MSBI - Earnings call transcript Q4 2018 | Midland States Bancorp, Inc.

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Operator

Good day, ladies and gentlemen, and welcome to the Fourth 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]. this is reminder, recorded. a as conference being call And host to conference, I like your for would now introduce today’s Mr. Tony Rossi. Mr. Rossi, you may begin.

Tony Rossi

Chief [Technical Financial and Executive Steve and difficulty] Erickson, Officer. Officer; Chief

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

for results visit the management done of Presentations the team questions. Relations to will please Investor call of copy quarter Webcasts download and discuss If you’ve a already, and the the open not website so up then page we’ll Midland’s presentation. fourth The

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

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

Jeff Ludwig

Welcome morning, the call. to everyone. Midland earnings States Good

built proud decade more I’m service of great team the together phase had CEO It end at thank to of execute and results, of growth. to largest Midland it. want was we work next with first as CEO, Leon the Holschbach, and spent into fourth of role side of the great than Leon company. our Illinois. Midland step who We developing the to quarter the as we into retired by Midland the to review in of a community time I we management XXXX following experience a very Before a side lead banks of the its strategy one deal through ensuring to

the reflects from an summarizes prior quarter. a on Having execution completed Now in $X.XX turning the we of synergies shareholder of are we the the the profitability. solid and Slide quarter, have outlined level for delivering earnings transaction creating which quarter. strategies three highlights per value. earnings $X.XX projected basis the of generated fourth up integration share, we to for in of the seeing successfully and this adjusted Alpine, that higher We

quarter, the return of return we For common a on assets and tangible on equity fourth average X.XX% average of a generated XX.X%.

power, earnings our in significant ratios, key Alpine our was higher acquisition. of our following a priority are has which and all internal improved, we increases seeing capital closing with Importantly, generation the capital the of

financial increases our value strong quarter. also fourth by performance nearly per X% Our the share in tangible book

the balance sheet the a over generation revenue quarters. trends past of we largely continuation Our and reflect few experienced

equipment production The our deposit where manage on pressure finance to new portfolio the we being terms are to in offset our loan as lending. two rates seeing the decline offered to these growth to consistent interest is commercial is group, margin The adjusted and commercial by disciplined more risk to generate in lending, aggressive real helping in see which driven us as in costs. approach pay-offs We well helping our our continue market. to from unwillingness due attractive, largely estate yields strength consumer match net the rising the portfolios,

excluding in quarter. X.XX% yields The the average impact the helped a increase basis XX accretion basis prior increased impact loans from net to renewed of loan five and drive margin, interest on point new on rate positive average income. resulting Our points our our

also of quarter. XX% the our consistent are revenue fourth total strong, non-interest We in for of accounted generation which income, seeing

be the and produced through continues continues the we well contributor following in group to business perform to XXXX. our quarter commercial management wealth largest the Our non-interest single to adjustments our solid income, business made a while midway FHA

I’m call to the on going Steve, through financial more to Now walk to details the turn the Steve? performance. over

Steve Erickson

you, on with start Jeff. Thank portfolio four. I’m loan going our to slide

to This million commercial of loans leases, end was from was quarter. declines and notably are lending total Our due most deemphasizing outstanding attractive, declined growth loan portfolios adjusted primarily offset by current to environment, yields risk partially consumer commercial areas. This our residential in in real prior due the estate. the the we less in the $XX.X and and

$XX.X Our of to outstanding end total million group or prior the balances well continues equipment by increased from XX.X% the our quarter. perform financing and

lower quarter. For first in for in quarter the to production was equipment in year $XXX.X this to fourth seasonally or strong the XXXX, portfolio the level business, The be of a full million up tends so expect we XX.X%. see do financing

growth is that Our was X.X% in range had the digit with organic mid-single loan line which in expected. XXXX we

the billion deposits public from of on of the accounts. outflows declines seen end checking primarily were to $XX fluctuations The primarily in for five. the the of in Turning slide the at normal of deposits, fourth declines servicing and million the end of the funds deposits demand were Outside intentional areas approximately deposits, quarter, the broker in for $X.XX Total a prior deposits. non-interest broker bearing deposits other decline to quarter. related and runoff

