MSBI - Earnings call transcript Q4 2019 | Midland States Bancorp, Inc.

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the Fourth Quarter 2019 Midland States Bancorp Incorporated Earnings Conference Call. At this time all participants’ lines are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]

to Mr. conference like speaker to now today, of would hand over the your I of Profiles. Rossi Tony Financial Sir, you may begin.

Tony Rossi

quarter Midland Thank you, joining Bancorp the for thank and call. fourth States Crystal. Good us morning today everyone XXXX earnings you for

are as Joining Ludwig, Chief discussion part Lemke, Financial of President Eric using be morning. Jeff Officer. us our and management We'll Officer; a and Midland's Chief from team Executive slide this presentation

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

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

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

I'd call And over like with to the turn Jeff? that, to Jeff.

Jeff Ludwig

the $X.XX. quarter. earnings to start our by commercial Midland States the We the generated and which which earnings call. to business, rights on highlights a per servicing Welcome million included share, going impacted with in everyone. $X.X valuation mortgage I'm morning to FHA Good share $X.XX Slide per X fourth adjustment of earnings

per net the and of the During expense, subordinated a also on acquisition a recorded we gain sales. had adjusted On quarter, and an on in loss repurchase basis, we share. earnings fourth security debt integration $X.XX

the strong year in We business with quarter ended a development.

annualized produce had of Our an to equipment primarily which are at the yields business, more targeting. and continues driven we risk with commercial total finance leases by adjusted loans of good increased loans another our X.X%. loan quarter attractive rate growth that We

executed Over the we course balance management of XXXX, strategies. our successfully sheet on

loan put in a from favorable loan the Towards active liquidity us contributed stronger to fourth more this in be that growth consumer position standpoint quarter. portfolio, end, a and growing to which our the

with a deposits. in core total Once had deposits gathering very entirely was an rate annualized increasing quarter deposit successful our deposit again, by at We driven X.X%. also this growth of

steadily run existing The pleased inflows products be our resulted have to We in share as cost priorities enabled core new strong of very customers new us customers This commercial one customers. off introduced of strong of for some the very deposits. active and had in higher and inflow from core with efforts. to XXXX our calling more success from has this have Improving deposit in was deposits we as well continue wallet getting area. our we're deposits mix the in depository we broker of top

the the prior end result, of X.X% non-core a ratio net end from the to dependency XX.X% As our declined XXXX, funding at at of year. down

on progress key another efficiency improving continue also We to ratio. initiative, our make good

quarter. further efficiency in Homestar XX.X% in additional system Bank’s of we conversion resulted in in the recognize fourth improving this down October, able the our core integration ratio successful to saves quarter, XX.X% to acquisition. This the from from With cost were prior

effectively to capital. continue we Finally, manage our

Homestar points for TCE year, Compared basis the of despite our of TCE increased our key prior another ratio, the us rebuild ratio XXXX. priority to XX end in to acquisition. the continue earnings impact Our the

quarter pay We what an as program, to shares to average attractive while also shareholders. attractive we the believe dividend we approximately per repurchased an continuing fourth our of share also for XX,XXX an making company during our the continue repurchase stock at investment is price through $XX.XX

our I At Midland as Eric we Chief Financial and at of financial Assurance Bancorp, point, Capital served Director partner the joined here. want as new previously his this services to Officer, a Lemke. Audit, impressed introduce RSM. very also his time our XXXX and was Eric business during and Chicago, been financial Metropolitan and have of in acumen Eric in the practice in CFO with

finance So our set to very has skill team. we are confident that the experience effectively and lead he

through financial Eric? quarter. Now, to us walk Eric is on the the more details going performance in

Eric Lemke

Thanks, X. good loan Slide everyone. again on I'm morning Jeff, to our going portfolio with and start

outstanding loans total loan driven, of the the the as commercial growth earlier, quarter consumer from increased mentioned Jeff prior end the $XX.X portfolios. Our by in million and

business business. finance up The our Our the linked in our outstanding quarter, million on balances the was largely $XX.X commercial loans equipment to the X.X% a portfolio and in growth leases increased from end quarter of due XX.X%. finance prior equipment or basis,

the the represented consumer million during end portfolio $XXX increased all prior this of XXXX. which Our portfolio the quarter, of from growth in

