MSBI - Earnings call transcript Q1 2020 | Midland States Bancorp, Inc.

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the First Quarter 2020 Midland States Bancorp Earnings Conference Call. At this time, all participant 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 may be recorded. [Operator Instructions]

to conference like host to now Mr. today, would hand over the your I Financial Profiles. of Rossi Tony Please sir. go ahead,

Tony Rossi

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

us President Chief Ludwig, Financial Executive are Chief and Lemke, from Midland's Eric Joining team Officer. Jeff management Officer;

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

the of please presentation. Midland's done not Webcast the you've a visit copy so download already, of Relations Investor Presentations If website to page and

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

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

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

Jeffrey Ludwig

the that they’ve the couple by thanking COVID-XX for Midland challenging of communities call. I’m can our to this of we and Midland during earnings and begin impacted months. way continue time. certain would morning, lives made has of and pandemic past support the team clients made I The to has our our responded like team proud all very aspects Welcome Good to entire everyone. over the Tony. extraordinary efforts Thanks, the States

of productivity our maintaining this crisis attitude and well commitment that positive the as the team we’re with. throughout during conditions as appreciate I levels to their unprecedented service members exceptional dealing

changes providing on we extraordinary the of in our today most wanted on call overviews the Given our operating COVID-XX loan environment and of of by the we expense number to our deposits. we pleased increasing components response levels, portfolio. pandemic, good our a Overall, the time had spend reducing were notably our margin interest quarter our normalized stability with good in areas, and maintaining trends most of a net in and brought

in to rights. rapid the a servicing However, decline our impairment interest resulted rates commercial mortgage large in

adoption our was impacted credit marginal resulting resulted significant a earnings only of the of story CECL results, spread the rapid the for quarter in big COVID-XX. While Obviously, of provision losses our quarter. negatively for the in that financial

protect as steps number the to took progressed, of described As we a Slide employees quarter customers, X. on and our

schedule, our As branch protect a These safety health primarily and of non-retail employees transitioning branch customers of our on to the through our servicing bank crisis our lobbies, off rotating customers. approximately we remote moved unfolded, week and and working included the closing very steps drive-through environment. on quickly week staff employees facilities, a to XX%

banking transition Due of productivity, the by our the to level been our handle our to platform our working and increase of entire we to well-prepared technology to have impact team, to effort in used was much the incredible able investments we've without customers. efficiently and made digital remote

clients. first quickly were and customer crisis this managers and that crisis. been wanted as X, get response our utilized process Moving in to reaching From running out since option clients up have relationship through a assist PPP a have standpoint, to to able engagement for them to customers started. assisting our Slide to review We our I to our the managing

employees $X.X we XX, million, X,XXX processed approximately the which be been markets. PPP of loans over which dollars approximately will April our commercial for approved loans. for is XX,XXX recognized of fee the the PPP SBA clients, our million had life assisted almost that loans by in in $XXX the had Estimated Through income

requests Through payment interest that These $XXX April XX, deferrals to will deferrals months we loans. primarily have for one approximately payment and of the to loans three time. received continue million during loan of are length from accrue in

it Our will payment of the other small make that through deferrals it vast the majority side. from the hope through with our combined customers our businesses allow get pandemic working is to with proceeds to the this and PPP,

been have local efforts. communities our Our clients extremely appreciative of and

community receiving of the are to is committed about banking. great bank, value We the feedback working relationship who with

of on Looking XX% treasury range. management Despite and not new remained the downs credit banks the seen XX% account of reported. lines March, have line at remain consistent. the we utilization Throughout other commercial some other consistently deposit the operations rates to relatively network, pace the draw way our credit openings consumer month in branch significant has in have trends, reduced

of expected, throughout the As end commercial And staying we bit volumes in we be wealth business management done our of stay-at-home talking quite the we and would -- order. clients as a banking, the when decreased have card close March contact as processing check a transactions and time in towards spent crisis. debit Illinois with lot imposed

