MSBI

• 2022 was a successful year with record earnings, return on assets and tangible equity improved.
• Q4 had strong financial performance despite moderating loan growth; net income included swap gain and charges.
• Loan growth: total loans up 7% annualized, commercial portfolio and Equipment Finance driving growth; community bank in Eastern Illinois and St. Louis had significant loan and deposit growth.
• Net interest: margin down due to deposit cost increase, but average rate on new originations increased.
• Wealth Management: assets under administration up $150 million, revenue slightly increased.
• Non-interest income: included swap gain, and selling commercial mortgage servicing rights portfolio.
• Non-interest expense: up due to non-recurring items; operating expense expected to be $43 - $44 million per quarter.
• Asset quality: generally healthy, non-performing loans up slightly, net charge-offs low, provision for credit losses related to loan growth and economic forecasts.
• 2023 priorities: accelerate exit from GreenSky partnership,推进BaaS platform建设, disciplined expense management, strengthen commercial banking team, invest in wealth management, consider strategic M&A, enhance capital ratios.

• 2023 is challenging due to possible recession; loan growth uncertain but commercial banking team, higher growth markets, and Equipment Finance expected to drive loan growth.
• Expect GreenSky balances to come down $100 - $300 million this year, with commercial and equipment business offsetting the headwind.
• Wealth management revenue growth expected to offset MSR sale impact.
• Goal to keep net interest margin relatively stable.
• Exit from GreenSky partnership to have positive impact on liquidity and capital, cash flow can be invested profitably.
• 2023 focus on adding BaaS partners for deposit gathering.
• Loan deposit ratio near 100%, aim to lower it; open to strategic M&A to improve deposit base and market exposure.

For the full year, Midland States Bancorp generated a return on average assets of 1.31% (up from 1.18% in 2021) and a return on average tangible equity of 20.8% (up from 17.9% in 2021). In the fourth quarter, net income was $29.7 million ($1.30 per share), including a $17.5 million gain on termination of forward starting FHLB interest rate swaps and $6.7 million in charges on commercial mortgage servicing rights and impairment on other real estate owned. Total loans increased at a 7% annualized rate, with most growth in the commercial portfolio; Equipment Finance portfolio surpassed $1.1 billion. Community Bank group had solid loan growth, with Eastern Illinois loan portfolio up 22% and St. Louis up 40% for the full year, and double-digit deposit growth in these markets. Net interest income was down slightly due to a decline in net interest margin (decreased 13 basis points from prior quarter). Assets under administration in Wealth Management increased by $150 million. Non-interest income was $33.8 million in Q4, including the $17.5 million swap gain. Non-interest expense was up due to non-recurring items. Non-performing loans increased slightly, but net charge-offs were 3 basis points of average loans, and provision for credit losses on loans was $3 million.

• Economic recession possibility impacting loan quality.
• Uncertainty in GreenSky partnership exit.
• Uncertainty in BaaS platform partnership推进.
• Interest rate changes impacting net interest margin.
• Deposit cost increase pressure.
• Asset quality deterioration risk.

Q: Good morning. Wanted to check in on the loan growth side.

A: GreenSky balances could come down $100 - $300 million this year, commercial and equipment business will help offset headwind.

Q: Maybe just jumping over to the fee income outlook.

A: Wealth management revenue expected to grow and offset MSR sale impact.

Q: Regarding the outlook for margin.

A: Near-term margin pressure from deposit costs, but stable past this month if Fed rates move as expected, equipment finance portfolio turns over quickly with rate pick up.

Q: Can you give us a little guidance on the loan loss provision outlook.

A: Expect more provision than current quarter but not dramatically more if economy mild recession.

Q: Regarding the BaaS partnerships.

A: Focus on deposit driven partnerships, slow to get first partnership right, targeting deposits with rate involved but at lower margin than Fed funds.

Q: On the loan-to-deposit ratio.

A: Ideally closer to 90%, but banking is cyclical, loans sometimes come in faster than deposits.

Q: On the equipment finance portfolio size.

A: Roughly 17% - 18% of total portfolio, would like to be between 15 - 20% on lower end.

Q: On the net interest income trend.

A: Focus on dollars, GreenSky will provide some pressure but flat move expected, and repricing of fixed rate loans at higher rates will help if Fed slows rates down.