million the The end performance. end wealth attributable assets On revenue to management primarily revenue prior prior the market slide generated increased by revenue in from our of Despite primarily driven approximately our level was $X.XX decline at to administration higher the Turning fees. wealth basis, increased under quarter, were X, of the decline the management down a million quarter quarter. wealth management XX.X%. billion, on of $XXX.X the AUA, year-over-year to from state in the $X.X a

the net our by income on from Turning seven, to net increased and income, interest slide X.X% our net quarter. interest margin interest third

quarter. $X.X prior the of the increased excluding primarily in five result net income. accretion our Excluding margin This in interest point million a basis net the interest increase was accretion income, income

our rates in loans, loan in during in average portfolio, the and on of repricing of impact the in yields our the increase increase fourth quarter. our the higher cost the offset loan new funds renewed than more With

expansion of Although in quarter, going the we fourth saw flat be continue our accretion we excluding some to expect impact income. to margin interest the relatively net forward, the

does $X.X for loans, the include the terms XXXX, our are year. scheduled first acquired impact full of on of a in income, of accretion prepayments In which million not $X.X we expecting million total quarter of the and

impairment. this was the FHA where our XX.X% was to servicing increased generating The of relatively recapture seasonality revenue revenue. quarter. consistent rates. This our reflects one mortgage rights increase The revenue the quarter of community service fees, from wealth Moving fee and didn’t management, FHA income in million revenue. we on business prior in see include our quarter to growth attributable and total slide mortgage was non-interest income prior including higher which with demand charges due was levels mortgage banking to overall both eight, $X.X of higher non-interest deposits Included commercial our most area in and residential banking commercial and areas, on across lower this interchange

issued through shutdown HUD business. the to the long the -- anticipate how quarter. interest reluctant worked shutdown impact be commercial the HUD There shutdown quarter, to due fees large will There HUD, we but first over. also approvals will no see is being and the lock how impact are the into and shutdown second revenue during lasts, exposure new in an on needed is have government to rate with through the holding be rates are Depending on borrowers lock. that we becomes, a revenue could to to once government that ahead FHA backlog once the Looking our extension the FHA backlog an commercial upon associated

incurred expenses the and efficiency million in nine. on the in slide our Turning ratio We expense acquisition and fourth quarter. integration to $X.X

integration as primarily XX.X% higher increased due our rights quarter well quarter we non-interest compensation. last to linked basis. servicing Excluding The variable in expense acquisition mortgage recorded the that is expense increase loss a on by as

result expect quarterly variable level expense will XXXX of increased our the XX%. efficiency more million our Using XX.X% operating in a levels, run a we in rate for As of be ratio normalized to dollar $XX from the $XX for expenses the range. compensation, that higher to assumption million

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

full Our our will had basis loans credit increased our We a which attributable points by basis over charge-offs primarily basis non-performing exceeded a XX XXXX, loans the in were the as call net XX points. points. net turn of charge-offs loans. quarter. December million, recorded our of of accounted loan XXst year to $X.X back of was losses that, quarter, Jeff? for and which three We to for provision estate I $X.X another while million real points allowance for in net the total the charge-offs With basis of XX XX The provision markets increased to Jeff. our commercial

Jeff Ludwig

Thanks Steve. comments Slide XX outlook. wrap We’ll with our up on some on

intend we income employed strategies the to management with consistent that XXXX. remain XXXX, generation begin sheet we fee throughout As balance we and

commercial We growth consumer continue in portfolios. growth, loan digit by our to expect and primarily low-to-mid driven single

be protect in margin. the offset disciplined we in our pricing costs, to increases interest continue will to and net loan seeing We can continue that our we are deposit so

tuck franchise value with believe in acquisitions focus our We the transactions term. in that on can of also fourth we remain more open smaller, to the our near enhance

scale, the our two nearly management Over presence strategy In geographic and within years, of the Illinois, we management company the our we our tripled have IPO. business. and process, our acquisition the our since to size have wealth expand past doubled business wealth employed gain build

