MSBI - Earnings call transcript Q2 2018 | Midland States Bancorp, Inc.

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Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2018 Midland States Bancorp, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions].

conference being this reminder, a call recorded. is As introduce for today's would now Ms. host to like I conference, your Allyson Pooley from Financial Profile. Ma'am, you may begin.

Allyson Pooley

Good for Bancorp's Joana. joining call. you, morning, thank and Thank you us today quarter the second States Midland XXXX earnings everyone for

management from Leon are Ludwig, Midland's Officer; Financial Officer. Holschbach, Erickson, and Steve Joining Chief Executive Jeff team us Chief President;

We this morning. discussion will of part our be using as a slide presentation

download Investor results a the the If of you Webcasts visit for Relations me. haven't website call of page second will questions please The to done presentation. -- the and Midland's copy discuss the for management and so Presentations will discussion up excuse open already, team then quarter

statements forward-looking condition expressed available begin, performance different factors like on from Before I are forward-looking disclaims results website. results with factors Midland in future the that which of to the to are would any materially this actual any by company's or during update cause the Various The call. Bancorp to and statements. and uncertainties. company's you be risks filings, statements any to future discussed that contains could involve financial company These the we remind SEC obligation respect States forward-looking conference such made implied call

to that, financial reconciliation non-GAAP Additionally, the release quantitative measures. of press other The well to will supplement website management available the the as discussed with are and which over comparable be to on to may measures. the the GAAP but non-GAAP contains most refer as call turn intended measures, information And not Leon. directly today substitute the GAAP to I for

Leon Holschbach

earnings first is Bank; of welcome good acquisition morning, despite to did of Alpine the X an with I'll $X.XX see expenses, full our the quarter. of quarter We the basis, the to we was weak a notable highlights and increase quarter Thank very since the integration saw closing Funding. from On of of excluding in Love our we Slide summary acquisition the Midland. you, acquisition per initial benefits Allyson, a a share. start from generated second everyone, and level which adjusted prior from the This profitability transaction.

well We of we realizing for on the and are projected very Alpine ahead cost executed the schedule the integration transaction. on have savings

the have XX% We second already quarter. in which impacted phased-in levels approximately our saves, of expense positively cost the

our and have the mix transaction discussed, the we revenue this deal, wealth of announcing value that our is and key ultimately and the As since on more franchise. operation. Alpine our benefits towards positive the management We has generating improves banking we're of one impact core shifting community of businesses within believe stable a the the predictable of earnings quality shift

originations in new in Additionally, very continuing to we and balance be net manage to while selective our our grew order margin. sheet our effectively protect loans, interest

As able in disciplined the of we that challenging manage to approach this growth taking, rising rate a deposit costs to environment. result interest better our we're were

us data deposit prior just accretion of bearing recent margin resulting interest we quarters. two that cost points a excluding This basis from income. experienced lower relatively Our in maintain stable the interest increased have deposits a quarter net helped in

of to of call my some Jeff Now walk Ludwig, Jeff? partner, the you our over the to I'll turn performance business. lines major of

Jeff Ludwig

increased had growth of the outstanding the quarter rate growth on we represents an the end loan more portfolio with Thanks, which Leon. Slide a $XX pick of our the million quarter. our prior in from first muted X, up Starting total X.X%, loans from annualized

came equipment risk improvement from finance consumer generate both adjusted Sky quarter. books our programs of the loan quarter most As the with our from and in strongest production these attractive the lending areas growth program two Leon to very The we in focusing mentioned, our our our continue in came returns. be areas second largely and around originations, our late loans that selective The home on loan came lending business. Green consumer efforts

impact next from more the on So portfolio board quarter. that these our of good we our Finance brought interest both production in C&I loan income This seeing of team the We're new we our in loans team; January. go and books should credit see on Equipment leasing portfolio.

