MidWestOne Financial Group Q4 2024 Earnings Call Transcript

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Provided by Quartr
January 24, 2025

Key Takeaways

  • 92 bps improvement in net interest margin to 3.43% drove a 30% QoQ increase in net interest income and net income of $16.3 M (ROA 1.03%).
  • Total deposits increased 2% QoQ while non-interest-bearing balances grew 4%, underscoring the strength of the premium deposit franchise and treasury management investments.
  • Fee-based businesses gained momentum with $1.6 M in SBA gain-on-sale revenue for 2024 (Q4: $630 K) and wealth management revenue rising 11% QoQ (18% YoY).
  • Asset quality improved as the classified loan ratio fell 54 bps QoQ (150 bps YoY) and pass-rated loans grew at a 4% annualized rate, reflecting disciplined problem-loan resolutions.
  • The Q4 balance sheet repositioning sold $1 B of low-yield securities to retire costly borrowings and acquire higher-yield CMOs, boosting the CET1 ratio to 10.73%.
AI Generated. May Contain Errors.
Earnings Conference Call
MidWestOne Financial Group Q4 2024
00:00 / 00:00

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Operator

Good morning, ladies and gentlemen, and welcome to the MidWestOne's fourth quarter 2024 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 MidWestOne Financial Group.

Barry Ray
Barry Ray
CFO at MidWestOne Financial Group

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 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 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.

Barry Ray
Barry Ray
CFO at MidWestOne Financial Group

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.

Chip Reeves
Chip Reeves
CEO at MidWestOne Financial Group

Thank you, Barry. Good morning, and we truly appreciate everyone joining for this quarter's call. Today, I'll provide a high-level overview of our fourth quarter results, as well as highlights regarding the continued execution of our strategic initiatives. Len will provide an update on our lines of business, and Barry will conclude with a more detailed review of the fourth quarter and the impact of October's balance sheet repositioning. We're very pleased with our fourth quarter results, which exhibited the dramatic impact of the bond portfolio repositioning and the paydown of higher-cost borrowings. Those actions, combined with lower deposit costs, drove a 92 basis points improvement in our net interest margin, leading to a 30% quarter-over-quarter increase in net interest income. This, along with continued focus on our strategic initiatives, led to net income of $16.3 million and a return on average assets of 1.03%.

Chip Reeves
Chip Reeves
CEO at MidWestOne Financial Group

Turning to the continued execution of our strategic initiatives, our premium deposit franchise showed its strength, with total deposits increasing 2% compared to the linked quarter, and importantly, non-interest-bearing deposits grew 4% on a linked quarter basis, aided by our year-long investments in treasury management. In April of 2023, we laid out a strategic plan with emphasis on driving wealth management and establishing an SBA vertical. The results of these initiatives are seen in our fourth quarter and full-year financial results, which Len will discuss further in his comments. For the quarter, loan growth was flat, primarily due to elevated payoffs, many of which were loan resolutions, and you see the classified assets decrease substantially. We're pleased with our 2024 asset quality metrics and remain focused on problem loan resolutions while we continue with our disciplined growth strategy.

Chip Reeves
Chip Reeves
CEO at MidWestOne Financial Group

Thank you to our team members who have been resolute in the transformation of MidWestOne and in their commitment to our customers. Together, we've positioned the bank to become a consistent, high-performing company, and we look forward to the opportunities in 2025 and beyond. Now I'll turn the call over to Len.

Len Devaisher
Len Devaisher
President and COO at MidWestOne Financial Group

Thank you, Chip. We are pleased with the 2% increase in total deposits from the linked quarter. The true power of our deposit franchise was on display with an improving mix. Continued strength in our commercial and consumer deposit segments has allowed us to assume a more conservative pricing posture on public funds. For the year, public funds in total were down 14%, while public funds CDs were down 40%. Meanwhile, consumer balances were up 2%, and commercial balances were up 6%. This mix improvement reflects an intentional strategy to optimize our funding base. As Chip pointed out, non-interest-bearing deposits increased 4% in the quarter. This is the second consecutive quarter of increase in this important category, and the increase was across all customer segments. For the year, commercial non-interest-bearing deposits increased 7%.

