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Edited Transcript of MOFG earnings conference call or presentation 25-Oct-19 4:00pm GMT

Q3 2019 Midwestone Financial Group Inc Earnings Call

IOWA CITY Nov 12, 2019 (Thomson StreetEvents) -- Edited Transcript of Midwestone Financial Group Inc earnings conference call or presentation Friday, October 25, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Barry S. Ray

MidWestOne Financial Group, Inc. - CFO, Principal Accounting Officer & Senior VP

* Charles N. Funk

MidWestOne Financial Group, Inc. - President, CEO & Director

* James M. Cantrell

MidWestOne Financial Group, Inc. - CIO, VP & Treasurer

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Conference Call Participants

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* Andrew Brian Liesch

Sandler O'Neill + Partners, L.P., Research Division - MD

* Brian Joseph Martin

Janney Montgomery Scott LLC, Research Division - Director of Banks and Thrifts

* Damon Paul DelMonte

Keefe, Bruyette, & Woods, Inc., Research Division - SVP and Director

* Jeffrey Allen Rulis

D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst

* Nathan James Race

Piper Jaffray Companies, Research Division - VP & Senior Research Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the MidWestOne Financial Group, Inc. Third Quarter 2019 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Charlie Funk, CEO. Please go ahead.

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Charles N. Funk, MidWestOne Financial Group, Inc. - President, CEO & Director [2]

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Thank you very much, Alley. Good morning or good afternoon, as the case may be, to everyone. Thank you for joining us this morning, and I'll begin, as always, with the forward-looking statements message that says: 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 SEC. MOFG undertakes no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances after the date of the presentation.

And with that, a few opening comments would just be that the overall report, we think the overall theme of this report is positive. We did have a lot of moving parts due to purchase accounting adjustments, but still, we think a very, very positive report. I think as much as anything, we believe we've gained good operating leverage from the AT transaction. And as such, as we mentioned in the earnings report, we calculate that our earnings per share, if you exclude only merger-related expenses, to be about $0.88 per share.

So let's begin, first of all, with the balance sheet. We continue to be hampered by higher-than-normal paydowns in our loan portfolio, and there's really no underlying -- there's not one underlying theme to these paydowns. We've had a number of liquidity events that have happened with our customers throughout our footprint. Certainly, the economy seems to be a little bit slower. That would account for a little bit of the paydown as well. We've also had some positive movement in terms of some watch credits that we've been able to manage out of the bank, and we've lost a little bit to competition. So really, not any one theme that you can point to in terms of why we've had these paydowns.

It's also fair to say that we have fewer strong loan-producing areas in our footprint than we did a year ago, and if you look at our footprint, about half of our regions are positive from year-end 2018 to currently, in terms of loan growth at about -- so about half positive and half negative.

In the Twin Cities, we generally have positive loan growth, but 2 of the 4 regions show -- in our Twin Cities footprint show negative loan growth year-to-date. Overall, the Twin Cities remains strong in terms of its economy. Our loan growth is a little bit less than it was a year ago. Denver continues to move forward and generating very, very positive C&I loan growth. Our Florida footprint, our 2 offices there have modest loan growth this year. We've seen a number of liquidity events in our Iowa City footprint. We do have a good pipeline in Iowa City to close either in the fourth quarter or the first quarter of 2020, and I would also note that our Southern Iowa footprint has a good pipeline, much of which we'll fund in the first quarter of 2020.

So we do expect a few more paydowns due to liquidity events in quarter 4. We also have a few large deals that are in our pipeline, but certainly not 100% certain to close. So I would say we need to stay tuned on this. We do have a pipeline. The amount of the pipeline is currently unclear. Probably clear itself up over the next 45 days.

In terms of lending competition, very, very tough on price in most of our markets. I would say that in most instances, what we find in terms of credit terms tend to be reasonable throughout our footprint. It appears most of our competitors, as far as we can tell, are doing a good job of underwriting. And so we found credit terms to be generally reasonable.

On deposits, very, very good year on deposits. We have a statement in the earnings release that although are flat -- our deposits were flat on a quarterly basis, some of that was managing high cost deposits out of the former AT, and those got funded elsewhere in our footprint. Those deposits came at a lower cost to us, which really does help our net interest margin.