amount the loan XX%. including million from of Finance So production the Group commercial Equipment of prior both from quarter increased the end Group, capture outstanding's or doesn't getting all the this leasing loans leases are from that and we $XX portfolio total the

growth real our estate loan residential We estate The areas also and real commercial growth nice declines was portfolios. in portfolios. these our construction and in saw in by offset commercial

from our We related to continue fluctuate commercial that one on are see decline aggressive an warehouse from of as primarily and we structures portfolio to line pay-offs FHA the down tend match. CRE willing customer rates to in pricing The our not loan was Commercial quarter-to-quarter. large as elevated well to portfolio pay in that

and the As selective a approach rate see which origination our prior continue positive loan quarter. on result we loans average increased to renewed new in basis eight to trends the of points from

normal from the end in deposits assets to deposits was on total increase the new Ginnie to the quarter. the attributable large $X.X our servicing up market Slide interest-bearing $XX decline our deposits from appreciation. remainder remitted prior quarter, and in a X related quarter. during of quarter of our were was primarily quarter, the in the to decline the end and approximately due to essentially we that reached end billion, wealth administration million the Slide we Mae was as in was Turing in The under of was at management due decline X, reduction the business $X.XX development second business prior the to on broker deposits. billion interest-bearing XX% payoff FHA was primarily to decline approximately deposits that a Commercial end of see had of The deposits. to The of fluctuation $XX between at Turning DDA the split million DDA a the

total basis our the our assets is surpassed Our on the first administration management from revenue contribution year-over-year due Alpine's to management On from excluding increased that revenues prior total the from of quarter a quarter assets year-over-year organic Alpine, increased business. $X the quarter basis revenue This XX% primarily our wealth million. wealth XX%. full by added X% growth a increased the under XXth. management Measuring June as wealth

Turning Slide Funding to on Love X.

some last on became those risk of more indicated earnings felt reasons there issues this As Love second and we for to that a quarter were year the pronounced. we performance Funding's in call our number

come $XX recent we commitments revenue we lock Commercial a approximately result, a remains to $X $X million quarter, FHA and revenue and in to have quarterly healthy commercial $XXX,XXX. FHA rate generating had As quarters. very our in million million FHA the of -- The originating level seen market back will that believe disappointing FHA we

two the performance. to actions have We improve taken

made past Love have of five in promoted Love in Funding. the a as spent serving years XX Funding we Jon has Underwriter its Camps has First, change including and business. been and will the area for its Jon Chief every has of involved years. leadership operations at lead to President been

to Jon's leveraging activities all and has Jeff We commercial are this Midland This better will Love will with Love that resources to effectively Jon ability Funding align to have confidence lead ensure we reporting Bank. in lending report the States of Mefford, structure Midland our that great the support President Funding. other business.

action The Funding structure this $X cost These is will approximately million. operating to taken expenses of reduce Love we reduce cost second have by business. the annual cuts at

a pipeline variety at a for have to we seeing Love solid reasons. continue of are times protracted We due Funding closings to but loan

Given longer our expectations Funding the weak expect in for revenue quarter, we previous second XXXX. the no to Love reach

between million pre-tax perspective, generate margin XX%. and $XX annual we business XX% revenue However a between $XX a million this from long-term and will believe with

on walk additional our turn over I'm Now results. Steve some to to going to call through financial the detail

Steve Erickson

interest a our net was Thank on fourth and margin you, interest X, basis the net to quarter. points margin, XX% basis of margin result Alpine. primarily With of This Slide by Starting increased on income the interest net XX respect our reported quarter Jeff. net first from X.XX%. income the interest to increased contribution with

income, excluding interest impact the relatively accretion flat. our of net was However margin

income XXXX, the activity. of a XXXX million caused the million by although scheduled $X.X full-year for the some there will fourth prepayment and forward, for Going $X.X of accretion million $X.X quarter our for volatility third quarter, was be

