MidWestOne Financial Group Q2 2025 Earnings Call Transcript

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Provided by Quartr
July 25, 2025

Key Takeaways

  • Positive Sentiment: Due to disciplined balance sheet management, the bank achieved 7.4% loan growth and expanded its tax-equivalent net interest margin by 13 basis points, driving 5% linked-quarter net interest income growth.
  • Negative Sentiment: An isolated $24 million suburban Twin Cities CRE office loan moved to nonaccrual, triggering resolution actions and a specific reserve that significantly increased quarterly credit loss expense.
  • Positive Sentiment: Fee income businesses performed well, with wealth management revenues up 5% linked quarter and SBA originations and gains on sale surpassing expectations, doubling year-to-date SBA fee income versus last year.
  • Neutral Sentiment: Noninterest expense declined $0.5 million linked quarter, aided by a $1.1 million employee retention credit and core data processing savings, leading to revised full-year expense guidance of $146 million to $148 million.
  • Neutral Sentiment: The company maintains expectations for mid single-digit loan growth and modest net interest margin expansion in the second half of 2025, supported by robust deal pipelines and ongoing loan repricing.
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Earnings Conference Call
MidWestOne Financial Group Q2 2025
00:00 / 00:00

There are 3 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to the MidWestOne Financial Group Incorporated Second Quarter twenty twenty five 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.

Operator

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 Lynn 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.

Operator

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. 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.

Operator

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. Good morning, and we appreciate everyone joining for this quarter's call. Today, I'll provide a high level overview of our second quarter results as well as highlights regarding the continued execution of our strategic initiatives.

Operator

Lynn will provide an update on our lines of business, and Barry will conclude with a more detailed review of the second quarter. Let's turn first to the positives. Due to the expertise of our Midwest Fund Bank team, we continue to execute well on our twenty twenty five strategic initiatives. Disciplined balance sheet management, solid loan growth of 7.4% and back book loan repricing led to a 13 basis point expansion in our tax equivalent net interest margin and 5% linked quarter net interest income growth. Based upon third quarter pipelines and business activity, mid single digit loan growth remains our expectation for the second half of twenty twenty five.

Operator

Our relationship focused fee income businesses, which are part of our strategic plan roadmap, performed well in the second quarter with wealth management revenues up 5% linked quarter and SBA originations and gain on sale exceeding expectations. We also remain committed to building out the talent base to become a consistent high performing company. The second quarter saw significant new commercial banker hires in The Twin Cities and Denver and wealth management hires in The Twin Cities. Glenn will speak further about these initiatives and the expected organizational impact. Even as we invest for the long term, we remain focused on our expense discipline, and we are pleased with our second quarter noninterest expense results.

Operator

Asset quality and net income were impacted by a single $24,000,000 Twin Cities suburban CRE office loan originated in June 2022 and previously classified that moved to nonaccrual in the quarter. A receiver has been put in place, resolution actions have commenced and a specific reserve established, which increased our allowance for credit losses ratio to 1.5% and significantly increased our quarterly credit loss expense. Outside this loan, asset quality metrics generally improved in the quarter with the criticized asset ratio decreasing 32 basis points and net charge offs of only two basis points. We completed a third party review of CRE office loans greater than $1,000,000 and there is 100% risk rating concurrent. We view this loan, while large, as an isolated issue.

Operator

Thank you to our team members who continue to take outstanding care of our customers and welcome new relationships to Midwest One. I'm encouraged by the strength we are building in our balance sheet, our capital position and our underlying earnings momentum, which position this company well for the remainder of 2025. Now I'd like to turn the call over to Len. Thank you, Chip. Let's start with deposits.

Operator

End of period deposits were down slightly, while average deposits were flat. We are pleased to see noninterest bearing balances in the quarter ahead of both the linked quarter and the year ago quarter. Our deposit pipeline has picked up with some of the talent additions that Chip mentioned, and we continue to focus our efforts on commercial and consumer deposit segments with a disciplined approach to public funds bid. As we anticipated, loan growth picked up in the second quarter with strength in C and I lending offsetting small declines in ag and CRE. We also benefited from solid momentum in home equity lending from our consumer franchise.

