portfolio challenges.

InvestingPro Insights

MidWestOne Financial Group, Inc. (NASDAQ: MOFG) has demonstrated resilience with its strategic initiatives and growth in key business areas, as reflected in the first quarter of 2024. The company’s commitment to shareholder returns is evident, with a track record of raising its dividend for 13 consecutive years, and maintaining dividend payments for 17 consecutive years, signaling confidence in its financial stability and future earnings potential.

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InvestingPro Tips for MidWestOne highlight that while the company has faced challenges with its stock performance and gross profit margins, analysts remain optimistic about its profitability in the current fiscal year. This optimism is supported by the company’s profitability over the last twelve months, suggesting a strong foundation despite recent market volatility.

The real-time data from InvestingPro further enriches our understanding of MidWestOne’s financial position:

  • The company’s market capitalization stands at 324.93 million USD, reflecting its size and presence in the market.
  • With an adjusted P/E ratio of 13.55, MidWestOne is valued by investors based on its earnings, which could be attractive compared to industry peers.
  • Despite a year-to-date price total return of -23.33%, the dividend yield remains robust at 4.75%, offering investors a steady income stream.

Investors seeking more in-depth analysis and additional InvestingPro Tips can find them at https://www.investing.com/pro/MOFG, with a total of 7 tips available. To enhance your investment research on MidWestOne Financial Group, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.

Full transcript – MidWest One Financial (MOFG) Q1 2024:

Operator: Good morning, ladies and gentlemen and welcome to the MidWestOne Financial Group, Inc. First Quarter 2024 Earnings Call. [Operator Instructions] As a reminder, this call is being recorded. And I would now like to turn the call over to Barry Ray, Chief Financial Officer of MidWestOne Financial Group. You may proceed.

Barry Ray: Thank you everyone for joining us today. We appreciate your participation in our earnings conference call this morning. With me here on the call are Chip Reeves, our Chief Executive Officer; Len Devaisher, our President and Chief Operating Officer; and Gary Sims, our Chief Credit Officer. Following the conclusion of today’s conference, a replay of this call will be available on our website. Additionally, a slide deck to complement today’s presentation is also available on the Investor Relations section of our website. Before we begin, let me remind everyone on the call that this presentation contains forward-looking statements related to the financial condition, results of operations and business of MidWestOne Financial Group, Inc. Forward-looking statements generally include words such as believes, expects, anticipates and other similar expressions. Actual results could differ materially from those indicated. Among the important factors that could cause actual results to differ materially are interest rates, changes in the mix of the company’s business, competitive pressures, general economic conditions and the risk factors detailed in the company’s periodic reports and registration statements filed with the Securities and Exchange Commission. MidWestOne Financial Group, Inc. undertakes no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances after the date of this presentation. I would now like to turn the call over to Chip.

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Chip Reeves: Thank you, Barry and good morning. On today’s call, I’ll provide a high level overview of our first quarter results and an update on the significant progress in executing our strategic plan initiatives. Len will provide an update on our lines of business and then Barry will conclude with a more detailed review of our first quarter financial results. Looking at our quarterly highlights, I am pleased with the seamless closing and integration of Denver Bankshares, which added scale and a low cost deposit franchise to our ring Denver operations. Our Denver franchise now has loans of $673 million and deposits of $429 million. As we have stated previously, our objective is for the Denver market to be a $1 billion franchise for us in the future. Len will speak further about our progress and our plans in this critical market. Turning to our balance sheet trends. Excluding acquired Bank of Denver balances, we delivered 8% annualized loan growth for the first quarter as we continue to benefit from the expansion of our major market banking teams and our customer value proposition, emphasizing larger bank expertise, delivered in a high-touch boutique fashion. Additionally, deposits were stable in what’s normally a seasonally slow quarter and we remain cautiously optimistic. We will grow our core deposit franchise through the year ahead. Importantly, in the quarter, because of our strategic 2023 balance sheet actions, the acquisition of Denver Bankshares and continued loan growth, our net interest margin expanded in the first quarter, rising 11 basis points and leading to a 7% quarterly increase in our net interest income. Even if no rate cuts occur in 2024, we anticipate a slow build of margin for the remainder of the year. We continue to expand and up tier our Commercial Banking and Wealth Management businesses and have enjoyed solid loan and assets under management growth in our major metro markets of the Twin Cities, Denver and Metro Iowa. Specifically, regarding our Wealth Management business, our investments in talent and platform as well as market valuations led to first quarter revenue of $3.5 million, a 10% quarterly and 19% year-over-year increase. In January, we welcomed our new EVP and Head of Wealth Management, Steve Heimermann. And under his leadership, we look to achieve double-digit annual revenue growth in this business segment in the years to come. The first quarter and the beginning of the second quarter of 2024 has seen significant talent acquisition across our bank as we continue to mature and expand our operations consistent with our strategic plan. These senior hires are in commercial banking, credit administration, wealth management, marketing and treasury management. Even with these talent and platform investments, we remain pleased with our expense discipline as we funded the majority of these investments by reallocating expense reductions into more productive and profitable markets and departments. To conclude, we have made substantial progress in the transformation of MidWestOne, positioning the bank for improved earnings power and returns. The execution of our strategic initiatives is progressing better than we have expected, and I remain very optimistic on what the future holds for our employees and shareholders. I’d like to thank our employees for their continued hard work their expertise and their commitment to our company, customers and communities. This journey would not be possible without their unwavering support. Now, I’d like to turn the call over to Len.