As relatively over be quarters, to the continue we've flat going indicated impact of to few the expect past we our margin interest excluding accretion income. forward net

from FHA to minimal X% the on Moving Commercial income from quarter, operations non-interest Alpine's generating prior non-interest fee to contribution in mortgage all in increased $XXX,XXX impact banking our was or Commercial due to prior partially offset and decreased strength FHA X, our of decline approximately The revenue quarter major quarter. from total this our by in the the quarter. the of Slide the which increases XX% areas due residential income full primarily seasonal other

Now expenses integration We efficiency turning million in XX. acquisition Slide to in ratio incurred and our $X second on the quarter. and expense

primarily expenses XX.X% quarter addition quarter expense of the Excluding increased to our of on non-interest linked operations. increase The expense, a due this basis. Alpine's was the associated full with

servicing efficiencies last quarter, shortfall and the rest XX.X% ratio the in negative revenue expenses compared efficiency was had sense second the acquisition to efficiency on a the performing, rest second improvement and in company from on loss the for last adjusted expense quarter. FHA XX.X% our our quarter. small seeing integration excluding control ratio To is the of a across XX.X% masks Commercial rights our the Excluding provide The the of Love we're adjusted Funding mortgage a in XX.X% improvement and was company. in an efficiency and how quarter ratio obviously held-for-sale, impact

our identify excellence and areas we As business enhance of efficiencies. to initiatives past, the evaluating the opportunities all indicated core we in one is to of operational strategic are reduce continually have expenses

for XXXX. have expense well approximately we savings of As result acquisition, expect operating control measures Alpine we as quarterly our from rate in cost to be a the $XX the as run million expenses taken,

we XX basis our the our XX points the XX basis accounted of of for Leon. to net of $X.X net loan will basis We good stable stability of points. a back I With we losses Leon? kept just Moving marks in points second This call and quarter at exceeded will credit another reported essentially $X.X provision our company's during asset loans at total million quality, look charge-offs. turn provision and June had saw for the that, XXth charge-offs the to allowance Slide million. which as XX, portfolio of

Leon Holschbach

Thanks, Steve.

up with wrap some I'll our on So outlook. on comments Slide XX

expect to remain quarters, protect loan our in our Over our manage ratio sheet deposit margin. disciplined in to coming to and the growth order interest we balance net

system the controlling six the conversion for to a throughout company. months level and hard over on I'd expenses our this worked to smoothly. make We we continue focus this entire driving employees efficiencies very who higher the gone past will like to completed the and happen. Earlier has Alpine thank of also transition so month of all

Our teams did a great job.

still savings substantially a all questions to any answer enter us we acquisition we might the believe some on that third position XXXX. the in please will quarter track fourth to Operator, good Although with And place. earnings are would with additional up for we growth call. have have. expense coming put and that the in in integration line quarter, you deliver this open be happy to cost in We

Operator

Instructions]. Thank you. [Operator

with comes question first Our Michael Perito KBW. from

Your open. now is line

Michael Perito

also at based expenses on you're on a million. ballpark now the cost have looking a about on core on healthy numbers touch your I'm to it with the first just taking seems want few like little tracking this I the gain Alpine and ex the $XX.X stuff the But saves. I at but merger questions. commentary expenses,

that my come have sounds I bit million So needs a out. guess $X out question needs from come and is that the then annually there to to little Alpine like it more you

color that other So does the is million made on rate towards any down give run I of that move year that end or that can you dynamic? there mean up, there of slow the by us kind $XX any being investments

Jeff Ludwig

Yes, Mike is Jeff. this

to it. view end the the by million where Those that start mostly down I run we $XX the and cost two XXXX, into think areas to as get come that’s expense fourth quarter are rate. we exactly get how should we and year of

Michael Perito

that the investments Okay. boost you And it a is than horizon kind there look any to percentage good points have as this two more that guys and like or point think pretty are year, at post to that there that's better add expense X%, thinking rate Alpine? are are probably X% on you of you growth maybe growth guys would next transparency is

Jeff Ludwig

any expect don’t We right. investments that's big next think I Yes, year.