have XX% in interest locks in rate approximately loans wealth had the a decline of quarter clients for residential they of prior strategy. rates. indicated from quarter more finally, the management remain investment with their and in they interest the first To to mortgage discussions doubled date, as plan than And we've consistent result our

of we a view significant one have portfolio diversified X, concentrations in any loan we Slide industry. broadly that more feel with detailed portfolio. a We no to our have Turning provided

years of equipment know, one over the you As our growing our past couple of objectives finance portfolio. has been

that do million. continue increased portfolio in $XX as the We by approximately first quarter this to

consists greenside loans, first portfolio, the represented At estate of portfolio which the represented real portfolio. of the loans, the a of it's in our commercial XX% criteria residential are them. quarter, FICO end very of with borrowers credit XX% have granular consumer accordance of loans have XX% consumer our portfolio. to that while and includes by score average These XXXs, underwriting an provided loans originated that we in

have as the for are of also XX nearly we the been We have a in program program been GreenSky. have we with Midland enhancements way very in the successful This structured. economics the experienced credit due to portfolio has no this charge-offs years partnering

C&I X% represents commercial represents On of leases. more health commercial retail X% our loans Among our a troubled real loans we Slide industry. the It's loans diversified just commercial estate of and showed traditional X, and portfolio. commercial care equipment includes This loans industries, and finance by broadly loans, a just of trade exposure breakout loans.

X, portfolio real On our we type. show estate collateral down by Slide commercial broken

had facility XX% CRE loans, total portfolio. CRE XX% exposure of which Amongst Our represents largest restaurant segment loans. loan represents and some of each the elder is hotel, our our of X.X% of industries, care more retail, troubled our

through let additional that, Eric? me With call over him the a turn have few to and slides. walk Eric

Eric Lemke

good morning everyone. again, Jeff, Thanks, and

the of the reserves. it at credit to of losses spend We've for couple the X, of walkthrough provided Slide I that of overall drivers we at what CECL, loan adoption impact XX, -- Looking minutes a and XXXX. want held from the allowance it's our to talking of and the level did change a of about our December

our expectations. initial of was less one day a than million, had which $XX.X adjustment We

day as evaluate continued our methodology and those model fine adjustment loss certain from our overall forecasts forecasts initial Our we for estimate economic that to our one incorporating tune decreased into and factors.

XX. of $X We that December specific as we reserves held approximately also in charged million off

changes Then our of portfolio changes impact of quarter, credit in million quality, in saw in aging terms how the to portfolio we the other first reserve $X.X we contributed in the impacted was new of that change. that reflects overall the had we by the recoveries what charge-offs loans that This and existing and in the booked, the quarter.

the factors economic reflects loan our That for of an losses to approximately primarily in economic contributed This and reserve. COVID-XX. to changes allowance of the credit in finally, the due $X.X up downgrade forecasts impact the XX quarter. resulted lease million And million total points previous which the of basis and $XX.X March of loans, losses XX XX, loans total our prior basis the of at allowance represented from end for points at of

talk impacting net margin. XX, some our interest we Turning to factors about Slide to of the want

Jeff in points cost passing successful we able the stabilize X margin rate by decreased been to previous first deposit earlier, of it As basis as We've quarter. to basis were mentioned our point through decreased our normalized overall X the in quarter. first and reductions over the customers deposits

renewed the quarter. environment, rate average and to new compared declined on the Due previous X.X% to lower in X.XX% loans to rate the

continued deposits We as to that expect to particularly repricing year to portfolio, benefit promotional were our rates CD from time previously offered mature. at continue last

quarter XX second points $XXX approximately of rate a being mature current in scheduled of offered a have of average at should costs time are significant CDs basis on the million interest weighted we X.XX%.Our from rate in XXXX over deposits. XX see our so to reduction a term, CDs to at depending We

balances our interest margin continue margin. carry that side, and will help us and we sub-debt, liquidity continues sheet impact build on On this higher that balance the negative our through intend to we crisis of net on to to And manage continue to going our to weigh forward.

