Good morning, ladies and gentlemen, and welcome to the MidWestOne 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 to 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. 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 Len Devaisher, our President and Chief Operating 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 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 pressure, general economic conditions, and the risk factors detailed in the company's periodic reports and registration statements filed with the SEC. MidWestOne Financial Group 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. 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 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 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 million-$100 million. So far this year, we've added several producers in the Twin Cities, and we'll 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 reaccelerating 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 and 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 ribusiness 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 MidWestOne. Government guaranteed lending is also a natural fit for our local and metro bank markets. Our desire is to become one of the leading SBA 7(a) 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 goal. Our expectations are to reallocate 2.5% of our operating expense base into more productive, profitable markets and departments, 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 MidWestOne 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 in 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 Len. Thank you, Chip, and good morning, everyone. Our sales teams across the bank are clear about our number one priority: deposit generation. We are seeing the fruit of those efforts. In the first half of this year, we are proud of a net new account growth rate of more than 1%. As slide six illustrates, we were able to arrest the deposit decline in June, and we're pleased to see those balances remain stable in July. Notably, our deposit results in the second quarter are driven by balance growth in our commercial segment, offsetting a runoff of public funds time deposits, particularly in the month of May. Speaking of our commercial team, they are driving strong growth on the asset side of the balance sheet too. Our nearly $94 million of balance growth in the second quarter was driven by Twin Cities, Iowa Metro, and Denver. These same three regions have led the way in our year-to-date loan growth. Compared to the first half of 2022, new originations this year are up 4%, and loan origination fee production is up 22%. Our loan story is about growth, but it's also about profitability and risk. We are pleased that our weighted average coupon of new commercial originations in June was 7.13%, which is up from 6.68% in April. Our credit risk profile, with low net charge-offs of only 9 basis points, stable non-performing at only 22 basis points, and the leading indicator of 30-plus day delinquency at a very low 15 basis points. As slide 9 shows, we are well positioned with a diversified loan portfolio without undue concentration in CRE, and only 3.8% in Non-Owner Occupied Office exposure. Turning to slide 10, the talent investment in Wealth also continued to bear fruit. AUM and revenue continue to climb. We are pleased that our year-to-date new AUM ended at $97 million, more than twice the same period last year. In our MidWestOne Investment Services division, second quarter revenue was up 10.6% from the first quarter. Wealth momentum continues to be strong. With that, I'm pleased to turn the call over to our CFO, Barry Ray, to discuss our financial results. Thank you, Len. I'll walk through our financial statements, beginning with the balance sheet on slide 12. Starting with assets, loans increased $99.2 million, or 10.6% annualized from the linked quarter to $4 billion. Strength in the second quarter was led by commercial loans, which increased $93.9 million, or 12.2% annualized from the linked quarter, and the overall portfolio yield was 5.05%, a 10 basis point improvement from the linked quarter. During the quarter, the Allowance for Credit Losses increased $0.6 million to $50.6 million, or 1.25% of the loans held for investment at June 30th. The increase was due to credit loss expense of $1.6 million, attributable to organic loan growth, which was partially offset by net loan charge-offs of $0.9 million. Turning to deposits, the dislocation following the bank failures in March of this year impacted our deposit franchise as we experienced net deposit outflows through April and May. Positively, that trend reversed in June. That said, total deposits decreased $109.7 million to $5.4 billion from the linked quarter. Public funds deposits accounted for nearly $98 million of the net deposit outflows, as the cost of retaining those deposits exceeded the cost of alternative funding sources for similar tenors. The rising interest rate