Len Devaisher
Len Devaisher
President and COO at MidWestOne Financial Group

The growth in commercial non-interest-bearing reflects our treasury management focus, where fees were up 12% in 2024 from the prior year. While reported loan balances were flat from September 30th, we were pleased that pass-rated loan balances grew at a 4% linked quarter annualized rate and that our fourth quarter commercial originations exceeded third quarter originations by 8%. Favorable borrower sentiment and growing pipeline activity position us well for 2025. We anticipate mid-single-digit loan growth in the first quarter. As Chip pointed out, the 54 basis point decline in our classified loan ratio, 150 basis point improvement from a year ago, a decline in past due loans, and a modest CRE ratio at 224% of capital reflect our vigilant focus on asset quality. Congruent with our strategic plan initiatives, our SBA team generated more than $1.6 million of SBA gain-on-sale revenue in 2024, with $630,000 occurring in the fourth quarter.

Len Devaisher
Len Devaisher
President and COO at MidWestOne Financial Group

The momentum in this business remains strong as we enter 2025. Another strategic plan initiative is a focus on wealth management. The 11% increase over the linked quarter and the 18% increase over the same period last year demonstrate continued momentum from our private wealth and investment services teams. Our team-based, planning-driven approach is working, and we see runway in that business, particularly in our growth markets. Deposit growth with an improving mix, green shoots in loan demand with plenty of capacity, momentum in our fee businesses, including wealth, SBA, and treasury management. Indeed, MidWestOne's business lines are well positioned as we launch into 2025. So with that, I'm pleased to turn the call over to Barry.

Barry Ray
Barry Ray
CFO at MidWestOne Financial Group

Thank you, Len. Starting with the balance sheet on slide 11, total assets declined $316 million from September 30th, 2024, due primarily to the deleveraging of our balance sheet from the repositioning executed early in the fourth quarter. As a reminder, that repositioning included the sale of $1 billion of securities, primarily corporates, munis, and CMOs, that had a book yield of 1.58%. Proceeds from the sales were used to pay in full $418.7 million of Federal Reserve Bank Term Funding Program borrowings that were costing 4.77%, and to purchase $590 million of agency CMO and pass-through securities yielding 4.65%. Len covered the loan and deposit changes, so I'll touch on shareholders' equity, which decreased $2.5 million from September 30th, 2024, to $560 million as an unfavorable $14 million adjustment to accumulated other comprehensive loss, which was only partially offset by an $11 million increase in retained earnings.

Barry Ray
Barry Ray
CFO at MidWestOne Financial Group

The company's consolidated CET1 ratio was 10.73% at year-end 2024, up 82 basis points from September 30th, 2024, reflecting in part benefits from the balance sheet repositioning. Turning to the income statement on slide 13, we reported net income of $16.3 million, or $0.78, per diluted common share. Net interest income increased $11.4 million in the fourth quarter to $48.9 million as compared to the linked quarter, due primarily to higher earning asset yields and lower funding volumes and costs, partially offset by lower earning asset volumes. Loan interest income in the fourth quarter of 2024 included $2.5 million of a loan purchase discount accretion, compared to $1.4 million in the linked quarter. We expect quarterly loan purchase discount accretion in 2025 to be closer to $1 million.

Barry Ray
Barry Ray
CFO at MidWestOne Financial Group

Our tax-equivalent net interest margin increased 92 basis points to 3.43% in the fourth quarter, compared to 2.51% in the linked quarter, as earning asset yields increased 60 basis points and the cost of interest-bearing liabilities declined 35 basis points. The average loan portfolio yield for the fourth quarter was 5.86%, flat from the linked quarter, while the average yield on loan originations during the fourth quarter was 7.10%. On the liability side, the cost of interest-bearing deposits decreased 17 basis points from the linked quarter to 2.41%. We expected the balance sheet repositioning would add about 70 basis points to our net interest margin, and we were pleased to exceed that expectation as our core interest margin, which excludes loan purchase discount accretion, expanded to 3.26% for the fourth quarter, 85 basis points greater than the linked quarter.

