MSBI - Earnings call transcript Q3 2018 | Midland States Bancorp, Inc.

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Operator

Good day, ladies and gentlemen, and welcome to the Midland States Bancorp's Third Quarter 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] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Allyson Pooley. begin. may you Ma'am,

Allyson Pooley

And States for earnings Bancorp's Ashley. for call. us the Midland third thanks you, joining everyone today Thank quarter XXXX

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

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

results presentation. please the If Relations a download website already, Webcasts then The team Presentations discuss visit and the will management haven't quarter open you for so page will and third to copy the questions. done the of Investor we of the call

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

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

Leon Holschbach

the to highlights third Midland. Good Slide welcome X of Thanks Allyson. the morning, quarter. everyone, summarizes

in our the earnings a per well integration share from quarter. On executed adjusted prior in per acquisition basis generated strong in $X.XX up share see, increase can and you $X.XX prior to we As delivered expenses, the and the an earnings excluding quarter. relative we adjusted in quarter

adopted believe approach this balance challenging deposit production deposit be management to year. prudent a sheet we've a our and balance gathering well. us approach It continue environment serving we our sheet we and to to to loan that continues Moving trends, is for to implement pricing

deposit produce yields, to As new that consumer attractive match we we risk the areas loan loan are notably our most around lending. production growth equipment finance those adjusted try focusing most and closely and

Our renewed average the new net our income. rate our points interest attractive ongoing margin helped prior relatively impact and in portfolios the reflecting be more to increased yield excluding loans from the in on mix basis production. loan keep XX of quarter risk quarter X.XX% new adjusted focus stable to of on shift will up accretion The the the

additional the in One realized the in third our quarter. efficiencies savings key and is growth during result seeing factors alpine the improving the XX% conversion our third of as improved quarter acquisition. efficiency ratio We are earnings a the completed the we resulting to of cost in

$X million. profitably Another at back our earnings FHA operating the normalized $X expect have made million return level we in And of within revenue. commercial to of that Commercial with banking the range now a business to driver is FHA consistent revenue lines expectations. a revenue of with cost our this is growth of more structure was the level changes more

a succession succession retirement. years past The extend And built was into our Board franchise promotion we've upon turn the as on Jeff's that I'm President congratulations few each side to coordinated the at employees, of you we role. but the remain to my paved be well. way Midland plan become leadership Bancorp retiring week, Finally, great as believe call CEO the that I'd that. hope in our year, my the company, Ludwig will Directors. shareholders this bank he end and the Jeff will you CEO demonstrated from of in will Midland Vice the like the you Ludwig thought I you as of saw States decade by has been the past lot over all serve Mr. new the promotions now, CEO our has will call next the succession I Board to the last to We involved and the company well I'll including days, position Mr. but capability going a has not plan. in put enjoyed transition seamless, company the announced who to Ludwig, over the of plan of of and of Chairman over step that CEO and where you my the for it.

Jeffrey Ludwig

your words. thanks to Midland to kind community great continued lead has build you with of Leon and the Illinois. work one It experience our company. largest in into a been of for the Thanks I excited banks am growth to

Community us core can a build management and that We around And to enhance of franchise have I'm we plan, the clear execution helped that strategic our value confident has operations. the franchise. based strong plan our a continued Bank strategic through continue wealth very that of

financial back with going to start our turning X. results, our on Slide I'm Now loan to portfolio

strongest which The of outstanding loan lending leases in came million of total increased in represents from consumer Our X.X%. and portfolio an areas. loans the rate the $XX annualized growth quarter and commercial the end our prior growth

which credit quality. program was up risk-adjusted balances was million loan contributor continues quarter. through percent. XX, yields end this basis group finance to with and the to from by our or or The year-to-date equipment with perform biggest million well loan On produce portfolio and the excellent of XX% September our Our $XXX attractive $XX increased $XX growth loans GreenSky a prior to continues total outstanding consumer our

continue production, to for likely saw balance With in the future. in we we shift the in that Accordingly mortgage retain on foreseeable portfolio the decline this during residential that loans our origination deemphasized loan new focus sheet. we quarter a this have third of is

the Slide a by bearing quarter, in across the deposits interest following third billion accounts approximately of $XX attributable Turning exception The which expected conversion. decline decline were all X, increased the with to of attrition $XX quarter. end the deposits checking of base the of deposit end The from on the to decline total million at categories $X.XX system deposits came deposit Alpine was primarily million. the in prior our

We also continue contributed the managing during cost deposit our which to to focus of on decline the quarter. some

our the up of Turning end X, $XX billion the to wealth quarter the $X.X end management quarter. under were at administration on from Slide million the approximately prior of assets

from increased reoccurring year-over-year to growth Measuring wealth management assets assets from expected added wealth a of revenue increasing As the revenue, $X.X increased our basis, as XX%. Alpine, organic quarter very XX. a consistent X% year-over-year management source under On of a by on the September prior is total administration basis providing excluding our million.

