Midland States Bancorp, Inc. Q3 FY2022 earnings call

• Loan Growth: Executed well with strong loan growth despite higher rates, commercial and commercial real estate portfolios grew, equipment finance portfolio reached $1B. - Deposits: Focus on deposit gathering, noninterest-bearing deposits increased. - Net Interest Margin: Impacted by cost of deposits, but average loan yields increased. - Wealth Management: Assets under administration down but revenue consistent. - Noninterest Income: Increase due to reduced impairment from commercial MSR sale. - Noninterest Expense: Up due to salaries, loan/deposit activity, and branch acquisition. - Asset Quality: Positive trends in nonperforming loans, low delinquency in consumer portfolio. - Banking-as-a-Service: Added Director of Banking-as-a-Service, expected to impact deposits and fees in 2023.

Loans: Total loans increased with an annualized loan growth rate of 28%, with commercial and commercial real estate portfolios showing strong growth. The equipment finance portfolio surpassed $1 billion in Q3. The consumer portfolio saw growth from fintech partnerships but expects runoff of ~$50 million in the next 3 months. Deposits: Total deposits increased by $211 million, with noninterest-bearing deposits accounting for 31.7% of total deposits, up from 29.9% last year. Net Interest Income and Margin: Net interest income increased 4.4% from prior quarter, but net interest margin decreased 2 basis points due to higher cost of deposits. Wealth Management: Assets under administration decreased by $153 million from prior quarter due to market performance, but wealth management revenue was consistent. Noninterest Income: Noninterest income was $15.8 million, up 8.3% from prior quarter, driven by reduction in impairment from commercial mortgage servicing rights. Noninterest Expense: Noninterest expense increased due to higher salaries/benefits, loan/deposit activity, and full quarter impact of branch acquisition. Asset Quality: Nonperforming loans decreased $10 million, net charge-offs were 21 basis points of average loans, and provision for credit losses was $7 million.

• Loan Growth: Expect moderate loan growth in Q4, pipeline still strong but smaller than earlier in year. - Margin: Uncertainty around margin due to mix of loan growth and deposit costs. - Banking-as-a-Service: Expected to impact deposits and fees in 2023.

• Deposit Movement: Potential loss of deposits from commercial MSR sale. - Economic Uncertainty: Impact on loan growth and provisioning. - Rate Sensitivity: Impact on margin from interest rate changes.

Q: Terry McEvoy asks about commercial mortgage servicing rights deposit retention and margin outlook.

A: Eric Lemke says deposits from commercial MSR portfolio may move to another institution; Jeffrey Ludwig says loan growth and deposit gathering mix could impact margin.

Q: Nathan Race asks about deposit beta and margin outlook.

A: Jeffrey Ludwig discusses deposit beta and margin being uncertain due to rate changes.

Q: Damon DelMonte asks about consumer portfolio runoff and provision expectations.

A: Eric Lemke talks about consumer portfolio runoff and Eric and Jeffrey discuss provision expectations tied to economy.

Q: Manuel Navas asks about wholesale borrowings and funding capacity.

A: Eric Lemke and Jeffrey Ludwig discuss FHLB borrowings and funding capacity.

Q: Nathan Race asks about income outlook and fee income.

A: Eric Lemke talks about wealth management revenue and fee income trends