Barry Ray
Barry Ray
CFO at MidWestOne Financial Group

Non-interest income in the fourth quarter of 2024 was $10.8 million, compared to a loss of $130.4 million in the linked quarter. Adjusting for securities gains and losses and mortgage servicing rate valuations, non-interest income was down $300,000 as outperformance from our wealth management business was more than offset by declines in other BOLI, loan, and card revenue. Finishing with expenses, total non-interest expense of $37.4 million in the fourth quarter was up $1.6 million from the linked quarter. Driving the unfavorable variance was a $575,000 increase in medical claims paid, a $400,000 increase in non-merger-related legal costs, and a $300,000 increase in property tax accruals. We do not believe such costs will continue at those levels in 2025, and thus expect our 2025 annual expenses will be in the range of $145 million-$147 million.

Barry Ray
Barry Ray
CFO at MidWestOne Financial Group

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

Operator

Thank you. We will now open the call for questions. If you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind and would like to exit the queue, please press star followed by two. And finally, when preparing to ask your question, please ensure that your phone is unmuted locally. Our first question today will be from the line of Brendan Nosal with Hovde Group. Please go ahead. Your line is open.

Brendan Nosal
Brendan Nosal
Director of Equity Research at Hovde Group

Hey, good morning, everybody. Hope you're doing well.

Chip Reeves
Chip Reeves
CEO at MidWestOne Financial Group

We're good, Brendan. Hi.

Brendan Nosal
Brendan Nosal
Director of Equity Research at Hovde Group

Good. Maybe to start off here on capital, now that the balance sheet restructuring is behind you, you're back to building capital at a pretty decent clip here. So just wondering how you're thinking about deployment options over the course of the year?

Barry Ray
Barry Ray
CFO at MidWestOne Financial Group

Yeah, I'll start with that, Brendan. This is Barry. I like to talk about the use of capital waterfall, so starting with supporting loan growth, supporting balance sheet growth, then the cash dividend, the shareholders' share repurchase, and then finally M&A. We are approaching, we're at our kind of approaching a target of 11% CET1. We think that's a good ratio for the risk profile of our organization. And I expect that waterfall that I just walked through is how we're thinking about it. Obviously, we kept the, for example, we kept the dividend flat this quarter. As we move forward throughout the year and build capital, we'll see where we land with respect to opportunities, but what we want to do is capital deployment as we go through the year.

Brendan Nosal
Brendan Nosal
Director of Equity Research at Hovde Group

Got it. Got it. Okay. Maybe moving to the margin. I mean, as you noted in your prepared remarks, quite a bit more expansion than you or we were expecting, which was great to see. Just kind of curious about the path from here, especially as rate cut expectations have eased off a little bit. More or less wondering if this quarter was a pull-through of margin expansion you had expected to persist throughout 2025, or if there's more left in the tank as we move through the year. Thanks.

Barry Ray
Barry Ray
CFO at MidWestOne Financial Group

Yeah, I think there's a little bit more left in the tank, Brendan, and kind of the data points I can give you is we highlighted that our core margin in the fourth quarter was 3.26%. If you look at the month of December, the core margin was 3.29%. So I think we've got a little bit more gas in the tank with respect to margin expansion, particularly we're getting some benefit from the shape of the yield curve, which is really, I'd say, mostly flat here. But yeah, I think we still have some benefit here.

Chip Reeves
Chip Reeves
CEO at MidWestOne Financial Group

Brendan, this is Chip. I think the backbook loan repricing, frankly, continues as well. Our loan yields are 5.86%. That includes some accretion in that 5.86%, but we're originating in the fourth quarter in the low sevens. So we believe that will continue. And so we have a fair amount of maturity still coming at us in 2025, 2026. So we believe there's still some, you call it gas in the tank, margin expansion to come.

Brendan Nosal
Brendan Nosal
Director of Equity Research at Hovde Group

Okay. Fantastic. That's helpful. Thank you for taking the questions.

Barry Ray
Barry Ray
CFO at MidWestOne Financial Group

Thanks, Brendan.

Operator

The next question today will be from the line of Terry McEvoy with Stephens. Please go ahead. Your line is open.

Terry McEvoy
Terry McEvoy
Managing Director and Research Analyst at Stephens

Thanks for taking my questions. In 2024, commercial loan growth was 5%, wealth management revenue 16% year-over-year. I know you said 5% loan growth for the first quarter, but is that a good run rate to use for full-year loan growth? And what are your thoughts on the outlook for fee income and specifically that wealth management line?