Operator

As Chip mentioned, we continue to forecast mid single digit loan growth in the second half of the year, noting that this quarter showed the focus on organic loan growth with commercial loan production of $215,000,000, the highest production we've seen in the last six quarters. Just like deposits, the loan pipeline is also benefiting from our recent talent addition. In terms of our fee businesses, we saw strength from wealth management, up on a linked quarter and year over year basis, SBA, treasury management, and momentum in mortgage with resi loan production up 20% year over year. You'll recall that the SBA vertical was one of the focus initiatives in our strategic plan, and we see that bearing fruit. Year to date, SBA fee income is double the same period last year, and MidwestOne is now in the top 10% in the nation from the fiscal year to date SBA seven a production.

Operator

Speaking of executing on our strategic plan, the commercial and wealth hires in the Twin Cities and Denver represent deliberate and opportunistic expansions with experienced bankers who are hitting the ground running, introducing new opportunities for us to deliver sound, profitable growth. With that, I'm pleased to turn the call over to Barry. Thank you, Lynn. Starting with the balance sheet on slide 11. Total assets declined slightly from 03/31/2025 as decreased cash balances and lower securities volumes were only partially offset by increased loan volumes.

Operator

Lynn covered the loan and deposit changes, so I'll touch on shareholders' equity, which increased $9,000,000 from 03/31/2025 to $589,000,000 due to a $5,000,000 increase in retained earnings and a favorable $6,000,000 adjustment to accumulated other comprehensive loss, partially offset by a $1,000,000 increase in treasury stock. The company's consolidated CET1 ratio was 11 o 2% at 06/30/2025, up five basis points from 03/31/2025, reflecting somewhat muted growth due to higher credit loss expense recognized during the second quarter. Turning to the income statement. On slide 13, we reported net income of $10,000,000 or 48¢ per diluted common share. Net interest income increased $2,500,000 in the second quarter to $50,000,000 as compared to the linked quarter due primarily to higher earning asset volumes and yields as well as lower funding costs, partially offset by higher funding volumes.

Operator

Loan interest income in the 2025 included $1,100,000 of loan purchase discount accretion compared to $1,200,000 in the linked quarter. Our tax equivalent net interest margin and core net interest margin, which excludes loan purchase discount accretion, both expanded 13 basis points to 3.573.49%, respectively, in the second quarter. The increase in core net interest margin was due primarily to expansion in core earning asset yields of 12 basis points, coupled with a two basis point decline in the cost of interest bearing liabilities. The core loan portfolio yield for the second quarter was 5.7%, an increase of 10 basis points from the linked quarter, while the average yield on new loan originations during the second quarter was 6.76%. On the liability side, the cost of interest bearing deposits decreased two basis points from the linked quarter to 2.29%.

Operator

Noninterest income in the 2025 was 10,200,000 compared to $10,100,000 in the linked quarter. Adjusting for securities gains and losses and mortgage servicing right valuation, noninterest income was up $200,000 due to increases in our wealth management business, card revenue, mortgage origination fee revenue, and SBA gain on sale revenue compared to linked quarter. Finishing with expenses. Total noninterest expense was $35,800,000 in the second quarter, a decrease of $500,000 from the linked quarter. Driving the improvement was the receipt of $1,100,000 in tax credit funds related to the employee retention credit, which was recognized as a reduction to compensation and employee benefits as well as a $200,000 decrease in core data processing expense.

Operator

Partially offsetting these favorable decreases were increases in equipment, primarily driven by increased software license expense, and marketing, primarily driven by increased online advertising and direct mail campaigns. Given recent talent investments, we are revising our 2025 annual expense guide to a range of 146,000,000 to $148,000,000 And with that, I'll turn it back to the operator to open the line for questions. Thank you. If you would like to ask a question, please dial star followed by 1 on your telephone keypad now. If you change your mind and would like to exit the queue, please dial star followed by 2.

Operator

And when preparing to ask your question, please ensure that your device is unmuted locally. Our first question today will be from the line of Brendan Nosal with Optigroup. Please go ahead. Your line is now open. Hey.

Operator

Good morning, everybody. Hope you're doing well. Hi, Brendan. Maybe good morning. Maybe just starting off here on on growth for the quarter.

Operator

Like like, C and I growth was particularly strong. Could you just unpack this quarter's C and I growth, whether, you know, new credits or or line draws, any noteworthy industries, and then what what regions were really contributing to that? Thanks. Yeah. Brendan, this is Glenn.

Operator

I can yeah. Thanks, Chip. I I I can give you some some color on that. And what what is encouraging to me is I I am seeing we are seeing what I like to call the allscape. And what I mean is really contributions across the footprint.