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

Stephen Erickson

net second of with interest income and quarter. X, which lower margin the net accretion from This the in our prior Starting was decreased than Jeff. Slide you, a million was net decline our in quarter. result Thank income income interest interest X.X% on the by $X.X

the which increased interest annualized net is from increase income X.X% income quarter. prior a $XXX,XXX accretion Excluding

finalized purchase Alpine the accounting the During the adjustments we third acquisition. quarter for

activity. will be for by the the accretion approximately quarter to million full our in margin. income The some the approximately the prepayment to decrease $X.X also and income million $X.X although be reported $X $X fourth accretion volatility decline net year for was scheduled expect driver main caused million in there We to million XXXX, interest of

was Excluding liabilities in the impact higher slightly of our interest-bearing increase saw X margin the accretion net the as declined cost interest on we of asset increase income yields. our basis earning points than

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

trends part income XX.X% variances increase X, from will was the industry the anticipate mortgage in income to the banking due revenue residential that remain revenue. banking total FHA by across at there decline residential Consistent due the in lower to this revenue. future, rebound our seasonality revenue the We This on mortgage are in in although level this Moving primarily prior continue This increased we our to our lower quarterly foreseeable will offset with non-interest business. was commercial for to be non-interest Slide some mortgage seeing quarter. demand. in

our mentioned, third increased remains quarter revenue following $X.X it to non-interest in Alpine to management the the million Jeff income. acquisition contributor and wealth our As largest single

efficiency on X, third quarter rights for and ratio servicing $X.X integration we and in Slide held expanses mortgage our in in sale. to expense incurred loss $XXX,XXX on million and Turning the acquisition approximately

we level basis. from X.X% on the have variable prior made reductions taken acquisition office of reflect by back from to mortgage seeing. announced from decreased in linked was are quarter as business system previously the realised reductions at expense contributing portion decrease savings expense Compared a decline the lower cost realization overall non-interest driven lower and our of our following well as fees also that to also the Alpine we by the expenses. banking Funding the professional to savings Love the additional in lower the A cost residential We’ve expenses production compensation conversion. quarter these Excluding

of expense ratio efficiency As lower to improved a the result our XX% levels XX.X%. from

still our in range operating previously. the We in guided quarterly XXXX million will $XX that that expenses be run-rate we expect for to

at we’ll to asset quality. look XX, our Moving Slide

real $XX Our attributable two nonperforming estate of is grade commercial commercial million approximately loans one loans down by the to which primarily increased and loan.

from accounted XX increased level that, experience charge-offs Leon. credit basis of which September loans the which to provision the call the net This our reported X points turn marks for of XX quarter. low However, points. credit of as to points another in exceeded basis over provision of charge-offs back allowance to for With total Leon? we loan continue losses a net We basis company’s very XX, our million $X.X I'll and $XXX,XXX. losses of is

Leon Holschbach

Thank you, comments some our Steve. with We’ll Slide on on outlook. XX wrap up

have in reported substantially be integration our Alpine forward. to completed more power expect improved apparent going that Now results earnings we our we the our

of management, recent driving foreseeable future our more our operating to the growing balance growth and to and continue prudent for formula sheet resulting drive from leverage income, be continue protecting sources our will earnings acquisitions. from scale net our recurring interest increase margin, non-interest the For

comfortable low to higher loans growing focus digits on continued yield are adjusted mid with risk the single strong in quality. We and credit a

this will country. the have our ago the operating greater forward. gratifying institutional to enjoyed that investors And moment a efficiencies As the the we be to our to take company in lead earnings my across analysts It to shareholders from go opportunity and today who years harvest Midland been local to invested company. relatively believe call close X we as acquisitions, our XXX that a as thank enable will I’d synergies profitability locations drive last had has a higher our we like base a to shareholders recent XX I’ve continue us XXX and with engage our to meet has across country. a almost shareholder from company the branches and to and

you meetings. open that Effingham, lines. Operator, boardroom Meanwhile the answer from ever the up watching that, any might we’ll please in I’ll be call If With by. find stop and questions happy be shareholder to have. the yourself you

Operator

[Operator question Instructions] And of the Perito Michael you. first Thank the KBW. from comes line

Your line now open. is

Michael Perito

morning good guys. Hey,

Stephen Erickson

Good morning.