callable to of expect million light in $XX least approximately are of retain, in subordinated that In the XXXX. the short-term, we at the pandemic, debentures June

reduce the quarterly a will interest floating XX on by that rate sub-debt will in approximately June, the rate However, points. that to basis and move debt

coming to customers the quarters, forgiveness. largest And our impact side, for margin then positive PPP third impact qualify quarter in participation and is in as finally, third second expected received with the debt on our positively the and the in

Moving let's liquidity this a approved level, duration our the We've particularly the and programs supporting continue we're We our Congress. both capital additional standpoint, stimulus consolidated position that positions. a level from our take the in customers through believe capital by of through ratios. at bank at capital to a and to Slide including crisis, good included bank XX, look

with We and $XXX credit Should into We're up to in nearly also have and also facility position $XXX liquidity liquidity brokered we sources. tap it? the $X.X liquidity need million secondary in sources in add $XXX ability a billion in million strong primary a million CDs. to

them We to reviewing this which walk are to first current PPP We've quarter facility, through in all earnings will we usual deck, of slides quarter utilize the funding. our to our source planning environment. the due liquidity another plan included also provide the but results of

any If happy session. those you'd like color items, during the it on to question-and-answer be we'd of additional provide

Jeff? then turn over call with back I'll Jeff. the And to that,

Jeffrey Ludwig

Eric. few Thanks, wrap We'll and outlook comments additional with near-term priorities. up a on our

well to As we downturn continue a from supporting mentioned, and in this believe customers through are and our capital positioned temporary we communities liquidity economy. Eric standpoint the

credit the will long customers hard principal supporting our the crisis to our how needs impact capital and our full persist the of will know dividend. management maintaining While priorities have, will or it it's be

the around to the of Given duration going the severity uncertainty to and very the forecast how rest of difficult year the level go. it's is crisis, of the

a of being the level few we to first in tightly and we want manage comments. we That quarter will general full see benefit We to continue quarter. in the said, to provide the quarter made the second expenses staffing adjustments plan

We the will and line deposit pricing. on loan to hold down continue also manage our costs

it and With quarter, likely the current market second FHA pre-COVID in respect levels. back up to both our decline overall unless a sell will our environment. businesses, commercial wealth rate in mortgage, moves increased management Pipelines originate we see the to have fees to the in residential including seems

Credit, the course, unknown. to of continues be great

for is this up, and help Midland But we through XXX counted times, to be crisis wrap have years, serve this will them we the a certainly difficult on no challenging time. different. communities manage As a current

open to the be questions answer we'll happy Operator, call. that, please you might any With have.

Operator

comes line [Operator Instructions] question of KBW. from Perito Our first with Michael

is now open. line Your

Michael Perito

the disclosure. good Hey, morning. Jeff, and for the Eric, extra time Thanks for added

So it's slide helpful. in going with on the everything deck,

Jeffrey Ludwig

Good morning, Mike.

Michael Perito

if I Jeff, are wanted to more could little a us a bit give you combination credit of loans color food on into side. commercial service. start I the X% was that the of wondering,

bit a there. and larger portfolio how some there imagine has deferral probably looked I of the that thus You know are credits in of what, there's far? in quite maybe

curious some Just this the are point. what of at metrics

Jeffrey Ludwig

with -- we're first in the proactive I that March are fairly seeing those customers topic. in March of those mean, we when this on that middle began Yes. deferrals were probably the in coming and were

I -- have less And probably greater than we calls, lot I XX. large $XX prior a our discussed loans million loans. we've think as of don't think our are than in

exposures big big, our I are all, have don't And most we credit. So $XX any then under of particular loans million. on think

in granularity hurts, as you credit credit of lot any It So way here doesn't doesn't help I portfolio here. to think it portfolio a of -- doesn't of but ours sort philosophy it the granularity that for And the sure the the should perform. a there have down. or that, it's of so take

