MSBI — Midland States Bancorp, Inc.

Summary of Midland States Bancorp (MSBI) Q4 2022 Earnings Call

1. Key Financial Results and Metrics

• Net Income: $29.7 million, or $1.30 per share, including a $17.5 million gain from interest rate swaps and $6.7 million in impairment charges.
• Core Earnings: Adjusted pre-tax pre-provision earnings of $33.2 million.
• Return on Average Assets: 1.31%, up from 1.18% in 2021.
• Return on Average Tangible Equity: 20.8%, up from 17.9% in 2021.
• Total Loans: Increased by $108 million from the previous quarter, with a 7% annualized growth rate, primarily in commercial loans.
• Deposits: Slight decrease due to declines in non-interest bearing and savings deposits.
• Net Interest Margin: Decreased by 13 basis points from the prior quarter, impacted by rising deposit costs.

2. Strategic Updates and Business Highlights

• Continued focus on profitable growth and operational leverage while maintaining strong credit quality.
• Significant growth in the Equipment Finance business, surpassing $1.1 billion.
• Positive contributions from Eastern Illinois and St. Louis markets, with loan growth of 22% and 40%, respectively.
• Plans to exit the GreenSky partnership by October 2023, expected to improve liquidity and capital.
• Development of a Banking-as-a-Service (BaaS) platform aimed at enhancing deposit gathering.

3. Forward Guidance and Outlook

• Anticipates a challenging economic environment in 2023, with cautious loan growth expectations.
• Plans to maintain a conservative approach to new loan production until economic conditions improve.
• Expects to keep operating expenses in the range of $43 million to $44 million per quarter.
• Aiming for stable net interest margins, contingent on the Federal Reserve's interest rate actions.

4. Bad News, Challenges, or Points of Concern

• Slight increase in non-performing loans, primarily due to one commercial real estate loan, though overall asset quality remains strong.
• Declining net interest income and margin due to rising deposit costs, which could pressure profitability.
• Uncertainty regarding loan growth due to potential economic downturns and the impact of exiting the GreenSky partnership.
• The company has indicated that the loan-to-deposit ratio is currently high (99%), which they would prefer to reduce.

5. Notable Q&A Insights

• Management indicated that the GreenSky balances could decrease by $100 million to $300 million in 2023, affecting overall loan growth.
• Fee income is expected to grow, particularly from wealth management, which could offset losses from the MSR sale.
• The provision for credit losses is expected to be slightly higher than the current quarter but not dramatically so, depending on economic conditions.
• Management is focused on maintaining a disciplined approach to expense management while leveraging investments in technology and banking talent.

Overall, Midland States Bancorp reported a strong financial performance for Q4 2022, with record earnings and solid loan growth, while also preparing for potential economic challenges ahead.