Len Devaisher
Len Devaisher
President and COO at MidWestOne Financial Group

Terry, this is Len. Thanks for the question. Yeah, if we look at 2025, I think the mid-single-digit number is how we're modeling the year, just based on what we're seeing overall. And with respect to wealth in particular, we are targeting the double-digit growth to continue in that line of business. And the key strategy there for us is the talent story of where we're adding, and particularly in the growth markets.

Chip Reeves
Chip Reeves
CEO at MidWestOne Financial Group

Terry, and the loan growth side. Yeah, so mid-single digits and that belly of the curve with where it is today and obviously increased in the fourth quarter, slight pullbacks here in January, but still relatively high. We're just not seeing really commercial real estate projects penciling out at this juncture, so where I could see that potentially moving higher is if the belly of the curve comes down a little bit, but right now, that's negating some of the potential growth that's out in the system.

Terry McEvoy
Terry McEvoy
Managing Director and Research Analyst at Stephens

Thanks, Chip. And then as a follow-up, just given the tariff talk and some of the volatility in commodity prices, could you share with us your thoughts on how your ag customers and portfolio is holding up?

Gary Sims
Gary Sims
Chief Credit Officer at MidWestOne Financial Group

Yes, Terry, this is Gary Sims. Thanks for the question. We are thinking through that as well as you relative to our ag producers and as a reminder, not an overwhelming part of our portfolio, but certainly something that we monitor. As we look into, well, first of all, 2024, pretty solid year for our producers. Prices were somewhat moderated, but very good yields and as we go into 2025, we see pressure as a result of some of these issues but one thing that we really gained confidence in is that over the course of the past five or six years, the portfolio of our producers that we do business with is a pretty resilient bunch so we feel pretty confident that we can help our customers manage through this if, in fact, there are negative results from it.

Terry McEvoy
Terry McEvoy
Managing Director and Research Analyst at Stephens

Great. Thanks again for taking the questions. Appreciate it.

Chip Reeves
Chip Reeves
CEO at MidWestOne Financial Group

Thanks, Terry.

Operator

The next question today will be from the line of Damon DelMonte with KBW. Please go ahead. Your line is open.

Damon DelMonte
Damon DelMonte
Managing Director of Equity Research at KBW

Hello, everybody. Hope you're all doing well today. Just wanted to start off with a little bit on credit and kind of, I know Gary was just kind of touching on the ag sector there, but just kind of your thoughts on where the portfolio sits today, if there's any areas of concern, and kind of how you think about the reserve level at this point. I think the reserve is up a few basis points quarter over quarter. So do you feel like you're at an adequate level, or do you feel you need to maybe add a little bit more going forward? Thanks.

Gary Sims
Gary Sims
Chief Credit Officer at MidWestOne Financial Group

Thanks for the question, Damon, and what I'm seeing from the portfolio today in terms of pressure points really hasn't shifted much over the course of 2024 and going into 2025. Office still has deterioration that we have identified in it. Our senior living portfolio has deterioration, but we're actually seeing improvement, operational improvement in those borrowers that have struggled. And realistically, our largest senior living troubled asset, we were able to liquidate over the course of third and fourth quarters. So not a lot of shift in terms of what I'm seeing with pressure points. As we move into 2025, as we saw in 2024, as we identified the credits, we worked through them, we created resolutions, and you saw the results that we got for the fourth quarter. First quarter and beyond, we're going to continue to see resolutions of those assets that we have identified.

Gary Sims
Gary Sims
Chief Credit Officer at MidWestOne Financial Group

You mentioned the reserve. We did move that up a little bit, and we feel like what we have on tap for first quarter and beyond for resolutions, we are adequately reserved to be able to execute those resolutions. So I think what you saw in 2024, you're going to continue to see in 2025.

Damon DelMonte
Damon DelMonte
Managing Director of Equity Research at KBW

Got it. Okay. That's helpful. Thank you. And then I guess just kind of a broader-based question on your approach for driving sustainable organic growth. Now, you guys have made a lot of investments in commercial bankers and kind of ventured into some other business lines. Chip, can you just give us an update as to the plans for 2025? Are you guys still actively looking to add new bankers and potentially physical locations and other parts of your footprint?

