Midland States Bancorp, Inc. Q2 FY2021 earnings call

• Profitability: GAAP net income was $20.1 million ($0.88 per diluted share), adjusted earnings $19.8 million ($0.86 per diluted share), the highest quarterly earnings in company history. Return on equity was 12.6% and return on tangible common equity was 17.9%. - Capital Ratios: Tangible common equity ratio increased 45 basis points to above 7%. - Funding: Eliminated high-cost funding sources (an $85 million FHLB advance and $31 million sub debt), reducing annual interest expense by $3.6 million and NIM by ~10 bps. - Loan Demand: Higher loan demand in equipment finance, commercial real estate, and construction; GreenSky partnership offset residential real estate runoff. - Non-Interest Income: Debit card interchange fees increased due to more cards issued via online account opening; wealth management revenue up from ATG acquisition. - Efficiency: Technology investments driving efficiencies, with expense run rate expected $40-42 million in H2, aiming for $40 million by end of 2021.

Loan Portfolio: Total loans decreased $75 million due to residential real estate runoff, PPP forgiveness, and commercial FHA warehouse line declines, but increased in equipment finance, commercial real estate, and construction. Excluding PPP loans and commercial FHA warehouse lines, total loans increased at an annualized rate of 6%. Wealth Management: Assets under administration increased $517 million primarily from the ATG Trust Company acquisition, with wealth management revenue up 10% due to ATG's one-month contribution, and assets under administration exceeding $4 billion. Non-Interest Income: Increased nearly 18% QoQ, accounting for 26% of total revenue, driven by debit card interchange fees and wealth management revenue.

• Expect strong second half performance with economic improvement, potential loan growth from normalized credit line utilization. - Anticipate benefit from elimination of high-cost funding starting Q3. - Open to small M&A opportunities if strategic and economic rationale exists.

• Impact of COVID-19 pandemic on economic conditions. - Uncertainty in loan portfolio performance, especially hotel/motel loans. - Dependence on economic recovery and interest rate movements.

Q: Clarification on expense guide and growth expectations.

A: Expense run rate is expected to be $40-42 million in the second half, aiming for $40 million by year-end; growth from more productive commercial staff with less net new bankers added.

Q: Credit on hotel/motel properties.

A: Two hotel/motel properties are in good collateral positions with minimal loss potential, while the third has a $1.2 million specific reserve due to collateral value deterioration.

Q: Fee income and card line growth.

A: ATG contributes to wealth management revenue, and card revenue is up due to pent-up demand and online account opening driving debit card issuance and usage.

Q: Margin outlook and deposit details.

A: Margin trough hit, loan pipeline strong; deposits down 2.5% due to commercial FHA servicing book ($100+ million) and retail outflows ($40 million).