Overall, in 2019, I'm very happy with the deposit generation in our company. I believe I'm correct in saying that every single region in our company is positive in terms of deposit growth from year-end 2018. And so the legacy MidWestOne has done a terrific job, and we feel very confident that over time, we'll find good loans funded by these strong core deposits. It would appear that quarter 4, we've got some deposits -- some new deposits in the pipeline. We'll see if those materialize, but overall, again, a good story.

I think for me the highlight of the quarter was the core net interest margin that we calculate without any purchase accounting, at 3.48% versus 3.45% in the second quarter. Certainly, having a mix change. We had 3 months at a higher loan-to-deposit ratio that came from AT versus 2 in the second quarter. That helped us. We've been able to lower rates on many of our large rate-sensitive deposits as the Fed has eased. And as noted, we do have competitive pricing on loans. We think that will continue. We have not lost a lot of deals to rate, but the rate competition is significant.

I would say in terms of the outlook going forward for our margin, it's probably more dependent on what the shape of the yield curve looks like than it is on whether the Fed eases or not because clearly, the flatter or more inverted the yield curve gets, it just gets tougher and tougher for our company to hold in with a strong net interest margin.

In terms of noninterest income. Clearly, the biggest headwind for us has been the mortgage servicing rights adjustments, $657,000 in this quarter after $507,000 in the second quarter. And I would remind our listeners that our mortgage servicing portfolio is now over $1 billion, roughly $1.1 billion. So that does affect our income statement whenever we have significant changes in interest rates.

Clearly, our mortgage unit and mortgage activity is strong, and that should continue into the fourth quarter. Also contributing on our noninterest income is the wealth management unit. Our Trust Department with the AT acquisition is now between $1.6 billion and $1.7 billion in assets under management. And I would say, the integration has been excellent between the 2 Trust Departments, and we've lost very little business because of the merger. I'm very, very happy with the work done by our Trust personnel. Also in wealth management, our investment services area is pointed toward a record year, and we did add 2 investment representatives in Dubuque, which will help going forward. So again, a good story for investment services.

In terms of noninterest expense, I think it's a bright spot. We're certainly on target to meet or exceed our stated goals in terms of cost saves with AT, and I think we'll be in a position to give a better update on that next quarter, but we feel really good about where we stand right now.

A few cautionary notes on expenses as we go forward. We'll probably have a little bit of extra expense in the fourth quarter because of the Windows 7 going out of business, so to speak, and we need to upgrade our remaining Windows 7 computers. And that is not a cheap operation in our -- in a company of our size.

Also, going forward, and we've talked about this before, fintech is not cheap; fintech is expensive. And we need to have a continued commitment not only in software, but also in people to rule out the products that our customers expect and deserve. But overall, with an efficiency ratio, we believe our core efficiency ratio is under 60% right now. That's long been a goal since we had the Central Bank acquisition in 2015. So we're very pleased with the progress on the efficiency ratio, and expect more improvement going forward.

Turning to asset quality. Again, we put this in the earnings release but would note that -- we had a $4.3 million provision, but would note that $3 million of that wasn't related -- was not related to a deterioration in the overall quality of our loan portfolio. But rather, we transitioned from the initial measurement of the acquired loans to our standard allowance methodology. $1.3 million provision was taken in the legacy MidWestOne footprint and portfolio. So otherwise, it was a fairly normal quarter for us in terms of credit. We gave guidance of a provision in the legacy MidWestOne portfolio of $4 million to $6 million in the first quarter. We're currently at $3.6 million of provision in the legacy MidWestOne portfolio, and we think we should, as we look at it right now, have what we would consider to be a normal fourth quarter and fall well within the guidance that we gave.

Before I talk about ag, I would say that we've seen little, if any, deterioration in our commercial real estate portfolio, and much of that in our company is in the Twin Cities, and the Twin Cities continues to be a very, very strong economy in the commercial real estate portfolio there as it continues to do very well for us. Any erosion that we've seen in our C&I portfolio is nothing that would give us heartburn at this particular point in time. And so that points me then toward the update on our ag portfolio.