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Len Devaisher: Thank you, Chip. I’d like to provide some color on the results we are seeing in our deposit, commercial and wealth business lines. So, let’s start with deposits. We are pleased that both February and March saw customer deposit gains mitigating seasonal decline we experienced in January. These gains exclude deposits assumed from the Bank of Denver transaction. In terms of Commercial Banking, Slide 7 shows that it was Iowa Metro, Colorado and Twin Cities as our largest contributors to balanced growth. The primary drivers include draw-downs on existing CRE construction loans and an acceleration in C&I new production. This includes a nice win by our new agro business team as well as a new manufacturer we brought across both with a full relationship including treasury management. Speaking of commercial, our government guaranty business continues to gain momentum. We see our SBA gain on sale business as a growing driver of fee income. In the first 3 months of 2024, we recognized $213,000 or 65% of what we saw in all of last year. And we believe the next couple of quarters will outpace that strong start. As Slide 8 shows, asset quality metrics for the quarter were stable, including net charge-offs and 30 to 89-day delinquency of only 2 basis points and 20 basis points respectively. Our non-performing assets ratio saw a slight increase of 2 basis points, while our allowance grew to 1.27% of total loans. As noted in our release, our classified assets ratio declined 36 basis points from the linked quarter. However, two large trucking relationships migrated from past to special mention in the quarter, driving an increase in our criticized loan balance. Turning to Slide 10, the momentum in Wealth Management continues with assets under administration, up 11% and revenue, up 19% from the same period 1 year ago. We are encouraged by new talent attraction efforts in this line of business and we see that as a continuing opportunity for us in 2024. Finally, I want to commend the exceptional work by the team with the Bank of Denver acquisition. From operations to IT to retail ambassadors and learning and development, it was our smoothest conversion yet. And I can tell you from having been on the ground in Denver that our newest colleagues are settling in very nicely. As Chip mentioned, we see continued upside in Denver. In fact, in the period since our Bank of Denver announcement, we have recruited a new SBA Business Development Officer, a new Treasury Management Officer, and a new senior C&I commercial banker, as referenced in our strategic plan updates, selective talent acquisition in our target markets continues to be a focus. With that, I am pleased to turn the call over to our CFO, Barry Ray, to discuss our financial results.