Operator

So I see, as I look, bankers in Denver, bankers in Twin City, bankers in Community, and bankers in, our Iowa Metro markets. And in terms of industry, we definitely see distribution, I see manufacturing and both b to b and b to c type segments. And there's a there's a mix of existing nameplates and new nameplates. So another thing that we feel good about is that the CRE production was softer in the second quarter. The CRE that I'm seeing is more owner occupied, but you saw our CRE balances fall back a little bit.

Operator

We had some multifamily and one hotel loan that paid off and went to the secondary market the way we expect and so forth. And so, you know, we've got some some capacity there as I look ahead. Okay. Alright. Great.

Operator

That's helpful color. One more for me. Maybe turning to the margin. I think you said last quarter, you know, at the time, you saw continued opportunity to drive the the core margin higher. We certainly saw that play out this quarter.

Operator

Just kind of curious for your updated thoughts for the back half of the year and whether you can continue to work the core margin higher into year end

Speaker 1

and then just speak to some

Operator

of the drivers there. Yes. Thanks, Brennan. We were very pleased with the 13 basis points of net interest margin expansion in the second quarter. We believe there still continues to be opportunity.

Operator

I'm going to stick with the grind higher on the net interest margin. And what's going to be driving that, Brendan, is not too terribly different than what we experienced in the second quarter. It's going to be new loan originations at higher coupons, back book repricing, probably principally on the asset side for the margin expansion and then perhaps some continued benefit on the funding side as the time deposits continue to reprice at at lower costs. Those would be your thoughts on the margin and the drivers of it, Brendan. Thank you.

Speaker 1

Okay. Fantastic. Thanks for taking my questions.

Operator

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

Operator

Good morning. How are guys doing?

Speaker 1

Good, Jerry. Thanks.

Operator

I think the market thanks. The market's a bit surprised with that one loan, which was about 20% of your non owner occupied office CRE. I guess the direct question is what happened? Was it just wrong building, wrong location, originated at the wrong time? And maybe as a follow-up, could you just go through any other larger credits within CRE?

Operator

I know on page eight, you look at the non owner occupied office, but any other larger loans that would be helpful.

Speaker 2

Hey, Terry. This is Gary Sims. I'll I'll start the conversation and then ask my my teammates to add in if if I miss anything. We'll start with that larger loan. As we identified, it is a nonunoccupied office in Suburban Minneapolis.

Speaker 2

We did originate it in '22. And, you know, current currently, the the property is 85% occupied. There is rollover risk in 2025 that will that could take it to 65% occupied. But the property is actually cash flowing as it exists today. However,

Speaker 1

it was

Speaker 2

rated substandard nonaccrual at the beginning of the quarter. As we went into the quarter, we stopped getting paid, which indicated to us that the sponsor was not utilizing the funds that they were receiving to make our payment. So we took decisive action to start the lit legal process to get control of that asset, started the receivership process and felt like that necessitated taking it to non accrual. So that's kind of the the the background on on on that particular asset. As you as you note, it is the largest asset in the office portfolio.

Speaker 2

As you go down the office portfolio, the next largest asset is a $12,000,000 asset that is in Downtown Minneapolis. It is pass rated, good occupancy, good cash flow, and a good sponsor. And then we also identified in our investor materials the additional office assets that we've identified as substandard, the largest of that being an $8,200,000 asset that we do have substandard accrual. It is current and do have a sponsor that is supporting it on an ongoing basis. I'll stop for a minute, see if that gives you some good color on the on the portfolio, and also ask my teammates if they have anything to add.

Speaker 1

Jerry, any follow-up question on that one, Chip? Yes. No. No. That's a great, great color.

Speaker 1

Thanks for all that.

Operator

Then maybe as a follow-up, the expenses, $41.46 to one forty eight. Maybe talk about, I think you call it operational efficiencies, where you where you're investing there as well as additional hires. And it sounds like you had an active q two on the hiring front. Hey, Dave. Terry, we got a few things going on there.

Operator

This is Chip. So on the hiring front, we're able to bring over a team on the C and I side of the business from in the Twin Cities from some, what I'll call, just M and A disruption in that marketplace. We also brought over a few wealth individuals in that marketplace. And at the same time, we also hired a new region president in the Denver marketplace also from some M and A disruption in that city. So overall very active on the talent acquisition, talent investment standpoint.