Chip Reeves
Chip Reeves
CEO at MidWestOne Financial Group

So, Damon, the answer to that one would be yes, and I'll quantify the yes probably more from geographic areas or areas of focus for you. Twin Cities and Denver and then Iowa Metro are high-focus areas for us, and I think you'll continue to see us invest in those geographies. You'll also see us continue to invest, frankly, in what I call our infrastructure and our acquisition readiness. And there from technology, from platform to talent, risk management, platform, talent, operational talent as we prepare ourselves for 2025 being a year of execution. But between our capital levels, our newfound earnings profile, organic growth that we're expecting, I believe we're positioning ourselves to become a little bit bigger when the time is right.

Damon DelMonte
Damon DelMonte
Managing Director of Equity Research at KBW

Got it. Okay. Appreciate that color. That's all that I had for now. I'll step back. Thank you.

Chip Reeves
Chip Reeves
CEO at MidWestOne Financial Group

Thanks, Damon.

Barry Ray
Barry Ray
CFO at MidWestOne Financial Group

Thanks, Damon.

Operator

Our next question will be from the line of Nathan Race with Piper Sandler. Please go ahead. Your line is open.

Nathan Race
Nathan Race
Managing Director and Senior Research Analyst at Piper Sandler

Good morning, guys. Thanks for taking the questions. Going back to the margin discussion, Chip, you mentioned some of the backbook repricing. I was wondering if you could kind of frame up just in terms of how much in loans you guys have kind of repricing over the course of this year?

Chip Reeves
Chip Reeves
CEO at MidWestOne Financial Group

Nate, I'm going to swing that one to Barry. He has the detailed statistics.

Barry Ray
Barry Ray
CFO at MidWestOne Financial Group

Yeah, Nate, we've got $386 million of fixed-rate loans that we expect to reprice in over the course of the next 12 months. The coupon on those is 4.57%. So $386 million at 4.57% is what we expect to reprice.

Nathan Race
Nathan Race
Managing Director and Senior Research Analyst at Piper Sandler

Okay, and then just generally, what are new loans coming on the portfolio at today on a blended basis?

Barry Ray
Barry Ray
CFO at MidWestOne Financial Group

Yeah, fourth quarter, we put them on at 7.1%, so low sevens.

Nathan Race
Nathan Race
Managing Director and Senior Research Analyst at Piper Sandler

Gotcha. Yeah. And if the Fed remains on pause this year, can you kind of just talk us through kind of the CD repricing gaps that you have that could aid in deposit costs continuing to come down? And if there's any opportunities to lower pricing on non-CD products as well, at least over the next quarter or two?

Barry Ray
Barry Ray
CFO at MidWestOne Financial Group

Yeah. Most of our CD book, Nate, is less than one year. And so, yeah, we see opportunity, even if the Fed remains on pause, to lower the cost of that book as that comes due. And then to the second part of your question, we continue to look at our other non-maturity interest-bearing deposits and where we have opportunity to lower there. And so we're still actively looking at those costs and looking for pockets to where we could perhaps lower costs even if the Fed remains on pause.

Nathan Race
Nathan Race
Managing Director and Senior Research Analyst at Piper Sandler

Okay. And just one last one. Barry, could you just update us in terms of kind of the balance sheet sensitivity and margin impact from each if the Fed does cut this year?

Barry Ray
Barry Ray
CFO at MidWestOne Financial Group

Right now, our balance sheet model is asset-sensitive with the shock scenarios, Nate. Again, that's plus or minus 100 parallel shock. We model as asset-sensitive. If the rate's cut, that suggests that our net interest income would go down in that shock scenario. However, as I talked about earlier, what we're observing is actually the yield curve flattening out. I think there's still opportunity for margin expansion. The balance sheet model is asset-sensitive on a shock scenario.

Nathan Race
Nathan Race
Managing Director and Senior Research Analyst at Piper Sandler

Okay. Really helpful. I appreciate all the color. Thanks, guys. Congrats on the next quarter.

Chip Reeves
Chip Reeves
CEO at MidWestOne Financial Group

Great. Thanks, Nate.

Operator

As a reminder, for any further questions, please dial star one on your telephone keypad now. The next question will be from the line of Brian Martin with Janney Montgomery Scott. Please go ahead. Your line is open.

Brian Martin
Brian Martin
Director and Senior Equity Research Analyst at Janney Montgomery Scott

Hey, good morning, guys.

Len Devaisher
Len Devaisher
President and COO at MidWestOne Financial Group

Good morning.