environment, combined with the residual, though subsiding stress in the banking sector, has resulted in firm competitive dynamics for deposits, while also having impacted our cost of funds to incur a further increase during the second quarter. Specifically, the cost of interest-bearing liabilities rose 39 basis points to 1.98%, comprised of increases to our interest-bearing deposits, short-term borrowing costs, and long-term debt costs. Finishing the balance sheet, total shareholders' equity experienced an increase of $0.7 million to $501.3 million, driven primarily by second quarter net income, partially offset by an unfavorable Accumulated Other Comprehensive Loss of $3.8 million and cash dividends of $3.8 million. Turning to the income statement. On slide 15, net interest income declined $3.1 million in the second quarter to $37 million as compared to linked quarter, due primarily to higher funding costs and volumes and a reduction in interest earning asset volumes, partially offset by higher interest earning asset yields. Our net interest margin declined 23 basis points to 2.52% in the second quarter, as compared to 2.75% in the linked quarter. Our NIM in the second quarter continued to be impacted by the Federal Reserve's rising interest rates, resulting in an increase in our funding costs, which significantly outpaced the increase of 12 basis points in our total interest earning asset yields. Non-interest income in the second quarter increased to $12.8 million, primarily due to the investment securities losses of $13.2 million in the linked quarter related to our balance sheet repositioning in the first quarter. Finishing with expenses. Total non-interest expense in the second quarter was $34.9 million, an increase of $1.6 million or 4.8% from the linked quarter. The increase was primarily due to $1.4 million of one-time expenses related to a voluntary early retirement program and executive relocation expenses. Excluding these one-time expenses, non-interest expense was stable from the first quarter's level. As Chip mentioned, we remain focused on improving our efficiency and operations, including cost reductions, a key pillar of our strategic plan. Specifically, by the end of this year, we expect to reduce our annual expense run rate by approximately $3.25 million and reallocate another $3.25 million of our annual expense base into more productive, profitable markets and departments. We expect our quarterly expense run rate for the balance of the year to be in line with the first quarter. With that, I'll turn it back to the operator to open the line for questions. Thank you. We will now begin the question and answer session. If you would like to ask a question today, please do so now by pressing star followed by the number one on your telephone keypads. If you change your mind and would like to be removed from the queue, that's star followed by two. When preparing to ask your question, please ensure that your device and your microphone are unmuted locally. Our first question comes from the line of Brendan Nosal with Piper Sandler. Brendan, please go ahead. Your line is now open. Hey, good afternoon, guys. Hope you're doing well. Good. Hi, Brendan. Just to start off here, maybe to start off on, on the margin, can you just walk us through how the NIM trended over the course of the quarter and where that ended up for the month of June, just try to gauge a good jumping off point for the third quarter? Yeah, over the, over the course of the quarter, the, the margin was as follows, and we, we were at 2.64% in the month of April, 2.46% in May, and then 2.48% in June, Brendan. Okay. All right. That's super helpful. Maybe one more for me before I step back. Noticed you drew from the Bank Term Funding Program during the quarter. Just take us through the use of that funding source versus other options, and expected borrowing needs as we move through the back half of the year. Yeah, we saw an opportunity to take advantage of the attractive features of the Bank Term Funding Program, Brendan, since we were continuing to see net deposit outflows. And so, to the extent that we continue to utilize that in the future, that's really going to be dependent upon what we can see with deposits. As we said, we were pretty happy with deposits, stabilizing in the third month of the quarter, and on into July. And so that was how we were thinking about the Bank Term Funding Program. It had some attractive features. Granted, it was a cheaper cost of funds than overnight borrowing at the time that we've done it, and likely actually still remains so. Got it. Got it. That, that makes sense. Okay. Thank you for taking my questions. Thanks, Brendan. The next question comes from Ben Gerlinger with Hovde Group. Ben, please go ahead. Your line is open. Hey, good morning, guys. Morning, Ben. Good morning. Curious if we could-- the loan growth is pretty solid, and I, I think the guidance was for kind of a, a step down from the mid-single-digit range. I was curious, is