driven sense in we have a balance a standpoint and from the management in portfolios commercial fourth quarter. being continued a as in during the the our consumer past, pricing to portfolio, lot payoffs continue production offered loan and elevated runoff indicated did in of increase help growth when real can our estate offset production consumer we've by we commercial sheet aggressive to markets. liquidity it flexibility As in see it makes the The and where

fourth income, loan by X.XX%. accretion points basis to yields environment including X rate declined the quarter addition, In interest during the our declining yields, as impacted

billion deposits all down market by deposit end With to this prior Also our an we the of of attributable discussed. time X. were came deposits the on and fourth balances from the to brokered brokered our quarter, at increase previously XXXX, at fourth just quarter. prior represented Jeff of deposits our Total total the of another in during balances, Slide from X% the the which success checking Substantially, time Turning $X.XX million. our approximately reduced million of of that at growth $XX year. money end the intentionally the initiatives the X% of the deposits $XX the is gathering runoff, quarter, deposits end of end

cost the of X deposits to the Our basis bit points we’ll overall slide. dropped but about little X.X% in in a talk that quarter, fourth more next

interest talk And bit turning next income let’s net about little that slide, net our and to interest margin. a

the income Our decreased net X.X% interest quarter. prior from

quarter. of margin declined our interest XX the points Excluding income, the impact from accretion prior net basis

in $XXX margin. XXXX, on our our As pressure we debt, million September of following the subordinated increase expected, issuance put in

quarter, by XX XXXX, then mid of months yields of funds the impacted deposit result sub points. the earned quarter negatively additional rates as growth occurred average balances. lower period debt negatively with point that X lower basis our impacted saw cash by of rates liquidity X margin the by our our level negatively X impacted And to in the three in a we fourth basis on those reduction increased points. Combined cash the points. And basis that excess in margin Fed late loan The in our strong over balances, a basis margin

rates and lower in certain of offset mix. rates All improvement by accounts from in partially on the were deposits, deposit a on deposit these factors resulting our reduction

year interest factors on the should In our looking have that a higher we’ll as cost positive Now margin ahead, in impact number a net high debt move our of redeeming we particular, throughout XXXX. June of cost we see XXXX. – subordinated be

at from renew through lower much also have deposits June that time should maturing We approximately March of $XXX million rates.

through more expect equipment We expect of higher continue portfolio cuts in to to comprise mix yielding to the and of larger lower recent continue rate a finance to our will which positive further depositors, our shift cost that mix. loan a our see percentage our overall should of And we the pass deposits. deposit

going Fed forward, income, see stabilize no can then first assuming these margin believe accretion half us excluding net we of XXXX, factors changes our the help in help impact So the and a our that the during rate year. downward interest in of funds as interest we move the accretion half some the range On on pressure back second towards our year. basis, the throughout net lower X.X% will reported the trends still scheduled of margin

X. the quarter, assets of attributable an administration wealth the our to million under performance were billion, improved management to Slide market end increase of the was At quarter. from the primarily prior The the turning Now end $XXX of $X.XX increase during on quarter.

$X.X decline Our to to wealth management prior estate revenue decreased XX.X% million, from the attributable which primarily fees. in our quarter was a

the total our $XXX,XXX non-interest Turning management; wealth $X.X was income primarily to sales of In from quarter and from investment revenue. the million. Non-interest non-interest quarter, our it FHA income, decline securities. on commercial two The the in to gains X.X% decline in factors: million or fourth to a lower the income due $XX.X prior included quarter net lower X. in decreased prior Slide

a quarter Our commercial to FHA by mortgage servicing $X.X business. this rights in revenue this million was negatively impacted impairment

were through declines loan by an are non-interest from income. Funding, increase offset Those referrals fees Love bridge generated in in recognized partially other which

we long-term, to million revenue still from FHA commercial annually. expect the $XX over range ahead, million Looking to $XX

However, FHA to expect this in conditions XXXX, this year. saw we saw from similar that for revenue environment similar we we given commercial during be business the operating fairly past remains what to the to

and $X.X on repurchase incurred fourth and in Turning the million $XX,XXX. loss held loss on a to the debt of integration of in our expenses and Slide X efficiency $X.X mortgage for We expense ratio. rights a servicing subordinated and acquisition quarter, million sale

a X.X% after cost primarily non-interest system adjustments, That expense decreased completed these basis. on HomeStar October. quarter additional the due in Excluding savings was linked our to conversion realized was decline

decline efficiency our the to prior XX.X% a in in the result improved expense our compared As XX.X% to of quarter. levels, ratio