Just in general, in our footprint, yields on soybeans and corn are above earlier forecast, but we still have crops that are being harvested. And right now, our estimate is that probably 35% to 50% of the harvest is in, which means that there's still a lot out in the field. It's not a record year for corn and soybean yields. But anecdotally, Iowa seems to be in better condition than many of our surrounding states. In our footprint, we would expect yields to be 10% to 20% less than they were in 2018. So not a bin buster, as we say in the Midwest, but certainly, not a disaster either.

For those who use marketing of their crops, we have seen, over the last couple of months, an improvement in soybean and corn prices. I think a few of our customers use those opportunities when the price was up to lock in some of their crop or more of their crop, as the case might be. That only bodes well when we finish the year and look at financial results of our borrowers.

Our ag loans are up about 1% during the quarter from the quarter 2 levels of the ag portfolio. Ag loans represent right now 9.7% of our total portfolio. If you look at the ag portfolio only, right now, 7.6% of our ag portfolio is rated substandard; 11.5% is rated watch. If you add those 2 together, 19.1% of our ag portfolio is rated watch or substandard as of quarter end. That compares to 19.2% last quarter. And a year ago, we had 21.8% of the ag portfolio classified watch or substandard. So we have made some progress there.

We also have varied loans now to talk about because roughly 16% of our portfolio is dairy. We inherited that from AT. Most of those are in our Southwestern Wisconsin footprint. And I think I've talked about this before, but I would remind everyone that the former AT did a very, very good job with FSA guarantees. And when you have FSA guarantees, the bank has much less exposure, and therefore, I think we're managing that portfolio pretty well.

We get a lot of questions about land values from time to time. The peak in Iowa for land values was in 2013. We're 13% off the high of land values, and over the last year, we've probably seen a 2%, on average, deterioration. So again, not a great story, but certainly, not a catastrophe either.

So I think our next steps in terms of ag would be that we're certainly awaiting results from a harvest. Starting in November, December and January, we'll have discussions with our borrowers and look at where they stand. It's inevitable that some producers will probably not be funded by MidWestOne in 2020. And I would note, this is an industry-wide phenomenon, not a MidWestOne phenomenon. But I would say that that's a sizable minority of our borrowers. That said, some of our borrowers that are struggling right now, we may not be able to satisfy their needs next year. So overall on ag, I would say not much has changed and more to come later this year.

To wrap this up, I would say that we're creating capital very well, 8.21% tangible common equity at the end of this past quarter. We did repurchase shares when we believed it was prudent to do so. And I would also note that our tangible book value per share is up 84 basis points, and we want to continue to see that build.

So in general, we feel very good about where we stand today, but we are, by no means, complacent. And we still have a lot to accomplish, to achieve the goals that we expect and our shareholders expect.

And Alley, with that, I will turn it back to you, and we'll be happy to answer any questions that you might have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Nathan Race with Piper Jaffray.

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Nathan James Race, Piper Jaffray Companies, Research Division - VP & Senior Research Analyst [2]

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Maybe just start on expenses. Charlie, your comments around some investments that you're making on the technology side of things. That's pretty well managed this quarter. And it looks like you have the FDIC assessment credit as well. So just curious how we should kind of think about expenses into 4Q. And perhaps maybe just early expectations for expense growth in 2020 as well would be helpful.

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Charles N. Funk, MidWestOne Financial Group, Inc. - President, CEO & Director [3]

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Well, I can talk generally. Barry may wish to talk specifically. We're still in the budgeting process for next year. I think we may have disclosed in a prior earnings call that in 2019, we budgeted roughly a 25% to 28% increase in our technology budget. I'm not sure we're going to use all that this year but that is what was budgeted. So I mean, technology is a small part of our overall budget, but also, it's something that we need to invest in. So I think that line item is going to have an above average rate of increase going forward.

I don't know if you want to add to that, Barry.

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Barry S. Ray, MidWestOne Financial Group, Inc. - CFO, Principal Accounting Officer & Senior VP [4]

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I don't really have anything necessarily to add to that, Charlie, more specifically because as you indicated, we're still into the budget process.

