MSBI - Earnings call transcript Q1 2021 | Midland States Bancorp, Inc.

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Operator

Good morning ladies and gentlemen, and welcome to the Q1 2021 Midland States Bancorp 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. If anyone should require further assistance during the conference, please press star then zero on your touchtone telephone.

As a reminder, this conference call is being recorded. to conference like host, to now Mr. would turn over the your I Financial Rossi Profiles. Tony of please ahead. you, Thank go

Tony Rossi

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

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

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

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

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

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

Jeff Ludwig

the start going States Midland first quarter. Good on to earnings morning the the Welcome Slide with X of I’m to highlights call. everyone.

improve initiatives we investment position have the couple strategic range acceleration our of the from lot in to implemented of generation. sale to loan consolidations These improved and of years, platform commercial the enhance to the efficiencies revenue have a the origination financial the talked technology performance. FHA to for last branch Over we about company initiatives

from quarter low to Despite in efficiencies Our income diluted optimize a $X.XX resulting we and interest these efforts significant or which growth, of the profitability a million share, highest model. represents environment, $XX.X level of history. rate first increase net enhance generated low business reflects of earnings performance per growing in in our quarterly level our our

targeted. seeing also are in We improvement performance we our that metrics the

Our XX.X%. ratio XX.X% efficiency to from improved

on tangible average average return XX%. in quarter equity exceeded common our Our shareholders XX% return exceeded the equity and on

Notably, return assets value. priorities operating the is of these a X.XX%. public ratios pre-provision of pre-tax, that best company. a adjusted is positively and ratios performance we talked about tangible was respectively earnings X.X% increased last points ratios in prior improved between first were high and value XX increased call, value of of balances. on benefit without from capital quarter. and XX the loan average core The became our performance book to and the end since was capital this our strong we our book impacting of that generated on and our share the Building capital the significant quarter, X.X% All XXXX and Our we our represent per performance one internally our achieve amount our basis financial able for up capital book metrics in resulting all

production inflows have activity low slower we of pay our our strong loan and major reflected During seasonally continued offs the that we we experience typically the portfolios first an and pay across deposits. level the of quarter, cost to downs of quarter; first elevated in saw however, most

this that in look year, while earnings stronger positioning the in to management. last we in yielding at assets. demand While able add-on to our niche were this the business later loan to capitalize internally smaller redeploy this excess in and to higher continues added term, mentioned wealth our near such year liquidity liquidity earning focused also our it we We lines, on the intended would as remain built On call, good we acquisitions will wealth to that of February. the assets with under that find has ATG and up that we believe With provide, Trust development trust we network platform the of million leverage an enhance services will sources the announced new in diversification in our referral $XXX can business broader ATG wealth we of acquisition and which nearly a management, across efforts. we increase Company further of our management management attractive business. opportunity scale improve ATG

our ATG under to effectively utilized our and line to fee this the income the generate from contribute recurring stable leverage better business. wealth have and acquisitions management of in assets platform, that continued to we years, administration the expect we grow Over we growth

$XX PPP X, second line PPP these we to Slide in an update we’ll that have on on various items and efforts million Moving through loans first had in program. originated impact provide our the loans quarter. Through XX, the had March the

During the recognized in in was during the down loans $X.X quarter, This which from amount last million the quarter. forgiven first of quarter, loans first the lower forgiveness. million of loans quarter. million about the quarter than our balances resulted first to lower received PPP of $XX income program at recognized. first in first fee approximately from PPP $XXX end the The prior quarter, total the the million brought of $X.X We fees