existing quality XX, recorded reflected improvement Slide provision $X.X net of decline this provision reflected growth This to compared included reserve lower in data. also the as We million than established non-performing the had property when that The loans $X.X and at a stronger a was for portfolio. to loan in loan the put recent asset we quality. most We prior on specific saw an the in million quarter. our market appraisal a losses our a during for we’ll Moving quarter. the asset general price charge-offs the quarter look a non-performing by at loan take

basis allowance non-performing is December loan points loans another XX that expense unrelated to our the quarter XX XX, loan The for during losses of fourth at loan particular credit accounted quarter. the and our total basis provision marks impacted prior to provision brought for points. our This

Based implementation This range million. commitments $XX uncertainty million used loan allowance of losses economic a to XXXX, CECL is me CECL. and the for increase balances for to provide reflects the additional economic forecasts few at of for portfolio let our forecast implementation unfunded best from end reserve the comments record approximately our on those expectations estimate the reserves. $XX of the of of on our in the loan Now current and

We CECL are other finalize these in our used model continuing and to certain and key assumptions methodologies.

in the any events this continue within credit economic other in industries broad we concern of Looking concentrated generally events ahead, trends expense. and one-off there at where been net our have healthcare is we’re a see charge-offs retail provision to seeing healthy loans, portfolio any ag one-off loans, not portfolio, we’ve or in the and seen not while our credit level. property on a the point particular continuation These loans cycle weakness impacting or in macro industry type, of

fundamentals diversified to deterring been in unique in we seen very situations particular well and that industry. portfolio have credit continues have be the any haven’t related been one-off events to Our

reason, that to range in those during our changes million expenses be factors. forecasts will be quarterly economic XXXX, under more volatility, provision other $X CECL, million conditions. economic to subject of in expense current that’d expecting on depending $X and be For variety however that Under a to provision we’re

over Jeff? So with the back call turn to that, I’ll Jeff.

Jeff Ludwig

XXXX, Thanks, some our XX and for comments on three management banks wrap outlook Since Eric. in up acquired we have XXXX. Slide two wealth We’ll on with IPO businesses.

doubled management period a substantial wealth we X.X total business. As in our in result, a assets years, growth our of had have and

to ratio, sustainable which the will and a our focus basis metrics, organic on are including earnings targeting under our As by we of XX% on be we the be our efficiency performance growth XXXX, end start year. squarely improving

XXXX. If optimizing focus we best bank emerges, performance an our our book certainly value for shareholders utilize will but share. on believe existing be that and XXXX We focus attractive build if that acquisition we consider tangible will served it, the of to is opportunity to the continuing our per not

we perspective, management experienced of sheet balance continuation a trends From a to we XXXX. have in expect the

continued low growth, driven expect organic We equipment single-digit finance our loan primarily growth by portfolio. in

to our improving mid-XX%. deposits expect to in also our have keep We’d We continue success like the and to gathering ratio in deposit loan continued mix. deposit core to

for positioned the of have of balance believe we of synergies to strong well acquisition. realizing Although generate we year reasons: HomeStar expect just number we the earnings year, a year first, growth are a we’ll this modest growth full sheet a from

Second, reduce the previously announced we will branch consolidation of by costs will with quarter, the the six which our of network. the complete end the branches first associated

Third, the continued in preferences earlier made and levels banking, adjustments focus this on we mobile towards staffing efficiency. digital reflect our our week, customer in shift that and

savings full-time We remainder eliminated will result and employee are office $X.X cost of of in beginning in back positions support the retail branches, quarter. and approximately staffing from non-revenue XX with approximately These positions. second coming XX% generating positions, million approximately adjustments out primarily annualized the those coming in our

of non-interest to million run in made we further Fourth, XXXX. our rate and quarterly efficiencies, in range experience. Following be significant $XX enhance quarter to staffing past leverage per few the investments years million these the have the our we our banking we to $XX technology streamline over additional digital adjustments, for drive in expect expense will operations

Eric drive We XXXX an believe will we shareholders. net our in level fifth, that solid margin to growth deliver the which in position our income. earnings improve as see put help an interest laid execution in we our and expansion in increase out us expect of generate good in on that year, net should And for these to returns later interest the strong initiatives further a earlier,

has. happy any to Operator, questions we’ll open please call. the anyone answer be that, With

Operator

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

open. is Your line

Michael Perito

Hey, good Happy New morning. Year.