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Barry Ray: Thank you, Len. I will walk through our financial statements beginning with the balance sheet on Slide 12. Starting with assets, loans increased $287.7 million or 7% from a linked quarter to $4.41 billion. Excluding the $207.1 million of loans acquired in the Bank of Denver acquisition, loan growth was $80.6 million or 8% annualized from the linked quarter. Strength in the first quarter was led by commercial and industrial loans, which increased $30.7 million or 12% annualized from a linked quarter. The overall portfolio yield was 5.51%, a 17 basis point improvement from the linked quarter. The allowance for credit losses increased $4.4 million to $55.9 million or 1.27% of loans held for investment at March 31. The increase reflected $3.2 million in credit loss expense to establish the Day 1 allowance for credit losses in connection with the Bank of Denver acquisition as well as additional allowance for credit losses for organic loan growth. Turning to deposits. Total deposits increased $189.6 million to $5.59 billion at March 31 as compared to December 31. Excluding the $224.2 million of deposits assumed in the Bank of Denver acquisition, deposits were down $34.7 million from year end 2023. Finishing the balance sheet, total shareholders’ equity increased $3.6 million to $528 million, driven primarily by a decrease in accumulated other comprehensive loss. The tangible common equity ratio was 6.43% at March 31, 2024, down 47 basis points from year end 2023 due primarily to the all-cash Denver Bankshares acquisition. Turning to the income statement. On Slide 15, we earned net income of $3.3 million or $0.21 per diluted share. During the quarter, we completed the acquisition of Denver Bankshares resulting in merger-related expenses of $1.3 million and a day 1 credit loss expense of $3.2 million. In addition, we recorded a negative mortgage servicing right valuation of $368,000 and incurred non-merger-related severance costs of $261,000. Adjusting for these items, adjusted net income was $7.2 million or $0.46 per diluted common share. Net interest income increased $2.2 million in the first quarter to $34.7 million as compared to the linked quarter, due primarily to higher earning asset volumes and yields, partially offset by higher funding cost and volumes of interest-bearing liabilities. Loan interest income in the first quarter of 2024 included $1.2 million of loan purchase discount accretion, $458,000 of which was attributable to the bank of Denver acquired loans. The accretable purchase discount for the Bank of Denver loans was provisionally measured during the first quarter at $8.2 million or 3.8% of acquired loans. We expect to recognize that discount in loan interest income over the 3.1 year weighted average portfolio life. Our tax equivalent net interest margin increased 11 basis points to 2.33% in the first quarter as compared to 2.22% in the linked quarter as asset yield increases outpaced funding cost increases. Specifically, earning asset yields increased 20 basis points, partially offset by a 10 basis point increase in our funding costs. The cost of interest-bearing deposits grew much more modestly, up only 6 basis points quarter-over-quarter compared to the 34 basis point increase we experienced in the prior quarter. This outcome was a key driver in our net interest margin improvement. Non-interest income in the first quarter increased $5.9 million due primarily to the $5.7 million net loss on our security sale in the fourth quarter of 2023, which did not recur in the current quarter. In addition, wealth management-related revenue increased $310,000 from a linked quarter. Finishing with expenses. Total non-interest expense in the first quarter was $35.6 million, an increase of $3.5 million or 11% from the linked quarter. The first quarter’s expenses included $1.3 million of merger-related costs as well as non-merger-related severance costs of $261,000. Adjusting for those charges, adjusted non-interest expense was $34 million or a 6% increase from the linked quarter. The increase was due to normal annual salary adjustments, incentive accruals and additional Bank of Denver employee costs. As a reminder, we expect to divest our Florida branches in June 2024, which will result in a reduction to our quarterly expense run rate of about $700,000 beginning in July 2024. The expense control remains a key focus of our management team, and we are very pleased with our execution. And with that, I’ll turn it back to the operator to open the line for questions.

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Operator: [Operator Instructions] And our first question is from the line of Brendan Nosal with Hovde. You may proceed.

Brendan Nosal: Hey, good afternoon, folks. How are you doing?

Barry Ray: Hi, Brendan.

Brendan Nosal: Maybe just to start off here. I appreciate all the commentary you gave on early days of Denver, and I know that it is still quite early there. But just would love to hear you speak about some of the opportunities that you hope to get in front of now with the deal closed and the new team adds that you just weren’t able to get in front of previously?

Len Devaisher: Yes, Brendan, this is Lynn. And I would tell you that the story, I think, is compelling where folks – we have a new story to tell. We’ve had, obviously, as you know, we’ve enjoyed a lot of growth out of Denver starting with the team looked at in 2017. But this is doubling down with our partnership with Bank of Denver really allows us to show to talent what this market means to us. And so I see that showing up since the announcement in the talent recruitment we’ve been able to achieve – and I would say that overall, I look at it as not only the new talent we’ve added on, the talent that we’ve acquired by way of Bank of Denver and then just looking at balances and having customer conversations having down in the ground that feel good about momentum.

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Brendan Nosal: Alright. Perfect. Perhaps one more for me. Can you folks offer a little more color on the trucking industry credits that drove the increase in special mention? Any details like what drove the migration? How large reserved and any line of sight to potential loss content you see at this point?