it, is it more so a function of deposit gathering slash cost associated there? Is it risk-adjusted yields that you're just kind of getting competed out on? Or is it more so just an economic fear in general? Or obviously, it's a mix of the 3, but I'm just kind of just weighing those as sort of the reason why it stepped down in, in loan growth projections. Ben, this is Chip. I'll take a little bit then turn it to Len for more of the, the market view. I think the step down for us is the origination activity we believe will still be extremely solid. We are being more selective, frankly, in when, what we're putting on the books, and not just from a credit standpoint, but from a interest rate. In our commercial loan renewals, specifically our maturity schedules, I would say that we're exiting non-relationship driven customers that do not have deposits with us as we cycle through renewal schedules. You know, as we do that and become a little bit more selective, we see perhaps a dampening a touch from our first half of the year, but overall solid originations, and I'll have Len speak to that. Yeah, thanks, Chip. Ben, I would just add, you know, we're, we're very active in managing the pipeline, and when we talk about pipeline, we talk about really three things: origination, funding, and payoffs. So just as we look ahead and think about, oh, what's gonna happen, we, you know, handicap when we think closings are gonna happen and the fundings that follow those. Then also, on the payoff side, we, we do have a couple of our commercial customers selling assets, selling a business, those kinds of things. So that we anticipate in the third quarter. So that, that impacts that. Then the last variable that really is a little harder to handicap is line usage. I would, I would note that line usage is down for us. When we exited the first quarter, it was at 36%. It's down to 33% as we exited the second quarter. All of that is factoring in. Gotcha. That's helpful. I get that the expense has some relatively one-time items, whether it be the retirements, but you're also hiring some people across the footprint. I get that these kind of more so one-time items could be to get a clean quarter in 4Q, but all the while, you're hiring for growth as well. Just any guidance you can give to kind of what the non-core expense, or excuse me, what the, what a core expense base will be going forward? When we should see just pure core expenses? Yeah, I would say that, as we said in the comments, $33.5 million is kind of what we're thinking of as a core expense run rate in the near term. When we get to that, a lot of the actions that we've been talking about with respect to improving our efficiency of operations are gonna be happening throughout this year. I would say first quarter of next year is when you're gonna see what I'd call a core expense run rate. Gotcha. That's helpful. Thank you. I'll send it back to you. Our next question comes from Terry McEvoy with Stephens. Terry, please go ahead. Your line is open. Hi, good morning. Maybe a first question for Barry on just managing interest rate sensitivity. How's the bank's balance sheet positioned today for the rate cut we just had and, and maybe 1 more later this year? How are you thinking about managing around some potential rate cuts next year if the forward curve is accurate? We're liability sensitive, Terry, and so if we get rate cuts, I would say that would be a positive for us with respect to the way our balance sheet is positioned. That's how we're thinking about that. With respect to, you know, some of the things that we're doing from balance sheet management perspective should rates stay where they are, you know, we're continuing to look at... Given the fact that we are liability sensitive, you know, we are looking at balance sheet hedging strategies to, to mitigate the interest rate risk sensitivity and our liability sensitivity. Thanks. Then maybe a couple questions on the, the banker hires and teams. I guess the new agribusiness team, do they have a different skill set or business model compared to kind of the existing ag bankers? I'm just trying to see if they bring something different or is it an expansion of kind of the, the existing business model and focus. Hey, Terry, this is Chip, then again, I'll have Len provide some further commentary. There, I think ultimately across our commercial banking franchise, both in any of the specialty lines that we begin to build, also just in our core C&I business and our invest- the markets that we label as investment markets, we're really moving up tier in terms of our overall strategy and the customer base that we're reaching and the prospect base that we're reaching. Len, if you want to articulate around the agribusiness team. Yeah. Thanks, Chip. It, it really is a story. You know, this team's coming to us from a larger regional that has, you know, they've got the track record and importantly, the relationships that have shown in our footprint to be able to go to that