$X earned a total As in of half rounds. March fees the than be XX, of we the little first fees recognized, is of less to two still amount through which million had

year. March we $XXX the prior The get increase a up many back XX, part first to Slide was these scheduled loan X% our of the on loan after we in loans. so update expect from total the then the Based provided borrowers the X, the initial occupancy experienced deferrals them during payments had resumed to of came quarter. borrowers payments in on which decline trends, to seasonal help deferrals, during from end Turning hotel occupancy provide through of had an bit deferrals. quarter of second to an modification get under three-month but still current we’ll contractual primarily some who quarter, million soft loan the would we At

had details in were finance during required March the making We deferrals Eric? to some point, partial performance. pay new also on about payment. loans modifications our first of the borrowers quarter should over to received portfolio. result quarter. end industry living new first that in At our to in outs call or since that the additional going lower but the decrease other this XX% at these the some These interest-only a we’ve form quarter, deferrals Eric loan in turn second modifications some offset provide of equipment deferrals At of XX, I’m around some assisted

Eric Lemke

everyone. morning Slide a at on we’ll Thanks our I’m Jeff, starting look X, loan portfolio. and take good and again

Our prior total million loans of end decreased quarter. $XXX the from the

across FHA real period end estate were was than than experienced elevated continued major More This million pay offs borrowers pay attributable that portfolio decline total on due the to the balances from and the our refinancing seeing to of of $XX lower prior line downs most we credit commercial an lines during warehouse mentioned, of in a portfolios run-off residential the we of the quarter. are the ag quarter. end and activity. in level Jeff As our included loans lower utilization third

level as area was first other to update continues portfolio. in as equipment fourth average balances, this our loan higher balances million a in Slide be in generally can an and we’ve program increase offs areas us forgiveness X, the of balances the round. volatility lending our period loans of round in production in the offset in pay PPP the our than quarter. finance some end the than the downs originated provided $XX first the for saw the second there Offsetting of quarter we in increase While On were the pay more in

a $XX million since March of loan X% As the of of decline represents of had XX, quarter. deferrals, end last the which we

to form to to of as continue now recreational status. and borrowers others our a payments an partial XX, continue loan a of starting overview payment. is transportation this borrowers in steady on deferrals of the remain deferral as our a which On the Seventy-eight percent some March of loan more Slide had to mentioned partial portfolio end trends up borrowers return million portfolio. industry we’ve number ground provided to We’ve as scheduled X, hotel making portfolio, We business the are see improve. in Jeff the payment. well in as prior a to modified At deferral make of this and seen of travel on borrowers return recovery as we that of transit in had the quarter from $XXX

other in payment. form XX% approximately of March making of As we interest-only some our this loans portfolio XX, or deferred had of

about through Looking had that deferred an loan at this stayed point has the our XX GreenSky. relationship loans well represents at March The in X% in XX of just portfolio We the with million few consumer delinquency to rate the the of range. on which perform portfolio over provided have XX, X, loans. continues Slide portfolio and under in we’ve total quarters half the to basis update $X past we

any escrow the deficiency the $XX The million to just first cover principal at the end available escrow is account performance, quarter. stood strong of account in the to at Midland’s addition In over balances.

the the total relatively flat in Our during balances GreenSky remained portfolio first quarter.

portfolio we the during half liquidity, the this Given our current last may year. grow of

as we’ll XX, $XXX look an payments. round a prior commercial deposits. largely from take growth increased to demand the deposits million attributable at Slide our as from latest well was quarter. deposits X.X% inflows Turning or in The to the resulting of from Total stimulus customers deposit retail increase

Looking second re-price cost additional deposits. higher quarter, opportunities have ahead we to to time the will

$XXX rate million of have a at X.XX%. average of maturing CDs weighted We

should we positive costs. deposits renew current these impact at deposit As a our rates, see on

XX, net walk and the trends Looking interest we’ll margin. at income through in our Slide

due income lower Our accretion decreased prior to net X.X% interest quarter income. lower PPP the income from and

average the unchanged income, accretion the a securities. as decline a prior interest reduction funds offset on shift were favorable from was loans margin in and by of in a our quarter earning mix net the both and of in assets yield our cost average Excluding