Operator

And then some of the major projects on the technology initiative side, we continue with what internally we call OneConnect, but ServiceNow, which is a end to end workflow management system for the back office. In October, we have a new commercial digital banking platform that will be rolled out for our customer base. And then we're doing a heck of a lot of business automation internally now as well. So I think for the most part, we've been able to cover what I'd say our investments just through gaining more efficiencies. And then the revised guidance that Barry gave probably up I think about $1,000,000 in terms of the range is really from the talent hires that we did in the Twin Cities marketplace.

Operator

Perfect. That's

Speaker 1

great. Thanks for taking my questions.

Operator

Yep. Thanks, Jack. The next question will be from the line of Damon Del Monte with KBW. Please go ahead. Your line is open.

Speaker 1

Hey. Good morning, everyone. Hope you're all doing well today. Thanks for taking my question. So just to talk a little bit about credit and kind of outside of the events in this quarter, as we kind of think about the provisioning going forward and kind of given the continued optimism of loan growth.

Speaker 1

Barry, just looking for a little color on kind of how you think about the provision over the back half of the year?

Operator

Yes. I expect provision expense to go down to more, I'll call it, normalized levels in the back half of the year, Damon. Certainly, our allowance coverage ratio reflected the one single CRE credit. So as we get resolution on that credit, I expect the coverage ratio to go back down to our more historical levels at the one one twenty range, and and we believe we have a good ring fence on the on the loss on that loan. So I I think credit loss expense will be very much more like historical levels, Damon.

Speaker 1

Okay. Alright. Helpful. And then on the the securities portfolio And then

Operator

what I'd also say I'm sorry. Hey, Damon. This is Jeff. What what I'd also say is, the specific reserve that increased our credit loss expense with the single loan, it's I would say that it's likely or potentially expected that as the receiver that's in place gives us some more detailed information and begins to have some conversations with the tenants here in the third quarter, we'll likely be in a position to reflect the charge off likely in the third quarter of that too. So the asset itself will not be completely resolved at that point, but I think we'll be in a position to likely take the charge off.

Speaker 1

Got it. So basically, you're sort of in like price discovery mode where you'll get a better handle on things and you can kind of you know, get rid of the portion that you need to. Yeah.

Operator

I'll do this. We have an updated appraisal on an as is basis that's described as a distressed property. So we think we've been conservative in our credit loss expense adjustment. We believe we have it all. But I would say we will know complete information here in the third quarter.

Operator

But I do believe we have it all.

Speaker 1

Okay. Great. And then on the securities portfolio, quarter, average balances came down. Do we kind of expect that to kind of hold steady? Or do you think more cash flow runoff will just be redeployed into loans?

Operator

Yes. Part of that will be driven by what's happening on the deposit side, Damon. But yes, I mean, right now, what we are is redeploying those cash flows into loans. And to the extent that the deposit growth picks up relative to loan growth, I would expect to invest those in the securities portfolio. So it's going to be a function of what's happening on the deposit side.

Operator

I would say probably continued runoff with respect to remixing into the loan portfolio.

Speaker 1

Okay. Great. And then just last quick question here on the tax rate, Barry. I think this quarter is lower than than first quarter. So how do we think about it for the back half of the year?

Speaker 1

Thanks.

Operator

Yes. Hey, Damon. We expect our we expect our tax rate for the year to be around 22%. So higher than what we were in the second quarter that reflected an annual effective tax rate adjustment, but we expect to be at 22%, Damon. The next question today will be from the line of Nathan Race with Piper Sandler.

Operator

Please go ahead. Your line is open.

Speaker 1

Hey, guys. Good afternoon. Thanks for taking the questions. Going back to some of the hires that you've made in the quarter, curious on a couple of fronts. One, are there any non competes and non solicits in place?

Speaker 1

Can these folks just kind of start producing out of the gate? And then also, how do you kind of see these hires kind of impacting kind of

Operator

the franchise's long term, both near and long

Speaker 1

term growth outlooks?

Operator

Nate, this is Len. I'll talk about that. What I would tell you is because these are really seasoned and established bankers in the market, we there's a lot of relationships that they have developed across the years, and and so we feel good about their ability to to not be on the sidelines, but to to be on the field immediately. And what I would tell you in terms of impact is, you know, we these hires are specifically in the commercial and wealth segments. And, you know, those things tend to have a bit longer sales cycle.

Operator

So I think the the real impact, I think, is is probably more in '26 than in '25, but I can tell you they've hit the ground running.