Leon Holschbach

Mike. morning Good

Michael Perito

build the kind the impact growing A forward I to couple is going mentioned shrinking. the guess so mean, will the as should expect of the classes a going credit forward one? be you of question it And do how side, reserve, had tilted questions, one I you portfolio to to is with start and towards higher those to mortgage and may my two consumer be asset is on guess the equipment finance than bit lending, on reserve growth the reserve shrinking we provisioning is that seems my continue know, residential expect you

Stephen Erickson

right. provisioning be mean to and a Yes, look I we level is I as about like of forward that quarters is would that on I described so this we the right think quarter going forward. that quarter look as think call seems

Michael Perito

of those in levels guys honestly let you dividend, have single-digits Okay. be track not guys organic or has been should to grow future manage curious going accreting on any you about as updated just record necessarily mean, should And beyond build levels there about change be I so, that how the the any we would views be be Midland’s but and you here, know obviously sheet up know and am building. capital I return low guys capital growth kind I how steady that we will on there to today, at capital capital not deployment improving mean think You near about forward? will the the levels to, a then had you excessive thinking balance and mid them thinking profile those but to going forward? is and

Jeffery Ludwig

be... I’ll Yes,

Leon Holschbach

but but be with be Mike having be you building. jump happy Jeff, ahead more Go are to need, a that, capital happy going on very is this little Well, capital I’ll some do Jeff. than we to, Leon, I’ll challenged we to

Jeffery Ludwig

think I is back know this you our we’ll Yes, quarter, bigger the pushing Yes, XXXX. X the I XXXX get into should look ratio as part over we at just a forward of Mike. think X% be pushing, as TC [ph] conversation of we is to as end the be get probably we probably the

and couple we we acquisitions the over only up think build believe need capital I the TC level are, large after build [ph] we doing last two to some fairly years.

the the be short would term XX meaning XX months. to least that at and next So, the in focus

Michael Perito

in funding, the see this the infrastructure I year expense think and wealth into into talk in then Okay, and the, leadership XXXX? also you to can adjustments last and and looks how you and just just that what you've as pipeline of end made quarter head wealth we about some then lastly then

Jeffery Ludwig

to Yes, made team. as position I the The into good range are really and that doing not million of feel President range really team It The a quarter revenue still is things. so $X the the is promoted frankly nice into real growing slightly. pipeline Jon think and is of we leading that Camps maybe the around we we think going type fourth XXXX It's is so... not to in decreasing, quarter job who well. talked a and rallying into the results pretty deliver about growing about, lot the rapidly. a working that stable million a we've of good Jon adjustments doing right position leadership $X

Michael Perito

over I got and good help plus, you, appreciate thank past the year Yes, thanks Leon luck it. Helpful to for and guys the it.

Leon Holschbach

Yes, Mike. thanks

Operator

McEvoy comes question the line next our from of And Stephens. you. Thank Terry with

Your line open. is now

Terry McEvoy

Good morning everyone.

Leon Holschbach

Good morning Terry.

Terry McEvoy

could the a talk on XQ by at to where if up expenses, the million XX, to the Just going step kind adjust I XX.X just question and you start that up $X.X come down of specifically may that increase rate is million with $XX XX, from? be around to expense about

Stephen Erickson

is this Hi, Steve. Terry

impact that in decline in comp similar that was So compensation not I quarter, the see third We're the that a with variable biggest or variable mean professional anticipating quarter in fees. professional in the fees we some items. along type fourth those

that we're why million that's right So $XX amount. staying at expected

Terry McEvoy

just there then And Okay, statement? on flows I or thank adjustment the deposit that sure make kind customer connection in more of was that post just understand just to was the you. disruption conversion, a an some want with in reflection rates that of process,

Jeffrey Ludwig

so it’s customer another, is Terry, go from and probably not fair there's then we've little them those we timeframe, lots When changing through in markets attrition at Jeff, bit both. so moving point customer a we're a Yes, for as then the this things of little aggressive see of debit of in some there's amount rates cards, bit, this point. at this we disruption it's disruption been a to system some typically conversion some and that there's of and one customers changing that

So in money some combination probably we migrate that area have so away accounts of market CD both. seen a

Terry McEvoy

industry slowing just and rising right lastly, then residential there? expense a base done there some rate environment mortgage business, be is for volumes just I to been to And sized work look has the if or

Jeffrey Ludwig

those Yes, so we've adjustments. we made

profitability. additional we I how enhance can the bring base grow today think can we is work the is revenue some to revenue,

part business. back most some that think the into to to reduction of revenue try expense we're I now the build the through looking bulk for and

Terry McEvoy

and past few you. years working great Leon enjoyed Thank with Okay of luck. you over I've best the and

Leon Holschbach

Yes, thanks Terry.