next segment. Because our, our legacy business has done a great job serving communities and, and smaller producers and family farms, those kinds of things. This is really a complement to that legacy. To give you a sense there, Terry, our average account size or loan size in our ag- current ag business base is only about $400,000-$500,000. This group typically plays in the $2 million-$10 million space in terms of loan relationship, while we're seeing positive activity. It's not just been on the lending side, this is also full relationship and depository. Okay. That's great color. Thank you. Maybe if I can squeeze one more in there. ... Government lending group, as that evolves, will that generate a line item on the income statement for fees related to the sale of those loans, as well as will you hold the unguaranteed portion? If so, what would be the targeted size over time as a percentage of the portfolio? I'll take Barry, this is Barry. I'll take the piece. The gain from the SBA loan sale will be included in what we have on our income statement as a loan revenue item. So the $250,000 or so that we generated this quarter is included in that line item. Did I answer your question? the unguaranteed part on, on the balance sheet, that will be held, held on the balance sheet? This is Terry. Over time, let's go into the span of our strategic plan, 2025. You know, we could see this being about $40 million a year of annualized originations. If you go 25% being held, that's only $10 million in terms of being held on an annualized basis moving forward. As by percentage of our loan portfolio, de minimis. As a percentage of some of the fee income being generated from gain on sale activity, it would be end up being a meaningful contributor to us. Great. Thanks for taking my questions. Yep, thanks, Terry. Thanks, Terry. The next question comes from Damon Del Monte with KBW. Damon, please go ahead. Your line is open. Hello, everybody. Hope everybody's doing well today. Just wanted to start off with a question on the margin, kind of as a follow-up here. Barry, thanks for the color on the quarterly levels. Now, as we kind of think about the back half of the year, you know, do you feel you're going to be able to kind of mitigate some of the pressures that you've seen in the last couple quarters? Or do you know, is it going to start to slow as, you know, new loans continue to come on the books? Or, could you just provide a little color around the expected cadence for the back half of the year? Yeah, thank you, Damon. Some of the things that we've been modeling internally is, you know, assuming that the FOMC hits pause on their rate increases, and then deposits stabilize, as we've experienced over the course of the past couple of months, and we continue the loan growth, how we're expecting the margin would be, we expect some continued compression into the third quarter, and then stabilizing in the fourth quarter and perhaps inflecting in early part of next year, is kind of how we're thinking about the margin based upon our internal model. That's our expectations, Damon. Okay, that's helpful. Thank you. With respect to the agribusiness hires, how, like how big of a component of your overall loan portfolio do you envision the ag portion being? Especially since these guys are, as you guys noted, you know, bigger credits that they put on versus kind of what the legacy portfolio has. Yeah, Damon, this is Len. As you know, our, our ag portfolio today represents about 7% of our loan portfolio, so I would expect it to move forward, and to move up. You know, what I would say, the other thing is that some of what they'll be doing is really outside the farm gate, and it's going to show up in the C&I piece as well, as we think about the business of agribusiness. I, I think we probably cap out in that 10% or less range. Got it. Okay. From the ag specific, not the, not what goes into C&I as well. You got it. 10, 10% or less on the ag- Okay. -component. Got it. Got it. Okay, that's helpful. Thank you. Just lastly, on the expenses, in the prepared remarks, did you guys say that you expect kind of, third quarter level to be similar, more similar to the first quarter level? Did I hear that correctly? You did, Damon, but again, on a core basis, I would say. Yeah. Yeah. I just like Damon. Got it. This is... Let me say, we're, we're moving through enough just continued review of our efficiency and operations that we may be lumpy. Here, obviously we had some one time in Q2, we may have some one time in Q3 as, as well. I think Barry alluded to, you know, core should be that 33.5 range, and not what we end up being, you know, from a, you know, stated number, you know, Q4 to Q1, where we'll see the settling down of any of the one-timers. Got it. Okay. That's all that I have. Thank you. Great. Thank you. The next question comes from Brian Martin with Janney Montgomery Scott. Brian, please go ahead. Hey, good afternoon, everyone. Hey, Brian. Just one follow-up on the expenses, Barry. I