Gary Sims: Hi, Brendan, this is Gary Sims. We don’t have a significant exposure to the trucking industry, just as a matter of course, our exposure is primarily focused on customers in our markets that we’re doing business with. Total exposure is $55 million across the industry. And as we started getting in the year-end financials from our customers, we recognize that some of our customers had experienced deterioration in 2023 that prompted us to downgrade a couple of those credits to special mention based on less than – less-than-expected cash flow. Both of these credits are long-time customers that we do believe have the wherewithal and the staying power to make it through this industry downturn. You did ask kind of what’s driving that. It’s really that the after effect from the from the pandemic where you had an oversupply of capacity in that space that’s caused trucking rates to decline. And so you’ve got that supply/demand mismatch that’s been happening in the industry. So we’re watching those customers closely. When we saw the deterioration, we looked at the entire portfolio and the downgrades that you saw were really the ones that we said had some risk in them. I’ll stop. Does that make sense, Brendan?

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Brendan Nosal: Yes, that’s super helpful color. Thanks for spending the time there. Alright folks thanks for taking the question, and nice quarter.

Barry Ray: Great. Thanks, Brendan.

Operator: Thank you, Brendan. The next question is from the line of Terry McEvoy with Stephens. You may proceed.

Terry McEvoy: Hi, good morning, everybody. Thanks for taking my questions.

Barry Ray: Thanks, Terry.

Terry McEvoy: Maybe Barry, question for you. Hi. How is the balance sheet position when you adjust for the two acquisitions? How is that positioned for a higher for longer rate environment. I think Chip said earlier, the margin kind of grind higher without rate cuts, but wondering if you could expand on that.

Barry Ray: Yes. we believe that even if we get no rate cuts in 2024, for example, Terry, yes, we think that the rate of increase of our asset yields, we still have opportunity where that’s going to outpace the cost of funds with our current balance sheet position. We’re getting about 4 basis points per month of loan yield increase and that’s been something that’s been holding in there. We were pleased at the rate of funding costs slowed down dramatically in the quarter. So we feel cautiously optimistic that we have opportunity to expand the margin even with no cuts in of 2024 because of – if that kind of pattern holds for us. So the risk of that would be the deposit, the funding cost side, Terry.

Terry McEvoy: Thanks. And then the question on Wealth Management, Nice to see revenue up 10%, definitely had some help from the markets. Could you talk about new client acquisitions and maybe, do you have any thoughts on the full year revenue outlook for that business?

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Len Devaisher: Yes. Terry, this is Len. So I don’t have the – we don’t disclose specific new client acquisition numbers. But what I can tell you is we see definitely fruit of the talent that we have been able to add to the organization. And specifically, what I would tell you is we see a lot of nice momentum in partnership between our wealth management bankers and our commercial bankers. And so that’s been an area of a really nice momentum. And in terms of growth, I’m looking for just given the investments in that business, including a new hire we made in the main market, I’d like to see that continue at that double-digit pace when I think about full year.

Terry McEvoy: Great. Appreciate that. Thank you, and hope you have a nice weekend.

Len Devaisher: You too.

Barry Ray: You too.

Operator: Thank you, Terry. The next question is from the line of Nathan Race with Piper Sandler. You may proceed.

Nathan Race: Hey, guys. Good morning. Happy Friday. Just wanted to – kind of think about the expense run rate. Barry, I think you mentioned about $700,000 of cost savings once the Florida operation transaction closes. But just any thoughts on just kind of the run rate overall to 2Q as well.

Barry Ray: Yes. I think 2Q will still be – we don’t expect the Florida end close until late in the second quarter, May, so it will be higher in the second quarter. As we look at it and we move out to the third quarter where we think we’ll be through some of these noisy Bank of inverted divestitures, we’re laying somewhere around the $34 million per quarter run rate is what we’re for expenses.

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Nathan Race: Okay. Great. I appreciate the earlier commentary around kind of the outlook on the credit front, particularly kind of the trucking portfolio, but just in terms of how you guys see the reserve trending, you’re still operating at pretty healthy levels, and loan growth is solid and it sounds like pretty strong over the balance of this year. So just curious thinking about the overall reserve, particularly rise this quarter tied to the deal in Denver

Gary Sims: So, this is Gary. I will start conversation and Barry, if I miss anything, please add on. I mean, what we see from the reserve currently and then on a go-forward basis. So we are experiencing loan growth, so we will continue to see us add to the reserves to support that loan growth over the course of time. In terms of the existing portfolio and the risk we see in the portfolio, we believe we are adequately reserved for that risk to date. So I don’t see us unless something changes being more aggressive in adding to existing reserves to try to support the existing portfolio. So on a go-forward basis, loan growth will be a key driver there. Anything to add Barry?