PPP for our continued excluding reduce portion as margin liquidity FHLB the impact excess our of interest of funding. balances advances used our to look on was we income X.XX%. to net to wholesale of a reliance the Our We quarter reduce

in investment PPP our liquidity portfolio. portfolio to In but plenty the be than the Our focus term, margin. income a add FHLB the to of quarter. near plan support forgiveness our prior additional have as of yielding of will during remaining some the of second bit should means future, loan to excluding borrowings to growth to net giving the $XXX that increases the even redeploy lower if we generate million assets still quarter the interest higher We interest up were of into impact end at income,

Slide higher increase to we’ll administration the an in prior We resulted our Turning impairment in being trends had the administration, rights under look million $XX.X non-interest impairments a up income. in impairment primarily due X.X% management quarter. non-interest prior mortgage we’ll in business. lower recorded Slide quarter. $X prior our commercial On had in income both from assets in quarter. the first $XX at than wealth at quarters, quarter performance. XX, the under the We increase a look about servicing to the million million in We to XX, in in quarter, the compared X.X% on the first with take assets revenue our The market

mortgage to income lower down prior impairments, on due revenue primarily these and banking was service accounts. our Excluding residential from non-interest levels charges of the deposit quarter

the our banking held level which we business production for production prior saw fairly of decline quarter. residential the steady with quarter, the accounted first While lower the purchase in in in mortgage revenue refinancing a

including we we amount we’ll that Slide projected low quarter review quarter. expenses in expense XXXX, This XX, in $XX.X of the network and even first the reflects our the our the we full start in from end our benefit of run small expense. million, expense consolidations in to and rate made integration corporate acquisition to incurred a Turning at non-interest the non-interest At came we the the decline of first significant branch facilities. had represents levels XXXX and

reminder, last time accrual to due an COVID-XX we a benefits of As expense also for one-time that recorded impacted rollover our quarter. vacation and salaries

of invest the expense the continuing initiatives, future. our foreseeable believe While $XX operating range for that to in million maintain quarterly can we technology to in million our $XX we

to at asset Turning trends. quality look XX, we’ll Slide

quarter losses prior our non-performing the some $X.X to from as problem decreased longer the Our loans loans continued resolve term of million being any incurred. without end material we of additional

increased of with in However, X.XX%. total loans, the points loans loans to to total the decline two our ratio basis non-performing

to the basis provision to of in generally points recorded driven prior primarily the broad for of be in components to credit XX, the the stable March quarter. a we show was loans. the reserves. were continued specific charge-offs million, general portfolio $X.X by very manageable our average or to ACL XX% XX for end Our and as net approximately million, which losses $X.X was trends quarter. saw of were We just reserves from of allowance we XX, positive the On credit change losses the of during allocated At the Slide additions

reserves build Our of basis end some contributor quarter. points offset $X.X quarter specific total this to which ACL the reserve to broken ACL strengthened loan increase at reserve in the million driven reserve our XXX of resulting provision and ACL Slide from points increased quarter the commercial loans improvement was was XXX our out an real in The from to show model. XX, prior coverage basis additions biggest our On by portfolios. release an we estate The forecasts our this primarily on portfolio. by utilized in economic

We industries. impact continue and segments, assisted of other these including and our COVID-XX certain in to ongoing the loan in add hotels, portfolios deferrals portfolio ongoing due to to living, reserves

call are lines. quarter. with X.XX% over and X.XX% loans, warehouse turn loans the addition prior guarantees, GreenSky our also compared excluding these the commercial government coverage Jeff. the When that, when to of increased In end loans, I the our Jeff? to portfolios track will ratio portfolio, or at PPP FHA coverage the With we to to ACL credit the total including enhancements loan excluded, to ACL certain back