Speaker 1

Okay. Great. And Barry, I apologize for the analyst modeling question, but I was hoping you can maybe just kind of narrow your margin expectations for the back half of this year. It sounds like the bias is up, but not probably to the same degree we saw this quarter. So just curious how you're thinking about the margin as long as the Fed remains on pause here likely in the third quarter?

Speaker 1

And then how you think about the margin responding to maybe a 25 basis point cut at some point in the future?

Operator

Yes. Thank you, Nate. Yes, I certainly I'm not expecting the 13 basis points of margin expansion that we got in the second quarter, not necessarily where we're thinking the second half of the year, probably somewhere in the four to five basis points per quarter is what we expect based upon what we see. We do have that expectation does contemplate two twenty five basis points cuts to the Fed funds target in the second half of the year, really in the fourth quarter mostly. So that's kind of how we're thinking about it.

Operator

So not quite the magnitude of expansion that we saw in the second quarter.

Speaker 1

And then maybe one last one for Chip. It seems

Operator

like this credit event in

Speaker 1

the quarter is pretty idiosyncratic. And outside of that, you guys should be building capital nicely going forward, which is a good problem to have. So just curious what the upside is for buybacks these days relative to continue to support organic growth or other kind of inorganic opportunities that could arise?

Operator

Great. Thanks for the question, Nate, and I agree. So we CET1 and I'll stay on probably CET1. Our range that we've communicated previously is our target range of 11 to 11.5%. We just edged over that with the second quarter results, I think 11.02%.

Operator

Obviously, with the stock reaction here today and we were active in the market in the June time frame with some purchases. I would say that kind of first and foremost for this quarter, we'd be supportive of our stock, especially at the levels that we're seeing this morning. And for whenever we believe it's below intrinsic value, we'd likely be in the market. And then I would move to support the dividend. And then the last one Nate is, I've run around our institution and spoken to many analysts and institutional investors saying bigger is not better, better is better.

Operator

And when we get better, then we'll get bigger. Our underlying performance is getting much, much better. Our infrastructure is ready. And so as we continue to perform here over the second half of the year, we're beginning to have some dialogue on the M and A front. But ultimately, we'll be focused on performance here in the third and fourth quarter.

Speaker 1

Got it. Makes sense. I appreciate all the color. Thanks, guys. Thanks,

Operator

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

Speaker 1

Hey. Good afternoon, guys.

Operator

Hey, Brian. Hey.

Speaker 1

Most of my stuff was kind of answer or answered there. But just Barry, just remind me on the on the loan repricing and the bond repricing, how much of that you see over the next twelve months? And I think just with the securities possibly being redeployed into loans, just can you talk about the size of, you know, that securities portfolio relative to assets over time that you kind of think about where that trends go? I think I, where it's at today versus where maybe next twelve to eighteen months out where you see that drifting to?

Operator

Certainly, Brian. To your first part of the question, the loans that are repricing over the next year, we've got $418,000,000 of fixed rate loans with a weighted average yield of 4.61% that are repricing over the next twelve months. We've got another $180,000,000 of securities cash flows over the next twelve months. With respect to the portfolio itself, it's around 20% of assets is what we're targeting, and we're close to right around that right now. And so I would expect a 15% to 20% range is probably where we would target for the size of the portfolio, Brian.

Speaker 1

Got you. Okay. That's helpful. And then how about just on the ship on the just whomever on the gain on sale, the SBA revenue, can you just remind me what it was year to date? And it looked like it was stronger at least last year in the second half of the year.

Speaker 1

Just wondering kind of year over year, I guess, you expect a pickup in performance in the second half. So the growth is year over year growth is stronger in the second half of this year versus last year? Or is that maybe I have that number wrong. So just maybe you can clarify the SBA contribution.

Operator

It's the SBA contribution to add Brian. I mean we're budgeting targeting and where we've been here in the first half likely to be kind of in the second half too is around $500,000 or so a quarter of SBA gain on sale. And as you know, sometimes that business could be lumpy. But over the course of 2025, I think it'll end up being about that $2,000,000 or so gain on sale.

Speaker 1

Okay. And what was it in the first half of the year, Chip, ballpark?

Operator

I think Barry is gonna look that one up here for you, Brian.

Speaker 1

Okay. Yeah. Let's see how we're doing. Yeah. That's fine.