our and projected the required we a company. on savings acquisitions the have deal for now and of $X available cost great in entire taking achieved of of synergies Accordingly, the at the the one harvesting we XXXX that making transactions, our of priorities time these all look thorough us entire of as integration part that all attention billion nearly sure institution. a we organization top is to have the are a While

to to business. answer shareholders more of to fee focused enhancing margin continue we’ll approved franchise sheet be growth, call. prudent enhance efficiencies, highly the a growth us and efficiency consistent combination any the may questions leverage our We that, earnings open balance well have. that With the believe net happy on position ahead. generation, and of value Operator, are for years interest realizing in you a income the the deliver solid please operating and year our of We stable continuing can in operating

Operator

you. from Thank Instructions].Our [Operator Perito Michael question first comes from KBW.

Your now open. is line

Michael Perito

good morning guys. Hey

Jeff Ludwig

Good morning Mike.

Michael Perito

to I I revenue mean A I fourth. is the bit be mean just just is or maybe can what I’m questions the from more first a me. just the to sense us or there wanted going maybe like you close of better be? on quarter, shutdown. start little for get give left commercial to zero magnitude like about few of in FHA. the that the trying to should is over a color

Jeff Ludwig

Yes.

in has to the like So there loans the servicing are do can’t so because some get the loan -- approvals be HUD lock But have point that FHA isn’t loan revenue closed of anymore revenue locking that rate to because we then they shutdown is we we’re with then, is able not are HUD rate locking, HUD And borrowers in the there are revenue, closed. at not to the at rate which open. do and that revenue the will we this we of and generates have stage point there. or then rate the you because line, there know get getting to

government depend So, of still in we generate quarter. government the some going all weeks be so is quarter. on, whole revenue a it’s the quarter if shutdown the can If this it’s open to going couple they to next the tough

Michael Perito

take the I mean, for I right. when a how I mean, backlog -- say that And business? its that impact with full them mean, does you HUD, that government basically, year will

out a timing this on in I but So was a do in there's business, issue pushed revenues this well? through? that I them the a mean, get -- precedence quarterly time work will just really the annually don't does it of been as lot for take Or past basis? if to know

Steve Erickson

timing We believe point at issue. this it’s a

range to So talked expect $X to to that but backlog $X to it we’re out in be one and could we little but per second in have more quarters third the we be quarter. full-year quarter million previous little the volume still of higher revenue the the as out a in the see a or kind that push quarter, of going calls push probably full-year some to the we’ve about second and million quarters quarter, third comes either might

Michael Perito

base you. some Thank the million alluding were comments, of on action run to you expenses rate, find side or of a chance range in the efficiency either to next then is you you're your And that efficiency that lower level Helpful. that you there’s to at and year? slightly $XX would the that on kind million does the or incorporate that hopeful end maybe Jeff, that case bring below $XX guys can that

Jeff Ludwig

Yes.

our that’s to said lots in we’re things as I case comments find company now in think reviewing and today opportunities find I of productivity. to efficiencies improve and best right the my

Michael Perito

that Okay. lastly; year? of any can tweaking platform, profitability done production $X Any be a guess, And a little continues mortgage or for on and give fair goal I thoughts million needs I the Just there. that on expense you obviously, you're be to help next take, mean, a the at business? then tough in side to just do from where point now the perspective residential other, on is initial or that business? it try fight revenue to annually, think a

curious are XXXX? Just into what your thoughts heading

Jeff Ludwig

I We’ve $X the to got million we number. think a to some line. revenue work do that’s to have get – probably fair

but been I middle that think we’re seasonal quarters. the see of in quarters are that the typically those two little lower couple a were two hope right quarters less million, we the you’d last around so quarters, we’ve

We’ve So previous needed enough I right. and in the to think that adjustments that’s done that have we’ve business quarters. make made cost

operating more we’re now can in So, good position revenue. think how some we I feel drive and we today that a

Michael Perito

Thank guys, Helpful. you, color. my for it. taking for questions the I and appreciate it. Got

Jeff Ludwig

Yes. Mike. Thanks

Operator

question Sandler O'Neill. next from our And you. Liesch comes Thank Andrew from

is now Your line open.