Michael Perito

was vast to Okay. And been in that of NPL I year you majority the greater. those is quarter, know the have think remainder that on items earlier for it any of that it the the was flagged actions of going now? the that, that kind couple or charge-offs a on a being pandemic, million, related I what's But predated of related or quarter in the of still to was

Eric Lemke

Mike, is Eric. Yes. this

as overall the So in to reserves that we earlier three remainder unrelated The slide credits out specific for charge-offs had charge-offs some primarily XX.X the the related in time. were been of and quarter to pointed impact. our of in about deck really larger were the specific those

kind those prior March kicked in. before crisis think those of current prior to I experienced this bulk the of -- we

Michael Perito

bit. gears Switching a Okay. little

On of the it them you in what there. -- I quarters, second you’ve what like could speak, approximate what total? a going here. a of seems have also potentially related of over guys applications mean, Do like program lot sense a a Do to the a kind you to in in additional I dollar of PPP to looks have fees there like? loans, come that the for look that PPP so to two sense of expect the amount imagine kind kind funding wave the next -- have of you sense And of is do of kind be guys you pipeline, of

Jeffrey Ludwig

Yes.

So I'll total we of April approved those received We got team that the of say day the getting applications to we before had XX%, think I XX. a did job not fantastic the XX% applications SBA. through our -- we if

portal. think the it'll clients So on a good got the a through smaller be do I It's majority small, not and a of quite pipeline. did a SBA have for got job. two around think our I We a We quick reasons. really teams bit vast the couple --

and are we go care into I care this the even there's customers some time. still taken we've I think of going it's bigger two, think our going were of; one more to this take before. even players And of most need quicker than to they left prepared

get in our approved. were lot of clients of pretty the teams think to, banks community and I smaller together, able get out like a loans rally us, front quickly, get these

And a I think but don't it fees would round forward. be I an think estimate think less what first have going so be going I on really smaller quite than what those I bit the like, might look was. it'll

Michael Perito

you the loans will have you but already related I missed to PPP you've approved? approximately the I'm sorry, know it, fees -- Do be what if that

Jeffrey Ludwig

Yes, think in that I … $X.X script, was Eric million

Eric Lemke

Yes.

Jeffrey Ludwig

originations. in … $X.X million

Michael Perito

then All just Okay. Sure. you. right. And on lastly me Thank for capital.

the provision with And was weighed forward of behind moving that the holding But kind kind at lower. Do mean, the are in the company parts now build? of bank expect you bank those first to dividend. quarter with ratios expect high, mentioned, but that hopefully of the noise bit of you? of support other on the really that those I You obviously you that Jeff, rebound priorities the most that kind support and sub-ratios are quite do and to equity CECL things? the going the amongst some a

Jeffrey Ludwig

focused mean, on Yes, think I in frame, this building so. would, time we Right. I be capital.

million equity. I what a day So, million yes, $X adjustment think -- I was sort to the of mean hit one CECL, $XX with

Eric Lemke

[Indiscernible].

Jeffrey Ludwig

million $X to $X hit Yes, million or equity.

had so some some … first to the back bought weight it. that yes, stock So, quarter, we And in

Michael Perito

that -- repurchase the now activity being then for And to kind that program? guys going of the time on are suspend you Right.

Jeffrey Ludwig

point. not program We've this our suspended at

have talk and We meeting and and continue fluid. play options next Board a is flexibility our we'll expectation is it. to this because we'll week keep about thing But in my pretty keep that

market. our and capital So keep it to assess we'll I there and the continue think out

Michael Perito

Okay.

Eric Lemke

But perspective, mean, as safe some trajectory I about mid-May, be closed current, country recovery? for won't trying appetite, more mean, I that if utilized of the -- it buyback Okay. environment heavily until till to is a before from mid assume probably like that, the there's clear think to for stays if the your modeling stays type

Jeffrey Ludwig

not what I options I'm to our Yes, We're in keep imagine sort material we've of been be open. to there's going sure. change can't a doing.

again, So, with our to I'll we're I think going support support credit stick comments our clients of and dividend. the needs

So …

Michael Perito

talk the and soon. Thank and Excellent. questions guys you taking more well for Okay. be

Jeffrey Ludwig

Mike. Thanks, Yes.