And expense of so a right. and the XXXX $XX little be in million bit growth would

Michael Perito

was on a on of us was consumer -- a core NIM you could well if think -- showed backend said basis production, more is color here. about points give kind believe now maybe was dilutive six you the I and little all-in of loaded obviously your bit obviously what with back the I to I NIM curious Okay. Alpine is lot you and so pretty holding Alpine

So consumer third core NIM like that have balances what seeing the you're impact some continue a expansion those kind yields here expect if you I kind mean it and quarter? and seem positive I'm under would that in of and curious on will on, are coming the underneath the will hood of NIM to

Jeff Ludwig

a on to be I incremental NIM. the make have been hold side our increase base. sheet It price but rates move are able positive the our loan on difference a continue to not today, on isn't the balance on side, of on going and NIM to might debate do seeing think and slight to our we like disciplined deposit loan huge the going size to it's this we we've

think we’re comfortable can NIM going be stable So we're our forward. I that

Leon Holschbach

I the Michael, to the as just an because to part be for be it And funding in, what time be pointing go this one why Leon. in would of add is to look for going some industry-wide not those there to that’s is it's gathering engaged will doesn't any like the away going battle offsetting which funding that that, will in And is soon. the we're headwinds that continuing of -- sure. business stability margin there we're positive

Michael Perito

someone ramped of color bit what I will one it. it then let going a go if I in but just But Okay, was and can thanks. at on And number really to and sustainability up just give that has around you me more then from the more interchange else just this and forward? think move quarter was the can curious I us the revenue

Jeff Ludwig

And benefit, nice the the Yes, got we month so. Alpine Alpine. had had interchange think I quarter so big where from of full benefit was a in we first the a there driver revenue quarter that some

Leon Holschbach

we ours. And balance a than boosts were did they have stronger that to solid of the interchange sheet They too. the compared size retail and retail base relative to XX:XX a the

So up. nice pick that was a

Jeff Ludwig

on it moves things do even it Yes, month moving think behaving customers and are Mike, I you're how right different month to around, weekends we and based around see holiday, and like that.

a moves little. see does had we think quarter yes, but consistent to might So bouncing it to around, -- there up I down forward, some although revenues be expected we pretty and a moving those and strong be

Michael Perito

it's one last shake of rate, And just more, for half quarters the the the actually up over down it been just last the and on could a any tax just of couple where year? thoughts little on up

Jeff Ludwig

where in We still think it we bring some that items last still that’s come discreet we're think that we it quarter-to-quarter. I down might I have think guide I XX% like still, think quarter; is.

that's and how we but here. So plan

Operator

you. Thank

from Our comes next Terry Stephens. with question McEvoy

is line open. Your now

Terry McEvoy

Thanks. guys. Good morning

Leon Holschbach

Terry morning, Good McEvoy.

Terry McEvoy

Thanks.

Leon Holschbach

up old right. couldn't all though. I Would opportunity stock, It's the the like name pass

Terry McEvoy

That’s great.

along I fixed Let’s going with lumpy internal much business was within there and just direct if but here? what one quarterly you all I an message the fundamentals was Commercial Love been million is to that's to start know a look I that needed is some now issue FHA adapt $XX and been was that's the to this business it point or guess that very resolved question be back at happened it Funding,

Jeff Ludwig

all of that, of think that. all a it's probably little I

that there's go one think issue these we to overall and position, come quarter in credit-by-credit big aberration bit of pipeline that little it this having in back with of this issue right we it's so to revenue But lock come bit the little I really this in with that, of we're one seeing, quarter the of rate and credits this will the some was -- you that loan the that get and pushing a confident are can’t like an and some get are revenue that We feel zero. a next to back. probably low a the it’s now

