Midland States Bancorp, Inc.

Good day, and thank you for standing by. Welcome to the Q4 2021 Midland States Bancorp Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during that session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded, and if you require any assistance during the call, please press star 2. I would now like to hand the conference over to your speaker today, Mr. Tony Rossi. Mr. Rossi, the floor is yours.

Thank you, Chris. Good morning, everyone, and thank you for joining us today for the Midland Saints Bancorp Fourth 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've not done so already, please visit the webcast 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 States 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. These 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. With that, I'd like to turn the call over to Jeff. Jeff?

Thanks, Tony. Good morning, everyone. Welcome to the Midland States Earnings Call. I'm going to start on slide three with the highlights of the fourth quarter. We had a very productive quarter that capped an exceptional year for the company that saw us improve our financial performance while also making investments that we believe will enable us to continue improving our performance in the years to come. In 2021, we successfully attracted new talent to the company that enabled us to substantially improved productivity of our commercial banking teams while keeping the overall size of the teams relatively unchanged. We increased our exposure to higher growth markets in Northern Illinois and St. Louis, which has had a positive impact on loan production. We effectively leveraged the technology investments we have made over the past few years to increase efficiencies while continuing to make enhancements to our technology platform that will provide additional benefits in the future. We added new capabilities and increased our opportunities to grow our wealth management business in the future with the acquisition of ATG Trust Company. And we used our strong liquidity to eliminate higher cost funding sources that will benefit our net interest margin going forward. Our success in these areas enabled us to deliver a strong year of balance sheet and earnings growth and increase our tangible book value per share by more than 12%, while returning a significant amount of capital to our shareholders through our quarterly dividend and stock repurchase program. We are very proud of what we were able to accomplish in 2021, and we want to thank the entire Midland organization for their outstanding performance and what was a challenging environment given the continuing impact of the pandemic. Specific to the fourth quarter, we generated net income of $23.1 million, or $1.02 per diluted share. And our core earnings power continues to improve, as our adjusted pre-tax pre-provision income was $36.3 million in the fourth quarter, an increase of 27.8% from the prior quarter. The strong performance was driven by an acceleration of our business development efforts which produced a record quarter of loan production, primarily in our commercial and commercial real estate lending areas. The increased loan production is attributable to a few factors. We are generally seeing a higher level of loan demand as commercial clients gain more confidence in the economic recovery. We are seeing increases, contributions from new bankers we have added over the past year. We are seeing more loan production from higher growth areas in Northern Illinois and St. Louis. We're successfully moving up market and working with larger clients with greater financial needs and are getting the benefit from technology investments such as the Salesforce platform that have provided us with better data and insight to improve our win rate and effectively expand our relationships with clients. The strong loan production resulted in 25% annualized loan growth in the fourth quarter, with the largest growth coming from commercial real estate portfolio, which is an area where we have not seen much growth over the past several years. A portion of the increase in commercial real estate loans is coming from our specialty finance group, which is an area that we've invested in over the past couple of years and are now seeing good results. This group does nationwide bridge lending for FHA and HUD developments and originates loans for multifamily, assisted and senior living, and multi-use properties with retail office and residential components. This group is providing us with increased diversification in our commercial real estate portfolio. We also had strong growth in our core CNI portfolio. Although this is masked by declines in PPP loans, and commercial FHA warehouse lines that are also held in the commercial portfolio. Excluding PPP and commercial FHA warehouse lines, our commercial loan and lease portfolio increased by $112 million from the end of the prior year. This was attributable to continued growth in our equipment finance portfolio as well as increase in conventional commercial loans. Importantly, We are able to fund this loan growth with strong inflows of non-interest-bearing deposits. Our total deposits increased 9% from the end of the prior quarter, with non-interest-bearing deposits increasing 34%, unable enough to continue running off higher-cost deposits and lowering our cost of funds. As we mentioned on our last earnings call, a portion of the increase And non-interest-bearing deposits was due to commercial FHA servicing deposits added through the relationship with the White Capital. But we are also seeing strong inflows of other commercial deposits resulting from the full banking relationships that we are generating through our business development efforts. During the fourth quarter, we continue to execute well on our strategic initiatives and drive improvement in a number of key metrics. Non-interest-bearing deposits now represent nearly 37% of our total deposits, which is up from around 22% at the end of 2019. And the improvement in our deposit base reduced our cost of deposits to just 15 basis points at the end of the year. We also continue to see positive trends in our wealth management business, with assets under administration increasing 3.9% during the fourth quarter. We are successfully scaling the Midland franchise and generating higher levels of revenue while keeping expenses well controlled. As a result, we continue to realize additional operating leverage with our efficiency ratio improving to 52.6% in the fourth quarter compared to 58.8% in the prior quarter. Importantly, we are generating this growth while improving our asset quality. During the fourth quarter, our non-performing loans declined by 22% from the end of the prior quarter, and our coverage of non-performing loans increased to 120%. As we hoped would be the case, we are growing into the significant reserve we built during the pandemic, which has enabled us to keep our provision expense relatively low despite the strong growth we are seeing in the loan portfolio. At this point, I'm going to turn the call over to Eric to provide some additional details around the fourth quarter performance. Eric.