Jeff Ludwig

Yes. Mike. Good morning,

Michael Perito

you the and mean, point appreciate you side. want I much your basis of so the still like obviously, year. peers confident sounds pretty – a portfolio. on the I want million remain the I’m credit expectation? a higher remain high guys that kind than peers And loss next Does XXXX, pieces all together year mean, the assume single-digit but kind to that there that so underwriting makeup rate – the then assumptions slightly you just but to to growth? million it low it most provided does $X commentary, like of charge-offs forward-looking experienced And pull content – $X start all of the of where the of provision in assume? to clearly, are provision in Or last trying XX other maybe what I pretty I then for start above up type here. make just are, portfolio and

Jeff Ludwig

Yes.

reserves probably of detail specific the We allowance disclosed So at back are think the that a a think I fair come slightly think today. will I kind more million are – amount do have you us to we look in range probably that think little We we’re like we And of puts range. looking million XXXX. million in allowance, we bit down that $X XXXX, charge-offs, gave probably $X we about quarter. we have, $X that to in around going if as averaged look our of in do sitting a

on specific but So those some get those we could as charge-offs through resolved, already see for. those provided reserves, are come

excluding the of kind we have. charge-off group maybe basis we we and probably don’t diversification of loans, portfolio that the – we at expect points of today, look kind that under level So as XX

Michael Perito

of you margin. as you book guess, on of the half the – in the today? can the yields in a pickup kind of that deposit color the And more Can you there the be is remind kind and are it kind see just bit the to negative then the on could the where over would that in I Maybe potential switching And new opportunity What little cut yields to seems margin the thanks. scenario? there driver question: Fed two-part of another back sensitivity big pickup the the one, be year. a what are, Helpful, potential of provide funds? can where to Okay. you coming time and if be repricing in margin guys me secondly,

Jeff Ludwig

a that’s good Yes, question.

time the with start I’ll deposits. guess, I So

few – this got we last did quite first time. at quarter we’ve specials during year and second the So a CD

and that got maturing million so between about And are March we’ve $XXX June. be to going

And XX point of so we it we’re think potentially pickup. the way kind there’s is an modeling basis

necessarily However, we’re those that able that retain of But course pretty also be next modeling to a that’s to the pickup year. all we won’t funds. during the significant of

Michael Perito

Fed for the Okay. the on And another potential sensitivities funds? the then in cut

Eric Lemke

Yes.

us it two one. then on pressure deposit the adjust side. that what think fourth I’ll or rates maybe the what take I across asset We’ll board. we’ll see continue quarter. saw take will And So the Well, a to we in initial see to is quarter

there’ll somewhat be So of a lag.

initial we and see would then back. work think I So be to it pressure some able

Michael Perito

the that the partly mean, But wouldn't right? mean, liquidity-driven? I X I fourth and would X to the be think was quarter pressure like a core back debt, then probably just range kind magnitude, compression the point something – initial in beat in isolated? – point time. a margin. there It work that that I Or mean, to Is basis basis way of to partly it? about in fair over

Jeff Ludwig

was I debt, so. liquidity. X think was basis sub I basis point additional X Yes, points mean,

it be mid-single-digit basis point that more would range. in So yes,

Michael Perito

utilizing saw efficiency maybe to and just updated still it's I kind would of just improvements kind next then of I general sustaining Or that you production, can. expanding capital of kind deployment deploying that way? It on in like of year. some the And about year Okay. capital kind levels about – profitability that And that, kind behind based as your focused outside on in think another and repurchases and have here, build, growth? organic of returns. of and of then any continue lend recent M&A scenes I think guess, seems the XXXX Jeff, made share will capital was internally thoughts, capital Does you guys if the

Jeff Ludwig

Yes.

So maybe I'll start dividends. with

a record, XX%. I have by probably long track dividends record year a increasing track We think, of XX

term, continue going to to our in continue do you $XX say, used when we're we're And a So range. share least we in as defensively. we quarter, going short saw I'll a at have bought to price, We fourth as it stock point, use bought, defensively, the to program. dividend. good this think, in to We've the the repurchase pay I it,

ratio We'd ideally to to get TCE X%. like above is not Our X%. to still

the to We to continue works we need So you you as up. to against continue you. to work as And up. ratio your TCE back, book need that work stock know, value buy

have continue TCE use tangible continue to I but share ratio that the back we'll build a maybe it to get get we'll X%, build book use continue to then there think And to over So we as think to different buyback defensively TCE. first. value, I way, in begins

Michael Perito

Okay. questions. Helpful. Thank all my taking guys, you appreciate you

Jeff Ludwig

Mike. Yes. Thanks,

Operator

Thank you.

question Our next from McEvoy Terry comes from Stephens.

is open. Your line

Terry McEvoy

Good morning, everyone.