Jeff Ludwig

up comments on wrap a Slide Thanks outlook. our We’ll XX Eric. on with few

We’re very on start pleased targeted. to and the with our we delivering year profitability higher that

loan believe continue still we much mind, we borrowers financial is lead months coverage in will the first growing finance improving ACL pandemic signs pandemic conditions summer very of their improve and stable. loan areas we new improving reduction performance. that our pipeline. ratio to to pipeline, spring very by the seeing of their is remain the move impacted the steadily should and and agribusiness, few relatively and have our in are and through in in this to most We top were economic of as SBA, are productive increases and continued While economic deferrals the specialty added been we the The the conditions are reflected seeing in bankers contributing

as in expect year. the continuation strong half pipeline to further revenue further fee us improvement second to The for be the continued growth growing we the loan acquisitive in as the ratios, deliver result the a With of improvement more favorable loan quarter the loan will and our Operator, in should growth will progress additional help more generate into you redeploy our through acquisition the that With to environment second that, generating move income ATG to growth, to call. and higher questions growth operating increase liquidity performance answer our future. and able our in organic enter which we loan happy in of optimistic provide are stronger We growth, on assets, leverage, profitability. the our increase close please have. we year. will excess any production financial capital yielding stronger might and this over track we will in The our level support drive we’ll make open our of better is a strengthening further additional be and

Operator

instructions] question from comes Terry Stephens. [Operator first from McEvoy Our

Terry McEvoy

everyone. Hey, good morning

Jeff Ludwig

Good morning.

Terry McEvoy

and XX.X% and I you’re year GreenSky, the questions. just Of correctly, heard to thinking leasing, the of that level that of it’s increasing it if if looking you’re the GreenSky, that’s GreenSky, concentration two - this like from area case, concentration grow your business guess sounds is I on to to comfort? about an guess I or standpoint, degree? is a what kind leasing your

Jeff Ludwig

so first not of I’ll year, it the move sort so buying the the as quarter, start which companies up starts end had pretty the expect expect little and Midland towards as year. a of grow slower are the those the is typically we the bit finance balances robust with a equipment equipment through we a of Yes, quarter, and to business fourth quarter first to we We Usually in slower that of business. pick balance unusual. is little

that going production of as level, just targeting rate’s portfolio obviously as point, the the then think we same keep be we to we’re of the We’re we the bank bigger the to think to a so but your to--we at and gets--as sort the portfolio grow can grow some maintain, continue grow we concentration relatively about do level going some portfolio. we we still that sort last did which same rest year, continue need point slow, to the to growth and to balance to need targets have balance able at gets we to of some production

relates I’ll to to continues PPP, the from balance balance all to--because yes, that going As forgiven, going to maybe the that sheet on going through at we $XX but remaining say that’s so provide about GreenSky, we coming million of increase it balance, we’re how to million liquidity, move the get year. liquidity of as the of and more are it even for think we sort as to anywhere once $XXX not the of year, the part is is

Terry McEvoy

commercial follow-up you forward, to as quarterly those going to a swings volatility is just forward? expectations FHA frame the credit could large be, could live maybe warehouse to going about and just that with we’re Then have going how in talk lines, question, just something just

Jeff Ludwig

of the at on to on large or swings million their swings but of we end see depending that, swings warehouse the Yes, so are not are million $XXX million have average There out million will quarter during and to they’re much as $XXX those closing an so in drawn depending in it range, could in probably $XXX where expect of we down be and not. that yes, swing probably. each $XXX sort will and We’ve point fairly and averages quarter. could commitments got $XXX whether to go million, spot average balances, around lines the the in be cycles, at those balance up those view

Terry McEvoy

Great, Jeff. thanks

Operator

Michael question next comes from Your from Perito KBW.

Jeff Ludwig

are there? you Mike,

Michael Perito

I am. me? Can hear guys you

Jeff Ludwig

Yes.

Michael Perito

you morning, guys? All right, sorry about are that. how Good

Jeff Ludwig

We’re good.