Operator

our question and comes the Kevin from of with Reevey you D.A. Davidson. line next Thank

is line Your now open.

Kevin Reevey

Good morning.

Leon Holschbach

Kevin. morning Good

Kevin Reevey

Leon, and congratulations a congratulations on your your Jeff promotion. you retirement, deserved on enjoyed working with well

Leon Holschbach

you. Thank

Jeffrey Ludwig

Thanks.

Kevin Reevey

my Alpine So cost between in the saves what quarter the core operating from second in from efficiency the the that implemented? is the first split question enhancements quarter the expenses you've third the was versus decline

Stephen Erickson

Steve, and as, is sorry. this far I’m As

quarter, part and third. It from reduction the drop as there an that a of probably professional the amount decline. was the fees of saves Alpine that were second was far there to that variable caused comp the employees additional As just through that so primarily the cost from that overly of were material handful not in

Kevin Reevey

Got size grow last from and months it asset infrastructure your has in the twelve to feel then over have considerably, do continue made you to grown enough that, grow, operational you investment here? like the

Stephen Erickson

think made feel about and we've investments pretty systems. good I the I where personally at think we're I with Yes,

much the to to looking P&L. drive the think years look spend last gotten how I where think to that we've things some larger be and company to procedures, through leverage months more and scale process, is XX there's next a some do we do going opportunities to operating at time in in two the at, I we're continue

Jeffrey Ludwig

Sure, in two in powerful you saying over is us. sheet and story was the you appreciate those the for management increased last we've to very added XX% balance and XX the billion $X XX the months months know and that last wealth years, I it guys around by exactly

So now go to focuses I harvest yes, be there will time will have and the is we some as is our our focus. that will one opportunity main that value we be of that now that as to of out do suggested forward this and and

Kevin Reevey

focusing that competitive today? consumer then lending about a their lastly, in lot the loan growing are they consumer talk I balances, And also cover, the of you other on banks can landscape

Jeffrey Ludwig

point loans. We're into not their branch or branches consumer get types or it's point improvement is their the of of in. participating they point loan auto balance going to the our and Yes, great we're competitive so which through markets in sale growing loan, home sale program consumer get to relationship our have in are customers lending that a to the of right, those right, is coming us GreenSky loan

getting we a branches where flow, drive try lot point economic need in win market a consumer our that's of from lending. to come to in market So our the out go think cost consumer of to we're necessarily for our view don't to and right, through a branches we get to real us not which is dollars people

Stephen Erickson

collection be costs, competitive previous reiterate origination have costs. go as advantage have to we have just we going that's costs, from Sure, to such conversations. don't don't We marketing don't forward we a

finance cost is because have backroom with to it participating the waterfall lower that bit result We of a enhancements flow looks the looking good. in the the deal inherent a the a that credit that and regarding of provision of GreenSky as at mainly relatively banks. of And payments

to a looked going and about at little talked as on is forward. significantly before go advantage to a that as us competitive we Looking we've pretax that better for be bit

Kevin Reevey

thank Excellent, very much. you

Operator

Instructions] [Operator you. question O'Neill. with comes line Andrew our Thank the Liesch And next of from Sandler

is line open. Your now

Andrew Liesch

guys. Good morning

Leon Holschbach

Andrew. morning Good

Andrew Liesch

on just provide questions they is new are here, non-performers between other loans, locations anything in some that's three any surrounding the these? clarity Just there other you can some the consistent or

Stephen Erickson

Steve. said loan one at are different each three so basically be, this about a is they the out is in tag deal of Andrew, completely different other all independent and and one all. can completely Yep as I three as They're nothing production in so straight They is other a systematic all is from industries, a hotel property, geographies is company. C&I three type

Andrew Liesch

margin what side rising, maybe you funding guided stable? keep some a margin seems stable on it certainly are do towards be that here here, and you asset the things can the cost may just to card then Okay like

Stephen Erickson

if production X%, the of equipment that those our we internally seeing XXX we're ahead a million are that grew that's and there loans. as of and And we renewed so bringing loan quarter said to quarter biggest in and closer I bringing quarter focus yields the on out think which yields nice we and the I loans, driver. renewed loans so renewing bigger think new helps and least new where in business of we $XX XXX, are the is Yes yields probably the to in lifts as within the loans new we're is finance and loans our remarks come at

Andrew Liesch

covered questions. you’ve Okay, step back. my I’ll other

Operator

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

Leon Holschbach

update us you. everyone will be this next That’s with Thanks No, Thanks. joining later Steve have. you and sharing all year. thank and Mr. we for Ludwig the quarterly

Operator

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

Midland States Bancorp (MSBI) 26 Oct 182018 Q3 Earnings call transcript