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Nathan James Race, Piper Jaffray Companies, Research Division - VP & Senior Research Analyst [5]

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Understood. And I guess, maybe just for 4Q, in particular, is it fair to kind of expect flattish expenses of around 29-or-so? Or do you expect it to be trending a little higher into the fourth quarter this year, Barry?

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Barry S. Ray, MidWestOne Financial Group, Inc. - CFO, Principal Accounting Officer & Senior VP [6]

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Yes. I don't know if it's going to turn a little bit, a little bit higher in the fourth quarter. Probably the thing for expenses this quarter was the FDIC insurance credit. So I think we're going to -- that's going to more normalize in the fourth quarter, Nate. So I would increase it back to a more normal level for the FDIC insurance, and then have it fairly flat from there.

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Nathan James Race, Piper Jaffray Companies, Research Division - VP & Senior Research Analyst [7]

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Okay. That's helpful. And then just on the core NIM going forward. Obviously, with the Fed cutting rates, it doesn't sound like it's as much of an issue per Charlie's comments versus what happens with the belly of the curve, so to speak. So I'm just curious maybe how we should think about the margin in the fourth quarter. And within that context, how much of an opportunity further exists to bring down deposit costs after pretty good progress here in 3Q?

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James M. Cantrell, MidWestOne Financial Group, Inc. - CIO, VP & Treasurer [8]

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Yes. Nate, this is Jim. I thought about this going forward. I think we're guiding to a relatively flat margin going forward, whether or not we get a Fed cut next week or in December. The last few Fed cuts we've been pretty good about moving deposit rates down, as Charlie mentioned. And I think there's a little bit of powder left to do that some more, if we need to. So as Charlie said, I think the real determinant on margin, and it's a slow-moving item, is the shape of the yield curve. That's probably a bigger factor. So if we get some rate cuts, and as a result of the curve steeping down a little bit, that could be a good thing for us. But I would project basically flat going forward.

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Nathan James Race, Piper Jaffray Companies, Research Division - VP & Senior Research Analyst [9]

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Okay. That's great to hear. And if I could just ask one more kind of housekeeping question on the purchase accounting accretion outlook. Obviously, it was pretty elevated this quarter. How should we think about accretion levels for 4Q?

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Barry S. Ray, MidWestOne Financial Group, Inc. - CFO, Principal Accounting Officer & Senior VP [10]

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Yes. This quarter was skewed by a couple of things, Nate. Prepayments factored into that, and I think we indicated that was $2.3 million of -- I'm thinking about it in terms of in the near term, at least, probably $1 million to $1.3 million would be the monthly run rate. So 3 to -- call it $3 million to $3.5 million -- or, I'm sorry, $3 million, $3.5 million per quarter, and then declining from there in 2020.

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Operator [11]

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Our next question comes from Jeff Rulis with D.A. Davidson.

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Jeffrey Allen Rulis, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [12]

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Charlie, you kind of walked through the loan growth outlook, and the visibility on paydowns is, I expect, that's a challenging item to peg. I guess, if we look at '20 growth kind of on a net basis, and based on what you're seeing, with customers and look, that's coming from economy, it's coming from some credit pruning, it's coming from competition as you wind up the paydowns. But thinking about a net growth number in '20, all things being equal, would you think that the paydowns subside?

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Charles N. Funk, MidWestOne Financial Group, Inc. - President, CEO & Director [13]

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Yes, it's a good question. And before I answer it, I neglected to introduce who's in the room, and I should do that. You've already heard from Jim Cantrell, our Treasurer; Barry Ray, our Chief Financial Officer; and we also have Gary Sims, our Chief Credit Officer here.

The fourth quarter is pretty -- is unclear because we have a couple of larger deals that we're looking at that by no means are in the barn, so to speak. That could change our outlook. We know we're going to get some paydowns in the fourth -- yet in the fourth quarter. I think for next year, we start every year with a goal of, I think, 4% to 5% in terms of loan growth, and that's an expectation. I think one of the things that is in our favor is that we do have some activity we know we'll fund in the first quarter of 2020 to get us off to a pretty good start. But so much depends on the economy that it's just really hard to say. But -- so I would say fourth quarter is unclear, and we'd look at, as we always do, 4% to 5%, when we set our goals next year.

