MidWestOne Financial Group, Inc.

Good morning, ladies and gentlemen, and welcome to the Midwest One Financial Group Incorporated second quarter 2023 earnings call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions with instructions to follow at that time. As a reminder, this call is being recorded. I would now like to turn the call over to Barry Ray, Chief Financial Officer of Midwest One Financial Group. Please go ahead.

Thank you, everyone, for joining us today. We appreciate your participation in our second quarter 2023 earnings conference call. With me here on the call are Chip Reeves, our chief executive officer, and Lynn DeVacher, our president and chief operating officer. Following the conclusion of the day'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 relating to the financial condition, results of operations, and business of Midwest One 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. Midwest One 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.

Thank you, Barry, and good morning. On today's call, I'll provide an update on the solid progress we've achieved executing our strategic initiatives as we focus on building the foundation for a high-performing bank with consistent performance. Len will then provide an update on our major markets and the strong loan growth that we delivered once again this quarter, as well as continued strong results in our wealth management business. Barry will then conclude with an in-depth review of our second quarter financial results. As we discussed on our first quarter call, we've developed a strategic plan as outlined on slide four of our earnings presentation with five key pillars focused on our culture, our strong local banking franchise, expanding our commercial banking and wealth management businesses, expanding into specialty business lines, and improving our efficiency and operations. As outlined on slide five, I'm very proud to say that we've made solid progress executing our plan through the second quarter in what's been a very challenging operating environment. Starting with our commercial banking and wealth management businesses, we're focused on expanding and moving up tier in our major metro markets of the Twin Cities, Denver, and Iowa. This is a continuation of the strategy that we've been executing for several years, where we've been hiring experienced relationship bankers and wealth management professionals to drive organic growth. That said, we'll be doubling down in these markets, with a plan to add bankers and expertise targeting revenue companies from 20 to 100 million. So far this year, we've added several producers in the Twin Cities and will continue to add experienced bankers as we work to take share in these attractive markets. This has been a successful strategy, as can be seen in our second quarter loan growth of 10% annualized. Overall, we would expect second half loan growth to moderate to mid-single digits based on the general economic outlook and our own selectivity before re-accelerating to high single-digit growth in 2024 and 2025. In our wealth management group, we've also achieved significant assets under management growth, driven by the teams recruited in 2021 and 2022, which Len will discuss in more detail. As with our commercial banking business, we'll continue to actively recruit wealth management teams in our core markets to drive asset growth and fee income. In our specialty business lines, we're focused on expanding and developing our specialty commercial banking markets or verticals, where expertise in customer solutions will drive additional customer acquisition, full relationships, and thus drive our company's profitability. As I discussed on our first quarter call, our plans call for immediate verticals in agribusiness, government-guaranteed lending, notably in SBA, and commercial real estate. Starting with agribusiness, We've been in the ag business for a long period of time, primarily focused on small farms in our home state of Iowa. That said, we've been missing significant business opportunities with larger growers and producers, as well as suppliers to this industry. To address this opportunity, late in the second quarter, we hired an experienced agribusiness lending team from a Midwestern-based regional bank. This group has led agribusiness teams for a decade and has strong expertise and relationships across the industry. and they're already beginning to move full relationships to Midwest One. Government guaranteed lending is also a natural fit for our local and metro bank markets. Our desire is to become one of the leading bank 7A lenders in our footprint. Our SBA leader joined in 2021, and our sales team is being developed. That said, we're seeing momentum building with positive second quarter results, and we anticipate this initiative will be a meaningful fee income contributor in 2024 and beyond. As I mentioned on our first quarter call, our Twin Cities commercial banking leader has extensive super regional bank experience in the CRE space and is leading this segment for the bank. We're designing the CRE vertical for consistency, robust portfolio management, and client selection. A key aspect of our strategic initiatives is improving our operational effectiveness, and we're working to identify areas for efficiency gains and cost reduction in order to achieve our goals. Our expectations are to reallocate 2.5% of our operating expense base into more productive, profitable markets and departments, and then to reduce an additional 2.5% of our Q4 2022 operating expense run rate that will improve our go-forward operating expenses. We initiated the first action in mid-April as we scaled back our mortgage operations, reflecting the current macro environment as well as a sharpened focus on mortgage originations from Midwest One customers. Additional actions commenced in June, including a voluntary employee retirement program, the expense of which was taken in our second quarter, while the full compensation reduction realization will be the fourth quarter of 2023. We continue to engage with a third-party consultant to review remaining efficiencies with additional opportunities, likely in the third quarter. As we drive change across the bank, I could not be more proud of our employees' continued commitment to our company, customers, and communities. We are in the midst of reorienting our culture. One, continue to be focused on our clients and employees as we increase our focus on innovation, performance, and results. I'm very proud of the progress that we're making. It's a testament to our employees in the bank who have been nationally recognized as a top workplace in both our Iowa and Twin Cities markets. as well as Newsweek's best small bank in Iowa. To conclude, we've made substantial progress executing our strategic initiatives over a very short period of time, all the while in the midst of a challenging market environment. Though we have much more work to do, I remain confident in our goal of delivering financial results at the median of our peer group as we exit 2025. Now I'd like to turn the call over to Les.