Michael Perito

expense had I guys on Good. ratio I of question I is some Jeff, pressure near you the Two the some guess more half you what to for meaningful versus million, changed heard out the amount of part if run the wondering over you you’d correctly here, or rate, mindful any where so. kind investments to of wanted if the with that this type business on you as technology of guys I are has factored are decent start evolution just $XX million particularly a that last a provide that so mix businesses side, business pull thoughts $XX on guess. just term One, your digital efficiency guys structurally I mix and bit secondly, that. year of new should of. had be I was was you guys the a about into rate. kind being wondering put run anything maybe of Then and that detail we here targeting historical, if little upward could

Jeff Ludwig

XX% we’re to of right think and we’re our about was and under I the get couple get get good in it’s ratio. said sort at. years meetings, some under under feel so moving on efficiency A direction, we now target, to Yes, ago, track in I’ve it pretty is probably and to XX%, where XX%, internal so this

our rates made, decelerating is of today rate investment run that’s so The we the for I As it to know, we’ve in quarters been I accelerating that there’s we’ve to that now many have of later. investments sort increase rates, we’re are people, run do necessarily part technology are our that technology, in investment are don’t our not, you some in making expenses. see relates sort of making been to to nor in going technology decrease go so away investments and expenses, today. run in big our it that see A our making

Michael Perito

in you that you’d in Then you you’re or guys just, critical? upgrading terms as highlight out rolling Helpful, particularly of know, excited anything on okay. here near that the or working about, term are or

Jeff Ludwig

account the retail Yes, both so rolled the side side. opening, business out we’ve online and on

seeing good there. activity We’re

happening I on of think by--you good of so enhancement the we’re the last our We the you can on buy online, end and the journey. and accessible openings all all a mobile know, loans and of our in think to PXP side, the here which way, quarter probably hope really seeing have, it’s about encouraging. deposit--you customer that’s sort days, the that’s a app, XX marketing our of retail will, we Zelle by same big about second introduced online third plan is if journey then marketing marketing new so payment processing, we sort online, of all and products auto account the

So of website. know, about we’re done year. marketing back work these place, it traffic yes, how of drive pretty a I a to becomes getting part the in do then We’ve and--you pieces think and you your lot the excited

Michael Perito

reported? correctly the basis forgiveness, X excluding that on was margins, did X.XX from hear it you Great, X.XX versus I points PPP Then the impacts Eric, okay. just guess, I

Eric Lemke

Correct, yes.

Michael Perito

up at of X.XX, any guys re-pricing fourth and the over movement some quarters? PPP kind was adding successful accounting guys Okay. positive the few If that the I it I are able over accretion [indiscernible] you of and you some for balances the and PPP, GreenSky next liquidity, should here, there of here modestly NIM the volatility puts be which an quarter. to--are to adjusted basis if some liability in that think on think Is look the fair about purchase adjusted between

Eric Lemke

Towards Mike. half the the year, of back

the given first We’re little quarter conservatively we quarter. the looking next experienced at a decreases in this in loans that

liquidity our loan that time securities to we But on we GreenSky through plans had will are to balances Our it get back. those few that are quarter pipelines so excess purchases end a a us down reinvest take toward good, other upside and a at working in little but things the back quarter we a the it up see then couple the year. back with NIM second basis points of build but out flat, come half points and maybe there, keep basis may couple of

Michael Perito

comes just piece, Helpful. for more on easy, a call have - growth want and portfolio, the not is that through, GreenSky appetite don’t but as the to that’s--I fairly dates just more clarification Then correct? guys, basically where closing necessarily little you that to it more It’s right? could be volume down? un-predictive mechanism a pin pay a maybe straightforward commercial indicate bit you as the the or hard offs that’s You

Eric Lemke

still activity I’d overall we them raising and with Mike, of with credit that. talking so little our those a it’s don’t plan to at just and about activity pretty our more accepting matter change look levels. metrics of in what GreenSky of Yes agree kind just bit a and has like, good us all,

Michael Perito

Great.