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Jeffrey Allen Rulis, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [14]

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Got it. Okay. And I wanted to clarify the expense discussion. Barry, I think ex merger costs, you're at 29, and then you just suggest that add back a normalized FDIC expense in a mid-29 range is in the ballpark?

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Barry S. Ray, MidWestOne Financial Group, Inc. - CFO, Principal Accounting Officer & Senior VP [15]

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For the fourth quarter, yes.

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Jeffrey Allen Rulis, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [16]

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Great. Okay. And did you -- I can't remember if you talked about if you got all your expenses, cost saves behind you or on track for that. I guess have you talked about an expense growth rate for 2020?

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Barry S. Ray, MidWestOne Financial Group, Inc. - CFO, Principal Accounting Officer & Senior VP [17]

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Well, we have not talked about an expense growth rate for 2020. As we alluded to earlier, we're still in the midst of our budget process and hashing out some of those 2020 expenses. And so we've not discussed that, Jeff.

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Jeffrey Allen Rulis, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [18]

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Okay. Fair enough. And just lastly, I guess, Charlie, the investment services and Trust, you did allude to some momentum there. That's been pretty strong growth. I know as you get your arms around the acquisition and your folks, but maybe if you could speak to continued success there. Is that -- are we seeing a leg up and now, maybe it moderates once everybody's on the same team? An outlook would be great there.

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Charles N. Funk, MidWestOne Financial Group, Inc. - President, CEO & Director [19]

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Yes. It's a good point. The positive thing, as I said in my opening comments, is that there's been very little customer attrition. And I would call it important customer attrition from the Trust transition, which is by far the bigger of the 2 areas. A lot, as you know, in Trust and investment services depends on what the markets do, because, obviously, when market values go up, it makes it easier. But they've been able to routinely, over the past few years, do 5% to 10%, in terms of, what I would call, bottom line growth. Because even though in our financial statements that we provided to you, we don't break them out separately, but internally, they've been able to show net income growth of 5% to 10%, and I would expect that to continue. We have good leadership there. We have good people. And I think we have good products to sell. And we brought good products to American Trust, the former American Trust in Dubuque. So we're very optimistic about that.

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Operator [20]

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Our next question comes from Andrew Liesch with Sandler O'Neill.

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Andrew Brian Liesch, Sandler O'Neill + Partners, L.P., Research Division - MD [21]

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Nice to see the deposit growth at the legacy MidWestOne franchise. Is there anything specific driving that?

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Charles N. Funk, MidWestOne Financial Group, Inc. - President, CEO & Director [22]

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We've -- as I said, I think everyone -- all the regions in our company are positive. We've had a few retail promotions over the course of the year and have attracted retail money market accounts, and most of that has stuck as we've adjusted pricing. Denver has been terrific. We're up in the $55 million to $60 million range in Denver, which has far exceeded our earlier projections. Florida is up 8% to 10%, which is really nice. Even though they have maybe $100 million, they still are up 8% to 10%. And Iowa continues to do well. And the Twin Cities, overall, the Twin Cities has been a very, very good story for us in deposits. So it's really not any one thing, it's the whole company. And we're very pleased with the performance.

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Andrew Brian Liesch, Sandler O'Neill + Partners, L.P., Research Division - MD [23]

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Very good. And then just on the legacy ATBancorp franchise now. Do you expect any more runoff of some of those higher cost funds? Or that's pretty much all played out?

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Charles N. Funk, MidWestOne Financial Group, Inc. - President, CEO & Director [24]

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There could be little more. There could be a little more. They -- as many of you know, they operated with a net interest margin that was less than 3%. And there was a lot of high-cost money in the bank, and we've lost a couple of bids. And to be honest, the bids were above the LIBOR, above the Fed funds rate. And we were able to replace that money elsewhere in our footprint cheaper. So there might be a little bit more, but I think the bulk of that is passed.

The other thing I think that's positive about Dubuque, in particular, is that the commercial bankers there are uniformly complementary of our treasury management process. And I think we've brought a lot of products and expertise in treasury management that they did not have before. So I would think over the next year, that probably bodes pretty well for eventual deposit growth there.