Jeff Ludwig

morning, Good Terry.

Terry McEvoy

would over you but on First provided the to thanks through, XQ two I Day reported the NIM, X full have quarters year accretion Very four believe accretion come down, which you CECL. past, said margin helpful. of accretion. disclosure impact the know would X on for XXXX? or and guess, thoughts from for any next also some off, second And in I the thoughts Day upside the drivers I understand next half of I all around year. the the

Jeff Ludwig

some we're our that out like. of say, what into, to and normalized kind as looks margin Yes. or of we're – accretion number, that hands right of trying having goes and around The get still goes accretion normalized challenge I'll now

year-over-year, $X decrease like that. pure dollars, probably something So in $X million it's million,

line confusing CECL. XXXX, That's it Now where we not. up gets shows little of as adoption whether in or that with that a the into item it get

So there's of $X there. headwind $X million, million

Terry McEvoy

state And management, on Okay. pressure moving wealth I've over to the the fees. in wealth notes then got fee my seasonality management income, put in here, fees

we And was pretty line looks if the on MSR experienced FHA, XXXX impairment? does business that your should then in any to MSR in XXXX? that are include on I'm Or for XXXX, just XXXX? what adjust of so similar the that So volatility thoughts clear

Jeff Ludwig

same, rates impairment in if FHA, stay portfolio. more expect regarding So the that don't we

the excludes So statement, a even that I revenue. I the for it think the would another out disclosure pulling at that's were say from part day. looking you And of that disclosing point revenue line view, impairment but of maybe separately income and of the on

we've late the business, revenue around wealth the recognition the our in estate On year fees. changed

the So that quarters. should, XXXX, to be more begin as normalized we of into get through each

So we'll closes. earn fees state when as instead them begin to of state the the we recognize

So of we're to mean, I will, smooth that start was should line, revenue states working continue some, lumpiness you amount out a the we in if providing to that on. a have that fair little.

smooth back quarter line the So think assets we're in increases line increase start begin should to to in well and that the quarter. little that revenue drive revenue out part to bit with in of revenue or a number fourth fourth from positioned I year the revenue the that

Terry McEvoy

you one to benefit follow-up. quarterly feel for reductions the the number that about comments FTE until Do earlier QX, quarter? The second just $XX on and the last about given the million XXXX up the in $XX good not of And basis. million showing a expenses

Jeff Ludwig

will that the quarter. range higher in that probably of yes, think be I in quarter. end I range the it first includes, of the And the higher that now on end first think

Terry McEvoy

good everyone. Great. a Have day. Thanks

Jeff Ludwig

Yes, thanks.

Operator

Andrew our comes [Operator you. Thank question Sandler. Liesch from And Piper next Instructions] from

line is open. Your

Andrew Liesch

Good morning, everyone.

Jeff Ludwig

Andrew. morning, Good

Andrew Liesch

on sitting Just sheet. margin with here the a that's follow-up question on just been balance liquidity the the excess

the And that going that? with that? be to plan do what is what's on timing that thoughts sort of of anticipate kind – to with Just going deployed? how you Is be

Jeff Ludwig

Yes.

we've non-core reprice, additional associated investment to in of million said address And Eric to that. working that we'll– we’ve growth. that some investments portfolio as excess been our pay there'll CDs the do loan modest liquidity. some down be attrition have those earlier, I We continue So with liabilities – we'll think some And hard some with made $XXX itself. additional

doing to short the term, we're that's in that address liquidity. So what

Andrew Liesch

Great. Okay.

questions. my all covered other You’ve

Jeff Ludwig

Thanks. right. All

Operator

I'd And turn call from the remarks. you. for to any further questions showing closing line. our management over I to phone am Thank like no

Jeff Ludwig

for next Yes, thanks will we Thanks. today, see joining and quarter. you

Operator

in you does This thank gentlemen, participating today’s program. and conference. Ladies for conclude the

great You day. may Everyone, a disconnect. have all

Midland States Bancorp (MSBI) 24 Jan 202019 Q4 Earnings call transcript