Midland States Bancorp(US:MSBI)2021-07-23 18:10Financial Data and Key Metrics Changes - The company generated net income of $20.1 million or $0.88 per diluted share, with adjusted earnings of $19.8 million or $0.86 per diluted share, marking the highest quarterly earnings in the company's history [8][10] - Return on equity was reported at 12.6% and return on tangible common equity at 17.9%, both higher than the previous quarter and above historical levels [10] - Tangible common equity ratio increased by 45 basis points, now above 7% [11] Business Line Data and Key Metrics Changes - Total loans increased at an annualized rate of 6%, excluding PPP loans and commercial FHA warehouse lines of credit [13] - Non-interest income rose nearly 18% over the prior quarter, accounting for 26% of total revenue, driven by increased debit card issuance and economic activity [14] - Wealth management revenue increased by 10% due to the acquisition of ATG Trust Company, bringing total wealth management revenues to $6.5 million for the quarter [16] Market Data and Key Metrics Changes - Total deposits decreased by $144 million, or 2.7%, primarily due to a decline in commercial FHA servicing deposits and retail deposit outflows [29] - The company reported a 51% decrease in total loan deferrals, with only $107 million remaining at June 30, representing 2.2% of total loans [19] Company Strategy and Development Direction - The company aims to strengthen capital ratios and improve profitability through strategic initiatives focused on higher return businesses and efficiency improvements [7][10] - There is an intention to evaluate small M&A opportunities as the company has made significant internal progress and is now open to transactions that enhance shareholder value [58][60] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about economic conditions improving, leading to reduced problem loans and increased loan demand [50] - The company anticipates a favorable shift in the mix of earning assets and further increases in profitability due to higher loan growth [50] Other Important Information - The company eliminated higher-cost funding sources, which will reduce annual interest expense by $3.6 million and positively impact net interest margin by approximately 10 basis points [11][12] - Non-performing loans increased by $8.6 million, primarily due to three loans from the hotel/motel portfolio, but the overall non-performing assets only increased slightly due to the sale of OREO properties [42][45] Q&A Session Summary Question: Clarification on expense guidance - Management confirmed that expenses for the third quarter could be between $41 million and $42 million, with expectations to be closer to $40 million by year-end [65][66] Question: Credit exposure on hotel/motel properties - Management indicated confidence in two of the three hotel loans, with a specific reserve of $1.2 million set aside for the third loan, which has a balance of approximately $5 million to $6 million [68][71] Question: Loan growth and consumer lending appetite - Management noted that while consumer lending is expected to contribute similarly to the second quarter, the normalization of commercial FHA lines is uncertain [72][73] Question: Fee income expectations with ATG acquisition - Management expects an additional $200,000 in related revenue in the wealth line for the back half of the year due to the ATG acquisition [81] Question: Charge-off details - Management explained that a charge-off was taken on an acquired loan due to potential fraud, and they believe they have accounted for the losses appropriately [85]