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Andrew Brian Liesch, Sandler O'Neill + Partners, L.P., Research Division - MD [25]

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Certainly. And then just on the CD rates. The cost of the CD is up about 3 basis points compared to last quarter. Now maybe some of that was from the full quarter of ATB. But what -- like, where are repricing rates coming on now versus the maturities? And any sort of repricing schedule that you guys can provide would be helpful.

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James M. Cantrell, MidWestOne Financial Group, Inc. - CIO, VP & Treasurer [26]

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Yes. Andrew, this is Jim. I'll take that one. I would say, I would characterize this we've reached pretty much an inflection point, as we look at the CD book yields coming on. We've been able to lower our CD pricing a little bit over the last quarters, and we're tracking pretty close to FHLB rates when we look at our pricing. And so we've now crossed over where current CDs coming on the book is probably just a little below 2%, whereas in the second quarter, they were -- CDs coming on were above 2%. So it's a slow -- it's kind of a slow boat to turn. The average life is a little over a year on that CD book, and it's material. And that's one of the areas where if we got further Fed easing and the short-term rates come down relative to longer rates, that CD book repricing would be one area where we would see a little bit of a lift in net interest margin. But that's on yet to come. So that's one of the areas where the flat yield curve isn't helping us particularly.

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Operator [27]

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Our next question comes from Damon DelMonte with KBW.

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Damon Paul DelMonte, Keefe, Bruyette, & Woods, Inc., Research Division - SVP and Director [28]

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First question. I was just wondering, Barry, could you just revisit the comments you made on the accretable yields? And what the expectations are kind of on a quarterly basis?

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Barry S. Ray, MidWestOne Financial Group, Inc. - CFO, Principal Accounting Officer & Senior VP [29]

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Yes. Sure, Damon. As I said, the comments were the $7.2 million accretion this quarter was impacted by -- about $2.3 million of that was prepayments and renewal. And so it's -- obviously, that's going to impact the quarter in an unexpected manner each quarter. But I think it's probably around $1 million to $1.3 million per month. And so I would say around $3 million to $3.5 million per quarter would be in the near term, and then it's going to drop off thereafter in 2024.

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Damon Paul DelMonte, Keefe, Bruyette, & Woods, Inc., Research Division - SVP and Director [30]

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Okay. Okay. Great. That's helpful. And then have you guys completed the review on the acquired loans for the reserving methodology?

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Barry S. Ray, MidWestOne Financial Group, Inc. - CFO, Principal Accounting Officer & Senior VP [31]

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Yes. Yes. Damon, this is Barry. I know we recorded a provision for the acquired loans as we transition into our standard allowance methodology this quarter. And my past experience would indicate that, that process resulted in kind of this onetime provision in credit quality remaining equal. There's not a similar impact in the upcoming quarters.

Now one difference in 2020, we're going to be estimating allowance under a different methodology. But I would say that we had -- to your question, we've completed our transition for our standard allowance methodology for the American Trust and American Bank & Trust loans.

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Operator [32]

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Our next question comes from Brian Martin with Janney Montgomery.

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Brian Joseph Martin, Janney Montgomery Scott LLC, Research Division - Director of Banks and Thrifts [33]

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So just a couple for me. Just maybe for Barry on the fee side. When you look at this quarter and kind of adjust to that MSR, is this a pretty clean quarter reflective of AT and it's a normalized level?

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Barry S. Ray, MidWestOne Financial Group, Inc. - CFO, Principal Accounting Officer & Senior VP [34]

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Yes. I would say that's true, Brian. What I did was I looked at Q3 to Q1, just to kind of get an idea of what the increase of those fees, and Q2 only had 2 months of American Trust. And if I back out the mortgage servicing right, and the only other thing I adjusted for was I also, from the first quarter, backed out insurance commissions because we don't have that going forward, I come up with about $3.5 million increase quarter-over-quarter. And I think that's probably a pretty reasonable expectation.

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Brian Joseph Martin, Janney Montgomery Scott LLC, Research Division - Director of Banks and Thrifts [35]

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Yes. Okay. All right. I just want to make sure of that. And just maybe one for Charlie or whomever. Just with your comments, Charlie, about growth slowing a little bit, I mean, does M&A become more important? Or is it -- can you just comment on how you're viewing M&A today with kind of AT, I guess, in the rearview mirror, if you will, a little bit?

