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MF

MidWestOne Financial Group, Inc. (MOFG)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 delivered solid core earnings power (NIM up 13 bps to 3.57%, total revenue up 5% q/q) but GAAP EPS of $0.48 was depressed by $11.9M credit loss expense tied to a single $24M suburban Twin Cities CRE office loan moving to nonaccrual; adjusted EPS was $0.49 .
  • Total revenue (net of interest expense) was $60.231M (+5% q/q, +4% y/y) on stronger net interest income and modest noninterest income growth; efficiency ratio improved to 56.20% from 59.38% in Q1 .
  • CET1 improved 5 bps to 11.02%; tangible book value/share rose 2.4% q/q to $23.92; loans grew 1.8% q/q (annualized ~7.4%); deposits fell 1.8% q/q with noninterest bearing balances up q/q and y/y .
  • Management guided to continued “grind higher” in margin, mid‑single‑digit loan growth in H2 2025, normalized provisions, full‑year tax rate ~22%, and revised 2025 noninterest expense guidance to $146–$148M; redemption of $65M subordinated notes expected July 30 with a $50M senior term note financing .
  • Primary stock‑moving narrative: isolated CRE office nonaccrual and large provision overshadowing strong NIM/margin trends and capital build; watch Q3 for potential charge‑off on the office loan and confirmation of margin expansion cadence .

What Went Well and What Went Wrong

What Went Well

  • Core profitability strengthened: tax‑equivalent NIM expanded 13 bps to 3.57% and core NIM to 3.49%; efficiency ratio improved 318 bps to 56.20% q/q .
  • Fee momentum across SBA, wealth, and mortgage: “SBA originations and gain‑on‑sale exceeding expectations,” wealth management revenue up 5% q/q, and mortgage fee revenue higher .
  • Balance sheet quality and capital: CET1 rose to 11.02%; tangible book value/share increased to $23.92; criticized loans ratio improved 32 bps to 5.15% .
  • Quote: “We continued to execute well on our 2025 strategic initiatives… loan growth and back book repricing led to NIM expansion of 13 bps” — CEO Chip Reeves .

What Went Wrong

  • Credit event: $11.9M provision primarily from one $24M non‑owner‑occupied office credit moving to nonaccrual; nonperforming loans/NPAs rose to 0.85%/0.66% .
  • Noninterest income down y/y: −52% vs Q2 2024 due to prior‑year $11.1M gain on Florida branch sale; MSR fair value was a $0.264M loss .
  • Deposits contracted 1.8% q/q amid mix shifts; total deposits $5.388B, interest‑bearing deposit costs still elevated at 2.29% despite modest improvement .

Financial Results

Headline metrics vs prior periods

MetricQ2 2024Q1 2025Q2 2025
Total Revenue (net of interest expense) ($M)$57.901 $57.575 $60.231
Net Interest Income ($M)$36.347 $47.439 $49.982
Noninterest Income ($M)$21.554 $10.136 $10.249
Diluted EPS (GAAP)$1.00 $0.73 $0.48
Adjusted EPS (Non‑GAAP)$0.52 $0.73 $0.49
NIM (tax‑equiv.)2.41% 3.44% 3.57%
Efficiency Ratio (Non‑GAAP)56.29% 59.38% 56.20%

Balance sheet and credit KPIs

KPIQ2 2024Q1 2025Q2 2025
Loans HFI, net ($M)$4,287.2 $4,304.2 $4,381.2
Total Deposits ($M)$5,412.4 $5,489.1 $5,388.1
Total Securities ($M)$1,824.1 $1,305.5 $1,235.0
CET1 Ratio9.56% 10.97% 11.02%
Tangible BV/Share ($)$28.27 $23.36 $23.92
ROA0.95% 1.00% 0.65%
NPL Ratio0.59% 0.41% 0.85%
NPA Ratio0.47% 0.33% 0.66%
ACL Ratio1.26% 1.25% 1.50%

Noninterest income composition

Component ($000)Q2 2024Q1 2025Q2 2025
Investment services & trust$3,504 $3,544 $3,705
Service charges & fees$2,156 $2,131 $2,190
Card revenue$1,907 $1,744 $1,934
Loan revenue$1,525 $1,194 $1,417
BOLI income$668 $1,057 $677
Securities gains (net)$33 $33 $0
Other$11,761 $433 $326
MSR adj (included in loan revenue)$129 $(213) $(264)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Noninterest ExpenseFY 2025Not specified$146–$148MNew range provided
Tax Rate (effective)FY 202522–23% (Q1 reiterated)~22% for FY; 20.6% in Q2Maintained FY guide; Q2 lower from annual ETR adj
NIM outlookH2 2025“Grind higher” (qualitative)+4–5 bps per quarter expected; asset‑side repricing and lower time deposit costsMore specific cadence
Loan GrowthH2 2025Not specifiedMid‑single‑digit expectedNew explicit outlook
Provision / ACLH2 2025Not specifiedProvision to normalize; ACL coverage to trend back toward ~1.20% as credit event resolvesNew normalization commentary
Debt CapitalJul 2025—Redeem $65M 5.75% sub notes; add $50M senior term note (SOFR+1.75%, 5‑yr term, 7‑yr amort)Capital structure optimization
DividendQ3 2025$0.2425$0.2425 declared, payable Sep 16; record Sep 2Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024, Q1 2025)Current Period (Q2 2025)Trend
NIM trajectory3.43% in Q4; 3.44% in Q1 with lower funding costs 3.57%; management sees continued grind higher, +4–5 bps/quarter H2 Improving
Loan growthFlat in Q1 amid payoffs; pipelines building +1.8% q/q; annualized 7.4%; C&I strength; mid‑single‑digit H2 guide Accelerating
Fee businessesQ1 included BOLI death benefit; SBA building SBA gain‑on‑sale and wealth fees up; mortgage fees higher Positive momentum
CRE office exposureQ1 partial charge‑off preparing for resolution One $24M NOO office loan to nonaccrual; receiver in place; specific reserve Idiosyncratic stress; being worked
Capital & buybacksCET1 10.97% in Q1; buyback plan active CET1 11.02%; active repurchases in June; supportive of buybacks at value levels Stronger capital; opportunistic buybacks
Technology/efficiencyOngoing platform upgrades ServiceNow workflow (“OneConnect”), new commercial digital banking in Oct; automation Execution continues
Securities portfolioQ4 repositioning losses; runoff Continued runoff; redeploy cash flows to loans; target securities ~15–20% of assets Smaller, more efficient
Tax rate~22–23% FY outlook ~22% FY; Q2 20.6% due to ETR adjustment Stable guidance