Operator

Terry from with Stephens. comes question next Our McEvoy

line now Your is open.

Terry McEvoy

morning, Good Hi. guys.

Jeffrey Ludwig

morning, Good Terry.

Eric Lemke

Good morning.

Terry McEvoy

to Maybe about. the and rates which got just down, just balance you've interest excess then like CDs with start talked overall. the It sounds low to the Eric opportunity great But margin. liquidity reprice

guess, I margin some what the as for the the takes? about thoughts are you So on core and think quarter your puts second of

Jeffrey Ludwig

at mean mean, I'll shot very fluid. it. I take I still a

we're I A margin, back we on talked have -- we current going part the to guidance as going sort margin part And of start that to current with And call in get of lot last kind XXX to lots -- going June, a year repricing, going we're do pay XXX we since got to could happen. the changed year, to of that was as The we're and help. off to was is margin think be couple trying is think that call still to sub-debt then think we thought to sub-debt range. the in the we margin. first the the to about going to move I that we're of a back of what -- last CDs maintain which still support the quarters the the try was the at right? of the I back to range.

that were, move the there, the and March happened cuts. the a But pulls tried where with lot we hopeful margin guess end of takes I'm we've can think up. I I rate put out to at

costs So -- we we quickly, -- as think well. were moved our deposit but I reducing

guess So, too. I'm help, will we second of quarter. will And hopeful I sort the think as trend it that up loans, yes, I PPP the to move

Terry McEvoy

the cite the of And is mid a request you question, end or in presentation a number? just March -- that that that payment deferral March through is here, April

Jeffrey Ludwig

or mid are But those so. That's of vast majority processed. April XX those get our April, and think think requests processed. will requests I I Yes, expectation is the not

Terry McEvoy

about layer rate think you from of a you trying the just the quarter in run in saves the modeling, the cost in as the mentioned last to some good then of that And specifically to benefits for point question, a first expenses starting the took what's actions presentation? and

Jeffrey Ludwig

Yes.

I think reason, a on of there. number a expenses, lot didn't a didn't we because we for -- there's to guide out uncertainty still guide

to -- be I think the probably or is benchmark first where expenses quarter expenses, number around where as a think give that take will a we are.

Terry McEvoy

Okay. Thanks it. Stay That's healthy. much. so

Jeffrey Ludwig

thanks. Yes,

Operator

Sandler. question Andrew next Our Piper Liesch comes from with

open. now is line Your

Andrew Liesch

Good morning, guys.

Jeffrey Ludwig

Andrew. morning, Good

Andrew Liesch

Hi.

Just loan sale? consumer for curious, loans were GreenSky held loans? what Were the the -- moved that those -- were

Jeffrey Ludwig

Yes, they were.

Andrew Liesch

what And to these? decision really is appetite drove the And to that? I just your what do of guess more sell

Jeffrey Ludwig

I an that opportunity to they’re it a something us. do. million We with to a do. for had relationships not thing held -- working smart They happen, smart thought to GreenSky. liquidity but was will generate were that move we thought we $XXX and able with to sale, it that continue do was building opportunity Yes, thing some an there's to for sure have think to some and other partner I'm

Andrew Liesch

to for provision, March just of timing the part sense adjustment, guys CECL the in forecast? later the outlook on the April, with in those that on using macroeconomic of this based then economic or trying are were a change get and you And forecast, XX variables the Okay.