Speaker 1

Yeah. Can even follow-up offline. No no big deal. And and just your your thought on kind of the greatest opportunity just today in terms of the fee income businesses and the opportunities there. Where is the biggest upside to that, the baseline level of fee income today when you look at the next twelve to eighteen months?

Operator

I'm highly encouraged with our wealth management business right now, Brian, and debt. So it was up 5% in quarter. We continue to make strides there both in kind of what I'll call operating model platform as well as talent. And so in quarter, we've been able to establish a much more efficient, what I call, small account customer platform and then our new originations in terms of new clients of assets under management coming to the institution. In that most recent snapback I saw was 55% to 60% of our new clients were bringing greater than $3,000,000 of assets under management to us.

Operator

That bodes well for us as we move into the future as well. And then again Steve Heimerman joined us from Northern Trust in January to run that business for us. And I think we're making some terrific strides. So that is one that we're highly optimistic about and encouraged by over a long term fashion, Brian. Got you.

Operator

Brian, year to date SBA is $1,720,000.

Speaker 1

Okay. I appreciate that. And then just last one, Chip, was on the M and A side. If you talk about better is better, I guess, if you look at a potential target, what's important today to make you better, I guess, or what are the priorities on if you do look at M and A? What's is it more just size?

Speaker 1

Is it geography? Is it a business line? Kind of what are the priorities there? And if you can just remind us of the size of potential targets. Is this something you'd rather do a couple of small deals?

Speaker 1

Would you rather do a larger transaction?

Operator

Yes. I think what we've been pretty consistent in stating there. As we begin to explore, Brian, what I'd say is from a map, the geography and the map is very important to our institution. And ultimately take I-thirty 5 from the Twin Cities on down to Kansas City, I-eighty from the Iowa border on through Iowa into it goes through Omaha and you ultimately move

Speaker 1

through

Operator

the rest of Nebraska, take a left hand turn and you're in Denver. We have plenty of geography for $6,200,000,000 or $3,000,000,000 in assets. We need to get deeper into some of that geography. So that would be the math size wise, dollars 500,000,000 to probably a max of 1,000,000,000 point dollars to $2,000,000,000 or so in size. We'd like it to be digestible for us.

Operator

And then somehow the franchise that we would partner with would need to make us better. And does it make us better in terms of essentially density within that math? Or do they have business lines that can be accretive to us? And then the math must work for us as well. And then the last one obviously has to be management and culture.

Operator

So those are the things that we are beginning to look at. Those are the conversations that we're beginning to have. What I'd say is third quarter especially, we are going to prove that this underlying earnings momentum is more visible than it was here in the second quarter. And then perhaps we'll begin to turn attention to potentially getting a little bit larger. And Brian, I'm just going to go ahead.

Operator

Brian, yes, pardon my interruption. I just I think I heard you ask about year to date SBA that Barry answered, but you asked for a comparative, and I just pulled that up. So year to date '25 was the eight sixty number, and year to date '24 was four thirty. So that sort of gives you a relative sense of traction there.

Speaker 1

Got you. Okay. And last one, just on your comments, Chip, it sounds like the M and A is likely to get that ROA up to your barometer of 1% plus taken in a year before you would think about doing something on that front? Is that still seems kind of the way to think about potential M and A?

Operator

Well, Brian, what I'd say here is ultimately if you move our credit loss expense to just what consensus was today versus obviously the heightened level because of the isolated credit issue. If you just use consensus, we are probably between a 105110% ROA here So in this we are producing and our underlying earnings momentum is at our targeted levels and probably as what we have communicated to our analysts and our investment community. So I'm getting pretty comfortable with organization in terms of being M and A ready. However, I do believe we need to perform in the third quarter and continue to prove such.

Speaker 1

Yes. Okay. That's what I was getting at. It sounds like the underlying performance is really good enough and it's just like an isolated incident here.

Speaker 1

Well, thank you for taking the questions.

Operator

Absolutely. Thanks, Brian. Thank you. This concludes q and a, and I will now hand back to Chip Reeves for closing remarks. Thanks, everyone, for joining today's call.

Operator

Again, despite the isolated credit issue that we've discussed, I am truly pleased with the continued transformation of our company and our strong balance sheet capital position and underlying earnings momentum really do position us well for the second half of this year and then as we move into the to 2026. Thank you all for joining today, and have a good afternoon. This concludes the Midwest One Financial Group Incorporated second quarter twenty twenty five earnings call. Thank you for joining. You may now disconnect your lines.

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