mean, can you give some kind of thought on or, you know, on where the expenses, will they, you know, normalize as you enter next year? Sounds like the next two quarters, you know, probably just some consultants with some possibilities for a little bit more improvement here in the back half. Just as you talked about the step down, you know, as you get into next year, can you kind of give us how we should be thinking about expenses for next year as you jump into the first quarter? Yeah, as we've discussed, kind of when we think about an actual dollar reduction in expenses, Brian, we've been talking about that in terms of, like, the $3.25 million on an annual basis. I would say that we're gonna have some normal expense increases in the first quarter of next year, just for salaries, for example. Whatever you're modeling for that, and then the number that we're targeting is the $3.25 million for annual reduction. If you put those two pieces together, that should approximate a good run rate for next, beginning of next year. Gotcha. Okay. That's perfect. Then, how about just, the, the, the funding of the loan growth in the, in the second half of the year, the contraction you saw in deposits, you know, versus the better rates elsewhere, how should we think about you guys funding the loan growth back half of the year? You know, and just kind of how that, you know, goes along with your outlook on deposit flows. Yeah, we're going to continue to take advantage of, you know, our investment portfolio is continuing to run down, Brian. I think in 2024 we'll get about $160 million of cash flows off of that, and that's going to ramp up a bit more in 2025. The second half of the year, we'll continue to leverage investment portfolio cash flows to the extent that we need to supplement any deposit outflows. You know, we would, we would look at borrowing overnight, perhaps, and then what can we do with a hedging strategy with respect to that? Okay. The cash flows in the second half of the year, Barry, on the bond portfolio, how, how much is that? Or did you disclose that? I didn't disclose that, Brian. I don't have it in front of me, but I can get it to you. Okay. Yeah, maybe it's about half of what you were talking about. I think we're roughly- Maybe in the $80 million range. I think we're roughly about $150 million for the year, Brian, so let's call it $75 million. Yeah. Okay, that sounds about right. Okay, I appreciate it. Then just the last one for me was on criticizing classified levels. You talked, and the NPAs were pretty stable, but some increases in both criticized and classified. Maybe you can just give a little thought on that and, you know, I guess, you know, how, how you feel about these credits or I guess kind of the portfolio, where else you're seeing signs of distress? Sure, Brian, this is Chip Reeves. Gary Sims, our Chief Credit Officer, is with us in the room today. We'll have Gary answer that question for you. Gary? Yes, thanks, Chip. Hi, Brian. You know, as we did, did point out, our increase in criticized and classified, it's primarily in that Non-Owner Occupied category. Like most of our peers, we are seeing weakness in the office space. We believe we've identified the appropriate level of weakness. You know, that office space total portfolio is 3.8% of the overall portfolio. We feel like it's manageable through this cycle. Okay. Are the 2 credits both office properties, Barry? I guess, or are they-? Yeah. Yeah, Brian, the increase in the classified were both office, Non-Owner Occupied Office. When you take into account the increase in the criticized as well, we did see some deterioration in our Senior Living credits as well. You know, from a thematic perspective, Senior Living and office is where we've seen the weakness so far, Brian. Does that help? Okay. Yeah, yeah. Just in general, the, the Senior Living, how big, how big a portfolio is that? Is that, you know, relatively small in size versus the, the office and, the office portfolio? Yeah, the office portfolio is 3.8% of our overall loan portfolio. The Senior Living portfolio is 6.1% of our overall portfolio. Okay, 6.1. Okay. Just, you know, one, one credit right now that's, that's past due there or just in, you know, criticized? Right. It is not past due. It, we did downgrade it to criticized status, and it was 1 credit that drove most of that increase. There is more than 1 credit that is in the. Okay ... criticized and classified, portfolios in the Senior Living. Okay. Yeah, okay. I think that's that helps me out. I appreciate it, Gary. Thank you so much for taking the questions. Thanks, Brian. Those are all the questions we have for today, so I'll turn the call back to Chip Reeves for closing remarks. Good. Thank you, everyone, for your time and interest in MOFG. As mentioned today, we're making solid progress on our strategic plan initiatives, and we look forward to sharing more details next quarter. Thanks, everyone. Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.