So have is going thought million call. million quarters we that's $X to be year, think and I we're million, to optimistic $X probably the under we're quarters we’re for ever but there said $X quarters that I the in think it’s the this $X we be majority going of million and going kind why we of between and to have -- going to a think is $X million, I

Leon Holschbach

more low by just that that then you then other the understood Terry, businesses, in that hub I thing leadership and And is to office a not you the to to as to to respond boo-hoo forward the then but it's the excuse that of can, industry, in points to changes the to better is me, to but managed production. could FHA, it in effectively will one think a effective about office control hub And any that respond made it effectively be be recently the going there expected of some the been that key volatility understaffed most XXX as year. open if end just cyclicality, the have they don't and of has they we we've positions the for are that positioned management has to add time, are reported important significantly now we be the the that mortgage be filled and able

pace not to little the a be the deals of group that that of a near-term that turn looks at. resolved can have head improvements incrementally but driver hopefully help. we That’s in another thorn it’s going and made speed been like major some key there the underwriting on including should have people our improved focus underwriter couple it's We there and

Terry McEvoy

Okay.

Leon Holschbach

their this so. Meanwhile quarter better pipeline than they’re indicated reasonable, down suggest but the has last point looked much high from performance they

we think reset done. the So will the get job

Terry McEvoy

amount Jeff loans within it maybe good. it some just what's then deposits, past through do have then Okay, think of in see deposits? you you think this structure you those portfolio business on much and new Love maybe is the you importantly can the the side, in under provide ran the impact and could And more disclosed on that deposit today then this of stabilizes growth or dollar and how I loan

Jeff Ludwig

on that loans closed the up Love at show so loans are Funding the side Yes, will being loan in held-for-sale.

impacting maybe portfolio But it’s not So loans. kind of loans. talking you’re bridge

Terry McEvoy

was that Yes, it.

Jeff Ludwig

yes. Yes,

bridge outstandings end loans, the So $XXX of the were million. at quarter almost

So in the construction of fair amount we growth time. loans a saw but over that draw quarter some there's

Leon Holschbach

There over the is million $XXX difference some construction. of approved in much

Jeff Ludwig

is total that a Yes, should continue commitments move of $XX that we out there are million see so to there, of balance up. another

was the million. in $XXX servicing On deposits side, book average deposit Love for the

stable the I up servicing with weren't think the that held in book. not prior with production current in the light was a from we or quarter, And -- of fairly quarter. the lot

it So fairly expect you be would to flat.

Operator

you. Instructions]. Thank [Operator

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

open. now is line Your

Andrew Liesch

the at side, like I income on $XX to there the rate the several on level for get guidance residential FHA and mortgage your looking and able business to expense this good but -- be these got the had of on appreciate million like is a line in banking thoughts Hey get non-interest just run team you now going it's back what feel the in run there, there the side? the the quarter using up, items, items to fee $XX side Alpine with income million with you’re how there rate

Jeff Ludwig

than a Yes, I think it’s less little that.

line some than some the additional analyst but annualized maybe As there it’s income a of got fitting we've we quarter that. out prior that guidance at like items looks kind probably other it less the revenues in in think are looked little

Andrew Liesch

Actually. Okay.

Leon Holschbach

more that million, than range. like Probably $XX $XX million

Andrew Liesch

Got it.

Leon Holschbach

that range, If performs in Love so.

Andrew Liesch

Right.

Leon Holschbach

In that [indiscernible].

Andrew Liesch

covered Certainly, actually other questions. my all you’ve

back. I So step will

Leon Holschbach

All right.

Operator

would any questions for to to like turn management this further not now remarks. time. I Thank you. back the I’m at call further any showing over

Leon Holschbach

in I everyone will quarter. we us say the thanks for morning joining talk will again just this and

Operator

This and disconnect. may you have all does conclude a thank today's gentlemen, great And for today's you participating program. Ladies conference. day. in Everyone

Midland States Bancorp (MSBI) 27 Jul 182018 Q2 Earnings call transcript