Chip Reeves
Chip Reeves
CEO at MidWestOne Financial Group

Morning, Brian.

Barry Ray
Barry Ray
CFO at MidWestOne Financial Group

Morning, Brian.

Brian Martin
Brian Martin
Director and Senior Equity Research Analyst at Janney Montgomery Scott

Hey, Barry, if you covered this, I apologize. Did you give some thoughts on kind of the, I know you talked about the fourth quarter expenses, but just how to think about the expense run rate as we kind of head into 2025 here and just puts and takes there?

Barry Ray
Barry Ray
CFO at MidWestOne Financial Group

Yeah. In my prepared remarks for this script, Brian, I did talk about what we expect for 2025 expenses to be in the $145 million-$147 million range for the year, which would suggest $36 million-$37 million per quarter for the expense run rate.

Brian Martin
Brian Martin
Director and Senior Equity Research Analyst at Janney Montgomery Scott

Gotcha. Okay. Apologize for that. And then just in terms of fee income, Chip, I don't know. Can you give it. It sounds like the SBA really had a nice year here, kind of embedded in the mortgage line or the loan line there. I mean, it also kind of seems like that the mortgage side, the traditional mortgage, maybe it's kind of been flattish. So I guess just trying to understand if I'm thinking about that right. And the other real question is just kind of the areas you talked about in terms of initiatives on the fee side as far as expanding fee income going forward.

Brian Martin
Brian Martin
Director and Senior Equity Research Analyst at Janney Montgomery Scott

Can you just talk about outside of, you've talked about the wealth and the SBA, kind of the other business lines you've added this year, kind of what they've contributed or just kind of where the opportunity is as we think about fee income next year outside of wealth that you've already covered, but just the SBA. But the other line items are potential that we have that gets some pickup here?

Len Devaisher
Len Devaisher
President and COO at MidWestOne Financial Group

Brian, this is Len. I'll take a stab at that. So if you look at SBA as an example, so that number was 1.6 for us in 2024, about four times what it was in 2023, over four times what it was in 2023, and if you look back, two-thirds of that number came in the last two quarters, so I see good momentum there, so that's a key point on the loan line item, as you point out. The other thing is, obviously, the mortgage business has headwinds with the rate environment where it's been, but what I would tell you is one of the strategies tactically is to focus on leveraging our secondary market product offerings to make sure we're optimizing that as best we can, but when I look at drivers, wealth obviously was a huge story for us in 2024, and I've talked about that.

Len Devaisher
Len Devaisher
President and COO at MidWestOne Financial Group

We see more runway there. And then treasury management, the 12% number, which flows through the service charge line as 12% in 2024 over 2023. And I see more runway for us in the treasury management line as well. Then lastly, what I would tell you is, as Chip talked about, as borrowers get a little more confidence and a little more stability relative to CRE, I think our CRE business, we've got room to go there, right, when you just look at our CRE power. And I think that can help drive our swap line because that's frankly been a modest line for us these last couple of years. And I think as the CRE business picks up, I think that can help drive the swap line too from a fee perspective. So those would be the drivers I would see.

Brian Martin
Brian Martin
Director and Senior Equity Research Analyst at Janney Montgomery Scott

Gotcha, and Len, can you talk about, I mean, I guess just give some color in terms of the outlook for growth in fee income, I guess, in terms of how you guys are thinking about that, given some of the items you just went through in terms of where the momentum may be?

Len Devaisher
Len Devaisher
President and COO at MidWestOne Financial Group

Yeah. So I'm going to say mid-high single digits is what we would be on a total for the fee income line is what we'd be looking at for 2025.

Brian Martin
Brian Martin
Director and Senior Equity Research Analyst at Janney Montgomery Scott

Gotcha. Okay. That is helpful. I appreciate that. And Barry, just last thing back to just the margin for one moment. The trajectory on the margin, given the steepening of the curve here and just kind of a little bit of tailwind you have, if we see pretty much no activity from the Fed, the general outlook should be that, given what you've outlined, that maybe a gradual trajectory in the margin kind of throughout the year. Is that how to kind of frame that up?

Barry Ray
Barry Ray
CFO at MidWestOne Financial Group

That's how I would frame it up, Brian, exactly like that. Yep. Gradual over the course of the year.