Eric Lemke

at And Jeff won’t all once. do as mentioned, that we

Michael Perito

sense. guys it. for Thank No, appreciate I taking makes you my questions.

Jeff Ludwig

thanks. Yes,

Operator

Once again, to by a like would if on the keypad. your followed you one star is number question, that ask telephone

question has press yourself to the or you please key. queue, answered pound If wish from remove your been

comes Race Nathan Sandler. from question Your Piper from next

Nathan Race

quarter it’s charge-offs. to can know that what of expect the pinpoint was to difficult we in to guys some you to I’d pieces match in if stable slide, ACL dive a into--on of for to of morning. into any terms love guys, a the of kind CECL charge-off provisioning outlook. underlying under or the that, over two. ACL of Hi I dive are Within the and kind behind good provisioning get Was framework, but terms quarter an update seeing just hoping given just relatively hoping expectations in activity, next outlook

Eric Lemke

morning. points. quarter Yes know, XX question. you Nate, pretty in - the activity had $X.X We Good good charge-off basis million, good first

where charge-offs As But our half call, the continue see non-performing to at expect I that’s a the reserves, I our do can forecasts that last at, a improve, mentioned did and think to right and we the think have some as look expectation. where we position of move loan kind ACL now for the added roughly of and provide as I specific charge-offs year. into we in in we some so towards of and we’re economic be to we’ll my relationship

reasons because elevated of those see industries, we added was I occur. added commercial think to to couple ACL we of in and CRE, think why to levels so one of those depending as that’d the we’ll deferrals our this for we the estate continued be particular loan sort our come quarter real circumstances going is, ACL I and buckets. reserves on that they as it But keep other provide of where forward, they some

Nathan Race

that’s Eric. Thanks it, Got helpful.

following to of over digit a characterization? Is growth like a of need or Just may the that kind build up we’re on unallocated on XX% mid-single that sounds course the this it fair of you general that, with that expecting year. basis, guys reserve for not necessarily to provide

Eric Lemke

be. type that up, those industries depends Nate. of could be mix, and loans it end well think could of likely, on It what types what Yes, of I where some but very

Jeff Ludwig

very because we significant of lot of around have enhancements add percentages that not with are so we our GreenSky, all credit the growth as reserve come there provisioning. Yes, a GreenSky, doesn’t

Nathan Race

kind Got just this sense. year know capital just it, I like makes and more if remaining this additional about appetite one It appetite terms for priorities buybacks is authorization buybacks. being updated share ask appetite of Then and continue just the the color looks several would had could stock’s some build a I for for to low, your Obviously over on so towards additional the the additional get point. of fairly of is levels, to one to the on major the repurchases. love the with great authorization weeks, remaining last run in thinking so depleted curious at just

Jeff Ludwig

buy below quarter’s that go on did to then did back our see we point, and this stopped. tangible point February if continue I goes was book our this hope couple and tangible last our on at and run, and doesn’t say first we ever Yes, happen value, back, back days we’ll share think of I I probably its below don’t nice the clear it buy that pretty stock call I’ll I would that At book we through value, but the stock it.

I putting think ratios after dividend into focused now the capital on the our on of we’re capital. on earnings clearly all and we’re building and buybacks sidelines

Nathan Race

Okay, great.

I good. guys. all the Thank color. Sounds you appreciate

Jeff Ludwig

Thanks.

Operator

time. am to closing I management showing no this back the turn conference to for like further remarks. now I questions at any would

Jeff Ludwig

and it Thanks. next to today. a record and Everybody quarter, we for have good quarter. We forward talking Thanks quarter was everybody a good joining had a look to day.

Operator

Ladies concludes your conference. wonderful today’s and and this have a you for gentlemen, Thank day. participation,

all may You disconnect.

Midland States Bancorp (MSBI) 23 Apr 212021 Q1 Earnings call transcript