Andrew Liesch

Good morning, guys.

Jeff Ludwig

Good morning, Andrew.

Andrew Liesch

questions but higher portfolios we’re some other them given and nice on consumer margin and the modest paying that have to some core And shouldn’t with expansion? margin your about just you mix adding certainly on as yielding adding are and shift are are of Just tailwind something here, that see why the might that be the the comments seems loans, expansion expansion costs lower should replacing rising down. support I well, funding coming leases yielding increase? some margin recognize here going like help

Steve Erickson

– just ready do problem with hold do it’s don't be to right quarter in renewed I to continue not we defensive point. new a and Andrew, Yes, think exactly how much order would have say good on to is know and over deposits now on The to have side we’ll to again, increase and we what we’re deposit versus upside quarter.

that's really that’s have quarters, basis on so We we’re may forward. We couple point. flat and at aggressive see a more rub of a don’t the know few we side have And be just where little is for calling this we but may and deposit drop. a why us going points it to

Andrew Liesch

see deals What like the And up what you by then, like the about? presentation some you And to that Like some, maybe opportunities. like referenced think – Okay. you’re I now do you small used I’m what’s tuck-in talking example infill an mean in guys something is. of or like maybe that? phrasing pulling just right filling, some maybe sell-in tuck-in exact

Jeff Ludwig

Yes.

to So, to we’re smaller what now there I think going to saying if is we’re in-market. we’re look for look are at going what be we’re acquisitions, look – that acquisitions at would right going

kind in-market tuck-in acquisitions. equals So of

looking banks acquisition, smaller the in looking types in-markets. a not we’re those is acquisition what an -- not I be billion in of near find would new opportunities opportunities. to to bigger today. kind look we at interested could the not We’d We’re that We to at we’re some Alpine, going doing to go guess market. looking dollar be term of

we’ll on acquisition on the internal work in-market more focus of opportunities. kind smaller working Given we’re

Andrew Liesch

really Thank you. That’s helpful. Okay.

Operator

our from from Thank you. McEvoy And comes Stephens. question Terry next

open. Your line is now

Terry McEvoy

Good morning, guys.

Jeff Ludwig

Good morning.

Terry McEvoy

Just any circling -- continues or offsets the expected back we into expense than shutdown there to second the the if commercial are quarter? longer FHA, if

Jeff Ludwig

to the get point little good variable think – a operating expense spot of really There’s I made but a from side a we’ve business some on the in forward. going there’s view adjustments that in leverage business comp,

So but a little not there's lot. a

Terry McEvoy

operating of lending? and works for they can them through customers a get can on your is that this And the at? through to they're your sheet. about FHA shutdown the side before period anything utilize business to your with use as that you bank sheet balance looking the bridge this then, And of What deal advantages move forward one balance backlog the

Jeff Ludwig

Yes.

three So lot of our to bridge last opportunities program have to -- in we a months. six our the program. We’ve bridge seen continue good

think I probably the a on is today. bridge sheet couple balance hundred pushing dollars million

construction – its balance get traction projects a of see as really we’ve those in the of quite side, business. movement start of we’ll that sheet kind A not lot don’t nice so some to some So yet, on growth. sheet seeing seen balance you you’re but underway lot

– I the in think in growth XX we what million Steve, saw that portfolio quarter?

Steve Erickson

Yes. XX.

Jeff Ludwig

Yes.

and So, there periods six can three we’re is do short about or bridged the to months shutdown. customers for that to of growth get or months can something they seeing even some we If with we need talk that. time for

Terry McEvoy

ultimately us then similar the the what last quarter? three this in three? in know -- And common increase charge-offs believe quarter think potential Could the there do question captured actions that give the release, the you just I for I anything loans fourth loans. on past you of the build in taken some was a were you've CRE reserve background losses referenced and between just you year last press Okay. in in those

Steve Erickson

Yes.

same pattern work look if that through. the to got that There the two we're following going of on as clearly charge-offs One in and the you’ve the we longer-term keep that to continue things increase projects to of things these nonperformings. tables presentation us. the are are the your in Most and at, page at looking not you there,

the While to than CRE, this at at point this point. they nothing We’ve have really other there's perform. this important and adjustments that they of they are to similar are two them are are it accruing. occurring think those to all still made is TDRs between quarter Yes, still I three nonperforming, note but continue are

other, So are they’re not similar then other to CRE. they each

Terry McEvoy

Okay. Thank you.