Nathan Race: If I can ask one last one on just the loan deposit growth. Obviously, legacy balances declined a little bit, but I know you guys have hired a number of relationship managers over the last several quarters. So I was just curious, kind of the outlook for you guys to kind of resume some core deposit growth over the course of 2024.

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Len Devaisher: Yes, Nathan, this is Len. Certainly, I can tell you every line of business. So, from private banking to commercial banking to obviously, our retail bankers, everyone is focused, it continues to be the hand-to-hand combat. Obviously, as we think about managing the business, we are being very mindful of being prudent on pricing. And so we are pleased for example, with the slowdown in the rise of interest bearing deposit costs quarter-over-quarter, and also mindful of balances. So, that balancing act continues. And my expectation is that’s going to be an ongoing balancing act in 2024.

Nathan Race: Okay. Great. And just one last one, sorry, Barry, can you just remind us of the margin impact as the rate cuts the curve?

Barry Ray: Yes. I think it’s a better rate cut to occur. Again, we talked earlier about we still believe our balance sheet is positioned to have some amount of margin expansion without rate cuts just based upon the re-pricing dynamics. I think what we would see if we get rate cuts would be, we would have additional margin and expansion. And I do think that, that would also be contingent upon the pace of the rate cuts as well as – as Len said, the continued – Len alluded to in his deposit comments, the continued kind of battle for deposit funding. And so how all those dynamics come together. And so the best answer I can give you, Nate, is I think we expect to see some incremental margin improvement without cuts, and it would be a better margin improvement with some rate cuts.

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Nathan Race: Okay. Perfect. Thanks.

Len Devaisher: Thanks Nate. See you next week.

Operator: Thank you. The next question is from the line of Damon DelMonte with KBW. You may proceed.

Damon DelMonte: Hey guys. Hope everybody is doing well today. Just wanted to see if you could remind us, Barry kind of what the expectations are for commercial real estate maturities over the upcoming quarters and what type of opportunity the re-pricing of those would have on the margin as well?

Barry Ray: Yes. So, about – let me get the data, so about 60% of our portfolio would be commercial real estate. And then if I go to the – yes, fixed piece of that, 16% or about $1.5 billion, if I look out over the course of the next year, Damon, what’s re-pricing there and fixed rate is probably about $160 million of that re-pricing.

Damon DelMonte: Okay. That’s helpful. And then kind of with regards to fee income, it sounds like you are hitting, kind of starting to hit your stride here in the wealth management, and that’s driving revenue is a little bit higher in the SBA platform as well. As we kind of think about a quarterly cadence for the fee income, is it fair to kind of assume a little bit of a lift off this quarter’s operating of, call it, $10.1 million to maybe closer to $10.5 million?

Chip Reeves: Damon, rather – this is Chip. Rather than that, give you a number about this. We were pleased with the first quarter of $10.1 million, especially the momentum in wealth management that Len spoke to. And I would say that some of the other areas of lines of business are showing accelerated momentum from their first quarter run rate. So, we feel good about the momentum as we move into the second quarter, but probably not going to guide you to a specific number, but we feel good about the start and where we are – the trajectory.

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Damon DelMonte: Fair enough. That works. And then just lastly, on the tax rate, Barry, can you just remind us what a good effective tax rate we should be using?

Barry Ray: Yes. I think we included in the release statement, I think probably around 22% is where we are landing for 2024 is what we expect.

Damon DelMonte: Perfect. Okay. Great. Thanks. Everything else has been asked and answered, appreciate it.

Barry Ray: Thanks Damon.

Operator: Thank you, Damon. The next question is from the line of Brian Martin with Itaú BBA. You may proceed.

Unidentified Analyst: Hey, good afternoon guys.

Barry Ray: Hey Brian.

Unidentified Analyst: Hey. Just I guess one question, Barry. Just going back to the margin for just a moment, given the intra-quarter closing, I guess the March margin, how is that trending versus where you were for the full quarter, just to kind of give us an idea of what the launching point is.

Barry Ray: Yes. The March margin, we were 2.33 for the quarter. The March margin, Brian, would be around 2.39, so a few basis points higher.