Brian Martin
Brian Martin
Director and Senior Equity Research Analyst at Janney Montgomery Scott

Okay. And maybe a bit of a step down in 1Q if the accretion, I think you said the accretion goes back to around $1 million a quarter. Is that, I think I heard that right? So yeah, give back starts first quarter?

Barry Ray
Barry Ray
CFO at MidWestOne Financial Group

Yeah. That's kind of how I would, if I start thinking about the first quarter, that's kind of where we talk about the, that's why I was focusing on the core net interest margin, Brian, of 3.26. And so you start there and then layer in that kind of million dollars plus of discount accretion or about a million dollars of discount accretion per quarter. And that should get you to kind of a launch point.

Brian Martin
Brian Martin
Director and Senior Equity Research Analyst at Janney Montgomery Scott

Gotcha. Perfect. And I don't know, just big picture comment in terms of profitability. I think obviously you guys were above 1% on the ROA in the quarter. As we think about kind of an exit to 2025, Chip, can you kind of talk about where you think that exit is on ROA or just kind of how we should be thinking about that as we proceed through the year?

Chip Reeves
Chip Reeves
CEO at MidWestOne Financial Group

Yeah. We're extremely focused, Brian, in terms of obviously building that throughout the year. And what we anticipate is that that has the potential with execution to be in the 110-115 range as we exit 2025.

Brian Martin
Brian Martin
Director and Senior Equity Research Analyst at Janney Montgomery Scott

Gotcha. Okay. Perfect. Thanks for taking the questions, and congrats on the quarter, guys.

Barry Ray
Barry Ray
CFO at MidWestOne Financial Group

Great. Thanks, Brian.

Chip Reeves
Chip Reeves
CEO at MidWestOne Financial Group

Thanks, Brian. Appreciate it.

Operator

The next question will be from the line of Nathan Race with Piper Sandler. Please go ahead. Your line is open.

Nathan Race
Nathan Race
Managing Director and Senior Research Analyst at Piper Sandler

Yeah. Thanks for taking the follow-up. I'm just curious if you can kind of frame up your deposit growth expectations for this year. I know you guys are focused on adding full relationships, but just curious if you're expecting deposit growth to follow that kind of mid-single digit pace in loans?

Barry Ray
Barry Ray
CFO at MidWestOne Financial Group

Yeah. Nate, this is Barry. I'll take that. Kind of as we have been looking at deposit growth expectations for the year 2025, we're thinking around 3% is probably what we're looking at for deposit growth.

Nathan Race
Nathan Race
Managing Director and Senior Research Analyst at Piper Sandler

Okay. Great. That's helpful. And then, Barry, can you just update us in terms of the amount of cash flow that's coming off the bond book this year following the restructuring?

Barry Ray
Barry Ray
CFO at MidWestOne Financial Group

Yeah. Next, we expect to get around $200 million of cash flows off of the portfolio in 2025, Nate.

Nathan Race
Nathan Race
Managing Director and Senior Research Analyst at Piper Sandler

Okay. Great. I appreciate it. Thanks, guys.

Barry Ray
Barry Ray
CFO at MidWestOne Financial Group

Great. Thanks for the follow-up.

Operator

We have no further questions in the queue at this time. So I would now like to hand the call back to CEO Chip Reeves for closing remarks.

Chip Reeves
Chip Reeves
CEO at MidWestOne Financial Group

All right. Thanks, everyone, for joining us today. And we truly look forward to our April call to share our continued progress in becoming that consistent high-performing company that we've spoken about over the last few years and began to demonstrate even further with our fourth quarter results. Thanks, everyone.

Executives
    • Gary Sims
      Gary Sims
      Chief Credit Officer
    • Len Devaisher
      Len Devaisher
      President and COO
    • Barry Ray
      Barry Ray
      CFO
    • Chip Reeves
      Chip Reeves
      CEO
Analysts
    • Nathan Race
      Managing Director and Senior Research Analyst at Piper Sandler
    • Terry McEvoy
      Managing Director and Research Analyst at Stephens
    • Brian Martin
      Director and Senior Equity Research Analyst at Janney Montgomery Scott
    • Brendan Nosal
      Director of Equity Research at Hovde Group
    • Damon DelMonte
      Managing Director of Equity Research at KBW
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