Midland States Bancorp, Inc. Q1 FY2021 earnings call

• Strategic initiatives like branch consolidations, sale of commercial FHA loan origination platform, and technology investment have positioned the company for improved performance. - First quarter net income was $18.5 million ($0.81 per diluted share), the highest quarterly earnings in history. Efficiency ratio improved to 56.9%, return on average shareholders equity exceeded 12%, and return on average tangible common equity exceeded 17%. - Acquired ATG Trust Company with $400 million in assets under management to enhance wealth management. - PPP loans: Originated $79 million, $53 million forgiven in Q1, total PPP loans $212 million, fees $2.1 million in Q1. - Loan deferrals: $219 million, with hotel and assisted living borrowers experiencing deferrals.

Loan Portfolio: Total loans decreased $193 million during the quarter due to pay offs and pay downs, but PPP loan balances increased $27 million. Equipment finance portfolio had $46 million in deferrals, down 8% from the prior quarter. Hotel portfolio had $117 million in deferrals, up from prior quarter. Consumer loan portfolio with GreenSky had under $4 million in deferrals. Deposits: Total deposits increased $240 million (4.7%) from the prior quarter, driven by demand deposits from commercial customers and retail inflows from stimulus payments. Net Interest Income: Decreased 3.1% from prior quarter due to lower accretion and PPP income; excluding accretion, net interest margin was 3.38%. Wealth Management: Assets under administration increased $80 million, leading to a 1.1% revenue increase. Non-Interest Income: $14.8 million, up 3.3% from prior quarter, but down excluding impairments. Non-Interest Expense: $39.1 million, at the low end of projected run rate. Asset Quality: Non-performing loans decreased $1.2 million, but ratio increased to 1.08%; net charge-offs $1.7 million; provision for credit losses $3.6 million.

• Expect continued reduction in loan deferrals as economic conditions improve. - Growing loan pipeline with new bankers in SBA, agribusiness, and specialty finance. - ATG acquisition to close in Q2, increasing fee income. - Plan to redeploy excess liquidity into higher yielding assets as loan growth increases.

• Impact of COVID-19 pandemic on financial performance. - Volatility in commercial FHA warehouse credit lines with potential quarterly swings of $100 million to $200 million. - Uncertainty in loan deferrals and their effect on asset quality.

Q: Terry McEvoy asked about GreenSky growth and commercial FHA warehouse line volatility.

A: Jeff Ludwig responded that GreenSky balance could increase $75 million to $150 million by end of year, and commercial FHA warehouse lines have large swings ( $100 million to $200 million) due to closing cycles.

Q: Michael Perito asked about expense run rate, technology investments, and margins.

A: Jeff Ludwig mentioned target efficiency ratio under 55%, and Eric Lemke confirmed net interest margin excluding PPP was 3.38% with plans to reinvest excess liquidity. Jeff also discussed technology initiatives like online account opening and Zelle integration.

Q: Nathan Race asked about ACL outlook and share repurchases.

A: Eric Lemke talked about charge-offs and ACL outlook, noting 90% of reserve is general. Jeff Ludwig stated share repurchases will resume if stock goes below tangible book value, but currently focused on building capital.