Unidentified Analyst: Okay. Alright. And that – okay, that would have most of them in that. Okay. And then as far as the – just you mentioned, Barry, the re-pricing, just maybe bigger picture. I mean how much do you expect either, I guess kind of on the fixed rate side in total is re-pricing over the next 12 months or so? I think you said maybe 150, was that just a real estate piece as you don’t know if there is other – something else in there that would be more significant or that’s kind of a good number to think about in terms of what’s re-pricing kind of over the next 12 months?

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Barry Ray: No, entire. So, I will give the fixed rate. So, yes, what I was talking about earlier was specific to, I believe Damon asked specific to CRE. Entire fixed rate over the next 12 months, that’s about $250 million of fixed rate. And then we also have some adjustable rate that would be around $180 million.

Unidentified Analyst: Got it. Okay. And in the pickup on that, I mean what kind of lift are you getting like with the new origination yields are today?

Barry Ray: Yes. Our new origination yields for – are around 7.61, 7.50, 7.60. And so if you look at kind of some of those yields on those re-pricing probably in the high-4s to low-5s.

Chip Reeves: Yes. I would just add to that a little bit Brian that mid-7s on the new originations are where we are. So, that tends to be associated in that new relationships more often, not always, but more often. Renewal, our renewal rate is actually 8s, the low-8s. So, that’s sort of trends we are seeing in the commercial book of speaking too specific there.

Unidentified Analyst: Yes. Got it. Okay. And that’s helpful. And how about – Barry, you mentioned, I think the accretion number, I guess that should trend up a little bit next quarter. Is that how you think about it given the full quarter impact?

Barry Ray: Correct. Yes. We had about $229,000 a month of benefit, so for two months of that, so 450,000 about. So, I would say for next quarter, you would expect, call it, $250,000 more attributable to the make of Denver transaction.

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Unidentified Analyst: Got it. Okay. Alright. And then maybe one – just one for Garry. On the – can you – I will kind of truck. I think in the past you have talked about the healthcare and the office portfolio. Can you just remind us just in terms of how big those portfolios are? And then just maybe what dollars of those are criticized or classified, just big picture?

Gary Sims: Yes. Sure Brian. I will – and I will clarify. Really where we have seen weakness in the portfolio has been in the office space and in the senior living more specifically, not really healthcare as much as senior living. So, I will start with office. Our non-owner occupied office is $166 million. That represents 3.8% of our portfolio. In terms of what we have seen in terms of deterioration in that portfolio getting to the numbers here, 28% of that portfolio is classified, 31% of it is criticized. So, $46 million is classified and then $51 million is criticized. So, that gives you an idea of what we see in the office portfolio. I will stop for a second, Brian. Makes sense?

Unidentified Analyst: Yes, that makes sense. I appreciate it. Yes.

Gary Sims: Okay. Good deal. On the senior living, we have $241 million in that portfolio. That represents 5.5% of the portfolio. In terms of the deterioration we have in that portfolio. Classified is 24% of that portfolio. So, $57.5 million of that portfolio is – rate is substandard or worse. And we don’t have any special mention credits in that portfolio. So, the criticized portion of that portfolio is the same as the classified portion of the portfolio.

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Unidentified Analyst: Got it. And no migration in either – yes, and no migration this quarter in either of those portfolios to speak of?

Gary Sims: That’s correct. The portfolio in terms of migration, both those categories were fairly stable this quarter. Yes.

Unidentified Analyst: Got it. Okay. Perfect. And last one for me was, Barry, I think you mentioned some hair cut on the report [ph] on expenses, was that I don’t know if the number was a quarterly number, annual number, what was the impact on expenses related to Florida?

Barry Ray: Yes. In my comments, it was a quarterly number, Brian, it was around $700,000 versus the impact of Florida.

Unidentified Analyst: Okay. Got it. Okay. Perfect. Thank you guys for taking the questions.

Barry Ray: Thank you, Brian.

Operator: Thank you, Brian. There are no additional questions waiting at this time. [Operator Instructions] There are no additional questions waiting at this time. I would like to pass the conference over to the management team for any closing remarks.

Chip Reeves: Great. This is Chip. Thank you everyone for joining today. We believe it was a very solid start to the year. We look forward to joining you in 90 days to continue our journey together as we execute our calendar strategic plan. Thank you.

Operator: That concludes the MidWestOne Financial Group, Inc. first quarter 2024 earnings call. Thank you for your participation and enjoy the rest of your day.

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