Operator

from next D.A. Reevey of Your Instructions] Davidson. question [Operator comes Kevin

now is open. line Your

Kevin Reevey

morning. Good

Jeff Ludwig

Good morning, Kevin.

Kevin Reevey

color into some now from integrated fully us of revenue type give you’re synergies you Alpine Can seeing the that been its franchise? that your on

Steve Erickson

Steve. would think I this is –

at of their if accounts. grew relative was the I portfolio look really retail bank and our think you rest our it clients, retail the biggest portfolio of very to focused one, much of

And so if fees point banking particularly high they you at and of…? look have fourth quarter you significantly to the non-interest revenue do view. of interchange in income from contributed kind seasonally any other the Jeff, that

Jeff Ludwig

No. that They wealth done through had a expanding ours business had they into commercial their nice job nicely wealth nice and base. of integrated a

a actual money their absorbed liquidity that there. there nice done other that they’ve is they And I sheet. the the have liquidity put since deposits and to So We’ve job the work. think and was synergy in balance that

side, So, some we’ve synergies the would of that’s seen on be. the were revenue some

Kevin Reevey

loan there mostly sounds was or unusual It And in your like? that Were to due like loan higher were there anything at any rates. also interest it the the quarter? recoveries yields being then up. the Was obviously increase the on yields, loan yields newer booked yields

Steve Erickson

else unusual was items. renewed; or just nothing time significant. nothing plus was one It and of the repricing the existing there portfolio new No,

Kevin Reevey

while performance. growth market wealth management be down the there side performance? was was have which And Were that on the significant might AUM your business the market any wins muted expected given the given lastly trust then to

Jeff Ludwig

in quarter we clients I is to winning think any – client. the continuing don’t there might mean, of that are I happen that outsized win

but we and AUM continue was due job in market assets, was decrease win to primary primarily of that result the but build the conditions. to market clients So downdraft,

Kevin Reevey

very you Excellent. Thank much.

Operator

have from We a follow-up do from McEvoy Stephens. Terry question

Your line now open. is

Terry McEvoy

referenced Just that press more a two was so, for modeling Is questions, $XXX,XXX the of rate line? normal if BOLI in kind and that release. gain that the run about what’s

Steve Erickson

X. was instead $XXX,XXX of That

line far not quarterly event. as a that’s in we modeling that one item And significant basis. changes So any BOLI is concerned as expect is a

Jeff Ludwig

won’t expect to that recur. We Yes.

Steve Erickson

item. non-recurring a is That Yes.

Terry McEvoy

Yes.

And Okay. then…

Jeff Ludwig

periodically recur will overtime. It

Terry McEvoy

Yes, unfortunately.

Jeff Ludwig

Yes.

Terry McEvoy

to And at then deposits. as core last question, have just just And number growth trending loan expect fund the deposits your do five Understood. lower. look with page I you been

and fully in-market fund my So is do I do deposits? your traditional you question you growth how so with loan can kind of guess

Jeff Ludwig

to our funds through – does that deposit that obviously, next is the ability mean, with on XXX% our to maintain growth deposits of we to loan to I the balance at we look generate asset at challenge, is year. reasonable right, forward right? that going our challenge our need as a margin, growth side That continue to cost

squarely order XX in planned for is on deposit that months. And in have support so focus our to next generation XX the our the very to growth markets we

Terry McEvoy

Got it. again. Thanks

Operator

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

Jeff Ludwig

like I’d everyone the Thanks. we’ll quarter. thank talk you. Thank today. joining for you call to to And next

Operator

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

Midland States Bancorp (MSBI) 25 Jan 192018 Q4 Earnings call transcript