Midland States Bancorp, Inc.

Good day and thank you for standing by. Welcome to the Q3 2022 Midland States Bank Corp 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 the session, you will need to press star 11 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Tony Rossi of Financial Profiles. Please go ahead.

Thank you, Michelle. Good morning, everyone, and thank you for joining us today for the Midland States Bancorp Third Quarter 2022 Earnings Call. Joining us from Midland's management team are Jeff Ludwig, President and Chief Executive Officer, and Eric Lemke, Chief Financial Officer. We'll 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. 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. And with that, I'd like to turn the call over to Jeff. Jeff?

Thanks, Tony. Good morning, everyone, and welcome to the Midland States Earnings Call. I'm going to start on slide three with the highlights of the third quarter. We continued to execute well and capitalize on the loan demand that we continue to see in our markets, resulting in further improvement in our financial performance. We generated net income of $23.5 million, or $1.04 per share. up from 97 cents in the prior quarter, while our pre-tax pre-provision earnings increased to $36.4 million. Most importantly, we generated profitable growth, which is positively impacting our level of returns as our return on assets and return on average tangible common equity both increased from the prior quarter. Although we expected to see a lower level of loan growth in the third quarter as higher rates impacted loan demand, The productivity of the commercial banking teams we have built enabled us to still generate exceptionally strong loan growth, with total loans increasing at an annualized rate of 28%. With the highly productive commercial banking teams and diverse lending platform we have built, we are seeing strong contributions to our loan growth across asset classes, industries, property types, and geographic markets. Particularly due to the disruption in Illinois resulting from merger activity, we are seeing excellent opportunities to add new relationships with strong borrowers who we believe will present us with additional opportunities in the future to expand these relationships as they grow their businesses or make additional investments. We operate with a long-term approach, and we aren't going to pass up the opportunity to add high-quality relationships even if we have to utilize higher cost sources of funds to fund the initial loans we are making, as we did to some extent during the third quarter. We believe it's in the company's best long-term interest and the best long-term interest of our shareholders to add these new relationships, even if it has an unfavorable impact on our net interest margin in the short term. During the third quarter, we had growth in all of our portfolios, with the largest increases coming in our commercial and commercial real estate portfolios. Our equipment finance business continues to be a significant driver of our commercial loan growth, and this portfolio surpassed a billion dollars in total outstandings during the third quarter. This represents a significant milestone and reflects the success we have had in growing this business. At the beginning of 2018, We made a significant investment to expand the business development team and rebrand this group to what is now known as Midland Equipment Finance. At the time, the portfolio was a little more than $200 million. In the ensuing four-plus years, we've grown the outstanding balances by approximately $800 million, and the business has become a consistent source of loans and leases that provide attractive risk-adjusted yields. Outside of the strong loan growth, we continue to see positive trends in many of our key metrics that are also contributing to our improved financial performance. We are seeing a significant increase in average loan yields, and our business development efforts continue to focus on new and expanded deposit relationships, although this is having an impact on our cost of funds. We have made a conscious effort to increase our deposit rates for certain customers in certain account types. in order to increase market share and continue to provide funding for our strong loan growth opportunities. We are also seeing positive trends in asset quality, with our non-performing assets declining by 14% from the end of the prior quarter. During the first half of the year, we indicated that we would be exploring options to strengthen our capital ratios and make decisions that are in the best long-term interest of shareholders. Given the strong loan growth we continue to see in the third quarter, we made the decision to raise $115 million through a preferred stock offering. This has enabled us to continue capitalizing on the business development momentum we have built with our commercial banking teams to continue adding new clients, expanding existing relationships, and driving the balance sheet growth that we believe will lead to further improvement in earnings and returns over the long term. and create additional value for our shareholders. At this point, I'm going to turn the call over to Eric to provide some additional details around our third quarter performance. Eric.