Management Commentary

  • “Strong loan growth and back book loan re‑pricing led to tax equivalent net interest margin expansion of 13 basis points… and to 5% linked quarter net interest income growth.” — CEO Chip Reeves .
  • “SBA originations and gain‑on‑sale exceeding expectations… wealth management revenues up 5% linked quarter.” — CEO Chip Reeves .
  • On the office loan: “A receiver is in place, resolution efforts have begun, and a specific reserve was established.” — CEO Chip Reeves .
  • Margin outlook: “We believe there still continues to be opportunity… grind higher… driven by new loan originations at higher coupons, back book repricing… and lower time deposit costs.” — CFO Barry Ray .
  • Expense guidance: “Given recent talent investments, we are revising our 2025 annual expense guide to $146–$148 million.” — CFO Barry Ray .
  • Provision normalization: “I expect provision expense to go down to more normalized levels in the back half of the year… coverage ratio to go back down to more historical levels at the 120 range.” — CFO Barry Ray .

Q&A Highlights

  • Credit details: Office property 85% occupied with 2025 rollover risk; sponsor stopped payments; moved to nonaccrual; largest office exposure; next largest $12M downtown asset is pass‑rated .
  • Margin cadence: Expect ~4–5 bps per quarter expansion in H2 2025; drivers on asset side repricing and some funding relief; scenarios contemplate two 25 bps Fed cuts in Q4 .
  • Securities strategy: Continued runoff; redeploy into loans unless deposit growth outpaces; ~$180M securities cash flows and ~$418M fixed‑rate loan repricings over next 12 months .
  • SBA contributions: Target ~$500K gain‑on‑sale per quarter in 2025; YTD SBA ~$860K vs $430K in 2024 YTD (alternate call version cites $1.72M YTD total) .
  • Capital allocation & M&A: CET1 target 11–11.5%; supportive of buybacks below intrinsic value; M&A optionality as performance strengthens; focus on I‑35/I‑80 footprints .

Estimates Context

  • Versus S&P Global consensus: EPS consensus for Q2 2025 was $0.774; reported GAAP diluted EPS was $0.48 and adjusted EPS $0.49 — a significant miss driven by the office loan provision.*
  • Revenue consensus for Q2 2025 was $60.567M; reported total revenue (net of interest expense) was $60.231M — a slight miss; note consensus “Revenue” definitions may vary vs company’s “total revenue net of interest expense”.*
  • Coverage: 5 EPS estimates; 3 revenue estimates.*

Values retrieved from S&P Global.

Key Takeaways for Investors

  • Margin expansion is intact despite the credit event; management’s +4–5 bps/quarter H2 cadence and loan repricing pipeline support NIM and net interest income growth .
  • The office loan appears idiosyncratic with active resolution and expected Q3 charge‑off; provision should normalize thereafter, potentially restoring ROA toward the >1% “underlying” level cited by management .
  • Capital remains a strength (CET1 11.02%); near‑term debt redemption and term note financing should improve funding mix and could modestly lower interest expense over time .
  • Fee businesses (wealth, SBA, mortgage) are gaining momentum and diversify revenues; watch SBA gain‑on‑sale and wealth AUA trends for sustained contribution .
  • Deposit mix improved at the margin (noninterest bearing balances up q/q and y/y); ongoing Treasury Management build and talent additions should aid core deposit growth .
  • Short‑term: shares likely sensitive to any Q3 charge‑off magnitude and confirmation of margin trajectory; Medium‑term: thesis hinges on sustainable NIM, disciplined expenses ($146–$148M guide), and normalized credit costs .
  • Monitor CRE office book disclosures and criticized/classified trends; current CRE concentrations remain below regulatory thresholds and risk ratings reviewed by third party .

Results vs Estimates (detail)

MetricQ2 2025 ConsensusQ2 2025 ActualSurprise
EPS (GAAP, $)0.774*0.48 −0.294*
EPS (Adjusted, $)—0.49 —
Revenue ($M)60.567*60.231 −0.336*

Values retrieved from S&P Global.

Additional Details and Cross‑References

  • Operating leverage: Pre‑tax, pre‑provision net revenue rose 15% q/q to $24.464M; core NIM rose to 3.49% excluding purchase accretion .
  • Expense control: Q2 noninterest expense fell $0.5M q/q; ERC claims reduced compensation; data processing decreased $0.3M; marketing and equipment up modestly .
  • CRE concentrations: CLD loans 39% of capital; CLD+Multifamily+NOO CRE 209% (below 300% threshold) .
  • Dividend: $0.2425/share declared, payable Sep 16, 2025; remaining buyback authorization ~$13.2M .