Eric Lemke

take is that Yes. one. can this Andrew, Eric. I

unless right We We around various those those the economic it out March mean. more. months bit impacted right kind to want evaluated to which in forecasting -- kind the base and -- end, then forecasts. question sort next XX-month we all back for I to around little you March also case of you quarter the portfolios, XX. used use of our a of then answers a our look reversion go of into over think there's XX how forecasts your that So need were And

Andrew Liesch

if like around long at, like lasts? in Well, what the any GDP, that handy. or -- you detail trends unemployment you have If how what you're what have looking rate recession

Eric Lemke

number. that use we fourth and used that Economics those we We the exact We state quarter I we in and kind look our modeling the kind those at mentioned, on recovery portfolio measures with equipment don't of -- so of back GDP. kind factors sort look us both recall Illinois mentioned the a of for had finance snapping of modeling. Economics, Oxford of of of Oxford exception you focused the both that of U-shaped rate through unemployment The of nationally. that you unemployment did our

Andrew Liesch

just the then quarter, do And $X.X be or Okay. thoughts towards the those third? on loans. of in more million sort be in how quickly second realized Any PPP you weighted the will for could fees heavily they the think

Jeffrey Ludwig

question. a That's good

that's question. think of I sort a big

of I think got and we've internally for sort about funds. that to be sort to XX is, it forgiveness, possibly, those of how thinking applying it start will days, will SBA actually XX and then customers the for return weeks another eight then we're

that frame. we those kind funds July back that time receive I we're start to maybe guess August So of and will thinking

Andrew Liesch

helpful. Covered very question. That's my Okay. Thanks.

Operator

from [Operator next with comes Davidson. David Konrad Instructions] Our D.A. question

now Your open. line is

David Konrad

good Hey, morning.

Jeffrey Ludwig

David. Hi,

David Konrad

couple questions on A Hey. morning. the follow-up portfolio. GreenSky Good of

out, Given just demand, loan financing, going commercial in wanted or would for point-of-sale how lot given typically the portfolio. I the short I consumer the loan near-term, and is the for the everything the duration lower guess outlook a -- balances

Jeffrey Ludwig

facts I credit Yes, think portfolio. around I think all I think that see But to are we continue flow. some those

relatively stay think flat. So the I balance is expectation our should that

David Konrad

… then And Okay.

Jeffrey Ludwig

know [multiple don't I speakers].

David Konrad

you There go. yes. Yes,

reserve, effectively acquired was the you if adjusted where ratio reserve marks a and kind would the loans reserve coverage just of to if had that forma pro you the the from curious took stand. I made a ratio loan On

Eric Lemke

I'm -- you you that question sorry, can David again? -- you can Can ask

David Konrad

Yes.

pro the marks loans embedded put acquired ratio, coverage and loan in took took you would With forma like. those was and what reserve, in curious if look the the to the them the marks reserve I

Eric Lemke

us that last then just think we XX our credit marks indicated was basis around I got to basis XXX reserve So points. quarter over points and

And ended from so, initial loans, XX March reserves of up a total in that which sort of that but primarily some marks our with moving about quarter. the through to of reduction charge-offs of the credit ended CECL basis adoption, at XX up CECL, in those in we balance marks in portfolio fact, was all credit points before -- was on the specific reducing those it first

David Konrad

Okay, commercial the great. for Thanks portfolio? from in equipment was the specifically the portfolio, And then I the question much the lease and and last by me. just of for does diversification diversification the differ slide overall sector. on lease that wondering

Jeffrey Ludwig

does no probably estate loans. it. graph real It there's was all That first in because commercial commercial

real just estate. was one second The commercial

think So, differ. it would I

I kind they in. of we've industries some guys more management, are play. think before the -- trucking it that equipment industry key where Manufacturing, play the the finance about talked of transportation and waste construction,

David Konrad

you. Okay, perfect. Thank

Jeffrey Ludwig

Yes.

Operator

back the further this turn no management for I'm time. call showing at questions like would I to remarks. to closing

Jeffrey Ludwig

All And right. talk everybody. thanks will next we quarter. Well,

Operator

Ladies you participating. call. and today's conference Thank this gentlemen, for concludes

disconnect. You now may

Midland States Bancorp (MSBI) 24 Apr 202020 Q1 Earnings call transcript