Midland States Bancorp, Inc.

Good morning, ladies and gentlemen, and welcome to the Q1 2021 Midland States Bank Corp Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require further assistance during the conference, please press star then zero on your touchtone telephone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Tony Rossi of Financial Profile. Thank you. Please go ahead.

Thank you, Stacey. Good morning, everyone, and thank you for joining us today for the Midland States Bancorp First Quarter 2021 Earnings Call. Joining us from Midland's management team are Jeff Ludwig, President and Chief Executive Officer, and Eric Lemke, Chief Financial Officer. We will be using a slide presentation as part of our discussion this morning. If you have not done so already, please visit the webcasts and presentations page of Midland's Investor Relations website to download a copy of the presentation. Before we begin, I'd like to remind you that this conference call contains forward-looking statements with respect to the future performance and financial condition of Midland Saints Bancorp that involve risks and uncertainties, including those related to the impact of the COVID-19 pandemic. Various factors could cause actual results to be materially different from any future results expressed or implied by such forward-looking statements. The factors are discussed in the company's SEC filings, which are available on the company's website. The company disclaims any obligation to update any forward-looking statements made during the call. Additionally, management may refer to non-GAAP measures, which are intended to supplement but not substitute, for the most directly comparable GAAP measures. The press release available on the website contains the financial and other quantitative information to be discussed today, as well as the reconciliation of the GAAP to non-GAAP measures. And with that, I'd like to turn the call over to Jeff.

Jeff? Good morning, everyone. Welcome to the Midland States Earnings Call. I'm going to start on slide three with the highlights of the first quarter. Over the last couple of years, we have talked a lot about the strategic initiatives we have implemented to position the company for improved financial performance. These initiatives range from branch consolidations to the sale of the commercial FHA loan origination platform to the acceleration of our investment in technology to improve efficiencies and enhance revenue generation. Our first quarter performance reflects a significant increase in our level of profitability resulting from these efforts to enhance efficiencies and optimize our business model. Despite growing in a low-growth, low-interest rate environment, we generated net income of $18.5 million, or $0.81 per diluted share, which represents the highest level of quarterly earnings in our history. We are also seeing the improvement in our performance metrics that we targeted. Our efficiency ratio improved to 56.9% from 58.6%. Our return on average shareholders' equity exceeded 12% in the quarter, and our return on average tangible common equity exceeded 17%. And our adjusted pre-tax, pre-provision return on average assets was 1.75%. All these metrics represent our best core operating performance since we became a public company. The strong performance is resulting in a significant amount of internally generated capital and that is positively impacting our capital ratios and our book value. Building up our capital ratios was one of the priorities for 2021 that we talked about on our last earnings call and in the first quarter, all of our capital ratios increased between 21 and 49 basis points. And our book value and tangible book value per share increased 2.2% and 3.5% respectively from the end of the prior quarter. Notably, we were able to achieve this improved financial performance without the benefit of high loan balances. During the first quarter, we saw an elevated level of payoffs and paydowns across most of our major portfolios, and our loan production reflected the seasonally slower activity that we typically experience in the first quarter. However, we continue to have strong inflows of low-cost deposits. While this added to our excess liquidity in the near term, it continues to improve our positioning to capitalize on stronger loan demand later in the year and redeploy this liquidity into higher-yielding earning assets. On our last earnings call, we also mentioned that while we intended to remain internally focused this year, we would look on smaller add-on acquisitions and niche business lines such as wealth management. We are able to find an attractive opportunity with the acquisition of ATG Trust Company that we announced in February. With nearly $400 million in assets under management, ATG will further increase the scale and diversification of our wealth management business. ATG has built up a good network of referral sources that we can leverage across the broader platform of wealth management and trust services that we provide. which we believe will enhance our new business development efforts. Over the years, we have effectively utilized acquisitions to grow our assets under administration and better leverage our wealth management platform, and we expect ATG to contribute to the continued growth in the stable, reoccurring fee income that we generate from this line of business. Moving to slide four, we'll provide an update on our PPP efforts and the impact that these loans have had on various line items in the first quarter. Through March 31st, we had originated $79 million in loans through the second PPP program. During the first quarter, approximately $53 million of the loans from the first program received forgiveness. This brought our total balances of PPP loans to about $212 million at the end of the first quarter. The amount of loans forgiven in the first quarter was lower than the prior quarter which resulted in lower PPP fee income recognized. We recognized $2.1 million in fees during the first quarter, down from $3.1 million last quarter. As of March 31st, we still had $6 million in fees to be recognized, which is a little less than half of the total amount of fees earned through the first two rounds. Turning to slide five, we'll provide an update on the loan deferrals. At March 31st, we had $219 million in loan deferrals, which was up a bit from the end of the prior quarter, but still under 5% of our total loans. The increase primarily came from hotel borrowers who had resumed contractual payments after an initial loan modification, then experienced some seasonal decline in occupancy during the first quarter. So we provided three-month deferrals to help them get through the soft part of the year. Based on current occupancy trends, we would expect many of these borrowers to get back to scheduled payments during the second quarter. We also had some new borrowers in the assisted living industry that required modifications during the first quarter, but we've since received some payoffs on these loans that should result in lower deferrals at the end of the second quarter. These new modifications offset a decrease in deferrals in our equipment finance portfolio. At March 31st, about 40% of loan deferrals were making interest-only or some other form of partial payment. At this point, I'm going to turn the call over to Eric to provide some additional details around our first quarter performance. Eric.