Midland States Bancorp, Inc.

Third-quarter net income was $23.5 million, or $1.04 per share, versus $0.97 in the prior quarter. Pre-tax, pre-provision earnings were $36.4 million. Total loans increased $403 million from the prior quarter, including commercial loans up at a 36% annualized rate and commercial real estate loans up at a 22% annualized rate; total deposits increased $211 million. Net interest income rose 4.4% sequentially, while net interest margin declined 2 basis points. Noninterest income was $15.8 million, up 8.3% from the prior quarter. Net charge-offs were $3.2 million, or 21 basis points of average loans, and provision for credit losses on loans was $7 million. Nonperforming assets declined 14% from the end of the prior quarter, and nonperforming loans declined $10 million. For the near term, operating expense is expected to be $42.5 million to $43.5 million per quarter. Management expects fourth-quarter loan growth to continue but moderate from earlier in the year, GreenSky balances to run off about $50 million over the next 3 months, and consumer balances to decline by about $30 million net after LendingPoint offsets part of the runoff. They said margin could be up a little, flat, or down a little in Q4.

Jeff Ludwig emphasized that Midland is prioritizing profitable growth, not just growth for its own sake. He said the bank is capitalizing on disruption in Illinois, winning new commercial relationships, and intentionally accepting some short-term margin pressure and higher funding costs to build long-term franchise value. He also highlighted equipment finance as a major success, the preferred stock raise as a strategic move to support growth, and Banking-as-a-Service as a longer-term initiative that should begin contributing in 2023.

Eric Lemke focused on the mechanics of growth, funding, and credit. He detailed $403 million of sequential loan growth, $211 million of deposit growth, a 2-basis-point NIM decline, and a $7 million provision tied to loan growth and weaker economic forecasts. He said expense run-rate guidance is $42.5 million to $43.5 million per quarter, that the company redeemed $40 million of 6.25% subordinated debt after raising preferred equity, and that nonperforming loans fell $10 million with net charge-offs at $3.2 million. He also noted approximately $41 million in escrow to protect against any GreenSky losses and said the commercial MSR sale should reduce earnings volatility and may modestly help capital ratios.

Analysts focused on three main issues: what happens to the $200 million of deposits tied to the commercial MSR sale, whether margin has peaked, and whether provision expense is near a high-water mark. Management said it wants to retain those deposits but could lose them if the buyer moves them elsewhere; on margin, Jeff Ludwig said it could be up, flat, or down slightly near term as higher loan yields and higher deposit costs offset each other. On provision, Eric Lemke said he hopes $7 million is the peak, but acknowledged the economy remains the wildcard and that higher rates could pressure credit in 2023. Management also said GreenSky should run off about $50 million, with LendingPoint offsetting part of that decline.