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Charles N. Funk, MidWestOne Financial Group, Inc. - President, CEO & Director [36]

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Yes. It's a good question. I would say AT is probably not in the rearview mirror for some in our company because it took a lot of effort by a lot of our support people. And so right now, I think we're digesting that. We're digesting it internally. We certainly are aware, and will be aware, of any opportunities that come forward. I think right now, though, I wouldn't rule out anything that is relatively small. But I think what we need to do is adjust what we have, and make sure that the machine that we're currently operating becomes more efficient, continues to grow. And then we'll see where it takes us. But certainly, not in the next 3 months, we'll be looking at anything of any size.

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Brian Joseph Martin, Janney Montgomery Scott LLC, Research Division - Director of Banks and Thrifts [37]

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Okay. And then just on the buyback. I know you commented about that. Just is your expectation to use the full authorization on the buyback? I know you said you -- I guess, or is it more price-sensitive and we shouldn't expect a lot more of that?

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Charles N. Funk, MidWestOne Financial Group, Inc. - President, CEO & Director [38]

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I would say it's price-sensitive. And when we think it represents excellent value, we step in. But probably the best words, and you used them, are price-sensitive.

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Brian Joseph Martin, Janney Montgomery Scott LLC, Research Division - Director of Banks and Thrifts [39]

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Yes, okay. All right. And then maybe just one for Jim on the margin. I appreciate the color. I guess, if you get to a scenario, Jim, where you get 3 more rate decreases here in the next 3 meetings, would you be surprised if the margin wasn't flat? I mean, I guess, it sounds as though you're -- I guess, assuming, I guess, it goes to caveat that we don't get a flattening, as you mentioned, would be hurtful. But if you don't -- if you get a little bit maybe more steepening or just staying where it's at and you have 3 cuts, your thought would be you can hold the margin on a core basis where it's at today?

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James M. Cantrell, MidWestOne Financial Group, Inc. - CIO, VP & Treasurer [40]

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Brian, I do think -- just to answer very directly, I think we can probably hold the margin if we get 3 cuts. And part of the reason I say that is when we look at -- I kind of took an inventory of our prime and our LIBOR-based assets, and that's about $820 million on the asset side. So those are repriced down relatively quickly. I will say, of that $820 million, roughly $220 million is either at or sitting on a floor. So really, it's only $600 million moving down going forward.

If I look at the liability side of the balance sheet, we've got about $250 million of liabilities that are contractually tied to short-term rates like [KEBIL] and LIBOR. So that's $250 million there. And then we've got another, roughly, I'll say, $650 million that are in deposits and liabilities that I would call high beta, meaning we have some discretion. They're priced probably a little higher than the market, that if rates move down, we wouldn't move them down basis point per basis point. But that's -- it's $650 million of them -- $650 million that we could move down in pretty good fashion if we were to go down 75. So that balances out the repricing on the asset side relatively well, in my opinion. So that's how I'd answer your question.

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Brian Joseph Martin, Janney Montgomery Scott LLC, Research Division - Director of Banks and Thrifts [41]

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Yes. That's helpful. And just -- maybe just the tax rate. Any -- it looked like it was a little bit lower this quarter. Anything, I guess, we should be thinking about, kind of the go-forward rate on that, I mean…

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Barry S. Ray, MidWestOne Financial Group, Inc. - CFO, Principal Accounting Officer & Senior VP [42]

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This is Barry, Brian. Yes, I think that we'd probably use around -- probably use, like, around 21% would be a tax rate that I would utilize.

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Operator [43]

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(Operator Instructions) This concludes our question-and-answer session. I would like to turn the conference back over to Charlie Funk for any closing remarks.

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Charles N. Funk, MidWestOne Financial Group, Inc. - President, CEO & Director [44]

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Well, we would just say thank you for joining us this morning. And if we need to provide further clarification on anything, we'd be happy to do it as time allows.

So we wish everyone a good rest of your day and a great weekend. And back to you, Alley.

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Operator [45]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.