Midland States Bancorp(US:MSBI)2021-01-29 18:05Financial Data and Key Metrics Changes - The company reported adjusted earnings of $12.5 million, or $0.54 per share, which included a $3.2 million impairment of commercial mortgage servicing rights [9] - Adjusted pretax, pre-provision income was $28.9 million, reflecting a return on average assets of 1.69% [10] - Total loans increased at an annualized rate of 13.2% during the quarter, driven by strong performance in the equipment finance group and increased utilization of warehouse lines [14] - Total deposits increased at an annualized rate of 5.6%, largely due to growth in core deposits, resulting in a further reduction of the cost of deposits [16] Business Line Data and Key Metrics Changes - The total loan portfolio increased by $162 million, or 3.3% from the previous quarter, with a notable increase in warehouse lines of credit to commercial FHA originators [27] - The equipment finance portfolio saw a $46 million increase, driven by strong demand in construction and manufacturing [29] - The commercial real estate loans increased by $29 million, marking growth for the first time in a while [15] Market Data and Key Metrics Changes - The company experienced a decline in loan deferrals by 25% from the previous quarter, with total loan deferrals now representing about 4% of total loans [25] - The hotel/motel sector remained the largest contributor to loan deferrals, while assisted living facilities showed significant improvement [26] Company Strategy and Development Direction - The company aims to maintain strong capital and liquidity to support clients and communities during the pandemic [53] - There is a focus on increasing loan production in traditional community and commercial banking areas, with expectations for growth in equipment finance and commercial FHA warehouse lines [55] - The company plans to invest in technology to enhance operations and improve revenue generation, shifting spending towards capturing more wallet share from existing clients [59] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the progress made in restructuring operations over the past two years, leading to a more efficient and profitable institution [63] - There is still uncertainty regarding the timing of a stronger economic recovery, but the company is building reserve coverage to mitigate risks [21] - The company expects to see higher net interest income and improved profitability due to a lower cost structure and targeted loan growth [56] Other Important Information - The company recorded a one-time charge of $4.9 million due to FHLB prepayments, which is expected to be earned back in approximately three years [12] - The net interest margin for the quarter, excluding the impact of PPP income, was 3.36% [40] Q&A Session Summary Question: Can you elaborate on the new commercial banking verticals being expanded into? - Management indicated that they are focusing on regional SBA 7(a) business and agribusiness lending, with dedicated sales personnel being added to these lines [71] Question: How do you see the loan mix shifting over the next 12 to 24 months? - The company plans to hold the consumer portfolio flat while increasing commercial real estate and equipment finance loans, which are expected to drive growth [74] Question: What is the appetite for wealth management acquisitions? - Management is looking for smaller add-on acquisitions that could add 10% to 15% to the business, focusing on good pricing and regional opportunities [75] Question: What are the expectations for the provision entering 2021? - Management believes they have reached peak ACL build, with future provisions primarily driven by loan growth and replenishing for charge-offs [93] Question: How should we think about charge-off expectations? - Charge-offs are expected to be between 40 and 50 basis points of total loans, with the potential for some increases as the year progresses [94]